American Superconductor Stock: Great Story But What’s Real? (NASDAQ:AMSC)

I follow closely the early stages of a once in a century energy transition, as the end of the fossil fuel era looms and renewables begin to become established. One area that is immature is grid interconnectivity. This is important because renewables (wind, solar PV) are intermittent power providers. While the sun doesn’t shine and wind doesn’t blow all the time in any one place, the sun always shines and wind always blows somewhere on planet earth. Having connected grids will be an important part of maturing renewables energy provision. This works with HVDC (High Voltage Direct Current) cabling, but there are losses.

I’ve been interested in Superconductors as a potential way of moving electricity around with essentially no losses. American Superconductor Corporation (NASDAQ:AMSC) got my attention because it has been in the superconductor space for a long time and it has recently developed a product for interconnecting grids on a city scale through a new product called REG (Resilient Electric Grid), which has been implemented in Chicago. Six months ago I reported on AMSC with special reference to the REG project. Here I provide an update on AMSC. I remain interested in the product but it seems still too early to decide whether this product will be what gets AMSC out of a progressive decline in its share price.

Q4 2021 (ending March 22) earnings call

Investors who follow me know that I’m a fan of quarterly earnings calls because they provide a chance to get from the CEO what is going on and the Q&A is often illuminating. AMSC’s Q4 2021 earnings call was on June 2 and the company provided a presentation on June 22. The presentation was a useful high level overview of the different elements of the AMSC business, but there was little detail provided to help investors understand how the business is travelling.

Financial coverage on the call indicated interesting top line results, but less comfort when the full picture emerged. The Grid business has become the major revenue driver for the company which produced 12 month revenue of $108.4 million, up 24% on the previous year. The Grid business grew by 40%. The wind business declined by 42% over the past 12 months. Annual gross margins were down from 20% in fiscal year 2020 to 12.4% in 2021. An acquisition with a backlog of poor margin products was partly responsible for this decline and gross margins are expected to improve in late 2022 financial year (which finishes March 2023). The non-GAAP net loss for 2021 increased from $14.1 million in 2020 to $17.1 million. Operating cash burn for the full fiscal year was $19 million. The company ended 2021 fiscal year with $49.5 million cash. 2022 looks likely to be more of the same…the cash position at the end of Q1 2022 (June 2022) is likely to be not less than $43 million. The losses look to continue.

The naval project (Ship Protection System) was delivered to the USS Fort Lauderdale and this is the first of 4 systems for the San Antonio Class platform. The tense global situation is used to suggest that more Ship Protection Systems might be of interest to the US navy, but there is no indication of any specific opportunities in that area.

Status of the REG (Resilient Electric Grid) project in Chicago

In my article of last December I noted that the Chicago REG had just been turned on but that ComEd, an Exelon (EXC) company, wanted to review how it was operating after 12 months. We are now at the 6 month mark, so is there any information? If REG performs well the claim is that there are a number of other potential sites which might be interested in evaluating the system. A recent article from Homeland Security Today gives some history and context to REG, which was first conceived in 2007.

In the Q&A section of the Q4 2021 reporting, CEO Daniel McGahn responded to a question about where potential utility customers for the REG product stand. The response was either optimistic or disappointing depending on your perspective. The good news is that there is more than one utility in discussion about the REG product. The bad news is that it sounds like the questions from the utilities revolve around problems they have that the REG product doesn’t (yet) solve. Again the good news is that (unnamed) utilities are engaged, but the bad news is that REG doesn’t sound like the product they want (yet). So the utilities are helping to define the product rather than seeming to be customers at this stage. This is not really surprising for a ground breaking product, but it does sound like REG is not as far along as a product as I had expected from earlier discussions.

AMSC analyst ratings

AMSC continues to be ignored by Seeking Alpha authors, with no articles in the past 30 days and with the last article (I was the author) published in December 2021. Curiously, there remains a very enthusiastic group of 4 Wall Street Analysts who in the past 90 days provided 3 strong buy and 1 buy recommendation. In the past 6 months the AMSC share price has shown a further downward trend, falling by 54.4% to close at $5.32. Seeking Alpha continues its warning that the stock is at high risk of performing badly and this seems like a good call.

Conclusion

I’ve indicated in an earlier article why AMSC attracted my attention. The company is building a product portfolio in several interesting areas of the renewables industry, but it is yet to get traction to bring the company towards profitability. It doesn’t need to raise money in the near term, but it does need a change of fortune soon to avoid need for further shareholder dilution. I’m disappointed that the REG grid resiliency product seems less mature than I had concluded previously. It seems that there are a number of unsolved problems needing to be addressed before there will be acceptance by utilities more generally. My takeaway from the June earnings report is that the company is clear that it is operating in a growing area of the renewable energy transition. What isn’t clear is how competitive its products are, or in some cases how mature the potential products (including REG) are. I’m waiting until a path to profitability becomes clearer. If you are already an investor, then it may be a time to hold for more clarity about the business.

I am not a financial advisor but I follow closely the dramatic changes in the energy industry as the transition from fossil fuels to renewables begins to take hold. I hope that my comments about AMSC help you and your financial advisor in evaluating investment in this area.