American Superconductor Q1 2024 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to the AMSC First Quarter Fiscal 2023 Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to John Halshorn of LHA. Please go ahead.

Speaker 1

Good morning, Anthony. Good morning, everyone, and welcome to American Superconductor Corporation's Q1 of fiscal 2023 earnings conference call. I am John Heilshorn of LHA Investor Relations, AMSC's Investor Relations agency of record. With us on today's call are Daniel McGahn, Chairman, President and Chief Executive John Kasiba, Senior Vice President, Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the Q1 of fiscal 2020 yesterday after the market closed.

Speaker 1

For those of you who have not yet seen the release, a copy is available in the Investors page of the company's website at www.amsc .com. Before starting the call, I would like to remind you that various remarks that management may make during today's call about American Superconductors' future expectations, Including expectations regarding the company's Q2 fiscal 2023 financial performance, plans and prospects Actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, including those set forth In the Risk Factors section of America's Superconductors' Annual Report on Form 10 ks for the year ending March 31, 2023, which the company filed with the Securities and Exchange Commission on May 31, 2023, and the company's other reports filed with the SEC. These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today. While the company anticipates that subsequent events and developments may cause the company's views to change, the company specifically disclaims any obligation to update these forward Statements. Also on today's call, management will refer to non GAAP net loss and non GAAP financial measure.

Speaker 1

The company believes that non GAAP net loss assists management and investors in comparing the company's performance across reporting periods on a consistent basis. By excluding these non cash, non recurring or other charges that it does not believe are indicative of its core operating performance, the reconciliation of GAAP net loss Non GAAP net loss can be found in the Q1 of fiscal 2020 earnings press release that the company issued and furnished to the SEC last night on Form 8 ks. All of American Superconductors' press releases and SEC filings can be accessed from the Investors page of its website at www.amsc.com. With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McCann. Daniel?

Speaker 2

Thanks, John, and good morning, everyone. We're very excited to I'll begin today by providing an update and sharing a few remarks on our business. John Kosiba then provide a detailed review of our financial results for the 1st fiscal quarter, which ended June 30, 2023, and provide guidance for the 2nd fiscal quarter, which will end September 30, 2023. Following our comments, we'll open up the line to questions from our analysts. We began fiscal year 2023 with strong orders momentum and notably improved margin performance.

Speaker 2

Total revenues for the Q1 of fiscal year 2023 exceeded our expectations and came in above Our guidance range. Our first quarter revenue of over $30,000,000 was driven by strong New Energy Power System Shipments. Our Grid segment revenue for the Q1 of fiscal year 2023 accounted for over 85% of AMSC's total revenues and grew 30% versus the year ago period. The remainder of the revenue came from our wind business. Our grid visibility now extends into fiscal 2024 And our sales team is already focused on orders for delivery next fiscal year.

Speaker 2

We believe the work over the past 2 years will begin to pay off this fiscal year. We have a more diverse and more sustainable business with new and existing customers. During our Q1, we generated over $34,000,000 In New Energy Power System orders, over the past several quarters, the business delivered an average of $40,000,000 of orders per quarter. New Energy Power System orders have averaged about $30,000,000 per quarter. Realize that our lead times have extended to over a year for certain products.

Speaker 2

We see a diverse set of orders from renewables to semiconductor to materials and mining to industrials And new orders for new military applications. These new Energy Power System orders We also received orders from the U. S. Navy for additional installation support services for our ship protection system. During the Q1, we saw diverse revenues from renewables, industrials, semiconductor as well as navy projects.

Speaker 2

About one quarter of our sales were to renewable projects. These include shipments of ECS to Inox as well as grid revenues The Navy business was above 10% of total revenue and the remainder of shipments came from a variety of industrial projects. We see strong diversity of revenues. Now I'll turn the call over to John Kosiba to review our financial results for the Q1 of fiscal 2023 and provide guidance for the Q2 of fiscal 2023, which will end September 30, 2023. John?

Speaker 2

Thanks, Daniel,

Speaker 3

and good morning, everyone. AMSC generated revenues of $30,300,000 for the Q1 of fiscal 2023 compared to $22,700,000 in the year ago quarter. Our Grid Business Unit accounted for 85% of total revenues, While our wind business unit accounted for 15%. Grid business unit revenues increased by 30% in the Q1 versus the year ago quarter. This year over year change was led by revenue growth from both our NEPC and Neotran product lines.

