American Superconductor (AMSC) Q4 2021 Earnings Call Transcript

American Superconductor (AMSC 0.75%)
Q4 2021 Earnings Call
Jun 02, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the American Superconductor fourth-quarter fiscal 2021 earnings conference call. This 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

Thank you, Mary. Good morning, everyone, and welcome to American Superconductor Corporation's fourth quarter and full fiscal year 2021 earnings conference call. I am John Heilshorn of LHA investor relations, AMSC'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 release for the fourth quarter and fiscal -- full fiscal 2021 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 I start with 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, including expectations regarding the company's first quarter of fiscal 2022 financial performance, 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 Superconductors' annual report on Form 10-K for the year ended March 31, 2022, which the company filed with the Securities and Exchange Commission on June 1, 2022, 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 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 non-GAAP net loss and non-GAAP financial measure. The company believes that non-GAAP net loss assists management and investors in comparing the company's performance across reporting periods on a consistent basis by excluding these non-cash, non-recurring, or other charges that it does not believe are indicative of its core operating performance.

The reconciliation of GAAP net loss to non-GAAP net loss can be found in the fourth quarter and fiscal year 2021 earnings press release that the company issued and furnished to the SEC last night on Form 8-K. All of American Superconductors' press releases and SEC filings can be accessed from the company's 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?

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

Thanks, John, and good morning, everyone. I'll begin today with a recap of fiscal 2021, which ended March 31, 2022. John Kosiba will provide a detailed review of our financial results for the fourth quarter and full fiscal year of 2021. He will also provide guidance for the first quarter of fiscal 2022, which will end June 30, 2022.

Following our remarks, we'll open up the line for questions from our analysts. Fiscal 2021 was a year of growth and significant diversification for AMSC. Full-year revenues for the entire AMSC business increased by nearly 25% year over year, driven by growth in grid. Our grid business grew by more than 40%, our seventh year in a row of grid growth.

AMSC's grid revenue in fiscal 2021 was more than 90% of our business achieved through organic growth and strategic M&A. Just a few years ago, grid revenue was 60% of the total business. In fiscal 2021, we accomplished significant business diversification by expanding our product offering, extending our geographic reach, and broadening our end market. We diversified our grid product offering with the addition of Neeltran.

Our new energy power systems now include our dynamic power correction platforms, as well as our static power correction line of capacitor banks, harmonic filter systems, as well as rectifiers, and transformers. We diversified our business by geography. In fiscal 2021, over 60% of revenue was U.S. based, while nearly 40% supported international projects including Singapore, India, Australia, and the United Kingdom.

Overall, the number of countries we shipped to is increasing. And most importantly, we diversified our business by end market, In fiscal 2021, the renewables market accounted for approximately 25% of sales. The semiconductor market accounted for roughly 20% of sales, while the materials, metals, and mining market accounted for more than 10%. During fiscal 2021, we announced approximately $85 million of new energy power system orders from customers in Australia, the United Kingdom, Spain, Chile, Canada, and the United States, among other countries.

Our intention for fiscal 2021, as we outlined in our FY '20 shareholder letter, was to continue to execute our strategy of delivering a more sustainable and diversified business, both of which we successfully accomplished. Fiscal 2021 was a pivotal moment in the history of the company and superconductors. We commercialized high-temperature superconductor technology in two separate markets in the same year as predicted. First, we commercialized our resilient electric grid product or REG.

The system was delivered, integrated, energized, and successfully operated in the power grid of Chicago. The REG system was designed by our team and manufactured using AMSC's proprietary Amperium superconductor wire. Second, we delivered our first breakthrough ship protection system for the USS Fort Lauderdale. This represents the first of four contracted AMSC ship protection systems or SPS for the San Antonio Class platform.

