American Superconductor Corp (AMSC) 2003 Q2 法說會逐字稿

Good morning and welcome to the American Superconductor's fiscal year 2003 second-quarter conference call. With us today is Greg Yurek, president and CEO and Stan Piekos, senior vice president corporate development and CFO of American Superconductor. I would now like to turn the call over to Greg Yurek. Go ahead, sir

Thank you, Operator. Good morning. And welcome to our earnings conference call. I have Stan Piekos with us, our chief financial officer. In our conference call today, we’ll start with a brief overview presented by Stan of the balance sheet numbers for the second quarter and the year-to-date. And then I'll provide a brief update on the operations, key metrics and I'll provide an outlook regarding key events going forward. Finally, we're going to open up the session to your questions. Stan, would you take over and review the balance sheet numbers?

Thanks, Greg. And good morning. Before I get into the numbers, let me provide the following guidance. In our attempt to share information with you, provide insight to help you understand our business plan, we may use statements containing our beliefs, plans, and expectations, which constitute forward-looking statements. There a number of factors and uncertainties that may cause actual results to differ significantly. Please also refer to our SEC filings and in particular, the management discussion analysis for more information on those factors and uncertainties. So that we can get to your questions quicker, I'm going to go to -- make comments on the balance sheet and use cash in the quarter. Our full P and L results were issued last night and it does show our operating results by the three business segments, how we manage our business. So let me make some comments on the balance sheet and cash use. Cash and investments declined to $35 million in the quarter. As a result of a cash burn of $10.6 million in the last three months.

The cash burn was cut more than half from the previous quarter when we used 22.6 million in cash. The cash burn was also significantly below that of the same period last year. We have a chart accessible from the home page of your website, AMsuper.com that shows cash use by quarter for the last three and a half years.

Cash use peaked five quarters ago in Q1 of FY '02 and has declined significantly since then. We expect cash use to continue to decline over the remainder of this year primarily as sales increase and we convert existing working capital, mainly inventory and contract receivables and power electronic systems to cash. Funding our operating loss represented the key use of cash in the last three months. By category, the use of cash in September quarter was $8.3 million to fund the loss on a cash basis. Our reported loss of $10.2 million included depreciation, amortization and other non-cash expenses of $1.9 million.

So, on a cash basis, our loss was $8.3 million or approximately 80% of the cash use in the quarter. We also used $1.2 million to fund working capital requirements, a $1.5 million use of cash to reduce accounts payable, which was partially offset by a $400,000 reduction in receivables.

As said earlier, during the next six months, we expect to generate cash primarily from existing working capital investments and inventory and contract receivables. The third use of cash was $1.3 million for new fixed capital expenditures, essentially all in Devens.

Our plan is to end this fiscal year with between $28 and $35 million in cash, cash equivalents, and long term investments with no long-term debt. We have options like monetizing our debits plan assets with mortgage to raise more cash. I'll now turn the microphone back to Greg who will have some comments on our business development issues before we take your questions.

Thanks, Stan. I'll take about five to ten minutes here to make some remarks before we open this up to your questions. The earnings announcement that we released this morning has a lot of information regarding our financial results. Stan just reviewed some of those. There's also a long list of accomplishments for the first half of our fiscal year. I think we'll cover most of that information in the question-and-answer period, as you wish.

Stepping back from the details for a moment, I believe we can all acknowledge that the economic downturn in the U.S. economy has been very long, very tough on both businesses and investors, and certainly AMSC has not been an exception to this difficult problem. During this downturn, we at AMSC have kept our noses to the grindstone, executing on our business and technology development plans, controlling and cutting costs, and working with other companies to prepare for the eventual upturn in the economy.

As you can see from our midyear report, which is included in the earnings announcement, we have been making steady progress with our plans to build a profitable, growing company, a company that is the leader in HDS technology and business. During the economic downturn we continued to invest in technology development and manufacturing scale-up, so that we're ready for growth when the upturn comes. This continued investment, of course, has continued to use the cash off of our balance sheet.

