AMERICAN SUPERCONDUCTOR CORP /DE/ Q2 FY2024 earnings call

• Daniel McGahn mentioned that the second quarter saw revenue of over $54 million, growing 60% year - over - year. Grid was driven by the acquisition of NWL and strong new energy power system shipments, while wind grew nearly 40% year - over - year.
• The company ended the second quarter with nearly $75 million in cash. It booked nearly $60 million of new orders, with new Energy Power Systems orders strong across various sectors such as industrials, renewables, etc.
• The company had a 12 - month backlog of over $200 million and a total backlog of more than $300 million.
• The second quarter results exceeded the forecast, and it was the fifth consecutive quarter of non - GAAP net income.

AMSC generated revenues of $54.5 million for the second quarter of fiscal 2024. The grid business unit accounted for 86% of total revenues, with revenues increasing by 65% compared to the year - ago quarter, driven by the acquisition of NWL and strong shipments of new energy power systems. The wind business unit accounted for 14% of total revenues, with revenues increasing 37% compared to the same period, primarily due to additional shipments of electrical control systems. Total revenue for the second quarter grew by 60% compared to the year - ago period.

• For the third quarter of fiscal 2024, revenues are expected to be in the range of $55 million to $60 million.
• The net loss for the third quarter is expected not to exceed $1 million or $0.03 per share.
• The non - GAAP net income is expected to exceed $2 million or $0.05 per share.
• The company shifts its focus to revenue and profitability metrics, and there are no significant changes anticipated to the working capital demands of the business due to the milestone billing mechanisms.

Q: Hi Daniel, hi John. So maybe just sticking with wind, you touched on Inox's backlog at over 3 gigawatts. When I look back here, I think in fiscal 2015, your wind revenues were close to $70 million. And I think Inox's backlog was just a little over 1 gigawatt. So, I'm just curious, I mean, is there any reason why your business in wind can't be dramatically larger? Obviously, you need to see the orders and there are reasons to be quite optimistic about more orders potentially near - term. But I mean, is that the right way to think about it that this -- you're really just kind of getting started with supply for the 3 megawatts. And look, this business could be a lot larger?

A: I think that's a great analysis, Eric. I think you kind of nailed it. I think that's what people are going to hope. I think what we're trying to do is follow the money. I think as the customer starts to ramp, we want to make sure that they're paying, they're doing timely. They've been a great customer for us. We've been a very patient partner and supplier. We think that their business is well poised for growth. It looks like it's just about to start. And as I said in the remarks, stay tuned. I think we have more to report on this relatively soon.

Q: And then maybe just on the new acquisition. I guess you've had it for what -- or it showed up in results for two months, but just curious, market feedback, early impressions, maybe some things that have surprised you versus your expectations when you made the deal?

A: I think the surprises and the positive things are we knew it was a great company, but we hear that over and over again from the customers. It's really a well - run operation. They have a great team. It really extends our team with what they're doing there. And we think it presents some great opportunities for us in the future with -- I didn't talk a lot about military today, because I really think in the near term, we're really going to see a run here on the industrial side driven by chips. But that doesn't mean in the longer term, we won't see more military business coming. Those things are longer cycle, but we think the combined effort really what we have in military now should help make that part of our business be a relatively substantial part in the coming years. But in the coming quarters, I think we see wind and we see chips helping to drive that. And that's across the entire business, right? We do things in renewables across many of the product lines. We do things in semiconductor across many of the product lines. So, I think so far, we're only two months in. There's -- we've accomplished a lot in those two months. It will take some more time to digest them. But we're very pleased with what we see. We're very happy with what we know, and we think that the team is operating and executing very well.

Q: Can you talk a little bit about the IP within the power quality space and where you're winning? Some of this has been around kind of density of power management and some of it has been around performance. I just want to get a better sense from where you're winning and why?

A: Yes. I think if you get into the heart of the IP and you include superconductors in this, we can make things less complicated and smaller. So we can fit equipment into areas that's easier. We can replace things more easily to focus on a fab. We can do a retrofit of an existing or an expansion relatively easy. So time to delivery, cost of permitting, all those types of things become an advantage. And really, it's around the heart of the IP is we work a lot on thermal management. We work a lot on system - level controls. We want to find things that are probably priced at a premium, but deliver premium value to that customer because it's just easier for them to do it with us than doing it other ways. And that really -- those are kind of both sides of the coin. The proprietary nature of what we do is why we win, and then we want to continue to invest to make sure we can win on more and more proprietary technology.

