American Superconductor Corporation Q3 FY2025 earnings call

• Total revenue for the third quarter of fiscal year 2025 exceeded the guidance range, driven by organic growth and contributions from the acquisition of Comtrafo. - The business delivered its sixth consecutive quarter of profitability and 10th consecutive quarter of non - GAAP profitability. - Strong market demand led to a robust 12 - month backlog of over $250 million. - Gross margins topped 30%. - The acquisition of Comtrafo strengthens the utility position and expands into Latin American markets, bringing 30 years of operating history and transformer offerings up to 250 MVA. - The past 9 months' total revenue is nearly that of the entire previous fiscal year.

Total revenue for the third quarter of fiscal year 2025 exceeded $74 million, growing over 20% versus the year - ago period. Grid revenue accounted for 85% of AMSC's total revenue and grew over 20% versus the year - ago period. Nearly 15% of the revenue came from the Wind business, which grew by 25% versus the year - ago period. Gross margins again topped 30% and the company closed the quarter with a strong balance sheet of over $145 million in cash after acquiring Comtrafo.

• Expect revenues for the fourth quarter of fiscal 2025 to exceed $80 million. - Net income is expected to exceed $3 million or $0.07 per share. - Non - GAAP net income is expected to exceed $8 million or $0.17 per share.

Actual results may differ materially from forward - looking statements as a result of various important factors, including those set forth in the Risk Factors section of American Superconductor's annual report on Form 10 - K for the year ended March 31, 2025, and the company's other reports filed with the SEC.

Q: So I wanted to start out just on the data center opportunity. So you mentioned that you have delivered a solution to a data center project here. And so just wondering if you could speak to the scope of the engagement, which products were involved? And then just within your portfolio, which solutions do you see as kind of the strongest fit for the data center application at this point in time? And then I guess just lastly, is the opportunity largely at the utility substation that you see at this point? Or is this inside the data center facility?

A: Yes. Let me talk a little bit about what we're doing. So it represented about 5% of revenue in the quarter, so on the 74%, 75% that we did. So a significant project. It's something that we were telegraphing that we thought would happen. And really, the only reason we're talking about it is because I get asked the question wherever I go about data centers and what are you going to do. What we're finding is as these data centers get bigger, particularly when there are areas where they have a weaker grid, what we can do is modulate the instantaneous change in voltage. And we do that through a very contact footprint. So the more that they're loading equipment in for managing thermal load, HVAC, the more that they have higher computing power and they're worried about very small disruptions similar to what we do in a semiconductor fab, the more we think we fit. And we think that the footprint may be a unique competitive advantage that makes it easy for either the utility or the data center construction project to buy the equipment from us. So in this case, this is really our first win in the construction of a data center. Alongside this in this current quarter, we also helped a utility that has a lot of data centers and has some challenges coming from them. So I think the answer to part of your question, Justin, is yes to both. I think that there are opportunities for us going forward in data center construction projects, but also to help support challenges with the utility. That's no different than what we've seen in semiconductor. It's no different than what we see in mining. The market and the investment drives the need. And then the question is, where does the solution physically fit? Where does it fit within the grid? Is it on the pad that sits as part of the data center? Or is it somewhere in the grid that's supporting that effort. So it's really no different application than what we do for semi, what we've done for a lot of other industrials. What we're finding is that there are changes in induction at the site that we can modulate what we think in a very unique way. It's one data point, however, right? So it's hard for us to say this is the white paper and here's how we're going to analyze the return on investment for the customers. Those are all things that we're going to figure out. But what we found is there are a number of data center operators and a number of data center builders that have approached us looking for exactly the type of solution that we uniquely offer. So I'm very opportunistic that -- and optimistic that this could become a part of the business. But again, we like diversity in what we do. Did I get to all the different pieces, Justin, if I didn't, I apologize and you can ask it again.

Q: Maybe we could just talk about traditional energy. I believe that was 1/3 of the quarter. And obviously, that's been a pretty increased focus here over the last year plus. I mean as we think about that, can you just talk to us about kind of where you're selling, where you play in there? I mean, should we view that as cyclical that it's more -- that swings in oil prices have an impact? Or is it insulated because it's more tied to traditional infrastructure? That would be helpful for me to clarify my thinking.

A: Yes. I think it's more insulated in that it's persistent demand. In general, I think what's changed in the American economy is that traditional energy is no longer considered something that people don't want to invest in. But creating cleaner energy in a traditional way is something we can help powering pipelines that move natural gas and things are an area that we fit in and as well as kind of general oil processing, being able to take from extraction [ of extra ] sources and move them downstream, midstream and end stream, the types of processes that move and refine that create other byproducts, all are becoming more and more energy dependent. So you need energy to be able to move and process the traditional energy sources. And that's really where we come in. So we see it as a long - term kind of persistent trend for us. The climate is really more apropo there. We think there's a fit definitely in North America. We think there's a potential in Latin America as well as we look at not necessarily quarters and years. The other part I'll say, Eric, realize and take everything I say with a little bit of a grain of salt. Our lead times are 9, 12 months for many products, right? So anything that we're going to do today that we think is exciting is really going to affect the financials a year plus out.

