American Superconductor Corporation

Good day, everyone, and welcome to the American Superconductor First Quarter Fiscal 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Halshorn. Please go ahead, sir.

Thank you, Sharon. Good morning, everyone, and welcome to American Superconductor Corporation's First Quarter of Fiscal 2021 Earnings Conference Call. I am John Halshorn of LHA Investor Relations, AMSC's Investor Relations Agency of Records. With us on today's call are Daniel McCann, Chairman, President, Chief Executive Officer, and John Kasiba, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the first quarter of fiscal 2021 yesterday after the market closed. For those of you who are not seeing the release, the copy is available at 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, including expectations regarding the second quarter of fiscal 2021 financial performance, 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 and report on Form 10-K. With the year end of March 31, 2021, which the company filed with the Securities and Exchange Commission on June 2, 2021, and the company's subsequent reports filed with the SEC, excuse me, These forward-looking statements represent management's expectations only as of today and should not be relied upon as representing management's views 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 displays any obligation to update these forward-looking statements. Also on today's call, management will refer to non-GAAP net loss and non-GAAP financial measure. The company believes that non-GAAP net loss assists the 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 to non-GAAP net loss can be found on the first quarter of fiscal 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.

I'll begin today by providing an update on our grid and wind business units. John Kaseba will then provide a detailed review of our financial results. for the first fiscal quarter, which ended June 30, 2021, and provide guidance for the second fiscal quarter, which will end September 30, 2021. Following our comments, we'll open up the line to questions from our analysts. At the top, I just want to say I'm very excited about the progress we've been making on the reg installation in Chicago. Both teams have been working very well together, and I hope that we'll be able to update you soon. We are growing and diversifying our business. Our grid segment revenue for the first quarter of fiscal year 2021 grew by more than 30% versus the year ago period and accounted for over 90% of AMSC revenue. In fact, this was the largest grid quarter we have had ever. Since the start of this fiscal year, we have been building momentum. while further strengthening our backlog and extending our grid visibility well into fiscal 2021 and also a glimpse into fiscal 2022. This certainly is a very different and stronger business than it even was a few years ago. Our grid business was driven by strong new energy power system shipments, as well as higher ship protection system revenues. Total revenue for the entire business grew by nearly 20% versus the year-ago period. In fact, our first quarter revenue of approximately $25 million was our highest quarterly revenue in some time. Just so people understand the numbers a bit better and the impact of Nealtran, remember we said that we expected that Nealtran would be accretive to earnings per share within 12 months from closing, not right away. Nealtran delivered revenues of about $5 million during the first quarter. This did come in line with our expectations. The operating cash flow number came in line with how we would anticipate that the business would typically operate at revenues of about $20 million per quarter. When John goes through the numbers, he will highlight this, and as you look at the guidance for next quarter, please keep this in mind. We have integrated NEPC nicely into the business. We are working to do the same with Nealtran. We are starting to see leverage between the product lines as evidenced by the recent $21 million in orders that were just announced, which was driven by the mining and semiconductor markets. To give you some color on these orders, nearly half of the orders come from mining and about a quarter come from semiconductor fabs. We are getting leverage across the product line selling into mining. We are presenting more content and getting orders from semiconductor in the middle of what is a challenging period for supply chains while we're seeing an increase in capital investment to build semiconductor capacities. These are two markets, mining and semiconductor, that may continue to be tailwinds for the business. As you'll see from our revenue guidance for the second quarter of fiscal 2021, we are anticipating growth. Given our current momentum and existing backlog, we certainly could surpass the 30 million quarterly revenue level as soon as this fiscal year. Now that we've reached 25 million, we have our sights set on 30 million. Our revenue backlog is more than 50% higher than this time a year ago, and we ended the first quarter with much more than $60 billion in cash. In fiscal 2021, we expect year-over-year revenue growth again in our grid and in our overall business. Our new energy power systems backlog is very strong. We are manufacturing ship protection systems for the first San Antonio-class ship platform, LPD, with our first delivery expected this year. We are supporting INOX with commissioning in the field and providing electrical control systems or ECS as they need and pay for it. And our South Korean wind partner has begun erecting offshore wind turbines utilizing AMSE's 5.5 megawatt turbine design and ECS. Our new energy power systems business has been supported by a strong base of projects in the renewable and industrial segments. Our systems have gained notable momentum, and