American Superconductor - Earnings Call - Q2 2021

Transcript

Speaker 0

Have a good call.

Speaker 1

Good day, and welcome to the American Superconductor's second quarter fiscal twenty twenty earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. John Hosworn with LHA. Go ahead, sir.

Speaker 2

Thank you, Travis. Good morning, everyone, and welcome to American Superconductor's second quarter of fiscal twenty twenty earnings conference call. This is John Heilshorn of LHA Investor Relations, AMSC's Investor Relations agency of record. With us on today's call are Daniel McGann, Chairman, President, Chief Executive Officer and John Kasiva, Senior Vice President, Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the 2020 yesterday after the market closed.

For those of you who have not seen the release, a copy is available at 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, 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 ks for the year ended 03/31/2020, which the company filed with the Securities and Exchange Commission on 06/02/2020, and subsequent reports that the company has 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 certain non GAAP financial measures, non GAAP net loss and non GAAP operating cash flow. Non GAAP net loss is defined by the company as net income loss before stock based compensation, amortization of acquisition related intangibles, changes in fair value of warrants, other non cash or unusual charges and the tax effect of adjustments calculated at the relevant rate for the company's non GAAP metric. Non GAAP operating cash flow is defined by the company as operating cash flow before the China settlement, net of legal fees and expenses and other unusual cash flows or items. The reconciliation of the non GAAP measures to the most comparable GAAP measures can be found in the 2020 earnings press release that the company issued and furnished to the SEC last night on Form eight ks. 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?

Speaker 3

Thanks, John, and good morning, everyone. I'll begin today by providing an update on some recent activities and then provide an update on our Grid and Wind business units. John Kasiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended 09/30/2020, and provide guidance for the third fiscal quarter, which will end 12/31/2020. Following our comments, we'll open up the line to questions from our analysts. We had a busy October.

Two weeks ago, we concluded an equity offering. Our efforts are focused on continuing to grow our Grid business in fiscal twenty twenty and beyond. We raised approximately $51,000,000 in net proceeds through the issuance of 3,700,000 shares of common stock priced at $15 per share. We think it's great that many of our existing institutional investors participated. We also welcome many new institutional investors.

We see the interest in the offering as a positive sign that the market also believes in the growth opportunities in our Grid business. I'm personally very pleased by the work and effort put forth by our team to make this happen. In October, we also announced the acquisition of Northeast Power Systems, Inc, or Nepse as we call it. Prior to becoming part of the AMSC family, NEPSI was a privately held company in Upstate New York, supplying medium voltage metal enclosed capacitor banks and harmonic filters. We paid NEPSI $26,000,000 in cash and approximately 874,000 restricted shares of AMSC common stock at closing.

The acquisition of Nepc directly aligns with our strategic priority to accelerate profitable growth independent of our wind business, broaden our product offering and expand both market reach and market share. The acquisition of Nepsey extends our product offering in the industrial sector of our Grid business. Nepse is a leader in steady state power correction. AMSC is a leader in dynamic power correction. The two product lines together are expected to provide a powerful synergy.

Nepse has been a partner supplier of AMSC for many years. Strategically, we acquired Nepse with the expectation that Nepse will improve the long term quality of our revenues and earnings with further diversification by region, customer and product, and most importantly, to accelerate our ability to achieve our goal to reach operating cash flow breakeven. In addition to expected improvement in the quality of our revenue and earnings, we believe the acquisition of Nepsey has the opportunity to expand our scale and to be synergistic to further expand the market penetration of our D VAR product. The additional markets served by Nepse will provide immediate access to customers we did not have access to. We believe that our strong balance sheet and addition of Nepse to our Grid team positions AMSC for continued Grid growth.

We continue to be focused on building a more predictable and diversified business. Turning now to the quarter. Revenue for the second quarter of fiscal year twenty twenty, which did not include NEPSI, came in above the top of our guidance range and grew by more than 50% versus the year ago period. Our Grid segment revenue grew 42% versus the year ago period. All Grid product lines contributed to the quarter, and the primary drivers were D VAR and our ship protection systems.

