Q3 2024 American Superconductor Corp Earnings Call
Good morning, and welcome to the a M. S C third quarter fiscal 2024 financial results Conference call.
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Nikolas: Now I'd like to turn the conference over to Nikolas.
Nikolas: Record of Communications. Please go ahead.
Nikolas: Thank you Gary Good morning, everyone and welcome to American Superconductor Corporation third quarter fiscal year 2024 conference call.
Speaker Change: Oh Boy Am director of Communications.
Speaker Change: On today's call I'm joined by Andy I'm, again, Chairman, President and Chief Executive Officer, and John Kosiba Senior Vice President.
Speaker Change: Financial Officer and Treasurer.
Speaker Change: American Superconductor issued its earnings release for the third quarter fiscal year 'twenty 'twenty four yesterday after the market closed for those who have not seen the release a copy is available on the investors page of the company's website at Www Dot M. S C Dot com.
Speaker Change: The earnings release contains forward looking statements with respect to future financial results.
Speaker Change: These statements are not guarantees of future performance.
Speaker Change: Company's actual results may differ materially from the anticipated events performance or results expressed or implied by these forward looking statements, including the risk factors detailed NV SEC filings, which can also be accessed through the company's website.
Speaker Change: The company disclaims any obligation to update these forward looking statements.
Speaker Change: So on today's call management will refer to non-GAAP net income a non-GAAP financial measure tables of reconciliation of GAAP to adjusted financial measures can be found in the company's earnings release.
With that I will turn the call over to Chairman, President and Chief Executive Officer, Daniel Mckenzie, Danielle Thanks, Nicole.
Speaker Change: Good morning, everyone.
Speaker Change: I'll begin today by providing an update and sharing a few remarks on our business.
Speaker Change: John Casteen, but will then provide a detailed review of our financial results for the third fiscal quarter, which ended December 31 2024.
Speaker Change: We'll provide guidance for the fourth fiscal quarter, which will end March 31 2025.
Speaker Change: Following our comments, we'll open up the line to questions from our analysts.
Speaker Change: We're really excited to share a quarter of outstanding financial results.
Total revenue for the third quarter of fiscal year, 2024 exceeded our guidance range and.
Speaker Change: And came in at a new record for us.
Speaker Change: Or $60 million.
Speaker Change: Revenue grew over 55% versus the year ago period, driven by both organic growth as well as the acquisition of en WL with strong performance in both grid and wind.
Speaker Change: The business really outperformed this quarter.
Speaker Change: We showed a new record level of revenue for John and I, We reported our second consecutive quarter of net income we delivered our sixth quarter in a row of positive operating cash and we continue the rate at which we're booking orders tobacco.
Speaker Change: We ended the third quarter with $80 million in cash.
Speaker Change: Talking a bit more about revenue total revenue for the past nine months is greater than total revenue for the entire previous fiscal year.
Speaker Change: This means that whatever we do in the fourth quarter will be year over year growth.
Speaker Change: Our grid revenue accounted for 85% of <unk> total revenue and grew over 55% versus the year ago period, almost 15% of the revenue came from our wind business, which grew by almost 60% versus the year ago period 55.
Speaker Change: I then 60% these are really big numbers.
Speaker Change: During our third quarter, we saw a wide range of product shipments for the third of our product shift to renewables projects.
Speaker Change: About 10% for military and there were many went into industrials.
Speaker Change: This quarter, we received over $57 million of new orders.
Speaker Change: 75% of which came from our grid business.
Speaker Change: And 25% from our wind business.
Speaker Change: Our orders come from a diverse set of markets, including renewables industrials utilities and military.
Speaker Change: We secured nearly $15 million in electrical control systems or ECS orders from our customer <unk>.
Speaker Change: They expect to receive these ECS over the course of the first half of fiscal year 2025.
Speaker Change: Timing really depends on our customers' payment schedule.
Speaker Change: It seems clear they are ramping up their production.
We see continuous demand for IMAX as two and three megawatt turbines as well as our two and three megawatt electrical control systems.
Speaker Change: We secured over $42 million of grid orders driven in large part by a diverse set of industrial projects.
