Q3 2021 American Superconductor Corp Earnings Call

February 3, 2022

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Good day and welcome to the American Superconductor third quarter fiscal 2021 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. John Heilshorn. Please go ahead Sir.

Thank you Jennifer good morning, everyone and welcome to American Superconductor Corporation's third quarter of fiscal 2021 earnings conference call I am John Heilshorn Gabelli Che Investor Relations M. S. M. A c's Investor Relations agency of record.

With us on todays call are Daniel Mcgann, Chairman, President Chief Executive Officer, and Joe <unk>, Senior Vice President Chief Financial Officer and Treasurer.

American Superconductor issued its earnings release for the third quarter of fiscal 2021 yesterday after the market closed.

For those of you who are not able to see the release a copy is available in the Investor Relations page of the company's website at Www Dot a M. S C desktop.

Before starting the call I'd like to remind you that various remarks that management may make during today's call about American superconductors feature expectations, including expectations regarding the company's fourth quarter fiscal 2021 financial performance plans and prospects constitute forward looking statements for purposes of the safe Harbor provisions under the private.

But 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 Superconductors annual report on Form 10-K .

For the year ended March 31, 'twenty, 'twenty, one, which the company filed with Securities and Exchange Commission on June 12 June two 2021 as updated in the company's Form 10-Q for the period ending December 31, 2021, and the company's other reports filed with the SEC.

These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today.

While the company anticipates that subsequent events 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 the non-GAAP net loss to assist management and investors and comparing the company's performance across reporting periods at a consistent basis.

By excluding these noncash nonrecurring or other charges that it does not believe are indicative of its core operating performance.

The reconciliation of GAAP net loss to non-GAAP net loss can be found in the third quarter of fiscal 'twenty 'twenty. One earnings press release that the company issued a furnished to the FCC late last night on form 8-K.

All of the company's press releases and SEC filings can be accessed from the investors page of the website at Www SEDAR com.

With that I will now turn the call over to Chairman, President and Chief Executive Officer, Debbie can Danielle.

Thanks, John and good morning, everyone.

I'll begin today by providing an update of our grid and win business units.

John Kosiba will then provide a detailed review of our financial results for the third fiscal quarter.

And at December 31, 2021.

Provide guidance for the fourth fiscal quarter, which will end March 31 2022.

Following our comments, we'll open up the line to questions from our analysts.

<unk> delivered strong results for the third quarter of fiscal 2021.

Total revenue for the quarter grew versus the year ago period coming in at $26 8 million.

Our grid segment revenue grew by nearly 50%.

The year ago period coming in at 25 million a company record.

Great is driving revenue growth for the company and all grid product lines contributed to the quarter.

Ended the third quarter of fiscal 'twenty, and 'twenty, one with more than $52 million.

Cash.

As the world gears up for de Carbonization slowdown climate change and create a path for a more sustainable world. So does the increased demand for renewable energy semiconductors and materials for the new green economy, such as metals mining and chemicals.

Our acquisition of Neil trade NFC have allowed us to expand our business into the materials market.

<unk> market is fundamental to our sustainable energy shift.

If you're interested in reading some more about how materials are center stage to the energy transition. There was a 2022 Mackenzie publication titled the Raw materials challenge, how the metals and mining sector will be at the core of enabling the energy transition.

If we look at this calendar year 2022, approximately 90 gigawatts of wind capacity is projected to be added globally.

The solar photovoltaic sector is projecting an annual global capacity addition.

Over 175 Gigawatts.

And the worldwide semiconductor market is expected to grow and exceed 600 billion in annual sales.

Annual capital investments has trended at over 100 billion for the past few years.

This transition to a low carbon economy raises demand for critical materials semiconductors, as well as spending on plant and equipment and the metals mining and chemical industries.

We are executing on our growth through grid strategy, our grid segment revenue for the third quarter of fiscal year 2021 broker company record for the fourth consecutive quarter, we are growing.

Grid revenue grew by nearly 50% versus the year ago period and accounted for over 90% of Amc's total revenue.

This is a testament to our team's execution, particularly during these challenging times since the start of this fiscal year, our bookings momentum in the grid business, that's been very strong extending our grid visibility into fiscal 2022.

In the third quarter of fiscal 2021, our grid business was primarily driven by strong new energy power system shipments.

We've already integrated naphthacene nicely into the business.

And we're working to do the same with Neil Trail.

We're getting leverage across the product line selling into a number of industrial markets, including mining and metals as well as chemicals are core markets for the new energy systems have expanded from debating wants renewables in semiconductor to now three key markets renewable semiconductor materials, such as metals mining and chemicals.

Our largest customer for the third quarter of fiscal 2021 within the semiconductor industry.

We see the emergence of additional demand of new energy power systems for the semiconductor and materials markets coming in the subsequent quarters.

As you can see from our revenue guidance for the fourth quarter of fiscal 2020 . One we are anticipating continued strength in our business.

We see increasing demand in semiconductors for the fourth quarter of fiscal 2021.

During our fourth quarter revenue guidance.

Pardon me driving our fourth quarter revenue guidance is expected new.

Energy power system shipments to be very robust.

In fiscal 2020 , one we continue to expect year over year revenue growth again in our grid and our overall business.

And the longer term, we continue to see a significant rise in quotations for new energy power systems, where renewable semiconductors, as well as materials and general industrial markets.

Let's talk about the drivers of grid Red is driving revenue growth for the company renewable semiconductors and materials are driving our new energy power system solutions, our new energy power systems include our dynamic power correction platforms as well as our static power correction lineup Bachelor banks robotics filter systems rectifiers and transform.

Yeah.

We're growing and diversifying revenues by geography by market, we are presenting more content to customers as we leveraged the strong combination of our new energy power system solutions.

This quarter, we supported renewable projects, both for wind developers and utilities solar in the United States, Canada, Northern Ireland and Spain.

Over the last few years, we've seen the economy moving from fossil fuels to wind and solar power generation.

There has been a rapid rise in distributed energy resources in particular distributed generation for vulnerable tax in the form of rooftop utility scale and commercial solar installations.

With increased distributed generation comes the need for additional power correction solutions, such as our new energy power systems.

With the increasing demand for chips, we are supporting the semiconductor industry in the United States, Singapore, Taiwan and Japan.

Our solutions to protect the semiconductor facilities against power quality problems that originate from the grid.

These disturbances if left uncorrected can affect their planning process and tooling, causing significant downtime scrap material loss of profit.

We supported materials projects with metals and mining developments in the United States, Indonesia, Canada, United Kingdom, Denmark and Chile.

Materials are critical for cleaner technologies.

Take for example, solar panels and fuel cell batteries for electric vehicles again, according to that Mckinsey report I mentioned earlier, producing battery or fuel cell evs will be more material intensive than building an internal combustion engine vehicle.

Climate commitments for reducing global carbon emissions present, what we believe to be a tremendous opportunity for MSC we.

We expect our new energy power systems to drive growth and diversification for our company this fiscal year.

Our fourth quarter revenue guidance is due largely to the momentum we expect to continue to experience and our new energy power system solutions.

Now turning to our ship protection systems.

<unk> ship protection systems are also known as the gathering systems.

More specifically advanced Degassing systems. This is what the Navy calls our solution.

M. A C me call them Sps the ship protection system or 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 power efficient HTS version of it the galloping system. The Sps, we're now selling to the Navy.

A M S. U S. P. S became the baseline design for the San Antonio Class amphibious warfare ship or L. P D platform.

The Navy's plan is to build 15 additional San Antonio class ships, starting with L. P. D 28 between now and the middle of next decade.

From a capacity perspective, we are planning to manufacture multiple sps simultaneously and are succeeding at this currently working to fulfill the three orders that are on deck.

Sps contributed to our strong grid segment revenues in the third quarter of fiscal 2021.

We have an order for we have an order for Sps for LPG 28, and we've delivered on this order.

We have an Sps order for L. P 29, we have an Sps order for L. P 30, and we have an Sps order for helping US 31. So we will ask you to stay tuned for L. P. D 32.

