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spk02: 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.
spk03: 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.
spk08: 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.
spk04: John. Thanks, Daniel. And good morning, everyone. AMSE generated revenues of $27.9 million for the second quarter of fiscal 2021. compared to $21.1 million in the year-ago quarter. Our grid business unit accounted for 88% of total revenues, while our wind business unit accounted for 12%. Grid business unit revenues increased by over 50% in the second quarter versus the year-ago quarter, which now includes the addition of NEPSI and Neotran. Wind business unit revenues decreased 31% in the second quarter versus the year-ago quarter, as a result of fewer ECS shipments during the period. Looking at the P&L in more detail, gross margin for the second quarter of fiscal 2021 was 12%, compared to 26% in the year-ago quarter. Q2 FY 2021 has an abnormally high change in gross margin versus the year-ago quarter. I will take a moment and walk you through this quarter's gross margin change. Let me start off by reminding everyone that when we announced our acquisition of Neotran, we stated we expected Neotran to be accretive to earnings per share within 12 months of closing, which closed on May 6, 2021. One of the main drivers of this expectation was we acquired approximately a year's worth of Neotran backlog at closing, and that backlog had lean gross margins. So as you would expect, this has been a drag on our consolidated gross margins both last quarter and into this quarter. We are working our way through this backlog and have started to replace that backlog with what we expect to be more profitable projects as we head into FY 2022. We see this drag on gross margins as temporary. Second, as we discussed on previous calls, there are additional costs related to purchase accounting adjustments associated with acquisitions. These costs tend to spill over into several quarters after acquisition. We are finished with any significant purchase accounting adjustments impacting cost of goods sold for NEPC. And we believe that we are finishing up on these adjustments impacting cost of goods sold related to the Neotran acquisition. Q2 FY21 was the last quarter we expect any significant cost impacting cost of goods sold related to these purchase accounting adjustments. Again, we see this drag on gross margins as temporary. The third issue impacting the quarter-over-quarter decrease in gross margins is less about this quarter's results and more about the strength we experienced in the same period last year. In Q2 FY 2020, we experienced strong debar shipments, and the contribution from those projects were particularly robust. Some of the strength was a result of anticipating the potential impacts of COVID on our supply chain. And as a result, we accelerated raw material coming into our factory and scheduled work aggressively to stay ahead of schedule. This had a two-pronged benefit. One is we were able to control our manufacturing costs and maintain heavy loading on the factory. Two, we were able to accelerate debar shipments in Q2 of FY 2020. Now roll this forward a year, we're experiencing a little rebound effect of COVID. We are now back to normalized factory loading and we have experienced raw material cost increases in this most current quarter. In both cases, we see this as temporary and we have already priced these raw material increases into new projects where we can. So to summarize, We expect many of the drags that we experienced on gross margins this quarter starting to subside as we move into the second half of fiscal 2021 and into fiscal 2022. R&D and SG&A expenses for the second quarter of fiscal 2021 were 9.4 million. This was up from 8.6 million in the same period a year ago. The year-over-year increase was primarily the result of absorbing the operating expenses for both acquisitions. Approximately 14% of R&D and SG&A expenses in the second quarter of fiscal 2021 were non-cash. Our non-GAAP net loss for the second quarter of fiscal 2021 was $5.1 million or $0.19 per share, compared with $2.7 million or $0.13 per share in the year-ago quarter. A net loss in the second quarter of fiscal 2021 $4.4 million or $0.16 per share. This compares with to $3.7 million or $0.17 per share in the year-ago quarter. Please see our press release issued last night for reconciliation of GAAP to non-GAAP results. We ended the second quarter of fiscal 2021 with $57 million in cash, cash equivalents, marketable securities, and restricted cash. This compares with 63.1 million on June 30th, 2021. Operating cash burn in the second quarter of fiscal 2021 was 5.9 million. Included in that cash burn is approximately 2 million of working capital investment to support future revenue growth. We believe that the current working capital levels are sufficient to support our expected revenue growth and working capital will normalize for the remainder of fiscal 2021. Now turning to our financial guidance for the third quarter of fiscal 2021, we expect that our revenues will be in the range of $25 to $28 million. Our net loss on that revenue is expected not to exceed $7 million or $0.25 per share. Please note that our net loss guidance assumes no change in contingent consideration nor any purchase accounting adjustments associated with the NEOTRAN acquisition. Our non-GAAP net loss is expected not to exceed $5.5 million or $0.20 per share. The company expects operating cash flow to be a burn of $3 to $5 million in the third quarter of fiscal 2021. We expect to end the third quarter with no less than $51 million in cash, cash equivalents, marketable securities, and restricted cash. With that, I'll turn the call back over to Daniel.
