Good day, welcome to the American Superconductor first quarter fiscal 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Heilshorn . Please go ahead, sir.
Thank you, Emma. Good morning, everyone, and welcome to American Superconductor Corporation's first quarter of fiscal 2020 earnings conference call. I am John Heilshorn, LHA Investor Relations, AMSC's Investor relations agency of record. With us on today's call are Dan McGahn, Chairman, President, and Chief Executive Officer, and John Kosiba, Senior Vice President, Chief Financial Officer, and Treasurer. American Superconductor issued its earnings release for the first quarter of fiscal 2020 yesterday after the market closed. Those of you who have not yet seen the release, a copy is available in the Investors page of the company's website at www.amsc.com. Before starting the call, I would like to remind you that various remarks that management may make during today's call 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 set forth in the Risk Factors section of American Superconductor's annual report on Form 10-K for the year ended March 31, 2020, which the company filed with the SEC on June 2, 2020, and subsequent reports that the company has filed with the SEC. These forward-looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as of any date subsequent to today. While the company 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. Also on today's call, management will refer to certain non-GAAP financial measures, non-GAAP net loss, and non-GAAP operating cash flow.
Non-GAAP net loss is defined by the company as net income loss before stock-based compensation, amortization of acquisition-related intangibles, changes in fair value of warrants, other non-cash or unusual charges, and the tax effective adjustments calculated at the relevant rate for the company's non-GAAP metric. Non-GAAP operating cash flow is defined by the company as operating cash flow before the China settlement, net of legal fees and expenses and other unusual cash flow items. The reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in the first quarter of fiscal 2020 earnings press release that the company issued and furnished to the SEC last night on Form 8-K. All of American Superconductor's press releases and SEC filings can be accessed from the Investors page of its website at www.amsc.com.
With that, I will now turn the call over to Chairman, President, and Chief Executive Officer, Daniel McGahn. Daniel?
Thanks, John. Good morning, everyone. I will begin today by providing an update on our Grid and Wind business units. John Kosiba will then provide a detailed review of our financial results for the first fiscal quarter, which ended June 30, 2020, and provide guidance for the second fiscal quarter, which will end September 30, 2020. Following our comments, we'll open up the line to questions from our analysts. We are growing and diversifying our business. Revenue for the first quarter of fiscal year 2020 came in above the top of our guidance range and grew by more than 50% versus the year-ago period. Our Grid segment revenue grew nearly 80% versus the year-ago period. In fact, this was the largest Grid quarter we have reported in nearly the decade, which is the time that we've been reporting a Grid segment.
All of our Grid product lines, D-VAR VVO , SPS, and REG, contributed to the strong growth in the quarter. We ended the first quarter with more than $62 million in cash. Our Grid business was driven by stronger D-VAR VVO, and SPS revenues. With our very strong start to fiscal 2020 and a robust Grid backlog scheduled for the remainder of the fiscal year, we believe that our Grid segment is on track for yet another record-breaking year. We made shipments against our order from our Korean partner, Doosan Heavy Industries, for our 5-MW class Electrical Control Systems, or ECS, during the first quarter of fiscal 2020. We expect to complete shipments under this order this fiscal year. Our growth through Grid strategy is working. Our record backlog of D-VAR projects is expected to ship this fiscal year.
The first quarter of fiscal 2020 was the largest D-VAR revenue quarter in about a decade. Grid is driving revenue growth, and D-VAR has been the foundation of our Grid business. Our business development and manufacturing teams are working very hard. The D-VAR product currently is focused on addressing renewable energy installations and industrial installations like a mine or semiconductor fab. The majority of our D-VAR revenue today comes from the interconnection of renewable energy generation plants to the electricity grid. First quarter of fiscal 2020 D-VAR shipments were for wind farm connectivity applications in Australia, the United States, and the United Kingdom. We anticipate strong D-VAR shipments to continue in the second quarter of fiscal 2020. As you know, D-VAR is a power transmission level product, whereas our new Volt/VAR Optimizer, or VVO product, addresses the power distribution market.
Our sales team has done an excellent job of educating utilities about our VVO product, and we are encouraged by the utilities' positive reaction to our solution. Our team had a strong start to fiscal 2020, shipping our first multi-unit order of VVO product to a utility in the United States. We are anticipating a higher volume of VVO shipments this fiscal year. We are beginning to see multi-unit orders from multiple utility customers. We do expect VVO to contribute to our grid growth in fiscal 2020. Our SPS business with the Navy is gaining significant momentum. AMSC's Ship Protection Systems are also known as the degaussing systems. At AMSC, we call them SPS. In July, we announced our third SPS order for the San Antonio-class LPD platform. This latest order will be for deployment on LPD-31.
