American Superconductor Corp (AMSC) Q3 2021 Earnings Call Transcript

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

Thank you, Jennifer. Good morning, everyone, and welcome to American Superconductor Corporation's Third Quarter of Fiscal 2021 Earnings Conference Call. I am John Heilshorn of LHA Investor Relations, AMSC's Investor Relations agency of record. With us on today's call are Daniel McGahn, Chairman, President and Chief Executive Officer; and John Kosiba, Senior Vice President and Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the third quarter of fiscal 2021 yesterday after the market closed. For those of you who are not able to see the release, a copy is available in the Investor Relations page of the company's website at www.amsc.com. Before starting the call, I'd like to remind you that various remarks that management may make during today's call about American Superconductor's future expectations, including expectations regarding the company's fourth quarter 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 ending December 31, 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 and non-GAAP financial measures. The company believes that non-GAAP net loss assists management and investors in comparing the company's performance across reporting periods on a consistent basis by excluding these 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 third quarter of fiscal 2021 earnings press release that the company issued and furnished to the SEC late last night on Form 8-K. All of the company'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 of our Grid and Wind business units. John Kosiba will then provide a detailed review of our financial results for the third fiscal quarter which ended December 31, 2021, and provide guidance for the fourth fiscal quarter, which will end March 31, 2022. Following our comments, we'll open up the line to questions from our analysts. AMSC delivered strong results for the third quarter of fiscal 2021. Total revenue for the quarter grew versus the year-ago period coming in at $26.8 million. Our Grid segment revenue grew by nearly 50% versus the year ago period, coming in at $25 million, a company record. Grid is driving revenue growth for the company and all Grid product lines contributed to the quarter. We ended the third quarter of fiscal 2021 with more than $52 million in cash. As the world gears up for decarbonization to slow down climate change and create a path for a more sustainable world, so does the increased demand for renewable energy, semiconductors and key materials for the new green economy, such as metals, mining, and chemicals. Our acquisition of Neeltran and NEPSI have allowed us to expand our business into the materials market. The materials market is fundamental to a sustainable energy shift. If you're interested in reading some more about how materials are center stage to the energy transition, there was a 2022 McKinsey publication titled, 'The Raw-Materials Challenge: How the Metals and Mining Sector Will Be at the Core of Enabling the Energy Transition.' If we look at this calendar year 2022, approximately 90 gigawatts of Wind capacity is projected to be added globally. The solar photovoltaic sector is projecting an annual global capacity addition of over 175 gigawatts and the worldwide semiconductor market is expected to grow and exceed $600 billion in annual sales. Annual capital investments have trended at over $100 billion for the past few years. This transition to a low carbon economy raises demand for critical materials, semiconductors, as well as spending on plant and equipment in the metals, mining, and chemical industries. We are executing on our growth through Grid strategy. Our Grid segment revenue for the third quarter of fiscal year 2021 broke a company record for the fourth consecutive quarter; we are growing. Grid revenue grew by nearly 50% versus the year ago period and accounted for over 90% of AMSC's total revenue. This 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 have been very strong, extending our Grid visibility into fiscal 2022. In the third quarter of fiscal 2021, our Grid business was primarily driven by strong new energy power system shipments. We've already integrated NEPSI nicely into the business, and we're working to do the same with Neeltran. We are getting leverage across the product line, selling into a number of industrial markets, including mining and metals as well as chemicals. Our core markets for the new energy systems have expanded from two main ones, renewables and semiconductors, to now three key markets: renewable semiconductors and materials, such as metals, mining, and chemicals. Our largest customer for the third quarter of fiscal 2021 was in the semiconductor industry. We see the emergence of additional demand in new energy power systems for the semiconductor and materials markets coming in the subsequent quarters. As you can see from our revenue guidance for the fourth quarter of fiscal 2021, we are anticipating continued strength in our business. We see increasing demand in semiconductors for the fourth quarter of fiscal 2021. Driving our fourth quarter revenue guidance, as expected, is new energy power system shipments to be very robust. In fiscal 2021, we continue to expect year-over-year revenue growth again in our Grid and our overall business. In the longer term, we continue to see a significant rise in quotations for new energy power systems for renewable semiconductors as well as materials and general industrial markets. Let's talk about the drivers of Grid. Grid is driving revenue growth for the company. Renewable semiconductors and materials are driving our new energy power system solutions. Our new energy power systems include our dynamic power correction platforms as well as our static power correction line of capacitor banks, our harmonic filter systems, rectifiers, and transformers. We're growing and diversifying revenues by geography and by market. We are presenting more content to customers as we leverage the strong combination of our new energy power system solutions. This quarter, we supported renewable projects, both for wind developers and utility solar in the United States, Canada, Northern Ireland, and Spain. Over the last few years, we've seen the economy moving from fossil fuels to wind and solar power generation. There has been a rapid rise in distributed energy resources, particularly