The commercialization of SPS, an advanced superconductor degassing system, marked a watershed moment for our company and for superconductor technology. We have a culture of delivery and believe that the delivery of this system demonstrates momentum for our company and for the naval industry to adopt change. Fiscal year 2021 also ended with another key milestone in our wind business, the designs for certification of our 3 megawatt class wind turbines. With this certification, the 3 megawatt class wind turbine is ready to start operations.

Now I'll turn the call over to John Kosiba to review our financial results for the fourth quarter and full fiscal year 2021 and provide guidance for the first quarter of fiscal 2022, which will end June 30, 2022. John?

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

Thanks, Daniel, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2021 were $28.3 million. This is an increase of 34%, compared to the year-ago quarter of $21.2 million. Grid business revenues of $25.7 million increased by 33% versus the year-ago quarter, while our wind business revenues of 2.6 million increased by 46% versus the year-ago quarter.

Moving on to the full fiscal year. Our total revenues were $108.4 million. That is over 24% growth in revenue from the previous year. The revenue growth was led by our grid business, which experienced a 40% year-over-year increase thanks to the acquisition of Neeltran and growth From our D-VAR, VVO, NEPSI, and SPS product lines.

Grid business revenues represented 91% of our total fiscal 2021 revenues. Wind business revenues decreased 42% in fiscal 2021, primarily as a result of decreased ECS shipments for Inox. Gross margin for the fourth quarter of fiscal 2021 was 11.6%, compared to the year-ago quarter of 13.9%. For the full fiscal year 2021, AMSC generated gross margin of 12.4%.

This was down from 20% in fiscal year 2020. Let me take a couple minutes and talk about some of the headwinds we experienced in fiscal 2021 that had an impact on our gross margins. First, as we've mentioned on previous calls, we acquired a Neeltran backlog with lean contribution margins associated with it. This alone impacted our consolidated gross margins by 400 basis points.

We've been working our way through the Neeltran acquired backlog and have started to replace that backlog with what we expect to be more profitable projects as we look ahead into late FY 2022 and into FY 2023. Second, throughout fiscal 2021, we experienced product cost increases specifically around commodities such as steel, copper, and other precious metals, which are with -- which are used within our products. We've responded throughout fiscal 2021 with several price increases where we can to include these additional costs. We expect to experience the positive impact of these price increases to our gross margins by late fiscal 2022.

And lastly, during fiscal 2021, wind revenue experienced an unfavorable shift in product mix and ECS shipments, which negatively impacted both revenue and contribution margin for the year. We believe as Inox adopts the 3 megawatt turbine and returns to historical volumes of ECS shipments, we expect wind contribution margins will recover to normalized levels. Now moving on to operating expenses. Research and development and SG&A expenses totaled $9 million for the fourth quarter of fiscal 2021.

This was down from $9.5 million in the year-ago quarter. Approximately 13% of R&D and SG&A expenses in the fourth quarter were non-cash. For the full fiscal year, research and development and SG&A expenses totaled $38 million in fiscal 2021, compared to 36.3 million in fiscal 2020. Approximately 13% of R&D and SG&A expenses in fiscal 2021 were non-cash.

Our net loss in the fourth quarter of fiscal 2021 was $5 million or $0.18 per share, compared to $7.6 million or $0.29 per share in the year-ago quarter. Our non-GAAP net loss for the fourth quarter of fiscal 2021 was $4.7 million or $0.17 per share, compared with non-GAAP net loss of $5.6 million, $0.21 per share in the year-ago quarter. For the full fiscal year 2021, our net loss was $19.2 million or $0.71 per diluted share. This compares to a net loss of $22.7 million or $0.95 per diluted share in fiscal 2020.

For the full fiscal year 2021, our non-GAAP net loss was $17.1 million or $0.63 per share. This compares to a non-GAAP net loss of $14.1 million or $0.59 per diluted share in fiscal year 2020. We ended fiscal year 2021 with $49.5 million in cash, cash equivalents, and restricted cash. This compares with $52.6 million on December 31st, 2021.