I want to take a moment to recap developments with our SPS and the Navy. The SPS is designed to manage the magnetic signature of a ship, which can thwart an undersea mine's ability to detect and damage the ship. AMSC has worked with the U.S. Navy to develop a lighter weight, more power-efficient version of this degaussing system. The high-temperature superconductor SPS we are now selling to the Navy. AMSC's SPS became the baseline design for the San Antonio-class amphibious warfare ship, or LPD platform. The Navy's plan is to build 15 additional San Antonio-class ships, starting with LPD-28. We have an order for SPS for LPD-28. We have an order for SPS for LPD-30, and we now have an SPS order for LPD-31. Our expectation is that our next SPS order will be for LPD-29.
Our SPS team is very busy and focused on continuing to expand the business, while we deliver our first systems. We are working very closely with the Navy and our supply chain to ensure timely delivery of our three-ship system orders. We are engaged, as we reported on the last call, in establishing the capabilities to deliver the SPS systems. From a capacity perspective, we have been planning for the concurrent manufacturing of multiple SPS orders. We have implemented safety protocols, including social distancing, on our factory floor. The San Antonio-class is our first design win with the Navy. Other potential platforms include, but are not limited to, destroyers, aircraft carriers, frigates, and littoral combat ships. SPS contributed to our strong grid segment revenues in the first quarter of fiscal 2020. We have reached a new revenue threshold for SPS.
We're working closely with the Navy to understand the program timing for LPD-29. Last month in July, we announced that ComEd, a unit of Chicago-based Exelon Corporation, and one of the nation's largest electric utilities, has begun construction on its Resilient Electric Grid, or REG system. The REG system is expected to become a permanent asset within Chicago's electric power grid. We have been establishing our REG manufacturing and product delivery systems for this project, and we are on schedule for delivery of the system in 2020. ComEd's first REG system is expected to be operational in 2021. We continue to work with major utilities on specific projects, which we believe show a lot of promise. We are diversifying our wind business.
We made shipments against our order from our Korean partner, Doosan Heavy Industries, for our 5-MW class Electrical Control Systems, or ECS, during the first quarter of fiscal 2020. In fact, Doosan has been our largest wind customer for the past four quarters. We anticipate delivering additional units of the 5.5-MW ECS in the second quarter of fiscal 2020. As part of South Korea's Ministry of Trade, Industry and Energy strategy, renewables are targeted to generate 20% of South Korean electricity by 2030, and at least 30% by 2040. According to the publication, Business Korea, the South Korean government is promoting that its offshore wind power generation will be 12 GW by 2030. South Korea intends to become one of the world's top five offshore wind power producers, and we believe Doosan is well-positioned for a very high market share.
To date, there are approximately nine large-scale offshore wind farms in the development pipeline, which total nearly 9 GW of wind capacity. We understand Doosan will supply wind turbines for the Southwestern Offshore Wind Project and the Gunsan Offshore Wind Farm. In 2019, global offshore wind power generation reached about 29 GW. By 2030, global offshore wind power is expected to increase sixfold to 177 GW. South Korea, Japan, and Taiwan are expected to contribute to the development of offshore wind power farms. Our team is working closely with Doosan, and we look forward to potentially penetrating the global offshore wind market with this important partner. In India, we are encouraged by Inox's stated desire to lower the levelized cost of energy by way of a new, larger wind turbine design. Inox has publicly announced its expectation to transition to a 3-MW class turbine by next year.
However, we have not yet signed a 3-MW ECS supply agreement with Inox. Inox has indicated a new turbine as an integral part of its long-term strategy to deploy wind power in India. We saw and still see uncertainty in the Indian wind market and at Inox. We stand ready to support our partner in India as they need support commissioning new turbines or need new stock of 2-MW ECS. We have been in constant communication with Inox. Inox has paid some outstanding amounts on some of its contracts. Inox is working diligently to regain compliance with the 2-MW supply contract. We are using the capabilities of our contracts with Inox to help bring the situation to a positive resolution for both parties. We believe we are well-positioned to support any expansion of Inox's business.
