Q3 2021 Capstone Turbine Corp Earnings Call
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Good day, ladies and gentlemen, and welcome to your Capstone Turbine Corporation earnings Conference call and webcast for the financial results for the third quarter of fiscal year 2021 ended on December 31, 2020, all lines have been placed in a listen only mode and there will be a quest.
<unk> and answer session. Following the presentation as a reminder, today's program will be recorded at this time, it's my pleasure to turn the floor over to Mr. Colby Petersen corporate counsel, Sir the floor is yours.
Thank you very much.
Good afternoon, and thank you for joining today's fiscal 2021 third quarter conference call on the call with me today is Darren Jamison, Capstone, President and Chief Executive Officer, and Eric Henken Capstone, Chief Financial Officer.
Today Capstone issued its earnings release for the third quarter of fiscal 2021, we.
We will be referring to slides that can be found on our website under the investor Relations section during the call today I want to remind everyone that this conference call contains estimates and forward looking statements representing the company's views as of today February nine 2021.
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 provision set forth on slide two and in Capstone 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 Darren and Eric go through the discussion today when they mentioned EBITDA. They are referring to adjusted EBITDA and the reconciliations in our presentation appendix I would now like to turn the call over to Darren Jamison, President and Chief Executive Officer. Thank you Coby good afternoon, everyone.
Thank you for joining us today to review our third quarter fiscal 2021 results ending December 31 2020.
Before getting into the specific financial results I'd like to review recent business highlights and provide an update on our adjusted EBITDA improvement initiative.
Couldnt turn to slide four.
On slide four we've outlined some of the key events from the last couple of months on.
I'll run through each item, but I would like to draw your attention to a couple of other more crucial events beginning with the first bullet.
As most of you know we have been moving aggressively ahead to return to solid revenue growth. Following our successful cost cutting initiative over the past couple of years.
Revenue for the quarter increased $3 3 million or 19% to $20 7 million from $17 4 million for the three months ended December 31, 2019, and increased $5 8 million or 39% sequentially from $14 9 million for the three months ended September 32012.
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With nearly 20% revenue growth year over year, and 40% sequentially. Our efforts are now showing up in our results.
Additionally, in the third quarter, new gross product bookings were $10 5 million up 7% from five from $9 8 million in the second quarter and up a whopping, 91% from $5 5 million in the first quarter showing solid sequential performance.
The other key metric is adjusted EBITA. This improved <unk> 6 million or 32% to negative adjusted EBITDA of $1 3 million for the three months ended December 31, 2020 <unk>.
Compared to negative adjusted EBITDA of $1 9 million for three months ended September 32020.
Year over year was even more impressive and improved $1 4 million or 52% improvement when compared to negative adjusted EBIT of $2 7 million for the three months ended December 31 2019.
I believe this shows we can drive towards profitable revenue growth as we continue our march towards adjusted EBITDA breakeven and beyond.
The third bullet I point to would be the highlight the shows are significantly improved liquidity position.
Cash increased to $32 million at December 31, 2020 up from $16 8 million at September 30 of 2020.
The increase was primarily due to favorable amendment of the Goldman Sachs Note purchase agreement on October one 2020 that Upsized Capstone note to $50 million from the original $30 million with a reduced interest rate and a new three year term.
As a reminder, liquidity is critical to our evolving energy as a service strategy and the expanded Goldman note shows a vote of confidence in our energy as a service strategy.
Lets go and turn to slide five.
On slide five I want to highlight graphs.
Graphically our revenue growth over the past few quarters as a note at the beginning of the call driving revenue growth as the next stage in our pathway to adjusted EBITDA breakeven and profitability.
I am happy to say that we achieved our highest quarterly revenue in more than a year.
Up 39% sequentially and 19% year over year as I mentioned this is despite continued business headwinds related to COVID-19 globally.
On slide by slide six.
We have set out the strategic drivers we have put in place to accelerate revenue growth.
First is the new direct sales team one of the keys for accelerating revenues to increase the size of our orders and greater integration with our large national and global customers.
Using our new internal sales team, we expect to become a trusted partner with these customers where historically, we've you might win a single location at a hotel or industrial company, we now want to drive that customer for multiple deployments throughout their properties.
The second is our target pricing programs with National key accounts.
This is an effort to price our products to meet key or National account company internal hurdle rates.
Said another way, we want large customers to give us multiple site locations and it required simple payback and we will work hard to put all the projects blended together to meet those internal rates.