Speaker Change: Yes.
Speaker Change: This puts our 12 months backlog above $200 million and total backlog above $300 million.
Speaker Change: We are pleased with these results and Super excited about the rest.
Speaker Change: The fiscal year.
Speaker Change: Now I will turn the call over to John Kosiba to review our financial results for the third quarter of fiscal year 2024, and provide guidance for the fourth quarter of fiscal year 2024, which will end March 31 2025, John.
John: Thanks, Daniel and good morning, everyone.
John: <unk> generated revenues of $61 4 million for the third quarter of 2024 compared to $39 4 million in the year ago quarter.
John: Our grid business unit accounted for 85% of total revenues, while our wind business unit accounted for 15%.
John: Great business unit revenues for the third quarter increased by 56% versus the year ago quarter.
John: This increase in revenue was primarily driven by the acquisition of and they'll be well and increased shipments up new energy power systems.
John: Our wind business unit for the third quarter increased by 58% versus the year ago quarter.
John: This increase in revenue was primarily driven by additional shipments of electrical control systems.
John: Looking at the P&L in more detail.
John: Gross margin for the third quarter of fiscal 2024 was 27% compared to 25% in the year ago quarter.
John: The year over year increase in gross margin was primarily driven by higher revenues, which improved factory utilization across all product lines.
John: We also experienced a favorable product mix within both our grid and win business units.
John: Moving on to operating expenses, R&D and SG&A expenses for the third quarter of fiscal 'twenty 'twenty four were $14 6 million compared to 10 million in the year ago quarter.
John: The year over year increase is largely associated with the inherited operating expenses from our recent acquisition of N. W. A L.
John: Approximately 19% of R&D and SG&A expenses in the third quarter of fiscal 'twenty 'twenty four were noncash.
John: Yeah.
John: Our non-GAAP net income for the third quarter of fiscal 2024 was 6 million or 16 cents per share.
John: With non-GAAP net income up 900000, or <unk> <unk> per share in the year ago quarter.
John: Our net income in the third quarter of fiscal 24 was $2 5 million or seven cents per share.
John: This compares to a net loss of $1 6 million or six cents per share in the year ago quarter.
John: As you can see our business has scaled nicely with a sharp increase in revenue over the past year.
John: The increase in both non-GAAP net income and net income was primarily driven by the contribution margin associated with the increased shipments of our new LNG power systems.
John: Increased windshield Mitsubishi us.
John: The additional revenue from our I N W. All acquisition.
John: Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
John: We ended the third quarter of fiscal 2024 with $80 million in cash cash equivalents and restricted cash.
John: This compares with $74 8 million on September 30th 2024.
John: We generated $5 9 million of operating cash flow in the third quarter of fiscal 2024.
John: Capex in the quarter was 500000.
John: Now turning to financial guidance for the fourth quarter of fiscal 'twenty 'twenty four we expect that our revenues will be in the range of $59 million to $63 million.
John: Net loss is expected not to exceed $1 million or <unk> <unk> per share and our non-GAAP net income is expected to exceed $2 5 million or seven cents per share.
With that I'll turn the call back over to Daniel.
Daniel: Thanks, John.
Daniel: We've now achieved two consecutive quarters of what I consider record breaking revenue levels $150 million that was last quarter and now $60 million and we're guiding to another possible record breaking quarter.
Daniel: As we approach the final quarter of fiscal year 2024 total revenue for the past three quarters reached an impressive $156 million. This revenue surpasses our entire prior fiscal year.
Daniel: When we look at our compound annual growth rate, we have grown by more than 25% over the past three fiscal years.
Daniel: The business has demonstrated growth both organically and through our recent acquisition.
Daniel: Let's discuss some additional benefits of the acquisitions when combined the team has done an excellent job of integrating and making the last several acquisitions work and work together.
Daniel: We now have a combined product offering for industrials that is very broad.
Daniel: We are providing power supplies for industrial equipment as well as industrial manufacturing capacity.
Daniel: We are providing capacitor banks and harmonic filters for these types of installations as well.
Daniel: We provide industrial power supplies for motor drives for a variety of applications from pumps to Dan's to compressors.
