Capstone Green Energy Corporation

Good day, ladies and gentlemen, and welcome to your Capstone Green Energy Earnings Conference call and webcast for the financial results for the fourth quarter and full fiscal year 2021 ended on March 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 your host, Mr. Colby Peterson. Corporate Counsel, sir, the floor is yours.

Thank you very much. Good afternoon, and thank you for joining today's fiscal 2021 fourth quarter and full year 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. Today, Capstone Green Energy issued its earnings release for the fourth quarter and full year results for the fiscal 2021. 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, June 10, 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 provisions set forth on slide two 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 or implied by such statements. 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 our presentation's appendix. I would now like to turn the call over to Darren Jamieson, President and Chief Executive Officer.

Thank you, Colby. Good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full year fiscal 2021 results ending March 31st, 2021. Before getting into specific financial results, I'd like to review recent financial highlights from the fourth quarter and provide an update on our adjusted EBITDA improvement initiative. So let's go ahead and start with slide four. On slide four, we've outlined some of the financial highlights from the fourth quarter. I will not run through each item, but I would like to draw your attention to a couple of the more important events, beginning with revenue. Revenue is up nicely compared to last year's fourth quarter. Although last year was very tough with COVID-related issues, the growth is still significant with revenue of $17.9 million for the quarter, up from $11.6 million year over year. Our key metric of adjusted EBITDA, excluding executive bonus, was negative 1.9 million for the quarter compared to a negative 5 million in the same period the previous year. And we posted positive cash from operations of 5.1 million, including a 5 million legal settlement, compared to cash used in operations of 4 million in the fourth quarter last year. So that's a $9.1 million improvement year over year. So even without the settlement, we crossed over into positive cash from operations for the quarter. I know I've spoken about this frequently, but having a solid balance sheet is critical to executing our growth strategy and build business relationships with larger customers. I'm happy to say the cash increased to $49.5 million compared to $15.1 million at the end of last year. Moving on to slide five. Slide five shows the full year fiscal 2021. We generated positive $1.7 million cash from operating activities compared to a loss of 19.7 million last year. So we generated positive cash of 1.7 million versus a loss of 19.7 million last year. This is an extremely significant inflection point for Capstone and represents the most cash generated in company history. Revenue is down slightly, 2% year over year, despite the ongoing numerous external headwinds Adjusted EBITDA loss excluding executive bonus was only $4 million versus $13.2 million a year ago. Also not to be overlooked is the fact that we refinanced our Goldman Sachs three-year term note at a lower rate and also upsized it by $20 million, again adding flexibility to our balance sheet. Turning to slide six, the net result of our efforts is best shown on this slide. We achieved 92.5% of our stated adjusted EBITDA target. I know we have talked about this every quarter throughout fiscal 2021, but here we are finally with the results of all those efforts, despite the ongoing COVID issues that have lasted much longer than we originally anticipated. I am very proud of what we've accomplished in fiscal 2021. We need to discuss the future momentum we are carrying into fiscal 2022. As I have discussed, we have done an excellent job in cost cutting and efficiencies in the business. We are now laser focused on growing top line revenue as we exit COVID. Now let's go ahead and move on to slide seven. This is where the future begins with gross product bookings. In the fourth quarter, we reached 12.7 million, which despite legacy COVID impact was well above the fourth quarter last year and represents a very nice 40% growth over that period. for the prior quarter. Even if you look at it sequentially, we made solid progress of 21% from the third quarter. This shows the direction we are going, and although many of these things we have accomplished have been hidden by the impact of the pandemic and our ongoing vendor part quality issue. We are proud that we are and happy that we're coming out of COVID, and the gross product bookings is a leading indicator of better times ahead. I'll now turn the call over to Eric to provide more details on the solid fourth quarter financial results. Eric.

