Capstone Energy+ Inc

Good day, ladies and gentlemen, and welcome to the Capstone Energy Plus fourth quarter and full fiscal year 2026 earnings conference call and webcast. Today's call will cover the company's financial results for the fiscal fourth quarter and full year ended March 31st, 2026. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will open the call for questions from covering analysts. We will also address questions submitted by investors through the webcast. If you are joining via webcast and would like to submit a question, please click the Q&A button located on your screen and enter your question. Questions may be submitted at any time during today's presentation. As a reminder, today's conference call is being recorded. It is now my pleasure to turn the call over to Alfredo Gomez, General Counsel of Capstone Energy+. Alfredo, please go ahead.

Thank you very much. Good afternoon and thank you for joining Capstone Energy Plus Inc's fourth quarter and full fiscal year 2026 earnings conference call. On the call with me today are Vince Canino, the company's president and chief executive officer, and Candice Graves, the company's chief accounting officer. Today, June 25th, Capstone Energy Plus Inc issued its financial results for its fourth quarter and full fiscal 2026 year, which ended March 31st, 2026. During today's call, we will be referring to slides that can be found on the company's website under the investor relations section. This conference call contains forward-looking statements representing the company's views as of today, June 25th, 2026. Other than as required by federal securities laws, the company disclaims any obligation 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 of the accompanying presentation 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 or implied by such statements. Please note that as Mr. Canino and Ms. Graves go through the discussion today, when they mention EBITDA, they're referring to adjusted EBITDA, which is a non-GAAP financial measure, and the reconciliation to net income can be found in the earnings release and the appendix to the presentation slides. I would like to now turn the call over to Vince Canino, the company's president and chief executive officer.

