American Superconductor Corp (AMSC) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the American Superconductor fiscal 2005 fourth-quarter and year-end teleconference call. With us today are Chairman and CEO Mr. Greg Yurek, as well as Kevin Bisson, Senior Vice President and CFO of American Superconductor. During today's teleconference, all sites will remain in a listen-only mode until the Q&A portion of today's call at which time I will prompt the audience on how you may register your sites for a question.

At this time I am pleased to turn the floor over to Mr. Greg Yurek. Please go ahead, sir.

Thanks, Jim. Welcome to our fiscal 2005 fourth-quarter and year-end earnings conference call. On the call with me today is not only Kevin Bisson, our Chief Financial Officer, but also Dave Paratore, our President and Chief Operating Officer.

In the call today we are going to review the numbers that we released in this morning's announcement. We will also provide a brief update on key benchmarks that we have laid out for you previously, and then we will open up the session to your questions. First, however, I would like to ask Kevin to provide the Safe Harbor guidance and to also provide highlights on the financial reports. Kevin?

Thanks, Greg, and good morning, everyone. Before we begin discussing financial results for the fourth quarter of fiscal 2005 and our outlook for fiscal 2006, let me provide the following guidance. In our attempt to share information with you to 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 are a number of factors and uncertainties that may cause actual results to differ significantly. Please also refer to our SEC filings and in particular management's discussion and analysis for more information on these factors and uncertainties.

Now turning to our fourth-quarter results, revenue for the fourth quarter was 12.9 million, which was 1.3 million or 10% higher than revenue in the fourth quarter of fiscal 2004. It should be noted that the $12.9 million in revenue for the quarter represented the second highest quarterly revenue number in the Company's history coming off all-time record revenue for the December 2004 quarter.

Year-over-year revenue growth was driven principally by increased D-VAR shipments at Power Electronic Systems, PES, primarily through a wind farm application and increased subcontract work on the LIPA cable project, offset by lower revenue for the Navy Motor Program and lower wire shipments at AMSC Wires. Revenue for all of fiscal 2005 amounted to 58.3 million which was 17 million or 41% higher than revenue of 41.3 million for fiscal 2004. Each of our three business units demonstrated year-over-year revenue growth led by PES with record revenue of 15.7 million, due primarily to increased D-VAR shipments for wind farm applications along with the delivery and commissioning of four PQ-IVR industrial power quality units for a large U.S. semiconductor manufacturer.

SuperMachines also turned in a record revenue year sparked by the start of the manufacturing of the Navy's 36.5 megawatt HTS ship propulsion motor. AMSC Wires also enjoyed a record revenue year driven by continued design and cable sample testing on the LIPA cable contract and increased wire deliveries for selected cable and specialty magnet applications.

Orders received during the fourth quarter amounted to 10.4 million which was substantially higher than the $2.6 million of orders generated in the fourth quarter of fiscal 2004. PES generated $6.7 million of orders during the fourth quarter paced by D-VAR orders for four wind farm customers. In addition, AMSC Wires obtained several first generation wire orders most notably for the recently announced Ultera cable project in Columbus, Ohio.

Backlogs of March 31st, 2005 stood at 34.2 million which was down 2.7 million from backlog of 36.9 million at December 31st, 2004. Of the 34.2 million in backlog at the end of March a record 9.9 million related to PES. Also, of the 34.2 million in the March ending backlog, 28.8 million is expected to be recognized as revenue in fiscal 2006. When combined with planned funding modifications to two existing contracts, we have current visibility to approximately 42 million in revenue for fiscal 2006.

Orders for the fiscal year ended March 31st, 2005 totaled 29.2 million, which was up 1.8 million from orders of 27.4 million generated for all of fiscal 2004. Fiscal 2005 orders included a record $22.1 million for PES, while fiscal 2004 orders were largely weighted towards the awarding of the LIPA cable contracts.

The operating loss for the fourth quarter of 8.5 million was 3.9 million higher than the operating loss of 4.6 million in the fourth quarter of fiscal 2004. The operating loss for the fourth quarter of fiscal 2005 included a $2.7 million charge related to the Company's litigation settlement with TM Capital, a past financial advisor to the Company. The $2.7 million charge encompasses a $1.7 million cash payment that was made in April, as well as stock warrants valued for accounting purposes at $1 million.

In addition to the charge for the litigation settlement, the higher operating loss in the fourth quarter of fiscal 2005 compared to the fourth quarter of fiscal 2004 was due mainly to lower HTS Wire shipments at AMSC Wires and increased 2G wire development expenses partially offset by increased sales volume related margin improvements at PES.

The operating loss for all of fiscal 2005 was 20.3 million, which was 5.4 million or 21% favorable to the $25.7 million operating loss for fiscal 2004. As with the fourth quarter, the full-year operating loss included the $2.7 million litigation settlement charge.

In addition, for the first time in the Company's history, two of our three business units, SuperMachines and PES, achieved full-year profitability capped by PES attaining its first fiscal year of profitability. Net loss for the fourth quarter was 8.2 million, which was 3.7 million higher than the net loss of 4.5 million in the fourth quarter of fiscal 2004.

