This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning and welcome to the AMSC first quarter fiscal 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchstone phone. To withdraw from the question queue, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to John Halshorn, of LHA. Please go ahead.
spk04: Good morning, Anthony. Good morning, everyone, and welcome to American Superconductor Corporation's first quarter of fiscal 2023 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, and Chief Executive Officer, and John Kaseba, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the first quarter of fiscal 2023 yesterday after the market closed. For those of you who have not yet seen the release, the copy is available in the investors 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 Superconductor's future expectations, including expectations regarding the company's second quarter of fiscal 2023 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 ending March 31, 2023, which the company filed with the Securities and Exchange Commission on May 31, 2023 and 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 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 measures. The company believes that non-GAAP net loss assists 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 in 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.
spk05: We're very excited to be here with you today. I'll begin today by providing an update and sharing a few remarks on our business. John Cassiva will then provide a detailed review of our financial results for the first fiscal quarter, which ended June 30, 2023, and provide guidance for the second fiscal quarter, which will end September 30, 2023. Following our comments, we'll open up the line to questions from our analysts. We began fiscal year 2023 with strong orders momentum and notably improved margin performance. Total revenues for the first quarter of fiscal year 2023 exceeded our expectations and came in above our guidance range. Our first quarter revenue of over $30 million was driven by strong new energy power system shipments. Our grid segment revenue for the first quarter of fiscal year 2023 accounted for over 85% of AMSC's total revenue and grew 30% versus the year ago period. The remainder of the revenue came from our wind business. Our grid visibility now extends into fiscal 2024, and our sales team is already focused on orders for delivery next fiscal year. We believe the work over the past two years will begin to pay off this fiscal year. We have a more diverse and more sustainable business with new and existing customers. During our first quarter, we generated over $34 million in new energy power system orders. Over the past several quarters, the business delivered an average of $40 million of orders per quarter. New energy power system orders have averaged about $30 million per quarter. Realize that our lead times have extended to over a year for certain products. We see a diverse set of orders from renewables to semiconductor to materials and mining to industrials and new orders for new military applications. These new energy power system orders come from serving the U.S. military, providing efficient and reliable shore power to Navy vessels. This represents an exciting new opportunity for new energy power systems. We certainly see potential future repeat business for this application. We also received orders from the U.S. Navy for additional installation support services for our ship protection system. During the first quarter, we saw diverse revenues from renewables, industrials, semiconductor, as well as Navy projects. About one quarter of our sales were to renewable projects. These include shipments of ECS to INOX, as well as grid revenues for a 150-megawatt wind project and a 150-megawatt solar project. The Navy business was above 10% of total revenue, and the remainder of shipments came from a variety of industrial projects. We see strong diversity of revenues. Now I'll turn the call over to John Kasiba to review our financial results for the first quarter of fiscal 2023 and provide guidance for the second quarter. 30, 2023. John? Thanks, Daniel.
