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American Superconductor Corp  (AMSC -4.07%)
Q3 2018 Earnings Conference Call
Feb. 06, 2019, 10:00 a.m. ET


Prepared Remarks:


Good day, and welcome to the AMSC Third Quarter Fiscal 2018 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.

John Heilshorn -- Investor Relations

Thanks you, Ian. Good morning, everyone, and welcome to AMSC's third quarter fiscal 2018 earnings conference call. I'm John Heilshorn, partner at LHA, AMSC's IR agency of record. With us on today's call are Daniel McGahn, Chairman, President and CEO, and John Kosiba, Senior Vice President and Chief Financial Officer.

AMSC issued its earnings release for the third quarter of fiscal 2018 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'd like to remind you that today's call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 concerning AMSC's future expectations, plans and prospects that involve numerous risks and uncertainties. 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 Factor section of the company's Annual Report on Form 10-K for the year ended March 31, 2018 and filed with the SEC on June 6, 2018 and Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, which was filed with the Securities and Exchange Commission last night. Other reports that had -- that we have filed with the SEC and factors outlined in the third quarter of fiscal 2018 earnings press release.

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 AMSC 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 or income and non-GAAP operating cash flow. Non-GAAP net loss or income is defined as net loss or net income before sale of minority investments, stock-based compensation, gain on Sinovel settlement, net amortization of acquisition-related intangibles, changes in fair value of warrants and contingent consideration, non-cash interest expense and the tax effect of adjustments.

Non-GAAP operating cash flow is defined as operating cash flow before the Sinovel settlement, net of legal fees and expenses, and the tax effect of adjustments. Company believes that these non-GAAP measures assist management and investors to compare results of operations in the current period to prior period results on a consistent basis by excluding these non-cash, non-recurring or other charges that it does not believe are indicative of the company's core operating performance.

The reconciliation of the non-GAAP to GAAP measures can be found in the third quarter fiscal 2018 earnings press release issued and furnished to the Securities and Exchange Commission last night on Form 8-K and in Form 10-Q for the quarter ending December 31, 2018.

With that, I will now turn the call over to Daniel. Good morning, Daniel.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Thanks, John. And good morning, everyone. I'll begin today by providing some positive news on our cash balance. John Kosiba will then provide you with a detailed review of our financial results for the quarter that ended on December 31, 2018 and guidance for our fourth fiscal quarter, which will end March 31, 2019. After John's review, I'll come back and take you through our growth opportunities and our goal of creating greater revenue predictability and reducing variability in our results. We'll then open up the call to your questions. Let's begin.

We generated nearly a $1 million in operating cash flow in the third quarter of fiscal 2018. This does not include the final settlement payment from China of $25 million. We ended the quarter with over $80 million on the balance sheet. But let's not get ahead of ourselves. We still have to pay taxes and legal expenses on the $25 million payment.

We said we thought we would net about $20 million. John will guide you through the details of our payment, which was received very late in the quarter. Also, as we went through our cost controls, we deliberately aligned expenditures with orders.

In other words, we were not allowing expenditures without orders in hand. To date, we have not invested in the capability of delivering a Ship Protection System or SPS order. This past week, we received instruction to deliver and are excited to ramped up with the factory for our Ship Protection System product.

We plan on investing approximately $5 million over the next year to create the capabilities to deliver on the anticipated revenue growth from the Navy. So, with that in mind, consider and expected pro forma cash balance of about $70 million. We'll walk you through our details around next year's capital expenditures during our next conference call.

Some of you have asked why we received the settlement early. We received it because we asked for it. The terms of the settlement was that Sinovel had to pay by May 6, 2019. Given the macro dynamics between China and the United States, we suggested it would be in everyone's interest to make payment as soon as possible. They listened, we got a nice Christmas gift.

Now, let me now turn the call over to John Kosiba for his review of our financial results. John?

John W. Kosiba -- Senior Vice President, Chief Financial Officer and Treasurer

Thanks. Daniel, and good morning, everyone. AMSC generated revenues of $14.1 million for the third quarter of fiscal 2018, compared to $14.9 million in the year ago quarter.

Wind business revenues of $7.3 million increased by 178% versus the year ago quarter. This growth is a result of increased ECS shipments to Inox. Grid business revenues of $6.8 million decreased by 45% versus the year ago quarter. This decrease is due to lower DVAR shipments.