In the fourth quarter of fiscal 2021, we consumed $3.1 million in operating cash flow. For the full fiscal year, our operating cash burn was $19 million. Now turning to our financial guidance for the first quarter of fiscal 2022. We expect that our revenues will be in the range of $23 million to $26 million.

Our net loss on net revenue is expected to be no more than $8.9 million or $0.32 per share, and non-GAAP net loss is expected to be no more than $6.9 million or $0.25 per share. We anticipate operating cash flow to be a burn of $4 million to $6 million in the first quarter of fiscal 2022. We believe our current working capital levels remain supportive of our near-term revenue expectations, and we do not anticipate any significant increases in working capital. We expect to end the first quarter of fiscal 2022 with no less than $43 million in cash, cash equivalents, marketable securities, and restricted cash.

With that, I'll turn the call back over to Daniel. Daniel?

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

Thanks, John. Let's talk about our future. We believe that we have multiple tailwinds in multiple markets. We believe our fiscal year 2022 will be an important year in the future maturation of our business.

Let's start with renewables. There are a number of expected tailwinds coming to our business from the renewables market. We see a potential doubling of the Indian wind market from where it has been over the past few years. Wind power in India is estimated to grow to an annual additional capacity of nearly 3.5 gigawatts in calendar year 2022.

India is poised to add a total of nearly 16 gigawatts of wind capacity from 2022 to 2025. To give you some perspective, India's total wind power additions for the past four years amounted to approximately 8 gigawatts. We see the next four years with an average of about 9 gigawatts of annual wind power capacity addition in the U.S. The U.S.

estimates an annual wind capacity addition of nearly 9 gigawatts in calendar year 2022. From 2022 to 2025, the U.S. estimates an addition of 37 gigawatts of wind power capacity. The U.K.

wind market is forecasting nearly 4 gigawatts of additional wind power capacity in calendar year 2022 and over 11 gigawatts of total additional power capacity between 2022 and 2025. Solar is likely to account for 60% of global renewable power growth in 2022, followed by wind. Similarly, we see the potential broader expansion of our technology in offshore wind. The move to decarbonization and the move to energy independence on behalf of nations could translate into further, broader adoption of renewable power systems.

We believe this is a strong tailwind that is emerging from the renewable energy market. If we look at semiconductors, which we mention has become a significant part of our business, investment in semiconductor capacity is increasing. Micron alone is considering a $150 billion in capital investment itself to address what it calls 2030 era demand for memory. Semiconductor spending is forecasted to jump nearly 24% in 2022 to an all-time high of nearly $200 billion.

The industry has increased capital expenses since 2019 and is expected to continue to increase in the coming years. This is a tailwind that has the potential capability to be with us for the next several years. If we look at mining, metals, and materials, demand for mining products is strong and expected to increase. For example, auto industry investments in electric vehicles, which are critically dependent on specific minerals and materials, is estimated to reach $330 billion by 2025.

In 2020, all global automakers combined spent nearly $225 billion on capital expenditures and research and development. The mining industry is expected to continue to fly high in 2022, while pressure is foreseeable on mining companies to decarbonize and reduce their environmental impact as they respond to demand for these new energy economy materials. And this is all under the backdrop of sustainable security. The foreign policy challenges around the globe seem to be becoming more complex and intense.

Front and center now is the Russian invasion of Ukraine. We see rumblings from Taiwan that similar events could unfold there. At the same time, North Korea is carrying out ballistic missile tests, and Iran is displaying an underground drone base that it has developed. The threats are becoming more numerous and certainly more intense.

Russia's aggression has only helped to bring NATO closer together and more focused on further aggressions globally. This tailwind could translate into deeper and broader adoption of our technology in the U.S. naval fleet, as well as allies. What we're working toward is a more sustainable world.

