Q4 2020 Capstone Turbine Corp Earnings Call

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Participants presently standing by for today's Capstone Conference call at the time Board meeting additional participants and we hope to be getting underway and just the next couple of minutes. We thank you all for your participation as well as your patience and we ask that you. Please remain on line the conference will begin momentarily.

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Please standby we're about to begin.

Ladies and gentlemen, good day to you all and welcome to your Capstone Turbine Corporation third earnings conference call and webcast for the financial results for the fourth quarter and full fiscal year 2020 ended on March 31st 2020.

All lines have been placed in listen only mode and there will be a question and answer session. Following today's presentation. As a reminder, our session is being recorded at this time. It is my pleasure to turn the floor over to Mr. Colby Peterson corporate counsel Mr. Peterson the floor is yours welcome.

Thank you very much.

Afternoon, and thank you for joining today's fiscal 2024th quarter and full year conference call as well as a review of our preliminary fiscal Q1 results on the call with me today, It's Darren Jamison, Kapstones, President and Chief Executive Officer, an air Cancun, Kapstones, Chief Financial Officer, and Chief Accounting Officer.

Today Capstone issued its preliminary first quarter fiscal 2021 select financial results and will discuss the full year and Q4 2020 results from the 10-K, which was filed on June 29, with the Securities and Exchange Commission.

As a reminder, Liverpool, we reported preliminary fiscal Q4 2020 salts on April 30 2020.

During the call today, we'll be referring to slide so it can be found on our website under the Investor Relations section.

I would like to remind everyone that this conference call contains estimates and forward looking statements that represent the company's views as of today July 9th 2020.

Capstone disclaims any obligations to update or revise these statements to reflect future events or circumstances.

You should not place undue reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that are in some cases beyond our control. Please refer to the safe Harbor provisions set forth on slide two and then Kapstones filings with the Securities and Exchange Commission for information concerning factors that could cause actual results.

To differ materially from those expressed or implied by such statements.

Please note that as Darin and Eric go through the discussion today, when they mentioned EBITDA, they're referring to adjusted EBITDA and the reconciliations that are in the appendix if our presentation.

I would now like to turn the call over Exterran, Jamieson, President and Chief Executive Officer.

Thank you called me good afternoon, everyone.

Thank you for joining today.

Our preliminary view of our first quarter of physical 2021, ending June Thirtyth and fourth quarter fiscal 2020 ended March 31st 2020.

First and foremost as you can see from slide three in today's presentation. Our preliminary financial results show is on track to achieve our goal of positive adjusted EBITDA for the June quarter, which is extremely exciting news.

Well, we will not have the final results until our books are close in early August and our financial review and external auditors completed the preliminary results indicate an extremely significant improvement when compared to the fourth quarter that ended March 31, 2020, and last year's first quarter ended on June Thirtyth 2019.

The significant financial improvements are being driven by the work we are put into lowering our operating expenses in combination with improving aftermarket business margins.

And a modest rebound in product shipments versus the fourth quarter fiscal 2020.

Now, let's go ahead in turn to slide four of the presentation.

Slide four reminded investors at the capstone positive adjusted EBITDA initiatives.

The past two years that are now coming to fruition.

Despite the challenging external headwinds we face in the last six months.

Those headwinds include a vendor cards quality issue.

Dropping oil prices and the economic slowdown caused by the current covert 19 pandemic.

That's good look now its fly five and let me give you some of the highlights for the most recent quarter ended June Thirtyth 2020.

Total company revenue for the first quarter fiscal 2021, it was approximately 14.1 million compared to 11.6 million in the fourth quarter fiscal 2020.

This is an increase of 22% as we started to see some improvement and new product acceptance is as the global economy slowly started to come back online during the latter part of this last quarter.

Preliminary accessories parts aftermarket service S.P.P. long term service contracts rentals and distributed support system or DSS revenue is approximately 8 million for the quarter up 3% from 7.8 million in the fourth quarter fiscal 2020.

Most importantly inventory receipts decreased by 2.9 million or 36% to 5.2 million in the first quarter compared to 8 million in the fourth quarter fiscal 2020, and decreased 9 million or 63% compared to 14.1 million in the first quarter fiscal 2020.

