American Superconductor - Earnings Call - Q4 2021

Transcript

Speaker 0

We are currently on hold for today's American Superconductor Fourth Quarter Fiscal twenty twenty Earnings Conference Call. At this time, we're assembling today's audience and plan to band away shortly. We appreciate your patience. Please remain on the line. Good day, everyone, and welcome to the American Superconductor Fourth Quarter Fiscal twenty twenty Earnings Conference Call.

Today's call is being recorded. And now at this time, I'd like to turn the call over to John Please go ahead.

Speaker 1

Good morning. Thank you, April. Good morning, everyone, and welcome to American Superconductor Corporation's fourth quarter and fiscal year twenty earnings conference call. I am John Hiles, horn of LHA Investor Relations, AMSC's Investor Relations Agency of Record. With us today on the call are Daniel McGahn, Chairman, President and Chief Executive Officer and John Cusiba, Senior Vice President, Chief Financial Officer and Treasurer.

American Superconductor issued its earnings release for the fourth quarter and full fiscal year 2020 yesterday after the market closed. For those of you who have not yet seen the release, a copy is available in the Investors page of the company's website at www.amsc.com. Before starting the call, I would 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 03/31/2021, which the company filed with the Securities and Exchange Commission on 06/02/2021, and the company's other reports filed with the Securities and Exchange Commission. 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 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 loss before stock based compensation, amortization of acquisition related intangibles, acquisition costs, changes in fair value of contingent consideration of warrants and other non cash or unusual charges and the tax effect of the adjustments calculated at the relevant rate for the company's non GAAP metrics. Non GAAP operating cash flow is defined by the company as operating cash flow before the China settlement, net of legal fees and expenses, tax effect of adjustments and other unusual cash flows or items. The reconciliation of the non GAAP measures to the mostly directly comparable GAAP measures can be found in the fourth quarter and full fiscal year twenty twenty 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 wwwamsc.com. With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McGahn. Daniel? Thanks, John,

Speaker 2

and good morning, everyone. First, I hope all of you and your families are safe and healthy. It certainly has been a challenging year for us all. We're going to cover a lot of ground today. So, I guess buckle up and we'll try to go through the highlights as best as we can.

And, hopefully, will understand this is really a company that's headed in the same direction with more critical mass and more scale, than we've had in a very, very long time. I'll begin today with a recap of fiscal twenty twenty, which ended 03/31/2021. John Kaseba will then provide a detailed review of our financial results for the fourth quarter and full fiscal year 2020. He will also provide guidance for the first quarter of fiscal twenty twenty one, which will end 06/30/2021. Following our remarks, we'll open up the line to questions from our analysts.

The team here at the company really handled a difficult year very, very well. In fiscal twenty twenty, our Grid business grew by more than 40%. This is our sixth year in a row of growth in our Grid segment. D VAR grew, SPS grew and the prospects here seem great. VVO grew and continues to gain traction.

Our Nepsey acquisition contributed to revenues and REG is expected to come online this summer in Chicago. The growth exceeded our own expectations and is a testament to our team's ability to execute. Full year revenues for the entire AMSC business increased by over 35 year over year, driven by growth in Grid. In October 2020, we announced the acquisition of Northeast Power Systems Inc. Or Nepse.

The acquisition of Nepse directly aligns with our strategic priorities to accelerate profitable growth independent of our wind business, broaden our product offerings and expand both market reach and market share. Additionally, in May 2021, we announced the acquisition of Neotran Inc. The acquisition is a continuation of what we started with Nepcie. We expect that Neotran's long standing relationship with Nepcie will allow us to expand our offering of proprietary power electronic products into the industrial market. This deal is expected to give us more market, more content and more channel for their products.

More market for our new energy power systems. Nealtran expands the total addressable market for our new energy power systems to nearly $3,000,000,000 a year. More content for our new energy power system orders. Neotran is an extension of the content we can sell into these markets. For example, if we look at a chemical plant in an industrial setting, there will be a need for static voltage management as well as rectifiers or transformers and certainly for harmonic filters.