Creating a path for a more sustainable world increases demand for one, renewable energy; two, electrification of transportation and the mining metals and materials to support this transition; three, semiconductors, which are the key materials for the new green economy and sustainable security; and four, this is all happening with the backdrop of a less secure world. As we enter fiscal 2022 and we look just to our first quarter, we do see the timing of projects in the semiconductor industry, particularly for D-VAR such that they're expected to negatively impact the quarter revenue relative to our fiscal year 2021 fourth-quarter revenue levels. This is the reason for our Q1 guide. Our current projections do not anticipate this continuing beyond the quarter.

We look to continue to grow our new energy power systems order book over the coming quarters. We expect that our new energy power system products should provide a strong base of grid revenues again in fiscal 2022. This expectation is driven by the growing demand in our key markets: renewables, semiconductors, as well as mining, metals, and minerals. We see significant demand for our solutions in the semiconductor industry.

On a macro level, we believe we are experiencing the effects of the semiconductor tailwinds in our business. Demand is increasing. Lead times are extending. We see our own activities now with customers in Singapore, Japan, and Taiwan, as well as the U.S.

expected to translate into revenues. We saw semiconductor order growth year to year between fiscal 2020 and fiscal year 2021. We see semiconductor system orders having more revenue and better margin than our average order. We have seen an expansion in content for semiconductor grid system sales with the extension of our content via NEPSI into static capacitor banks and harmonic filters.

And we believe this macro investment in capacity is here to stay in the near term, and we will try to take advantage of this. We see leverage sales specifically in renewables and semiconductors. We are supporting Inox and do so in the field with the initial prototype of a 3 megawatt class wind turbine and initial wind farm of 5.5 megawatt wind turbines, respectively. In the onshore wind market, we anticipate our wind business in India to turn around.

In fact, we are getting ready for wind to make an expected comeback later this fiscal year. Driving this potential comeback, we expect, would be Inox's transition to a 3 megawatt class wind turbine. We believe Inox is in a good position to start expanding its business this year, which should translate into an expanded order book for us. We would expect production to begin following the establishment of a 3 megawatt supply chain.

We are providing ECS product as they need and pay for it. We are excited about the long-term prospects of the offshore wind market in South Korea, and we look forward to grow our offshore wind business with our partner Doosan and their 5.5 megawatt turbine. Our first resilient electric grid deployment in Chicago is now part of the electric grid. The team is collecting valuable experience on its performance and capabilities.

We will support the ongoing operation of our REG system in Chicago and begin working with the utility on scope and schedule of a potential next project as they see fit. We are seeing inbound inquiries from utilities. We're also performing more targeted outreach with the help of our utility partner. We have seen an increase in interest in the product with the energization of Chicago and continue to develop possible future projects.

We are manufacturing ship protection systems for the San Antonio Class ship platform. We will support the installation of the first SPS system of the USS Fort Lauderdale, which shipped in fiscal 2021. We expect to deliver on our existing orders of SPS. Our next system for the USS Harrisburg is scheduled to be delivered this fiscal year.

We have two more SPS systems on order, one for the USS Richard McCool and the other for the USS Pittsburgh. We believe the tailwinds for our navy business should translate into an opportunity for deeper and broader adoption of our technology in the U.S. naval fleet. We're working closely with the U.S.

Navy, as well as allied navies on the possible further adoption of superconductor technology. We have identified and are performing engineering work on what is now several other platforms. AMSC's mission is to enhance capability without adding complexity or size to installations of critical systems, which is very much aligned with where we believe the U.S. Navy as well as allied navies, are headed.

We are confident that the U.S. is committed to integrating advanced degassing systems into their fleet, and we're working hard to expand our SPS business beyond the San Antonio Class. In 2021, we grew and further transformed the company. We grew the grid business by over 40%.

The entire business grew by nearly 25%. We acquired additional content with the Neeltran business for our new energy power offerings. This business should benefit from the tailwinds created by global decarbonization efforts. Mining, metals, and materials are at the heart of this movement, and that is where we have positioned our business.

