American Superconductor Corporation

You're currently on hold for today's American Superconductor Fourth Quarter Fiscal 2020 Earnings Conference Call. At this time, we're assembling today's audience and plan to band away shortly. We appreciate your patience. Please remain on the line. Please stand by. Good day, everyone, and welcome to the American Superconductor Fourth Quarter Fiscal 2020 Earnings Conference call. Today's call is being recorded, and now at this time I'd like to turn the call over to John Heilhorn. Please go ahead.

Good morning. Thank you, April. Good morning, everyone, and welcome to American Superconductor Corporation's Fourth Quarter Year 2020 Earnings Conference Call. I am John Hiles, Horn of LHA Investor Relations, AMSE's Investor Relations Agency of Record. With us today on the call are Daniel McGann, Chairman, President, Chief Executive Officer, and John Guseva, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the fourth quarter of full fiscal year 2020 yesterday after the market closed. For those of you who have not yet seen the release, a copy is available in the investor's 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, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. 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 American Superconductors Ag Report on Form 10-K for the year ended March 31, 2021, which the company filed with the Securities and Exchange Commission on June 2, 2021, and the company's other reports filed with the Securities and Exchange Commission. 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 subsequent date 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-looking statements. Also, on today's call, management will refer to certain non-GAAP financial measures, non-GAAP net loss, and non-GAAP operating cash flow. Non-GAAP net loss is defined by the company as net loss before stock-based compensation, amortization of acquisition-related intangibles, acquisition costs, changes in fair value of contingent consideration of warrants and other non-cash or unusual charges, and the tax effect of the adjustments calculated at the relevant rate for the company's non-GAAP metrics. Non-GAAP operating cash flow is defined by the company as operating cash flow before the China settlement, net of legal fees and expenses, tax effect of adjustments, and other unusual cash flows or items. The reconciliation of the non-GAAP measures to the mostly directly comparable GAAP measures can be found in the fourth quarter full fiscal year 2020 earnings press release that the company issued and furnished to the SEC last night on Form 8K. 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? Thanks, John, and good morning, everyone.