As Stan just mentioned, we have on our website, and there's a link in the earnings announcement to this site, a chart showing our cash balance. It's cash/cash equivalence and long-term investments - which I'll just call cash here. And, also on that chart is the quarterly use of cash or what most people call the cash burn. As Stan pointed out also, you can note that our use of cash, our cash burn, peaked in the June 2001 quarter and it’s trended downward over the last five quarters.

The major build-out of our new wire manufacturing plant in Devens, Massachusetts, is behind us, which has slowed the cash-burn. And we have continued to control and to cut our operating costs during this period of time, while still working hard on focused technology development. Our cash-burn for the September 2002 quarter was down to $10.6 million for that quarter. We expect our quarterly cash burn to continue to decrease going forward, based on continuing controls of our cost but primarily due to positive cash generated from operations.

The two main sources of cash during the next two quarters and during the next two years are expected to be based on sales of our power electronics systems such as [DESMAS] and [DVOR]and U.S. Navy contracts for the development and deployment of ship propulsion motors and generators. As noted in the earnings announcement, deliveries of power electronics systems to customers is quickly converted into cash because the products come out of existing inventory.

We currently have bids in on $20 million worth of business, in which the customers have budgets in place, voiced solutions of the type we provide, and the customers expect to select the winning vendors within the next six months. We already have verbal commitments from two of these customers. So, we believe it is not unreasonable, based on our very positive performance in competitive bidding situations, that we could generate $5 million to $10 million of business from these sales during the remainder of our fiscal year.

That's $5 million to $10 million in cash back on our balance sheet. The other major opportunity we are engaged in is a proposal to the U.S. Navy for the development, manufacture and test of a 25 megawatt HTS ship propulsion motor. This is a new item. It's noted in the earnings announcement. The Navy has selected AMSC on the basis of a competitive process to submit a proposal by December 2nd for the demonstration motor which is to be on the Navy's dock by September 30th, 2005. The Navy has also requested a proposal for a 26 megawatt generator and a 36.5 megawatt motor to be delivered a year or so later.

The Navy expects to fund the first year of this four to five-year contract at $15 million to $20 million. The total value of this contract is expected to exceed $100 million. The Navy expects to name a single winner of this contract in January 2003. More details on the requirements and the schedule can be found on the Navy's website which is provided as a link in our earnings announcement.

Finally, I’d like to note our recent breakthrough results on second-generation coded conductor composite wires. While we have been making great progress on 2G wire during the last year, the very rapid increase in performance over longer lengths, that our technical team was able to achieve over the summer, blew us away. These reproducible results, which are shown on our website, are an outstanding achievement, an achievement that compels us to accelerate the development of our second generation wire manufacturing technology. An acceleration designed to cross over our current commercial wire as soon as possible.

Our first generation multifilametric composite wire is a commercial product today. It’s the HGS wire that will be the work horse for the industry for the next three to four years. Being used in all the HGS cable demonstration and commercial projects, utility generators, ship propulsion motors, and specialty magnets, for example for magnetic separation, that are expected to be built during that time. We believe AMSC's first generation wire will set the standard for the industry for all HTS commercial products.

As showing on the chart on our website, which can be accessed in the earnings announcement today, we see three crossover points for second generation wire going forward. The first comes in two to three years, as the price performance of our 2G wire crosses over and goes below the price performance ratio of our first-gen wire. We'll have limited quantities of second-gen wire at that time coming from our modularly designed pilot manufacturing operation. This limited volume will be sold on a preferential basis to our then-current customers for first-generation wire.

The second crossover occurs somewhat later, when the manufactured volume of our 2G wire exceeds the volume of our first-generation wire. We call this the commercial crossover. As we cross over that benchmark, we'll start to pull back dramatically on the production of first-generation wire. As we have always stated, our strategy with respect to these two generations of HGS wire is the old Intel strategy. That is, be a first mover with your first-generation technology and products and then eat your own lunch and continue to dominate the market with your next-generation technology and products. The ultimate crossover point is when the price performance ratio of second generation wire goes below the price performance ratio of copper. That spells even broader and deeper market penetration by HGS technology. We believe we have the only viable 2G manufacturing technology that can achieve that goal.