Thank you, Alfredo, and good afternoon, everyone. Before we begin, I would like to sincerely thank our shareholders for your patience. I recognize that this earnings call and the filing of our Form 10-K took longer than anticipated. While we never take delays lightly, it was important to us that we took the necessary time to ensure the accuracy and completeness of our reporting, particularly given the significant achievements and important developments that will be discussed today. Ahead of discussing the numbers, I want to speak directly to the people who have stood with this company for many years and some through every chapter of its story. As a microcap company, we often find ourselves listening closely to the interaction of our investment community and numerous inbound messages. And every so often, a signal breaks through that reminds us exactly why Capstone exists. What we found was powerful. The signal told the same story. Shareholders who believed in this company for years stayed through Chapter 11 and came back when we emerged. Because their belief in this company and its technology never faded. This reminded me of something very important. Our mission isn't to just deliver strong quarters. It's to build the company you always knew this could be. Capstone has the bones, the talent, and the capacity to achieve everything you originally imagined and more. And for that, we are committed to delivering on that very belief every single day. This is now a company with strong fundamentals, bold expectations, and a tremendous runway. You see, leaders of public companies often talk about shareholder value. But for many, that phrase can sometimes float by as if it's filled with helium, almost without substance. I want to be clear. For us, those words carry real weight. They are grounded in something real, which is your belief in what we can accomplish. It is powerful to feel the history. Shareholders who believed in Capstone stayed through the hardest years and are still with us today. Their stories give that phrase shareholder value, a depth that demands our respect and our action. At the same time, I want to extend a warm welcome to our new shareholders. Over the past year, a new group of investors has chosen to join the Capstone story. While many of you are newer to our journey, your confidence in our strategy, our technology, and our future is equally important. I also want to specifically acknowledge Monarch and our pipe investors. Their support helps strengthen our capital structure, accelerate our transformation, and position the company for its next chapter of growth. Together, our longstanding shareholders and our newest investors form a community united by a common belief. Capstone's best days lie ahead. Which brings me to our name. As we announced several weeks ago, we are no longer Capstone Green Energy. We are Capstone Energy+. The shift from green to plus more accurately reflects the focus and ethos of our company today and where we are headed. We are something more than just green. We are ultra clean, quiet, innovative, and capable of far more than producing just electrons. Beyond electricity, we believe in a circular economy where waste heat becomes valuable thermal energy and waste streams become fuel streams converted into clean energy with a lower carbon footprint. Our innovative technology produces some of the highest uptime plug-and-play hybrid power solutions available. Shaped by our inverter-based technology, we deliver quiet, clean, and modular energy sustainably around the clock. Our destiny isn't tied to a single technology. It's tied to our ability to use the mastery behind microturbines to influence a broader energy landscape. And we plan to do this through technology and integration, which can also be funded under our Energy as a Service platform. Like an oak tree that has stood through storms and seasons, we believe our foundation and deep roots in microturbines are strong and time-tested. And while they anchor us, the future demands that we widen that root system, branching into new technologies and new markets to meet a new energy renaissance. This is the new capstone. Capstone Energy+. On site, on demand, always on. Now let's move to slide five to discuss our fourth quarter and full fiscal year financial highlights. Our fiscal year, 2026, delivered significant improvements over the prior year, further proving that our three pillar strategy, financial health, sustainable excellence, and revitalization of culture and talent remains both straightforward and executable. 23.9% revenue growth and a doubling of adjusted EBITDA are certainly compelling results. But let me put that performance into perspective. Compared with the prior year, we delivered an additional 8 million of adjusted EBITDA on 20.4 million of incremental revenue, representing an incremental adjusted EBITDA margin of approximately 40%. We believe this demonstrates the higher operating leverage in our business and the extent to which our investments are translating into meaningful earnings growth. To me, That's what real leverage looks like. Now, the year was not without its challenges. We entered fiscal 26 with a strong backlog and positive momentum, but external factors quickly emerged. The introduction of broad-based tariffs in April 2025, along with the resulting supply chain uncertainty and cost pressures across many industries, caused several customers to pause capital spending decisions. Later in the year, declining oil prices created headwinds for portions of our oil and gas business. As crude oil prices moved lower, customers actively moderated, which in turn reduced utilization within our rental services fleet. Despite those challenges, our team remained focused and disciplined in its execution. We continue to convert opportunities, manage costs, and drive operational efficiency across the business. We also implemented targeted pricing actions to help offset anticipated cost increases from tariffs, while our ongoing DFMA initiatives helped mitigate much of the immediate impact. Although these efforts temporarily slowed our progress toward higher product gross margins, we believe they ultimately strengthened the business and positioned us well for the future. At the same time, we continued investing in our long-term growth strategy, We added talent across the organization, particularly within engineering and territory direct sales, as we expanded our commercial reach through the acquisition of the Western Territory previously held by Cal Microturbine. Collectively, these actions helped us achieve another historic milestone for Capstone. In our nearly 38-year history, we delivered our first full fiscal year of positive net income. What makes this accomplishment even