First, I hope all of you and your families are safe and healthy. It certainly has been a challenging year for us all. We're going to cover a lot of ground today, so... I guess buckle up and we'll try to go through the highlights as best as we can. And, uh, hopefully people will understand this is really a company that's headed in the same direction with more critical mass and more scale, uh, than we've had in a very, very long time. I'll begin today with a recap of fiscal 2020, which ended March 31st, 2021. John Kaseba will then provide a detailed review of our financial results for the fourth quarter. and full fiscal year 2020. He will also provide guidance for the first quarter of fiscal 2021, which will end June 30th, 2021. Following our remarks, we'll open up the line to questions from our analysts. The team here at the company really handled a difficult year very, very well. In fiscal 2020, our grid business grew by more than 40%. This is our sixth year in a row of growth in our grid segment. DVAR grew, SPS grew, and the prospects here seem great. VVO grew and continues to gain traction. Our NEPC acquisition contributed to revenues, and REG is expected to come online this summer in Chicago. The growth exceeded our own expectations and is a testament to our team's ability to execute. Full-year revenues for the entire AMSE business increased by over 35% year-over-year, driven by growth in grid. In October 2020, we announced the acquisition of Northeast Power Systems, Inc., or NEPSI. The acquisition of NEPSI directly aligns with our strategic priorities to accelerate profitable growth independent of our wind business, broaden our product offerings, and expand both market reach and market share. Additionally, in May 2021, we announced the acquisition of Neotran Inc. The acquisition is a continuation of what we started with NEPSI. We expect that Neotran's longstanding relationship with NEPSI will allow us to expand our offering of proprietary power electronic products into the industrial market. This deal is expected to give us more market, more content, and more channel for their products. More market for our new energy power systems. Neotran is an extension of NEPC's total addressable market. Neotran expands the total addressable market for our new energy power systems to nearly $3 billion a year. More content for our new energy power system orders. Neotran is an extension of the content we can sell into these markets. For example, if we look at a chemical plant in an industrial setting, there will be a need for static voltage management, as well as rectifiers or transformers, and certainly for harmonic filters. NEPSI would sell into these projects without the ability to sell a transformer or rectifier. Adding Neotran is expected to provide AMSC with the opportunity to sell both. This is an expansion of content per sale and could be on the order of two to three times larger per order. We like the sales leverage. More products, same direction, same markets, more content per sale. More channel for Nealtran products. Nealtran doesn't sell much outside North America, but historically we have. This opens the possibility for growth coming from more channel to market for Nealtran products. We acquired Nealtran about a month ago for a total consideration of approximately $16 million, which means we paid approximately one times trailing 12-month revenue. We anticipate this transaction to be additive to our operating cash flow and be accretive to earnings per share within the next year. We really like that we took what we had with DVAR, which we doubled over the past several years to nearly $40 million this year. We added NEPCY. which prior to our acquisition had a three-year average of approximately $25 billion of revenue per year, and now add Neotran with $16 million of revenue in calendar 2020. Assuming that these revenue levels continue, we believe we've created an $80 million per year new energy power systems business that is expected to have a diversified set of markets that we will serve and good prospects for growth at healthy margins. Realize we just reported on an $87 million business for the entire company. This may not be fully understood in the market, but now you see why we really like adding Nealtran. Our new energy power systems business is expected to play an important role in accelerating us to begin operating cash flow positive and position us for more dramatic growth. AMSE's grid revenue in fiscal year 2020 was more than 80% of our business achieved through organic growth as well as strategic M&A. A few years ago, grid revenue was less than 30% of our business. As we enter fiscal 2021, we expect revenue growth again in both our grid and our overall business. Our new energy power systems business backlog is strong. We just announced over $19 million of new orders. We are seeing some benefits already from cross-selling. Our team, along with ComEd, is planning to energize the reg system in Chicago this summer, right on ComEd's schedule. We are manufacturing ship protection systems for the San Antonio-class ship platform LPD with our first delivery expected in 2021. We are supporting INOX with commissioning in the field and providing ECS products as they need and pay for it. And as a result, we again expect revenue growth in fiscal 2021. During the COVID-19 pandemic, AMSC demonstrated once again that it can operate effectively through a challenging environment. We were early to implement physical separation protocols at our manufacturing sites and have not missed a beat in production. to focusing on strong customer service and product quality, we've been focusing on cost. And that means establishing a broader supply chain, which provides us with the flexibility to source key components from multiple sources. This has really helped to keep continuity of component supply. We are considered an essential business and have been open and operational throughout the pandemic. We are a resilient company that has overcome crisis before. Our strong balance sheet allows us to navigate this period of uncertainty and is expected to enable us to capitalize on the long-term opportunities driving our industry when conditions normalize. So qualitatively, as of June 3rd, our business does not show slowing demand, but we are mindful that customers may push out future projects because of external circumstances affecting them. While the pandemic has not materially affected our grid business to date, it still remains a risk to all businesses and the overall economy. We expect the markets we serve to remain fluid in the coming months and year, and we plan to remain nimble and ready to adjust to these dynamics. We are focused on what we can control. When we talked about cash flow break even a few years ago, we had scenarios, many of which had about 50% of our business coming from wins. We have focused on growing grid and now have added NEPSI and NEOTRAN revenues as well as their fixed costs. We believe that with a nominal return in wind, growth in new energy power systems, or additional ships, we have multiple opportunities to get us to sustainable cash flow break-even and add potential pathways for future growth. We believe that there are several scenarios to get us to cash flow break-even through a different route, more new energy power systems, and a modest wind business. This includes the additional fixed cost from our acquisitions, which is about $6 million. This raises our break-even level by at least $30 million annually, just in doing the math. Net-net, however, we believe this path gets us there faster and more in our control. We have more work to do with Nealtran and NEPC, and this certainly requires some time, but we wanted to give you a general sense. We will update you as we make progress on this work. Please realize we closed Nealtran, that deal was only closed about a month ago. Now I'll turn the call over to John Cassiba to review our financial results for the fourth quarter and full fiscal year 2020, and provide guidance for the first quarter of fiscal 2021, which will end June 30, 2021. John?