Q4 2022 American Superconductor Corp Earnings Call

Participants

Daniel Patrick McGahn; Chairman, President & CEO; American Superconductor Corporation

John W. Heilshorn; Founding Partner; Lippert/Heilshorn & Associates, Inc.

John W. Kosiba; CFO, Senior VP & Treasurer; American Superconductor Corporation

Chip Moore; MD; EF Hutton, Research Division

Colin William Rusch; MD & Senior Analyst; Oppenheimer & Co. Inc., Research Division

Eric Andrew Stine; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

Justin Lars Clare; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division

Presentation

Operator

Good morning, and welcome to the AMSC Fourth Quarter Fiscal Year 2022 Financial Results Conference Call. (Operator Instructions) Please also note that this event is being recorded today. I would now like to turn the conference over to John Heilshorn at LHA. Please go ahead, sir.

John W. Heilshorn

Thank you, Joe. Good morning, everyone, and welcome to American Superconductor Corporation's fourth Quarter and full fiscal year 2022 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 fourth quarter and full fiscal year '22 yesterday after the market closed. For those of you who have not seen the release, copies 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 first quarter of 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 loss and non-GAAP financial measure. The company believes non-GAAP net loss assist management and investors in comparing the company's performance across reporting periods on a consistent basis by excluding these noncash, nonrecurring or other charges that it does not believe are indicative of its core operating performance. The reconciliation of GAAP net loss to non-GAAP net loss can be found in the fourth quarter and full fiscal year 2022 earnings press release the company issued and furnished to the SEC last night on Form 8-K. All of 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 Patrick McGahn

Thanks, John. Good morning, everyone, and thank you for joining us. I'll begin today by providing an update and sharing a few remarks on the business. John Kosiba will then provide a detailed review of our financial results for the fourth quarter and full fiscal year 2022. He will also provide guidance for the first quarter of fiscal 2023, which will end June 30, 2023. Following our remarks, we'll open up the line for questions from our analysts.
I'll begin today with a brief recap of our fourth quarter before discussing fiscal year 2022. In the March ending quarter, our fourth quarter, we saw revenues grow by more than 10% against the year ago period as we reached a recent record level of revenues eclipsing $30 million for the quarter. Both wind and grid grew. Our wind business revenue increased by more than 30% over the year ago quarter, while our grid business revenue grew by 10% over the same period. We believe this unprecedented quarterly revenue level represents an inflection point for our company. As we have stated, margins will be compressed as we work off Neeltran backlog. The good news is we were able to complete several of these projects during our fourth quarter and only have a couple more to deliver. Orders that we have been generating across our product lines have been, in many cases, at higher prices and with expected higher margins. As we work off the remainder of this backlog, we expect to see gross margin expansion as well as dramatic operating cash flow improvement. I think this is one of the main themes you'll hear throughout this call.
Additionally, our 12-month backlog of more than $125 million indicates that we could be able to maintain these revenue levels going forward. During fiscal 2022, we've decreased overhead spending and have raised prices across all product lines where possible. Fiscal year 2022 is one of continued business diversification and strong global orders growth. We announced $150 million of new energy power systems orders during the year. This is an increase of more than 75% over the prior year levels. In fiscal 2022, we saw robust order bookings for the entire company of over $165 million. Our revenues for fiscal 2022 were $106 million. Clearly, our backlog is telegraphing growth. We delivered our first ship protection system and are installing it on the ship. We are in the process of delivering the second ship protection system. We received an order for our fifth ship protection system. We began engineering work to specify a potential solution for foreign navies. We have been talking about more ship content coming, and you can see this with our recent announcement of our mine countermeasure system. If and when this program goes into production, it would dramatically impact the business' cash generation capabilities.
We met specified performance requirements with our Resilient Electric Grid System, releasing $5 million of restricted cash in the quarter. Our installed system in Chicago is performing as planned and has become a showcase for the technology. We are in active detailed discussions with several utilities about specific possible projects for each utility. We've been working on developing more than a dozen projects here in the United States. We saw nearly 20% year-over-year growth in our wind business as Inox business prospects begin to improve. We'll talk more about the prospects for this part of our business and our recent announcement later in the call. We saw a nearly 20% increase in international revenues versus fiscal 2021. Similar to fiscal 2021, we saw diverse revenue in renewable, industrial, semiconductor, mining and Navy projects. About 1/4 of our sales were for renewable projects. Industrials represented about 1/4 as well. Semiconductor projects accounted for about 15%. Metal, mining and materials were nearly 10% and the Navy was just above 10%.
The diversity of orders and sales allowed us to transition from almost a pure play in wind to a company now focused on the power grid and military resiliency markets. The primary challenge now will be, can we stabilize at these revenue levels and demonstrate margin improvement. Secondly, what is the pathway to grow to even higher levels of quarterly revenue. We will discuss more on this after John talks to the financial results for the quarter.
Now I'll turn the call over to John Kosiba to review our financial results for the fourth quarter and full fiscal year 2022 and provide guidance for the first quarter of fiscal 2023, which will end June 30, 2023. John?

