American Superconductor Corporation (AMSC) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the American Superconductor Second 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: Thank you, Christina. Good morning everyone and welcome to American Superconductor Corporation's second quarter of fiscal 2021 Earnings Conference Call. I'm John Heilshorn of LHA Investor Relations, AMSC Investor Relations Agency of record. With us on today's call are Daniel McGann, 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 second quarter of fiscal 2021 yesterday after the market closed. For 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 superconductors future expectations, including expectations regarding the company's third quarter of fiscal 2021 financial performance, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those set forth in the risk factors section of American Superconductors annual report on Form 10-K for the year ended March 31, 2021, which the company filed with the securities and exchange Commission on June 2, 2021, as updated in the company's Form 10-Q for the period ended September 30, 2021, and the company's other reports filed with the SEC. These forward-looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today. While the company anticipates 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, a non-GAAP financial measure. The Company believes that non-GAAP net loss assists management and investors in comparing the Company's performance across the reporting periods on a consistent basis by excluding these non-cash, non-recurring, or other charges that it does not believe are indicative of its core operating performance. The reconciliation of GAAP net loss to GAAP net loss - to non-GAAP net loss can be found in the second quarter of fiscal 2021 earnings press release that the company issued and furnished to the SEC last night on Form 8 K. All of American superconductors press releases and SEC filings can be accessed from the Investors page of its website at www.amsc.com. With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McGahn. Daniel?
Daniel McGahn: Thanks, John, and good morning everyone. I'll begin today by providing an update of our grid and wind business units. John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 30, 2021, and provide guidance for the third fiscal quarter, which will end December 31, 2021. Following our comments, we'll open up the line to questions from our analysts. We are executing on our growth through grid strategy. We continue to diversify our business. Total revenue for the second quarter of fiscal year 2021 came in above the top of our guidance range and grew more than 30% versus the year ago period. We grew our entire business by over 30% last year and we hope that we can continue on a trajectory of growth. Our second-quarter revenue of nearly $20 million - $28 million sorry, was the recent record quarter. Our grid segment revenue for the second quarter of fiscal year 2021, grew by more than 50% versus the year ago period and accounted for nearly 90% of AMSC's total revenue. In fact, this was the largest grid quarter we have ever had. This exceeds our own expectations and is a testament to our team's execution, particularly during these challenging times. Since, the start of this fiscal year, our bookings momentum in the grid business has been very strong extending our grid visibility well into fiscal 2022. This certainly is a very different and stronger business than it was even a few years ago. In the second quarter of fiscal 2021, our grid business was primarily driven by strong new energy power system shipments. We have integrated NEPSI nicely into the business at our integrating Neeltran. We are starting to see leverage between the product lines, as evidenced by the recent $22 million of orders, which were announced, which was driven by the industrial and semiconductor markets to give you some color on these orders, nearly half of the new orders came from industrial applications and about a quarter come from semiconductor fabs. We are getting leverage across the product lines selling into a number of industrial markets including mining, metals, and chemicals. As you can see from our revenue guidance for the third quarter of fiscal 2021, we are anticipating continued strength in our business. Our revenue backlog is more than 80% higher at this time a year ago and we ended the second quarter with more than $57 million in cash. We are managing our way through the global crisis, and its evolution. We are experiencing inflationary pressures on our supply chain and some delays in sourcing materials needed for products. These disruptions have negatively impacted our cost and gross margins. We continue to work on reducing supply chain risks. Throughout the past year and half, we've been able to adapt and continued to deliver to customer demands. The team has done a great job of managing these disruptions during these difficult times. We continue to assess the impact of the COVID 19 pandemic to best mitigate risks and continue the successful operation of our business and for our customers. We see product costs on the rise, specifically around commodity metals and we are proactively changing prices where we can to include these additional costs. In fiscal 2021, we expect year-over-year revenue growth again in our grid and our overall business. Our team along with ComEd recently