American Superconductor Corporation (NASDAQ:AMSC) Q3 2023 Earnings Call Transcript

American Superconductor Corporation (NASDAQ:AMSC) Q3 2023 Earnings Call Transcript January 25, 2024

American Superconductor Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the AMSC Third Quarter Fiscal 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Heilshorn of LHA. Please go ahead.

John Heilshorn: Thank you. Good morning everyone, and welcome to American Superconductor Corporation’s third quarter and 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 third quarter of fiscal 2023 yesterday after the market close. 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 I start the call, I would like to remind you that various remarks that management will make during today’s call about American Superconductor’s future expectations, including expectations regarding the company’s fourth 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 subsequent date 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, which are non-GAAP financial measures. The company believes that non-GAAP net income/loss assists the 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 GAAP net income can be found in the third quarter of fiscal 2022 earnings press release the company issued and furnished with the SEC last night on Form 8-K. All 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’m really excited to share some great news with everyone today. I’ll begin 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 third fiscal quarter, which ended December 31, 2023 and will provide guidance for the fourth fiscal quarter, which will end March 31, 2024. Following our comments, we’ll open up the line to questions from our analysts. We’re really pleased to announce another quarter of outstanding financial results. Total revenues for the third quarter of fiscal year 2023 exceeded our expectations and guidance range. The business really outperformed this quarter. We showed higher revenue.

We showed expanded gross margins. We had positive operating cash flow. We generated non-GAAP net income, and we continued the rate at which for booking orders to backlog. Total revenue for the past nine months is about the same as total revenues for our entire previous fiscal year. Let me repeat that because I think it’s important, and I’m convinced that people are missing this point about the strength of our business. Through the first nine months of this fiscal year, we had about the same revenue for the 12 months as the previous entire fiscal year. This means that whatever we do in the fourth quarter will be year-over-year growth. I won’t steal John’s guidance later in the call, but given the fact the basis is about $100 million, you basically see the revenue for our fourth quarter as the growth of our business for the fiscal year.

This success was driven by our pricing initiatives, product and regional mix and overall customer demand. All signs this quarter are very positive. Our third quarter revenue of over $39 million was driven by new energy power system shipments. This was due to customers’ demand, needing products earlier than forecasted. We are finding lead times are shrinking and our customers want products sooner. We see this as a great indicator of the health of our business. Our grid segment revenue accounted for approximately 85% of AMSC’s total revenue, and grew over 60% versus the year ago period. This represents a record-breaking grid quarter with unprecedented quarterly revenue. Nearly 15% of the revenue came from our wind business, which also grew about 90% versus the year ago period.

60% and 90%, these are big numbers. During our third quarter, we saw a diverse set of product shipments. We shipped voltage compensators, capacitor banks, harmonic filters, transformers, rectifiers, Volt/VAR optimizers, ship protection systems and electrical control systems. These products went into renewables in a variety of industrial markets, including semiconductor, mining as well as our Navy projects. During our third quarter, we booked over $34 million of new orders and grew our 12 month backlog to over $137 million. Our backlog at the end of the third quarter increased by nearly 25% when compared to the year ago period. We had $25 million of new energy power systems orders. Our new energy power systems orders have averaged over $30 million a quarter during fiscal year 2023, varying by quarter because of timing.

These third quarter orders serve an increasingly diverse market. They represent strong contributions from the renewables market with wind and solar projects accounting for approximately two-thirds of the total. Industrial orders, which contributed approximately one-third of the total, include orders for utilities, metals and mining as well as semiconductor projects. With strong demand across our end markets, we expect to continue to grow and diversify our grid business through these and future strong bookings in both renewable and industrial sectors. Okay. Let’s talk about some great news in wind. We secured our second 3-megawatt electrical control systems, or ECS order from Inox Wind. Inox Wind has requested immediate delivery under this $8 million follow-on order, and we expect to ship these ECS over the course of calendar year 2024.

It is depending on their payments. Inox would like all sets to be delivered during our first quarter of fiscal 2023, but we see it impacting the first and second quarter. It could take longer to deliver if they are not timely with their payments. Inox’s business seems poised to take off in 2024. Their public information would lead one to believe this. We are off to an encouraging start in calendar year 2024 with this follow-on order from our partner Inox for our cutting edge 3-megawatt class ECS. We see continuous demand for their 2-megawatt turbine and our 2-megawatt ECS as well. Additionally, we have made progress on our navy development programs and secured orders to continue that work. We are working to insert our technology into multiple navy’s fleets.

Over the past several years, we’ve taken a series of very deliberate actions to diversify our business and grow through our grid business. Over a five year period, we nearly tripled our grid business revenue and had consistent revenue growth of over 17% compounded annual growth rate. We acquired and integrated three companies which have successfully broadened our sales leverage, expanded our content of offerings and contributed to our increased total revenue. We are pleased with these results and super excited about the rest of the year. Now I’ll turn the call over to John Kosiba to review our financial results for the third quarter of fiscal year 2023, and provide guidance for the fourth quarter of fiscal year 2023, which will end March 31, 2024.

John?

John Kosiba: Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $39.4 million for the third quarter of fiscal 2023 compared to $23.9 million in the year ago quarter. Our grid business unit accounted for 85% of total revenues, while our wind business unit accounted for 15%. Grid business unit revenues increased by 61% in the third quarter versus the year ago quarter, while our wind business unit increased by 87% over the same time period. Looking at the P&L in more detail, gross margin for the third quarter of fiscal 2023 was 25% compared to 2% in the year ago quarter. Gross margin for the third quarter of fiscal 2023 was positively impacted by the higher revenues, a more favorable product mix and the favorable impact across the business from pricing increases across our product lines.

Moving on to operating expenses, R&D and SG&A expenses for the third quarter of fiscal 2023 were $10 million compared to $9.3 million in the year ago quarter. Approximately 11% of R&D and SG&A expenses in the third quarter of fiscal 2023 were noncash. Our non-GAAP net income for the third quarter of fiscal 2023 was $900,000 or $0.03 per share compared with a net loss of $7.7 million or $0.27 per share in the year ago quarter. Our net loss in the third quarter of fiscal 2023 was $1.6 million or $0.06 per share. This compares to a net loss of $9.6 million or $0.34 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 third quarter of fiscal 2023 with $25 million in cash, cash equivalents and restricted cash.

This compares with $24 million on September 30, 2023. Our operating cash flow in the third quarter of fiscal 2023 generated $1.3 million. Now turning to our financial guidance for the fourth quarter of fiscal 2023, we expect that our revenues will be in the range of $36 million to $40 million. Our net loss is expected not to exceed $3.5 million or $0.12 per share. Our non-GAAP net loss is expected not to exceed $1.7 million or $0.06 per share. We expect operating cash flow to be breakeven to positive cash generation of $2 million. We expect to end the fourth quarter with no less than $25 million in cash, cash equivalents and restricted cash. With that, I’ll turn the call back over to Daniel.

Daniel McGahn: Thanks, John. We didn’t guide to that last quarter, but we are this quarter, and that has meaning. This is the second quarter in a row where we’ve achieved positive operating cash flow and expect to do that again for a third quarter. Strong market demand from renewables, industrials and utilities drove new energy power systems orders for our third quarter of fiscal year 2023. Our orders illustrate market diversification from customers in metals, mining and materials and semiconductors to military and utility applications. We see opportunities for our products and services as utilities address the addition of distributed power into the electric grid. We have a robust pipeline of opportunities, thanks to strong market demand, and we are aggressively going after those opportunities.

We see the wind market strengthening in India, and that should translate into expanded business for us next year. We’ve been able to make significant progress in all our U.S. Navy programs and we see more ships on the horizon. Our resilient electric grid system in Chicago continues to operate as planned and we believe we have a solution that can solve many existing problems in the electrical grid of many cities. 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 and hybrid 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 and 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 the corner and delivered another outstanding quarter. We aren’t looking back. We can see the fundamentals of our business are well grounded. It feels like we have the wind at our back. Policy is driving more renewables, the reshoring of semiconductor capacity in America, the rise of the electric vehicle and investment in American infrastructure, all four we see as tailwinds.

If you believe that there needs to be a solution to climate and decarbonization and you’re wondering who will be providing these solutions, you have come to the right place. To conclude, we’ve built a stable and diversified business that we believe is well positioned to capitalize on the future of investments in renewables, the future of investments in semiconductors, the future of investments in electric vehicles and the mining of the materials that go into these three markets as well as the defense business. We are driven by the opportunities that climate change presents to us as well as the electrification of transportation. Our products provide grid support at the power consumption point of the electric vehicles. Our products also provide support at the mining and factories for the metals and materials used to build these vehicles.

We’ve evolved from being a very concentrated business with both customer and market concentration to a more diverse business while at the same time growing revenue and improving margins. We are focused on improving the financial performance of our business and continuing to deliver a diversified business and on making progress towards our longer-term priority of building a sustainable business. I think the team has done a terrific job of achieving this. When we look at our prospects and what our sales pipeline looks like, they’re strengthening, not weakening. Orders are becoming larger, not smaller. The types of markets we serve are becoming more diverse, less concentrated. So when I look at the near term, say, the next year or so, I think our prospects are great.