John W. Kosiba

Thanks, Daniel, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2022 were $31.7 million. This is an increase of 12% compared to the year ago quarter of $28.3 million. Grid business revenues of $28.3 million increased by 10% versus the year ago quarter. This was led by strong new energy power system sales. Wind business revenues of $3.4 million increased by 33% versus the year ago quarter. This was led by increased ECS shipments to Inox. Looking at the full fiscal year, our total revenues were $106 million. This was led by our grid business. In fact, grid business revenues of $94.6 million represented 89% of fiscal 2022 revenues, while our wind business revenues of $11.4 million represented 11% of fiscal 2022 revenues.
Looking at the P&L in more detail. Gross margin for the fourth quarter of fiscal 2022 was 12%, which was flat compared to the year ago quarter. Gross margin for the fourth quarter included a $1.8 million benefit associated with employee retention credits or ERCs processed and accounted for in the quarter. This was offset by approximately $2.3 million of project losses at Neeltran as we continue to ship and deliver the acquired Neeltran backlog. For the full fiscal year 2022, AMSC generated gross margin of 8%. This was down from 12% in fiscal year 2021.
Now moving on to operating expenses. Research and development and SG&A expenses totaled $8.5 million for the fourth quarter of fiscal 2022. This was down from $9 million in the year ago quarter. Approximately 14% of R&D and SG&A expenses in the fourth quarter were noncash. For the full fiscal year, research and development and SG&A expenses totaled $37 million in fiscal 2022 compared to $38 million in fiscal 2021. Approximately 13% of R&D and SG&A expenses in fiscal 2022 were noncash.
Our net loss in the fourth quarter of fiscal 2022 was $6.9 million or $0.25 per share compared to $5 million or $0.18 per share in the year ago quarter. Our non-GAAP net loss for the fourth quarter of fiscal 2022 was $7.8 million or $0.28 per share compared with a non-GAAP net loss of $4.7 million or $0.17 per share in the year ago quarter. Included in our fourth quarter of fiscal 2022 net loss and non-GAAP net loss was $1 million in restructuring charges. For the full fiscal year of 2022, our net loss was $35 million or $1.26 per share. This compares to a net loss of $19.2 million or $0.71 per share in fiscal 2021. For the full fiscal year 2022, our non-GAAP net loss was $28.8 million or $1.03 per share. This compares to a non-GAAP net loss of $17.1 million or $0.63 per share in fiscal year 2021. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results.
We ended fiscal year 2022 with $25.7 million in cash, cash equivalents and restricted cash. This compares with $31.4 million on December 31, 2022. In the fourth quarter of fiscal 2022, we consumed $5.4 million in operating cash flow.
Now turning to our financial guidance for the first quarter of fiscal 2023. We expect that our revenues will be in the range of USD26 million to USD30 million. Our net loss on that revenue is expected to be no more than $6.5 million or $0.23 per share, and our non-GAAP net loss is expected to be no more than $4.8 million or $0.17 per share. We anticipate operating cash flow to be a burn of USD1 million to USD3 million in the first quarter of fiscal 2023. The quarter-over-quarter improvement to our net loss, non-GAAP net loss and operating cash flow guidance reflect an expected more favorable product mix as we start to ship and deliver post-acquisition Neeltran revenue. We expect to end the first quarter of fiscal 2023 with no less than $22 million in cash, cash equivalents and restricted cash.
With that, I'll turn the call back over to Daniel. Dan?