This supports improved liquidity and positions the company HRD positive working capital in the upcoming quarter.

Also important total cash and cash equivalents as of June Thirtyth 2020 are estimated to be 16.2 million an increase of 1.1 million compared to 15.1 million as of March 31st 2020, Despite the ongoing impacts of the cold It 19 pandemic.

New gross product orders are approximately 5.5 million and the book to Bill ratio is 0.9 to one for the first quarter fiscal 21.

The company received 3.3 million in various financing activities during the quarter as the company focused on liquidity as part of the coated 19 business continuity plan.

Overall I am proud of the CASMED leadership team with all the long hours and the hard work it took to achieve positive adjusted EBITDA milestone that we set forth two years ago.

But make no mistake, we are not done as this is an ongoing effort and do it all we still expect volatility from quarter to quarter, but I think we get all agree we can now see a clear path a clear conjecturing for more profitable more sustainable future.

As happens and other projected positive adjusted EBITDA result, Q1 has to say that I'm, especially pleased their total cash and cash equivalents increased 1.1 million during the quarter. Despite the ongoing significant impacts from covert 19 goal pandemic on our business and our distributors and other vendors.

These results were no accident as slide six highlights our top four critical short term goals.

Which we were successful in achieving all of these goals and the most recent quarter.

Based on our current results I'm impressed with our team in the organization and how we navigated through a variety of challenges over the last 24 months, including the vendor par quality issue, a very difficult oil and gas environment with low oil prices and finally managing through the unprecedented development, we've covered 19 pandemic.

Despite these three separate difficult challenges, we achieved our employee.

Health and safety objectives.

We continue to operate our core business.

We increased our liquidity during the quarter, we maintained our ability to still execute against our stated adjusted <unk> positive EBITDA goal, we set two years ago.

Adjusted positive results remain an ongoing focus and Goldman new fiscal year, but we will now be doing it with a more context of reaccelerating, our revenue growth and still maintaining today's extremely tight cost controls.

In order to properly discuss our fourth quarter and the first quarter 2020, we'd be remiss without addressing the global covert 19, vendetta getting a little more detail.

Back in mid March our first objective was to develop an emergency business continuity plan or BCP as shown on slide seven.

This is a rapid response to both the cover 19 gold pandemic and the ensuing shutdown of the worldwide economy, a plan, which we accomplished in approximately 48 hours.

We created a safe working environment with fewer employees and our facilities by developing remote working capabilities proper social distancing procedures, providing face masks gloves hand sanitizer stations throughout the building in parallel with these steps. We're also able to continue servicing or central critical infrastructure customers worldwide at the highest standards.

Which they require.

In subscale weeks were able to apply for and receive alone under the paycheck protection program or PPP pursuant to the Corona virus aid relief and economic security or cares Act. The loan was funded on April 24, 2020, with the proceeds used to support necessarily fixed costs, such as payroll rent utilities.

All in accordance with the relevant terms and conditions of the Carex program.

This helped us substantially conserve our cash at a critical time and give us it can pick capability reopened as conditions improved by executing careful and staggered approach. We expect to have a reopening completed by September 28.

2020.

Depend demick did have some unintended benefits one of which was to bring more focus and attention on climate issues and on the carbon disaster. The world faces, if we do nothing to take action.

As I highlighted on slide eight of the presentation.

The global energy markets are changing but many regions in countries around the world using coven 19, as the rebuilding opportunity to make in green recovery and is already noteworthy in Europe and some other areas.

With unprecedented global restrictions on travel and business operations emissions data shown cleaner air and water over nearly every major metropolitan area of the world.

We need to keep this momentum going by including comprehensive carbon reduction strategies as we rebuild our global economy and critical infrastructure.

Capstone is and will be part of that global solution.

Achieving our adjusted positive EBITDA goal is exciting, but we now need to build on that foundation of success with renewed focus on our revenue growth strategy based on the continued expansion and maturation of our global distribution channel and the future success for our new Cafs and direct sales organization.

If you look at slide nine.

Slide nine highlights the multiple growth catalyst that support the capstone business. Despite the current global economic conditions. The majority of these catalysts are still green and not read and support a double digit growth strategy.

As we shift to slide 10.