We have established the capabilities to deliver the Sps systems. Our team is very busy and focused on continuing to expand the business. While we can continue to deliver our initial systems.

We're working very closely with the Navy and are in constant communication with our supply chain to ensure timely delivery of all three open Sps orders.

We continue to be confident that the navy is committed to integrating advanced the galleys degassing systems into their fleet and we're working hard to expand our Sps business beyond the San Antonio class.

As previously stated we've been contracted to perform some engineering for the potential deployment of our Sps for what we believe are the next several classes of ships and.

In each case, we must do engineering work prior to system procurement.

We hope to be able to report more on this in the coming quarters, often we're challenged with what information can be released it out in the public although it's hard to predict exactly when we would see an uptick in Sps related revenues side's point to what we expect to be a larger brighter future with the Navy hopefully isn't.

Near future.

Turning to wind during the third quarter of fiscal 2021 we shipped two megawatt ECS to our onshore wind partner in India Arnox women when revenues are the lightest they've been in several quarters, because imax's low quantity production of two megawatt wind turbines.

IMAX continues to promote and sell their two megawatt wind turbine imax's. However in the process of constructing a three megawatt class wind turbine prototype and has yet to go into three megawatt production.

The three megawatt class wind turbine design is.

Setup, we believe to be a great fit for Indias robust wind market, which is expected to add 3.5 gigawatts in 2022.

Going from a total cumulative wind capacity of 42 Gigawatts at the end of 2021 to nearly 46 gigawatts by the end of 2022, according to global data.

We access the offshore wind market through a partner Doosan heavy industries in South Korea, do Sol has begun production and delivery of small quantities of third five five megawatt offshore wind turbines.

We are the exclusive supplier of ECS units <unk> 5.5 megawatt wind turbine.

Again, according to global data the global offshore wind market, including South Korea is expected to add 13 gigawatts.

In 2022.

Going from a cumulative capacity of about 45 Gigawatts of 2021 to 58 Gigawatts by 2022.

We are participating in both the onshore and offshore wind market with our partners.

We have three paths to win.

With IMAX in India.

With do sought for the global offshore market as well as delivering hardware to the Substations supporting wind farms through a variety of developers and top tier global wind manufacturers and we've mentioned on prior calls.

We continue to actively manage our way through the global Covid crisis, and its evolution gross margins for the business expanded as we anticipated we see potential.

For future margin expansion in future quarters, as we build higher gross margin backlog.

We're not out of the woods, yet with respect to prevailing the prevailing broader environment for potential inflation supply chain challenges and Corona virus infection rates, but we continue our best efforts to manage the situation across all the product lines. Additionally, I saw a lot of personal engagement with our employees as we move through the pandemic our workforce.

As vibrant committed to our mission growing.

I continue to be impressed with how well we create opportunities step up the customer challenges and deliver on our commitments.

I'm very grateful for the people that I have the privilege to work with.

Now I'll turn the call over to John Kosiba to review, our financial results for the third quarter of fiscal year, 2021 and provide guidance for the fourth quarter of fiscal year 2021, which will end March 31, 2022, John Thanks, Daniel Good morning, everyone.

A M. S. C generated revenues of $26 8 million for the third quarter of fiscal 2020 , one compared to $23 6 million in the year ago quarter.

Grid business unit accounted for 93% of total revenues, while our wind business unit accounted for 7%.

With business unit revenues increased by 47% in the third quarter versus the year ago quarter, which now include the addition of Neil trend.

When business unit revenues decreased 73% in the third quarter versus the year ago quarter as a result of fewer ECS shipments during the period.

Looking at the P&L in more detail gross margin for the third quarter of fiscal 2021 was 13% compared to 17% in the year ago quarter.

As expected gross margin did improve sequentially by 160 basis points versus the previous quarter. This was a result of stronger great gross margins.

As a reminder, we are working our way through the Neal trend acquired backlog and have started to replace that backlog with what we'd expect to be more profitable projects. As we look ahead into FY 2020 two.

R&D and SG&A expenses for the third quarter of fiscal 'twenty 'twenty. One were $9 4 million. This was down from $10 1 million for the same period a year ago.

Year over year decrease was driven by our cross control efforts.

12% of R&D and SG&A expenses in the third quarter of fiscal 2021 were noncash.

Our non-GAAP net loss for the third quarter of fiscal 2020 , one was $4 6 million or 17 cents per share compared with $3 4 million or <unk> 13 per share in the year ago quarter.

Our net loss in the third quarter of fiscal 2021 was $4 3 million or 16 cents per share.

This compares to $7 9 million or <unk> 31 per share in the year ago quarter.

Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.

We ended the third quarter of fiscal 'twenty, and 'twenty, one with $52 6 million in cash cash equivalents and restricted cash.

This compares with 57 million on September 30th 2021 .

Our operating cash burn in the third quarter of fiscal 2020 , one was $4 2 million.

We believe that our current working capital levels are sufficient to support our expected revenue growth and we expect our working capital over will remain normalized as we move into fiscal 2022.

Now I'll turn it into our financial guidance for the fourth quarter of fiscal 2020 one.

We expect that our revenues will be in the range of 26 to 29 million a.

Net loss on that revenue is expected not to exceed $6 7 million up 24 cents per share.

Please note that our net loss guidance assumes no changes in contingent consideration, nor any purchase accounting adjustments associated with the <unk> acquisition.

Our non-GAAP net loss is expected not to exceed $5 million or 18 cents per share.

The company expects operating cash flow to be a burn of $3 million to $4 million in the fourth quarter of fiscal 2021.

We expect to end the fourth quarter with no less than $48 million in cash cash equivalents marketable securities and restricted cash.

With that I'll turn the call back over to Daniel.

Thanks, John .

So grid represented over 90% of our revenue in the third quarter of fiscal 2021 and was our strongest grid quarter. Since we began reporting on the grid segment.

Yeah.

Just take a step back and think about this the company is reporting record revenues for this key segment and announcing stronger bookings as the world is faced with so many challenges.

We're very pleased to report the grid revenues are at this record high.

But this quarter, our grid business grew by almost 50% compared with the same period last year.

Our backlog has grown by nearly 60% since a year ago.

We grew our total business by over 30% last year.

And we expect to continue on our trajectory of growth this fiscal year.

The business is scaling and it's supported by a strong balance sheet.

We are positioned for growth.

Through new markets for our new energy power systems.

As well as through the semiconductor market.

We are in position for growth through the anticipated reemergence of our wind business, which we see coming as early as next fiscal year we.

We delivered our first production at Sps to the Navy.

We are positioned for growth through the acquisition of additional ship platform wins.

We continue to be excited about our accomplishments with Reg in Chicago and the number of utilities were currently engaged with to potentially deploy this solution in their cities.

I look forward to reporting back to you at the completion of our fourth fiscal quarter of 2021.

Jennifer I will now take some questions from our analysts.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

And our first question today will come from Philip Shen with Roth Roth Capital partners.

Thanks for taking my questions as it relates to the.

Our new orders that you announced yesterday in the order book that you have can you just talk through.

How much of that do you expect to convert to revenue in calendar 2022.

And then how much in calendar 2020 three.

I felt that the short answer is most of that will be in calendar 2022.

Great. Thanks, Sean all of it will be in calendar 2022 I think almost all of it will be a physical yeah.

Because we finished calendar 'twenty one.

If you asked physical 2022 we would probably would've said all of it but since you said calendar, we didn't break it out by quarter, we'll say most.

Okay all right. Thank.

Thank you both.

Daniel You know you spent a fair amount of time talking through.

The opportunities with materials and de Carbonization and.

That might mean for your business and it seems like there's a fair amount of tailwind there for you.

And you mentioned some geographies.

And possibly some new end markets I was wondering if you might be able to expand on that.

Especially some of the geographies.

By end markets, and maybe some new geographies, where you're seeing a business where you hadn't had not prior thanks.

Yeah, I think simply put the acquisitions are working and they're working really well.

Sales team is doing a great job out you know quoting business closing business and we're doing it globally. So you know when you look at you know where are our business has now been re concentrated back of the U S somewhere between 50 and 60% of our revenues.

