American Superconductor Corp (AMSC) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to American Superconductor's Second Quarter Conference Call. This call is being recorded. All participants will be in a listen only mode until we reach the question and answer session.

With us on the call this morning are American Superconductor's founder and CEO Greg Yurek, Senior Vice President and CFO David Henry, and Director of Corporate Communications Jason Fredette. For opening remarks, I would like to turn the call over to Jason Fredette. Please go ahead, sir.

Thank you, Tiffany, and welcome to our call everyone. Before we begin please note that various remarks management may make this morning about American Superconductor's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the risk factor section, of the company's annual report on Form 10-K for the fiscal year ended March 31st, 2009 and subsequent reports filed with the SEC.

These forward-looking statements represent the company's expectations only as of today and should not be relied upon as representing the company's views as of any subsequent date to today. While American Superconductor anticipates that subsequent events and developments may cause the company's views to change, the company specifically disclaims any obligation to update these forward-looking statements.

I would also like to note that we will be referred on today's call to non-GAAP net income or net income before amortization of acquisition related intangibles, restructuring and impairments, stock-based compensation, revaluation of stock warrants, other unusual charges, and any tax affects related to those items. Non-GAAP net income is a non-GAAP financial metric.

A reconciliation of non-GAAP to GAAP net income can be found in the press release we issued and filed with the SEC this morning on Form 8K. All of our SEC filings also can be accessed from the investor section of our website at amsc.com.

And finally, I would like to mention that we will be hosting our third annual Analyst Day here in Devens on November 19th. Any analysts or portfolio managers that are interested in attending should call me at 978-842-3177. We will be issuing a press release soon containing details on how to access a live webcast of the event.

And now I'll turn the call over to Greg.

Thanks, Jason, and good morning, everyone. During the second quarter, our team executed extremely well on all fronts and we exceeded all of our financial objectives for the quarter. We grew revenues by 85% year over year. We significantly increased both gross margins and operating margins. We achieved record profit. And we generated more than $35 million in cash from operations.

In addition to the three megawatt core electrical component contract we signed in the second quarter with Sinovel Wind, a contract valued at more than $100 million, our second quarter bookings also included electrical system orders from several other wind turbine customers and a series of power grid sales in Australia, China, the United Kingdom and the United States.

This, combined with further pull ins from Sinovel on 1.5 megawatt core component deliveries, positions us for continued strong growth in the second half of our fiscal year. We have therefore increased our forecasts for revenues and net income for full year fiscal 2009, and we're poised for continued strong growth in fiscal 2010.

While the China wind energy market continues to be our primary growth engine, we have made very good progress across our power system and superconductors businesses. The order we closed with Sinovel for three megawatt core electrical components not only helped us boost backlog for the quarter, it is a very strong signal that our multi-megawatt wind turbine designs are entering the market in a rapid and significant way.

We expect continued strong growth going forward with Sinovel and our other wind turbine manufacturing customers in the months and years ahead. In fact, our second quarter bookings also included initial electrical system orders from several other wind turbine customers in India, Korea, and China. These initial orders will be followed by larger ones as these customers ramp production.

In addition to the series of dbar power grid orders we closed around the world in Q2, we sealed a couple of key deals on the superconductor side of our business, namely a strategic alliance with LS Cable Company in Korea and our participation in the Tres Amigas super station project in New Mexico.

I'd like to now provide a few more details on each of these business areas and initiatives starting with our business in China. I was in China last week and spent a good deal of time meeting with customers as well as industry and government leaders. From Beijing to Hafei to Sujo, where our Chinese production facility is located, the strength of the economy is palpable.

While I was there, it was reported that Chinese gross domestic product grew 8.9% year over year in the third quarter following a 7.9% gain in Q2. It's safe to conclude that China will achieve its objective to grow its GDP by eight percent in 2009.

The US economy may or may not continue to slump over the next year. That I do not know. It was good to see the 3.5% increase in GDP in the September quarter this morning.

What I do know is that AMSC completed dodged the economic downturn over the last 18 months, a period during which we grew revenues and achieved sustainable profitability while simultaneously investing in the growth of our infrastructure and our workforce.

What I also know is that we are clearly poised to continue growing right through any further economic slump in the US in the years ahead. The clear reason is that the growth engine for our business is the wind industry, in particular the Chinese wind industry which is the place to be right now.

