Am Superconductor (AMSC) Q2 2026 Earnings Call Transcript

Daniel Patrick McGahn:Thanks, Nicol, and good morning, everyone. I will begin today by providing an update sharing a few remarks on our business. John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter which ended 09/30/2026 And provide guidance for the third fiscal quarter, which will end 12/31/2026 Following our comments, we will open up the line to questions from our analysts. We executed another quarter of strong results with revenue exceeding $90 million. This is our second consecutive quarter at this higher revenue level. Second quarter revenue marked a significant increase of more than 40% year over year reflecting strong execution across our grid and wind business.

This strength reflects continued customer requested acceleration in projects throughout the first half of our fiscal year. And we closed the quarter with a strong balance sheet of over a $100 million in cash. This quarter's revenue came from a broad mix across our core markets. More than half of revenue came from traditional and renewable energy, with utility and materials projects each at nearly 20%. And military just under 10%. This diverse mix reflects the growing demand across our end markets and the reach of our technology. During the second quarter, our Power Solutions saw excellent traction Orders exceeded $95 million driven primarily by traditional and renewable energy, as well as demand from our materials and utilities customers.

Strong bookings pushed first half orders to about $230 million. This is more than double the year ago period. We believe this puts us in great position to keep momentum going during fiscal year 26. Now I will turn the call over to John Kosiba to review our financial results. For the second quarter of fiscal 26. And provide guidance for the third quarter of fiscal 26. Which will end December 31, 2026 John?

John W. Kosiba Jr.:Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $94 million for the second quarter of fiscal 26, compared to $65.9 million in the year ago quarter. Grid represented 82% of total revenues, while our wind business unit accounted for 18%. The Grid business unit revenues increased by 41% in the second quarter versus the year ago quarter. The increase in revenue was driven by organic growth and the contribution from the acquisition of Comtravo. Wind business unit revenues increased 51% over the same time period. The increase in revenues was driven by additional shipments of electrical control systems.

Looking at the P&L in more detail, gross margin for the second quarter of fiscal 26 was 28%, compared to 31% in the year ago quarter. When compared to the first quarter of fiscal 26, gross margins improved sequentially by 190 basis points. The quarter over quarter improvement was driven primarily by higher Comtrafo factory utilization as they ramp up to deliver on their increased backlog. Now moving on to operating expenses. R&D and SG&A expenses for the second quarter of fiscal 26 were $22 million compared to $17.1 million in the year ago quarter. This increase was primarily driven by the incremental addition of Comtrafo's operating expenses.

Approximately 29% of R&D and their SG&A expenses in the second quarter of fiscal 26 were noncash. We generated non GAAP net income for the second quarter of fiscal 26 of $9.1 million or $0.20 per share. Compared to $8.9 million or $0.20 per share in the year ago quarter. Our net income in the second quarter of fiscal 26 was $3 million or $0.06 per share. This compares to $4.8 million or $0.11 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 26 with $182 million in cash equivalents, and restricted cash.

Which compares with $219 million on 09/30/2025. We generated $32.7 million of operating cash flow in the second quarter of fiscal 26. This increase in operating cash flow was the result of strong collections on several of the long-term of our larger active projects. In fact, our Q1 and Q2 operating cash flow totaled $48.7 million on revenue of $188 million. These are record level results in working capital management. Now turning to our financial guidance for the third quarter of fiscal 26. We expect our revenues will exceed $80 million. Our net income from that revenue is expected to exceed breakeven and our non GAAP net income is expected to exceed $7 million or $0.15 per share.

I would like to remind everyone that our revenue and associated profit from quarter to quarter historically has had variability based on the projects being delivered during a quarter. And we would expect this variability to continue. When you look at our results over a longer period of time, this tends to smooth out any variation. For example, AMC's average trailing 3 quarters of revenue is $91.5 million and our average trailing non GAAP net income is $10.3 million. With that, I will turn the call back over to Daniel.

Daniel Patrick McGahn:Thanks, John. Our revenue results surpassed expectations again. However, it does make the third quarter challenging, as there was an acceleration of projects delivered into the second quarter. As is common in our business, timing plays a key role in quarterly results. These past 2 quarters benefited from accelerated deliveries. Which shifted projects from the next quarter. For the first half of the fiscal year, we generated more than $185 million in revenue. This is over just 6 months and shows our team's capacity to scale operations rapidly. This performance proves we can successfully accelerate project deliveries when our customers request them.