Our Wind business unit accounted for 52% of total revenues for the third quarter, while our Grid business unit accounted for 48%. Gross margin for the third quarter of fiscal 2018 was 26% compared to 34% in the year ago quarter. Gross margin in the year ago period benefited from a favorable product mix, particularly within our Wind business, which includes royalty payments.

Research and development and SG&A expenses totaled $7.8 million for the third quarter of 2018. This was down 8% from the same period a year ago, primarily driven by lower overall compensation expense. Approximately, 17% of our R&D and SG&A expenses in the third quarter of fiscal 2018 were non-cash.

We recorded net income of $17.3 million, or $0.85 per share, for the third quarter of fiscal 2018. Included in our net income is a gain, net of taxes and fees of $22.8 million related to the Sinovel settlement. Excluding the gain on the settlement, the net loss for the third quarter of fiscal 2018 would have been $5.5 million or $0.27 per share.

This compares to a net loss of $4.2 million, or $0.21 per share in the year ago quarter. Included in our net income for the third quarter of fiscal 2018 was a $2.5 million non-cash expense associated with the change in the fair value of warrants. Our non-GAAP net loss for the third quarter of fiscal 2018 was $2.3 million, or $0.11 per share, compared with a non-GAAP net loss of $3.4 million, or $0.17 per share in the year ago quarter.

We ended the third quarter of fiscal 2018 with $80.2 million in cash, cash equivalents and restricted cash. This compares with $56.3 million as of September 30, 2018. We generated $900,000 in non-GAAP operating cash flow in the third quarter, which excludes the cash benefit associated with the settlement. The third quarter operating cash flow includes a working capital benefit of approximately $4 million, resulting primarily from inventory reductions associated with increased shipments to Inox in the quarter.

We believe we have reduced our Wind business inventory to appropriate levels and are not expecting to forecast any further working capital benefits. Absent this working capital benefit, operating cash flow on a non-GAAP basis would likely have been a burn in a range of $3 million to $4 million based on the third quarter revenue profile.

With respect to the cash impact of the settlement, we experienced net proceeds after expenses and taxes of $23.3 million. As Daniel mentioned earlier, we have approximately $5 million remaining to pay in legal expenses and income taxes related to the settlement. We expect the legal expenses to be paid in the fourth quarter of fiscal 2018, while the income taxes are expected to be paid in fiscal 2019.

Turning to our financial guidance for the fourth quarter of fiscal 2018. We expect that our revenues will be in the range of $14 million to $16 million. Our net loss for the fourth quarter of fiscal 2018 is expected not to exceed $6 million, or $0.29 per share, and our non-GAAP net loss is expected not to exceed $5 million, or $0.24 per share.

We anticipate an operating cash burn, exclusive of any legal fees and tax payments related to the settlement, to be a burn of $2 million to $4 million in the fourth quarter of fiscal 2018. We expect to end the fourth quarter of fiscal 2018 with no less than $76 million in cash, cash equivalents and restricted cash.

This concludes my review. I will now turn the call back over to Daniel. Dan?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Thanks, John. For those of you who are new to AMSC and we are finding that many people are, and for those of you who are reacquainting yourselves with the company, from our perspective, fiscal 2018 represents the beginning of an expected transition in our revenue mix. We believe that the business is moving toward a more predictable recurring revenue base from our Navy product line, as we get designed into additional platforms and eventually increase our content per ship.

Additionally, we've diversified our Grid product offerings as well as our Wind customer base. This transition in our revenue mix corresponds to changes made over the past three years in our product line expansion and customer diversification efforts. Today, we've grown our voltage management business. We've grown sales from the renewable sector and expanded the business to include the industrial sector.

We are also expanding sales from the transmission market with DVAR to the distribution market with VVO and REG. We have released three new products in three years. These products include our Ship Protection Systems or SPS, our Resilient Electric Grid systems or REG and our Volt Var Optimizer or VVO, all of which demonstrate unique value to our customers.

Our strategy is to deliver value differentiated by our proven technologies through the development of full and complete systems. Three years ago, we set out to triple our total addressable market while directing high barriers to entry that enable us to drive more margin and greater value for installation.

I want to spend a few minutes on today's call to highlight the macro trends we are leveraging with our products to further penetrate our key markets. Let's look at our Ship Protection System product in detail. Beginning with the Navy and our opportunity in support of its fleet electrification program.

Defense spending has increased over the past two years as US military moves to rebuild and retool for competition against other powers, the new multi-threat reality. In fact, in the spring of 2018, the Department of Defense submitted the Navy's 2019 shipbuilding plan to Congress, covering government fiscal years 2019 to 2048. That if fully carried out, will represent the largest naval buildup since the Reagan administration in the 1980s.