We ended the second quarter with more than $57,000,000 in cash. This is before the acquisition and the equity offering. We believe that our Grid segment is on track for another record breaking year. We remain focused on managing our operations. Our operating cash burn was better than our guidance for the second quarter of fiscal twenty twenty, and our ending cash balance was above guidance for the second quarter.

We made progress with our wind business in the 2020 as well. In fact, wind revenue grew nearly 90% in the 2020 versus the year ago period. We made shipments against our order from our South Korean partner, Doosan Heavy Industries, for our 5.5 megawatt class electrical control systems, or ECS, during the second quarter of fiscal twenty twenty. During the second quarter, Inox delivered the following approved letters of credit. On 09/02/2020, Inox delivered approved letters of credit in the amount of €1,300,000 which translates to approximately $1,500,000 for the payment of a portion of the two megawatt ECS that Inox was obligated to purchase under the terms of the supply contract.

We notified Inox that we would give them until 10/05/2020, to regain compliance with the terms of the supply contract by approving and providing letters of credits in the amount of €4,700,000 which translates to approximately $5,500,000 for payment of the remaining two megawatt ECS that Inox was obligated to purchase under the terms of the supply contract. On 10/01/2020, Inox delivered these approved letters of credit for payment of the remaining ECS that INOX have been obligated to purchase under the terms of the supply contract and cured the default set forth in the 05/29/2020 default notice. Thought it was important to highlight that for you. We did file an eight k on October, second, which disclosed Inox cure of the default. We thought that was critical for you to understand really where we are with Inox today, and we look to resume our discussions for a three megawatt supply agreement with Inox.

At the halfway mark of the fiscal year, our grid business is performing at a very high level. We've been delivering against a strong backlog of Grid orders, which not only includes D VAR orders, but also SPS, PVO and our REG order. We continue to build on our backlog of Grid orders as evidenced by our $15,000,000 order announcement for grid, which we released this past Tuesday. To make it simple, we're going to talk about our D VAR, VVO and Nepse products under the name of new energy power systems. So we'll talk about our new energy power and ship protection systems going forward.

As we've discussed over the last two quarters, the emergence of COVID-nineteen has created both operational challenges and macroeconomic concerns for all businesses. AMSC continues to demonstrate that it can operate effectively through times of crisis. I said this early on in the pandemic, and I'm saying it again. We were early to implement physical separation protocols at our manufacturing sites, and we have not missed a beat in production. This does continue to get harder each quarter.

In The US, we're now seeing a third wave of cases. We have instituted cleaning protocols for our offices to help keep everyone safe and healthy, which is paramount. We're focused on our people and the parts to make our products as well as strong customer service and product quality. Our factories remain open and have been operational throughout the pandemic. Now I'll turn the call over to John Kasiba to review our financial results for the 2020 and provide guidance for the third fiscal quarter of twenty twenty, which will end 12/31/2020.

John? Thanks, Daniel. Good morning, everyone. AMSC generated revenues

Speaker 4

of $21,100,000 for the 2020 compared to $14,000,000 in the year ago quarter. Our Grid business unit accounted for 77% of total revenues, while our Wind business unit accounted for 23%. Grid business unit revenues increased by 42% in the second quarter versus the year ago quarter, primarily due to higher D VAR and SBS revenues. Wind business unit revenues increased 89% in the second quarter versus the year ago quarter as a result of increased ECS shipments to Doosan and Inox.

Speaker 0

Looking at the P and

Speaker 4

L in more detail, gross margin for the 2020 was 26% compared to 27% in the year ago quarter. The strength in gross margin for the 2020 was a result of a favorable product mix and high factory absorption within both our Grid and Wind segments. R and D and SG and A expenses for the 2020 were $8,600,000 This was up from $7,800,000 in the same period a year ago. Approximately 15% of R and D and SG and A expenses in the 2020 were non cash. Our non GAAP net loss for the 2020 was $2,700,000 or $0.13 per share compared with $1,500,000 or $07 per share in the year ago quarter.