more meaningful is the context. We achieved it just two years after one of the most difficult chapters in our company's history, our Chapter 11 restructuring. The transformation from that moment to where we stand today is a testament to the resilience of our employees, the support of our stakeholders, and the disciplined execution of our strategy. To move from restructuring to profitability in such a short period reflects the determination of our team and the strength of the foundation we have built. Let's move to slide six. Fiscal 26 was a strong year of achievements that set the table for our exceptional financial performance, even as we navigated several market headwinds. Some accomplishments supported our immediate objectives while others advanced our mid- and long-term strategies. What stood out most was watching our people operate as a unified team, working with a forged mindset of discipline, urgency, consistency, and focus, delivering results, adapting to challenges, and finding ways to win, even when the market threw us curveballs. We learned how to hit the junk, put the ball in play, and keep putting runs on the board. While I won't cover all 11 items on this slide, a few are worth highlighting as they underscore the strength we are building as a company. Global National Accounts Program What compelled us to launch this program was the sheer number of repeat customers we were seeing. A customer is a first-time buyer, someone who purchases a solution to meet a specific need. But when you consistently deliver value, reliability, and trust through product and the people who support it, you convert that customer into a client. And clients buy repeatedly. After issuing yet another press release announcing an expansion from an existing user, whether a facility added one more turbine or a hotel added our solution to another one of their properties, It became clear that we were converting customers into clients at a meaningful rate. That's real value creation. But with clients comes responsibility. You must go where they go, when they go. Under our legacy territory distribution model, clients crossing distributor boundaries sometimes create friction. Collaboration wasn't always seamless. By implementing this program with clear governance and scope split algorithms, we've streamlined how we follow clients anywhere in the world to help them solve their energy trilemma. And for national and global clients who prefer to work directly with the OEM, we now have a structured roadmap that allows us to engage directly while still leveraging the local expertise of our distributors. The second area of accomplishment is the launch of our major growth market use case initiatives. Yes, data centers are front and center, but any resilient business must future-proof itself. Data centers will experience cycles of rapid expansion and periods of slower growth. That's why we're also focused on opportunities such as port electrification. Ports are facing significant power infrastructure constraints, and many are realizing that solar and battery storage alone cannot meet their growing needs. Our technology, clean, quiet, portable, and capable of running on multiple gaseous fuels, including hydrogen, helps ports address both their infrastructure challenges and their decarbonization goals. Another major growth market is infrastructure strain. As discussed in our last earnings call, utilities are facing unprecedented strain, not just at substations, but across their entire fleet of field-deployed transformers. The rapid rise of EV charging is a major contributor. A single Level 2 charger can draw anywhere from 7kW to 19kW, whether at home, a strip mall, or a business. It doesn't take long for a standard 50kW pole-mounted transformer to become overloaded. This creates a significant problem for utilities and municipalities. We are excited by the approach we have developed to this problem, which will provide quiet, clean, modular solutions that take the stress off these field-deployed transformers. This is exactly the space where our technology excels. As we discussed earlier, tariffs created meaningful headwinds during the year and had a negative financial impact. However, they forced us to bend, not break. In many ways, they accelerated improvements we may not have otherwise pursued as quickly. We challenged assumptions and reexamined portions of our supply chain and sourcing strategy. This ultimately led us to identify and secure additional suppliers that offered equal or better quality at lower landed costs. Today, we have greater supply diversity. By establishing secondary and tertiary sources of supply, we not only reduce component costs, we also harden business continuity, improve supply chain resilience, and enhanced our ability to scale production as demand grows. What began as a challenge ultimately became an opportunity to make Capstone a stronger company. Moving to slide seven. I want to update you on our partnership with Monarch. In addition to strengthening our balance sheet and simplifying our capital structure, the Monarch investment brings an experienced capital partner with relevant relationships across power, infrastructure, and data center markets. We are working closely with Monarch as we evaluate opportunities where Capstone's technology and energy as a service capabilities can address the power constraints facing mission critical customers. This partnership gives us tremendous speed to market and more importantly, strengthens our ability to address the larger systemic challenges facing the data center industry. Turning to our DFMA case study, let's move on to slide eight. I want to walk through a specific example of how our Design for Manufacturing and Assembly initiative is translating into real margin improvement. The microturbine engine module frame, or MEM frame, on our C200, the structural component that cradles the engine and enables fast, efficient removal from the enclosure, is a component our team identified as over-engineered relative to what was actually needed to meet our performance and serviceability standards. The DFMA team redesigned the component, preserving full performance, reliability, and serviceability, while reducing the cost by almost two-thirds. Multiplied across the five-bay configuration of our C1000 platform, that's a meaningful reduction per unit. We plan to cut this new MEM frame into production in the next two months. This is a tangible example of how DFMA supports gross margin improvement, reinforces product reliability, and positions us to scale more efficiently as volumes grow. Now, I will turn the call over to Candice Graves, our Chief Accounting Officer, for a detailed review of our Q4 and full fiscal year financial performance.