We have a lot more we could talk about here, most of which again is outlined in the earnings announcement. I think it's best, however, that we conclude our remarks at this point and open up the session to your questions. Operator?

At this time, if you would like to register to ask a question, please press the ‘1’ on your touch-tone phone. To withdraw your question, just press the pound key. Once again, please press the ‘1’ on your touch-tone phone if you'd like to register a question. One moment. We're going to take the first question from Peter Patterson with Patterson Investment. Your mic is open.

Thank you, Stan. Good morning. Congratulations on a multitude of productive accomplishments. Just to look a little bit at Nordic Superconductor acquisition. I notice the term partnership with South Wire; does this in fact bring South Wire into the family?

Well, as you may know, it's public information that NKT cables and South Wire have been collaborating for about three years now, I think. NST is a daughter company of NKT, which also owns NTK cables. So, that collaboration has been going on. NST wires were used in that South Wire, very successful South Wire, cable demonstration that's been going on for over two years now down in Carolton, Georgia. Now that NST no longer exists, since we've acquired all their assets, we're shutting down that operation. We have, I think, the channel to be the supplier for NKT cables and for South Wire. This is an open market, but I think we're in a very strong position based on price, performance and competition.

Thank you, Greg. One follow-on question. Under new business initiatives, I'm reading about the VLI super cables? I'm wondering where that's going. Is that an extension of first-gen HTS or is it more of a stop-gap measure? Where do you see that going?

Well, VLI cables, Very Low Impedance superconducting cables, is something that's relatively new. It's genesis really comes out of a Rand study that was published earlier this summer. And as we dug into this with our crack transmission planning team, which is centered in our power electronics systems business, we have five or six guys there that are experts in transmission planning. With new data that became available to us on cable performance parameters, we found that very low impedance of superconducting cables, and it's really the coaxial superconducting cables that have this VLI performance, turns out you can insert cables into the grid at the right locations and create tremendous upgrades in transmission grid networks at much lower cost than you would have to pay for with conventional cables to upgrade the entire system. So what we're doing here, Pete, is leveraging our expertise in transmission planning. Where should you put these cables?

Our expertise in project management and our work with cryogenics companies and now that we're free to work with all cable manufacturers and sell our wire to all cable manufacturers, bring in the right cable manufacturer for each specific job that we're looking at. So, we expect to develop a number of projects, be the leader on these, using our expertise, bringing in cable manufacturers. There probably will be different ones for each different cable project. But, Pete, it's all first-generation wire. And, of course, when we do the crossover and get to sufficient volumes of the second generation wire, it's a form fit function replacement for first-gen, so it will be real easy for all those cable manufacturers to simply buy our wire and slip it into their cable-making machines at a lower price point.

Thank you very much. And keep up the good work.

We're going to move on and take the next question from Eric Prouty with Adam Harkness. Your mic is open.

Great. Thanks a lot, guys. First a couple of housekeeping questions. Stan, could you just give us the R&D and SG&A expenses during the quarter and maybe a little guidance of where you see those levels going?

Eric, we actually break down the R&D and SG&A in the Q. We haven't done that yet. The total results here are cost expenses by because we have contracts and a good deal of our R&D is in our contracts. The trend, though, and it's been the trend in the first quarter, R&D will be -- is coming down. The SG&A and the emphasis on the front end S is flat to up.

Okay. Great. And then just a couple other questions. Greg and Stan, could you give us a little guidance? It seems like you're accelerating some of your work here on the YBCO wire. How much of your equipment up in Devons whether it's the back or the front-end equipment can be used in both the first and the second generation wire? And what would be your CAPEX needs to get full production for second generation wire?

Very, very little of the first generation wire equipment can be used here. In fact, that has to be dedicated to meet the needs of customers. So we can’t really divert it. But in the end, you know, if you just really took a slice through there and said, “I'm going to take out what equipment I can use for second generation,” it would be about 20% of what we have in Devons. But again, that -- all of that equipment has to be dedicated to meeting customer needs over this next three to four-year period of time.