Thanks, Darren. I will now review in detail our financials for the fourth quarter of fiscal 2021, which will be found on slides 9 through 11. As a reminder, the company issued select preliminary fourth quarter results on April 12, 2021, and the results released today are consistent with those preliminary results. Starting on slide 9, you will see our fiscal fourth quarter 2021 results. compared to the fourth quarter of fiscal 2020. Quarter over quarter, we improved in every line item, starting with revenue, increasing $6.3 million, or 54%, up to $17.9 million from $11.6 million last year. Product and accessories, which is also our energy conversion products revenue, increased $5.9 million to $10 million, compared to $4.1 million in the prior year quarter. Parks and service revenue, which is also our energy as a service revenue, increased 0.4 million to 7.9 million compared to 7.5 million in the prior quarter. Revenue was up primarily due to the prior quarter being heavily impacted at the start of the COVID-19 pandemic with project delays and site shutdowns. Gross margin was negative 2.6 million or negative 14% of revenue compared to 0.5 million or 4% of revenue in the prior quarter. Our gross margin was negative in the quarter because of a $4.9 million reliability repair accrual for the replacement of remaining high-risk failure parts in some of our fielded units due to a former supplier part defect. Non-GAAP gross margin, which excludes depreciation and amortization, stock-based compensation expense, and the reliability repair accrual was $2.7 million, or 15% of revenue compared to 0.7 million or 6% of revenue in the prior quarter. The increase in non-GAAP gross margin was primarily due to improvement in our factory protection plan margins. Operating expenses were flat at 5.9 million compared to 6 million in the prior quarter. However, they were down 1 million if you exclude one-time legal costs and executive bonus expense that existed in the fourth quarter of fiscal 2021, but not in fiscal 20. That decrease was primarily due to continued savings extending from our COVID-19 business continuity plan. Net loss was $4.8 million compared to $6.9 million in the prior quarter. And adjusted EBITDA excluding executive bonus was negative $1.9 million compared to negative $5 million in the fourth quarter of fiscal 2020, an improvement of $3.1 million. Turning to slide 10. Slide 10 summarizes our full year fiscal 2021 results over fiscal 2020. 2021 was significantly impacted by COVID, as you know, and was a very tough year on every level. Despite this, we nearly kept full year revenue flat, coming in at $67.6 million versus $68.9 million last year. We feel this was quite an accomplishment given the environment. Gross margin was 6.9 million or 10% of revenue compared to 9 million or 13% of revenue in the prior year. Non gap gross margin was 12.8 million or 19% of revenue compared to 10.2 million or 15% of revenue in the prior year. The increase in non gap gross margin as a percentage of revenue was primarily due to improvement in our factory protection plan margins as well as overhead cost savings from our COVID-19 business continuity plan. Operating expenses decreased $5.1 million to $20.8 million compared to $25.9 million in the prior year. However, they decreased $6.6 million to $19.3 million if you exclude one-time legal costs related to the supplier settlement and executive bonus expense that existed in fiscal 2021 but not fiscal 2020. This decrease was primarily due to cost savings from our COVID-19 business continuity plan. Net loss was $18.4 million compared to $21.9 million in the prior year. And adjusted EBITDA, including executive bonus, was a loss of $4 million compared to a loss of $13.2 million in fiscal 2020, an improvement of $9.2 million. On slide 11, you can see our select balance sheet and cash flow items. The highlight here is cash and cash equivalents. As of March 31st, 2021, we had 49.5 million in cash on hand, up from 15.1 as of March 31st, 2020. You can also see we managed working capital well, with inventory decreasing to 13.7 million as of March 31st, 2021, down from 22.7 million as of March 31st, 2020. Cash is critical to our strategic flexibility. We made great strides in fiscal 2021. With that, I'll turn it back over to Darren. Thank you, Eric. Let's go and focus on slide 13.