Third.
Third is expanding the technology platform to include fuel sources, such as hydrogen and renewable natural gas both fuels offer a substantially reduced carbon footprint on top of our already compelling emissions profile.
Our goal is to be able to operate on a 100% hydrogen fuel.
Effectively creating a near zero emission energy solution at least wouldn't using green hydrogen.
Both renewable natural gas for R&D and the hydrogen economy are experiencing substantial progress in expanding their respective infrastructures and resources.
By offering greater fuel flexibility, we will remain at the tip of the spear in helping customers reduce their carbon footprint as well as our cost of energy.
Fourth.
For the customer retention through improved customer satisfaction, we are actively engaged in.
Improved our supply chain, including a critical new part supplier to ensure the quality of our product with higher customer satisfaction, we will get more shots on goal to increase our market share with these key customers.
Fifth is our new digital marketing strategy.
Though we are a supplier.
Excellent Green energy solutions branding and awareness is still challenging.
Some of the improvements include.
Website updates.
Customized campaigns and our shift to Green Indy car branding strategy.
Last but by no means least we are engaging new distributors around the globe to expand our geographic footprint.
I would specifically point to Eastern Europe Africa, and the Middle East we have added several new distributors over the past year and we were in the process of continuing to expand our global distribution footprint.
I will now turn the call over to Eric to provide more details on what was an excellent third quarter financial results Eric.
Thanks Darren.
I will now review in detail our financial highlights for the third quarter of fiscal 2021.
Which can be found on slide seven through 10.
As a reminder, the company issued preliminary select third quarter results on January six 2021, and the results released today are consistent with those preliminary results.
Starting on slide eight I want to highlight the significant sequential improvement in nearly every line item of our P&L.
I'm not going to run through each line, but I want to point out the total operating expenses line.
Despite our total revenue growing from $14 9 million in the second quarter to $20 7 million in the third operating expenses were essentially flat.
This shows that we can growth grow this business and keep tight controls on operating expenses.
Slide nine is even more impactful as it shows the substantial year over year progress.
Revenue for the three months ended December 31, 2020 increased $3 3 million or 19% to $20 7 million.
From $17 4 million for the three months ended December 31 2019.
Gross margin was $3 5 million or 17% of revenue.
Compared to gross margin of $2 6 million or <unk> 15 per cent of revenue for the three months ended December 31 2019.
This increase was primarily due to more volume as well as improved accessories parts and service margins.
Operating expenses for the third quarter decreased <unk> 7 million or 11% to $5 6 million from $6 3 million over the same period last year. Despite a $3 3 million increase in revenue.
Primarily due to our cost savings efforts as we continue to manage through the impacts of the COVID-19 pandemic.
Net loss increased to $7 6 million for the three months ended December 31, 2020, compared to a net loss of $4 9 million for the three months ended December 31 2019.
Primarily due to the loss on extinguishment of debt, resulting from the upsize of our Goldman Sachs note.
Which includes loan origination fees value of warrants and the write off of unamortized cost from the original note.
The revenue growth combined with the cost reductions led to a significant adjusted EBITDA improvement of approximately $1 4 million.
The negative adjusted EBITDA of $1 3 million for the three months ended December 31 2020.
Negative adjusted EBITDA of $2 7 million on the same period last year.
I will conclude with slide 10, with an update on our balance sheet.
Cash increased to $32 million at December 31, 2020 up from $16 8 million at September 32020.
Primarily due to the amendment of the Goldman Sachs Note purchase agreement on October one 2020, but upsize the companys note to $50 million from $30 million with a reduced interest rate and a new three year term.
I would also point out that we have seen a sequential improvement in cash flow.
For the March quarter of 2020.
Helped by our working capital management with a reduction in inventory to $13 1 million compared to $22 $7 million on March 31 2020.
Additionally, since January one 2021 through today, we issued approximately one 2 million shares of our common stock under our at the market offering on the net proceeds to us were approximately $14 5 million.
For this improved liquidity.
We have much greater flexibility to execute on our growth strategy. In addition to increasing customer confidence in our company to become a long term partner.
I will now turn the call back to Darrin for an update on our hydrogen initiatives. Thanks, Eric.
Let's go on focus on slide 12.
According to Frost <unk> Sullivan's recent analysis global hydrogen production is forecasted to more than double reaching 168 million tonnes by 2030 up from 71 million tonnes in 2020 with revenue expected to reach $420 billion in 2030 up from 177 billion in 2020.
