American Superconductor Corporation (AMSC) Earnings Call Transcript & Summary

Good morning, and welcome to the AMSC 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nicol Golez, Director of Communications. Please go ahead.

Thank you, Amy. Good morning, everyone, and welcome to American Superconductor Corporation's First Quarter of Fiscal Year 2026 Conference Call. I'm 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 close, American Superconductor issued its earnings release for the first quarter of fiscal year 2026. A copy of this release is available on the Investors page of the company's website at www.amsc.com. Remarks that management may make during today's call about American Superconductor's future expectations, including expectations regarding the company's future financial results, plans and prospects constitute forward-looking statements. 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, 2026. which the company filed with the Securities and Exchange Commission on May 27, 2026, and the company's other reports filed with the SEC, which are also 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, a non-GAAP financial measure. 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 Chairman, 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, 2026, and provide guidance for the second fiscal quarter, which will end September 30, 2026. Following our comments, we'll open up the line to questions from our analysts. We started off the new fiscal year with our sights set on growth. We have officially surpassed $90 million in quarterly revenue. This represents 30% growth over the year ago quarter. Our Grid revenue led the way at over 80% of AMSC's total revenue, which grew over 25% versus the year ago period. Wind was nearly 20% of our business and grew 45% from the same period last year. Our track record now shows that we've delivered 3 consecutive years of non-GAAP profitability and 2 consecutive years of GAAP profitability. We closed the quarter with a strong balance sheet of over $150 million. Our revenue this quarter reflects strong diversification across our core markets. Total revenue came from roughly 30% from renewable energy projects, 20% from traditional energy, 20% from materials, including semiconductors, 20% from utility projects and nearly 10% from military projects. We saw exceptionally strong bookings for the quarter. Total orders now climbed to over $130 million, reflecting the strong market tailwinds behind our business. A major orders highlight includes the recently announced $25 million order from a North American utility to support a large mine expansion. I'll share more details on this later. We have a robust 12-month backlog exceeding $300 million and a total backlog of over $400 million. We have firmly set our sights on growth. We believe this puts us in great position for fiscal year 2026. Now I'll turn the call over to John Kosiba to review our financial results for the first quarter of fiscal 2026 and provide guidance for the second quarter, which will end September 30, 2026. John?

Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $94.1 million for the first quarter of fiscal 2026 compared to $72.4 million in the year ago quarter. Our Grid business unit accounted for 81% of total revenues, while our Wind business unit accounted for 19%. Wind business unit revenues increased by 27% in the first quarter versus the year ago quarter. This year-over-year increase was led by the contribution of Comtrafo. Wind business unit revenues increased by 45% 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 2026 was 26.3%. Included in cost of goods sold in the first quarter was approximately $1.5 million of purchase accounting and non-cash adjustments related to Comtrafo. This had an impact of approximately 160 basis points on the quarter. We also invested in additional direct labor in Brazil to support the expected revenue growth as a result of the strong bookings over the past 2 quarters. This investment does lower our factory's productivity until they become fully integrated into the manufacturing process. Lastly, gross margins for the quarter were impacted by an unfavorable product mix. We do not anticipate a similar product mix next quarter. Moving on to operating expenses. R&D and SG&A expenses for the first quarter of fiscal 2026 were $22.5 million compared to $18.5 million in the year ago quarter. Approximately 23% of R&D and SG&A expenses in the first quarter of fiscal 2026 were non-cash. Our net income in the first quarter of fiscal 2026 was $9.5 million or $0.21 per share. This compared to a net income of $6.7 million or $0.17 per share in the year ago quarter. Our non-GAAP net income for the first quarter of fiscal 2026 was $7.6 million or $0.17 per share compared with non-GAAP net income of $11.6 million or $0.30 per share in the year ago quarter. First quarter GAAP and non-GAAP net income included an $8.1 million adjustment to contingent consideration. This is not a taxable item, but it impacted the recognition of tax expense through the FIN 18 approach required of interim tax provisions. A with and without analysis of the FIN 18 tax provision identified a $2 million noncash tax expense recognized in the quarter. Any tax expense related to a change in contingent consideration within the quarter is not forecasted or included in our guidance. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the first quarter of fiscal 2026 with $153.1 million in cash, cash equivalents and restricted cash. This compares with $147.6 million on March 31, 2026. We generated $16 million of operating cash flow in the first quarter of fiscal 2026. Within the first quarter, we experienced strong cash milestone collections on several projects, coupled with initial receipts generated from our recent orders. As planned and pursuant to the SBA of the Comtrafo acquisition, we purchased a third factory in Brazil within the quarter for a total cost of approximately $7.4 million. This factory solidifies the capacity necessary to support our growth plans for Comtrafo. Now turning to our financial guidance for the second quarter of fiscal 2026. We expect that our revenues will exceed $85 million. Our net income on that revenue is expected to exceed $1 million or $0.02 per share. We expect our non-GAAP net income to exceed $8 million or $0.17 per share. With that, I'll turn the call back over to Daniel. Dan?