Nepse would sell into these projects without the ability to sell a transformer or rectifier. Adding Neotran is expected to provide AMSC with the opportunity to sell both. This is an expansion of content per sale and could be on the order of two to three times larger per order. We like the sales leverage. More products, same direction, same markets, more content per sale.

More content for more channels for Nealtran products. Nealtran doesn't sell much outside North America, but historically, we have. This opens the possibility for growth coming from more channel to market for Nealtran products. We acquired Nieltran about a month ago for a total consideration of approximately $16,000,000 which means we paid approximately one times trailing twelve month revenue. We anticipate this transaction to be additive to our operating cash flow and be accretive to earnings per share within the next year.

We really like that we took what we had with D VAR, which we doubled over the past several years to nearly $40,000,000 this year. We added Nepcie, which prior to our acquisition had a three year average of approximately $25,000,000 of revenue per year and now add Neotran with $16,000,000 of revenue in calendar twenty twenty. Assuming that these revenues these levels continue, we believe we've created an $80,000,000 per year new energy power systems business that is expected to have a diversified set of markets that we will serve and good prospects for growth at healthy margins. Realize we just reported on an $87,000,000 business for the entire company. This may not be fully understood in the market, but now you see why we really like adding Neotran.

Our new Energy Power Systems business is expected to play an important role in accelerating us to begin operating cash flow positive and position us for more dramatic growth. AMSC's Grid revenue in fiscal year twenty twenty was more than 80% of our achieved through organic growth as well as strategic M and A. A few years ago, Grid revenue was less than 30% of our business. As we enter fiscal twenty twenty one, we expect revenue growth again in both our Grid and our overall business. Our New Energy Power Systems business backlog is strong.

We just announced over $19,000,000 of new orders. We are seeing some benefits already from cross selling. Our team, along with ComEd, is planning to energize the REG system in Chicago this summer right on ComEd's schedule. We are manufacturing ship protection systems for the San Antonio Class ship platform LPD with our first delivery expected in 2021. We are supporting Inox with commissioning in the field and providing ECS product as they need and pay for it.

And as a result, we again expect revenue growth in fiscal twenty twenty one. During the COVID-nineteen pandemic, AMSC demonstrated once again that it can operate effectively through a challenging environment. We were early to implement physical separation protocols at our manufacturing sites and have not missed a beat in production. In addition to focusing on strong customer service and product quality, we've been focusing on costs. And that means establishing a broader supply chain, which provides us with the flexibility to source key components from multiple sources.

This has really helped to keep continuity of component supply. We are considered an essential business and have been open and operational throughout the pandemic. We are a resilient company that has overcome crisis before. Our strong balance sheet allows us to navigate this period of uncertainty and is expected to enable us to capitalize on the long term opportunities driving our industry when conditions normalize. So qualitatively, as of June 3, our business does not show slowing demand, but we are mindful that customers may push out future projects because of external circumstances affecting them.

While the pandemic has not materially affected our Grid business to date, it still remains a risk to all businesses and the overall economy. We expect the markets we serve to remain fluid in the coming months and year, and we plan to remain nimble and ready to adjust to these dynamics. We are focused on what we can control. When we talked about cash flow breakeven a few years ago, we had scenarios, many of which had about 50% of our business coming from wind. We have focused on growing Grid and now have added NEPSI and Neotran revenues as well as their fixed costs.

We believe that with a nominal return in wind, growth in new energy power systems or additional ships, we have multiple opportunities to get us to sustainable cash flow breakeven and add potential pathways for future growth. We believe that there are several scenarios to get us to cash flow breakeven through a different route, more new energy power systems and a modest wind business. This includes the additional fixed cost from our acquisitions, which is about $6,000,000 This raises our breakeven level by at least $30,000,000 annually, just in doing the math.net net, however, we believe this path gets us there faster and more in our control. We have more work to do with Neotran and Nepsey, and this certainly requires some time. But we wanted to give you a general sense.

We will update you as we make progress on this work. Please realize we closed Nailtran. That deal was only closed about a month ago. Now I'll turn the call over to John Kasiba to review our financial results for the fourth quarter and full fiscal year 2020 and provide guidance for the first quarter of fiscal twenty twenty one, which will end 06/30/2021. John?