In September 2018, the Navy's fleet numbered 285 ships. The Navy's requirement, as stated in its 2019 shipbuilding plan, is to build and maintain a larger fleet of 355 ships, The Navy's shipbuilding plan has increased by approximately 25%. The Navy has publicly stated that HTS is an enabling technology and is tasked to create an all-electric ship and is initially adopting our Ship Protection System.

The Navy's mission to electrify the fleet presents us with opportunities for growth for many years to come. Our high-temperature superconductor or HTS-based Ship Protection Systems have been designed into the San Antonio class platform, commonly known as LPD, starting with LPD 28. A total of 13 LPDs were procured between the government's fiscal years 1996 and 2017.

We are designed into LPD 28 for which long lead elements have already been recognized as revenue and for which last week, we announced the delivery contract awarded for the rest of our system for integration into the ship. We expect to recognize revenue on the balance of the order, as we procure and manufacture additional subsystems. We expect to begin delivering initial sets of hardware on LPD 28 by late fiscal year 2019 and into fiscal year 2020. The Navy expects to need our SPS to be delivered and operational during calendar year 2021.

Turning to LPD 29. This is a ship that's been funded by Congress. The ship is expected to be built about a year after LPD 28. We still need to enter into a delivery contract with the Navy prior to beginning work on the SPS for LPD 29. This may come as all-one-instruction or order. We believe to be well positioned to support the Navy's requirements and production schedules for LPD 29.

Moving to LPD 30. We won an order for the long lead elements in November of 2018. We expect to procure the materials to build the long lead elements for LPD 30 in late fiscal year 2019, and to begin building subsystems for the SPS throughout fiscal year 2020.

We await further instructions from the shipyard on the timing and delivery of sub components for LPD 30. We expect that unlike LPD 28 and LPD 29, the LPD 30 hardware will be inserted by the shipyard earlier in the build cycle for the ship.

We believe we will be well in position to deliver on multiple ships during our fiscal years 2020 and 2021. Please note that this is the first time we are able to provide such a detailed timeframe publicly. With the beachhead established on the San Antonio class, our strategy is to expand to additional ship platforms first and foremost and over time, grow content per ship. In that vein, we are continuing to work to expand our systems into the fleet through a variety of applications for power delivery, power generation, and of course, protection equipment.

Let's talk next about our voltage management products. We are transitioning our revenue mix toward what we expect to be a more predictable and reoccurring revenue base with multiple prospects for growth. DVAR to-date has been the foundation of our Grid segment growth. We believe growth in the renewable market and product diversification into industrial markets should also drive predictable revenue growth. DVAR utilizes our Smart voltage management technology.

In the renewable segment, DVAR connects utility-scale wind farms to the transmission grid. In the industrial segment, DVAR connects industrial customers like semiconductor fabs that require clean reliable power to the grid.

We are seeing more and more repeat customers in both the renewables and the industrial market segments. We are anticipating growth in DVAR sales in fiscal 2018, which represents our third year of consecutive grid growth. We anticipate entering fiscal 2019 with a strong backlog and a strong pipeline of DVAR projects.

Our VVO product takes advantage of today's macro market trends, such as increasing residential solar power and the proliferation of electric vehicles or EVs. VVO expands our voltage management opportunity onto the distribution grid. VVO is also based on our smart voltage management technology, and is the outcome of our listening to and learning from our customers.

VVO takes advantage of utilities move toward more solar at the home and more EV charging. We have executed on multiple pilots this current fiscal year, and are in position for a targeted commercial launch next fiscal year. This is where we plan to be with our VVO product.

On REG, let me give you a quick update on DHS. We have been in communication with them. We'll announce once we get approval. Given their priorities, I'm today unable to say where we sit on their to-do list. We've been led to understand that the DHS modification process is very straightforward. Hopefully, you will hear from us soon assuming the government stays open.

Turning to our Wind business. To-date, we have generated over $200 million in revenue as a preferred partner to Inox Wind on their 2 megawatt platform. Inox is making progress on SECI-1, and we will continue to monitor their progress.

Inox recently announced a 500 megawatt or more than 150 units set (ph) order for the 3 megawatt class platform from Adani Green Energy for a wind power project in Gujarat, India. Adani is one of India's largest independent power producers of renewable energy with a renewable portfolio exceeding 2.2 gigawatts.

