American Superconductor Corp /De/ Q2 FY2021 Earnings Call

Good day, and welcome to the American Superconductor Second Quarter Fiscal 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Heilshorn. Please go ahead, sir.

Thank you, Christina. Good morning, everyone, and welcome to American Superconductor Corporation's Second Quarter of Fiscal 2021 Earnings Conference Call. I'm 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 second quarter of fiscal 2021 yesterday after the market closed. For those of you who have not yet seen the release, copies are available on 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, including expectations regarding the company's third quarter of fiscal 2021 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, 2021, which the company filed with the Securities and Exchange Commission on June 2, 2021, as updated in the company's Form 10-Q for the period ended September 30, 2021, and the company's other reports filed with the SEC. These forward-looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today. While the company anticipates that subsequent events and developments may cause the company's views to change, the company specifically disclaims any obligation to update these forward-looking statements. Also on today's call, management will refer to non-GAAP net loss, a non-GAAP financial measure. The company believes that non-GAAP net loss assists the management and investors in comparing the company's performance across the reporting periods on a consistent basis by excluding these noncash, nonrecurring or other charges that it does not believe are indicative of its core operating performance. The reconciliation of GAAP net loss to non-GAAP net loss can be found in the second quarter of fiscal 2021 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 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?

Thanks, John, and good morning, everyone. I'll begin today by providing an update on our Grid and Wind business units. John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 30, 2021, and provide guidance for the third fiscal quarter, which will end December 31, 2021. Following our comments, we'll open up the line to questions from our analysts. We are executing on our growth through grid strategy. We continue to diversify our business. Total revenue for the second quarter of fiscal year 2021 came in above the top of our guidance range and grew more than 30% versus the year ago period. We grew our entire business by over 30% last year, and we hope that we can continue on a trajectory of growth. Our second quarter revenue of nearly $28 million was a recent record quarter. Our Grid segment revenue for the second quarter of fiscal year 2021 grew by more than 50% versus the year ago period and accounted for nearly 90% of AMSC's total revenue. In fact, this was the largest grid quarter we have ever had. This exceeded our own expectations and is a testament to our team's execution, particularly during these challenging times. Since the start of this fiscal year, our bookings momentum in the Grid business has been very strong, extending our grid visibility well into fiscal 2022. This certainly is a very different and stronger business than it was even a few years ago. In the second quarter of fiscal 2021, our Grid business was primarily driven by strong new energy power system shipments. We have integrated NEPSI nicely into the business and are integrating Neeltran. We are starting to see leverage between the product lines as evidenced by the recent $22 million of orders which were announced, driven by the industrial and semiconductor markets. To give you some color on these orders, nearly half of the new orders came from industrial applications and about a quarter came from semiconductor fabs. We are gaining leverage across the product lines, selling into various industrial markets, including mining, metals, and chemicals. As you can see from our revenue guidance for the third quarter of fiscal 2021, we are anticipating continued strength in our business. Our revenue backlog is more than 80% higher than this time a year ago, and we ended the second quarter with more than $57 million in cash. We are managing our way through the global crisis and its evolution. We are experiencing inflationary pressures on our supply chain and some delays in sourcing materials needed for products. These disruptions have negatively impacted our costs and gross margins. We continue to work on reducing supply chain risks. Throughout the past 1.5 years, we've been able to adapt and continue to deliver to customer demands. The team has done a great job of managing these disruptions during these difficult times. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the successful operation of our business and for our customers. We see product costs on the rise, specifically around commodity metals, and we are proactively changing prices where we can to include these additional costs. In fiscal 2021, we expect year-over-year revenue growth, again, in our grid and overall business. Our team, along with ComEd, recently energized the Resilient Electric Grid system in Chicago. We are manufacturing ship protection systems for the San Antonio Class ship platform LPD, with our first delivery expected this year. We are supporting Inox with commissioning in the field and providing electrical control systems as they need and pay for them. And we are actively supporting our South Korean wind partner in erecting offshore wind turbines, utilizing AMSC's 5.5 megawatt turbine design. Let's take a moment to review our Grid business. Grid is driving revenue for the company. We continue to be focused on building a more predictable and diversified business. Our new energy power systems, supported by a strong base of projects in renewables and industrials, has gained notable momentum. We expect it will drive growth and diversification for our company this fiscal year. Our new energy power systems are focused on addressing renewable energy and industrial installations like a semiconductor