As John highlighted, we generated more than $10 million in average quarterly non GAAP net income, over the past 3 quarters on approximately $90 million in revenue. In fact, since we acquired Comtrafo, AMSC has generated over $58 million in operating cash flow. We accomplished this in just 3 quarters. We are also seeing the strength of our offerings in North America. During our second quarter, we completed the delivery and commissioning of customer engineered 165 MVA transmission class power transformer from Comtrafo in Brazil for a major utility scale solar and energy storage project in Texas.

This project demonstrates our ability to deliver complex solutions across the entire project life cycle from engineering and manufacturing in Brazil to international logistics to installation and commissioning in the United States. We are ahead of schedule in accessing the North American market with Comtrafo transformers. and we are working on additional projects of a similar scale. We had initially expected deliveries into North America at the earliest in 2028 And I am very proud of the team's ability to deliver within calendar year 2026 This success reflects the growing demand for our solutions, and the opportunities we see in the North American market.

We are well positioned to deliver power solutions that help utilities and energy intensive industries access reliable power, improve grid performance, and meet growing electricity demand. Additionally, our orders demand outpaced our accelerated execution. In the first and second quarters, our average orders reached above $100 million per quarter, up from approximately $70 million per quarter last year. We are growing. We are executing with discipline and focus. And we have tremendous tailwinds that are back These results show that we are operating ahead of schedule. Driving strong business growth and setting the stage for a bright future. In the second quarter, we saw strong order demand across energy markets, as well as our other core markets.

About 2 thirds of our orders came from the energy sector, with traditional energy accounting for over 40% and renewables contributing more than 25%. The rest was spread across materials, and utility markets each at around 10%. This demand is supported by powerful tailwinds across multiple sectors, with significant investment projected for 2026 In energy, we see several significant projects on the horizon, particularly in The US, where investment in traditional energy continues to support demand for our products. Globally, traditional energy, including oil and gas, are expected to see around $1.2 trillion in capital spending this year. Globally, renewable energy capital expenditure remains strong, with investments for the first half of 26.

Exceeding $325 billion According to the US Energy Information Administration, solar is expected to account for most growth in US electricity supply for 2026 Supporting growth opportunities across our renewable portfolio. Projected international growth particularly in energy, both traditional and renewable, presents a layer of long term opportunity. Investment in mining and materials creates opportunities for us particularly at energy intensive sites where grid connections can be costly, delayed, or unreliable. The global mining project pipeline is estimated at approximately $1.2 trillion with more than $250 billion in projects already under construction. Our solutions can help customers maintain power quality, and support stable operations.

Specifically in the semiconductor sector, we have developed a pipeline of about $200 million of potential projects slated to be built in the coming several years. These opportunities are not currently in our backlog and could have a meaningful impact on our future growth Although the timing of these opportunities will vary by quarter, we have recently been asked to revisit our lead times to meet an accelerated schedule over the next 12 to 24 months. Industry capital expenditures in semiconductors are projected to reach $200 billion in 2026 up 20% from 2025. Because semiconductor manufacturing requires reliable power, our sag mitigation, voltage management, and harmonic filtering solutions can uniquely help protect sensitive production processes and reduce costly disruptions.

We are also seeing demand from utilities, responding to rising electricity consumption and changing grid requirements, including demand associated with data centers. We delivered product to data center projects in our second quarter, We received orders for data center projects in our second quarter. And we are positioned to deliver data center revenues in our third quarter. This is a small part of our business. U.S. utility capital spending is projected to exceed $1.2 trillion from 2026 through 2030. Utilities are evaluating our solutions to improve grid stability.

Our power systems position us well to address these emerging power quality and reliability needs In the military market, global defense spending is projected to reach nearly $3 trillion providing a strong foundation for potential growth as naval modernization and electrification continue. These sectors represent massive long term capital investment. We believe we are well positioned to benefit with our broad product portfolio. We closed the quarter with a strong 12 month backlog of nearly $320 million that is a 50% increase from the year ago quarter. In summary, we are operating ahead of schedule. Driving strong business growth and paving the way for a successful future. We reached a new level of revenue, and gross margins have expanded.

We generated over $45 million in operating cash, for the first half of the fiscal year. We had customer pull ins that may or may not occur in the December quarter. Customers typically are not receiving much during the holiday season. We may see another acceleration in the coming quarters. We are $20 million ahead of our revenue guidance for the first half of the year. This was unexpected, but shows that we are able to deliver some product lines on shorter timelines than are contracted, which customers are pushing us to deliver more rapidly.