Thanks, Daniel,

Speaker 3

and good morning, everyone. Total revenues for the 2020 were $21,200,000 This is an increase of 17% compared to the year ago quarter of 18,100,000.0 Grid business revenues of $19,400,000 increased by 49% versus the year ago quarter, while our wind business revenues were $1,800,000 for the fourth quarter of fiscal twenty twenty. Moving on to the full fiscal year, our total revenues for fiscal twenty twenty were $87,100,000 That is a 36% growth in revenue from the previous year. The revenue growth was led by our Grid business, which experienced a 42 year over year increase, thanks to growth from our D VAR, CVO and SPS product lines. Additionally, our Nepc product line contributed to our revenue growth in both our third and fourth quarters of fiscal twenty twenty.

Grid business revenues represented 81% of our total fiscal twenty twenty revenues. This marks the sixth consecutive year of Grid revenue growth. Wind business revenues increased 16% in fiscal twenty twenty, primarily as a result of increased shipments to Inox and growth to our spare parts and service business. Gross margin for the 2020 was 13.9%, which was flat compared to the year ago quarter. For the full fiscal year 2020, AMSC generated gross margins of 20%.

This is up from 14.8% in fiscal twenty nineteen. The year over year increase in gross margin was primarily a result of a favorable product mix and improved overhead absorption driven by higher total revenues for the year. Additionally, during fiscal twenty twenty, wind revenue experienced a favorable shift in product mix with growth in both Inox ECS shipments and our spare parts and service business, which positively impacted both revenue and contribution margins for the year. Moving on to operating expenses, research and development and SG and A expenses totaled $9,500,000 for the fourth quarter of fiscal twenty twenty. This is up from $8,600,000 in the year ago quarter.

Approximately 10% of R and D and SG and A expenses in the fourth quarter were non cash. For the full fiscal year, operating expenses grew modestly as a result of our acquisition of Nepcie in the third quarter of fiscal twenty twenty. Research and development and SG and A expenses totaled $36,300,000 in fiscal twenty twenty compared with $32,200,000 in fiscal twenty nineteen. Approximately 14% of R and D and SG and A expenses in fiscal twenty twenty were non cash. Our net loss in the 2020 was $7,600,000 or $0.29 per share compared to $5,900,000 or $0.27 per share in the year ago quarter.

Our non GAAP net loss for the 2020 was $5,600,000 or $0.21 per share compared with non GAAP net loss of $5,100,000 or $0.24 per share in the year ago quarter. For the full fiscal year 2020, our net loss was $22,700,000 or $0.95 per diluted share. This compares to a net loss of $17,100,000 or $1.03 per diluted share in fiscal twenty nineteen. For the full fiscal year 2020, our non GAAP net loss was $14,100,000 or $0.59 per share. This compares to a non GAAP net loss of $19,500,000 or $0.93 per diluted share in fiscal twenty nineteen.

The year over year improvement to our non GAAP results is a result of improved gross margins in both our Grid and Wind business segments. We ended the fiscal year 2020 with $80,700,000 in cash, cash equivalents, marketable securities and restricted cash. This compares with $84,400,000 on 12/31/2020. In the fourth quarter of fiscal twenty twenty, we consumed $3,800,000 in operating cash flow. For the full fiscal year, our operating cash burn was $8,700,000 on $87,000,000 of revenue.

This represents an $8,000,000 year over year improvement, basically cutting our cash burn in half in fiscal twenty twenty. This conversion was well within our expected operating results on that revenue profile. I'd like to take a moment to provide a quick summary of the Neotrend transaction. On 05/06/2021, AMSC acquired Neotrend Inc, a private Connecticut based company that supplies rectifiers and transformers to industrial customers. The total consideration paid for this acquisition was approximately $16,400,000 The consideration comprised of $4,500,000 in cash paid directly to the sellers, coupled with AMSC issuing 301,556 restricted shares of AMSC common stock to the sellers who have value of approximately $4,300,000 And lastly, AMSC paid $7,600,000 directly to Neotran lenders at closing to extinguish all outstanding Neotran debt.

