Q1 2020 American Superconductor Corp Earnings Call
Excuse me, ladies and gentlemen, thank you for your participation on today's call. The conference will begin momentarily again. Thank you for your patience the conference will begin momentarily.
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Good day and welcome to the American Superconductor first quarter fiscal 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. John High also word. Please go ahead Sir.
Thank you Hello, Good morning, everyone and welcome to American Superconductor Corporation's first quarter. That's one Twentytwenty earnings conference call I'm, John piles for an L.A.J. Investor Relations and she's Investor Relations agency of record.
On today's call a damn again, chairman President and Chief Executive Officer, Dr., <unk>, Senior Vice President and Chief Financial Officer and Treasurer.
American Superconductor issued its earnings release for the first quarter of physical Twentytwenty yesterday after market close.
It was if you are not not yet seen it relates to copy is available in the investors page of the company's website at www, <unk> and I see Oh.
Before starting the call I would like to remind you that during his remarks that management may make during today's call about right superconductors future expectations plans and prospects constitute forward looking statements from purposes.
The safe Harbor provisions or the private Securities Litigation Reform Act of 99 spot.
Actual results may differ materially from those indicated by such forward looking statements as a result in various important factors, including those set forth in the risks factors section of American Superconductors I report on form 10 games. You ended March 31, 2020, which the company filed with the U.S.G. on June 220, 20, and subsequent reports.
The company has filed with yes, you see.
These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today.
For the company, while 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 management.
We refer to certain non-GAAP financial measures non-GAAP net loss and non-GAAP operating cash flow.
Yeah that lost as defined by the company is that income loss before stock based compensation.
Amortization of acquisition related intangibles changes in fair value of warrants and other non cash or unusual charges and the tax effective adjustments calculate isn't relevant right, where the company's non-GAAP metric.
Non-GAAP operating cash flow is defined by the company is operating cash flow for the China settlement that was legal fees and expenses and other unusual cashable items.
A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in the first quarter fiscal 2020 earnings press releases, the company issued and furnished to the FCC last night on form 8-K.
All of America's Superconductors press releases and I see filings can be accessed from the investors page of its website at www M.S.C. Uh huh.
Is that I will now turn the call over into Chairman, President and Chief Executive Officer, Daniel Mckenzie, Daniel Thanks, John.
Good morning, everyone I.
I will begin today by providing an update on our grid and wind business units Chancas C., but will then provide a detailed review of our financial results for the first fiscal quarter, which ended June Thirtyth 2020.
And provide guidance for the second fiscal quarter, which will end September Thirtyth 2020.
Following our comments, we'll open up the line to questions from analysts.
We are growing and diversifying our business.
Revenue for the first quarter or fiscal year 2020 came in above the top of our guidance range and grew by more than 50%.
Versus a year ago period.
Our grid segment revenue grew nearly 80% versus a year ago period.
In fact, this was de largest grid quarter, we have reported in nearly a decade.
Which is the time that we've been reporting a grid segment.
All of our grid product lines D var, Vvo, Sps and Reg contributed to the strong growth in the quarter.
We ended the first quarter was more than 62 billion in cash our grid business was driven by stronger D var, Vvo and S.P.S. revenues.
With our very strong start to fiscal 2020, and a robust scripts backlog scheduled for the remainder of the fiscal year.
We believe that our grid segment is on track for yet another record breaking year.
We made shipments against our order from our Korean partner do some heavy industries.
Our five megawatt class electrical control systems, where he's yes.
During the first quarter fiscal 2020, we expect a complete shipments under this order.
Fiscal year.
Our growth through grid strategy is working or record backlog of D. Var project is expected to ship this fiscal year.
The first quarter fiscal 2020 was the largest D var revenue quarter in about a decade.
Grid is driving revenue growth and D. Var, that's been the foundation of our grid business.
Business development and manufacturing teams are working very hard the D. Var products. Currently is focused on addressing renewable energy installations and industrial installations like that mine ore semiconductor fab.
The majority of our de <unk> D. Var revenue today comes from the interconnection of renewable energy generation plants to the electricity grid.
First quarter fiscal 2020 D var shipments were for wind farm conductivity applications.
In Australia, the United States in the United Kingdom.
We anticipate strong D var shipments to continue in the second quarter fiscal 2020.
As you know D var, as a power transmission level product, whereas our new vote for optimizer or B B O product addresses the power distribution market.
Our sales team has done an excellent job of educating utilities about our vvo product and we are encouraged by the utilities positive reaction to our solution.