Last week, I was one of the 12,000 industry professionals that attended the China Wind Power Show in Beijing. I believe all of us who were there came away believing that 2010 will not only be a year of continued rapid growth in China's domestic wind industry, but also the year China's wind turbine industry goes global.

I also came away with confidence that our customer Sinovel will be a major player in the global wind turbine market. Sinovel has consistently grown its market share in China and ranked number one in the Chinese market with 23% of the country's wind turbine shipments in 2008.

The company's market share gains have continued through 2009. In fact, in my meeting with the CEO of Sinovel last week, we learned that Sinovel has captured 40% of China's wind turbine orders year to date in 2009.

Sinovel was ranked number seven worldwide in terms of installed megawatts of wind turbines at the end of 2008. They told us they expect to be number five worldwide at the end of this year and they aim to be number one worldwide in five years.

The company already has begun to ship wind turbines outside of China and they are in the process of setting up operations in both the U.K. and the US In fact, Sinovel announced last week that it has partnered with AES Corporation, a Fortune 500 global power and wind farm developer, to deploy its first prototype wind turbine in the US and to also pursue wind project opportunities worldwide.

So what does this mean for AMSC? Well, each and every Sinovel wind turbine is powered by a set of highly proprietary core electrical components from AMSC. So each incremental wind turbine shipped by Sinovel translates into incremental revenue for AMSC.

On our Q1 conference call in July, we discussed how our $450 million core component order with Sinovel was increased to $470 million and how that contract's 36 month shipment schedule was condensed to 28 months due to Sinovel's capacity expansion. In Q2, Sinovel again requested that we accelerate our core component shipment schedule enabling us to post better than expected financial results.

And as I mentioned earlier, they already have asked us to accelerate shipments in the second half of our fiscal year. This, along with other new orders received in Q2, has prompted us to increase our financial guidance for the full year.

As a reminder, all of our core components covered under the $470 million contract are for Sinovel's 1.5 megawatt wind turbines. Our relationship also extends to Sinovel's recently introduced three megawatt platform and its soon to be launched five megawatt platform.

AMSC Windtech is handling the design work for both of those wind turbines and in fact literally lived in the three megawatt offshore wind turbines with the Sinovel team through commissioning of the first prototypes. And yes, I mean literally lived in the wind turbines. Talk about an intimate relationship. Our relationship is mutually close and it's also beneficial to both companies.

We will begin shipments under the new $100 million contract for three megawatt core electrical components in March 2010 and expect to complete all shipments under this particular contract by the end of calendar year 2011.

And we expect to receive an initial order from Sinovel for core electrical components for the first prototype five megawatt wind turbine in 2010 to support the commissioning and initial production of these higher power platforms on schedule in 2011. In two substantial orders we already have in hand from Sinovel provide us with a platform for continued growth and increasing profits through the next two years.

At the same time, we are continuing to work diligently to increase orders from other customers and other markets. During the second quarter, we opened AMSC India to serve that country's rapidly growing wind energy and power grid sectors with a regional head office in Delhi and a service office in Pune, AMSC India will provide local applications engineering sales, business development and field service support.

We already have two wind turbine customers in India - Ghodawat Energy and Inox Wind. Ghodawat has licensed a 1.65 megawatt wind turbine design from AMSC Windtech and the company recently erected its first prototype in (inaudible). The company also placed its first production electrical system order with AMSC in the second quarter. Inox meanwhile licensed a two megawatt wind turbine design from AMSC Windtech in May 2009 and ordered its first few electrical systems from us this past quarter.

As was the case at AMSC China where we now have multiple wind power and power grid customers, our strategy is to first entrench ourselves in India's wind power market and then expand into the broadest grid market.

With AMSC Korea, however, we already have a running start in both markets. AMSC Korea also was formed in the second quarter and is headquartered in Busan, South Korea. This division will work closely with our existing customers in the wind power market, Doosan Heavy Industries and Hyundai Heavy Industries.

AMSC Windtech has been working Doosan since 2007 and has developed a three megawatt wind turbine for them. In September, Doosan erected its first prototype wind turbine on Jeju Island. Doosan expects to enter production in 2010.

