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American Superconductor (NASDAQ:AMSC)
Q3 2020 Earnings Call
Feb 04, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day and welcome to the American Superconductor third-quarter fiscal 2020 earnings conference call. Today's conference is being recorded at this time. At this time, I would like to turn the conference over to Mr. John Heilshorn of LHA.

Please go ahead sir.

John Heilshorn -- Investor Relations

Thank you, Monish. Good morning, everyone, and welcome to American Superconductor Corporation's third-quarter Fiscal 2020 earnings conference call. I am John Heilshorn of LHA investor relations, ASC's investor relations agency of record. With us on today's call are Daniel McGahn, chairman, president, and chief executive officer; and John Kosiba, senior vice president, chief financial officer, and treasurer.

American Superconductor issued its earnings and note release for the third quarter of fiscal 2020 yesterday after the market closed. For those of you who have not yet seen, the related 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 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 Securities and Exchange Commission on June 2, 2020, as updated in the company's Form 10-Q for the period ended December 31, 2020, and the company's other reports filed with the SEC.

These forward-looking statements represent management's expectations only as of today and should not be relied upon interpreting management views as of any day -- of any subsequent day-to-day. While the company anticipates that subsequent events and developments may cause the company's views to change, the company specifically displace 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 -- before stock-based compensation, amortization of acquisition-related intangibles, acquisition costs, change in fair value of contingent consideration at warrants, other noncash or usable charges and the tax effect of adjustments calculated at the relevant rate for the company's non-GAAP metric.

Non-GAAP operating cash flow to five other company is operating cash flow before the China settlement, net of legal fees and expenses and other unusual cash flows or items. The reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in the third quarter of fiscal 2020 earnings press release that the company issued and furnished with the SEC last night on Form 8-K. All of the 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 over the call to chairman, president and chief executive officer, Daniel McGahn.

Daniel?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Thanks, John, and good morning, everybody. I'll 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 third fiscal quarter, which ended December 31, 2020, and provide guidance for the fourth fiscal quarter, which will end March 31, 2021. Following our comments, we'll open up the line to questions from our analysts.

AMSC delivered strong results during the third quarter of fiscal 2020. Revenue for the quarter grew by more than 30% versus the year ago period, coming in at $23.6 million. Our grid segment revenue grew 12% versus the year ago period. grid is driving revenue growth for the company, and all grid product lines contributed to the quarter.

We generated positive operating cash flow in the third quarter of fiscal 2020 as forecasted. This is a great milestone for the company to be. We met this objective for this one quarter, and we strive to be there on a sustainable basis. We believe that this demonstrates progress toward our goal of reaching operating cash flow breakeven on a consistent, sustainable basis.

We ended the third quarter of fiscal 2020 with more than $84 million in cash. Let's take a moment to review our grid business. In October, we announced the acquisition of NEPSI. Please realize that this transaction occurred during our third quarter, which is the period we're now reporting on today.

The acquisition of NEPSI directly aligns with our strategic priorities to accelerate profitable growth independent of our Wind business, broaden our product offerings and expand both market reach and market share. Further, the addition of steady state power correction extends our product offering in the industrial sector of our grid business, expanding our available market. Going forward, we will talk about the pieces that make up our grid segment in terms of new energy Power Systems and ship protection systems. New energy Power Systems include NEPSI, D-VAR and VVO.

We are integrating the front end of this part of the grid business as one. And yes, REG is part of grid as well. grid is driving revenue growth for the company. We believe that our grid segment is on track for another year of organic growth in FY 2020.

And if we achieve this objective, it will be our sixth consecutive year for grid growth. In the third quarter, our new energy Power Systems revenues were driven by industrial sales principally to the United States, renewable projects in the United States as well as an international semiconductor fab. Going forward, we expect that the addition of steady state power correction products and our monic filter products to our portfolio grid offerings should improve the long-term quality of our revenues and earnings and further diversify our grid business by region, customer and product. Most importantly, we expect this addition to our grid business to accelerate our ability to achieve our goal to reach operating cash flow breakeven on a consistent, sustainable basis.

