American Superconductor Corporation (NASDAQ:AMSC) Q2 2023 Earnings Call Transcript

American Superconductor Corporation (NASDAQ:AMSC) Q2 2023 Earnings Call Transcript November 2, 2023

Operator: Good day, and welcome to the AMSC Second Quarter Fiscal 2023 Financial Results Call. [Operator Instructions]. Please note that this event is being recorded. I'd like to turn the call over to Mr. John Heilshorn. LHA. Please go ahead.

John Heilshorn: Thank you, Nick. Good morning, everyone, and welcome to American Superconductor Corporation's Second Quarter of Fiscal 2023 Earnings Conference Call. I am John Heilshorn of LHA Investor Relations, AMSC's Investor Relations agency of record. With us on today's call are Daniel McGahn, Chairman, President and Chief Executive Officer; and John Kosiba, Senior Vice President, Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the second quarter of fiscal 2023 yesterday after the market closed. For 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.amsc.com. Before starting the call, I'd like to remind you that various remarks that management may make during today's call about American Superconductor's future expectations, including expectations regarding the company's third quarter fiscal 2023 financial performance, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

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 Superconductor's annual report on Form 10-K for the year ended 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. 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 assist management and investors in comparing to the company's performance across reporting periods on a consistent basis by excluding these noncash, nonrecurring or other charges, and it does not believe are indicative of its core operating performance. The reconciliation of GAAP net loss to GAAP net profit -- net income loss can be found on the second quarter of fiscal 2023 earnings press release that the company issued and furnished to the SEC last night on Form 8-K. All of the American Superconductor's press releases and SEC filings can be accessed from the Investors page of its website at www.amsc.com.

With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McGahn. Daniel?

Daniel McGahn: Thanks, John, and good morning, everyone. I'll begin today by providing an update and sharing a few remarks on our business, John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 30, 2023, 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. Several quarters ago, we discussed possible business performance scenarios that could lead to increased shareholder value. We discussed revenue growth, margin expansion and expense control as factors driving potential cash breakeven and cash generating scenarios. Our second quarter results stand as proof that 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 AMSC's 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 into fiscal 2020, we had about $50 million in backlog. 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-month backlog. We see general 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 shipped systems to renewable projects in the U.S. and Canada, a mining project in Canada, semiconductor projects in the U.S. and Taiwan. And please note, this is to multiple different chip manufacturers. SPS 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 over to John Kosiba to review our financial results for the second quarter of fiscal 2023 and provide guidance for the third quarter of fiscal 2023, which will end December 31, 2023. John?

John Kosiba: 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 2020-'22, I mentioned we had taken several strategic steps to lower our overhead cost structure. In addition to our revenue growth, these steps have clearly paid off. I also elaborated that, as we moved into fiscal 2023, there 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 $900,000 of operating cash flow.

AMSC generated revenues of $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 wind business unit revenues increased 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 was 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.

Aerial shot of a communications tower, emphasizing the company's infrastructure networks.

Additionally, increased service and spares revenue had a meaningful impact on gross margins in the quarter. And lastly, the price increases we implemented over a year ago are starting to work their way through our backlog and had a favorable impact on our gross margins. All 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. Approximately 11% of R&D and SG&A expenses in the second quarter of fiscal 2023 were noncash. We generated a modest non-GAAP net income for the second quarter of fiscal 2023 of less than $0.1 million or $0.00 per share compared with a non-GAAP net loss of $6.5 million or $0.23 per share in the year ago quarter.

Our net loss in the second quarter of fiscal 2023 was $2.5 million or $0.09 per share. This compares to a net loss of $9.9 million or $0.35 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, 2023. We generated operating cash flow in the second quarter of fiscal 2023 of $900,000. We generated this cash flow through the strength of our operating results and continue 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 $0.15 per share. Our non-GAAP net loss is expected not to exceed $2.5 million or $0.08 per share. The 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.

Daniel McGahn: 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 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 7% of the coal fleet since 2022. Nearly 2/3 of [indiscernible] 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 2021. Investment in clean energy sources in 2021 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 and a modern, reliable and secure power grid are in our favor. Our applications help harmonize the world's desire for decarbonization and 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 have a 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 are 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 well as supporting customers in the semiconductor industry. We have turned a corner and delivered another remarkable quarter. We aren't 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 2023. We are executing on orders from Inox Wind. We delivered multiple sets of 2-megawatt electrical control systems this quarter. We are supporting Inox Wind as they expand their offering to include an exceptional 3-megawatt class wind turbine.

We are supporting Doosan as they commissioned their 100-megawatt offshore wind farm with our 5.5-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 5 Ship Protection System contracts for the San Antonio-class LPD. We've delivered and installed 1 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 has 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, 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 decarbonization and clean energy with the need for more reliable, effective and efficient power delivery.

We believe empowering progress by designing, developing and deploying power control solutions that harmonize an 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, we'll now take lines -- questions from our analysts that are on the line.

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