Now I'll turn the call over to John Kosiba to review our financial results for the first quarter of fiscal year 2020 and provide guidance for the second fiscal quarter of 2020, which will end September 30th, 2020. John?
Thank you, Daniel, and good morning, everyone. AMSC generated revenues of $21.2 million for the first quarter of fiscal 2020 compared to $13.8 million in the year-ago quarter. Our Grid business unit accounted for 84% of total revenues, while our Wind business unit accounted for 16%. Grid business unit revenues increased by 80% in the first quarter versus the year-ago quarter, due primarily to higher D-VAR and SPS revenues. Wind business unit revenues decreased 11% in the first quarter versus the year-ago quarter as a result of fewer ECS shipments to Inox. This was partially offset by increased ECS shipments to Doosan during the period. Looking at the P&L in more detail, gross margin for the first quarter of fiscal 2020 was 24% compared to 11% in the year-ago quarter. The year-over-year increase in gross margin was primarily driven by the revenue growth within our Grid business.
The increased revenue resulted in a favorable product mix and increased factory absorption, both contributing to the year-over-year margin improvement. R&D and SG&A expenses for the first quarter of fiscal 2020 were $8.1 million. This was up from $7.7 million for the same period a year ago. Approximately 17% of R&D and SG&A expenses in the first quarter of fiscal 2020 were non-cash. Our non-GAAP net loss for the first quarter of fiscal 2020 was $2.4 million, or 0.11 per share, compared with $6.2 million or 0.30 per share in the year-ago quarter. On that loss in the first quarter of fiscal 2020 was $3.4 million or 0.16 per share. This compares with $3.5 million or 0.17 per share in the year-ago quarter.
Included in our first quarter of fiscal 2019's net loss was a $2.9 million non-cash gain associated with the change in the fair value of warrants. This favorably impacted the year-ago results. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the first quarter of fiscal 2020 with $62.2 million in cash equivalents, marketable securities, and restricted cash. This compares with $66.1 million on March 30th, 2020. Our operating cash burn in the first quarter of fiscal 2020 was $3.1 million. This came in stronger than our previous guidance of a $4 million-6 million operating cash burn. As mentioned in previous calls, our working capital for the business fluctuates from quarter to quarter, dependent on working capital requirements for individual projects.
When you look at our cash requirements over recent quarters, our working capital tends to average out any quarterly variations. Over the last four quarters, our non-GAAP operating cash burn has averaged approximately $3 million a quarter on an average quarterly revenue of $18 million. Each quarter, our cash flow requirements may be higher or lower due to changes in our working capital. We believe the operating cash burn in the first quarter of fiscal 2020 was well within the range of where we would expect our cash requirements of the business to operate. Now turning to our financial guidance for the second quarter of fiscal 2020. We expect that our revenues will be in the range of $17 million-21 million.
Our net loss on that revenue is expected not to exceed $6.5 million or 0.30 per share, and our non-GAAP net loss is expected not to exceed $5.5 million or 0.25 per share. The company expects operating cash flow to be a burn of $4 million-6 million in the second quarter of fiscal 2020. We expect to end the second quarter with no less than $55 million in cash equivalents, marketable securities, and restricted cash. With that, I'll turn the call back over to Daniel.
Thanks, John. As we discussed last quarter, the emergence of COVID-19 has created both operational challenges and macroeconomic concerns for all businesses. AMSC has demonstrated and is demonstrating it can operate effectively through times of uncertainty. We were early to implement physical separation protocols at our manufacturing sites, and we have not missed a beat in production. We have instituted cleaning protocols for our offices to help keep everyone safe and healthy, which is paramount. We are focused on our people and our parts supplies for our products, as well as on strong customer service and product quality. We have been operational throughout the pandemic. We have started fiscal 2020 on a very strong note. Grid represented over 80% of our revenue in the first quarter of fiscal 2020 and was our strongest grid quarter in nearly a decade. Our D-VAR business is clearly very strong.
We are delivering VVO to the market, developing our pipeline, especially for repeat customers or customers seeing the need to purchase multiple units. We have SPS orders for deployment on LPD-28, LPD-30, and now most recently, LPD-31. We are in production of ComEd's first REG system. We are supporting Doosan's efforts to penetrate the offshore wind market with our 5.5-MW turbine. We are executing against our goals, and that is to the credit of our employees due to their hard work and dedication. Our resilient people are focused on our resilient products. I look forward to reporting back to you at the completion of our second fiscal quarter of 2020. Operator, we'll now take questions from our analysts.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Philip Shen with ROTH Capital Partners.
