Q4 2019 American Superconductor Corp Earnings Call
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Excuse me, ladies and gentlemen, thank you for your patience and holding the conference will begin in a few minutes again. Thank you for your patience and holding the conference will begin in a few minutes.
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Good day and welcome to the American Superconductor fourth quarter fiscal 2019 earnings Conference call Today's conference is being recorded.
This time I would like to turn the conference over to Mr., John Hynes of Horn. Please go ahead Sir.
Thank you Shelby good morning, everyone and welcome to American Superconductor its fourth quarter.
19, earning conference call I'm John Myles.
Hey, Investor Relations.
I haven't seen Investor Relations agency of record.
On today's call or game, but can chairman president and CEO, John because you, both senior Vice President and Chief Financial Officer.
Second superconductor issued its earnings release for the fourth quarter full fiscal 2019 yesterday. After the working closely those of you would not seen it relates to copy is available in the Investor Relations age of the company's website at Www dot.
Oh.
Before turning the call I'd like to remind you that various remarks that management may make during today's call about American superconductor as future expectations 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 at various important factors, including those set forth in their risk factor section of American Superconductor. Its annual report on form 10-K for the year ended March 31, 2020, which the company filed with the as easy on June 220, 20, and subsequent reports.
Just as a company has filed with the FCC.
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 anything subsequent to today.
The company anticipates that subsequent events and developments may cause the company's used to change the company specifically disclaims any obligation to update. These forward looking statements also on today's call manager will refer to certain non-GAAP financial measures non-GAAP net loss and non-GAAP operating cash flow.
Non-GAAP net loss is defined by the company is that income or net loss or gain on sale of interest in minority investments.
Based compensation gain on the China settlement net amortization of acquisition intangibles changes in fair value of warrants other noncash or unusual charges or items and the tax effect of adjustments calculated at the relevant rate for the company's non-GAAP metrics.
Non-GAAP operating cash flow is defined by the company as operating cash flow before the shadow settlements that of legal fees and expenses tax effect of China settlement and other unusual cash flows write offs.
A reconciliation of non-GAAP measures to the most directly comparable GAAP measures can be found in the fourth quarter full fiscal 2019 earnings press release and the company issued at furnish the FCC last night on form 8-K.
All of American Superconductor is press releases that T. SEC filings can be accessed from the investors page of its website at www Dot com.
With that I'll now turn the call over to chairman, President and CEO, Daniel Mckenzie Daniel.
Thanks, John and good morning, everyone.
To start the call Firstly I hope all of you and your families are safe and healthy I know this is that a challenging time that we're living through.
Oh, but we're going to start and focus on the were good results that we were able to deliver in fiscal 2019, which ended March 31 2020.
John Conceivable then provided detailed review of our financial results for the fourth quarter.
And the full fiscal year 2019.
We'll also provide guidance for the first quarter fiscal 2020.
Which will end June 32020, and following our remarks, we'll open up the line for questions from our analysts.
And just called 2019, a MSC grew its grid business by nearly 45%.
This far exceeds our own expectations and as a testament to our team's execution.
Full year revenues for the entire amnesty business increased by about 14% year over year.
Driven by the growth in grid.
We generated positive operating cash flow in the fourth quarter fiscal 2019.
And ended the year with a cash balance of over $66 million.
No doubt.
We finished the fiscal year with a strong balance sheet and a record backlog in grid.
We believe this is particularly important in these challenging times and I'll get to the shortly.
But to date, we have not missed a beat in manufacturing.
In fiscal 2019, we generated year over year revenue growth from each of our grid product lines, we announced over $40 million up our dynamic bar compensate or D var orders.
We built and delivered our bolt bar optimizer, BB O product to several key customers.
Which we believe many will develop into recurring business.
We announced that the department of Homeland Security approved the scope of our resilient electric grid project, which we call Reg with Commonwealth Edison.
Yeah manufacturing the Reg system.
We also announced Chicago's desire to embark on ice possible second rank project.
And we began establishing the capabilities to deliver the ship protection system or Sps to the U.S. Navy.
In fiscal 2019, we secured a $9 million order from our Korean partner reduce on heavy industries for our five megawatt class electrical control systems or east Yep.
We expect to complete shipments under this order during fiscal 2020.
We saw and we still see uncertainty in the Indian when markets and at high Knox.
But we have diversified our business through grid and we're growing overall revenue without hi Knox.
Hey M. A c's annual revenue was less than one third grid, just a few years ago.
Grid revenue is now more than two thirds of our business.
As we enter fiscal 2020 are deeper backlog is at record levels. Our video team is preparing for expected higher volume shipments this fiscal year.
Our red team is planning to deliver the rank hardware to Chicago this year on schedule.
We are manufacturing S.P.S. for the San Antonio Class ship platform LPD first delivery is expected in 2021.
We are delivering to do sought heavy industries, we are supporting our inox with commissioning in the field and providing more easy U.S. product as they need it and pay for.
As a result, we again expect revenue growth from our Greg business in fiscal 2020.
So, let's now talk in turn to the current global situation.
In March 2020 of the World Health organization declares the Corona virus.
Cobot 19 outbreak to be a pandemic.
The emergence of Kobin 19 has created both operational challenges and macroeconomic concerns.
All businesses.
Hey, MFC has demonstrated it can operate effectively through times of crisis.
We were early to implement physical separation protocols that are manufacturing sites.
And as a result, we have not missed a beat in production, we've instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount.
We are focused on strong customer service and product quality.
We have temporarily suspended unnecessary local and international business travel and where possible MSC employees are working from home.
We continue to sell and see signs that in some markets business is accelerating due to the global situation.
What we don't know, it's what the long term impacts will be on the markets, we serve particularly in grid.
We've been focused on cost and that means establishing a broader supply chain, which provides us with the flexibility to source key components from multiple sources. This is really helps to keep continuity of component supply.
Governments of deem that our manufacturing businesses essential.
Our factories remain open and happened operational throughout the pandemic.
It seems that electricity is an essential business across the globe and our customers continue to move forward at the same pace, albeit with caution.
Similar to electricity supporting our military is considered an essential business shipyards continue to operate these jobs are essential to their local economies.
David continues to award contracts to buy more ships in fact inside the fence reported that the Navy is looking to accelerate contract awards wherever they can in response to cope with 19.
Managing our balance sheet and execution, our our priorities.
We're very focused especially on keeping our people safe and productive.
We're doing what we can to collect cash sooner than planned as a protective measure against what we don't know.
We are a resilient company that has overcome prices before.
Our strong balance sheet allows us to navigate this period of uncertainty and is expected to enable us to capitalize on the long term opportunities driving our industry when conditions normalize.
Now I'll turn the call over the John Casino to review, our financial results for the fourth quarter and full fiscal year 2019, and provide guidance for the first quarter fiscal 2020, which will end June Thirtyth 2020, John.
Thanks, Daniel Good morning, everyone.
Total revenues for the fourth quarter of fiscal 2019 were 18.1 million. This is an increase of 24% compass compared to the year ago quarter of 14.6 million.
Great business revenues of 13 million increased by 19% versus the year ago quarter, while a wind business revenues of 5.1 million increased by 42% versus a year ago quarter.
Moving on to the full fiscal year, we experienced year over year revenue growth of 14% with 63.8 million in total revenues for fiscal 2019.
This is up from 56.2 million in fiscal year 2018.
Great business revenues increased 45% in fiscal 2019, driven by revenue growth in all four great product lines versus the prior year.
