American Superconductor Corporation

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

Thank you, Jennifer. Good morning, everyone, and welcome to American Superconductor Corporation's Third Quarter of Fiscal 2021 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 McGann, Chairman, President, Chief Executive Officer, and John Kasiba, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the third quarter of fiscal 2021 yesterday after the market closed. For those of you who are not able to see the release, a copy is available in the investor relations page of the company's website at www.amsc.com. Before starting the call, I'd 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 fourth 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, the 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 ending December 31, 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 and non-GAAP financial measure. The company believes on non-GAAP net loss assist 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 co-operating performance. The reconciliation of GAAP net loss to non-GAAP net loss can be found in the third quarter of fiscal 2021 earnings press release that the company issued and furnished to the SEC late last night on Form 8K. All of the company's press releases and SEC filings can be accessed from the investor's 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 of our grid and wind business units. John Kaseba will then provide a detailed review of our financial results for the third fiscal quarter. which ended December 31, 2021, and provide guidance for the fourth fiscal quarter, which will end March 31, 2022. Following our comments, we'll open up the line to questions from our analysts. AMSE delivered strong results for the third quarter of fiscal 2021. Total revenue for the quarter grew versus the year-ago period coming in at $26.8 million. Our grid segment revenue grew by nearly 50% versus the year-ago period, coming in at $25 million, a company record. Greatest driving revenue growth for the company and all grid product lines contributed to the quarter. We ended the third quarter of fiscal 2021 with more than $52 million in cash. As the world gears up for decarbonization to slow down climate change, and create a path for a more sustainable world, so does the increased demand for renewable energy, semiconductors, and key materials for the new green economy, such as metals, mining, and chemicals. Our acquisition of Nealtran and EPSI have allowed us to expand our business into the materials market. The materials market is fundamental to a sustainable energy shift. If you're interested in reading some more about how materials are center stage, to the energy transition, there was a 2022 McKinsey publication titled The Raw Materials Challenge, how the metals and mining sector will be at the core of enabling the energy transition. If we look at this calendar year 2022, approximately 90 gigawatts of wind capacity is projected to be added globally. The solar photovoltaic sector is projecting an annual global capacity addition of over 175 gigawatts. And the worldwide semiconductor market is expected to grow and exceed $600 billion in annual sales. Annual capital investments have trended at over $100 billion for the past few years. This transition to a low carbon economy raises demand for critical materials, semiconductors, as well as spending on plant and equipment in the metals, mining, and chemical industries. We are executing on our growth through grid strategy. Our grid segment revenue for the third quarter of fiscal year 2021 broke a company record for the fourth consecutive quarter. We are growing. Grid revenue grew by nearly 50% versus the year ago period and accounted for over 90% of AMSC's total revenue. This is a testament to our team's execution, 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 into fiscal 2022. In the third quarter of fiscal 2021, our grid business was primarily driven by strong new energy power system shipments. We've already integrated NEPSI nicely into the business, and we're working to do the same with Nealtrans. We are getting leverage across the product line, selling into a number of industrial markets, including mining and metals, as well as chemicals. Our core markets for the new energy systems have expanded from two main ones, renewables and semiconductor, to now three key markets, renewables, semiconductor, and materials, such as metals, mining, and chemicals. Our largest customer for the third quarter of fiscal 2021 was in the semiconductor industry. We see the emergence of additional demand in new energy power systems for the semiconductor and materials markets coming in the subsequent quarters. As you can see from our revenue guidance for the fourth quarter of fiscal 2021, we are anticipating continued strength in our business. We see increasing demand in semiconductors for the fourth quarter of fiscal 2021. During our fourth quarter revenue guidance, Driving our fourth quarter revenue guidance is expected new energy power system shipments to be very robust. In fiscal 2021, we continue to expect year-over-year revenue growth again in our grid and our overall business. In the longer term, we continue to see a significant rise in quotations for new energy power systems for renewables, semiconductors, as well as materials and general industrial markets. Let's talk about the drivers of grid. Grid is driving revenue growth for the company. Renewable semiconductors and materials are driving our new energy power system solutions. Our new energy power systems include our dynamic power correction platforms, as well as our static power correction line of master banks, harmonic filter systems, rectifiers, and transformers. We're growing and diversifying revenues by geography and by market. We are presenting more content to customers as we leverage the strong combination of our new energy power system solutions. This quarter, we supported renewable projects both for wind developers and utility solar in the United States, Canada, Northern Ireland, and Spain. Over the last few years, we've seen the economy moving from fossil fuels to wind and solar power generation. There has been a rapid rise in