We believe that this quarter demonstrates progress toward this objective. We believe we're well capitalized to execute our overall strategic plans for additional growth and further diversification. We continue to be focused on building a more predictable and diversified business. As we've discussed over the last three quarters, the pandemic has created both operational challenges and macroeconomic concerns for all businesses in the United States.

AMSC has demonstrated that it can operate effectively during this crisis. I said this early on in the pandemic, and I'm saying it again, we were early to implement physical separation protocols at our manufacturing sites, and we have not missed the beat in productions. However, this continues to get harder in each quarter. In the U.S., we may now just be seeing signs of the pandemic beginning to slow.

But each day, there's news about new variants of the virus and who knows, what we're really going to be up against in 2021. We have instituted cleaning protocols for our offices to help keep everyone safe and healthy, which is paramount. We're focused on our people, quality production of our products and strong customer service. AMSC is deemed to be an essential business for our manufacturing locations.

Thus, our factories remain open and will continue to be operational throughout the pandemic. We are managing what we can control, and that is our internal operations. We've seen what we perceive to be new tailwinds in our business. President Biden's new energy plan could positively impact the demand for our new energy Power Systems solutions.

The new energy plan intends to reform and extend the tax incentives that generate energy efficiency and clean energy jobs as well as to develop financing mechanisms that leverage private sector dollars to maximize investment in the clean energy revolution. This is very good news for our company. As you know, our D-VAR product is primarily focused on addressing renewable energy installations for project developers and wind turbine manufacturers. For the utility, our VVO system offers superior power quality, environmental benefits and significant cost savings of our traditional solutions.

Biden's administration plans to spur the installation of tens of thousands of wind turbines in his first term, including thousands of turbines off our coast. We are partnered with top-tier wind turbine manufacturers to provide wind farm connectivity to the U.S. power grid. The new administration also intends to spur the installation of millions of solar panels, including utility scale, rooftop and community solar systems.

Because solar power is dynamic, and intermittently variable in nature, distribution grids must now enhance their networks capabilities to accommodate this new resource, while maintaining efficiency and power quality for their customers. The president's energy policy also focuses on the next generation of electric grid transmission and distribution, which has been the heart of our long-term growth strategy. We believe our new energy Power Systems products are well suited to address this enormous challenge. The expansion of our new energy Power Systems offering comes at a great time.

Now, I'll turn the call over to John Kosiba, who will review our financial results for the third quarter of fiscal year 2020 and provide guidance for the fourth fiscal quarter of 2020, which will end March 31, 2021. John?

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

Thanks, Daniel, and good morning, everyone. AMSC generated revenues of $23.6 million for the third quarter of fiscal 2020 compared to $17.9 million in the year ago quarter. Our grid business unit accounted for 72% of total revenues while our Wind business unit accounted for 28%. grid business unit revenues increased by 12% in the third quarter versus the year ago quarter due primarily to revenues generated from our recent acquisition of North East Power Systems or NEPSI.

Wind business unit revenues more than doubled in the third quarter versus the year ago quarter with a 144% increase in revenue as a result of increased ECS shipments for Inox Wind. Looking at the P&L in more detail. Gross margin for the third quarter of fiscal 2020 was 17%, up from 9% in the year ago quarter. The higher gross margin was a result of a favorable product mix, which included ECS shipments.

Included in cost of goods sold in the third of fiscal 2020 is approximately $1.3 million in noncash adjustments related to the purchase accounting for the acquisition of NEPSI. These non-cash-related adjustments represent a negative 5 percentage point impact to our gross margin in the third quarter. R&D and SG&A expenses for the third quarter of fiscal 2020 were $10.1 million. This is up from $8.1 million for the same period a year ago.