Net loss per share for the fourth quarter of $0.28 per share was higher than the $0.16 per share loss in last year's fourth quarter. The litigation settlement charge contributed $0.09 per share to the net loss per share for the fourth quarter.

Net loss for the full year ending March 31st, 2005 was 19.7 million, which was 7 million or 26% favorable to the $26.7 million net loss for fiscal 2004. Net loss per share for all of fiscal 2005 of $0.70 per share was favorable to the $1.10 per share of net loss in fiscal 2004. The litigation settlement charge contributed $0.09 per share to the net loss per share for all of fiscal 2005.

Turning to the balance sheet, the Company ended fiscal 2005 with $87.6 million in cash, cash equivalents and short and long-term investments compared to the corresponding $45.5 million balance at December 31st, 2004 and the $52.6 million balance at March 31st, 2004. The 42.1 million and $35 million increases in cash and investment balances for the fourth quarter and full year respectively were positively impacted by the net proceeds of 45.5 million from the Company's secondary stock offering completed in March of 2005.

For the fourth quarter, the remaining change in the balance of cash and investments of negative 3.4 million is due principally to the Company's net loss of 8.2 million offset primarily by $2 million of non-cash depreciation and amortization expense and lower Accounts Receivable due to improved collection efforts in the fourth quarter.

For the fiscal year ending March 31st, 2006, the Company expects revenue to be in the range of $55 to $65 million. As we mentioned in the press release issued this morning, we are planning for fiscal 2006 to be a transition year as the large Navy Motor and LIPA cable contracts come closer to their anticipated completion in mid-calendar 2006. Efforts that began last year to replace these contracts are continuing with subsequent contracts targeted to begin by the end of fiscal 2006. We anticipate these contracts to derive from a series of HTS cable projects and follow-on Navy contracts.

Similar to fiscal 2005, the Company's quarterly revenue profile for fiscal 2006 is expected to be more heavily weighted toward the second half of the fiscal year due primarily to the anticipated timing of the Navy's funding for the large motor contract, as well as the timing of revenue to be recognized for PES during the year. The net loss for fiscal 2006 is anticipated to be in the range of 18 to 23 million with the corresponding loss per share to be between $0.55 per share and $0.70 per share.

Before I turn it back to Greg for his remarks, I would like to remind everyone that consistent with our prior earnings conference calls during the question-and-answer portion of the call we request that you ask only one question at a time. If you have an immediate follow-up question to clarify our response, we will be happy to answer that question as well. Otherwise, if you have additional questions, please allow others to ask their questions first in order to allow as many people as possible to participate in the question-and-answer session.

Thanks and I will turn it back to Greg.

Thanks, Kevin. We provided a significant amount of information for you today in the earnings announcement, so I will refer you to that documents for details and I will keep my remarks here rather brief.

In the earnings conference call we held on February 3, we provided a list of nine key benchmarks that management and you could utilize to track and measure our progress toward achievement of our business objectives. We also discussed two significant catalysts for our business, the Energy Bill and the Kyoto Protocol.

Today I would like to review the benchmarks we made out for you and to update on the progress for each of them. I will also add a couple of new benchmarks that will further delineate our objectives for the business, and I will make a few comments to tell you about the Energy Bill and the Kyoto Protocol.

The benchmarks we spelled out on February 3 were ones we said we were expecting to achieve in total by mid-calendar 2006. In other words, by the time of the annual meeting of shareholders at the end of July 2006. Some already have been or will be accomplished before then. Some will, in fact, take until the summer of 2006.

Let me go through these benchmarks. Our first benchmark was achievement of 58 to 61 million in revenue for the fiscal year ended March 31st, 2005. As we reported today, we achieved this benchmark having reported revenues of 58.3 million for the year.

With fiscal year 2005 now behind us, it is time to checkoff benchmark number one and replace it with our current revenue guidance for fiscal 2006, which is revenue in the range of 55 to $65 million.

The second benchmark we laid out for you was the demonstration of our second generation or 2G 4-Centimeter technology on a reproducible basis in our pre-pilotline and to be shipping 2G wire. We are making great progress towards achieving this goal. In fact, we're ahead of schedule in some areas, and we fully expect to meet this benchmark.

Let me give you a bit more detail. At this stage, we have commissioned virtually 100% of all the new equipment in our 2G wire pre-pilot line. We have also run several 4-Centimeter wide strips of 2G HTS material through the entire multistep reel-to-reel process. This includes slitting the 4-Centimeter wide strips into 8 industry standard .44-Centimeter wide wires and laminating them with copper for strength, durability and electrical stability. The icing on the cake was that we even demonstrated splicing of multiple links of the fully processed 2G HTS Wires. Much to our delight, the first 2G HTS Wires out of the gate exceeded our expectations.

The bottom line is that the full process demonstration we just completed is very encouraging because it validates our key manufacturing assumptions for our proprietary 2G HTS Wire manufacturing process. So at this point we are in great shape to achieve benchmark number two, and this includes shipping small quantities of 2G HTS Wires to customers during the second half of calendar '05.