fab, mine, or chemical plant. We are presenting more content to customers as we leverage the strong combination of our new energy power systems. We are growing and diversifying revenues by geography and by market. We are working with top-tier wind turbine manufacturers and wind farm developers to provide wind farm connectivity to the power grid around the world. This quarter, we supported renewable projects in Hawaii, Texas, Oklahoma, and Colorado. With the increasing demand for chips, we're supporting the semiconductor industry in the U.S., Singapore, Taiwan, and Japan. Our solutions protect the semiconductor facilities against power quality problems that originate from the transmission grid. These disturbances, if left uncorrected, can affect their plant process and tooling, cause significant downtime, scrap material, and loss of profit. We have also delivered systems to a variety of industrial applications from chemical plants to paper mills and copper mines. The diversification into industrial, which we predicted, with the acquisitions, is working. Our Ship Protection Systems are also part of our Grid business. As you know, our ship protection system has become the baseline design for the San Antonio Class Amphibious Warfare Ship platform. The San Antonio Class is our first design win with the U.S. Navy. We announced our fourth ship protection system contract for the San Antonio Class. This contract is for an SPS for LPD-29, also known as the USS Richard M. McCool Jr. Our SPS for the San Antonio Class represents approximately $10 million in revenue per vessel, and our current SPS orders now include LPD-28, LPD-29, LPD-30, and LPD-31. Our team is very busy and focused on continuing to expand the business, while we expect to deliver our first systems. From a capacity perspective, we've been planning for the concurrent manufacturing of multiple SPS orders, and here we are. Our team has been focused on the delivery of these first systems, and delivery doesn't always correlate with revenue. We've talked about the expected size of the opportunity many times in the past. In total, there were 15 future San Antonio Class ships that the Navy plans to build after we had our design win. We now have won 4 of these 15, which represents $40 million of the potential $150 million for this class of ship. We are actively engaged with the Navy, pursuing additional classes of vessels for deployment of our SPS. Other potential platforms include, but are not limited to, carriers, frigates, destroyers, and littoral ships. We have done some engineering for the potential deployment of our SPS for what we believe are the next several classes of ships. In each case, we have to do engineering work prior to procurement. We have to fit our common components to make up our ship protection system and show all the changes to the build of the ship. SPS contributed to our strong Grid segment revenues in the second quarter of fiscal 2021. Now turning to our Resilient Electric Grid System. In August, we announced the successful integration of REG in Chicago, which became fully operational on ComEd's power grid. I'm very proud of all the ComEd and AMSC employees who worked very hard to make this happen. The REG system utilizes AMSC's proprietary Amperium high-temperature superconductor wire, which is capable of limiting fall currents, a feature that has made interconnecting substations, which are power assets on the grid, possible for a more reliable, robust, and resilient grid. 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 the future deployments of REG will be de-risked. U.S. utilities are focused on the execution of this first Chicago project, as are we. Turning to wind. During the second quarter of fiscal 2021, we shipped 2-megawatt ECS to our onshore wind partner, Inox Wind. We stand ready to support our partner in India as they commission new turbines or need new stock of 2-megawatt ECS. Inox continues to promote and sell their 2-megawatt wind turbine. In fact, Inox recently announced that it will supply its 2-megawatt wind turbines to a 150-megawatt newly won wind project order from a repeat customer. We are encouraged by Inox's stated desire to lower the levelized cost of energy further by way of a new wind turbine. To that end, we have designed, and Inox is now in the process of constructing a prototype of a new 3-megawatt class turbine for the Indian market. Inox's 3-megawatt class turbine will expand their wind turbine product line portfolio. The 3-megawatt class wind turbine appears to be a great fit for the competitive tariff environment in India. Inox is working towards completing construction and will commission the 3-megawatt class prototype turbine that we designed. Once commissioning is complete, Inox will seek type certification for the operating turbine. We expect to work with Inox to build a 3-megawatt class production supply chain, put in place an initial ECS production order, and support the already growing demand for their 3-megawatt class turbine. Inox stated that they intend to launch the 3-megawatt class at the end of this fiscal year. We are hopeful that fiscal 2022 will be the year that Inox begins transitioning to our 3-megawatt class ECS platform. This transition will be signaled by a 3-megawatt ECS supply contract. 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 potential long-term opportunity for us, as does the global offshore wind market. We have completed the initial production order of 5.5-megawatt ECS for Doosan's offshore turbine. Doosan is now erecting their first series of production 5.5-megawatt offshore wind turbines utilizing AMSC's ECS. We are actively supporting them with the commissioning of these turbines. Our team is working closely with Doosan, and we look forward to potentially penetrating the global offshore wind market with this partner. Now turning the call over to John Kosiba to review our financial results for the second quarter of fiscal 2021 and provide guidance for the third quarter of fiscal 2021, which will end December 31, 2021. John?

Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $27.9 million for the second quarter of fiscal 2021 compared to $21.1 million in the year-ago quarter. Our Grid business unit accounted for 88% of total revenues, while our Wind business unit accounted for 12%. Grid business unit revenues increased by over 50% in the second quarter versus the year-ago quarter, which now includes the addition of NEPSI and Neeltran. Wind business unit revenues decreased 31% in the second quarter versus the year ago quarter as a result of fewer ECS shipments during the period. Looking at the P&L in more detail, gross margin for the second quarter of fiscal 2021 was 12% compared to 26% in the year-ago quarter. Q2 FY 2021 has an abnormally high change in gross margin versus the year-ago quarter. I will take a moment and walk you through this quarter's gross margin change. Let me start off by reminding everyone that when we announced our acquisition of Neeltran, we stated we expected Neeltran to be accretive to earnings per share within 12 months of closing, which closed on May 6, 2021. One of the main drivers of this expectation was the acquisition of approximately a year's worth of Neeltran backlog at closing and that backlog had lean gross margins. So as you would expect, this has been a drag on our consolidated gross margins, both last quarter and into this quarter. We are working our way through this backlog and have started to replace that backlog with what we expect to be more profitable projects as we head into FY 2022. We see this drag on gross margins as temporary. Second, as we discussed on previous calls, there are additional costs related to purchase accounting adjustments associated with acquisitions. These costs tend to spill over into several quarters after an acquisition. We are finished with any significant purchase accounting adjustments impacting the cost of goods sold for NEPSI, and we believe that we are finishing up on these adjustments impacting the cost of goods sold related to the Neeltran acquisition. Q2 FY '21 was the last quarter we expect any significant costs impacting the cost of goods sold related to these purchase accounting adjustments. Again, we see this drag on gross margins as temporary. The third issue impacting the quarter-over-quarter decrease in gross margins is less about this quarter's results and more about the strength we experienced in the same period last year. In Q2 FY 2020, we experienced strong new power shipments and the contribution from those projects was particularly robust. Some of the strength was a result of anticipating the potential impacts of COVID on our supply chain. As a result, we accelerated raw materials coming into our factory and scheduled work aggressively to stay ahead of schedule. This had a 2-pronged benefit: one is we were able to control our manufacturing costs and maintain heavy load in the factory. Two, we were able to accelerate new power shipments in Q2 of FY 2020. Now we roll this forward a year, we're experiencing a little rebound effect of COVID. We are now back to normalized factory load-in, and we have experienced raw material cost increases in this most current quarter. In both cases, we see this as temporary, and we have already priced these raw material increases into new projects where we can. So to summarize, we expect many of the drags that we experienced on gross margins this quarter to start to subside as we move into the second half of fiscal 2021 and into fiscal 2022. R&D and SG&A expenses for the second quarter of fiscal 2021 were $9.4 million. This was up from $8.6 million in the same period a year ago. The year-over-year increase was primarily the result of absorbing the operating expenses for both acquisitions. Approximately 14% of R&D and SG&A expenses in the second quarter of fiscal 2021 were noncash. Our non-GAAP net loss for the second quarter of fiscal 2021 was $5.1 million or $0.19 per share compared with $2.7 million or $0.13 per share in the year-ago quarter. Our net loss in the second quarter of fiscal 2021 was $4.4 million or $0.16 per share. This compares to $3.7 million or $0.17 per share in the year-ago quarter. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the second quarter of fiscal 2021 with $57 million in cash, cash equivalents, marketable securities, and restricted cash. This compares with $63.1 million on June 30, 2021. Our operating cash burn in the second quarter of fiscal 2021 was $5.9 million. Included in that cash burn is approximately $2 million of working capital investment to support future revenue growth. We believe that the current working capital levels are sufficient to support our expected revenue growth, and working capital will normalize for the remainder of fiscal 2021. Now turning to our financial guidance for the third quarter of fiscal 2021. We expect that our revenues will be in the range of $25 million to $28 million. Our net loss on that revenue is expected not to exceed $7 million or $0.25 per share. Please note that our net loss guidance assumes no change in contingent consideration, nor any purchase accounting adjustments associated with the Neeltran acquisition. Our non-GAAP net loss is expected not to exceed $5.5 million or $0.20 per share. The company expects operating cash flow to be a burn of $3 million to $5 million in the third quarter of fiscal 2021. We expect to end the third quarter with no less than $51 million in cash, cash equivalents, marketable securities, and restricted cash. With that, I'll turn the call back over to Daniel. Dan?