Here we'll discuss the transition to capstone green energy and what that means. I know we reviewed this recently in our virtual press release on Earth Day, April 22nd, but I want to run through the highlights again. We now view our business in four key strategic business lines. Let's begin with energy as a service, or EAAS. This is critical to continuing our transition to more predictable cash flows and higher margin rates. This segment includes long-term rental contracts, long-term service contracts, or our factory protection plan, FVPs, installation services, traditional service, spare parts, leasing, power purchase agreements, and project financing. It also includes our innovative distributor DSS subscription fee program. The common denominators among this business are steady cash flows, high visibility, and improve margin rates. Next is our energy conversion technology, or ECT. This is the backbone on which Capstone was built, and it's based on Capstone's core microturbine technology that you're all familiar with and can operate on a wide range of fuels. These products produce high-efficiency CHP, CCHP, generating electricity and multiple forms of thermal energy. In addition, we have secured other key products to add to our offerings. First is the Baker Hughes turbine lineup, ranging from 5 megawatts to 16 megawatts. This gives us a solution for much higher power applications. This is important, as many of our target customers' loads are under 5 megawatts, but they also have other loads that are over 5 megawatts, which we've been unable to easily address before now. Other additions are B plus K and 24-7 solar. B plus K is our OEM partner in Europe, who is now moving into commercial production of their innovative, decentralized CHP systems that convert mixed wood residues into electricity and heat from an externally fired capstone microturbine. And as many of you know, we're also working with 24-7 Solar on an externally fired microturbine running off solar collector. We're in the process of assisting 24-7 Solar to help commercialize their concentrated solar product and thermal storage solutions using our manufacturing services and global channels to market. Moving to energy storage solutions, or ESS, Energy storage is one of the first and most important additions to a microgrid or even nanogrid. We'll be using custom-tailored combination of multiple technologies, energy storage, and monitoring software that maximize energy efficiencies, lower emissions, and creates resilient systems that meet customers' specific tailored needs. I'll talk more about the fourth business line, hydrogen and sustainable products, in a few minutes. In the meantime, let's transition to slide 14. As I want to set out some of the business catalysts, I expect caps on green energy. I will not run through every line, but I will touch on the highlights of some of the key points. First of all, we are beginning with a strong industry backdrop. According to Navigant research, total microgrid capacity is expected to grow multifold over the next decade, reaching 20 gigawatts by 2028 from just 3.5 gigawatts in 2019. We all know a big market means big growth, You can also see the same represented in the upcoming slide 15. One of the most important factors in our transformation from Capstone Turbine Corporation to Capstone Green Energy is that it creates a larger total available market, or TAM, for us to better leverage this industry growth. Instead of just applying one component or product to a microgrid, we now provide a comprehensive solution, and that is a critical difference going forward. A solution can encompass all the parts of the microgrid, not just the microturbine, and this gives us significant opportunity to expand our EAS strategy as well. We can't talk about EAS without mentioning our long-term rental program. We are continuing to move into this market by expanding our rental fleet on a quarterly basis, which is backed by our improving balance sheet and expanded service offerings. This is about cash flow and margins, which is the centerpiece of our business transformation. I also want to address that we sell our solutions. Last year we began by developing our own direct sales solution team focused on top line revenue growth. This internal sales team is poised to leverage existing larger clients and we need to hit more doubles and triples in our business and drive scale and top line revenue growth. National and global customers are critical to executing this plan. Big customers lead to big orders. A sample of some of our larger target customers who already have capstone microturbine installations is shown in our logo soup on slide 16. When we talk about cash, the implications are meaningful. We are graduating from survival capital to growth capital, and there are numerous opportunities to leverage the solid growth expected from microgrids. Furthermore, a strong balance sheet reduces customers' perception of risk, which leads to more orders. With a stronger balance sheet, access to capital, we can also build more partnerships and acquisitions. To help facilitate this, today we announced we are dedicating a high-level executive resource focused exclusively on these strategic opportunities. Make no mistake, today all of our efforts are based on revenue growth, whether it's organic or through acquisition. Moving to slide 17. On slide 17, we've seen this before, but we've set out our six key growth factors, and we want to mention to our shareholders and give an update on what we're doing. First is the new direct sales team, which I mentioned we started pre-COVID. They are focused on microgrid products, rentals, and large customer adoption. Second is our new part supplier, who's done an amazing job producing the part that we had quality issue before, dropping failure rates dramatically. This is simply about building a better quality part, leading to improved reliability. providing lower warranty expense, higher service contract margins, but most importantly, simply put, maintaining happy customers remains repeat customers. Third, new target pricing programs. This is focused on national and key accounts. We developed a new gold key account program, which is focused on customers who can deploy at least four megawatts per year or one megawatt per quarter. Fourth is adding in new distributors and new geographies, in particular to the Eastern Europe area, Africa, and the Middle East. These large markets are prime for our microgrid services and solutions, and we need to fire more shots on goal, which means more and better distributors. Fifth is our new hydrogen product released with the goal of operating at 100% hydrogen. The hydrogen economy is here, and we will run through this in greater detail in a moment. Sixth is our expanding our digital marketing through our website updates, customized marketing campaigns, and unique IndyCar branding strategy. Let's go ahead and move on to slide 18. I want to spend a moment on hydrogen and our sustainable product business lines and strategy. Fuel flexibility has always been a hallmark of 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 first commercially available hydrogen-based combined heat and power microturbine, which can safely run on 10% hydrogen and 90% natural gas. Importantly, we now have a target for commercial release of a 30% hydrogen, 70% natural gas product by March 31, 2022. I will also be looking to work with Baker Hughes to advance our 100% hydrogen solution as quickly as possible. Slide 19 sets out some of our patents we have around hydrogen. and we intend to continue to develop our hydrogen roadmap to 100 percent, and we'll develop more patents, obviously, along the way. Lastly, on slide 20, I want to talk a bit about our strategic transactions. The microgrid and energy as a service sector are expected to see significant growth over the coming years, and we need to continue to position ourselves to maximize our opportunities. Acquisitions, joint ventures, or strategic transactions or partnerships should be a significant part of that growth. This process begins by having the right people, and we have announced today, as I said, we are dedicating a high-level senior executive to oversee corporate development. Everything begins with building a target framework that includes the market, geography, culture, technology, and we will be actively looking for additions in the hydrogen, microgrid controllers, rentals, among others. From there, we'll look to understand how these could fit into the overall capstone green energy strategy. and how to leverage both businesses. Operator, at this time, I'd like to open the call up from calls from the analyst community.