We see tailwinds for the wind business as well as for semiconductors continuing. We delivered on our first permanent in-grid and what will be our first permanent in-ship superconductor system. The dream of superconductors has started to become reality. I'm very proud how the team delivered growth and diversification while managing through the daily challenges of a constrained supply chain and an inflationary environment.

We are weathering the pandemic crisis well, which reflects on the strength of our organization. We are aggressively managing that which we can control. We expect to continue to execute on our strategy of delivering a more sustainable and diversified business. We believe our culture is inherently innovative, always accountable to our customers, and constantly collaborating.

We try to hire the best and brightest, and we listen to and learn from the markets we serve. We are executing on our vision to create a super grid that enables more renewables on and more resiliency for our power grid and a super ship that allows for greater resiliency and operational capability for our fleet. We provide the control technology that helps orchestrate the rhythm and harmony of power on the grid and protects and expands the capability and resiliency of our navy's fleet. We will continue to work hard to deliver resiliency to our power grid as a navy fleet, and hopefully that is music to the ears of the markets we serve.

We are seeing a diverse set of powerful tailwinds emerging in our business. We believe we're well-positioned to take advantage of these tailwinds, and that should be music to our ears. I look forward to reporting to you again following the completion of our first quarter of fiscal 2022. Mary, can we now open up the line to questions from our analysts?

Questions & Answers:

Operator

Yes. Thank you. [Operator instructions] We can now take our first question from Justin Clare of ROTH Capital Partners. Please go ahead.

Justin Clare -- ROTH Capital Partners -- Analyst

Hey. Good morning.

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

Hey, Justin.

Justin Clare -- ROTH Capital Partners -- Analyst

Hi. So I guess first off, just on the fourth quarter here. I was wondering if you could just share a little bit more detail on what drove the sequential decline in margins. How much of this was related to lower-margin backlog with Neeltran versus material cost inflation? And then if you could just talk through a little bit about how the material cost inflation might be impacting some of your specific business lines, which are kind of most exposed to that at this point.

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

Yeah. I mean, John kind of [Inaudible] up pretty nicely in the prepared remarks. Why don't you go through the points that you made and then we can just -- we can add some more color where applicable.

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

Hey, Justin. So in reference to Q4 and Q4 bridge, we're not going to get into the specifics of how much of that was the Neeltran backlog versus how much was inflationary. Both were impacted. Not so much the third bullet that I mentioned in the full-year headwinds, but I would say the first two, Neeltran backlog and the inflationary pressure both had an impact on Q4 sequential decline in gross margin.

The second question was which product line specifically? Pretty much all of them.

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

Everything we use these battles for closures. We have outdoor equipment. Even the wire itself is based upon some metal. So when we look at commodity metals, that's what we've been trying to focus on managing the intake and the cost of the intake of those and trying to do design work, trying to work with supply chain and additional suppliers to manage those costs going forward.

And I think the team has done a really nice job of pricing that in where it's possible. Remember, we're basically a make-to-order shop. So as we look at each project, can we take it on? We try to align pricing cost as best we can at that point in time. The real risk becomes the duration that it takes to build that product, which can be three to six months.

In some product lines, it could be as much as a year or more. And Neeltran -- now that's really what you're seeing with the Neeltran part is kind of two pieces to it. One is we inherited a backlog that had lean margins to begin with, and now you're also coupling that with inflationary costs. So we're trying to get ahead of that as fast as we can.

I'll leave it at that.

Justin Clare -- ROTH Capital Partners -- Analyst

OK. Great. That's helpful. And then just thinking through that a little bit.

So you mentioned price increases that you're implementing here. How long do you think before those price increases could result in margin improvement? Because it looks like from your guidance FQ1, margins could decline a bit from FQ4. So maybe if you could talk about that, and then just how long would it take for those price increases to result in that margin improvement?