Or coming from the U S. Overall, we're seeing an uptick across the globe. We see you know emergence of a business for us in South America, which we've done very little before we see a reemergence as a business in Europe , and we see some new business prospects for our business for these materials are all over the world. So it could be in that.

Asia could be Taiwan for semiconductor could be you know, Canada for for a mining or milling operation. So I think you know when we explained the value of the acquisitions, we talked about a leverage of content per order and we talked about leverage of the entire.

A team that we couldn't do not take these products and reach globally and the team is doing a great job.

Great. Thanks, and you know history I think Jon mentioned this about Neil trend acquisition that you guys are working through some of that lower margin business.

I think in the past.

Talked about.

You know there was a year's worth of low margin backlog and that essentially you'd be driving higher margins with that business.

How are you tracking to your original timeline, there and and with this expansion and opportunity that you're seeing in other parts of the world. In end markets is that are you able to have a line of sight to those higher margins with that new business. Thanks.

Yeah, we do I think we have clear line of sight. There I think the one thing to just caution is it's not a cliff it's not a binary where we're going to you know.

All the backroom field and on the same day. So we have backlog for about a year when we started into this with with.

With with the yield trend so that means deal backlog is good through <unk>.

June quarter, and probably in the September quarter.

What I'm really impressed with is how much.

The existing teams at the acquisitions.

Really stepped up how engaged they are how focused they are and trying to expand their business.

And in many ways, you know being part of a bigger company was attractive to them.

Because it really would breathe.

More life to their business and make it a bigger offering you know the idea of taking you know products made in New Yorker in Connecticut, now I'm trying to sell them globally are things that you know the two acquired companies had hoped to do in the future, but weren't set up to do and now we're doing that so we're tremendously excited that these acquisitions are working very well.

Great. Thanks, Dan and then one last one for me still on gross margin or margin side. This one specifically on gross margin.

I know you guys don't provide guidance beyond Q4, but was wondering if you might be able to provide a bit of a and outlook on.

The cadence of how gross margins could trend as.

As we get through calendar 'twenty two.

Do you think.

Daniel you were talking about you know the Neal trend lower margin backlog me.

Kind of wind down in June or certainly by September or so talk us through you know.

Is there an opportunity for us to.

Possibly touch high teens or low twenty's percentages on gross margins as we get to the back half of calendar <unk>.

Yeah. That's another Guy you know just kind of Directionally the business had been in the low twenties.

Certainly when we when we fully integrate Neil trend and it's fully accretive and everything is working.

You know our desire is to be able to get back to those levels as quickly as we can I felt compelled you know on the last call personally that we had to call out gross margin because it had changed dramatically downward I think we've already seen it return to kind of where it was the previous quarter.

And we do think getting into the high teens you know in the next quarters and certainly are I won't say assured given the backlog because nothing in life is assured and I have too. Many lawyers, telling me that nothing is guaranteed and we have to believe things, but you know I have very strong confidence in the team when I look at the backlog and I do it now on a regular.

Fair basis project by project. It all looks really good. So the hope is you know we spent part of a euro is presenting the businesses, it's not going to really matter, where the margins are going to come from because it's all going to be good right. That's what we're trying to trying to build here and yes, it will take another quarter or two whatever but.

The path that we're on.

Great. Thanks, Daniel I'll pass it on.

Phil I'll, just add a little more color for you.

You can highlight this quarter for example, you know we.

We produced these margins with wind being a drag on margins. This quarter. If you really look at at least you know in the Q, you'll see what we reported for wind segment in both revenue and operating profit I know, we don't give gross profit, but you can figure out if we had a pretty substantial Watson win this quarter. So you know as when.

<unk> stabilizes and comes back that's going to help move the margin needle up and obviously as Neil trend as we replace those older projects with expected more profitable projects, that's going to move gross profit up so.

You know our expectation is you know a few of the areas that are dragging down gross margins. This year as we move into FY 'twenty two of those become less of a drag.

Great. Thanks, Sean.

And our next question comes from Colin Rusch with Oppenheimer.

Thanks, so much guys.

With these new contracts and the value of a power quality.

A little bit about the pricing dynamics in the grid business.

Are you thinking about that relative to incremental operating margins as you continue to grow the business.

That's a good question call because it's something that we've talked to the team kind of directly about particularly when we can leverage multiple sources of content within the company. There's definitely the ability to maybe think about even up a larger premium on pricing. So we're trying to do the best we can to focus on the value we're creating.

Although we're understanding you know there are some competitive pressures.

Kind of in general we've been able to you know focus on pricing for focus on.

The supply chain trying to you know, helping us more now than maybe a quarter or so.

Go, but we feel that the team kind of guests that we have to you know not we're not looking to price to win business. We're looking we want to grow we want to grow up good margin. So.

That's literally kind of the mantra inside the company and if we can do both at the same time that I think we're building the right kind of company.

Okay. So theres no kind of clear operating margin target for you guys within the organization or is that something you're just not ready to share yet.

I think with scale you know I think if we come back out and do an analyst day, and we talk about how we get from 100 to 200 or $2 50, we can go back and look at those targets, but the targets that we put out at the end of 2019, you know that we're still marching to how do we grow this business where the gross margin line you know starts with three and is hopefully a.

Hi, sorry.

And when we think about operating cash flow type margins that whereas the high tide teens approaching the twenty's. We know that this business can do that with additional scale and I think that's what you're seeing as John highlighted even with just a little bit of of Lotus and our quarter to quarter and wind.

Dramatically impacts margin so as that scale of the business I think that the.

The numbers are there the business works, whereas works really well.

That's incredibly helpful. Thanks for that and then just changing gears a little bit around some of that customer activity on Iraq, given the progress you're making there and the level of interest in and how that program is going to work. He just talk a little bit about how those other conversations are progressing with those utilities and.

Operators that are watching like you guys are kind of getting around Chicago.

Yeah, you know the part and we talk to only a little bit about Reg I mean, the real challenge right. Now is we have a an open window here now to use the success with Chicago to go market the product.

We're trying to make sure the organization is aligned to be able to answer to the interest so as.

As we had done a lot of different looks at projects and some degree of civil engineering of different projects.

I think the fact of having one operating now and we see it directly from utilities coming back and say, okay, well now maybe the time to try to do this implementation we discussed back a couple years ago.

You know we have to be able to sort out what we think of the opportunities that could become a contracted in order in the near term. So that's you know kind of where we are with rag. It's it's a heavy business development effort to now.

Focus on those projects in cities that we think can convert to it where and I won't say the quickest time, but we'll say it in the near in the near field. We know we have a great support in Chicago.

No we've expanded that to a bunch of cities you know now the hard work begins though how do we translate that interest into orders and.

As we said we weren't operating history in Chicago, they weren't operating history for them to go do more so.

But again I think when we look at the macro climate is a tailwind as they are they're in Iraq and we are seeing.

Pretty dramatic interest in the product so.

We know a lot of the people on the call are more focused on quarter to quarter and results on these things, but you know right. We're really excited we continue to be Super excited about.

Perfect. Thanks, guys.

And as a reminder, if you'd like to ask a question you may signal by pressing star one at this time.

And well hear next from Chip Moore with E F Hutton.

Hey, good morning, guys.

Just curious on some of the bookings momentum.

Globally in the riots in quotation activity just curious.

You know with some of the new bearings and things like that is that actually you know with with some some of that activity even stronger is it still a bit of a headwind.

I didn't hear the part sorry chip with the what would be a bit of a headwind.

Just.

Some of the new variants on the ground and things like that in terms of the quotation activity in the bookings momentum.

Globally, right and in a number of markets where are those still really so we're not really seeing it work concern is and I think we've gotten through this with a lot of our suppliers as.

You just don't know where the next.

Like illustrates gonna come from right. So I think you know what we have is a group that's very battle tested that we understand how to react the things that we know the things that we're concerned about we've gotten ahead of it and be able to derisk. The hard part is you don't know you know this supplier says Hey, you know part of it usually takes 13 weeks they don't take as repeat.

Two weeks right that we have to be able to respond to it we've had to do that all walked her it during this crisis, but those are the kinds of things that are just kind of normal blocking and tackling when it comes to the supply chain.