Speaker 3

Wind business unit revenues increased 58% in the Q1 versus the year ago quarter. This year over year change was driven by ECS shipments to Inox. Looking at the P and L in more detail, gross margin for the Q1 of fiscal 2023 was 21%. This is up from 10% in the year ago quarter. Gross margin for this quarter was favorably impacted by increased revenues And a more favorable product mix in our great business unit, driven by continued revenue growth at both NEFC and Neotran.

Speaker 3

Additionally, I'd like to note that we experienced meaningful contribution margins from Neotran this quarter. As I mentioned in previous calls, Throughout fiscal 2022, we have been shipping off the originally acquired Neotrend backlog, which had depressed contribution margins. In the Q1 of fiscal 2023, we experienced more favorable contribution margins as we shipped post acquisition Neotran backlog. Moving on to operating expenses. R and D and SG and A expenses for the Q1 of fiscal 2023 were 9,700,000 compared to $10,200,000 in the year ago quarter.

Speaker 3

Approximately 13% of R and D and SG and A expenses in the Q1 2023, we're non cash. Our net loss in the Q1 of fiscal 2023 was $5,400,000 or $0.19 per share. This compares to a net loss of $8,700,000 or $0.32 per share in the year ago quarter. Our non GAAP net loss for the Q1 of fiscal 2023 was $2,100,000 or 0 point 0 $8 per share compared with 6,800,000 or $0.25 per share in the year ago quarter. Please see our press release issued last night for a reconciliation of GAAP to non GAAP results.

Speaker 3

We ended the Q1 of fiscal 2023 with $23,100,000 in cash, cash equivalents and restricted cash. This compares with $25,700,000 on March 31, 2023. Our operating cash burn in the Q1 of fiscal 2023 was 2 point $2,000,000 Now turning to our financial guidance for the Q2 of fiscal 2023. We expect that our revenues will be in the range of $29,000,000 to 30 $1,000,000 Our net loss on net revenue is expected not to exceed $5,300,000 or $0.19 per share. Please note that our net loss guidance assumes no changes in contingent consideration.

Speaker 3

Our non GAAP net loss is expected not to $3,500,000 or $0.12 per share. The company expects operating cash flow in the Q2 of fiscal 2023 to range from a burn of 1,000,000 A positive operating cash flow of $1,000,000 We expect to end the 2nd quarter with no less than $21,000,000 in cash, cash equivalents and restricted cash. With that, I'll turn the call back over to Daniel.

Speaker 2

Thanks, John. We significantly narrowed Our operating cash burn during the Q1 and expect better performance at similar revenue levels during the Q2. Our guidance contemplates generating cash

Speaker 3

in the Q2.

Speaker 2

Factors such as our sales leverage, our backlog And the benefit of previous price increases were all positive influences to our Q1 financial performance, and we expect those influences to benefit fiscal year 2023. We have a robust pipeline of opportunities, thanks to strong market demand, and we are aggressively going after those opportunities. We have a variety of applications for industrial processes and manufacturing like mining, metal extraction, metal processing as well as chemical plants. These applications help harmonize the world's desire for decarbonization and clean energy With the need for more reliable, effective and efficient power delivery, the market drivers for a low carbon economy and a modern, The world is quickly moving towards decarbonization to slow down climate change and create a path for a more Sustainable world. We are at the center of this change.

Speaker 2

I'd like to give you a glimpse of how much the markets we serve have evolved and will The U. S. Energy Information Agency indicates that the U. S. Electrical grid has been stressed By U.

Speaker 2

S. Wind power generation increasing from 6 gigawatts in 2,003 to over 140 Gigawatts in 2020 and photovoltaic power generation increasing from almost 0 in 2000 and The number of electric vehicles on the road in the U. S. Is projected to approach 19,000,000 in 2,030, Up

Speaker 4

for more than $1,000,000 at

Speaker 2

the end of 2018, a typical electric car requires 6 times the critical mineral inputs of a conventional car. These critical mineral inputs include graphite, copper, nickel, lithium, cobalt, rare earths among others. An onshore wind plant requires 9 times more critical mineral resources than a gas fired plant. The International Energy Agency states that since 2010, the average amount of critical minerals needed for a new unit of power generation capacity Has increased by 50% as the share of renewables has risen. The transition to a low carbon Economy potentially increases demand for our new energy power systems through renewables and key materials for the new energy economy.