You can see that despite the pandemic Capstone currently has 2.4 billion and projects in the pipeline of our distribution network. As you can see this is broken down by geography and caps on regional sales resource you now see our traditional markets like the United States in Europe are still strong and we're also beginning to see increase opportunity.

Erica a pack in the middle East.

The global pandemic has delayed many of these projects decision, making processes, but to date it is not causing significant project cancellations, which is encouraging.

We continue to expand nurture and develop our global channel to market as you can see in slide 11, which highlights the 559 distributor dedicated employees working in 191 different locations around the world to advance the global adoption of Kapstones innovative green Microcutter and technology.

In addition to our 62 global distributors, we recently announced the formation of a new capstone direct sales team.

If you look at slide 12.

Slide 12 highlights the strategy the concentrate sales team is using to optimize what we view as a global trend toward low emission microgrids and highly efficient distributed energy energy generation solutions.

The scope of this new castle indirect sales team is to bring into focus large global and domestic customer targets that could and should use our energy solutions to rollout across their entire organizations and expand from just a few sites here and there to deployment throughout their entire network.

Our strategy to keep making this happen and not increase operating expenses to do that we divided our existing sales and marketing teams into two separate organizations.

The first Standalone organization remains focused on developing in managing the existing worldwide distribution channel led by gender and seen recently promoted to vice president of marketing and distribution as well as leading all marketing.

Advertising activities to continue enhance our global branding.

The second Standalone organization is led by June Crouse or longtime key executive Capstone, who was promoted to chief revenue officer with a laser focus on growing our national account business and monitor and rental fleet.

She was also responsible for and focusing on business development licensing new product partnerships, including the use of new fuels such as hydrogen in methanol to generate carbon free power as highlighted on slide 13.

As noted previously we have a significant opportunity to capture national and international deployment across our worldwide customer base.

And our view success in the sales enterprise will be aided greatly by the focus sales efforts as well as achieving and sustaining breakeven EBITDA as we need our customers know capstone is healthy and stable for long term relationships also the value of our long term factory protection plan or SPP service program.

Needs to be backed by a strong balance sheet.

And the new fiscal year Capstone is not losing sight of tightly managing cost, but we will be providing even more resources toward growing our revenue on the topline for this new on top of this new extremely low cost structure.

Now I'd like to hand, the call over to Eric to discuss the detailed fourth quarter financial results Eric.

Thanks, Dan I will now review in detail our financial results for the fourth quarter fiscal 2020.

Which has discussed was negatively impacted by the global slowdown from the Koby 19 pandemic.

Turning to slide 14, and 15, you can see that the total revenue for the fourth quarter fiscal 2020, ending March 30, Onest 2020.

Decreased 5.8 million.

1.6 million compared with 17.4 million in the third quarter.

And decreased 10.4 million compared to 22 million in the fourth quarter fiscal 2019.

The decrease in total revenue was primarily due to lower microturbine sales.

Because of the drop in crude oil prices and project delays due to the koby 19 pandemic.

Accessories parts and service revenue decreased 1.7 million to 7.8 million in the fourth quarter.

Compared to 9.5 million in the third quarter.

On a year over year basis accessories parts and service revenue decreased 1.4 million compared to 9.2 million for the fourth quarter fiscal 2019.

These decreases were primarily due to decreases in parts and accessories, which were also impacted by the declining oil prices in the Kogan 19 pandemic.

Gross margin percentage with 4% in the fourth quarter compared to 15% in both the third quarter fiscal 2020.

In the fourth quarter fiscal 2019.

Gross margin dollars in the fourth quarter decreased.

2.5 million compared to 2.6 million in the third quarter and decreased 2.9 million compared to 3.4 million in the fourth quarter fiscal 2019.

The decreases are primarily due to lower volumes and higher SPP unplanned maintenance cost.

Operating expenses in the fourth quarter was 6 million a decrease of point threemillion when compared to 6.3 million in both the third quarter fiscal 2020, and the fourth quarter fiscal 2019.

Please keep in mind that point 5 million of bad debt reserves is included in the fourth quarter expense.

Ladies that uncertainty of collections from certain distributors due to that could be 19 pandemic.