Great business revenue surged to represent 78% of total fiscal 2019 revenues.
This marks the fifth consecutive year of grid revenue growth.
When business revenues decreased 35% in fiscal 2019, primarily as a result of reduced tcs shipments to iducs.
This was partially offset by increased shipments to do some heavy industries for their five megawatt class offshore wind turbine.
Gross margin for the fourth quarter fiscal 2019 was 13.9% compared to 18.9% in a year ago quarter.
The decrease in gross margin was primarily a result of the lower contribution margin associated with the cost share agreement between M. essay.
DHS and come it.
As well as a less favorable product mix within a wind segment.
For the full fiscal year 2019, MFC generated gross margins of 15%. This is down from 25% in fiscal year 2018.
The year over year decrease in gross margin was primarily a result of the lower contribution margin associated with the cost share agreement between a MSC DHS and comment.
Additionally, during fiscal 2018, I inox revenue accounted for approximately $19 million, which positively impacted both revenue and contribution margins for that year.
Moving on to operating expenses research and development and testing in a expenses totaled 8.6 million for the fourth quarter fiscal 2019.
This was up from 8 million in a year ago quarter.
Approximately 13% of R&D and SGN a expenses in the fourth quarter were noncash.
For the full for the full fiscal year, we managed to keep operating expenses relatively flat with research and development SGN a expenses totaling 32.2 million for fiscal 2019.
Compared to 31.9 million in fiscal 2018.
Our net loss in the fourth quarter fiscal 2019 was 5.9 million or 27 cents per share compared to 8.4 million or 41 cents per share in the year ago core.
Our non-GAAP net loss for the fourth quarter fiscal 2019 was 5.1 million or 24 cents per share.
Compared with a non-GAAP net loss of 4.6 million or 23 cents per share in the year ago quarter.
For the full fiscal year 2019, net loss was 17.1 million or 81 cents per share. This compares to net income of $26.8 million or $1.32 cents per share in fiscal 2018.
The positive net income in 2018 was driven by the gain on the China settlement and higher gross margins during the period.
Yes.
We ended fiscal 2019 was 66.1 million and cash cash equivalents marketable securities and restricted cash.
This compares with 66.3 million on December 30, Onest 2019.
In the fourth quarter fiscal 2019, we generated operating cash flow of 1.3 million in a non-GAAP operating costs FFO of 1.9 million.
Our operating cash flow included a 600000 dollar tax payments associated with the China settlement. This was what we expect to be our final tax obligation related to the settlement and moving forward, we do not anticipate any additional payments related to our China settlement.
Our positive cash flow in the fourth quarter was driven by favorable working capital within the group business. In particular, we received several cash payments for debo milestones, which resulted in favorable working capital.
As a reminder, working capital fluctuate from quarter to quarter, depending on timing of milestone payments and inventory positions within each business.
Now turning to our financial guidance for the first quarter fiscal 2020.
We expect total revenues will be in the range of 18 to 20 million.
Net loss on that revenues is expected to be no more than 6.2 million or 28 cents per share and our non-GAAP net loss is expected to be no more than $5.5 million with 25 cents per share.
We anticipate operating cash flow to be a burn of four to 6 million in the first quarter fiscal 2020.
We expect to end the first quarter fiscal 2020 with no less than 60 million in cash cash equivalents marketable securities.
Yes.
Well no now turn the call back over to Daniel.
Thanks, Jeff.
In fiscal 2019, our grid business performed a gap.
Grid revenue grew by nearly 45% driven mainly by D var.
Our D var business is supported by a strong base projects in the renewable and industrial segments as indicated by the composition of our record backlog.
We are growing and diversifying revenues.
A couple of calls ago, we mentioned not only pursuing new industrial customers.
But also a focused on top tier wind turbine manufacturers.
And you can see this in the quarter with a new 10 plus percent customer names.
We anticipate that we will begin to see recurring customers for our video product.
We are delivering video to the market and our pipeline is developing very nicely.
Our growing list of repeat customers is a testament to the quality and performance of agencies products and people.
To date, the pandemic has not materially affected our great business.
We are focused on supporting our customers need and maintaining a timely flow of product from our factory to the customer side, we are focused on keeping our people safe and productive.
Our manufacturing team is performing very well.
We anticipate that the DMR business should provide a strong base of grid revenues well into fiscal 2020.
This expectation is driven by the strong backlog that we have for D var as well as the overall Britt business, we don't see a dip in our pipeline.
Qualitatively as of June 3rd our business does not show a slowing.
But that Doesnt mean, we wont see future projects pushing out and we don't know the impact to the markets we serve in the coming months in year.
We are focused on what we can control.
Fiscal 2019 was an important here for Reg.
DHS approved the scope of M. A c's rank project with Commonwealth Edison, which allowed US to proceed with the project in the manufacturing of the Reg system.
We partner with NEC sands to fabricate the Reg cable utilizing Amos these proprietary imperium superconductor wire.
We anticipate the Reg system should be operational in 2021 on schedule.
In the third quarter fiscal 2019, we announced today MSC and comment proceeded with the engineering assessments of a proposed second Reg system in Chicago.
Comments second project, if agreed to and undertaken.
Would utilize M. A c's reg system to interconnect multiple existing substation.
Within Chicago's Central business District.
The second project is expected to be larger in scope than the first and provide greater reliability resiliency and load serving capabilities during outages or other grid disruptions.
We're also developing opportunities to deploy our Reg product.
In other utilities across the country.
We're very pleased by the strong support we're seeing for the Reg solution.
We've announced five cities and have developed the pipeline of many more.
These projects do take time to mature.
With the first system secured we believe that future deployments of rag will be de risks.
You asked utilities are focused on the execution of this first Chicago project.
Chicago is focused on the execution of this first Chicago project and we are focused on execution of this critical project.
Our ASP since the Navy's baseline Degaussing design for the San Antonio Class ship platform LPD.
In fiscal 2019, we announced our Sps delivery contract with Huntington angles for the deployment on LPD 30.
We ended fiscal 2019 with two Sps orders secure one for LPD 28, and the other for LPD 30.
We're working very closely with the Navy and our supply chain to ensure timely delivery of our two ships system orders.
We are engaged that's we reported on the last call and establishing the capabilities to deliver Dsps systems.
We are preparing for the next Sps order and we're planning for concurrent manufacturer of multiple Sps orders.
LPD 31 is the U.S. navies 15, San Antonio Class ship.
The Navy awarded Huntington angle, the 1.5 billion dollar contract to construct the ship in March of 2020.
LPD 29 is the U.S. navies 13, San Antonio Class ship, which is under construction at angles in February 2018, The Navy signed a 1.4 billion dollar contract with Huntington angles for the construction of LPD 29.
We are engaged with the navy to understand the program timing for both LPD 29, and LPD 31.
We anticipate or Sps has the potential for deployment on a total of approximately 13 future shifts in this class.
Our ASP you asked for the San Antonio Class could represent a potential revenue stream of about $130 million for this class a shift.
The San Antonio classes, our first design win with the U.S. Navy.
We believe there maybe opportunities to seller Sps to the entire U.S. surface fleet and allied navies as well.
Turning to when we began shipping 5.5 megawatt Dcs deduce on during the third quarter fiscal 2019, and continued with vcs shipments into the fourth quarter.
We expect to complete shipments under this order during fiscal 2020.