Speaker 2

Our key growth markets are renewables, mining and metals, semiconductor and military. We believe the march towards a more sustainable world We'll be a driver for the markets we serve in the foreseeable future. We see increased demand expected for Renewable Energy, electrification of transportation and the mining and metals to support this transition Semiconductors and key materials for the new energy economy and sustainable security for a more secure world. Our products are expected to play a central role in this evolution and we continue to intensify our efforts and collaboration to take advantage of these trends. We continue to work towards growing a business that's supporting power management At the substation level for Renewables, Mining and Metals, Utilities and now for military uses, as well as supporting customers in the semiconductor industry.

Speaker 2

In conclusion, we're really excited. We began fiscal 2023 on a strong note. We're broadening our revenue base with multiple products for the Navy. We have a total of 5 ship protection systems contracts for the San Antonio class LPD. We are currently installing 1 of the ship protection Systems and we're in the process of delivering another this fiscal year.

Speaker 2

We are executing on orders for Inox Wind. Just a few weeks ago, Inox Wind announced type certification of the of the 3 Megawatt class wind turbine. We are supporting Inox Wind as they expand their offering to include an exceptional 3 Megawatt Class Wind Turbine. Inox has done some corporate restructuring within their entity, which they believe put them in a stronger financial position. We are supporting Doosan as they commission their 100 Megawatt Offshore Wind Farm This year with our 5.5 Megawatt wind turbine design and electrical control systems.

Speaker 2

Our installed Brazilian electric grid system in Chicago is performing as planned and has become a showcase for the technology. We are optimistic about our company's future based upon market demand and our demonstrated margin performance. We believe we'll continue to realize the benefits of previous price increases. Our current backlog is strong and well diversified. Overall, the business is performing very well and we are serving an expanded set of customers in our grid business.

Speaker 2

Already our transformative power solutions are moving the world forward. We are executing on our vision and believe that our creativity can meet today's challenges and help us progress to a better future. This means using future facing technologies to harmonize the world's desire for decarbonization And clean energy with the need for more reliable, effective and efficient power delivery. We believe in powering progress by Designing, developing and deploying power control solutions that harmonize an increasingly complex energy system. It really feels like we've turned the corner and are very excited about our future.

Speaker 2

I'm not going to comment today directly on Unvalidated scientific claims. We are and I believe we will continue to be at the forefront of superconductor technology. Technological advances in our space only benefit us in that they spark the imagination of what could be possible. We are capable delivering what is possible today and are planning to continue to maintain this position. We have transitioned from a material science company To a manufacturer of completely integrated systems, any technical advances that can further our offerings are welcomed, And I look forward to reporting back to you at the completion of our 2nd fiscal quarter of 2023.

Speaker 2

Anthony, we'll now take questions from our analysts.

Operator

We will now begin the question and answer session. First question will come from Eric Stine with Craig Hallum. You may now go ahead.

Speaker 4

Hi, Daniel. Hi, John.

Speaker 2

Hey, Eric. Good morning.

Speaker 4

Good morning. Hey, so I just wanted to start with lead times if we could. It's obviously great to see the order pickup. And I know the nature of some of your product or the projects that you're selling into are longer term in nature. But just curious What you're doing on your end, whether it's in the supply chain, whether it's on the manufacturing side, to shorten those lead times?

Speaker 2

Yeah. I think it's a great question. It's kind of a pivotal one to how we manage growth. I think The benefit in the market is lead times in general have extended and have continued to extend for a lot of our competitors. We still have, I think, a competitive We can turn orders faster than typically the companies that we would compete against.

Speaker 2

We've tried to work hand in glove with our suppliers To ensure that long lead elements are on order and we have a lot of things of commonality of parts between product lines and such. So we try to leverage that as we possibly can. But I think it's important, if you look at the business a few years ago, probably our average lead time was in the range of say 9 months For the overall business and today it's in excess of 12 months. So, we've had suppliers that have told us that they need more than 60 weeks, 70 2 weeks for parts and recently we've seen those shrink back down to 52 weeks, 50 weeks, 48 week kind of lead time. So I think it's important as people evaluate the rate that we bring orders and that they understand that the lead time and that's why I think it's a great topical question, Eric.