But we haven't demonstrated process that we go through to do that and qualify suppliers. So.

You probably can hear on the call my trepidation about supply chain issues.

As a quite a bit less today than it was a quarter ago.

Got it okay.

Just one more from me you alluded to.

You know the potential reemergence of book.

And our next year.

So you've got multiple shots on goal is that more IMAX.

The transition to the three megawatt in it.

And how should we think about that transition in terms of.

The two megawatt product assuming that yeah that happens so theyre going to keep offering the two are there certain markets that the two works really well and we did a lot of work on late wind speeds and things like that are with the two and.

There are a little depressed with shipments of two megawatt because.

As they kind of reemerge with demand they had pent up inventory and they're going through all that so that's why you see our our restocking levels kind of low. The hope is you know say over the next quarters.

We start to ramp towards two would maybe call a decent rate a fair rate with the two megawatt when you listen to IMAX and what they talk about I mean.

They're saying that the interest level for the three.

Megawatt is also almost.

Larger than their backlog was for the two megawatt that's just interests. So.

When you add it all up it looks like there's there's a lot of pent up demand for the three megawatt.

The challenge has been getting the prototype, which we're at that stage now.

Making sure the supply chain is ready to ramp, which we know we are.

And then you know as IMAX turns that interest into orders, which they've already started too.

We see all of those things is pointing to we think will be a good fiscal 2022 for us for IMAX for India, our fiscal year in their fiscal year in the Indian year or all the things. They started April one so when we say next fiscal year, that's what we're starting them you know in.

In the June quarter, and beyond we see what we think will be the beginning of an emergence of the three megawatt as an additional product specifically with Korea, you know theyre going to digest the order that they have they have to get.

Fulfill the construction and the and the erection and commissioning of the turbines. These are all for ECS that they bought back from us a while ago.

So I'll say I'm optimistic cautiously when we look at our supply chain, where we look at planning you know if Tucson ordered something for fiscal 'twenty, two would be rather we would be able to supply.

Obviously wanted to make sure the answer to that is yes, but I think you know specifically the order will be some more stability in the two an order for three and then probably later, we'll be in order for five from from Tucson and.

And that may or may not occur next year.

Perfect understood. Thanks, I appreciate the color there thanks guys.

And your next question comes from Eric Stine with Craig Hallum Capital Group.

Hi, Daniel Hi, Jan.

Good morning, Hey, So just wanted to I guess go back to gross margin on Neal trend.

I mean, obviously, you're working through low margin business, but clearly a high level of confidence in improvement, but maybe.

Just to talk through that a little bit more I mean, do you feel that in the past I mean, it doesn't sound like you necessarily feel like these projects were mis bid, but but curious I mean is it.

You know just just more scope you know given that it's part of a of an overall offering you know is.

Is it is it because of different end markets I mean, just maybe a little more color on why that confidence is there and maybe you know just just compare that to how they had done it prior to the acquisition.

Yeah, I think you know what if I try to.

Focus on the way.

I won't steal he shows any any quotes from a.

Popular show of Disney plus but the way we demonstrated with D. Var. So a lot of what we did with D var and focusing on growth with good margin, making sure the margins there on the on product is a different culture.

Than existed at at the two acquisitions, so kind of simply put you know the Knapp sea team.

Extraordinarily well managed entity that can deliver high level of customer satisfaction.

And right when we think of an operating income level.

Level of business and they understand how to scale up and scale down as revenue demand across really really well run a company we expected that because we knew the guys for a long period of time, but really.

You know high compliment since we get under run run the operation now for more than a year really well run business with the mindset of loss.

Long term growth, but do it but in the near term focusing on operational performance and particularly operating cash flow right.

Doing that year on year I think some of the challenges that we have.

And both acquisitions is doing that quarter on quarter right. So there's a bit of maturation about doing that I think we've come a long way there to realize that you know as a public company. A year has 13 weeks 52 weeks and you've got a report out and you've got to be able to show you know how how your world is change hopefully for the positive in the case of Neil Trent Oh, I'll say it's.

Older business and it's.

A lot of family business as I've seen it run this way you know the two figures of merit or a revenue size and number of employees. So the idea is to grow revenue and grow the population and become a bigger company.

Where our culture, we're trying to focus on how to grow and how do we grow at a good margin, which is a different set of operating instructions right. We're inserting that now under the old tram we're looking at the old backlog to understand.

No. That's as these projects may come again down the line with the same customers how do we make sure we're translating the value appropriately.

Being there with good customer service being their spare parts when they need them as a lot of what we do well in our wind business and specifically our focus on the D var business translating that playbook into these acquisitions and I'll focus more on yield trend because they feel dempsey is where kind of where we want to be and we're real real happy.

With Neal trend, we have to continue to improve and it starts with the culture in that and that's.

What we've been saying inside the company you know here.

Here in Massachusetts, but as well in Connecticut, where the Neal train operations.

Got it no. That's that's great color makes sense. Maybe then just turning to these these not necessarily new end markets, but you're certainly emphasizing them more I mean, you've moved beyond semiconductor as part of the diversification, there metals and mining and chemicals.

Just curious I mean does the market does it I mean, I would assume you view those growth opportunities. It is very early but.

But just curious maybe where market awareness is there the potential customers in those markets.

You know knowing what you can bring to the table in particular now that you have these two acquisitions in the fold.

Yeah, I think I mean, I want to say, it's it's it's where we want it to be I think there's still opportunity to grow but I think it's quite high I mean, the thing that I'm impressed with the team's ability to navigate is.

That in these key areas, we've seen a pretty significant uptick in quoting activity, meaning that the intensity of the project, meaning revenue per project.

The likelihood of certain projects going forward you know when you think about.

You know again trying to compare a history with D. Var. You know one of the challenge is always in these businesses or is the project finance doesn't Financeable will it go for it on time, you know how do you judge that that when I see certainty around the projects themselves going up.

Really does communicate something about the market and that's why we tried to take today to kind of drop back and focus a little bit more big picture of the market how the market fall interact from us from a kind of a common longer term sustainable vision.

Vision future, but the material part of this is a critical piece of it and it's frankly, it's a big reason when we looked at these acquisitions I got excited about it because I saw it right away. How this would all fit in with what we do.

You guys know me because we've been doing this a while together I'm not the one that come out in the market back out something before we do it.

I you know I wasn't born in Missouri, but I liked to be shown that there's a real pathway there.

I'm being shown as a real pathway here in the materials segment and.

I mentioned, the Mckinsey report, just because I kind of when I saw.

Solid I kind of laugh because that's what I was thinking about a year ago. You know this is an area that we can you know we have a lot of investors say why did you go in this market, where you can get on that Margaret I'm trying to telegraph the markets that we're focused on so you understand where we think we're going to head and if you like that you know and you know where we're going to go with.

Where you hope this kind of company would go.

Okay. That's helpful. Thanks.

Thank you Sir.

And that is all the time, we have for questions today I'd now like to turn the conference back to Mr. Daniel Mcgee for any additional or closing remarks.

It kind of wrap it up and I think this is you know.

Really kind of just to simply answer a lot of questions I think that we get.

We're feeling a lot of tailwind in what we do.

It is.

Kind of a weird juxtaposition between.

The weirdness, that's going on in the world in capital markets and supply chains and things like that at the same time, we feel our core markets, which are expanding that we see a number of tail winds that are present today, where those wins are only going to increase over time.

When we think about catalyst or changes in the business that we see coming you know we're talking to are pointing to improvements in gross margin were already seeing that and we're trying to telegraph, we see the continuous improvement coming in the coming quarters.

We're laser focused on making sure that you know when we acquired the Altria. We said it would be accretive you're working to make that happen. We think that's an important milestone for the company.

We sense more wind coming hard to tell definitively where or what quarter, but it does seem like you know the sounds are getting louder that we're going to move forward in wind and hopefully move forward in a big way.

We said about another about another ship platform. You know we said you know please be patient realize that the L. P. D 32 is going to come we think.

You know and hopefully that that will give us further.