When we look at the first 3 quarters, our results plus the guidance given today we are at about $20 million of revenue per quarter and having that translate into about $10 million of non GAAP net income. This is where we have hoped to be. The business is working very well. We see a strong second half. As well. What really excites me today is the rate that orders have been coming in. Our average orders per quarter have gone from $70 million last year to over $100 million this year. The business is poised to grow.

And where we see that growth coming is in traditional energy, where there are significant capital investments, especially in The US, in energy and power. We have a substantial footprint of equipment in The Middle East. That is positioned to expand once the region calms. And capital is injected to expand capacity. We have equipment in the largest LNG hub and we power pipelines, areas that are poised for investment. Secondly, and perhaps more importantly, is the ramp in semiconductor capacity that is underway globally We have visibility on nearly $200 million of pipeline of orders in the sector that appears ready to be converted into orders as early as this fiscal year. That would translate into revenue. Next year.

1 of the challenges with revenue forecasting is we have a large semiconductor project that will be manufactured in Q3 but we plan to ship in Q4. That project is too large to imagine it accelerating. This is part of the lumpiness that I hope does not confuse investors. We have reached a new revenue level this fiscal year, and we are in a position to expand beyond that as we end this fiscal year and enter into the next. We are ahead of plan in our expansion of our Brazilian transformer manufacturer into North America.

We commissioned transformers for a large project in Texas, We are positioning the larger AMSC offering into many projects in both North and South America. We see a very healthy pipeline of these projects. We have a very strong balance sheet. That we are looking to deploy to better serve our customers. and expand our offerings. This is a wonderful time in our company's history. The hard work of our team across the globe and their commitment to excellence in serving our customers, is translating into strong and healthy business. And while the elections may bring changes in policy priorities, the fundamental drivers of our business remain intact.

We believe the growing electricity demand and the need for reliable power will remain a long term priority. We are excited about the future. And we believe we are 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 third fiscal quarter of 26. Operator, we will now take questions from our analysts.

Operator:We will now begin the question and answer session. To ask a question, you may press star and then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star, then 2. At this time, we will pause momentarily to assemble our roster. Your first question comes from Eric Stine with Craig Hallum. Please go ahead.

Eric Stine:Hi, Daniel. Hi, John. Good morning.

Daniel Patrick McGahn:Good morning.

Eric Stine:So great to hear about Comtrafo and some of the early project, the solar project in Texas. You know, I am just curious how do you feel market awareness is of that acquisition and of your capabilities? You talked about several large projects in South America, North America, etcetera. Curious if those are potentially fiscal 2027 events, or should we think about those more long term as you get out in the market with that offer?

Daniel Patrick McGahn:I hope and I feel like customers are being positively responsive to the addition of power transformers to the product lineup. We are doing a lot of outreach to get our existing customer base to understand, to think about us more than just power quality, but also think about power supply. And that is being very well received. And as you can hear of my tone, being pushed by a lot of our customers to go faster. And the team has responded very well. The supply chain has responded very well. Where we can, we have tried to deliver more rapidly. Lead time for large power transformers typically are about a year.

So as we get winds hopefully, they will become larger over time. But this is all revenue Eric, I think that we will be able to recognize, probably in 2027. We got an order for Comtrafo transformers in The US. We have a pipeline of additional projects I will not say that they are the largest projects that we have, but they are certainly larger than what Contrafro has historically delivered. So we think we are well positioned to not only sell power transformers, but the combined offering in North and South America. Got it. that is helpful.

Eric Stine:And then maybe you talked about a large semiconductor award or award that you expect will be a fiscal fourth quarter event, and I know you are you are not providing guidance for that. But any thoughts on size, that sort of thing as we kind of think about the cadence here in the back half of the year?

Daniel Patrick McGahn:Yeah. We talked about the expanded offering of a combined company that is now AMSC and what we can really provide for SAG mitigation service for semiconductor. And we are designed into a number of makers. And what we are being pushed now is we have a large order that was reported as part of our orders earlier this fiscal year. That will deliver in the fourth quarter. That will be a pretty significant part of revenue. That puts us in a great position, we believe, for the fourth quarter. Going forward, we are working on terms and conditions of a number of projects and I do not know exactly when they are going to close.

