Q1 2023 American Superconductor Corp Earnings Call
Ladies and gentlemen, thank you for setting by the conference will begin shortly please continue to hold and thank you for your patience.
[music].
Good morning, and welcome to the H M. S. C first quarter fiscal 'twenty 'twenty financial results Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on you touched on some.
To withdraw from the question queue. Please press Star then two please.
Please note this event is being recorded.
Now I'd like to turn the conference over to John Hows warn of all eight eight. Please go ahead.
Good morning, Anthony Good morning, everyone and welcome to American Superconductor Corporation's first quarter of fiscal 2023 earnings Conference call I'm, John I always wonder if <unk> Investor Relations <unk> Investor Relations agency of record.
With us on today's call are damn again, chairman, President and Chief Executive Officer, and John Kosiba, Senior Vice President and Chief Financial Officer and Treasurer.
American Superconductor issued its earnings release for the first quarter of fiscal 2023 yesterday. After the market close those of you who have not yet seen the release a copy is available in the investors page of the company's website at www Dot <unk> Dot com.
Before starting the call I would like to remind you that various remarks that management may make during today's call about American superconductors future expectations, including expectations regarding the company's second quarter fiscal 2023 financial performance plans and prospects constitute forward looking statements for purposes of the safe Harbor provisions under the <unk>.
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.
At March 31, 2023, which the company filed with the Securities and Exchange Commission on May 31, 2023, and the company's other reports filed with the SEC.
As part of your statements represent management's expectations only as of today and should not be relied upon as representing management views as of any date subsequent to today.
The company anticipates that subsequent events 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 referred to.
non-GAAP net loss non-GAAP financial measures. The company believes that non-GAAP net loss assist management and investors and comparing the company's performance across reporting periods on a consistent basis by excluding these.
Cash nonrecurring or other charges that it does not believe are indicative of its core operating performance.
A reconciliation of GAAP net loss non-GAAP net loss can be found in the first quarter of fiscal 2020 earnings press release, the company issued and furnished to the FCC last night on form 8-K, all of American Superconductors press releases and SEC filings can be accessed from the investors page of its website at Ww does a M S dot com.
With that I will now turn the call over to chairman President.
Chief Executive Officer, Dan Mckenzie Daniel.
Thanks, John and good morning, everyone. We're very excited to be here with you today I'll begin today by providing an update and share a few remarks on our business. John Kosiba will then provide a detailed review of our financial results for the first fiscal quarter, which ended June 32023, and provide guidance for the second fiscal quarter.
Which will end September 32023, following their comments, we'll open up the line for questions from our analysts.
We began fiscal year 2023 with strong orders momentum.
Notably improved margin performance.
Total revenues for the first quarter of fiscal year, 2023 exceeded our expectations and came in above our guidance range.
Our first quarter revenue of over $30 million was driven by strong new energy power system shipments.
Our grid segment revenue for the first quarter of fiscal year 2023 accounted for over 85% of Amc's total revenue and grew 30% versus year ago period.
The remainder of the revenue came from our wind business.
Our grid visibility now extend into fiscal 'twenty 'twenty four.
And our sales team is already focused on orders for delivery next fiscal year.
We believe the work over the past two years will begin to pay off this fiscal year.
We have a more diverse and more sustainable business with new and existing customers.
During our first quarter, we generated over $34 million and new energy power system orders.
Over the past several quarters the business delivered an average of $40 million of orders per quarter, New energy power system orders have averaged about $30 million per quarter.
We realized that our lead times have extended to over a year for certain products.
We see a diverse set of orders from renewables to semiconductor materials and mining to industrials and new orders for new military applications.
These new energy power system orders come from serving the U S military providing efficient and.
Reliable shore power to Navy vessels. This represents an exciting new opportunity for new energy power systems.
We certainly see potential future repeat business for this application.
We also received orders from the U S Navy for additional installation support services for our ship protection system.
During the first quarter, we saw diverse revenues from renewable industrial semiconductor as well as maybe projects.
About one quarter of our sales were two renewable projects. These include shipments of ECS to IMAX.
Well as grid revenues were 850 megawatt wind project and.
850 megawatt solar project.