Adjusted EBITDA loss was 5 million in the fourth quarter compared to an adjusted EBITDA loss of 2.7 million in the third quarter.

And then adjusted EBITDA loss of 2.2 million.

In the fourth quarter last year.

Lastly, slide 16.

Highlights the changes in our balance sheet accounts and you can see that cash and cash equivalents were 15.1 million as of March 30, Onest 2020.

Compared to 16.7 million as of December 30, Onest 2019.

And as Jerry mentioned earlier preliminary cash and cash equivalents or 16.2 million at the end of June.

At this point I'll turn the call back again.

Thank you Eric [laughter] with a challenging an eventful fiscal 2020 in the books in behind US, Let's turn our focus to the new fiscal year 2021.

As I said earlier, reaching adjusted positive EBITDA in June has long been our goal for almost two years and it looks like we may have actually achieved despite the pandemic.

That said, we still have a lot to do to improve the business and reach or long term profitability goals.

Because the ongoing impact of code 19, Capstone can not specifically guide to a positive adjusted EBITDA outcome for each subsequent quarter and the new fiscal year.

That being said as outlined on slide 17.

Management has set a more moderate coven goal of the considerably improved adjusted EBITDA of 10 million year over year.

Despite the impacts of the ongoing pandemic.

So what we're saying is adjusted EBITDA positive every quarter is difficult to see but we do see a 10 million dollar improvement year over year of adjusted EBITDA.

Additional goal to the new year are highlighted on slide 18.

As you look at the draw at what drives gross margin rates to 22% from last year's 13% with our improvements in the service business.

Looking to derive 15% of our new products revenue from our new caps on direct sales team. We're looking to continue to expand our rental fleet to to target of 10 megawatts and increase our inventory turns were approximately two currently to six times a year to further improve our liquidity and cash.

Obviously, the most important element of this fiscal 2012 and goals is improving our adjusted EBITDA results by $10 million or to put that into perspective that as a 75% improvement year over year. Despite the pandemic.

Therefore in order to help investors keep track of our progress we have developed slide 19.

Which we will update quarterly to monitor our progress against this key goal. This is a simple illustration of how we're doing good said $10 million target, which will update on a quarterly basis.

Lastly, let's talk about how we're going to grow future revenues.

Let's take a look at slide 20.

On slide 20, I wanted to point out some of the key factors, we see driving revenue growth going forward and which remain key strategic initiatives as we previously highlighted.

These include new non distributor business opportunities additional OEM direct sales.

New National accounts expanded product portfolio continued distribution improvements and expanded distribution in new geographies like eastern Europe, the middle Eastern Africa.

Improved customer satisfaction to retain existing customers and expand our business as well.

Customized products by market and matched marketing campaigns, which we expect will help strengthen the presidents and the California markets, specifically as the upcoming force power outages caused by the pending wildfires targeted pricing programs for special national accounts or new national accounts in key customers to make sure we're not underpricing or overpricing, our solutions relative to the value.

Proposition, we bring and drive widespread adoption within each major customer.

Turning to slide 21.

Slide 21 highlights the improved targeting targeted marketing and branding approach to build awareness of our to our potential customers as they explore distributed energy generation solutions, and lastly sales bundling through our higher attachment rates with our products include product product installation support aftermarket service.

And accessories.

One of the keys are growing and diversifying our global Mike Drum business is the continued growth of our energy efficiency or combined heat and power business or CHP and.

And these projects utilized renewed and other projects. He does nubile fuels as you can see on slide 22.

Our energy efficiency business has now grown to 54% of total revenues compared to 50% of revenues last year.

And if you look at the renewable projects, we essentially doubled our business year over year.

Renewable projects for capsid, our landfill gas digester gas animal ways screen waste renewable natural gas and power gas from some of the worlds largest breweries like ambev.

As you can see on slide 23.

So it is focused on a new low carbon renewable future.

And as part of our efforts, we currently announced a new 100% renewable project with 24, seven solar which should be commissioned later this year.

Capsules microturbines be user generated 100% renewable power using concentrated solar energy to expand superheated aircrafts the microturbine.

After the completion of this test project or pilot project, we expect additional opportunities from 24 seven solar.