So, your second question, what’s the capital requirements for second generation? Let's think in terms of those crossover points. The first crossover point is that we get the price performance ratio of 2G wire below that of first generation wire. We think that’s significant. And we're talking here on the sort of $50 per kilo amp meter range as the price per performance ratio where crossover occurs. We think that’s significant because that will clearly start to open the market up and will pave the pathway for us to, in fact, increase our volume capabilities there.

What we’re doing with second-generation wire is a modular approach. So this is sort of like a Lego block approach, based on our high-volume low-cost manufacturing techniques.

The first block here, Eric, I would say it’s going to be $15 million to $20 million of investment, capital investment here. I think a large chunk of that can and will come from the U.S. government. We are, in fact, now going after specific contract opportunities with the government. You may have noticed that recently we got a $2 million contract from the U.S. Department of Commerce. And that is specifically on for one of the key pieces of capital equipment for that operation.

The Department of Defense and the Department of Energy, as you can well imagine, are vitally interested in seeing the success of our second-generation wire technology go forward. And there are quite significant contract opportunities there for capital equipment specifically, as well as other development contracts. So, that's going to be our -- I think one of the key sources for this capital, Eric. Again, $15 million to $20 million for the first module to get us to that price performance crossover. And then at that point, I think we'd have a proof point, and we’d be looking to expand beyond that. But, we'll look at sources of capital for that on a going-forward basis.

Great. Then, just one follow-up. You know, Stan, what are the CAPEX needs for the remaining two quarters of this year?

They're -- they'll be in the $3 million to $4 million range. And that will be below the depreciation amortization expense and the P/L during that period of time.

Great. And $3 million and $4 million for both quarters combined?

Total, six months.

All right, we're going to take the next question from Jarett Carson with RBC Capital Markets.

Good morning. In your release, you talk about and I believe you maybe alluded to it, potential orders for 120 kilometers of wire relative to -- you've scaled back the capacity to 900 kilometers at the Devons plant? Is that roughly correct?

Well, you're kind of mixing apples and oranges there. But, you have some correct numbers. Let me just try to put it in perspective. We have -- earlier we guided to say that in the January 2000 -- in January 2003, we'd have a capacity in Devons of 1,000 to 1,500 kilometers production capacity. We have cut back on our use of capital or expending for capital equipment and decided to hold it at about 900 kilometers annual capacity in Devons. We know precisely which additional pieces of capital we'd have to take it up to 1500, to take it up to 3,000, to take it up to 10,000 kilometers per year capacity. However, there's no need to spend that until we see the orders emerging here.

So, we have always said that we've built Devons, designed it to be rapidly expandable, and that's where we're at. We've held back on the CAPEX on this for two reasons. One is market demand. Obviously, this economic downturn we've been going through for the last couple of years has slowed people's decision-making processes. So, no need to build up to 1500 kilometers when -- or 900-kilometer capacity, that's about the minimum capacity, by the way, that you'd have out of a Devons operation. Again, rapidly expandable for just in time needs of a customer.

Having said that, you're also asking about orders. We're addressing and tracking over 10 different projects right now that would take significant fraction of that 900 kilometer capacity in the next year. What we mentioned in the announcement was that we have verbal commitments from three of these customers that would add up to about 120 kilometers.

Most of which we would expect to deliver in the current fiscal year as a matter of fact. So that's the numbers. We're just trying give people a sense here of the relative magnitudes here. The second reason, by the way, I don't think I mentioned the second reason that we decided to pull back on the throttle on Devons here is, in fact, this opportunity was second generation wire. We've actually started to transfer and have transferred some of the people, engineers and technicians, from what would have been additional scale-up activities in Devons from first generation wire over into our second generation activities. So that's keeping the costs level here and redirecting some of the work force as we go forward.

Okay. What break-even point, from a capacity standpoint, do you believe you need to achieve in the Devons plant here with 900? What's the order number that gets you to -- positive, let's say, positive gross margins in that facility?