spk08: Thanks, John. The integration of our acquisitions is going well and has helped augment revenues. as the wind business positions for a potential rebound next fiscal year. Please remember that specifically with Nealtran, we're working on enhancing margins as we build new backlog. Across the business, we're seeing some impacts on margins because of increased costs and supply chain challenges. We are working diligently with our suppliers and partners to mitigate supply chain risks for our customers and we are raising prices where possible. We continue to meet customer commitments and believe this is a temporary situation, which should be fixed over the next several quarters as we ship on orders that were priced with supply chain inflation built in. We are very pleased to report that grid revenues are at a recent record high. The business is scaling and is supported by a strong balance sheet. We commissioned REG. We are supporting the commissioning of the 5.5 megawatt class turbine in Korea. We are supporting the upcoming commissioning of the 3 megawatt class turbine in India. We look to begin delivering our first SPS systems next quarter. But remember that revenue is taken during the life of the project, not simply on system delivery. These are all transformative events for our company, even if they do not immediately impact near-term revenues. We saw strong bookings for our new energy power systems. We believe we are going to grow through the leverage that exists in our business through the expansion of total market, expansion of content per order, and expansion of sales channel for the entire new energy lineup. We are in position for growth through the reemergence of our wind business, which we see coming as early as next fiscal year. We are in position for growth through the acquisition of additional ship platform winds, which we are currently doing engineering work on. We would expect to grow through the emergence of REG as a critical product for critical infrastructure in this country. We are keenly focused on the critical operation of the system in Chicago. And as we've demonstrated, we have the opportunity to continue to expand inorganically where it makes strategic sense.
spk07: I've personally been able to have a lot of engagement with employees throughout the pandemic.
spk08: Our workforce is vibrant, committed to our mission, and growing. I continue to be impressed at how well we create opportunities step up to customer challenges, and deliver on our commitments. I'm very grateful for the people that I have the privilege to work with. We expect to grow grid revenue again this fiscal year 2021. This quarter, our grid business grew by over 50% compared with the same period last year. Our backlog has grown by over 80% since a year ago. We grew our total business by over 30% last year, and we hope to continue on a trajectory of growth. I look forward to reporting back to you at the completion of our third fiscal quarter of 2021. Christina will now take questions from our analysts that have queued up.
spk02: Thank you. And we'll take our first question from Philip Shin with Roth Capital Partners.
spk09: Hi, everyone. Thank you for taking my questions. First one is on backlog. Daniel, you mentioned that your backlog, I think, is up 80% year-over-year in the quarter. And so I was wondering if you could talk through how bookings are trending, clearly up, but I was wondering if you might be able to share, for example, what the mix of international orders might be in that backlog. I saw in the queue that Your international growth or revenues are better than they were a year ago, and is that a trend that we should expect? And on these international orders, for example, how does that margin profile look? Is it different relative to the U.S. bookings? And as it relates to wind, how much wind is in that backlog? And given the challenges that the wind market is experiencing, How insulated might you guys be from those challenges? Thanks.