Our second renewable products would be in K, a German company focused on wood to waste energy superheated air products BNK has been successful and operating and Capstone see 65 powered pilot project for more than a year and is currently moving into commercial sales phase with several projects planned for sales and installation in the back half a 22.

I mean.

We're excited to be able to work together with these companies like 24, seven solar being K to help create a greener tomorrow to a renewable future.

We strongly believe in social responsibility and strive to build a sustainable business for ourselves and our customers. We're excited to be able to execute on our 100% renewable initiatives as we see great potential for both renewable fuels and products that can affordably utilize them.

Let's go ahead and turn to our last slide slide 24.

On slide 24, we discuss the increasing focus we are seeing on the environmental social and governance or E.S.G. The rising he is seeing principles regulations government policies are creating a strong tailwind for the renewable energy sector globally.

There's growing investor interest in U.S.G. investing which is estimated to be over 20 trillion and assets under management as investors are demanding more corporate responsibility worldwide.

I know the slide has quite a bit as quite a bit of text on it. However, I thought to be essential to include as highlights just some of the U.S.G. criteria, which capstone inherently meets as well as our own internal corporate focus on the culture that exemplifies these important principles.

With that I'd like to open the call up for questions from analysts operator.

Gentlemen, thank you.

And to our phone audience, joining today, if you'd like to ask a question or need clarification on anything covered in today's update simply press Star then one on your telephone keypad thinks Armando place your line into Q and we'll take your questions. One at a time once again and that is star and wonder if you'd like to ask a question also one from the reminder, that if you're joining today on the speakerphone.

Please return to your handset pride are pressing star in one b to B certain that your signal does return equipment.

We'll hear first from Eric Stine at Craig Hallum, Hi, Eric go ahead.

Yes, Hello, it's Aaron Spychalla, Thanks for taking the question.

And.

Maybe first you have that slide on the distribution project pipeline, two and 2.4 billion can you just maybe talk about how that compares to the recent past and then just maybe the outlook for her closing some of those here I know I know you kind of called October, but just any other gating factors to kind of moving that forward here.

Yeah, no absolutely definitely there's probably two to gating factors depending on on the vertical it's in obviously oil prices drive investment in oil infrastructure. So we said previously we like the oil prices around $50 a barrel. We're currently at about $40 a barrel. So we would like to see oil prices.

Increase a little bit to see faster implementation in the oil and gas sector that being said, we're still getting projects. We're seeing a decarbonization of the oilfield, we're seeing folks wanting to reduce flaring of associated gas. So those trends and he is gene trends in the oil and gas sector, all that drives toward capstone product and so as we see.

Well prices return to more normal levels and stabilize as cobot hopefully improves in the back half of the this year, we should see an acceleration of those projects CHP is now our biggest market has in the last couple of years, it's up to 54% of our of our revenue those projects or religious dependent on capex cycles.

And so you asked is still fairly strong Europe is coming back online we had a nice Q1 in both Italy, and Germany, and Austria and.

And so were expecting more good things through the year there.

I mentioned before with Coven 19, a lot of Europe is trying to rebuild and in greener infrastructure that going forward and greener economy. So that's helpful for us.

The other areas there are no more challenging I'd say Latin America right now is isn't bad shape, Colombia in Brazil of cobot issues that are fairly significant and slowing down business, Mexico, we're expecting a really nice year and they've been hampered by cobot as well, especially with Mexican.

Industrial manufacturers of manufacturing for the best market does unsure on what the economy is going to look like and it doesn't get second closure in the us or slow down and so we're we're monitoring that as I think you know revenue growth is really key to us. This year I think we'll see.

Quarter over quarter revenue growth, but how how fast that accelerates really depends on how these markets come back so.

As the markets reopen post coven or whatever the new norm looks like and as oil and gas prices increase we should see acceleration.

I do expect our direct sales group to contribute 15% additional revenue on the product side this year and they've got a pretty good pipeline you can see here, it's fairly small at the moment, but their pipelines made up of existing customers that already have capstone product and trying to get them to take on more product and larger rollout. So they're hit rate should be a little higher.

Our traditional close rates been between 10% to 12%.