we expect that they will drive growth and diversification for our company this fiscal year. Our new energy power systems include dynamic power correction platforms, our static power correction line of capacitor banks and harmonic filter systems, as well as our rectifiers and transformers. Our dynamic power correction platform consists of our voltage management solutions. These solutions are focused on addressing renewable energy installations on the transmission grid and industrial installations like a semiconductor fab, which would reside on the distribution grid. We are presenting more content to customers as we leverage the strong combination of our new energy power systems solution. In May 2021, we acquired Nealtran Inc., a Connecticut-based company that supplies rectifiers and transformers to the industrial market. The acquisition of Nealtran, as well as it was with NEPSY, which we acquired last October, directly aligned with our strategic priorities to accelerate profitable growth independent of our wind business, broaden our product offering, and expand both market reach and content per sale. We believe our new energy solutions will play an important role in accelerating us to be operating cash flow positive and position us, hopefully, for even more dramatic growth. Our growth through grid strategy is working. Our business development and manufacturing teams are driving very hard. Our supply chain so far has been able to respond to the increasing demand for our new energy products. We work closely with the semiconductor industry on long lead item supply. To date, we have not felt impacts of the semiconductor shortage on shipments. We continue to monitor our suppliers and try to work closely with them to make sure we don't miss a beat in production. We are seeing lead times trending upwards, but we believe that we have the time to react to this and have built that into our material flows. When many manufacturers rely on lean production, we believe for critical components you cannot run so lean. I am very happy that we've been running our business this way. We are starting to see product costs on the rise, specifically around commodity metals. This impacts every product of ours from the cabinets that enclose them down to the materials used in the semiconductor wire. We are proactively updating our prices where we can to include these additional costs. We can't adjust much against the backlog already established, but the good news is that in most cases, we have either procured the material or have material contracts in place for a large portion of our existing backlog. Moving forward on new orders, we are reviewing all our cost estimates and raising prices when appropriate. The markets in general understand that prices for many commodities have been rising and we are adjusting accordingly. We anticipate that new energy shipments should provide a strong base of grid revenues in the second quarter as well as the balance of this fiscal year. This expectation is driven by the strong backlog that we have for new energy power systems, as well as the overall grid business. Now turning to our ship protection systems, or SPS. Our ship protection system is the Navy's baseline degaussing design for the San Antonio-class ship platform, LPD. In fiscal 2020, we announced two separate delivery contracts for our SPS systems. These two contracts represent our third and fourth ship protection system orders for deployment on LPD 31 and LPD 29. The SPS is designed to reduce the magnetic signature of a ship, which can interfere with undersea mines' ability to detect and damage the ship. AMSC has worked with the U.S. Navy to develop a lighter weight, more power-efficient, high-temperature superconductor version of the Stagowski system. The SPS we are now manufacturing for the Navy. The Navy's plan is to build 15 additional San Antonio-class ships, starting with LPD-28. We are working very closely with the Navy and our supply chain to ensure timely delivery of our SPS orders. Our SPS team is very busy and focused on delivering our first systems. The San Antonio class is our first design win with the US Navy. Other potential platforms include but are not limited to carriers, frigates, destroyers, and littoral ships. SPS grew and contributed to our strong grid segment revenues in the first quarter of fiscal 2021. Moving on to wind, Doosan is now erecting their first series of production 5.5 megawatt offshore wind turbines utilizing AMSC's design as well as AMSC's ECS. We believe Southeast Asia is a geography well-suited for our 5 megawatt class wind turbine and for our partner Doosan. South Korea intends to become one of the world's top five offshore wind power producers, and we believe Doosan is well positioned for a very high market share. To date, there are wind farms in the development pipeline, which total nearly 9 gigawatts of wind capacity. We understand Doosan will supply wind turbines for the Southwestern Offshore Wind Project, which is a 2.5 gigawatt development, and the Gunsan Offshore Wind Farm a one gigawatt development. Our team is working very closely with Doosan, and we look forward to potentially penetrating the global offshore wind market with this partner. Regarding our onshore ECS business, we stand ready to support our partner in India as they need support commissioning new turbines or need new stock of two megawatt ECS. For now, we are supporting INOX with commissioning of two megawatt turbines in the field and providing ECS product as they need and pay for it. But let me note importantly today, we expect to ship two megawatt ECS in the second quarter. Now I'll turn the call over to John Kasiba to review our financial results for the first quarter of fiscal year 2021. and provide guidance for the second fiscal quarter of 2021, which will end September 30, 2021.