energized the Resilient Electric Grid or REG system in Chicago. We are manufacturing ship protection systems for the San Antonio class ship platform LPD with our first delivery expected this year. We are supporting Inox with commissioning in the field and providing electrical control systems or ECS as they need and pay for them. And we are actively supporting our South Korean wind partner interacting offshore wind turbines, utilizing AMSC's 5.5 megawatt turbine design and ECS. Let's take a moment to review our grid business. Grid is driving revenue for the company. We continue to be focused on building a more predictable and diversified business. Our new energy power systems supported by a strong base of projects and renewable and industrials has gained notable momentum. We expect it will drive growth and diversification for our company this fiscal year, our new energy power systems are focused on addressing renewable energy and industrial installations like a semiconductor fab, mine, or chemical plant. We are presenting more content to customers as we leverage the strong combination of our new energy power systems. We are growing and diversifying revenues by geography and by market. We are working with top-tier wind turbine manufacturers and wind farm developers to provide wind farm connectivity to the power grid around the world. This quarter we supported renewable projects in Hawaii, Texas, Oklahoma, and Colorado with the increasing demand for chips we are supporting the semiconductor industry in the U.S., Singapore, Taiwan, and Japan. Our solutions protect the semiconductor facilities against power quality problems that originate from the transmission grid. These disturbances if left uncorrected can affect their plant process of tooling cause significant downtime, scrap material, and loss of profit. We also have delivery systems, we also have delivered systems to a variety of industrial applications from chemical plants, to paper mills, and copper mine. The diversification into industrial is what we predicted with the acquisitions. Our growth through grid strategy is working. Our ship protection systems or SPS are also part of our grid business. As you know our ship protection system has become the baseline design for the San Antonio Class and previous warfare ship or LPD platform. The San Antonio Class is our first design win with the U.S. Navy. We announced in January our fourth ship protection system contract for the San Antonio Class. This contract is for an SPS for LPD 29, also known as the USS Richard M. McCool Jr. Our SPS for the San Antonio Class represents approximately $10 million in revenue per vessel and our current SPS orders now include LPD 28, LPD 29, LPD 30, and LPD 31. Our team is very busy and focused on continuing to expand the business, while we expect to deliver our first systems. From a capacity perspective, we've been planning for the concurrent manufacturing of multiple SPS orders and here we are. Our team has been focused on the delivery of these first systems and delivery doesn't always correlate with revenue. We've talked about the expected size of the opportunity many times in the past. In total, there were 15 future San Antonio Class ships that the Navy plan to build after we had our design win. We now have won four of these $15 million or $40 million of the potential $150 million for this class of ship. We are actively engaged with the Navy pursuing additional classes of vessels for deployment of our SPS. Other potential platforms include but are not limited to carriers, frigates, destroyers, and littoral ships. We have done some engineering for the potential deployment of our SPS for what we believe are the next several classes of ships. In each case, we have to do engineering work prior to procurement. We have to sit our common components that make up our ship protection system and show all the changes to the build of the ship. SPS contributed to our strong grid segment revenues in the second quarter of fiscal 2021. Now turning to our Resilient Electric Grid system or REG in August, we announced the successful integration of REG in Chicago, which became fully operational on ComEd's power grid. I'm very proud of all the ComEd and AMSC employees that worked very hard to make this happen. The REG system utilizes AMSC's proprietary and period of high-temperature Superconductor wire. A wire capable of limiting fault currents a feature but this made interconnecting substations which are power assets on the grid possible for a more reliable robust and resilient grid. We believe many utilities are interested in seeing the performance of our product in Chicago. We're also developing opportunities to deploy our REG product in other utilities across the country and we believe the energization and operation of this first REG system in Chicago, could be a catalyst for Exelon and other utilities to get deploying our state of the art solution. With the first system deployed. We believe that the future deployments of REG will be derisked. U.S. utilities are focused on the execution of this first Chicago project as are we. Turning to wind, during the second quarter of fiscal 2021, we shipped two-megawatt ECS to our onshore wind partner Inox Wind. We stand ready to support our partner in India as they commission new turbines or need new stock of two-megawatt ECS. Inox continues to promote and sell their two-megawatt wind turbine. In