Thank you. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, please indicate so by pressing star 1. And we have a question coming from Rob Brown from Lake Street Capital Markets. Rob, your line's live.

Good afternoon.

Hey, Rob.

Hi. Just following up on your hydrogen strategy, I know you're early into it and hiring people, but what are some of the kind of verticals or areas that you think that make sense to add on to what you're doing in terms of expanding your core technology to work in hydrogen?

Well, definitely hydrogen is an area we see growth in. We're already seeing a lot of interest for both blended hydrogen, renewable natural gas, and then 100% hydrogen. I think if we look from a strategic standpoint, the ability to generate hydrogen as well as utilize that hydrogen makes sense. So companies that have hydrogen technologies would be something we'd probably take a look at. But definitely, I mean, hydrogen I think is an area we're actually surprised at how fast we're seeing new opportunities. This is something that has really picked up a lot of momentum in probably the last 18 months, and we're seeing new developments, new opportunities. dedication to hydrogen, not just in the US but Europe. We started to see it in Japan about a year ago, Australia. So we're seeing lots of governments and lots of customers very, very interested in hydrogen. And even customers today that we put in natural gas solutions for are actually talking to us about hydrogen and the ability to convert our product to hydrogen or blended hydrogen in the future.

Thank you. And then on the rental business, How has that demand environment changed? Have you seen it improve with sort of a normalization or maybe just characterize the rental kind of demand environment?

Yeah, the rental demand has been picking up nicely. I think we're up to about 60 megawatts of pending opportunities, obviously with a target fleet size of 20 megawatts. We're currently at 10.6. We'll update the fleet size here in the next few weeks as we get through the end of the quarter. We continue to sign contracts and negotiate contracts. I would say that oil and gas is coming back online. Shell's our biggest customer for rentals in the oil and gas space, but I think the recent stabilization of oil prices and even increasing oil prices has helped. We're definitely seeing some CHP applications and opportunities. We're seeing a lot of grow houses opportunities as well as some Bitcoin opportunities. So definitely a robust kind of diverse pipeline of opportunities, but we think we'll easily get to our 20 megawatt goal by the end of the year.

Okay, and then the last question is on the reliability repair accrual. Could you just clarify the scope of that and what that covers and just maybe some clarification on what that is?

Yeah, as we moved through the legal process, when we finally got completely through the diligence, we saw that the scope of the defective parts was larger than we thought. And so we thought that we were mostly through that issue. So we went ahead and put that accrual in place to take care of all the remaining units that are still in the field, with the assumption that the vast majority of them will fail at some point and we'll need to replace them. Coincidentally, the accrual amount and the recovery we got from the vendor are very similar. So the accrual is roughly $4.9 million, and we recovered about $5 million in legal settlement through the process. So the good news is, well, failure rates were one per day the last year ago, 18 months ago. We're down to one every 10 days. We are seeing the end of that issue, and so we'll work through that the next three quarters. I would say by December we should have no more of the old defective part in the field, and that will really lead to more happy customers, better margin rates, more repeat customers. Having a critical parts issue in the middle of a pandemic with a technology like ours is challenging, so we're very excited to get through both the parts issue and the pandemic and really see what the caps on green energy – you know, company can do going forward.

Okay, thank you. I'll turn it over.

Thanks, Rob.

Okay, your next question is coming from Amit Deval from HC Wainwright. Amit, your line's live.

