Capstone Green Energy Corp (CGRN) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to your quarter one 2009 Capstone Turbine earnings conference call. My name is Robin, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today, Miss Libby Reynolds, Chief Accounting Officer. Please proceed.

Thank you. Good afternoon, and welcome to Capstone Turbine Corporation's conference call for the first quarter fiscal 2009 and the June 30, 2008. I'm Libby Reynolds, your contact for today's conference call. Capstone filed its quarterly report on Form 10-Q with the Securities and Exchange Commission, today, August 11, 2008. If you don't have access to this document and would like one, please contact Alice Barsoomian at 818-407-3628 or you can view all of our public filings at the SEC website at www.SEC.gov or at our website at www.microturbine.com.

During the course of this conference call, management may make projections or other forward-looking statements regarding future events or financial performance of the company within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, future financial performance in attaining profitability, the ability to reduce costs and improve operational efficiencies, improved overall margin in our products, the ability to obtain additional financing, the launch of the C200 and C1000 products, compliance with certain government regulations and increased government awareness of our products, opening new markets for our products and attracting large customers to our products, new applications for our products, including the hybrid bus and oil and gas markets, revenue growth and increased sales volume, our success in key markets, our ability to enter into new relationships with channel partners and distributors and other third parties, the energy efficiency, reliability and low cost of ownership of our products, expansion of production capacity and improved inventory turns, value to our customers of new low emission products, future applications of our products and environmental advantages of our products. These forward-looking statements are subject to numberous assumptions, risks and uncertainties, including the following, our expectations about expansion into key markets may not be realized.

Certain strategic business initiatives and relationships may not be sustained and may not lead to increased sales. We may not be able to reduce costs or improve customer satisfaction. The growth in our back log has significantly exceeded our internal forecast. In order to meet this increased demand, we will likely need to raise additional funds to meet our anticipated cash needs for working capital and capital expenditures during the next 12 months. We may not be able to secure needed financing. We may not be able to expand production capacity to meet demand for our products. We may not be able to obtain sufficient materials at reasonable prices. Our release of new products may be delayed or new products may not perform as we expect. We may be unable to increase our sales, and sustain or increase our profitability in the future. We may not be able to obtain or maintain customer, distributor, other relationships that result in an increase in volume and revenue. We may not be able to comply with all applicable government regulations. We may not be able to retain or develop distributors in our targeted markets, in which case, our sales would not increase as expected. And if we do not effectively implement our sales and marketing service and product enhancement plans, our sales will not grow and therefore we may not generate the net revenue we anticipate.

These are among many factors which may cause Capstone's actual results to be materially different from future results predicted or implied in such statements. We refer you to the company's form 10-K, Form 10Q and other recent filings with the Securities and Exchange Commission for descriptions of these and other risk factors. Because of the risks and uncertainties, Capstone cautions you to not place undue reliance on these statements which speak only as of today. We undertake no obligation and specifically disclaim any obligation to release any revisions, any forward-looking statements to reflect events or circumstances after the date of this conference call or to reflect the occurrence of unanticipated events. I'll now turn the call over to Darren Jamison, our President and Chief Executive Officer.

Thank you, Libby. Good afternoon, everyone and welcome to Capstone's first quarter earnings call. With me is Ed Reich, our Executive Vice President and Chief Financial Officer, and Mark Gilbreth, our Executive Vice President and Chief Technical Officer.

Today I would like to start the call with a quick review of the significant events of the first quarter and then Ed will review the specific financial results. Ed will then turn the call back over to me and I will discuss our progress towards our strategic objectives and review developments in each of our key market segments and finally talk about what I hope to achieve in the fiscal year before I open the call up to your questions. During the first quarter of fiscal 2009, we continue to see the impacts of our new managing team, our new marketing and branding strategies. We continue to improve our relationships with our business partners, and we are focusing on our key suppliers as we look to increase our production rates to meet the steadily increasing demand for our products.