The third benchmark that we plan to start -- is that we plan to start ordering and putting in place a significant amount of the equipment needed for our 2G pilotline. Our publicly stated plan is to get the 2G pre-pilot line up and running, demonstrating reproducibility of wire production, make adjustments to the pre-pilot line as we go forward and leverage all of this knowledge and experience to finalize the specifications for the pilot manufacturing equipment.

The plan we have reviewed with you previously is that we would start to order pilot manufacturing equipment beginning in the last quarter of this fiscal year. When we start ordering the equipment it will be a signal that we are satisfied with the operation of the pre-pilot line and of the manufacturing, technologies and strategies we have selected for 2G HTS wire and that we are continuing our ramp-up of 2G wire production.

We expect that the timing we have laid out for ordering the pilotline equipment will keep us on track to have a pilot manufacturing capacity of about 300,000 meters per year by December 2007 as previously forecasted. The bottom line, we expect to meet this objective.

Now as we have said in numerous occasions 2G HTS Wire is the future of the Company. We are very encouragement our progress on scale-up of 2G and for our prospects this year and beyond with 2G wire manufacturing.

The fourth benchmark was the formation of a new corporate strategic alliance focused on 2G HTS based fault current limiters. Recall that fault current limiters are basically surge protectors for the power grid. We checked this box when we announced in February 2005 that we had signed a strategic alliance with Siemens Corporation to develop 2G HTS fault current limiters. Quite frankly, we believe this is an outstanding accomplishment because Siemens is a global leader in power transmission grid equipment. They have been experts in super connectivity for decades, and they selected AMSC as the Company of choice for 2G HTS Wire for their fault current limiter product development.

The fifth benchmark we set was installation of the world's first transmission voltage VLI superconductor cable in the commercial grid of Long Island Power Authority. Simply stated, this project is on track to be completed on schedule in mid-calendar 2006.

This is truly a major benchmark for our Company and think about this. It's only about 14 to 15 months away. Achievement of this benchmark will clear one of the major final hurdles to the commercialization of high-capacity controllable superconductor cables. So we are all going to be watching this one carefully.

In the earnings announcement this morning, we stated that we rescheduled a shipment of the wire for the LIPA cable project to the second quarter of this fiscal year. While this will not delay the installation of the LIPA project itself, I would like to provide you with more detail. Because the wire specifications and the cable specifications shifted during the last quarter based on tests of sample cables that Nexans made with our wire, we felt it was prudent to take the time to modify the wire in the final lamination step of the manufacturing process. The net result has been a rescheduling of the wire shipment to the second fiscal quarter of this year. Let me reemphasize, however, that there has been no delay in the installation and integration of the HTS cable in the LIPA grids on Long Island.

The sixth benchmark was the receipt of wire orders for two additional HTS power cable projects. With our recent announcement of the wire order we received from Ultera for their HTS cable project with American Electric Power in Columbus, Ohio, we have successfully completed half of this fault. We expect to deliver the 48 plus kilometers or about 30 miles of HTS wire to Ultera this summer which means we will be recognizing revenue for this wire order in our second quarter, and we are highly confident we will receive a second cable wire order by the end of this calendar year to fully achieve this benchmark.

The seventh benchmark was shipment of the first commercial SuperVAR synchronous condenser. As we stated in the earnings announcement this morning, the SuperVAR prototype is doing quite well and has now accumulated more than 1400 hours of operating time on the TVA grid where it has successfully handled hundreds of thousands of voltage events. TVA is pleased with the performance of the prototype, and we are negotiating the specifications for the commercial machines and the timing of the delivery of the product.

As we stated in the announcement today, the earliest we foresee shipment to TVA and commissioning the first commercial machine in their grid is at the end of our fiscal year, and this is likely to slip into the first quarter of our next fiscal year. A key reason for this timing is that AMSC has not been willing to invest in the ordering of long leadtime components for the machines until a complete product specification has been defined. We fully expect to achieve this benchmark as planned and will do everything we believe is reasonable to deliver it early without sacrificing our profitability goals for the SuperMachines business unit for this fiscal year.

The eighth benchmark we set was completion of the manufacturer of the 36.5 megawatt HTS ship propulsion motor for the U.S. Navy. We expect to achieve this benchmark as planned in early calendar 2006. In addition, we expect to complete factory testing and delivery of the motor to the Navy in the summer of 2006, all on plan. We are quite happy with the progress on this product development project, and based on the performance to date of our HTS ship propulsion motors and that of competing motor products, we believe we are strongly positioned to have our 36.5 megawatt HTS motor selected for use on one of the first modern U.S. Navy platforms to utilize electric drive. We expect our strong performance to date on this Navy development contract bodes well for us to receive additional Navy contracts for HTS ship propulsion systems. In fact, we anticipate receiving the first follow-on Navy product development contract by the end of fiscal 2006.