The increase in R&D and SG&A expenses in the third quarter of fiscal 2020 was due primarily to the addition of NEPSI's operating expenses to AMSC's operations. Approximately 13% of R&D and SG&A expenses in the third quarter of fiscal 2020 were noncash. Our non-GAAP net loss for the third quarter of fiscal 2020 was $3.4 million, or $0.13 per share, down from $6.7 million, or $0.32 per share, in the year ago quarter. Our net loss in the third quarter of fiscal 2020 was $7.9 million, or $0.31 per share.

This compares to $6.8 million, or $0.32 per share, in the year ago quarter. Included in our third-quarter fiscal 2020 net loss were several noncash adjusted items associated with the NEPSI acquisition. I mentioned the first one of $1.3 million which was a noncash expense into cost of goods sold. Additionally, within our operating expenses, we had a $2.7 million noncash expense associated with the change in fair value of contingent consideration and a $300,000 noncash expense for the amortization of NEPSI intangibles.

Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the third quarter of fiscal 2020 with $84.4 million in cash, cash equivalents, marketable securities and restricted cash. This compares with $57.7 million on September 30, 2020. We generated $1.7 million in positive operating cash flow in the third quarter of fiscal 2020.

This was primarily the result of favorable working capital associated with cash collections from Inox Wind or ECS service within the quarter. As a reminder, working capital fluctuates from quarter to quarter depending on the timing of milestone payments and inventory positions. As I mentioned in previous calls, if you look at our operating cash flow over a several quarter period, that will tend to smooth out any quarterly variations of working capital. Year-to-date, for the first three quarters of fiscal 2020, our operating cash burn is $4.9 million on $66 million of revenue.

For reference, this compares to an operating cash burn of approximately $18 million on $46 million of revenue for the first three quarters of fiscal 2019. That is nearly a $13 million year-over-year improvement in operating cash flow over the nine-month period. The improvement in year-over-year operating cash burn was driven by the higher revenues and increased gross margins within both our grid and Wind business units. OK.

Now, I'd like to take a moment to summarize the financial impact NEPSI had on our third-quarter results. NEPSI accounted for a $6.6 million of grid business unit revenues, and NEPSI's operating margin was approximately breakeven in the quarter. As I mentioned earlier, there were several noncash purchase accounting adjustments included in these results totaling approximately $1.6 million. When we normalize the business, excluding these adjustments, NEPSI's financial results in the third quarter are in line with the historical three-year average annual run rate of approximately $25 million a year in revenue and operating margins approaching 20%.

Now, turning to our financial guidance for the fourth quarter of fiscal 2020. We expect that our revenues will be in the range of $18 million to $22 million. We're expecting most of our fourth-quarter revenue to be generated from our grid business unit. We are not expecting any ECS shipments to Inox in the fourth quarter.

As Daniel has mentioned earlier, we stand ready to support our partner in India as they commission new turbines or need new stock of 2 megawatt ECS. Our net loss on net revenue is expected not to exceed $8 million, or $0.31 per share, and our non-GAAP net loss is expected not to exceed $6.5 million or $0.25 per share. The net loss and non-GAAP net loss guidance includes expected revenues from DHS for our rent project in Chicago. As a reminder, this project with DHS is a cost share project and as such, has lower gross margins when compared to overall gross margins for our base business.

We have not expected the right project to have a negative impact on operating cash flows in the fourth quarter as we have paid most of the cash expenses related to this project in previous periods. As a result, the company expects operating cash flow to be a burn of $2 million to $4 million in the fourth quarter of fiscal 2020. We expect to end the fourth quarter with no less than $80 million in cash, cash equivalents, marketable securities and restricted cash. With that, I'll turn the call back over to Daniel.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Thanks, John. As I said at the outset, our new energy power part of our business is doing very well. We're really excited about our growth prospects in this part of our business. We want to continue executing on our strategy of growth and diversification.

Let's touch on other areas of the business. Turning to SPS. As you know, our ship protection systems, or SPS, has become the baseline design for the San Antonio Class Amphibious Ship, or LPD platform. We announced in January, our fourth Ship Protection System contract for the San Antonio Class.