Disability on additional Navy revenue, but we're already doing work on the next ships for them right and so we're really jazzed about the navy were sounds like the team.

The ability to deliver with this new team the hardware for Elpida 28, So we see more ships coming and then even longer term more cities for Iraq. So you know those are kind of the five things as I look out over the next quarters that we're going to focus on kind of you know one after another we hope that they'll come that we think there's a very.

A very bright future in 2022 in 2023 and beyond for this company.

Particularly you know I think we've been able to pay off a lot of the promised in the past year. We said 2021 was going to be an important here, we delivered the first grid superconductor system.

And the grid ever right. We delivered the first ship protection system now that was happening you know our revenue basis. Prior we delivered a lot of it before Christmas but.

But we was received and everything was kicked out with the shipyard in January So we were super jazzed that all that happens theres. So much good that's happening in this company that I really wanted to make sure that people hear that from me and hear that in my voice, it's a difficult time in the larger capital markets I think for a lot of you.

It's a fun and enjoyable job here and what we have to do managing the supply chain in the near term as a piece of this but long term, there's a lot of tailwind coming for our business. So thank you for all your attention and your support and hopefully we'll talk to you.

In the coming months.

Thank you.

And this concludes today's conference. Thank you all for your participation you may now disconnect.

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Good day and welcome to the American Superconductor third quarter fiscal 2021 earnings conference call.

Today's conference is being recorded at this time I would like to turn the conference over to Mr. John Heilshorn. Please go ahead Sir.

Thank you Jennifer good morning, everyone and welcome to American Superconductor Corporation's third quarter of fiscal 2021 earnings conference call I am John Heilshorn, Gabele Che Investor Relations M. A M. A c's investor Relations agency of record.

With us on todays call are Daniel again, Chairman President Chief Executive Officer.

Joe <unk> Senior Vice President Chief Financial Officer, and Treasurer.

Can superconductor issued its earnings release for the third quarter of fiscal 2021 yesterday after the market closed.

For those of you who are not able to see the release a copy is available in the Investor Relations page of the company's website at Www Dot a M. S 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 feature expectations, including expectations regarding the company's fourth quarter fiscal 2021 two days of performance plans and prospects constitute forward looking statements.

So 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 the American Superconductors annual report on Form 10-K .

For the year ended March 31, 'twenty, 'twenty, one, which the company filed with the Securities and Exchange Commission on June 12 June two 2021 as updated in the company's Form 10-Q for the period ending December 31, 2021, and the company's other reports filed with the SEC.

These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today.

While the company anticipates that subsequent events 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 loss to assist management and investors and comparing the company's performances across reporting periods on a consistent basis by.

By excluding these noncash nonrecurring or other charges that it does not believe are indicative of its core operating performance.

The reconciliation of GAAP net loss to not get that loss can be found in the third quarter of fiscal 'twenty 'twenty. One earnings press release, the company issued and furnished to the SEC late last night on form 8-K.

All of the company's press releases and SEC filings can be accessed from the investors page of its website at www SEDAR com.

With that I will now turn the call over to Chairman, President and Chief Executive Officer, Jim Mccann Daniel.

Thanks, John and good morning to everyone.

I'll begin today by providing an update of our grid and win business units John .

John Kosiba will then provide a detailed review of our financial results for the third fiscal quarter, which ended December 31 2021.

And provide guidance for the fourth fiscal quarter, which will end March 31 2022.

Following our comments, we will open up the line to questions from our analysts.

<unk> delivered strong results for the third quarter of fiscal 2021.

Total revenue for the quarter grew versus the year ago period coming in at $26 8 million.

Our grid segment revenue grew by nearly 50%.

Versus the year ago period coming in at 25 million a company record.

Greatest driving revenue growth for the company and all grid product lines contributed to the quarter.

We ended the third quarter of fiscal 'twenty, 'twenty, one with more than $52 million in cash.

As the World gears up for de Carbonization does slow down climate change and create a path for a more sustainable world. So does the increased demand for renewable energy semiconductors and key materials for the new green economy, such as metals mining and chemicals.

Our acquisition of Neil trade NFC have allowed us to expand our business into the materials market.

The materials market is fundamental to our sustainable energy shift.

If you re interested in reading some more about how materials are center stage to the energy transition there was a 2022 mackenzie publication titled the Raw materials challenge, how the metals and mining sector will be at the core of enabling the energy transition.

We look at this calendar year 2022.

Approximately 90 Gigawatts of wind capacity is projected to be added globally.

The solar photovoltaic sector is projecting an annual global capacity addition of over 175 Gigawatts and.

The worldwide semiconductor market is expected to grow and exceed 600 billion in annual sales annual capital investments has trended at over 100 billion for the past few years.

This transition to a low carbon economy raises demand for critical materials semiconductors, as well as spending on plant and equipment and the metals mining and chemical industries.

We are executing on our growth through grid strategy, our grid segment revenue for the third quarter of fiscal year, 2020 , one broker company record for the fourth consecutive quarter, we are growing grid.

Grid revenue grew by nearly 50% versus the year ago period and accounted for over 90% of Amc's total revenue.

This is a testament to our team's execution, particularly during these challenging times since the start of this fiscal year, our bookings momentum in the grid business had been very strong extending our grid visibility into fiscal 2022.

In the third quarter of fiscal 2021 our grid business was primarily driven by strong new energy power system shipments.

We've already integrated Nazi nicely into the business.

And we're working to do the same with Neil Trent.

We're getting leverage across the product line selling into a number of industrial markets, including mining and metals as well as chemicals are core markets for the new energy systems have expanded from two main ones renewables in semiconductor to now three key markets renewable semiconductor and materials, such as metals mining and chemicals.

Our largest customer for the third quarter of fiscal 2021 within the semiconductor industry.

We see the emergence of additional demand and new energy power systems for the semiconductor and materials markets coming in the subsequent quarters.

As you can see from our revenue guidance for the fourth quarter of fiscal 2020 . One we are anticipating continued strength in our business.

We see increasing demand in semiconductors for the fourth quarter of fiscal 2021.

During our fourth quarter revenue guidance.

Pardon me driving our fourth quarter revenue guidance is expected new.

Energy power system shipments to be very robust.

In fiscal 2020 , one we continue to expect year over year revenue growth again in our grid and our overall business.

And the longer term, we continue to see a significant rise in quotations for new energy power systems for renewable semiconductors, as well as materials and general industrial markets.

Let's talk about the drivers of grid grid is driving revenue growth for the company renewable semiconductors and materials are driving our new energy power system solutions, our new energy power systems include our dynamic power correction platforms as well as our static power correction lineup Bachelor banks, our monarch filter systems rectifiers and transform.

Yeah.

We're growing and diversifying revenues by geography by market, we are presenting more content to customers as we leveraged the strong combination of our new energy power system solutions.

This quarter, we supported renewable projects both for wind developers in utility solar in the United States, Canada, Northern Ireland and Spain.

Over the last few years, we've seen the economy moving from fossil fuels to wind and solar power generation.

There has been a rapid rise in distributed energy resources in particular distributed generation for photovoltaics in the form of rooftop utility scale and commercial solar installations.

With increased distributed generation comes the need for additional power correction solutions, such as our new energy power systems.

With the increasing demand for chips, we are supporting the semiconductor industry in the United States, Singapore, Taiwan and Japan.

Our solutions protect the semiconductor facilities against power quality problems that originate from the grid.

These disturbances if left uncorrected can affect their plant process and tooling, causing significant downtime scrap material and loss of profit.

We supported materials projects with metals and mining developments in the United States, Indonesia, Canada, United Kingdom, Denmark and Chile.

Materials are critical for cleaner technologies.

Climate commitments for reducing global carbon emissions present, what we believe to be a tremendous opportunity for MSC we.

We expect our new energy power systems to drive growth and diversification for our company this fiscal year.

Our fourth quarter revenue guidance is due largely to the momentum we expect to continue to experience and our new energy power system solutions.

Now turning to our ship protection systems.

<unk> ship protection systems are also known as the gathering systems.

More specifically advanced gasoline systems. This is what the Navy calls our solution.