Hi, everyone. Thanks for taking the questions. First one is on D-VAR. You saw some nice growth there. This quarter, you see more ahead. Daniel, was wondering if you can talk about how long you expect this could sustain. I know you're seeing strength in renewables and in wind specifically, but I think you talked about going to the U.S., U.K., and Australia. So, to what degree are you winning business in other countries beyond these three? Do you think you can continue to just grow with the overall wind industry as it seems like the value proposition of your offering seems to be a nice winning formula compared to the competition. Thanks, Daniel.
Thanks, Phil. Let me start a little bit bigger with just Grid. I think what we show today is that we clearly have a backlog to support Grid growth for the year. That's obviously driven by D-VAR. We did say we anticipated a surge in the business. I believe we're seeing some of that now. I think it's very hard for us to look out into the fall and into the winter, given the pandemic and given the fact that the U.S. is going to go through an election. I don't really know what the market demands are going to be. What we have seen, though, is our sales team already looking at sales for next year. They're looking at projects that are probably now as many as six or seven quarters out in the future.
That pipeline remains very robust, that doesn't necessarily mean, Philip, that macro market effects won't slow things down. We're in position to continue to deliver at these kinds of levels. I think clearly I want you to realize that we have seen an acceleration in that part of the business. We'll see how we go forward with the next few quarters. We certainly have guided what we think is a nice quarter again for the second quarter. Beyond that, it becomes probably even more difficult than typical years to prognosticate what the future holds for us.
Okay, thanks. As a follow-up there, can you talk about whether or not you're potentially bidding or winning new orders in new countries? We talked about, or you actually highlighted the three earlier. Is there an expansion of reach as well there?
It's going to depend on some of our partners. Our typical core markets are the U.S., Canada, U.K. We sometimes see some business in Australia. We're obviously seeing that right now, but doesn't necessarily mean it will continue. In the past, we've demonstrated some orders in Latin America, continental Europe, and the Middle East. At this point, all I can say, Phillip, is stay tuned as we announce orders. I don't know what's going to close next.
I know the pipeline is very much focused on our current core markets. U.S., U.K., Australia. We do have a nice, healthy pipeline, certainly for renewables, but for industrial as well. Industrial could be also in Asia or in North America. So, we try to manage risk by having multiple shots on goal for the product, and h aving that diversity allows us, hopefully, to continue the beat of the music that we're on today.
Great. Shifting gears to VVO, it sounds like you're having some nice success there as well. Can you talk about the number of utilities that are doing multiple orders? How many utilities are you selling to today? How many do you think you could expand that to in 2020 as well as 2021?
I think either in the next call or the call after that, we'll probably go through a more detailed update on VVO. I think this is an important year for it. We did mention that we're planning on making a certain number of units this year. We're trying to put them in the hands of what we think will be utilities that will buy bundles of these, either for deployments that use multiple systems, but hopefully at least purchases of multiple systems. I really don't want to get into the specific numbers at this point, Phil. I think as we see the year mature, we can give more color on the product. I'm very, very happy with where we are. We gave some indications in the prepared remarks about this idea of multiples. We're still in the beginning throes of it.
I think as we look forward to 2021 with VVO, I think it only gets stronger there and beyond. We think 2020 is a very important year for delivery of VVO and making these customers happy enough to buy multiple systems, either this year or in the next years.
Great. Thanks, Daniel. Congrats on the success you're seeing in grid.
Thanks, Phil.
We'll take our next question from Eric Stine with Craig-Hallum.
Good morning. It's Aaron Spychalla on for Eric. Thanks for taking the questions.
No problem. [audio distortion] .
Thank you, likewise. Maybe first on the Navy business, congrats on the order for LPD 31, and thanks for the update there. Can you just kind of talk a little bit more about timing on the first two ships? Are those still expected to be delivered this fiscal year? Any more color on the efforts to expand into other areas? I think last quarter you mentioned the Navy's identified the next class of ship. Any other color on potential sizes or timing there? Just any more color on the capacity there. I know you mentioned multiple ships, any more color would be great.