This contract is for an SPS for LPD 29, also known as the USS Richard M. McCool Jr. LPD 29 will be the 13th amphibious transport dock ship of the USS San Antonio Class. The ship is named after U.S.

Navy Officer and Medal of Honor recipient Richard Miles McCool Jr. Our SPS for the San Antonio Class represents approximately $10 million in value for revenue per vessel. Our current backlog of SPS orders now include LPD 28, LPD 29, LPD 30 and LPD 31. Our team is very busy and focused on continuing to expand the business while we deliver our first systems.

From a capacity perspective, we have been planning for the concurrent manufacturing of multiple SPS orders, and here we are. We're very happy we have this capability as we are full out in producing these systems. We have talked about the expected size of the opportunity several times in the past. In total, there were 15 future San Antonio Class ships planned to be built after we had our design wins.

We have now won four of these 15, or $40 million of the potential $150 million for this class of ship. The San Antonio Class is our first design win with the Navy. We are actively engaged with the Navy, pursuing additional classes of vessels for deployment of our SPS. We have done some engineering for the potential deployment of our SPS in a next class of ship.

We're very excited about this opportunity, and the work ahead to expand into more of the U.S. Navy fleet. In each case, we have to do engineering work prior to procurement. We have to fit our common components that make up our ship protection system and show all the changes to the build of the ship.

This is exciting work indeed. In addition, we're working hard to bring our degaussing systems to foreign fleets. We see interest here. But again, there is an engineering phase that would precede any procurement.

Turning to REG, our Resilient Electric grid system. We announced previously that ComEd agreed to install its first resilient electric grid system as a permanent asset within Chicago's electric power grid. In July of 2020, we announced that ComEd broke ground and has begun construction for the REG system. We have now delivered all our hardware to the project and are providing technical assistance to ComEd during construction.

Things are progressing very, very well. We're on schedule and anticipate energization in 2021 per ComEd's schedule. We are excited about our execution to date on this first project with ComEd. Many U.S.

utilities are excited to watch our success. Turning to winds. During the third quarter of fiscal 2020, we shipped 2 megawatt ECS to our onshore Wind partner, Inox Wind. As we mentioned in October, Inox regained compliance with the 2 megawatt supply contract.

This is a very encouraging development for sure. We stand ready to support our partner in India as they commission new turbines or need new stock of 2 megawatt ECS. We are also encouraged by Inox's stated desire to lower the levelized cost of energy further by way of a new wind turbine. To that end, we have designed and Inox is now in the process of constructing a prototype of a new 3 megawatt class turbine for the Indian market.

They expect to test and commission this turbine in 2021. Inox has indicated a new 3 megawatt class turbine is an integral part of its long-term strategy to deploy wind power in India. The 3 megawatt class platform appears to be a great fit for the competitive tariff environment in India. Inox is working toward completing construction and then commissioning the 3 megawatt class prototype turbine that we designed.

Once commissioning is complete, Inox will then seek type certification for the operating turbine. We expect to work with Inox to build a 3 megawatt class production supply chain, put in place an ECS initial production order and support the already growing demand for their 3 megawatt class turbine. We believe we are well positioned to support Inox's anticipated requirements and look forward to those. So overall, the market in India appears set to be in a better position in 2021 than in 2020.

We will see. We service the offshore wind market through our partner, Doosan Heavy Industries in South Korea. We are the exclusive supplier of ECS units for Doosan's 5.5 megawatt offshore wind turbine. The South Korean wind market presents a long-term opportunity for us as does the global offshore wind market.

We have completed the initial production order of 5.5 megawatt ECS for Doosan's offshore turbine. South Korea has mandated the development of renewable energy sources as part of its plan for long-term electric power supply, and Doosan has publicly expressed its desire to secure a large share of this accelerating South Korean wind power market. Our team is working closely with Doosan and we look forward to potentially penetrating the global offshore wind market with Doosan. In conclusion, as we move toward the end of our fiscal year 2020, which will end in March, our grid segment is driving revenue growth for our company.