The Navy business was about 10% of total revenue and the remainder of shipments came from a variety of industrial projects. We see strong diversity of revenues now I will turn the call over to John Kosiba to review our financial results for the first quarter of fiscal 2023 and.
And provide guidance for the second quarter of fiscal 2023, which will end September 32000, twenty's or John Thanks, Danielle and good morning, everyone.
M. A C generated revenues of $30 3 million for the first quarter of fiscal 2023 compared to $22 7 million in the year ago quarter.
Our grid business unit accounted for 85% of total revenues, while our wind business unit accounted for 15%.
Grid business unit revenues increased by 30% in the first quarter versus the year ago quarter.
This year over year change was led by revenue growth from both our NEP seat and the old <unk> product lines.
When business unit revenues increased 58% in the first quarter versus the year ago quarter.
This year over year change was driven by ECS shipments to IMAX.
Looking at the P&L in more detail gross margin for the first quarter of fiscal 2023 and was 21%. This is up from 10% in the year ago quarter.
Gross margin for this quarter was favorably impacted by increased revenues and a more favorable product mix in our grid business unit driven by continued revenue growth at both Nazi and Neil trend.
Additionally, I'd like to note that we experienced meaningful contribution margins from Neil trend this quarter.
As I mentioned in previous calls throughout fiscal 2022, we have been shipping off they originally acquired <unk> backlog, which had depressed contribution margins in the first quarter of fiscal 2023, we experienced more favorable contribution margins as we ship post acquisition Neil trend backlog.
Moving on to operating expenses, R&D and SG&A expenses for the first quarter of fiscal 2023 were $9 7 million compared to $10 2 million in the year ago quarter.
Approximately 13% of R&D and SG&A expenses in the first quarter of fiscal 2023 were noncash.
Our net loss in the first quarter of fiscal 2023 was $5 4 million or <unk> 19 per share.
This compares to a net loss of $8 7 million or 32 cents per share in the year ago quarter.
Our non-GAAP net loss for the first quarter of fiscal 2023 was $2 1 million or eight cents per share compared with $6 8 million or 25 cents 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 first quarter of fiscal 2023 with $23 1 million in cash cash equivalents and restricted cash. This compares with $25 7 million on March 31 2023.
Our operating cash burn in the first quarter of fiscal 2023 was $2 2 million.
Now turning to our financial guidance for the second quarter of fiscal 2020 three we.
We expect that our revenues will be in the range of 29 to 32 million.
Net loss on that revenue is expected not to exceed $5 $3 million or <unk> 19 per share.
Please note that our net loss guidance assumes no changes in contingent consideration.
Our non-GAAP net loss is expected not to exceed $3 5 million or <unk> 12 per share.
The company expects operating cash flow in the second quarter of fiscal 'twenty 'twenty to range from a burn of $1 million of positive operating cash flow of $1 million.
We expect to end the second quarter with no less than $21 million in cash cash equivalents and restricted cash.
With that I'll turn the call back over to Daniel Thank.
Thanks, Chad.
We significantly narrowed our operating cash burn during the first quarter and.
And expect better performance at similar revenue levels during the second quarter.
Our guidance contemplates generating cash in the second quarter.
Factors, such as our sales leverage our backlog and the benefits of previous price increases were all positive influences to our first quarter financial performance and we expect those influences to benefit fiscal year 2023.
We have a robust pipeline of opportunities thanks to strong market demand and we are aggressively going after those opportunities we have a variety of applications for industrial processes and manufacturing like mining metal extraction metal processing as well as chemical plants.
These applications help harmonize the world's desire for decarbonization.
And clean energy.
With the need for more reliable effective and efficient power delivery the market drivers for a low carbon economy in a modern reliable and secure power grid are in our favor. That's why we believe to be well positioned for the longer term.
The World is quickly moving towards de Carbonization does slow down climate change and create a path for a more sustainable world. We are at the center of this change.
I'd like to give you a glimpse of how much the markets. We serve have evolved and will continue to evolve.
The U S energy information agency indicates that the U S. Electrical grid has been stressed by U S wind power generation, increasing from six Gigawatts in 2003.
So over 140 Gigawatts in 2020.
And photovoltaic power generation, increasing from almost zero in 2003 to approximately 125 Gigawatts in 2022.