Hey, Amit.

Thank you.

Hi, guys. Thank you for taking my questions. So, Darren, as you come out of this sort of pandemic COVID environment and looking to, you know, the fiscal 2022 timeline, Do you feel that the pipeline is strong enough for you to now get into a position to post your earlier growth?

Yeah, I think that the next This year is going to be a watershed year for us.

Coming out of COVID with the new direct sales team by building the rental fleet out, the new hybrid products, the energy, the battery storage products, the different solutions we put in place, rebranding of the company. I think we've kind of, you know, hitting on all cylinders, not to use a phrase. We're very excited about it. Now, COVID is still a problem for us. Our distributors in Europe are still struggling. We have some issues in Latin America still. I think Australia shut down for a week recently. India is still a big mess. And so we're not through COVID. There's still some issues here in the U.S., but I think we can see the light at the end of the tunnel. So I think Q1 and Q2 will be okay, but I think Q3 and Q4 are going to be blockbuster for us. I think we're really going to get rolling in the back half of our fiscal year.

Understood. And sort of, you know, with the new branding, et cetera, has that been helping the sales team, you know, build a pipeline or, you know, maybe get a bit more sort of – visibility with the customers you are pursuing?

Yeah. And I know we've got more than a hundred million pipeline of non kind of capstone core technologies. So Baker Hughes, the battery storage and the hybrid solution products, and that'll grow exponentially over the next several quarters. We've got over a billion dollars of traditional pipeline out there with our distributors. So as the direct sales force is now able to get on airplanes, as we learn how to sell and apply the new products and the opportunities, I think you're going to see a lot more opportunity. And as I said in my prepared remarks, instead of selling just the microturbines in a microgrid, being able to sell the battery storage, the solar, the controls, your total revenue per project goes up. Your ability to provide a turnkey solution for a customer to be able to wrap the whole thing in a 20-year FPP, factory protection plan, is very, very unique. And a lot of customers are anti-natural gas, so to be able to come in with other solutions, talking about hydrogen, talking about battery storage, talking about some of our other technologies, really helps us have a more comprehensive conversation with customers and educate them on all the different pluses and minuses of each technology. So very much more of a solution sales program, very much more of a custom program, not kind of off the rack, so we can custom tailor solutions. Our balance sheet is key. For the first time, I think, in the last six months, I haven't had to talk to a customer about our balance sheet and our viability. So as we continue to grow our balance sheet, generating cash from operating activities for the year is a great milestone for us. I look at some of the fuel cell companies that are burning $10 to $30 million cash from operations on a quarter-by-quarter basis or more, the dilution that they're putting out there. So I think we're in a unique position to have a business model that will generate cash, and we can both generate top line growth as well. I think that will make it unique in the kind of clean tech space.

Makes sense. And with respect to the aftermarket margins, you know, how much more room do you think, Darren, is there to improve those margins from current levels? And have you already sort of implemented some of these efforts, or is this something that is still coming into play for us?

No, we've got lots more room on the margin side. The product margins right now are close to zero on any given quarter just because our volumes are so low. So as our volumes pick back up again, we'll see the product margins increase. We're working hard this year on our vendors and maximizing our direct material costs. Obviously, COVID has impacted our pricing from our vendors. Logistics are a mess right now. So the supply chain has been challenging over the last 12 months of COVID. So I think a lot of improvements in our supply chain costs We'll have improvements in our top line of revenue, which will give us more purchasing power. And then as we get the issues with the bad parts out of the system, we'll see our margins rates improve on the service side of the business. Because if this part fails, it doesn't take out just a single part. It takes out collateral damage and other parts. And so you're going to see improvements in our service margins each quarter going forward for the next couple of years and our product margins as well as we start to grow. And so I think that definitely... margin expansion with both improvements to the business. The rental fleet, as you know, is the highest margin business we have. So as we double the size of the rental fleet, that's going to have a nice impact. So plenty of room to go on the margin side.

That's all I have, Darren. I'll take another question. Thank you.

Thank you, Nick.

Once again, if there are any remaining questions or comments, please indicate so by pressing star 1. And we have a question coming from Sean Severson from Water Tower Research. Sean, you're live.

Sure. Thanks. Hey, Darren. My question is about the gross product bookings and coming out of the quarter, exiting the quarter at 12.7. How much at all did that include? what you mentioned in terms of the rebound in oil. I mean, oil has only been recently up and activity has only been recently picking up. So trying to understand, you know, if that was part of it or that's something to look forward to in the first quarter.