Thanks, John. $16 million of cash generated in the quarter. That's impressive even to me. It really shows kind of what the business can do. There's definitely a drive here that's happening that we're going to talk through the call. Our revenue results for the first quarter surpassed expectations. However, it does make the second quarter revenue challenging as we accelerated some deliveries due to customer demand in the first quarter. Our order momentum shows we're well positioned for growth. The $25 million order from a North American utility represents the largest individual order for a mining project in our company's history, setting a new company record. We expect to deliver this turnkey solution during our next fiscal year 2027. We do have our sights set on other large orders in our pipeline. This order is significant because it demonstrates the financial and operational leverage of our integrated power solutions. Even without this quarter's largest order, we brought in over $100 million in new orders. This outperforms our last fiscal year's average of roughly $70 million a quarter. Under this contract, our team is handling the design, engineering, installation and commissioning of a system that combines our proprietary modular STATCOM technology, our metal enclosed capacitor banks as well as our shunt reactors, a 138 kV power transformer, the associate switchgear to protect the system from the network as well as additional protection and control equipment. Just to make a note, if we had sold this as a single product solution, this order would be about maybe $4 million to $5 million. Today, we're able to offer a combined solution that reduces project complexity, simplifies execution and could avoid costly future grid upgrades. This expands our revenue for this type of project [ by ] factor of 5. This is an enabler for potential future growth in materials and utility markets. This is what I've been talking about when I say more content or more product per project. We believe the long-term visibility of our business has never been stronger. The materials sector, which includes mining and semiconductor projects generated about 1/3 of our total orders. Traditional energy demand followed with about 30% of total orders driving the business, while renewables, utility and other industrial applications each represented about 10% of total orders, and military represented just under 5% of total orders. We do see major tailwinds and long-term opportunities across our core sectors. In the semiconductor market alone, we're working with a significant project pipeline. Global semiconductor capital expenditures are jumping 20% to $200 billion, led by expansions from giants, including Micron. These global expansions help drive our long-term pipeline. Simultaneously, the global mining project pipeline has reached $1.2 trillion with over $250 billion actively under construction. Top global mining firms invested nearly $80 billion in 2025, forecasting to grow to $82 billion in 2026, creating more potential demand for our solutions. Traditional energy investments are expanding. In the U.S., the administration's push on more conventional fuels, which drives demand for many of our core products remain robust. For 2026, projected investment in fossil fuels is expected to be around $1.2 trillion out of a total of $3.4 trillion in global energy investment, rising approximately 3% after a slight dip in 2025. Oil and gas upstream received nearly 50% of these investments with over $0.5 trillion per year. The renewable energy sector, we see the Indian wind market is expected to double capacity by 2030. And globally, it's projected that wind capacity will nearly double and solar will more than triple by 2030. We are capitalizing on massive expansions in the utility business. U.S. utility capital spending is projected to exceed, again, that number again, $1.2 trillion over the next 4 years. This is driven by accelerating grid demand from data centers, AI, cloud computing and the like. We're already delivering solutions to utilities facing these shifts. During the first fiscal quarter, the business accelerated faster than anticipated. The business is in a great position and has reached the new level with quarterly revenue greater than $90 million and a very strong cash position. We believe fiscal year 2026 could be even better than fiscal year 2025. We see significant tailwinds in the material space and the traditional energy market. Strategically, we're going after a number of key markets, all of which have significant capital being invested in them. And at the same time, we're expanding our offerings and capacity in Brazil and South America. The team is very excited about our growth prospects. Looking ahead, we're excited about what comes next. We see strong demand in the materials sector, where we're pursuing semiconductors and mining opportunities. We also see continued strength and a healthy pipeline in the traditional energy sector. And we're advancing on additional data center opportunities as well. Together, we believe all of these opportunities combined position us well for continued growth. 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 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 2026. Amy will now take questions from our analysts.