Finally, in our February 3 conference call, we stated that our ninth benchmark was the formation of a strategic business alliance with one of the major players in the global electric ship propulsion market. The objective here is to optimize our penetration of the worldwide commercial ship propulsion market with our high-power density HTS motors and generators. This will supplement our marketing and sales effort with the U.S. military, which is already covered by the strategic alliance we formed with Northrop Grumman Marine Systems in October 2004. Our intention is to form an alliance with a business partner that has both the appropriate industry experience and market presence worldwide which will help us grow sales more rapidly. We believe we are on track to achieve this benchmark by the end of calendar year 2005.

It is appropriate to add a new benchmark to this list at this point in time, and in fact this was already addressed in the earnings announcement this morning. This new benchmark, by which you will be able to measure our progress, is winning a series of substantial multiyear contracts for HTS cables and follow-on Navy development work. By substantial, we mean tens of millions of dollars per contract. Because we have been working diligently for sometime toward this objective and because we have been quite successful today with our existing contracts, we expect to achieve this objective by the end of our fiscal year which ends March 31st, 2006.

We can go into more details on these in the question-and-answer period if you like. So that is a new benchmark we are adding in.

So that is the progress report on our key benchmarks through mid-year of calendar 2006. We are going to keep you informed of our progress over the next month and quarters as we go forward.

Now let me conclude my remarks by commenting on the passage of the Energy Bill by the U.S. Congress, which is something I get asked about quite a lot. We believe passage of the Energy Bill would be a significant catalyst for our Company, and we also believe there is a very good chance the bill could be passed and signed into law this year.

Over the last several weeks, President Bush and members of his administration including new Energy Secretary Sam Bodman have been stumping not only on behalf of the Energy Bill which Bush wants to sign in August, but also on behalf of superconductor power cables. Here is what the President had to say on April 27 at the National Small Business Conference in Washington.

"As we conserve energy at home and on the road, technology will help us deliver it more efficiently. New technologies such as superconducting powerlines can help us bring our electrical grid into the 21st century and protect American families and businesses from damaging power outages. We have modern interstate grids for our phonelines and our highways. It is time for America to build a modern electricity grid."

We appreciate the support of President Bush for superconductors and for the Energy Bill. Passage of the Energy Bill would be a great catalyst for our Company for two reasons. Number one is that the electricity title of this bill as currently proposed provides $140 million for HTS development including HTS grid solutions, and we expect this to lead to one or more large-scale superconductor power grid projects. AMSC is strongly positioned to capture a significant share of these new funds.

And number two, the electricity title mandates strict enforcement of power grid reliability standards. This means rules with keys in them for the first time and it means that utilities will be forced to take action sooner rather than later in making buying decisions on reliability solutions such as our D-VAR and SuperVAR product lines. This would certainly be a catalyst for more sales in an environment where we are already enjoying significant growth in sales to date.

And I want to repeat what I said on February 3 regarding the signing of the Kyoto Protocol which occurred later in February. The protocol calls for a significant reduction in greenhouse gases. Even though the U.S. was not a signatory to the actual Kyoto Protocol, the Bush administration has outlined its policy to achieve reductions that are even greater than called for by the Kyoto Protocol.

The bottom line, higher efficiency HTS electrical systems means less fossil fuel consumption and a U.S. deal we report says the potential savings from widespread adoption of HTS solutions would mean a reduction of up to 30 million metric tons of carbon equivalent emissions per year in the U.S. alone.

In addition, also related to the Kyoto Protocol is the utilization of our VAR products to enable the control of voltage for power coming from renewable electricity generation sources such as wind farms so that they can meet the grid interconnection standards. As of April 2005, we have received orders for our D-VAR systems for 10 wind farms in North America and Europe. This will bring the total wind generated electric power served by AMSC D-VAR systems to more than 670 megawatts or enough clean zero emission energy to meet the needs of more then 335,000 homes.

The growth of wind farms has been great for our Power Electronic Systems business. In fact, it made up 40% of the revenue of Power Electronic Systems in fiscal 2005. We expect to see increasing sales for D-VAR for wind farm applications in fiscal 2006 and going forward.

In closing, I want to underscore that we had a great fiscal 2005 of progress in pursuing our financial, business and technical goals this past year has been rewarding. We're excited about the future of our Company and where we are headed, especially with our 2G HTS technology and manufacturing process.

We are now happy to take your questions.

(OPERATOR INSTRUCTIONS). Ed Litman (ph), William Blair.

I was hoping you could add a little color around the guidance, and I guess specifically where you guys think the upside from the 42 million of visibility and rolling that forward to the guidance number? And then as kind of a follow-on, what that visibility represents between the 42 million and the 29 million that is in backlog right now?

Let me just give a general comment and then ask Kevin to perhaps fill out a bit more. First of all, that backlog, that visibility of 42 million includes 9.9 of backlog that we already have in place with Power Electronic Systems. We're expecting that business which hit 15.7 million in the fiscal year just ended to show some pretty darned significant growth year-over-year. So look for that to add in on top of the 42 in a significant way.