No, I think if we started to see the leading edge in the fourth quarter, we should see more in the first quarter. You know, oil and gas companies don't move that quickly, so I think you'll see more bookings in oil and gas in Q2 and Q3. Probably by Q4 we should be in really good shape if things continue the way they're continuing. I think the more people are looking for alternative energy solutions, green energy solutions, greenhouse gas reduction, obviously the Paris Climate Accord and the Biden infrastructure plan I think will be helpful to us. So I think all that's heading the right direction. But we've seen a growth in our bookings the last four quarters. We'd hope to keep that going in Q1 and Q2. But again, I'm really excited, especially the back half of the year. I think that as we start getting inputs from all of these revenue sources and some of the new implementations on the new things we've done start contributing, the back half of the year, as I said, could be really exciting for us.

That's actually leading to my next question. When you look at technologies and services to expand, to expand as part of a microgrid solutions company, where are the best acquisition candidates just in terms of, you know, driving margin for you. I mean, does it make sense to buy something in storage, something else? You look at all the different components that you could supply into a microgrid. So trying to tie that back to your acquisition strategy and obviously the new addition there.

Yeah, I think the first step is, you know, we put 10,000 microturbines all over the world. Most of those are in some form of a microgrid. The first step for our distributors and direct sales force is to go try to apply our new products to our existing customer base. And so can we add battery storage to a CHP installation that doesn't have battery storage today? Now, many of our sites, like, you know, do have battery storage already, but I'd say more than half of them do not. So I think that's kind of step one. I think battery storage... is definitely interesting from an M&A perspective. I think controls, you know, there's some improvements we could do on the microgrid controller side and some interesting technologies out there. I think there could be something around hydrogen we take a look at. But rentals, I mean, growing the rental business is important. If we could look at an acquisition in the right area of an existing rental company that we could swap out their traditional engine-based technologies for our microderm-based solutions, that would be an interesting opportunity for us. And then service-wise, if there's something service-wise that makes sense for us. And so, you know, I think we've got a pretty wide open field here. You know, we've got a balance sheet now. I think we've got a business that will start generating cash. We've shown that we just did in the last year. You know, putting Jeff Foster, one of our top executives, solely focused on this really shows our commitment and that we're going to go look for the right thing to do. Now, we don't want to, you know, do an acquisition or strategic partnership just for the sake of doing it. It needs to be accretive. It needs to make us more profitable. It needs to make us more competitive. But I think there's a lot out there. Some of the green energy stuff, company-wise, are priced up a little bit right now from a market cap perspective. But I think those things are cyclical, so we'll look for the right time and the right opportunity.

This next question is on the rental business. Obviously, the groundwork's been laid there, and you've done quite well in the oil and gas industry. And can you maybe remind us why that has done that? so well, or been, I guess, the spear, the tip of the spear, so to speak, in the rental business. And then why aren't other sectors adopting this? Because, you know, you still have the same, the value proposition is the value proposition. Why not more industrial complexes or universities or hospitals or commercial environments?

Yeah, I think oil and gas is one where they use rentals quite frequently. They kind of, you know, if they don't have utility, they'll bring rental machines in. They're used to renting equipment, whether it's compressors or generators. So I think it's one where they're already in the process or in the business of renting generators. It's a matter of just penetrating the market. I think the heavy push in the oil and gas space toward ESG and lower emissions and lowering their carbon footprint is going to drive more rental opportunities. You've seen what's happened recently with some of the big majors and some of the impacts they've had for folks looking for them to be greener quicker. I think that's going to be a good focus for us. If you look at some of the industrial applications, if you do CHP in a rental application, you've got the chiller that you've got to deal with. In some cases, we're looking at potentially buying the chiller and renting it under a longer-term rental. We are quoting some industrial applications, but in order to make the the rental work with the equipment we have to put into the rental, you're probably looking at a seven to a 10-year rental to make it work out, which we've quoted, and I think we'll do some here. We've got a hospitality customer we may do a 10-year rental for, including an absorption chiller. So I think definitely those will come. They're a little more complicated rental than your traditional oil and gas rental. I do think the cannabis industry, the grow house industry is one we've rented several machines into. I think we'll do several more. They're growing very quickly, and they quickly outpace the local grid as far as energy demands. And then Bitcoin is one with the changes going on in China with their own digital currency. We're seeing a lot of the Bitcoin farmers move over to the U.S., and so that's creating an energy demand that the utilities are in trouble meeting. So that could also be an opportunity for us.

