Q1 2021 American Superconductor Corp Earnings Call
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You are currently on hold for American Superconductor first quite a it's called 2021earnings conference call at this time assembling today's audience and plan to be underway shortly and we appreciate your patience and pleased to remain onto line.
And.
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Good day, and we won and won't come to that I'm very comfortable conductor and stretch quite if it's called 'twenty 'twenty..1 earnings Conference call. Today's conference is being recorded and this time I would like to turn the conference over to Mr. John How hard. Please go ahead Sir.
Thank you Sharon and good morning to everyone and welcome to American Superconductor Corporation's first quarter of fiscal 2020, 1 earnings conference call and John Heilshorn of <unk> Investor Relations, MSG and Investor Relations agency of record.
On today's call and Daniel Mccartney, Chairman, President and Chief Executive Officer, and John Kosiba, Senior Vice President and Chief Financial Officer, and Treasurer and.
American Superconductor issued its earnings release for the first quarter of fiscal 2020, 1 yesterday after the market close for that.
As of you who are not I'm not seeing their releases and copies are available at the investors page of the company's website at Www Dot day MSC Dot com.
Before starting the call I would like to remind you that various remarks that management may make during today's call about American superconductor future expectations, including expectations regarding the second quarter of fiscal 2020 what financial performance.
And prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act.
And 95 actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, including those set forth and the risk factors section of American Superconductor and report on form 10-K, with you and at March 31, 2021 of which the company filed with Securities and Exchange Commission.
On June 2.2021, and the company's subsequent reports filed with the SEC.
Excuse me.
These forward looking statements represent.
Management's expectations only as of today and should not.
And be relied upon as representing management's views as of any day any date subsequent to today.
While the company anticipates that subsequent events and.
And developments may cause the company's views to change the company specifically disclaims any obligation to update these forward looking statements.
Also on today's call management will refer to non-GAAP net loss and non-GAAP financial measure the company believes that non-GAAP net losses.
Management and investors and compare the company's performance across reporting periods on a consistent basis by excluding these non cash non recurring or other charges and it does not believe are indicative of its core operating performance.
A reconciliation of GAAP net loss GAAP net losses can be found.
Non-GAAP net loss can be found on the first quarter of fiscal 2020 earnings press release, the company issued and furnished to the SEC last night on form 8 day all.
For the American Superconductor press releases and SEC filings can be accessed from the investors page of its website at www dot and <unk> dot com and with.
I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel Mccann, Daniel Thanks, Sean and good morning, everyone.
I'll begin today by providing an update on our grid and wind business units.
John cause EBIT will then provide a detailed review of our financial results for the first fiscal quarter, which ended June 32021, and provide guidance for the second fiscal quarter, which will end September 32021, following our comments, we'll open up the line to questions from our analysts.
At the top I, just want to say I'm very excited about the progress we've been making on the Reg installation and Chicago.
Both teams have been working very well together and I hope that we'll be able to update you soon.
We are growing and diversifying our business.
Our grid segment revenue for the first quarter of fiscal year 2021 grew by more than 30%.
A year ago period and.
Accounted for over 90% of the MSC revenue.
In fact, this was the largest grid quarter, we've had ever.
Since the start and this fiscal year.
We have been building momentum, while further strengthening our backlog and extending our grid visibility well into fiscal 2021, and also a glimpse into fiscal 2022.
This certainly is a very different and stronger business and then and even was a few years ago.
Our grid business was driven by strong new energy power ship, but.
System shipments.
As well as higher ship protection system revenues.
Total revenue for the entire business grew by nearly 20% versus the year ago period and in fact, our first quarter revenue of approximately 25 billion was our highest quarterly revenue and some time.
Just so people understand the numbers a bit better and the impact of Neil trend.
Remember, we said that we expected that Neil trend would be accretive to earnings per share with a 12 months from closing not right away.
And you'll try and delivered revenues of about $5 million during the first quarter.
This did come in line with our expectations.
Operating cash flow number came in line with how we would anticipate that the business would typically operate and revenues of about $20 million per quarter.
And then John goes through the numbers he will highlight this and.
And as you look at the guidance for next quarter. Please keep this in mind.