In addition to that, we are expecting additional wire orders. Some of those are indicated in the benchmarks I just reviewed. We are confident we're going to be getting those in. That is key. And then also in the benchmarks, we are expecting a series of new HTS cable contracts and Navy follow-on contracts by the end of our fiscal year, and those we think will start hitting toward the end of our fiscal year, maybe December into the last quarter. So that is the basic way we add that up for this fiscal year.

We also think those contracts that we're talking about are going to give investors some pretty darned good visibility for the fiscal years moving forward cause these are all multiyear tens of millions of dollars per contract. Kevin, do you want to add a little bit more on this?

I think you handled the first piece. What was the second part of your question?

Well, I think you kind of hit on both of them in terms of I was just trying to understand how to bridge those two gaps in your numbers. And then I guess with the Navy orders, you mentioned that you're looking for some of the follow-on orders to come in the back half of '06. If those tend to slip a little bit, can you talk about how much of that the overhead that you're allocating right now to the 36.5 megawatt motor project, can that all be absorbed by SuperVARs, or how can you bridge that gap if by some chance that a follow-on order gets pushed into maybe fiscal '07?

Well, let me give a general comment first of all. Don't forget the government fiscal year starts October 1. So with the work we have been doing, we're expecting to have their government fiscal year, their fiscal year I should say coincide nicely with the second half of our current fiscal year.

So I think the timing is -- so your premise is that maybe they don't come in on schedule. But, in fact, I think the timing is pretty darned good here.

Let me just comment that you're speaking about our SuperMachines business. Our very strong goal for this fiscal year, again, is to have SuperMachines be self-sustaining. So we are going to keep driving to that. We believe that is important this year as it has been in the last two years. I'm not sure if there is much more we can add to this. Kevin?

No, the only thing I would add would be that we obviously have had contingency plans in place to the extent that those contracts that we talked about earlier come in earlier or later than what we are expecting.

Jim Ricchiuti, Needham & Co.

Greg, I would like to just pursue the potential for larger wire orders that you alluded to. How much of the large-scale cable projects that you talked about in the tens of millions of dollars is contingent on the Energy Bill being signed and being in the second half of calendar '05?

Well, we're looking at a range of opportunities here, Jim, and it is not just U.S. electric utility industry anymore. For example, we are looking at some specific new military applications for power cables, and all cables require a lot of wire by the way. We're looking at DC cable projects. So far no one has really done a DC project at this point in time, and we have been working hard toward achieving that goal.

And then the AC controllable cable projects. In that particular case, the AC controllable projects, that has called out specifically in the electricity title of the Energy Bill. So that one certainly would be bolstered if and when the electricity title comes through.

So it is fair to say that what you're alluding to is not necessarily contingent on the Energy Bill being passed. It also it includes the potential for large wire orders outside the U.S.?

Correct.

Walter Nasdeo, Ardour Capital.

As you were talking about forming a relationship with a commercial ship propulsion firm, I was wondering assuming that that milestone is hit when would you start to expect to see these commercial revenues start to come on board?

Dave, do you want to address that one?

Sure. The milestone itself discusses -- and I want to be clear on what we mean by commercial. Commercial basically means everything besides the U.S. military because there is a lot of foreign militaries out there that are seeing some (inaudible), chest machines, and of course, we have the merchant side of that equation which would be your cruise ships and so forth. So there is a broad band of applications and opportunities with respect to that relationship that we're trying to form.

With respect to when you would recognize revenue associated with that kind of relationship, it's a function of both pieces or both components of that opportunity. So whether it be non U.S. military or in the merchant applications, we could see things happening as soon as I would say 12 to 24 months.

You know we're looking at the second half of calendar '06 is when we think we could be looking at our first order. We see revenue recognition which I think is your question on a going forward basis because these are large orders that typically take 18 months, two years to deliver. So we would expect to be recognizing revenue on a percentage completion basis.

Anyhow, we say the second half of '06. This is based off of activities right now where we are addressing requests for quotes and requests for information coming from around the world right now. So this is active. It is outside of our July, end of July '06 benchmark period. So we will update our benchmarks as we go forward here, and I am sure that will be included going into the next time.

Okay. And just kind of off of that, are you expecting SG&A then to kind of remain somewhat -- mirroring what we did in '05 going forward for this year?

Yes. Well, absent the litigation charge, yes.

Jarett Carson, RBC Capital Markets.

I need to just circle back with the first caller's question on the differences between backlog, visibility and then guidance. A couple of points, though.

You mentioned, what do you believe is the primary difference between what is in backlog for the 12 months and what you are giving guidance for? I mean what is the primary driver for that? So between roughly the 29 and the 42 million?

So the 29 to 42, 29 is signed purchase orders, signed contracts. And as it turns out, there are a couple of key contracts within there that we -- so they are existing contracts -- where we are negotiating modifications, and we fully expect that those are going to be put in place and will take us up to 42. So -- (multiple speakers) that is visibility to the 42.

Okay. So that is more government-oriented stuff?

