Earnings Call Transcript - AMSC Q4 2021

Operator, Operator

Good day, and welcome to the American Superconductor Fourth 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.

John Heilshorn, Investor Relations

Thank you, Mary. Good morning, everyone, and welcome to American Superconductor Corporation's Fourth Quarter and Full Fiscal Year 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, Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the fourth quarter and full fiscal 2021 yesterday after the market closed. Those of you who have not yet seen the release, a copy is available in the Investors page of the company's website at www.amsc.com. Before I start 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 first quarter of fiscal 2022 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, 2022, which the company filed with the Securities and Exchange Commission on June 1, 2022, 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 fourth quarter and fiscal year 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 company's 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?

Daniel McGahn, CEO

Thanks, John, and good morning, everyone. I'll begin today with a recap of fiscal 2021, which ended March 31, 2022. John Kosiba will then provide a detailed review of our financial results for the fourth quarter and full fiscal year of 2021. He will also provide guidance for the first quarter of fiscal 2022, which will end June 30, 2022. Following our remarks, we'll open up the line for questions from our analysts. Fiscal 2021 was a year of growth and significant diversification for AMSC. Full year revenues for the entire AMSC business increased by nearly 25% year-over-year, driven by growth in Grid. Our Grid business grew by more than 40%, our seventh year in a row of Grid growth. AMSC's Grid revenue in fiscal 2021 was more than 90% of our business achieved through organic growth and strategic M&A. Just a few years ago, Grid revenue was 60% of the total business. In fiscal 2021, we accomplished significant business diversification by expanding our product offering, extending our geographic reach and broadening our end market. We diversified our Grid product offering with the addition of Neeltran. Our new energy power systems now include our dynamic power correction platforms as well as our static power correction line of capacitor banks, harmonic filter systems as well as rectifiers and transformers. We diversified our business by geography. In fiscal 2021, over 60% of revenue was U.S.-based, while nearly 40% supported international projects, including Singapore, India, Australia and the United Kingdom. Overall, the number of countries we ship to is increasing. And most importantly, we diversified our business by end market. In fiscal 2021, the renewables market accounted for approximately 25% of sales. The semiconductor market accounted for roughly 20% of sales, while the materials, metals and mining market accounted for more than 10%. During fiscal 2021, we announced approximately $85 million of new energy power system orders from customers in Australia, the United Kingdom, Spain, Chile, Canada and the United States, among other countries. Our intention for fiscal 2021, as we outlined in our FY '20 shareholder letter was to continue to execute our strategy of delivering a more sustainable and diversified business, both of which we successfully accomplished. Fiscal 2021 was a pivotal moment in the history of the company and superconductors. We commercialized high-temperature superconductor technology in two separate markets in the same year as predicted. First, we commercialized our Resilient Electric Grid product or REG. The system was delivered, integrated, energized and successfully operated in the power grid of Chicago. The REG system was designed by our team and manufactured using AMSC's proprietary Amperium superconductor wire. Second, we delivered our first breakthrough ship protection system for the USS Fort Lauderdale. This represents the first of four contracted AMSC Ship Protection Systems or SPS for the San Antonio Class platform. The commercialization of SPS, an advanced superconductor degaussing system marked a watershed moment for our company and for superconductor technology. We have a culture of delivery and believe that the delivery of the system demonstrates momentum for our company and for the naval industry to adopt change. Fiscal year 2021 also ended with another key milestone in our wind business, the design certification of our 3-megawatt class wind turbine. With this certification, the 3-megawatt class wind turbine is ready to start operations. Now I'll turn the call over to John Kosiba to review our financial results for the fourth quarter and full fiscal year 2021 and provide guidance for the first quarter of fiscal 2022, which will end June 30, 2022. John?