With Adani's new order in hand, Inox's auction-based wind order book capacity is approaching 1.5 gigawatts. Many of you have also seen that Inox Wind announced an agreement with AMSC for the launch of a new 3 megawatt class wind turbine design. The 3 megawatt class turbine will have a larger rotor diameter and a higher hub elevation, which allows Inox to achieve a lower levelized cost of electricity, and which should create a competitive advantage relative to other manufacturers in the market.

Before the 3 megawatt class turbine contract with Inox becomes effective, there are payment conditions of predetermined milestones. These payments have not been received as of today. We plan to formally announce this new opportunity once our agreement with Inox becomes effective. We hope to report back to you on this in the very near future.

We are diversifying our Wind business with Doosan. The Korean government is developing a local wind industry with several offshore projects in South Korea. Currently, there are over 4 gigawatts of offshore projects in the pipeline. Doosan may get significant market share for those local projects. We are the exclusive ECS supplier for Doosan's 5.5 megawatt offshore wind turbine. Doosan plans to get certification for their 5.5 megawatt offshore turbine design this spring. This certainly puts us in position for potential order in the near term.

In conclusion, we have completed three of our five stated objectives for this fiscal year. These objectives include moving forward with the contract for a REG system project, the delivery of our 5.5 megawatt ECS units to Doosan for offshore wind and the completion of a long lead time order for LPD 28. The other two objectives for this year are about Grid and Wind growth year-to-year.

Our Wind and Grid businesses has seen growth year-to-date. Our DVAR business is strong and we are delivering VVO units to the market. We have seen continued traction with our SPS solution, with the recent orders for LPD 28 and LPD 30. We have the resources to invest in our capabilities for our Navy products. We are engaged with DHS, and look forward to announcing progress soon.

With that, we'll now take questions from our analysts. Ian?

Questions and Answers:


Thank you. (Operator Instructions) We'll now take our first question from Eric Stine of Craig-Hallum. Please go ahead.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hi, Daniel. Hi, John.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Hey, Eric. How you doing?

Eric Stine -- Craig-Hallum Capital Group -- Analyst

All right. Well. So, I just wanted to start with Navy. Thanks for the details on what you can handle now and especially, given it looks like your -- it's kind of normal course of business that you're going to be part of this platform and doing those going forward.

But as you think about, obviously, expanding to new platforms, more content, can you talk about longer-term, approximately, how many ships per year you could handle? And then as part of that, just color on, you mentioned $5 million in CapEx for that Navy business. Is that capacity, is that tooling, maybe just details there? And that would be great.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Sure. I'll give you a little bit and we'll talk probably more in the next conference call. But as you know, we made the move to air. When we made that decision, we made sure that we weren't over investing in things that didn't yet have an order.

So, we wanted to be able to telegraph to the market that some capital spending was coming, and not to be alarmed because it's normal course, as you said and we believe should be expected. From a capability standpoint, the Navy won't allow us to talk about what our capability is. But for those of you that have been to air and have seen what we're doing, this is an installation that we're designing to be able to meet all of the Navy's need for the Ship Protection System business. We've estimated the market somewhere between $70 million and $120 million annually, assuming we get all of the surface fleet.

So, we want to be able to make sure we have the capability to serve all of the US Navy's needs and over time, hopefully, we'll begin the export and we'll be able to serve those needs. All we believe out of air, but doesn't mean that there won't be incremental capital. But as we're kind of telegraphing today, it's on the order of a few million dollars to build capacity. The Navy won't let us say, definitively, what capacity the building can do. So, I'm sorry, I can't give you a direct answer on that.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

No, I understand. All right. That's helpful. Maybe just turning to REG. And I know you're waiting on DHS approval. Is that something where now that Chicago's made their move, I mean, has that changed conversations with other utilities? Or do you think that, that is something where you need to get it, put in the rate base, go through that process, get approval and if that needs to take a few steps for before other utilities make their move as well?

Daniel McGahn -- President, Chief Executive Officer and Chairman

I think, Eric, it's somewhere in between. So, I don't think we need to go through all the steps to get all the utilities to start to look to move forward. We are working, as I said on the past few calls, with a number of utilities, there seems to be clear and present real need for the product and we're trying to work through those discussions. We've done a lot of work on the civil engineering side on multiple projects and we're trying to prime that pipeline, so it could all come relatively rapidly in conjunction with the project in Chicago.