Our net loss in the 2020 was $3,700,000 or $0.17 per share. This compares with $800,000 or $0.10 per diluted share in the year ago quarter. Included in our 2019 net loss was a $1,100,000 non cash gain associated with the change in the fair value of warrants. This favorably impacted the year ago results. We currently have no outstanding warrants.

Please see our press release issued last night for a reconciliation of GAAP to non GAAP results. We ended the 2020 with $57,700,000 in cash, cash equivalents, marketable securities and restricted cash. This compares with $62,200,000 on 06/30/2020. Our operating cash burn in the 2020 was $3,400,000 This came in better than our previous guidance of a $4,000,000 to $6,000,000 operating cash burn. Now turning to our financial guidance for the third quarter of fiscal twenty twenty.

We expect that our revenues will be in the range of 22,000,000 to 25,000,000 Our net loss on that revenue is expected not to exceed $6,000,000 or $0.23 per share. And our non GAAP net loss is expected not to exceed $5,500,000 or $0.21 per share. The company expects positive operating cash flow to be up to $1,000,000 in the third quarter of fiscal twenty twenty. Our cash flow guidance includes expected payments from Inox for ECS shipments in the third quarter. This is expected to have a favorable impact on our working capital.

As I mentioned in previous calls, our working capital for the business fluctuates from quarter to quarter depending on working capital requirements for individual projects. When you look at our cash requirements over recent quarters, our working capital tends to average out any quarterly variations. Over the last four quarters, included in our guidance for Q3 fiscal twenty twenty, we expect our non GAAP operating cash burn to average approximately $2,000,000 a quarter on an average quarterly revenue of $21,000,000 This is well within the operating cash burn results we would expect on this revenue profile. We expect to end the third quarter with no less than $80,000,000 in cash, cash equivalents, marketable securities and restricted cash. This guidance reflects the $26,000,000 in cash that we paid in connection our acquisition of Nepcie on 10/01/2020, and the $51,400,000 in approximate net proceeds from our stock offering, which closed on 10/26/2020.

With that, I'll turn the call back over to Daniel. Thanks, John.

Speaker 3

Our growth through Grid strategy is working. Grid is driving revenue growth for the company, and D VAR has been the foundation of our Grid business. You can see we announced $15,000,000 in new grid orders. Our D VAR product is currently focused on addressing renewable energy installations and industrial installations like a semiconductor fab. As you know, D VAR is a power transmission level product, whereas our Volt VAR optimizer or VVO product addresses the power distribution market.

Our NEPSI products are primarily distribution level products. We are anticipating a higher volume of VVO shipments in the second half of this fiscal year. We are beginning to see multiunit orders from multiple utility customers. We expect VVO to contribute to our grid growth in fiscal twenty twenty. Turning to the Ship Protection Systems, which is also part of our Grid business, SPS contributed to the strong Grid segment revenues in the second quarter of fiscal twenty twenty.

I want to take a moment to recap developments with our SPS in the Navy, specifically for our new shareholders. AMSC's ship protection systems are also known as degaussing systems. At AMSC, we call them SPS. The SPS is designed to reduce the magnetic signature of a ship, which can interfere with undersea mines' ability to detect and damage the ship. Our SPS is state of the art.

Our SPS utilizes high temperature superconductors which replace massive amounts of copper in legacy systems. The weight saved using our SPS versus legacy systems can be as much as 60 to 70 metric tons on a single vessel. Our SPS became the baseline design for the San Antonio Class Amphibious Warfare Ship or LPD platform. We believe our SPS for the San Antonio Class should represent approximately $10,000,000 of revenue per vessel. To date, we have three orders for our SPS to be deployed on the San Antonio Class vessels, including LPD 28, LPD 30, and LPD 31.