spk06: Good morning, everyone. AMSE generated revenues of $30.3 million for the first quarter of fiscal 2023, compared to $22.7 million in the year-ago quarter. Our grid business unit accounted for 85% of total revenues, while our wind business unit accounted for 15%. Grid business unit revenues increased by 30% in the first quarter versus the year-ago quarter. This year-over-year change was led by revenue growth from both our NEPSY and NEOTRAN product lines. Wind business unit revenues increased 58% in the first quarter versus the year-ago quarter. This year-over-year change was driven by ECS shipments to INOX. Looking at the P&L in more detail, gross margin for the first quarter of fiscal 2023 was 21%. This is up from 10% in the year-ago quarter. Gross margin for this quarter was favorably impacted by increased revenues and a more favorable product mix in our great business unit, driven by continued revenue growth at both NEPSI and Neotran. Additionally, I'd like to note that we experienced meaningful contribution margins from Neotran this quarter. As I mentioned in previous calls, throughout fiscal 2022, we have been shipping off the originally acquired Neotran backlog, which had depressed contribution margins. In the first quarter of fiscal 2023, we experienced more favorable contribution margins as we shipped post-acquisition NEOTRAN backlog. Moving on to operating expenses, R&D and SG&A expenses for the first quarter of fiscal 2023 were $9.7 million compared to $10.2 million in the year-ago quarter. Approximately 13% of R&D and SG&A expenses in the first quarter of fiscal 2023 were non-cash. Our net loss in the first quarter of fiscal 2023 was $5.4 million or $0.19 per share. This compares to a net loss of $8.7 million or $0.32 per share in the year-ago quarter. Our non-GAAP net loss for the first quarter of fiscal 2023 was $2.1 million or $0.08 per share compared with $6.8 million or $0.25 per share in the year-ago quarter. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the first quarter of fiscal 2023 with $23.1 million in cash, cash equivalents, and restricted cash. This compares with $25.7 million on March 31, 2023. Our operating cash burn in the first quarter of fiscal 2023 was $2.2 million. Now turning to our financial guidance for the second quarter of fiscal 2023, We expect that our revenues will be in the range of 29 to 32 million. Our net loss on that revenue is expected not to exceed 5.3 million or 19 cents per share. Please note that our net loss guidance assumes no changes in contingent consideration. Our non-GAAP net loss is expected not to exceed 3.5 million or 12 cents per share. The company expects operating cash flow in the second quarter of fiscal 2023 to range from a burn of 1 million to a positive operating cash flow of $1 million. We expect to end the second quarter with no less than $21 million in cash equivalents and restricted cash. With that, I'll turn the call back over to Daniel. Thanks, John.
spk05: We significantly narrowed our operating cash burn during the first quarter and expect better performance at similar revenue levels during the second quarter. Our guidance contemplates generating cash in the second quarter. Factors such as our sales leverage, our backlog, and the benefit of previous price increases were all positive influences to our first quarter financial performance, and we expect those influences to benefit fiscal year 2023. We have a robust pipeline of opportunities thanks to strong market demand, and we are aggressively going after those opportunities. We have a variety of applications for industrial processes and manufacturing, like mining, metal extraction, metal processing, as well as chemical plants. These applications help harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective, and efficient power delivery. The market drivers for a low-carbon economy and a modern, reliable, and secure power grid are in our favor. That's why we believe to be well positioned for the longer term. The world is quickly moving towards decarbonization to slow down climate change and create a path for a more sustainable world. We are at the center of this change. I'd like to give you a glimpse of how much the markets we serve have evolved and will continue to evolve. The U.S. Energy Information Agency indicates that the U.S. electrical grid has been stressed by U.S. wind power generation, increasing from 6 gigawatts in 2003 to over 140 gigawatts in 2020, and photovoltaic power generation increasing from almost zero in 2003 to approximately 125 gigawatts in 2022. The Edison Electric Institute estimates that the number of electric vehicles on the road in the U.S. is projected to approach 19 million in 2030, up from more than 1 million at the end of 2018. A typical electric car requires six times the critical mineral inputs of a conventional car. These critical mineral inputs include graphite, copper, nickel, lithium, cobalt, rare earths, among others. An onshore wind plant requires nine times more critical mineral resources than a gas-fired plant. The International Energy Agency states that since 2010, the average amount of critical minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables has risen. The transition to a low-carbon economy potentially increases demand for our new energy power systems through renewables, and key materials for the new energy economy. Our key growth markets are renewables, mining and metals, semiconductor, and military. We believe the march towards a more sustainable world will be a driver for the markets we serve in the foreseeable future. We see increased demand