fact Inox recently announced that it will supply it's two-megawatt wind turbines to a 150 megawatt newly won wind project order from a repeat customer. We are encouraged by Inox's stated desire to lower the levelized cost of energy further by way of a new wind turbine. To that end, we have designed and Inox is now in the process of constructing a prototype of a new three megawatt class turbine for the Indian market. Inox's three megawatt class turbine will expand their wind turbine product line portfolio. The three megawatt class wind turbine appears to be a great fit for the competitive tariff environment in India. Inox is working towards completing construction. They will commissioned the three megawatt class prototype turbine that we designed. Once commissioning is complete Inox will seek type certification for the operating turbine. We expect to work with Inox to build a three megawatt class production supply chain put in place in an initial ECS production order and support the already growing demand for their thee megawatt class turbine. Inox stated that they intend to launch the three megawatt class at the end of this fiscal year. We are hopeful that fiscal 2022 will be the year that Inox begins transitioning to our three megawatt class ECS platform. This transition will be signaled by a three megawatt ECS supply contract. We service the offshore wind market through our partner Doosan Heavy Industries in South Korea. We are the exclusive supplier of ECS units for Doosan's 5.5 megawatt offshore wind turbine. South Korean wind market presents a potential long-term opportunity for us, as does the global offshore wind market. We have completed the initial production order of 5.5 megawatt ECS for Doosan's offshore turbine. Doosan is now directing their first series of production 5.5 megawatt offshore wind turbines utilizing AMSC's ECS. And we are actively supporting them, with the commissioning of these turbines. Our team is working closely with Doosan and we look forward to potentially penetrating the global offshore wind market with this partner. Now I'll turn the call over the John Kosiba to review our financial results for the second quarter of fiscal 2021 and provide guidance for the third quarter of fiscal 2021 which will end December 31, 2021. John?
John Kosiba: Thanks. Daniel, and good morning everyone. AMSC generated revenues of $27.9 million for the second quarter of fiscal 2021 compared to $21.1 million in the year ago quarter. Our grid business unit accounted for 88% of total revenues while our wind business unit accounted for 12%. Grid business unit revenues increased by over 50% in the second quarter versus the year ago quarter, which now includes the addition of NEPSI and Neeltran. Wind business unit revenues decreased 31% in the second quarter versus the year ago quarter as a result of fewer ECS shipments during the period. Looking at the P&L in more detail gross margin for the second quarter of fiscal 2021 was 12% compared to 26% in the year ago quarter. Q2 FY2021 has an abnormally high change in gross margin versus the year-ago quarter. I will take a moment and walk you through this quarter's gross margin change. I will start off by reminding everyone that when we announced our acquisition of Neeltran we stated - we expected Neeltran to be accretive to our earnings per share within 12 months of closing which closed on May 6, 2021. One the main drivers of this expectation was we acquired approximately a year's worth of Neeltran backlog at closing and that backlog had lean gross margins. So as you would expect, this has been a drag on our consolidated gross margins both last quarter and into this quarter. We are working our way through this backlog and have started to replace that backlog with what we expect to be more profitable projects as we head into FY2022. We see this drag on gross margins as temporary. Second, as we discussed on previous calls there are additional costs related to purchase accounting adjustments associated with acquisition. These cost tend to spill over into several quarters after the acquisition. We are finished with any significant purchase accounting adjustments impacting cost of goods sold for NEPSI and we believe that we are finishing up on these adjustments impacting cost of goods sold related to the Neeltran acquisition Q2 FY21 was the last quarter, we expect any significant cost impacting cost of goods sold related to these purchase accounting adjustments. Again we see this - we see this drag on gross margins as temporary. The third issue impacting the quarter over quarter decrease in gross margins is less about this quarter's results and more about the strength we experienced in the same period last year. In Q2 FY2020, we experienced strong D-VAR shipments and the contribution from those projects were particularly robust. Some of this strength was a result of anticipating the potential impacts of COVID on our supply chain and as a result, we accelerated raw material coming into our factory and scheduled to work aggressively to stay ahead of schedule. Does have a two-pronged benefit, one is we were able to control our manufacturing costs and maintain heavy loaded on the factory. Two we were able to accelerate D-VAR shipments in Q2 of FY 2020. Now all this forward a year we are experiencing a little rebound effect of COVID. We are now back to normalized factory load and we have experienced raw material cost increases in this most current quarter. In both cases, we see this as temporary and we have already priced these raw material increases into new projects where we can. So to summarize, we expect many of the drags that we experienced on gross margins this quarter starting to subside as we move into the second half of fiscal 2021 and into fiscal 2022. R&D and SG&A expenses for the second quarter of fiscal 2021, were $9.4 million, this was up from $8.6 million in the same period a year ago. The year-over-year increase was primarily the result of absorbing the operating expenses for both acquisitions. Approximately 14% of R&D and SG&A expenses in the second quarter of fiscal 2021 were non-cash. Our non-GAAP net loss for the second quarter of fiscal 2021 was $5.1 million or $0.19 per share compared with $2.7 million or $0.13 per share in the year ago quarter. Net loss in the second quarter of fiscal 2021 was $4.4 million or $0.16 per share. This compares with to $3.7 million or $0.17 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 second quarter of fiscal 2021 with $57 million in cash, cash equivalents, marketable securities, and restricted cash. This compares with $63.1 million on June 30, 2021. Operating cash burn in the second quarter of fiscal 2021 was $5.9 million, included in that cash burn is approximately $2 million of working capital investment to support future revenue growth. We believe that the current working capital levels are sufficient to support our expected revenue growth and working capital will normalize for the remainder of fiscal 2021. Now turning to our financial guidance for the third quarter of fiscal 2021 we expect that our revenues will be in the range of $25 million to $28 million, our net loss on that revenue is expected not to exceed $7 million or $0.25 per share. Please note that our net loss guidance assumes no change in contingent consideration nor any purchase accounting adjustments associated with the Neeltran acquisition. Our non-GAAP net loss is expected not to exceed $5.5 million or $0.20 per share. The company expects operating cash flow to be a burn of $3 million to $5 million in the third quarter of fiscal 2021. We expect to end the third quarter with no less than $51 million in cash, cash equivalents, marketable securities, and restricted cash. With that, I'll turn the call back over to Daniel. Dan?
Daniel McGahn: Thanks, John. The integration of our acquisitions is going well and has helped augment revenue as the wind business positions for a potential rebound next fiscal year. Please remember that specifically with Neeltran, we're working on enhancing margins as we build new backlog. Across the business, we're seeing some impacts on margins because of increased cost and supply chain challenges. We are working diligently with our suppliers and partners to mitigate supply chain risks for our customers and we are raising prices where possible. We continue to meet customer commitments and believe this is a temporary situation, which should be fixed over the next several quarters as we ship on orders that were priced with supply chain inflation built in. We are very pleased to report that grid revenues are at a recent record high. The business is scaling and is supported by a strong balance sheet. Recommision REG we are supporting the commissioning of the 5.5 megawatt class turbine in Korea. We are supporting the upcoming commissioning of the 3 megawatt class turbine in India. We look to begin delivering our first SPS systems next quarter but remember that revenue was taken during the life of the project, not simply on system delivery. These are all transformative events for our company even if they do not immediately impact near term revenues. We saw strong bookings for our new energy power systems, we believe we are going to grow through the leverage that exists in our business through the expansion of total market, expansion of content per order, an expansion of sales channel for the entire new energy lineup. We are in position for growth through the reemergence of our wind business, which we see coming as early as next fiscal year. We are positioned for growth through the acquisition of additional ship platform winds, which we are currently doing engineering work on. We would expect to grow through the emergence of REG as a critical product for critical infrastructure in this country. We are keenly focused on the critical operation of the system in Chicago and as we have demonstrated we have the opportunity to continue to expand inorganically where it makes strategic sense. I, personally been able to have a lot of engagement with employees throughout the pandemic. Our workforce is vibrant committed to our mission and growing. I continue to be impressed with how well we create opportunities, step up the customer challenges, and deliver on our commitments. I'm very grateful for the people that I have the privilege to work with. We expect to grow grid revenue again this fiscal year 2021. This quarter our grid business grew by over 50% compared with the same period last year. Our backlog has grown by over 80% since a year ago. We grew our total business by over 30% last year and we hope to continue on a trajectory of growth. I look forward to reporting back to you at the completion of our third fiscal quarter of 2021. Christina, we will now take questions from our analysts that have queued up.