We are working closely with the Navy to understand the program timing for LPD 29. Our SPS team is very busy and focused on continuing to expand the business while we deliver our first systems. We are excited for the Navy's adoption of our SPS system in 2021. From a capacity perspective, we've been planning for the concurrent manufacture of multiple SPS orders. We anticipate our SPS has the potential for deployment on the Navy's planned 15 additional San Antonio Class ships.

Our SPS for the San Antonio Class could represent a potential revenue stream of up to $150,000,000 for this class of ship. The San Antonio Class is our first design win with the U. S. Navy. Turning to REG, ComEd has agreed to install its first resilient electric grid or REG system as a permanent asset within Chicago's electric power grid.

In July, we announced that ComEd broke ground and had begun construction on its REG system. We are delivering hardware to the project. We are providing technical support during construction. We are on schedule for delivery of the system and anticipate energization in 2021 per ComEd's schedule. AMSC and ComEd have proceeded with the engineering assessment of a proposed second REG system in Chicago.

ComEd's second project, if agreed to and undertaken, would utilize AMSC's REG system to interconnect multiple existing substations in Chicago's Central Business District. The second project is expected to be larger in scope than the first and provide greater reliability, resiliency, and load serving capabilities during outages as well as other grid disruptions. With the first system secured, we believe that future deployments of REG will be de risked. U. S.

Utilities are focused on our execution of this first Chicago project. Now I'll turn to our wind business. For those of you who are new to the company, we serve the onshore wind market through our partner Inox Wind in India. We have been supplying two megawatt electrical control systems, or ECS, to Inox for several years. These two MW ECS go into a wind turbine AMSC has designed for Inox.

We are encouraged by Inox's stated desire to lower the levelized cost of energy further by way of a new wind turbine. Inox has indicated a new three megawatt turbine is an integral part of its long term strategy to deploy wind power in India. Inox has stated that the three megawatt platform is a great fit for the competitive tariff environment in India. After the three megawatt prototype turbine that we designed is commissioned, Inox will then seek type certification for the operating turbine. We expect to work with Inox to build a three megawatt production supply chain and put in place a three megawatt ECS initial production order and support the already growing demand for their three megawatt turbine.

We believe we're well positioned to support Inox's requirements and look forward to doing so. We service the offshore wind market through our partner Doosan Heavy Industries in South Korea. We are the exclusive supplier of ECS units for Doosan's 5.5 megawatt offshore wind turbine. The South Korean wind market presents a long term opportunity for us, as does the global offshore wind market. South Korea has mandated the development of renewable energy sources as part of its plan for long term electric power supply.

And Doosan has publicly expressed its desire to secure a large share of this accelerating South Korean wind power market. Our wind team is working closely with Doosan, and we look forward to potentially penetrating the global offshore wind market with Doosan. In the second quarter, we made shipments of our two megawatt electrical control systems to Inox, and we made shipments of our 5.5 megawatt class electrical control systems to Doosan. We believe we're well positioned to support expansion of our onshore and offshore wind business. In conclusion, at the midpoint of fiscal year twenty twenty, our D VAR business is performing very well, especially after a bit of an acceleration at the beginning of the fiscal year.

Our VVO team is preparing for expected higher volume shipments in the second half of this fiscal year. Our REG team is planning to deliver the REG hardware to Chicago this year on schedule. We are manufacturing SPS for the San Antonio Class ship platform LPD and expect delivery of our first system in 2021. We are supporting Inox with commissioning in the field and have been providing more two megawatt ECS product as they need it. We are currently integrating NEPSI into AMSC.

We expect to grow grid revenue again in fiscal year twenty twenty. I'm very pleased at what our team here at AMSC was able to accomplish so far this year. We certainly had a very busy month of October. I'd like to personally thank our employees for their hard work and dedication, And I want to thank the Inox team for working together with us to be able to resolve some challenges and continue to position their business for success while positioning our business for further success in 2021. The hard work is paying off.

