Q2 2023 American Superconductor Corp Earnings Call
Good day and welcome to the a M S. The second quarter of fiscal 2023 financial results call.
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After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
The protocol over to Mr. Joe <unk>.
Please go ahead.
Thank you Dan Good morning, everyone and welcome to American Superconductor Corporation second quarter of fiscal 2023 earnings Conference call.
I'm, John Heilshorn of <unk> Investor Relations Best use Investor Relations agency of record.
With us on today's call are game of Gad, Chairman, President and Chief Executive Officer, and John <unk>, Senior Vice President Chief Financial Officer and Treasurer.
I can superconductor issued its earnings release for the second quarter of physical twenty-three yesterday. After the market closed for those of you who have not yet seen the release a copy is available on the investors page of the company's website at Ww done a M. S C dot com.
Before starting the call I'd like to remind you that various remarks that management may make during today's call about American superconductors future expectations, including expectations regarding the company's third quarter fiscal 2020 financial performance plans and prospects constitute forward looking statements for purposes of the safe Harbor.
<unk> 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.
Many of those set forth in the risk factors section of American Superconductors annual report on Form 10-K for the year ended March 31, 2023, which the company filed with Securities and Exchange Commission on May 31, 2023, and the company's other reports filed with the SEC. These.
These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today.
While the company anticipates that subsequent events and developments may cause the company's views to change the company specifically disclaims any obligation to update these forward looking statements.
Also on today's call management will refer to non-GAAP net income loss, which are non-GAAP financial measures. The company believes that non-GAAP net income loss.
Management and investors and comparing the company's performance across reporting periods I think consistent basis.
Excluding these noncash nonrecurring or other charges that he does not believe are indicative of its core operating performance. The reconciliation of GAAP net loss GAAP net profit net income loss can be found on the second quarter fiscal 2020 earnings press release, the company issued and furnished to the SEC last night on form 8-K, all of American Super.
Conductor as press releases SEC filings can be accessed from the investors page of its website at Ww Dot a M S dot com.
With that I will now turn the call over to Chairman, President and Chief Executive Officer, Jim again, Daniel Thanks, John.
Everyone.
I'll begin today by providing an update and sharing a few remarks on our business John.
John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 32023, and provide guidance for the third fiscal quarter, which will end December 31, 2023. Following our comments, we'll open up the line to questions from our analysts.
Okay.
Several quarters ago, we discussed possible business performance scenarios that could lead to increased shareholder value.
We discuss revenue growth margin expansion and expense control as factors driving potential cash breakeven and cash generating scenarios.
Our second quarter results stand as proof.
But this can be done.
For the second quarter of fiscal 2023, we generated a modest non-GAAP net income.
We had positive operating cash flow.
We showed expanded gross margins, we showed higher revenue and we delivered another quarter of strong orders.
All signs this quarter are quite positive I believe we are ahead of schedule.
Total revenues for the second quarter of fiscal year, 2023 exceeded our expectations and came in above our guidance range.
Our second quarter revenue of $34 million was driven primarily by strong new energy power system shipments.
Our grid segment revenue for the second quarter accounted for over 80% of <unk> total revenue and grew over 10% versus the year ago period.
The remainder of the revenue came from our wind business.
Which also grew significantly as a percentage from a year ago.
We had very strong bookings in the second quarter with both new and existing customers for our products.
We announced a near record $37 million of new energy power systems orders in October.
And have a strong 12 month backlog of over $128 million.
Our backlog grew nearly 30% versus the year ago period.
If you look at the 12 month backlog over time back in fiscal 2020, we had about $50 million in backlog and.
In fiscal 2021 backlog grew to $80 million last fiscal year, it reached $100 million and as you can see we're now approaching $130 million again in 12 months' backlog.
We see Java with improvement in our pipeline orders and overall business.
We have a more diversified and more sustainable business with new and existing customers.
Our business has turned a corner.
It feels like we've arrived.