distributed energy resources, in particular, distributed generation from photovoltaics, in the form of rooftop, utility scale, and commercial solar installations. With increased distributed generation comes the need for additional power correction solutions, such as our new energy power systems. With the increasing demand for chips, we are supporting the semiconductor industry in the United States, Singapore, Taiwan, and Japan. Our solutions protect the semiconductor facilities against power quality problems that originate from the grid. These disturbances, if left uncorrected, can affect their plant process and tooling, causing significant downtime, scrap material, and loss of profit. We supported materials projects with metals and mining developments in the United States, Indonesia, Canada, the United Kingdom, Denmark, and Chile. Materials are critical for cleaner technologies. Take, for example, solar panels and fuel cell batteries for electric vehicles. Again, according to that McKinsey report I mentioned earlier, producing battery or fuel cell EVs will be more material intensive than building an internal combustion engine vehicle. Climate commitments for reducing global carbon emissions present what we believe to be a tremendous opportunity for AMSE. We expect our new energy power systems to drive growth and diversification, for our company this fiscal year. Our fourth quarter revenue guidance is due largely to the momentum we expect to continue to experience in our new energy power system solutions. Now turning to our ship protection systems, AMSC's ship protection systems are also known as degaussing systems. More specifically, advanced degaussing systems. This is what the Navy calls our solution. At AMSC, we call them SPS. The Ship Protection System, or 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 HTS version of a degaussing system, the SPS we are now selling to the Navy. AMSC's SPS became the baseline design for the San Antonio-class amphibious warfare ship, or LPD, platform. The Navy's plan is to build 15 additional San Antonio-class ships starting with LPD-28 between now and the middle of next decade. From a capacity perspective, we have planned to manufacture multiple SPS simultaneously and are succeeding at this, currently working to fulfill the three orders that are on deck. SPS contributed to our strong grid segment revenues in the third quarter of fiscal 2021. We have an order for SPS for LPD 28, and we've delivered on this order. We have an SPS order for LPD 29. We have an SPS order for LPD 30, and we have an SPS order for LPD 31. So we'll ask you to stay tuned for LPD 32. We have established the capabilities to deliver the SPS systems. Our team is very busy and focused on continuing to expand the business while we continue to deliver our initial systems. We're working very closely with the Navy and are in constant communication with our supply chain to ensure timely delivery of all three open SPS orders. We continue to be confident that the Navy is committed to integrating advanced degaussing systems into their fleet and we're working hard to expand our SPS business beyond the San Antonio class. As we've previously stated, we've been contracted to perform some engineering for the potential deployment of our SPS for what we believe are the next several classes of ships. In each case, we must do engineering work prior to system procurement. We hope to be able to report more on this in the coming quarters, Often we're challenged with what information can be released out in the public. Although it's hard to predict exactly when we would see an uptick in SPS-related revenues, signs point to what we expect to be a larger, brighter future with the Navy, hopefully in the near future. Turning to wind, during the third quarter of fiscal 2021, we shipped 2-megawatt ECS to our onshore wind partner in India, InoxWinds. Wind revenues are the lightest they've been in several quarters because of INOX's low quantity production of two megawatt wind turbines. INOX continues to promote and sell their two megawatt wind turbine. INOX is, however, in the process of constructing a three megawatt class wind turbine prototype and has yet to go into three megawatt production. The three megawatt class wind turbine design is set up, we believe, to be a great fit for India's robust wind market, which is expected to add 3.5 gigawatts in 2022, going from a total cumulative wind capacity of 42 gigawatts at the end of 2021 to nearly 46 gigawatts by the end of 2022, according to global data. We accessed the offshore wind market through our partner Doosan Heavy Industries in South Korea. Doosan has begun production and delivery of small quantities of their 5.5 megawatt offshore wind turbines. We are the exclusive supplier of ECS units for Doosan's 5.5 megawatt wind turbine. Again, according to global data, the global offshore wind market, including South Korea, is expected to add 13 gigawatts in 2022, going from a cumulative capacity of about 45 gigawatts in 2021 to 58 gigawatts by 2022. We are participating in both the onshore and offshore wind markets with our partners. We have three paths to wind, with INOX in India, with Doosan for the global offshore market, as well as delivering hardware to the substations supporting wind farms through a variety of developers and top-tier global wind manufacturers who we have mentioned on prior calls. We continue to actively manage our way through the global COVID crisis and its evolution. Gross margins for the business expanded as we anticipated. We see potential for future margin expansion in future quarters as we build higher gross margin backlog. We're not out of the woods yet with respect to the prevailing broader environment for potential inflation, supply chain challenges, and coronavirus infection rates, but we continue our best efforts to manage the situation across all the product lines. I saw a lot of personal engagement with our employees as we moved through the pandemic. 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. Now I'll turn the call over to John Kasiba to review our financial results for the third quarter of fiscal year 2021 and provide guidance for the fourth and March 31, 2022.