Hyundai is moving even more swiftly. About a year ago, Hyundai licensed 1.65 and two megawatt wind turbine designs from AMSC Windtech. The company installed and commissioned its first reference 1.6 megawatt wind turbine in its shipyard in Ulsan, South Korea in June 2009 and commissioned its brand new wind turbine manufacturing plant this month.

To support its initial production schedule, Hyundai placed its first production electrical system order with us - an order for 17 electrical systems in the second fiscal quarter. We will be shipping all the electrical systems to Hyundai by the end of January 2010.

We have mentioned in the past that Hyundai is targeting the US as its primary market for wind turbine sales. Well, they now are officially US suppliers. Earlier this month, Hyundai announced its first US contract and will be shipping six 1.65 megawatt wind turbines to Wave Wind LLC for a ten megawatt wind farm in Wisconsin.

Hyundai and Wave Wind are currently in discussions regarding Hyundai wind turbines for a 100 megawatt wind farm Wave Wind is developing in the southwest United States.

While we are delighted with the progress of our big Korean wind turbine manufacturing customers, we're also excited about Korea's power grid sector where superconductor power cables are entering the commercial phase. On our last conference call, we discussed a commercial superconductor wire order we received from LS Cable Company - one Asia's largest and most respected power cable manufacturers.

LS Cable will use our wire to manufacture a superconductor power cable that will be deployed in Korean Electric Power Company's commercial power grid. This, of course, is expected to be the first of many such deployments.

In September, we formed a strategic alliance with LS Cable so they could be assured of receiving the superconductor wire needed from AMSC to deploy at least ten kilometers - in other words, six miles - of commercial superconductor power cables over the next five years. Well, six miles is just a drop in the bucket in terms of annual market potential we see for superconductor power cables.

We excited to finally see one of the world's leading cable manufacturers step up to the plate and make a public commitment to enter commercial production. LS Cable has publicly stated that it sees a billion dollar opportunity here. They've established leading the market, and they have upped the ante for the rest of the industry. We'll now see how other cable manufacturers respond.

Back in the US, the governor of New Mexico announced earlier this month the kick off of the Tres Amigas super station project which has drawn significant national and international attention. The super station is a revolutionary power grid system that will - for the first time ever - tie together America's three power grids - namely the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection also known as ERCOT.

The idea here is to unlock significant wind and solar power resources in the center and southwest portions of the country by creating the first renewable energy market hub in the US A wind farm in Texas, for instance, could feed into the Tres Amigas super station and export its power to California in the Western Interconnection and Chicago in the Eastern Interconnection to generate a higher rate of return.

Those transactions simply aren't possible today. This is a potentially revolutionary power market hub that can help the US meet its renewable energy objectives and it will utilize the latest in power grid technologies, including superconductor electricity pipelines. These direct current superconductor cable systems are able to carry many gigawatts of power underground in a three foot diameter pipe with exceptionally high efficiency which is exactly what is needed to make the super station work.

In March of 2009, we met with Phil Harris, the founder and CEO of Tres Amigas LLC and the former CEO of PJM Interconnection, regarding our superconductor electricity pipelines. He recognized that superconductor pipelines were ideally suited for the Tres Amigas super station which led to our participation in the project.

Following the project's approval, AMSC is expected to provide transmission planning services, superconductor wire, and a superconductor cable system for the project. We will partner with some of the industry's leading superconductor power cable and system component companies to manufacture the cable system to our specification. We also have established a minority ownership position in Tres Amigas LLC enabling us to benefit from the profits that the businesses ultimately expect it to generate.

At the same time, FERC filings are being prepared, discussions are being held with transmission operators who want to plug into the super station, and vendors for other components of the Tres Amigas system are being evaluated. We'll keep you informed of progress going forward.

In summary, we have good reason to be excited about our near and long term prospects. All signs continue to point upward for our wind power business. We're generating a steadily increasing flow of orders in the power grid market with our dbar and SEC systems and the prospects appear bright for AMSC superconductors.

All of this adds up to continued strong growth in the second half of this fiscal year and in fiscal 2010. And now I'll turn the call over to Dave so he can provide more detail on our financial results and forecasts. Dave?

Thanks, Greg, and good morning, everyone. As you've all heard, AMSC delivered its strongest financial performance to date in the second fiscal quarter. A further acceleration of wind turbine core component shipments to Sinovel enabled us to increase revenues for the 11th consecutive quarter. We also achieved new records for gross margin, operating margin, and GAAP and non-GAAP earnings per share.