Daniel Patrick McGahn

Thanks, John. We are clearly guiding to a significant reduction in operating cash burn for our first quarter of fiscal 2023. We see strong market demand and positive orders momentum. We expect that our new energy power systems products should provide a strong base of grid revenues in fiscal 2023. And we expect the additional orders from Inox and the U.S. Navy to positively impact revenue in the near term.
With that, I'll move on to discussing near-term opportunities that can potentially impact our business in fiscal year 2023. Let's start with the Navy and Ship Protection System. Our systems help move U.S. navy ships into the future by installing protection systems that help them stay hidden from our enemy threats. To date, we have a total of 5 SPS contracts for the San Antonio class LPD, the USS Fort Lauderdale, which we have delivered and are currently installing. The USS Harrisburg scheduled to be delivered this fiscal 2023. The USS Richard McCool, the USS Pittsburgh and LPD32, which is yet to be named and offers improved pricing on the SPS system. In April, we announced our proprietary high-temperature superconductor mine countermeasure or MCM system to be designed, built, integrated and deployed on the U.S. Navy's mine countermeasure unmanned service vehicle. Our proprietary MCM system is a capability that is incorporated into an unmanned service vehicle and launched during mine countermeasure operations that patrol for and neutralize mines. This system represents our third commercialization of our core superconductor technology following our Resilient Electric Grid system in Chicago and our ship protection system for the San Antonio class LPD.
Let me explain the importance of our MCM system and what it means for the company. This nearly $8 million multiyear contract builds on prior work on the deployable MCM solution, allowing us to leverage our proprietary technology to develop the capabilities needed for possible future ship systems. We believe that this program is positioned to grow Navy-related revenue for us in the near future. The MCM contract, as it is structured, already contemplates the Navy buying commercial systems. If and when this happens, our Navy business could turn from being an investment to being a source of operating cash flow. We are also working on parallel pathways to deploy SPS into additional U.S. ships and are performing engineering work on ship protection systems for allies.
Another near-term opportunity is wind. We design wind turbines and provide electrical control systems, or ECS, to make the turbine more competitive and profitable. We recently announced an agreement to deliver nearly $20 million of demand for our wind turbine ECS to Inox. We amended our existing contracts on the 2 megawatts with enhanced pricing. We have secured nearly $15 million of 2-megawatt wind turbine ECS demand from INOX. We received our initial 3-megawatt class wind turbine ECS order of over $5 million. We expect to ship the 2-megawatt and 3-megawatt ECS systems during fiscal year 2023. We completed the commissioning of the 3-megawatt class wind turbine in India and expect type certification this fiscal 2023. Once type certification is completed, the 3-megawatt class wind turbine is expected to be ready for grid connectivity and operations in India. We believe the 3-megawatt ECS order marks the beginning of our next chapter with Inox Wind as they expand their offering to include an exceptional 3-megawatt class wind turbine. We are supporting Inox's growth through our proprietary technology that can enable our partner to deliver superior products to the marketplace.
Let's discuss our expanding opportunities in our grid business. We have orders in backlog generated from demand associated with the electrification of transportation where we expect to deliver multiple units of the same design. This is something we've been working on. Rather than delivering a solution for a project, we are seeing demand for identical solutions for repeat customers. We expect these near-term opportunities to positively contribute to gross margin expansion and lower cash burn. Our future-facing technologies 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 long-term growth. The world is quickly moving towards decarbonization to slow down climate change and create a path for a more sustainable world.
Transitioning to a low-carbon economy potentially increases demand for our new energy power systems through 2 main avenues, renewables and the key materials for the new energy economy. In 2022, renewables saw nearly $0.5 trillion of global investment to update the aging grid for better support and the adoption of intermittent renewable power sources. In the United States, we saw the introduction of the Inflation Reduction Act, which was enacted in part to address the challenges of climate change with the goal of reducing emissions by 40% by 2030. In India, the world's fastest-growing electricity market, is forecasting wind power demand to double to 140 gigawatts by 2030.
Key materials for the new energy economy are mainly driven by the electrification of transportation. These key materials include metals, mining as well as semiconductors. In 2022, nearly $100 billion was invested globally in the mining and processing materials as well as an estimated $160 billion in semiconductor capacity. In the United States, the creating helpful incentives to produce Semiconductors and Science Act of 2022, the CHIPS Act, is intended to enable the reshoring of critical manufacturing capability to the U.S. The CHIPS Act provides over $50 billion of funding for the development of U.S. manufacturing, research and development and workforce development programs. The materials industry is being driven by the electrification of transportation, the need to prioritize energy security and the need to bolster domestic supply chains. This exciting energy future for mining and semiconductors depends on computer chips, batteries and fuel cells that are built from silicon, lithium and carbon. All of these building blocks must be mined, processed and assembled into components and final products. Industrial manufacturers of these materials must be able to power their factories in ways of scale without adding complexity or size. The increased levels of activity that we're seeing in these markets is highlighted by our new energy power systems orders increase of over 75% from fiscal 2021 levels. Right now, we are powering the evolution of a grid that is fit for the future, a more reliable and resilient grid that can incorporate renewable energy sources and our pioneering products, software and control solutions.
In summary, as we entered fiscal 2023, we feel confident about the future and believe there are tremendous opportunities ahead of us. Through diligent execution of our strategy during fiscal 2022, we believe that our business has turned a quarter. We ended fiscal 2022 with over $125 million in backlog. We've worked through most of the Neeltran backlog, which is reflected in our fourth quarter gross margins. We anticipate further gross margin expansion. We raised prices where possible. We are capturing integrated synergies of our new energy power systems offerings and reduced our cost structure. We are optimistic our business may benefit from the investments in our key growth markets, renewables, mining and metals, semiconductors and military. We are confident of our near- and long-term prospects. I am very proud of how the team delivered diversification while managing through the daily challenges of a constrained supply chain and an inflationary environment. 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. Additionally, to note, we've revamped our IR deck to better reflect how the business is now positioned, and we posted that to our website. I look forward to reporting to you again following the completion of our first quarter of fiscal 2023. Joe, we can now open up the line to any questions from our analysts.

