Q2 2020 American Superconductor Corp Earnings Call
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Good day and welcome to the American Superconductor second quarter fiscal 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the call over to Mr., John housewife with L. <unk> go ahead Sir.
Thank you Travis good morning, everyone and welcome to American Superconductor second quarter of fiscal 2020 earnings Conference call.
John I was worried about like Jay Investor Relations M. A c's Investor Relations agency of record.
On today's call and Daniel again, Chairman, President Chief Executive Officer, John because even though you're vice President and Chief Financial Officer and Treasurer.
American Superconductor issued its earnings release for the second quarter of physical 2020 yesterday. After the market closed for those of you have not seen the release a copy is available on the investors page of the company's website at Www <unk> M. A C dot com.
Before starting the call I'd like to remind you that various remarks that management may make during today's call about American superconductors future expectations.
Lands and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, including those set forth in the risk factors section of American superconductor.
I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel again, Daniel Thanks, John.
Good morning, everyone I'll begin today by providing an update on some recent activities.
And then provide an update on our grid and when business units John can see what will then provided the tailed review of our financial results for the second fiscal quarter, which ended September 32020, and provide guidance for the third fiscal quarter, which will end December 31 2020.
Following our comments will open up the line to questions from our analysts.
We had a busy October two weeks ago and concluded in equity offering.
Our efforts are focused on continuing to grow our grid business in fiscal 2020 and beyond.
We raised approximately $51 million in net proceeds through the issuance of three 7 million shares of common stock price to $15 per share.
We think it's great that many of our existing institutional investors participated we also welcome many new institutional investors.
We see the interest in the offering is a positive sign that the market also believes that the growth opportunities in our group business.
I'm personally very pleased by the work and effort put forth by our team to make this happen.
In October we also announced the acquisition of northeast Power Systems, Inc, or <unk> as we call it.
Prior to becoming part of the MSC family Nazi was a privately held company in upstate New York supplying medium voltage metalwork closed capacitor banks and harmonic filters.
We paid Nazi $26 million in cash and approximately 874000 restricted shares of AMC common stock at closing.
The acquisition of Nazi directly aligns with our strategic priority to accelerate profitable growth independent of our wind business broaden our product offering and expand both market reach and market share.
The acquisition of Nazi extends our product offering in the industrial sector of our grid business.
<unk> is a leader in steady state powered correct.
MSC as leader and dynamic our correction the two product lines together are expected to provide a powerful synergy.
<unk> has been a partner supplier of AMC for many years.
Strategically we acquired Nazi with the expectation that <unk> will improve the long term quality of our revenues and earnings.
With further diversification by region customer and product.
And most importantly to accelerate our ability to achieve our goal to reach operating cash flow breakeven.
In addition to expected improvement in the quality of our revenue and earnings.
We believe the acquisition of Nazi has the opportunity to expand our scale and to be synergistic to further expand the market penetration of our dealer product.
The additional market serve by Dempsey will provide immediate access to customers. We did not have access to.
We believe that are strong balance sheet, and addition of Nazi to our grid team physicians MSC for continued create growth.
We continue to be focused on building, a more predictable and diversified business.
Turning now to the quarter revenue for the second quarter of fiscal year, 2020, which did not include Nazi.
Came in above the top of our guidance range and grew by more than 50% versus the year ago period.
Our grid segment revenue grew 42% versus the year ago period.
All great product lines contributed to the quarter.
And the primary drivers were D. A R and our ship protection systems.
We ended the second quarter with more than $57 million in cash. This is before the acquisition and the equity offering.
We believe that our grid segment is on track for another record breaking year.
We remained focused on managing our operations are operating cash burn was better than our guidance for the second quarter of fiscal 2020 and are ending cash balance was above guidance for the second quarter.
We made progress with our wind business in the second quarter of fiscal 2020 as well in fact, when revenue grew nearly 90% in the second quarter of fiscal 2020 versus the year ago period, we made shipments against our order from our South Korean partner do some heavy industries four or five five megawatt class.
Electrical control systems or ECS during the second quarter of fiscal 2020.