In addition, we did a good job managing our working capital this quarter as evidenced by a substantial reduction in DSO and lower inventories. This resulted in record cash flow from operations and an increase of our cash, cash equivalents, marketable securities, and restricted cash to more than $140 million as of September 30th, 2009.

We are expecting continued growth during the second half of fiscal 2009 and now project that our full year revenues will increase more than 60% over the prior year. We also are increasing our forecast for gross margin and net income for the fiscal year as well. More about that later.

First, let's review our second quarter performance in more detail. AMSC generated revenue of $74.7 million, a two percent increase from $73 million in the prior quarter, and an increase of 85% over the $40.4 million recorded in the second quarter of fiscal 2008. The sequential and year over year increases were driven primarily by higher wind turbine core component shipments.

AMSC Power Systems revenues represented 96% of total sales and more than double the $71.8 million from $35.6 million for the second quarter of fiscal 2008.

Our AMSC superconductor segment generated the remaining four percent of sales. AMSC superconductor's revenue in the second quarter was $2.9 million, which compares with $4.8 million in the year ago quarter. This decrease is primarily the result of completing testing on the Navy superconductor motor in the prior fiscal year.

Backlog as of September 30th, 2009 was approximately $587 million. That is up from $497 million at June 30th, 2009. The increase is due primarily to our new three megawatt wind turbine core component contract with Sinovel.

Gross profit for the second quarter of fiscal 2009 was $29 million resulting in a record gross margin of 38.9%. This compares with 30.9% gross margin for the prior quarter and a 26.5% gross margin for the second quarter of fiscal 2008.

The sequential increase in gross margin was due to a particularly favorable product mix. Wind turbine core component shipments increased significantly quarter over quarter and represented the larger than normal percentage of our revenue.

In addition, please recall that our first quarter gross margins were negatively impacted by relatively low margin shipments to Acciona under our initial dbar RT contract. We expect our product mix and gross margins will return to more normalized levels during the remainder of fiscal 2009.

As planned, our operating expenses for the second fiscal quarter increased sequentially on both a dollar and percentage basis.

R&D expenses in the second quarter of fiscal 2009 were $5.4 million or seven percent of revenue. This is slightly higher than R&D spending of $4.5 million or six percent of revenue in the first quarter of fiscal 2009 and spending of $4.7 million or 12% of revenue in the second quarter of fiscal 2008.

SG&A expenses for the second quarter of fiscal 2009 increased to $12.7 million or 17% of revenue. This compares with spending of $10.9 million or 15% of revenue for the first fiscal quarter, and $8.8 million or 22% of revenue for the second quarter of fiscal 2008.

We plan to continue to increase R&D and SG&A expenditures in absolute terms in the coming quarters to provide the platform for growth in subsequent years, but we expect them to decline in aggregate for full year fiscal 2009 as a percent of revenue from fiscal 2008.

In the second quarter, we incurred approximately $460,000 in amortization of acquisition related intangibles related to our acquisitions of Windtech and PQS. This is down slightly from $481,000 in the year ago quarter. Intangibles amortization should remain roughly flat at $400,000 to $500,000 per quarter in the near term.

We recorded a restructuring charge of approximately $117,000 in the second quarter for costs related to the consolidation of our Massachusetts operations and the closure of our former headquarters facility in Westborough. These costs were primarily driven by additional rent for the time needed to return the facility to its original condition. We turned the building back over to the landlord in the second fiscal quarter. As a result, we will not incur additional charges related to this consolidation.

Our operating income for the second quarter of fiscal 2009 was $10.3 million resulting in a record operating margin of 14% for the quarter. This compares with operating income of $6.4 million or nine percent of total revenue for the prior quarter and an operating loss of $3.8 million for the second quarter of fiscal 2008. Higher AMSC power systems revenue drove the sequential and year over year improvement.

AMSC Power Systems generated record operating income of $19.9 million or 28% operating margin for the second fiscal quarter. This compares with a 22% operating margin in the prior quarter, and a 15% operating margin for the year ago quarter.

AMSC superconductors generated an operating loss of $5.6 million for the second quarter of fiscal 2009. This compares with an operating loss of $5.5 million in the prior quarter, and $5.9 million in the year ago quarter. Please note that stock based compensation expense is not allocated to our reporting segments.

