Q3 2022 Capstone Green Energy Corp Earnings Call
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Speaker 1: Ladies and gentlemen, please continue to hold. Your conference will begin in one moment. Please continue to hold.
Ladies and gentlemen, please continue to hold your conference will begin and one moment. Please continue to hold it. Thank you.
Speaker 2: The.
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Good day, ladies and gentlemen, and welcome to your Capstone Green Energy earnings Conference call and webcast for the financial results for the third quarter of fiscal year 2022 ended on December 31 2021.
Speaker 1: Good day, ladies and gentlemen, and welcome to your Capstone Green Energy Earnings Conference call and webcast for the financial results for the third quarter of fiscal year 2022, ended on December 31st, 2021. All lines have been placed in a listen-only mode, and there will be a question-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 Peterson, Corporate Counsel. Sir, the floor is yours.
All lines have been placed in a listen only mode and there will be a question 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.
Speaker 3: Good afternoon and thank you for joining today's fiscal 2022 third quarter conference call. On the call with me today is Darren Jamieson, Capstone Green Energy's president and chief executive officer, and Eric Hankin, chief financial officer.
Good afternoon, and thank you for joining today's fiscal 2022 third quarter conference call on the call with me today is Darren Jamison Capstone Green Energy's, President and Chief Executive Officer, and Eric Hagan, Chief Financial Officer.
Speaker 3: Today, Capstone Green Energy issued its earnings release and filed its quarterly 10-key report with the Securities and Exchange Commission for its fiscal 2022 third quarter ended December 31st, 2021.
Today Capstone Green energy issued its earnings release and filed its quarterly 10-Q report with the Securities and Exchange Commission for its fiscal 2022 third quarter ended December 31 2021.
Speaker 3: During the call today, we will be referring to slides that can be found on our website under the Investor Relations section.
During the call today, we will be referring to slides that can be found on our website under the Investor Relations section.
Speaker 3: I want to remind everyone that this conference call contains estimates and forward-looking statements that represent the company's views as of today, February 10, 2021.
I want to remind everyone that this conference call contains estimates and forward looking statements that represent the company's views as of today February 10 2022.
Capstone disclaims any obligations to update or revise these statements to reflect future events or circumstances.
Speaker 3: Capstone disclaims any obligations to update or revise these statements to reflect future events or circumstances.
Speaker 3: We 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.
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.
Speaker 3: Please refer to the Safe Harbor provision set forth on slide two in today's earnings release and in Capstone's filings with the Securities and Exchange Commission for information concerning factors that could cause actual results to differ materially from those expressed by such states.
Please refer to the safe Harbor provisions set forth on slide two in today's earnings release 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.
Speaker 3: Please note that as Darren and Eric go through the discussion today, when they mention EBITDA, they are referring to adjusted EBITDA and the reconciliations in the earnings release and the appendix to the presentation.
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 the earnings release and the appendix to the presentation slides.
Speaker 3: I would now like to turn the call over to Darren Jamieson, President and Chief Executive Officer.
I would now like to turn the call over to Darren Jamison, President and Chief Executive Officer.
Thank you Colby.
Speaker 4: Good afternoon, everyone, and thank you for joining today for a review of our third quarter fiscal 2021 results, ending December 31st, 2021.
Good afternoon, everyone and thank you for joining today for a review of our third quarter of fiscal 2021 results ending December 31 2021.
If you turn to slide four.
Speaker 4: I wanted to remind everyone of our fiscal 2022 goals and then give an update on our progress through our third quarter.
I wanted to remind everyone of our fiscal 2022 goals and then give an update on our progress through our third quarter.
Our strategic initiatives are built around driving growth and reaching profitability. As you know we've been focused on increasing our reoccurring revenue as part of our energy as a service or Eas.
Speaker 4: Our strategic initiatives are built around driving growth and reaching profitability. As you know, we have been focused on increasing our reoccurring revenue as part of our energy as a service or EAAS strategy. In particular, we have highlighted our rental growth because of its high contribution margin.
<unk> in particular, we have highlighted our rental growth because with high contribution margins.
Speaker 4: Achieving our goals here translates into better margins, improving our cash flow, and also the predictability of that cash flow.
Achieving our goals here translates into better margins, improving our cash flow and also the predictability of that cash flow.
Speaker 4: Our fiscal 22 goals include the following. First is broadening our diverse energy products and service offerings. I'll reinforce what we have been doing here on an upcoming slide.
Our fiscal 'twenty two goals include the following first as broadening our diverse energy product and service offerings I'll reinforce what <unk> been doing here on an upcoming slide.
Speaker 4: Second is our new direct solution sales team, which is focused on growing top-line revenue. And I'm happy to announce that we received orders for our first non-microturbine energy generation technologies for both solar PV and battery energy storage solutions during the quarter.
Second is our new direct solution sales team, which is focused on growing top line revenue and I'm happy to announce that we received orders for our first non micro turbine energy generation technologies for both solar PV and battery energy storage solutions during the quarter.
Speaker 4: As discussed last quarter, we are continuing to invest in our direct solution sales team because we see that as growth driver for our business.
As discussed last quarter, we are continuing to invest in our direct solution sales team because we see that as growth driver for our business.
Speaker 4: The direct solution sales team continues to show a growing pipeline of traditional micro turbine products, long-term rentals, and newer green energy product offerings like solar and battery storage.
The direct solution sales team continues to show a growing pipeline of traditional micro turbine products long term rentals and newer green energy product offerings like solar and battery storage.
Third is expanding our long term rental fleet to 21 megawatts, we announced today that we grew the fleet to $17 seven megawatts during the third quarter, which was slightly ahead of our expectations.
Speaker 4: Third is expanding our long-term rental fleet to 21 megawatts. We announced today that we grew the fleet to 17.7 megawatts during the third quarter, which was slightly ahead of our expectations and was up from 13.1 megawatts at the end of the second quarter.
It was up from $13 one megawatts at the end of the second quarter.
Speaker 4: In January we announced our largest rental contract to date, a four megawatt order with a two year contract where the end use customer is a cryptocurrency miner.
In January we announced our largest rental contract to date a four.
<unk> megawatt order with a with a two year contract where the end use customer is a crypto currency miner.
Speaker 4: We fully expect to reach our 21 megawatt goal by March 31, 2022. This high margin reoccurring revenue is expected to be a significant contributor to our EBITDA in fiscal 2023 and we'll discuss this on a slide later in the presentation.
We fully expect to reach our 21 megawatt goal by March 31, 2022. This high margin reoccurring revenue is expected to be significant contributor to our EBITDA in fiscal 2023, and we will discuss this on a slide later in the presentation.
Fourth goal is increasing our aftermarket margins and escalating parts availability to drive customer satisfaction and repeat orders.
Speaker 4: The fourth goal is increasing our aftermarket margins and escalating parts availability to drive customer satisfaction and repeat orders.
Speaker 4: During the quarter ended March 31st, 2021, we set up a reserve of $4.9 million to replace affected spare parts by one of our suppliers that had a defect. As expected, this program was completed successfully during the third quarter, and we continue to see significantly reduced failure rates on our powerheads, which has lowered warranty expense and should drive repeat orders. Next is focusing on managing workloads.