Yeah, it's kind of hard to give a lot more color or predict the next order until we announce it. To kind of give you how the revenue profile works, we had the two systems going into the quarter. Now we've added a third. I think the best way to think about it is we're basically delivering a system this fiscal year. We'll be in position to deliver one next fiscal year. Then I think the timing for LPD 31 means we'd be delivering probably the following fiscal year. When we said new revenue threshold, what we mean is we're kind of at a regular beat now where we're going to be able to deliver one ship system a year. And I wanted to make sure people understand we have the capacity for more because we're expecting growth, and as we get wins, we'll certainly announce them.
Understood. Then maybe next on customer diversification, can you just give us an update there? It really sounds like on D-VAR, and just broadly in the grid, you're really starting to see that. I think I saw another new significant customer in the queue. Can you just maybe talk about the pipeline there and how that's growing?
Yeah. We're seeing, you know, we're seeing, I'll say, a surge maybe in some larger projects in D-VAR. Doesn't mean that they all are, I think the numbers of large projects that we see on the horizon are very nice for us. That translates into the potential that these projects would be a 10+% customer for any quarter. I think this quarter you see the same customer as last quarter at 10+% and an additional one. It's kind of interesting that all of our 10+% customers come from the grid side and really specifically from D-VAR. One's a project in Australia, one's a project in the U.S.
All right. Maybe last for me, you've kind of talked in the past about the efforts on the supply chain. Can you just maybe give a little more detail on what you've done there and just how you view that as important going forward?
I think update on supply chain that we've seen, which I think makes sense given risks and turmoils in other markets, some of our suppliers have been able to pull in timing. We've been in a good position now where we're looking at multi-source on pretty much everything within the systems that we're delivering, for instance, for D-VAR and for ECS. I think our supply chain challenges still occur maybe on a weekly basis, not a daily basis as they did in the spring. It is really a series of efforts that go on with the team to ensure that we're able to get parts on time and in the quantities that we need. Some key components, we've actually seen the lead times shorten, which is good.
All right. Thanks for taking the questions and congrats again on the quarter.
Thanks, Aaron.
We will take our next question from Colin Rusch with Oppenheimer.
Hey, guys. It's Joe on for Colin this morning. Can you provide a little bit more color?
Hi, Joe.
Hey, guys. Can you provide a little bit more color on visibility into the Korean wind market and when we could potentially see some revenue, as well as maybe some color around scale of revenue coming from that market?
Yeah. I think that's some of the good news in here is, as we see that market potential open up, Doosan would advocate, and we would support it, that they think that they're going to get superior market share locally. It seems to be set up in that way. To get to the 12 GW that are now in projection, and I've seen some be at 14 GW and 16 GW, but the latest one we call attention to is this 12-GW one. It implies they're going to have to get up to a rate of about a gigawatt or more a year. We've talked about our content being between $50,000 and 100,000 per megawatt, so dollars per megawatt, and that translates the same for Doosan. Doing the math, the opportunity in Korea alone is in the hundreds of millions of dollars for us.
It doesn't quite reach a billion with the total market, but it gets pretty close to it. I think the challenge and the question will be what share will Doosan be able to take? We think they're going to differentiate on technology, and we know the technology is superior to many offerings in the market, and we think that they're the only one out with such a large wind turbine as a local Korean manufacturer. We're cautiously optimistic at this point in 2020 that Doosan has a great future ahead of it. I don't know if that's going to show impact in 2021, but certainly in years beyond that, we think they'll be an important customer, not only this year, but for many years going forward.
Very helpful. Thanks.
At this time, we have no further questions. I will now turn the conference back over to Daniel McGahn for any closing comments.
I want to thank everybody for their attention today. It's been challenging getting through the pandemic. I think the good news is the numbers show that the business is really humming along. We're at the level that John went through with the numbers, right where we wanted to be from we look from a revenue and from a fall-through standpoint. We're getting good leverage in the business. We see gross margin this quarter being very good. I think a lot of the questions that people asked us last quarter got answered today with the results and the information on the call. Going forward, we have a lot of work ahead of us to continue the growth that we're on, the trajectory that we're on in grid. We also showed, we think, some good signs even coming from India in some of the comments that we made.
So, we see strong results coming again the next quarter, given the guidance. We're going to do the work to make sure we continue to be able to do that. We do have some lumpiness in the business from time to time. I really can't tell you today what's going to happen with the election, what's going to happen in the fall and the winter with COVID. We want to make sure we're in a position to take advantage of every opportunity that comes our way. Thank you, everybody. We'll talk soon.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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