Income tax expense increased to $5.3 million for the second fiscal quarter as we generated higher sales and profits out of AMSC China and AMSC Windtech in Austria. Income tax expense for the year ago quarter was $1.5 million. Our income tax expense represented 55% of pretax income in the second quarter which is skewed by the fact that we did not record a tax benefit on losses in the US

For the second quarter of fiscal 2009, we reported GAAP net income of $4.3 million or $0.10 per diluted share. This compares with $1.8 million or $0.04 per diluted share in GAAP net income for the prior quarter, and a GAAP net loss of $4.1 million or $0.10 per share for the second quarter of fiscal 2008.

Non-GAAP net income is the non-GAAP metric we have been tracking to gauge our financial progress as it approximates cash based earnings from operations. We report non-GAAP net income results each quarter and also provide annual forecasts using this metric. These numbers are reconciled to GAAP in tables at the end of our earnings press release.

Our non-GAAP net income for the second quarter of fiscal 2009 was a record $8.7 million or $0.19 per diluted share. This compares with non-GAAP net income of $5.5 million or $0.12 per diluted share for the prior quarter, and a non-GAAP net loss of $1.4 million or $0.03 per share for the second quarter of fiscal 2008.

AMSC ended the second fiscal quarter with $141.1 million in cash, cash equivalents, marketable securities, and restricted cash. This is up significantly from $103.2 million on June 30th, 2009. The increase was primarily due to solid working capital management and particularly strong collections in the quarter, including large payments from Acciona and Sinovel.

These stronger than normal collections resulted in our DSO declining significantly to 58 days for the second fiscal quarter from 80 days in the prior quarter. We would expect DSOs to trend back to more normalized levels in the seventies during the third quarter. Although inventory on an absolute dollar basis declined in the second quarter of fiscal 2009, days of inventory increased slightly to 59 days in Q2 from 57 days for the first quarter of fiscal 2009.

And now let's shift to our guidance. We are again raising our financial forecast for full year fiscal 2009 based on the strength of our end markets and our existing backlog some of which has been pulled into this fiscal year by Sinovel. We are increasing our revenue forecast from a range of $260 million to $270 million to a range of $300 million to $310 million.

We continue to expect that AMSC Power Systems revenues will represent more than 95% of total sales for the full fiscal year. We now expect that international sales and wind power sales will each represent approximately 80% to 85% of our total revenues for full year fiscal year 2009. They represented 88% and 87% of our total revenues respectively in the second quarter of fiscal 2009.

Our gross margin for fiscal 2009 is now expected to be in the range of 34% to 35%, up from our prior range of 32% to 34%. Through the first six months of the fiscal year, gross margin is 35%.

We expect a less favorable product mix in the second half of the year as compared to the second fiscal quarter, but that should be partially offset by a benefit from continued localization activities in China. We are now expecting GAAP net income for fiscal 2009 in the range of $11 million to $13 million, or $0.24 to $0.29 per diluted share which compares with our previous forecast of $5 million to $7 million or $0.11 to $0.16 per diluted share.

We now expect our non-GAAP net income for fiscal 2009 will be in the range of $27 million to $29 million or $0.59 to $0.64 per diluted share. This is an increase from our prior forecast of $18 million to $21 million or $0.41 to $0.47 per diluted share. We continue to expect that we will be net cash flow positive in fiscal year 2009 and we continue to expect capital expenditures for fiscal 2009 to be in the range of $11 million to $15 million.

Turning to the remaining quarters of the fiscal year, you might recall that we had previously expected revenues to decline sequentially in Q3. That is no longer the case. As a result of reprofiled backlog and new orders, we are now expecting a slight sequential increase in revenues in the third fiscal quarter and further growth in the fourth fiscal quarter.

In previous calls, we also mentioned the possibility of a small net loss on a GAAP basis in the third fiscal quarter. We now expect to generate a solid profit in the third fiscal quarter and the fourth fiscal quarter as well.

On a non-GAAP basis, earnings per share for the third fiscal quarter is expected to be roughly half of what it was in Q2 due to the lower margin shipments and a planned increase in operating expenses primarily to fund new product development and further increases in the size of our workforce. We expect to resume our profit growth in the fourth fiscal quarter in line with our full year forecast.