spk08: All good questions, Phil. It's importantly asked at this point as we see some changes positively coming in the business. So one of the benefits of the business last year is we had a preponderance of the revenues coming from North America, specifically the U.S. So kind of as COVID hits, we're able to tend to our knitting, being able to deliver locally to a lot of projects that we have. field staff deployed it what we're now starting to see is a reemergence of some of the foreign markets we listed some specifically we called out a bunch of countries that were now working in semi when we talked about the last order booking you can see that orders appear to be accelerating that acceleration is coming in large part due to industrials due to kind of a next order magnitude coming specifically from semiconductor, and then kind of thirdly from renewables in general. So we're seeing order intake up across the business and from a host of international projects, not US. So the hope is that's going to build in more diversity throughout our business. We've commented on the past that semi-margins tend to be very healthy. We've commented that industrial, if I get into Nealtrans specifically, that obviously we're working to improve those margins over time. So net-net, when you look at the general trends, you see an acceleration in bookings. You see a lot of things that we're working on to make sure that gross margins continue to expand. So we're really trying to telegraph that not just over the next quarter, but over the next several quarters, we see things improving. Please be reminded, though, when we look at our backlog on grid, some of the backlog could be as much as a year out. Some of it could be as short as, say, three, four, five months. Specifically with wind, we don't have a lot of backlog in there related to wind because we basically have to project what we think that our key customers are going to take over time. And as I mentioned, Phil, in the remarks, we're really seeing the potential for a nice rebound in wind in India we hope will begin next year. Listening to the words that they're using outwardly to their constituents, it looks like the business is in very good position. They've been able to weather the storm they've been through. And as I mentioned in the remarks, they even announced another order for two megawatt to the tune of, I think, about 150 megawatts of new product. So we've tried to focus on growth through grid. That seems to be working. John, I think really eloquently laid out kind of where we are with margin and how those issues are temporary. And we see the future quarters coming, you know, being better and brighter. And then as we get into next year, certainly, you know, we mentioned with our last orders that our backlog is now starting for 2022 that we hope puts us in a good situation for 2022, not only with grid, but potentially with wind as well.
spk09: Great. Thank you for all that detail. Shifting gears to margins, I know you've said a lot on that already and that things should be getting better. Just wanted to see if we could get a bit of more granularity around perhaps the quarterly margin cadence as we get through the coming next four to six quarters. Should we think about this most recent quarter, FQ2, as the trough and then steadily things get better from there? Or do you think that level kind of continues for a little bit just because of the supply chain challenges and the input costs increasing and so forth and logistics. So do we expect to kind of be at this level maybe for a little bit? I know you gave guidance for next quarter, but then when do you think perhaps we can get back to, for example, the low to mid-20s type margins? Does it take a few quarters? Does it take us well into fiscal 22? Thanks.
spk08: I think the first thing to notice in the guide, the guide is showing improvement bottom line results quarter to quarter on, we'll say, similar revenue. Maybe there's potential for some growth. But I think in what John had said, we're basically calling for some improvement in the financials quarter to quarter. We do believe, particularly when it comes to Nealtrans, it's going to take several quarters to get everything behind us. We think we'll see probably improvement quarter to quarter. You know, how demonstrable those are, how bright those are, it's really kind of to be seen. You know, but I hope as we get into 2022, you know, we can kind of reset where we think margins will be relative to revenue. And the team is working on a lot of different things, not just with suppliers, but with overall cost of the different product lines as well to see, can we use this as an opportunity now, not only to maybe compete better and better understand our customers, but better price the value of what we deliver. And I think that's a key thing is can this become a competitive advantage in our business that we can price the value stronger than we have historically. At least that's what the team is being challenged to do.
spk05: Great. Okay. Thank you, Daniel. Thanks for all the comment.
spk02: We'll take our next question from Colin Rush with Oppenheimer.
spk01: Hey, guys. This is Joe on for Colin. Thanks for taking our questions.
spk02: Hey, Joe.
spk01: Can you provide a little bit more color on progress with Navy ship budgets and share any sort of indicators of interest that would point to growth and demand?