We are pleased to report $1.7 million of positive operating cash flow in the third quarter. We are integrating NEPSI into the company and are now marketing and selling static power correction systems into industrial markets. Our REG team has delivered the REG hardware to Chicago, and we are on schedule. We are manufacturing SPS for the San Antonio Class ship platform, LPD, and the delivery of our SPS for our first ship was expected in 2021.

We are supporting Inox with commissioning in the field and have provided more 2 megawatt ECS product as Inox has needed it. We have completed our first production order of 5.5 megawatt ECS for Doosan and look forward to announcing our next production order for the offshore wind market. We expect to grow grid revenue again in fiscal year 2020. I am very pleased with what our team here at AMSC was able to accomplish so far this year, especially in the middle of a global pandemic.

If you listened to one of the comments that John made, last year, our revenues were about $64 million for the entire year. Today, we stand nine months into the year at about $66 million. The burn is dramatically different on this $66 million of revenue than last year's $64 million. I think that was a key point that John made, and people should focus on that.

Going forward, we believe that we are well capitalized to execute on our growth through grid strategy. I'd like to personally thank our employees for their hard work and dedication, and I look forward to reporting to you again following the completion of our fourth fiscal quarter of 2020. Monish, we'll now take questions from our analysts.

Questions & Answers:


Operator

[Operator instruction] We'll take our first question from Philip Shen of ROTH Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hey, guys. Thanks for the question. The first one is on NEPSI. Just was wondering if you could give some more color on how the combined offering now is playing with your customer base.

So for the new energy in your product offering, how has your pipeline changed versus what it was pre NEPSI and what kind of momentum are you guys getting?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. We feel really excited, Philip, about the integration of the teams. They're working tremendously well together. We kind of hit it at some leverage and some synergies between the team.

That's working already extraordinarily well. I think the depths of the pipeline continues to show signs for growth. I think the diversification of that pipeline has been a key focus for the team. We're really excited about the future together.

When I talk, Phil, I'm more focused on the next quarters, but necessarily the quarter. But in the long term, we think this is really a nice fit, and the teams are very comfortable already working together.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thanks, Dan. And then as a follow-up there on VVO, specifically, can you give us an update on what the utility activity is there? What kind of follow-up -- follow-on orders you're getting? Or have you made it into kind of standard purchasing for a bunch of these utilities? And if so, how many and how many do you expect to secure going forward? Thanks.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. I remain tremendously excited about VVO. I think it has a perfect fit for something that's really a critical need today on the Grid. We've been able to now show with utilities, both of the projects already, where we've been able to deliver very quickly the results that they were looking for.

I think there's a lot of upside there. The type of selling that we're seeing with utilities, I think, is also going to help us to sell larger systems for REG off of potentially to be able to penetrate utilities with the NEPSI offerings as well as certainly REG. So VVO becomes a very important piece of the strategy as we look on how to serve utilities demand. As you hear a lot of them, the new energy Power Systems part of the business, it's really grid connection for renewables, and we have diversified into industrial.

That's really where the business has been. In the future, we're looking to expand further to work more with utilities and VVO definitely has been able to demonstrate that for us. So net-net, we're really happy with the progress year-to-year with VVO. We do think there's tremendous opportunity.

And as I've mentioned in the outset, the tailwinds are really strong behind us here. The grid needs to dramatically evolve to be able to support a lot of this distributed generation. And we think VVO is -- there's a key factor in making that happen.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. We look forward to hearing more progress going forward. Thanks Dan. I'll pass it forward.

Operator

Thank you. We'll now take our next question from Colin Rusch of Oppenheimer. Please go ahead

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Thanks, guys. Could you talk a little bit about the major design process? And how we might start seeing that begin to roll through the P&L? It seems meaningful that you're now entering into class of ships at this point.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Sorry, Colin, lines breaking up a little bit. I heard that you said something about meaningful profit, but I don't know which product that you're asking on.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Yeah. On the Navy ship, right? So the Navy design process and how quickly we might start to see some of that revenue start to flow toward you guys.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. I think it's hard to predict. What we're trying -- you know where we are with San Antonio, and that's about $10 million per year per ship. We're obviously at elevated levels relative to that because we have four under work.