Over the past several quarters the business secured an average of $40 million of total orders per quarter.
Orders for the second quarter totaled over $40 million, giving us visibility into fiscal year 2024.
We see lead times for certain products, starting to decrease to under 12 months.
We were seeing long lead times take about 15 or more months to procure.
This is good news for our business and for our customers.
During our second quarter, we ship systems to renewable projects in the U S and Canada, a mining project in Canada semi conductor projects in the U S and Taiwan.
And please note this is to multiple different chip manufacturers.
<unk> systems to the U S Navy projects and projects supporting the supply chain for batteries and electric vehicles in the U S.
We saw a diverse set of orders from renewables to semiconductors to materials and mining to industrials as well as for utilities and military applications. We are pleased with these results and excited about the rest of our year.
Now I'll turn the call call over to John Kosiba to review, our financial results for the second quarter of fiscal 2023 and.
And provide guidance for the third quarter of fiscal 2023, which will end December 31 2023, John.
Thanks, Daniel and good morning, everyone.
I'd like to start off by saying I'm pleased with our second quarter results as many of you may recall from our Investor call back in the third quarter of fiscal 2000, 2022, I mentioned, we have taken several strategic steps to lower our overhead cost structure.
In addition to our revenue growth these steps of cool it clearly paid paid off.
I also elaborated that as we've moved into fiscal 2023 that would be several scenarios, where cash gross margins could approach, 25% and operating cash flow breakeven could be achieved as revenue approached $35 million in a quarter.
I am pleased to report that in the second quarter, we reported gross margins of 25% and generated 900000 of operating cash flow.
Yeah.
AMC generated revenue was up 34 million for the second quarter of fiscal 2023 compared to $27 7 million in the year ago quarter.
Our grid business unit accounted for 84% of total revenues, while our wind business unit accounted for 16%.
Grid business unit revenues increased 11% in the second quarter versus the year ago quarter and win business unit revenues increased by 177% over that same time period as we are shipping more ECS to our India wind licensee.
Looking at the P&L in more detail gross margin for the second quarter of fiscal 2023, or 25% compared to 7% in the year ago quarter.
Gross margin for this quarter was favorably impacted by increased revenues and a favorable product mix driven by revenue growth across our most profitable product lines.
Additionally, increased service and spares revenue had a meaningful impact on gross margins in the quarter.
And lastly, the price increase these increases we implemented over a year ago are starting to work their way through the backlog and had a favorable impact on our gross margins.
All of these factors contributed to the improved gross margin we reported in the quarter.
Now moving on to operating expenses, R&D and SG&A expenses for the second quarter of fiscal 2023 were $9 6 million compared to $9 7 million in the year ago quarter Approx.
Approximately 11% of R&D and SG&A expenses in the second quarter of fiscal 2000 Twenty's rate were noncash.
We generated a modest non-GAAP net income for the second quarter of fiscal 2023 of less than <unk> 1 million or zero cents per share compared with a non-GAAP net loss of $6 5 million or 23 cents per share in the year ago quarter.
Our net loss in the second quarter of fiscal 2023 was $2 5 million or <unk> 90 per share.
This compares to a net loss of $9 9 million or <unk> 35 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 second quarter of fiscal 2023 with $24 million in cash cash equivalents and restricted cash.
This compares with $23 1 million on June 30 of 2023.
We generated operating cash flow in the second quarter of fiscal 2023 up $900000.
We generated this cash flow through the strength of our operating results and continued to have a strong balance sheet with no debt.
Now turning to our financial guidance for the third quarter of fiscal 2023.
We expect that our revenues will be in the range of $33 million to $36 million.
Our net loss on that revenue is expected not to exceed $4 3 million or 15 cents per share.
Our non-GAAP net loss is expected not to exceed $2 5 million or eight cents per share.
Company expects operating cash flow to be breakeven to a positive cash generation of $2 million.
We expect to end the third quarter with no less than $24 million of cash cash equivalents and restricted cash.