distributed generation from photovoltaics in the form of rooftop, utility-scale and commercial solar installations. With increased distributed generation comes the need for additional power correction solutions, such as our new energy power systems. With the increasing demand for chips, we are supporting the semiconductor industry in the United States, Singapore, Taiwan, and Japan. Our solutions protect the semiconductor facilities against power quality problems that originate from the Grid. These disturbances, if left uncorrected, can affect their plant process and tooling, causing significant downtime, scrap material, and loss of profit. We supported materials projects with metals and mining developments in the United States, Indonesia, Canada, the United Kingdom, Denmark, and Chile. Materials are critical for cleaner technologies. Take, for example, solar panels and fuel cell batteries for electric vehicles. Again, according to that McKinsey report I mentioned earlier, producing battery or fuel cell EVs will be more material-intensive than building an internal combustion engine vehicle. Climate commitments for reducing global carbon emissions present what we believe to be a tremendous opportunity for AMSC. We expect our new energy power systems to drive growth and diversification for our company this fiscal year. Our fourth quarter revenue guidance is due largely to the momentum we expect to continue to experience in our new energy power system solutions. Now turning to our Ship Protection Systems. AMSC's Ship Protection Systems, also known as the degaussing systems, are designed to reduce the magnetic signature of a ship, which can interfere with underseas mines' ability to detect and damage the ship. AMSC has worked with the U.S. Navy to develop a lighter weight, more power-efficient HTS version of a degaussing system, the SPS, we are now selling to the Navy. AMSC's SPS became the baseline design for the San Antonio Class amphibious warfare ship or LPD platform. The Navy's plan is to build 15 additional San Antonio Class ships starting with LPD 28 between now and the middle of the next decade. From a capacity perspective, we have planned to manufacture multiple SPS simultaneously and are succeeding at this, currently working to fulfill the three orders that are on deck. SPS contributed to our strong Grid segment revenues in the third quarter of fiscal 2021. We have an order for SPS for LPD 28, and we've delivered on this order. We have an SPS order for LPD 29, we have an SPS order for LPD 30, and we have an SPS order for LPD 31. So we'll ask you to stay tuned for LPD 32. We have established the capabilities to deliver the SPS systems. Our team is very busy and focused on continuing to expand the business, while we continue to deliver our initial systems. We're working very closely with the Navy and are in constant communication with our supply chain to ensure timely delivery of all three open SPS orders. We continue to be confident that the Navy is committed to integrating advanced degaussing systems into their fleet, and we're working hard to expand our SPS business beyond the San Antonio Class. As we've previously stated, we've been contracted to perform some engineering for the potential deployment of our SPS for what we believe are the next several classes of ships. In each case, we must do engineering work prior to system procurement. We hope to be able to report more on this in the coming quarters. Often, we're challenged with what information can be released out in the public. Although it's hard to predict exactly when we would see an uptick in SPS-related revenues, it points to what we expect to be a larger, brighter future with the Navy, hopefully in the near future. Turning to Wind. During the third quarter of fiscal 2021, we shipped 2-megawatt ECS to our onshore wind partner in India, Inox Wind. Wind revenues are the lightest they've been in several quarters because of Inox's low quantity production of 2-megawatt wind turbines. Inox continues to promote to sell their 2-megawatt wind term. Inox is, however, in the process of constructing a 3-megawatt class wind turbine prototype and has yet to go into 3-megawatt production. The 3-megawatt class wind turbine design is set up to be a great fit for India's robust wind market, which is expected to add 3.5 gigawatts in 2022 going from a total cumulative wind capacity of 42 gigawatts at the end of 2021 to nearly 46 gigawatts by the end of 2022, according to GlobalData. We access the offshore wind market through our partner, Doosan Heavy Industries in South Korea. Doosan has begun production and delivery of small quantities of their 5.5-megawatt offshore wind turbines. We are the exclusive supplier of ECS units for Doosan's 5.5-megawatt wind turbine. Again, according to GlobalData, the global offshore wind market, including South Korea, is expected to add 13 gigawatts in 2022, going from a cumulative capacity of about 45 gigawatts in 2021 to 58 gigawatts by 2022. We are participating in both the onshore and offshore wind markets with our partners. We have free pass to win with Inox in India, with Doosan for the global offshore market, as well as delivering hardware to the substations supporting wind farms through a variety of developers and top-tier global wind manufacturers that we have mentioned on prior calls. We continue to actively manage our way through the global COVID crisis and its evolution. Gross margins for the business expanded as we anticipated. We see potential for future margin expansion in future quarters as we build a higher gross margin backlog. We're not on the wins yet with respect to the prevailing broader environment for potential inflation, supply chain challenges, and coronavirus infection rates, but we continue our best efforts to manage the situation across all the product lines. Additionally, I saw a lot of personal engagement with our employees as we move through the pandemic. Our workforce is vibrant, committed to our mission, and is growing. I continue to be impressed at how well we create opportunities, step up to the customer challenges, and deliver on our commitments. I'm very grateful for the people that I have the privilege to work with. Now I'll turn the call over to John Kosiba to review our financial results for the third quarter of fiscal year 2021 and provide guidance for the fourth quarter of fiscal year 2021, which will end March 31, 2022. John?

Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $26.8 million for the third quarter of fiscal 2021 compared to $23.6 million in the year-ago quarter. Our Grid business unit accounted for 93% of total revenues, while our Wind business unit accounted for 7%. Grid business unit revenues increased by 47% in the third quarter versus the year-ago quarter, which now includes the addition of Neeltran. Wind business unit revenues decreased by 73% in the third 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 third quarter of fiscal 2021 was 13% compared to 17% in the year-ago quarter. As expected, gross margin did improve sequentially by 160 basis points versus the previous quarter. This was a result of stronger Grid gross margins. As a reminder, we are working our way through the Neeltran acquired backlog and have started to replace that backlog with what we expect to be more profitable projects as we look ahead into FY 2022. R&D and SG&A expenses for the third quarter of fiscal 2021 were $9.4 million. This was down from $10.1 million for the same period a year ago. The year-over-year decrease was driven by our cost control efforts. Approximately 12% of R&D and SG&A expenses in the third quarter of fiscal 2021 were noncash. Our non-GAAP net loss for the third quarter of fiscal 2021 was $4.6 million or $0.17 per share compared with $3.4 million or $0.13 per share in the year-ago quarter. Our net loss in the third quarter of fiscal 2021 was $4.3 million or $0.16 per share. This compares to $7.9 million or $0.31 per share in the year-ago quarter. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the third quarter of fiscal 2021 with $52.6 million in cash, cash equivalents, and restricted cash. This compares with $57 million on September 30, 2021. Our operating cash flow in the third quarter of fiscal 2021 was $4.2 million. We believe that our current working capital levels are sufficient to support our expected revenue growth, and we expect our working capital will remain normalized as we move into fiscal 2022. Now turning to our financial guidance for the fourth quarter of fiscal 2021. We expect that our revenues will be in the range of $26 million to $29 million, our net loss on net revenue is expected not to exceed $6.7 million or $0.24 per share. Please note that our net loss guidance assumes no changes in contingent consideration nor any purchase accounting adjustments associated with the Neeltran acquisition. Our non-GAAP net loss is expected not to exceed $5 million or $0.18 per share. The company expects operating cash flow to be a burn of $3 million to $4 million in the fourth quarter of fiscal 2021. We expect to end the fourth quarter with no less than $48 million in cash, cash equivalents, marketable securities, and restricted cash. With that, I'll turn the call back over to Daniel. Dan?