We believe southeast Asia is a geography, well suited for our five megawatt class wind turbine and for our partner do side.
We have not seen any indication today that do sounds offshore wind business has been impacted by the pandemic.
We continue to focus on expanding our addressable market two additional offshore projects.
We are not slowing down.
We stand ready to support our partner in India as they need support commissioning new turbines or need new stock of Vcs.
I Inox is working with us to gain compliance with their contracts.
We are using the capabilities of those contracts to help frame this situation to a positive resolution for both parties.
Thanks.
In conclusion, we've come a long way gross through grid is working this year I'm quite 19, we exceeded our own expectations. We grew our grid business by nearly 45%.
We grew full year revenues by 14% year over year, we've diversified our business in fiscal 2019, our revenue mix consisted of more than two thirds grid just a few years ago grid revenues were less than one third.
The grid business itself is larger today than the entire business, let's just two years ago.
We finished the year with a record grant backlog for execution in fiscal 2020, we entered April 2020, with the same amount of cash we have on back in December of 2019 $66 million.
Cash was basically unchanged this past quarter.
We are guiding for growth in grid.
We cannot predict the unknown, what cobot 19, and I can't tell you what the world's going to look like in the fall or come wintertime, but I assure you that we've delivered on what we set out to accomplish this year and more.
The initiatives, we've undertaken have put MFC and a strong position to whether this crisis.
Definitely believe us something unique about our company.
We are aggressively managing that which we can control.
And for fiscal 2020, the M.S.C. team will continue to execute our strategy of delivering a more sustainable and diversified business.
Our culture here at the company is inherently innovative.
Always accountable to our customers and constantly collaborating with our partners.
We try to hire the best and brightest.
We've been hiring through this pandemic.
And we listen to and learn from the markets we serve.
I am grateful for our team's commitment and delivery on a successful fiscal year 2019.
I look forward to reporting to you again following the completion of our first quarter fiscal 2020.
Shelby we can now open the line for any questions from our covering analysts show he.
Like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute assumption is turned off to allow your signal to reach our equipment again press star one to ask a question well pause for just a moment to allow every.
When an opportunity to signal for questions.
And we'll take our first question from Jed Dorsheimer with Canaccord Genuity.
Hi, Thanks.
And it sounds like you guys. There are driving so it's good to hear.
I was just wondering damn maybe you could.
Dig into or you could elaborate on.
The value proposition sounds like.
Co bid is actually.
Well, if we look at Covidien, we look at what it does too.
Worry for the vulnerability associated with the Greg I was wondering if you could talk about how perhaps the value proposition for your product in the D. Var. His shifted is a recognition of bought up the vulnerabilities that that we face and then same question over on the.
The Nate Navy side of things.
Thanks, Chad hopefully you're safe family is good.
Yes, everyone safe and good.
Good.
I think that what we see an acceleration of D. Var really goes back to last year with the with the large orders that were able to bring in.
What we tried to signal was we see some acceleration in submarkets.
Really because.
Customers in projects are concerned about their access to their labor.
And they like to get things done as quickly as possible, while they still have access to that labor.
I think if you think longer term I do think a lot of the macro.
A market trends that are effective I think electricity becomes more critical.
I think that everything that we're seeing and the market means that connecting wind and protecting ships are going to matter more in the coming years not less.
But.
They acceleration in the orders really was through the great work that the team did in 2019.
Got it and you mentioned several times on the call about the strong backlog.
I was wondering if you could define that a bit.
Just so we understand what you consider strong to be.
Well when we look at what we're trying to book in the way of orders were further out in time than any time I've been here. So.
We are.
Quarter or two ahead of.
Realizing the orders.
Compared to where we probably were in past years.
We don't really break up the backlog by product line, but we kind of hinted a strongly was saying that we're able to to deliver 40 million of new orders.
Last year, there is some book and burn that comes out quarter to quarter.
We've talked about typically with D. Var, we're looking to book quarters out say six months.
We are seeing customers that are now looking at orders that have delivery dates beyond one year. So when we look at our pipeline. We're comforted by the fact, we don't see the business slowing.
But I really can't help to think what's going to happen in the fall. We do have an election coming up I don't know what will happen in the winter.
What are we reported as an aggregate backlog indication 61 million over 12 month performance obligations. So to hear that jets of 61 million as what we reported for the backlog for what we believe will be recognized in.
Fiscal 2020.
Well I, we say we believe is one of the challenge is always with the backlog has been dealing with Inox, we have to make what we think as an educated guess based upon.
Their payment history, and what they're showing us for forecast and potential projects on what revenues, we might have in there, but obviously, you're seeing a shift by the company more to grid and growth for grid.
And we'll take our next question from Eric Stine with Craig Hallum.
[noise] identify John.
They are going to talk to you get more than yeah, and good to talk to you too good morning.
So I just wanted to start with wind because it was actually quite a good good quarter there.
I mean, given your commentary on IMAX, where they stand I mean should we take that is pretty much all being do sun.
And then I'm just curious your thoughts on I know the is that the remainder will be executed in fiscal 20, I mean should we assume based on project schedules that that's more front end loaded and then just thoughts on.
You know the potential given your outlook in that market the potential for a follow on order.
Yes, I think your your estimation that we're going to continue to deliver this we started in Q3, let lightly and then a little more important you for.
We did report really three customers that were greater than 10% those were a key electrical contractor that helps us with industrial D var installations.
They were Siemens, which is a new names for us and do some so do some becomes a bigger portion certainly of our wind revenues.
In the case, a Siemens that's for grid products, specifically for for D var.
I don't know, what's going to happen in the market with Korea, but they seem to be focused on continuing to execute and build these wind farms.
Identified a few more hundreds of megawatts that they want to go build and they have very aggressive targets.
And as I said in the prepared remarks, we haven't seen signals are signs at a do sign yet, but korea slowing but.
We haven't been through this before with a pandemic at least not my lifetime.
So I can't tell you what what's what the turns and twist are going to be given their demand profile. It would lead you to believe.
Logically that there'll be another order coming in the next whatever quarters or year or so but.
But I can't guide you to that I can't confirm that I don't know, if that's going to happen or not but the pacing that they're talking about would imply you're going to seek continue to order traction with do some going forward.
Yeah, Okay on it or not.
And you are going to look at the K and you look at the percentage of revenues is on was in Q4, you can see it was the majority of the wind revenue to answer your question drug Okay.
Perfect.
And then maybe just sticking with when the I mean, obviously.
Some uncertainty are quite a bit of uncertainty and I Nox, but it does sound like I mean, there is some movement at least on the ground in terms of getting through that inventory.
I mean, I guess don't want to necessarily pin you down, but I mean is something that you Where's your confidence stand in terms of getting this resolved.
And then being in good.
Simon.
Yeah. I mean are we worked very closely with earnings as a company we have great respect for them, we understand they've been through.
A lot of things I think the good signs of that we're seeing a very out commissioning turbines, which means they're consuming inventory, which bodes well for their need for future inventory from us, which we think is good but also bodes well for them from a cash standpoint.
The fact that they're working in there being able to collect means that they have cash flows of Bacon then.
Flow backup the supply chain. So we want to help them as as best we can but we want to be clear, we're going to we're going to receive payments that were going to do our work and then we're going to deliver and that's the message we deliver diagnostics and that's the message we've consistently they review all for the past.
Many quarters.
Well take our next question from Colin Rusch with Oppenheimer.
Good morning misses Kristen on for Colin Thank you for taking your question.