Well, that -- we gave a number before, which was 7,000 kilometers to break even in Devons. Now, that was, of course, fully going forward, first-generation wire. But now we've pulled back, because of the reasons I mentioned. It's possible, based on what we’re looking at in terms of some of these cable projects and generators that are going forward now, commercial developments, that we may get as high as 7,000 kilometers per year production out of Devons, But, we're going to just watch this on a going-forward basis and make those capital investments only as needed.

Remember, based on Eric Prouty's question, only about 20% of the capital equipment or the equipment in Devons will be usable for second generation wire. So, I don't want to -- given that we now have this opportunity, I don't want to make additional investments in the first-generation wire unless we need them. I do see first-generation wire as again what we call the workhorse wire for the industry here over the next three to four years. So, if you look at our chart that we put on the website, we do see expanding the capacity of Devons here. It will peak out and then it will tail off to zero. This is again very much like the semiconductor industry where you build your plant for the 286 processor. You introduce the Pentium chip process, and you close down a plant.

In our case, we're actually with this modular approach on second generation starting the module for second generation in Devons. It's always been our strategy. And we'll expand from that basis going forward. So at least property and plants will be the same here, at least in the first portion of 2G build-out.

Okay. I just want to clarify. You said 7,000. Did you mean 700 kilometers per year to reach gross?

We said before 7,000 kilometers would be the crossover -- the break-even point for first-generation wire.

Okay.

Again, we may get there, but it's hard to say if we’re going to go that far, because second generation is coming on so fast at this stage of the game here.

Okay. One follow-up. On the sales of the --I believe you mentioned was it the (DMAR) would add possibly $5 million to $10 million of cash. That sounds like it's coming out of current inventory. If so, how many systems would you have left in inventory following?

We've got right now, Jarett, in excess of $9 million on the books, net of excess reserves of 2.5. So, there's physically more than that. We've got eight systems essentially complete and ready to go, just like we're able to take the orders last quarter and turn them in the quarter to utilities that we talked about.

Okay. So you would be down to 5 to 6 there?

Would go down by the 5 or 6, yeah.

Right. Okay. All right. Thanks.

Once more, if you would like to register to ask a question, please press the ‘1’ on your touch-tone phone at this time. To withdraw a question that has already been asked, just press the pound key. Once again, if you would like to register to ask a question, please press the ‘1’ on your touch-tone phone. We're going to take this question from Robert J. Smith. Your mic is now open.

Good morning and I'm encouraged by the activity and advances you've made more recently. My first question centers on, I guess, financing needs and just if you've had any exploratory talks with either EDF or GE on possible funding down the road?

Well, Bob, our goal is, as stated in the press release, is to have that somewhere in the $28 million to $35 million range cash on the cash-cash equivalence long-term investments. On the balance sheet here as of March 31st, the $35 million would be possible if we, for example, got the $10 million out of the power electronics systems sales. So, we're driving hard to in fact run the business here, bringing in the top line, taking it to the bottom line and controlling our cash that way. Having said that, our next key goal is to, in fact, to have a positive cash balance as of March 31st, 2004, the end of our next fiscal year. And we think we have a pathway to do that. So right now, Bob, I'm not going to talk about any other plans for -- I guess you're talking about strategic investors here with EDF and GE. That's always a possibility.

You think it's just premature?

I note from the activity that's outlined in the earnings announcement here, there's certainly a lot of big customers that we're working with here to develop products to meet their needs and to jointly approach the marketplace with products. For example, the power electronics systems is co-marketed with GE industrial systems. And that activity has very strongly picked up over the very last three to six months. And we're very, very pleased with how the GE industrial system sales forces has been working on the power electronics systems sales. So, there's always a possibility here for some strategic investments, such as the one we have already from EDF. But there's nothing that's immediately on the table.

And my second question centers on second-gen IP. Maybe if you give me a little color as to your own position rather than National Labs and what whose rights are to the technology.

Yeah. Well, I've given this history many times, but it’s important to just state it briefly again here. We actually started investing in second-generation wire in the spring/summer of 1995, seven years ago. And when we did that, we did it jointly with the Electric Power Research Institute. And they got stock warrants in American Superconductor as a mechanism for return on investment. We jointly invested in -- actually paid money to Los Alamos National Labs at that time to speed up their development of the core technology they had demonstrated in April of 1995.