During the quarter ended March 31, 2021, we set up a reserve of $4 9 million to replace affected spare parts by one of our suppliers that had a defect as expected. This program was completed successfully during the third quarter and we continue to see significantly reduced failure rates on our power heads, which has lowered warranty expense and should drive repeat orders.
<unk>.
Next is focusing on managing working capital and inventory turns.
Speaker 4: third quarter we generated cash from working capital, primarily due to an increase in collections of accounts receivable by maintaining very tight management over inventory controls and payables.
In the third quarter, we generated cash from working capital primarily due to an increase in collections of accounts receivable, while maintaining very tight management of our inventory controls and payables.
Speaker 4: For the year-to-day period, cash used in operating activities, and specifically for working capital and inventory, it has been somewhat heavier than expected, partially due to the ramping up of parts to build the rental fleet, and also to ensure we can continue to manufacture product in this extremely challenging COVID-19 supply chain environment.
For the year to date period cash used in operating activities and specifically for working capital and inventory. It has been somewhat heavier than expected partially due to the ramping up of parts to build the rental fleet and also to ensure we can continue to manufacture product in this extremely challenging COVID-19 supply chain environment collection.
Speaker 4: Collections have all been slower than expected due to extended cash cycles with our distributors primarily resulting from COVID-19 related pandemic impacts, but we are encouraged by the collections we had from our distributors in the third quarter.
Collections of ultimate slower than expected due to extended cash cycles with our distributors, primarily resulting from COVID-19 related pandemic impacts, but we are encouraged by the collections, we had from our distributors in the third quarter.
Now, let's turn to slide five.
Speaker 4: There is no doubt that the world is moving toward decarbonization and greener energy solutions. And that's why we transformed into Cast on Green Energy Corporation.
There is no doubt that the world is moving toward de Carbonization, and greener energy solutions and Thats why we transformed into cast on Green Energy Corporation.
Speaker 4: This slide highlights the types of solutions we can now provide to address end customers' needs as the world moves towards these greener solutions.
Slide highlights the types of solutions, we can now provide to address and customers' needs as the world moves towards these greener solutions.
First we can provide complete microgrid solution that can run standalone or connected to the grid. In addition to our traditional micro turbine, we're now offering solar and battery storage solutions in partnership with our network partners.
Speaker 4: First, we can provide complete microgrid solutions that can run stand-alone or connected to the grid. In addition to our traditional microturbine, we're now offering solar and battery storage solutions in partnership with our network partners.
Speaker 4: Combining these products with our capsule micro turbine technology can create a complete custom-tailored on and off-grid microgrid solution.
Combining these products to their caps on micro turbine technology can create a complete custom tailored on and off grid Microgrid solution.
Speaker 4: In January , we announced a new partnership with Global Reyes Energy and Storage Solutions for the supply of modular, low-voltage DC-to-DC solar photovoltaic kits for using Capstone's commercial and industrial, or CNI-focused microgrid solutions.
In January we announced a new partnership with global risk energy and storage solutions for the supply of modular low voltage DC to DC solar overtake kits for using capstone is commercial and industrial or C&I focused Microgrid solutions. This is another great example of how we are leveraging strategic partnerships to increase our total addressable.
Speaker 4: is another great example of how we are leveraging strategic partnerships to increase our total addressable market, or TAM. We can...
Market or Tam.
We continue to develop our offering offerings in the hydrogen space.
We still expect to offer 30% hydrogen 30% natural gas blend commercial micro turbine system by March 31 2022.
Speaker 4: We still expect to offer 30% hydrogen, 70% natural gas blend commercial micro-turbine system by March 31, 2022. Currently, our micro-turbine-based systems can commercially run on 10% hydrogen, 90% natural gas blend. As previously stated, we intend to spend money on development towards 100% hydrogen as the market dictates.
Currently our magnitude based systems can commercially run on 10% hydrogen 90% natural gas plant.
As previously stated we intend to spend money on development towards 100% hydrogen as the market dictates.
Speaker 4: We want our products, we offer to be fuel flexible and not just meet the needs of where the market is today, but where we'll be in the future when it comes to decarbonization solutions.
We want our products, we offered to be fuel flexible and not just meet the needs of where the market is today, but where it will be in the future when it comes to de Carbonization solutions.
Speaker 4: We also offer solutions that help commercial industrial customers with efficiency and resiliency, saving them money and providing energy security. Whether it's with a combined heat and power solution of our C65 all the way up to multiple megawatt micro turbine systems or our Baker Hughes 5 megawatt to 16 megawatt large scale turbines or our custom heat recovery solution through Alpha Laval or food waste management and recycling solutions through waste to ES.
We also offer solutions that help commercial and industrial customers with efficiency and resiliency saving them money and providing energy security, whether it's with a combined heat and power solution of our 65, all way up to multiple megawatt micro turbine systems or a Baker Hughes five megawatts to 60 megawatt large scale turbines for our custom heat.
<unk> solutions through Alfa Laval or food.
Food waste management and recycling solutions through ways to Es.
Now, let's turn our attention to slide six.
On Earth day, 2021, we expanded our portfolio of products and services and transformed from Capstone turbine Corporation to Capstone Green energy, we now view our business as four key strategic business lines. This is important because it goes hand in hand, with our strategic goal of growing our offerings to expand our revenue opportunity.
Speaker 4: On Earth Day 2021, we expanded our portfolio of products and services and transformed from Capstone Turbine Corporation to Capstone Green Energy. We now view our business as four key strategic business lines. This is important because it goes hand in hand with our strategic goal of growing our offerings to expand our revenue opportunity with each end use customer and meaningfully accelerate top line growth and recurring revenue.
With each end use customer and meaningfully accelerate topline growth and recurring revenue.
Speaker 4: Let's begin with Energy as a Service, or EAAS. This line is built on the base of recurring revenue and includes long-term rental contracts, long-term service contracts, or FPP, installation services, service, spare parts, leasing, PPAs, project financing, and last but not least, our DSS, Distributor Subscription.
Let's begin with energy as a service or Eas decline is built on the base of recurring revenue and includes long term rental contracts long term service contracts or FPP installation services service spare parts leasing Ppas project financing.
And last but not least our DSS distributors subscription fees the.
Speaker 4: The common elements on all these business lines are steadier cash flows, predictability, higher margin rates, and all of them are critical to continuing our transition to a more predictable cash flow and higher margin business.
The common elements on all of these business lines are steadier cash flows predictability higher margin rates and all of them are critical to continuing our transition to a more predictable cash flow and higher margin business.
Sure.
Speaker 4: Next is Energy Generation Technologies, or EGT. This is the foundation on which Capstone was built, and it's based on Capstone's core microturbine technology that you're all familiar with, that we can operate on a wide range of fuels, from natural gas to biogas to blended hydrogen. These products produce high efficiency CHP, or CCHP, generating electricity and multiple forms of thermal energy.
Next is energy generation technologies or <unk>. This is the foundation on which capstone was built and is based on capsules core micro turbine technology. They are all familiar with that we can operate on a wide range of fuels from natural gas biogas to blended hydrogen these products produced high efficiency CHP or Cc HP.
Generating electricity and multiple forms of thermal energy.