Speaker 4

Got it. Okay. That's helpful. And then on wind, just curious, it's great that when to see the order pickup, I guess that was back in May. Curious, is it safe to assume though In the interim, this is not a run rate that, that quarter reflects that.

Speaker 4

Your revenues reflected that quarter And that you're still waiting for the 3 megawatt in that to move beyond prototype stage with Inox?

Speaker 2

No, I think we're in the next stage. So we're at that light volume production at this point. That order is kind of signified, Eric, that Inox is going into production. They have the first Wind Farm identified and they put on an order with us the parts for that, that's the first installation. So we're moving beyond prototype and into light volume production.

Speaker 2

I think what we're hoping can come next is really the beginning of Inox scaling the 3 megawatt to get it ready for market. And if you listen to their excitement, that really is what they're banking their future on. So, we've tried to be a very great partner To Inox as they've had their own challenges with their own business and policies in India. But it looks like That market is changing. It looks like things are moving up.

Speaker 2

We're focused now on providing Stable demand for the 2 megawatt because that's an existing business still for them. And then we look forward to being able to ramp. We're working with our supply chain literally now to make sure we're able to meet the future For Inox, but again, the lead times for those products could be in excess of a year.

Speaker 4

Got it. And so just To confirm though, then this quarter, I mean, is this kind of a runway or a run rate, kind of in this 4,000,000 Plus range, a pretty nice step up sequentially or don't get ahead of things in that Still maybe a couple of quarters off.

Speaker 2

I think we're a couple of quarters off from seeing additional ramp. I think the rate that we're at now should be sustainable with the 2 megawatt. That's at least what the demand presented has been. So I think if you compare this period to the year ago period, yes, it is a step up. I think we'll be at this rate, I don't know for how many quarters, but what we're hoping is there'll be additional demand for the 2 and probably pretty significant demand for the 3 coming.

Speaker 1

Okay, great.

Speaker 3

The revenue this quarter is only the 2 megawatt. There's no 3 megawatt. It's only the 2 megawatt.

Speaker 4

Okay. Yes, that is

Speaker 5

All right.

Speaker 4

That's helpful. I will take the rest offline. Thanks.

Operator

Next question will come from Colin Rusch with Oppenheimer. You may now go ahead.

Speaker 5

Thanks so much guys and congrats on getting to Well, it looks like a critical benchmark in reaching cash flow breakeven next quarter. Thanks. If you look at the sales activity in the grid side, could you talk a little bit about the trend lines on the size of those deals? I'm suspecting as you get And to some of these mines and some of these larger renewables projects that there may be a drift upwards in terms of the total megawatts Involved per deal?

Speaker 2

Yes. No, I think you're asking the exact right question and what that's exactly what we're seeing in the pipeline is the projects themselves are larger And concurrently with that, our offering is larger now that we've added the additional content that we're selling. The good news is as we see the business progressing and we see what's in the pipeline is that average order per project is increasing And that we need to make sure that we have the capability to be able to answer the call that our customers bring to us these projects. So I think that's great news for the company with larger project size and more content per project.

Speaker 5

Excellent. That's helpful. And then with the ComEd project, It's great that it's up and running and folks are looking at it.

Operator

Can you just give us

Speaker 5

a sense of kind of how many people are looking at the results there and that's been changing over the last 12 months or so?

Speaker 2

It's been 100, I think, between staff within Exelon And other utilities outside that are very curious about how they get one for themselves. I think we've learned From the rollout of other products on the grid, it's very important for utilities to buy it and use it on their own and really understand the use cases. I think probably the most telling feedback I can give you that's kind of new on the product is The value equation that we originally calculated for REG is probably much less than we thought. There are things that could be done with the grid when a reg system is part of it that I think we're Beyond our fully understanding of how the grid could operate in the future. So I think we're learning and we're evolving what the value proposition is, But I think the value of an installation is going up because we're seeing additional ancillary benefits of being able to interconnect existing Sub stations in the urban core.