As a result, we have certain rights to technologies from -- in fact, we have exclusive worldwide rights for all the background technology out of Apry [ph] up until that time, including technology coming out of Stanford and Los Alamos and so forth. The other part of the message here is we've been at it for seven years. I think you know from our history we're very, very aggressive in developing patents to protect the investment our shareholders have made in our technology.

We have over 350 patents that we own outright and licenses to many, many others, almost 200 other patents that we have licenses to. So, with that kind of aggressive history, you can well imagine since we've been at this for seven years that we have a pretty good portfolio of patents on second-generation wire. In fact, we really do have an outstanding one. We have applied for these patents not only in the U.S. but all the key countries around the world. And I think we have a premier position in second-generation wire in intellectual property, patents and know-how.

Could you suggest how much lead time you might think you have, a guesstimate, in this area?

I'd say we have a 15-year advantage. Anybody that wants to come into this game has to look at the kind of foundation -- we've invested $500 million over the last 15 years in developing this business platform. We have top-notch key business leaders we've hired into this company over time. We certainly have the technology leadership well demonstrated. We've partnered with all of the national laboratories, many universities, and laboratories around the world really to garner the best pieces of technology, and then synthesize them into what we think is the --in the case of second-generation wire, for example, the highest performance wire with the lowest cost of manufacturing. That's been our mantra, I think you know this, Bob, focus on high-volume, low-cost manufacturing technologies, whether it's first-gen or second-gen, or third-gen wire for that matter. And we think that's going to pay off for our shareholders in the marketplace.

You noted in the past that in first-gen, you felt that you had something like a two-year lead time. I was just wondering if I could -- if you could suggest something in second generation as well?

Yes, and I think clearly we've enhanced and increased the lead-time over any competitor in first-gen here. Including with this acquisition of NST. We've brought in some good assets here in terms of intellectual property, both know-how and patents. In second-generation wire, I don't know, it's multiple years, Bob. I don't have a real number to -- a hard number to put on that. But we've been at it for a long time. The breakthrough results that we got over the summer are part of the early payoff on this. We're clearly far ahead of everybody else. That's for sure.

Thanks. And parenthetically, you said it, what would third-generation wire look like?

We don't know yet, Bob. But it will be there.

Okay. So it was just sort of a term that you use

Yeah, exactly.

Okay. Thanks so much.

All right. We're going to take the next question from Lawrence Southum with Vector Debtwiler. Your mic is open.

Good morning. Delighted with the progress being made. Couple of questions specifically on the wire. One, you made a reference here to a cost two to five times lower. Does that mean 20% to 50% of the cost of first-gen?

No, I'm talking factors.

Factors. Okay

Factors to two to five times lower. Let me put it in price performance ratios. You know, we are on track here to get to $50 per kilo amp meter as the price performance ratio for the first-generation wire. And I believe we'll get there in this three to four-year period of time where this will still be the key wire in the industry. Having said that, it’s clear to us that because of the manufacturing technologies we have selected for second generation wire, we could get as low as $10 per kilo amp meter price performance ratio for the second generation wire. That's a factor of five.

Okay.

I'm talking about price performance. The costs are going to be somewhat different. And I don’t want to get into….

20%. Okay.

I won't touch that one. Copper, depending on the spot price of copper on any given day, is somewhere in the $20 to $25 per kilo amp meter range. But 50, you know, let's say normally double the price performance ratio of copper, but these wires, first generation wire, can do things that copper can't even think about.

The physics of copper just won’t allow you to build high capacity very low impedance cables that are going to be pumping power from Rhode Island into Connecticut to meet their power needs, or from generators in New Jersey across Manhattan over into Long Island, or pumping power out of a methane coal gas site in Wyoming to the Pacific northwest.

This wire can do it at $50 per kilo amp meter. If you go below copper, however, [inaudible] the door. This means it's going to be a much deeper and broader market penetration by HGS wire.

