American Superconductor Corporation (NASDAQ:AMSC) Q4 2022 Earnings Call Transcript

American Superconductor Corporation (NASDAQ:AMSC) Q4 2022 Earnings Call Transcript June 1, 2023

Operator: Good morning, and welcome to the AMSC Fourth Quarter Fiscal Year 2022 Financial Results Conference Call. All participants will be in a listen-only mode for the duration of the 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 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 2022 yesterday after the market closed. For those of you who have not 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 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 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, a non-GAAP financial measure. The company believes that non-GAAP net loss assists management and investors in comparing the company’s performance across reporting periods on a consistent basis by excluding these non-cash, non-recurring 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 ’22 earnings press release that 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 through 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. 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 will 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 improvements.

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’ve 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 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 one-fourth of our sales were for renewable projects. Industrials represented about a fourth 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 focus 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 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% percent versus the year ago quarter. This was led by increased ECS shipments for 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 ERC process and accounted for in the quarter. This is offset by approximately $2.3 million of project losses at Neeltran as we continue to ship and deliver 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 non-cash.

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 non-cash. 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 –GAP net loss was $1 million in restructuring chargers. 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 cents 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 $26 million to $30 million.

Our net loss and net 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 $1 million to $3 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 reflects 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 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 US Navy ships into the future by installing protection systems that help them stay hidden from our enemy threats.

Today, we have a total of five 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 LPD 32, 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 US 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, multi-year 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 US 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 $50 million of 2 megawatt wind turbine ECS demand from INOX. We received our initial three megawatt class wind turbine ECS order of over $5 million. We expect to ship the two megawatt and three megawatt ECS systems during fiscal year 2023. We completed the commissioning of the three megawatt class wind turbine in India and expect type certification this fiscal 2023. Once type certification is completed, the three megawatt class wind turbine is expected to be ready for grid conductivity and operations in India.

We believe the three megawatt ECS order marks the beginning of our next chapter with INOX Wind, as they expand their offering to include an exceptional three 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 and 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 through gross margin expansion, and lower cash burns.

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 two 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 includes, 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 US. The CHIPS act provides over $50 billion of funding for the development of US 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 of final products. Industrial manufacturers of these essential materials must be able to power their factories and ways that 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 increased 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 enter 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 corner. 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 raise 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’m 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 in powering 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 on the completion of our first quarter of fiscal 2023. Joe, we can now open up the line to any questions from our analysts.

Q&A Session

Operator: [Operator Instructions] At this time, we will take our first question which will come from Eric Stine with Craig-Hallum. Please go ahead.

Eric Stine: Hi Daniel. Hi John.

Daniel McGahn: Hey Eric. Good to hear your voice.

Eric Stine: Thanks. Good morning. So, very good to see INOX come back here, You talked about fiscal – in fiscal ’23 you expect certification. Are there any things we can look for a signpost to look for to judge the timing of that? And then curious, does that – 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 McGahn: Yeah, I think it’s an important thing to kind of go through and make clear for everybody. You can see what we tried to explain it and bifurcated into two megawatt. There were basically showing demand for two megawatts that’s a bit heavier than it’s been 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 to the volume that INOX needs in order to satisfy their customer demand. The three megawatt is a whole new product introduction. So we have to go through the supply chain and order parts.

We just got the order and got to pay for. There is a lead time for those products so that means that the three 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 three megawatt that’s bigger. It’s probably two to three times bigger than we have on an order for the three megawatts that they certainly could order more. Product to be delivered within our fiscal 2023, which is their year in the Indian year as well. But right now we’re just happy to be able to you that we’re kind of back in business with INOX. The businesses has the potential to expand with this addition of this three megawatt product which we think is a great fit for the Indian market and I 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 as I think we feel very good about how we understand that and their needs. And I know that they really understand us very well that the time that we’ve taken going through the year is 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 Stine: Yes. Good enough. 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 McGahn: I’ll answer and let John add color commentary on it. We’re not breaking out the any of the businesses or products by different margin 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’s the 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 through 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 the year that we’re talking about margin expansion. John, do you want to talk more on it?

John Kosiba : Yeah. So I think Dan headed on that. We really are at a point now where many of the product lines within and in the end now with wind coming back are in this similar contribution margin range. So as we expand revenue on all those, we should see margin improvement. So short answer is, the answer is, yes, we should see margin expansion as we increase sales for wind to the same level we would, if we’ve seen margin expansion, revenue expansion for our grid.

Eric Stine: Got it. Thank you.

Operator: And our next question will come from Colin Rusch with Oppenheimer? Please go ahead with your question.

Colin Rusch: Thanks so much, guys. As you look at the evolution of the opportunity with the Ship Protection Systems, can you talk a little bit about where you are 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 three years?

Daniel McGahn: Yeah, I mean, our goal column to be very proud of 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 solution for the Navy. So, we do have some visibility because we are doing engineering work for multiple ship platforms, be it for the US Navy at 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 were they able to support the Navy for their needs going forward. I know that at a congressional level to the top brass at the Navies of, this is an important program for the future of technology insertion 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 column we could have it all and that could be for all the all the surface fleet for the U.S. Again I’m only talking forward fit, I’m not talking any 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 Allied navies as well. So it’s hard to prognosticate is when the things go into production. We are trying to be very clear with the MCM. This is a multi-year arrangement. It’s about two years to design development test. But in there, our clauses in that contract to start to do by commercial level of production.