Part of Capstone as long term success is being able to react quickly to changes in the industry and that includes our customers desire to use hydrogen as a fuel.
The hydrogen economy is coming and we need to be there with it.
We currently offer a solution from 10% to 20% hydrogen blend in our current product line of micro turbines as well as fuel source and having successfully operated up to 70% blend of hydrogen natural gas and Argonne National Labs.
And that is using our new hydrogen patent injector shown on the slide.
One of the keys for reaching a near zero carbon footprint as the production of Green hydrogen slide 13 shows the system architecture and how the hydrogen economy can use stranded electrons produced from renewable energy to produce hydrogen green hydrogen is still not widely available, but it is expected to rapidly grow in the coming years.
Making an important fuel option for our customers.
The roadmap for a U S. Hydrogen economy report recently forecasted that hydrogen from low carbon sources could supply roughly 14% of the country's energy needs by 2050.
Customers using our power solutions fueled by Green hydrogen would be a critical piece to the puzzle and reaching net zero carbon objectives. This.
This is very exciting for us our customers and our shareholders.
Operator at this time I'd like to open the call up for calls from the analyst community.
Absolutely if there any questions or comments. Please indicate so now by pressing star one and your first question.
He is coming from Rob for.
Rob Your line is live.
Yeah.
First question is on the energy as a service business.
How is the kind of rental market at this point, where are you seeing activity in.
It's about how many units are you are you thinking at this point in terms of rolling out.
Yes, no our goal is to.
Rob we've always get to 10 megawatts rolled out by the end of the year. So by March 31.
We're still looking to be somewhere around that number obviously COVID-19 impacted the rollout of the rental program, especially the oil and gas space.
We are now seeing oil prices back over $50 a barrel, we're seeing new opportunities in the oil and gas industry. We've also got several CHP rentals out there and continue to see good traction there as well we are looking to expand outside the U S won't probably have our first rentals in Mexico, Latin America, and the U K and probably next quarter.
<unk>, so definitely aggressively looking to grow it as fast as possible, but we do want to make sure we price them. Accordingly, we get the right rates of return that we're looking for.
And most importantly, we are trying to lease signed minimum one year rentals, we don't want to sign short term rentals just from a logistics standpoint, it's very challenging to move these units around constantly.
Especially for us come of being somewhat new to the rental business, but I'd say overall its going okay, but I think the next quarter, we're going to see an acceleration of the rental fleets.
And our building of units as well as deploying units.
Yeah.
Okay, great. Thank you and then on the other.
Hydrogen.
Development on the market, where where do you see the customer interest at this point.
How how do you see that market developing over the next couple of years.
Yes, no. It's a great great question I think we were skeptical I'll be honest on the hydrogen.
Economy, and I lived through it the first time with Schwarzenegger Schwarzenegger on the hydrogen highway here in California, but this feels different we are hearing about it and seeing it from customers.
We're seeing it from legislature's, obviously with the new by the administration from a big piece of the Green.
Green energy push that they have our first units that we sold were in Australia.
Got quotes going right now actively in Japan and Korea.
Several on Europe, as well as the U S. When.
When we announced the fact that you can run on a hydrogen blend to the amount of opportunities and it kind of incoming inbound calls has gone up substantially so theres definitely a large amount of customers that want to at least run on a small blend.
More importantly, we've seen some customers that were quoting natural gas CHP projects too that are asking us about our hydrogen.
Kind of future path and so they don't want to install a CHP solution today.
A 20 year asset that can't run on hydrogen 10 years from now or five years from now even on the blend and so I think the ability to have a hydrogen footprint at least from a blend standpoint will be critical near term and the long term as you see more green hydrogen get deployed 100% hydrogen opportunities will be there I think one of the limiting factors for hydrogen is infrastructure.
But because we are behind the meter where distributed assets, we don't necessarily have to run off a hydrogen pipeline. We could run off hydrogen has developed at the source I don't think thats going to allow us to put some units on the ground before some other folks.
Okay, great. Thank you I'll turn it over from Q.
Okay. Your next question is coming from Amit Dayal from H C. Wainwright Amit Your line is live.
Thank you Hi, Darren Hi.
That's on.
Alright, congrats on the strong revenue performance.
Can you talk a little bit about the distributor pipeline and sort of any engagement changes.
Biden win.
Yes, the distributor pipeline.
