Q4 2021 American Superconductor Corp Earnings Call

June 2, 2022

Ladies and gentlemen, you of course, you're on hold for today's call.

Today's audience and plan to be underway. Shortly thank you for your patience and please remain on the line.

[music].

I would like to turn the conference over to Mr. John Heilshorn. Please go ahead Sir.

Thank you Mary and good morning, everyone and welcome to American Superconductor Corporation's fourth quarter and full fiscal year 2021 earnings conference call I'm, John <unk> Investor Relations.

<unk> Investor Relations agency of record.

On today's call are genuine Mccann, Chairman, President and Chief Executive Officer, and John Kosiba, Senior Vice President Chief Financial Officer and Treasurer.

American Superconductor issued its earnings release for the fourth quarter and fiscal full fiscal 2021 yesterday after the market closed those of you who have not yet seen the release a copy is available on the investors page of the company's website at Www <unk> com.

Before I started the call I would like to remind you that various remarks management may make during today's call about American superconductors future expectations and plans.

Expectations regarding the company's first quarter of fiscal 2022 niche performance plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 90 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 in the risk factors section of American Superconductors annual report on Form 10-K for the year ended March 31, 2020 to which the company filed with the Securities and Exchange Commission on June one 2022.

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 change the company specifically disclaims any obligation to update. These forward looking statements also on today's call Badger 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 in preparing the company's performance across reporting periods.

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

A reconciliation of GAAP net loss to non-GAAP net loss can be found in the fourth quarter and fiscal year 2021 earnings press release that the company issued and furnished to the SEC last night on form 8-K.

All of American Superconductors press releases and SEC filings can be accessed from the company's investors page of its website at Ww Dot <unk> Dot com.

With that I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel Daniel Thanks, Sean and good morning, everyone. I'll begin today with a recap of fiscal 2021, which ended March 31 2022.

John Kosiba will then provide a detailed review of our financial results for the fourth quarter and full fiscal year of 2021.

He will also provide guidance for the first quarter of fiscal 2022, which will add in June 32022.

Following our remarks, we'll open up the line for questions from our analysts.

Fiscal 2021 was a year of growth and significant diversification for AMC.

Full year revenues for the entire MSC business increased by nearly 25% year over year driven by growth in grid.

Our grid business grew by more than 40%, our seventh year in a row of grid growth.

Amc's grid revenue in fiscal 2021 was more than 90% of our business achieved through organic growth.

And strategic M&A.

Just a few years ago grid revenue was 60% of the total business.

In fiscal 2021, we accomplished significant business diversification.

Expanding our product offering.

Extending our geographic reach and broadening our end market.

We diversified our grid product offering with the addition of Neil Tramp.

Our new energy power systems now include our dynamic power correction platforms as well as our static power correction line of capacitor banks harmonic filter systems as well as rectifiers and Transformers.

We diversified our business by geography, and fiscal 2021 over 60% of revenue was U S based well nearly 40% supported international projects, including Singapore, India, Australia, and the United Kingdom overall, the number of countries we ship to.

<unk>.

It is increasing.

And most importantly, we diversified our business by end market in fiscal 2021, the renewables market accounted for approximately 25% of sales.

The semiconductor market accounted for roughly 20% of sales, while the materials metals and mining market accounted for more than 10%.

During fiscal 2021, we announced approximately $85 million of new energy power system orders from customers in Australia, United Kingdom, Spain, Chile, Canada, and the United States among other countries.

Our intention for fiscal 2020 one as.

As we outlined in our FY 'twenty shareholder letter.

It was to continue to execute our strategy of delivering a more sustainable and diversified business both of which we successfully accomplished.

Fiscal 2021 was a pivotal moment in the history of the company and superconductors.

We commercialized high temperature superconductor technology in two separate markets in the same year as predicted.

First we commercialized our resilient electric grid product or Reg.

Our system was delivered integrated energized and successfully operated in the power grid of Chicago.

The Reg system was designed by our team and manufactured using <unk> proprietary imperium superconductor wire.

We delivered our first breakthrough ship protection system for the U S S Fort Lauderdale.

This represents the first of four contracted a MSC ship protection systems or Sps.

The San Antonio Class platform.

The commercialization of Sps and advanced Superconductor Degassing system.

Marked a watershed moment for our company and for Superconductor technology.

We have a culture of delivery and believe that the delivery of the system demonstrates momentum for our company.

For the naval industry to adopt change.

Fiscal year 2021 also ended with another key milestone in our wind business. The design certification of our three megawatt class wind turbine.

With this certification the three megawatt class wind turbine is ready to start operations now.

Now I'll turn the call over to John Kosiba to review, our financial results for the fourth quarter and full fiscal year 2021, and provide guidance for the first quarter of fiscal 2022, which will add in June 32022, John Thanks, Daniel and good morning, everyone.

Total revenues for the fourth quarter of fiscal 2021 were $28 3 million.

This is an increase of 34% compared to the year ago quarter of $21 2 million.

Grid business revenues of $25 7 million increased by 33% versus the year ago quarter, while our wind business revenues of $2 6 million increased by 46% versus a year ago quarter.

Moving on to the full fiscal year total revenues were $108 4 million that is all about 24% growth in revenue from the previous year.

The revenue growth was led by our grid business, which experienced a 40% year over year increase thanks to the acquisition of Neil Chad and growth from our D. Var E V O Pepsi and Sps product lines.

Grid business revenues represented 91% of our total fiscal 2021 revenues.

Wind business revenues decreased 42% in fiscal 2021, primarily as a result of decreased ECS shipments to <unk>.

Gross margin for the fourth quarter of fiscal 2021 was 11, 6% compared to the year ago quarter of 13, 9%.

For the full fiscal year 2021, MSC generated gross margin of 12, 4%. This was down from 20% in fiscal year 2020.

Let me take a couple of minutes and talk about some of the headwinds we experienced in fiscal 2021 that had an impact on our gross margins.

First as we've mentioned on previous calls, we acquired and Neil trend backlog with lean contribution margins associated with it.

This alone impacted our consolidated gross margins by 400 basis points.

We've been working our way through the Neal trend acquired backlog and have started to replace that backlog with what we expect to be more profitable projects and as we look ahead into late FY 2022 and then into FY 2023.

Second throughout fiscal 2021, we experienced product cost increases specifically around commodities, such as steel copper and other precious metals, which are which are used within our products.

We've responded throughout fiscal 2021 with several price increases where we can to include these additional costs we expect.

<unk> experienced the positive impact of these price increases to our gross margins by late fiscal 2022.

And lastly, during fiscal 2021 wind revenue experienced an unfavorable shift in product mix and ECS chip shipments, which negatively impacted both revenue and contribution margin for the year.

We believe as Nymex adopted the three megawatt turbine and returns to historical volumes of ECS shipments, we expect wind contribution margins will recover to normalized levels.

Now moving on to operating expenses research and development and SG&A expenses totaled $9 million for the fourth quarter of fiscal 2021.

This was down from $9 5 million in the year ago quarter.

Approximately 13% of R&D and SG&A expenses in the fourth quarter were noncash.

For the full fiscal year.

Research and development and SG&A expenses totaled $38 million in fiscal 2021.

<unk> to $36 3 million in fiscal 2020.

Approximately 13% of R&D and SG&A expenses in fiscal 2021 were noncash.

Our net loss in the fourth quarter of fiscal 2021 was $5 million for 18 per share.

<unk> to $7 6 million or 29 cents per share in the year ago quarter.