We're keenly focused on our ability to achieve our goal of profitability. I look forward to reporting to you again following the completion of our third fiscal quarter of twenty twenty. We'd like to take questions now from our analysts.

Speaker 2

Taylor?

Speaker 1

Our first question comes from Philip Shen, Roth Capital Partners.

Speaker 0

Hey guys, thanks for taking my questions. First one is on REG. Dan, I was wondering if you could give us a little more color on the REG opportunities beyond ComEd with the success that you're having there? I know it's utility scale, meaning it takes time. But I was wondering if you could give us a sense for the progress you're making with other utilities.

Speaker 3

Yeah. We continue to work with multiple utilities. We've developed, we think, a very healthy pipeline of potential projects. We talked about that in the past. What we do really realize is everybody now is focused on the successful delivery execution of the system, with ComEd.

So ComEd has been a really great partner to be able to deal with. They're very excited about helping us market it to other utilities. And we know there's certainly we've had a bunch of conversations with a number of US utilities. So we're really focused on twenty twenty twenty one delivery of those systems, and we think that opens up a tremendous opportunity for the company.

Speaker 0

Great. And then shifting to VVO, what's the latest there in terms of number of utilities that are steadily buying based on inventory and stocking as opposed to testing? And then how many more utilities are in the pipeline that you guys are working with to develop regular steady volume?

Speaker 3

Yeah. We're starting to see multiple utilities now taking multiple units. We believe we've been able to understand and and well position VVO as a solution for residential solar and the problems that, distributed generation represent on the distribution grid. We feel really good about where we are with VVO. We said in in 2020, we're gonna supply a limited number to the commercial market, make sure we have everything right.

That all seems to be correct. We see an acceleration in in production. We are hitting at the second half, producing more more VVO units. We feel really good about it. I I look forward to be able to talk hopefully more specific about specific utilities in the future.

But we really do think we have something that fits really nicely into our grid growth, as well as our our mission for smarter, cleaner, better energy.

Speaker 0

Great. One more if I may on NEPSI. You know, I think, the revenue run rate for them over the past three years was $25,000,000 or so. So now as you are further along in the integration process and as you look through to next year calendar 'twenty one, do you see the potential where you can already kind of get past that twenty five million dollars Perhaps you guys can couple there's more synergies now with both dynamic and static power correction. So can can do you think there might be more synergistic sales where you might be able to drive that $25,000,000 run rate even higher?

Speaker 3

Phil, I I absolutely do. But I think the way we wanna try to look at it now is almost a combined product line for what we offer with D VAR, VVO, and Nepcie. So this idea of this new energy power systems. Because we're we're trying to focus on building and continue to grow, penetration in the renewable market. We've entered into industrial with semiconductor fabs.

Nexi takes us further into industrial, with their product line. So we're really focused on that as kind of the core of the business to continue growth, keep that drumbeat going over the next years. So I going forward, as we kinda get to the next quarter and into the next year, you're gonna hear us talk much more about an integrated product line and the markets it serves than really talking about the the alphabet soup of of products that we have. When we've talked to investors, they seem to prefer that. They get that.

And that's why even with the latest order, we talk about 15,000,000 combined. Certainly driven by D VAR, which is really where where the business has been. And I'm really proud of what the team's done so far together with Nepcie. I think it's a it's really a good fit for us. And I'm I'm really optimistic about not just the near term, but really when we think of the longer term growth potential for that part of the business.

Speaker 0

Great. Thanks, Daniel. I'll pass it on.

Speaker 3

Thanks, Phil.

Speaker 1

Our next question comes from Colin Rusch with Oppenheimer.

Speaker 5

Thanks so much, guys. Looking at the Shift Protection System reality over the near term and the economic downturn potentially impacting federal budgets, what can you tell us in terms of how much information we're getting from the individual procurement folks in terms of budget issues, potential for folks trying to actually use cash that they have sooner than later to to avoid problems down the road. Just any help in the dynamic around that is super helpful.