During the first quarter, new orders outpaced shipments as we received $20 million in new product orders and shipped $5 million in product. Therefore, back log increased $14.8 million to a company record $42.7 million. So if you analyze our back log, it has increased from $13.1 million or 144 units at the end of Q3 to $27.9 million or 428 units at the end of Q4, to where we are today with a record $42.7 million or 567 units at the end of the first quarter. So to put this back log into perspective, we ended Q1 fiscal 2008, just a year ago, with $5.3 million in back log and achieved $31.3 million in total revenue. This year we finished the first quarter with more units in back log than we shipped in all fiscal 2008 and approximately twice the number we shipped in all fiscal 2007.

However, the metric I use to measure and develop the business is a sum of quarterly revenue and back log. Because Capstone is still a developing business, our revenues can be lumpy as illustrated by the first quarter results. If you measure the business by quarterly revenue and back log combined, you'll see a much clearer picture of where the business is headed. If you look at this metric for the last five quarters, you will see that our combined revenue and back log has grown from $11 million in the first quarter of fiscal 2008 to $18 million in the second quarter, to $22 million in Q3, $37 million at the end of the year or Q4, to over $50 million today. This represents a 361% improvement over the last five quarters alone.

What's even more remarkable is Capstone has achieved this growth despite a very challenging economy. If you look back at the history of Capstone, it has always had a tremendous product, but has been challenged to achieve significant market penetration, product adoption and most importantly, repeat customers. I believe this growth in combined revenue and back log illustrates today that Capstone is reaching a critical inflection point of our disruptive ultra-low emission technology and we are making significant in-roads in multiple markets and multiple applications around the world.

We are building on our success in Europe, Russia and the US in markets like Australia, Asia, Mexico and South America. Capstone is benefiting from strong global market drivers of ever-increasing energy prices, growing grid capacity issues, power security and liability issues and, of course, global climate change. However, most importantly, we are seeing customers move from demonstration or test projects into product implementation and product adoption. I have been most encouraged in the following recent developments. Several transit customers have moved from testing single hybrid buses to ordering over 165 C30 powered buses to date.

A significant international oil and gas customer has moved from testing a single C30 on coal seam gas in Australia to ordering over 100 units for installation in the single gas field. I'm encouraged by one of the largest interstate natural gas transmission companies in the US purchasing two C600 units for installation in remote natural gas oil fields without utility power. I'm encouraged by a European grocery store chain moving from a single C65 liquid-fueled unit running on biodiesel to ordering 36 C65 in late July and here in early August. I'm encouraged by two hotel chains moving from single demonstration sites to evaluating multiple locations, including one chain in Mexico that is considering moving away from the grid altogether and utilizing Capstone 100% for its electrical and thermal needs.

However, this quarter I'm most encouraged by the recent orders of our new C1000 product that are scheduled to begin shipping commercially in January. I'm impressed that our distributors sold 12 new C1000 series units in the quarter. The C1000 product leverages the C100 turbine and represents another 55 C200 turbines on top of the 67 C200s we already have in back log. Therefore, at the end of the quarter, we have presold 122 C200s before we ship even the first commercial unit.

Now, if you recall, management originally planned on building 28 C200s in calendar 2008 and 110 C200s in calendar 2009. We later revised that number to 48 in calendar 2008 and 160 in 2009. Today management is evaluating a revised plan to increase production in calendar 2009 to four units per week or 208 units in calendar 2009 as orders have, again, exceeded our internal plan. However, this plan will be evaluated over the next quarter based on continued order flow, manufacturing capability and working capital projections. In conclusion, I believe the first quarter's significant back log growth with $20 million in new orders illustrates that Capstone is indeed reaching the inflection point in our global markets despite challenging economic conditions. I also believe that significant market demand for our new C200, C1000 product will help Capstone take an important step toward achieving our strategic goals of near-term profitability and building long-term shareholder value. At this point I'd like to turn the call over to Ed to review the specific first quarter results. Ed.