Our non-GAAP net loss for the fourth quarter of fiscal 2021 was $4 7 million or <unk> 17 per share compared with non-GAAP net loss of $5 $6 million 21 per share in the year ago quarter.

For the full fiscal year 2021, our net loss was $19 2 million or 71 cents per diluted share. This compares to a net loss of $22 7 million.

<unk> 95 per diluted share in fiscal 2020.

For the full fiscal year 2021 by non-GAAP net loss was $17 1 million or <unk> 63 per share. This compares to a non-GAAP net loss of $14 1 million or 59 per diluted share in fiscal year 2020.

We ended fiscal year 2021, with $49 5 million in cash cash equivalents and restricted cash. This compares with $52 6 million on December 31 2021.

In the fourth quarter of fiscal 2021, we consumed $3 1 million in operating cash flow.

For the full fiscal year, our operating cash burn was $19 million.

Now turning to our financial guidance for the first quarter of fiscal 2022 weeks.

We expect that our revenues will be in the range of $23 million to $26 million.

Our net loss on that revenue is expected to be no more than $8 9 million or <unk> 32 per share.

And our non-GAAP net loss is expected to be no more than $6 9 million or <unk> 25 per share.

We anticipate operating cash flow to be a burn of $4 6 million in the first quarter of fiscal 2022.

We believe our current working capital levels remain supportive of our near term revenue expectations, we do not anticipate any significant increases in working capital.

We expect to end the first quarter of fiscal 2022 with no less than $43 million in cash process equivalents marketable securities.

And restricted cash.

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

Thanks, Jeff.

Let's talk about our future.

We believe that we have multiple tailwind in multiple markets.

We believe our fiscal year 2022 will be an important year in the future maturation of our business.

Let's start with renewables.

There are a number of expected tailwind is coming to our business from the renewables market.

We see a potential doubling of the Indian wind market from where it has been over the past few years.

Wind power in India is estimated to grow to an annual additional capacity of nearly three five gigawatts in calendar year 2022.

India is poised to add a total of nearly 16 gigawatts of wind capacity for 2022 2025.

To give you some perspective M Dias total wind power additions for the past four years.

Got it to approximately eight gigawatts.

We see the next four years with an average of about nine Gigawatts of annual wind power capacity addition, in the U S.

The U S estimates and annual wind capacity addition, up nearly nine gigawatts in calendar year 2022.

From 2022 to 2025.

<unk> estimates an addition of 37 gigawatts of wind power capacity.

The UK wind market is forecasting nearly four gigawatts of additional wind power capacity in calendar year 2022.

And over 11 Gigawatts of total additional power capacity between 2022 and 2025.

Solar is likely to account for 16% of global renewable power growth in 2022, followed by wind.

Similarly, we see the potential broader expansion of our technology in offshore wind.

Move to decarbonization, and the move to energy independence on behalf of nations.

Could translate into further broader adoption of renewable power systems.

We believe this is a strong tailwind that is emerging from the renewable energy market.

If we look at semiconductors, which we mentioned has become a significant part of our business.

Investment in semiconductor capacity is increasing.

Mike crowd alone is considering $150 billion in capital investment itself to address what it calls 2030 ore demand for memory.

Semiconductor spending a supporting cast it jumped nearly 24% in 2022 to an all time high of nearly $200 billion.

The industry has increased capital expenses since 2019 and is expected to continue to increase in the coming years.

This is a tailwind that has the potential capability to be with us for the next several years.

If we look at mining metals and materials demand for mining products is strong and expected to increase.

For example, auto industry investments in electric vehicles, which are critically dependent on specific minerals that materials is estimated to reach $330 billion by 2025.

In 2020, all global automakers combined spent nearly $225 billion on capital expenditures and research and development.

The mining industry is expected to continue to fly high in 2022, well pressure is foreseeable on mining companies to decarbonize and reduce their environmental impact.

They respond to demand for these new energy economy materials.

And this is all under the backdrop of sustainable security.

The foreign policy challenges around the globe seem to be becoming more complex and intense.

Front and center now as the Russian invasion of Ukraine.

We see rumblings from Taiwan that similar events could unfold there at.

At the same time, North Korea is carrying out ballistic missile tests that Iran is displaying an underground drone base, but it has developed.

The threats are becoming more numerous and certainly more intense.

Russia's aggression has only helped to bring NATO closer together and more focused on further aggressions globally.

This tailwind it could translate into deeper and broader adoption of our technology in the U S Naval fleet as well as allies.

What we're working towards is a more sustainable world, creating a path for a more sustainable world increases demand for one renewable energy to electrification of transportation and the mining metals and materials to support this transition.

Semiconductors, which are the key materials for the new Green economy, and sustainable security and four this is all happening with a backdrop of a less secure world.

As we enter fiscal 2022, and we look just to our first quarter, we do see the timing of projects in the semiconductor industry, particularly for D var.

Such that they were expected to negatively impact the quarter revenue relative to our fiscal year 2021 fourth quarter revenue levels.

This is the reason for our Q1 guide our current projections do not anticipate this continuing beyond the quarter.

We look to continue to grow our new energy power systems order book over the coming quarters.

We expect that our new energy power system products should provide a strong base of grid revenues again in fiscal 2022.

This expectation is driven by the growing demand in our key markets renewables.

Semiconductors, as well as mining metals and minerals.

We see significant demand for our solutions in the semiconductor industry on a macro level. We believe we are experiencing the effects of the semiconductor tailwind in our business demand is increasing lead times are extending we.

We see our own activities now with customers in Singapore, Japan, and Taiwan, as well as the U S expected to translate into revenues.

We saw semiconductor order growth year to year between fiscal 'twenty, 'twenty and fiscal year 2021 we.

We see semiconductor system orders, having more revenue and better margin than our average order.

We have seen an expansion in content for semiconductor grid system sales with the extension of our content via NEP seat into static capacitor banks and harmonic filters and we believe this macro investment and capacity is here to stay in the near term and we will try to take advantage of this.

We see leverage sales, specifically in renewables and semiconductors.

We are supporting IMAX and decided the field with the additional prototype of a three megawatt class wind turbine and initial wind farm a five five megawatt wind turbines respectively.

In the onshore wind market, we anticipate our wind business in India to turn around in fact, we are getting ready for when to make and expect to come back later this fiscal year draw.

Driving this potential come back we expect would be IMAX has transitioned to a three megawatt class wind turbine.

We believe IMAX is in a good position to start expanding its business this year.

Which should translate into an expanded order book for us.

We would expect production to begin following the establishment of a three megawatt supply chain.

We are providing ECS product as they need and pay for it.

We are excited about the long term prospects of the offshore wind market in South Korea, and we look forward to grow our offshore wind business with our partner <unk>.

There are five five megawatt turbine.

Our first resilient electric grid deployment in Chicago is now part of the electric grid. The team is collecting valuable experience on its performance and capabilities.

We will support the ongoing operation of our Reg system in Chicago and begin working with the utility on scope and schedule of a potential next project as they see fit.

We are seeing inbound inquiries from utilities.

We're also performing more targeted outreach with the help of our utility partner.

We have seen an increase in interest in the product with the amortization of Chicago.

And continue to develop possible future projects.

We are manufacturing ship protection systems for the San Antonio Class ship platform.

We will support the installation of the first Sps system of the U S S Fort Lauderdale, which shipped in fiscal 2021.

We expect to deliver on our existing orders of Sps. Our next system for the U S is Harrisburg is scheduled to be delivered this fiscal year.