Thanks, John. So Grid represented over 90% of our revenue in the third quarter of fiscal 2021 and was our strongest Grid quarter since we began reporting on the Grid segment. Let's take a step back and think about this. The company is reporting record revenues for this key segment and announcing stronger bookings as the world is faced with so many challenges. We're very pleased to report that Grid revenues are at this record high. This quarter, our Grid business grew by almost 50% compared with the same period last year. Our backlog has grown by nearly 60% since a year ago. We grew our total business by over 30% last year, and we expect to continue on our trajectory of growth this fiscal year. The business is scaling and is supported by a strong balance sheet. We are positioned for growth through new markets for our new energy power systems, as well as through the semiconductor market. We are in a position for growth through the anticipated reemergence of our Wind business, which we see coming as early as next fiscal year. We delivered our first production SPS to the Navy. We are positioned for growth through the acquisition of additional ship platform wins. We continue to be excited about our accomplishments with REG in Chicago, and the number of utilities we're currently engaged with to potentially deploy this solution in their cities. I look forward to reporting back to you at the completion of our fourth fiscal quarter of 2021. Jennifer will now take some questions from our analysts.

And our first question today will come from Philip Shen with ROTH Capital Partners.

As it relates to the new orders that you announced yesterday in the order book that you have, can you talk through how much of that do you expect to convert to revenue in calendar 2022? And then how much in calendar 2023?

Phil, the short answer is most of that will be in calendar 2022.

All of it will be in calendar 2022. Since we finished calendar '21.

Yes. If you asked fiscal 2022, we probably would have said all of it. But since you said calendar, we didn't break it out by quarter, we'll say most.

Okay. Daniel, you spent a fair amount of time talking through the opportunities with materials and decarbonization and what that might mean for your business. And it seems like there's a fair amount of tailwind there for you. And you mentioned some geographies and possibly some new end markets. I was wondering if you might be able to expand on that, especially some of the geographies by end markets and maybe some new geographies where you're seeing business that you had not previously.

Yes, I think simply, but the acquisitions are working and they're working really well. The sales team is doing a great job quoting business and closing business, and we're doing it globally. So when you look at where our business has now been reconcentrated back in the U.S., somewhere between 50% and 60% of our revenues are coming from the U.S. overall. We're seeing an uptick across the globe. We see the emergence of a business for us in South America, which we've done very little business before. We see reemergences in the business in Europe, and we see some new prospects for business for these materials all over the world. So it could be Indonesia, it could be Taiwan for semiconductor, it could be Canada for a mining or milling operation. So I think when we explain the value of the acquisitions, we talked about leverage of content per order, and we talked about leverage of the entire integrated team that we could now take these products and reach globally, and the team is doing a great job.

Great. And I think John mentioned this about the Neeltran acquisition you guys are working through some of that lower-margin business. I think in the past, you've talked about there was a year's worth of low margin backlog, and that eventually, you'd be driving higher margins with that business. How are you tracking to your original timeline there? And with this expansion and opportunity that you're seeing in other parts of the world and end markets, are you able to have a line of sight to those higher margins with that new business?

Yes, we do. I think we have a clear line of sight there. I think the one thing to just caution is it's not a cliff. It's not binary where all the backlog is going to end on the same day. So we have backlog for about a year when we started with Neeltran. That means the backlog is good through the June quarter and probably in the September quarter. What I'm really impressed with is how much the existing teams at the acquisitions have really stepped up, how engaged they are, how focused they are in trying to expand their business. And in many ways, being part of a bigger company was attractive to them because it really would breathe more light to their business and make it a bigger offering. The idea of taking products made in New York or in Connecticut now and trying to sell them globally are things that the two acquired companies had hoped to do in the future, but weren't set up to do, and now we're doing that. So we're tremendously excited that these acquisitions are working very well.

Great. Daniel, I have one last question. This is still regarding gross margins, specifically on gross margin. I know you don’t provide guidance beyond Q4, but could you share some insight on how gross margins might trend as we move through calendar '22? Daniel, you mentioned that the Neeltran lower-margin backlog could be winding down in June or by September. Can you discuss whether there's a chance for us to reach high teens or low 20s percentages on gross margins as we enter the latter part of the calendar year?