With that I'll turn the call back over to Daniel.
Thanks, John.
Strong market demand from industrials renewables and utilities drove orders for our second quarter of fiscal year 2023.
We see government mandates as well as federal policies, such as the inflation reduction Act supporting fossil fuel retirement renewables growth and electric vehicle sector developments.
In calendar year, 2022, renewable energy generation, including hydropower exceeded coal fired power.
During the first half of this calendar year 2023 data shows that wind and solar power produced more U S power than traditional coal.
We see power generation from coal progressively declining and being replaced by natural gas and renewables.
We see opportunities for our products and services as utilities address. The addition of distributed power generation into the electric grid.
Recently, the U S retired nearly 14 gigawatts of coal capacity.
Nearly 70% of the coal fleet.
Since 2022.
Nearly two thirds of fossil fuel fired electricity generation capacity is expected to cease.
By 2035.
Solar wind and natural gas made up more than 90% of the capacity added to the U S electric grid in 2020 one.
Investment in clean energy sources in 2020, one increased by 10% from the prior year to about $50 billion and was estimated to grow by 16% to nearly $60 billion in 2022.
The market drivers for a low carbon economy in a modern reliable and secure power grid are in our favor.
Our applications help harmonize the world's desire for de carbonization in clean energy with the need for more reliable effective and efficient power delivery.
That's why we believe to be well positioned for the longer term.
We havent robust pipeline of opportunities thanks to strong market demand and we are aggressively going after those opportunities.
We are committed to the continued diversification of our business expanding our scale and reach domestically and internationally and investing in resilient markets that create a path for a more sustainable world.
Our key growth markets, our renewables mining materials and metals, particularly for electric vehicles semiconductors utilities and military.
We believe the March towards a more sustainable world will be a driver for the markets we serve in the foreseeable future.
Our products are expected to play a central role in this evolution.
And we continue to intensify our efforts in 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 for military uses as.
As well as supporting customers in the semiconductor industry.
We have turned a corner.
And delivered another remarkable quarter, we arent looking back.
We can see that the fundamentals of our business are well grounded we generated cash and expect robust performance during the third quarter.
In conclusion, we delivered a strong first half of fiscal 'twenty twenty-three.
We are executing on orders for my Nox wind, we delivered multiple sets of two megawatt electrical control systems. This quarter, we are supporting IMAX windows. They expand their offerings to include an exceptional three megawatt class wind turbine.
We are supporting Tucson is a commission or 100 megawatt offshore wind farm with our five five megawatt wind turbine design, which they intend to complete next year.
We are broadening our revenue base with multiple products for the U S Navy.
We have won a total of five ship protection system contracts for the San Antonio Class L. P D.
We've delivered and installed one ship protection system and are currently in the process of commissioning that system.
We are delivering our second ship protection system this fiscal year.
We have a major utility project driven by environmental mandates to reduce greenhouse gas emissions and are aggressively pursuing others.
Our installed resilient electric grid system in Chicago is performing as planned and it's become a showcase for the technology.
Our current backlog is strong well diversified and growing.
We delivered strong revenue of over $30 million in the first quarter and over $34 million for the second quarter and expect robust revenue during the third quarter of fiscal year 2023.
We believe we are ahead of our plans and that's very positive.
Overall, the business is performing well.
And we are serving an expanded set of customers in our grid business already are 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 helped 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 that harmonized and increasingly complex energy system. We are very excited about our future I look forward to reporting back to you at the completion of our third fiscal quarter of 2023.
Nick will now take lines questions from our analysts that are on the line.
Well begin the question and answer session.
That's the question you May Press Star then one on your block snowfall.
We are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
This time, we'll pause momentarily to assemble the roster.
Yeah.
First question will be from Colin Rusch from Oppenheimer. Please go ahead.
Thanks, So much guys and congrats on the progress of your it's great to see you got it right I thought the cash flow metrics can you talk a little bit about you know, where you're winning and how you're weighing on the grid side and the cadence of orders and then just the follow up question I'll just hop back in queue. After this is really around your ability to start rolling through.