We have two more Sps systems on order one for the U S S. Richard for cool and the other for the U S. S. Pittsburgh.

We believe the tailwind for our Navy business should translate into an opportunity for deeper and broader adoption of our technology in the U S Naval fleet.

We're working closely with the U S Navy as well as Allied navies.

Possible further adoption of superconductor technology.

We have identified and are performing engineering work on what is now several other platforms.

<unk> mission is to enhance capability without adding complexity are sized installations of critical systems, which is very much aligned with where we believe the U S Navy as well as Allied navies are headed.

We are confident that the U S is committed to integrating advanced gasoline systems into their fleet and we're working hard to expand our Sps business beyond the San Antonio class.

In 2021, we grew and further transform the company.

We grew the grid business by over 40% the entire business grew by nearly 25%.

We acquired additional content with the <unk> business for our new energy power offerings.

This business should benefit from the tailwind created by global de Carbonization effort mining metals and materials are at the heart of this movement and that is where we have positioned our business, we see tail wins for the wind business as well as for semiconductors continuing.

We delivered on our first permanent Ingrid and what will be our first permanent and ship superconductor systems. The dream of superconductors has started to become reality.

I'm very proud how the team delivered growth in diversification, while managing through the daily challenges of a constrained supply chain and an inflationary environment.

We are weathering the pandemic crisis, well, which reflects on the strength of our organization, we are aggressively managing that which we can control.

We expect to continue to execute on our strategy of delivering a more sustainable and diversified business. We believe our culture is inherently innovative always accountable to our customers are constantly collaborating we tried to hire the best and brightest and we listen to and learn from the markets we serve.

We are executing on our vision to create a super grid that enables more renewables on and more resiliency for our power grid.

And the Super shifts that allows for greater resiliency and operational capability for our fleet.

We provide the control technology that helps orchestrates the rhythm and harmony of power on the grid and protects and expands the capability and resiliency of our Navy's fleet.

We will continue to work hard to deliver resiliency to our power grid and the Navy fleet and hopefully that is music to the ears of the markets. We serve we are seeing a diverse set of powerful tailwind emerging in our business.

We believe we're well positioned to take advantage of these tail wins and that should be music to our ears.

I look forward to reporting to you again following the completion of our first quarter of fiscal 2022.

Mary can.

Can we now open up the line to questions from our analysts.

Yes. Thank you if you wish to ask a question at this time.

Cigna by pressing star one on your telephone keypad. Please ensure they meet function. Your telephone is switched off to now to meet your equipment again. Please press star one to ask a question.

We can now take our first question from Justin Clare of Roth Capital Partners. Please go ahead.

Hey, good morning.

Hey, Joseph.

Hi, So I guess first off just on the fourth quarter here was wondering if you could just share a little bit more detail on what drove the decline the.

Sequential decline in margins how much of this was related to.

The lower margin backlog with Neil trend versus a material cost inflation and then if you could just talk through a little bit about how the material cost inflation might be impacting.

Some of your specific business lines, which are kind of most exposed to that are at.

At this point.

Yeah, I mean, just kind of think you queued up pretty nicely in the prepared remarks once we go through the points that.

We can just so we can add some more color where applicable.

Hey, Jonathan So in reference to Q4 to Q4 bridge you know, we're not going to get into the specifics of how much of that was the neogen in backlog versus how much was inflationary both were.

Impacted not so much the third bullet that I mentioned in the in the full year headwinds, but I would say the first two nailed trend backlog and the inflationary pressure both had an impact on Q4.

Sequential decline in gross margin.

The second question was which product product lines specifically.

Pretty much all of them.

Everything we use these for closures that we have outdoor equipment you know even the wire itself is based upon some metal. So when we look at commodity metals. That's what we've been trying to focus on managing the intake of the cost as you take all those and trying to do design work trying to work with the supply chain and additional.

Suppliers to manage those costs going forward and I think the team has done a really nice job of pricing that in.

It's where it's possible you know remember, we're basically a make to order shop.

So as we look at each project and we take it on and we try to align pricing cost as best we can at that point in time, the real risk becomes the duration that it takes to build that product, which could be three to six months in some product lines that could be as much as a year or more and Neil Tran and that's really what you're seeing with the knee Altria part is kind of two pieces to it one is we had.

Of the backlog that had lead margins to begin with and now you're also coupling that with inflationary costs. So we're trying to get ahead of that as fast as we can.

I'll leave it at that.

Okay, Great that's helpful and.

And then just thinking through that a little bit so you mentioned.

You know price increases that you're implementing here.

How long do you think before those price increases could result in a margin improvement because it looks like from your guidance F Q1 margins could decline a bit from our F. Q4, So maybe if you could talk about that.

And then just how long could it take for those price increases to result in that margin improvement.

It's probably going to take a few quarters to get completely through it but I would my guess and my belief my expectation is we should start to see improvement.

I'll, let John comment on the first quarter, but if I look beyond the second quarter third quarter, we should see improvement.

You know it.

Those periods of time, we certainly price to everything and we probably burned through most.

Most of the legacy backlog that we inherited.

Q1, I don't know if you want to add more yeah, I mean, so in our prepared remarks, Justin We said you know.

We expect it to be by late fiscal 2022.

Between now and then we should see improvement as time goes on.

Our expectation is by by late 2022, we should get the full impact of those price increases.

Okay got it and then just shifting gears to your wind segment here you know you mentioned that the design certification for the three megawatt was achieved so congratulations on that.

And just wondering if you could provide a little bit more detail on the steps from.

From here that you would need to get an order secured in and what you need to do on your end to line up the supply chain in order to deliver on those orders.

Yeah, we're already looking at the supply chain and what the risks are there. So we can quote appropriate lead times to our customer <unk> as we.

Embark on.

Discussions around an order I think IMAX today, it's like personal wise I think they're in a much better position they've been in recent memory financially. They think that they're looking forward here in 2022 to really starting to rebuild their business.

Think a lot of their competitive advantage comes from our great. Two megawatt platform that has low wind capabilities with a bunch of things that we worked on together to give them differentiation in the market, but the addition of this three megawatt turbine we think really helps build a bigger potentials expand their business further so.

We're actively today trying to best understand our supply chain that so that when we believe that order will happen.

That were ready to be able to respond with product as fast as the lead times that we believe we can manage and deliver it to them. It is a challenging environment today, we're really dealing with daily challenges when it comes to availability of parts for a lot of our products, but I don't think that's any different than any other.

It's out there, but I think the team has really done a great job at navigating our way through that.

You know, it's not just production and supply chain for the engineering and.

The guys on the floor as well on how do we make you know how do we keep things moving.

For our customers.

Okay.

One of them one of the advantages we have as part of the certification process as we build a prototype and so the good news is you know we do have an existing identified supply chain base for that turbine analysis as a matter of ramping up for production.

Okay. Thanks, very much I will pass it on.

We can now take our next question from Colin Rusch Oppenheimer. Please go ahead.

Thanks, So much guys could you talk a little bit about the progression that you're seeing with your utility scale customers for the <unk>.

Reg product assume that nothing installations done those things are starting to accelerate a little bit.

Yeah, I think that's a good word I think the.

Conversations that were happening in the specificity of the depth.

Schedule.

Those kinds of things I think really you know turning on the Chicago system.

Has really helped to open up the minds of utility, where we were discussing projects with a bunch of utilities now theyre coming off with problems that they want us to help themselves. So I talked a little bit about in the prepared remarks, so that clearly is.