Thank you, Vince, and good afternoon, everyone. Before turning to the financials, I want to take a moment to acknowledge two significant milestones for Capstone. First, our auditors have issued a clean audit opinion. The going concern qualification that has been part of our financial statements has now been removed. Second, we have fully remediated the one remaining previously identified material weakness in our internal controls over financial reporting. These are not small achievements. They reflect the confidence our auditors have in the strength of our balance sheet, financial position and controls environment, and the progress we have made in building a more resilient and transparent organization. We're proud of these outcomes and believe they represent an important step forward for Capstone and for our shareholders. Slide nine highlights our continued improvement in profitability throughout fiscal 26. We expanded gross margin by a full five percentage points year over year, driven by the cumulative benefits of our DFMA cost out initiatives, greater operating efficiencies within our service business, and improved price realization across product sales. While quarter-to-quarter variability is a natural characteristic of our business, mainly driven by product mix and timing of large projects, this fiscal year we also faced external factors such as increased ocean freight costs due to tariff-related increases and ground transportation costs due to fuel price volatility resulting from geopolitical events. In spite of these, the overall trend is unmistakable. Fiscal 26 delivered strong growth in gross profit dollars and meaningful year-over-year expansion in gross margin. Our fourth quarter further demonstrates the ongoing impact of the margin improvements we have built into the business. Despite softer revenue resulting from a late quarter customer cancellation tied to the headwinds we discussed earlier, we still delivered a 30.1% gross margin. To put that performance into perspective, we improved gross profit by approximately 38.5% when compared to a similar soft revenue quarter, which was the third quarter of fiscal 25, where gross margin was 24.8%. So, on a similar revenue basis, we have improved operating leverage in our business. These results reinforce that the improvements we're making are not simply volume-driven. They reflect a structurally stronger business with improved earnings power. We delivered our third consecutive quarter of positive net income to close the fiscal year. The trend line tells the story. We improved from a net loss of 7.2 million in fiscal 25 to net income of 2.8 million in fiscal 26, a nearly $10 million year-over-year improvement. This progress reflects the effectiveness of our three-pillar strategy and the disciplined execution of our team. Our focus remains on building sustainable, long-term growth across the entire P&L. Moving to slide 10. Total revenue for the fourth quarter was $23.0 million compared to $27.1 million for the fourth quarter of fiscal 25. This was driven by two factors, product and accessories revenue and rental revenue. Product and accessories revenue of $11.5 million compared to $15.3 million in the prior year period due to the timing of large product orders which tend to be concentrated and can shift materially from one quarter to the next, as well as a late quarter cancellation of a two megawatt project. Rental revenue of 3.4 million compared to 4.0 million in the prior year period, reflecting decreased utilization because of the sharp drop in oil prices in the second half of fiscal year 26. Additionally, parts and service revenue was 8.1 million, slightly higher than revenue in the prior year period of 7.7 million. The top-line performance of Q4 Fiscal 26 delivered a gross profit of $6.9 million compared to $7.5 million in the fourth quarter of Fiscal 25. Because we continue to expand profitability of our revenue, we delivered a gross margin of 30.1% in Q4 26 compared to 27.8% in the prior year period as cost-out initiatives reduced direct material costs. Research and development expenses were $1.0 million for the quarter, or 4.5% of revenue, reflecting continued investment in cost-out initiatives, product reliability, and new technology development. Selling, general, and administrative expenses were $5.7 million in the fourth quarter, compared to $6.7 million in the prior year period due to a reduction in non-recurring expenses. Improved margin and decreased SG&A resulted in net income for the quarter of $1.5 million compared to a net loss of $0.1 million in the fourth quarter of fiscal 25. Adjusted EBITDA, a non-GAAP measure, was $3.6 million compared to $2.8 million in the prior year period. Once again, we have delivered more adjusted EBITDA on less revenue in the fourth quarter compared to prior year. As a reminder, a reconciliation to net income can be found in the earnings release and the appendix to today's presentation. Reported EPS for the quarter was negative 47 cents compared to negative 1 cent in the prior year period. The net loss per share in Q4 fiscal year 26 was significantly impacted by a non-cash adjustment related to the accretion of the LLC's preferred units as our stock price improved. Without the impact of the accretion, our basic EPS for Q4 fiscal year 26 was a positive six cents. These results reflect the continued progress we made throughout fiscal 26 in strengthening Capstone's financial profile, improving operating discipline, and positioning the business for the next phase of growth. Moving to slide 11 for the full year results of fiscal 26. Revenue for fiscal 26 was $106.0 million compared to $85.6 million for fiscal 25, representing a 23.9% increase year-over-year. Product and accessories revenue increased to $56.9 million compared to $40.3 million in fiscal 25. The improvement reflected an additional 10.5 megawatts shipped year-over-year, driven by strength and demand for Capstone's larger capacity behind-the-meter solutions, combined with the improved price realization driving a higher average revenue per megawatt. Parts and service revenue increased to $33.2 million compared to $30.9 million in fiscal 25. This growth was supported by continued execution across our parts and service base and the benefit of direct sales following the Cal MicroTurbine acquisition. Rental revenue increased to $15.9 million compared to $14.4 million in FY25, mainly driven by higher utilization rates in the first half of the year, combined with increased rental pricing per megawatt, which grew by approximately 10%. Utilization rates started very strong in the first half of the year, but dropped due to a sharp decline in oil prices in the second half. Gross profit for Fiscal 26 was $33.9 million compared to $23.3 million in Fiscal 25. Gross margin expanded to 32% when compared to 27.2% in the prior year. The gross profit improvement was driven by higher revenue, favorable product mix, improved absorption rates on manufacturing overheads, and continued execution of our DFMA cost-out initiatives as Vince mentioned. We also saw margin improvement across each service revenue category as a result of the implementation of our Sustainable Excellence Pillar. Despite higher tariffs and inbound freight costs during Fiscal 26, our cost-out initiatives improved product and accessories gross margin to 9.6% compared with 2.7% in Fiscal 25 and increased parts and service gross margin to 64.4% compared with 55.7% last year. Parts and service gross margin also benefited from territory direct sales following our acquisition of CalMicroTurbine. Rental gross margin increased to 44.3% compared to 34.7% last year, primarily due to higher per megawatt revenues. R&D expenses were $3.6 million in fiscal 26 compared to $2.7 million in fiscal 25. The year-over-year increase reflects targeted investments in component reliability improvements, work across DFMA projects, and technology development, such as the C-250 engine, enhanced heat recovery module, 5 ppm combustion liner technology, and the AI-driven 800-volt DC architecture. SG&A expenses were $26.9 million in fiscal 26, compared to $26.2 million in fiscal 25. The increase was driven by higher headcounts in sales and service, outside accounting and legal services, and M&A costs associated with the Cal Microturbine acquisition. These costs were partially offset by a reduction in non-recurring expenses related to litigation, restatements, and debt restructuring. SG&A represented 25.3% of revenue in fiscal 26. SG&A at the 25% level reflects deliberate investments in our territory direct sales and major growth market use cases during a pivotal growth phase. As these initiatives scale, we expect SG&A to trend toward the high teens as a percent of revenue over the next 12 to 18 months. We also expect a significant reduction in professional fees in accounting and legal services as we continue to build out our internal team. Net income for fiscal 26 was 2.8 million compared to a net loss of 7.2 million in fiscal 25, demonstrating a transformative improvement in the operating business as a direct result of our straightforward and executable strategy we call the three pillars of strength. This represents a significant milestone for Capstone as fiscal 26 marks the first time in the company's history that we have reported positive net income on a full year basis. Adjusted EBITDA for fiscal 26 was 15.9 million compared to 7.9 million in fiscal 25. Reported net loss per share was $3.21 for fiscal 26 compared to a reported net loss per share of 38 cents in fiscal 25. reported net loss per share for fiscal 26 was mainly due to the impact of a 69.6 million non-cash accretion to the redemption value of the operating subsidiary's preferred units, which were fully redeemed on March 31st, 2026. Excluding the impact of this non-cash accretion, the company produced basic earnings per share of approximately 14 cents. Overall, Fiscal 26 was a meaningful year of strong financial performance for Capstone Energy+. We delivered revenue and gross profit growth, expanded gross margin, and delivered first-time full-year profitability. This type of financial performance has strengthened our foundation for the next phase of growth. Now, let's turn to slide 12 for a review of select balance sheet and cash flow items. Total cash, including cash, restricted cash, and cash equivalents, totaled $28.9 million on March 31, 2026, compared to $8.7 million at March 31, 2025. The increase primarily reflects financing activities completed during fiscal 26, including the November private placement and the March strategic investment, along with positive net income. Cash was partially offset by the redemption of legacy preferred equity, repayment of the first tranche of the Goldman Sachs debt that came due in December, and working capital investments made in Q4 to position us for growth in fiscal 27 and beyond. Accounts receivable was 12.9 million on March 31st, 2026, compared to 7 million at March 31st, 2025, a reflection of our higher revenues for the year. Total inventories, including current and non-current inventories, were 24.8 million on March 31, 2026, compared to 20.1 million at March 31, 2025. The increase reflected a late-quarter cancellation of two megawatts, thus moving them into finished goods. Accounts payable and accrued expenses were $21.4 million on March 31, 2026, compared to $15.5 million at March 31, 2025. The increase reflects the higher level of material purchasing activity and the timing of vendor payments. Overall, net cash used in operating activities was $2.5 million in fiscal 26, compared to net cash provided by operating activities of $7.7 million in fiscal 25. Operating cash flow reflected working capital timing to support higher business activity and future shipments, including higher accounts receivable, inventory investment, and the use of customer deposits, partially offset by net income, accounts payable and accrued expense timing, and non-cash adjustments. Net cash used in investing activities was flat at $0.9 million. Net cash provided by financing activities was $23.7 million in fiscal 26, compared to net cash used in financing activities of $0.2 million in fiscal 25. Financing activity was primarily driven by the November private placement and the March strategic investment, which were partially offset by debt repayment and the redemption of legacy preferred equity. Through the March transaction, we fully redeemed the legacy preferred equity interest in the operating subsidiary, making Capstone Energy Plus LLC a wholly owned subsidiary of Capstone Energy Plus Inc. This is an important step in simplifying the company's capital structure and improving our ability to execute against the opportunities ahead. As we move into fiscal 27, our financial priorities remain focused on pricing discipline, margin expansion, cash flow conversion, efficient management of our working capital, and mindful investments as we support growth across our core markets. With that, I will turn the presentation back to Vince.

Thank you, Candice. Let's turn to slide 13. We've made meaningful progress on our top four technology investments since our last earnings call, and I'd like to briefly highlight where we stand today. First, our 800-volt DC architecture continues to perform exceptionally well. We deployed it in one of our C600 units, and it has now run successfully through a full quarter of test protocols. We are actively collaborating with several well-known data center infrastructure companies to pilot this technology in their labs and pilot sites. Please note that nothing has been signed at this time. In parallel, we are working with a leading data center engineering firm to develop a chemistry-based solution that can manage AI workload spikes and perform intelligent load balancing. More to come as we move into the proof of concept phase. On an even more exciting front, our 5 ppm combustion liner is outperforming expectations. Not only is it meeting and beating our 5 ppm target, we are seeing results that may place this technology in a performance realm typically associated with fuel cells. No guarantees yet, but the early data is compelling and we are now in the process of validating this breakthrough. Our target remains to deliver the 5 ppm liner by the end of this calendar year. Our C-250 development has not progressed as quickly as we hoped. Like a fine wine, these things take time. With precision machine shops overloaded across the industry, prototype parts are taking longer to procure than originally anticipated. But the work continues and the fundamentals remain strong. Closing this section on a very positive note, our progress on the Enhanced Heat Recovery Module, or HRM, is going quite well. We completed prototype testing and the results were extremely encouraging. We have now moved into development of the beta version, applying our DFMA program to further reduce costs. This progress is especially timely given the significant price increase we recently received from our current HRM supplier. With our own product targeted for commercial readiness by September, we expect to deliver greater value to customers evaluating combined cooling heat and power solutions. With that, let's move to slide 14, where I'd like to shift the discussion to what we're seeing in the data center landscape. I'd like to spend a few moments discussing one of the top of mind issues brewing and how Capstone may be able to help. Communities are increasingly pushing back on data centers being located in their neighborhoods, and the reasons are more complex than they may appear. The most visible example is what occurred in Ashburn, Virginia, where residential and commercial electric rates surged after the local utility was caught unprepared for massive load growth driven by data centers. That single event reshaped public perception nationwide. From there, Concerns expanded to include noise, water consumption, and emissions. The reality, of course, is that not all data centers are created equal, and today's operators are far more responsible and efficient in how they manage water, sound, and environmental impact. Still, the question remains, how can communities and data centers coexist? Or perhaps, more provocatively, should they? The debate is still unfolding and the tension is growing. What's clear is that communities are not willing to give up their smartphones, computers, AI tools, and cloud-based conveniences that data centers make possible. You see, data centers are the invisible backbone of modern life and communities are wrestling with that very contradiction. We are not here to change anyone's viewpoint. But when we look at the problem that needs solving, it becomes clear that Capstone's technology and approach can address the noise, water, and emissions concerns in ways only few others can. Our technology is built around a single moving part that rides on a cushion of air, thus at exceptionally low noise levels, addressing the first concern. With these frictionless bearings, the system operates literally liquid-free. No water, no oil, no coolant, no lubricant. Addressing the second concern. This design also enhances our ultra-low emissions because there is no oil carryover to contaminate the combustion process like other gas turbines and reciprocating engines. Combined with our low NOx combustion system, we achieve single-digit emissions levels, thus addressing the third concern. Even more advantageous, there is the circular economy approach to our data center solution set. We recover our high-grade waste heat and use it to drive an absorption chiller, producing chilled water at roughly one-tenth the energy required by today's air-cooled electric chillers. thus dramatically reducing the data center's overall electrical load. And because every chiller must reject heat, we pair the system with a waterless dry cooler, eliminating the need for evaporative cooling towers and their heavy water consumption. Taken together, we believe we have addressed the major concerns community raised with data centers, noise, emissions, and increased costs due to water use and grid strain. All of this is delivered in a modular, scalable, plug-and-play engineered equipment package we call our Energy Surplus Program Reference Design. The final advantage? Our solution can integrate directly into the data center's medium voltage ring bus, avoiding multiple high to medium voltage conversions and further reducing electrical consumption needed by the data center. We also recognize that some data centers have already committed to electric chillers or have them installed. In those cases, we can still deliver a quiet, clean, efficient, and highly redundant power solution thanks to our modular architecture. Turning to slide 15. Capstone is positioned as a critical, scalable solution to two of the biggest macro forces reshaping the energy landscape. the explosive growth of data centers, and the mounting strain on global electric grids. Investor calls across the energy and power sector show that data center demand is now the dominant growth driver. GE Vernova, for example, in their last earnings call, highlighted that 20% of its 100 gigawatts under contract is explicitly tied to data center infrastructure. Solaris Energy Infrastructure reported major long-term behind-the-meter power contracts for data centers, including a 600-plus megawatt 10-year deal that materially expanded its contracted generation portfolio. It is clear that data center power is the most investable theme in the entire energy sector. But data centers are facing unprecedented grid constraints, Communities are pushing back on traditional solutions. Operators need clean, quiet, modular, waterless, scalable power. And Capstone's technology directly addresses these pain points. This positions Capstone not as a niche turbine company, but as a mission-critical enabler of AI-driven digital infrastructure. On the grid, utilities and OEMs are openly discussing the strain on substations, transformers, and distribution networks. Demand for electrons is driving gas powered momentum and electrification growth is accelerating as customers seek integrated solutions across generation and grid software. EV charging, port electrification, and distribution loads are overwhelming local infrastructure. Grid upgrades are too slow and too expensive. Capstone's distributed ultra-low emissions modular systems are able to fill the gap today. This positions Capstone as a grid relief technology, not just a generator. The message we want you to walk away with today is this. We believe Capstone is emerging as a valuable infrastructure partner for data centers and electrification markets, offering clean, quiet, modular, grid relieving power solutions at a moment when global demand for electrons is outpacing grid capacity. And our fiscal year 26 performance proves that we have built the foundation to execute against this tremendous opportunity. And with that, We'd now like to move into the Q&A session.

Thank you. And for those of you on the phone lines, please press star 1 if you would like to ask a question. And we'll go to Eric Stein, Craig Hallam.

Hi, Ben. Hi, Candice.

Hey, Eric. How are you? Hey.

I'm doing well. Thanks. So I guess since it's most top of mind just in terms of the data center opportunity obviously pretty deep engagement making progress but as we think about kind of next steps that we should look for do we need to see if these things progress to pilots 800 volt DC pilots or are there some opportunities that could move forward in advance of that, just trying to think about kind of what's the cadence we should see as this all plays out.

Sure. Well, you know, as the 800-volt DC infrastructure architecture continues to evolve and develop, it's going to take some time. So there is, as NVIDIA had announced, and we've also been watching this, There's a lot of things that have to happen and pilots are certainly an important part of that process. So we've been working on that on our side. And so, you know, if we think about when would the next, you know, the first data center opportunity hit, it's probably going to be more on the AC side than the DC side. But one of the good news items for us is even if a customer were to start with AC, There's very little conversion that happens on our side to convert to DC. But there would be other things within the data center that would have to happen. We think that pilots are definitely something we're strongly looking at in terms of AC and DC, but there are some other opportunities out there that might actually happen before that. We just continually work the pipeline and we've made some very meaningful progress.

Got it. No, it's helpful. You know, maybe just want to turn to oil and gas a little bit. You know, I know a lot's happened since you last reported in early February. And at that time you were talking about, you know, depressed oil prices and that that was weighing on the business and that that was also having an impact on the rental business, just taking a little bit longer to, you know, replace those units. And since then you've, seen the big spike now the big pullback I mean what does that do to demand I mean historically I think your customers you know it's been about elevated prices but also you know kind of less volatility so just curious what were that yeah that's a good question Eric and and and I would say volatility is probably an important piece to this because

um you know in some of the conferences that we've sat in on on the oil and gas side we understand where a lot of them are where their break-even points are the other thing we like to look at is rig count and uh and if we can understand the free cash flow because that's an important element for the oil and gas players to invest in new wells and things like that. But if they have some predictability, then that certainly helps us with our rental fleet and then they're just able to move the units around from wells to well. So when the oil market is very spiky and volatile, we do see some retractions. And then all of a sudden, you know, a few months later, it could be a big surge for more appetite for rental units.

Got it. So, I mean, whether it's rentals or product sales, I mean, this is a better environment than... Yeah. I don't want to put words in your mouth, but is that fair? It's a better environment than what we've seen in the last couple of months.

It absolutely has. Yeah, we've seen our rental opportunities significantly increase and the deployments are back. And we're also seeing some capital purchases as well. And the other thing that we're learning is there are certain oil and gas producers that have a CapEx philosophy and others have an OpEx philosophy. And so once we understand that, we align our solutions much better.

Okay, great. So maybe just turning the margins, I know you've got higher aspirations, but if I'm not mistaken, I think this is your highest ever product gross margin quarter. You mentioned specifically the engine module, and I know that you've got other parts or cut-ins as part of your program here. So I mean, is there a way we should think about Inc Inc Inc Inc

getting that cut in and actually realizing those margin expansions are important. We especially need them after what we saw happen with the tariffs and also the increased costs of inbound freight. So the team's focused on it and we do expect fiscal 27 to actually be better than fiscal 26 when it comes to our DFMA program and the cost outs we're achieving.

Okay. I guess I'll sneak one more in, just, I mean, anything you can share on the up list of potential timing steps you might have left in that sort of thing. Thank you.

Sure, sure. And I know that was another question, Kim, we had on the list, so we'll tackle that one now. Look, it's been on our roadmap. Everybody knows we're pursuing it. You know, unfortunately, We don't have a crystal ball and we can't give anybody a specific answer. But once we have something meaningful, we're certainly going to be sharing that. And that's also part of our covenant with Monarch to get up listed. And so we think we're moving along quite nicely and we'll let you know as soon as we hear something good. Okay. Thank you. Thanks, Eric.