So definitively, what I've said is many of these projects don't need Chicago to go forward. But certainly the project in Chicago will help derisk it in the minds of many utilities that I think in a lot of ways aligns utility with us to market the compelling need and I think that's a tremendous benefit to our company.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Okay. Got it. And maybe last one just for John. Just gross margins, obviously, nice number this quarter. Just some thoughts on if you're able to -- how we should think about that over the next couple of quarters?

John W. Kosiba -- Senior Vice President, Chief Financial Officer and Treasurer

So, we don't guide to gross margin in the future. But this quarter, we did have a strong gross margin at 26%. And you can see in our scripts, a big chunk of that revenue was from Wind. So, when we have a revenue profile of a good product mix, I think you can assume gross margins in a similar range. Since we haven't guided to the product mix in the future, it's difficult for me to try to give you an answer one way or the other. But what I can say is on this revenue profile, this is the margin that we feel pretty comfortable at.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Okay. Thanks.


Thank you. We will now take our next question from Colin Rusch of Oppenheimer & Company.

Colin Rusch -- Oppenheimer & Company -- Analyst

Thanks so much, guys. Can you talk a little bit about the OpEx spending you're going to need to invest in to support the growth trajectory in the Grid and the Navy business?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah, Colin. What we said specifically today has to do with the Navy. So remember, it's not just delivering wires, delivering the whole system. So, we're going to put it in a tooling to be able to fabricate the complete SPS system. As you can see from what we're saying today, that's on the order of low single digit millions of dollars. So, we didn't want to invest in any of that until we have the order. We now have that order.

I think one of the things that people will keep asking us, OK, what's your revenue capability given the CapEx spending? And we certainly probably need to be more transparent with that, as we look at our FY '19 plans and beyond. Today, we wanted to be able to signal that there will be some spending coming, but we also wanted to really highlight the revenue profile and how we see the revenue coming, which we tried to do in the prepared remarks.

Colin Rusch -- Oppenheimer & Company -- Analyst

Maybe my question was misunderstood. I'm trying to get a better sense of the OpEx spends going forward in terms of your overhead and how much operating leverage we'll get as you look for revenue?

Daniel McGahn -- President, Chief Executive Officer and Chairman

I'm sorry, I heard you say CapEx, so I apologize. So from an operating spending, this is at a low level compared to where we've been. If you back out the cash level, it gives you a breakeven still scenarios, like we've said. We don't see OpEx having to grow in line with revenue growth, meaning that we believe there's a lot of OpEx leverage.

When we look at programs like SPS or some of the newer products, most of the spending around realization of those revenue comes from cost of goods sold. So, we're not looking at ratcheting up in any way operating expense overall. There's not a need to expand the sales force or expand what we're doing in R&D. If we saw any change, it would be flat to maybe incrementally higher.

But at the end of the day, it maybe noise in the system. We're trying to design the business to get good gross margin and operating margin levels at current operating expense levels. So hopefully, with incremental revenue, we should see great leverage and fall through from those revenue dollars. (Multiple Speakers)

Thanks, Colin. Sorry about hearing CapEx instead of OpEx. I guess I got CapEx on my mind.

Colin Rusch -- Oppenheimer & Company -- Analyst

Sounds good. Thanks a lot, guys.


Thank you. We'll now take our next question from Philip Shen of ROTH Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hey guys. Thanks for the question. First one is on Inox. With that $500 million or -- sorry megawatt, your order with Adani -- well, the one that Adani has with Inox and in turn that you can service. I know there is still some milestones that you guys have to meet. Can you talk through -- it sounds like you could get through that quickly. Just give us a little bit more color on what those milestones are? Are they letters of credit and just kind of making the upfront payments or is there something deeper?

And then, I believe the project is expected to be delivered over a 15-month period. So, how do you expect the revenue recognition on your end to be spread over that 15 months? Do you expect to be front-end loaded or could it be spread evenly among the quarters ahead? Thanks.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Okay. So, I'll try to be as direct as I tend to be with everybody. I think we're in a difficult situation. Here we have a customer that needs a product in the 3 megawatt class. They've got an order for it, which is great because it derisks the business for us.

But as of today, there are certain prepayment conditions that make the contract go active and we haven't met them. And what we're trying to do is to make sure that as we operate, particularly the wind business, that we get security of cash flow. It would lead you to believe that there really is a compelling need for the product if they are able to go and secure orders for it.