The Edison Electric Institute estimates that the number of electric vehicles on the road in the U S is projected to approach 19 million and 2030.
For more than $1 million at the end of 2018, a typical electric car require a six times the critical minerals inputs.
Conventional car. These critical inputs include graphite copper nickel lithium cobalt rare earths among others.
In onshore wind plant requires nine times more critical mineral resources than a gas fired plant.
The International Energy Agency States that since 2010, the average amount of critical minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables has risen.
The transition to a low carbon economy potentially increase as demand for our new energy power systems to renewables and key materials for the new energy economy.
Our key growth markets, our renewables mining and metals semiconductor and military we believe the March towards a more sustainable world will be a driver for the markets we serve in the foreseeable future.
We see increased demand expected for renewable energy.
Electrification of transportation and the mining and metals to support this transition.
Semiconductors and key materials for the new energy economy.
And sustainable security for a more secure world.
Our products are expected to play a central role in this evolution and we continue to intensify our efforts and collaboration to take advantage of these trends.
We continue to work towards growing a business that's supporting power management at the substation level for renewables mining and metals utilities and now for military uses as well as supporting customers in the semiconductor industry.
In conclusion, we're really excited we began in fiscal 2023 on a strong note. We're broadening our revenue base with multiple products for the Navy. We have a total of five ship protection systems contracts for the San Antonio Class L. P. D. We are currently installing one of the ship protection systems.
And we're in the process of delivering another this fiscal year, we are executing on orders Fry Nox when just a few weeks ago IMAX wind announced type certification of the three megawatt class wind turbine we are supporting IMAX wind as they expand their offering to include an exceptional three megawatt class wind turbine.
IMAX has done some corporate restructuring within their entity.
Which they believe will put them in a stronger financial position. We are supporting Tucson is a commission there 100 megawatt offshore wind farm this year with our five five megawatt wind turbine design and electrical control systems.
Our installed resilient electric grid system in Chicago is performing as planned and that's become a showcase for the technology.
We are optimistic about our company's future based upon market demand and our demonstrated margin performance.
We believe we will continue to realize the benefits of previous price increases our current backlog is strong and well diversified overall.
Business is performing very well and we are serving an expanded set of customers in our grid business.
Already our transformative power solutions are moving the world forward, we are executing on our vision and believe that our creativity can meet today's challenges and help us progress to a better future.
This means using future facing technologies to harmonize the world's desire for de carbonization and clean energy with the need for more reliable effective and efficient power delivery, we believe in powering progress by designing developing and deploying power control solutions to harmonize and inquiry.
<unk> complex energy system.
It really feels like we've turned the corner and are very excited about our future.
I'm not going to comment today directly on on validated scientific claims we are and I believe we will continue to be at the forefront of superconductor technology.
Technological advances in our space only benefit us and that they sparked the imagination of what could be possible. We are capable of delivering what is possible today.
And are planning to continue to maintain this position we have transitioned from a material science company to a manufacturer of completely integrated systems.
Any tactical advantages that can further our offerings are welcomed and I look forward to reporting back to you as the completion of our second fiscal quarter of 2023.
Anthony we will now take questions from our analysts.
We will now begin the question and answer session.
Ask a question you May press Star then one you touched on something.
Using a speakerphone please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
First question will come from Eric Stine with Craig Hallum.
May now go ahead.
Hi, Daniel Hi, John .
Good morning, good morning.
Hey, So I just wanted to start with lead times, if we could it's obviously great to see the the order pick up and I know the nature of some of your product or are they you know the projects that you're selling into or are longer term in nature, but you know just curious.
You know what you're doing on your end, whether it's in the supply chain, whether it's on the manufacturing side to shorten those lead times.
Yeah, I think it's a great question, that's it's kind of a pivotal wanted to how we manage growth.
I think there's benefit in the market as lead times in general have extended and have continued to extend for a lot of our competitors. We still have I think a competitive advantage in that we can turn orders faster.
Then typically the companies that we would compete against.
We've tried to work hand in glove with our suppliers to ensure that long lead elements are on order and we have a lot of things a commonality of parts between product lines and such so we tried to leverage that as we possibly can but I think it's important you know if you look at the business.
