Q3 2020 American Superconductor Corp Earnings Call
Ladies and gentlemen, you are currently on hold for the American Superconductor third quarter fiscal 2020 earnings conference call. At this time, we are assembling today's audience and plan to begin in a few moments.
We appreciate your patience and please stay on the line.
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Yes.
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Good day and welcome to the American Superconductor third 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 Heilshorn of Ellie cheap. Please go ahead Sir.
Yes.
Thank you.
Good morning, everyone and welcome to American Superconductor Corporation third quarter fiscal 'twenty earnings Conference call John miles for value Investor Relations.
Relations agency of record.
Todays call are Daniel Mcadams, Chairman, President and Chief Executive Officer of accounts receivable Senior Vice President you Nashville, that's right right.
American Superconductor issued its earnings release for the third quarter of fiscal 'twenty, It's funny yesterday after the margin.
It doesn't seem.
In the release a copy is available in the investors page of the country's website at www Dot com.
Oh boy it was right on.
Oh 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 constitute forward.
But for the purposes.
Provision.
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 on various important factors, including those set forth in the.
Risk factors section of American story.
Becker's annual report on form 10-K for the year ended March 31 20 per se.
The company filed with Securities and Exchange Commission on June one 2020 as updated in the company's form 10-Q.
December 31.
Other companies other reports filed with the S E T.
These forward looking statements represent management's expectations age.
It should not be relied upon the terms of any management views as of any day now of any subsequent day to day.
While the company anticipates that subsequent events and developments may cause the company to change the company specifically disclaims any obligation to update these statements.
Also on today's call management will refer to certain non-GAAP for the extra measured on.
GAAP net losses, non-GAAP operating cash flow.
Non-GAAP net loss for anybody to come.
Net income or loss for stock for stock based compensation amortization of acquisition related intangible.
Acquisition cost change in fair value of contingent consideration that warrants.
Other noncash unusual charges and the tax effected adjusted activated.
All of it right for the company non-GAAP metric.
Non-GAAP operating cash flow for five other companies operating cash flow for both the childhood development net.
These expenses and other.
Unusual cash flows for items, a reconciliation of the non-GAAP measures just directly comparable GAAP measures can be found in the third quarter of fiscal 2020 earnings approximately.
Company issued it furnished.
Our form 8-K.
On the back because you were conducted press releases.
Yeah.
Yeah.
That's just a web site at Www <unk> com.
Is that I will now turn over the call to chairman, President and Chief Executive Officer Daniel.
Daniel Thanks, John and good morning, everybody.
I'll begin today by providing an update on our grid and wind business units.
John Kosiba will then provide a detailed review of our financial results for the third fiscal quarter, which ended December 31, 2020, and provide guidance for the fourth fiscal quarter, which will end March 31st 2021.
Following our comments, we'll open up the line for questions for market analysts.
<unk> delivered strong results during the third quarter of fiscal 2020.
Revenue for the quarter grew by more than 30% versus the year ago period coming in at $23 $6 million.
Our grid segment revenue grew 12% versus the year ago period.
Grid is driving revenue growth for the company and all grid product lines contributed for a quarter we.
We generated positive operating cash flow in the third quarter of fiscal 2020 as forecasted.
This is a great milestone for the company to be.
We met this objective for this one quarter and we strive to be there on a sustainable basis. We believe that this demonstrates progress towards our goal of reaching operating cash flow breakeven on a consistent sustainable basis.
We ended the third quarter of fiscal 2020 with more than $84 million in cash.
Let's take a moment to review our grid business in October we announced the acquisition of biopsy free to realize that this transaction occurred during our third quarter, which is the period, we're now reporting on today.
The acquisition of Pepsi directly aligns with our strategic priorities to accelerate profitable growth independent of our wind business broaden our product offerings and expand book market reach and market share.
Further. The addition of a steady state power correction extends our product offering.
Passenger growth sector of our grid business expanding our available market.
Going forward, we will talk about the pieces that make up for grid segment in terms on new energy power systems.
And ship protection systems.
New energy power systems include GAAP C D var, and B B L.