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

It's probably going to take a few quarters to get completely through it. But I would -- my guess and my belief, my expectation is we should start to see improvement. I'll let John comment on the first quarter. But if I look beyond in the second quarter, third quarter, we should see improvement.

At those periods of time, we certainly priced everything in, and we probably burned through most of the legacy Neeltran backlog that we inherited. I mean, Q1, I don't know if you want to add more.

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

Yeah. I mean -- so in our prepared remarks, Justin, we said we expect it to be by late fiscal 2022. Between now and then, we should see improvement as time goes on. But our expectation is by late 2022, we should get the full impact of those price increases.

Justin Clare -- ROTH Capital Partners -- Analyst

OK. Got it. And then just shifting gears to your wind segment here. You mentioned that the design certification for the 3 megawatt was achieved.

So congratulations on that. Just wondering if you could provide a little bit more detail on the steps from here that you would need to get an order secured and what you need to do on your end to line up the supply chain in order to deliver on those orders.

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

Yeah. We're already looking at the supply chain and what the risks are there so we can quote appropriate lead times to our customer Inox as we embark on discussions around an order. I think Inox today if I personalize I think they're in a much better position they've been in recent memory financially. I think that they're looking forward here in 2022 to really starting to rebuild their business.

We think a lot of their competitive advantage comes from a great 2 megawatt platform that has low-wind capabilities and a bunch of things that we've worked on together to give them differentiation in the market. But the addition of the 3 megawatt turbine, we think really helps to build a bigger potential to expand their business further. So we're actively today trying to best understand our supply chain so that when we believe that order will happen, that we're ready to be able to respond with product as fast as we can in the lead times that we believe we can manage and deliver to. It is a challenging environment today.

We're really dealing with daily challenges when it comes to availability of parts for a lot of our products, but I don't think that's any different than any other businesses out there. But I think the team has really done a great job of navigating our way through that. It's not just production and supply chain, but engineering and the guys on the floor as well on how do we make -- how do we keep things moving for our customers.

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

One of the advantages we have as part of the certification process is we build a prototype. And so the good news is we do have an existing identified supply chain base for that turbine. Now it's just a matter of ramping up for production.

Justin Clare -- ROTH Capital Partners -- Analyst

OK. Thanks very much. I will pass it on.

Operator

We can now take our next question from Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much, guys. Can you talk a little bit about the progression that you're seeing with your utility-scale customers for the REG product assuming that now that inflation's down that [Inaudible] trying to accelerate a little bit.

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

Yeah. I think that's a good word. I think the conversations that we're having, the specificity and the depth schedule and those kinds of things, I think really turning on the Chicago system has really helped to open up the mind of utility where we were discussing projects with a bunch of utilities. Now they're coming up with problems that they want us to help solve.

So I talked a little bit about in the prepared remarks so that you -- that clearly is the -- our utility partners actually helping us with this. They're very proud of what they've been able to do and learn with us, and they're excited as we are to go out and talk about the solution.

Colin Rusch -- Oppenheimer and Company -- Analyst

Excellent. And can you talk a little bit about the potential for cross-selling with those utilities around not just from REG but into the D-VAR and other voltage power management solutions given the potential growth in renewables? Is there another stream of revenue that you might start seeing directly from these utilities, or is it really still with the developers on the systems?

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

I don't know if you've been listening to our sales meetings, Colin. But what I said in the prepared remarks are we're already seeing it in renewables and semiconductor, and I see a real untapped potential there in utilities. We have applicability with D-VAR. We certainly have applicability with VVO, with REG.

If utilities have demand for customers that are dealing with electrification challenges for a mine, for instance, or through the utilities servicing a semiconductor fab, the utility in many ways is the nexus of kind of bringing together where all of our products matter. And that's really where I think there is some untapped future leverage that we're certainly going to push the team to go after.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. So I'll take the rest of it off-line. Thanks so much, guys.

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

Thanks, Colin.