John Kosiba, CFO

Thanks, Daniel, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2021 were $28.3 million. This is an increase of 34% compared to the year ago quarter of $21.2 million. Grid business revenues of $25.7 million increased by 33% versus the year ago quarter, while our Wind business revenues of $2.6 million increased by 46% versus the year ago quarter. Moving on to the full fiscal year. Our total revenues were $108.4 million, that is over 24% growth in revenue from the previous year. The revenue growth was led by our grid business, which experienced a 40% year-over-year increase, thanks to the acquisition of Neeltran and growth from our D-VAR, VVO, NEPSI and SPS product lines. Grid business revenues represented 91% of our total fiscal 2021 revenues. Wind business revenues decreased 42% in fiscal 2021, primarily as a result of decreased ECS shipments to Inox. Gross margin for the fourth quarter of fiscal 2021 was 11.6% compared to the year ago quarter of 13.9%. For the full fiscal year 2021, AMSC generated gross margin of 12.4%. This was down from 20% in fiscal year 2020. Let me take a couple of minutes and talk about some of the headwinds we experienced in fiscal 2021 that had an impact on our gross margins. First, as we've mentioned on previous calls, we acquired Neeltran backlog with lean contribution margins associated with it. This alone impacted our consolidated gross margins by 400 basis points. We've been 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 late FY 2022 and into FY 2023. Second, throughout fiscal 2021, we experienced product cost increases, specifically around commodities such as steel, copper and other precious metals, which are used within our products. We've responded throughout fiscal 2021 with several price increases where we can to include these additional costs. We expect to experience the positive impact of these price increases to our gross margins by late fiscal 2022. And lastly, during fiscal 2021, wind revenue experienced an unfavorable shift in product mix and ECS shipments, which negatively impacted both revenue and contribution margins for the year. We believe as Inox adopts the 3-megawatt turbine and returns to historical volumes of ECS shipments, we expect wind contribution margins will recover to normalized levels. Now moving on to operating expenses. Research and development and SG&A expenses totaled $9 million for the fourth quarter of fiscal 2021. This was down from $9.5 million in the year ago quarter. Approximately 13% of R&D and SG&A expenses in the fourth quarter were noncash. For the full fiscal year, research and development and SG&A expenses totaled $38 million in fiscal 2021 compared to $36.3 million in fiscal 2020. Approximately 13% of R&D and SG&A expenses in fiscal 2021 were noncash. Our net loss in the fourth quarter of fiscal 2021 was $5 million or $0.18 per share compared to $7.6 million or $0.29 per share in the year ago quarter. Our non-GAAP net loss for the fourth quarter of fiscal 2021 was $4.7 million or $0.17 per share compared with non-GAAP net loss of $5.6 million, $0.21 per share in the year ago quarter. For the full fiscal year 2021, our net loss was $19.2 million or $0.71 per diluted share. This compares to a net loss of $22.7 million or $0.95 per diluted share in fiscal 2020. For the full fiscal year 2021, our non-GAAP net loss was $17.1 million or $0.63 per share. This compares to a non-GAAP net loss of $14.1 million or $0.59 per diluted share in fiscal year 2020. We ended fiscal year 2021 with $49.5 million in cash, cash equivalents and restricted cash. This compares with $52.6 million on December 31, 2021. In the fourth quarter of fiscal 2021, we consumed $3.1 million in operating cash flow. For the full fiscal year, our operating cash burn was $19 million. Now turning to our financial guidance for the first quarter of fiscal 2022. We expect that our revenues will be in the range of $23 million to $26 million, our net loss on that revenue is expected to be no more than $8.9 million or $0.32 per share, and our non-GAAP net loss is expected to be no more than $6.9 million or $0.25 per share. We anticipate operating cash flow to be a burn of $4 million to $6 million in the first quarter of fiscal 2022. We believe our current working capital levels remain supportive of our nearer-term revenue expectations, and we do not anticipate any significant increases in working capital. We expect to end the first quarter of fiscal 2022 with no less than $43 million in cash, cash equivalents, marketable securities and restricted cash. With that, I'll turn the call back over to Daniel. Dan?