Thanks, John. The integration of our acquisitions is going well and has helped augment revenue as the wind business positions for a potential rebound next fiscal year. Please remember that specifically with Neeltran, we're working on enhancing margins as we build new backlog. Across the business, we're seeing some impacts on margins because of increased costs and supply chain challenges. We are working diligently with our suppliers and partners to mitigate supply chain risks for our customers, and we are raising prices where possible. We continue to meet customer commitments and believe this is a temporary situation, which should be fixed over the next several quarters as we ship on orders that were priced with supply chain inflation built in. We are very pleased to report that Grid revenues are at a recent record high. The business is scaling and is supported by a strong balance sheet. We commissioned REG. We are supporting the commissioning of the 5.5-megawatt class turbine in Korea. We are supporting the upcoming commissioning of the 3-megawatt class turbine in India. We look to begin delivering our first SPS systems next quarter. But remember that revenue is recognized during the life of the project, not simply on system delivery. These are all transformative events for our company, even if they do not immediately impact near-term revenues. We saw strong bookings for our new energy power systems. We believe we are going to grow through the leverage that exists in our business through the expansion of total market, expansion of content per order, and expansion of sales channels for the entire new energy lineup. We are in position for growth through the reemergence of our wind business, which we see coming as early as next fiscal year. We are positioned for growth through the acquisition of additional ship platform wins, which we are currently doing engineering work on. We would expect to grow through the emergence of REG as a critical product for critical infrastructure in this country. We are keenly focused on the critical operation of the system in Chicago. And as we have demonstrated, we have the opportunity to continue to expand inorganically where it makes strategic sense. I've personally been able to have a lot of engagement with employees throughout the pandemic. Our workforce is vibrant, committed to our mission, and growing. I continue to be impressed with how well we create opportunities, step up to customer challenges, and deliver on our commitments. I'm very grateful for the people that I have the privilege to work with. We expect to grow grid revenue again this fiscal year 2021. This quarter, our Grid business grew by over 50% compared with the same period last year. Our backlog has grown by over 80% since a year ago. We grew our total business by over 30% last year, and we hope to continue on a trajectory of growth. I look forward to reporting back to you at the completion of our third fiscal quarter of 2021. Christina, we'll now take questions from our analysts that have queued up.