I'll tell ya ebb and flow during COVID-19 as we see.
<unk> of economies and Cobra related shutdown so obviously.
We saw in the U S and then it got better than the other holidays. It got worse, Mexico I think this week is coming off and other closure, we had the U K Europe, Italy. All go on shut down for I think the second time and so we're definitely seeing impacts from Covid, which I think is really why we're so excited with the revenue numbers were putting up to put up.
The highest revenue quarter on over a year in this COVID-19 environment is really impressive for us on it makes us very confident that as Covid subsides.
Work, we've done is really going to provide a lot of great opportunity for us obviously the body administration by rejoining the Paris accord is good for us anything related to Green energy hydrogen Green building.
Energy efficiency all of those initiatives and measures are going to be good for us. So we're excited about the new administration, what theyre going to do for us and just the more we talk about green energy to more customers are reaching out to us looking for green solutions. The more valuable the reduction in carbon becomes as you know on the last two years we.
Save customers 718000 tonnes of carbon.
I'll now shortly with the last year has done, but obviously that will get us over 1 million tons of carbon saved in the last three years and will probably be.
Closing in on our $1 billion in savings and so the more we can get to customers to help them save the planet and save money and provide resiliency I think is a win win situation and so the new administration is going to put new measures in place to accelerate the green economy, but also just help educate customers and get them in.
Cited about doing the right thing.
Okay.
D C extension benefit you're doing yet or do you expect to see some benefit down the line.
Yes, I mean, the ITC extension definitely is positive.
We get 10% versus the 30% some of the other technologies do.
So it's not as big a mover for us as it is for the fuel cell companies, but we're a lot less expensive than the fuel cell companies and frankly, a lot closer from an EBITDA positive perspective, and I like our business model better.
Like to think we're a fuel cell company, but with a profitable business plan. So I think the ITC is good for all of us.
And I think the longer it gets extended obviously the better but we're really looking for ways to reduce customers' energy bills and get a five year payback with or without the ITC.
Got it and just one last one on the gross margin side.
Margin that is suppressed.
Third fiscal quarter.
Compared to.
Given the stronger revenue performance I guess.
Yeah.
When you look at our margins you have to look at mix and so.
These product levels Kirk petty and his operations team are barely sweating we.
We can run single shift five days a week.
And put out the quarter and so.
When you start looking at it we could be doing three times the product levels in the shop that we have today, if not if not more.
So we're running at 20% capacity at that level, it's hard to absorb our overhead and drive growth strong margins and so our product margins are kind of low single digits compared to our service and aftermarket margins that are much much higher obviously as you know so from a blended standpoint, we had a great product quarter.
That does depress our margins a little bit from a mix standpoint. However.
We have to sell tickets for the movie to sell popcorn, so getting more units out there drives more FPP contracts from high margin revenue for spare parts and so definitely it's great to get more product out there both from a booking standpoint on the shipping standpoint, and we continue to see the growth of the energy.
Energy efficiency business. If you remember back in circa 2015, we were 80% oil and gas today, we're 67% energy efficiency. So that transition has been huge and that's a much bigger market and frankly much more exciting market for us.
Understood. Thank you so much.
Thank you.
Okay. The next question is coming from Shawn Severson from water Tower Research show on your line is live.
Great. Thanks.
Yeah, and I wanted to focus a little bit on the on the internal sales force the international sales force I mean, you've had some time.
On a lot that develop here I know, obviously, there's probably been impacted by COVID-19, but what how is it going I guess as a general update on and are you seeing larger contracts.
Bidding come in or are you looking at.
On a kind of a number of live things in the pipeline or really is it.
Is it still kind of in the early stages lets say and then a follow on question to that would be what type of size of projects do you expect to see I mean, you're talking about two megawatts 10 megawatts for me what does that market look like knowledge event, a chance to digest it a little bit.
Yes, great Great question Sean.
Referring to our internal sales are direct sales organization that we launched back in January led by Jim Kraus internally.
Unfortunately, we by the time, we staffed up that direct sales force Covid hit.
And so I think six new hires we have on that direct sales organization I've met one of the six in person.
S evolve and virtual the fact, they can't get on an airplane and go see customers is challenging but.
But we had an internal goal for the year that we shared earlier with generating 15% of our product sales from that new direct sales organization. We are essentially hitting those numbers through three quarters and so we are.
