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.

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?

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%.…

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…

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 4 years amounted to approximately 8 gigawatts. We see the next 4 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…

[Operator Instructions] We can now take our first question from Justin Clare of ROTH Capital Partners.

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?

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.

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 2 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.

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 2 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.

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, F Q1 margins could decline a bit from F 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?

It's probably going to take a few quarters to get completely through it, but I would -- my guess and my belief, my expectation is we should start to see improvement. I'll let John comment on the first quarter. But if I look beyond in the second quarter, third quarter, we should see improvement. At those periods of time, we certainly priced everything in. We probably burned through most of the legacy Neeltran backlog that we inherited in Q1. I don't know if you want to add more.

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.

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?

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.

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.

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

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 that the inflation is done, I think they're starting to accelerate a little bit.

Yes. I think that's a good word. I think the conversations that we're having, the specificity and the depth, schedule and those kinds of things. I think really turning on the Chicago system has really helped to open up the mind of utility where we were discussing projects with a bunch of utilities. Now they're coming up with problems that they want us to help them solve. So I talked a little bit about in the prepared remarks so that you -- there clearly is our utility partners actually helping us with us. They're very proud of what they've been able to do and learn with us. And they're excited as we are to go out and talk about the solution.

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?

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.

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

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?

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.

Yes. I mean definitely pretty noticeable, more confidence or more details also on SPS. And that's since last quarter. I mean, is that -- what do you attribute that to? I know you've been doing engineering work on some of these? Are those -- is it just those becoming more mature or the market backdrop as well?

I think the Navy understands, to meet their vision and then kind of how I had stated in the remarks is almost verbatim of the thing that we've said to them. Our mission is to enhance capability without adding complexity or size, right? And that is exactly what the Navy is looking for. How do we take the existing fleet to do more in a world that's more dangerous, right? And we think that superconductor is a critical technology for the Navy. We don't think it stops with degaussing. So I don't want to get people too excited or too ahead of where I am and why I start to get excited when we meet with the team. But we do really think it's a good, it's a critical technology for the Navy because it really meets the modern mission in this really dangerous world that we're -- it's getting more dangerous, seems every week.

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 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.

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

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

You're a bit muddled, but I think what you're asking, Chip, is about supply chain going forward and are those risk increasing or decreasing? And it appears like those risks have -- it feels like they've reached their peak and they should be decreasing quarter-to-quarter. But gosh, I don't -- I mean, it's hard for me to know that the next thing happens, the next shoe drops, Putin does something else differently. The U.S. responds in a different way. There's so many -- I mean that's where the market, I think, is where it is overall is people just don't know what's going to happen next. And what we've tried to do and I think we've demonstrated nicely going back to the organization is we've built a company that has the resolve to be able to manage through these things. So I think to answer the question directly, I think the risk is reducing. But I don't know how many people were predicting Russia to invade Ukraine 2, 3 years ago.

And one more for me. I guess on [ made ] 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?

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.

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.

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 is 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. Thank you, everybody.

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