We are integrating the front end of this part of the grid business that's one.
Yes, Reg as part of grid as well great.
Greatest driving revenue growth for the company, we believe that our grid segment is on track for another year of organic growth.
Why 2020.
And if we achieve this objective and it'll be our six six consecutive year for grid growth.
In the third quarter, our new energy power systems revenues were driven by industrial sales principally to the United States renewable projects in the United States as well as the international semiconductor fab.
Going forward, we expect that the addition of steady state power correction products and harmonic filter products to our portfolio of grid offerings should improve the long term quality of our revenues and earnings.
And further diversify our grid business by region customer and product.
Most importantly, we expect this addition to our grid business.
I wouldn't read our ability to achieve our goal to reach operating cash flow breakeven on a consistent sustainable basis.
We believe this quarter demonstrates progress towards this objective.
We believe we're well capitalized to execute our overall strategic plans for additional growth.
And further diversification.
We continue to be focused on building, a more predictable and diversified business.
As we've discussed over the last three quarters. The pandemic has created both operational challenges and macroeconomic concerns for all businesses in the United States.
M. A C has demonstrated that it can operate effectively during this crisis.
I said this early on in the pandemic and I'm, saying it again, we work early to implement physical separation protocols at our manufacturing sites that we have.
Not missed a beat in production. However, this continues to get harder each quarter in the U S. We may now just P seeing signs on the pandemic beginning for small, but each day, there's news about new variants of the virus, who knows what we're really going to be up against the 2021.
We have instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount for focus on our people quality production of our products and strong customer service.
M. A C is deemed to be an essential business for our manufacturing locations. Thus our factories remain open that will continue to be operational throughout the pandemic.
We are managing what we can control and that is our internal operations.
We've seen what we perceive to be new tailwind in our business.
President by its new energy plan could positively impact the demand for our new energy power system solutions.
The new energy play on it tends to work for them and extend the tax incentives that generate energy efficiency and clean energy jobs as well as to develop financing mechanisms that leverage private sector dollars to maximize investment in the clean energy Revolution.
This is very good news for our company.
As you know our D. Var product is primarily focused on addressing renewable energy installations for project developers of wind turbine manufacturers for.
Utility or maybe on a system offers superior power quality environmental benefits and significant cost savings over traditional solution.
Brightens administration plans to spur the installation of tens of thousands of wind turbines at his first term, including thousands of turbines off our coast. We are partnered with top tier wind turbine manufacturers to provide wind farm connectivity to the U S power grid.
The New administration also intends to spur the installation of millions of solar panels, including utility scale rooftop and community solar systems.
Because solar power is dynamic and intermittently variable in nature distribution grid must now enhance their network capabilities to accommodate this new resource.
While maintaining efficiency and power quality for their customers.
The President's Energy policy also focuses on the next generation of electric grid transmission and distribution, which is at the heart of our long term growth strategy. We believe our new energy power systems products are well suited to address this enormous challenge.
The expansion of our new energy power systems offering comes at a great time.
Now I'll turn the call over to John Casella, Who'll review, our financial results for the third quarter of fiscal year 2020, and provide guidance for the fourth fiscal quarter of 2020, which will end March 31 2021, John.
Daniel and good morning to everyone.
AMC generated revenue was $23 6 million for the third quarter of fiscal 2020 compared to $17 9 million in the year ago quarter.
Our grid business unit accounted for 72% on total revenues well on.
Wind business unit accounted for 28 per cent.
Pre provision net revenues increased by 12% in the third quarter versus the year ago quarter due primarily to the revenues generated from our recent acquisition of northeast power system for NFC.
Weighted business unit revenue has more than doubled for the third quarter versus the year ago quarter with a 144% increase in revenue as a result of increased ECS shipments for IDEXX wind.
Looking at the P&L on more detail gross margin for the third quarter of fiscal 2020 was 17% up from nine per site and a year ago quarter.
The higher gross margin was a result of a favorable product mix, which included ECS shipments.
Included in cost of goods sold on the third quarter on fiscal 'twenty 'twenty is approximately $1 3 million in non cash adjustments related to the purchase accounting for the acquisition of Pepsi.