Few years ago are probably our average lead time was in the range of say nine months for the overall business and today. It's in excess of 12 months. So we've had suppliers that have told us that they that they need more than 60 week 72 weeks for parts and recently, we've seen those shrink back down to 52 week 50 weeks 48 week kind of kind of lead time so.
I think it's important as people evaluate the rate that we bring orders and that they understand that.
The lead time, and that's why I think it's a good it's a great a topical question here.
Got it Okay. That's helpful and then on wind.
Just curious obviously, it's great that you know wind does see the the order pick up I guess that was back in May I'm curious is it safe to assume though that at least.
In the interim this is not a run rate that that corner reflects that.
Your your revenues reflected that corridor and that you're still waiting for the three megawatt in in that to move beyond prototype stage with IMAX.
So I think we're going to the next stage, so whereas that might volume production at this point that orders kind of signified Eric that IMAX is going into production. They have the first wind farm identified them and they put them on an order with us the parts for that the first the first installation. So we're moving beyond prototyping into light.
Flight volume production I think what we're hoping can come next.
Is really the beginning of INR scaling the three megawatt to get it ready for market.
And if you listen to their excitement that really is what their banking their future on so.
We've tried to be a very great partner to IMAX as they've had their own challenges with their own business and policies in India.
But it looks like that.
That market is changing it looks like things are moving up where we're focused now on providing.
Stable demand for the two megawatt because that's an existing business still for them and then we look forward to being able to ramp we're working with our supply chain literally now to make sure we're able to meet the future demands for IMAX, but again, because the lead times for those products could be in excess of a year.
Got it and so just to confirm though than this quarter.
Do you is this kind of a of a runway or a run rate you know kind of in this 4 million plus range at a pretty pretty nice step up sequentially or.
Don't don't get ahead of things and that's still maybe a couple of quarters off.
I think we're a couple of quarters off from seeing additional ramp I think the rate that we're at now should be sustainable with the two megawatt that's at least what the demand presented has been so I think if you compare this period to the year ago period. Yes. So this is a step up I think we'll be at this rate I don't know for how many quarters, but what.
What we're hoping is there'll be additional demand for the two and probably pretty significant demand for the three coming.
Okay, Great and I'll tell you the revenue this quarter was only the two megawatt there's no there's only the two megawatt okay yep.
Alright, that's helpful I will take the rest offline. Thanks.
Next question will come from Colin Rusch with Oppenheimer you.
You May now go ahead.
Thanks, So much guys and congrats on good into.
Well it looks like a critical benchmark, reaching cash flow breakeven next corner.
If you look at the sales activity on the grid side could you talk a little bit about you know the trend lines on.
The size of those deals you know I'm suspecting is as you get.
Into Sunrise mind.
And electric products that there may be a drift upwards in terms of the total megawatts.
Or do you know.
Yeah, No I think the reaction you're asking the exact great question and what that's exactly what we're seeing in the pipeline as the projects themselves are larger.
And concurrently with that our offering is larger now that we've added the additional content that we're selling so.
You know the good news is as we see the business is progressing and we see what's in the pipeline average order per project is increasing.
And that we needed to make sure that we have the capabilities to be able to answer the call that our that our customers bring to us. These projects. So I think that's great news for the company.
With larger project sites with more content per project.
Mike.
Helpful. And then with the comment project, it's great that it's up and running and I'm kind of looking at it can you just give us a sense of you know kind of how many people are looking at the results there and how that's been changing over the last 12 months or so.
Oh, it's been hundreds I think between staff within Epsilon and the other utilities outside that are very curious about how they get one for themselves.
Think we've learned from the rollout of other products on the grid, it's very important for utilities to buy it and use it on their own and really understand the use cases.
I think probably the most telling.
Feedback I can give you that's kind of new on the product is.
The value equation that we originally calculated for Reg is probably much less than we thought.
There are things that can be done with the grid when a reg system as part of it that I think were beyond our fully understanding of how the grid operator in the future. So.
So I think we're learning and we're evolving what's the value proposition is but I think the value of an installation is going up because we're seeing.
Additional ancillary benefits of being able to interconnect existing substations and in the urban core.
I think part of it.
Well actually I have some questions on that but I'll just take it offline. So I appreciate the color there and I'll kick them over here. Thanks, guys.
Again, if you have a question. Please press Star then one.