Thank you, Darren. Go good afternoon, everyone. I would like to provide you with the results for the first quarter ended June 30, 2008. As Darren mentioned, back log at the end of the quarter was $42.7 million, an increase of approximately 53% from the prior quarter and 706% from the prior year comparable quarter. Revenue for the quarter ended June 30, 2008 was $7.5 million, an increase of 34% from the $5.6 million reported for the same period last year and decreased 19% from last quarter's revenue of $9.3 million. We shipped 89 units in the first quarter of fiscal 2009 compared to 77 units in the same period last year and 140 last quarter.

Our gross loss for the quarter was $1.1 million or 15% of revenue compared to $2.5 million or 44% of revenue for the same period last year and $0.5 million or 6% of revenue from our prior quarter. Decrease in gross loss, a corresponding improvement of 29 points in gross loss percentage over the past year reflects increased sales of both C30 and C60 series units along with lower warranties and higher absorption of overhead costs into ending inventory, offset by increased manufacturing expense. Research and development costs were $2 million for the first quarter, a decrease of $0.7 million or approximately 26% from the same period last year and flat when compared to the prior quarter.

R&D expenses declined as a result of additional funding from UTC Power Corporation the C200 program and were offset by increased spending for supplies, consulting and facilities. We expect R&D expense to be lower in fiscal 2009 than it was in fiscal 2008. This decrease is expected to occur as a result of lower overall spending due to outside funding from UTC Power for our C200 commercialization. SG&A expenses were $6.9 million for the quarter, an improvement of $0.4 million or 6% from the prior quarter and an increase of $1 million or 17% from the same period last year.

The net increase in SG&A expenses year-over-year was comprised of increases in non-cash stock compensation, travel, labor, marketing and facilities, offset by decreased professional services and consulting. The increase in travel and marketing costs reflects the continued effort in developing worldwide distributors and launching the C200 and C1000 series products. Our first quarter net loss was $9.8 million or $0.07 per share, a decrease of $0.6 million from the $10.4 million loss or $0.07 per share reported for the same period last year. Cash balances decreased by $9.9 million during the first quarter and as of June 30, 2008, cash and cash equivalents were $32.7 million. Now I'll turn the call back over to Darren.

Thank you, Ed. As an example of my earlier remark regarding lumpy revenue, this quarter we could not shift the $1.9 million order because of delays in receiving a letter of credit from the distributor. This is not a surprise to management as we are in a growth stage of the business and susceptible to large orders shifting in or shifting out with any specific quarter. As I said earlier in the call, I measure the business by summing the quarterly revenue and back log to assess the overall direction of the company. Therefore, again, I'm pleased with our back log of $42.7 million when combined with the $7.5 million of first quarter revenue for a total of $50.2 million. Management's focus for the coming quarters is to manage inventory and working capital requirements in support of increasing the C30 and C65 order volume and ramping up the new C200 product line.

Now, I would like to take a minute to update you on the progress in some of our several key markets and discuss what you should expect to see from Capstone in the coming quarters. The European and Russian markets continue to show strong growth from last quarter and we have been enthusiastic early adopters of the C200 and C100 products. In addition, markets like Germany, France and Spain, as well as Italy continue to drive Capstone products in the biogas, landfill gas, and waste water treatment plants. Sparks spread in Russia is the best it's been in recent years, and is driving many combined heat and power opportunities. Therefore, you should expect to see the European and Russian markets continue to grow as the year goes on.

The market in New York continues to be a prime opportunity for Capstone's products because of its need for clean and reliable power solutions and the fact that buildings make up 79% of the city's greenhouse gas emissions. Simply said, New York is a model city for Capstone as we have C30s going into MTA hybrid buses, C65s into commercial businesses and hotels, and the new C200, C1000, going into multi tenant, high rise buildings like the Met Life Building, the Helmsley Building as well as the Daily News Building. We continue to follow up on our recent sales and marketing blitz with our distributor RSP Systems and Wesco, a Fortune 500 listed distribution company. We're exploring the ways to broaden the Wesco relationship to include national accounts in other areas outside of the New York metropolitan area. I expect to see continued steady growth in the New York market and the entire Eastern seaboard as our key partners increase marketing efforts and achieve improved results.