Speaker 4: The EGT line includes our small hybrid DC microgrid product and our larger Baker Hughes industrial turbine solution for both CHP and CCHP applications.
<unk> line includes our small hybrid DC microgrid product and our larger Baker Hughes industrial turbine solution for both CHP and CHP applications.
Speaker 4: Moving on to the Energy Storage Solutions, or ESS, line. As mentioned earlier in January , we entered into an agreement with Global Reyes to provide solar modules and also have agreements in place for energy storage, which are both essential additions to microgrid. We'll be using a custom-tailored combination of multiple technologies, energy storage, and monitoring software that maximize energy efficiency, lower emissions, and create resilient systems that meet customer-specific requirements in energy.
Moving onto the energy storage solutions or ESF line as mentioned earlier in January we entered into an agreement with a global race to provide solar modules.
Also as agreements in place for energy storage, which are both essential additions. So micro grid will be using a custom tailored combination of multiple technologies energy storage and monitoring software that maximize energy efficiency lower emissions and create resilient systems that meets customer specific requirements and energy needs.
Speaker 4: Next is Hydrogen Sustainable Product Business Line, or H2S.
Next is hydrogen sustainable product business line or <unk>.
Speaker 4: Fuel flexibility has always been critical to capstone. And so hydrogen is the next big fuel source we need to address. A new hydrogen solution business line is leveraging the recently released second commercially available hydrogen-based combined heat and power micro turbine, which can safely run on as I said 10% hydrogen, 90% natural gas mix.
Fuel flexibility has always been critical to capstone and so hydrogen is the next big fuel source, we need to address a new hydrogen solution business line is leveraging the recently released second commercially available hydrogen based combined heat and power micro turbine, which can safely run on as I said, 10% hydrogen 90% natural gas mix.
Speaker 4: Now let's turn our attention to the most recent quarterly results. Let's go ahead and turn over to slide 8.
Now, let's turn our attention to the most recent quarterly results, let's go and turn it over to slide eight.
I'll give you a quick overview of our third quarter financial highlights and will focus on topline revenue here and let Eric provide a complete financial overview in just a minute.
Speaker 4: I'll give you a quick overview of our third quarter financial highlights and we'll focus on top line revenue here and let Eric provide a complete financial overview in just a minute.
Speaker 4: Total revenue for the quarter was $20.6 million, which was essentially flat compared to $20.7 million in the third quarter last year. We're happy with this result, as there was an unusually large 4-megawatt order in the prior year quarter, and without that order, we are still showing overall solid growth over the prior quarter.
Total revenue for the quarter was $20 6 million, which was essentially flat compared to $20 7 million in the third quarter last year. We're happy with this result, as there was an unusually large four megawatt order in the prior year quarter and without that order, we are still showing overall solid growth over the prior quarter.
Speaker 4: The long-term micro-turbine rental fleet, as I said, increased 4.6 megawatts to 17.7 megawatts, up from 13.1 megawatts during the quarter, as the company continues to execute against its plan to increase the micro-turbine rental fleet to 21.1 megawatts by the end of our fiscal year, which is coming up here on March 31, 2022.
The long term macro term rental fleet as I said increased $4 six megawatts to seven point $17 seven megawatts up from $13 one megawatts during the quarter as the company continues to execute against this plan to increase the <unk> rental fleet to $21 one megawatts by the end of our fiscal year, which is coming up here in March 31 2022.
Speaker 4: The book deal ratio was 0.5 to 1 for the quarter, and new gross product orders was 5.8 million, down from 10.8 million the second quarter. Orders were down partially due to the timing of some expected orders in December that were delayed due to COVID-19 Omicron variant.
The book to Bill ratio was <unk> five to one for the quarter and new gross product orders was $5 8 million down from $10 8 million in the second quarter orders were down partially due to the timing of some expected orders in December that were delayed due to COVID-19 Omnicom variant.
Speaker 4: If we turn to slide 9, we had a similar slide last quarter that shows the last four quarters of revenue, but updated it for the current quarter because it still highlights our revenue growth trends. I'll point out two things on this slide.
If you turn to slide nine we had similar slide last quarter that shows the last four quarters of revenue the updated it for the current quarter because its still highlights our revenue growth trends I'll point out two things on this slide.
First that each quarter of fiscal 2022 has been better sequentially improving the third quarter was flat year over year. However, as mentioned there was an unusually large four megawatt shipments in the prior year third quarter.
Speaker 4: First, that each quarter of fiscal 2022 has been better sequentially improving. The third quarter was flat year over year. However, as mentioned, there's an unusually large four megawatt shipment in the prior year third quarter.
Second if you look at our last 12 months of revenue, we are still showing strong growth being up 17% compared to the same period the previous year.
Speaker 4: Second, if you look at our last 12 months of revenue, we are still showing strong growth, being up 17 percent compared to the same period the previous year. I'll now turn the call over to Eric to discuss the details of our financial results for the most recent quarter.
I'll now turn the call over to Eric to discuss the details of our financial results for.
For the most recent quarter.
Speaker 5: I'll now review in more detail our finished results for the third quarter of fiscal 2022.
Thanks, Darren ill now review in more detail our financial results for the third quarter of fiscal 2022.
Turning to slide 11.
Speaker 5: see the financial results for the third quarter of fiscal 2022, which had revenue at 20.6 million compared to 20.7 million in the third quarter of fiscal 2021.
You'll see the financial results for the third quarter of fiscal 2022.
Revenue at $20 6 million compared to $20 7 million in the third quarter of fiscal 2021.
Speaker 5: Product and accessories revenue was $12.3 million, down 4% from $12.8 million in the third quarter of fiscal 2021.
Product and accessories revenue was $12 3 million.
Down 4% from $12 8 million in the third quarter of fiscal 2021.
Speaker 5: Parts and service revenue, which includes our FPP long-term service contracts, rentals, and distributor support subscription fee was $8.
Parts and service revenue, which includes our FPP long term service contracts rental and distributor support subscription fee was $8 3 million up 5%.
Speaker 5: 7.9 million in the third quarter of fiscal 2021, primarily due to an increase in rental revenue.
From $7 9 million in the third quarter of fiscal 2021.
Due to an increase in rental revenue.
Speaker 5: Gross margin as a percentage of revenue was 11%, down from 17%.
Gross margin as a percentage of revenue was 11% down.
Down from 17% in the year ago period.
Speaker 5: primarily due to overhead expenses being lower in the prior year due to our COVID-19 business continuity plan.
Primarily due to overhead expenses being lower than the prior year due to our COVID-19 business business continuity plan, where.
Speaker 5: where we implemented cost savings measures such as furloughs, pay cuts, and travel restrictions.
Where we implemented cost savings measures such as furloughs pay cuts and travel restrictions among other things.
Speaker 5: While most cost-saving measures were removed as of September 28, 2020,
On the most cost saving measures were removed as of September 28, 2020.
Speaker 5: Cost savings were still maintained during the third quarter of the prior year.
Cost savings were still maintained during the third quarter of the prior year.
Speaker 5: Additionally, we have started to see cost pressures on our component parts, as well as from the supply chain, including freight costs.