Speaker 3

Yeah. You know, we we certainly see challenges coming, given the economic situation. I guess we remain optimistic that those can turn, with with the change or better control going forward with the pandemic. Today, we really haven't been affected by it. When we look at the specific ships that we have orders for, those are all ships that have been planned and appropriated and procured, and that money is being spent.

So I don't see an immediate impact coming to SPS. I don't know what's gonna happen with the the election. It looks like it's it's going, you know, cleaner direction like we like. I don't know what the effects for the military that will mean over the next, call it, two, three years. But when you look at the backlog that we have currently for LPD, that's gonna cover certainly for the next couple several years.

So we're we're remaining vigilant to try to continue to grow that business on other platforms. There is a plan to build chips. Typically, when, you know, the parties change change control and things. We still have a a military. We'll still have a need to build ships.

There'll still be a need for for ship protection system, certainly. And we think that we benefit from, kind of a a cleaner environment move there. So one of the things SPS certainly can do is reduce operating cost of those ships. So, we think we really do have something that fits not only in the near term, but the long term for the Navy.

Speaker 5

That's super helpful. And now that you've closed the Neptune acquisition and augmented the balance sheet, how much and I know this is a short time frame, but as you think about the pipeline of opportunities on grid and customers that will actually sit down with you now, can characterize the, you know, the order of magnitude of change in the in the opportunity set, the number of customers you're dealing with? None of the company is in in a different position both from a product and and a capitalization perspective.

Speaker 3

Yeah. No. And I think the way you're you're asking the question, Kyle, is exactly how we're thinking about it. But, you know, utilities see us even in a stronger position given a broader product line, giving a stronger balance sheet. You know, today, business has been, you know, on the horizon for us.

We have sold some D VAR, but not a lot to utilities. What we sell in the way of EVO, we're really focused on utilities. Obviously, REG focused on utilities. So this new energy power system offering, we hope that there'll be applicability for utilities. I think know, directly what we see with utility projects is there are near term concerns about COVID given the availability of labor to be able to, you know, continue to to to do work.

Doesn't really affect us today. As I said, we don't have a lot of exposure today from a revenue standpoint in utilities. But going forward, I think the offering is very strong and so far been very well received from our discussion with utilities. Great.

Speaker 5

And and then just last one, you know, supply chain optimization with the combined company. Could you give us a sense of, you know, how much, you know, purchasing power, you know, component cost reduction and you you can see and and how soon that might start to flow through the p and l?

Speaker 3

Yeah. I think it's a very good question. It's something that we're we continue to look at. As we announced the acquisition, it really wasn't one of the main drivers for us. We think that there may be some savings there.

But really, the margin expansion comes with revenue growth. There may be some margin expansion coming from the combined supply chain. But I think if we continue to drive the growth, that's going to be the main driver improved gross margins.

Speaker 5

Super helpful, guys. Thanks.

Speaker 3

Thank you, Colin.

Speaker 1

Our next question comes from Eric Stine, Craig Hallum.

Speaker 6

Daniel. Hi, John.

Speaker 3

Hey, Eric. Hello.

Speaker 6

Hey. So I was hoping just I know we've touched a lot on grid here, but just maybe dig in a little bit on wind. So just with Doosan, if my math's right, I think you're maybe getting close to or in the back third of the initial order for the 5.5 megawatt. Just curious, I mean, obviously, Doosan's got big plans and, you know, a little bit, more color on this call that you're talking about potentially taking that global. So just thoughts on when you may see, that next 5.5 megawatt order from Doosan?

Speaker 3

Yeah. Yeah. Right now, we're we're working on commissioning the first wind farm, which is utilizing the ECS from that order. You know, the team's optimistic that maybe in the next year or so, maybe it's eighteen months. I I I don't really know.