Q: And then again just as you now are a little bit bigger business, can you talk a little bit about how the mix shifts within grid and how we should think about margins as you see a little bit of growth, coupled with some mix shift from quarter - to - quarter?

A: Yes. I think at the revenue levels that we're at now presenting, there is some potential variability in gross margin depending upon exactly the right revenue level and exactly the right product mix. In general, the margins in the business are all very similar with the only outlier really significant outlier being the ship systems business because -- we're not quite at scale. I think with the addition of revenue coming in the future quarters with Canada, that will help fix a lot of that problem, maybe not fully, but it will contribute more nicely than certainly it does today at the current scale. So I see this level of revenue and these kinds of margins where we've been kind of to be expected. I think, John, if you want to comment further on that, do that. I know my mission is how do we continue to grow revenues at these margins and get better leverage to improve margin with additional scale.

Q: Yes. No, I think you're right, Dan. As revenue scales up and we get more scale, we should have less volatility within any one or two projects. Back in the old days, one or two projects could impact margins more substantially than say today. But you do have mix issues this last quarter. We had a very strong mix of the products that generate the most gross margin for us. So that was an example of a good -- a really good mix. But I think the volatility you'll see in the company performance will shrink over time as we have more projects and it just gets smooth out.

Q: So I just wanted to follow up on the last question here in terms of the Navy business. Can you update us on when you think the revenue from the Canadian contract will start ramping? I think we had been expecting sometime in fiscal 2025, but if you could help us understand the ramp there?

A: Yes. No, I think that's exactly right. What we said before is basically zooming starts in 2025. We're delivering in 2026, the first system. There are further systems contracted for the 75, and we said basically, once we start delivering, which I think is probably the second half of next year. You can basically take the 75 and linearize it by quarters. I went through at the time, the number of years it was to deliver in the contract. I don't have that right in front of me to remind you of that. But I think the assumptions specifically, Justin, I think what you have is probably right and what you presented to us. And the market in your models. I think what we have to do is now go execute on those things. So the challenge with the Canadian contract is there is development in it. The challenge with the mine countermeasure project that we have is there is development in it. And those things if there are challenges that present themselves, that may change the timetables. But we feel really good about both those programs where we are now, what our customers are pushing to do. The timetables seem to be intact. So we feel as strongly as we did when we announced that a few months ago that those timetables will come to bear.

Q: Okay. Got it. Appreciate it. And so just thinking through this a little bit, next year, it's possible that we see wins, revenue ramp up. And then if you add this contracting for the Navy business, it seems like you have an opportunity for margin uplift in both of those different areas. Is that a fair way to characterize it?

A: I think there is potential. We do have to be sensitive of the overall project mix. And when we talk about project mix, some of it relates to service, some of it relates to customer type. It becomes more about the scale of the project. It comes more about competition than it does about a specific product. But I think as I tried to say, and I tried to get John's help to say it more cleanly, which I think he did is that, as revenue scales, we think there'll be gross margin expansion opportunities.

Q: I wanted to ask, it seems like grid congestion is becoming an increasingly challenging problem here. Transmission is a key constraint. I was wondering, if you see potential opportunities to address this challenge. Could you look at using your high - temperature superconducting wire for transmission? Is that something you're exploring? Or are there other solutions that you can bring to the market that could address these challenges?

A: I think a superconductor solution is probably a year or more away to have any impact on what we're doing financially. So I think a lot of what we're trying to focus on is the macro trend. Yes, there's more investment. Utilities are going to be challenged to do more. And I think we're going to be able to supply them with what we do in new energy. NWL really is more industrial. So it's really new energy being able to solve those problems. And we think we're in a very interesting situation. The grid has to evolve over the next years to be able to allow either reclassification of traditional power sources, trying to invest in bringing plants like that back online or you think on the demand side, what semiconductor is going to drive, what data centers and AI are going to drive. This is another disruption for the grid that we think we're in a great position to solve those systematic grid problems in a way that's comfortable for be it the industrial customer or the utility. So I've said this a few times, a rising tide lifts all boats. Our tide is rising, and which means our boat will be lifted as these markets move forward. We're in a wonderful situation. Things we've talked about now for many years are now really starting to happen in the market, and we're well positioned with our sales efforts and our business development efforts to try to take advantage of those.