American Superconductor Corporation

Good day and welcome to the American Superconductor Second 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 Heilshorn. Please go ahead, sir.

Thank you, Christina. Good morning, everyone, and welcome to American Superconductor Corporation's Second Quarter of Fiscal 2021 Earnings Conference Call. I'm John Heilshorn of LHA Investor Relations, AMS Investor Relations Agency of Records. With us on today's call are Daniel McGann, Chairman, President, Chief Executive Officer, and John Kaseba, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the second quarter of fiscal 2021 yesterday after the market closed. 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 I started 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 third quarter 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' annual 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, as updated in the company's Form 10-Q for the period ended September 30, 2021, 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-looking statements. Also on today's call, management will refer to non-GAAP net loss, a non-GAAP financial measure. The company believes that non-GAAP net loss assists the management and investors in comparing the company's performance across the reporting periods on a consistent basis by excluding fees, 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 in the second quarter of fiscal 2021 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 pilots can be accessed from the investors' page of its website at www.amsd.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 of our grid and wind business units. John Kasiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 30, 2021, and provide guidance for the third fiscal quarter, which will end December 31, 2021. Following our comments, we'll open up the line to questions from our analysts. We are executing on our growth through grid strategy. We continue to diversify our business. Total revenue for the second quarter of fiscal year 2021 came in above the top of our guidance range and grew more than 30% versus the year-ago period. We grew our entire business by over 30% last year, and we hope that we can continue on a trajectory of growth. Our second quarter revenue of nearly $28 million was a recent record Our grid segment revenue for the second quarter of fiscal year 2021 grew by more than 50% versus the year-ago period and accounted for nearly 90% of AMSC's total revenue. In fact, this was the largest grid quarter we have ever had. This exceeded our own expectations and is a testament to our team's execution and particularly during these challenging times. Since the start of this fiscal year, our bookings momentum in the grid business has been very strong, extending our grid visibility well into fiscal 2022. This certainly is a very different and stronger business than it was even a few years ago. In the second quarter of fiscal 2021, our grid business was primarily driven by strong new energy power system shipments. We have integrated NEPC nicely into the business and are integrating Nealtran. We are starting to see leverage between the product lines, as evidenced by the recent $22 million of orders which were announced, which was driven by the industrial and semiconductor markets. To give you some color on these orders, nearly half of the new orders came from industrial applications, and about a quarter come from semiconductor fabs. We are getting leverage across the product lines, selling into a number of industrial markets, including mining, metals, and chemicals. As you can see from our revenue guidance for the third quarter of fiscal 2021, we are anticipating continued strength in our business. Our revenue backlog is more than 80% higher than this time a year ago, and we ended the second quarter with more than $57 million in cash. We are managing our way through the global crisis and its evolution. We are experiencing inflationary pressures on our supply chain and some delays in sourcing materials needed for products. These disruptions have negatively impacted our costs and gross margins. We continue to work on reducing supply chain risks. Throughout the past year and a half, we've been able to adapt and continue to deliver to customer demands. The team has done a great job of managing these disruptions during these difficult times. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the successful operation of our business and for our customers. We see product costs on the rise, specifically around commodity metals, and we are proactively changing prices where we can to include these additional costs. In fiscal 2021, we expect year-over-year revenue growth again in our grid and our overall business. Our team, along with ComEd, recently energized the Resilient Electric Grid, or REG, system in Chicago. We are manufacturing ship protection systems for the 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 them. And we are actively supporting our South Korean wind partner in erecting offshore wind turbines utilizing AMSC's 5.5 megawatt turbine design and ECS. Let's take a moment to review our grid business. Grid is driving revenue for the company. We continue to be focused on building a more predictable and diversified business. Our new energy power system, supported by a strong base of projects in renewables and industrials, has gained notable momentum. We expect it will drive growth and diversification for our company this fiscal year. Our new energy power systems are focused on addressing renewable energy and industrial installations like a semiconductor fab, mine, or chemical plant. We are presenting more content to customers as we leverage the strong combination of our new energy power systems. We are growing and diversifying revenues by geography and by market. We are working with top tier wind turbine manufacturers and wind farm developers to provide wind farm connectivity to the power grid around the world. This quarter, we supported renewable projects in Hawaii, Texas, Oklahoma, and Colorado. With the increasing demand for chips, we're supporting the semiconductor industry in the