Please note that we will be issuing a press release containing our initial forecast for fiscal year 2010 in conjunction with our Analyst Day on November 19th. With that we'll open the call to questions. Tiffany, would you please provide me the instructions?

(Operating Instructions). Our first question comes from Carter Shoop of Deutsche Bank.

Good morning.

Hi, Carter.

Congratulations on a great quarter.

Thanks.

The cash flow is pretty impressive there.

Yes, thank you.

So I have one question and then hopefully you provide clarification, too. The question is when you look at your licensee customers after Sinovel, where do you see the most opportunity here over the next two years? I was hoping you guys could maybe provide a list of your top one, two, possibly even top three licensee that you're most excited about.

And the clarification, I don't think I heard it on the call, but can you let us know what percentage of sales Sinovel was in the quarter?

On the last one, we're not giving that or do you have that --?

No, I have that. Sinovel represented 76% of revenue.

Okay, 76% of revenue in the quarter. So Carter, it sounds like your old question about who we're excited about next. Hyundai Heavy Industries is clearly the one. They're a major corporation. They already got their first small order in the US They have a small order in Korea. They put the new plant up and we expect them to start growing significantly over 2010. So that's clearly the second one.

In China, CSR I think is going to continue to grow at a decent rate - not a huge rate. But look for our other Chinese licensees to start kicking in in 2010. And think of XJ and [Chen Yan Blower Works] later on. So it's pretty much if you look at the schedule we've published out there people are moving forward on that schedule.

But Doosan just put up their prototype now - the three megawatt. We're very excited about that. Doosan is going to start production in 2010.

So I think behind China you've got our Korean guys. They're going to start pumping up in 2010 and we'll look for the XJ and Chen Yan Blower Works to also start kicking in in that timeframe as well. And then we have a number of smaller ones around the world that you know about. But those are top several.

Our next question comes from Jesse Pichel with Piper Jaffray.

Hi, this is (inaudible) for Jesse Pichel. Congratulations for another great quarter.

Thank you.

My question is that what's the booking for the quarter and if you can break out what's the dbar revenue and dbar backlog.

Yes, we don't typically break out our backlog by product type like that. But I can tell you - I mean if you do the math on our backlog it would say orders were around $165 million in the quarter which is driven primarily by the order we got from Sinovel for three megawatt core components.

And that was, of course, added into that were the dbar orders, the power grid orders that we also talked about in multiple countries around the world.

Our next question comes from Theodore O'Neill of Kaufman Bros.

Thank you. David, can you give us a little more color on the less favorable product mix in Q3. What are those products that are going to have the lower margins and drive margins lower for that quarter?

Hi, good morning, Theo. Yes, from a gross margin standpoint we are expecting that we'll see some higher turnkey revenues which as we've said are our lower margin. And also due to the fact that superconductors will actually increase their revenues we're expecting in the quarter as well.

Of course, their gross margins are negative. So when you take those two factors into account, that's why we're expecting that that gross margin is going to be down sequentially quarter on quarter.

And then when you combine that with the higher OpEx that we're planning - and you did see higher OpEx planned - the higher OpEx actually come through in the second quarter, that's why we're expecting our non-GAAP earnings per share to dip a bit, be roughly half of what it was in the second quarter -- in the third quarter.

And then pick up again in the fourth quarter.

Our next question comes from Jim Ricchiuti with Needham & Company.

Hi, thank you. A question regarding your utility business and grid products business in the US in the quarter, and how you see that business shaping up over the next 12 months. Thanks.

Thanks, Jim. I think we're going to see continued improvement in the grid business in the US regardless of any monies coming from the government by the way. This is just growing business there. We'll see it.

But look primarily for grid products to grow outside the US Asia-Pacific is the big driver for us, not just for wind, but also for grid solutions. So look for that to be the main driver for grid over the next 12 months.

As I said earlier, I don't know where the economy is going here in the United States. Is there a double dip? Who knows? I don't for sure. But what I do know is Asia-Pacific is growing and it's not just China and that's going to be grid and wind both.

Our next question comes from Vishal Shah of Barclays Capital.

Yes, thanks for taking my question. Congratulations on a great quarter.

Thank you.

Can you maybe just help me understand what your Sinovel backlog is for 2010 and what percentage of revenue do you think Sinovel would be in 2010 as you ramp up some of the other customers?