Operator

We can now take our next question from Eric Stine of Craig-Hallum. Please go ahead.

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

Hi, Daniel. Hi, John.

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

Hey.

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

Hey.

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

Hey. So just going back to -- hello. Just going back to wind. I mean, obviously a more optimistic tone by end market by customer.

You've got the 3 megawatt certification. And in the release, you talked about that you're hopeful that there's a rebound. I mean, what sort of things do we need to see and kind of in what time frame do we need to see it in order for you to be able to, whether it's on the next call and say, hey, we're seeing the pickup and that pickup will become more evident in the back half and end of fiscal '23. I mean, it just -- just maybe some of the steps that you expect or want to see to feel more confident along those lines.

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

I think today what we're trying to get you to understand, I think you got it 100%, which is there's a series of tailwinds and kind of the weather has changed in our environment where we really only have tailwinds. The minor headwind of some margin issues we think are going to be behind us in the coming quarters. We're looking now for -- you hear us talk about 2025 and a lot of our focus is how do we now build from '21 to '22 and then on to '25 with the capabilities in these markets that we're serving. And we think we really have a tremendous opportunity.

I have not laid out today and nor will I kind of the specifics of what we're going to do quarter by quarter. I think the main key indicator I always look to is the health of our order book. What does our backlog look like? How diversified is that? We've tried to do a better job of signaling that with press releases and descriptions of the markets that we see building and the countries that we see that building. And so really that's kind of the main number one indicator.

The second one would be some other development in the relationship with Inox. I believe that they're getting healthier. Maybe we'll see things for them here in the future that will give you signals to that. So that would be something that I would look to.

Certainly, an order on us would be that. But they're trying to work through all the supply chain challenges that they see, and we're helping them with the supply chain for the 3 megawatt. And then I don't know if I hinted or I basically explicitly said more ships are coming. It's hard to name which hauls and when, but it really does feel like the technology is on the precipice of being broadly adopted in the U.S.

fleet and then extended into allies. But it's hard for me to dictate what that pacing is going to be. We're going to serve the navy as they need it. It is a great fit.

It's a nice feeling to have delivered. I think the hard part for investors to understand are orders are one thing, but delivery on those systems and getting them to make work over and over again is what this organization does incredibly well. And if we want to keep doing those things and being able to do it as markets expand and more customers, call on us for solutions.

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

Got it. Yeah. I mean, definitely pretty noticeable. More confidence or more details also on SPS.

In that [Inaudible] since last quarter. I mean, is that -- what do you attribute that to? I know you've been doing engineering work on some of these or is it just those becoming more mature or the market backdrop as well?

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

I think the navy understands to meet their vision and kind of how I had stated in the remarks is almost verbatim of the things that we've said to them. Our mission is to enhance capability without adding complexity or size. Right? And that is exactly what the navy is looking for. How do we take the existing fleet and do more in a world that's more dangerous? Right? And we think that superconductors are critical technology for the navy.

We don't think it stops with the [Inaudible]. So I don't want to get people too excited or too ahead of where I am and why I start to get excited when we meet with the team. But we do really think it's a critical technology for the navy because it really meets the modern mission in this really dangerous world that we're -- it's getting more dangerous it seems every week.

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

Yeah. OK. Got it on that. And then -- and lastly, just on grid.

You laid out kind of some of the timing issues in the first quarter and that being a big part of the guide relative to the fourth quarter. Without specific guidance, which I know you don't give for the year, I mean, are you expecting growth in grid for the year when you account for that slow start to the year based on the market backdrop and where your backlog stands today?

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

We try to telegraph probably more clearly than we ever have kind of on the quarter-to-quarter variance in the revenue. And the bottom line is that you see semiconductors becoming more significant fraction of the business. And we were transparent with that today. Right? That's a mission that we set out on a few years ago that I think not everybody understood or believed, but it's now come to reality.