We have integrated Nazi nicely into the business. We are working to do the same with Neil Trent.
We are starting to see leverage between the product lines.
Evidenced by the recent $21 million and orders that were just announced.
Which was driven by the mining and semiconductor markets.
To give you some color on these orders nearly half of the orders come from mining.
And about a quarter come from semiconductor fabs.
We're getting leverage across the product line selling into mining.
We are presenting more content and getting orders from semiconductor and the middle of what is a challenging period for supply chains, while we're seeing an increase and capital investments to build semiconductor capacities.
These are 2 markets mining and semiconductor that may continue to be tailwind for the business.
And you'll see from our revenue guidance for the second quarter of fiscal 2021, we are anticipating growth.
Given our current momentum and existing backlog and we certainly could surpass the $30 million quarterly revenue level as soon as this fiscal year.
Now that we've reached 25 billion and we have our sights set on $30 million.
Our revenue backlog is more than 50% higher than this time a year ago.
And we ended the first quarter with much more than 60 billion and cash.
And in fiscal 2020, 1 we expect year over year revenue growth again, and our grid and and our overall business.
Our new energy power systems backlog is very strong.
We are manufacturing ship protection systems for the first San Antonio Class ship platform L. P D with our first deliveries expected this year.
We are supporting IMAX with commissioning and the field.
And providing electrical control systems or ECS as they need and pay for it and our South Korean wind partner has begun and erecting offshore wind turbines utilizing <unk> 5.5 megawatt turbine design and ECS.
Our new energy power systems business.
And have been supported by a strong base of projects and the renewable and industrial segments.
Our systems have gained notable momentum.
And we expect that they will drive growth and diversification for our company this fiscal year.
Our new energy power systems include dynamic power correction platforms are static power correction line of capacitor banks and harmonic filter systems as well as our rectifiers and Transformers.
Our dynamic power correction platform consists of our voltage management solutions. These solutions are focused on addressing and renewable energy installations on the transmission grid and industrial installations, like and semiconductor fab, which would reside on the distribution grid.
We are presenting more content to customers as we leveraged the strong combination of our new energy power systems solution.
And May 2020, 1 we acquired <unk>, Inc, a Connecticut based company.
Supplies rectifiers and Transformers to the.
Real market.
The acquisition of Neil Trent.
And as well as it was with NEP C, which we acquired last October directly in line with our strategic priorities to accelerate profitable growth independent of our wind business.
Broadened our product offerings and expand market reach and content per sale.
We believe our new energy solutions will play an important role and accelerating us to being operating cash flow positive.
And positioned us hopefully for even more dramatic growth.
Our growth through grid strategy is working our business development and manufacturing teams are driving very hard.
And our supply chain, so far has been able to respond to the increasing demand for our new energy products.
We work closely with the semiconductor industry and long lead items supply to date, we have not felt impacts of the semiconductor shortage on shipments.
We continue to monitor our suppliers and try to work closely with them to make sure we don't Miss a beat and production.
We are seeing lead times trending upwards, but we believe that we have the time to react to this and have built that into our material flows.
And when many manufacturers rely on lean production, we believe for critical components, you cannot run so lean and I'm very happy that we've been running our business. This way we are starting to see product costs on the rise specifically around and commodity metals.
This impacts every product of ours from the Captain study and close them down to the materials used for the semiconductor wire, we are proactively updating our prices where we can.
To include these additional costs, we can't adjust much against the backlog already established but the good news is that in most cases, we have either procure the material or have material contracts in place for a large portion of our existing backlog.
Moving forward on new orders, we are reviewing all our cost estimates and raising prices when appropriate.
The markets and general understand that prices for many commodities have been rising and we are adjusting accordingly.
We anticipate that new energy shipments should provide a strong base of grid revenues in the second quarter.
As well as the balance of this fiscal year.
This expectation is driven by the strong backlog that we have for new energy power systems as well as the overall grid business.
Now turning to our ship protection systems or Sps our ship protection system is the Navy's baseline for Galaxy design for the San Antonio Class ship platform L. P D.
In fiscal 'twenty, and 'twenty, we announced 2 separate delivery contracts for our Sps systems.