Our team had a strong start to fiscal 2020 shipping our first multi unit order of BB O product to a utility in the United States.
We are anticipating a higher volume of Vvo shipments this fiscal year, we're beginning to see multi unit orders from multiple utility customers.
We do expect video to contribute to our grid growth.
In fiscal 2020.
Our S.P.S. business with the baby is gaining significant momentum.
Hey, M. A c's ship protection systems.
Our also noticed the gassing systems and I M. A C. We call them ASP, yes.
In July we announced our third Sps order for the San Antonio Class LPD platform.
This latest order will be for deployment on LPD 30 watt.
I want to take a moment to recap developments with our Sps and the Navy.
The U.S.P.S. is designed to manage that magnetic signature of a shift which can work and undersea mines ability to detect and damage. The ship Amis. He has worked with the U.S. Nate Navy to develop a lighter weight more power efficient version.
Just a galston system the high temperature superconductor S.P.S., we're now selling to the Navy.
Amis C.S.P.S. became the baseline design for the San Antonio Class amphibious warfare shipped for LPG platform.
The Navy's plans to build 15 additional San Antonio class ships, starting with LPD 28.
We have an order.
We're S.P.S. for LPD 28, we have an order for S.P.S. for LPG 30, and we now have an S.P.S. order for LPD 31.
Our expectation is that our next S.P.S. order will be for LPD 29.
Our S.P.S. team is very busy and focused on continuing to expand the business.
Why we deliver our first system.
We are working very closely with the Navy and our supply chain to ensure timely delivery of our three ship system orders.
We are engaged as reported on the last call and establishing the capabilities to deliver the S.P.S. systems.
From a capacity perspective, we have been planning for the concurrent manufacturing of multiple Sps orders.
We have implemented safety protocols, including social distancing our factory floor.
The San Antonio classes, our first design win with the Navy.
Other potential platforms include but are not limited to destroyers aircraft carriers frigates and littoral combat ships.
S.P.S. contributed to our strong grid segment revenues in the first quarter fiscal 2020.
We have reached a new revenue threshold for Sps.
We're working closely with that aiming to understand the program timing for LPD 29.
Last month in July we announced a combat unit of Chicago based Exelons Corporation.
And one of the nations largest electric utilities has begun construction on its resilient electric grid for Reg system.
The rank system is expected to become a permanent asset within Chicago's electric power grid.
We have been establishing our Reg manufacturing and product delivery systems for this project and we are on schedule for delivery as a system in 2020.
Comments first Reg system is expected to be operational 2021.
We are diversifying our win business.
We made shipments against our order from our Korean partner do sort of heavy industries for our five megawatt class electrical control systems, where you see us during the first quarter fiscal 2020 in fact do Som has been our largest when customer for the past four quarters.
We anticipate delivering additional units of the 5.5 megawatt do you see us in the second quarter fiscal 2020.
As part of South Korea's Ministry of train industry and energy strategy renewables are targeted to generate 20% of South Korea electricity by 23.
And at least 30% quite 2040.
[noise]. According to the publication business Korea, the South Korean government is promoting that its offshore wind power generation will be 12, gigawatts by 23.
South Korea intends to become one of the world's top five offshore wind power producers and we believe do some is well positioned for a very high market share to date or approximately nine large scale offshore wind farms in the development pipeline.
Which totaled nearly nine gigawatts of wind capacity.
We understand do sabal supply wind turbines for the southwestern offshore wind project and the glues on offshore wind farm.
In 2019 global offshore wind power generation reached about 29 Gigawatts.
My 2030 global offshore wind power.
Is expected to increase sixfold to 177 Gigawatts.
South Korea, Japan, and Taiwan are expected to contribute to the development of offshore wind power farms. Our team is working closely with do some and we look forward to potentially penetrating the global offshore wind market with this important partner.
Oh.
In India. We are encouraged by our Inox has stated desire to lower the levelized cost of energy by way of a new larger wind turbine design I Inox has publicly announced its expectation to transition to a three megawatt class turban by next year.
However, we have not yet signed a three megawatt easier supply agreement with by Knox.
Hi, Knox's indicated a new turban as an integral part of its long term strategy to deploy wind power in India.
We saw and still see uncertainty in the Indian wind market and and I know.
We stand ready to support our partner in India as they need support commissioning new turbines or de new stock of two megawatt east, yes, we have been in constant communication with China.
I Nox has paid.
Outstanding amounts on some of its contract.