[Operator Instructions] Our first question comes from Eric Stine at Craig-Hallum.

So I know -- I mean, you've obviously built this platform to build out those capabilities. You mentioned the multiplier effect in this order in mining in support of the utility. I mean, do you feel like -- or what's your confidence that these types of large orders become more of the norm for you? And then curious, when you think about those large orders, I mean, are they more skewed to this type of application, whether it's mining in support of the utility? Or how should we think about that?

Yes. I think it's early for us to say what frequency they'll come at. We have a number in the pipeline. It's what we've been kind of working towards. It really is the culmination of the strategy of the acquisitions that we've done that we can now offer a combined set of complementary technologies that provide power support and power conditioning support to utilities and the material space. Those are the 2 main areas that we're marketing into, and that's where we see traction in the pipeline. We talked in the past about average order size. This hopefully can drive that upwards. I don't see these as regular events per se. There'll still be projects like we've done all along where we're doing cap banks and filters together or we're adding in the STATCOM technology with that or providing a power supply for a chemical plant or what have you. But when those opportunities present us, which is like -- this one -- this is a customer that we know well, that knows us very well. And they really asked us, can we do more for them? They like what we've done. They like the service we provide, and they've kind of pushed us in this direction. They see us combining all this stuff together and say, "Well, can you take on the full project." So this is the first time we're doing that. I hope that we can do that again. But again, I don't see that as where the majority of the business is going to come from. But it is a really nice accelerator that we now have the potential to take advantage of when the customer wants us to do it. At the end of the day, we're going to be driven what our customers want. In part, that's why the Q1 revenue results is so high. Customers needed product faster. It's really a testament to our capability to deliver on the manufacturing and operations side, and we're able to do that. So much of our business comes from a few handfuls, a couple of dozen key customers from us. So we want to make sure that we're moving in a direction that helps them derisk their projects. And that's what we're doing, and we're benefiting from it.

And when you talk about -- just to confirm, you talk about the customer realizing your capability is one that you know well. Are you referring to that customer as the ultimate mining customer or the utility customer that you are supporting for this project?

In almost every case, it's both, right? There's almost a triumvirate of constituents we have to serve. There's the engineering procurement construction company, there's the utility and then there's the end user of the power, in this case, the mine. So we work very much in conjunction with the mine, but really driven by the utility because what they're worried about is protecting the grid and making sure they have enough power available to the mine as they expand their capacity. So we'll have projects where 1 of those 3 will contract with us, but all 3 are usually at the table trying to drive what the capability needs to be put in place. And that's where we excel. It's really -- we're an engineer first culture in so many ways that we want to make sure we can conform a configuration of a combined offering that really meets what the customer is asking for.