So that could occur, as early as two to three years from here.

Colin Rusch: Excellent. And then, just with baseline OpEx, how should we think about the cash OpEx on a quarterly basis with this restructuring complete?

John Kosiba : Yeah, so like I said, last quarter, we – I don’t see any real changes that we look, I think right in that $9 million a quarter range is still solid.

Colin Rusch: Excellent. And then, I guess, the last one is really around quotation activity and order magnitude of the opportunity set for the grid – grid products. Clearly you guys have moved into a handful of incremental markets with these acquisitions and there’s a fair amount of build out that’s happening in the country right now. So I just want to get a sense of, if we look back 12 months 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 as we think about that business going forward?

Daniel McGahn: Going forward, I think we’ll – still the challenge for us is going to be, how do we meet this demand and it’s growing dramatically. And, I kind of said in the remarks about now we’re getting to the point we can we can deliver identical copies seismic products by solutions across the product line, not just for the existing organic business, but for the acquired businesses, well. The quotation levels are extremely high. The pipeline is extremely robust. Our concerns are going to quickly here turn to how do we manage growth, because it feels like growth is about to really start to blossom.

Colin Rusch: Excellent. Thanks so much guys.

Operator: And our next question will come from Justin Clare with ROTH. Please go ahead with your question.

Justin Clare : Yeah, hi guys. Thanks for taking the question. So first off, you had indicated that’s your 12 months backlog as of March 31st 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, 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 where the new order is incremental to your backlog as of March 31st? Or am I double counting here just trying to understand when the order is in the backlog could be delivered?

Daniel McGahn: Yeah, I I think you are double counting for sure. So, one of the things that we try 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, five of it is new for three megawatts, 15 is basically a derisking of demand that was an old contract at a lower price that’s now been amended to be firm, fixed at a higher price. So little bit incremental, maybe change on that $15 million above of a higher price, but don’t fall in the trap of looking at old backlog. And for our recent history with wind, We’ve had a large standing order in place for the two megawatt and we have had to try to predict with INOX’s help to get 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 three megawatt will have firm fixed releases for 2 megawatt demand. So I think you’re double counting at least $15 million that’s in there. There is 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 in the release and in the K. That’s why we wanted to try to make it clear just in that’s a twelve-months backlog is now at about $125 million and that 125 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 a 12 months plus. But there will be for certain customers if they need things sooner we will work to make that happen.

Justin Clare : Got it. Okay. Yeah, 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 can get to 25% on the gross margin level. Are those still the expectations that we should be anticipating here? Or, you know, given the pricing changes that you have made, are there any changes to the margin expectation?

Daniel McGahn: No, I think I think the way you said it is, right. I think just one little caveat that John said when we originally went through those is, expect the potential for those to expand over time because you can you have the resident time of the backlog. So, you may have backlog that’s, 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 in that full gross margin. So they’re trying to correlate incremental revenue to incremental cash. So people can see that clearly.

Justin Clare : Got it. Okay. And then just one final one on INOX, you indicated that you have changed pricing for the two megawatts. Just wondering if there’s any meaningful difference in the price per watt for the two megawatt ECS versus the three megawatt and any difference in the margin profile for each of those products?

Daniel McGahn: Why don’t we take that offline to try to look at my own 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 two or the three, we don’t have a financial benefit at this one way or another. We want to make sure that they’re successful in totality.

Justin Clare : Got it. Okay. Thanks very much.

Operator: [Operator Instructions] Our next question here will come from Chip Moore with EF Hutton. Please go ahead with your question.

Chip Moore: Morning. Thanks. Hey everybody, congratulations on the positive momentum. What the actual one, I get more specifically on margin expansion more near term cadence I guess with remaining Neeltran backlog just a sense of size there you had that benefit in Q4 and then any order timing to take into account that should debar deliveries for other systems?

Daniel McGahn: Yeah, I think I’ll say one comment benefit is relative. So one of the things I think we’re able to do is team very well as we tried 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 be like and we’re trying to get all of this congested backlog that that compressed margin out of the system as best we can going forward. We now only have a couple projects we have to do and the impact of those on the margins on a quarter basis, we’ll probably talk to you but they’re not going to change directionally where we think things are going to head.

Chip Moore: John, could you give more granularity on that?

John Kosiba : Yeah, so Chip, I think the intent moving forward as we stop talking about Neeltran as a drag on the original acquired backlog. If we have an event or two we will 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 that 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, remember what we said a couple quarters back, it was going to take time for us to get the margin up relative to inflationary pressures across all the product lines. And so, that’s the path that we’re going to phase in over Q1 and Q2. And so, a combination of Neeltran is – we are feeling much more comfortable today and we’re from way boulder on our statements. And then you’ll see incremental gains over the coming quarters as we lead off the inflationary pressure, that was not priced into other product lines within the business.

Chip Moore: Perfect. That’s helpful. Appreciate that. And then, Dan, you said that 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 everything else is to keep in mind.

Daniel McGahn: I think to piggyback on – also, on John’s – what John was saying, hey, this might be the last time we say the words Neeltran going forward. We see that this is specifically working well together. Big, big step here is getting the backlog purged out that we had there. Some of those projects, but 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 – highly may be limited patience with me on, how is the acquisition going and shouldn’t it be here 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 the of our history is now behind us we have a couple 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 can 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 which means 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 serve those customers and to be able to do it in a way where if 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 into substations 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’re now executing on orders for INOX wind for 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 the 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.