Additionally, we have started to see cost pressures on a component parts as well in terms of the supply chain, including freight costs.
Total operating expenses increased $2 5 million to $6 1 million from $5 6 million in the year ago period.
Speaker 5: Total operating expenses increased $0.5 million to $6.1 million from $5.6 million in the year-ago period. Selling costs were higher by $0.5 million.
Selling costs were higher by $3 million as we continue to build the direct solution sales team.
Speaker 5: We had a bad debt recovery of 0.2 million in the prior year quarter.
And we had a bad debt recovery of $2 million in the prior year quarter.
Speaker 5: That loss was 5.1 million for the quarter compared to a net loss of 7.6 million in the third quarter of fiscal 2021.
Net loss was $5 1 million for the quarter compared to a net loss of $7 6 million in the third quarter of fiscal 2021.
Speaker 5: adjusted EBITDA with negative 3 million compared to adjusted EBITDA of negative 1.3 million in the third quarter of fiscal 2021.
Adjusted EBITDA was negative $3 million compared to adjusted EBITDA of negative $1 3 million in the third quarter of fiscal 2021.
Speaker 5: Again, the third quarter of fiscal 2021 benefited from the COVID-19 Business Continuity Plan expense reductions.
Again, the third quarter of fiscal 2021 benefited from the COVID-19 business continuity plan expense reductions.
Turning to slide 12.
You will see the financial results for the nine months ended December 31 2021.
Speaker 5: You'll see the financial results for the nine months ended December 31st, 2021.
Speaker 5: which had revenue at $53.9 million, up 8% compared to $49.8 million in the first nine months of fiscal 2021.
Which had revenue at $53 9 million.
Up 8% compared to $49 8 million in the first nine months of fiscal 2021.
Speaker 5: prior year period was more heavily impacted by COVID-19 project.
The prior year period was more heavily impacted by COVID-19 project delays.
Speaker 5: Project and accessories revenue was 29.2 million up 10% from 26.6 million in the first nine months of fiscal 2021.
Product and accessories revenue was $29 2 million up 10% from $26 6 million in the first nine months of fiscal 2021.
Speaker 5: Parks and Service Revenue was $24.7 million, up 6% from $23.2 million in the first...
Our parts and service revenue was $24 7 million up 6%.
From $23 2 million in the first nine months of fiscal 2021.
Speaker 5: Gross margin as a percentage of revenue was 14%.
Gross margin as a percentage of revenue was 14%.
Speaker 5: down from 19% in the year ago period, primarily due to lower expenses in the prior year due to our COVID-19.
Down from 19% in the year ago period, primarily due to lower expenses in the prior year.
Due to our COVID-19 business continuity plan.
Speaker 5: Total operating expenses increased $4.8 million to $19.7 million from $14.9 million.
Total operating expenses increased $4 8 million to $19 7 million from.
From $14 9 million in the year ago period.
Speaker 5: Again, costs were lower in the prior year due to our COVID-19.
Again costs were lower than the prior year due to our COVID-19 business continuity plan.
Speaker 5: Additionally, we had a 0.8 million employment-related legal settlement in the second quarter of fiscal.
Additionally, we had $1 8 million of employment related legal settlement in the second quarter of fiscal 2022.
Speaker 5: That loss was $13.3 million for the nine months ended December 31st, 2021, compared to a net loss of $13.6 million in the prior year period.
Net loss was $13 3 million for the nine months ended December 31, 2021, compared to a net loss of $13 6 million in the prior year period.
Speaker 5: decrease in net loss was primarily due to a $4.3 million loss on debt extinguishment related to the refinancing of our term note in the prior year.
The decrease in net loss was primarily due to a $4 $3 million loss on debt extinguishment related to the refinancing of our term note in the prior year.
Speaker 5: $2.6 million of income related to the forgiveness of our PPP loan this year, partially offset
And $2 6 million of income related to the forgiveness of our PPP loan this year, partially offset by the increase in expenses just discussed.
Adjusted EBITDA was negative $8 1 million compared to adjusted EBITDA of negative $3 1 million in the prior year.
Speaker 5: adjusted EBITDA with negative 8.1 million compared to adjusted EBITDA of negative 3.1 million in the prior year.
Speaker 5: prior year period benefited from expense reductions from the COVID-19 Business Continuity Plan, which was partially offset by higher revenue.
The prior year period benefited from expense reductions from the COVID-19 business continuity plan, which was partially offset by higher revenue.
Turning to slide 13.
You will see select balance sheet and cash flow items.
Speaker 5: Cash decreased $7 million to $31.3 million, compared to $38.3 million at September 30, 2021.
Cash decreased $7 million to $31 3 million compared to $38 3 million at September 32021.
Speaker 5: Cash used in operating activities was $3.6 million for the quarter. The cash use was primarily driven by our net loss, which was partially offset by cash generated from working capital changes, driven by an increase in accounts receivable collections, and continued management of both inventory and
Cash used in operating activities was $3 6 million for the quarter the.
The cash used was primarily driven by our net loss, which was partially offset by cash generated from working capital changes driven.
Driven by an increase in accounts receivable collections and continued management of both inventory and accounts payable.
On slide 14.
We want to continue to highlight the impact of the rental fleet.
Speaker 5: This slide shows both revenue and margin over a five-year period for a C1000 product sale with spare part sales.
This slide shows both revenue and margin over a five year period for a <unk> product sale with spare parts sales.
Speaker 5: C1000 product sale with an FPP contract and the C1000 rental.
1000 product sale within FPP contracts and the C 1000 rental.
Speaker 5: Over that five-year period, a C1000 product sale with spare parts can generate approximately $1 million of revenue with approximately $200,000 in margin with a 20% margin.
Over that five year period, you can see 1000 product sale of spare parts and generate approximately $1 million of revenue with approximately $200000 of margin.
With a 20% margin as a percentage of revenue.
Speaker 5: B1000 product sale with an FEP contract can generate approximately 1.2 million of revenue.
B 1000 product sale with an FPP contract can generate approximately $1 $2 million of revenue.
Speaker 5: approximately $300,000 of margin with a 25% margin as a percentage of revenue.
Approximately $300000 of margin with a 25% margin as a percentage of revenue.
Speaker 5: C-1000 rental can generate approximately $1.8 million of revenue and approximately $1.1 million of margin.
But the C 1000 rental can generate approximately $1 $8 million of revenue and approximately $1 $1 million of margin.
With a 60% margin as a percentage of revenue.
Speaker 5: the numbers speak for themselves here to illustrate why we've been building our rental fleet and why it is one of our key strategic goals for the year.
We think the numbers speak for themselves here to illustrate why we have been building our rental fleet and why it is one of our key strategic goals for the year.
On slide 15.
Speaker 5: Wanted to show the impact of growing the rental fleet to 21.1 megawatts, which we expect to do by
I wanted to show the impact of growing the rental fleet to $21 one megawatts.
Which we expect to do by March 31, 2022.
Speaker 5: While we have continued to sign rental contracts, because of the timing of shipments, commissioning, payment,
While we have continued to sign rental contracts because of the timing of shipments commissioning payments and revenue recognition.
Speaker 5: We have not yet seen a quarter with a full 21 megawatts of rental revenue.