Achieving 15% product revenue growth from the direct sales organization with a brand new team who hasn't been to the factory for training that we can interface with in person and can't get on an airplane and.
So I think that tells you what that team can do when they can actually get some more training better interaction with the factory and enable to go see customers in person. So very happy with that what we're seeing is C level conversations with customers.
Opportunity to talk about doing multiple projects and so.
What excites me is being able to talk to the CFO and the CEO of <unk>.
On a business developer or a hotel chain or a plastics company somebody who's got dozens of locations that we can have a conversation about how to make all of them more resilience and lower their carbon footprints and reduce their costs and then really understanding what the drivers are.
In some cases, if it's a hotel chain that operate in the Caribbean resiliency is the most important followed by cost reduction and then carbon footprint other folks as they're in New York.
For East Coast based for California, based it's all about carbon reduction and then.
Then cost reduction that resiliency, so really understanding the customer needs and then trying to find out how can we partner with them to be more more helpful to them and educate them on what the opportunities are what our product does and really kind of become their partner on their energy expert going forward and so thats. The goal of that team, we're not looking to cut out our distributors in fact from.
Many of these high level meetings on distributors are on the call we said on.
On recently with the affinity.
Sure. It is here in the U S and Jeff Fighter.
And I think the goal is to show customers. We can be your partner at a C level, but also give you that boots on the ground local support to understand the building codes I understand the local air boards understand how to work with the natural gas company.
And everything needs to be successful to make sure you have a good project and at the end of the day. After we get them installed at our distributors that monitor the machines do the maintenance to make sure. They get the kind of performance of time cost savings that they've signed up for so very excited about the program be much more excited when we start getting on airplanes, but I think early returns in the first nine months based.
On all of the headwinds have been been exceptional.
When you get into the C suite to make that pitch. This is this is a new idea on a new concept for these potential customers are you there competing with other companies that are trying to provide solutions as well for their power needs just trying to understand a bit.
You're on there with other people, but this is an idea that you're creating for these for these customers.
Sean it's a little bit of both and in many cases, we get in the door because we have some sort of relationship and it can be Rob policy on one of our board of directors May know this the C level person and maybe somebody that we sold the project to an or even a couple of projects through our distribution base globally, a lot of times, we'll talk to the C level folks and they have no idea.
Yeah.
But they have capstone is running on one other installations in fact from when we talked to folks that Kaiser Hospital, we've done 11, Kaiser hospitals here in California, and they are unaware that they haven't had a single capstone. So a lot of it is just telling them what's going on in their own business explaining to them the product that they have and then having a dialogue on what are their goals are their goals to reduce our carbon footprint.
So to improve resiliency to save money.
Is it a mix of those goals.
And every CEO today, whether it's a small plastic company or it's the CEO of DHL that we're interfacing with they all have different goals different mindsets and they're all kind of different places, but all of them are leaning toward wanting to save money and save save the environment and just a question on how fast they want to get there and so I think it's a little bit of.
Explaining our technology, it's education.
Other projects, we're doing are with solar or battery storage.
So we can help them with those relationships as well, we can help design, the micro grid and really optimize our savings and optimize their performance and so on a big believer our technologies amazing, but it's not a single bullet. It's a silver shock on so we need to have our product mixed with the right amount of solar battery storage and.
I'll see energy conservation energy efficiency lighting, whatever makes the most sense for the customer to drive the best results.
There's many cases, where we go to a large building and say because of the way your buildings metered or other factors. It may be a pretty small installation that makes sense, but even if it's to see 65 kilowatt micro turbines. If that's the best result for their site and that's the goal we're not trying to oversell them and we want to have a long term relationship and the goal is to make sure. These projects.
Perform exactly for the savings both carbon and financial that we promise.
And that's on my last part of that question is I assume the a portion of that is a very high attachment rate with these types of projects given its kind of providing on energy solution versus just a product.
Yes, I think at the end of the day people want to have.
Have comfort that they've got a business partner in that it's a win win relationship and so there's a lot of kind of local developers or people that will sell your product or even a project, but then they're gone and then you may never see them again, and so for US we signed on our long term service agreements.
That's part of our energy as a service business model on if we signed a 15 or 20 year agreement where partners for that period of time, we're married and so as that project goes so does my margin on that contract as the performance of their other project in their savings both economically and environmentally and.
And so we pray to every failure of every system, we have under contract worldwide. If there is a issue with the site that's not performing well we have a troubled sites group of engineers that and service technicians to dig into that site and figure out why it's not performing up to snuff and fix it I mean, even if it's a customer issue we fix it because that.