Those are two major government contracts right, and then beyond that, of course, is bringing in more orders. And as I said earlier, a big chunk of that is going to come through the growth we are seeing -- expecting for Power Electronic Systems this year, and the others will be, as I mentioned earlier, a series of other orders and contracts.

Right. Okay. So the difference between roughly the 29 and the 42 is primarily getting increased funding from government contracts, and then the 42 to 55 to 65 range is going to come from a combination of some of that or power electronics and/or wireless orders. Is that --?

Yes, that is generally true. But you know, it is not -- these are existing ongoing contracts with the government where modifications is almost a normal course of how you do business with the government. So we would not have said we have visibility to the 42 if, in fact, we were not highly confident that those additional funds would come in. We are highly confident. Therefore, the visibility is to 42. Okay? I just want to make that clarification.

That is fair. And then circling back to the wind, clearly this year is going to be a record year. We had not gotten visibility along with the boom/bust cycle that seems to be wind in North America. We have not gotten visibility yet of any extension on the production tax credit. So generally the way things have worked is that in the calendar fourth quarter towards the end of the year, the installations have waned, you get a -- because everything kind of gets pulled forward from, say, calendar of 2006. I mean, you are talking about kind of what your visibility is, and so I'm just trying -- are you being overly aggressive maybe in assuming that you are going -- it is going to continue through, or just kind of the visibility you have for stuff that can happen over the next two to three quarters?

Well, production tax credit notwithstanding or maybe withstanding, don't forget that a lot of our orders during that period you're talking about where the PTC was questionable, let's say, in the past year, we got a lot of orders from Canada, which is not affected by the PTC, production task credit. We also got one from Scottish and Southern in the UK.

Also, I would point out that half of the 10 wind farms that we're serving are in conjunction with Vestas wind turbines. So they are bringing us a lot of new opportunities to address not just in the U.S. where the PTC is in effect or it is in effect now. It maybe questionable in the future, I don't know.

Quite frankly, I think the PTC will go through again because the Bush administration is now getting very vocal in its support of wind farms, and it's hard for me to see why the PTC would not go forward. But having said that, don't forget a lot of our orders have been outside the boundaries of the U.S.

Rob Powell (ph), Ardour Capital.

I guess this is pretty much a question for Kevin. I was kind of concerned with the revenues for the past year and then the forecast going out in terms of, do you still think there is going to be some lumpiness in those as we kind of look forward to next year?

No, if you're alluding to my comment on the waiting of the revenue by quarter, I think we -- as I mentioned earlier, our expectation is that the first half will be lighter than the second half. I think we are not talking a dramatic reduction. I think you are probably seeing maybe 40 to 45% in the first half and 55 to 60% in the second half. But again, a lot of that is due to the expectations of funding on the big Navy Motor contract in the first half of our fiscal year, impacting that as well as the fact that we are expecting our Power Electronic Systems business revenue to be more geared towards the second half of year than the first half of the year. But those are the principal reasons.

In terms of -- I think that -- if that is what you characterize as lumpiness, you know, I don't think it is any different than what we would have done in the past year or so.

Okay. And then actually in the last -- for fourth quarter '05, what was your total revenues that were realized from the backlog orders?

We have to do some adding and subtracting here. (multiple speakers)

The majority of it was not in backlog. There was not much bookings shipped in the fourth quarter. Most of what we booked in the fourth quarter, as I mentioned in my remarks, was with PES, and the bulk of that is going to be booked as revenue in fiscal 2006.

Got you. One last quick question is, do you know what your cash burn was for the last quarter as well?

Yes, the cash burn if -- excluding the impact of --

2.7?

Well, no. Excluding the impact of the stock offering, it was 3.4 million.

Michael O'Brien (ph), Oscar Gruss.

I was wondering if you might give us some idea of what the projected cash burn might be for the current fiscal year?

Well, we have been saying for sometime that our cash burn would be in the 3 to 5 million range. That was what we said for the last 12 months. Obviously the net cash burn, if you do all the adding and subtracting here, for fiscal '05 is on the order of 10.6 million for the full year. So we're staying with that guidance for this fiscal year, 3 to 5 million for the year.

Michael, it is Kevin. Yes, I think we said 3 to 5 a quarter in the past. I think you can (multiple speakers) make that assumption going forward, probably more closer to the 5 than the 3 for the quarter.

I'm told I said per year, 3 to 5 per quarter as Kevin just said.

Jerry Harnish (ph), Independent Advisors.

Some general questions for flavor here. On the LIPA and the Columbus, Ohio projects, how are those two different, and how do they differentiate themselves from the Detroit Edison project? And what does American Superconductor see as the revenue implications of the success of these projects?

Well, very simple differentiation. First of all, I will just say that Detroit, which is back in -- I think finished back in 2000 if I remember --

A couple of years ago, yes.

That was a warm dielectric distribution voltage cable, and so you would keep that in mind clearly differentiated from the LIPA installation, which is a transmission voltage, 138 kilovolts. It is a coal dielectric design. It is a very different cable architecture. Also, we are using Nexans as the cryostat for the cable manufacturer, but also the cryostat manufacturer, and they have decades of experience and success with cryostats which eventually was the Achilles heel in the Detroit project.