Yes, that's a guide of directionally the business had been in the low 20s. Certainly, when we fully integrate Neeltran and it's fully accretive and everything is working, our desire is to be able to get back to those levels as quickly as we can. I felt compelled on the last call personally that we had to call out gross margin because it had changed dramatically downward. I think we've already seen a return to where it was the previous quarter. And we do think getting into the high teens in the next quarters is certainly, I won't say assured, given the backlog because nothing in life is assured, and I have too many words telling me that nothing is guaranteed, and we have to believe things. But I have very strong confidence in the team. When I look at the backlog and I do it now on a regular basis, project by project, it all looks really good. So the hope is we spend part of the year presenting the businesses, it's not going to really matter where the margin is going to come from because it's all going to be good, right? That's what we're trying to build here. Yes, it will take another quarter or two, or whatever, but that's the path that we're on.

Phil, I'll provide some additional details. This quarter, we achieved these margins despite Wind negatively impacting them. If you examine the quarterly results, you'll notice our reported figures for the Wind segment in terms of revenue and operating profit. While we don't disclose gross profit, it's clear that we faced a significant loss in Wind this quarter. So as Wind stabilizes and comes back, that's going to help move the margin needle up. And obviously, as Neeltran, as we replace those older projects with expected more profitable projects, that's going to move gross profit up. So our expectation is a few of the areas that are dragging down gross margins this year as we move into FY '22, those become less of a drag.

And our next question comes from Colin Rusch with Oppenheimer.

With these new contracts and the value of power quality, can you talk a little bit about the pricing dynamics in the Grid business and how you're thinking about that relative to incremental operating margins as you continue to grow the business?

That's a good question, Colin, because it's something that we've talked to the team kind of directly about, particularly when we could leverage multiple sources of content within the company, there's definitely the ability to maybe think about even a larger premium on pricing. So we're trying to do the best we can to focus on the value we're creating. Although, we're understanding there are some competitive pressures. In general, we've been able to concentrate on pricing and supply chain, which has been more beneficial for us now than it was a quarter ago. Our team understands that we're not trying to set prices simply to win business; instead, we aim to grow while maintaining a good margin. This is essentially the guiding principle within the company. If we can achieve both objectives simultaneously, I believe we are building the right type of company.

Okay. So there's no kind of clear operating margin target for you guys within the organization? Or is that something you're just not ready to share yet?

I think with scale, if we come back out and do an Analyst Day and we talk about how we get from 100 to 200 to 250, we can go back and look at those targets. But the targets that we put out at the end of 2019, that we're still marching to how do we grow this business, where the gross margin line starts with the 3 and is hopefully a high 3. And when we think about operating cash flow type margins that are in the high teens, approaching the 20s. We know that this business can do that with additional scale.

That's incredibly helpful. And then just changing gears a little bit around some of the customer activity on REG, given the progress that you're making there and the level of interest and how that program is going to work. Can you just talk a little bit about how those other conversations are progressing with those utilities and Grid operators that are watching what you guys are doing in and around Chicago?

Yes. We briefly discussed REG. The main challenge we face now is leveraging our success in Chicago to market the product. We are ensuring that the organization is prepared to respond to the interest. We have conducted various evaluations of projects involving civil engineering and other initiatives. I think the fact of having one operating now, and we see it directly from utilities coming back and saying, okay, well, now maybe the time to try to do this implementation we discussed back a couple of years ago. We have to be able to sort out what we think of the opportunities that could become a contract in an order in the near term. So that's where we currently stand with REG. We're focusing our business development efforts on projects in cities that we believe can lead to orders in the near future. We have strong support in Chicago and have extended that to several other cities. The challenging part now is figuring out how to turn that interest into actual orders. As we've mentioned, it's important for us to establish a proven track record in Chicago, as the utilities want to see that history before expanding further. So, again, I think when we look at the macro climate and the tailwinds, they are there in REG, and we are seeing pretty dramatic interest in the product. So we know a lot of the people on the call are more focused on quarter-to-quarter and results on these things. But REG, we're really excited. We continue to be super excited about.

And we'll hear next from Chip Moore with EF Hutton.

I'm interested in the global momentum for bookings and the increase in quotation activity. With the emergence of new variants, do you think this activity could be even stronger, or is it still somewhat of a challenge?

I didn't hear the part, sorry, Chip, with what would be a bit of a headwind?

Just with some of the new variants, Omicron and things like that, in terms of the quotation activity and the bookings momentum globally, in a number of markets...