But that really depends on distributors, we have some distributors I like our U.S. folks don't count Microturbine the affinity lonestar horizon their hit rates are probably higher virgins summer newer distributors and other markets outside the U.S. have much lower close rates. So a lot of our effort has been the maturation of the distribution channel and to get equities close rates you know north of.

10% in closer to 15 to 20.

All right understood. Thanks for the color.

And then maybe second just on the accessories parts and service line, you know margins kind of sell this quarter can you just kinda talk about the outlook and kind of confidence and maybe just some of the drivers to get that back towards that 40 plus percent goal that you had.

Yeah, So I think it or RFP goals, 40% or parts goals North of 50, a we did we saw good margin compression in Q4 as we shipped additional pars kind of in the last like 10 days of the quarter not knowing whether we're going to be able to keep the plant opened and so we shipped out some some.

Pp parts just to make sure we kept the the key customers up and running.

And so you should see that normalizing Q1, the impact of the part the liability vendor quality issue that we had that is being to subside. So it's not a lot of time looking at curves, whether it's a govan 19 curves or.

The parts quality issue that we had we are in the backside at bell curve on the parts quality. So you should see much better margin rates as I mentioned in my prepared remarks, our total margin for the year was 13% last year, we're projecting 22% this year so.

Thats going to be on September 10 basis points improvement in our gross margins virtually all that is coming from our our SVP and our aftermarket service business and so we have forecasted. This we've talked about being EBITDA positive in the June quarter, and that was because of this quality issue being behind us the vendor vendor issue being behind his or her are substantially below.

And as to where we can start seeing more normal margin rates. So.

We'll see better margins in Q1 in August when we announce them and throughout the rest this fiscal year.

Alright, thanks for taking the questions.

Overall I think there.

And once again to our audience that in star and one if you would like to ask alive question over your telephone line and be Sir that you return to your handset brighter pressing star in one to be sure that your single does reach our equipment next we'll hear from call than rush at Oppenheimer I color.

Hi, Thanks, so much guys.

In terms of your previous vacation you talked about opex dipping down into the or corn asked million dollar range for the June quarter.

In a sense of how close you guys came on that side.

Yeah.

The call, we haven't closed the quarter, yet, but I would say were around that 4 million level.

We may be slightly under slightly over just depending on where the file numbers come out, but obviously with with April may books close we're just working on closing June.

So definitely we're in that 4 million range and so that'd be the lowest opex in the 13 years I've been a capstone.

Just to give you some perspective when I joined the company Opex on a quarterly basis was about 15 million.

We then got that down to 12 of them they got that down to six by consolidating facilities and some other initiatives.

And through co would we manage to get that down to four.

Perfect and then thinking about the supply chain and your supply is coming back up.

What are you seem to far in terms of you know availability of components.

You know timing on on time.

And it just seems there that they might be able to comment on.

Yeah, we've had two because we're an essential business we've had to provide letters for several of our suppliers who were being forced to close down.

And make sure that they remained open them to manufacture our parts.

Especially Mexico that was a major issue for us from our Mexican suppliers.

So we have kept the supply chain going Kirk and his team has done an amazing job.

We had no significant part shortages to date through cope with.

The same time as I mentioned in her prepared remarks, we've been dramatically slowing down incoming material.

Just kind of flip the working capital and to compensate for delays in product shipments. So we will see positive working capital in the second quarter, which should lead to positive growth in our total cash balance next quarter. So that'll be something we look forward to inventory turns were projecting.

To go from about two isn't the low case in Q4 up to six but into the year potentially a little higher if product revenue comes back faster.

Okay. That's super helpful. And then the final one just in terms of.

Hi.

Once in a relatively or or projects that you guys have been involved in that market.

But with interest rates down.

You know it that start close can you speak too.

No the only a council for folks that want to science projects on a go forward basis, and how Ah consciousness or from a.

Yeah, I think that's a great point and very well timed.

We're seeing more folks looking to do you know lease options for US. We're in talks right now with the company can do some private labeling for us for a leasing solution more with traditional on off balance sheet leasing dollar purchase options.

We're also working on some additional capstone energy finance partnerships that will help bring some more dollars at a reasonable price until we're done with that I won't mention the price, but to your point money is very very cheap.