Daniel McGahn, CEO

Thanks, John. Let's talk about our future. We believe that we have multiple tailwinds in multiple markets. We believe our fiscal year 2022 will be an important year in the future maturation of our business. Let's start with renewables. There are a number of expected tailwinds coming to our business from the renewables market. We see a potential doubling of the Indian wind market from where it has been over the past few years. Wind power in India is estimated to grow to an annual additional capacity of nearly 3.5 gigawatts in calendar year 2022. India is poised to add a total of nearly 16 gigawatts of wind capacity from 2022 to 2025. To give you some perspective, India's total wind power additions for the past four years amounted to approximately 8 gigawatts. We see the next four years with an average of about 9 gigawatts of annual wind power capacity addition in the U.S. The U.S. estimates an annual wind capacity addition of nearly 9 gigawatts in calendar year 2022. From 2022 to 2025, the U.S. estimates an addition of 37 gigawatts of wind power capacity. The U.K. wind market is forecasting nearly 4 gigawatts of additional wind power capacity in calendar year 2022 and over 11 gigawatts of total additional power capacity between 2022 and 2025. Solar is likely to account for 60% of global renewable power growth in 2022, followed by wind. Similarly, we see the potential broader expansion of our technology in offshore wind. The move to decarbonization and the move to energy independence on behalf of nations could translate into further broader adoption of renewable power systems. We believe this is a strong tailwind that is emerging from the renewable energy market. If we look at semiconductors, which we mentioned, has become a significant part of our business. Investment in semiconductor capacity is increasing. Micron alone is considering a $150 billion capital investment itself to address what it calls 2030 era demand for memory. Semiconductor spending is forecasted to jump nearly 24% in 2022 to an all-time high of nearly $200 billion. The industry has increased capital expenses since 2019 and is expected to continue to increase in the coming years. This is a tailwind that has the potential capability to be with us for the next several years. If we look at mining metals and materials, demand for mining products is strong and expected to increase. For example, auto industry investments in electric vehicles, which are critically dependent on specific minerals and materials, is estimated to reach $330 billion by 2025. In 2020, all global automakers combined spent nearly $225 billion on capital expenditures and research and development. The mining industry is expected to continue to fly high in 2022, while pressure is foreseeable on mining companies to decarbonize and reduce their environmental impact as they respond to demand for these new energy economy materials. And this is all under the backdrop of sustainable security. The foreign policy challenges around the globe seem to be becoming more complex and intense. Front and center now is the Russian invasion of Ukraine. We see rumblings from Taiwan that similar events could unfold there. At the same time, North Korea is carrying out ballistic missile tests and Iran is displaying an underground drone base that it has developed. The threats are becoming more numerous and certainly more intense. Russia's aggression has only helped to bring NATO closer together and more focused on further aggressions globally. This tailwind could translate into deeper and broader adoption of our technology in the U.S. naval fleet as well as allies. What we're working towards is a more sustainable world, creating a path for a more sustainable world increases demand for; one, renewable energy; two, electrification of transportation and the mining metals and materials to support this transition; three, semiconductors, which are the key materials for the new green economy and sustainable security; and four, this is all happening with the backdrop of a less secure world. As we enter fiscal 2022, and we look just to our first quarter, we do see the timing of projects in the semiconductor industry, particularly for D-VAR, such that they're expected to negatively impact the quarter revenue relative to our fiscal year 2021 fourth quarter revenue levels. This is the reason for our Q1 guidance. Our current projections do not anticipate this continuing beyond the quarter. We look to continue to grow our new Energy Power Systems order book over the coming quarters. We expect that our new energy power system products should provide a strong base of Grid revenues again in fiscal 2022. This expectation is driven by the growing demand in our key markets, renewables, semiconductors as well as mining, metals and minerals. We see significant demand for our solutions in the semiconductor industry. On a macro level, we believe we are experiencing the effects of the semiconductor tailwinds in our business. Demand is increasing, lead times are extending. We see our own activities now with customers in Singapore, Japan and Taiwan as well as the U.S. expected to translate into revenues. We saw semiconductor order growth year-to-year between fiscal 2020 and fiscal year 2021. We see semiconductor system orders having