Through lower all in cost essentially lowering working capital as you move forward given some of the rebalance out watching thanks much.
Okay.
Thanks for the compliment Colin so were winning on with utilities were winning with mines were winning with things for E. V. A we're winning big in semiconductor I mentioned multiple customers is the first time I've said that we.
We continue to win in renewables. So it's really across the board. We've tried to build this robust diverse sustainable business and we feel like it's now probably been built that we've been able to demonstrate that John Telegraph back a few quarters that this was possible and I think that we're here probably earlier than we thought so the business is really really performing.
Much better than we had anticipated.
I wanted to take his other question.
Colin can you repeat the second question I didn't quite fully understand it entirely.
So I think you were asking something about component cost of this drop and how it could impact working capital.
We haven't quite seen a I wouldn't say, we've seen component cost drop yet I think we have stabilized I think what we're hoping is that we've got a nice stable supply chain, one where lead times are starting to come down and prices are stable.
As prices come down that might change as far as working capital I don't see how that changes for us as much.
Remember our business is highly tied to milestone billing so our working capital tends to be funded.
From our orders based on the milestones the one schedule.
But we can take this offline if you have any further questions and I think the key point is more we're focused more on trying to control lead time, so our customers can get their project started on time.
That's really been the focus of the team and where we're seeing some benefits there.
Thank you next question will be from Eric Stine with Craig Hallum. Please go ahead.
Hi, Daniel Hi, John.
Hey, there.
Hey, good morning.
So maybe I'll just.
Touch on margins you laid out.
I mean, great to see the improvement I'll second that you laid out some of the reasons mix.
In other areas for that improvement, but maybe just drill down I mean should we look at this as evidence that you're finally through the Neal trend backlog, but given the low price backlog does that kind of thing in the past thing of the past I mean is this a level.
Plus or minus that we should view as sustainable.
Yeah, I'll answer the sustainable pardon me, given the Guy, who clearly guide to potentially increased revenues at.
That increased operating cash flow. So when you look at the backlog. The backlog is the thing that's really given us the confidence there.
We're able to sustain about this revenue level for the next 12 months, we're looking to get new orders into 2024, which hopefully will help.
We were able to add additional growth on top of that so.
So we were very bullish on what the business looks like obviously for next quarter and beyond but we're really only guiding one quarter at a time as we eventually do.
Yep understood, but that that.
Bullishness extends to margins right just to confirm.
Yeah, I mean, so we don't guide to margin, so I'm gonna be careful on that but.
I'll say, what I will say is that we you know.
But if you look at the what I explained for the gross margins.
One of them is we had a we're starting to see the impact of our price increases well that's kind of you know in theory. That's gonna continue we did have a very strong service services revenue. This quarter, we put a lot of effort to do that that wasn't by accident. So to the extent, we can continue to deliver on a strong service.
Ponant about total revenue.
That's gonna help on margins as we move forward and then lastly is our margins overall, our product mix changes we are seeing strength.
In our best performing product lines. So to the extent, we can do that we're going to continue to see strong gross margins to comment on your Neil trying to you know that.
Surely as we shipped off that backlog that surely is having an impact on our margin growth I.
I think though are to be very blunt with you we're going to stop talking about either the acquisitions they've been integrated they're working everything is behind us that we have we really like the business how it sits today how it complements each other we liked the constituent components and the teams out so when everything is a full solution. So I think that you know mission accomplished.
With with trying to get both of these are.
Pieces of the business be income, becoming part of the main part of the business. So going forward. We're really just focused on how do we grow grid you know how do we help continue to support our wind customers and hopefully we'll see some wins in the future as well on the Navy side in more cities for Reg for short.
Mhm, Okay. That's helpful and maybe last one for me just on wind obviously, another good quarter.
Last quarter, you had talked about that the you know that this is maybe a level to expect.