Q: Maybe as you think about growth in the business, now you're guiding to $80 million plus, a new level on a quarterly perspective. I know capacity is less of an issue than I think in the past, you've talked about labor. I mean any updates you can share there? It clearly is an area which maybe is a bit of a push point, but just that would be great, an update.

A: Yes. I think the team has done very well at hiring. I feel like all the factories are being utilized very well. We have a lot of demand. We have a lot of bigger demand. So we feel really good. I think the new wrinkle in our portfolio is Brazil and the very strong demand there and the need potentially for some more expansion. And John kind of almost directly said that given the CapEx guidance that we believe the business is positioned to ramp, and we may have to expand capability, particularly in Brazil to be able to go meet all of that demand 2, 3, 4, 5 years out. So there's a longer - term plan that we want to be able to implement. We're at a point where the business really is driving us. We have a multiple set of very strong tailwinds that are pushing us, and we just need to be able to react to the market. If we do a good job for our existing customers, they're going to come back again and again as they have, and they come back with harder and bigger problems for us to solve.

Q: Maybe on the potential to cross - sell and bundle to customers. You've done that extremely well on oil and gas to target upstream, midstream and downstream power systems. Maybe curious if you can shed some light on maybe what end markets make the most sense to cross - sell near term besides oil and gas? Is there potential in mining or chemicals or just your overall thoughts on end markets to really get that through.

A: Yes, it's pretty much everything, Tim. The way the business is now aligned is we no longer cross - sell, we just sell. So we have combined solutions that come from the family of acquisitions that we have that we're now presenting in some cases, they're $10 million projects. In some cases, they're $25 million projects, where we're presenting a combined offering to be able to manage voltage, to be able to transform voltage, to be able to modulate AC/DC power flows and to be able to do all of those features and functions for customers. So we no longer have to sell them as separate. We do because many of our customers think of them that way. But as for the larger projects, I'll say, more established customers, they like where we've headed with what we've added. And it's for mining, it's for traditional energy, it's for semiconductor. To some extent, it's even for renewable projects as we see them. Wherever we can, we want to be valuable to our customer. And if we can keep demonstrating that value, both from what the product does and what our engineers can help solve or derisk for the end customer, that's where we win, and that's why we win.

Q: I have a few. I would love to just get a quick read on working capital and how that transitions over time. Obviously, with the acquisition, you've got a substantial amount of inventory and some receivables that grew in the quarter. Would love to understand kind of how that trends over the next few quarters.

A: Yes. Good question, Colin. We have had -- I don't want to call it a drain on working capital, but we have invested into the growth of the company over the last couple of quarters. To the extent we continue that growth and if we can maintain elevated levels of growth, then we'll continue to invest in working capital. If growth tapers to, call it, single - digit growth, then we would see working capital probably turn favorable. So it's difficult to tell depending on our growth strategy, but I can -- if working capital is an investment, I can assure you it's to support growth.

Q: I would love to just get a quick read on working capital. And then we haven't talked about some of the military opportunities. Certainly, there's an awful lot of activity in Washington right now around enhanced military capabilities. Can you just talk a little bit outside of the ships, you talked about ports and infrastructure being a meaningful growth opportunity. In your sales pipeline, what are you seeing these days? And how do you see that starting to flow through into the P&L over the next couple of years?

A: Yes. I think just topically for the quarter, Colin, we had a good percentage in military more than 15%. I think typically, it's closer to 10% quarter - to - quarter, and that was because we're doing a bunch of things at once within the quarter, which is good. And that helps strengthen quarters. I think longer term, we're kind of front and center in some of the critical problems that have and ports have and those opportunities are going to be persistent kind of long term. But I'd say there's nothing I'll say specifically that's going to change the trajectory of that business in the next 2 to 4 quarters.

Q: Just a final one on the R&D road map. As your customer intimacy has improved, you're getting a look at what the real needs are for a bunch of these applications in a different way. And obviously, you guys have capabilities around customization for different applications. But I would love to understand how you're thinking about the cadence of evolving the product suite and just the leverage that you have out of the existing designs to meet all of the opportunities that you're seeing with your customers these days?

A: Yes. I'll take by example. So we're working towards a project for a very large mine, and there's opportunities at the site, but there's also opportunities with the utility that the grid is going to need to be improved. So I think our capability has matured now to the point where we really understand the problems that capital investment will cause in capacity from an electricity standpoint. So we try to just start with that as the premise and then work backwards and say, okay, what are going to be all the electrical challenges that this CapEx investment for this end customer is going to create, not just locally, but more broadly in the utility. So being able to combine our capabilities into products that are more proprietary, more defensible, more valuable to customers, that's where we're trying to push things as much as we can.