Operator: Thank you. And we'll take our first question from Philip Shen with Roth Capital Partners.
Philip Shen: Hi everyone, thank you for taking my questions. First one is on backlog. Daniel, you mentioned that your backlog I think is up 80% year-over-year in the quarter. And so I was wondering if you could talk through how bookings are trending clearly up, but I was wondering if you might be able to share for example, what's the mix of international orders might be in that backlog. I saw in the queue that your international growth revenues are better than they were a year ago and is that a trend that we should expect. And on these international orders for example, how does that, how does that margin profile. Is it different relative to the U.S. bookings and as it relates to win, how much win is in that backlog and given the challenges that the wind market is experiencing how insulated you guys be from those challenges. Thanks.
Daniel McGahn: All good questions. I think it's importantly asked at this point as we see some changes positively coming in the business. So one of the benefits of the business, last year as we had a preponderance of the revenues coming from North America specifically in the U.S. So it's kind as COVID hits, we're able to tend to our knitting, being able to deliver locally to a lot of projects that we have deployed in. We're now starting to see the reimbursement of some of the foreign markets. We listed some specifically we called out a bunch of countries that we are now working in semi when we talked about the last order booking you can see that orders appear to be accelerating, that acceleration is coming in large part due to industrials due to kind of a next order of magnitude coming specifically from semiconductor and then kind of thirdly from renewables in general. So we're seeing order intake up across the business and from a host of international projects not U.S. So the hope is that's going to build in more diversity throughout our business. We've commented in the past that semi-margins tend to be very healthy. We've commented that industrial if I get into Neeltran specifically, but obviously we're working to improve those margins over time. So net-net, when you look at the general trends you see an acceleration in bookings. You see a lot of things that we're working on to make sure that our gross - gross margins continue to expand. So we're really trying to telegraph but not just over the next quarter but over the next several quarters we see things improving. Please be reminded that when we look at our backlog on grid some of the backlog could be as much as year out. Some of it could be as short as say three, four, five months, specifically with when we don't have a lot of backlog in there related to win because we basically have to project what we think that our key customers are going to take over time. And as I mentioned, Phil in the remarks that we're really seeing the potential for a nice rebound in wind in India we hope will begin next year listening to the words of they're using outwardly to their constituents. It looks like the business is in a very good position. They've been able to weather the storm, they've been through and as I mentioned in the remarks they even announced another order for two megawatt to the tune of I think about 150MW of new product. So we've tried to focus on growth through grid that seems to be working. John, I think really eloquently laid out kind of where we are with margin and how those issues are temporary and we see the future quarters coming being better and brighter. And then as we get into next year certainly, we mentioned that with our last orders but our backlog is now starting for 2022 that we hope, puts us in a good situation for 2022 not only with grid, but potentially with wind, as well.
Philip Shen: Thank you for all that detail. Shifting gears to margins, I know you've said a lot on that already and that things should be getting better. Just wanted to see if we could get a bit of more granularity around perhaps the quarterly margin cadence as we get through the coming next four to six quarters and should we think about this most recent quarter of Q2 as the trough and then steadily things get better from there or do you think that that level continues for a little bit just because of the supply chain challenges and the input cost increasing and so forth and logistics so do we expect to kind of be at this level and maybe for a little bit, I know you gave guidance for next quarter but then when do you think perhaps we can get back to, for example, the low to mid '20s type margins. Does it take a few quarters, does it take us well into fiscal '22. Thanks.
Daniel McGahn: I think the first thing to notice in the guide, the guide is showing improved bottom line results quarter-to-quarter on will say similar revenue maybe there is potential for some growth. But I think what John had said, we're basically calling for some improvement in the financials quarter to quarter. We do believe, particularly when it comes to Neeltran is going to take several quarters to get everything behind us, we think we'll see probably improvement quarter-to-quarter. How to master all those or how bright those are, it's really kind of to be seen, but I hope as we get into 2022, we can kind of reset where we think margins will be relative to revenue and the team is working on a lot of different things, not just with suppliers, but with overall cost of the different product lines as well to see, can we use this as an opportunity now, not only to maybe compete better and better understand our customers but better price the value of what we deliver. And I think that's the key thing as can this become a competitive advantage in our business that we can price, the value stronger that we have historical with the teams being challenged to do.