more revenue and better margin than our average order. We have seen an expansion in content for semiconductor grid system sales with the extension of our content via NEPSI into static capacitor banks and harmonic filters. And we believe this macro investment in capacity is here to stay in the near term, and we will try to take advantage of this. We see leverage sales specifically in renewables and semiconductors. We are supporting Inox and Doosan in the field with the initial prototype of a 3-megawatt class wind turbine and initial wind farm of 5.5-megawatt wind turbines, respectively. In the onshore wind market, we anticipate our wind business in India to turn around. In fact we are getting ready for wind to make an expected comeback later this fiscal year. Driving this potential comeback, we expect would be Inox's transition to a 3-megawatt class wind turbine. We believe Inox is in a good position to start expanding its business this year, which should translate into an expanded order book for us. We would expect production to begin following the establishment of a 3-megawatt supply chain. We are providing ECS product as they need and pay for it. We are excited about the long-term prospects of the offshore wind market in South Korea, and we look forward to grow our offshore wind business with our partner, Doosan and their 5.5-megawatt turbine. Our first Resilient Electric Grid deployment in Chicago is now part of the electric grid. The team is collecting valuable experience on its performance and capabilities. We will support the ongoing operation of our REG system in Chicago and begin working with the utility on scope and schedule of a potential next project as they see fit. We are seeing inbound increase from utilities. We're also performing more targeted outreach with the help of our utility partner. We have seen an increase in interest in the product with the energization of Chicago and continue to develop possible future projects. We are manufacturing ship protection systems for the San Antonio Class ship platform. We will support the installation of the first SPS system on the USS Fort Lauderdale, which shipped in fiscal 2021. We expect to deliver on our existing orders of SPS, our next system for the USS Harrisburg is scheduled to be delivered this fiscal year. We have two more SPS systems on order, one for the USS Richard McCool and the other for the USS Pittsburgh. We believe the tailwinds for our Navy business should translate into an opportunity for deeper and broader adoption of our technology in the U.S. naval fleet. We're working closely with the U.S. Navy as well as allied navies on the possible further adoption of superconductor technology. We have identified and are performing engineering work on what is now several other platforms. AMSC's mission is to enhance capability without adding complexity or size to installations of critical systems, which is very much aligned with where we believe the U.S. Navy as well as allied navies are headed. We are confident that the U.S. 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. In 2021, we grew and further transformed the company. We grew the grid business by over 40%. The entire business grew by nearly 25%. We acquired additional content with the Neeltran business for our new energy power offerings. This business should benefit from the tailwinds created by global decarbonization efforts. Mining metals and materials are at the heart of this movement, and that is where we have positioned our business. We see tailwinds for the wind business as well as for semiconductors continuing. We delivered on our first permanent in-grid and what will be our first permanent in-ship superconductor systems. The dream of superconductors has started to become reality. I'm very proud how the team delivered growth and diversification while managing through the daily challenges of a constrained supply chain and an inflationary environment. We are weathering the pandemic crisis well, which reflects on the strength of our organization. We are aggressively managing that which we can control. We expect to continue to execute on our strategy of delivering a more sustainable and diversified business. We believe our culture is inherently innovative, always accountable to our customers and constantly collaborating. We try to hire the best and brightest, and we listen to and learn from the markets we serve. We are executing on our vision to create a super grid that enables more renewables on and more resiliency for our power grid and a super ship that allows for greater resiliency and operational capability for our fleet. We provide the control technology that helps orchestrate the rhythm and harmony of power on the grid and protects and expands the capability and resiliency of our Navy's fleet. We will continue to work hard to deliver resiliency to our power grid and the Navy fleet, and hopefully, that is music to the ears of the markets we serve. We are seeing a diverse set of powerful tailwinds emerging in our business. We believe we're well positioned to take advantage of these tailwinds and that should be music to our ears. I look forward to reporting to you again following the completion of our first quarter of fiscal 2022. Mary, can we now open up the line to questions from our analysts.