Okay. And then maybe last one here, just digging into the outlook here by segment. I mean, first of all, a nice step-up again in Wind. I mean is it too early? Or do you think this is potentially a new level? And then can you just clarify or quantify maybe the grid orders that were pulled forward into Q1 from Q2?

So on the Wind side, it feels a little bit like an acceleration, but then that always needs to be told, if they pay timely and get [ sets ] to them. In this quarter, they were pushing very hard to get some extra, and we were able to deliver that. I can't always promise that that's the case, given the lead times that we have on our end and with the supply chain. But the customer relationship really has never been stronger in India with Inox. And we want to do everything that we can to support them as they ramp. They're really great people. It's a really well-run company, and we want to make sure that we're a good partner in their success. So when we're capable, we certainly will try. It's always, Eric, as we say, it's dependent upon the payment, but it feels like their production level is at a new level, and they still need to ramp that further to take advantage of what they already have in backlog, which is very significant. I think it's still in excess of 3 gigawatts -- 3.3 gigawatts and 3.2 gigawatts of demand that they have. So they're kind of at a high level for that. And as they build their projects out, we want to make sure that we're able to deliver timely. The other part you were asking about the outlook for the Grid side. Is that right?

Just quantifying what you pulled into Q1.

So there were -- some of these contracts will have multiple units to be built. And sometimes a customer will say, "Well, we need the next one or we need the next few." And our answer is always, sir, yes, sir, that's what we're here to do if we're able to. So I wanted to kind of telegraph clearly, just do the math, we were quite a bit higher than what we had guided to, and that's going to create a little bit of a dip on the revenue side because you're basically pulling revenue forward. So if you average the guide of what John said for Q2 with the result for Q1, that kind of puts us at a good level that the backlog at least leads you to believe that, that should be sustainable. But again, it really depends upon customers. If customers are ready to receive and they want things faster, we do everything that we can to be able to make that happen. But the converse is true. Sometimes other equipment hasn't arrived on time and the customer says, can you wait 2 months or something? And we always want to be able to conform to what our customers' needs are. So that sometimes gives us some uncertainty with how we guide business because as we get bigger, there's a lot more customers involved, there's a lot more projects, which means projects can move in and out. I don't know if that was entirely helpful for what you're asking, but I try to give you some color that helps.

The next question comes from Colin Rusch at Oppenheimer.

Can you talk about the performance advantages and some quantification of how we should think about that relative to some of the other offerings with this turnkey solution that you were able to deliver or at least book here for the Utility?

Yes, there's kind of 2 veins for this. One is risk and the other one is data and information. So the risk side is getting everything delivered timely, all coming quality tested, things that work together, things that complement and are compatible with each other. And then ultimately, the controls and have a lot more common data coming from us as a single vendor. So those are really the 2 main features that the customers like that they can better control their risk. It means that the timetable is derisked to a certain extent for the customer because we're able to deliver on a certain cycle, our products. And then the way things are designed, what we've noticed is that they don't have to then plan for upgrades or certain spare parts or things from multiple vendors. We try to take care of all that with the customer in mind. From a performance standpoint, like power factor and things like that, there are some things that we can do. I think we're going to learn and get better at that. I just think this is an important inflection point for the company because our scope is vast. And either we're going to make the products or we're going to source some of them, but it also gives us opportunity to understand what other products are out in the marketplace that complement what we do that maybe eventually can be part of the product portfolio, either -- as we've done before, we either develop or we find interesting companies that fit our culture that can fit. So there's a lot of goodness that comes out of this project, assuming that we're successful. It's very important for us to be successful, but this is a customer that's trusted us for years.

Excellent. And then just in terms of the Comtrafo integration, I had 2 questions here. One, can you give us an update on the qualification for the transformers in the North American market? And then also, just try to give us a sense of how much cross-selling you've been able to do and Latin America so far? And how we should think about that potentially impacting the potential order flow as we go through the next couple of years with the traditional products being sold through their channel?