We don't break out that backlog for the future years here. It's going to be significant and look for Sinovel to continue to be on the order of 65% of our revenues.

Okay, just one follow up. In terms of your competition in China particularly, and also potential for the pricing pressure in this industry, can you maybe just comment on what you're seeing right now? How do you see pricing over the next couple of quarters? Thank you.

We are seeing no pricing pressure whatsoever in China. We have a highly proprietary product that we're selling into our wind turbine licensees and we haven't seen any pricing pressure whatsoever.

As we get higher volume orders, do we give a small discount? Sure. Off the list price, no question, but no pricing pressures because of that.

And back to Carter Shoop's question, I failed to mention [Don Fang] in China which is the number three wind turbine manufacturer in China and they're right up there in the top of the list as well, Carter.

The two and half megawatt machine that we've been developing for them has come along splendidly and we'd expect them to be in production next year as well. So sorry, I dropped him out of my answer.

Our next question comes from Ben Schuman of Pacific Crest Securities.

Good morning, guys.

Good morning.

Hi.

Given the further acceleration on the 1.5 megawatt shipments to Sinovel, when do you guys now expect completion of shipment against that $470 million contract?

Well, it's still the same story. It's December of - excuse me, what is it? April of 2011. So I don't know the exact amount that's going to be left at that time, but as of now we'll still be shipping as of 2011. But, you know, Sinovel is Sinovel. Will they continue to accelerate? Will we see more orders? I would expect, yes. I don't know what the timing would be.

Our next question comes from [Seth Tenet] of Citi. (Operator Instructions).

Hi, guys. Yes, I kind of wanted to ask a little bit more color on Sinovel. So they're just pulling in shipments? Are you still expecting the 28 month contract to still end at the same timeframe?

Yes, I think that we just answered that question. That's the current picture. The amounts will obviously be down relative to what we may have expected a couple of months ago with these further pull ins.

But there's no change in that and as I just answered in the last question, I'd expect to see more of this coming in from Sinovel to take up revised deliveries after 2011 and maybe in that first quarter of 2011 as well, of course. But I'd expect Sinovel to continue to ramp on 1.5 megawatts and I'd expect to see us continue to get orders over the next many years.

Our next question comes from Pavel Molchanov.

Hi, Pavel. Are you there, Pavel?

One moment, please. Pavel, your line is open.

Yes, oh, I'm sorry. Yes, I just saw the goodwill line item jump in Q2. Could you guys explain what the reason is?

Yes, that's the Windtech earn out, Pavel. So what happens is is that Windtech for the last few years and for next year as well will - there's a potential earn out of 350,000 shares based on achievement of certain revenue targets.

Based on the results for Windtech, we determined that they will max out on their shares for this year and have recorded that goodwill affect now fully now in the second quarter so you shouldn't see any more changes in goodwill except for what might change as a result of exchange rates.

Our next question comes from Meghan Moreland of Ardour Capital.

Good morning.

Hi, Meghan.

Just so I'm clear, the ore sunnier outlook for third quarter has more to do with just accelerated shipments than any new orders that may have been received since last quarter. Is that correct?

Well, there's some orders that came in the second quarter that we'll be shipping. For example, Hyundai, the 17 sets of core electrical systems will be shipping in Q3 going into January of 2010. There are some dbar orders that have come in. So it all adds together, but the pull in is a key part of that for sure.

Our next question comes from Dan Fidell of Brean Murray.

Good morning, and thanks for the call, and nice job on the numbers.

Thank you.

Just a quick question. Maybe you can give us a little bit more color on Tres Amigas timetable for approval by the FERC and any other color you can give on potential impact from that and your minority interest. Just if you could flesh that out a little bit, it'd be very helpful. Thanks.

Yes, I mean so this is a typical development effort here. The FERC permit is going to be a key part of it. I'm not going to try to predict FERC timing.

But we'd expect - as I said in the call - to apply for the permits. And this is to be a merchant transmission operation is one part of the permit, and the other one is to ensure that FERC has no jurisdiction over transmission operators coming out of ERCOT. Those are the two key things.

We would expect to be applying for that relatively soon and could get an answer let's say in early 2010. But again, I'm not going to try to predict FERC. So that's a key step in the whole project going forward. We're quite optimistic about the results of that, but it remains to be seen.