We have not yet seen a quarter with a full 21 megawatts of rental revenue.
This slide highlights our actual last 12 months of rental revenue and margins.
Speaker 5: This slide highlights our actual last 12 months of rental revenue and margins.
Speaker 5: We've created an as-if scenario where we assume we have a 21 megawatt rental fleet with a 90% utilization...
And we created an adverse scenario, where we assume we have 21 megawatt rental fleet with a 90% utilization rate.
As a reminder, we have publicly stated we expect to be at 21 megawatts by the end of our fiscal year.
Speaker 5: As a reminder, we have publicly stated we expect to be at 21 megawatts by the end of our fiscal year.
Speaker 5: As you can see, at 21 megawatts with a 90% utilization rate, the ASDA scenario is significantly higher than the last 12 months.
Which is in two months March 31, 2022, as you can see at 21 megawatts with a 90% utilization rate.
This scenario is significantly higher than the last 12 months.
Speaker 5: We hope this chart helps illustrate the impact we expect the Rent-A-Fleet to have on our future results. At this point, thank you.
I Hope this chart helps illustrate the impact we expect our rental fleet to have on our future results.
At this point I will turn the call back to Dan.
Speaker 4: Thank you, Eric. I think you can see from Eric's presentation that top-line revenue growth and increased profitability from our energy as a service business model and recurring revenue is where our focus is. As we continue our transformation to capstone green energy, we expect to realize higher growth levels and higher margin rates.
Thank you Eric.
I think you can see from Eric's presentation that topline revenue growth and increased profitability from our energy as a service business model of recurring revenue is where our focus is as we continue our transformation to capstone Green energy.
<unk> realized higher growth levels and higher margin rates.
Turning to slide 17.
Speaker 4: By 17 summarizes how we think about the parts of our business and the potential growth rate.
Slide 17 summarizes how we think about the parts of our business and the potential growth rates. The first image highlights our traditional global distributor business that is relatively mature at this juncture and we expect to grow at a lower rate than the other newer portions of our business, we expect our energy as a service or Eas business to expand rather quickly.
Speaker 4: The first image highlights our traditional global distributor business that has relatively matured at this juncture, and we expect to grow at a lower rate than the other newer portions of our business.
Speaker 4: We expect our Energy as a Service, or EAS, business to expand rather quickly as we build up the long-term rental fleet, and as Eric pointed out, what we are targeting as a key driver to sustain profitability and positive cash flows. Our new Capstone Direct Solution sales team that is focused on large customer rollouts and our new expanded microgrid product offerings we view as having high growth potential as well, as most countries are similar to the U.S. and want to build back greener after the pandemic.
As we build out the long term rental fleet and as Eric pointed out what we're targeting is a key driver to sustained profitability and positive cash flows our new capstone direct solution sales team that is focused on large customer rollouts and our new expanded microgrid product offerings, we view as having high growth potential as well as most countries.
These are similar to the U S and want to build back greener after the pandemic.
Speaker 4: Lastly, we view our strategic M&A initiative as having high potential growth and it could help us grow our portfolio of products and services and leverage our underutilized manufacturing facilities both here in the U.S. and in the U.K. We are not just talking about M&A here. We're open to strategic partnerships, joint ventures, and other related strategic opportunities.
Lastly, we view, our strategic M&A initiative, as having high potential growth and it could help us grow our portfolio of products and services and leverage our underutilized manufacturing facilities. Both here in the U S and the UK.
We are not just talking about M&A here, we are open to strategic partnerships joint ventures, and other related strategic opportunities.
Turning to slide 18.
Speaker 4: Slide 18 sets out some of the business catalysts I expect for Capstone Green Energy. I'll not run through every line item on the page, but want to highlight some key points. First of all, when we transformed to Capstone Green Energy and added the various new products discussed today in our portfolio, we significantly grew our total addressable market, or our TAM.
Slide 18 sets out some of the business catalysts I expect for Capstone Green energy I will not run through every line item on the page, but wanted to highlight some key points.
First of all when we transformed the capstone Green energy and added the various new products discussed today in our portfolio, we significantly grew our total addressable market or Tam.
Speaker 4: We essentially can talk to almost any customer worldwide and have a solution today.
We essentially can talk to almost any customer worldwide and have a solution today.
Speaker 4: We are encouraged by the first solar and battery storage orders received in the quarter. We discussed the rental business in detail earlier, but once again, I want to stress the importance of the rental business and the rental business growth. We believe that because of their high margins and long-term nature, rentals are our fastest and most direct path to a consistent, positive EBITDA. Getting to 21 megawatts is going to be a huge milestone for Capstone.
We are encouraged by the first solar and battery storage orders received in the quarter.
We discuss the rental business in detail earlier, but once again I want to stress the importance of the rental business in the rental business growth, we believe that because of their high margins and long term nature rentals, our fastest and most direct path to a consistent positive EBITDA given the 21 megawatts is going to be a huge milestone for capstone.
Speaker 4: Direct Solution Sales Team has generated a very nice pipeline of projects, and we're excited to see some of those close in this last quarter of fiscal 2022. Lastly, we have discussed it on a prior calls, but I wanted to highlight again that we dedicated one of our senior executive team members strictly to strategic opportunities, obviously, including M&A.
Direct solution sales team has generated a very nice pipeline of projects and we're excited to see some of those close in this last quarter of fiscal 2022.
Lastly, we have discussed on our prior calls, but I wanted to highlight again that we dedicated one of our senior executive team members strictly to strategic opportunities, obviously, including M&A.
Speaker 4: With that, I'd love to take any questions from our analysts. Operator, let's open up the call.
With that I'll take any questions from our analysts operator, let's open up the call.
Speaker 1: Absolutely, thank you. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, please press star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.
Absolutely. Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please press star one on your touched on phone pressing star two or moving from the Q should your question to be answered and lastly, while posing your question. Please pickup your handset listing on speaker phone to provide optimal sound quality.
Please hold while we poll for questions.
Speaker 1: My first question is coming from Amit Dayal from HC GreenWright. Your line is live.
And the first question is coming from Amit Dayal from H C Green right. Your line is live.
Speaker 6: Thank you. Good afternoon everyone. Darren, just good, good, good to be there. On the gross margin front, I understand the year-over-year comps may not be as favorable because of the cost cuts that you undertook at that time. But sequentially, you were lower as well. Is there any other driver over here that is keeping margins?
Thank you good afternoon, everyone.
And then just.
Thank you Jeremy.
On the gross margin front.
I understand the year over year comps.
Against the ruble because of the cost cuts that you undertook at that time.
Sequentially were lower as well.
Are there any other drivers that is keeping margins.
Speaker 6: lower and you know what outlook can you provide on this front in terms of a potential bounce back or any improvements going forward.
Lower.
Look.
Outlook can you provide on this front in terms of a potential bounce back.
The improvements going forward.
Speaker 4: Yeah, definitely. There's some other drivers. I'll let Eric jump on this question, especially when it comes to outlooks. Hi, I'm at.
Yes, definitely there is some other drivers I'll, let Eric jump on this question, especially when it comes to the outlooks.
Hi, Amit.
Yes.