We're not really seeing it. What our concern is, and I think we've gotten through this with a lot of our suppliers, you just don’t know where the next supply constraint is going to come from, right? So I think what we have as a group that's very battle-tested that we understand how to react. The things that we know, the things that we're concerned about, we've gotten ahead of and been able to derisk. The hard part is you don't know. The supplier says, 'Hey, a part that usually takes 13 weeks now takes 52 weeks,' right, that we have to be able to respond to. We've had to do that all long during this crisis. So those are the kinds of things that are just kind of normal blocking and tackling when it comes to the supply chain. But we have a demonstrated process that we go through to do that and qualify suppliers. So you probably can hear on the call, my trepidation about supply chain issues is quite a bit less today than it was a quarter ago.

Got it. Okay. And just one more for me. You alluded to the potential reemergence of wins next year. Obviously, you've got multiple shots on goal. Is that more Inox, the potential transition to 3 megawatts? And how should we think about that transition in terms of the 2-megawatt product assuming that if that happens?

So they're going to keep offering the 2. There are certain markets that the 2 works really well, and we did a lot of work on light wind speed and things like that with the 2. And they're a little depressed with shipments of 2-megawatt because as they kind of reemerge with demand, they had pent-up inventory and they're going through all that. So that's why you see our restocking levels kind of low. The hope is say, over the next quarters, we start to ramp to maybe, call it, decent rate, a fair rate with the 2 megawatt. When you listen to Inox and what they talk about, I mean, they're saying that the interest level for the 3-megawatt is almost larger than their backlog was for the 2-megawatt, and that's just interest. So when you add it all up, it looks like there's a lot of pent-up demand for the 3 megawatt. The challenge has been getting the prototype, which we're at that stage now, making sure the supply chain is ready to ramp, which we know we are. And then as Inox turns that interest into orders, which they've already started to, we see all those things as pointing to what we think will be a good fiscal 2022 for us, for Inox, for India. Our fiscal year and their fiscal year and the Indian year are all the same. They start April 1. When we refer to the next fiscal year, we mean starting in the June quarter and beyond. We anticipate the beginning of the emergence of the 3-megawatt as an additional product. With regards to Korea, they will need to process the order they have, which involves fulfilling construction, erecting, and commissioning the turbines. These turbines were purchased from us some time ago for ECS. I am cautiously optimistic about our supply chain and planning. If Doosan places an order for fiscal '22, we hope to be able to supply them effectively.

And our next question comes from Eric Stine with Craig-Hallum Capital Group.

I want to revisit the gross margin on Neeltran. While you're navigating through low-margin business, it seems there's a strong confidence in improvement. Can you elaborate on that? Do you think these projects faced issues with bidding, or is it more about the scope due to being part of a larger offering? Are there different end markets impacting this? I’d appreciate more details on the reasons for this confidence and how it compares to performance before the acquisition.

Yes. I think if I focus on the way we approached things, I won't reference any specific quotes from a popular show on Disney+. However, we demonstrated with D-VAR that much of what we did there emphasized growth with good margins, ensuring that product margins were robust, which reflects a different culture compared to the two acquisitions. The NEPSI team is extremely well-managed and can achieve a high level of customer satisfaction. They have a strong understanding of how to adjust operations based on revenue demand. We had high expectations because we've known the team for a long time, and after observing their operations for over a year, we are even more impressed. They operate with a focus on long-term growth while prioritizing operational performance and particularly operating cash flow in the near term. Doing that year-on-year, I think some of the challenges we have in both acquisitions is doing that quarter-on-quarter. There is a bit of maturation about that. I think we've made significant progress and understand that as a public company, a year is 13 weeks, not 52 weeks. You have to report and demonstrate how your role has changed, ideally for the better. Regarding Neeltran, it's an established business, and I've noticed that many family-run businesses tend to operate this way. The two key metrics are revenue size and number of employees. So the idea is to grow revenue and grow the population and become a bigger company. Where our culture, we're trying to focus on how to grow and how do we grow at good margin, which is a different set of operating instructions, right? And we're inserting that now into Neeltran. We're looking at the old backlog to understand as these projects may come again down the line with the same customers, how do we make sure we're translating the value appropriately, being there with good customer service, being there with spare parts when they need them as a lot of what we do well in our Wind business and specifically, I'll focus on the D-VAR business, translating that playbook into these acquisitions, and I'll focus more on Neeltran because I feel NEPSI is where we want to be and we're real happy.