Inox is working diligently to regained compliance with the two megawatts supply contract.
We are using the capabilities of our contracts with Inox to help bring the situation to a positive resolution for both parties.
We believe we are well positioned to support any expansion.
I Inox is business.
Now I'll turn the call over to John can see but to review our financial results for the first quarter fiscal year 2020, and provide guidance for the second fiscal quarter in 2020, which will end September Thirtyth 2020 job.
To Daniel and good morning, everyone.
M.S.C. generated revenues of 21.2 million for the first quarter fiscal 2020, compared to 13.8 million in a year ago quarter.
I agree business accounted for 84% of total revenues, while our wind business unit accounted for 16%.
Britain business unit revenues increased by 80% in the first quarter versus the year ago quarter, due primarily to higher D var and Sps revenues.
When business unit revenues decreased 11% in the first quarter versus a year ago quarter as a result of fewer easier shipments to IMAX.
This was partially offset by increased shipments to do signed during the period.
Looking at the piano in more detail gross margin for the first quarter fiscal 2020 was 24% compared to 11% in a year ago quarter.
The year over year increase in gross margin was primarily driven by the revenue growth within our grid business.
The increased revenue resulted in a favorable product mix and increased factory absorption both contributing to the year over year margin improvement.
R&D and SGN expenses for the first quarter fiscal 2020 were 8.1 million. This was up from 7.7 million for the same period a year ago.
Approximately 17% of R&D and SGN expenses in the first quarter fiscal 2020 were noncash.
Our non-GAAP net loss for the first quarter fiscal 2020 was 2.4 million or 11 cents per share compared with 6.2 million or 30 cents per share in a year ago quarter.
Net loss in the first quarter fiscal 2000, 23.4 million or 16 cents for sure.
Compared with 3.5 million or 17 cents per share in the year ago water.
Included in our first quarter fiscal 2019 net loss.
As a $2.9 million noncash gain associated with the change in the fair value of warrants. This favorably impact is a year ago results.
Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
We ended the first quarter fiscal 2020, with 62.2 million in cash cash equivalents marketable securities and restricted cash.
This compares with 66.1 million on March 30, a 2020.
Operating cost front in the first quarter fiscal 2020 was 3.1 million.
Came in stronger than our previous guidance of a 4 million to 6 million operating cash burn.
As mentioned in previous calls a working capital for the business fluctuates from quarter to quarter dependent on working capital requirements for individual projects.
When you look at a cash requirements over recent quarters, our working capital it tends to average out any quarterly variations.
Over the last four four quarters, our non-GAAP operating cash burn was approximately has averaged approximately 3 million a quarter on an average quarterly revenue of 18 million.
Each quarter, our cash flow requirements may be higher or lower due to changes in our working capital.
We believe the operating cash burn in the first quarter fiscal 2020 was well within the range of where we would I expect our cash requirements of the business offerings.
Now turning to our financial guidance for the second quarter fiscal 2020, we expect that our revenues will be in the range of 17 to 21 million on net loss on that revenue is expected not to exceed 6.5 million or 30 cents per share.
And our non-GAAP net loss is expected not to exceed 5.5 million 25 cents per share.
We expect operating test phones for another 1 million to 6 million in the second quarter of physical 2020.
We expect to end the second quarter with no less than 55 million in cash cash equivalents marketable securities and restricted cash.
With that I'll turn the call back over to Daniel Thanks, John.
As we discussed last quarter.
The emergence of Cobot 19.
That's created both operational challenges and macroeconomic concerns for all businesses.
Hey, MSC has demonstrated and is demonstrating it can operate effectively through times of uncertainty.
We were early to implement physical separation protocols that are manufacturing sites.
We have not missed a beat in production.
We have instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount.
We are focused on our people and our parts supplies for our products.
As well as on strong customer service and product quality.
We have been operational throughout a pandemic.
We have started fiscal 2020 on a very strong no.
Great represented over 80% of our revenue in the first quarter fiscal 2020 and was our strongest great quarter in nearly a decade.
Our D var businesses clearly very strong.
We are delivering vvo to the market developing our pipeline, especially for repeat customers or customers seem that need to need to purchase multiple units.
We have Sps orders for deployment LPD 28, LPD 30, and now most recently LPD 31.
We are in production.
Comments first Reg system.
We're supporting do signs efforts to penetrate the offshore wind market with our 5.5 megawatt turbine.
We are executing against our goals and that as to the credit of our employees due to their hard work and dedication our resilient people are focused on our resilient products.