These non cash related other jostling represent a negative five percentage point impact to our gross margin in the third quarter.
R&D and SG&A expenses for the third quarter on fiscal 'twenty 'twenty were $10 1 billion. This is up from $8 1 billion for the same period a year ago.
The increase in R&D and SG&A expenses in the third quarter of fiscal 2020 was due primarily to the addition of that these operating expenses for a M. A c's operation.
Approximately 13% of R&D and SG&A expenses in the quarter on fiscal 2020 were noncash.
Our non-GAAP net loss for the third quarter of fiscal 2020 was $3 4 million or 13 pence per share downtown.
Down from $6 7 million on 32 cents per share in the year ago quarter.
Our net loss in the third quarter of fiscal $2027 9 million or 31 cents per share.
This compares to $6 8 billion on 32 cents per share it in the year ago quarter.
Included in the third quarter of fiscal 2020 net loss per sub.
Non cash adjusted items associated with the acquisition.
I mentioned for the first one on $1 3 billion, which was a non cash expense into cost of goods sold.
Additionally, within our operating expenses you got a $2 7 billion dollar non cash expense associated with the change in fair value of contingent consideration.
And a $300 and noncash expense for the amortization of intangibles.
Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
We ended the third quarter on fiscal 2020 with $84 4 million in cash cash equivalents marketable securities and restricted cash. This compares with 57 7 million on September 32020.
We generated $1 7 million in positive operating cash flow in the third quarter of fiscal 2020.
This was primarily the result of favorable favorable working capital associated with cash collections from IMAX wind for ECS shipments within the quarter.
That's the orebody net working capital fluctuates from quarter to quarter, depending on the timing of milestone payments and inventory positions.
As I've mentioned in previous calls if you looked at our operating cash flow over a several quarter period that will tend to smooth out any quarterly variations of working capital.
The other day for the first three quarters of fiscal 2020, our operating cash burn is for 9 million on <unk>.
$66 million of revenue.
For reference this compares on an operating cash burn of approximately $18 million on 46 million of revenue for the first three quarters on fiscal 2019.
That's nearly a $13 million year over year improvement in operating cash flow over the nine month period.
The improvement in year over year operating cash burn was driven by the higher revenues and increased gross margins within both our grid and wind business units.
Okay, now I would like to take a moment to summarize the financial impact net thing had on our third quarter results.
Let's see I'll call it for $6 6 million up grid business unit revenues and net operating margin was approximately breakeven in the quarter.
As I mentioned earlier.
For several non cash purchase accounting adjustments included in these are results total on approximately $1 6 million.
When we normalize for business, excluding these adjustments net fees.
Financial results in the third quarter are in line with their historical three year average annual run rate of approximately 25 million a year on revenue.
The operating margins approaching 20 per se.
Now turning to our financial guidance for the fourth quarter of fiscal 'twenty 'twenty, we expect that revenue will be in the range of 18 to 22 million, we're expecting most of our fourth quarter revenue to be generated from our grid business you're on it we.
We are not expecting any ECS shipments to IMAX and the fourth quarter.
As Daniel mentioned earlier, we stand ready to support up on earn India as a commission new turbines on these new stock on two megawatt ECS.
Our net loss on that revenue is expected not to exceed 8 million or 31 cents per share and our non-GAAP net loss is expected not to exceed $6 5 billion up 25 cents per share.
The net loss and non-GAAP net loss guidance includes expected revenues from the niche for a Reg project in Chicago.
How's the orebody that this project with DHS as a cost share projects and as such has lower gross margins when compared to overall gross margins for our base business.
We are not expecting the right project to have a negative impact on operating cash flows on the fourth quarter as we have paid most of the cash expenses related to this project in previous periods.
As a result for the company expects operating cash flow to be a burn of 2 million for 4 million in the fourth quarter of fiscal 'twenty for them.
We expect to end the fourth quarter with no less than $80 million in cash cash equivalents marketable securities and restricted cash.
With that I'll turn the call back over to Daniel Thanks.
Thanks, John.
Yeah.
As I said at the outset, our new energy power part of our business is doing very well.