M. A C. We call them Sps the ship protection system or 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 power efficient HTS version of a degassing system. The Sps, we're now selling to the Navy.

A M. A c's Sps became the baseline design for the San Antonio Class amphibious warfare ship or L. P D platform.

The Navy's plan is to build 15 additional San Antonio class ships, starting with L. P. D 28 between now and the Middle of next decade from a capacity perspective, we are planning to manufacture multiple sps simultaneously and are succeeding at this currently working to fulfill the three orders that are.

On deck.

Sps contributed to our strong grid segment revenues in the third quarter of fiscal 2021.

We have an order for we have an order for Sps for Elpida 28, and we've delivered on this order.

We have an Sps order for L. P 29, we have an Sps order for <unk> 30, and we have an Sps order from <unk> 31. So we will ask you to stay tuned for L. P. D 32.

We have established the capabilities to deliver the Sps systems. Our team is very busy and focused on continuing to expand the business. While we can continue to deliver our initial systems.

We're working very closely with the Navy and are in constant communication with our supply chain to ensure timely delivery of all three open Sps orders.

We continue to be confident that the navy is committed to integrating advanced Tagalog degassing systems into their fleet.

And we're working hard to expand our Sps business beyond the San Antonio class.

As we've previously stated we have been contracted to perform some engineering for the potential deployment of our Sps for what we believe are the next several classes of ships.

In each case, we must do engineering work prior to system procurement.

We hope to be able to report more on this in the coming quarters, often we're challenged with what information can be released out in the public although it's hard to predict exactly when we would see an uptick in Sps related revenues side's point to what we expect to be a larger brighter future with the Navy hopefully isn't it.

Your future.

Turning to wind during the third quarter of fiscal 2021 we shipped two megawatt ECS to our onshore wind partner in India IMAX wind when revenues are the lightest they've been in several quarters because of imax's low quantity production up two megawatt wind turbines.

The three megawatt class wind turbine design is.

Set up we believe to be a great fit for Indias robust wind market, which is expected to add three five gigawatts in 2022.

Going from a total cumulative wind capacity of 42 Gigawatts at the end of 2021 to nearly 46 gigawatts by the end of 2022, according to global data.

We accessed the offshore wind market through our partner Doosan heavy industries in South Korea, <unk> has begun production and delivery of small quantities of their five five megawatt offshore wind turbines.

We are the exclusive supplier of ECS units <unk> five five megawatt wind turbine again, according to global data of the global offshore wind market, including South Korea is expected to add 13 gigawatts.

In 2022.

Going from a cumulative capacity of about 45 Gigawatts of 2021 to 58 Gigawatts by 2022.

We are participating in both the onshore and offshore wind market with our partners.

We have three paths to win.

With IMAX in India.

We continue to actively manage our way through the global Covid crisis, and its evolution gross margins for the business expanded as we anticipated we see potential.

For future margin expansion in future quarters, as we build higher gross margin backlog.

We're not out of the woods, yet with respect to prevailing the prevailing broader environment for potential inflation supply chain challenges in coronavirus infection rates, but we continue our best efforts to manage the situation across all the product lines. Additionally, I saw a lot of personal engagement with our employees as we move through the pandemic.

Our workforces vibrant committed to our mission and growing.

I continue to be impressed with how well we create opportunities step up the customer challenges and deliver on our commitments.

Grateful for the people that I have the privilege to work with.

Now I'll turn the call over to John Kosiba to review, our financial results for the third quarter of fiscal year 2021, and provide guidance for the fourth quarter of fiscal year 2021, which will end March 31, 2022, John Thanks, Daniel and good morning, everyone.

<unk> generated revenues of $26 8 million for the third quarter of fiscal 2021 compared to $23 6 million in the year ago quarter.

Our grid business unit accounted for 93% of total revenues, while our wind business unit accounted for 7%.

With business unit revenues increased by 47% in the third quarter versus the year ago quarter, which now include the addition of Neil trend.

Wind business unit revenues decreased 73% in the third quarter versus the year ago quarter as a result of fewer ECS shipments during the period.

Looking at the P&L in more detail gross margin for the third quarter of fiscal 2021 was 13% compared to 17% in the year ago quarter.

As expected gross margin did improve sequentially by 160 basis points versus the previous quarter. This was a result of stronger great gross margins.

As a reminder, we are working our way through the Neal trend acquired backlog and have.

Started to replace that backlog with what we'd expect to be more profitable projects. As we look ahead into FY 2020 two.

R&D and SG&A expenses for the third quarter of fiscal 2021 were $9 4 million. This was down from $10 1 million for the same period a year ago. The.

The year over year decrease was driven by our cost control efforts approximately 12% of R&D and SG&A expenses in the third quarter of fiscal 2021 were noncash.

Our non-GAAP net loss for the third quarter of fiscal 2021 was $4 6 million or <unk> 17 per share compared with $3 4 million or <unk> 13 per share in the year ago quarter.

Our net loss in the third quarter of fiscal 2021 was $4 3 million or 16 cents per share.

This compares to $7 9 million or <unk> 31 per share in the year ago quarter.

Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.

We ended the third quarter of fiscal 'twenty, and 'twenty, one with $52 6 million in cash cash equivalents and restricted cash.

This compares with 57 million on September 32021.

Our operating cash burn in the third quarter of fiscal 2020 , one was $4 2 million.

We believe that our current working capital levels are sufficient to support our expected revenue growth and we expect our working capital over will remain normalized as we move into fiscal 2022.

Now turning to our financial guidance for the fourth quarter of fiscal 2021.

We expect that our revenues will be in the range of 26 to 29 million.

Net loss on that revenue is expected not to exceed $6 7 million or <unk> 24 cents per share.

Please note that our net loss guidance assumes no changes in contingent consideration, nor any purchase accounting adjustments associated with the <unk> acquisition.

Our non-GAAP net loss is expected not to exceed $5 million or <unk> 18 per share.

The company expects operating cash flow to be a burn of $3 million to $4 million in the fourth quarter of fiscal 2021.

We expect to end the fourth quarter with no less than $48 million in cash cash equivalents marketable securities and restricted cash.

With that I'll turn the call back over to Daniel.

Thanks, John .

So grid represented over 90% of our revenue in the third quarter of fiscal 2021 and was our strongest grid quarter. Since we began reporting on the grid segment.

Yeah.

Just take a step back and think about this the company is reporting record revenues for this key segment and announcing stronger bookings as the world is faced with so many challenges.

We're very pleased to report the grid revenues are at this record high.

But this quarter, our grid business grew by almost 50% compared with the same period last year.

Our backlog has grown by nearly 60% since a year ago.

We grew our total business by over 30% last year and.

And we expect to continue on our trajectory of growth this fiscal year.

The business is scaling and are supported by a strong balance sheet.

We are positioned for growth.

Through new markets for our new energy power systems.

As well as through the semiconductor market.

We are in position for growth through the anticipated reemergence of our wind business, which we see coming as early as next fiscal year we.

We delivered our first production at Sps to the Navy.

We are positioned for growth through the acquisition of additional ship platform wins.

We continue to be excited about our accomplishments with Reg in Chicago and the number of utilities were currently engaged with to potentially deploy this solution in their cities.

I look forward to reporting back to you at the completion of our fourth fiscal quarter of 2021.

Jennifer I will now take some questions from our analysts.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Press Star one to ask a question.

And our first question today will come from Philip Shen with Roth Roth Capital partners.

Thanks for taking my questions as it relates to the.

Our new orders that you announced yesterday in the order book that you have.

Can you talk through.

How much of that do you expect to convert to revenue in calendar 2022 .

And then how much in calendar 2023.

I felt that the short answer is most of that will be in calendar 'twenty to 'twenty two.

Great. Thanks, John all of it will be in calendar 2022 I think almost all of it will be a physical yeah.

Because we finished calendar 'twenty one.

If you asked fiscal 2022 we would probably would've said all of that but since you said calendar, we didn't break it out by quarter, we'll say most.

Okay. Thank.

Thank you both.

Daniel You know you spent a fair amount of time talking through.

The opportunities with materials and de Carbonization and.