These 2 contracts represent our third and fourth ship protection system orders for a deployment on L. P. D 31.
And L. P D 29.
The Sps is designed to reduce the magnetic signature of a ship, which can interfere with undersea mines' ability to detect and damage the ship.
M. A C has worked with the U S Navy to develop a lighter weight more.
Our power efficient high temperature superconductor version.
This <unk> system.
The Sps we are now manufacturing for the.
The Navy.
The Navy's plan is to build 15 additional San Antonio class ships, starting with L. P. D 28.
We are working very closely with the Navy and our supply chain to ensure timely delivery of our Sps orders.
Our Sps team is very busy and focused on delivering our first systems for San Antonio classes. Our first design win with the U S Navy other.
Other potential platforms include but are not limited to carriers free gifts destroyers and literal ships.
Sps grew.
And contributed to our strong grid segment revenues and the first quarter of fiscal 2021.
Moving onto when do sinus now erecting their first series production 5.5 megawatt offshore wind turbines.
Utilizing a msc's design as well as a M. A c's ECS.
We believe southeast Asia, as a geography, well suited for our 5 megawatt class wind turbine and for our partner Doosan and hub.
South Korea, it tends to become 1 of the world's top 5 offshore wind power producers and we.
We believe do start is well positioned for a very high market share to date.
For our wind farms, and the development pipeline, which total nearly 9 gigawatts of wind capacity.
We understand and do some will supply wind turbines for the southwestern and offshore wind project, which is a 2.5 gigawatt development and Laguna <unk> offshore wind farm, a wide and Gigawatts development. Our team is working very closely with <unk> and we look forward to potentially penetrating the global offshore.
Wind market.
With this partner.
Regarding our onshore E C. The ECS business, we stand ready to support our partner and India.
And as they need support commissioning new turbines or need new stock of 2 megawatt ECS for now we are supporting IMAX with commissioning of 2 megawatt turbines and the field and providing ECS product as they need and pay for it.
But let me note importantly today, we expect to ship 2 megawatt ECS is the second quarter.
Now I'll turn the call over the John Kosiba to review our financial results for the first quarter of fiscal year 2021.
And provide guidance for the second fiscal quarter of 2021, which will end September 32021, John.
Thanks, Daniel and good morning, everyone.
MSC generated revenues of $25.4 million for the first quarter of fiscal 2021, compared to $21.2 million and the year ago quarter.
Group business unit and accounted for 92% of total revenues, while our wind business unit and accounted for 8%.
Grid business unit revenues increased by nearly 33% and the first quarter versus the year ago quarter.
The year over year growth is due primarily to the revenues generated from both of our acquisitions and <unk>.
And they will trail.
Additionally, we experienced gross growth within our Sps product line.
And when business unit revenues decreased 45% and the first quarter versus the year ago quarter. As a result, ECS shipments to <unk> during the year ago period.
Looking at the P&L and more detail gross margin for the first quarter of fiscal 2021 was 13% compared to 24% and the year ago quarter.
The year over year decrease was due to and unfavorable product mix and additional costs related to purchase accounting adjustments associated with the <unk> acquisition.
I realize that with the 2 acquisitions being incorporated into our financial statements over the last 9 months and may be difficult to get a sense of what normalized gross margins may look like after the full integration of both NAV and the hold true.
To help you understand what a normalized consolidated gross margin could look like on this revenue profile I've modeled and M. A c's consolidated gross margins, assuming that Neil trend and FC gross margins consistent with similar product lines like D var.
And that scenario and consolidated gross margins for the company would be between 20 and 25% depending on product specific mix.
As a reminder, when we acquired Neil trend, we mentioned it would take up to a year from closing for Neil tend to be accretive to earnings.
As we ship off existing Neil true backlog and replace it with new waters like the ones, we announced on Tuesday, we expect to see Neil Trans gross margins improved considerably over the next 12 months.
Moving on to operating expenses, R&D and SG&A expenses for the first quarter of fiscal 2021 were $10.2 million. This was up from $8.1 million for the same period a year ago.
The year over year increase was primarily the result of absorbing the operating expenses for both our NEP seat and Neil tray and acquisitions.