Got it. That's great insight; it makes sense. Perhaps we can shift to discussing these markets, which may not be entirely new, but you are certainly placing greater emphasis on them. You've expanded beyond semiconductors as part of your diversification strategy, including metals, mining, and chemicals. I'm curious to know how you perceive the growth opportunities in these areas, particularly regarding the market awareness among potential customers about what you can offer now that you have integrated these two acquisitions.

Yes, I believe we are where we want to be, but there is still room for growth. I'm quite impressed with the team's ability to navigate key areas where we've observed a significant increase in quoting activity. This indicates heightened project intensity, meaning more revenue per project and a greater likelihood of certain projects moving forward. When you think about, again, trying to compare our history with D-VAR. One of the challenges always in these businesses are, is the project financed, is it financeable, will it go forward on time. How do you judge that? When I see certainty around the projects themselves going up, it really does communicate something about the market. We aim to take a step back today and concentrate on the broader market and how different segments interact with us, all while keeping a long-term, sustainable vision for the future in mind. The material aspect of this is vital, and it's a significant reason why I became enthusiastic about these acquisitions; I immediately recognized how well they align with our operations. You all know me well since we've been working together for some time. I typically don't discuss plans publicly before executing them. Although I wasn't raised in Missouri, I appreciate needing to see a clear path forward. I see a genuine opportunity in the materials segment. When I first encountered the McKinsey report, I found it amusing because it aligned with my thoughts from a year ago. This is a sector where we have numerous inquiries about our market choices, and I'm trying to convey the markets we are targeting so you can understand our trajectory. If you resonate with that vision, then our direction is aligned with your expectations for this company.

And that is all the time we have for questions today. I'd now like to turn the conference back to Mr. Daniel McGahn for any additional or closing remarks.

To wrap it up, I think this is really trying to succinctly answer a lot of questions, I think, that we get. We're feeling a lot of tailwinds in what we do. It is kind of a weird juxtaposition between the weirdness that's going on in the world in capital markets and in supply chains and things like that. At the same time, we feel our core markets, which are expanding that we see a number of tailwinds that are present today where those wins are only going to increase over time. When we think about catalysts or changes in the business that we see coming, we're talking to and reporting to improvements in gross margin. We're already seeing that. And we're trying to telegraph. We see those continued improvement coming in the coming quarters. We're laser-focused on making sure that when we acquired Neeltran, we said it would be accretive. We are working to make that happen. We think that's an important milestone for the company. We sense more wins coming. It's hard to tell definitively where in the quarter, but it does seem like the sounds are getting louder that we're going to move forward and win and hopefully move forward in a big way. We said about another ship platform. We said, please be patient realize that LPD 32 is going to come, we think. And hopefully, that will give us further visibility on additional Navy revenue, but we're already doing work on the next ships tomorrow. We are really enthusiastic about our opportunities with the Navy. The team is prepared to deliver the hardware for LPD 28, and we anticipate more ships will follow. Looking ahead, we also see potential for more cities for REG. These are five key areas we will concentrate on in the upcoming quarters, and we are hopeful that they will materialize. We believe there is a very bright future for this company in 2022, 2023, and beyond. Over the past year, we've successfully fulfilled many of our commitments. We indicated that 2021 would be a pivotal year, and we delivered our first Grid superconductor system, now permanently integrated into the Grid, as well as our first Ship Protection System. Now that was happening on a revenue basis prior and we delivered a lot of it before Christmas, but it was received and everything was tipped out with the shipyard in January. So we were super excited that all that happened. There's so much good that's happening in this company that I really want to make sure that people hear that from me and hear that in my voice. It's a difficult time in the larger capital markets, I think, for a lot of you. It's a fun enjoyable job here in what we have to do, managing the supply chain in the near term is a piece of this. But long term, there's a lot of tailwinds that are coming for our business. So thank you for all your attention and your support. And hopefully, we'll talk to you in the coming months.

And this concludes today's conference. Thank you all for your participation. You may now disconnect.