But what it sounds like is you know, we are being asked to deal with our capacity. To be able to deliver the combined offering of AMSC into these projects. So what is happening, and we have telegraphed this before, the average order size is going up. And these are pretty significant projects where you know, bluntly, some of the orders for some of the fabs are larger than entire years of capacity in prior years. So the team has really done a really good job of getting ready and being in position to be able to deliver at a faster rate.

But that is really going to be dictated by the customer and trying to understand as they contract product on what pace that is gonna need to be delivered. So it is hard for me to kind of forecast, and you know, I do not really guide that far out in time. But we will talk about as we get those orders here to try to get a better sense for people to understand how the pace of the business is changing.

But what I am kind of standing up here saying to you is we believe the pace of the business is going to change, and we are working to make sure that we can keep up So this is a really great position right now for the company. it is something the team's really worked very hard over the past several years to put us in position to be able to win larger orders and be able to deliver them on the customer timing. Okay. Thank you.

John W. Kosiba Jr.:Thank you.

Operator:Your next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch:Thanks so much, guys. Now that you are selling more, at the platform, level, can you talk a little bit about the R&D opportunity and how much harmonization and incremental efficiency we can think about the system level performance you know, for the company as a whole.

Daniel Patrick McGahn:We are trying to get the combined offer. Offering not only to make installation easier, but to make information more valuable for the customer. So those are kind of the 2 main themes that we are looking at. How do we provide an offering that ultimately provides more value for them by sourcing more of the product suite from us directly. We do not make or dictate customers if they have to buy a broader offering from us. You know, if they need a piece of the solution from us, we are more than happy and eager and willing to be able to provide I think what we are going to see over time is installation difficulties will go down.

Speed can go up. And the amount of information that we are able to get back in the customer's hand about how their electricity project is performing will be stronger. And those are, I think, key things that we will be able to differentiate. The general sense to make installations easier is what we are really good at is being able to put every product, be it Comtrafo to all of our products into a small durable set or system or container that really works well in the key markets we are going after. Durability and speed are really kind of paramount in most of the markets we are operating on.

So those, I think, will continue to be competitive advantages. And that is where a lot of our R&D focus is: How do we make sure we can keep pace and have the durability of the product?

Colin Rusch:And then, I guess, going along a separate line, you know, we are coming up on, you know, the end of the continuing resolution on the budget. You know, we will see kind of how the defense activity, evolves here. But could you just give us an update on some of the mine protection system activity and how we should think about that on the next couple of years if you know, obviously, you are not providing guidance, but just if you have got ships that are moving through their budget and we should think about kind of a steady cadence with those, or maybe an acceleration in that.

Daniel Patrick McGahn:We have a lot of interest in request for quote for the military side from all 3 of the applications, be it protecting ships, You know? And the subset of that is the mine countermeasure part of that. As well as powering shipyards and as well as powering critical ship systems. We have had a very strong influx in quotation activity from the military. And what we are finding is there is a probably a surge that is going to come it is hard for me right now, because we are trying to work on lead times with some of these things. On when that is going to hit.

My expectation, it is not a 2027 event; it is probably a 2029 event. Could affect 2028. Just from the lead times that we are seeing. And, again, it is on all 3 applications. So certainly not things that are gonna affect the next quarter or even the next year. But I think it is a long term tailwind that we are going to see, we think, continued significant investment in not only ship protection, but really the power part of the solution set for the Navy. Excellent.

Colin Rusch:Thanks so much, guys.

Daniel Patrick McGahn:Thank you.

Operator:Your next question comes from Timothy Michael Moore with Clear Street. Please go ahead.

Tim Moore:I appreciate it. And nice job on the free cash flow and the working capital management. That was nice to see. 1 thing I want to follow up on, I am guessing maybe why the stock is not you know, what it is doing today. You know, I know that the orders are lumpy, and we understand your guidance. And it seems like December could be a pretty good quarter too. Could you just elaborate a little bit more on kind of the pull in maybe into the September quarter, maybe roughly how much that was? Because, I mean, you will have Comtrafo for 2.5 months. In this December quarter, that is maybe 10 million in revenue.

I mean, I know wind you know, has been very strong and maybe that is not because you did phenomenally well, almost 50% growth the last 6 months. But is there anything else you can maybe tell us on kind of wrap my head around the organic growth on the grid side implied by guidance? For the December quarter.