And then we've talked about the overall schedule publicly and that is we'd expect construction to start in 2012. We'd expect the trading hub to be operating in 2014. But a lot has to get done for that to all happen.

Our next question comes from Theodore O'Neill of Kaufman Bros.

David, the increase in OpEx going forward, have the hirings largely been completed or is this going to be ongoing for another couple of quarters that you'll be adding people?

Well, we're continuing to add people to support our growth. A lot of it is going to be in China obviously to support higher rates of manufacturing. But we're also adding engineering headcounts both in the US and in Austria.

So expect that that will continue, but like I said we want to make sure that we - you know, bring every dollar of earnings through to the bottom line that we can and that we do expect that we're not going to grow OpEx at a rate faster than revenue for the full fiscal year. So we're going to keep that under control, but we'll do the hiring we need to do to support our growth.

And Theo, this is Jason. Headcount is a little over 600 today and that's going to grow to over 700 as we've said consistently in the past.

And I was just at our Sujo operations, and what a slick operation. By the way, they just got ISO 9,000, ISO 14,000 certification last quarter. They're doing a terrific job and taking a lot of costs out, so that's the place to grow our population in terms of production of our products over there.

Your next question is from Carter Shoop of Deutsche Bank.

Hi, I was hoping you guys could disclose on the quarterly bookings number how much of that actually came from Sinovel?

Roughly a $165 million. I think we said it was ...

No, we haven't been explicit on that.

Yes.

So over $100 million?

Yes, and Carter, also keep in mind that in this past quarter we had that pulling of $20 million or so for the 1.5 megawatt so that combined with the three megawatt.

So it's safe to say it's over $120 million of the -- $165 million came from Sinovel.

Our next question is from John Hardy of Broadpoint AmTech.

Morning, guys. Thanks for taking my questions and thanks for all the detail. I guess one point of clarification. I think you guys usually break out operating margin by segment. I was hoping you could do that again.

Yes, we do that, John, and operating margin for Power Systems was 28% in the quarter and obviously for superconductors it was a loss - they lost $5.6 million in the quarter and the operating margin isn't really meaningful for them.

Our next question is from Ben Schuman of Pacific Crest Securities.

Hi, guys. Can you give us any idea what you expect [FACS] sales to be this year or what percentage of the wind market sales are going to go to dbar systems?

No, I don't have that off the top of my head, but power grid sales are - orders are continuing to increase, have been and I expect them to continue to increase over the next 12 months. So I don't have a break out or percentage on that (inaudible).

We did say that wind we expect it to be roughly between 80% and 85% of revenue for the year, so the rest of our sales for the most part are grid. So it's going to be in the neighborhood of 15% to 20% of revenue this year.

And Ben, just keep in mind what Windtech is our wind revenue in core component sales, but all of our dbar sales - even if they're connecting a wind farm to the grid - are power grid sales.

(Operating Instructions). Our next question is from Jim Ricchiuti of Needham & Company.

Yes, I was just wondering - you mentioned that you saw a little bit of an up tick this quarter in superconductor revenues. What drives that? And can you talk a little bit about the outlook there in terms of projects that are out there, Greg? Thank you.

Yes, we - Dave was speaking about Q3. We have the wire shipment - commercial wire shipments through LS Cable that we announced back in the spring and those will be shipped this quarter - third quarter. So that's where we're looking for some up tick in superconductor sales this quarter.

Our final question is from Carter Shoop of Deutsche Bank.

With the cash continuing to increase, can you talk a little bit about your outlook for potential acquisitions?

Well, we have - you know, we always look at those opportunities, Carter, no question. Every company does. But that's as far as we'll go on it.

Don't forget we're also continuing to invest in superconductors - that's well covered - and we're still increasing cash. So there's a lot of opportunity. This company has put in place a tremendous platform that we expect to leverage in many ways going forward but it's all growth ahead of us.

And we have no other callers in queue. At this time I'd like to turn the call back over for final remarks to Mr. Greg Yurek.

Thanks, and thanks for all of you participating in the call today. It was a great quarter and we have a lot more great quarters ahead of us.

We look forward to seeing you on the call probably early February, I guess, we'll have the next call.

And Analyst Day as well.

All right, take care.

This concludes today's conference. Thank you for your participation.