We believe that our differentiated solutions and set of capabilities are a significant advantage that will allow us to serve our customers ever more efficiently. I want to thank our team for their hard work and support, and I look forward to reporting back to you at the completion of our fourth fiscal quarter and fiscal year-end. Gary, we’ll now take questions from our analysts.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Eric Stine with Craig-Hallum. Please go ahead.

Eric Stine: Hi, Daniel, hi, John.

Daniel McGahn: Hey, Eric.

Eric Stine: Good morning. So maybe, can we just start with wind? Could you just discuss — you talked about it a little bit, but I just want to make sure I’m clear on it, how you expect this 3-megawatt order? And I know it’s payment dependent, but this — the order for the 3-megawatt control systems, how you see that playing out here in calendar year ’24? Were you talking fiscal Q1 and Q2 is when you would expect the majority of that?

Daniel McGahn: Yes, that’s exactly right. I think it will be roughly balanced between the first two quarters. They want it as fast as possible. We’re at a point now where they’re going to be hand to mouth in the short term, and we want to make sure we support them as best we possibly can, as quickly as we possibly can, but I don’t want to set your expectations too high. It even could leak a bit into the December quarter or third quarter. It really depends upon our ability to manage our supply chain, but it really starts with them paying everything on time, which to their credit, at least recently, they’ve been pretty good at. But I do want to make sure that everybody on the call understands that risk.

Eric Stine: Yes. No, understood. And then just sticking with wind on Q3, right? I mean that the December quarter, I would assume that the majority of that is the 2 — I mean, systems for the 2-megawatt turbine or there might be a little bit of 3-megawatt in there. How should we think about that?

Daniel McGahn: Yes. It’s really 2-megawatt in Q3, and we’re just starting to get ready to start to deliver on the beginnings of the order that we received back a couple of quarters ago.

Eric Stine: Okay.

Daniel McGahn: We’re at a point now, Eric, kind of where we were early in the 2-megawatt where we’re going to get hopefully, a series of successive orders. Maybe they’ll be similar in size, maybe they’ll grow in size. But we actually have a chart in the slide deck we try to show the history that we have for the 2-megawatt. We’re hoping that we’re going to see that happen again with the 3-megawatt. And all signs from India and from Inox lead us to believe that that’s probably correct.

Eric Stine: Okay. And so — I mean when we think about this, nearly $6 million, now taking out the $8 million order for the 3-megawatt right? I mean, is this kind of a representative number for primarily the 2-megawatt, you layer the 3-megawatt on top? Or how do you think about kind of a quarterly run rate, again, knowing that you might have two quarters that are higher? What that looks like here through fiscal ’24?

Daniel McGahn: Yes. I think if you go back, let’s look at the previous, say, three quarters and so and looking at that run rate. That’s probably where we are with the 2 megawatt. I think there are some indications in the market that they’re going to sell more 2-megawatts as well. But again, it’s always hard with this customer to be able to forecast it. Part of why we have focused so much on grid is we love Inox. They’re a great customer. But as their business slows down or starts up, their access to capital could either help or hamper their ability to deliver to their customers. So we want to do everything we can to support them. We’ve been waiting for years for this business to start to come back. And I think one of the key messages today, we really feel like the wind is on our back now literally in India, and we should have a strong we think, ’24.

Eric Stine: Yes. No, that’s great. You’ve been — I know you’ve been waiting on that for quite some time. Maybe just turning to the navy business. I know you’ve talked about it for quite some time about looking to get into Allied Navy’s new ship platforms. It seems to me like your commentary today was stronger than I’ve heard in the past. Curious if that’s a misread on my part or that was intentional and kind of maybe next signpost we should look for?

Daniel McGahn: Yes. In communication, it’s not what you say, it’s what they hear and you’re hearing me. So clearly, we see more ships on the horizon. So two — just kind of the three take-home messages here are we have a great new energy business that’s supported by the backlog. We’re converting orders at a very consistent rate. We feel the winds on our back, particularly in India, and we see more ships on the horizon and a clear path to them. These are not words you heard me say last quarter, and the quarter before that. It is a different feeling. It is a different message today.

Eric Stine: Okay, I’ll turn it over. Thank you.

Operator: The next question is from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch: Thanks so much, guys. Can you talk about the impact of pricing on your year-over-year growth here in the quarter? And how we should think about the mix of unit growth and pricing growth driving top line acceleration in calendar ’24?