Neotran generated approximately $16,000,000 in calendar twenty twenty revenue. And as Dan mentioned, the transaction is anticipated to be additive to AMSC's operating cash flow and accretive to earnings per share within the next year. Now turning to our financial guidance for the first quarter of fiscal twenty twenty one. We expect that our revenues will be in the range of 22,000,000 to $26,000,000 Our net loss on that revenue is expected to be no more than $6,500,000 or $0.24 per share and our non GAAP net loss is expected to be no more than $4,600,000 or $0.17 per share. We anticipate operating cash flow to be a burn of 4,000,000 to $6,000,000 in the first quarter of fiscal twenty twenty one.

The operating cash burn in the quarter includes approximately $2,000,000 in additional working capital. This increase in working capital is being driven by our wind business and our recent acquisition of Neotran. We believe the increase in working capital for both wind and Neotran is necessary to support the revenue growth that is expected in the year ahead. As a reminder, working capital will fluctuate from quarter to quarter depending on the timing of milestone payments and inventory positions within each business. We expect to end the 2021 with no less than $60,000,000 in cash, cash equivalents, marketable securities and restricted cash.

The ending cash balance contemplates approximately $12,000,000 which was invested in the Neotran acquisition, which happened in the quarter. With the recent acquisitions of Nepse and Neotran, our revenue profile and associated operating results are evolving. We expect that Nepse and now Neotran will have a meaningful positive impact on our revenue in fiscal twenty twenty one. The contribution margins of these product families are expected to be similar in nature to our existing New Energy product lines. We expect we have absorbed approximately $5,000,000 in annualized fixed manufacturing overhead expenses related to the two factories in New York and Connecticut with approximately $6,000,000 in annualized cash related R and D and SG and A expenses associated with the two acquisitions.

Lastly, I'd like to take a moment to explain the amendment to our Form S-three, which was filed in conjunction with our 10 ks. On 02/26/2021, we filed an automatic shelf registration statement on Form S-three with the SEC. We replaced our previously filed Form S-three registration statement, which expired on 02/15/2021. At that time, we were a well known seasoned issuer or WICCI because we had a market float in excess of $700,000,000 As a result, our S-three registration statement became effective automatically upon filing. Such eligibility is reevaluated during the sixty days prior to filing our 10 ks.

Because our market float was not at least $700,000,000 during that sixty day period, we were no longer a WICSI upon the filing of our 10 ks and needed to amend our existing automatic shelf registration statement by filing a post effective amendment to convert the automatic shelf registration statement to a regular shelf registration, which we did yesterday. We view this as an administrative procedure and part of normal treasury management. With that, I'll now turn the call back over to Danny.

Speaker 2

Thanks, Jeff. In fiscal twenty twenty, our Grid team performed again. Grid revenue grew by over 40% driven by our new energy power systems and our ship protection system. Our new energy power systems, which includes D VAR, VVO and Nepsey and going forward in fiscal year twenty twenty one, Nealtran is supported by an expected strong base of projects in the renewable and industrial segments. We are growing and diversifying revenues by geography and by market.

The diversification into Industrial is what we planned with the acquisitions. Our growing list of repeat customers is a testament to the quality and performance of AMSC's products and people. We're focused on supporting our customers' needs and maintaining a timely flow of product from our factory to the customers' sites. Our manufacturing team is performing very, very well. We anticipate that the new energy power systems should provide a strong base of grid revenues.

This expectation is driven by our strong grid backlog. Fiscal twenty twenty was a strategically important year for REG. We broke ground on Chicago's first resilient electric grid system in July 2020. We completed the fabrication of the cable and system for ComEd, which utilizes AMSC's proprietary Imperium superconductor wire. And we delivered the REG hardware to the site in Chicago on time.

We anticipate the REG system to be energized this summer. We believe many utilities are interested in seeing the performance of our product in Chicago. We're also developing opportunities to deploy our REG product in other utilities across the country and we believe the energization and operation of this first REG system in Chicago could be a catalyst for Exelon and other utilities to begin deploying our state of the art solution. With the first system deployed, we believe that future deployments of REG will be derisked. U.