Speaker 5: I won't give an outlook, you know, we don't give guidance, but I will, you know, speak to some of the drivers that are making a decrease over the first and second quarter. So first is the cost pressures on parts I mentioned.
I won't give an outlook, we don't give guidance.
But I will.
I'll speak to some of the drivers that are making a decrease over the first and second quarter.
First is the cost pressures on parts I mentioned.
Speaker 5: So we did see costs rise in Q1 and Q2, but not materially, like we did in Q3. Year over year.
So we did see costs rise in Q1, and Q2, but not materially like we did in Q3.
Year over year.
Also had some.
Speaker 5: less discounting this year that kind of offset that. So the contribution margin percentage from product actually is the same this quarter versus last quarter prior year. Additionally, you see
Less discounting this year that kind of offset that so the contribution margin percentage from from product actually the same this quarter versus last quarter prior year.
Additionally, you see.
We sell numerous parts and accessories.
Speaker 5: And depending on which parts and scissors they are, on the given mix, they also could drive margin lower.
And depending on which parts of the system as they are on the given mix. They also could drive margin lower.
Speaker 5: So first, cost pressures, second, mix.
So first cost pressures.
<unk>.
Mix.
Speaker 5: And then third is really free costs and other supply chain related costs.
And then third is really.
Freight costs and other supply chain related cost.
Speaker 4: Yeah, I guess I'd add the myth that, you know, definitely with with COVID related supply chain issues, we are seeing some
Yes, I guess I would add.
Definitely with Covid related supply chain issues, we are seeing some challenges we are instituting a price increase on product and on our service contracts.
Speaker 4: We are instituting a price increase on product and on our service contracts effective in May.
Speaker 4: This quarter was a little bit abnormal, though, as Eric said, so I would expect a rebound. But things could be choppy for a couple quarters on margin. But I think as we get into the next fiscal year, we should see things normalize. And margins should increase quarter over quarter as we continue to ship rentals.
<unk> in May.
This quarter was a little bit abnormal, though as Eric said.
So I would expect a rebound, but things could be choppy for a couple of quarters on margin, but I think as we get into the next fiscal year, we should see things normalize and margins should increase quarter over quarter as we continue to ship rentals.
Speaker 4: As Eric pointed out, rentals are our fastest, most direct path to profitability.
As Eric pointed out rentals, our fastest most direct path to profitability, 60% margin reoccurring revenue. So that is our number one focus number two focus obviously the direct sales force as we want to continue to get larger projects and larger rollouts of big customers to drive that top line and start seeing additional revenue.
Speaker 4: 60% margin, reoccurring revenue, so that is our number one focus.
Speaker 4: Number two focus obviously is the direct sales for us as we want to continue to get larger projects and larger rollouts of big customers and drive that top line and start seeing additional revenue from the new product lines like we started to see last quarter. So definitely I think a little bit of an anomaly on the margin this quarter, but I would caution it's going to be a little bit choppy just because some of the supply chain challenges, which are real. Both freight and material costs have been very challenging the last couple quarters. Understood. Thank you for that.
The new product lines like we started to see last quarter.
So definitely I think a little bit of anomaly on the margin this quarter, but I would caution that it can be a little bit choppy just because some of the supply chain challenges, which are real both both freight and material costs have been very.
Challenging the last couple of quarters.
Understood. Thank you for that.
Sure.
Speaker 6: In the press release, you highlighted some accounts receivables issues you might have been facing in November , December .
In the press release you highlighted.
Some.
Accounts receivables issues, you might've been facing in November December .
Speaker 6: pandemic was sort of surging again, have those issues been resolved and were those tied mostly to you know at the distributor level or were they associated with the rentals business?
But I think we're starting to the synergy again.
Have those issues.
Solved in windows tied mostly to the.
The distributor level.
Associated with the Windows business.
Speaker 4: Yeah, no, they're not. We haven't had any issues with the rental business. The good thing about rental business is somebody doesn't pay for the unit, you can pick it up. So we're pretty good in that case. What we found is, is when the initial initial pandemic hits, a lot of customers, projects stalled or even stopped. And so a lot of our distributors had stuck units that you know, basically, we're going to a project where the construction effort had had
Yes, no there's not.
We haven't had any issues with the rental business. The good thing about rental business if somebody doesn't pay for the unit you can pick it up so we're pretty good in that case.
We have found is when the nutrition initial pandemic hits a lot of customers.
Rejects stalled or even stopped and so a lot of our distributors had stuck units that basically were going into a project where the construction effort had ceased because of the pandemic and so they were not getting there their progress payments and the cash flow was interrupted that got better.
Speaker 4: because of the pandemic and so they were not getting their, you know, their progress payments and the cash flow was interrupted. That got better. The nominee came and hit him again. So I think that it's something that is improving. We think the next couple quarters will continue to improve. If you look at our...
Omni crop came in and hit them again, so I think that it's something that is improving we think the next couple of quarters will continue to improve if you look at our.
Speaker 4: DSO over the last couple quarters, it's been coming down, but we're still not back to pre pandemic levels, which is the kind of mid 80 days on DSO. I do think that's something again that we'll see improve over the next couple quarters. We work it very hard.
DSO over the last couple of quarters, it's been coming down, but we're still not back to pre pandemic levels, which is the kind of mid 80 days on DSO do you think that's something again that we will see improve over the next couple of quarters. We worked at very hard, but obviously, we want to be sensitive to our distributors challenges and everybody is dealing with COVID-19 obviously.
Speaker 4: But obviously, we want to be sensitive to our distributors' challenges and everybody's dealing with COVID.
Speaker 4: Obviously, it's different depending on where you are in the world or even the United States, but it's still creating some headwinds. I'm hopeful that this summer we'll really get past this and start hitting it all cylinders.
Depending on where you are in the world or even in the United States, but it is still creating some headwinds, but I am hopeful that this summer.
Really get past this and start hitting on all cylinders.
Speaker 5: I guess I'll quickly add, Q1 and Q2, we were roughly around 135 days DSO and we brought that down to 119 days for the December quarter.
I guess I'll quickly add Q1 and Q2, we are roughly around 135 days DSO and we brought that down to 119 days for the December quarter.
We expect that to go down again in Q4.
Speaker 6: Okay, okay. Thank you. Thank you for that. This one, last one from me.
Okay. Okay. Thank you. Thank you for that just one last one from me.
Speaker 6: Dan, can you talk about sort of the opportunity pipeline? I know the book-to-bill was down a little bit compared to the prior periods, and that's probably also because of, you know, this pandemic-related issue.
Darren can you talk about sort of the opportunity pipeline I know the book to Bill was down a little bit compared to the prior periods.
Probably also because of these pandemic related issues.
Speaker 6: Has that started improving for you and what is in the pipeline now that you have different drivers, including solar and storage and the Baker Hughes partnership? Can you just give us some color on what sort of that looks like right now?
Is that starting to improving for you.
What is in the pipeline now that you have.
Current drivers, including solar and storage in the <unk> partnership can you just give us some color on what some of the it looks like right now.
Speaker 4: Yeah, no, definitely the book to build. So I want to talk to because I think normally we tout that is something that is an indicator of future quarters revenue this quarter. We had a couple big projects or big orders that literally didn't get in because the folks at our sugar ships got COVID and they came in early in January and I think one or both those projects in press release in January . And so I think our bookings through the first five months of the quarter, about 4.6 million. So we're close to equal the last quarter. So I think that gives you an idea of what last quarter should look like.