Our utility partners actually helping us with this they're very proud of what they've been able to do and learn with US and are excited as we are to go out and talk about the solution.

Yeah.

Excellent and can you talk a little bit about the potential for cross selling with those utilities are around not just from <unk>, but into the D. Var voltage power management solutions, given the potential growth in renewables.

Is there.

Another stream of revenue that you might start seeing directly from these utilities or is it really still with the developers on our systems.

I don't know if you've been listening tour of sales meetings called.

But what I said in the prepared remarks are we're already seeing it in renewables and semiconductor and.

I see a real untapped potential there in utilities, we have applicability with D. Var. We certainly have applicability with V O with Reg.

If utilities have demand for customers.

That are dealing with electrification challenges were for a mine for instance, or the utilities are servicing a semiconductor fab.

The utility in many ways is the nexus of kind of bringing together, where all of our products matter.

And that's really where I think there is some on tap future leverage that are certainly going to push the team to go after.

Okay. So I'll take the rest of it offline. Thanks, so much guys. Thanks.

Thanks Colin.

We can now take our next question from Eric Stine of.

Craig Hallum. Please go ahead.

Hi, Daniel Hi, Jim.

Hey.

Thanks, So just going back to <unk>.

Just going back to wind.

I mean, obviously a more optimistic tone.

By end market by customer you've got the three megawatt certification.

Yeah.

And in the in the release you talked about you know you're hopeful that there is a rebound.

What sort of things do we need to see in kind of in what timeframe do we need to see it.

In order for you.

To be able to whether it's on the next call and say Hey, we're we're seeing the pickup in that pickup will become more evident in the back half.

And then into fiscal 'twenty three I mean, it just maybe some of the steps that you expect or want to see to feel more confident along those lines.

Yeah, I think you know today, what we're trying to get you to understand I think you've got a 100% which is there's a series of tail winds in kind of the weather's changed in our environment where.

We really only have a tailwind the minor headwind of some margin issues. We think are gonna behind us in the coming quarters.

We're looking now for you hear us talk about 2025 and a lot of our focus is how do we now build from 'twenty one to 'twenty two and then onto 25 with the capabilities in these markets that we're serving.

We think we really have.

You know.

A tremendous opportunity I have not laid out today and nor will I kind of the specifics of what we're gonna do quarter by quarter.

I think the main key indicator I always look to is that as the health of our order book what does the backlog look like how diversified is that we've tried to do a better job of signaling that with press releases and descriptions of the markets that we see building in the countries that we see we see that building and so really that's kind of.

The main number one indicator.

The second one would be you know.

Some other developments in the relationship with Linux.

I believe that they are getting healthier, maybe we will see things for them here in the future that will give you a signals to that.

So that would be something that I would I would look to certainly an order on us would be that but they're trying to work through all the supply chain challenges that they see and we're helping them with the supply chain for the three megawatt.

And then I I don't know if I hinted at already basically explicitly said more ships are coming.

It's hard to name, which which holes and win but it really does feel like the.

The technology is on the on the precipice of being broadly adopted in the U S fleet and then extended into allies.

But it's hard for me to dictate what that pacing is going to be we're going to serve the navy as they needed.

It is a great fit it's a nice feeling to have delivered.

The hard part for investors to understand our orders are one thing, but delivery on those systems and getting them to make work over and over again.

What this organization does incredibly well and.

You know if we want to keep doing those things and being able to do with as markets expand that more customers are you know call on us just for our solutions.

Got it yes definitely.

Pretty noticeable more more confidence or more details also on S. P S.

And thats over since last quarter I mean, it's that.

What do you attribute that to I know you've been doing engineering work on some of these or is it just those becoming more mature or you know the market backdrop as well.

I think the navy understands to meet their vision.

And then kind of how I had stated in the remarks is almost verbatim of the things that we've said to them you know our mission is to enhance capability.

Without adding complexity or size.

Right and that is exactly what the Navy is looking for how do we take the existing fleet to do more in a world that's more dangerous right and we think that superconductor is a critical critical technology for the Navy.

We don't think it stops with <unk> so.

You know I don't want to get people too excited or two ahead of where I am and when I start to get excitement when we meet with the team but.

We do really think it's a good is a critical technology for the Navy because it really meets the modern mission and this really dangerous world that were getting more dangerous seems every week.

Yes.

Yeah.

Okay got it on that and then lastly, just on grid.

Laid out kind of some of the timing issues in the first quarter and.

And that being a big part of the guide relative to the fourth quarter without specific guidance, which I know you don't give for the year I mean are you expecting growth in grid.

For the year when you account for that that slow start to the year based on the market backdrop, and where your backlog stands today.

We tried to telegraph, probably more clearly than we ever have kind of a quarter to quarter variance in the revenue and the bottom line is that.

You see semiconductor is becoming more significant fraction of the business and we were transparent with that today right. That's a mission that we set out on a few years ago that I think not everybody understood or believed but it's now come to reality.

It's now a big enough part of the business that variations in that part of the business will have a direct impact on where we think that this is gonna headquarter to quarter. So specifically around semiconductor in D. Var. We see the timing of some projects and that we had a nice Q4.

You will see a Q1 that's probably.

A bit worse off almost dollar for dollar between the guidance and the bottom line, we don't see that lasted.

More than the first quarter. So when we looked at the backlog that we have when we look at the projects that were targeting.

It looks like we should have a very healthy business with semiconductor fabs again this year.

I forget the key indicators, we need to keep delivering orders and making announcements that we're getting orders in the.

The markets that we're in or.

Future markets that we're looking to target I think that's.

The main thing to watch here.

Okay. Thank you.

And we can now take our next question from Chip Moore.

Go ahead.

[laughter].

Hum.

Yes.

Yeah.

Great job outlining the multiyear television.

I understand that the bar I didn't hear you won.

I guess more.

That's helpful.

By chain challenges in the back half of the year is that ramps and haven't yet.

Assess that.

You're you're a bit our model, but I think what you're asking chip is about our supply chain going forward and those are those risks increasing or decreasing it appears like those risks.

It feels like they've reached their peak and they shouldn't be decrease in quarter to quarter.

But gosh I don't I mean, it's hard for me to know that the next thing happens in the next few drops does something else differently.

The U S responds in a different way.

So many I mean, that's where the market I think is where we're at is overall is people just don't know what's going to happen next.

What we've tried to do and I think we've demonstrated nicely going back to the organization as we built a company that has the resolve to be able to manage through these things so I.

I think to answer the question directly I think the risk is reducing.

But you know.

You know I don't know how many people were predicting a Russian two would be you.

Two three years ago.

Yeah that's helpful.

And one more for me I guess on <unk>.

And America clauses on more of the grid investments I have seen some companies, but the energy control space.

Also your plans to build capacity.

If some of that investment I would think that's an advantage for you but is that something youre seeing and how do you think about that.

Yes, it's an advantage it's something that we're seeing we're already there.

I don't know other companies that you're thinking about maybe offline you can tell us more specifics on the companies you're referring to but yeah. This is an advantage for us.

Got it.

I'll take the rest off thanks, so much.

We have no further questions.

The Q&A session I would now like to hand, the call back to Daniel Mccann for any additional or closing remarks.

Thanks Mary.

We grew by 40%.

If you asked me a year ago is that what was going to happen you know obviously, we don't guide for the year, but that's an extraordinary number.

It is coming from organic it is coming from the acquisitions.

We want to do is keep building this company.

To add diversity in the revenue. So you can see and just how we talked about renewables is a fraction in semiconductor.