During the second quarter IMAX delivered the following approved letters of credit on September 2nd 2020.
Knox delivered approved letters of credit in the amount of 1.3 million euros, which translates to approximately $1.5 million for.
And ship protection systems going forward.
As we've discussed over the last two quarters. The emergence of COVID-19 has created both operational challenges and macro economic concerns for all businesses.
MSC continues to demonstrate that it can operate effectively through times of crisis. I said this early on in the pandemic and I'm, saying. It again, we were early to implement physical separation protocols out our manufacturing sites and we have not missed a beat in production. This does continue to get harder each quarter.
In the U.S., we're now seeing a third wave of cases.
We have instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount.
We're focused on our people and the parts to make our products as well as strong customer service and product quality.
Factories remain open and have been operational throughout pandemic now I will turn the call over the John Ziva to review our financial results for the second quarter of fiscal year 2020, and provide guidance for the third fiscal quarter of 2020, which will end December 31, 2020, John Thanks.
Thanks, Daniel Good morning, everyone.
MSC generated revenues of $21.1 million for the second quarter of fiscal 2020 compared to $14 million in the year ago quarter.
Our group business unit accounted for 77% of total revenues, while our wind business unit accounted for 23%.
Grid business unit revenues increased by 42% in the second quarter versus the year ago quarter, primarily due to higher D var and Sps revenue.
When business unit revenues increased 89% in the second quarter versus the year ago quarter. As a result of increased shipments to do sign in IMAX.
Looking at the piano more detail gross margin for the second quarter of fiscal 2020 was 26% compared to 27% in the year ago quarter.
The strength in gross margin for the second quarter of fiscal 2020 was the result of a favorable product mix and high factory absorption within both our grid and win segments.
R&D and SDMA expenses for the second quarter of fiscal 2020, or 8.6 million. This was up from 7.8 million in the same period a year ago.
Approximately 15% of R&D and SGN a expenses in the second quarter of fiscal 2020, we are noncash.
Our non-GAAP net loss for the second quarter of fiscal 2020 was $2.7 million or 13 cents per share compared with $1.5 million or seven cents per share in the year ago quarter.
Our net loss in the second quarter of fiscal 2020 was $3.7 million or 17 cents per share. This compares with zero point $8 million or 10 cents per diluted share in the year ago quarter.
Included in our second quarter of fiscal 2019 that loss was a $1.1 million noncash gain associated with the change in the fair value of warrants.
This favorably impacted the year ago results.
We currently have no outstanding warrants.
Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
We ended the second quarter of fiscal 2020 with $57.7 million in cash cash equivalents marketable securities and restricted cash.
This compares with $62.2 million on June Thirtyth 2020.
Our operating cash burn in the second quarter of fiscal 2020 was 3.4 million.
As came in better than our previous guidance of a four to 6 million operating cash burn.
Now turning to our financial guidance for the third quarter of fiscal 2020, we expect that our revenues will be in the range of $22 million to $25 million on net loss on that revenue is expected not to exceed $6 million or 23 cents per share.
And our non-GAAP net loss is expected not to exceed $5.5 million or 21 cents per share.
The company expects positive operating cash flow to be up to $1 million in the third quarter of fiscal 2020.
Our cash flow guidance includes expected payments from Inox for SCS shipments in the third quarter. This expense. This is expected to have a favorable impact on our working capital.
As I mentioned in previous calls our working capital for the business fluctuates from quarter to quarter, depending on working capital requirements for individual projects.
When you look at our cash requirements over recent quarters, our working capital tends to average out any quarterly variations.
Over the last four quarters included in that guidance for Q3 fiscal 2020, we expect our non-GAAP operating cash burn to average approximately $2 million per quarter on an average quarterly revenue of $21 million.
This is well within the operating cash burn results, we would expect on this revenue profile.
We expect to end the third quarter with no less than 80 million in cash cash equivalents marketable securities and restricted cash.
This guidance reflects the 26 million in cash that we paid in connection with our acquisition of NMFC on October Onest, 2020, and $51.4 million in an approximate net proceeds for us from our stock offering which closed on October 26 2020.
