10-Q: Capstone Green Energy Reports Q3 2025 Results: Revenue Up, but Going Concern Uncertainty Remains

Capstone Green Energy Holdings, Inc. reports increased revenue for Q3 2025 but acknowledges substantial doubt about its ability to continue as a going concern.

Summary

• Capstone Green Energy Holdings, Inc. reported a net loss of $2.7 million for the three months ended December 31, 2024, compared to a net income of $24.2 million for the same period in 2023.
• Revenue increased by $5.5 million to $20.1 million for the quarter, driven by higher product, parts, and rental demand.
• Gross profit improved to $5.0 million, or 25% of revenue, compared to $3.0 million, or 21% of revenue, in the prior year.
• SG&A expenses decreased by $3.4 million to $6.3 million due to reduced legal, accounting, and stock-based compensation expenses.
• For the nine months ended December 31, 2024, revenue decreased by $8.4 million to $58.5 million.
• The company reported a net loss of $7.1 million for the nine-month period.
• Ending backlog was approximately $26.8 million at December 31, 2024, compared to $14.2 million at March 31, 2024.
• The company acknowledges substantial doubt about its ability to continue as a going concern due to its current cash position, lack of liquidity, and other factors.

Sentiment

Score: 4

Explanation: The document presents mixed signals. While revenue increased in Q3, the net loss, going concern warning, and material weaknesses in internal control raise significant concerns. The legal proceedings add further uncertainty.

Positives

• Revenue increased in Q3 2025 compared to Q3 2024.
• Gross profit margin improved in Q3 2025.
• SG&A expenses decreased in Q3 2025.
• Ending backlog increased significantly.
• The company is focusing on high-growth vertical markets such as energy efficiency and renewable energy.
• The company is actively developing new hydrogen products.

Negatives

• The company reported a net loss for both the three and nine months ended December 31, 2024.
• The company acknowledges substantial doubt about its ability to continue as a going concern.
• The company has a working capital deficit of $15.6 million as of December 31, 2024.
• Revenue decreased for the nine months ended December 31, 2024.
• The company is involved in several legal proceedings, including a significant arbitration claim from Cal Microturbine.
• The company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting.

Risks

• The company's short and long-term liquidity requirements and the adequacy of its capital resources are uncertain.
• The company's ability to comply with financial covenants in its debt agreements is a concern.
• The company is facing risks related to the restatement of its previously issued consolidated financial statements and the pending SEC investigation.
• The company's ability to remediate material weaknesses in internal control over financial reporting is uncertain.
• The company is subject to risks related to pending or threatened litigation.
• Changes in U.S. and international trade policies may adversely impact the company's business and operating results.
• The company's shares of common stock traded from time to time on the OTC Pink Sheet Market.

Future Outlook

The company is focused on improving its products, building brand awareness, and developing a diversified network of strategic distribution partners. Management expects that its existing product platforms will be its foundational product lines for the foreseeable future. The company is also continuing to develop its new hydrogen products.

Management Comments

• Management believes that the company's 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.
• Management believes the book-to-bill ratio demonstrates the current demand for our products in the given period.

Industry Context

The company operates in the distributed generation market, which is experiencing growth due to increasing demand for reliable, sustainable, and affordable energy solutions. The company's microturbines compete with other distributed generation technologies such as reciprocating engines, fuel cells, and solar photovoltaic systems. The company is focusing on specific vertical markets such as energy efficiency, natural resources, and renewable energy to drive growth.

Comparison to Industry Standards

• Capstone's microturbine technology competes with reciprocating engines, fuel cells, and solar photovoltaic (PV) systems in the distributed generation market.
• Compared to traditional power generation, Capstone's CHP and CCHP systems can improve site economics by capturing waste heat, increasing total system efficiency from approximately 30% to approximately 85% for hot water and chilled water, and up to 90% or more for some steam and direct drying applications.
• Capstone's microturbines can burn renewable fuels with minimal emissions, potentially outperforming conventional combustion engines, especially when the gas contains a high amount of sulfur.
• Capstone's microturbines can be installed along with a rotary UPS to provide a complete line interactive continuous power solution, offering an alternative to traditional solutions that utilize Uninterruptible Power Supplies (UPS) and back-up diesel generators.

Legal Proceedings

• Capstone Turbine Corporation filed suit against its former distributor, Turbine International, LLC, seeking approximately $4.8M in compensatory damages.
• The SEC Enforcement Division commenced an investigation into the circumstances surrounding the restatement of the Company's quarterly and annual financial statements.
• Cal Microturbine filed a complaint before the American Arbitration Association, seeking approximately $25.0 million in damages, alleging breach of contract and fraud.
• A putative securities class action was filed in the U.S. District Court for the Central District of California, captioned Spitzer v. Flexon, et al.
• Two filings were made by the Bibiyan Law Group against Capstone and an individual supervisory employee at Capstone on behalf of current and former non-exempt California Capstone employees.
• DV Energy, LLC filed a lawsuit in the Superior Court of California, County of Los Angeles to recover a $0.7 million parts deposit.

Related Party Transactions

• On the Effective Date, Reorganized PrivateCo continues to own assets consisting of (i) all of the Company's right, title, and interest in and to certain trademarks of the Company and (ii) assets owned by the Company relating to distributor support services ((i) and (ii) together, the Retained Assets) and certain income tax attributes that remained with Reorganized PrivateCo.
• On the Effective Date, Operating Subsidiary entered into a Services Agreement by and among Reorganized PrivateCo and Operating Subsidiary (the Reorganized PrivateCo Services Agreement).
• On the Effective Date, the Company entered into a Trademark License Agreement (the Trademark License Agreement) by and between Reorganized PrivateCo, as licensor, and the Company, as licensee.
• On the Effective Date, the Company entered into a Services Agreement (the Services Agreement) by and among the Company and Operating Subsidiary.
• On January 12, 2024, the Company entered into a services agreement with CFGI, pursuant to which CFGI provides third party accounting consultancy services to the Company. A related person who is the son of John Juric, our Chief Financial Officer, is a staff employee at CFGI.

Stakeholder Impact

• Shareholders face significant risk due to the company's going concern uncertainty and material weaknesses in internal control.
• Employees face uncertainty due to the company's financial instability and potential for restructuring.
• Customers and suppliers may be hesitant to engage with the company due to its financial challenges and legal proceedings.
• Creditors face increased risk of non-payment due to the company's liquidity issues.

Next Steps

• The company is engaged in remediation actions to address the material weaknesses in internal control over financial reporting.
• The parties have completed selection of a three-person arbitration panel which set a hearing date in June 2025, with a backup date of September 2025 for the Cal Microturbine Arbitration.
• The parties continue settlement discussions for the DV Energy, LLC lawsuit.

Key Dates