So we're trying to deal with that demand and be able to deliver systems. So from a meaningful standpoint, that part of the business, I think, is important today but becomes even more crucial as we look at the longer-term multiyear horizon. To get the next platform, what I telegraphed in the call this time and I telegraphed last year, is we know what we think will be the next platform. We're doing engineering work on it now.

I can't handicap on how long it's going to take to get to a procurement. I think what the Navy is looking to do is to determine which specific whole number would we go and get in served on. But typically, you're looking at stuff that they're going to by year, year and a half in advance to kind of give you -- kind of how to flow through in your revenue model. So if we got an order for another platform, it might be a year, year and a half before we have to deliver the revenue.

So we are very optimistic from what the Navy feedback has come to us on what we've been able to do to date. We're really excited about 2021 with the Navy because it's an important milestone in the delivery of the first system. And I think that will help us in selling additional systems, not just to the U.S. Navy but the foreign Navy as well.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

OK. That's incredibly helpful. And then on the REG side, obviously, moving forward, with -- this project is a meaningful benchmark for the industry, let alone you guys. Can you speak to how conversations in other geographies are going and the pace at which those folks are evaluating to potentially move forward with pilot projects?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. I'd say the number of utilities, particularly the ComEd is being a great cheerleader for, continues to increase. They're trying to hail this as a very important product for their future. They're trying to help market for upsell of the utilities.

I think that's a tremendous value to us. They've been extremely supportive of our company. They really think that the product is a key part of their future. And they're literally out talking daily utilities about REG for us because it really does -- again, it is a compelling need in the grid today.

So what we hope happens is we can deliver all this on time, get it energized, and then we're in a position to take orders from the broader market. So stay tuned.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Thanks so much guys.

Operator

Thank you. We'll now take our next question from Eric Stine of Craig-Hallum. Please go ahead.

Unknown speaker

Yeah. Good morning, Daniel and John. It's Aaron on for Eric. Thanks for taking the questions.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Hi, Eric. Good morning.

Unknown speaker

Good morning. Maybe first on Inox, now that the focus is on the 3 megawatt platform, you kind of talked a little bit about prototype design and commissioning. But can you just give a little bit more detail on how you're thinking that business can look here over the coming quarters as we kind of progress through those steps that are needed?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. Inox has demonstrated with the 2 megawatts. They didn't need to get the type certification to start taking orders from the turbine or to start building supply chain. What we're telegraphing today is they're now actively working to build that supply chain.

But we don't have an order yet for 3 megawatts in yet. So I think getting through the events that happened during the quarter were critical to really set the table for the relationship going forward with the 3 megawatt. So all I can say is stay tuned, at some point, we expect there to be an order for initial production for the 3 megawatt. We know they already have demand from what they've said on their conference calls to their investors.

And then overall, the market seems to be improving here in 2021. So we're very optimistic about not only 2 but the 3 megawatt in 2021 for Inox.

Unknown speaker

All right. And then maybe my next question on the supply chain. I know that localizing that has been a big focus for you and it's helped a lot. Can you just talk about if you're seeing any issues there, given kind of what's been going on?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. We've seen issues with COVID in our supply chain across our product lines. The team has done a tremendous job trying to overcome those challenges. We haven't missed a beat in production.

We haven't missed a beat with the financials due to COVID. But I think the longer it goes, certainly, the harder it gets on our suppliers to be able to deliver timely as the volumes that we need. Specifically, with the win in the 3 megawatts, you're not creating a completely brand-new supply chain, all the suppliers are known. But in some cases, you're talking about brand-new parts, brand-new fittings revenue, brand new pieces that have to go into that themselves.