As we move to EBITDA positive the amount of folks that are willing to take capstone on as a partner and help on our projects either leasing or power purchase agreements is growing.

We're also having talks with potential financial institutions that were incident, taking out the Goldman mine, which as you remember call on.

In February of next year is the first point, where we can refinance that three year note without any penalties. So we're about a 207 days away from me able to do that so we're starting to have those conversations as well and I think.

That money will be you know sub 7% Goldman's currently 13, so so that would be helpful for us from a from an interest perspective.

Perfect. That's incredibly helpful. Thanks, guys.

Thank you for your question, calling next we'll hear from Amit dialogue with H.C. Wainwright. Please go ahead Sir.

Thank you Hi, darn, Eric Thank you for taking my questions.

Good good. Thank you this 15% you're targeting you know in new product sales down from the direct sales.

Team.

Should we view this as something that could be additional do you know what being there has been expecting from pernix side or is this going to be sort of blended in dues.

Expeditions.

No this should be up above and beyond right. So the goal and separating our sales organization. The two groups was is that was basically saying the ongoing work. The distributor body is doing their mature enough now that we can dial back our support efforts on that side and then bifurcate that into a second sales organization that can focus more on.

Larger customers that larger scale Rollouts you notice that the cover of our presentation today that is a mohawk tile installation down intend to see the five megawatt direct drying application CHP installation.

So as we're getting into new customers like Mohawk like Magna International like Pepsi like Marriott.

Because we're now getting to EBITDA positive because we're getting the point is organization, we can talk about larger scale rollouts.

Now the appropriate time said about sales team. So we targeting 15% additional product sales. The first year I would expect that to grow at least 5% of year if not more.

So we should be seeing 15 20, 25% as the you know.

Team kind of matures they are kind of starting from a little bit of a rolling stop and need to get going obviously hard to go see customers and can't get on an airplane, we've had to higher three new sales folks without being able to bring him into the plant and so challenging times of grow a new sales organization, but Jim and his team has done a good job to get that going so that there.

18% should help us drive towards double digit revenue growth, which has been our than our initiative for a while you make sure we can achieve it.

That's great.

And on the.

On the other decoding shrunk from Google would boost for Q.

As any backlog moon canceled.

You know how are you sort of seen.

The pipeline that you were.

Acting to execute against this calendar year.

You know position to capture the most of the two we lose some of those opportunities I.

I don't think we'll lose those opportunities we are seeing projects move out and Thats part of the reason we've slowed down the incoming material to make sure we match our.

Our manufacturing build to customer acceptances.

We've seen construction schedules in some places pushed to the right.

I think that you know some cases, we see municipal projects that have actually done well and continue to move forward. Other smaller projects haven't been impacted it depends on where the project is if you're in the Boston City limits were all all construction was halted because the cobot or New York that that's challenging if you are more rural areas you tenancy.

Construction ongoing I will say during co would our growers and Brewers are very active and continued to be active so just depends on what industry year end.

I think it's really spotty and got to look out on the case by case basis.

But we're happy to see revenue come back up from Q4 into Q1 with a 20 plus percent improvement we expect to see revenue increase in Q2 over Q1, and you really should grow through the year, where our visibility is more challenging is that is that growth going to be 5% or 25% is really hard to tell with.

Well that and if there's a second shutdown or slowdown in the business what that a recovery rate looks like and reacceleration of our revenue.

Right I understand though I'm just maybe one last one from me how much of the fleet is now going both VP downturns, there's an update to that number.

Yep today, we're up to 54% of the eligible fleet under a Phoebe and.

And that continues to be record numbers for us we continue to add more folks under SVP, we're getting more oil and gas customers under SVP, which has traditionally been a challenge for us.

So I think Jeff in the service team and Jan and Jim in the sales side have done a good job it convincing customers on the value of the FP.

One of the biggest push backs, we get from selling the SPP is our balance sheet.

As essentially we are.

Lifecycle guaranteeing a product up to 15 to 20 years, but that lifecycle guarantees is only as good as the company behind it or guaranteeing it so getting to EBITDA positive, we think and staying there.

And growing our balance sheet and being more stable.