Additionally, in Q1 of FY 2021, there were approximately 700000 of acquisition related expenses to complete the Neil <unk> acquisition.
Approximately 13% of R&D and SG&A expenses and the first quarter of fiscal 2021 were noncash.
Our non-GAAP net loss for the first quarter of fiscal 2020, 1 was $2.7 million or <unk> 10 per share compared with $2.4 million or <unk> 11 per share and the year ago quarter.
And net loss and the first quarter of fiscal 2020, 1 was $5.4 million or <unk> 20 per share.
This compares with $3.4 million or <unk> 16 per share and a year ago quarter.
Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
We ended the first quarter and fiscal 2021 was $63.1 million and cash cash equivalents marketable securities and restricted cash.
Impairs with $80.7 million on March 31, and 2021.
Approximately $12.7 million and cash was used to acquire and New York trend and the quarter.
Our operating cash burn and the first quarter of fiscal 2021 was $5.8 million.
I would like to take a moment to bridge the operating cash flow for this quarter.
If you recall, when we announced the Neocon and acquisition, we stated that we anticipated Nielsen and would be additive to M. A c's operating cash flow within 12 months from closing.
Implied in that statement is that MFC would absorb nutrient and into the operations and it would take some quarters before we experience any meaningful cash contribution from this business.
Help normalize this quarters cash flow, if we back out and you know trans revenue and this quarter M. A c's and revenue is closer to $20 million and Q1 of FY 'twenty 1.
And that revenue profile.
We would normally expect and operating cash burn of $3 million to $4 million.
With that said, we're anticipating revenue growth and both on our grid and wind businesses over the coming quarters and as a result, we are investing and working capital to support this growth.
This additional working capital investment is expected to continue into Q2.
Then we expect the liberalized working capital and the second half of fiscal 2021.
Now turning to our financial guidance for the second quarter of fiscal 2020..1 we expect that our revenues will be and the range from $24 million to $27 million.
And net loss on net revenue is expected not to exceed $6.7 million or 25 per share.
Our net loss guidance assumes no changes and contingent consideration nor any purchase accounting adjustments associated with Neil and acquisition.
Our non-GAAP net losses expected not to exceed $5 million or <unk> 18 per share.
The company expects and operating cash flow and a $4 million to $6 million and the second quarter of fiscal 2020.1 we.
We expect to and the second quarter with no less than $56 million and cash cash equivalents marketable securities and restricted cash.
With that I'll turn the call back over to Daniel.
Thanks, John.
And the emergence of COVID-19 has created both operational challenges and macroeconomic concerns for all businesses.
And now just after it seems we're getting back to business as usual we.
And we see a surge in Covid cases due to this new virus variants.
Throughout the past 18 months from the pandemic of MFC has demonstrated and can operate effectively through times of crisis, we were early to implement physical separation.
And our manufacturing sites and did not Miss a beat and production.
We instituted cleaning protocols for our offices to help keep everyone safe and healthy which is paramount.
We are focused on our people and the parts to make our products as well as on strong customer service.
And product quality.
Our factories remain open and had been operational throughout the pandemic.
We have started fiscal 2020.1 on a very strong note.
Great represented over 90% of our revenue and the first quarter of fiscal 2020, 1 and was our strongest grid quarter. Since we began reporting the grid segment.
Our new energy power systems business is very strong.
And we are beginning to see the initial benefits of our 2 recent acquisitions and bookings are off to a strong start for the year.
We have ship protection system orders for deployment on Elpida 28 L. P. D 29 L. P D 30, and L. P D 31.
We are supporting do science effort and penetrate the offshore wind market with our 5.5 megawatt turbine.
We are preparing for our onshore wind partner <unk> to transition to a larger 3 megawatt class wind turbine for deployment and India.
We are executing against our objectives and that is to the credit of our employees due to their hard work and dedication and.
And I'm very proud of all the AFC and combat employees that have worked very hard to make Reg happen.
We have delivered the red and hard work to the site and Chicago on time, and we believe many utilities are interested in seeing the performance of our product and Chicago.
I look forward to reporting back to you at the completion of our second fiscal quarter from 2021, Sharon will now take questions from our analysts.