Daniel Patrick McGahn:Yes. it is pretty much across the board. What we are seeing is the desire for our customers are trying to push us to be able to go faster than the contracted lead times. So if you go back to the June quarter, think we guided 85. We delivered almost 95. Right? So you are almost $10 million up relative to where we thought the pace of the business would be in June. And then we are saying again today that happened again in September. Usually, that--that is, you know, the next quarter, it will be a struggle to keep pace because you might have projects that have pulled forward. That you cannot then backfill into the next quarter.

And what happened is we had 6 months of this. And what I am saying is I really do not know in December if there is gonna be more of those or not. Typically, in the December quarter, most of our customers celebrate holidays at the end of the year. So often, the last week or 2 of the December quarter there is not a lot of shipment activity. We have had projects where we have had to get 1 or 2 projects done during that week, but typically, those weeks are not as active.

And given the fact that I know we have a large project on the material side, that is gonna be built Q3 but delivered in Q4. that is really why the guidance is where it is. What we are trying to make sure we are saying is as we look at the second half, however, that in totality, the second half looks very strong as well. So I think the net to all this is we are gonna deliver what we think is going to be a fantastic 2026.

And then we will look at the rate of businesses bringing in orders and delivering on those orders, for instance, in the March quarter, to try to set the tone and the pace for what we could potentially do next year.

John W. Kosiba Jr.:Tim, I think the golden nugget for you to you to think about is the 12 month backlog went up by another 20 million. And, you know, if you take our Q3 guidance and you back that out, I mean, and you know our normal book and burn rate you know, the. it is indicating that we are pretty bullish about the next 12 months of the business.

Tim Moore:Okay. Okay. No, I understand. Yeah. The other question I had was maybe for you, John. Do you run off the Comtrafo amortization pretty much after this quarter? I know that is been a little bit of a drag on COGS. And then just to a more medium-term question. I mean, I know this company could have really high incremental gross margin. I mean, is your revenue continues to accelerate? It seems like you can get a lot of fixed cost leverage. Yes, there is definitely some costs built in already. They might not have to add to as much. Or higher?

Do you see an inflection point in maybe a year or 2 out where really incremental margins could jump up and get to the, you know, the mid thirties a couple years from now? Just kinda curious about that.

John W. Kosiba Jr.:2 separate questions. I will bifurcate both of them. The Comtrafo amortization purchase accounting does fall off after this quarter. Some of it continues through the fiscal year and then falls off into 2028. I would say it starts becoming less meaningful, though. I mean, we are starting to get back to you know, normalized gross margins. When you asked about further margin expansion, yeah, we believe that there is you know, potential to see this business expand margins back into the 30% range, for sure.

Daniel Patrick McGahn:John's really tried to condition me to think more about the bottom line leverage. Because that is really where the company. The cash leverage the company has in the bottom leverage is high. And kind of what we are saying is if right now we are at about $90 million in revenue and about $10 million on non-GAAP, you know, you are at about 11%. We have talked about getting that in the low teens. that is certainly probable and predictable to happen. I think that is consistent with everybody's model already. So I am not telling you anything that you do not already believe, but I think the certainty around that is getting higher and higher.

So what we are trying to do is to get more, you know, net leverage out of the business strictly on the non GAAP line or the operating margin line. And that is really where we are focused on the continued improvement there. If you go back and look at the company, few years ago, we were at 15% gross margin. Now we are kind of bouncing around the high twenties, hitting 30. So we do think there is a step up, but I think it will be more dramatic on, say, the non GAAP line than perhaps even the gross margin line. Understood.

Tim Moore:No. Thanks for that color, John and Daniel. that is it for me.

Daniel Patrick McGahn:Thank you.

Operator:This concludes our question and answer session. I would like to turn the conference back over to Daniel Patrick McGahn, CEO, for any closing remarks.

Daniel Patrick McGahn:I am very excited about the business today, and hopefully, that resonates to everybody listening. Our results are ahead of our expectations. Pretty dramatically. Our orders are outpacing our ability to deliver even at an accelerated rate. Comtrafo is way ahead of plan in North America, which is really a tribute to them and the combined effort with AMSC. And our growth has clear drivers that are there that are going to be persistent for long term investment here over years on our customers increasing their capacity and their need for more electricity from the grid. We are really in a wonderful time at this point.

And I think that as, you know, people look at the results, on average or over longer term trends, this business continues to get stronger. We have a pretty significant cash balance. We are going to look at how we can do more for our customers with that. We are really excited about the future. Want to thank everybody for all their support, particularly their attention today. I really look forward to being able to talk to you next time. Thank you, everybody.

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

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Am Superconductor (AMSC) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool