American Superconductor Corp /De/ Q1 FY2025 Earnings Call

Thank you, Chuck. Good morning, everyone, and welcome to American Superconductor Corporation's First Quarter of Fiscal Year 2025 Conference Call. I am Nicol Golez, AMSC's Director of Communications. Joining me today are: Daniel McGahn, Chairman, President and Chief Executive Officer; and John Kosiba, Senior Vice President, Chief Financial Officer and Treasurer. Yesterday, after market closed, American Superconductor issued its earnings release for the first quarter of fiscal year 2025. A copy of the release is available on the Investors page of the company's website at www.amsc.com. During today's call, remarks that management may make regarding American Superconductor's future expectations, including financial results, plans and prospects, constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements due to various factors, including those outlined on Form 10-K for the year ended March 31, 2025, which the company filed with the Securities and Exchange Commission on May 21 as well as our other filings, all of which are available on our website. The company disclaims any obligation to update these forward-looking statements. On today's call, management will refer to non-GAAP net income, non-GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the company's earnings release. With that, I will now turn the call over to Chair, President and Chief Executive Officer, Daniel McGahn. Daniel?

Thanks, Nicol, and good morning, everybody. I'll begin today by providing an update and sharing a few remarks on our business. John Kosiba will then provide a detailed review of our financial results for the first fiscal quarter, which ended June 30, 2025, and provide guidance for the second fiscal quarter, which will end September 30, 2025. Following our comments, we'll open the line up to questions from our analysts. We kicked off fiscal 2025 with accelerated growth. Our results surpassed expectations, highlighting the strength and discipline fueling our business. This was our strongest quarter in years, a clear signal that our strategy is delivering consistent positive results and that the financial leverage we've talked about can happen. One of the key highlights for the quarter was a request from a customer who asked us to accelerate delivery for a specific project. This boosted our results, reflects the strong relationship we have with our customers, and demonstrates the rising demand across multiple markets, especially in the Materials sector. We crossed a major milestone this quarter. Revenue exceeded $70 million for the first quarter. This is the acceleration we've been signaling over the past months. Total revenue came in above our guidance range, growing by 80% versus the year ago period, significantly driven by organic growth. Our Grid revenue led the way, accounting for over 80% of AMSC's total revenue and growing over 85% versus the year ago period. Meanwhile, our Wind business posted extremely strong growth as well, up nearly 55% from the year ago quarter. We delivered net income of over $6 million, marking our fourth consecutive quarter of profitability. Gross margins topped 30%, driven by a combination of higher revenues and increased operating leverage through a near ideal product mix. A key thing to note is that this quarter truly showcased the margin profile and operating leverage we've been working towards. In many ways, it was a near-perfect quarter, one the team feels very proud of, and one made possible by the relationships we have with our customers. We closed the quarter with a strong balance sheet of over $210 million in cash. Simply put, the business really is thriving. This quarter, the Materials sector was the main growth driver driven directly by semiconductor capacity expansion. We believe this sector growth is fueled by demand for artificial intelligence applications and data center infrastructure. We closed the quarter with a 12-month backlog of over $200 million, up from $160 million the year ago quarter, and a total backlog of over $300 million. Over the past two quarters, we brought in an average of just under $70 million in new orders each quarter. This is above the trailing four-quarter average of over $60 million of new orders per quarter. We continue to see strength across a range of industries. Revenue this quarter came from a diverse set of sectors. About a quarter of our sales came from Traditional Energy projects, with another quarter from Renewable Energy projects. Materials projects driven by semiconductor accounted for nearly 25%, while military and other industrial sectors made up the remaining portion. First quarter orders exceeded $63 million and reflected demand across Renewables, Traditional Energy, Materials, specifically semiconductors and mining, as well as Industrials and Utilities. Notably, the semiconductor industry is in the midst of a major capital expenditure cycle, and we are seeing the benefits of this. We see more semiconductor orders on the horizon and more broadly in the Materials sector. I'm including semiconductors in the materials sector along with mining, metals, and other specialty materials. Traditional Energy appears to be robust in the coming quarters as well. We feel encouraged by our strong momentum and believe the business is exceptionally well positioned for the future. Now I'll turn the call over to John Kosiba to review our financial results for the first quarter of fiscal 2025 and provide guidance for the second quarter, which will end September 30, 2025. John?

Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $72.4 million for the first quarter of fiscal 2025 compared to $40.3 million in the year ago quarter. Our Grid business unit accounted for 83% of total revenues, while our Wind business unit accounted for 17%. Grid business unit revenues increased by 86% in the first quarter versus the year ago quarter. This year-over-year increase was led by organic growth and the contribution of NWL revenue. Wind business unit revenues increased by 54% in the first quarter versus the year ago quarter. This year-over-year change was driven by increased ECS shipments. Looking at the P&L in more detail. Gross margin for the first quarter of fiscal 2025 was 34%. This is up from 30% in the year ago quarter. Gross margin for the quarter was favorably impacted by increased revenues, a favorable product, project and market mix, which includes beneficial impacts across the business due to pricing increases across our product lines. And lastly, we continue to experience high levels of factory utilization. This was an ideal culmination of events that yielded these elevated gross margins. Moving on to operating expenses. R&D and SG&A expenses for the first quarter of fiscal 2025 were $18.5 million compared to $11.2 million in the year ago quarter. Approximately 23% of R&D and SG&A expenses in the first quarter of fiscal 2025 were noncash. Our net income in the first quarter of fiscal 2025 was $6.7 million or $0.17 per share. This compares to a net loss of $2.5 million or $0.07 per share in the year ago quarter. Our non-GAAP net income for the first quarter of fiscal 2025 was $11.6 million or $0.30 per share compared with non-GAAP net income of $3 million or $0.09 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 first quarter of fiscal 2025 with $213.4 million in cash, cash equivalents and restricted cash. This compares with $85.4 million on March 31, 2025. In June, we completed a public offering, generating total net proceeds of $124.6 million, including the follow-on option. We generated $4.1 million of operating cash flow in the first quarter of fiscal 2025. Now turning to our financial guidance for the second quarter of fiscal 2025. We expect our revenues will be in the range of $65 million to $70 million. Our net income on that revenue is expected to exceed $2 million or $0.05 per share. We expect our non-GAAP net income to exceed $6 million or $0.14 per share. With that, I'll turn the call back over to Daniel.

Thanks, John. During the first fiscal quarter, the business accelerated faster than projected, and the results speak for themselves. The business outperformed. We saw revenue grow sequentially now for the past five quarters. We reported our fourth consecutive quarter of net income. We achieved our eighth consecutive quarter of non-GAAP profitability with more than $10 million this quarter, outpacing even our internal scenarios for the quarter. We showed significant gross margin expansion, and our backlog continues to be very healthy. This was a remarkable and exceptionally strong quarter. We have sustained an average quarterly revenue above $65 million for the past three quarters, elevating our business to a higher performing level. And you can see we are bullish about our expectations that this trend could continue next quarter. We are growing. We are ahead of schedule, and we are executing with discipline and focus. These results reflect our progress in scaling the business, diversifying revenue, and driving outstanding financial performance. We see major tailwinds and long-term opportunities across our core sectors. In 2025, Traditional Energy, led by oil and gas, will see over $1 trillion in capital expenditures. Mining projects have over a $1 trillion global pipeline. Defense spending nears $3 trillion. Renewables will attract over $0.75 trillion, and global data centers are set to exceed $0.5 trillion in capital investments. Semiconductors driven by AI and data demand will see approximately $160 billion in investments in 2025. Our footprint outside the United States, particularly in Renewables, positions us well to benefit from international investments. In India, for example, Wind capacity is set to double by 2030. These are massive durable tailwinds, and we believe we are well positioned to benefit. So what's next? We see a strong business continuing in Materials driven by semiconductors. This quarter was exceptionally strong because, as I previously have mentioned, one key customer pulled in systems earlier than expected, highlighting our ability to execute. Even with that pull forward, our outlook remains strong with revenue levels over $65 million a quarter. The guidance for our second quarter is better than we communicated for our first quarter. We also see continued strength and a healthy pipeline in Traditional Energy. We're making inroads into data center infrastructure projects, which we believe could become a meaningful growth driver going forward. It is early days for us here. Looking further ahead to next year, we see increasing potential in the Renewables market, particularly in India, where the ramp is projected to continue. We anticipate continued strength in Materials and expect Traditional Energy to accelerate even further. We also believe our Military business could expand. As a reminder, we now serve military needs in three key ways: protecting ships, powering critical onboard systems, and supporting essential manufacturing capacity at shipyards. Stay tuned for some potential progress here. In summary, the momentum we've generated has set a strong foundation. We're excited about the future, and we're exceptionally well positioned to capitalize on the opportunities ahead. Our backlog remains robust. Our orders pipeline shows some large potential orders on the horizon. We do feel several tailwinds potentially pushing the business more rapidly. There is a robust pipeline of acquisition targets that we might be able to add to our product portfolio. We're actively looking at how to best expand our business. We've been looking at both our Grid and Military offerings. We are in discussions with several targets, and we plan to remain disciplined in our approach. Our future-facing technologies help harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective, and efficient power delivery. I look forward to reporting to you again following the completion of our second fiscal quarter of fiscal year 2025. Chuck, we’ll now take questions from our analysts.

And the first question will come from Eric Stine with Craig-Hallum.

So maybe just to start on the gross margin number. I mean, I believe that's your all-time high number. But it sure seems like from your commentary that while I think you said nearly perfect, there were no one-time items in there that skewed that. So I guess, first, I'd like to confirm that. But then second, kind of your confidence level that this can be, given the momentum in the business, a 30%-plus gross margin business going forward?

Yes. We've discussed reaching 30% and higher. We previously achieved 30%, but you're correct that perhaps not at this level. We've mentioned aiming for the mid-30s. As you can see at this revenue level and with this mix, it is feasible. I believe that having a tangible proof point during our discussions about the potential of the business is very valuable. John, if you'd like to explore any aspects of the margin in detail, please go ahead.

To directly address your question, there were no one-time or special events impacting our results. We achieved an excellent product mix within our portfolios and market segments, which contributed to an ideal mix overall. However, there wasn’t anything like an inventory correction or unusual accounting adjustments. Overall, this was a remarkably strong quarter, supported by strong revenue and a good product mix. Those factors led to a great contribution margin for the business.

Yes, that sounds great. Let's talk about Wind. Last quarter, Daniel mentioned that Inox was on the verge of a significant volume increase. I'm curious if this indicates another improvement in Wind. Does this give you confidence that this substantial volume increase is happening? What trends are you observing, both in terms of orders and for the rest of fiscal '25?

Yes. I tried to be deliberate in what I said that this is something that we expect maybe as early as next year. And why I'm saying that is it gets down to the lead time on product and the demand that Inox is seeing from their customers appears to be growing, which should improve their cash position, which should then translate into the demand to us. But we try to be very careful and not overly optimistic that something dramatically in their behavior is going to change. But their business seems to be doing very well. They have a tremendous amount of backlog that they're able to either maintain or grow, and they’re in a really good position to be able to ramp for their customers. A lot of what their effort right now is in construction. So getting things constructed and then connected and handed over to their customers is important. And we’re there trying to support them as the best partner we possibly can be. We love the relationship with them. It’s a well-run company, a great family that’s involved in it. And we think that they’re really in a great position, not just for the next quarters or year, but for the coming years, we hope. At least that’s what it looks like from how they talk about their business. Things can always change, but it feels really strong at this point.

Right. And just to confirm, when you talk about a potential ramp early next year, are you talking calendar year or fiscal year?

To me, they're almost the same, right? It's only a quarter off. So I try to observe things in general trends. I don't know what specific quarter we're going to start to see the change happening. But we're at a level now. We've been much healthier than we have been, and their backlog is reflective of the potential higher revenue level for us in that business. But I think the best part of the whole conversation about American Superconductor is that they're one of a series of great customers. They're a part of the puzzle and the business. It's not the main driver for the business quarter-to-quarter or for growth year-to-year. It’s a business that we want to be present with. We feel a great responsibility to them to help make their business succeed, and we’re in a much healthier position to do that today than we’ve ever been.

The next question will come from Colin Rusch with Oppenheimer.

As you look at the growth in the business and the fact that you had high utilization rates here this quarter, can you talk a little bit about how you're thinking about capacity expansion? And the capabilities that you might want to weave into that incremental capacity either from a design or manufacturing flexibility perspective as you look at taking another step function with the business over the next three to five?

Yes. We're looking pretty seriously at how we can expand capacity, and that could be bringing labor in. It could be adding some additional tooling. As we've said consistently, our manufacturing model is pretty CapEx-light. So nothing that we're thinking is a huge capital investment. But I think as we're mindful of the potential targets for acquisition that we look at, maybe there's some leverage there that could be done where we could also think about expanding maybe in a different way than we've done in some of the most recent acquisitions. Not that, that would be a driver for it, but certainly, we got to look at any and all options. I feel very comfortable, and John, please comment how you feel incrementally expanding labor, we've been able to do it in the markets that we're in. We've talked about expanding beyond this level of revenue in the past. And I think the capability is still there.

Yes, to add to that, when considering capacity, there are two types: labor capacity and space capacity. Currently, we are constrained by labor capacity but not by space. Most of our plants are operating efficiently with just one shift, which is significant. We monitor this closely to avoid moving to a second shift, as that would change our utilization level. We are still functioning on one shift across nearly all plants. The positive aspect is that we can continue to hire within this shift and maintain operations in our current facilities. If we do move to a second shift and it becomes fully utilized, we would then consider plant expansions.

And it gives us the leverage like we had in this quarter where a customer says, can you do it faster? And we want to service our customers as best we can. So we had that instance here with this quarter. It’s something we tried to get ahead of as quickly as we could. And I think it's really a testament to the team that they were able to accelerate some shipments of some pretty large systems, which changed the financial profile of the company. But we try to let our customers dictate what they need and our financials are an output as opposed to a driver for these things. So we have a benefit of a great quarter, but it’s really because of some great customers.

Excellent. And then as you look at ways to drive revenue growth, could you talk a little bit about the potential for geographic expansion, if that's a consideration or the potential for increased pricing monetization of the value creation that you guys are providing? Because it looks to me like particularly in some of the higher tech areas, you guys are providing power quality solutions that save not only CapEx, but also reduce the risk on operations for facilities.

Yes, I believe both of those strategies can be effectively utilized. Regarding the second point, we are observing that the value generated by our combined offerings after several acquisitions exceeds the total value of each individual part. We can accomplish more today with our current resources than we could have as separate entities. If we can demonstrate this increased value to our customers, then pricing can reflect that. We're making efforts in this regard. While it isn't always guaranteed, we're experiencing an uptick in the content we're bidding on per order compared to a couple of years ago. As for the international aspect, we are strategically reviewing that area. We made a deliberate shift back to focusing on the U.S. market some time ago to strengthen our business operations at home and grow our emerging Military sector. There seems to be more potential for expansion in the U.S. and North America, but there are also significant opportunities globally, particularly in Europe and Latin America, where we have been involved but haven't fully optimized our operations. This requires strategic consideration and the right circumstances, which acquisitions could potentially expedite. While I can't make any definitive statements about our direction, it's certainly something we need to keep in mind. This consideration also broadens the markets we can enter. I believe the team has done an excellent job in showcasing our capabilities in the U.S., demonstrating responsiveness to customers, and highlighting the value of our technical expertise and technology. If we find opportunities for global market expansion, we will certainly pursue them in the future.

Your next question will come from Justin Clare with ROTH Capital Partners.

I wanted to follow up on the gross margin. Could you provide more details on which end markets or specific product lines contributed to the higher gross margins this quarter? For instance, does the semiconductor business have higher margins compared to the corporate average? Additionally, as we consider revenue scaling, if you achieve $70 million or more in revenue, should we expect gross margins to be above 30%? Is that a reasonable assumption? I might have lost communication with you.

This is the Operator. It seems that our speaker line has disconnected. Please hold while we reconnect. We have our speaker line to reconnect. Please proceed.

That was a fun little glitch. Can you hear us okay, Justin?

Yes, I got you. Did you hear my question?

Yes, I understand. I started to answer that and then I heard music again, so I apologize for that. I suppose it's nice that there's music playing while we discuss everything today. Regarding the margins, part of the issue involves materials and semiconductors. We experienced an acceleration in this area for some important projects. To be clear, while I won’t say the pricing has changed, the content we shipped included items that generally have a higher margin. However, when you look at the overall projects, their margins are comparable to the rest of the business. So, this may be considered somewhat of an anomaly or a one-time occurrence. I want to clarify that the semiconductor business isn't significantly different from our other projects; most of them have similar margins. The challenge we occasionally face is that there could be either a push or pull on a specific component or an entire project, which can lead to variations, and that is part of what we included in our guidance range. We are very optimistic about the materials side of the business and feel great about the grid. Would you like to comment in more detail, John? You mentioned discussing $70 million in revenue and a 30% gross margin?

Yes. This quarter, we exceeded 70%. We had a margin in the upper low-30s, around 34%. Of course, there could be scenarios with a poor mix where we might drop to the upper 20s. However, with what I would consider a normal mix, I believe we should be very comfortable with a 30% margin as we approach $70 million in revenue.

We intentionally avoided setting a specific target because we anticipated this outcome. We believe that the results will speak for themselves; it's more effective to demonstrate progress than to merely discuss it. While I understand that some people may become frustrated when I avoid those questions, our approach is simply to show you the results. The business has significantly improved from $40 million and $55 million in quarterly revenue to our current guidance of above the mid-60s. This reflects a strong business with clear operating leverage, and we no longer need to assert that it will be there; we can now demonstrate that it exists.

If you just look at last year, we averaged $55 million a quarter in revenue, and we were at 28% gross margin. So all the evidence is there. I don't get too worked over any one quarter. This was a great quarter. We're proud of it. But when you look at the business over a longer period of time, when you look at this business at the end of the year, and if we were pushing $70 million a quarter for all four quarters, I mean, we're going to have a good result, no question.

Yes, certainly. And yes, it’s definitely good to see. I guess then maybe just shifting over, you had talked about inroads into data center infrastructure projects. Just wondering if you could give us an update on how you're pursuing that market? Are you in conversations with data center developers? Or is it primarily with utilities or EPCs? And then just trying to think through, would your products be more likely to be suited at the substation? Or do you think there are opportunities within the data center infrastructure within the building that are areas that you could pursue?

I don’t want to mislead anyone. So, the answer to your questions is yes, but I think the real answer is yes, and we are working to figure it out. We have found that the EPCs and end customers are eager for more capacity. We believe we have a solution that works for them at the substation level. We may have something that fits inside, but I want to manage expectations regarding when we will see real revenue from that. It won't be in the near term. I don't want anyone to get too excited thinking this will impact us in the next few weeks; we are looking at a timeframe of about the next six quarters to understand how we can further influence the business. Is there a significant opportunity here? Yes. However, like we emphasize in our diversity efforts, we are trying to grow across all these markets simultaneously. I see a positive trend on the Grid side with data centers and AI, and we are doing our best to navigate this landscape and provide value to our critical customers’ current needs. Some of these are EPCs that we know well, which makes the discussions quite straightforward. I’ll summarize by saying that this is not going to drastically alter our performance quarter by quarter. The acceleration we experienced this quarter is mainly focused on assisting a customer with their immediate needs and ensuring their projects meet specific deadlines. Our product lead times are typically nine months or longer, and in some instances, they can extend to 15 months or more.

Got it. Okay. I wanted to check in on the key factors that are driving your success in the semiconductor market. Is it your proprietary technology, the breadth of your portfolio, or your ability to create unique solutions with your wider offerings? Could you elaborate on what is contributing to your success in this area?

Yes. I think, again, just to answer yes to all the different pieces that you're saying there. I think it's more content, it's more valuable content, it's more proprietary content. I think we have something that is unique in the market. I think that we've been able to hone our chops in getting projects and bigger projects, and now you're starting to see more significant capital spend in the semi space, but also broader in materials and mining and metals and the processing of all those materials. So most of those processes are very electrically intensive, which means power quality, power resiliency, and power supply are all critical to the operation. So we're now able to sell, what I'll say, a more complete solution, and we're benefiting from that.

Your next question will come from Tim Moore with Clear Street.

Impressive execution on your strategy and the profit margin expansion. Part of our investment thesis when we launched coverage recently was really your operating leverage step-up of absorbing the fixed costs and adding acquisitions which helps drive higher incremental margin as seen in the June quarter you just reported. So one question I have is, if I exclude our rough estimate of possible sales contribution from acquisitions, organic growth appears phenomenally strong, possibly around 35% in the June quarter. Given your backlog and lead times you mentioned along with conversion, what do you think might be a realistic organic sales growth pace for this year? Is 20% possible on the organic growth side as you anniversary the acquisitions?

You asked great questions, Tim. It seems your thesis was validated quickly with the leverage. Kudos to you for anticipating this outcome, and now it’s happening. You calculated the reverse, and I had the answer ready; we’ve been growing almost 15% quarter over quarter. I don’t want to say I’m unsure. We’ve been seeing growth at 20% to 25% in our organic business. Some quarters may be around 15%, or even years. It feels like we are entering a larger market with increased investment in the areas that benefit us, which I touched on in my prepared remarks. We are focused on maintaining relationships with key customers and delivering quickly. That’s why John can answer capacity questions directly; it’s something we consider daily. I don’t want to completely avoid your question, Tim, but I can't say exactly how much it could be. We've shown we can achieve 20% to 25% growth, and now we’ve demonstrated the ability to reach 35% organically. If the markets remain stable, we aim to grow in response to our customers' needs. Ultimately, it depends on our offerings, their unique nature, and these essential customer relationships. We are now integrated into various industries, which provides us with multiple opportunities and greater market diversification.

That was actually very helpful. I appreciate the color. Another question that we have is, obviously, the strengthening of the U.S. electrical grid has been a theme in the last couple of years. But from what we're seeing in some of our coverage, it's really accelerating more since the April executive order, maybe by the administration. Have you seen kind of any more incoming calls or inquiries just for better awareness of your brand and your solutions out there for grid reliability and efficiency? Have you kind of seen an uptick on that in the last couple of months?

Yes, I believe there is a clear signal in the market indicating a bit more stability in policy, which could help address some longstanding issues with the grid that have persisted for about a decade. These problems are becoming more pronounced. Our main argument for our relevance is that the grid is not currently equipped to handle the demands we place on it. We are working to gradually improve the existing grid to support future projects, whether that's in power generation, consumption, or enhancing the grid itself to make it stronger and more resilient. I think this is the right time for such investments in the grid, which many have recognized as necessary. The growing demand for electricity is ultimately driving this investment, and as long as that demand continues in the coming years, we aim to capitalize on the opportunities it creates.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Daniel McGahn for any closing remarks. Please go ahead, sir.

This quarter really has been exceptional. Our first quarter performance confirms we're growing faster, more profitably and with greater scale than ever before. Our growth reflects the strength of our business and the market demand for our products and services. We are prepared to capitalize on the growing demand for energy and the need for a stable grid to support it. We've delivered another outstanding quarter, and we can see that the fundamentals of our business are well grounded. The acquisition of NWL has exceeded our expectations. This is truly an exciting time here at AMSC. We approach the remainder of fiscal 2025 with confidence in our team and business, and thank you all for listening today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.