S. Utilities are focused on the execution of this first Chicago project as are we. Our Ship Protection System is the Navy's baseline degaussing design for the San Antonio Class Ship Platform LPD. In fiscal twenty twenty, we announced two separate delivery contracts for our SPS systems. These two contracts represent our third and fourth Ship Protection System orders for deployment on LPD 31 and LPD 29.

We're working very closely with the Navy and our supply chain to ensure timely delivery of our SPS orders. We expect to deliver the first system in fiscal twenty twenty one. We are prepared for the next SPS order and are planning for concurrent manufacture of multiple SPS orders. So this means we now have orders on the books for LPD 28, LPD 29, LPD 30 and LPD 31, four ships. We anticipated our SPS has the potential for deployment on a total of approximately 15 future ships in this class.

We believe our SPS for the San Antonio class alone could represent a potential revenue stream of about $150,000,000 for the class of ship, Minus the approximately $40,000,000 we already have, the four ships, we believe we could see up to an additional 110,000,000 in potential future orders for this class of ship. The San Antonio Class is our first design win with the US Navy. We believe we've identified the next opportunity beyond the San Antonio Class for SPS. We intend to report on that potential opportunity just as soon as we can. We expect opportunities to sell our SPS to allied navies as well and are actively working to make that happen.

As I said on the last call, we need to see product engineering before procurement. We are very excited about the prospects that some of this engineering work could begin soon, potentially on multiple ship platforms. I wish I could say more to convey my excitement here, but I really am excited. Sometimes it's hard to deal with disclosures and facts and contracts and such, but we're making tremendous progress on moving the product forward within the Navy. I do, however, realize that navies are not the fastest adopters of new systems.

So please be patient with our ability to deliver news around this product line, but please realize we're tremendously excited at the prospects for some engineering work coming our way. On the wind side in fiscal twenty twenty, we completed shipping our first order of five megawatt class ECS to our Korean partner Doosan Heavy Industries. This order represents our entry into the offshore wind market with a five megawatt class turbine, proving our capabilities and establishing a foothold in this market segment. We believe Southeast Asia is a geography well suited for our five megawatt class wind turbine and for our partner Doosan. In fiscal twenty twenty we saw and we still see in fiscal twenty twenty one uncertainty in the Indian wind market and in Aina.

We stand ready to support our partner in India as they need for commissioning new turbines or need new stock of two megawatt ECMs. We are hopeful that fiscal twenty twenty one will be the year that Inox begins transitioning to our three megawatt ECS platform. This transition, if it happens, is anticipated to be signaled by a three megawatt ECS supply contract with Inox. In the meantime, we have diversified our business through Grid and we are growing overall revenue without Inox. Inox expects 2021 to be better than 2020 and 2022 to certainly be better even still.

I'm often asked how will you grow the company? Let me tell you what I believe. We're going to grow through the leverage created within the new energy power systems part of our grid business. Expansion of total available market, expansion of content, expansion of channel. We're going to grow through the reemergence of our wind business, which we are preparing for.

We're going to grow through the acquisition of additional Shift platform wins. We are going to grow through the emergence of REG as a critical product for critical infrastructure in this country. And as we have demonstrated, we have the opportunity to continue to expand inorganically where it makes strategic sense. Our momentum is very strong. In fiscal twenty twenty we exceeded our own expectations.

We grew our grid business by over 40% and grew significantly organically. We grew total company revenues by over 35% year over year. We have diversified our business by geography and by market. In fiscal twenty twenty, our revenue mix consisted of more than 80% grid. Just a few years ago, grid revenues were less than 30%.

The grid business itself is larger today than the entire business was just two years ago. We expect year over year growth in Grid in fiscal twenty twenty one. We are weathering the pandemic crisis well. This is something unique about our company. We are aggressively managing that which we can control.

In fiscal twenty twenty one, we expect that AMSC will continue to execute our strategy of delivering

Speaker 0

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