Mining and minerals.

<unk>.

The Navy will become a big big fraction Colin got to it with the utilities utilities are going to become a bigger fraction over time, we just feel probably very different today differently.

In the number of positive things that we're seeing we really only see positives coming.

The short term negative of dealing with margins in inherited backlog and all of that is it's.

It's not yet behind us, but it's going to be in a number of cycles in the.

The longer term hope for this business, we think we're really going to start to see signs of here in 2022, but when we work together as a team. We're worried about 2025, how do we continue this growth trajectory that we've been on and be able to do it over and over again by diversifying the product.

Portfolio, what we invested maybe eventually what we look to acquire so yeah.

So they should feel different for you guys because it feels different for us than I.

I want to make sure that we got that message across thank you for your time and we'll probably talk to you soon as we look to close out.

The first quarter. Thank you everybody.

Yeah.

Okay.

Thank you for your participation you may now disconnect.

[music].

Yeah.

[music].

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

Being recorded at this time.

Conference over to Mr. John Heilshorn. Please go ahead Sir.

Thank you Mary Good morning, everyone and welcome to American Superconductor Corporation's fourth quarter and full fiscal year 2021 earnings conference call I'm, John <unk> Investor Relations MSC Investor Relations agency of record.

On today's call are genuine Mccann, Chairman, President and Chief Executive Officer, and Chuck <unk>, Senior Vice President Chief Financial Officer and Treasurer.

I started the call I would like to remind you that various remarks management may make during today's call about American superconductors future expectation.

<unk> expectations regarding the company's first quarter fiscal 2022 financial performance.

And prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 90 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 in the risk factors section of the breakfast Superconductors annual report on Form 10-K for the.

The year ended March 31, 2020 to which the company filed with the Securities and Exchange Commission on June one 2022, 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.

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 measures.

The company believes that non-GAAP net loss to assist management and investors and comparing the company's performance across reporting periods.

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

Conciliation of GAAP net loss to non-GAAP net loss can be found in the fourth quarter and fiscal year 2021 earnings press release that the company issued and furnished to the SEC last night on form 8-K.

All of American Superconductors press releases and SEC filings can be accessed from the company's investors page of its website at www <unk> com.

I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel Daniel Thanks, John and good morning, everyone. I'll begin today with a recap of fiscal 2021, which ended March 31 2022.

John Kosiba will then provide a detailed review of our financial results for the fourth quarter and full fiscal year of 2021.

He will also provide guidance for the first quarter of fiscal 2022, which will add in June 32022.

Following our remarks, we'll open up the line for questions from our analysts.

Fiscal 2021 was a year of growth and significant diversification.

MFC.

Full year revenues for the entire MSC business increased by nearly 25% year over year driven by growth in grid.

Our grid business grew by more than 40%.

Our seventh year in a row.

Grid growth.

Amc's grid revenue in fiscal 2021 was more than 90% of our business achieved through organic growth and strategic M&A.

Just a few years ago grid revenue was 60% of the total business.

In fiscal 2021, we accomplished significant business diversification by expanding our product offering extending our geographic reach and broadening our end market.

We diversified our grid product offering with the addition of Neil Trent.

We diversified our business by geography, and fiscal 2021 over 60% of revenue was U S based well nearly 40% supported international projects, including Singapore, India, Australia and the year.

<unk> Kingdom overall, the number of countries we ship to.

It is increasing.

And most importantly, we diversified our business by end market in fiscal 2021, the renewables market accounted for approximately 25% of sales.

The semiconductor market accounted for roughly 20% of sales, while the materials metals and mining market accounted for more than 10%.

During fiscal 2021, we announced approximately $85 million of new energy power system orders from customers in Australia, the United Kingdom, Spain, Chile.

And the United States among other countries.

Our intention for fiscal 2021 as.

As we outlined in our FY 'twenty shareholder letter.

So as to continue to execute our strategy of delivering a more sustainable and diversified business both of which we successfully accomplished.

Fiscal 2021 was a pivotal moment in the history of the company and superconductors.

Commercialized high temperature superconductor technology in <unk>.

Two separate markets in the same year as predicted.

First we commercialized our resilient electric grid product or Reg.

The system was delivered integrated energized and successfully operated in the power grid of Chicago.

The Reg system was designed by our team and manufactured using <unk> proprietary imperium superconductor wire.

Second we delivered our first breakthrough ship protection system for the USS Fort Lauderdale.

This represents the first of four contracted <unk> ship protection systems or Sps.

For the San Antonio Class platform.

The commercialization of Sps and advanced superconductor into gassing system.

Marked a watershed moment for our company.

For superconductor technology.

We have a culture of delivery and believe that the delivery of the system demonstrates momentum for our company and for the naval industry to adopt change.

Fiscal year 2021 also ended with another key milestone in our wind business the designs FERC certification of <unk>.

Our three megawatt class wind turbine with.

With this certification the three megawatt class wind turbine is ready to start operations now.

Total revenues for the fourth quarter of fiscal 2021 or $28 3 million.

This is an increase of 34% compared to the year ago quarter of $21 2 million.

Grid business revenues of $25 7 million increased by 33% versus the year ago quarter, while our wind business revenues of $2 6 million increased by 46% versus a year ago quarter.

Moving on to the full fiscal year total revenues were $108 4 million that is over 24% growth in revenue from the previous year.

Our revenue growth was led by our grid business, which experienced a 40% year over year increase thanks to the acquisition of Neil Chad and growth from our D var, BVO, NFC and Sps product lines.

Grid business revenues represented 91% of our total fiscal 2021 revenues.

Wind business revenues decreased 42% in fiscal 2021, primarily as a result of decreased Dcs shipments behind ox.

Gross margin for the fourth quarter of fiscal 2021 was 11, 6% compared to the year ago quarter of 13, 9%.

For the full fiscal year 2021, MSC generated gross margin of 12, 4%. This was down from 20% in fiscal year 2020.

Let me take a couple of minutes and talk about some of the headwinds we experienced in fiscal 2021 that had an impact on our gross margins.

First as we've mentioned on previous calls we acquired <unk> backlog with lean contribution margins associated with it.

This alone impacted our consolidated gross margins by 400 basis points.

We've been working our way through the Neal trend acquired backlog and have started to replace that backlog with what we expect to be more profitable projects. As we look ahead into late FY 2022, and then into FY 2023.

Second throughout fiscal 2021, we experienced product cost increases specifically around commodities, such as steel copper and other precious metals, which are which are used within our products.

We've responded throughout fiscal 2021 with several price increases where we can to include these additional costs we expect.

They experienced the positive impact of these price increases to our gross margins by late fiscal 2022.

And lastly, during fiscal 2021 wind revenue experienced an unfavorable shift in product mix and ECS chip shipments, which negatively impacted both revenue and contribution margin for the year.

We believe as IMAX adopts the three megawatt turbine and returns to historical volumes of ECS shipments, we expect wind contribution margins will recover to normalized levels.

Now moving on to operating expenses research and development and SG&A expenses totaled $9 million for the fourth quarter of fiscal 2021.

This was down from $9 5 million in the year ago quarter.

Approximate 13% of R&D and SG&A expenses in the fourth quarter were noncash.

For the full fiscal year <unk>.

Research and development and SG&A expenses totaled $38 million in fiscal 2021.

Compared to $36 3 million in fiscal 2020.

Approximately 13% of R&D and SG&A expenses in fiscal 2021 were noncash.