Daniel: The same product portfolio is being deployed to support and stabilize the grid the ability to integrate renewable energy.
Daniel: By leveraging content from our prior acquisitions, we've expanded our ability to target industrial applications that were previously on attainable.
Daniel: Looking at the U S. Political climate, there appears to be a lot of rhetoric, which could translate into a better reality for U S industry.
Daniel: In fact over 85% of our grid revenue this quarter came from the United States.
Daniel: We believe we could be well positioned to benefit from the drive to manufacturer in America as most of our business is based in the U S and supported by a namely U S supply chain.
Daniel: We may be presented with opportunities uniquely available to us given this fact.
Daniel: If we look back at the first term of the current administration the drive towards re shoring American manufacturing capabilities was very strong in.
Daniel: And factually the renewable energy industry in the U S grew.
For us, it's a very small part of our business.
Daniel: Overall, we see electricity needs driven in part by key industries, such as artificial intelligence and data centers.
Daniel: This likely means that demand for electricity will continue to grow.
Daniel: Yeah.
Daniel: Okay.
Daniel: To conclude.
Daniel: Our long standing customer in India is starting to accelerate their business, which could translate into growth for US you can see that wind has been growing over the past several quarters.
We see the orders from India, this quarter, giving us a clear path to continuing this trend in the near term.
Daniel: If we look out a bit further in time, we see a deep pipeline of projects for a variety of materials be it mining or chemical processing and we have several potential semiconductor orders on the horizon.
Daniel: If we look even longer term, we see our business with the military having the potential to expand further the business grew organically in both wind and grid.
Daniel: The addition of en WL is working and has opened up a cadre of customers.
Daniel: We are seeing business opportunities and new areas with utilities for data centers.
Daniel: And for pipelines for traditional energy.
Daniel: We believe that it is imperative not only to enable clean energy, but to provide cleaner power for a traditional energy as well.
Daniel: We are very well positioned as a company that has diversified that's been growing at 25% when compounded annually over the past several years.
Daniel: It feels like we really have reached a new level at over $60 million of quarterly revenue for the company.
Daniel: Growing from having quarterly revenue in the $30 million range only two years ago.
Daniel: I am personally very excited about the future of the company. This is probably the most excited I had been.
Daniel: We believe we're in a tremendous position to take advantage of the ever changing world. We are prepared to capitalize on the growing demand for energy and the need for a stable grid to support it.
Daniel: We have delivered another outstanding quarter.
Daniel: And can see that the fundamentals of our business are well grounded. This is truly an exciting time for us here at a M C.
Daniel: Our future facing technologies help harmonize the world's desire for de carbonization, and clean energy with the need for more reliable effective and efficient power delivery.
Daniel: I look forward to reporting back to you at the completion of our fourth fiscal quarter and fiscal year end, Gary will now take questions from our analysts.
Gary: We will now begin the question and answer session.
Gary: To ask a question you May press Star then one on your telephone keypad.
Gary: If you were using a speakerphone please pick up your handset before pressing the keys to.
Gary: To withdraw your question. Please press Star then two.
Gary: At this time, we will pause momentarily to assemble our roster.
Gary: Yeah.
Gary: Yeah.
Gary: Yeah.
Speaker Change: Our first question today is from Eric Stine with Craig Hallum. Please go ahead.
Speaker Change: Hi, Dan Hi, John.
Speaker Change: Hey, Eric good to hear your voice this morning.
Speaker Change: So you mentioned a deep pipeline, obviously, you've got the backlog of 300 million plus has grown pretty substantially.
Speaker Change: Is is there any way you can give more detail too.
Speaker Change: The description deep pipeline, whether it's you know trying to quantify it how it's grown you know over the last year or two and with the new acquisitions.
Yeah, I think the simple way to look at it as the pipeline growth rate is greater than the company's growth rate the types of new opportunities that we're seeing.
Speaker Change: Really I think the thing that shines most is the diversity of what we're doing so what are the things. We wanted to ensure that we do as we grow is to not concentrate and we've tried to really push us as we brought more content and from the different acquisitions to get them to work together to get them to work in projects across a variety of.