With that I will turn the call back over to Daniel.
Thanks, John.
Our growth through a great strategy is working.
Grand is driving revenue growth for the company and D. Var has been the foundation of our grid business you can see we announced 15 million and new grid orders.
Our D var product is currently focused on addressing renewable energy installations, and industrial installations like a semiconductor fab.
As you know D var as a power transmission level product, where ours are all our optimizer orbio product addresses the power distribution market. Our NFC products are primarily distribution level products.
We are anticipating a higher volume of vivo shipments in the second half of this fiscal year.
We are beginning to see multi unit orders from multiple utility customers.
We expect vvo to contribute to our great growth in fiscal 2020.
Turning to the ship protection systems, which is also part of our grid business Sps contributed to the strong grid segment revenues in the second quarter of fiscal 2020.
I want to take a moment to recap developments with our Sps of the Navy specifically for our new shareholders MSC ship protection systems are also known as to gathering systems.
At AMC, we call them Sps.
The Sps is designed to reduce the magnetic signature of a ship, which can interfere with the with undersea mines' ability to detect and damage the ship.
Our Sps is state of the art, our Sps utilizes high temperature superconductors, which replaced massive amounts of copper in legacy systems.
The weight saved using our Sps versus legacy systems can be as much as 60 to 70 metric tons on a single vessel.
Our Sps became the baseline design for the San Antonio Class and heaviest warfare ship for LPD platform.
We believe our ASP for the San Antonio Class should represent approximately $10 million revenue per vessel to.
To date, we have three orders for our Sps to be deployed on the San Antonio class vessels, including LPD 28.
Ltd, 30, and LPD 31.
We are working closely with the Navy to understand the program timing for LPD 29.
Our Sps team is very busy and focused on continuing to expand the business, while we deliver our first systems.
We're excited for the Navy's adoption of our SBS system in 2021.
From a capacity perspective, we've been planning for the concurrent manufacturer of multiple Sps orders.
We anticipate our spss the potential for deployment on the Navy's plan 15, additional San Antonio Class ships, our Sps for the San Antonio class with revenue could represent a potential revenue stream of up to $150 million for this class of ship San Antonio class as our first design win.
And with the U.S. Navy.
Turning to rank comment has agreed to install its first resilient electric grid or Reg system as a permanent assets within Chicago's electric power grid.
In July we announced the comment broke ground and have begun construction on its Reg system.
We are delivering hardware to the project.
We are providing technical support during construction we.
We are on schedule for delivery of the system and anticipate Energization and 2021 per comment schedule.
Hey, MSC and calm add have proceeded with the engineering assessment of a proposed second Reg system in Chicago.
Comment second project, if agreed to and undertaken would utilize the MSC is reg system to interconnect multiple existing substations in Chicagos 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 as well as other grid disruptions.
With the first system secured we believe the future deployments of rag will be de risks.
U.S. utilities are focused on our execution of this first Chicago project.
Now I will turn to our wind business for those of you are new to the company we serve the onshore wind market through our partner Inox wind in India.
We have been supplying two megawatt electrical control systems or SCS diagnostics for several years.
These two megawatt Dcs go into a wind turbine amss. He has designed for IMAX.
We are encouraged by Iron OXXO stated desire to lower the levelized cost of energy further by way of a new wind turbines.
Hi, Knox's indicated a new three megawatt turbine as an integral part of its long term strategy to deploy wind power in India.
Hi, not sustain is of the three megawatt platform is a great fit for the competitive tariff environment in India. After the three megawatt prototype prototype turban that we designed this commission.
Inox will then seek type certification for the operating turbine.
We expect to work with Inox to build a three megawatt production supply chain and put in place a three megawatt SCS initial production order and support the already growing demand for their three megawatt turbine.
We believe we are well positioned to support imax's requirements and look forward to doing so.
We service the offshore wind market through our partner do sign heavy industries in South Korea.
We are the exclusive supplier of Vcs units produce on 5.5 megawatt offshore wind turbines.
The South Korean when market presents a long term opportunity for us as does the global offshore wind market.