expected for renewable energy, electrification of transportation, and the mining and metals to support this transition. semiconductors and key materials for the new energy economy, and sustainable security for a more secure world. Our products are expected to play a central role in this evolution, and we continue to intensify our efforts and collaboration to take advantage of these trends. We continue to work towards growing a business that's supporting power management at the substation level for renewables, mining and metals, utilities, and now for military uses, as well as supporting customers in the semiconductor industry. In conclusion, we're really excited. We began fiscal 2023 on a strong note. We're broadening our revenue base with multiple products for the Navy. We have a total of five ship protection systems contracts for the San Antonio-class LPD. We are currently installing one of the ship protection systems. and we're in the process of delivering another this fiscal year. We are executing on orders for INOX Wind just a few weeks ago. INOX Wind announced type certification of the three megawatt class wind turbine. We are supporting INOX Wind as they expand their offering to include an exceptional three megawatt class wind turbine. INOX has done some corporate restructuring within their entity, which they believe will put them in a stronger financial position. We are supporting Doosan as they commission their 100-megawatt offshore wind farm this year with our 5.5-megawatt wind turbine design and electrical control systems. Our installed resilient electric grid system in Chicago is performing as planned and has become a showcase for the technology. We are optimistic about our company's future based upon market demand and our demonstrated margin performance. We believe we'll continue to realize the benefits of previous price increases. Our current backlog is strong and well diversified. Overall, the business is performing very well, and we are serving an expanded set of customers in our grid business. Already, our transformative power solutions are moving the world forward. We are executing on our vision and believe that our creativity can meet today's challenges and help us progress to a better future. This means using future-facing technologies to harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective, and efficient power delivery. We believe in powering progress by designing, developing, and deploying power control solutions that harmonize an increasingly complex energy system. It really feels like we've turned the corner and are very excited about our future. I'm not going to comment today directly on unvalidated scientific claims. We are and I believe we will continue to be at the forefront of superconductor technology. Technological advances in our space only benefit us in that they spark the imagination of what could be possible. We are capable of delivering what is possible today and are planning to continue to maintain this position. We have transitioned from a material science company to a manufacturer of completely integrated systems. Any technical advances that can further our offerings are welcomed, and I look forward to reporting back to you at the completion of our second fiscal quarter of 2023. Anthony will now take questions from our analysts.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two.
spk02: At this time, we will pause momentarily to assemble our roster. First question will come from Eric Stein with Craig Hallam.
spk01: You may now go ahead.
spk08: Hi, Daniel. Hi, John.
spk05: Hey, Eric. Good morning. Good morning.
spk08: Good morning. Hey, so I just wanted to start with lead times if we could. It's obviously great to see the order pick up. And I know the nature of some of your products or the projects that you're selling into are longer term in nature. But just curious what you're doing on your end, whether it's in the supply chain, whether it's on the manufacturing side, to shorten those lead times.
spk05: Yeah, I think it's a great question. It's kind of a pivotal one to how we manage growth. I think the benefit in the market is lead times in general have extended and have continued to extend for a lot of our competitors. We still have, I think, a competitive advantage in that we can turn orders faster than typically the companies that we would compete against. We've tried to work hand in glove with our suppliers to ensure that long lead elements are on order, and we have a lot of things of commonality of parts between product lines and such. So we try to leverage that as we possibly can. But I think it's important, you know, if you look at the business a few years ago, probably our average lead time was in the range of, say, nine months for the overall business, and today it's in excess of 12 months. So we've had suppliers that have told us that they need more than 60 weeks, 72 weeks for parts, and recently we've seen those shrink back down to 52 weeks, 50 weeks, 48 week kind of lead time. I think it's important as people evaluate the rate that we bring orders in that they understand the lead time, and that's why I think it's a great topical questionnaire.
spk08: Got it. Okay. That's helpful. And then on wind, just curious, obviously it's great that wind to see the order pick up. I guess that was back in May. Curious, is it safe to assume, though, that at least In the interim, this is not a run rate, that that quarter reflects that, you know, your revenues reflected that quarter, and that you're still waiting for the three megawatt and that to move beyond prototype stage with INOX?