Speaker Change: Industries and that really is showing up in the pipeline. So.
Speaker Change: So I'm really really jazzed about where we are where we've been and where I think it looks like we're gonna have to go and I think we have multiple pathways to growth you know be it in India with win be it in the U S with them. It was industrial so that longer term with the military everything that we're now offering not just ship protection, but the whole suite of products.
Speaker Change: We're in a really great position to continue on the trend that we've established.
Speaker Change: Got it in I mean, obviously I would think it's it's magnitudes larger than your current backlog I mean is it fair to say that with these acquisitions you know it increased by a factor of you know whatever the number is two X three X.
Speaker Change: Yeah, I don't I don't know, even the factor I just look at it and I look at the depth and the breadth the deepness of our offering the fact that the project sizes have grown our content per project has grown our engagement with customers has grown.
Speaker Change: And that you know across the company, we realized that each of the different elements within the total business kind of had its own customer list and we're now starting to see the ability to crossover through multiple product lines offer one combined offering.
Speaker Change: And to these these great customers have you been able to serve it and Theyre very excited that we can do more for them.
Speaker Change: And I think that really puts us in position.
Speaker Change: To keep maintaining those great customer relationships that we've established.
Speaker Change: Got it okay, great color.
Speaker Change: Maybe last one for me just on the wind side you.
Speaker Change: You mentioned the the orders received in this quarter.
Speaker Change: And I know I Nox, obviously, you know three plus gigawatt backlog that you are exclusively supplying I mean, how do you envision kind of this playing out going forward I know if we look back a number of years you kind of got a large order from IMAX and then work it off over time and now I know you're focused on.
Speaker Change: Im getting paid.
Speaker Change: And so they've been smaller but more frequent I mean is that kind of how we should expect things playing out going forward.
Speaker Change: Simply yes, but you know I think that if you go back in our history.
Speaker Change: Knox was young and our financial stability wasn't what it was today. So there is desired on both parties to make sure that.
Speaker Change: We were committed to a long term relationship.
Speaker Change: We have demonstrated a great long term relationship with IMAX I believe that will continue and hopefully will continue for a long time, they've really done a nice job of managing their business. We've told them not to worry about you know big orders or things like that whatever that they need we're ready to serve our we have a.
Speaker Change: Good contract terms that works for both sides and they basically pay as they go and they gave US an instruction and say hey, we need this as soon as we can and here's the next batch. So I think we're going to see going forward more of a batch to batch to meet their demands are clearly based upon and you you articulated a big factory there their backlog that.
Speaker Change: Means more orders will come in and hopefully they'll come at a certain pace, but that pace is really predicated on and it's really not an IMAX, it's IMAX as customers' ability to pay them at the rate that they're paying that so.
Speaker Change: We are at a position right now we see the wind business accelerating and I think with these additional orders and the timing Davis ascribe to our delivery it means that that that pace should continue.
Speaker Change: Yeah.
Alright, thank you.
Speaker Change: The next question is from Colin Rusch with Oppenheimer. Please go ahead.
Colin Rusch: Thanks, So much guys you know it you start to digest some of the debt.
Colin Rusch: This growth yeah there's.
Speaker Change: Just a question around capacity and how you need to no capacity as a company to meet that demand. Then you know what can we think about it from an operating leverage perspective or manufacturing leverage perspective.
Colin Rusch: Yeah.
Colin Rusch: I think it's a fantastic question and that's one of the things that I concern myself with because we've been growing so nicely and so rapidly.
Colin Rusch: Yeah, we wanted to make sure that our revenue outpaces our growth in fixed cost I think we've demonstrated a great ability to do that we think there's a lot of financial leverage in the business. We have said that we may need to at some point in the future think about capacity expansion, but that cost of that.
Colin Rusch: Project is a relatively minuscule compared to the the cash balances that we hold today so.
Colin Rusch: We wanted to make sure we're in a position to go forward with growth.
Colin Rusch: And we want to be able to have the manufacturing capability to do that but I think directly that doesn't mean, we need to expand fixed cost at.