Yes, no definitely the book to Bill So I want to talk to because I think normally we tout that as something that is an indicator of future quarters revenue. This quarter. We had a couple of big projects Big projects Big orders that literally didn't get in because the folks at our distributor ships got COVID-19 .
Came in early in January and I think one or both of those projects has been press released in January .
So I think our bookings through the first five months of the quarter or about $4 6 million. So we're close to equal to last quarter.
So I think that give you an idea of what last quarter should look like.
Speaker 4: We got several nice orders pending, generally.
Got several nice orders pending.
Generally I think most parts of the world are seeing a positive outlook for this new year.
Speaker 4: Most parts of the world are seeing a positive outlook to this new year. As you said, it's adding the new product line.
As you said it adding the new product lines.
Speaker 4: definitely increases our, you know, total pipeline.
Definitely increases our total pipeline.
Speaker 4: And so our distributor pipeline is approximately $1.3 billion, but our direct sales pipeline is now up to, you know, $300 million, $400 million. So we're definitely adding to that top line pipeline and should see some more growth. Baker Hughes, we're very excited about that relationship. Unfortunately, we're going over to Florence in January and that got canceled for strategic meetings with Baker Hughes.
And so our distributor pipeline is approximately $1 3 billion.
But our direct sales pipeline is now up to $300 million and $400 million. So we're definitely adding to that top line pipeline that should see some more growth Baker Hughes, we're very excited about that relationship. Unfortunately, we're going over to Florence in January that got canceled for strategic meetings with with Baker Hughes.
Speaker 4: But we've got about 15 projects pending. We're contemplating putting one of their LT5s, 5 megawatt machines in our rental fleet. So definitely that's a.
But we've got about 15 projects pending.
We're contemplating putting one of their LTE five five megawatt machines in our rental fleet to definitely that's a relationship we want to continue to grow and think that there is a.
Speaker 4: a relationship we want to continue to grow and think that there's a win-win relationship going forward.
A win win relationship going forward with Baker Hughes.
Speaker 6: Understood. Thank you. Thank you guys. That's all I have. Thank you. Thanks a minute. Have a good afternoon
Understood. Thank you that's all I have thank you, thanks, Amit and good afternoon.
Speaker 1: Once again, if there are any remaining questions or comments, please indicate so by pressing star 1. The next question is coming from Rob Brown from Lake Street Capital. Your line is live.
Once again, if there are any remaining questions or comments. Please indicate so by pressing star one. The next question is coming from Rob Brown from Lake Street Capital. Your line is live.
Good afternoon.
Speaker 3: Just on the Solar and Baddy product line, how is the demand curve you're seeing there and the market uptake?
Just on the solar and battery product lines, how is the demand curve youre seeing there.
Mark about taken I guess some of the drivers of that.
Product line orders.
Speaker 4: Yeah, so we saw in the quarter our first two orders. One was a dairy, and the other one is in the Caribbean. One was battery storage only, and one was battery storage in our new Global Arrays solar photovoltaic panels. So we were generating a pipeline. Obviously, it's a bit of a new business for us, and so we're having to, one, find the strategic partners, which we've now done with Core Batteries, NRI, and then Global Arrays. But more importantly, we've got to train our sales folks.
Yes, so we saw in the quarter. Our first two orders one was the <unk>.
Gary.
And the other one is in the Caribbean, one was battery storage only and what was battery storage and our new global risk solar photovoltaic panels.
So we were generating a pipeline obviously, it's a bit of a new business for us and so we're having to one find the strategic partners, which we've now done.
With core batteries, NRI and global risk, but more importantly, we've got to train our sales folks we've got to train our application engineers, you've got to train our distributors folks and so were.
Speaker 4: We've got to train our application engineers. We've got to train our distributors folks. And so we're in process of doing that. We're in process of updating all of our documentation, our product brochures, our specifications.
The process of doing that were in process of updating all of our documentation or product pushers are specification sheets.
Speaker 4: So it's a little bit of a curve to get up, but I think definitely the first place we'll go is any customer that's got a CHP installation with a micro-turbo to see if we can add battery storage or solar or both.
It's a little bit of a curve to get up but I think definitely the first place. We'll go is any customer that it's got a CHP installation with the micro turbine to see if we can add battery storage or solar or both and then obviously there is opportunities for battery storage and solar in multiple markets.
Speaker 4: And then obviously there's opportunities for battery storage and solar in multiple markets.
Speaker 4: that will kind of lead with battery storage and solar, and then see if we can also sell them a microturbine along the way. So very, very excited about that. We've got some interesting other ideas and some other ways we think we can go to market. But I think in general with, you know, 10,000 microturbines shipped worldwide, starting with existing customer base is a great place to start. But there's some very unique markets.
We will kind of lead with battery storage and solar and then see if we can also sell micro turbine along the way.
So it's a very very excited about that we've got some some interesting other ideas and some of the ways. We think we can go to market, but I think in general with 10000 micro turbines shipped worldwide starting with the existing customer base is a great place to start but there are some very unique markets, especially.
Speaker 4: in the CNI market where the products we have we think have a very unique competitive fit.
In the C&I market, where the products. We have we think have a very unique competitive fit.
Speaker 7: Great, great review. And then on the rental business, you make great progress and you're closing in on the goal. But, you know, how is that pipeline kind of compared to the goal? And, and, you know, what's sort of the thoughts I'm going.
Okay, great great overview.
And then on the rental business, you've made great progress Youre closing down the goal but.
How is that pipeline kind of compare to the call and whats sort of the thoughts on going beyond that.
Yes.
Speaker 4: Yeah, as we said, we got from 13 megawatts to over 17 megawatts in the quarter, which is great. We signed our biggest rental to date, which is four megawatts at a site in Pittsburgh, which is an oil and gas site where they're using the associated gas to run Bitcoin mining operations.
Yes, as we said we got from 13 megawatts over 17 megawatts in the quarter, which is great. We signed our biggest rental to date, which is four megawatts at a.
Site in Pittsburgh.
Which is oil and gas site, where they're using the associated gas to run bitcoin mining operations.
Speaker 4: That site should expand in the summer probably by at least another megawatt, maybe two We've got multiple other Bitcoin miners out there that we've got quoted
At site should expand in the summer probably by at least another megawatt maybe too we've got multiple other bitcoin miners out there that we've got quoted our machines can be set up and running in different voltages and frequencies and while these bitcoin matters are coming over from <unk>.
Speaker 4: Our machines can be set up and running at different voltages and frequencies, and a lot of these Bitcoin miners are coming over from China, so that's a good fit for them.
China, So thats a good fit for US obviously, if we can run on associated gas that you were just be flaring, that's a great cheap operation a cheap way to create that energy. So that's very exciting we see a lot of interest in the cannabis space as well.
Speaker 4: Obviously, if you can run on associated gas that you would just be flaring, that's a great cheap operation and cheap way to create that energy, so that's very exciting. We see a lot of interest in the cannabis space as well. Oil and gas continues to be a good rental market for us.