spk05: No, I think we're into the next stage. So we're at light volume production at this point. That order has kind of signified, Eric, that INOX is going into production. They have the first wind farm identified in the production. I think what we're hoping can come next is really the beginning of INOX scaling the three megawatt to get it ready for market. And if you listen to their excitement, that really is what they're banking their future on. So we've tried to be a very great partner to INOX as they've had their own challenges with their own business and policies in India. But it looks like that market is changing. It looks like things are moving up. We're focused now on providing stable demand for the two megawatt because that's an existing business still for them. And then we look forward to being able to ramp. We're working with our supply chain literally now to make sure we're able to meet the future demands for INOX. But again, the lead times for those products could be in excess of a year.
spk08: Got it. And so just to confirm, though, then this quarter – I mean, is this kind of a run rate, you know, kind of in this 4 million plus range, a pretty nice step up sequentially? Or, you know, don't get ahead of things and that's still maybe a couple quarters off?
spk05: I think we're a couple quarters off from seeing additional ramp. I think the rate that we're at now should be sustainable with the 2 megawatt range. That's at least what the demand presented has been. So I think if you compare this period to the year ago period, yes, it is a step up. I think we'll be at this rate, I don't know for how many quarters, but what we're hoping is there'll be additional demand for the two and probably pretty significant demand for the three coming.
spk06: Okay, great. The revenue this quarter is only the two megawatt. There's no three. There's only the two megawatt.
spk08: Okay. Yep, that is... All right, that's helpful. I will take the rest offline. Thanks.
spk01: Next question will come from Colin Rush with Oppenheimer. You may now go ahead.
spk03: Thanks so much, guys, and congrats on getting to, you know, what looks like a critical benchmark in reaching cash flow breaking in the next quarter. Thanks. You know, if you look at the sales activity on the grid side, could you talk a little bit about, you know, You know, the trend lines on the sides of those deals, you know, I'm suspecting as you get into some of these mines and some of these larger renewables projects that there may be a drift upwards in terms of the total megawatts involved per deal.
spk05: Yeah, no, I think you're asking the exact right question. And that's exactly what we're seeing in the pipeline is the projects themselves are larger. And concurrently with that, our offering is larger now that we've added the additional content that we're selling. So the good news is as we see the business progressing and we see what's in the pipeline, the average order per project is increasing. And that we need to make sure that we have the capability to be able to answer the call that our customers bring to us these projects. So I think that's great news for the company with larger project size and more content per project.
spk03: Excellent. That's helpful. And then with the ComEd project, it's great that it's up and running and folks are looking at it. Can you just give us a sense of how many people are looking at the results there and how that's been changing over the last 12 months or so?
spk05: Oh, it's been hundreds, I think, between staff within Exelon and other utilities outside that are very curious about how they get one for themselves. You know, I think we've learned from the rollout of other products on the grid, it's very important for utilities to buy it and use it on their own and really understand the use cases. I think probably the most telling feedback I can give you that's kind of new on the product is the value equation that we originally calculated for REG is probably much less than we thought. There are things that can be done with the grid when a reg system is part of it that I think were beyond our fully understanding of how the grid could operate in the future. So I think we're learning and we're evolving what the value proposition is, but I think the value of an installation is going up because we're seeing additional ancillary benefits of being able to interconnect existing substations in the urban core.
spk03: That's incredible, Keith. Well, actually, I have so many questions on that, but I'll just take it offline. So I appreciate the caller there, and I'll keep it moving here.
spk02: Thanks, guys. Again, if you have a question, please press star, then 1.
spk01: Our next question will come from Justin Clare with Roth Capital Partners. You may now go ahead.