Speaker 5

Well, actually, I have so many questions

Operator

Our next question will come from Justin Clare with Roth Capital Partners. You may now go ahead.

Speaker 6

Yes. Hi. Thanks for taking the questions here.

Speaker 3

So wanted to start off Hey. I wanted

Speaker 6

to start off with the gross margin, so significant improvement in Q1 here. I was wondering if the higher wind revenue was a Factor here are you seeing because of that higher revenue the margins improving for that business? And then also just on Neeltran, Was the lower margin backlog of Neeltrend incorporated into Q1 and you still realize this Margin expansion, is there still low margin backlog remaining or have you basically worked through that completely at this point?

Speaker 3

Hey, Justin, it's John. So to answer the first part of your question on wind, yes, The revenue the increase in revenue did add to our gross margin. So wind did Incrementally get better from a gross margin. So yes, it did help. At the end of the

Speaker 1

day, it's

Speaker 3

$4,500,000 So you got to it's not a material driver to why the margin went up, but it did contribute. To answer your question on Neotrans, Neotrans margins improved because we've had a Higher percentage of what shipped go out on the post acquisition backlog. There is sales still some tail on the post On the pre acquisition backlog, that's becoming insignificant. My intent is that should not be a driver in how we discuss our results moving forward.

Speaker 6

Got it. Okay. And then just based on your guidance, at least on the top line and the bottom line, it looks like Q2 could be Somewhat similar to Q1, though it looks like cash flow generation improves. So maybe you could speak to why cash Flow generation improves. And then maybe should we anticipate any meaningful change on either the gross margin profile quarter to quarter or in your OpEx Between the quarters?

Speaker 3

Sure. Generally, we don't guide on gross margin or OpEx. We drive we guide to net income and non GAAP. But you can see in our guidance for Q2, it's reasonably close to where we came in on Q1. Keep in mind, we always guide to a product mix, for a lack of better term, worst case product mix scenario.

Speaker 3

So your expectation on, okay, should the margins stay reasonably bad, I don't think that's unreasonable considering we don't have we're not signaling any Significant changes to OpEx and our bottom line is reasonably close to where it was in Q1. So to answer your question directly, you got to reverse engineer it from our non GAAP or GAAP guidance. And if you do that correctly, you'll see that By definition, there can't be significant changes quarter over quarter.

Speaker 6

Right. Okay. And then just one more. Last This year you had been implementing price increases and was wondering if those price increases have essentially been reflected in the Q1 gross margin or if there's potential for margin expansion here as maybe you have some Higher margin backlog that you have not to fulfill in the future here?

Speaker 2

I think we see the potential for gross margin expansion Come with revenue expansion. You're now seeing the benefit of the work that's been done over the past more than a year to be able to better manage your cost

Speaker 3

Okay. Thanks very much. I'll pass it on.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. McGann for any closing remarks.

Speaker 2

I want to thank everybody for their attention. I think the main thing we're highlighting as we've got to new revenue levels, we're being able to hold this. We have a nice stable business. A lot of the hard work is starting to pay off this year, which we're tremendously excited about. We've been talking about getting to this inflection To grow to this level and get margins in a more healthy range, which we've been able to deliver on in Q1.

Speaker 2

On the grid side, we see delivery of higher quantities to repeat customers and markets. We see sales synergies driving larger orders, which is part of the And answering that we had. And then we see some integration synergies that we've already been able to realize through optimizing the cost structure. Continuing with Grid on the ship protection side, we have a total of 5 SPS contracts for the San Antonio class. We're delivering on the first two, Installing 1 and delivering the hardware for the second one.

Speaker 2

We didn't talk a lot today about mine countermeasure solution, but that project It continues and we think it's an important part of our future, additional content coming for the U. S. Navy through that product offering. And then on the wind side, In summary, we have robust 2 megawatt demand with upside growth opportunities there. And with Inox Wind announcing that they've reached type certification, believe this is the beginning of the expected drive of additional customer demand there.

Speaker 2

So, we tried to keep it very Succinct today for you all. Hopefully, it's very clear. We're very excited about the hard work that we've put in is starting to pay off. The mood and the esprit de corps here is really strong. I'm really happy, and we look forward to being able to talk to you all again in another quarter's time.

Speaker 2

So thank you everybody for your support and your attention. Good day.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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