Colin Rusch: At least certainly not at the rate that we have been growing revenue, where I hope to grow revenue. So we think it's a barely night nicely constructed business and you know we're looking as we bring in each of these different acquisitions, we're looking to learn.
Colin Rusch: What each group does.
Colin Rusch: You know, maybe better or best practices out of the group and bring them to work through all of them I think the team is very been very receptive to that and more and more of it.
Colin Rusch: One unified face to the customer selling a stack of content that really is chosen by the customer what they want to give us the scope of the project, but I think our capacity today, we've been we've had to be able to grow principally as I said in the past or labor.
Colin Rusch: Do expect at some point in our future we may have to spend some capital to be able to continue that but again, it's not a huge project and it's something that we can afford given the very strong balance sheet of the company.
Colin Rusch: Excellent and then the second question is really around the pipeline of acquisition targets you guys have clearly demonstrated a nice stopped and digesting some of that.
Colin Rusch: That new capacity and integrating those businesses, but it looks to us like there's maybe.
Colin Rusch: A half dozen or a dozen potential incremental targets. How are you guys thinking about that inorganic growth opportunity and you know that.
Colin Rusch: You know augmenting the portfolio of offerings from here.
Colin Rusch: I think what you said is accurate we try to look for the right people with the right product ideally with the right profit leverage as well that would fit into our business model.
Colin Rusch: And the last piece I would say it has to be at the right price. So I think one of the things that the company has shown is great strength and not chasing things at all at a very very high price. So we've been able to get what we think are great companies like a great prices with great people and great products.
Colin Rusch: And if we can continue to do that together fits then that's certainly works I think with the uncertainty that's coming in the market here in the U S. It's an opportunity for us because I think we're uniquely positioned to grow up but.
Colin Rusch: But it may be an opportunity as well for a potential targets, where they may have some challenges in the near term and worried about their access to capital and are working with a company like ours might be a good fit for them. So we'll see how that works right now, we're digesting and WL, we feel very comfortable with what the team's doing we've been able to.
To do growth organically and with the with the addition of the revenue from N. W. L. A but at some point, we need to turn and say, okay can we continue to accelerate the rate of growth.
Colin Rusch: Because we've demonstrated such a such a nice rate you know if we can continue that work come close to continuing that I think that's in everybody's advantage in interest here.
Speaker Change: Okay. Thanks, so much guys.
Speaker Change: Again, if you have a question. Please press Star then one the next question is from Justin Clare with Roth Capital Partners. Please go ahead.
Justin Clare: Hey, good morning. Thanks.
Justin Clare: So what I wanted to start here you had mentioned in your comments a potential opportunity here in our data centers that you're exploring I was wondering if you could just expand on how you're viewing that market, how you might approach, it which which products could be a good fit for.
Justin Clare: Data centers and then do you have any visibility into you know potential timing for orders that you could you could capture there.
Justin Clare: But that'd be helpful as well.
Speaker Change: Yeah, I think it's a great question, it's something that we're looking at internally, we've seen inbound coming from really all of the different business lines.
Speaker Change: Face utilities and what we're finding is.
Speaker Change: There's a certain number of utilities and you kind of know who they are based upon where these datacenters are being built that are coming to us time and time again now with real distinct problems on the grid. So well, we foreshadowed back a few quarters ago that really the opportunity for US is good there'd be that the grid needs to become more.
Speaker Change: Elias.
Speaker Change: To be able to support this additional capability that seems like that's starting to come to fruition at least in the pipeline. So we're seeing multiple projects handfuls of projects.
Speaker Change: The same utilities that have the same problems that we can uniquely solve so it could be that they need some level of capacity to be able to buffer power they'd be maybe improve power quality. They need they may need to have more power supplies to a specific area and in all those cases, we have an offering that fits really nicely again, it doesn't mean that.
Speaker Change: We're gonna be part of the Capex to build the building, but we're gonna be part of the Capex to build the grid out to be able to support the capacity that's going in into that project. So that's.
Speaker Change: You know relatively new for us that's exciting I think the hard part Justin with me always as well, what's the timing and what's the pacing I think that's to be determined I think it's up to our team to try to turn turn these prospects into projects that are funded and theyre going to use our products. So.