Operator, Operator

We can now take our first question from Justin Clare of ROTH Capital Partners.

Justin Clare, Analyst

So I guess, first off, just on the fourth quarter here, I was wondering if you could just share a little bit more detail on what drove the sequential decline in margins? How much of this was related to lower margin backlog with Neeltran versus material cost inflation? And then if you could just talk through a little bit about how the material cost inflation might be impacting some of your specific business lines, which are kind of most exposed to that at this point?

Daniel McGahn, CEO

Yes. I mean, John, kind of, I think, queued it up pretty nicely in the prepared remarks. Once you go through the points that you made and then we can, Justin, we can add some more color where applicable.

John Kosiba, CFO

Hello, Justin. So in reference to Q4 to Q4 bridge, we're not going to get into the specifics of how much of that was the Neeltran backlog versus how much was inflationary. Both were impacted, not so much the third bullet that I mentioned in the full year headwinds. But I would say the first two Neeltran backlog and the inflationary pressure, both had an impact on Q4 sequential decline in gross margin. The second question was which product lines specifically? Pretty much all of them.

Daniel McGahn, CEO

Yes, everything we use, use of metals, for closures and we have outdoor equipment, even the wire itself is based upon some metals. So when we look at commodity metals, that's what we've been trying to focus on managing the intake and the cost of the intake of those and trying to do design work, trying to work with the supply chain and additional suppliers to manage those costs going forward. And I think the team has done a really nice job of pricing that in where it's possible. Remember, we're basically a make-to-order shop. So as we look at each project and we take it on, we try to align pricing costs as best we can at that point in time. The real risk becomes the duration that it takes to build that product, which could be 3 to 6 months and some product lines, it could be as much as a year or more in Neeltran. And that's really what you're seeing with the Neeltran part is kind of two pieces to it. One is we inherited the backlog that had lean margins to begin with. And now you're also coupling that with inflationary costs. So we're trying to get ahead of that as fast as we can. I'll leave it at that.

Justin Clare, Analyst

And then just thinking through that a little bit. So you mentioned price increases that you're implementing here. How long do you think before those price increases could result in margin improvement? Because it looks like from your guidance, Q1 margins could decline a bit from Q4, so maybe if you could talk about that. And then just how long could it take for those price increases to result in that margin improvement?

Daniel McGahn, CEO

It will likely take a few quarters to fully navigate through this situation, but I expect to see some improvement. I'll let John address the first quarter specifically. However, looking forward to the second and third quarters, we should start seeing positive changes. During that time, we have accounted for everything, and we have probably worked through most of the legacy Neeltran backlog that we took on in Q1. If you have anything to add, feel free.

John Kosiba, CFO

Yes. I mean, so in our prepared remarks, Justin, we said we expect it to be by late fiscal 2022. Between now and then, we should see improvement as time goes on. But our expectation is by late 2022 we should get the full impact of those price increases.

Justin Clare, Analyst

And then just shifting gears to your wind segment here. You mentioned that the design certification for the 3-megawatt was achieved. So congratulations on that. And just wondering if you could provide a little bit more detail on the steps from here that you would need to get an order secured? And what you need to do on your end to line up the supply chain in order to deliver on those orders?

Daniel McGahn, CEO

Yes. We're already looking at the supply chain and what the risks are there, so we can quote appropriate lead times to our customer, Inox, as we embark on discussions around an order. I think Inox, today, if I personalize, I think they're in a much better position they've been in recent memory financially. I think that they're looking forward here in 2022 to really starting to rebuild their business. We think a lot of their competitive advantage comes from a great 2-megawatt platform that has low win capabilities and a bunch of things that we've worked on together to give them differentiation in the market. But the addition of this 3-megawatt turbine, we think, really helps to build a bigger potential to expand their business further. So we're actively today trying to best understand our supply chain so that when we believe that order will happen, that we're ready to be able to respond with products as fast as we can and then lead times that we believe we can manage and deliver to. It is a challenging environment today. We're really dealing with daily challenges when it comes to availability of parts for a lot of our products. But I don't think that's any different than any other businesses out there. But I think the team has really done a great job of navigating our way through that. It's not just production and supply chain, but engineering and the guys on the floor as well on how do we keep things moving for our customers.

John Kosiba, CFO

One of the advantages we have as part of the certification process is we build a prototype. And so the good news is we do have an existing identified supply chain base for that turbine. Now it's just a matter of ramping up for production.

Operator, Operator

And we can now take our next question from Colin Rusch of Oppenheimer.

Colin Rusch, Analyst

Could you talk a little bit about the progression that you're seeing with your utility scale customers for the REG product? I assume that now the inflation is done, I think they're starting to accelerate a little bit.