Outside of New York, we continue to see opportunities for hybrid electric buses with our partner designed line in key markets like Chicago, Charlotte, Syracuse, Phoenix and several cities in both California and Florida. In Europe, our partner Eco Power Technologies, or EPT, recently delivered several test buses to Rome. I believe we'll continue to see the market grow for hybrid electric buses powered by our microturbine because Capstone can provide lower emissions, less noise, less vibration and most importantly, improved fuel mileage.

California remains a good potential market opportunity, which, as you know, was limited last year because of the Carb 2007 certified product. With our official certification from the resources board last September, we are starting to receive orders from our distributor, Collicutt Energy and hope to once again regain our market potential.

The oil and gas sector had a strong quarter of significant orders from several large oil and gas customers. Today Capstone's largest oil and gas users are in Russia, PMEX in Mexico and PetroBraz in Brazil. However, we've recently received nice orders from other companies like Petronos, El Paso Gas, Chevron and Conoco Phillips. Capstone should continue to gain market penetration. The only gas market as petroleum exploration, production, and transportation companies are more focused on reliability, maintainability and total cost of ownership more than they are on product first cost. During the quarter, we also received our first order from Reagan Equipment who is our new distributor in the US to handle oil and gas opportunities in the Gulf Coast region. Reagan has been in business for over 60 years and has been heavily involved in the oil and gas sale and service business.

We continue to work hard in Asia with the focus on the market in China, Korea, Japan and India. We continue to see slow, but deliberate growth in these markets as Capstone brings on additional distributors and leverages our current partners such as Samsung. In addition we began working with UTC Power as they're expanding their pure comfort reach into these markets in China and India. We have seen a substantial increase in quotation activity in China specifically as I believe the Olympics is highlighted as 16 of 20 of the most polluted cities in the world are located in China.

As discussed, we are pleased with the market acceptance of our C200 and C1000 product, the development effort of product and support of UTC's Prat and Whitney and Hamilton and Sunstrand turbine engineers have been extremely beneficial to the final product development efforts. Today we are currently building several C200s for UL and CE certification testing and shipments to UTC Power for integration in their Carrier double effect absorption chiller. These preproduction units roll off the new assembly line this month with the first commercial C200 on schedule to ship in September.

As I mentioned in the last earnings call, we are looking at several markets of interest beyond what we serve today. These markets include military applications where a long maintenance cycle and high reliability could be beneficial in remote military operational theaters. When you consider the fact that our product has six scheduled maintenance events over five years and typical internal combustion engines have about 118 scheduled maintenance events over five years, you see how military applications could be extremely interesting. We are currently evaluating several military programs as potential business partners, but I do not expect to see any significant revenue from this market in fiscal 2009.

We continue to explore possibilities of several potential marine partners, looking at applications in both the yacht market as well as the commercial boat market where emission pressures are forcing boat builders to look at alternative energy solutions for on board generations and cooling. These discussions are moving ahead nicely and Capstone is investigating the modifications necessary to get marine certification for our product. If we can receive this certification quickly, we can possibly see orders for the product later this fiscal year.

The Class A truck market continues to be of interest because of the current high diesel fuel prices combined with pending stringent EPA 2010 emission requirements. These two factors are putting tremendous pressure on the diesel engine and truck manufacturers. Capstone is currently looking at the economics and design viability of commercializing our ICR engine product to play a role in this large, competitive on-highway truck market. Capstone's ICR turbine engine design could increase higher efficiencies across the power range while meeting pending EPA emission requirements without costly aftertreatment. This product would potentially be lighter weight and have a lower hood profile than today's heavy duty diesel engines used in the market. Today we are currently in discussions with a major class A truck manufacturer.