spk08: Yeah, I think, Joe, the first thing is realize that the team really is focused on principally on digestion of the forwarders that we have. We're very optimistic that in the coming quarter here we'll begin to deliver our first system. So again, another seminal moment for the company. I did say as regards to growth and potential growth in SPS, this is the first time that I used the plural that we are doing engineering work on multiple ship platforms. So we see the interest increasing. I think it makes the work even harder. Because we basically have to go through it and diagnose all the changes in the print that has to happen to be integrated into the ship. How much that will cost on a non-recurring basis and how much that would cost on a personal basis. So the team here is very busy in delivery mode and also delivery of preliminary design, which eventually we hope would be turned into a procurement. I think it's a challenge for me to say today how long that will take. The good news is we're talking about multiple ship platforms, which I think increases the odds of getting the next one over the gold line, say, sooner rather than later. But we really want to make sure we're inserting at the right point with the Navy, that we understand our costs, we understand pricing fully, and that we price in what we see as the future for supply chain into these potential future orders as well.
spk01: Got it. And then one more, with progress on REG, what else can you share on utility scale interest and any potential for additional demonstration projects?
spk08: I think, you know, the word demonstration I think is important from the utility standpoint that they need to demonstrate on their own before they can see wide adoption within their own utility. We don't see the projects as demonstrations because we believe the technical risk, the financial risk has all been retired. It's really up to the utility to be able to manage the construction and the regulatory aspects of it, which can be unique to the utility. We have said and been consistent about, we know we've been told by Exelon in no uncertain words, we need to operate this first one for at least a year. But everything that they've done in their work leans forward towards the implementation of more reg in the city of Chicago. I think everything that we've seen, even with the work we've done with Exelon, is they have a strong desire to be in a leadership position when it comes to this technology, not only in Chicago, but across their entire utility. We have seen an uptick in, I'll say, renewed interest around similar or related projects we've identified in the past with other utilities. we have seen an uptick in new projects with new demand. A lot of it is kind of the timing of where they are in their capital cycle and their regulatory cycle. So I think we have an opportunity here to market REG differently to utilities because we have the existing asset that's doing well in operation. So I think that that helps us think about what the order book's gonna look like in the future. And as I said, we have a number of utilities that really show significant interest where they're in strong consideration to look at a purchase. But I think the thing that always is challenged with their utility business is this doesn't take weeks. This doesn't take months. This takes quarters. This takes years of work to be able to get a procurement. And that's certainly something that we're working on.
spk05: Thanks so much.
spk02: Go to our next question from Chip Moore with EF Hutton.
spk06: Good morning. Hey, everybody. Thanks.
spk08: Welcome to our group, Jim.
spk06: Thanks for being here. Yeah, thank you. You called out some of the momentum in the SEMIFED channel, right? And, you know, I think one of your customers is out there talking about spending $150 billion over the next decade. Maybe you could expand a bit on what you're seeing as a pipeline there. You know, are you seeing this investment cycle start to translate into more opportunities, or just how should we think about that?
spk08: Yeah, I think what you're seeing immediately, Chip, here is that there was an intended capital expand that was based upon market demand that was planned, you know, two or three years ago. And we're benefiting in semi today because of the factory expansions or new capacity that's being put in place. We did highlight that we're doing this around the world. We mentioned four different countries. We don't mention the different customers unless they exceed the 10% threshold. There's one of our larger semi-customers that we've revealed through that way. We've tried to look at this as a key market for us. We're trying to look at a way to diversify through it. Long term, the types of chips that are needed for the new energy economy that we're getting into, the new digital economy that we're getting into, are really what we satisfy. I know I've read some things and seen some things from customers. A lot of the constraints in the supply chain are from legacy chips. We've been bitten by that here and there. We've found other replacements to be able to move forward and beat customer demand. But we're really trying to look forward on where is the semiconductor industry going from its capital allocation standpoint and how do we make money and how do we create installations that will help semiconductor fabs in the future. This, only a few years ago, was an order, and I think we've turned it into a business stamp, which has been great. And we've been able to do that not only for DMAR, but for the acquired products as well.
spk06: That's helpful. And the only other question I had is really on, you know, the infrastructure bill has quite a bit of investment in grid and reliability. Obviously, you know, doubled in the details in terms of timing and things like that, but just can you talk high level about potential benefits to the platform there?