It's now a big enough part of the business that variations in that part of the business will have a direct impact on where we think that this is going to head quarter to quarter. So specifically around semiconductor and D-VAR, we see the timing of some projects in that. We had a nice Q4. We'll see Q1 that's probably a bit worse off, almost dollar for dollar between the guidance and the bottom line.

We don't see that lasting more than the first quarter. So when we look at the backlog that we have and we look at the projects that we're targeting, it looks like we should have a very healthy business with semiconductor fabs again this year. Again, the key indicator is we need to keep delivering orders and making announcements that we're getting orders in the markets that we're in or future markets that we're looking to target. And I think that's the main thing to watch here.

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

OK. Thank you.

Operator

And we can now take our next question from Chip Moore of EF Hutton. Please go ahead.

Chip Moore -- EF Hutton -- Analyst

[Technical difficulty] I guess, more [Inaudible] potential for any supply chain challenges in the back half of the year. Is that a [Inaudible] and how would you assess it?

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

You're a bit muddled. But I think what you're asking, Chip, is about supply chain going forward and those -- are those risks increasing or decreasing. And it appears like those risks have -- it feels like they've reached their peak and they should be decreasing quarter to quarter. But, gosh, I don't -- I mean, it's hard for me to know that the next thing happens, the next shoe drops.

Putin does something else differently, the U.S. responds in a different way. There's so many -- I mean, that's where the market, I think is where it is overall is people just don't know what's going to happen next. And what we've tried to do, and I think we've demonstrated nicely going back to the organization, is we've built a company that has the resolve to be able to manage through these things.

So I think to answer the question directly, I think the risk is reducing. But I don't know how many people were predicting Russia to invade Ukraine two, three years ago.

Chip Moore -- EF Hutton -- Analyst

Yeah. No. That's helpful. And one more for me.

I guess, on made in America clauses on more of the grid investment side. Perhaps hitting some companies out of the energy control space, announcing plans to build capacity ahead of some of that investment. I would think that's an advantage for you, but is that something you're seeing and how do you think about that?

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

Yes. It's an advantage. It's something that we're seeing. We're already there.

I don't know other companies that you're thinking about. But maybe offline, you can tell us more specifics on the companies you're referring to. But, yeah, that's an advantage for us.

Chip Moore -- EF Hutton -- Analyst

Got it. OK. I'll take the rest off-line. Thanks so much.

Operator

We have no further questions. This now concludes our Q&A session. I would now like to hand the call back to Daniel McGahn for any additional or closing remarks.

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

Thanks, Mary. I mean, we grew grid by 40%. If you asked me a year ago, is that what was going to happen? Obviously, we don't go for the year, but that's an extraordinary number. It is coming from organic.

It is coming from the acquisitions. But what we want to do is keep building this company to add diversity in the revenue. So you can see in just how we talked about renewables as a fraction in semiconductor and the mining and minerals. The navy will become a big, big fraction.

Colin got to it with the utilities. Utilities are going to become a bigger fraction over time. We just feel probably very different today, differently in the number of positive things that we're seeing. We really only see positives coming.

The short-term negative in dealing with margins and inherited backlog and all that is -- it's not yet behind us, but it's going to be in a number of cycles. And the longer-term hope for this business we think we're really going to start to see signs of here in 2022. But when we work together as a team, we're worried about 2025. How do we continue this growth trajectory that we've been on and be able to do it over and over again by diversifying the product portfolio, what we invested, maybe eventually, what we look to acquire? So, yeah, today is -- should feel different for you guys because it feels different for us, and I want to make sure that we got that message across.

Thank you for your time, and we'll probably talk to you soon. We look to close out the first quarter. Thank you, everybody.

Operator

[Operator signoff]

Duration: 48 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

Justin Clare -- ROTH Capital Partners -- Analyst

Colin Rusch -- Oppenheimer and Company -- Analyst

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

Chip Moore -- EF Hutton -- Analyst

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