Lastly, one of the most interesting potential markets is the solar concentrator market. Capstone recently announced a paid development effort with Heliofocus out of Israel to develop a modular, high efficiency solar reflector system used for utilities and large businesses. This product development effort will combine the benefit of microturbine solar concentrator technologies. Capstone microturbine uses gases or liquid fuel to heat combustion air, while solar concentrator technologies produce enough heat energy to provide combustion air at required temperatures for the turbine. This combined system would be capable of operating on sunlight during the day and traditional fuels at night, thus resulting in a system providing the benefit of 24 hours of operation at higher energy conversion efficiencies.

As I look at the company today, I believe that Capstone has now passed through the market adoption phase into the manufacturing ramp and yield improvement phase. After we achieve higher plant outputs and a successful launch of the C200 product, we will then turn our focus to the next phase which is improved overall margin in our products. To this end, we are finalizing the acquirement of an engineering development program that will better integrate all of our products and provide greater parts commonality between the C30, the C65 and the C200. The goal of this development effort is to provide lower cost design that will further increase our purchasing power and lower our overall inventory requirements. In conclusion, I'm proud of my management team, the entire Capstone organization, including our valued employees, valued vendors and key distributors, for setting up what I believe will be the best year in company history. At this point, Operator, I'd like to open up the call for questions.

And your first question comes from Sanjay Shrestha from Lazard Capital Markets. Please proceed.

Good afternoon, guys. Great back log number. Question on that, that does not include the service department, correct?

Sanjay, yes, that is only back log of the product, it does not include any service components, spare parts or accessories. Last year out of $31 million in revenue, I believe actual product shipments were $24 million, so to give you an idea how much parts and service and accessories have been in the past.

Exactly, so we can still use that same number despite the fact that back log has been growing pretty dramatically?

Yes, we think the service business is up quite nicely year-over-year, there may be a lag on the service side as new product get out there and we get FPP's signed, but definitely rule of thumb we use is 30%.

Great. Okay. And then in terms of this back log, can you guys talk a little bit about the mix from both the products C30, C65, C200, C1000 as well as the end market mix on that back log?

Okay. The back log itself is 238 C30s.

Okay.

The majority of those are going into oil and gas applications as well as transit bus.

Okay.

The C60 is very diverse. The C60 back log is going into all of our market segments, everything from retailers like the grocery store chain I mentioned, hospitals, telecom, office buildings, hotels, schools as well as landfill gas digester, waste water treatment. We have 206 C60s in back log, a year ago that was 77. On the C30s, a year ago it was 28, again we're at 238. C200s, we have 67 as I mentioned as well as another 55 if you count the C1000 series product. The nice thing is the back log is up across both the C30s, the C60s the C200, and the C1000 product again into most all of our market segments.

Great. So now in terms of the back log being built the way it is, now the next thing is are we going to sort of look at this back log number one, what's the sort of revenue recognition here? How much of that could be recognized over the next 12 months? Two, are we going to now, instead of the revenue lumpiness could potentially start to get into the back log lumpiness or that might be not the case because UTC Power may sell your product more aggressively, more and more C200 and C1000, which means the back log is going to keep on building? How should we think on that?

As I said in the call, I like to look at revenue and back log together. You should start to see revenue start to go up as we move back log through the shop. Realize, though, we are susceptible to when customers want the product and they obviously have to have financing in place or an approved credit line before we ship. If you look at our back log today, 523 of the 567 units are in short-term back log. We define short-term as one year or less. Obviously we have nine months left in the quarter. So it's safe to assume that we believe the majority of that back log will come through the P&L this year.

Okay. That's terrific. Congratulations on the back log.

And the shipping, Sanjay, of the C200, is still on schedule as Darren said scheduled to begin in September, so you should start to see those released from back log then and C1000s in January, which will be the last quarter of this fiscal year.

Just to be clear, the preproduction units that we called them that we're building this month for CE testing and UL testing and for shipment to UTC Power, those are 99% the same as the production units. There's not a lot of difference.

Okay.

The only difference would be anything we learn in the early production stages for manufacturability. In true sense, we're actually building C200s this month, the commercial units will go out in September.

Got it. That's great. Thanks a lot, guys.

Thanks, Sanjay.