We'll take our first question from Philip Shen with ROTH Capital Partners.

First one is on backlog. Daniel, you mentioned that your backlog is up 80% year-over-year in the quarter. And so I was wondering if you could talk through how bookings are trending, clearly up, but I was wondering if you might be able to share, for example, what the mix of international orders might be in that backlog? I saw in the Q that your international growth revenues are better than they were a year ago. And is that a trend that we should expect? And on these international orders, for example, how does that margin profile look? Is it different relative to the U.S. bookings? And as it relates to wind, how much wind is in that backlog? And given the challenges that the wind market is experiencing, how insulated might you guys be from those challenges?

All good questions, Phil. It's important to address them at this time as we see positive changes in the business. Last year, a significant portion of our revenues came from North America, particularly the U.S. This allowed us to effectively manage local projects when COVID hit. We are now beginning to see a resurgence in some foreign markets. We've specifically mentioned several countries where we are currently working in the semiconductor sector. From our recent order bookings, it's evident that orders are accelerating, primarily driven by industrial demand, particularly from semiconductors, and also from the renewables sector. We are experiencing increased order intake across the business from various international projects, not just in the U.S. This diversification is encouraging. In the past, we've noted that semiconductor margins are generally robust and are working on improving margins in the industrial sector, particularly in Neeltran. Overall, we are observing a trend of increased bookings and various initiatives to ensure that gross margins keep expanding. We are looking to convey that not just over the next quarter, but for the upcoming several quarters, we expect improvements. It's important to note that some of our backlog on Grid can extend as far as a year out, while others may be as close as three to five months. Regarding Wind, our backlog is limited since we have to anticipate our key customers' needs over time. As I mentioned, we are optimistic about a potential rebound in wind energy in India next year. The feedback from the market indicates that the business is in a strong position and has successfully navigated recent challenges. They've announced another order for 2 megawatts, totaling about 150 megawatts of new products. Our focus remains on growth in the grid sector, which appears to be effective. John clearly articulated our current margin situation and emphasized that these issues are temporary, with a brighter outlook for future quarters. Looking ahead to next year, we believe our backlog is positioned favorably for 2022, with promising prospects in both Grid and potentially Wind.

Great. Shifting gears to margins. I know you've said a lot on that already and that things should be getting better. Just wanted to see if we could get a bit of more granularity around perhaps the quarterly margin cadence as we get through the coming next 4 to 6 quarters. Should we think about this most recent quarter as the trough and then steadily things get better from there? Or do you think that level kind of continues for a little bit just because of the supply chain challenges and the input costs increasing and so forth in logistics? So do we expect to kind of be at this level maybe for a little bit? I know you gave guidance for next quarter. But then when do you think perhaps we can get back to, for example, the low to mid-20%s type margins, does it take a few quarters? Does it take us well into fiscal '22?

I think the first thing to note is in the guide, the guide is showing improved bottom line results quarter-to-quarter on, we'll say, similar revenue, maybe there's a potential for some growth. But I think in what John had said, we're basically calling for some improvement in the financials quarter-to-quarter. We do believe, particularly when it comes to Neeltran, it's going to take several quarters to get everything behind us. We think we'll see probably improvement quarter-to-quarter. How demonstrable those are, how bright those are, it's really kind of to be seen. But I hope as we get into 2022, we can kind of reset where we think margins will be relative to revenue. The team is working on a lot of different things, not just with suppliers, but with overall cost of the different product lines as well to see if we can use this as an opportunity now, not only to maybe compete better and better understand our customers, but better price the value of what we deliver. And I think that's the key thing: can this become a competitive advantage in our business that we could price the value stronger than we have historically? At least that's what the team is being challenged to do.