I look forward to reporting back to you at the completion of our second fiscal quarter of 2020, operator, we'll now take questions from our analyst.
Thank you if he would like to ask your question. Please signal by pressing star one on your telephone keypad. If you were using a speakerphone. Please make sure your mute function, it's turned off to allow your signal to recover equipment.
Again press Star one to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from Phillip Shen with Roth Capital Partners.
Hi, everyone. Thanks for taking the questions first one is on D var.
You saw some nice growth there.
This quarter you see more ahead.
Daniel was wondering if you could talk about how long you expect this could sustain.
I know you're seeing strength in renewables and.
And when specifically and I think you've talked about.
Turning to the U.S. Duquesne Australia.
So to what degree or you winning business in other countries beyond these three.
And you know do you think you can.
Continued to just grow with the overall wind industry as your it seems like you're the value proposition of your.
Offering.
Seems to be a nice winning formula compared to the competition. Thanks.
Well, thanks to let me start a little bit bigger with just grid.
I think what we showed today is that we clearly have a backlog to support rent growth for the year.
That's obviously driven by D var.
We did say we anticipated a surge in the business I believe we're seeing some of that now I.
I think it's very hard for us to look out into the fall.
And into the winter given the pandemic and given the fact of the U.S. is going to go through election.
So I don't really know with the market demands are gonna be but we have seen though is our sales team already looking at sales for next year.
They're looking at projects that are probably now as many of six or seven quarters out in the future.
Our pipeline remains very robust, but that doesn't necessarily mean fill that macro market effects will slow things down we're in position to continue to deliver at these kinds of levels.
But I think clearly I want you to realize that we have seen an acceleration in that part of the business.
We'll see how we go forward with the next few quarters. We certainly have guided what we think is a nice quarter again for the second quarter, but beyond that and becomes or probably even more difficult and typically years to prognosticate, what the future holds for us.
Okay. Thanks.
As a follow up there or.
Can you talk about whether or not you're potentially bidding or winning new orders and new countries. So we talked about.
Or you actually kind of highlighted the three earlier.
Is there an expansion of reach as well there.
Its going to depend somewhat on some of our partners. So our typical core markets are the U.S., Canada UK, we sometimes see some business in Australia, where obviously seeing that right now it doesn't necessarily mean and will continue.
And in the past we've demonstrated some orders in Latin America Continental Europe and the.
The middle East.
At this point all I can say fill a stay tuned as we announce orders.
I don't know what's going to close next I know the pipeline is very much focused on our current core markets U.S. UK Australia.
We do have a nice healthy pipeline certainly for renewables, but for industrial as well and industrial could be also in Asia.
Or in North America so.
We try to manage risk by having multiple shots on goal for the product and having that diversity allows us hopefully they continue the beat or the music that were on today.
Great shifting gears to Vvo sounds like you're having some nice success there as well can you talk about the number of utilities that are doing multiple orders and then also how many utilities are you selling to today and then how many do you think you could expand that to.
2020, as well as 21.
I think either in the next caller I would call after that we'll probably go through a more detailed update on baby I think this is an important your for it.
We did mention that were.
Planted on making a certain number of units. This year, we're trying to put them in the hands on what we think will be utilities by bundles of these either for.
Deployments that use multiple systems.
At least purchases or multiple system I really don't want to get into the specific numbers at this point feel I think as we see the your mature we can give more color on the product I'm very very happy with where we are.
And we gave some indications in the prepared remarks about this idea of up multiples, but we're still in the beginning throws of it I think as we look forward.
220, 21 would be Oh, wait and get only get stronger there and beyond.
We think 2020 as a very important year for delivery of making these customers happy enough to buy multiple systems by either this year or in the next year.
Great. Thanks, Daniel Congrats on the success you're seeing in grid.
Thanks, Phil.
Well take our next question from Eric Stine with Craig Hallum.
Yeah. Good morning, it's Aaron Spychalla unfair thanks for taking the questions.
Maybe first on the Navy or.
Thank you likewise and maybe first on the Navy business you know congrats on the order for LPD 21, and thanks for the update there can you just kinda talk a little bit more about timing on the first two ships are those still expected to be delivered this fiscal year and then any more color on the efforts to expand into other areas I think last quarter you mentioned the Navy's identify.
The next class of ship you know any other color on potential sizes or timing there and then just any more color on the capacity. There I know you mentioned multiple ships, but but any more color would be great.
Yes kind of hard to give a lot more color or predictive of the next order until until we announce it but the kinda give you have the revenue profile works, we had the two systems going into the quarter.