Thank you, ladies and gentlemen, if you would like to ask a question. Please take note that question Star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is to and also I'll. Let you speak now to reach all the equipment. Please limit your questions to 1 question and 1 for a little up and then with Q4 and you should know.
Well pause for just a moment to allow everyone an approach and a teacher stick no poll question.
Well now take our first question from Eric Stine from Craig Hallum. Your line is open. Please go ahead.
Great. This is ear and small on for Eric Thanks for taking the questions.
And good morning, Good morning, maybe first on Reg you know it sounds like well, we'll look for details there on the energy position of that.
But can you just kind of talk about the impact when that happens on you know maybe phase 2 and you mentioned and other utilities that are kind of interested in and seeing how that performs can you just remind us for the opportunity there with with other utilities as we as we look over the next couple of years.
Yeah, I think it's an important step for the product.
Being in a permanent installation.
Working with a world class utility like carve out and Exelon.
No there are other opportunities within the city of Chicago and within the broader Exelon utility we know.
As per our discussions with Con Ed.
They really want to see this thing operate at least a year before they go for it and make additional decisions, but the number of people that have been involved the level of training.
But the level of of deep conversations with with such a broad group with the utility gives me strong comfort that this is really a product thats needed now for the grid and solves a lot of those problems.
We're seeing a I'll say and uptick in demand and identification of specificity of products.
Sorry of projects for the product.
And other cities that we've talked about it and the past I think the team has done a very good job canvassing the United States.
To look for potential opportunities to deploy Reg, but I do think it's now allocated by successful operations.
For at least a year.
And the and Chicago.
Great. We'll stay tuned there and then you know second question you know with the infrastructure Bill can you just kind of talk about you know thoughts on that and and how you might see that impact your business.
Yeah, I think they all represent a tailwind and I think a lot of what we're doing is back in Vogue. It's the type of infrastructure that needs to be spent on that there seems to be funding being allocated for for clean and renewable energies as well as the systems like the grid that support them. So I think it's a very good time to be aware.
And superconductor.
Alright, thanks for taking the questions.
We will now take the next question from Philip Shen from Roth Capital Partners. Your line is open. Please go ahead.
Hey, everyone and thanks for taking my questions just as a follow up on the Reg project.
And I think back in June and Daniel and our Hum.
And virtual London event, you talked about you know maybe comment.
Just a few weeks away and just was wondering if you could give a little bit of detail as to if youre seeing any bottlenecks.
Or challenges as you guys kind of.
Get to the final stages or is mostly everything and kind of running smoothly and I know your original target was to get this done and the summer and but wanted to just check and see if there's more detail you could share I think that's still still targets off track I see all green lights and I.
And I hope that we can report back to you guys soon with some news.
Okay. Thanks.
And then I think and your prepared remarks, you talked about.
Mining and semiconductor end markets and it's been a nice source of steady demand and had.
Can you give us a little more color on what you might be seeing there are you seeing kind of more orders from.
The same customers you've had in the past or do you see the.
Diversity of customers, increasing where were possibly booth and then.
Would you say that these are key end markets.
Drive.
Towards your target of $30 million per quarter run rate for a cause for great. Thanks.
Yeah everything you said the answer is yes, so we're seeing a diversification of customers for seeing repeat customers for.
Seeing expansion of content per sales given the acquisitions.
Just to kind of talk.
Briefly when we think about doing semi.
There is a fit to add NAV C content to what we do traditionally with D var.
We are seeing an uptick in orders to do exactly that.
That part of the acquisition and certainly is working.
Similarly, and mining, we see a lot of opportunities right up and coming through and yield trend a lot of opportunities coming through etsy, we're able to combine content on most of those opportunities, which again translate to the EBIT more revenue growth.
And we think that these acquisitions are a great fit to diversify our business, we love, what we do and renewables and wind, but we think we've added a few more markets here that we can go penetrate and deliver additional growth.
Great and.
And that thread and F Q1, and I think I heard you said that Neil and trend, it's 5 million revenue and the quarter.
I was wondering if you could give us a more specific split of what your core.