Organization should drive higher close rates on those FCP service contracts, because a lot of customers say, it's an attractive offer but if I sign a 15 or 20 year SVP and you're not solvent two years from now what happens that money if I have prepaid for repairs, they get that money back and how valuable as an insurance policy from a on profit insurance company. So.

Indeed, a positive I know for some people may be a small step for us it's a very large step.

This is probably the third best quarter in our company's history in the middle of a pandemic and terrible oil and gas market.

And with a product quality problem.

So we're proud of where we got to I think the next few quarters ahead, though to be much easier for us as we move past the the EBITDA positive milestone and the parts.

Quality issue.

Thank you for that they're good to see the execution going into such on Monday.

Daniel questions offline.

Thank you for your question today.

Excuse me.

To our presenters today, we have no further questions waiting from the audience I'll turn it back to you Mr. Jamison for any additional or classroom.

Thank you may have sir.

Excellent well. Thank you I. Appreciate every time today I know that it's been very challenging for everybody.

And the covert 19.

Endemic and hopefully everybody is safe, we're proud that we've kept our employee safe and continue to do so we've had one positive cases I retire time here in California, which is one of the hotbeds.

We've had been very flexible as an organization with working remotely and.

And folks having to make.

Make childcare issues in.

And so it's been challenging for everybody in other ways itself Galvanize love the capstone employees on our mission and our mission is to EBITDA positive, which we believe we've achieved this quarter I'm excited to show folks the final numbers.

In August when we can go and present, those but anyway, you look at it year over year or quarter over quarter recede dramatic improvements on an EBITDA basis, despite lower revenues, which really underpinned the improvements we've made to the organization on both the cost side of the organization as well as the the margin, especially in our in our service contracts in our service.

Business.

We set out after 2015 oil crisis to diversify our business oil used to be 80% of our of our revenue today.

CHP is 54% of our revenue we've diversified our revenue we've diversified our geographies we've improved our recurring revenue you're now seeing to work we've done to improve our recurring revenue margin rates.

Our product sales are important to us, but mostly important because it grows our service business.

If you look at it between 80% to 100% of our of our contribution margin every quarter comes from our recurring revenue business. So we definitely.

Make more money on the service contracts for our for our product than we do on selling the product up front, just because of the inherent a technology. We have in the cost of our technology compared to a lower tech simpler solutions.

Excited with the company's achieved more excited though to see the rest of this year has we continue to see recoveries in our in our markets continuing to get our products out there in marquee customers and grow our new direct sales organization as well as some different markets like 24, seven solar and be in K as well as hydrogen.

We're hearing a lot of out of hydrogen moving a lot of interest in hydrogen portion that we saw the hydrogen.

Opportunity coming couple of years ago, and we developed a hydrogen injector, which we have patented we're in the lab now testing a hydrogen see 65 running on 70% natural gas, 30% hydrogen with a goal of getting out to 100% here in the next 12 to 18 months. So we do see hydrogen as a fuel the future we see renewable natural.

Or gas, which in lot of cases can be natural gas and hydrogen blended together or natural gas and biogas blended together, we see that is a huge opportunity a lot of those are realized that almost 40% of other people in the plan that today have grown up with global warming and is more of those folks become architects and engineers and consumers and voters.

And people spending money.

They are going to vote on green with their green and so we see the future for technologies like ours is bright and that we're going to be part of that solution to help people make money.

With a green products right I think green products are great, but they have to be economically viable they can't be all government handouts and make them work and so.

We're excited about the future we're excited to reduce our.

EBITDA loss by over $10 million coming up are excited you to rental fleet.

That's a 10 megawatts, which has been our plan we're excited to get our inventory turns up and start generating cash on a quarterly basis, especially from working capital and and reduced.

EBITDA.

And the direct sales are in addition, like I said to get 15% of additional business will be excellent, especially at our at our higher margin rates. So.

They said we developed a very simple tool going forward, we'll show you in the first quarter.

How much year over year improvement, our EBITDA is but the goal of 10 million. We think is very achievable. Obviously, we want to EBITDA positive every quarter that we can and that'll be our goal, but during co vintages very challenging to see clearly how much products will be shipped and customers looks at product during the quarter.

With that we'll go ahead and sign off and look forward to talking to everybody in early August. Thank you.

Oh.

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