Question and Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) At this time, we will take our first question, which will come from Eric Stine with Craig Hallum.

Eric Andrew Stine

So very good to see Inox come back here. You talked about in fiscal '23, you expect certification. Are there any things we can look for signposts to look for to judge the timing of that? And then curious, what kind of order maybe outlook does that set off? I mean, is that something that would spur an order, obviously higher than the order, which is kind of an initial order? Or how should we think about that?

Daniel Patrick McGahn

Yes, I think it's an important thing to kind of go through and make clear for everybody. You can see, we tried to explain it and bifurcate it into 2 megawatts. So we're basically showing demand for 2 megawatts that's a bit heavier than it's been in the past few years. We see that product as being in the market. We see it as being very valuable to Inox's customers. And we see that demand coming at a relatively stable pace. We have already working off of a built supply chain. It's a known product, and we're making copies of that product at the volume that Inox needs in order to satisfy their customer demand. The 3 megawatts, a whole new product introduction. So we have to go through the supply chain and order parts. We just got the order and got it paid for it. There is a lead time for those products. So that means that the 3-megawatt related revenues will be towards the end of the year. I believe from what I understand with public information from Inox that they are looking to secure a wind farm with the 3-megawatt that's bigger. It's probably 2 to 3x bigger than what we have on order for the 3 megawatt. But they certainly could order more product to be delivered within our fiscal 2023, which is their year and the Indian year as well. But right now, we're just happy to be able to announce to you that we're kind of back in business with Inox. The business has the potential to expand with this addition of this 3-megawatt product, which we think is a great fit for the Indian market. And I'd just say stay tuned. As Inox needs more, they're going to hopefully buy more, and we want to be able there to support their growth. We have not been in a position where we've ever had to let Inox down in meeting their growth. And part of why the relationship works so well is I think we feel very good about how we understand them and their needs. And I know that they really understand us very well that the time that we've taken going through the years here of kind of waiting for the business to come back has really helped, I think, to strengthen, broaden, deepen the relationship. And I think Inox is back.