It's tough to say. Will it be, you know, significantly larger than the first order? That's certainly something we wanna work on. I don't wanna promise that, but it's really gonna depend upon the pacing of how Doosan gets their orders going. All the indications in Korea seem like that that's moving in a in a positive direction.

It's hard to prognosticate for things that are beyond the year, but, you know, we will see business in the future from from Doosan. In the near term, we're really focused on, you know, making sure we're doing what we can to support Inox, making sure we deliver the three megawatt, turbine to a prototype level and certified all the things we talked about in in in the opening remarks to get that first, initial production order. So, you know, that really is gonna be the impact on our 21 business. If look we beyond '21 into '22, then, you know, we'll see we we hope, you know, additional business coming from Tucson out out there.

Speaker 6

Got it. And you your commentary, and you just mentioned it with Inox. I guess, I was kind of curious as you've gone through this process where they were not in compliance with the agreement and they've since secured that. Is it something where despite that, you were doing some of that prework for the three megawatt turbine? Or is that something that we should view, you know, now that we're, what, a month removed from that curing, you know, under the two megawatt agreement that now things really start?

Speaker 3

Yeah. I think I would focus the you know, exactly to say it in in the latter. That is almost a restart of the three megawatt program. We gotta get it to prototype, get it built, get them to get orders. They've been talking about already a hundred hundred and sixty to 200 units that they're that they have, coming for orders.

So, you know, we hope that, 2021 represents really the beginning of a ramp in volume for the three megawatt. We do see continued demand coming. Inox is telling us for the two megawatt. So, you know, we're very happy with how the grid business is taking us and driving us. I'm really happy that we've been able to focus on that and execute very well on the grid side of the business.

Speaker 2

And I think we

Speaker 3

have a nice option value coming in when starting with Inox with two and three megawatt, you know, maybe next year, and then, you know, beyond that expansion again with Tucson.

Speaker 6

Mhmm. Got it. Maybe last one for me. You talked a bit about Nepse, but, just curious, I know it's early, but what feedback are you getting from customers, whether they're new customers and they're seeing your products for the first time or, you know, it may be your customers that now, you know, they're seeing Nepse. Just just some initial feedback realizing that it's still pretty early.

Speaker 3

Yeah. Initial feedback I've got is very,

Speaker 4

very positive.

Speaker 3

The team is really jazzed. It allows us to be able to think a bit differently how we sell not only their products, but ours opens up bigger TAM and larger markets for us. So, you know, the the integration is really focused on the front end. We get the leverage in selling? Can we sell more of their product?

Can we sell more of our product? We continue to to focus on growth in the industrial market. That that's really where the the the team is is headed, and, we hope to be able to report back to you guys that, you know, those efforts are are, are continuing.

Speaker 6

Got it. Thank you.

Speaker 5

Thanks, Eric.

Speaker 1

And there are no further questions in the queue at this time. I'd like to turn the call back over to Mr. McGann.

Speaker 3

Thanks, Travis. You know, a lot of it's about scale. You know, we really didn't tread any new ground today with you guys. I think we feel really good about how the business is performing. I think some of the comments John Kasiba said about the math and the model and the results, I think, are very telling that, you know, we said we were gonna get to certain levels in in in the business.

We've been able to get there. We still have further to go. We think Pepsi certainly helps us get there a bit faster. Now we have a very nice balance sheet that keeps that strength for our grid customers. And, you know, I'm very, very optimistic about the future.

I don't know where we are with the election, but that could turn out to be a positive thing for us as well. So, you know, as we get to the halfway point here in 2020 and we already start thinking about next year in 2021, the future looks certainly very bright for the company. We wanna continue to do the things that we've been doing, and we think that will continue to translate into future growth. Thank you, everybody, for your attention. Appreciate it.

I know it's a tough day with a lot of, names out there reporting and such, so, we're we're very happy for those of you that were able to listen live to the call. Thanks.

Speaker 1

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.