We'll take our next question from Colin Rusch with Oppenheimer.

This is Joe on for Colin. Can you provide a little bit more color on progress with Navy ship budgets and share any sort of indicators of interest that would point to growth in demand?

Yes. I think, Joe, the first thing is realize that the team really is focused on principally on the digestion of the 4 orders that we have. We're very optimistic that in the coming quarter here, we'll begin to deliver our first system. So again, another seminal moment for the company. I did say in regards to growth, the potential growth in SPS, this is the first time that I use the plural that we are doing engineering work on multiple ship platforms. So we see the interest increasing. I think it makes the work even harder because we basically have to go through and diagnose all the changes in the print that have to happen to be integrated into the ship. How much that will cost on a nonrecurring basis and how much that would cost on a recurring basis. So the team here is very busy in delivery mode and also the delivery of preliminary design, which eventually we hope will be turned to a procurement. I think it's a challenge for me to say today how long that will take. The good news is we're talking about multiple ship platforms, which I think increases the odds of getting the next one over the gold mine sooner rather than later. But we really want to make sure we're inserting at the right point with the Navy that we understand our costs, we understand pricing fully, and that we price in what we see as the future for the supply chain into these potential future orders as well.

Got it. And then one more. With progress on REG, what else can you share on utility-scale interest and any potential for additional demonstration projects?

I think the word demonstration is important from the utility standpoint that they need to demonstrate on their own before they can see wide adoption within their own utility. We don't see the projects as demonstrations because we believe the technical risk and the financial risk have all been retired. It's really up to the utility to be able to manage the construction and the regulatory aspects of it, which could be unique to the utility. We have said and been consistent about. We know we've been told by Exelon in no uncertain words we need to operate this first one for at least a year. But everything that they've done in their work leans forward towards the implementation of more REG in the city of Chicago. I think everything that we've seen, even with the work we've done with Exelon, is they have a strong desire to be in a leadership position when it comes to this technology, not only in Chicago but across their entire utility. We have seen an uptick in, I'll say, renewed interest around similar or related projects we've identified in the past with other utilities. We have seen an uptick in new projects with new demand. A lot of it is kind of the timing of where they are in their capital cycle and the regulatory cycle. So I think we have an opportunity here to market REG differently to utilities because we have the existing asset that's doing well in operation. So I think that helps us think about what the order book is going to look like in the future. And as I said, we have a number of utilities that really show significant interest where they are in strong consideration to look at the purchase. But I think the thing that always is challenged with our utility business is this doesn't take weeks. It doesn't take months. This takes quarters. It takes years of work to be able to get a procurement. And that's certainly something that we're working on.

We go to our next question from Chip Moore with EF Hutton.

You called out some of the momentum in the semi-fab channel, right? And I think when your customers are out there talking about spending $150 billion over the next decade. Maybe you could expand a bit on what you're seeing in the pipeline there. Are you seeing this investment cycle start to translate into more opportunities? Or just how should we think about that opportunity?

Yes. I think what you're seeing immediately, Chip, is that there was intended capital expansion based upon market demand that was planned 2 or 3 years ago. And we're benefiting in semis today because of the factory expansions or new capacity that's being put in place. We did highlight that we're doing this around the world. We mentioned 4 different countries. We don't mention the different customers unless they exceed the 10% threshold. There's one of our larger semi customers that we've revealed through that way. So we tried to look at this as a key market for us. We're trying to look at a way to diversify through it. Long term, the types of chips that are needed for the new energy economy that we're getting into the new digital economy that we're getting into are really what we satisfy. I know I've read some things for customers. A lot of the constraints in the supply chain are from legacy chips. We've been bitten by that here and there. We found other replacements to be able to move forward to meet customer demand. But we're really trying to look forward on where the semiconductor industry is going from its capital allocation standpoint and how we can make money and create installations that will help semiconductor fabs in the future. So this only a few years ago was an order, and I think we've turned it into a business now, which has been great. And we've been able to do that not only for D-VAR, but for the acquired products as well.