Oil and gas continues to be a good rental market for us we're doing a hotel down in Jamaica, which has got 27 different properties. So we're looking to expand.
Speaker 4: We're doing a hotel down in Jamaica, which has got 27 different properties, so we're looking to expand there. I think the Caribbean in general is a good rental opportunity.
There I think the Caribbean in general is a good <unk>.
Rental opportunity market.
Speaker 4: So we've got plenty of rentals. We're starting, everything we've done to date has been US. We just recently got an order in Mali. We're looking at stuff down in Latin America and Columbia, some stuff in Europe and so Middle East as well. So I think as we take the rental fleet international as well as continue to penetrate these markets, we'll get well beyond 21 megawatts.
So we've got.
Plenty of rentals were starting to everything we've done to date has been U S. We just recently got an order in Mali.
Looking at stuff down in Latin America, and Colombia.
Some stuff in Europe , and so middle East as well and so I think as we take the rental fleet international as well as continuing to penetrate these markets, we will get well beyond 'twenty. One megawatts. Obviously, we don't want to stop at 21 megawatts, we want to keep growing that business and so we've got a board meeting next week and Thats, probably the most important topic is.
Speaker 4: Obviously, we don't want to stop at 21 megawatts. We want to keep growing that business. And so we've got a board meeting next week, and that's probably the most important topic is continued funding of that global rental.
Continued funding of that global rental fleet.
Speaker 7: Okay, great. And just a little bit on the back to the cost issues that you're seeing, are you, you know, what sort of your, your exposure to price kind of expense costs on parts? And I guess, where's the.
Okay, Okay, great and just a little bit on the back of the cost issues that youre seeing are you.
What's sort of your exposure to price kind of.
Expense costs on parts.
And I guess, where is the freight issues come in is that sort of the free concert can you negotiate that into the into the new contract. So it takes a couple of quarters just wanted to get some clarity on yes.
Speaker 4: Yeah, that's a great question. So freight has gone up substantially, and times the shift has gone up as well. So that's leading to some higher inventory levels. We're having to adjust our lead times and bring more spare parts in or additional safety.
Yes.
That's great great questions. So, yes freight has gone up substantially and times. The ship has gone up as well so thats leading to some higher inventory levels you have to adjust our lead times and bring more spare parts in there.
Additional safety stock.
Speaker 4: We're seeing it across, you know, all types of metals, you know, from sheet metal to stainless steels, nickel, alloys. We're seeing it in wood. We're seeing it in copper. Virtually, you know, everything we look at is going in the wrong direction right now from a commodity standpoint. We've got LTAs in place with most of our major vendors, which protect us, you know, a little bit. But that's something that obviously, you know, we're going to have to address. And where we can.
We're seeing it across all types of metals.
From sheet metal to seeing the steel nickel alloys, we're seeing it in wood were seeing it in copper.
Virtually everything we look at is going the wrong direction right now from a commodity standpoint, we've got LTA is in place with most of our major vendors, which protect us.
<unk>.
But that's something that obviously, we're going to have to address.
And where we can we're trying to bring.
Speaker 4: extra vendors on make sure we create competition. But it's something we need to work through. And I think, you know, the price increase we're putting in place
Extra vendors on and make sure we create competition.
But it's something we need to work through and I think the price increase we are putting in place.
Speaker 4: May 1st on product is you know between seven to ten percent in most cases and then a five percent increase on service contracts And so it's you know something that's going to be here for a while I think the big issue is just making sure we can manage it and the Kirk and his commodity team Can keep parts flowing at a reasonable price?
First on product.
Between 7% to 10% in most cases, and then a 5% increase on service contracts and so it's something that's going to be here for a while I think the big issue is just making sure we can manage it in the Kirk and his commodity team.
Key parts flowing at a reasonable price.
Speaker 4: The good news is as we develop more rentals, at 60% margin we can take a little bit of rental unit cost increase and still have very nice margins. But it's definitely, if you say what keeps you up at night right now, it would definitely be commodity, both pricing and availability, and then the additional growth of our rental fleet are things we gotta figure out and manage in the next couple quarters.
The good news is as we develop more rentals at 60% margin, we can take a little bit of <unk>.
Rental unit cost increase and still have very nice margins, but definitely if you say what keeps you up at night right now.
It would definitely be commodity both pricing and availability and then.
The additional growth of our rental fleet or is it things, we got to figure out and manage the next couple of quarters.
Okay, great. Thank you I'll turn it over.
Thanks, Rob great questions.
Speaker 1: Okay, if there are any final questions, please indicate so now by pressing star 1 on your touch tone.
Okay. If there are any final questions. Please indicate so now by pressing star one on your Touchtone phone.
Speaker 1: All right, looks like we have no further questions in queue. I'd like to turn the floor back to Darren Jamieson for a closing remark.
Alright, it looks like we have no further questions in queue I'd like to turn the floor back to Darren Jamison for closing remarks. Thank you operator.
Speaker 4: Thank you, operator. Mitt and Rob, great questions. Thank you. You covered most of the things I want to talk about in my closing remarks.
Mitten, Rob Great question. Thank you recovered most of the things I want to talk about in my closing remarks, I guess, just most importantly kind of a summary, what should investors be looking for in the upcoming March quarter.
Speaker 4: I guess just most importantly, kind of a summary, what should investors be looking for in the upcoming March quarter? You should be looking for the new 30% hydrogen announcement.
You should be looking for the new 30% hydrogen announcement, you should be looking for to get the 21 megawatts on our rentals.
Speaker 4: You should be looking for us to get the 21 megawatts on our rentals.
Speaker 4: You should hopefully see more of our battery storage and solar PV projects getting awarded.
You should hopefully see more of our battery storage and solar PV projects getting awarded.
Speaker 4: You should hope to see some wins out of our direct sales organization and hopefully some bigger wins and some bigger customers.
You should hope to see some wins out of our direct sales organization.
And hopefully some some bigger wins into bigger customers I think slide 15 that Erik showed today was key as rentals rentals rentals, if I was.
Speaker 4: I think slide 15 that Eric showed today was key is just, you know, rentals, rentals, rentals. If I was a shareholder and that would be my number one thing I'd be monitoring with Capstone is how fast can you deploy those rentals, how fast can you get the EBITDA positive and how fast can you generate recurring revenue with high margins. And so to me getting Capstone...
A shareholder in my number one thing I'd be monitoring with Capstone is how fast can you deploy those rentals, how fast you can get to EBITDA positive and how fast can you generate recurring revenue with high margins and so.
To me getting capstone EBITDA positive and cash flow positive with solid margins has been our goal for years into the team that and do it on a reoccurring basis is absolutely the goal and we can't get there fast enough. So look forward to talking to everybody after the March quarter.
Speaker 4: EBITDA positive and cash flow positive with solid margins has been our goal for years and to attain that and do it on a recurring basis is absolutely the goal and we can't get there fast.
Speaker 4: So look forward to talking to everybody after the March quarter, which is our fiscal year end and hope everybody stays safe.
Our fiscal year end and hope everybody stays safe. Thank you.
Speaker 1: 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. Thank you for your participation.
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. Thank you for your participation.
Yes.
Yes.