Eric Andrew Stine

Yes. Good. And maybe sticking with wind and staying away from specifics for obvious reasons. But as you've kind of gone through this couple of years where wind has been down, just curious how we should now think about margins, as this comes back. I think in the past, you talked about that over the long-term wind should be accretive to gross margins? I mean is there any reason to think that that's different as you kind of come out of it and the outlook has improved?

Daniel Patrick McGahn

I'll answer and let John add color commentary on it. We're not breaking out any of the businesses or products by different margins. And the reason is they're all about the same. So I think for our listeners, you have to understand that a slug of revenue from any one product line as we've improved the backlog in the one part of the business, we'll all have margins that are similar. We think as we get to scale with the military, there is this possibility for potentially higher margins there. Note that in all the prepared remarks, I was very kind of clear about we have changed pricing across the product line. That has taken time and that takes time to get into the order book and then into the backlog and then to the supply chain and be able to ship to the customer. All that's now coming in 2023. There's a lot of signals in here that we're talking about margin expansion. John, do you want to talk more on it?

John W. Kosiba

Yes. So I think Dan hit it on that. We really are at a point now where many of the product lines within grid and now with wind coming back, are in the similar contribution margin range. So as we expand revenue on all those, we should see margin improvement. So your short answer is yes, we should see margin expansion as we increase sales for wind to the same level we would have seen margin expansion, revenue expansion for our grid.

Operator

And our next question will come from Colin Rusch with Oppenheimer.

Colin William Rusch

As you look at the evolution of the opportunity with the Ship Protection Systems, can you talk a little bit about where you're at in the sales cycle in terms of qualification with those incremental ships? And how many ships a year you think you can actually deliver on here over the next, call it, 3 years?

Daniel Patrick McGahn

Yes. I mean, our goal, Colin, to be very blunt is all of them. We see the investment in this highly differentiated proprietary technology as a way to enable us to be the system for these types of capabilities and solutions for the Navy. So we do have some visibility because we are doing engineering work for multiple ship platforms, be it for the U.S. Navy and Allied navies as well. To be very blunt, I think that we are in a period right now where we're doing an installation. And I think all eyes are on us to make sure that the system works as advertised and where they're able to support the Navy for their needs going forward. I know that at a congressional level to the top brass of the Navy, this is an important program for the future of technology insertions in the fleet. So we're usually very good when it comes to making sure we can deliver technology. That's what we're really good at. So I feel very optimistic at some point, Colin, we could have it all. And that could be for all the surface fleet for the U.S. Again, I'm only talking [Ford] fit. I'm not talking anything beyond that. We're trying to get designed into new builds of known types of ships. And then as I mentioned, we have been contracted to do some engineering for some allied navies as well. So it's hard to prognosticate as when the things go into production. We're trying to be very clear with the MCM. This is a multiyear arrangement. It's about 2 years to design development test. But in there, our clauses in that contract to start to buy commercial level of production. So that could occur as early as 2 to 3 years from now.

Colin William Rusch

Excellent. And then just with baseline OpEx, how should we be thinking about the cash OpEx on a quarterly basis with this restructuring complete?

John W. Kosiba

Yes. So like I said last quarter, and I don't see any real changes to that. Well look, I think right in that $9 million order range is still solid.

Colin William Rusch

Excellent. And then I guess the last one is really around quotation activity and order of magnitude of the opportunity set for the grid products. Clearly, you guys have moved into a handful of incremental markets with these acquisitions, and there's a fair amount of buildout that's happening in the country right now. So I just want to get a sense of if we look back 12 and 24 months where you're at right now in terms of number of customers, number of projects and the opportunity set kind of in some as we think about that business going forward?