I'm just trying to understand and delineate between rental business and energy as a service, right, is basically providing an offtake agreement or, you know, working with a potential customer like that? I mean, is there a tipping point or a hurdle that you get to where instead of renting the equipment, you just sell them energy?

Yeah, no, I think we offer all of it. And so I think, you know, it just depends on what the customer's appetite is. So we can sell them energy. We can do, you know, kind of power by the hour. We can do a PPA. We can do kind of a hybrid financing solution where they pay like an activation charge up front, and then we do, you know, like a seven-year rental. We can offer a buyout option at year five and at year seven. So I think that's part of what we can do, having a balance sheet now and have an ability to kind of custom tailor solutions for customers. And the hard part is really just trying to define what are the customers' needs. Are they renting their facility? Do they own their facility? Are they going to be expanding their energy needs? Are they going to be reducing their energy needs? How important is carbon reduction versus energy savings versus resiliency? So I think it's more complicated because we've got a lot of solutions, but at the end of the day it allows us to really not be a one-size-fits-all. We go in and custom tailor a solution for the end users. And our goal is, again, whether we're talking to a DHL or a Magna or a Marriott, we don't want to do one project. We want to do a large-scale rollout, and we want to be a long-term partner. And if we make less money on one project, so be it. We're dedicated to the long-term overall relationship. Great, thanks. I'll step back in the queue. Thanks, Sean.

We have no further questions in queue. I'd like to turn the floor back to Darren Jamieson for closing remarks.

Rob and Amit, Sean, great questions. You touched on a lot of things I wanted to talk about in my summary. I'll just say overall, good quarter, great year. especially considering the COVID situation, considering the fact that we had a longer than we anticipated issue on the parts reliability issue. We've built on, you know, we've built the business, we've changed the business, we've improved the business. You know, if you look at it on a short-term basis, revenue, you know, $17.9 million versus $11.6 million a year ago. Both quarters had COVID. Obviously, it's better now than it was a year ago. Positive cash from operations of $5.1 million for the quarter. Again, I know everybody loves revenue. I'm old-fashioned. I think you take cash and profit to the bank, not revenue to the bank. I think investors hopefully will start giving us a little more credit for generating positive cash from operations as opposed to burning cash every quarter like some of the other folks in our space. I think $49.5 million is the largest balance sheet we've had in a long, long time. For the full year, generating $1.7 million of positive cash versus a loss of $19.8 million. That's very, very significant year over year in what was a challenging year. Revenue down 2% year over year is disappointing. We actually hope to be flat or slightly up. But considering the headwinds, that's a pretty good revenue outcome. And, again, a lot of companies would love to be flat year over year in a COVID environment. Refinancing Goldman Sachs at almost half, I mean, much lower rates, and adding $20 million during the pandemic I think is a great outcome. And Eric and his team did a great job renegotiating that. And the folks at Goldman Sachs have been nothing but – top shelf and gentlemen to work with. Product bookings, again, $12.7 million for the fourth quarter is great. The last three quarters we've seen increased energy and quotation activity and better bookings. The Baker Hughes arrangement is very exciting. To be able to offer a 5 to 16 megawatt solution with a company as high caliber as Baker Hughes is exciting. A 16 megawatt turbine project, turnkey, is going to add 15% to our top line revenue for the year. These are big machines. These are big projects. New battery storage and hybrid micro turbine products. We'll get into more of that in the next couple of calls. We start selling some of these technologies. We'll detail them a little more. We don't want to completely tip our hand from a competitive standpoint. These products are going right at some people in our space, like Polar Power and other folks that have similar technologies. We'll get a little further out along the playing field before we get too much information about what we're doing. But very, very excited to be able to work with customers, give them custom solutions, be their one-stop shop. We really want to make sure that we're their energy supplier for green energy, for carbon reduction, for resiliency, and that we're not doing a project. We're working on a long-term relationship and that we're there for them for the next 15 to 20 years. So very happy with the year. Very much looking forward to next year. Very excited about Capstone Green Energy and creating smarter energy for a cleaner future for all of our customers. And with that, we'll talk to everybody after the first quarter. 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. Thank you for your participation.