The 15-month timeline is what they've disclosed. That bodes well with some of the SECI projects that Adani has already won. To a large part, it adds up with one of their initial demand. So, we think it's a big win for Inox. What we need to do is to get them to execute the payments, then we'll go forward and do the work to be able to deliver the turbine design. We will have to go get certification for it. But net-net, when we look at electrical control system demand, we tend to lead delivery of the turbine by, call it three or four months typically with the 2 megawatt platform. That's what we've seen. But we're going to have to do some work on the turbine design.

So from a revenue profile standpoint, it's not going to be early, it's going to be later in that cycle. But at this point in time, Phil, I don't have payments for the 3 megawatt design and I do not have an order for 3 megawatt ECS.

So, when we look at orders, we look at what the complete instruction is from the customer and their ability to pay and their payment history to really understand what we think is really an order. So, we're in a challenging situation here, where it's hard for me to give you very concrete answers until the customer pays for the technology and then the customer puts in place an order for ECS.

Philip Shen -- ROTH Capital Partners -- Analyst

If you were to provide a probability on that, I mean, is it a 80% probability that the two of you would get past the current hurdles or is it less than 50% probability?

Daniel McGahn -- President, Chief Executive Officer and Chairman

And everything we've done with Inox, we've been able to have everything work out positively for both companies. So, not that the past is necessarily a complete way to look at the future, but the companies work very well together and we know they really need to and want to move to this platform and we want to be there to help them, but they need to make sure that they're paying their bills on time. Obviously, it's been a couple of months here between when they announced and today. So, we're working very closely with them to get that project kicked off and get it really started.

Philip Shen -- ROTH Capital Partners -- Analyst

Is there a chance another ECS supplier can step in? I mean, is there a realistic substitute supplier or what's your thought on that?

Daniel McGahn -- President, Chief Executive Officer and Chairman

I don't want to speculate on any of that given what the company has been through in its past. They've announced that they have a deal with us. They've announced that they've signed a deal with us. That's all true. In order for the agreement to become effective, they simply have to pay and we look forward to being able to announce soon that they paid.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Okay. Shifting gears, this one might be more for John. I know earlier, too, I think a question to Eric, he maybe asked about product mix. I know you don't guide to that, but if there's could -- if you could share any color on the mix of segments in Q4 between Wind and Grid, that would be helpful. And do you see something similar to what we had in our Q3? Or do you expect one to kind of take -- to be more dominant in Q4? That would really help in terms of modeling.

John W. Kosiba -- Senior Vice President, Chief Financial Officer and Treasurer

Sure. I mean, we don't guide specifics on the breakdown between the segments. What I can tell you is we are shaping up to have a stronger Grid quarter than Wind quarter. So the revenue mix -- the mix will change. I'll just leave it at that. We should see a stronger Grid quarter.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay. That alone is really helpful. Thanks, John. As it relates to REG and then, I'll pass it on. I know, Dan, you touched on that. But was wondering if you could comment specifically on, has the number of near-term opportunities increased?

What do you think could happen in fiscal '19 given slow utility-scale development? That slow process in general. And has anything progressed meaningfully out of PUC or with a specific utility? How is the Exelon overall opportunity shaping up? I know you have a relationship with ComEd, but it extends, I think into Exelon as well. So if you could just provide a little bit more color on REG overall, that'd be great. Thanks, again.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah, I think it was the last call we went through a lot on the pipeline. All of that remains true and it becomes stronger. Everyday, we show up to work, we're moving the ball forward on REG. I think everybody today is focused on when we're going to move forward with the DHS modification, which is why we tried to focus the prepared remarks around that.

I don't want to go back, Phil, and redo the last conference call. I don't think that would be helpful for anybody. But basically to say, hey, we still feel very strongly that you have a plethora of projects here in that $25 million to $75 million range, that we could be in position to deliver within one year. So the revenue ramp from REG certainly is possible. I think what you are hearing from the company, however, is we need to move forward with the 3 megawatt. We need to move forward with DHS. We need to move forward with SPS capability.

In the near term in the next few quarters, we have to focus on those things to make the revenue growth happen for those parts of the business. If we're able to deliver on an order for REG in the near term, we think that's just a great accelerator for the business and good news for everybody. We keep working at it and when we have something to announce, we will.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay. Dan, thanks very much. Thanks, John. I'll pass it on.


Thank you. And now, we'll take our last question from Carter Driscoll of FBR Riley. Please go ahead.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Thanks. Good morning, guys. First of all, congratulations on moving toward commercialization of your naval business. I know it's been a long arduous process. So, congrats for finally getting that business more toward annuity like structure.