Daniel Patrick McGahn

Yes. Going forward, I think some of the challenge for us is going to be how do we meet this demand. It's growing dramatically. And I kind of said in the remarks about now we're getting to the point we can deliver identical copies basically productize solutions across the product line, not just for the existing organic business but for the acquired business as well. The quotation levels are extremely high. The pipeline is extremely robust. Our concerns are going to quickly turn to how do we manage growth because it feels like growth is about to really start to blossom.

Operator

And our next question will come from Justin Clare with ROTH.

Justin Lars Clare

So first off, you had indicated that your 12-month backlog as of March 31 of this year was just over $125 million. And then you've also, over the past month or so, announced $50 million in new orders with the new energy business and then also with Inox. And it sounds like those orders are expected to largely be realized or recognized into revenue this year. So if I add it all together, I get to something like $175 million in orders that could be delivered this year. So just wondering, were the new orders incremental to your backlog as of March 31? Or am I double counting here? Just trying to understand when the orders in the backlog could be delivered.

Daniel Patrick McGahn

Yes, I think you're double counting for sure. So one of the things, and we tried to be as clear as we could and maybe we didn't get it across, but I'll try to go back and repeat. With the $20 million that we're talking about from Inox, $5 million of it is new for 3 megawatts. $15 million is basically a derisking of demand that was in an old contract at a lower price that's now been amended to be firm fixed at a higher price. So a little bit of incremental, maybe change on that $15 million of a higher price. But don't fall in the trap of looking at all backlog and for our recent history with wind, we've had a large standing order in place for the 2 megawatt. And we have had to try to predict with Inox's help, particularly through payments for product on how much of that would convert into revenue within a 12-month period. Going forward, we don't really have to do that anymore. Now the order will show and we'll have just as we're going to do for the 3 megawatt, we'll have firm fixed releases for 2-megawatt demand. So I think you're double counting at least $15 million that's in there. There's some book and burn that's in there that would go into the year. There's some revenue in that order book that's beyond 12 months as well. And I think all those data points are in the release in the K. That's why we wanted to try to make it clear, Justin, that the 12-month backlog is now at about $125 million, and that $125 million projects that we should be able to maintain, if not grow, revenue just based upon the existing backlog. We have always the opportunity to bring in orders, it's only now June, that could be delivered for March. But as we go into later months for sure. Lead times right now for us in general are 12 months plus, but there will be for certain customers if they need things sooner, we'll work to make that happen.

Justin Lars Clare

Got it. Okay. That's helpful to understand. And then just on the margin expansion expectations here. You had talked about last quarter, if you can get to a revenue level that's approaching $30 million, you could see cash gross margins approaching 20%. And then if you get to $35 million in revenue, you could get to 25% on the gross margin level. Are those still the expectations that we should be anticipating here? Or given the pricing changes that you have made, are there any changes to the margin expectations?

Daniel Patrick McGahn

No, I think the way you said it is right. I think just one little caveat that John said when he originally went through those is expect the potential for those to expand over time because, again, you have the resident time of the backlog. So you may have backlog that's a little further out in time, say, later in the year which is now going to be at those levels that you just recited which is about 20%, again, cash margin, not full gross margin. So we're trying to correlate incremental revenue to incremental cash so people could see that clearly.

Justin Lars Clare

Got it. Okay. And then just one final one on Inox. You indicated that you have changed pricing for the 2 megawatts. Just wondering if there's any meaningful difference in the, let's say, price per watt for the 2-megawatt ECS versus the 3-megawatt and any difference in the margin profile for each of those products.

Daniel Patrick McGahn

Yes. Why don't we take that offline to try to look at main questions and things. But for the general audience, just assume basically linear. And to us, we just want Inox to be successful if it's with the 2 or the 3, we don't have a financial benefit if it's one way or another. We want to make sure that they're successful in totality.

Operator

(Operator Instructions) Our next question here will come from Chip Moore with E.F. Hutton.