And what that might mean for your business and it seems like there's a fair amount of tailwind there for you.

And you mentioned some geographies.

And possibly some new end markets I was wondering if you might be able to expand on that especially some of the geographies.

By end markets, and maybe some new geographies, where you're seeing a business where you hadn't had not prior thanks.

Yeah, I think simply put the acquisitions are working and they're working really well.

The sales team is doing a great job out quoting business and closing business and we're doing it globally. So you know when you look at you know where are our business has now been re concentrated back of the U S somewhere between 50 and 60% of our revenues are.

Or coming from the U S. Overall, we're seeing an uptick across the globe, we see emergence of a business for us in South America, which we've done very little before we see a reemergence as a business in Europe , and we see some new business prospects for our business for these materials all over the world so that could be in the knee.

Asia could be Taiwan for semiconductor it could be you know in Canada for for a mining or milling operation. So I think you know when we explained the value of the acquisitions, we talked about a leverage of content per order and we talked about leverage of the entire.

A team that we could now take these products and reach globally and the team is doing a great job.

Great. Thanks, and you know history I think Jon mentioned this about Neil trend acquisition that you guys are working through some of that lower margin business.

I think in the past.

Talked about.

You know there was a year's worth of low margin backlog and that essentially you'd be driving higher margins with that business.

We do I think we have clear line of sight. There I think the one thing to just caution is it's not a cliff it's not a binary where we're going to you know.

All the backlog is going to end on the same day.

So we had backlog for about a year when we started into this with the.

With the yield trend so that means do a backlog is good through.

June quarter, and probably in the September quarter.

What I'm really impressed with is how much.

The existing teams at the acquisitions.

Really stepped up how engaged they are how focused they are trying to expand their business.

And in many ways being part of a bigger company was attractive to them.

Because it really would breathe you know.

More life to their business and make it a bigger offering you know the idea of taking you know products made in New York or in Connecticut, now and trying to sell them globally are things that you know the two acquired companies had hoped to do in the future, but weren't set up to do and now we're doing that so we're tremendously excited that these acquisitions are working very well.

Great. Thanks, Dan and then one last one for me I still in gross margin or margin side. This one specifically on gross margin.

I know you guys don't provide guidance beyond Q4, but was wondering if you might be able to provide a bit of a and outlook on.

The cadence of how gross margins could trend as we get through calendar 'twenty two.

Do you think.

Daniel you were talking about you know the.

Neil trend.

Lower margin backlog made.

Kind of wind down in June or certainly by September or so talk us through you know.

There are an opportunity for us to.

Possibly touch high teens or low twenty's percentages on gross margins as we get to the back half of the calendar.

Yeah, that's a lot of guidance just kind of directionally the business had been in the low twenties.

Certainly when we when we fully integrate Neil trend and it's fully accretive and everything is working.

You know our desire is to be able to get back to those levels you know as quickly as we can.

I felt compelled you know on the last call personally that we had to call out gross margin because it had changed dramatically downward I think we've already seen it returned to kind of where it was the previous quarter.

And we do think getting into the high teens you know in the next quarters and certainly are I won't say assured given the backlog because nothing in life is assured and I have to my lawyers, telling me that nothing is guaranteed and we have to believe things but.

You know I have very strong confidence in the team when I look at the backlog and I do it now on a regular basis project by project. It all looks really good. So the hope is we spent part of a euro is presenting the businesses, it's not going to really matter, where the margins are going to come from because it's all going to be good right. That's what we're trying to trying to build here.

And yes, it will take another quarter or two whatever but.

The path that we're on.

Great. Thanks, Daniel I'll pass it on.

Well, Phil I'll, just add a little more California thing you can highlight this quarter for example.

We produced these margins with wind being a drag on margins. This quarter. If you really look at it you know in the Q, you'll see what we reported for wind segment.

In both revenue and operating profit I know, we don't give gross profit, but you can figure out as we had a pretty substantial Watson win this quarter.

So you know as when stabilizes and comes back that's going to help.

Move the margin needle up and obviously as Neil trend.

As we replace those older projects with expected more profitable projects, that's going to move gross profit up so you.

You know our expectation is that you know a few of the areas that are dragging down gross margins. This year as we move into FY 'twenty two of those become less of a drag.

Great. Thanks, Sean.

And your next question comes from Colin Rusch with Oppenheimer.

Thanks, so much guys.

With these new contracts and the value of a power quality.

Little bit about the pricing dynamics in the credit business.

We're thinking about that relative to incremental operating margins as you continue to grow the business.

Although we're understanding you know there are some competitive pressures.

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Kind of in general we've been able to focus on pricing for focus on.

You know the supply chain trying to helping us more now than maybe a quarter or so.

But we feel that the team kind of guests that we have to not we're not looking to price to win business. We're looking we want to grow we want to grow a good margin. So.

That's literally kind of the mantra inside the company and if we can do both at the same time that I think we're building the right kind of company.

Okay. So theres no kind of clear operating margin target for you guys within the organization or is that something you're just not ready to share yet.

Hi, sorry.

Lotus in a quarter to quarter and wind you know dramatically impacts margin. So as we have scaled the business I think that the.

The numbers are there the business works, whereas works really well.

That's incredibly helpful. Thanks for that and then just changing gears a little bit around some of that customer activity on Iraq, given that the progress you're making there and the level of interest in and how that program is going to work. He just talk a little bit about how those other conversations are progressing with those utilities and.

Without writers that are watching like you guys are kind of getting around Chicago.

Yeah, you know the part and we talk to only a little bit about Reg I mean, the real challenge right. Now is we have a an open window here now to use the success with Chicago to go market the product.

We're trying to make sure the organization is aligned to be able to answer to the interest so.

As we had done a lot of different looks at projects and some degree of civil engineering of different projects.

I think the fact of having one operating now and we see it directly from utilities coming back and saying, Okay. Well now maybe the time to try to do this implementation we discussed back a couple of years ago.

We have to be able to sort out what we think of the opportunities that could become a contracted in order in the near term. So that's kind of where we are with rag. It's it's a heavy business development effort to now focus on those projects in cities that we think can convert to it where and I won't say the quickest time, but we will say it in the year.

In the near field, we know we have a great support in Chicago.

We know we've expanded that to a bunch of cities you know now the hard work begins though how do we translate that interest into orders and.

As we said we want operating history in Chicago, they weren't operating history for them to go do more so.

But again I think when we look at the macro climate is a tailwind as they are they're in Iraq and we are seeing.

Pretty dramatic interest in the product so.

We know a lot of the people on the call are more focused on quarter to quarter and results on these things, but you know right. We're really excited we continue to be Super excited about.

Perfect. Thanks, guys.

And as a reminder, if you'd like to ask a question you may signal by pressing star one at this time.

And well hear next from Chip Moore with EFI.

Hey, good morning, guys.

Just curious on some of the bookings momentum.

Globally and the rise in quotation activity just curious.

You know with some of the new variants and things like that is that actually you know what.

With some some of that activity, even stronger is it still a bit of a headwind.

I didn't hear the part sorry chip with the what would be a bit of a headwind.

Just.

Some of the new variants omicron and things like that in terms of the quotation activity in the bookings momentum.

Globally in a number of markets.

Are those still really so we're not really seeing it work concern is and I think we've gotten through this with a lot of our suppliers as well.

You just don't know where the next.

Like illustrates gonna come from right. So I think you know what we have is a group that's very battle tested that we understand how to react.

Things that we know the things that we're concerned about we've gotten ahead of it and be able to derisk. The hard part is you don't know you know this supplier says Hey, you know part of it usually takes 13 weeks now takes 52 weeks right that we have to be able to respond to it we've had to do that all walked around during this crisis, but those are the kinds of things that are just kind of normal blocking and tackling when it comes.

The supply chain.

But we have a demonstrated process that we go through to do that and qualify suppliers. So.

You probably can hear on the call my trepidation about supply chain issues.

Quite a bit less today than it was a quarter ago.

Got it okay.

Just one more from me you alluded to.

You know the potential reemergence of the wins next year.

You've got multiple shots on goal.