Hi, Chris.
Morning.
Just wanted to follow up on some of your comments about gross margin appreciating that you called out some of the cost sharing agreement there, but can you talk about what that looks like on a like for like basis.
I appreciate that you don't break that out by segment, but just maybe some commentary on how that's trending within grade person questions will be helpful. Thanks, Yeah, when I talk to kind of high level, what we see happening in the business you kind of get the and everybody gets cut of the the machine that that focuses on margin I made the comments were focused on margin and then.
John if you want to get into specifics, but we have a couple of things happening right. So as we have a waning revenue in when which is a very mature business, which we have good contribution margin.
Typically from.
You have basically an idling or slowing of that business, where you are not doing a whole lot.
That certainly impacts margin.
That's also coupled with kinda two factors in grid, you have a series of new products that we're launching.
That needs to get to a certain scale to start to contribute similar contribution margins as the more established a product. So specifically when we look at Sps.
And then we look at Ray.
Certainly has has an impact we designed the program in a way where we believe that we would see positive cash contribution the way the accounting works, you're able to ascribe not only direct product costs, but also overhead related costs to some extent with the government accounting so were kind.
Looking at it differently.
But it does present, a near term drag it is a cost share program, which means that we're sharing our costs between the three parties.
A typical commercial order that we would hopefully see in the future for Rag. So you have the wind effect do you have the launching of the Sps effect and then you have a cost sharing program with rank those are kind of the three styles.
To be an accountant.
Chris and I think you nailed it.
You know on both.
We don't disclose gross profit by by operating unit, but I what I can tell you is both both business units has seen a reduction in gross profit year over year and for the exact reasons Dan said.
On the wind side, that's heavily driven by the reduction in revenue from Inox.
No I mentioned in my script was about $19 million revenue and last year. We've told you. This year. The IMAX is less than a 10% customers. So you know it's less than $6 million for the year. So at a minimum we've lost at least $30 million revenue from might actually year over year and then you can do the math and then on the grid side I think Dan did a good job explaining.
The grid the grid bridge, we think the margin issued to temporary and something that this plan, there's a bit of investment towards the future in the growth that we want to deliver we're focused first on growing that topline getting the beachhead in these new markets and then we believe and we're working hard to make sure that that margin comps we know its a.
What we have to do we have to deliver not only revenue growth that we have to deliver earnings and earnings growth and we are maturing to that kind of business here over the next.
Your years.
Okay.
Well take our next question.
Shen with Roth capital partners.
Hi, everyone. Thanks for questions.
The first one is on Vvo.
You talked about and I'm more.
Repeat customers was wondering if you might get will give us a little more color on that specifically you know how much do you think vvo as segments could grow year over year in fiscal 20.
And then how much of that business from mix standpoint, do you think could be repeat customers is more than 50% or do you think you're still sub 50% for example, thanks.
On the Vvo front kinda again go back cut a high level seriously, we're trying to continue to frontier with new customers.
Identified projects, where it's a compelling.
Interesting approach because its new for a lot of distribution utilities and thinks this way.
And then what we see typically is once we get.
Them doing their first project.
We are seeing the beginning of some recurring business. So I think we're optimistic I think we think 2020 as an important transition year for Vvo to go from kind of first.
Projects was with initial customers to recurring projects with those same kinds of customers, but also continuing to to pioneer in two new projects with new customers.
I don't really know.
How big Vvo can get within a year I think.
We have a good sense that we're trying to prepare to be able to manufacture more.
It's hard to say is the rate limiting step going to be orders or.
Capability to deliver we're trying to modulate both but I feel.
In 29 team, what we learned or the feature set that we're presenting to the market. We think is right. We think it's highly valuable we think we've been able to identify not only distributed generation type.
Projects, but also similar to how we sell D var industrial projects as well.
So it's hard for me say filled because we don't guide things by product, but we do see certainly potential strengthening for Vvo. We're we're trying to put the things in place to be able to manage that.
If that comes here in 2020, but certainly should come in the next year or so.
[music].
Great and shifting to D var.
You mentioned Siemens.
Being up more than 10% customer now.
Can you give us a little bit more color on the relationship there.
How or whether or not that's repeat business do you see the end markets that there.
Operating on the on behalf of D var, yeah, being steady driver of business over time.
I think the simple answer is yes.
I think from what we've seen as we have a very unique offering we provide some feature sets that aren't in the turbine that's kind of general how we look at it and I think we've done a good job in selling strategically where some of these top tier when guys are going we can help them get there in a way that's very cost effective who are a lot of these emerging markets for that and.
I can't guarantee they'll be recurring revenue with Siemens, but at least all indications show that there is a long term potential business to be developed there.
We've talked about best us in the past now we've been able to develop that I think it really just shows the ability for the team to diversify the customer base the markets, we serve and really the applications in the value that we're delivering that bodes very well, we think overall for for D. Var. All indications show, we have a very nice.
Runway here with D var, not just for 2020, but but beyond.
And again, if you would like to ask a question. Please press star one.
Again that is star one to ask a question.
Well pause for just a few moments to last minute participants to ask your question.
And we have no more questions and Nick we do have.
No more questions in the queue at this time.
Great. Thank Shelby.
I really appreciate Everybodys time and attention I know, we're in a weird situation.
You know, it's very different to think about waking up in worrying about virus and violence.
We're in a different place.
I think with our families and what we're focused on.
We tried to focus as quickly as we could our people and the flow of our product to our customers.
Oh, we focused initially on safety and I think those are things that they're going to help us.
I don't know how this this virus parts going to turn over the coming months or recorders.
We've tried to be proactive to get in front of it we tried to make sure that we're staying resilient and vigilant to hygiene and lots of the protocols that we put in place we need our people to be able to deliver our results.
It's not just John and I mean, we're really trying to achieve cheerleaders and all this and thinking longer term.
As long as our people are safe and healthy I think we'll keep seeing the progress that we're making in the market.
I think one of the key points I want people to leave the call with is we did grow grid, but we grew at more than even we anticipated ourselves.
Analyst always want to ask to sometimes our shareholders want to add well how much you think it can grow and we always struggled with when we say something.
I see it as a promise John sees a promise that we throw a number out but when we looked at and what we thought the business could deliver we're ahead of where we thought we can be.
I think we're in a great position, given the backlog and the balance sheet.
Bob just to remind people we had an analyst day back in New York. It seems now like it was a year or so ago was just in November.
We really discuss the new vision of the company in direction about creating a super grid and a super ship.
So a super great enables.
More renewables on and more resiliency for our power grid, that's really what we're becoming about in grid, even with electrical control systems, it's enabling more renewables at a lower cost to be able to deliver that power to the grid.
And the Super ship allows for greater resiliency and operational capability for our fleet, that's how we position and that's how we sell it.
When you think about our company not only have we started the beginning a commercialization of superconductor the material.
Which is something that's all near and Dear to our hearts, but we really become the super conductor.
Where we not only have the material, but the control technology.
And the way we view the world now as we're working straining the rhythm and harmony of power on the grid.
And we protect and expand the capability and resiliency of our Navy fleet Theres, a musical theme and thus, but a lot of what we do a signal control.
Electrical some other things that we do in control thats not much different.
Then how you think about.
Conducting a symphony.
We see the grid and we see Navy ships as key markets for us and we're going to continue to work hard to deliver resiliency to the power grid and the Navy fleet and we hope that music.
To the years of the markets that we serve.