Chip Moore

Congratulations on positive momentum. I wanted to ask one, I guess, more specifically on margin expansion, more near-term cadence, I guess, with remaining Neeltran backlog? Just any sense of size there? You had that benefit in Q4 and then any order timing to take into account larger (inaudible) deliveries or other systems?

Daniel Patrick McGahn

Yes, I think that I'll say one comment. Benefit is relative. So one of the things I think we're able to do as a team very well as we try to get as much of the existing backlog that we could out, that's why our revenue is a little bit elevated. John telegraphed, clearly, the impact on margin last quarter and what that would feel like. And we're trying to get all of this congested backlog that's that compressed margin out of the system as best we can. Going forward, we now only have a couple of projects we have to do and the impact of those on a margin on a quarter basis, we'll probably talk to, but they're not going to change directionally where we think that things are going to head.... granularity on it...

John W. Kosiba

So Chip, I think the intent moving forward is we stop talking about Neeltran as a drag on the original acquired backlog. If we have an event or 2, we'll highlight it. But the margin, I think what you're going to see in our guidance in Q1, and you'll see in our backlog and over time, hopefully, that what we said as far as margin expansion over the coming quarters, that will be reflective of both, one of it the immediate improvement, and I said it in my opening remarks, the step change for a lack of better term in our Q1 guidance is highly reflective of the fact that we are comfortable that we're going to be shipping on the Neeltran post-acquired backlog, and that's going to have a positive impact on our revenue mix. and that's within our Q1 guidance. And then we remember what we said a couple of quarters back, it was going to take time for us to get the margin up related to inflationary pressures across all the product lines. And so that's the part that we're going to phase in over Q1 and Q2. And so a combination of Neeltran is we're feeling much more comfortable today, and we're way older on our statements. And then you'll see incremental gains over the coming quarters as we bleed off the inflationary pressure that was not priced in to other product lines within the business.

Chip Moore

Perfect. That's helpful. I appreciate that. And then Daniel, I think in the press release, you talked about potentially seizing some new market opportunities and penetration with existing customers. Maybe just expand on that. I think you touched on a lot of it in the call, but anything else to keep in mind.

Daniel Patrick McGahn

I think to piggyback also on what John was saying, this might be the last time when we say the word Neeltran and NEPSI going forward. We see the businesses integrated, working well together, big step here is getting the backlog purged out that we had there. Some of those projects, why we looked at them and said, we think this is really a good business is because there's large growth opportunities. And if we could get the product and the pricing right, we think that part of our business really could grow gangbusters. So I know people have had, I'd say, kindly maybe limited patience with me on how is the acquisition going and shouldn't be here or there or the other where, we saw it as an investment in some new markets. And part of what we're kind of saying here today is there are already orders in the backlog for some of these new markets with a more combined offering with better pricing, with better control of parts and labor that go into the building of those products. So the good news is that part of our history is now behind us. We have a couple of more, as I said, and John concurred that we have to get through, but they're not going to be anywhere near the magnitude and change on margin that we've seen in the past. So when people would push me about, well, why are we doing this or that with investment in the acquisition, further investment in the acquisition because we see a huge market opportunity. And I think we're going to pay that off over the coming quarters and coming years, just based upon the macro investment. That's why I went through all the large, the amount of money being invested globally in this new energy economy, electrification of everything is enormous. And I think we now have a great product line up to be able to go out and serve those customers and to be able to do it in a way where they build a factory to make whatever they're making, just like we've done in semiconductor, then they want to go build the next one and the next one and we're basically having the same product over and over again that's going in the substation that's powering the equipment at the factory that's helping in this transition of the electrification of everything.
So just to kind of conclude with everybody to kind of wind down the call. We're delivering on our strategy. We believe we're well positioned for a very strong fiscal year 2023. Our backlog is strong. It's very well diversified at higher margins. The pipeline, as we talked about on the call for new business is very robust. We are now executing on order for Inox Wind. We're broadening our revenue base with multiple products for the Navy. And as I just kind of was talking about, we're serving on an expanded customer set on the grid side, we really have turned a corner, and we're very excited about the future here at American Superconductor. So thanks, everyone, for joining us today, and we'll speak with you on our next call.

Operator

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.