Daniel McGahn, CEO

Yes, I believe that's an accurate description. The discussions we are having are detailed and thorough, focusing on schedules and related matters. The activation of the Chicago system has significantly broadened the perspective of utilities, leading them to raise issues that they would like us to address. I mentioned this in the prepared remarks; our utility partners are actively collaborating with us. They take pride in their accomplishments and the insights gained through our partnership, and they share our enthusiasm for promoting the solution.

Colin Rusch, Analyst

And can you talk a little bit about the potential for cross-selling with those utilities around, not just from REG, but into the D-VAR and other voltage power management solutions, given the potential growth in renewables? Is there another stream of revenue that you might start seeing directly these new utilities? Or is it really still with the developers on those systems?

Daniel McGahn, CEO

I don't know if you've been listening to our sales meetings, Paul. But what I said in the prepared remarks are, we're already seeing it in renewables and semiconductor. And I see a real untapped potential there in utilities. We have applicability with D-VAR. We certainly have applicability with VVO, with REG. If utilities have demand for customers that are dealing with electrification challenges for a mine, for instance, or they're the utilities servicing and semiconductor fab. The utility in many ways is the nexus of kind of bringing together where all of our products matter. And that's really where I think there is some untapped future leverage that we're certainly pushing the team to go after.

Operator, Operator

And we can now take our next question from Eric Stine of Craig-Hallum.

Eric Stine, Analyst

So just going back wind. I mean, obviously, a more optimistic tone by end market, by customer, you've got the 3-megawatt certification. And in the release, you talked about you're hopeful that there is a rebound. I mean, what sort of things do we need to see and kind of in what time frame do we need to see it in order for you to be able to, whether it's on the next call and say, 'Hey, we're seeing the pickup and that pickup will become more evident in the back half and into fiscal '23.' I mean, just maybe some of the steps that you expect or want to see to feel more confident along those lines?

Daniel McGahn, CEO

Yes. I think today, what we're trying to get you to understand, I think you've got it 100%, which is there's a series of tailwinds of kind of the weather has changed in our environment where we really only have tailwinds, the minor headwind and some margin issues, we think, are going to behind us in the coming quarters. We're looking now forward, you hear us talk about 2025 and a lot of our focus is how do we now build from '21 to '22 and then on to '25 with the capabilities in these markets that we're serving. And we think we really have a tremendous opportunity. I have not laid out today and nor will I kind of the specifics of what we're going to do quarter-by-quarter. I think the main key indicator I always look to is the health of our order book, what does our backlog look like, how diversified is that. We've tried to do a better job of signaling that with press releases and descriptions of the markets that we see building and the countries that we see that building in. So really that's kind of the main #1 indicator. The second one would be some other development in the relationship with Inox. I believe that they're getting healthier, maybe we'll see things for them here in the future that will give you signals to that. So that would be something that I would look to. Certainly an order on us would be that. But they're trying to work through all the supply chain challenges that they see, and we're helping them with the supply chain for the 3 megawatt. And then I don't know if I hinted it or I basically explicitly said, more ships are coming. It's hard to name which hauls and when, but it really does feel like the technology is on the precipice of being broadly adopted in the U.S. fleet and then extend it into allies. But it's hard for me to dictate what that pacing is going to be. We're going to serve the Navy as they need it. It is a great fit. It's a nice feeling to have delivered. I think the hard part for investors to understand our orders are one thing, but delivery on those systems and getting them to make work over and over again is what this organization does incredibly well. And we want to keep doing those things and being able to do it as markets expand and more customers call on us for our solutions.

Eric Stine, Analyst

Yes, it is definitely noticeable, with increased confidence and more details regarding SPS since last quarter. What do you attribute that to? I know you've been doing engineering work on some of these. Are they becoming more mature, or is it the market backdrop as well?

Daniel McGahn, CEO

I believe the Navy is aligned with our vision, which closely mirrors what we've communicated to them. Our objective is to enhance capabilities without increasing complexity or size, and that aligns perfectly with what the Navy is seeking. The challenge is to enable the existing fleet to perform better in an increasingly dangerous world. We consider superconductors to be a crucial technology for the Navy, and we believe its applications extend beyond just degaussing. While I don't want to raise expectations too high prematurely, I am genuinely optimistic about our discussions with the team. We see this as essential technology for the Navy as it addresses contemporary needs in a world that appears to be becoming more perilous each week.