Your next question comes from Sam Brothwell from Wachovia. Please proceed.

Hi, good afternoon, guys.

Hey, Sam, how are you doing?

I'm doing okay. A couple of clarifying questions. When you refer to C1000 units, you're also categorizing in there like the C600 that's going into the pipeline application and things like that, right?

Correct. We currently have nine C1000s in back log, two C600s and one C800. So when I said 12 C1000 series or family, I meant all three of those.

Okay. Was any of that incremental to what you've announced already? Where's the geographic distribution? Is it the same as what we had seen before?

I think we'd only announced five C1000 family units, so some of those are new. We don't announce every order that we get, obviously, and some orders that have competitive issues we try not to announce just to make sure we don't lose the competitive edge. So we did close 12 C1000 family units during the quarter, which is the first quarter we've started taking orders for the product.

So the incremental orders, in what broad geographic market -- US, Europe?

We've got C1000s going into New York, into the Met Life building and then (Inaudible) buildings as I mentioned, then the rest of them are going into Europe, as well as a couple of C600s in oil and gas here in the US.

Right.

So some are office buildings, some are oil and gas, some are landfill. It's really a broad scope.

Okay. And then with respect to the very large back log build and you indicated the need to address inventory and all of that, obviously begs the question how do you see your capital needs playing out over the coming 12 months?

That's something we're very focused on as a management team right now. Everybody -- you know, we talked to obviously our customers and our distributors want us to increase the C200 build rate. Obviously that gives a tremendous working capital pressure on the business. So Ed and his team are currently modeling the current back log we have now so we can look at what our working capital requirements would be. Our first step to fill those requirements would be to get some sort of bank line or bank debt to offset working capital and then as a last resort, we'd look at some sort of equity raise. Again, we would want to size anything we do properly. Our goal is to get through this ramp-up period with managing our working capital as best as possible. We're trying to get the forward turns on inventory and this new program I've outlined that Mark is addressing, with making more commonality between the components and the units will help that dramatically.

Okay. Well, thanks a lot.

Thank you.

And your next question comes from Roger -- I'm sorry, Walter Nasdeo from Ardour Capital. Please proceed.

Thank you very much. Good afternoon.

Hey, Walter. How are you doing?

I'm all right. First of all, the $1.9 million order that didn't make it in the quarter for the letter of credit, has that been made up now?

We are finalizing the letter of credit. It should go out this month.

Okay. So we should see it this quarter, then?

Yes, absolutely. We were disappointed. The customer wanted it last quarter for their customer, for their end user. We had some haggles with the bank getting a letter of credit signed up.

Okay. Now, what I'd like to do is talk about the manufacturing, your current capacity, I mean I understand about having to put more capital into place to get things built out, but what is the expectation on starting to move, the build, the time to build, what we can look for from turning an order into a shipment going forward because obviously there is a lot of outlets for your products right now and the things that I'm kind of wondering about is how quickly you're going to be able to build them and get them out the door going forward? So what's your expectation there?

That's a great question. We quote people 12 to 14-week delivery on our C30 and our C60 and that is fairly typical. Obviously our challenges as the business has grown faster than we anticipated, it really puts pressure on our suppliers and so I've actually spent a lot of the last quarter out visiting our vendors and our suppliers instead of customers because truthfully our biggest issue is getting manufacturing up. I can add more people. We've already started a second shift on recuperators. So getting people and increasing Capstone's capacity to build product is not the problem. It's getting materials from our vendors and ramping them up, which is the real issue. So I've been doing the road shows, seeing all of our key suppliers, first having them sign an MDA, then showing them what our back log looks like and asking them how they can help us execute on this business faster. As you know, Walter, we can do about 2,000 units a year with our current capacity and 4,000 units a year with another $15 million of robotic welding.

And that 4,000 is a good kind of yearly run rate for you guys?

That's the maximum we can do with our plant equipment today. At 2,000 units, we can do without any additional capital expenditures.

Okay.