South Korea has mandated the development of renewable energy sources as part of its planned for long term electric power supply and do sawn has publicly expressed its desire to secure as a large share of this accelerating south Korea, when our market our.
Our win team is working closely with Tucson, and we look forward to potentially penetrating the global offshore wind market with Tucson.
In the second quarter, we made shipments of our two megawatt electrical control systems to Inox and we made shipments of our 5.5 megawatt class electrical control systems to do so we believe we are well positioned to support expansion of our onshore and offshore wind business.
In conclusion.
At the midpoint of fiscal year 2020.
Our D var business is performing very well, especially after a bit of an acceleration at the beginning of the fiscal year.
Our video team is preparing for expected higher volume shipments in the second half of this fiscal year.
Our Reg team is planning to deliver the right hardware to Chicago this year on schedule.
We are manufacturing Sps for the San Antonio Clash of platform LPD.
And expect delivery of our first system in 2021.
We are supporting IMAX with commissioning in the field and are providing and have been providing more two megawatt HCS product as they need it.
We are currently integrating nap see into amnesty.
We expect to grow grid revenue again in fiscal year 2020.
I am very pleased at what our team here at MSC was able to accomplish so far this year.
We certainly had a very busy month of October I'd like to personally thank our employees for their hard work dedication.
I want to thank the IMAX team for working together with us to be able to resolve some challenges and continue to position their business for success, while positioning our business for further success in 2021.
The hard work is paying off we're keenly focused on our ability to achieve our goal of profitability.
I look forward to reporting to you again following the completion of our third fiscal quarter of 2020.
We'd like to take questions down from our analyst.
Hey, Alex.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad fewer using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again for star one to ask a question.
Our first question comes from Philip Shen Roth Capital Partners.
Hey, guys. Thanks for taking my questions first one is on rag.
Dan was wondering if you could give us a little more color on.
The rig opportunities beyond comment.
And then with the success that you're having there I know it's him utility scale, meaning it.
It takes time, but was wondering if you could give a sense for the progress we're making with some other.
Utilities. Thanks.
Yeah, we continue to work with multiple utilities. So we've developed we think a very healthy pipeline of potential projects, we talked about that in the past what we do really realize of everybody now focused on the successful delivery and execution of the system.
With comment so.
Comment has been a really great partner to be able to deal with.
They're very excited about helping us market it to other utilities.
And we know there's certainly we've had a bunch of conversations with a number of US utilities. So we're really focused on 22 until 2021 delivery of those systems that we think that opens up a tremendous opportunity for the company.
Great and then shifting to Vvo.
What's the latest there in terms of a number of utilities that are steadily buying you know based on.
Inventory and stocking as opposed to testing and then how many more utilities are in the pipeline that you guys are.
Working with to.
Develop regular steady volume.
Yeah, we're starting to see multiple utilities now taking multiple units.
We believe we've been able to.
I understand that and then well position vvo as a solution for residential solar.
And the problems that distributed generation represent on the distribution grid.
We feel really good about where we are with vvo.
We said in 2020, we are going to supply and limited number to the commercial market make sure. We have everything right that all seems to be correct.
We see an acceleration in in production, we are hinting at a second half.
Producing more more vvo units.
We feel really good about it I look forward to be able to talk hopefully more specific about specific utilities in the future, but we really do think we have something that fits really nicely.
Into our grid growth.
As well as our mission for smarter cleaner better energy.
Great one more if I may on NEP see.
I think the revenue run rate for them over the past three years was 25 million or so so now as you are further along in.
The integration process.
Hi.
And and you know as you look through to next year calendar 21, do you see the potential where you can already get pass that 25 million. Perhaps you guys can couple you know theres more synergies now with both dynamic in static.
Power correction, so I can.
Can you can do you think there might be more synergistic sales, where you might be able to.
Oh, the drive that 25 million dollar run rate I'm, even higher.
Phil I, absolutely do but I think the way we want to try to look at it now it's almost a combined product line.
For what we offer with D var Vvo NFC. So this idea of this new energy power systems.
Because we're trying to focus on building and continue to grow.
Penetration in the renewable market.
We've entered into industrial was semiconductor Fabs NMFC takes us further into industrial wood.
With their product line. So we're really focused on that as kind of the core of the business to continue growth keep that drumbeat going over the next years.
So I'm going forward as we kind of get to the next quarter. It into the next year, you're going to hear us talk much more about an integrated product line in the markets. It serves them really talking about the alphabet soup of products that we have.
When we've talked to investors they seem to prefer that they get that.
And that's why even with the latest order we talk about $15 million combined certainly driven by D var, which is really where the business has been.
And I'm really proud of what the team's done so far together with Dempsey.
I think it's it's really a good fit for us.
And I'm I'm really Uh huh.
Optimistic about not just the near term, but really when we think longer term growth potential for that part of the business.
Great. Thanks, Daniel I'll pass it on.
Thanks, Phil.
Our next question comes from Colin Rusch with Oppenheimer.
Thanks, Thanks, so much guys.
Looking at the ship protection system.
Reality over the near term and the.
The economic downturn and potentially impacting federal budgets, what can you tell us in terms of how much information again from that at all.
Procurement folks in terms of budget issues.
Central for folks trying to actually use cash that they have to sooner than later to avoid problems down the road just any help on the dynamic around that super helpful.
Yes, we certainly see challenges coming.
Given the economic situation I guess, we remain optimistic that those can turn a with a change or better control going forward with the pandemic.
Today, we really haven't been affected by it when we look at the specific ships that we have orders for those.
Those are all ships that have been planned and appropriated and procured in that money is being spent so.
So I don't see an immediate impact coming to Sps.
I don't know, what's going to happen with the <unk>.
Actually it looks like its going.
Cleaner direction like we like I don't know what the effects for the military that will mean over the next call. It two three years.
But when you look at the backlog that we have currently for LPD, that's going to cover certainly for the next couple several years.
So we're we're remaining vigilant to try to continue to grow that business on other platforms.
There is a plan to build ships so typically when a.
You know.
Parties change change control and things, we still have a military will still have a need to build ships it'll still be a need for ship protection system certainly and.
And we think that we benefit from.
Kind of a a cleaner environment move there. So one of the things Sps certainly can do is reduce operating cost of those ships. So we.
We think we really do have something that fits not only in the near term, but the long term for the Navy.
That's super helpful and now that you close the acquisition and then augmented the balance sheet.
How much.
And I know, it's a short time frame, but yeah, you think about the pipeline of opportunities on grid and customers that will will actually sit down with you now you can characterize the you know the order of magnitude of change and.
Any opportunity set that number customers are dealing with another company.
Different position, both from a product and a capitalization perspective.
Yes, I know and I think the way you're asking the question Collins exactly how we're thinking about it but you know utilities the us even in a stronger position given a broader product line, giving a stronger balance sheet. You don't today utility business has been you know on the horizon for US we have sold some D var been unlocked to utilities.
What we sell in the way of Vvo, we're really focused on utilities, obviously Reg focused on utilities. So this new energy power system offering you know, we hope that they will be applicability for utilities I think drew.
Exactly what we see with utility projects is there are near term concerns about cobot, given the availability of labor to be able to continue to do work doesn't really affect us today as I said, we don't have a lot of exposure today from a revenue standpoint utilities, but going forward I think the offering is very strong and so far been.
Very well received from our discussion with utilities.
Great and then just last one you know supply chain optimization with the combined company.
Could you give us a sense of how.
How much.
Purchasing power you know you caught component cost reduction and you can see and how soon that might start to flow through on.
The panel.
Yeah, I think it's a very good question, that's something that we're we continue to look at as we announced the acquisition. It really wasn't one of the main drivers for US we think that there may be some savings there.
Yeah really the margin expansion comes with revenue growth there may be some margin expansion coming from the combined supply chain, but.
But I think if we continue to drive the growth that's going to be the main driver for or improved gross margins.
Super helpful guys. Thanks.
Thank you Carl.
Our next question comes from Eric Stine, Craig Hallum.
[laughter] I know again.
Hey, Eric Hello.