Columbus, Ohio American Electric Power project, that is also distribution voltage, 34.5 KV. And that is also -- that is also coal dielectric, but it is not a coaxial, it is a triaxial. It is a unique cable design that Ultera has come up with for distribution voltage applications. So there is some very clear differentiations here.

Both of them are key final hurdles in the commercialization of HTS cables. They are going in live grids, and they will establish performance levels and metrics for commercial orders. So I think that is the answer to your question.

Greg, a couple of other things. Is 2G -- are you finding that the manufacturers are requesting 2G for HTS commercial ship motors before they pull the trigger here?

No, not at all. Again, as we said many times, you can manufacture ship propulsion motors profitably using 1G wire. Certainly all the performance requirements are met already, so that is not an issue here.

In terms of that particular application and other similar applications, SuperVAR would be another one, 2G means more profitability for our Company and our shareholders because we reduced our cost of manufacturing, our margins go up. It means the margins also go up on our rotating machines that we are selling into the marketplace. So no, you don't need 2G for ship propulsion motors and rotating machines like that, but it is going to be more profitability.

On the other hand, when you go to some of the large -- other people's designs, larger scale generation, 100 megawatt, 300 megawatt generators -- some customers are saying they really want 2G for those applications. GE Energy would be a good example there. So we will be very delighted to meet their needs with our 2G wire when we are ready with it.

Last question for you on the TVA SVAR, is that continuously operated online there?

It is actually operated not continuous. The way they operate that facility that it is in support of, they pretty much shut down the facility on the weekends. So it is run somewhat online but continuous. But I will caution you that it is a prototype. So what we do is we take it off-line to do different tests, to do different kind of sampling of data and so forth.

So from the perspective of a 24 by 7, no, it is, indeed, for two reasons. Both the fact that the facility does not run 24 by 7 and the fact that we with TVA are doing different types of tests on it.

Great, because I did have a difference between the 1400 hours and the initial install date, so.

I think that is about 50% available (multiple speakers)

Somewhere between 40 and 50% availability in terms of the amount of time it was on versus the amount of time it could have been on given the fact that they were shutting down for other reasons.

Great. Thanks, guys, and congratulations on the progress with 2G.

Robert Smith, Center for Performance Investing.

You mentioned DC cable. What might a DC power cable project type look like as an example?

What might it look like? I'm not sure what you're really getting at. Bob, can you --

How would you differentiate it with AC as far as the type and size of market, things like that?

Okay. Well, right now our grid is primarily alternating current as you know. Some of the biggest direct current cables or applications are coming from the hydro dams up in Canada down to New York City and Boston. Those are all DC lines.

So long distance is of that nature. Some long distance energy sources is typically DC. We have some up in the Pacific Northwest as well. And then you have between the synchronous regions of the grid, you want to use DC lines. So those are some of the direct or key applications here.

Some people, of course, promote DC on a broader scale. Some of the merchant cables that have been put in from Connecticut over to Long Island, it is a DC cable. And the reason is that it does not create loop flows in the AC grid, and so the FERC, Federal Energy Regulatory Commission, will give you the right to put that in and make money on a merchant basis. So those are the applications for DC, and there are certain entities that want to participate in the merchant business, and DC makes common sense for them.

Okay. Could you briefly go over the 2G pilot plan timeline, and how much wire could we produce in that facility and extend it to full-scale production in the plant?

Sure, I will repeat what we said before for everybody's benefit. Pre-pilot line is expected to be up and operating here in the second half of calendar '05, and with the recent results again, we are enthusiastic, encouraged, happy. It is going really well. The first wire is out of the gate there.

So pre-pilot line is up and operating in the second half of calendar '05. We said we expected to ship about 10,000 meters of 2G wire to customers in the first 12 months of operation of the 2G pre-pilot line. In the second year, second 12 months of operation we expect to ship more than that. But we will keep generating wire out of the pre-pilot line even as we are bringing in the new equipment for the pilot line, commissioning that new equipment which then takes us to December of '07, at which time we expect to be producing around 300,000 meters per year rate by December of '07.

After that, again because the process is modular, we add modules and scale it up to whatever volume we need to. But it all depends on customer demand. So the rate of scale-up from the pilot line to full-scale manufacturing is dependent on customer demand. And that is the good news.

And predicated on LIPA's success, what would be the second stage or phase of that project as far as wire demand?

Well, we are working on a -- the next section is about five miles substation to substation. And that five miles would take about a million meters of HTS Wire.

Jim Ricchiuti.

Another question just with respect to your customers in the transmission and distribution market. As TVA goes through the testing of this, can you talk about the potential for orders from other customers for SuperVAR, or do you really feel you need to see the final signoff from TVA before you see orders?

And also with respect to Power Electronic Systems business, a lot of activity in wind farm. But I wonder if you could just talk about some other just demand for other customers in that area?