John I look forward to reporting back to you at the completion of the first fiscal quarter 2020.
So we'll talk to you hopefully soon please keep safe. Please realize that there are threats out there and our world seems to be changing again on a day to day basis.
Please stay safe Thank you everybody.
This concludes today's call. Thank you for your participation you may now disconnect.
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Good day and welcome to the American Superconductor fourth quarter fiscal 2019 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr.. John Hines Award. Please go ahead Sir.
Good morning, everyone and welcome to American Superconductor order.
<unk>.
This call.
Hi.
<unk> Investor Relations.
<unk> Investor Relations.
Today's call it can chairman president and CEO.
Senior Vice President.
Sure.
Right.
Dr issued its earnings release.
Oh.
Yesterday after market close.
Got it relieves a copy is available in the Investor Relations.
Website.
Uh huh.
Before turning the call I'd like to remind you that various remarks that management may make during today's call about American superconductor future expectations plans and prospects.
<unk> Safe Harbor provisions under the private Securities Litigation Reform Act at night.
Actual results may differ materially from those indicated by such forward looking statements side of the result of various important factors, including those set forth in their risk factor section of American Superconductor report on form 10-K for the year ended March 31, 2020, which the company file.
220, 20, and subsequent reports that the company has filed with the US you see.
These forward looking statements represent management's expectations only at them today, it should not be relied upon as representing management's views as of any subsequent today.
The company anticipates that subsequent events and developments may cause the company views to change the company specifically disclaims any obligation to update. These forward looking statements also on todays call match will refer to certain non-GAAP financial measures non-GAAP net loss and non-GAAP operating cash flow.
Non-GAAP net loss is defined by the company that income or loss or gain on sale up interest in minority investments.
Based compensation gain on the China settlements that amortization of acquisition intangibles changes in fair value of warrants other non cash or unusual charges or items and the tax effect of adjustments to calculate the relevant rate for the company's non-GAAP metrics.
Non-GAAP operating cash flow is defined by the company operating cash flows for the travel settlement that legal fees and expenses tax effect I'm trying to settlement and other unusual cash flows right.
Reconciliation on the non-GAAP measures to the most directly comparable GAAP measures can be found in the fourth quarter full fiscal 2019 earnings press release of the company issued at furnished yes.
Okay.
All of American Superconductors press releases that you see filings can be accessed from the investors page of its website www dot com.
With that I'll now turn the call <unk>, Chairman, President and CEO, Daniel Mckenzie Daniel.
Thanks, John and good morning, everyone.
To start the call Firstly I hope all of you and your families are safe and healthy I know this is that a challenging time that we're living through.
But we're going to start and focus on the were good results that we were able to deliver in fiscal 2019, which ended March 31 2020.
John can see but will then provide that detailed review of our financial results for the fourth quarter.
And the full fiscal year of 29 team.
We'll also provide guidance for the first quarter fiscal 2020.
Which will end June 30 2020.
Following our remarks, well, but the line for questions from our analysts.
And just called 2019 MSC grew its grid business by nearly 45%.
That's far exceeds our own expectations and as a testament to our team's execution.
Oh your revenues for the entire amnesty business increased by about 14% year over year.
Driven by the growth in grid.
We generated positive operating cash flow and the fourth quarter fiscal 2019.
And ended the year with a cash balance of over $66 million.
No doubt.
We finished the fiscal year with a strong balance sheet and a record backlog and grid.
We believe this is particularly important in these challenging times and I'll get to the shortly.
But to date, we have not missed a beat and manufacturing.
In fiscal 2019, we generated year over year revenue growth from each of our grid product lines, we announced over $40 million up our dynamic bar compensator or D var orders.
We built and delivered our boat bar Optimizer VBL product.
Several key customers.
Which we believe many will develop into recurring business.
We announced for the Department of Homeland Security approved the scope of our resilient electric grid project, which we call Reg with Commonwealth Edison.
Yeah manufacturing the Reg system.
We also announced Chicago's desire to embark on a possible second Reg project.
And we began establishing the capabilities to deliver the ship protection system or Sps to the U.S. Navy.
In fiscal 2019, we secured a 9 million dollar order from our Korean partner do sign heavy industries for our five megawatt class electrical control systems or east Yep.
We expect to complete shipments under this order during fiscal 2020.
We saw and we still see uncertainty and the Indian wouldn't market and that high Knox.
But we have diversified our business through grid and we're growing overall revenue without.
Knox.
Hey M. A c's annual revenue was less than one third grid, just a few years ago.
Net revenue is now more than two thirds of our business.
As we enter fiscal 2020 are deeper backlog is at record levels. Our video team is preparing for expected higher volume shipments this fiscal year.
Our rec team is planning to deliver the Reg hardware to Chicago this year on schedule.
We are manufacturing Sps for the San Antonio Class ship platform LPD first delivery is expected in 2021.
We are delivering to do some heavy industries.
We are supporting our inox with commissioning in the field and providing more HCS product as they needed and pay for.
As a result, we again expect revenue growth from our Greg business in fiscal 2020.
So, let's now talk and turn to the current global situation.
In March 2020 of the World Health organization declared the Corona virus.
Cobot 19 outbreak to be a pandemic.
The emergence of Kobin 19 has created both operational challenges and macroeconomic concerns.
All businesses.
Hey, MFC has demonstrated it can operate effectively through times of crisis.
We were really to imply that physical separation protocols that are manufacturing sites.
And as a result, we have not missed a beat in production, we've instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount.
We are focused on strong customer service and product quality.
We have temporarily suspended unnecessary local and international business travel and where possible MFC employees are working from home.
We continue to sell and see signs that the sub markets business is accelerating due to the global situation.
What we don't know as what the long term impacts will be on the markets, we serve particularly in grid.
We had been focused on cost and that means establishing a broader supply chain, which provides us with the flexibility to source key components from multiple sources. This has really helped to keep continuity of component supply.
Governments of deem that our manufacturing business as essential.
Our factories remain open and have been operational throughout the pandemic.
It seems that electricity is an essential business across the globe and our customers continue to move forward at the same pace, albeit with caution.
Similar to electricity supporting our military as considered an essential business.
Yards continue to operate these jobs are essential to their local economies.
The naming continues to award contracts to buy more ships in fact inside the fence reported that the Navy is looking to accelerate contract awards wherever they can in response to cope with 19.
Managing our balance sheet and execution, our our priorities.
We're very focused especially on keeping our people safe and productive.
We're doing what we can collect cash sooner than planned as a protective measure against what we don't know.
We are a resilient company that does overcome price us before.
Our strong balance sheet allows us to navigate this period of uncertainty and is expected to enable us to capitalize on the long term opportunities driving our industry when conditions normalize.
Now I'll turn the call over the John Desimone to review, our financial results for the fourth quarter and full fiscal year 2019, and provide guidance for the first quarter fiscal 2020, which will end June Thirtyth 2020, John.
Thanks, Daniel Good morning, everyone.
Total revenues for the fourth quarter fiscal 2019 were 18.1 million. This is an increase of 24% company compared to the year ago quarter of 14.6 million.
Great business revenues of 13 million increased by 19% versus the euro quarter, while a wind business revenues of $5.1 million increased by 42% versus a year ago quarter.
Moving on to the full fiscal year, we experienced year over year revenue growth of 14% 63.8 million in total revenues for fiscal 2019.
This is up from 56.2 million in fiscal year 2018.
Great business revenues increased 45% in fiscal 2019, driven by revenue growth in all four great product lines versus the prior year.
Great business revenue surged to represent 78% of total fiscal 2019 revenues.
This marks the fifth consecutive year of grid revenue growth.
When business revenues decreased 35% in fiscal 2019, primarily as a result of reduced shipments to iducs.
This was partially offset by increased Dcs shipments to induce on heavy industries for their five megawatt class offshore wind turbine.
Gross margin for the fourth quarter fiscal 2019 was 13.9% compared to 18.9% in a year ago quarter.
The decrease in gross margin was primarily a result of the lower contribution margin associated with the cost share agreement between M. essay.
Yes and comment.
As well as a less favorable product mix within a wind segment.
For the full fiscal year 2019, MFC generated gross margins of 15%.
This is down from 25% in fiscal year 2018.
The year over year decrease in gross margin was primarily a result of but lower contribution margin associated with the cost share agreement between a MSC DHS and comment.
Additionally, during fiscal 2018.
Thanks revenue accounted for approximately $19 million, which positively impacted both revenue and contribution margins for that year.
Moving on to operating expenses research and development and testing in a expenses totaled $8.6 million for the fourth quarter fiscal 2019.
This was up from 8 million in a year ago quarter.
Approximately 13% of R&D and SGN a expenses in the fourth quarter were non cash.
For the full for the full fiscal year, we managed to keep operating expenses relatively flat with research and development SGN a expenses totaling 32.2 million for fiscal 2019.
Compared to 31.9 million in fiscal 2018.
Our net loss in the fourth quarter fiscal 2019 was 5.9 million or 27 cents per share compared to $8.4 million.41 per share in the year ago quarter.
Our non-GAAP net loss for the fourth quarter fiscal 2019 was 5.1 million or 24 cents per share.
Compared with a non-GAAP net loss of 4.6 million or 23 cents per share in the year ago quarter.
For the full fiscal year 2019, net loss was 17.1 million or 81 cents per share. This compares to net income of $26.8 million or $1.32 cents per share in fiscal 2018.
The positive net income in 2018 was driven by the gain on the tightest element and higher gross margins during the period.
Yes.
We ended fiscal 2019 was 66.1 million in cash cash equivalents marketable securities and restricted cash.
This compares with $66.3 million on December 30, Onest 2019.
In the fourth quarter fiscal 2019, we generated operating cash flow of 1.3 million in a non-GAAP operating costs for 1.9 million.
Our operating cash flow included a 600000 dollar tax payments associated with the China settlement. This was what we expect to be our final tax obligation related to the settlement.
Moving forward, we do not anticipate any additional payments related to our China settlement.
Our positive cash flow in the fourth quarter was driven by favorable working capital within the group business. In particular, we received several cash payments, but do you buy milestones, which resulted in favorable working capital.
As a reminder, working capital fluctuate from quarter to quarter dependent on prime another milestone payments and inventory positions within each business.
Now turning to our financial guidance for the first quarter fiscal 2020.
We expect total revenues will be in the range of 18 to 20 million.
Net loss on that revenue is expected to be no more than 6.2 million or 28 cents per share and our non-GAAP net loss is expected to be no more than $5.5 million with 25 cents per share.
We anticipate operating cash flow to be a burn of four to 6 million in the first quarter fiscal 2020.
We expect to end the first quarter fiscal 2020 with no less than 60 million in cash cash equivalents marketable securities.
Yes.
Now I'll turn the call back over today.
Thanks, John.
In fiscal 2019, our grid business performed a gap.
Great revenue grew by nearly 45% driven mainly by D var.
Our D var business is supported by a strong base projects in the renewable and industrial segments.
As indicated by the composition of our record backlog.
We are growing and diversifying revenues.
A couple of calls ago, we mentioned not only pursuing new industrial customers.
But also a focused on top tier wind turbine manufacturers.
And you can see that's in the quarter with a new 10 plus percent customer names.
We anticipate that we will begin to see recurring customers for our Bbl product.
We are delivering video to the market and our pipeline is developing very nicely.
Our growing list of repeat customers is a testament to the quality and performance of payments these products and people.
To date, the pandemic has not materially affected our grid business.
We are focused on supporting our customers need and maintaining a timely flow of product from our factory to the customer side. We are focused on keeping our people say and productive.
Our manufacturing team is performing very well.
We anticipate that the DMR business should provide a strong base of grid revenues well into fiscal 2020.
This expectation is driven by the strong backlog that we have for D var as well as the overall Britt business, we don't see a dip in our pipeline.
Qualitatively as of June 3rd our business does not show a slowing.
But that Doesnt mean, we wont see future projects pushing out and we don't know the impact to the markets we serve in the coming months in year.
We are focused on what we can control.
Fiscal 2019 was an important here for Reg.
DHS approve the scope of AMA sees rank project, we have Commonwealth Edison, which allowed US to proceed with the project and the manufacturing of the Reg system.
We partner with NEC sands to fabricate Reg cable utilizing Amos these proprietary imperium superconductor wire.
We anticipate the Reg system should be operational in 2021 on schedule.
In the third quarter fiscal 2019, we announced that they have a cm comment proceeded with the engineering assessments of a proposed second Reg system in Chicago.
Comments second project, if agreed to an undertaking.
Would utilize MSC is reg system to interconnect multiple existing substation.
Within Chicago's Central business District.
The second project is expected to be larger in scope than the first and provide greater reliability resiliency and load serving capabilities during outages or other red disruptions.
We're also developing opportunities to deploy our Reg product.
In other utilities across the country.
We're very pleased by the strong support we're seeing for the Reg solution.
We've announced five cities and have developed the pipeline I'm anymore.
These projects do take time to mature.
With the first system secured we believe that future deployments of rag will be de risks.
You asked utilities are focused on the execution of this first Chicago project.
Chicago is focused on the execution of this first Chicago project and we are focused on execution of this critical project.
Our Sps is the Navy's baseline to gassing design for the San Antonio Class ship platform LPD.
In fiscal 2019, we announced our Sps delivery contract with Huntington angles for the deployment on LPD 30.
We ended fiscal 2019 with two Sps order secure one for LPD 28, and the other for LPG 30.
We're working very closely with the naming and our supply chain to ensure timely delivery of our two ships system orders.
We are engaged that's reported on the last call and establishing the capabilities to deliver Dsps systems.
We are preparing for the next Sps order and we're planning for concurrent manufacturer of multiple Sps orders.
LPT 31, as the U.S. navies 15, San Antonio Class ship.
The Navy awarded Huntington angle of 1.5 billion dollar contract to construct the ship in March of 2020.
LPD 29 is the U.S. navies 13, San Antonio Class ship, which is under construction at angles in February 2018, The Navy signed a 1.4 billion dollar contract with Huntington angles for the construction of LPD 29.
We are engaged with the navy to understand the program timing for both LPD 29, and LPD 31.
We anticipate our Sps has the potential for deployment on a total of approximately 13 future shifts in this class.
Our ASP for the San Antonio class could represent a potential revenue stream of about $130 million for this class a ship.
The San Antonio classes, our first design win with the Us Navy.
We believe there maybe opportunities to sell our Sps to the entire us surface fleet and allied navies as well.
Turning to when we began shipping 5.5 megawatt Dcs deduce on during the third quarter fiscal 2019 and continued with these yes shipments into the fourth quarter.
We expect to complete shipments under this order during fiscal 2020.
We believe southeast Asia is a geography, well suited for our five megawatt class wind turbine and for our partner do side.
We have not seen any indication today that Tucson offshore wind business have been impacted by the pandemic.
We continue to focus on expanding our addressable market two additional offshore projects.
We are not slowing down.
We stand ready to support our partner in India, as they need support commissioning, new turbans or need new stock of Vcs.
Hi, Knox's working with us to gain compliance with their contracts.
We are using the capabilities of those contracts to help bring this situation to a positive resolution for both parties.
In conclusion, we've come a long way gross through grid is working this year at White 19, we exceeded our own expectations. We grew our great business by nearly 45%.
We grew full year revenues by 14% year over year, we've diversified our business in fiscal 2019, our revenue mix consisted of more than two thirds grid.
Just a few years ago grid revenues were less than one third.
The great business itself is larger today than the entire business, let's just two years ago.
We finished the year with a record grid backlog for execution in fiscal 2020, we entered April 2020, with the same amount of cash we have on back in December of 2019 $66 billion.
Cash was basically unchanged this past quarter.
We are guiding for growth in grid.
We cannot predict the unknown, what cobot 19, and I can't tell you what the world's going to look like in the fall or come wintertime, but I assure you that we delivered on what we set out to accomplish this year and more.
The initiatives, we've undertaken have put MSC and a strong physician to whether this crisis.
Definitely believe it's something unique about our company.
We are aggressively managing that which we can control.
And for fiscal 2020, the Amss see team will continue to execute our strategy of delivering a more sustainable and diversified business.
Our culture here at the company is inherently innovative.
Always accountable to our customers and constantly collaborating with our partners.
We try to hire the best and brightest.
We've been hiring through this pandemic.
And we listen to and learn from the markets we serve.
I am grateful for our team's commitment and delivering on that successful fiscal year 2019.
I look forward to reporting to you again following the completion of our first quarter fiscal 2020.
Shelley we can now open the line for any questions from our covering analysts Shelly if you would like to ask the question. Please signal by pressing star one on your telephone keypad.
If you're using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from Jed Dorsheimer with Canaccord Genuity.
Hi, Thanks.
And it sounds like you guys. There are driving so it's good to hear.
I was just wondering Dan maybe could.
Dig into or you could elaborate on.
The value proposition it sounds like.
Co bid is actually.
Well, if we look at Covidien, we look at what it does too.
Worry for the vulnerability associated with the Greg I was wondering if you could talk about how perhaps the value proposition for your product in the D. Var has shifted is a recognition of.
Of the vulnerabilities that that we face and then same question over on the.
The Nate Navy side effects.
Thanks, Chad hopefully are safe family is good.
Yes, everyone safe and good.
Good.
I think that what we see an acceleration of D. Var really goes back to last year with the with the large orders that were able to bring in.
What we tried to signal was we see some acceleration in submarkets.
Really because.
Customers in projects are concerned about their access to their labor.
And they like to get things done as quickly as possible, while they still have access to that labor.
I think if you think longer term I do think a lot of the macro.
A market trends that are effective I think electricity becomes more critical.
I think that everything that we're seeing and the market means that connecting wind and protecting ships are going to matter more in the coming years not less.
They acceleration in the orders really was through the great work that the team did in 2019.
Got it and you mentioned several times on the call about the strong backlog.
I was wondering if you could define that a bit.
Just so we understand what you consider strong to be.
Well when we look at what we're trying to book in the way of orders were further out in time than any time I've been here. So.
We are.
You know a quarter or two ahead of.
Realizing the orders.
Compared to where we probably were in past years.
We don't really break up the backlog by product line, but we kind of hinted at strongly was saying that we're able to to deliver 40 million.
New orders.
Last year, there is some book and burn that comes out quarter to quarter.
We've talked about typically with D. Var, we're looking to book quarters out say six months.
We are seeing customers that are now looking at orders that that have delivery dates beyond one year. So when we look at our pipeline. We're comforted by the fact, we don't see the business slowing but.
But I really can't help to think what's going to happen in the fall. We do have an election coming up I don't know what will happen in the winter.
Why don't we reported as an aggregate backlog indication $61 million 12 month performance obligations. So to hear that jets. So 61 million as what we reported for the backlog for what we believe will be recognized in.
Fiscal 2020.
Why we say we believe as one of the challenge is always with the backlog has been dealing with Inox, we have to make what we think as an educated guess based upon.
Their payment history, and what they're showing us for forecast and potential projects on what revenues, we might have in there, but obviously, you're seeing a shift by the company more to grid and growth for grid.
And we'll take our next question from Eric Stine with Craig Hallum.
And then John.
They are going to talk to you have one yes, good to talk to you too good morning.
So I just wanted to start with wind because it was actually quite a good good quarter there.
I mean, given your commentary on IMAX, where they stand.
Should we take that is pretty much all being do sun.
Then just curious your thoughts on I know there is that the remainder will be executed in fiscal 20, I mean should we assume based on project schedules that thats more front end loaded and then just thoughts on.
The potential given your outlook in that market the potential for a follow on order.
Yes, I think your your estimation that we're going to continue to deliver this we started in Q3, let lightly and then a little more you for.
We did report really three customers that were greater than 10% those were a key.
Electrical contractor that helps us with industrial D var installations.
They were.
Siemens, which is a new name for us and do side. So do some becomes a bigger portion certainly of our when revenues.
In the case of Siemens that's for grid products, specifically for for D var.
I don't know, what's going to happen in the market with Korea, but they seem to be focused on continuing to execute and build these wind farms.
Identified a few more hundreds of megawatts that they want to go build and they have very aggressive targets.
And as I said in the prepared remarks, we haven't seen signals are signs on the do sign yet, but korea slowing but.
We haven't been through this before with a pandemic at least not my lifetime.
So I can't tell you, what's the turns and twist are going to be given their demand profile. It would lead you to believe.
Logically that there'll be another order coming in the next whatever quarter as a year or so but.
But I can't guide you to that I can't confirm that I don't know, if thats going to happen or not but the pacing that theyre talking about would imply you're going to see continue to order traction with do sign going forward.
Yes, okay on it or not.
Eric If you look appetite and you look at the percentage of revenues I was in Q4, you can see it was the majority of the when revenue to answer your question drug Okay.
Perfect.
And then maybe to sticking with wind I mean, obviously.
Some uncertainty are quite a bit of uncertainty Eni Nox, but it does sound like there is some movement at least on the ground in terms of getting through that inventory.
I mean, I guess don't want to necessarily pin you down, but I mean is something that you Where's your confidence stand in terms of getting this resolved.
And then being and good.
Yes, I mean are we worked very closely with our next as a company we have great respect for them, we understand they've been through.
A lot of things I think the good sign that we're seeing or theyre out commissioning turbines, which means they're consuming inventory.
Which bodes well for their need for future inventory from us, which we think is good but also bodes well for them from a cash standpoint.
That they're working in there being able to collapse means that they have cash flows that they can then.
Flow back up the supply chain. So we want to help them as as best we can but we want to be clear we're going to.
We're going to receive payment then we're going to do our work and then we're going to deliver and Thats. The message, we deliver diagnostics and that's the message we've consistently that review all for the past.
Many quarters.
Well take our next question from Colin Rusch with Oppenheimer.
Good morning. This is kristen on for Colin Thank you for taking your question.
Hi, Chris.
Good morning.
I wanted to follow up on some of your comments about gross margin I appreciate.
All that some of the cost sharing agreement there, but can you talk about what that looks like on a like for like basis.
I appreciate that you don't break that out by segment, but just maybe some commentary on how that's trending within grade person questions like that would be helpful. Thanks, when I talked to kind of high level, what we see happening in the business any kind of get the and everybody gets cut of the machine that focuses on margin I made the comments were focused on margin and.
And John if you want to get into specifics, but we have a couple of things happening right. So as we have.
Waning revenue in when which is a very mature business, which we have good contribution margin.
Typically from.
You have basically an idling or slowing of that business, where you are not doing a whole lot pop that certainly impacts margin.
That's also coupled with kind of two factors in grid you have a series of new products that we're launching.
That need to get to a certain scale to start to contribute similar contribution margins as the more established.
Products, so specifically when we look at Sps.
And then we look at Reg.
Certainly have has an impact we designed the program in a way where we believe that we would see positive cash contribution the way in the accounting works, you're able to ascribe not only direct product costs, but also overhead related costs to some extent with the government accounting so were.
Looking at it differently.
But it does present, a near term drag it is a cost share program, which means that we're sharing our costs between the three parties.
A typical commercial order that we would hopefully see in the future.
Reg. So you have the wind effect do you have the launching of the Sps effect and then you have a cost sharing program with rank those are kind of the three styles.
To be an accountant.
Chris and I think you nailed it.
Right.
On both.
We don't disclose gross profit by by operating unit, but I, what I can tell you as both both business units have seen a reduction in gross profit year over year and for the exact reason as Dan said.
On the when side, that's heavily driven by the reduction in revenue from Inox.
I mentioned in my script was about $19 million <unk> revenue and last year. We've told you. This year. The IMAX is less than a 10% customers. So you know it's less than $6 million for the year. So at a minimum we've lost at least $30 million revenue from my next year over year and then you can do the math and then on the grid side I think Dan did a good job explaining.
The grid the grid bridge, we think the margin issues is temporary and something that this plan there is a bit of investment towards the future in the growth that we want to deliver we're focused first on growing that topline getting the beachhead in these new markets and then we believe and we're working hard to make sure that that margin comps. We know it's what we have to do.
We have to deliver not only revenue growth, but we have to deliver earnings and earnings growth and we are maturing to that kind of business here over the next.
Yes for years.
Okay.
Well take our next question from Philip Shen with Roth Capital Partners.
Hi, everyone. Thanks for questions. The first one is on Vvo.
You talked about and more.
Repeat customers was wondering if you might be will give us a little more color on that.
Specifically, how much do you think vvo.
Segments could grow year over year in fiscal 2000, and then how much of that business from mix standpoint, do you think.
Could be repeat customers.
More than 50% or do you think you're still sub 50% for example, thanks.
Well the Vvo product kind of again go back cut at high level spirits like we're trying to continue to frontier with new customers.
Identified projects, where it's a compelling.
Interesting approach because its new for a lot of distribution utilities and think this way.
And then what we see typically is once we get.
Them doing their first project.
We are seeing the beginning of some recurring business. So I think we're optimistic I think we think 2020 as an important transition year for Vvo to go from kind of first.
Projects was with initial customers to recurring projects with those same kinds of customers, but also continuing to to pioneer in two new projects with new customers.
I don't really know.
How big Vvo can get within a year I think.
We have a good sense that we're trying to prepare to be able to manufacture more.
It's hard to say is the rate limiting step and to be orders or.
Capability to deliver we're trying to modulate both but I feel.
In 29 team, what we learned or the feature set that we're presenting to the market. We think is right. We think it's highly valuable we think we've been able to identify not only distributed generation tight.
Projects, but also similar to how we sell D var industrial projects as well.
So it's hard for me say filled because we don't guide things by product, but we do see certainly potential strengthening for Vvo. We're we're trying to put the things in place to be able to manage that.
If that comes here in 2020, but certainly should come in the next year. So.
Great and shifting to D var.
You mentioned Siemens.
Being more than 10% customer now.
Can you give us a little bit more color on the relationship there.
How or whether or not thats repeat business do you see the end markets that there.
Operating on the on behalf of the bar.
Being.
Steady driver business over time.
I think the simple answer is yes.
I think from what we've seen as than we have a very unique offerings provide some feature sets that aren't in the term and thats kind of general how we look at it and I think we've done a good job in selling strategically where some of these top tier when guys are going we can help them get there in a way that's very cost effective for a lot of these emerging markets for that and.
I can't guarantee they'll be recurring revenue.
But at least all indications show that there is a long term potential business to be developed there.
We've talked about best us in the past and now we've been able to develop that I think it really just shows the ability for the team to diversify the customer base markets, we serve and really the applications in the value that we're delivering that bodes very well, we think overall for for D. Var. All indications show, we have a very nice.
Runway here with D var, not just for 2020, but but beyond.
And again, if you would like to ask a question. Please press star one.
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Great. Thanks, Thanks Shelby.
I really appreciate Everybodys time and attention I know, we're in a weird situation.
It's very different to think about waking up and worrying about virus and violence.
We're in a different place.
I think with our families and what we're focused on.
We try to focus as quickly as we could our people and the flow of our product to our customers.
We focused initially on safety and I think those are things that theyre going to help us.
I don't know how this this virus parts going to turn over the coming months or recorders.
We've tried to be proactive to get in front of it we tried to make sure that we're staying resilient and vigilant to hygiene and lots of the protocols that we've put in place we need our people to be able to deliver our results.
It's not just John and I mean, we're really trying to achieve cheerleaders and all this and thinking longer term.
As long as our people are safe and healthy I think we'll keep seeing the progress that we're making in the market.
I think what are the key points I want people to leave the call with as we did grow grid, but we grew at more than even we anticipated ourselves.
And almost always want to ask is sometimes large shareholders running well how much you think it can grow.
And we always struggled with when we say something.
I see it as a promise John sees a promise that we throw a number out but when we looked at what we thought the business could deliver we're ahead of where we thought we can be.
I think we're in a great position, given the backlog and the balance sheet.
Just to remind people we had an analyst day back in New York and seems now like it was a year or so ago as just in November.
We really discuss the new vision of the company in direction about creating a super grid and a super ship.
So a super great enables.
More renewables on and more resiliency for our power grid, that's really what we're becoming about and grid, even with electrical control systems, enabling more renewables at a lower cost to be able to deliver that power to the grid.
And the Super ship allows for greater resiliency and operational capability for our fleet, that's how we position and Thats, how we sell it.
When you think about our company not only have we started the beginning a commercialization of superconductor the material.
Which is something that's all near and Dear to our hearts, but we really become the super.
Dr.
[music].
Where we not only have the material, but the control technology.
And the way we view the world now as we're orchestrating the rhythm and harmony of power on the grid.
And we protect and expand the capability and resiliency of our Navy fleet Theres, a musical theme and thus, but a lot of what we do a signal control.
Electrical some other things that we do in control that's not much different than.
And how you think about.
Conducting a symphony.
We see the grid and we see Navy ships as key markets for us and we're going to continue to work hard to deliver resiliency to the power grid and the Navy fleet and we hope that music.
For the years of the markets that we serve.
John I look forward to reporting back to you at the completion of the first fiscal quarter 2020.
So we'll talk to you hopefully soon please keep safe. Please realize that there are threats out there and our world seems to be changing again on a day to day basis.
Please stay safe Thank you everybody.
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