US, Singapore, Taiwan, and Japan. Our solutions protect the semiconductor facilities against power quality problems that originate from the transmission grid. These disturbances, if left uncorrected, can affect their plant process and tooling, cause significant downtime, scrap material, and loss of profit. We also have delivery systems We also have delivered systems to a variety of industrial applications from chemical plants to paper mills and copper mines. The diversification into industrial is what we predicted with the acquisitions. Our growth through grid strategy is working. Our ship protection systems, or SPS, are also part of our grid business. As you know, our ship protection system has become the baseline design for the San Antonio-class amphibious warfare ship or LPD platform. The San Antonio-class is our first design win with the U.S. Navy. We announced in January our fourth ship protection system contract for the San Antonio-class. This contract is for an SPS for LPD-29, also known as the USS Richard M. McCool, Jr., Our SPS for the San Antonio class represents approximately $10 million in revenue per vessel, and our current SPS orders now include LPD 28, LPD 29, LPD 30, and LPD 31. Our team is very busy and focused on continuing to expand the business while we expect to deliver our first systems. From a capacity perspective, we've been planning for the concurrent manufacturing of multiple SPS orders, and here we are. Our team has been focused on the delivery of these first systems, and delivery doesn't always correlate with revenue. We've talked about the expected size of the opportunity many times in the past. In total, there were 15 future San Antonio-class ships that the Navy planned to build after we had our design win. We now have won four of these 15, or 40 million of the potential 150 million for this class of ships. We are actively engaged with the Navy pursuing additional classes of vessels for deployment of our SPS. Other potential platforms include but are not limited to carriers, frigates, destroyers, and littoral ships. We have done some engineering for the potential deployment of our SPS for what we believe are the next several classes of ships. In each case, we have to do engineering work prior to procurement. We have to fit our common components that make up our ship protection system and show all the changes to the build of the ship. SPS contributed to our strong grid segment revenues in the second quarter of fiscal 2021. Now turning to our resilient electric grid system, or REG. In August, we announced the successful integration of REG in Chicago. which became fully operational on ComEd's power grid. I'm very proud of all the ComEd and AMSC employees that worked very hard to make this happen. The reg system utilizes AMSC's proprietary Amperium high temperature superconductor wire, a wire capable of limiting fault currents, a feature that has made interconnecting substations, which are power assets on the grid, possible for a more reliable, robust, and resilient grid. We believe many utilities are interested in seeing the performance of our product in Chicago. We're also developing opportunities to deploy our REG product in other utilities across the country, and we believe the energization and operation of this first REG system in Chicago could be a catalyst for Exelon and other utilities to begin deploying our state-of-the-art solution. With the first system deployed, we believe that the future deployments of REG will be de-risked. U.S. utilities are focused on the execution of this first Chicago project, as are we. Turning to wind, during the second quarter of fiscal 2021, we shipped two megawatt ECS to our onshore wind partner, Inox Wind. We stand ready to support our partner in India as they commission new turbines or need new stock of 2 megawatt ECS. INOX continues to promote and sell their 2 megawatt wind turbine. In fact, INOX recently announced that it will supply its 2 megawatt wind turbines to a 150 megawatt newly won wind project order from a repeat customer. We are encouraged by INOX's stated desire to lower the levelized cost of energy further by way of a new wind turbine. To that end, we have designed, and INOX is now in the process of constructing, a prototype of a new three megawatt class turbine for the Indian market. INOX's three megawatt class turbine will expand their wind turbine product line portfolio. The 3 MW class wind turbine appears to be a great fit for the competitive tariff environment in India. INOX is working towards completing construction. They will commission the 3 MW class prototype turbine that we designed. Once commissioning is complete, INOX will seek type certification for the operating turbine. We expect to work with INOX to build a 3 MW class production supply chain. put in place an initial ECS production order and support the already growing demand for their three megawatt class turbine. INOX stated that they intend to launch the three megawatt class at the end of this fiscal year. We are hopeful that fiscal 2022 will be the year that INOX begins transitioning to our three megawatt class ECS platform. This transition will be signaled by a three-megawatt ECS supply contract. We service the offshore wind market through our partner, Doosan Heavy Industries in South Korea. We're the exclusive supplier of ECS units for Doosan's 5.5-megawatt offshore wind turbine. The South Korean wind market presents a potential long-term opportunity for us, as does the global offshore wind market. We have completed the initial production order of 5.5 megawatt ECS for Doosan's offshore turbines. Doosan is now erecting their first series of production 5.5 megawatt offshore wind turbines utilizing AMSC's ECS. And we are actively supporting them with the commissioning of these turbines. Our team is working closely with Doosan and we look forward to potentially penetrating global offshore wind market with this partner. Now I'll turn the call over to John Kasiba to review our financial results for the second quarter of fiscal 2021 and provide guidance for the third quarter of fiscal 2021, which will end December 31, 2021.