Our next question will come from Justin Clare with Roth Capital Partners. You May now go ahead.
Yeah, Hi, thanks for taking the questions here.
Wanted to start off.
Wanted to start off with the gross margin so significant improvement in Q1 here I was wondering if the higher wind revenue was was a factor here or are you seeing because of that higher revenue the margins improving for that business and then also just on.
Neil trend.
Once the lower margin backlog of Neil trend you know.
It didn't take into Q1 and you're still realized this.
Margin expansion.
Is there still low margin backlog remaining or have you basically worked through that are you know completely at this point.
Hey, Joe.
Hey, Jonathan This is John so to answer your first part of your question on win yes. The revenue the increase in revenue.
<unk> did add to our gross margin so wind did ingram.
Incrementally get better from a gross margin. So yes. It did help oh at the end of the day, It's you know a four.
Four and a half million Bucks. So you got to it's not a material driver as to why the market went up but it did contribute.
To answer your question on the old trend.
Neil Trans margins improve because we've had a higher percentage of what's shipped go out on the post acquisition backlog. There is still some tail on the post on the pre acquisition backlog that's become an insignificant my intent is that should not be a driver in how we discuss our results moving forward.
Got it Okay and then just based on your guidance at least on the topline and the bottom line. It looks like Q2 could be somewhat similar to Q1, though it looks like cash flow generation improves.
So maybe you could speak to why cash flow generation improves and then maybe you know should we anticipate any meaningful change on either the gross margin profile quarter to quarter or are in your opex.
Between the quarters.
So generally we don't guide on gross margin or Opex, We drive we guide to net income and non-GAAP .
You can see in our guidance for Q2, it's it's it's reasonably close to where we came in in Q1 are keeping in mind, we always guide.
Guide to a product mix for a lack of better term worst case product mix scenario I'm. So your expectation on okay. So the margins stay reasonably bad I don't think that's unreasonable considering we don't have we're not signal any significant changes to opex and our bottom line is as you know reasonably close to where it was in Q1.
So that's an.
To answer your question directly.
You know you've got you've got to reverse engineer it from our non-GAAP or GAAP guidance and you do that correctly, you'll see that.
The definition, there can't be significant changes quarter over quarter.
Right, Okay, and then just one more.
Last year, you had been implementing price increases.
I was wondering if those price increases have essentially been fully reflected in the Q1 gross margin or if there's potential for margin expansion here.
As you know maybe you have some higher margin backlog.
You know to fulfill in the future here.
I think we see the potential for gross margin expansion to come with revenue expansion.
You're now seeing the benefit of the work that's been done over the past more than a year to be able to better manage across supply chain availability and then translate that into a more proper pricing to customers.
Yeah.
Okay. Thanks, very much I'll pass it on.
This concludes our question and answer session I would like to turn the conference back to turn the conference back over to Mr. Mccann for any closing remarks.
I want to thank everybody for their attention I think the main thing we're highlighting as we got to new revenue levels were being able to hold this sort of a nice stable business a lot of the hard work is starting to pay off this year, which we're tremendously excited about we've been talking about getting to this inflection point to grow to this law.
Oh and get margins in a more healthy range, which.
We've been able to deliver on in Q1.
On the grid side, we see delivery of higher quantities are repeat customers and markets are we see sales synergies driving larger orders, which was part of the question and answering that we had and then we see some integration synergies that we've already been able to realize through optimizing the cost structure.
Continuing with grid on the ship protection side, you know we have the total of five S. P. S contracts for the San Antonio Class, we're delivering on the first two are installing one and delivering the hardware for the second one.
We didn't talk a lot today about mine countermeasure solutions, but that project continues.
<unk> continues and we think is an important part of our future additional.
Additional content coming for the U S Navy through that product offering and on the wind side kind of in summary, we have robust two megawatt demand with upside growth opportunities, there and with IMAX when announcing that they've reached type certification. We believe this is the beginning but would you expect to drive of additional customer demand there. So.
We tried to keep it very sink today for you all hopefully it's very clear we're very excited about the hard work that we've put in is starting to pay off.
The mood and the spread of core here is really strong and really happy and we look forward to being able to talk to you. All again in another quarter's time. So thank you everybody for your support and your attention and good.
Good day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.