So that has been challenging, I'll say, to be able to develop internationally during the pandemic because you can't really travel and be there at suppliers. But we're trying to manage through it and do the best we can. At the end of the day, Inox drives us as they build their order book and the demand, that will set the timetable for the need for the suppliers like us.

Unknown speaker

All right. And then maybe last, just on the balance sheet. Can you talk a little bit about the priorities given the strength there? I mean is it more acquisitions preparing for that REG kind of pipeline as it moves to the next phase? Or just anything else we should be thinking there?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

We want to continue to scale the company. We want to grow and diversify. We think that the diversification -- we think that the reduction of revenue volatility period-to-period are all things that's tremendously valuable for the company. I think the selection of going down the path with NEPSI was really smart by the team who presented the idea really went by John here to go after these guys and make them part of us.

The integration has gone very well. So we're very confident that we can buy and integrate companies. So that may be one path certainly to scale. We also are looking it internally at organic ways in parallel to be able to grow and scale the company.

We think we have a tremendous platform that we're serving markets that have critical need today for power management. And that type of infrastructure within the grid, renewables and industrial. So we just want to keep going in all the directions that we have been successful so far.

Unknown speaker

Understood. Thanks for taking the questions.

Operator

Thank you. We'll now take our next question from Jed Dorsheimer of Canaccord Genuity. Please go ahead.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Hi. Thanks for taking question. Dan, I guess on REG, I should say. Could you -- I understand the technology.

I was just wondering if I could -- if you could articulate the value proposition to the utility beyond improvement of resiliency because utilities seem to be under pressure. What's the pull for that?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. The pull is very strong, and it's very clear. So what we're really competing against is other capital spends to upgrade substations, build new substations, build more transmission into the urban core that are all tremendously expensive. So what we've seen is at a substation that they need to expand capability, REG in many ways, it's a much quicker, lower risk and more economical way to do it than the traditional means of just building more out of the grid out.

It's a very elegant way to be able to share existing assets. It's a very simple way utilities get to understand how to untraffic this capacity within the system, and really focus on moving power to where it's needed when it's needed. So utilities kind of get it and is so very much as kind of how they would -- how they look at any kind of capital project. And it's what's the benefits of the rate payer versus the capital spend.

And REG is -- from a utility standpoint, it's really a positive, positive product.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Got it. I guess I'm still not fully understanding the value proposition. So if I -- if I'm a utility, and I'm under a decent amount of pressure, and I have a set budget, how do I reallocate budget to you for REG versus allocation to, for example, improving, adding to my wind and solar assets to kind of green up the business. I'm just curious, how should I think about that reallocation of resources to REG.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Yeah. The problems that you talk about are different and disparate. So the problem we're trying to solve is on the grid itself, particularly in the urban system. So what you're doing is, let's say, I don't know, pick a big city, Chicago, for them to build a brand-new substation downtown is highly cost prohibitive.

It's in the high hundreds of millions of dollars to -- could be as much as $1 billion when you look at permitting and land acquisition and all that. As they need to be able to evolve their grid, they see REG as a way to do exactly the same things at a much cheaper cost. So what we're trying to focus on, Jed, simply is where the grid needs to grow or change, be it through screen, be it through distributed generation, be it through gentrification of neighborhoods, be it through natural upgrade of breakers and things within substations. We're trying to leverage those types of projects to show a utility that REG is a more cost-effective solution to provide the additional capacity reliability that they're after.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Got it. And that's helpful, by the way, Dan. So just I guess, to finish this point. I should look at that is if it largely city-based in terms of -- if you have an existing city, you have an existing infrastructure, your solution is more cost-effective when you look at having to add a substation versus tearing up streets and things of that nature, right?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

And we're exactly focused on urban because that's where the higher value is. And now you think about how the grid is evolved on the distribution side or distributed generation in the city more driving toward electric vehicles and such changing the demands on the distribution grid means that the distribution grid spread is going to have to be designed differently. And we think REG comes out of the backbone to build that new downtown grid around. At least that's what Chicago tells us.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Got it. That's helpful. I guess just with respect to NEPSI, it looks like a great acquisition, but I'm just curious, if I look at the core business, is NEPSI going to experience a steep decline in Q4? Or is it just that the sort of the D-VAR in kind of that core business is what has been declining?