spk08: Yeah, when I look at it, by my read of it, there's billions of dollars of potential spending driven by the federal government to our customers around grid resiliency, exactly what we do. So I see that certainly as a very strong potential tailwind coming to the business. I don't expect us to necessarily be doing government contracts per se, But I do expect the influx of money, support, and focus in grid resiliency of helping being able to boost future growth in the company. So we hope what we have are all commercial things that can be bought in commercial terms with utilities, but we certainly will work with utilities to find different ways to have funding sources available to them through the federal government. Certainly, when you dig into the details in the bills and stuff that we have, it certainly is pointing to us in a lot of different ways. It's hard for me to prognosticate when will that affect the business. That's usually the follow-up question on identification of an opportunity. That's something we're trying to work through, but we think it really benefits the market that we serve with grid resiliency, and hopefully that translates into benefits to us as well.
spk05: Yeah, that shouldn't hurt. All right, thanks, guys.
spk02: We'll go to our next question from Eric Stein with Craig Hallam.
spk06: Yeah, hi, it's Aaron Spahalon for Eric. Thanks for taking the questions. Hey, Aaron. Good morning. You know, maybe first just following up on the SPS, you know, congrats on the engineering work. Just curious if you can give any high-level details on, you know, potential content, you know, size of the opportunity, you know, anything on a number of ships or just, you know, I know it's engineering, but just trying to kind of frame that opportunity as you look out.
spk08: Yeah, to kind of simplify it, you know, we used to talk about small ships, medium ships, and large ships. You know, we said for a small ship, it was on the order of two to five million of content. Then for a medium ship, it was somewhere between five and 15 of content. And then for a large ship, which to us is like a carrier, it could be 20, 25 plus million of content. So we see that as kind of roughly where it fits. Most of the ships in the fleet are what I just called as a medium-sized ship. And that's really where our focus has been. I gave the litany, though, of all the ships that are cut up in the relative near term in the prepared remarks. So we'll see with the next order where we're able to price it at. But right now, the team is really focused on the engineering work to have it be considered to make the design change. And if the approval for the design change happens, then we go down the path of negotiating a procurement.
spk06: Understood. We'll stay tuned there. And then just second for me, you know, on VBO, can you just maybe give an update on some of the pilots that are underway there and, you know, next steps and kind of how that pipeline is shaping up?
spk08: Yeah, VBO has done quite well for us. You know, it's been a great calling card to distribution utilities as REG is. You know, if you think about the types of problems we're trying to solve to bring more distributed power into the distribution grid, BVO is a great tactical solution and REG is a great system-wide change for the utility operator. We've seen continued to repeat orders from utilities. We see probably the largest fraction of those come from rooftop or large installations of solar. We do see it complementary to what we're doing in the other parts of the business on an industrial setting. When the size matters, when you can put it on a pole and you only need to be able to boost or manage power, I'll say a bit. But I think the long-term vision that this is, we're looking to help create the two-lane highway for power certainly resonates with utilities being able to control and manage their voltage certainly does. I've tried to, in the prepared remarks, try to speak a little more high level and just call it new energy, the things that we do on the grid. But VBO is certainly a bright, shining light among the product lines for sure. We're very happy with how customers have received it. We've been able to learn a lot. We've been able to add those learnings into the product and potentially can set the stage for future products as well.
spk06: Great. Thanks for taking the questions and congrats on the progress.
spk02: And this concludes today's question and answer session. I'll turn the call back to Mr. McGann for any additional or closing remarks.
spk08: Thanks. So we're trying to turn the challenges of today into market advantages where we can. Our teams are fully engaged and working well together. We're working very closely with our customers and suppliers. We do see some temporary impacts on the financials as we went through. But these may have a long-term benefit on revenues and margins. The climate for what we do, driven by climate change and government policy, is creating potential tailwinds for our business. So when we look out several quarters, we see a lot of positives coming to the business. We're very proud we were able to meet a near-term record level for revenue. We're very proud of what the team's been able to do to integrate these two acquisitions into the company, and things are only getting better here at American Superconductor. So thank you, everybody, for your attention, and we'll talk to you hopefully soon.
spk02: That concludes today's call. Thank you for your participation. You may now disconnect.
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