Operator: Our next question from Colin Rusch with Oppenheimer.
Joe Beninati: This is Joe on for Colin. Thanks for taking our questions. Can you provide a little bit more color on progress with Navy ship budgets and share any sort of indicators of interest that would point to growth in demand.
Daniel McGahn: I think, Joe, the first thing is realizing that the team really is focused principally on digestion of the orders that we have. We're very optimistic that in the coming quarter here, we'll begin to deliver our first system. So again another seminal moment for the company. I did say regards to growth the potential growth in SPS. This is the first time that I use the plural that we are doing engineering work on multiple ship platforms. So we see the interest increasing. I think it makes the work even harder because we basically have to go through and diagnose all the changes in the print that has to happen to be integrated into the ship, how much that will cost on a non-recurring basis and how much that would come from a comfortable base. So the team here is very busy and delivery mode and also delivery of preliminary design, which eventually we hope will be turned into a procurement. I think it's a challenge for me to say today how long that will take. The good news is, we're talking about multiple ship platforms, which I think increases the odds of getting the next one over the goal line say sooner rather than later, but we really want to make sure we're inserting at the right point with the Navy that we understand our cost, we understand pricing fully and that we price in what we see as the future for supply chain into these potential future orders as well.
Joe Beninati: And then one more with progress on REG what else can you share on utility-scale interest and any potential for additional demonstration projects.
Daniel McGahn: I think the word demonstration I think it's important from the utility standpoint that they need to demonstrate on their own before they can see wide adoption within their own utility. We don't see the projects as demonstrations because we believe the technical risk, the financial risk have all been retired, it's really up to the utility to be able to manage the construction and the regulatory aspects of it which can be unique to the utility. We have said and consistent about we know, we've been told by Exelon and uncertain words we need to operate this first one for at least a year but everything that they've done in their work leans forward towards the implementation of more REG in the City of Chicago. I think everything that we've seen even with the work we've done with Exelon they have a strong desire to be in a leadership position when it comes to this technology, not only in Chicago but across their entire utility. We have seen an uptick and I'll say renewed interest around similar or related projects we've identified in the past with other utilities. We have seen an uptick in new projects which do demand, a lot of it is kind of the timing of where they are in their capital cycle and the regulatory cycle. So I think we have an opportunity here to market REG differently to utilities because we have the existing asset that's doing well in operation. So I think that that helps us think about what the order book is going to look like in the future and as I said, we have a number of utilities that really show significant interest where there is strong consideration to look at the purchase. But I think the thing that always is a challenge, with their utility businesses is this doesn't take weeks. It doesn't take months, this takes quarters, this takes years of work to be able to get a procurement. And that's certainly something that we're working on.
Operator: Go to our next question from Chip Moore with EF Hutton.
Chip Moore: Yes, thank you. You called out some of the momentum in the semi-fab channel. Right. I think when your customers is out there talking about spending $150 billion over the next decade. Maybe you could expand a bit on what you're seeing in the pipeline there, are you seeing this investment cycle start to translate more opportunities, or just how should we think about that opportunity.
Daniel McGahn: I think what you're seeing immediately Chip here is that there was an intended capital expand that was based upon market demand that was planned two or three years ago and we're benefiting in semi today because of the factory expansions or our new capacity that's being put in place. We did highlight that we're doing this around the world, we mentioned four different countries. We don't mention the different customers unless they exceed the 10% threshold. There is one of our larger semi customers that we have built through that way. So we've tried to look at this as a key market for us, we're trying to look at the way and diversify it through it. Long term, the types of chips that are needed for the new energy economy that we're getting into the new digital economy that we're getting into are really what we satisfy. I know I've read some things and seems it brings some customers a lot of the constraints in the supply chain from legacy chips. We've been bitten by that here and there. We found other replacements to be able to move forward to meet customer demand, but we're really trying to look forward on where is the semiconductor industry going from its capital allocation standpoint and how do we make money and how do we create installations that will help semiconductor fabs in the future. So this only a few years ago, was an order and I think we've turned it into a business which has been great. And we've been able to do that, not only for D-VAR, but for the acquired products as well.