spk07: Yeah, hi. Thanks for taking the questions here. So I wanted to start off, hey, I wanted to start off with the gross margin, so significant improvement in Q1 here. I was wondering if the higher wind revenue was a factor here. Are you seeing, because of that higher revenue, the margins improving for that business? And then also, just on Nealtran, was the lower margin backlog of Nealtran incorporated into Q1, and you still realize this margin expansion? you know, is there still low margin backlog remaining or have you basically worked through that, you know, completely at this point?
spk06: Hey, Justin, it's John. So to answer the first part of your question on wind, yes, the revenue, the increase in revenue did add to our gross margin. So wind did incrementally get better from a gross margin. So yes, it did help. At the end of the day, it's you know, four and a half million bucks. So it's not a material driver to why the margin went up, but it did contribute. To answer your question on Neotran, Neotran's margins improved because we've had a higher percentage of what shipped go out on the post-acquisition backlog. There is still some tail on the pre-acquisition backlog. That's becoming insignificant. My intent is that should not be a driver in how we discuss our results moving forward.
spk07: Got it. Okay. And then just based on your guidance, at least on the top line and the bottom line, it looks like Q2 could be somewhat similar to Q1, though it looks like cash flow generation improves. So maybe you could speak to why cash flow generation improves. And then maybe should we anticipate any meaningful change on either the gross margin profile quarter to quarter or in your OPEX between the quarters?
spk06: Sure. Generally, we don't guide on gross margin or OpEx. We guide to net income and non-GAAP. But you can see in our guidance for Q2, it's reasonably close to where we came in on Q1. Keeping in mind, we always guide to a product mix, for lack of a better term, worst case product mix scenario. So your expectation on, okay, should the margins stay reasonably bad? I don't think that's unreasonable considering We're not signaling any significant changes to OPEX, and our bottom line is reasonably close to where it was in Q1. So to answer your question directly, you've got to reverse engineer it from our non-GAAP or GAAP guidance, and if you do that correctly, you'll see that by definition there can't be significant changes quarter over quarter.
spk07: Right. Okay. And then just one more, you know, last year you had been implementing price increases and was wondering if those price increases have essentially been fully reflected in the Q1 gross margin or if there's potential for margin expansion here as, you know, maybe you have some higher margin backlog that you have not, you know, to fulfill in the future here.
spk05: I think we see the potential for gross margin expansion to come with revenue expansion. you're now seeing the benefit of the work that's been done over the past more than a year to be able to better manage cost, supply chain availability, and then translate that into more proper pricing to customers.
spk02: Okay. Thanks very much. I'll pass it on. This concludes our question and answer session.
spk01: I would like to turn the conference back over to Mr. McGann for any closing remarks.
spk05: I want to thank everybody for their attention. I think the main thing we're highlighting is we got to new revenue levels. We're being able to hold this. We have a nice stable business. A lot of the hard work is starting to pay off this year, which we're tremendously excited about. We've been talking about getting to this inflection point to grow to this level and get margins in a more healthy range, which we've been able to deliver on in Q1. On the grid side, we see delivery of higher quantities to repeat customers and markets. We see sales synergies driving larger orders, which is part of the questioning and answering that we had. And then we see some integration synergies that we've already been able to realize through optimizing the cost structure. Continuing with grid on the ship protection side, we have the total of five SPS contracts for the San Antonio class. We're delivering on the first two, installing one and delivering the hardware for the second one. We didn't talk a lot today about mine countermeasure solution, but that project, you know, continues and we think is an important part of our future. Additional content coming for the U.S. Navy through that product offering. And then on the wind side, kind of in summary, you know, we have robust two megawatt demand with upside growth opportunities there and With INOX Wind announcing that they've reached type certification, we believe this is the beginning of the expected drive of additional customer demand there. So we tried to keep it very succinct today for you all. Hopefully it's very clear. We're very excited about the hard work that we've put in. It's starting to pay off. The mood and the esprit de corps here is really strong. I'm really happy. And we look forward to being able to talk to you all again in another quarter's time. So thank you, everybody, for your support and your attention. Good day.
Disclaimer