Our net loss in the fourth quarter of fiscal 2021 was $5 million or <unk> 18 per share compared to $7 6 million or 29 cents per share in the year ago quarter.

Our non-GAAP net loss for the fourth quarter of fiscal 2021 was $4 7 million or <unk> 17 per share compared with non-GAAP net loss of $5 $6 million 21 per share in the year ago quarter.

For the full fiscal year 2021, our net loss was $19 2 million or <unk> 71 per diluted share. This compares to a net loss of $22 7 million or 95 per diluted share in fiscal 2020.

For the full fiscal year 2021 by non-GAAP net loss was $17 1 million or <unk> 63 per share. This compares to a non-GAAP net loss of $14 1 million or 59 per diluted share in fiscal year 2020.

We ended fiscal year 2021, with $49 5 million in cash cash equivalents and restricted cash. This compares with $52 6 million on December 31 2021.

In the fourth quarter of fiscal 2021, we consumed $3 1 million in operating cash flow.

For the full fiscal year, our operating cash burn was $19 million.

Yes.

Now turning to our financial guidance for the first quarter of fiscal 2022, we expect that our revenues will be in the range of 23% to $26 million.

Our net loss on that revenue is expected to be no more than $8 9 million or <unk> 32 per se.

And our non-GAAP net loss is expected to be no more than $6 9 million or <unk> 25 per share.

We anticipate operating cash flow to be a burn of $4 6 million in the first quarter of fiscal 2022.

We believe our current working capital levels remain supportive of our near term revenue expectations, we do not anticipate any significant increases in working capital.

We expect to end the first quarter of fiscal 2022 with no less than $43 million in cash process equivalents marketable securities.

And restricted cash.

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

Thanks, Jeff let's.

Let's talk about our future.

We believe that we have multiple tailwind in multiple markets.

We believe our fiscal year 2022 will be an important year in the future maturation of our business.

Let's start with renewables.

There are a number of expected tailwind is coming to our business from the renewables market.

We see a potential doubling of the Indian wind market from where it has been over the past few years.

Wind power in India is estimated to grow to an annual additional capacity of nearly three five gigawatts and calendar year 2022.

India is poised to add a total of nearly 16 gigawatts of wind capacity from 2022 2025.

To give you some perspective Mds total wind power additions for the past four years amounted to approximately eight gigawatts.

We see the next four years with an average of about nine Gigawatts of annual wind power capacity addition, in the U S.

The U S estimates and annual wind capacity addition, up nearly nine gigawatts in calendar year 2022.

From 2022 to 2025 U S. Estimates. An addition of 37 gigawatts of wind power capacity.

The UK wind market is forecasting nearly four gigawatts of additional wind power capacity in calendar year 2022.

And over 11 Gigawatts of total additional power capacity between 2022 and 2025.

Solar is likely to account for 60% of global renewable power growth in 2022, followed by wind.

Similarly, we see the potential for.

Broader expansion of our technology and offshore wind.

The move to decarbonization and the move to energy independence on behalf of nations could translate into further broader adoption of renewable power systems.

We believe this is a strong tailwind that is emerging from the renewable energy market.

If we look at semiconductors, which we mentioned has become a significant part of our business.

Investment in semiconductor capacity is increasing.

Mike crowd alone is considering $150 billion in.

And capital investment.

Self to address what it calls 2030 ore demand for memory.

Semiconductor spending is forecasted to jumped nearly 24% in 2022 to an all time high of nearly 200 billion.

The industry has increased capital expenses since 2019 and is expected to continue to increase in the coming years.

This is a tailwind that has the potential capability to be with us for the next several years.

If we look at mining metals and materials demand for mining products is strong and expected to increase for.

For example, auto industry investments in electric vehicles, which are critically dependent on specific minerals that materials is at.

Estimated to reach $330 billion by 2025.

In 2020, all global automakers combined spent nearly $225 billion.

On capital expenditures and research and development.

The mining industry is expected to continue to fly high in 2022, while pressure is foreseeable on mining companies to decarbonize and reduce their environmental impact as they respond to demand for these new energy economy materials.

And this is all under the backdrop of sustainable security so.

The foreign policy challenges around the globe seem to be becoming more complex and intense.

Front and center now as the Russian invasion of Ukraine.

We see rumblings from Taiwan that similar events could unfold there at.

At the same time, North Korea is carrying out ballistic missile tests and Iran is displaying an underground drone base, but it has developed.

The threats are becoming more numerous and certainly more intense.

Russia is aggression has only helped to bring NATO closer together and more focused on further aggressions globally.

This tailwind it could translate into deeper and broader adoption of our technology in the U S Naval fleet as well as allies.

Semiconductors, which are the key materials for the new Green economy, and sustainable security and four this is all happening with a backdrop of a less secure world.

As we enter fiscal 2022, and we look just to our first quarter, we do see the timing of projects in the semiconductor industry, particularly for D var.

Such that they are expected to negatively impact our quarter revenue relative to our fiscal year 2021 fourth quarter revenue levels.

This is the reason for our Q1 guide our current projections do not anticipate this continuing beyond the quarter.

We look to continue to grow our new energy power systems order book over the coming quarters.

We expect that our new energy power system products should provide a strong base of grid revenues again in fiscal 2022.

This expectation is driven by the growing demand in our key markets renewables semiconductors, as well as mining metals and minerals.

We see significant demand for our solutions in the semiconductor industry on a macro level. We believe we are experiencing the effects of the semiconductor tailwind in our business.

Demand is increasing lead times are extending we.

We see our own activities now are customers in Singapore, Japan, and Taiwan as well as the U S expected to translate into revenues.

We saw semiconductor order growth year to year between fiscal 2020 in fiscal year 2021, we.

We see semiconductor system orders, having more revenue and better margin than our average order.

We have seen an expansion in content for semiconductor grid system sales with the extension of our content via <unk> into static capacitor banks and harmonic filters and we believe this macro investment and capacity is here to stay in the near term and we will try to take advantage of this.

We see leverage sales, specifically in renewables and semiconductors.

We are supporting IMAX and decided the field with the additional prototype of a three megawatt class wind turbine and initial wind farm a five five megawatt wind turbines respectively.

In the onshore wind market, we anticipate our wind business in India to turn around in fact, we are getting ready for when to make and expect to come back later this fiscal year.

Driving this potential come back we expect would be IMAX has transitioned to a three megawatt class wind turbine.

We believe IMAX is in a good position to start expanding its business this year.

Which should translate into an expanded order book for us.

We would expect production to begin following the establishment of a three megawatt supply chain.

We are providing ECS product as they need and pay for it.

We are excited about the long term prospects of the offshore wind market in South Korea, and we look forward to grow our offshore wind business with our partner <unk>.

<unk> five five megawatt turbine.

Our first resilient electric grid deployment in Chicago is now part of the electric grid. The team is collecting valuable experience on its performance and capabilities.

We will support the ongoing operation of our Reg system in Chicago and begin working with the utility on scope and schedule of a potential next project as they see fit.

We are seeing inbound inquiries from utilities.

We're also performing more targeted outreach with the help of our utility partner.

We have seen an increase in interest in the product with the amortization of Chicago and continue to develop possible future projects.

We are manufacturing ship protection systems for the San Antonio Class ship platform.

We will support the installation of the first Sps system of the USS Fort Lauderdale, which shipped in fiscal 2021.

We expect to deliver on our existing orders of Sps. Our next system for the U S is Harrisburg is scheduled to be delivered this fiscal year.

We have two more Sps systems on order one for the U S S. Richard pool, and the other for the USS Pittsburgh.