Eric Stine, Analyst

And then lastly, just on Grid, you laid out kind of some of the timing issues in the first quarter and that being a big part of the guide relative to the fourth quarter without specific guidance, which I know you don't give for the year. I mean are you expecting growth in grid for the year when you account for that slow start to the year based on the market backdrop and where your backlog stands today? We try to telegraph probably more clearly than we ever have kind of the quarter-to-quarter variance in the revenue and the bottom line is that you see semiconductor is becoming a more significant fraction of the business, and we were transparent with that today, right? That's a mission that we set out on a few years ago that we set out on a few years ago that I think not everybody understood or believed, but it's now come to reality. It's now a big enough part of the business that variations in that part of the business will have a direct impact on where we think that this is going to head quarter-to-quarter. So specifically around semiconductor and D-VAR, we see the timing of some projects in that. We had a nice Q4. We'll see Q1 that's probably a bit worse off, almost dollar for dollar between the guide and the bottom line. We don't see that lasting more than the first quarter. So when we look at the backlog that we have and we look at the projects that we're targeting, it looks like we should have a very healthy business with semiconductor fabs again this year. Again, the key indicator is we need to keep delivering orders and making announcements that we're getting orders in the markets that we're in are future markets that we're looking to target. I think that's the main thing to watch, Eric.

Operator, Operator

And we can now take our next question from Chip Moore of EF Hutton.

Chip Moore, Analyst

I've got a follow-up for the guidance, if you will, given you did a great job outlining the multiyear potential for any supply chain challenges in the back half of the year? Is that a risk? And how we should assess that?

Daniel McGahn, CEO

I believe what you're asking about, Chip, is the outlook for the supply chain risks moving forward. It seems like those risks have peaked and should be decreasing over the next few quarters. However, it's challenging to predict what might happen next. There are many variables at play, such as potential actions from Putin or different responses from the U.S. The uncertainty in the market is significant because people don't know what to expect. We've worked hard to build an organization that can navigate through these challenges. To answer your question directly, I think the risks are diminishing, but who could have predicted that Russia would invade Ukraine a couple of years ago?

Chip Moore, Analyst

And one more for me. I guess on Made in America clauses more on the grid investment side, have seen some companies sort of the energy control space, announcing plans to build capacity ahead of some of that investment. I would think that's an advantage for you, but is that something you're seeing? And how do you think about that?

Daniel McGahn, CEO

Yes, it's an advantage, is something that we're seeing. We're already there. I don't know other companies that you're thinking about, but maybe offline you can tell us more specific on the companies you're referring to. But yes, this is an advantage for us.

Operator, Operator

We have no further questions. This now concludes our Q&A session. I would now like to hand the call back to Daniel McGahn for any additional or closing remarks.

Daniel McGahn, CEO

Thanks, Mary. I mean we grew grid by 40%. If you asked me a year ago, is that what was going to happen, obviously, we don't guide for the year, but that's an extraordinary number. It is coming from organic. It is coming from the acquisitions. But what we want to do is keep building this company to add diversity in the revenue. So you can see in just how we talked about renewables as a fraction and semiconductor and the mining and minerals. The Navy will become a big fraction. Colin got to it with the utilities. Utilities are going to become a bigger fraction over time. We just feel probably very different today, differently in the number of positive things that we're seeing, we really only see positives coming, the short-term negative on dealing with margins and inherited backlog and all of that is, it's not yet behind us, but it's going to be in a number of cycles. And the longer-term hope for this business, we think we're really going to start to see signs of here in 2022. But when we work together as a team, we're worried about 2025. How do we continue this growth trajectory that we've been on and be able to do it over and over again by diversifying the product portfolio, what we invest in, maybe eventually what we look to acquire. So yes, today should feel different for you guys because it feels different for us, and I want to make sure that we got that message across. Thank you for your time, and we'll probably talk to you soon as we look to close out the first quarter.

Operator, Operator

This concludes today's call. Thank you for your participation. You may now disconnect.