Is that more IMAX the potential transition to three megawatt in.

And how should we think about that transition in terms of the two megawatt product assuming that that happens so theyre going to keep offering. The two are there certain markets that the two works really well and we did a lot of work on like wind speed and things like that with the two.

<unk>.

There are a little depressed with shipments of two.

Two megawatt because.

We start to ramp towards two would maybe call a decent rate a fair rate.

The two megawatt when you listen to IMAX and what they talk about I mean.

They're saying that the interest level for the three megawatt is also almost.

Larger than their backlog was for the two megawatt that's just interest so.

When you add it all up it looks like there's there's a lot of pent up demand for the three megawatt.

The challenge has been getting the prototype, which we're at that stage now.

Making sure the supply chain is ready to ramp, which we know we are.

And then you know as IMAX turns that interest into orders, which they've already started too.

You see all of those things is pointing to we think will be a good fiscal 2022 for us for IMAX for India, our fiscal year in their fiscal year in the Indian year or all the things. They started April one so when we say next fiscal year, that's what I mean, starting in.

In the June quarter and beyond.

We see what we think will be the beginning of an emergence of the three megawatt as an additional product specifically with Korea, you know theyre going to digest the order that they have they have to get.

Fulfill the <unk>.

Construction in the in the erection and commissioning of all of the turbines. These are all for ECS that they bought back from US awhile ago. So I'll say I'm optimistic cautiously when we look at our supply chain, where we look at planning you know if Tucson ordering something for fiscal 'twenty, two would be rather we will be able to supply.

Obviously wanted to make sure of the answer to that is yes, but I think specifically the order will be some more stability of the two an order for three and then probably later, we'll be in order for five from from Tucson.

And that may or may not occur next year.

Perfect no understood. Thanks appreciate the color there thanks guys.

And your next question comes from Eric Stine with Craig Hallum Capital Group.

Hi, Daniel Hi, Dan.

Well you're right.

Hey, So just wanted to I guess go back to gross margin on Neal trend.

I mean, obviously, you're working through low margin business, but clearly a high level of confidence in improvement, but maybe I.

Just to talk through that a little bit more I mean, do you feel that in the past I mean, it doesn't sound like you necessarily feel like these projects were mis bid.

But but curious I mean is it just.

Just more scope you know given that it's part of our overall offering.

Yeah, I think you know what if I try to.

Focus on the way.

I won't steal these shows any quotes from a.

Popular show of Disney plus but the way we demonstrated with D. Var. So a lot of what we did with D var and focusing on growth with good margin, making sure. The margins there on product is a different culture.

Than existed at that the two acquisitions, so kind of simply put.

C team.

Extraordinarily well managed entity that can deliver high level of customer satisfaction and right. When we think of an operating income level.

Level business and they understand how to scale up and scale down as revenue demand calls really really well run company, we expected that because we knew the guys for a long period of time, but really.

You know high complement as we you know get under run run the operation now for more than a year.

Really well run business with the mindset of.

Long term growth, but do it but in the near term focusing on operational performance and particularly operating cash flow right.

Doing that year on year I think some of the challenges that we have.

And both acquisitions is doing that quarter on quarter right. So there's a bit of a maturation about doing that I think we've come a long way there I realized that you know as a public company a year has 13 weeks 52 weeks.

And then you've got a report out and you've got to be able to show you know how how you roll. This change hopefully for the positive in the case of Neil Trent Oh, I'll say, it's an older business and it's.

Where our culture, we're trying to focus on how to grow and how do we grow at a good margin, which is a different set of operating instructions right and we're inserting that now under the old tram we're looking at the old backlog to understand.

No. That's as these projects may come again down the line with the same customers how do we make sure we're translating the value appropriately.

Being there with good customer service being their spare parts when they need them as a lot of what we do well in our wind business and specifically our focus on the D var business translating that playbook into these acquisitions and I'll focus more on yield trend because they feel Pepsi is where kind of where we want to be and were real but real happy.

With Neal trend, we have to continue.

Continuing to improve and it starts with the culture in that and that's.

What we've been saying inside the company here.

Here in Massachusetts, but as well in Connecticut, where the Neal train operations.

Got it no. That's that's great color makes sense. Maybe then just turning to these these not necessarily new end markets, but you're certainly emphasizing them more I mean, you've moved beyond semi conductors part of the diversification, there metals and mining and chemicals.

Just curious I mean does the market does it I mean, I would assume you view those growth opportunities. It is very early but.

But just curious maybe what are market awareness is there the potential customers in those markets.

Knowing what you can bring to the table in particular now that you have these two acquisitions in the fold.

I think I mean, I want to say, it's it's it's where we want it to be I think there's still opportunity to grow but I think it's quite high I mean, the thing that I'm impressed with the team's ability to navigate is.

That in these key areas, we've seen a pretty significant uptick in quoting activity, meaning that the intensity of the project, meaning revenue per project.

The likelihood of certain projects going forward you know when you think about.

You know again trying to compare a history with D. Var. You know one of the challenge is always in these businesses or is the project finance isn't Financeable will it go for it on time or how do you judge that that when I see certainty around the projects themselves going up.

Really does communicate something about the market and that's why we tried to take today to kind of drop back and focus a little bit more big picture on the market how the market will.

Interact from us from a kind of a common longer term sustainable.

Vision future, but the material part of this is a critical piece of it and it's frankly, it's a big reason when we looked at these acquisitions I got excited about them because I saw it right away. How this would all fit in with what we do.

You guys know me because we've been doing this a while together I'm not the one that come out in the market. The heck out of something before we do it I wasn't born in Missouri, but I liked to be shown that there's a real pathway there I'm being shown as a real pathway here in the materials segment and I mentioned, the Mckinsey report just because I kind of when I was.

Solid I kind of laugh because that's what I was thinking about a year ago. You know this is an area that we can you know we have a lot of investors say why did you go in this market, where you can get on that market I'm trying to telegraph to the markets that we're focused on so you understand where we think we're going to head and if you like that you know.

You know, where we're going to go with.

Where do you hope this kind of company would go.

Okay. That's helpful. Thanks.

Thanks, Eric.

And that is all the time, we have for questions today I'd now like to turn the conference back to Mr. Daniel Mcgee for any additional or closing remarks.

You kind of wrap it up and I think this is.

Really kind of just to simply answer a lot of questions I think that we get.

We're feeling a lot of tailwind in what we do.

It is.

Kind of a weird juxtaposition between the weirdness, that's going on in the world in capital markets and supply chains and things like that at the same time, we feel our core markets, which are expanding.

We see a number of tail winds that are present today, where those wins are only going to increase over time.

We're laser focused on making sure that you know when we acquired the Altria and we said it would be accretive we are working to make that happen. We think that's an important milestone for the company.

We sense more wind coming hard to tell definitively where or what quarter, but it does seem like you know the sounds are getting louder that we're gonna move for wind and hopefully move forward in a big way.

We said about another about another ship platform. You know we said you know please be patient realize that the L. P. D 32 is going to come we think.

You know and hopefully that that.

It will give us further visibility on additional navy revenue, but we're already doing work on the next ships floral right and so we're really jazzed about the navy or something like that the team are the ability to deliver with this new team the hardware for Elpida 28, So we see more ships coming and then even longer term more cities for Iraq.

So those are kind of the five things as I look out over the next quarters.

That we're going to focus on kind of one after another we hope that they'll come that we think theres, a very very bright future in 2022 in 2023 and beyond for this company.

Particularly you know I think we've been able to pay off a lot of the promised in the past year. You know, we said 2021 was going to be an important here, we delivered the first grid superconductor system.

And the grid right. We delivered the first ship protection system now that was happening you know our revenue basis. Prior we delivered a lot of it before Christmas.

But we was received and everything was ticked out with the shipyard in January So we were super jazzed that all that happens theres. So much good that's happening in this company that I really wanted to make sure that people hear that from me and hear that in my voice, it's a difficult time in the larger capital markets I think for a lot of you.

Thank you.

And this concludes today's conference. Thank you all for your participation you may now disconnect.

Q3 2021 American Superconductor Corp Earnings Call

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