Revenues were for grid and I'm, sorry, if I missed it and then perhaps what it was for each of the other recent acquisitions.
So we do we do breakout wind, we don't break out the details within the grid. We did say that we added and Neil <unk> 5 and we did say that for ship protection systems growth.
And that's kind of the length of the color that I can give you.
Got it great well, thanks, very much and I'll pass it on.
Thanks Bill.
Once again, ladies and gentlemen, please press star 1 to ask a question. Please limit your questions to 1 question and 1 for Bob and then requeue for additional questions. We will now take the next question from Colin Rusch from Oppenheimer. Your line is open. Please go ahead.
Thanks, so much and and the.
Grid business with these integrations can you speak to the cadence of the sales process are you seeing any shortening the sales cycle and then also if you could give us an update on your conversion rate from.
From pipeline into actual sales and how that's trending.
Yeah. Those are really good questions. Colin So I think what we're seeing is the cadence being kind of what we had thought you know typically we think about our existing products.
Clothing anywhere around 6 to 9 months out.
We see kind of similar timetables for NEP sleep for some projects may be a bit shorter.
We see similar timetables for and empty, but I'd say, usually a bit longer and maybe as much as 9 to 12 months out.
We do have some things that were starting to book now that are 15 months out and more.
I think what we're seeing is strengthening of the conversion.
And more clarity on what the year's going to look like.
And we're really comfortable to stand behind what we said about growth.
The conversion of the pipeline I think you know.
Early where the team has done some really good work is.
Strong identification of what truly is and that near term pipeline for things that we can close for the next 6 months.
And we've seen and I'll say and increase and the conversion rate or the win rate and I think that's again, a testament to be able being able to deliver more content to the customer.
You know a lot of times and projects.
It's much more about the timing and the financing of the project and it is really losing to other parties, but we see that with existing customers and new customers, we're able to deliver quotes with more content.
And that's being well received.
That's super helpful. And then you know as you.
Think about the medium term and that business now that you've got a broader portfolio of solutions and.
I'm sure looking at a little bit longer term and our relationships with some of these customers.
Is there you know a really meaningful opportunity to evolve the portfolio.
You know and design out.
Now some of the components and supply costs or evolved and the performance of those solutions to serve a different day.
I think a little bit more and the ladder I think of the longer term maybe sama from former.
Trying to find.
What's that sweet spot is particularly when we can find contest from D.
D var plus.
F C, where we could buy and content with Neil tram plus and FSC are there are there ways to think about streamlining cost and supply chain, but really you know and we wanted to get the stickiness with the customer and to get the order size.
Ah you're growing so that the effort per order.
Should be roughly the same but the yield per order and we're looking to grow or enhance and that's that's really the message and message with the T map.
Perfect. Thanks, so much cash.
Thanks Carl.
Ladies and gentlemen, once again, if you would like to ask a question. Please take note by pressing star 1 on your telephone keypad.
It appears that and no further question at this time I would like to turn the conference back to Mr. Dennis <unk> for any additional or closing remarks.
Thanks, Sharon and I really just want to emphasize with people today.
We're really don't go into for growth here.
We're starting to see the beginning of that and what we've reported out for Q1.
C and the guidance.
Clearly that we're looking to grow as well and Q2, you can here and some of the remarks that we may John made about working capital and preparing for growth that we see growth coming on the horizon.
And we're driving the team to become a much bigger business with these additional acquisitions.
We are acknowledging today, that's going to take time, and we said that on the outset. When we when we bought these companies that it doesn't happen and a quarter.
And to resolve it good news as we inherited from some great backlog with great customers. The challenge is how do we improve.
You know the financials on the orders going forward and I was very proud that the team was able to generate even more orders this quarter than last quarter I'm very proud that the backlog is expanding and the backlog is getting better financially.
So we're really on the growth and a lot of what we've talked about to put the company and positioned for the past few years youre going to see that to come to fruition here in 2020, 1 and certainly 2022 and beyond happy with all the questions with Reg real excited here about what's going on and we'll leave it at that and look forward to getting back to you guys.
With how do we do with the second quarter operations. Thank you everybody for your support and attention.
That concludes today's conference. Thank you everyone for your participation you may now disconnect.
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