We believe the tailwind for our Navy business should translate into an opportunity for a deeper and broader adoption of our technology in the U S. Naval fleet, we're working closely with the U S Navy as well as allied navies on the possible further adoption of superconducting technology.

We have identified and are performing engineering work on what is now several other platforms.

We are confident that the U S is committed to integrating advanced gasoline systems into their fleet and we're working hard to expand our Sps business beyond the San Antonio class.

In 2021, we grew and further transform the company.

We grew the grid business by over 40% the entire business grew by nearly 25%.

We acquired additional content with the <unk> business for our new energy power offerings.

We delivered on our first permanent Ingrid and what will be our first permanent and ship superconductor systems. The dream of superconductors has started to become reality.

I am very proud how the team delivered growth in diversification, while managing through the daily challenges of a constrained supply chain and an inflationary environment.

We are weathering the pandemic crisis, well, which reflects on the strength of our organization, we are aggressively managing that which we can't control.

We expect to continue to execute on our strategy of delivering a more sustainable and diversified business. We believe our culture is inherently innovative always accountable to our customers and constantly collaborating we try to hire the best and brightest and we listen to and learn from the markets we serve.

We are executing on our vision to create a super grid that enables more renewables on and more resiliency for our power grid.

And a super shifts that allows for greater resiliency and operational capability for our fleet.

We provide the control technology that helps orchestrate the rhythm and harmony of power on the grid and protects and expands the capability and resiliency of our Navy fleet.

We will continue to work hard to deliver resiliency to our power grid as the Navy fleet and hopefully that is music to the ears of the markets. We serve we are seeing a diverse set of powerful tailwind emerging in our business.

We believe we are well positioned to take advantage of these tailwind and that should be music to our ears.

I look forward to reporting to you again following the completion of our first quarter of fiscal 2022.

Mary can.

Can we now open up the line to questions from our analysts.

Yes. Thank you if you wish to ask a question at this time.

Signal by pressing star one on your telephone keypad. Please ensure you meet function. Your telephone is switched off to align with signal to reach our equipment again. Please press star one to ask a question.

We can now take our first question is from Jonathan care of Roth Capital Partners. Please go ahead.

Hi, good morning.

Hi, Joseph.

Hi, So I guess first off just on the fourth quarter here was wondering if you could just share a little bit more detail on what drove the <unk>.

Sequential decline in margins how much of this was related to.

Lower margin backlog with Neil trend versus material cost inflation and then if you could just talk through a little bit about how the material cost inflation might be impacting.

Some of your specific business lines, which are most exposed to that.

At this point.

Yes, Jonathan kind of executed up pretty nicely in the prepared remarks. Once we go through the points you made that we can just we can add some more color.

Typical.

Hey, Jonathan So in reference to Q4 to Q4 bridge.

We're not going to get into the specifics of how much of that was the neocon in backlog versus how much was inflationary both were.

Impacted not so much the third bullet that I mentioned in the in the full year headwinds.

Headwinds, but I would say the first two neal trend backlog and the inflationary pressure both had an impact on Q4.

Sequential decline in gross margin.

The second question was which product product line specifically.

Pretty much all of them.

Everything we use.

Oxford closures that we have outdoor equipment.

The wire itself is based upon some metal so when we look at commodity metals. That's what we've been trying to focus on managing the intake of the cost of the uptake of those and trying to do design work trying to work with the supply chain additional suppliers to manage those costs going forward.

And I think the team has done a really nice job of pricing that in where it's where it's possible remember, we're basically a make to order shop.

So as we look at each project and we take it on we try to align pricing cost as best we can at that point in time, the real risk becomes the duration that it takes to build that product, which could be three to six months in some product lines that could be as much as a year or more and Neil Tran and Thats really what youre seeing with the Neal transport is kind of two pieces to it one is.

We inherited a backlog that had lead margins to begin with and now Youre also coupling that was inflationary costs. So we're trying to get ahead of that as fast as we can.

<unk>.

I'll leave it at that.

Okay, Great that's helpful.

And then just thinking through that a little bit.

So you mentioned.

The price increases that you're implementing here how long do you think before those price increases could result in margin improvement because it looks like from your guidance F Q1 margins could.

Decline a bit from.

F Q4, so maybe if you could talk about that and then and then just how long could it take for those price increases to result in that margin improvement.

It's probably going to take a few quarters to get completely through it but I would my guess and my belief my expectation is we should start to see improvement.

I'll, let John comment on the first quarter, but if I look beyond the second quarter third quarter, we should see improvement.

At those periods of time, we certainly priced everything and we probably burned through.

Most of the legacy backlog that we inherited.

Q1, I don't know if you want to add more yes, I mean.

So in our prepared remarks, Justin we said.

We expect it to be by late fiscal 2022.

Now and then we should see improvement as time goes on.

Our expectation is by by late 2022, we should get the full impact of those price increases.

Okay got it and then just shifting gears to your wind segment here you mentioned that the design certification for the three megawatt was achieved so congratulations on that.

Just wondering if you could provide a little bit more detail on the steps.

From here.

That you would need to get an order secured in what you need to do on your end to lineup the supply chain in order to deliver on those orders.

Yes, we're already looking at the supply chain and what the risks are there. So we can quote appropriate lead times to our customer <unk>.

Embark on.

Discussions around an order I think IMAX today, if I personalized I think they are in.

A much better position they've been in recent memory financially I think that Theyre looking forward here in 2022 to really starting to rebuild their business we.

We think a lot of their competitive advantage comes from our great. Two megawatt platform that has low wind capabilities of a bunch of things that we've worked on together to give them differentiation in the market, but the addition of this three megawatt turbine we think really helps.

Build a bigger potential to expand their business further so.

We're actively today trying to best understand our supply chain. So that when we believe that order will happen.

That we are ready to be able to respond with product as fast as we gather the lead times that we believe we can manage and deliver to.

It is a challenging environment today, we are really dealing with daily challenges when it comes to availability of parts for a lot of our products, but I don't think that's any different than any other.

It's out there, but I think the team has really done a great job at navigating our way through that.

It's not just production and supply chain and engineering.

The guys on the floor as well on how do we how do we keep things moving forward.

For our customers.

Okay.

One of the one of the advantages we have as part of their certification processes, we buildup prototypes and so the good news is we do have an existing identified supply chain base for that turbine analysis as a matter of ramping up for production.

Okay. Thanks, very much I will pass it on.

We can now take our next question from Colin Rusch of Oppenheimer. Please go ahead.

Thanks, So much guys could you talk a little bit about the progression that you're seeing with your utility scale customers for the <unk>.

Reg product assume that installations done those things are starting to accelerate a little bit.

Yes, I think that's a good word.

I think the.

Conversations that were happening in the specificity of the depth.

Schedule is.

And those kinds of things I think really turning on the Chicago system.

It has really helped to open up the minds of utility, where we were discussing projects with a bunch of utilities now theyre coming up with problems that they want us to help them solve so.

I talked a little bit about in the prepared remarks.

It clearly is.

Our utility partners actually helping us with is they are very proud of what they've been able to do and learn with us.

And they are excited as we are to go out and talk about the solution.

Excellent.

Can you talk a little bit about the potential for cross selling with the utilities.

Not just from <unk>, but into the D var voltage power management solutions, given the potential growth in renewables.

Is there.

Another stream of revenue that you might start seeing directly from these utilities or is it really still with the developers on our systems.

I don't know if you've been listening to our sales meetings.

But what I've said in the prepared remarks are we're already seeing it in renewables and semiconductor.

I see a real untapped potential there in utilities, we have applicability with D. Var, we certainly have applicability with BVO with Reg.

If utilities have demand for customers.

That are dealing with electrification challenges were for a mine for instance, or the <unk>.

Utilities are servicing a semiconductor fab.

The utility in many ways is the nexus of kind of bringing them together, where all of our products matter.

That's really where I think there is some untapped future leverage that we're certainly going to push the team to go after.

Okay. So I'll take the rest of it offline. Thanks, so much guys.

Thanks Kelvin.

And we can now take our next question from Eric Stine of Craig Hallum. Please go ahead.

Hi, Daniel Hi, Jim.

Okay.

Thanks, So just going back to Hello, just going back to wind.

I mean, obviously a more optimistic tone.

And market by customer you've got the three megawatt certification.

And then in the release talked about though you're hopeful that there is a rebound.

What sort of things do we need to see in kind of in what timeframe do we need to see it.

In order for you.

To be able to whether it's on the next call and say Hey, we're we're seeing the pickup in that pickup will become more evident in the back half and then into fiscal 'twenty three.

Just maybe some of the steps that you expect or want to see to feel more confident along those lines.

Yes, I think yesterday, what we're trying to get you to understand I think you got it.

<unk> percent, which is theres a series of <unk> and kind of the weather's changed in our environment, where we really only have a tailwind the minor headwind of some margin issues. We think are going to be behind us in the coming quarters.

I think we really have.

No.

A tremendous opportunity I have not laid out today and nor will I kind of the specifics of what we're going to do quarter by quarter.

I think the main key indicator I always look to is that as the health of our order book with US our backlog look like how diversified is that we've tried to do a better job of signaling that with press releases and descriptions of the markets that we see building in the countries that we see we see that building and so really that's kind of the <unk>.

Number one indicator.

The second one would be.

Some other development in the relationship with IMAX.

I believe that they are getting healthier, maybe we will see things for them here in the future that will give you some signals to that.

So that would be something that I would I would look to certainly an order on us would be that but they are trying to work through all the supply chain challenges that they see and we're helping them with the supply chain for the three megawatt.

And then I don't know if I hinted at already basically explicitly said more ships are coming.

<unk>.

It's hard to name, which which holes and win but it really does feel like the.

The technology is.

On the precipice of being broadly adopted in the U S fleet and then extended into allies.

But it's hard for me to dictate what that pacing is going to be we're going to serve the navy as they need it.

It is a great fit.

Nice feeling to have delivered I.

I think the hard part for investors to understand our orders are one thing, but delivery on those systems and getting them to make work over and over again is what this organization does incredibly well.

We want to keep doing those things and being able to do in those markets expand that more customers.

Call on us for solutions.

Got it yes definitely.

Pretty noticeable more more confidence more and more details also on Sps.

And thats over since last quarter I mean, it's that.

What do you attribute that to I know you've been doing engineering work on some of these are our ability or is it just those becoming more mature or the market backdrop as well.

I think the navy understands to meet their vision.

And then kind of how I had stated in the remarks is as almost verbatim of the things that we've said to them our mission is to enhance capability.

Without adding complexity or size.

Right and that is exactly what the Navy is looking for how do we take the existing fleet to do more in the world is more dangerous right and we think that superconductor is a critical critical technology for the Navy.

We don't think it stops with <unk> so.

I don't want to get people too excited or too.

Where I am and why I start to get excitement when we meet with the team but.

We do really think it's a critical technology for.

The Navy because it really meets the modern mission and this really dangerous world that it is getting more dangerous seems every week.

Yes.

Okay got it on that and then lastly, just on grid.

You laid out kind of some of the timing issues in the first quarter.

And that being a big part of the guide relative to the fourth quarter without specific guidance, which I know you don't give for the year.

Are you expecting growth in grid.

For the year when you account for that that slow start to the year based on the market backdrop, and where your backlog stands today.

We tried to telegraph, probably more clearly than we ever have kind of quarter to quarter variance in the revenue and the bottom line is that.

It's now a big enough part of the business that variations in that part of the business. We will have a direct impact on where we think the business is going to headquarter to quarter. So specifically around semiconductor in D. Var. We see the timing of some projects and that we had a nice Q4 you.

Youll see Q1, that's probably.

A bit worse off almost dollar for dollar between the guidance.

The bottom line, we don't see that lasting.

More than the first quarter. So when we look at the backlog that we have when we look at the projects that were targeting.

It looks like we should have a very healthy business with semiconductor fabs again this year.

Again, the key indicators, we need to keep delivering orders and making announcements that we're getting orders in the markets that we're in or.

Future markets that we're looking to target and I think thats.

The main thing to to watch here.

Okay. Thank you.

And we can now take our next question from Chip Moore of Es.

Go ahead.

Yeah.

Okay.

Yes.

Guidance.

Great job outlining the multiyear television.

The D var timing here in Q1.

<unk>.

I guess more.

And so any supply chain challenges in the back half of the year is that our brands and how much of it.

SaaS.

Youre a bit model, but I think what you are asking chip is about supply chain going forward and those are those risks increasing or decreasing it appears like those risks.

It feels like they reached their peak and they shouldn't be decrease in quarter to quarter.

But gosh I don't.

I mean, it's hard for me to know that the next thing happens in the next few drops does something else differently.

The U S responds in a different way.

There's so many that's why the market I think is where it is overall is people just don't know what's going to happen next.

What we've tried to do and I think we've demonstrated nicely going back to the organization as we built a company that has the resolve to be able to manage through these things. So.

I think to answer the question directly I think the risk is reducing.

But.

Good.

I don't know how many people were predicting Russia to invade Ukraine, two three years ago.

Yes, that's helpful.

And one more for me.

I guess on <unk>.

Made in America clauses on more of the grid investment side, perhaps seeing some companies that the energy control space.

<unk> plans to build capacity.

Some of that investment I would think that's an advantage for you but is that something youre seeing and how do you think about that.

Yes, it's an advantage it's something that we're seeing we're already there.

I don't know other companies that you are thinking about maybe offline you can tell us more specifics on that.

Companies, you're referring to but yes. This is an advantage for us.

Got it.

Okay I'll take the rest off thanks much.

We have no further questions. This now concludes our Q&A session I would now like to hand, the call back to Tony Mckinnon for any additional or closing remarks.

Thanks Barry.

We grew <unk> by 40%.

If you asked me a year ago is that what was going to happen.

Obviously, we don't guide for the year, but that's an extraordinary number.

It is coming from organic it is coming from the acquisitions, but what we want to do is keep building. This company to add diversity in the revenue. So you can see and just how we talked about renewables is a fraction in semiconductor.

In the mining and minerals.

The Navy will become a big big fraction Colin got to it with the utilities utilities are going to become a bigger fraction over time, we just feel probably very different today differently.

And the number of positive things that we're seeing we really only see positives coming the short term negative of dealing with margins in inherited backlog and all of that is it's not yet behind us, but it's going to be in a number of cycles.

<unk>.

And be able to do it over and over again by diversifying the product portfolio, what we invested maybe eventually what we look to acquire so.

Yes sure.

Should feel different for you guys because it feels different for us and I want to make sure that we got that message across thank you for your time and we'll probably talk to you soon and we look to close out.

The first quarter. Thank you everybody.

This concludes today's call. Thank you for your participation you may now disconnect.

Q4 2021 American Superconductor Corp Earnings Call

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