Chip Moore: And one only question I had is really on the infrastructure bill that's quite a bit of investment in grid and reliability obviously doubled the details in terms of timing and things like that, but just talk high level about potential benefits to the platform there?
Daniel McGahn: When I look at it by my read of it there is billions of dollars of potential spending driven by the Federal Government to our customers around grid resiliency exactly what we do. So, I see that certainly has a very strong potential tailwind coming to the business. I don't expect us to necessarily be doing government contracts per se. But I do expect the influx of monies, support, and focus in grid resiliency of helping being able to boost future growth in the company. So we hope what we have our commercial things that can be bought in commercial terms with utilities, but we certainly work with utilities to find different ways to have funding sources available to them through the federal government, certainly when you dig into the tails in the bills and stuff that we have it certainly is pointing to us in a lot of different ways. So it's hard for me to prognosticate when will that affect the business that's usually the follow-up question on identification but opportunity that's something that we're trying to work through, but we think it really benefits the market that we serve with grid resiliency and hopefully that translates into benefits to us as well.
Operator: We'll go to our next question from Eric Stine with Craig-Hallum.
Aaron Spychalla: It is Aaron Spychalla on for Eric. Thanks for taking the questions. Maybe first just following up on the SPS. Congrats on the engineering work. Just curious if you can give any high level details on potential content size of the opportunity anything on a number of ships or just I know it is engineering, but just trying to kind of frame that opportunity as you look out?
Daniel McGahn: Yes, just kind of simplify it, we used to talk about small ships, medium ships, and large ships. You know, we said first small ship it was on the order or $2 billion to $5 billion of content, for a medium ship it was somewhere between $5 billion to $15 billion of content, and then for a large shift, which to us is like a carrier it could be $20 to $25 plus million of content. So we see that as kind of roughly where it fits, most of the ships in the fleet or what I just called as a medium sized ship and that's really where our focus has been. I gave the of all the ships that are kind of in the relative near term in the prepared remarks. So we'll see with the next order where we're able to price it out. But right now the team is really focused on the engineering work to have it be considered to make the design change. Right, design change happens, and we go down the path of negotiating a procurement.
Aaron Spychalla: Understood. we'll stay tuned there and then the second for me on VVO. Previously you gave an update on some of the pilots that are underway there and next steps and kind of how that - how that pipeline shaping up.
Daniel McGahn: VVO has done quite well for us, it's been a great calling card to distribution utilities as REG is, if you think about the types of problems we're trying to solve to bring more distributed power into the distribution grid. VVO is a great tactical solution and REG is a great system-wide change for the utility operator. We've seen continuous - continue to repeat orders from utilities, we see probably the largest fraction of those come from roof top or large installations of solar. We do see it complementary to what we're doing in the other parts of the business on an industrial setting when the size matters when you can put on a pole and you only need to be able to boost or manage power say a bit. But I think the long-term vision that this is, we're looking to help create the two-lane highway for power certainly resonates with utilities, being able to control this or the voltage certainly does. I've tried to in the prepared remarks, tried to speak a little more high level, I have just called new energies and things that we do on the grid but VVO is certainly a bright shining light among the product lines for sure. We're very happy with how customers have received it. We've been able to learn a lot, we've been able to add those learnings into the product and potentially can set the stage for future products as well.
Operator: This concludes today's question-and-answer session. I will turn the call back to Mr. McGann for any additional or closing remarks.
Daniel McGahn: Thanks. So we're trying to turn the challenges of today and the market advantages, where we can. Our teams are fully engaged and working well together. We're working very closely with our customers and suppliers. We do see some temporary impacts on the financials as we went through but these may have a long-term benefit on revenues and margin. The climate for what we do driven by climate change in government policy is creating potential tailwinds for our business. So when we look out several quarters, we see a lot of positives coming to the business. We're very proud, we were able to meet a record near - near term record level for revenue. We're very proud of what the team has been able to do to integrate these two acquisitions into the company, and things are only getting better here at American Superconductor. So thank you everybody for your attention and we'll talk to you hopefully soon.
Operator: That does conclude today's call. Thank you for your participation, you may now disconnect