So, my first question, Dan, is could you talk about -- since the scope of the 3 megawatt design seems significantly to have a larger dollar content and effectively a much different design than 2 megawatt, we anticipate the license fee to be different than the 2 megawatt. Is there anyway (ph) you could qualify?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah. When we've done license agreements, we usually have not announced the economics.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst


Daniel McGahn -- President, Chief Executive Officer and Chairman

What we've said typically is these are in the millions of dollars or millions of euros. This is not necessarily different than that. There is a royalty basis to it, then there is the ECS supply chain. So, I wouldn't see this agreement being substantially different than what we've done in the past.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. Do you anticipate that, assuming you work out all of the economic details in Inox's forthcoming with payments for it, that it could have a similar type of total dollar content for what you did for the 2 megawatt, meaning (Multiple Speakers)

Daniel McGahn -- President, Chief Executive Officer and Chairman

Particularly, when we are looking at Doosan turbines and other turbines that, whatever we've said typically between $50,000 and $100,000 of value per megawatt, and that will hold true for a 2 or 3 or 5.5, whatever size. We think that's the value that we command that we want to try to get that kind of pricing from our customers.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. So, obviously, having Doosan helps with the diversification. I'm assuming that the ramp for 5.5 will be relatively muted in this fiscal year. Could you talk about maybe some other potential designs they might be looking at for offshore?

I mean, you've seen some of the competitors in the double-digit megawatt size. You guys had, obviously, a sea (ph) tightening years ago. Maybe just talk about the opportunity set there as offshore seems to be getting some legs worldwide, particularly in Korea?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah. I think with the macro trend, the movement to larger turbines in offshore, it really is in the wheelhouse of AMSC. That's where our technology does even better. And as you comment, we even have other drivetrains that we could do larger turbines for. As the market moves there and particularly our established partners or maybe new partners, as they need technology to get the larger turbines, we have a very unique set of turbine designs that can allow somebody either to expand their product line or enter the market as a new entry.

Right now, the strategy is to go offshore through South Korea. If the direction changes, if the other partners present themselves with other sizes, that would certainly be something that we would talk to everybody about. The general feeling in South Korea is that this 5.5 megawatt turbine, I think is one of the top 10 largest designs in the world.

There is a supply chain that has been in development for that size or class turbine. Getting larger, there's a number of makers out there that are putting up prototypes of larger sizes. When our partners need that technology, we have it. We don't have a lot of development work between what we've done to-date versus what we need to be able to transfer to a customer.

In South Korea, they're talking already about larger turbines. Certainly, we want to make sure that Doosan is successful with the 5.5. That will put us in a position. As they expand their product line, it gives us the potential to deliver other technology and other content to a maker like Doosan on somebody else that's active in offshore.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. Maybe switching gears, could you -- is there a way to quantify the dollar content of the long lead time items versus what you think an entire system would be per ship? I know you've given very specific per ship ranges for dollar content. Just remind us, again, maybe what percentage long lead time is in a range relative to the total dollar opportunity per ship?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah. I don't think for LPD 30, we put anything out there and there's something in the remarks today. But to give you a sense of what we've already said on LPD 28, is when we got those orders, it represented about 20% of the value. And we've already recognized revenue for that amount for LPD 28. We don't see the next ship LPD 30 as being that much different probably. That helps you.

The other thing we tried to signal in the prepared remarks for other ships, so we talked about LPD 29, which we were kind of hinting at. We think if we get an order, it would be directly from the Navy. We probably don't need to be in that situation, where we have such a long lead because we're now kind of getting more into steady state production. So, I said in the prepared remarks, we expect that, that may come as one order instruction of one order. I think the same thing if we look out to LPD 31, there's a lot of initial work with LPD 30 that will be accomplished with the shipyard that won't have to be done again as we go to the next ship called LPD 31.

So, we're trying to telegraph that there may be a segmentation of revenue in time, where we are maybe integrating over a longer time period for LPD 28 and LPD 30. But we try to signal very directly, we're going to see a ramp in fiscal '19 in the back-end and will see us basically working on multiple ships in 2020 and 2021.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. All right. So, it's fair to characterize this as both the investments you're making in your new facility along with a quicker potential adoption of those long lead-time items at the shipyard level. Both of those should bring a smoothing effect. And as you add more platforms, bringing more annuity-like revenue structure to that business, is that a fair characterization?