And everyone, at this time, we will be moving to our web questions, which Kim will announce.

Thank you. Vince, can you give any progress updates on the AI data centers? Are you seeing any early signs of demand picking up?

So as I was sharing earlier around the data centers, we are making meaningful progress. And what I would tell you is that our pipeline has doubled in size. But more importantly, we've gotten more astute around the types of opportunities and what we're qualifying. And so, you know, asking better questions like are the end users identified and is this funded really helps us avoid Inc. Inc. Inc. Inc.

Excellent. Thank you. So, Candice, next question goes to you. After closing the deal with Goldman, do they walk away owning any of our previous IP, patents, et cetera? Is everything retained, returned to Capstone?

Yes. In our deal with Goldman, everything was returned to Capstone. We maintain our IP, patents, and trademarks.

Excellent. Vince? Why was the fourth quarter of earnings lower than fourth quarter of 2025? And additionally, is the company prepared to meet the demand should a data center become secured?

So let me clarify that because our earnings as well as our gross profit for this fourth quarter was actually better than Q4 of 2025. Our revenue was certainly off. We were disappointed as well. And as Candice had mentioned, some of that was attributed to some of these larger deals just not coming over the line, as well as a late quarter cancellation. Going to the question around data centers and can we handle the demand? This is something we've been working hard on. As a matter of fact, we brought in our top tier suppliers to do a 100 megawatt role play. and it was a really good exercise because where we thought the choke point was it wasn't and where we thought it wasn't it was and so those suppliers went off and and they've mitigated those those choke points and so i think that's uh made us certainly better positioned and we continue to work on our factory floor layout. And we're almost done with that. And actually, we might even be able to squeeze in a few more megawatts if we're creative. So I'm going to work with John Torr on that. But yes, we believe strongly that we can handle the demand once the order is secured.

Candace, the first quarter of fiscal 2027 is five days away from completion. How are we doing?

Well, Q1 can be a lighter quarter for us, and we have seen some residual headwinds from Q4 early in Q1, but we are tracking to expectations for fiscal 27.

Wonderful. Vince, the next two questions are for you. First one, has the new and improved assembly line been implemented? How's that going?

We're on the one-yard line. But no, the team's working hard on it, and we will be getting this done pretty shortly here. But we've made significant, significant progress. We're pretty excited about the outcome, how things are laying out now, and we can see the productivity gains that we're going to get from this, as well as the increased production. And like I said just a few seconds ago, There are some other opportunities here. We might even be able to expand more capacity, so stay tuned. Pretty exciting.

Yeah, the next question is, any further progress being made with suppliers to decrease lead times for critical components, especially the recuperator?

Yeah, so as I mentioned earlier, we did that role play, which was extremely helpful. But the other thing that we're doing is, and part of this came from the tariffs, and it forced us to rethink some of our supply chain strategies. And we ended up finding secondary and even tertiary suppliers. So I think that helps us not only to mitigate lead times, but also to handle higher volumes. And thanks to the DFMA process, I think that's what really helped us find those other suppliers. So that was one really important point, as well as doing those role plays and working closely with the suppliers to help them become more efficient. Does that end the Q&A?

Are there any further? All right. At this time, there are no further web questions. I would like to hand the conference back to Mr. Vince Canino for any additional or closing remarks.

Thank you. You know, when we began this transformation a little over two years ago, Capstone faced significant challenges. We had over a dozen active litigation matters, limited liquidity, a going concern statement in our 10-Ks, and five material weaknesses in our internal controls. Today, the picture is fundamentally different. We have resolved those litigation matters, strengthened our balance sheet to nearly 30 million in cash, eliminated the going concern as you heard today, remediated all five material weaknesses as you heard today, and perhaps, perhaps most importantly, delivered the company's first full fiscal year of positive net income. Now, I'm not sharing these accomplishments to take credit. Quite frankly, it's the opposite. They are the result of what can happen when you invest in people, revitalize a culture and align an organization around a common purpose. Today, we have a team that's rowing in the same direction with discipline, focus, urgency, and consistency. Together, we have transformed Capstone from a company focused on survival, and trust me, we know those days, into a company focused on sustainable growth. So the foundation has been built, the business is stronger, our balance sheet healthier, our culture aligned, and the opportunities in front of us significant. We see them, we understand them, and we are moving with purpose to capture them. We firmly believe the best chapters of capstone story are yet to come. I thank you for your time today.

Once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.