Daniel McGahn -- Chairman, President, and Chief Executive Officer

No. I think you're missing it entirely, Jed. I'll be direct with you. John made a comment, we're not shipping any ECS to Inox.

It's Wind. grid is growing. grid is doing tremendously well. We look year-to-year, the organic business and adding NEPSI both.

So D-VAR is growing. SPS is growing from the revenue standpoint. VVO is growing. Everything is growing, and you're adding in NEPSI, which we hope to be able to grow.

Really, the weakness in the number that you're seeing that John had mentioned for Q4 is really Wind is going to be tremendously light. We're in a unique position where we can allow for that and still not have the burring flow. People that have been with us three, four years, if we didn't have a lot of ECS for those quarters, they were very difficult quarters financially. The good news, I think, as we look at march of the numbers, the revenue is right in line with what we've done in prior quarters, the burden is right in line with those prior quarters as well, even though Wind is very light.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Yeah. I mean I hear you with that, but I mean, maybe just help me with the math because if I look at Q3, it looks like D-VAR was cut in half. So I guess, when you say that I'm missing it, if -- you had NEPSI at $6.6 million. And the SPS is fairly stable.

I guess what am I missing? Because it does look as if for Q4...

Daniel McGahn -- Chairman, President, and Chief Executive Officer

SPS is growing. I think the second part you're missing is there is an acceleration of revenue in D-VAR where you have Q1, especially Q2, to some extent, where you have additional revenue that was planned for Q3 and Q4 that were pulled forward. So when you look net-net, you will be trailing three, four quarter averages. We still see growth, 15%, 20%, 25% for all product lines, in some cases, as much as 40%.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

OK. I'll take it offline. Thank you.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

Sure.

Operator

Thank you. There are no further questions. At this time I would like to turn the call back over to Mr. Daniel McGahn for any additional or closing remarks.

Thank you.

Daniel McGahn -- Chairman, President, and Chief Executive Officer

We accomplished a lot and ended our third-quarter fiscal 2020 really on a strong note. We delivered positive operating cash flow. We announced the acquisition of NEPSI. We concluded an equity offering for just over $50 million in net proceeds through the issuance of 3.7 million shares of common stock, which we priced at $15.

So those involved with that, I hope, feel happy about the performance of the business. We published an 8-K on October 5, which went through details of Inox' compliance with the default note. I think you get to understand kind of really by looking at where we are with Inox. And most recently, we announced our fourth Ship Protection System contract with the U.S.

Navy for the Richard M. McCool, which I just like to say McCool, I guess. We're in a great, great position as we look at trying to finish out strongly here in 2020. I think the prospects as we look at 2021, if you listen to everything that I said, I don't know how many times I said 2021.

But 2021, we're delivering REG. 2021, we're delivering SPS. 2021 is a big year for the 3 megawatts. 2021 is a big year for these new energy Power Systems.

We are in a wonderful position of the business. Sometimes I have to temper my enthusiasm because I do realize that we are in the middle of pandemic. But any day, supply chain things could change, and all our hopes and desires could be effective, and we're trying to fix a problem that isn't necessarily something that we created ourselves. So I'm trying to balance my kind of exuberance overall as a business, knowing how hard some days and some weeks can be just to be able to get parts.

So we're really excited about 2020. We'll be able to come back to you and report on the full year next time. Appreciate everybody's interest in the company, and we'll talk to you soon.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

John Heilshorn -- Investor Relations

Daniel McGahn -- Chairman, President, and Chief Executive Officer

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

Philip Shen -- ROTH Capital Partners -- Analyst

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Unknown speaker

Jed Dorsheimer -- Canaccord Genuity -- Analyst

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