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah. I think you got right at the crux of the call we're trying to telegraph. We are trying to bring not only growth, but predictability to that growth. And we see that coming in the late '19 and certainly strongly in 2020 and 2021.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. Just last for me and I know you don't -- you have been asked this different ways in terms of margin expectations. But traditionally, Wind had been a higher-margin business. But is it not fair to assume that as the Navy contributes a larger percentage of that, that grid overall could either even potentially exceed what historically has been your win margins?

Daniel McGahn -- President, Chief Executive Officer and Chairman

I think, to give you some of the things we've said in the past is, inside the Grid business, you had historically under absorbed fixed factory relating specifically around the superconductor technology. The move to air, we signaled specifically what that reduction would be. We've been able to realize that reduction. So, that means incremental margin happens at lower revenue dollars in Grid. So, that's one point.

The second point, I think, as we've looked at the military, as we get into some scale here, which is not much as we're telegraphing for 2020 and 2021, that the potential for military margins usually outweighs commercial margins. So, as we released these products, the idea is not only to grow revenue but to grow operating leverage and to grow gross margin for the business.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Okay. Appreciate that. And maybe just last question for me is, given that you may face a bit of a transition from Inox to 2 to 3 megawatt, obviously assuming and your confidence that, that will occur in the near term, have you set up the same? Have you had the ability to set up the same supply chain dynamics for 3 megawatt versus 2 megawatt? Is there any different components or suppliers that you need to alter from that? I wouldn't imagine so. But just want to get your commentary on that.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Yeah, I don't think -- I think one of the analyst talked about us being very different. I think the design is different and that it's bigger, but it leverages the same basic components. We're still talking geared systems. We are still talking extensively the same supply chain. What we're trying to get is to more leverage to get into the 3 megawatt and the 5.5 megawatt turbine, that you get leverage with bigger turbines as well. So, all that comes, but it spills (ph), hopefully, some growth for us.

When you look at what India has said and what Inox has said, I think the challenge that you're pointing out, which is that transition to the 2 or the 3, may cause some temporal dislocation in demand again in the short term. But if you look at the longer term, when you integrate all the demand, it's a lot of revenue for us. And we look to -- we are already into $200 million plus that we've delivered already. The prospects here, if people are patient, I think, quarters to years, not weeks to quarters, their backlog continues to grow, the order with Adani, think is a great feather in their cap to show more stability in their business.

So, I think the overall tailwinds are present in Wind. I think the challenge will be -- and I think you got added with the 15 months timetable that was subscribed in Inox's announcement, we got a lot of work to do in the next year. And if we are able to execute on that and additional orders, you should see continue -- a continued growth trajectory that we're on in Wind.

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

Appreciate it, Dan. Thank you.


This concludes today's question-and-answer session. I would now turn the call back to Mr. Daniel McGahn for any additional or closing remarks.

Daniel McGahn -- President, Chief Executive Officer and Chairman

Thanks, Ian. And thanks, everybody, for joining us today. We are executing on our plans. We're in a great cash position. We're beginning to grow. We've diversified our Wind and Grid businesses. We've expanded our Wind product line with the larger offshore ECS product, and we've expanded our Grid business with our VVO product.

We are demonstrating the ability to monetize our ECS technology investment into a very significant SPS and REG opportunity. Our SPS product line is expected to create greater revenue predictability as we deliver on our systems order. We believe that we are on a path toward predictable revenues and growth over the long term.

If I look in the very near term in the coming weeks, in the coming quarters, hopefully, we'll see an update to you all on the 3 megawatt contract with Inox. Hopefully, we'll be able to update you on the process and the modification to the existing agreement with DHS. And then, we're certainly telegraphing that we should hear more on LPD 30 and more on Doosan.

So, we think we're at a very nice position for the company, where we've introduced these new products, we're getting traction. And all indications is that we have multiple pathways to growth and we have the ability here to be able to support that growth.

Thank you, everybody, for your attention and we look forward to talking to you again when we report the results for the full fiscal year, which will be in the next few months. Thank you.


This concludes today's call. Thank you for your participation. You may now disconnect.

Duration: 55 minutes

Call participants:

John Heilshorn -- Investor Relations

Daniel McGahn -- President, Chief Executive Officer and Chairman

John W. Kosiba -- Senior Vice President, Chief Financial Officer and Treasurer

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Colin Rusch -- Oppenheimer & Company -- Analyst

Philip Shen -- ROTH Capital Partners -- Analyst

Carter Driscoll -- B. Riley FBR, Inc. -- Analyst

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