That's helpful. And the only other question I had is really on the infrastructure bill as quite a bit of investment in grid and reliability. Obviously, delves in the details in terms of timing and things like that, but just can you talk high-level about potential benefits to the platform there?

Yes. When I look at it, by my read of it, there are billions of dollars of potential spending driven by the federal government to our customers around grid resiliency, exactly what we do. So I see that certainly as a very strong potential tailwind coming to the business. I don't expect us to necessarily be doing government contracts per se. But I do expect the influx of money, support, and focus on grid resiliency to help boost future growth in the company. So we hope that what we have are all commercial things that can be bought on commercial terms with utilities, but we certainly work with utilities to find different ways to have funding sources available to them through the federal government. Certainly, when you dig into the tails in the bills and stuff that we have, it certainly is pointing to us in a lot of different ways. So it's hard for me to prognosticate when it will affect the business; that's usually the follow-up question on identification about opportunity. That's something we're trying to work through. But we think it really benefits the market that we serve with grid resiliency. And hopefully, that translates into benefits to us as well.

Yes. That shouldn't hurt. All right.

We'll go to our next question from Eric Stine from Craig-Hallum.

Yes, it's Aaron Spychalla filling in for Eric. First, I want to follow up on the SPS. Congratulations on the engineering efforts. I'm wondering if you could share any general information about potential content and the size of the opportunity. Do you have any details on the number of ships? I realize this is an engineering question, but I'm trying to get a sense of the opportunity as you look ahead.

Yes. To kind of simplify it, we used to talk about small ships, medium ships, and large ships. We said for a small ship that was on the order of $2 million to $5 million of content; then for a medium ship, it was somewhere between $5 million and $15 million of content. And then for a large ship, which to us, is like a carrier, it could be $20 million, $25-plus million of content. So we see that as kind of roughly where it fits. Most of the ships in the fleet are what I just called medium-sized ships, and that's really where our focus has been. I gave the litany of all the ships that are kind of in the relative near-term in the prepared remarks. So we'll see with the next order where we're able to price it at. But right now, the team is really focused on the engineering work to have it be considered to make the design change, right? And if the approval for the design change happens, then we go down the path of negotiating a procurement.

Understood. We'll stay tuned there. And then the second for me on VVO. Can you just maybe give an update on some of the pilots that are underway there and next steps and how that pipeline is shaping up?

Yes, VVO has performed exceptionally well for us. It serves as an excellent introduction to distribution utilities, much like REG does. When we consider the issues we aim to address in integrating more distributed power into the grid, VVO stands out as an effective tactical solution, while REG offers a broader change for utility operators. We continue to receive repeat orders from utilities, primarily driven by rooftop and large solar installations. Additionally, it complements our efforts in other business areas, particularly in industrial settings where size is significant. VVO can be mounted on poles, allowing for some management or boosting of power. Our long-term vision focuses on creating a dual infrastructure for power, which utilities find appealing, especially the ability to control voltage. In my earlier comments, I aimed to highlight our broader energy initiatives related to the grid. VVO is certainly a standout product for us. We are pleased with customer reception and have gained valuable insights that we can incorporate into this product and potentially future ones.

And this concludes today's question-and-answer session. I'll turn the call back to Mr. McGahn for any additional or closing remarks.

Thanks. We are working to turn today's challenges into market advantages wherever possible. Our teams are fully engaged and collaborating effectively. We are closely coordinating with our customers and suppliers. While we are experiencing some temporary impacts on our financials, these may lead to long-term benefits in revenues and margins. The current climate influenced by climate change and government policy is generating potential advantages for our business. Looking ahead over the next few quarters, we see many positive developments for the company. We are proud to have achieved a near-record level of revenue and commend our team for successfully integrating these two acquisitions. Things are improving here at American Superconductor. Thank you all for your attention, and we look forward to speaking with you again soon.

Thank you for your participation. You may now disconnect.