Yes, sure. So your first question relates to the SuperVAR, of course. We have been actively engaged, Jim, with other utilities analyzing their needs for VAR support. In fact, every case that we look at whether it is in the U.S. or anywhere around the world for utilities, we are now modeling their systems to find out whether D-VAR or SuperVAR would be the best, the preferred solution.

There are at least two cases right now where clearly SuperVAR would be the best solution, and we are working with those utilities toward the final decision and order.

The rational answer to your question is, I think utilities will want to wait until we have got the specifications with TVA fully negotiated, and that is what we are in the middle of right now with them for the first commercial production units. Once those specifications are set, I think there is enough operating experience here for any utility to say, hey, yes I would like to order one of those. But we want to negotiate the final commercial specs on these production units. I think that is the gate that opens up the path here for new orders. Your other part of your question was?

How would you characterize, Greg, the demand for D-VAR with your utility customers? You have had a lot of announcements and success in the wind farm market, but just in general broader looking at the D-VAR system?

Yes, again, I expect that is going to continue to increase. And one of the reasons, Jim, we mentioned this in the earnings announcement, is that we have been making significant product improvements to D-VAR, and that is virtually all completed during our last fiscal year. Even when we were making those product improvements, we still made a profit in that business unit, so we are very proud of our ability to do that.

Those product improvements I think you are going to start to see hit in terms of orders and then shipments, of course, maybe by the end of this fiscal year and certainly into the next fiscal year. The reason that is important is that, in fact, it takes out more costs from our D-VAR, makes it even more competitive than it currently is, and we think that is an important attribute.

Now I can always go back and point to the electricity title, the achievement in the reliability standards. I believe that is going to happen. I believe it is going to happen this calendar year for sure. Very very strong evidence from Capitol Hill that we will get that. That will be a catalyst even without the product improvements and cost out I think to stimulate further the business with the electric utilities.

Jarett Carson, RBC.

I wanted to circle back on the press release that you had a couple of days ago, a day or so ago on the new performance of the pilot plant. Can you help me get to an apples-to-apples comparison with 1G? I just want to make sure I have got the numbers right.

You said kind of 60 to 70 amperes. That is a .44-Centimeter or so. Do we need to do 1 over .44 roughly, so it is roughly about 150 versus kind of the target is 300 amperes on a 1 centimeter with kind of where you are on 1G? Is that a fair comparison of kind of where you are right now?

Perfect. Perfect. I hope everybody else understood that. You are right on the money.

Ed Litman, William Blair.

Just real quickly on the Power Electronic Systems, Kevin, can you give us some flavor as to why that is so back-end loaded for fiscal '06?

A couple of things. One is some of the wind farms that we won this year, we are the integrator so to speak on these, and in those particular cases, we will recognize revenue when those units are commissioned. And a couple of them are being commissioned in the back-end of the year.

The other reason primarily is that we have still got to go after some orders, as Greg mentioned earlier, to fill that gap between the 42 million of visibility and the 55 to 60 million of revenue. And we are giving ourselves some headroom so to speak to go from orders or recognition of revenue to get those in for the fiscal year.

Jim Ricchiuti.

Kevin, what was the R&D spend in the quarter? And just going forward, can you give us a little sense as to how you see SG&A? How do you see R&D in fiscal '06?

Yes, R&D for the quarter was $3 million. Just to complete the P&L, the gross margin was a negative 100,000, and the SG&A was 5.4 million which included 2.7 million for the litigation. I think that will get you to your operating loss of 8.5 million.

In terms of R&D, I think you will see somewhat of an increase in '06 because we're going to be obviously devoting more effort towards the scale-up of 2G which will involve a combination of increased material costs on the R&D side, increased headcount, and obviously we're going to be depreciating the pre-pilot equipment beginning late this year. But we will get a full year's worth of that in fiscal '06.

So in terms of the 3 million this quarter, if you look at the prior quarters, it's a little higher than what we have had in the last couple of quarters. I think you can expect that run-rate to continue.

Gentlemen, I will turn it back to you for any closing remarks you may have.

Great, thank you. First, I want to comment I should have given a little bit more color commentary perhaps on Jarett Carson's last question here today. But I was so blown away by the accuracy of his statement on the numbers, I could not think at the moment. So thank you, Jarett, for that perfect description.

The point here is that you should all understand I believe that the 2G wire that came out in our demonstration, the one we announced a couple of days ago, came from our 4-Centimeter technology which is a significant way to take out cost in the manufacturing of 2G wire. The uniformity of that 4-Centimeter material overlap was just dramatic. It blew us away. We were delighted about it.

But the bottom line is, we took that 4-Centimeter wide strips, split into the industry standard dimension. It was laminated. We could even splice it, and this is really encouraging.

2G is the future of this Company. We are on the mark with this technology. We feel we are going to be able to maintain and grow our strong market position in HTS Wires worldwide going forward.

So we thank you for your attention today on the call and your good questions, and we look forward to talking to you again next quarter. Thank you.

This does conclude today's teleconference. We thank you all for your participation, and you may now disconnect your lines.