For the next several quarters and that the next step would come when you start to get ECS orders for the three megawatt platform from <unk> is that still the way that we should think about things here going forward you know both near term and then longer term yeah.
I think if you continue to see the orders come from I'd actually see steps forward not backwards you see the potential for growth.
They were very positive on their most recent call about where they are with the three megawatt platform. They seem highly excited about it probably even more than they were three months ago.
So were you know where we will.
We will work with our constituents, including you you'll see if we get orders well certainly look to announce them or mentioned them on calls or what have you. Because we know they are important to people seeing progress, but yeah. We are at a different level in wind.
And then given again, but the backlog, it's able to support the overall business as I said as I said earlier.
Yeah, absolutely okay. Thank you.
Yeah.
Thank you and again, if we need to ask a question. Please press Star then one.
Next question will be from Justin Clare Ralph M. King. Please go ahead.
Yeah, Hi, guys. Thanks for taking the questions here.
So I guess the first one I wanted to ask about is you did talk about a.
The gross margins, where if you're at a level of say $35 million in revenue a 25% margins are an expectation.
A reasonable expectation as you move to higher levels of revenue if you get to 40 or above can your gross margin continued to expand.
In that type of scenario.
Absolutely that's what we're trying to get leverage we want to drive the top line disproportionately to the cost line. So we think theres a great deal of leverage in the business, we haven't put out just in any numbers.
Yeah, we're kind of putting this out John has mentioned the time period. It was it wasn't that long ago.
And we've been able to make that I know, we'd probably people are going to now say well, what's next and where do you go I think the overall probably seem like you guys are after is the sustainability and I think it's in the backlog the pricings they're.
Doing a great job on the service side, we've been able to see robust revenue across the product line. So.
We're very happy and very pleased with where we are and I believe where we're going to go next.
Got it okay.
And then you've got strong bookings in Q2 here I was wondering if you could talk about the trend that youre seeing in project sizes that you can supply and then also the content per project and that ability to cross sell between the different various product.
Offerings that you have.
He could speak to that that'd be helpful. Troy, you kind of a leading cause and effect. So we're now selling more content per project, which means the revenue per project is going up and that's part of the strategy and to leverage off.
Selling the different products together as a complete solution. So that's working out very nicely.
And we've seen it very specifically in semi we've seen some in renewables and we've certainly seen it in the mining and the materials.
As well as kind of general industrial so we feel we're a very different business today than we were and we we've talked about getting there now I feel like we're there and we want to go and continue to do more and more in the future.
Okay, and then just one more shifting gears to win it might be a little bit early for this one but IMAX was talking about is that their three megawatt turbine is Ah is a more profitable turbine then the two megawatt so I was wondering.
Yeah. There is an opportunity there for you to potentially have a better margin profile for the three versus the two if your customers is capturing greater value for the product that you're providing.
Yeah did we respect our customers. We don't talk can break out margin by product line I'm, certainly not going to break it out by customer. So I don't want to offend adjusted but I'm, just not going to answer it.
Okay, No that's fair alright, thanks, guys I'll pass it on.
Thank you.
And the answer session.
I'd like to turn the call back over Mr. Daniel Kim for closing remarks.
Great I think we're at a whole new place here guys.
We said that we were nominally positive with non-GAAP I'm not an accountant to breakthrough what all that means with GAAP and non-GAAP, but.
The good news as you know John predicted it businesses delivered it.
As a result that we haven't been able to do since back in 2010.
This is a huge huge huge milestone for the company. Most of you investors that have been with us for a long time I've always asked me. When this is going to happen, we've always talked about how.
And then as I said, John Telegraphed, how and now we've delivered it. So we think onward and upward the backlog really is strong the pipeline is very strong there's a lot of diversity.
A strong move in the world to Decarbonize Asian, and were really right at the center of it and we hope to benefit from it. So thank you all for your support your attention and I look forward to getting back to yet.
Three months time.
Thank you everyone.
Conference call has concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.