We've added a third I think the best way to think about it is we're basically delivering.
A system this fiscal year, we'll be in position to deliver one next fiscal year and then I think the timing for LPD 31 means we'd be delivering probably the following fiscal years. So when we set new revenue threshold, what we need is for kind of other regular be now we're going to be able to deliver one ship.
Just a year.
And I want to make sure people understand we have been capacity for more because we're expecting growth and as we get wins will certainly announced.
Understood.
And then maybe next on customer diversification can you just give us an update there I mean, it really sounds like on a D var.
And just broadly in the grid, you really starting to see that I think I saw another new significant customer in Q.
Just maybe talk about the the pipeline there and how that's that's growing.
Yeah, we're seeing you know, we're seeing I'll say a.
Surge maybe in some larger projects and D. Var doesn't mean that they all are but I think the numbers of large projects.
Right.
Our very nice for us.
Translates in the potential that these projects with would be a 10 plus percent customer for any quarter. I think this quarter you see the same customers last quarter at 10%, Paul and an additional one as kind of interesting that are all of our 10 plus percent customers or come from the grid side it really specific.
We from D var.
Once the project in Australia ones and project to the U.S.
Alright, and then maybe last for me you kind of talked in the past about the efforts on the supply chain.
Can you just maybe a give a little more detail on that kind of what you've done there and just how you view that as a as important going forward.
Yeah, I think update on supply chain that we've seen which I think make sense.
Given.
Risks and Turmoils in other markets some of our suppliers have been able to pull in timing.
We've been in a good position that we're looking at multi source on pretty much everything within the systems that were delivering for you know for instance for D var.
For yes.
So I think our supply chain challenges still occur maybe on a weekly basis not on daily basis as they did in the spring.
But it is really a a series of effort to go on and with the team to ensure that we're able to get parts.
On time, and then the quantities that we need but some key components weve actually see the lean times, a short which is which is good.
Hi, Thanks for taking the questions and congrats again of course.
Thanks, Eric.
We will take our next question from Colin Rusch with Oppenheimer.
Hey, guys go on for calm this morning.
Can you provide a little bit your color.
I guess keep quite a little bit more color on visibility.
Into the Korean when market and when we could potentially see some revenue and as well as maybe some color on scale of revenue coming from that market.
Yeah, I think that's some of the good news in here as we see that market potential open up.
We do sign with advocate and we would supported that they think that they're gonna get superior market share locally I'd seems to be set up in that way to get to the 12 Gigawatts that are now in projections and I've seen some be that 14 at 16, but the latest when we call attention to is this a 12 gigawatt one it implies they're gonna have.
To get up to a rate of about you know one gigawatt or more year.
We've talked about our content being you know between 50 and 100000 per.
Megawatts, so dollars per megawatt and that translates a you know the same for for do side. So you know doing the math the opportunity in Korea alone isn't the hundreds of millions of dollars for us.
It doesn't quite reach affiliated with the total market, but it gets pretty close to it.
I think the challenging the questions will be what share will do side.
Be able to take we think they're going to differentiate on technology. We know the technology is barrier to many offerings in the market. We think those are the only went out with such a large winter, but as a will create a manufacturer. So we're cautiously optimistic at this point in 2020 that that do Sun has a great future ahead of it.
I don't know if that's going to show impact in 21, but certainly in years beyond that we six there'll be an important customer only this year, but for many years going forward.
Very helpful. Thanks.
At this time, we have no further questions I'd now turn the conference back over to Daniel Mckenzie for any closing comments.
I want to thank everybody for their attention today I mean, it's been challenging getting through the pandemic I think the good news is the number show that the business is really helping along we're at the level that John went through with the number is right where we wanted to be able from we look from a revenue on from a fall through standpoint.
We're getting good leverage in the business, we see gross margins.
This quarter being very good I think a lot of the questions that people asked us last quarter got answered today with the results and the information on the call going forward. We have a lot of work ahead of us to continue the growth that we're on the trajectory that were on and grid and we also showed we think some some good signs even coming from India.
Some of the comments that we may so.
We see strong results coming again next quarter, given the guides and we're going to do the work to make sure we continue to be able to do that.
We do have some lumpiness in the business from time to time and I really can't tell you today, what's going to happen with the election, what's going to happen in the fall and the winter with coded, but we want to make sure. We're in a position to take advantage of every opportunity that comes our way.
Thank you everybody and we'll talk soon.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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