Speaker Change: We usually I'd say stay tuned I think it becomes part of the growth story, you know certainly not in the next maybe year or so because the lead time for these things are more than a year, but I think as you look at the overall trajectory as we look at it you know out a few years I think it's very positive for us this would be one.
Speaker Change: Area that potentially could drive that future growth.
Speaker Change: Okay got it yeah. That's that's helpful. The detail there. So then maybe just shifting over to your semiconductor business and the opportunity there. It looked like you know toward the end of the biting administration. There was a rush to allocate funds under the chips Act and.
Speaker Change: So wondering how that opportunity is evolving here how is demand trending and do you see the potential for an acceleration as the chips Act funding starts to get a dispersed here yeah. I think that's the exact way to look at it as the policy's been enacted the funding gets happened and now projects are being constructed.
Speaker Change: Looking at a bunch of stuff in the past few days.
Speaker Change: When we look at all the names we're trying to support its not just the ones that we mentioned.
Speaker Change: There is a and I was trying to be deliberate about it in the prepared remarks. There are a series of key large orders from semi that are right in our crosshairs, but we want to get over the line. These are all for projects that are.
Speaker Change: [noise] ready to construct a.
Speaker Change: Fully financed a construct it was really out of it without any risk around the timing I think longer term what we're hearing from our semiconductor customers are is the need for increased capacity is there. So I think in the longer term I think that will translate into more pipe.
Speaker Change: And more projects for us in the future as well, but in the relatively near term.
Speaker Change: We have a number of opportunities we're trying to get over the goal line here that we think would be nice for the business in the next year or so.
Speaker Change: Okay great.
Just one more Oh, we have heard that there are some.
Speaker Change: Some challenges relating to permitting particularly for wind projects, but also for solar projects. This follows the President's executive order on a permanent for wind projects I'm wondering if you could share you know are you seeing any change in terms of order flow for your renewables business in the U S.
Speaker Change: As a result of this.
Speaker Change: Or do you see any potential challenges ahead here.
Speaker Change: Yeah, it's such a small part of our business, we do not do a lot of business in the U S and renewables.
Speaker Change: So from a diversity in from a position of strength, we do wind in India. You know and then we report that as a segment and then we said that's 15% of the business but.
Speaker Change: The rest of renewables that would occur in the U S. R. R.
Speaker Change: A small fraction of that so.
Speaker Change: I think if if in the future are there there's a drive to do more renewables, we stand ready and have it but it's not been part of our business in the past quarters, a year or two or so so it's not something that we really concern ourselves, but I think for our audience. It's you know, it's not something that you're investing in and us.
Speaker Change: For us, it's really about becoming more about hardening the grid strengthen the grid for a lot of these industrial capacity projects that we think are really going to start to take off here in the coming year and years.
Speaker Change: Okay. That's helpful. Thanks, I'll pass it on.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Daniel Mccann for any closing remarks.
Speaker Change:
Speaker Change: What a great quarter, we're really really happy. We this is a point that we had hoped to get to and I think when John and I looked at this backup ways, we thought we'd be here a year or two from now. So we think we're well ahead of schedule. We think the business really has outperformed.
Speaker Change: Even our own optimistic look.
Speaker Change: So as we look towards the future. It's clear the opportunities ahead of US are really vast we stand ready to capitalize on that rising demand for energy and the critical need for dependable grid to support it.
Speaker Change: We reached another consecutive recent record quarter.
With the revenue levels now over $60 million on a quarterly basis.
Speaker Change: The business has already demonstrated revenue growth with only nine months into the fiscal year. This means we're close to doubling revenue from our fiscal year 2022 level only two years later.
Speaker Change: We see more industrials, including chips as well as wind on the horizon really out of India.
Speaker Change: I believe our business is that an exceptionally strong position and I'm really excited to talk about some new markets for us today data centers more traditional energy. These are all things that require our product that we think we can benefit all of our key customers with <unk>.
Speaker Change: I look forward to talking to you again, when we report our full fiscal year results next time. Thank you all have a good day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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