I need to perform well for both the customer on for Capstone and so our goal is to build deep customer relationships with reoccurring revenue in a partnership.
It's win win and that our margins go up over the years as the product performs well and there are savings just increases in utility rates inevitably keep going up.
Great. Thank you.
Thank you Sean.
Okay. Your next question is coming from Tate Sullivan from Maxim paint your line is live.
Alright, Thank you and good afternoon, Darren you've mentioned renewable not your renewable natural gas separate earlier.
As long as you get into more detail on hydrogen with Orange G. I think if some of your units are already Atlanta sales, but can you just provide an update on where you are on getting your units to use 100% R&D on a timeline for getting that too. Please.
Yeah, It really depends on on what type of renewable natural gas, we're talking about we operate and have had for years operate on.
Land pills and wastewater treatment plants, Calvin newer chicken manure pig manure agricultural waste and so we can take any kind of biogas. We do a lot of breweries, who just did a couple more sites for Ambev, Sierra Nevada is a great customer with a couple of sites.
So we can run on any kind of biogas and so renewable natural gas for US is just on.
Different gas to run on but it's something that we can very easily do we've got multiple sites running on blended back biogas renewable natural gas so for us that's a.
Already doing it's a type of operation.
Not any new development for us, we do need to understand what the constituencies are in the gas to make sure we tune the equipment accordingly.
From a technology standpoint, we've done it we've got hundreds of units running on renewable natural gas or for a 100% biogas.
And thats not a not a big leap.
For us so the more renewable natural gas becomes popular the better off we are because we're already they're already doing it.
From a hydrogen standpoint that that's a little bit more new engineering, and new Greenfield for us, but again with the hydrogen injected or we've developed we're very confident that we can run successfully on 100% hydrogen our development effort is really more around the fuel system containment.
Packaging safety.
Safety those sort of issues in containing hydrogen which is a very challenging molecule to.
Not at leak.
Might that effort and I apologize if I missed it earlier involves having a partner on the hydrogen side or is it a five year development effort on shorter can you try to quantify the timeline yes.
I'll be real blunt, it's about $5 million to $7 million. So its really how fast we want to develop the hydrogen product. So we're monitoring the markets. If a customer came to us and wanted to give us a big order for 100% hydrogen we'd accelerate the hydrogen development efforts. Most everything we're seeing right now from an opportunity standpoint as hydrogen blend in.
10% to 20% range and so that's our initial target.
So we will spend money to make sure. We are ahead of the hydrogen development kind of efforts.
But if we had to go to 100% hydrogen we could probably do it in 18 months.
But if the market rolled out slowly it may be three or four years. It's just it doesn't really pay as much to get there first if theres no market. So we will develop it as quickly as the market develops but it's not big spend.
Eric mentioned upsides on the Goldman no what we did with the ATM during the quarter cash is not an issue for us we could we could spend that $5 million to $7 million very quickly and develop hydrogen in 18 to 24 months if necessary. It's just really.
Monitoring the market and figuring out how quickly we need to spend those dollars.
Thank you very much.
Okay.
Okay. The next question is coming from Eric Stine, Eric Your line is live.
Yeah, Hi, it's Aaron's mahalla on for Eric Thanks for taking the questions here.
Hello can you give us an update on the on the remanufactured units and initiative.
What's the impact there Ben and kind of what's the outlook there for this fiscal year.
No great Great question, Erinn, and one that we probably haven't talked enough about.
As we brought up in the past one of our keys to improving the margins in our in our FPP or our factory service contracts as remanufactured content and so today, we put a lot of new parts into our service agreements during maintenance intervals as we get the fleet to age and to get bigger we will have more core.
For us to bring back our use part to bring back to inspect the clean up three manufacturer and so today, we do all that work essentially in the U S. We set up our hub in Europe, and the U K to do that work as well they are probably 98 per cent of the way there and they're already doing partial remains today on recoup writers and Theyre close to doing.
For full engine systems, the biggest holdup has been.
Interconnecting with the local utilities. So we can test and that interconnection has been impacted by Covid, but we're very excited for the next 30 to 60 days, we will finish that utility interconnect and be fully operational for re manufacturing up to complete systems at the U K hub so.
So that's exciting that will double our remanufacturing capacity that'll help us on future margins that'll keep us from shipping cores from the from Europe back to the U S. Just to tear them down and scrap them if they're no good.
So it really helps us in both lead time and cost and so that those exciting definitely it was impacted by Covid, but we're excited by the hopefully by March 31st that's fully operational.
Understood and then.
You know maybe on the supply chain.
Are you seeing any issues there.
From a from a COVID-19 standpoint, absolutely.
Had suppliers that have had COVID-19 rates as high as 20 per cent of their workforce, we've had suppliers shut down for periods of time because of Covid.
It's impacted us we have suppliers that we need to go visit that we can't because of Covid restrictions specifically in Mexico, one of our key suppliers, we'd have to quarantine for for two weeks. If we went over the border to visit them.
So that's definitely more challenging I will say our supply chain for for Perkin as op seem as an area of continued focus our payables today are probably the best they've been in over four years.
Our cash position is great. Our turns are over five which is great for probably the best thats been over for years and so from that perspective, I think we're we're becoming more attractive to our vendors revenue growth is going to make us more attractive and so I think the next 12 months will be kind of a interesting time with our supply chain as we are.
Much more stable from a cash on balance sheet standpoint, we're much more desirable with higher revenue growth and we're going to see more suppliers and get more competitive and we're going to have more competition, our supply chain, which will be good for us and good for our shareholders.
Alright, thanks for taking the questions.
No problem. Thanks, Sarah.
Okay. The next question is coming from Michael <unk> from Noble capital markets. Michael Your line is live.
Hi, Thanks, my questions on pretty much been answered thank you.
Thanks, Michael.
Okay. We have no remaining questions I'd like to turn the floor back over to Darren Jamison.
Well you guys covered a lot of things I wanted to say, but let me just kind of say on closing.
Capstone is a proud green energy company, we've been focused for a long time on transforming the way businesses think about energy production and consumption.
Our solutions are really designed to reduce energy costs and ensure power availability and low carbon footprint and really that's the goal of capstone as I mentioned before we've reduced 718000 tonnes of carbon in the last two years and have $1 billion and financial savings for our customers.
Today, we're even more excited to be able to offer our customers the energy as a service business model to Sean was talking about it's really strengthens our commitment to creating a cleaner energy in a smarter future as low carbon.
Carbon reduction and increasing the value of our public and private sectors and more importantly, it really allows us to partner with our customers and I think thats something the Aha moment that a lot of our customers need to have is that we.
We're here to be a partner and to win together and not sell you a project and go on down the road and were small enough to care about your projects, but we are big enough to make sure. We can execute and that's not the same with some of these larger conglomerates that are out there.
We definitely expect a new U S administration will create even more positive momentum for green energy initiatives.
I mentioned before Biden recently signed an executive order to rejoin the U S into the Paris climate Accord. This is the first of many actions to help tackle global warming.
As a reminder, as Eric mentioned Capstone energy efficiency market vertical has grown to 67% and Thats a huge sea change from where we were several years ago. I think we're 65% year to date I really couldnt be more pleased with our third quarter financial results. We continue to achieve our stated goals, including growing revenue and improving liquidity.
And more importantly, we're just executing on the plan we laid out two years ago. So if you've been following us if you've been listening to earnings calls are talking to us our leadership team level everything we're doing is everything we told you would do nothing more nothing less.
And when it comes on revenue liquidity those are very very key they are key to part of our business continuity plan. We put in place. These are our key objectives that really allow the successful.
<unk> on our business, despite COVID-19 and so we put up three of the best quarters in company history in a COVID-19 environment, all because of our plan that we put in place prior to Covid.
We are now laser focused on driving revenue growth through our several initiatives, which includes leveraging our capstone direct sales organization, our broadening of our geographic distribution coverage expanding our digital marketing campaign, which I think is really second to none.
Maria internally and her team has done an amazing job, we continue I think to perform exceptionally well on that.
On the digital branding side and doing a lot of unique things like any car in marketing campaigns, and just really punching above our weight class and so all of that on top of our continued low efficient cost structure.
You compare our operating cost to any of the fuel cell companies or other people in the Cleantech space, we are half to a quarter of the opex of these folks and so we are very lean, we're very mean and now we're going to drive topline revenue on top of that so very excited to finish off this great year in Q4, and really looking forward to a new year, where we don't mentioned COVID-19.
On every earnings call. Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call.
You may disconnect your phone lines at this time and have a wonderful day.
For your participation.
Okay.