Okay. Now, the other question here, just to give me some perspective on 900-kilometers of wire, can you give me some idea of what -- of how much wire goes into -- I know cable is multiple pieces of wire. How much wire goes into the rotor of the motor that you just delivered?

Well, let me just give you a term you can use here or a benchmark you can use going forward. For an alternating current cable system, one mile has about -- I'm going to mix units here, but one mile of a cable system, AC, alternating current, uses about 300 kilometers of wire, about 180 miles of wire. All right. So for every mile of AC cable system, you need about 300 kilometers of wire. So, if I get an order for three miles of cable here, I've used up my full capacity that will have in place in January. I believe we're going to see in – by the end of our fiscal year, quite possibly, we'll see orders come in for us for our wire to be used in two or three cable opportunities going forward.

So, we'll start seeing the backlog build up here, I believe. And some of these are going to be on the sort of the mile scale, sort of the next precommercial phase of HTS cables. That phase, by the way, precommercial phase, I think, is going to be over in 2005 going into 2006, and so I see commercial projects clearly in 2006 and going forward. On the motors for the five megawatt motor, I won't give you, again, a precise number here, because the competition is starting to pick up in this area but it's 30 to 40 kilometers of wire for a five megawatt motor. When you get to the 25 megawatt range, you’re going over 100 kilometers of wire per each 25-megawatt motor, such as the one the Navy has selected us to bid on here.

And when you look at the large utility generators and GE put out a very bullish statement last Monday, October 28th, that they're clearly marching down the road quickly towards commercial HTS utility scale generators. Again, you're well over 100 kilometers of wire per utility generator.

Okay. And one other thing, on the motor, you shipped the rotor. They're making the stater. Does that imply the stater is not using super conducting?

That's correct. If you go to our website, you'll see a picture of the rotor assembly. The coils of HGS wire are inside there. I guess I can say there are six of them, six of the coils in there. Also, what you'll see in the picture is the exciter, the power electronics which we built, that starts the motor going and provides telemetry in terms of the operation of that motor in any instant of time. That's our core capability and our core product.

What Alston is doing is putting a stater around that which uses copper windings, plus the housing and all the other components there. They will also provide in that particular project the standard marine power electronic drive, power electronics to give you variable speed drive on that motor.

And related to that, where's the power coming from? What's -- what's –

On a ship, the power comes from an electrical generator. So, depending on which kind of ship you're on, you’ll have a source of power from, let's say, a nuclear plant from a diesel engine, from -- well, those are the two primary ones. Those sources of power drive a generator, an electrical generator, to create the electricity which then goes through a cable to the motor, which directly now drives the propeller. 100% of cruise ships being built today are run in that way, where the electric motor is driving the propeller. That's a revolution that's already occurred over the last ten years now. So, that is why if you looked at our announcement here today, you'll see that the Navy has now said, well, we want also you to bid on a 26-megawatt generator to run the 25-megawatt motor.

Right. That was the logical next step. Yes.

Exactly. And by the way, their request for a proposal on a 36.5-megawatt generator is significant, because if you look into this new DDX electric warship program, that Northrup Grumman won over the summer, that's about the size motor you're going to be using in battleships and cruisers for the DDX electric warships.

Okay. Thank you very much.

You're welcome.

One last time, if you would like to register to ask a question, please press the ‘1’ on your touch tone phone at this time. It appears as though we have no further questions. I'd like to turn the call back over to your moderators.

Thanks very much, Operator. And thanks for participating in our conference call today. I'd like you to note that tomorrow morning we will be putting out a slide presentation on our website. This is a slide presentation that we'll be using in talking to various investors this week and next week in the New York and Boston area. And we wanted to make sure we shared that slide show material with anybody that's interested. So, you'll find that there. We think as a company that we're in good shape now. I don't know when the economy's going to start really roaring back here. That will be a positive benefit for us. But I think you can see from the progress we reported in the earnings conference call that the progress is starting to be good already for us. And we are determined to deliver on our objectives for this fiscal year and going forward. Thanks for your attention.

This concludes today's conference call. We'd like to thank you for your participation and have a great Monday.