Really excited about our growth prospects in this part of our business on a continued executing on our strategy of growth and diversification.
Touch on other areas of the business started to S. P S.
As you know our ship protection systems or Sps has become the baseline design for the San Antonio Class and maybe it's for air ship, where L. P D platform.
We announced in January are for ship protection system contract for the San Antonio Class.
This contract is for an S. P. S for L. P. D 29 also known as the U S S Richard and the cool junior.
Elpida 29 will be the 13th in February as transport Dock ship.
U S S San Antonio class.
The ship is named after U S Navy Officer medal of honor except for you.
Richard models for cool junior.
Our Sps for the San Antonio Class represents approximately $10 million in value.
For revenue per vessel.
Our current backlog of Sps orders now include L. P D 28.
Page 29.
E 30 ml can eat very one.
Our team is very busy and focused on continuing to expand the business, while we deliver our first systems.
For my capacity perspective.
<unk> been planning for that concurrent manufacturing on multiple Sps orders and here we are.
We're very happy we have this capability as we are full out in producing these systems.
You've talked about the expected size of the opportunity several times in the past in total.
There were 15 future San Antonio class ships.
And to be built after we had on design wins.
We have now won four of these 15 for $40 million on the potential 150 million for this class of ship.
The San Antonio Class is our first design win with the day.
We are actively engaged with the navy pursuing additional classes of vessels for deployment of our S. P. S.
We have done some engineering for the potential deployment of.
For Sps and they next class a share.
We're very excited about this opportunity.
The work ahead to expand at the border on the U S Navy fleet.
In each case, we have to do engineering work prior to procurement.
We have to fit our common components that make up our ship protection system and show all the changes to the build of the ship. This is exciting work. Indeed. In addition, we're working hard to bring our Degassing systems, So foreign fleets.
We see interest here, but again there is an engineering phase that would proceed any procurement.
Turning to read our resilient electric grid system.
As announced previously the combat agreed to install on its first resilient electric grid system.
Permanent asset within Chicago's electric power grid.
In July of 2020, we announced the comment broke ground on has begun construction for the Reg system.
We have now for liver all our hardware two of the project.
Providing technical assistance to comment during construction things are progressing very very well, we're on schedule and anticipated organization in 2021 per common on schedule. We are excited about our execution to date on this first project with comments on many U S. Utilities are excited to watch are.
<unk> success.
Turning to wind during the third quarter of fiscal 2020, we shipped two megawatt ECS to our onshore wind partner IMAX wind.
As we mentioned in October not to regain compliance with the two megawatt supply contract. This is a very encouraging development for sure.
We stand ready to support our partner in India, as they commissioned new turbines or need new stock of two megawatt ECS.
We are also encouraged by Imax's stated desire to lower the level of life's cost of energy further I weigh other new wind turbine to that end, we have designed and IMAX is now in the process of constructing a prototype of a new three megawatt class turbine for the end of the market.
They expect to test and commissioned this turbine in 'twenty and 'twenty one.
Imax's indicated a new three megawatt class turbine is an integral part of its long term strategy to deploy wind power in India.
The three megawatt class platform appears to be a great fit for the competitive tariff environment and India, Iraq, just working towards completing construction and commissioning for three megawatt class prototype turbine that we designed.
Once the commissioning is complete buy in Knoxville than seek type certification for the operating turbine.
We expect to work with IMAX to build a three megawatt class production supply chain.
Put in place an ECS additional production of order and.
And support the already growing demand for their three megawatt class turbine.
We believe we are well positioned to support IMAX was anticipated requirements and look for.
So.
Overall, the market in India appear set to be in a better position in 2021 net.
In 2020.
We'll see.
We service the onshore wind market through our partner Doosan heavy industries in South Korea.
For the exclusive supplier of ECS units for Tucson, five five megawatt offshore wind turbine.
The South Korean wind market presents a long term opportunity for us as does the global offshore wind market.
We have completed the initial production order a five five megawatt ECS for Giussani off shore turbines.
South Korea has a mandate on the development of renewable energy sources as part of its plan for long term electric power supply and Tucson has publicly expressed its desire to secure a large share of this accelerating south Korean wind power market. Our team is working closely with <unk>.
And we look for to potentially penetrating the global offshore wind market.
Tucson.
In conclusion.
As we move towards the end of our fiscal year, 'twenty, 'twenty, which will end in March.
Our grid segment is driving revenue growth for our company.
We are pleased to report $1 $7 million of positive operating cash flow in the third quarter.
We are integrating <unk> into the company and are now marketing and selling static power correction systems into industrial markets.
Our Reg team has delivered the Red card works in Chicago, and we are on schedule.
We are a manufacturing Sps for the San Antonio Class ship platform L. P D.
On the delivery of our S. P. S for our first ship was expected in 'twenty 'twenty one.
We are supporting IMAX with commissioning in the field and have provided more two megawatt ECS product as IMAX if needed.
We have completed our first production order a five five megawatt ECS produce on and look forward to announcing our next production order for.
For the offshore wind market.
We expect to grow grid revenue again in fiscal year 2020.
I am very pleased with what our team here at M. S. C was able to accomplish so far this year, especially in.
In the middle of a global pandemic.
Yeah.
If you listen to what other comments that John made.
Last year, our revenues were about 64 for the entire year today, we stand nine months into the year at about 66.
For the burn is dramatically different on was $66 million of revenue than last year's 60 for I think that was a key point the job made and people shouldn't should focus on that.
Going forward, we believe that we are well capitalized to execute on our growth through grid strategy.
Like to personally thank our employees for their hard work and dedication and I look forward to reporting to you again following the completion of our fourth fiscal quarter of 'twenty twice.
Well he will now take questions from our analysts.
Thank you, ladies and gentlemen, if you would like to ask a question on today's call. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow you signaled to reach all equipment.
Once again it is star one to ask one question will take also as question from Philip Shen of Roth Capital Partners. Please go ahead.
Yes.
Hey, guys. Thanks for the questions.
The first one is on a net proceed I'm just was wondering if you could give some more color on.
So.
The combined offering now is playing with your customer base.
So for the new energy product offering.
Uh Huh, how has your pipeline changed you know version versus what it was pre GAAP C L.
And what kind of momentum are you guys Gonna go for it.
Yeah, we feel really excited about the integration of the teams for their working tremendously well together.
We kind of hinted at some leverage on some synergies between the team that's working already extraordinarily well.
The depth of the pipeline.
Used to show signs for growth.
I think the diversification of that pipeline has been a key focus for.
The team.
We're really excited about for future together.
You know when I talk for a lot more focused on on the next quarters, but necessarily for the next quarter.
But in the long term, we think this is really a nice fit on the.
And the teams are are very comfortable we're already working together.
Great. Thanks, Dan and then as a follow up there on V O specifically.
Can you give us an update on.
Tell me what the utility activity is there you know.
What kind of follow up follow on orders you're getting are have you made it into kind of a standard.
Purchasing for a bunch of these utilities and if so how many and how many do you expect to secure going forward. Thanks.
Yeah, I I remain tremendously excited about P. B O I think if they have a perfect fit for something that's really a critical need per day on the grid.
We've been able to now show.
With utilities, both of the projects already where we've been able to deliver very quickly. The results that they were looking for I think theres a lot of upside there.
For the types of selling net we're seeing with utilities I think is also going to help us to.
To sell larger systems for a right on.
Also.
Potentially to be able to penetrate utilities with the NAV C offerings.
As well as certainly rack so.
For the Aero becomes a very important piece of the strategy as we look on how to serve utilities to be on as you hear a lot of them the new energy power systems for the business, it's really grid connection for renewables.
And we have diversified into industrial.
You know that's really for the business has been in the future.
On the expand further to work more with utilities in D. B O definitely have been able to demonstrate that for us So net net.
We were really happy with the progress year to year with even though we do think there's tremendous opportunity and as I've mentioned in the outset.
Tailwind for a really strong behind us here on the grid needs to dramatically evolve.
Be able to support a lot of its distributed generation doesn't think PV is a key actor in making that happen.
Great. We look forward to hearing on a more progress there.
Thanks, Dan I'll pass it on.
Yeah.
Thank you we'll now take on next question from Colin Rusch of Oppenheimer. Please go ahead.
Thanks, So much guys can you talk a little bit about the Navy design process and how we might start seeing that begin to roll through the P&L.
For all that you got this other class ships at this point.
Alright caused widespread it up a little bit I heard that you said something about meaningful profit, but I don't know, which product you have hit on them.
The Navy ship right.
For the Navy design process, and how quickly we might start to see some of that revenue start to flow towards you guys.
Yeah, I think it's hard to predict you know.
Well, we're trying to you know where we are with San Antonio and that's that's about $10 billion per year per ship.
We're obviously at elevated levels relative to that because we are for on order right. So we're trying to deal with that to be on to be able to deliver systems.
So from a meaningful standpoint, you know that part of the business I think is important.
Day, but becomes even more crucial as we look at the longer term multi year horizon.
The GAAP the next platform what I telegraphed in the call. This time and I telegraphed last year is we know what we think will be the next platform. We're doing engineering work on it now I can't handicap on how long, it's going to take to get to a procurement.
I think with the Navy is looking to do is to determine which specific hold number when we go and getting started on.
But typically you're looking at stuff that they're going to buy a year year and a half for in advance for kind of.
Give you kind of how.
How to flow through when your revenue model. So if we got an order for another platform it might be a year year and a half before we have to deliver the revenue so.
We are very optimistic from what the feedback has come to us on what we've been able to do the day. We're really excited about 2021 was the navy because its an important milestone in the delivery of the for system and I think that will help us in selling additional systems not just for the U S. Navy put for foreign babies as well.
Okay. That's incredibly helpful and then on the Rec side, you know, obviously I'm moving forward.
With Oh, you know what this project is a meaningful benchmark for the industry a little on for you guys.
Can you speak to how conversations with other geographies are going on.
You know the the pace at.
Which those folks who are evaluating the potential for Florida pilot projects.
Yeah, I'd say the number of utilities, particularly the common Ed.
It's being a great cheerleader for.
It used to increase there they're trying to hail. This is a very important right for their future Richard they're trying to help work for us to other utilities I think that's true.
Tremendous value to us they've been extremely supportive of for a company.
They really.
I think the product is a key part of their future and they were literally I'm talking to other utilities about Reg for us.
Because it really does together visits a compelling need and if the grid for that so what we hope happens as you know we can deliver all of this on a tiny bit of energize.
And then we're in position to take orders from growth on the broader market so stay tuned.
Thanks, so much cash.
Yeah.
Thank you, we'll now take our next question from Eric Stine of Craig Hallum. Please go ahead.
Yeah, Good morning, Daniel and John It's sitting there in small on for Eric Thanks for taking my questions.
I think theyre on good morning, maybe maybe first on that good morning, maybe first on IMAX. You know now that the focus is on the three megawatt platform are you kind of talked a little bit about prototype design and commissioning, but can you just give a little bit more detail on how you're thinking that business can look year over over the coming quarters as we kind of progress through those through those steps.
You did.
Yeah, you know IMAX was demonstrated with the two megawatt they didn't need to get the type of certification to start taking orders for the turbine for it to start Covid supply chain, what we're telegraphing that day. If they are now actively working to build on supply chain, but we don't have on order yet for three megawatt yet so.
I think getting through the events that happened during the quarter were critical.
Really set the table for the relationship going forward with the three megawatt and.
So all I can say stay tuned at some point, we expect there to be an order for initial production for the three megawatt.
We know they already have demand for what they said on their conference calls for their investors and overall the market seems to be improving here in 2021. So.
We're very optimistic about not only the two but for three megawatt in 2021 for Brian on.
Alright, and then moving next question on the supply chain I know that localizing that has been a big focus for you on it and it has helped a lot can you just talk about if you're seeing any issues there given kind of what's been going on.
Yeah, we've seen issues with COVID-19 and in our supply chain across our product lines.
On the team has done a tremendous job trying to overcome those challenges we haven't missed a beat in production and we haven't missed a beat really with the financials.
Due to COVID-19 for the longer it goes certainly the harder it gets on our suppliers to be able to deliver to deliver timely.
The volumes that we need.
Specifically, they think of wind for three megawatt you're you're you're not creating a completely blurred brand new supply chain all the suppliers are known.
But in some cases, you're talking about brand new parts revenue, creating brand new for them.
Pieces that have to go into themselves. So you know that has been challenging I'll say to be able to develop.
Internationally during the pandemic, because you can't really travel and be there at suppliers.
But we're trying to manage through it and do the best you can you know at the end of the day I knock strikes us as they build their order book on the demand on that what's the timetable for the need for the suppliers like us.
Alright, and then maybe last just on the balance sheet on did you talk a little bit about the priorities given the strength. There I mean is it more acquisitions are preparing for that rig kind of pipeline as it moves for the next phase or just anything else, we should be thinking there.
We want to continue to scale the company, we want to grow and diversify.
Thank God for diversification, we think that the reduction of revenue volatility periods for a period or all things that's tremendously valuable for the company.
On the selection of going down the path with Betsy.
It was a.
Really sparked by the team who presented the idea of it really went bye bye John here.
So to go after these guys who makes a part of us.
On the integration has gone very well. So we were very confident that we can buy and integrate companies.
So that may be one path certainly the scale are we on.
Also are looking at internally at organic waste in parallel to be able to grow and scale. The company. We think we have a tremendous platform that we're serving markets that have critical needs a day for power management and that type of infrastructure grid renewables and in industrial so.
We just want to keep going on all the directions that we have been successful so far.
Understood. Thanks for taking the questions.
Thank you we'll now take on next question from Jed dull timer on.
Got enough growth teaching me. Please go ahead.
Hi, Thanks, Thanks for taking my question, Dan I guess on a Reg.
On Reg I should say.
Could you.
I understand the technology I was just wondering if if I could if you could articulate that the value proposition to the.
Utility beyond you know improvement of resiliency, you know because utilities seem to be under pressure what is the what's the goal for that.
Yeah. The pool is very strong and it's very clear.
So what we're really competing against other capital spend.
To upgrade substation build new Substations, great more transmission is in the European Corp that are on.
All tremendously expensive so what we've seen.
Is at a substation that they need to expand capability.
In many ways, it's a much quicker lower risk and more economical way to do it and the traditional gains on just building on the grid out.
It's a very elegant way to be able to share existing assets.
So it's a very simple way utilities GAAP to understand how the on traffic and capacity, but for the system.
I haven't really focused on moving power to where it's needed.
Utilities kind of get it so very much as kind of how they would probably book of any kind of capital projects and it's you know what's the benefit for the ratepayer versus like a of capitals them and Reg as a from a utility standpoint. It is really a positive positive product.
Got it I guess I am still not fully understanding.
The the value proposition. So if I you know if on the utility.
And I'm under a decent amount of pressure and I have a set budget, how do I reallocate budget to you for free for Reg versus allocation to for example.
You know improving you know, adding to my wind and solar assets to kind of green up the business I'm I'm, just curious how should I think about that reallocation of resources or Iraq.
Yeah, the problems that you're talking about on are different in the spirit. So the problem. We're trying to solve is on the grid itself, particularly in the Bourbon system. So what Youre doing is let's say I don't know pick a big city.
Chicago.
For them to build a brand new substations downtown.
Is highly cost prohibitive, but it's in the high hundreds of millions of dollars to could be as much as ability and when you look at permitting on land acquisition and all that.
As they need to be able to evolve their grid they.
They see Reg as a way to do exactly the same things at a much cheaper cost. So what we're trying to focus on Jed simply is where the grid needs to grow or change.
Be it through green.
Green be it through distributor generation be it through gentrification of neighborhoods.
Be it through natural upgrade on breakers and things are with the Substations, we're trying to leverage those types of projects to show a utility that Reg is a more cost effective solution to provide the additional capacity and reliability, but thereafter.
Got it that's helpful by the way and so just at.
I guess the finished at this point I should look at that is if it is largely city based in terms of you know if you have an existing city you have an existing infrastructure. Your solution is more cost effective when you look at having to add a substation versus carrying on the streets and things.
So of that nature right.
Exactly focused on urban because that's where the higher value is and how you're thinking about how the grid needs to evolve on the distribution side with more distributed generation in the city for.
We're driving towards electric vehicles, and such changes in demand on the distribution grid means that for distribution growth rate is going to have to be designed differently.
We think ragged on kind of the back book to build that new.
Downtown grid around at least that's what Chicago tells us.
Got it that's that's helpful. Thank you.
You know I guess, just with respect to NEP seat it looks like a great acquisition, but I'm just curious if I look at the core business.
Is NAV <unk> experience and it's you know a steep decline in Q4 or is it just that the sort of the D. Var in kind of that core business is is.
What has been declining.
No I think he did I think you're missing it entirely job I'll be direct with you Jon made a comment we're not shouldn't depend on ECS for eye on it.
Wind grid is growing rather than do it for me.
Industry, well, we look at your year.
The organic business and adding definitely both so D var is growing yes.
It was growing for a revenue standpoint E V O is growing everything is growing.
And you're adding in DRC, which we hope to be able to grow really on the weakness in the number that you're seeing that John had mentioned working for it was really wind is going to be tremendously right.
We're in a unique position, where we can allow for that and still not have the bird flow.
People that have been but not free for years, we didn't have a lot of easier for those quarters. They were very difficult quarters financials on probably the good news I think as we look at March and the numbers you know the revenue is right in line with what we've done in prior quarters, the birth rate in line with those product, whereas as well even though it was very late.
Yeah.
Yeah, I mean, I hear you with that but I mean, maybe just help me with the math because if I look at Q3, it looks like D. Var was cut in half. So I guess, when you say that I'm missing it.
Yeah, you know you had never see a 6.6 in the S. P. S. Is is you know fairly stable I guess I E. What am I missing because it does look good.
For Q4.
Yeah.
Sps is growing.
I think for the second part of your missing is there was an acceleration of revenue N D var.
Do you have Q1, especially.
Q2 to some extent, where you have additional revenue that was planned for Q3 and Q4.
That were pulled forward. So when you look net net and you won't be trailing three four quarter average as we still see growth you know 15 2025 per cent for all product lines in some cases as much as 40 per cent.
Okay.
I'll take it offline. Thank you.
Okay.
Thank you.
No further questions at this time I would like to turn the call back over to Mr. Daniel Mccann for any additional or closing remarks. Thank you.
Thank you we accomplished a lot in.
We ended our third quarter for.
Fiscal 2020 really on a strong note we delivered positive operating cash flow, we announced the acquisition of NFC.
Who did an equity offering for just over $50 billion of net proceeds.
For the issuance of three 7 million shares of common stock, which we priced at $15. So that was involved with that I hope you don't feel happy about the performance of the business.
We published an 8-K on October 5th which went through details on imax's compliance with the default for us.
I think you can get to understand the kind of really play for it looking about where we are with IMAX.
Most recently, we announced our fourth ship protection system contracts with the U S. Navy for the Richard M Mckool, which I just like I say in the pool I guess.
We're in a great great position as we look at trying to finish out strongly here in 2020.
I think the prospects as we look at 2021, if you listen to everything that I said I don't know, how many times I said 'twenty 'twenty one.
2021, we're delivering Reg 'twenty 'twenty one for delivery in F. 'twenty 'twenty one of the big year for the three megawatt Twenty-twenty wanted the big year for these new energy power system. We are in a wonderful position as the business, sometimes I have to temper my enthusiasm because I do realize that.
We are in the middle of the pandemic, but any day supply chain things are changing all our hopes and desires could be affected if we're trying to fix.
Fix a problem that isn't necessarily.
Something that we created ourselves so I'm trying to Dallas.
Kind of exuberance overall on the business, knowing how hard some days and some weeks can be just to be able to get parts. So.
We're really excited about 2020, we'll be able to come back to you and reported on a full year next time I appreciate everybody's interest in the company and we'll talk to you soon.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
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