10-Q: Capstone Green Energy Holdings Reports Improved Q2 Results Despite Revenue Dip

Capstone Green Energy Holdings reports a reduced net loss for Q2 2025, driven by improved gross profit and lower operating expenses, despite a decrease in overall revenue.

Summary

• Capstone Green Energy Holdings, Inc. reported a net loss of $0.4 million for the three months ended September 30, 2024, a significant decrease from the $5.9 million loss in the same period last year.
• Basic and diluted loss per share also improved to $(0.02) from $(0.32).
• The company's revenue decreased to $22.7 million from $28.4 million year-over-year, primarily due to lower product deliveries in Europe, the United States, Canada, Asia, and Australia.
• Gross profit increased to $7.0 million, or 31% of revenue, compared to $5.3 million, or 19% of revenue, in the prior year, driven by higher product pricing and lower warranty charges.
• Operating expenses decreased by $2.8 million to $6.4 million, mainly due to lower legal fees related to reorganization and restatement activities.
• The company's ending backlog was approximately $10.6 million as of September 30, 2024, compared to $14.2 million as of March 31, 2024.
• The book-to-bill ratio was 0.8:1 for the three months ended September 30, 2024, compared to 0.4:1 for the same period in 2023.
• For the six months ended September 30, 2024, the company reported a net loss of $4.4 million, compared to a net loss of $11.6 million for the same period in 2023.
• Revenue for the six months ended September 30, 2024, decreased to $38.4 million from $52.3 million for the same period in 2023.
• The company acknowledges substantial doubt about its ability to continue as a going concern due to its current cash position, lack of liquidity, and economic and market risks.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue is down, the company has significantly reduced its net loss and improved gross profit. However, the going concern warning and material weaknesses in internal control temper the positive aspects.

Positives

• Significant decrease in net loss for both the three and six months ended September 30, 2024.
• Improved gross profit margin due to higher product pricing and lower warranty charges.
• Reduction in operating expenses, primarily driven by lower legal fees.
• The company is actively working to remediate material weaknesses in internal control over financial reporting.

Negatives

• Overall revenue decreased for both the three and six months ended September 30, 2024.
• The company's ending backlog decreased to $10.6 million as of September 30, 2024.
• The company acknowledges substantial doubt about its ability to continue as a going concern.
• Material weaknesses in internal control over financial reporting exist.

Risks

• The company's ability to continue as a going concern is uncertain due to its current cash position, lack of liquidity, and economic and market risks.
• Material weaknesses in internal control over financial reporting could lead to material misstatements in the company's financial statements.
• Pending or threatened litigation could have a material adverse effect on the company's financial condition and operating results.
• Changes to trade regulation, quotas, duties or tariffs and sanctions caused by the changing U.S. and geopolitical environments, including the ongoing conflicts in Ukraine, Israel and Gaza could have a material adverse effect on the company's financial condition and operating results.

Future Outlook

Management expects that the existing product platforms, the C65, C200, C600, C800 and C1000S Series microturbines, will be the foundational product lines for the foreseeable future.

Management Comments

• Management believes our products and services offer a level of flexibility not currently offered by other technologies such as reciprocating engines.
• Management also believes our products and services offer a level of flexibility not currently offered by other technologies such as reciprocating engines.
• Management expects to be able to leverage our costs as product volumes increase.

Industry Context

The company operates in the distributed generation market, focusing on energy efficiency, natural resources, and renewable energy sectors. The report highlights the growing transition to renewable energy sources and technologies on a global scale.

Comparison to Industry Standards

• The company claims to be the market leader in microturbine energy systems based on the number of microturbines sold annually and total installed base.
• The company's microturbines are presented as a competitive alternative to traditional power generation sources, particularly in applications requiring high reliability, low emissions, and fuel flexibility.
• The report mentions that the company's microturbines can turn fuel byproducts, such as flare gas, or associated gas, into useable fuel to provide prime power to these sites, which is a competitive advantage in the natural resources market.

Legal Proceedings

• Capstone Turbine Corporation v. Turbine International, LLC: A trial date has been set for December 2, 2024.
• SEC Investigation: The Company is cooperating with the SEC in connection with its investigation.
• Cal Microturbine Arbitration: The parties have completed selection of a three person arbitration panel which has provided a hearing date in June 2025, with a backup date in September 2025.
• Spitzer v. Flexon, Jamison, Juric, Robinson, and Hencken: The action has been stayed since September 6, 2024 to allow the parties to explore settlement, the outcome of which such cannot be assured or reasonably estimated.
• Mark Estrada and Ricardo Montalvo, vs. Capstone Green Energy LLC and Erick Kim: The Company intends to fight the claims vigorously.
• DV Energy, LLC vs Capstone Green Energy Holdings, Inc, Capstone Turbine Corporation, Capstone Green Energy Corporation, and Capstone Green Energy, LLC: Capstone is disputing DV Energy's claim on the basis that the distributor agreement clearly states that deposits are non-refundable and the Company intends to fill the order when U.S. Sanctions permits.

Related Party Transactions

• The Company reported $0.7 and $1.3 million of DSS service fees in Other income, net, during the three and six months ended September 30, 2024.
• In consideration for the license, the Company pays Reorganized PrivateCo an annual royalty of $100,000.
• The New Capstone Services Fee will not exceed $2,500,000 per fiscal year (the Services Fee Cap), to be increased on April 1 of each year, beginning with April 1, 2024, by an amount equal to the greater of (a) 3.5000% and (b) the Consumer Price Index, as set by the U.S. Bureau of Labor Statistics and available on March 31 of each year

Stakeholder Impact

• Shareholders: The improved financial performance may be viewed positively, but the going concern warning and material weaknesses in internal control create uncertainty.
• Employees: The company's restructuring and cost-cutting measures may impact employees.
• Customers: The company's ability to provide ongoing service and support is dependent on its financial stability.
• Suppliers: The company's ability to meet its purchase commitments is dependent on its financial stability.
• Creditors: The company's ability to repay its debt is dependent on its financial performance and liquidity.

Next Steps

• The company will continue to focus on improving its products based on customer input.
• The company will continue to build brand awareness and new channels to market by developing a diversified network of strategic distribution partners.
• The company will continue to monitor operating expenses and strive to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices.
• Management is implementing a formal process to periodically review and update accounting policies.
• Management has reviewed and refined the Company's current accounting memorandums related to product, parts, and accessories sales and FPP service contracts to address the proper financial reporting considerations.
• Management is enhancing the design of and implementing controls over financial reporting for (i) systems, products, parts, and accessories sales subject to bill and hold arrangements with customers and (ii) FPP service contracts, including the cost recognition of parts and labor associated with FPP service contracts.

Key Dates