Hey, So I was hoping just I know we've touched a lot on the grid here, but just maybe dig in a little bit on wins, So just would do sun.
If my math right I think you're maybe getting close to or you know in the back third of that.
The initial.
Orders for the 5.5 megawatt I'm just curious I mean, obviously do sounds good got big plans.
And you know a little bit more color on this call you said that you're talking about potentially taking that global so just thoughts on when you may see on.
That next 5.5 megawatt order from do some.
Yeah, you know right now we're working on commissioning the first with bar, which is utilizing these yet from that order yeah. The team is optimistic that maybe in the next year or so maybe it's 18 months I don't really know it's tough to say will be significantly larger than the first order. That's certainly something we want to work on I don't want to promise that.
But it's really going to depend upon the pacing of how do some guests their orders going all the indications in Korea seemed like that that's moving in a positive direction. It's hard to prognosticate for things that are beyond a year, but we will see business in the future for producers and the near term are really focused on.
Making sure we're doing what we can to support Arnox.
Making sure we deliver the three megawatt turbine to a prototype level newly certified all the things we talked about in the opening remarks and get that first.
Initial production or so that you know that really is going to be the impact on our 21 business. If we look beyond 21 to 22, then we'll see really help.
Additional business coming from Tucson out out there.
Got it and who your commentary and you just mentioned that with nine X. I guess I was kind of curious as you've gone through this process where.
You know they were not in compliance with the agreement and in that sense cured that isn't.
Is it something where despite that you were doing some of that pre work for the three megawatt turbine or.
Is that something that we should you know now that were or what a months removed from that curing.
Well under the two megawatt agreement that now things really start.
Yes, I think I would focus you know.
Let me just say in the latter that is almost a restart of the three megawatt program. We've got to go to prototype get a bill gets them to get orders they've been talking about already 160 to 200 units that they are they have a coming for orders. So we hope that a 2021 represents really the beginning of a ramp.
And volume for the three megawatt.
We do see continued demand coming on ours is telling us for the two megawatt so.
You know, we're very happy with how the grid business is taking us in driving us I'm really happy that we've been able to focus on that and execute very well on the grid side of the business and I think we have a nice option value coming in when starting with nine aucs with some two and three megawatt you know maybe next year.
Then you know beyond that expansion again reduce.
Mhm got it maybe last one for me you talked a bit about NEP c., but.
Yeah, I'm, just curious I know, it's early but what what.
What feedback are you getting from.
Summers, whether they're well, whether theyre, new customers and they're seeing your products for the first time.
Or maybe your customers that now.
They are seeing NEP see I'm just guessing.
Additional feedback realizing that it's still pretty early.
Yeah, just to back I've got a very very positive the team is really jazz.
It allows us to they don't think a bit differently, how we sell not only their products that ours opens up bigger Tam in larger markets for us. So you know that the integration is really focused on the front end and we get the leverage in selling can we sell more of their product we sell more of our product. We continue to focus on growth in the industrial market.
That's really where the team is headed and we hope to be able to report back to you guys that you know.
Those efforts are continuing.
Got it thank you.
Thanks, Eric.
There are no further questions in the queue at this time I would like to turn the call back over to Mr. began.
Thanks, Travis you know a lot of it's about scale you know, we really didnt Trinity New ground today with you guys. I think we feel really good about how the business is performing.
I think some of the comments John Casino has said about the math to the model and the results I think are very telling that we said we were going to get to a certain level that in the business. We've been able to get there. We still have further to go we think Dempsey certainly helps us get there faster.
Now we have a very nice balance sheet that keeps that strength for our grid customers and I'm very very optimistic about the future I don't know, where we are with the election, but that could turn out to be a positive thing for us as well so.
As we get to the halfway point here at 2020, and we already start thinking about next year in 2021 on the future looks certainly very bright for the company.
We want to continue to do the things that we've been doing and we think that we'll continue to translate into future growth.
Thank you everybody for your attention appreciate it no. It's a tough day with a lot of names out there reporting and such so.
We're very happy for those of you that we're able to listen like to the call. Thanks.
Thank.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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