Walter, we shipped 434 units in FY08. We did it with one shift of labor. So to get to the 2,000, it's by adding two more shifts.

Right. Okay.

I'm sure our shareholders are going to be frustrated, you've got this back log, why can't you move it through revenue? We share that frustration, we're working very hard, but with all the units you have, you have to have every component to build the unit. We have to make sure our vendors can ramp up quickly. Steel has been very difficult to get and a lot of our core materials have been lagging on deliveries.

How is that coming together? Are you getting new suppliers and different suppliers and a broader spectrum of suppliers to kind of make sure that you don't get bottle necked going forward when you really have to push product out the door?

Absolutely it's what we're doing. We're modeling exactly where we have bottle necks going to those supplier and either setting up a second supplier, in most cases we have two or getting them to move to a second shift. A lot of our suppliers are working six and seven days a week to meet the needs we're putting on them.

Okay. Thanks a lot.

Thank you, Walter.

Your next question comes from Eric Stine from Northland Securities. Please proceed.

Hey, guys, nice back log this quarter.

Thanks, Eric.

A few questions. A lot of them have been covered here, but the first thing, are you guys still stated goal to be cash flow positive in December '08?

Yes. The way we like to look at that now, Eric, is since we started disclosing unit shipments every quarter is when we are in a quarter where we ship 250 units, based on an assumed product mix, that we should be positive on cash flow.

Okay. That's kind of what I was getting at. I know that revenue and back log together are very impressive and that it is a little lumpy, but you're still on plan for that 250 units, that's very helpful.

Yes. To gauge it, we shipped 147 units at the end of Q4 and that was 30s and 65s. So if you look at what's in back log for the 200s and then the 1000s, you know, it's not a huge leap of faith to get to the 250.

We really moved through an execution stage right now. We've got to get the plant up and running at higher levels. We need to get our vendors used to supplying us at higher levels. We kind of had, as I joked, a just-in-case inventory model when I got here. We had $20 million in revenue, $20 million in inventory. We've done a good job of bringing that inventory down in the last year. While moving to just in time, while you've seen the kind of explosive growth that we have, it's a challenge for us, but it's a challenge we're up to. We're working very hard. The plant here is currently running six days a week as well as second shift in certain key areas. As with we get more materials in, we can kick more product out.

Okay. And just a question, you said that you're working on CE and UL certification of the C200 and shipping some to UTC Power. Is that part of the development project, have they actually ordered a C200? It's very impressive how many you've got in back log despite the fact that maybe UTC has not ordered one yet?

UTC has actually ordered six C200s.

Okay.

The C200, we are shipping them is part of the development program. So that is a requirement under the program. Obviously UTC is not helping us out in this program because they want a royalty. They're a big company, they don't need royalties. They want to mate it with their Carrier Pure Comfort Absorption Chiller. So we're shipping them a unit so they can do their final engineering and match the chiller for their Pure Comfort product. As soon as we get the C200 launched, they want to come out with their Pure Comfort product right behind that.

Okay. The last thing and I'll jump right back in the line. Can you guys give us feedback on how the other beta version is running at greenvironment?

It has not been started up yet. They are in process of firing that unit up. The unit performed very well here. Mark can jump in, I think it was actually kicking out over 220 kilowatts, it's a very strong engine. We're very happy with the beta units. The units that are being built now, today, are probably over 90% similar in design?

Yes. The C200 units, which are going together today, we had a few minor improvements to make from our earlier beta program, but all in all, more commonality with the 65, sharing common parts in that product and getting ready for the commercialization of that with the CE and UL testing.

Okay. Thanks a lot, guys. I appreciate it.

Thanks.

And your last question comes from Ron Oster from Broadpoint Capital.

Good afternoon. A couple of quick ones. With the launch of the new products, you're fast approaching this September launch. What are the major hurdles you need to overcome to achieve this, a timely launch and just kind of can you walk us through the steps that you might have to overcome to get to this deadline?

Yes. I would say, Ron, we're past the design hurdles. I mean there's some design manufacturability changes we're making today as we actually put the first units together. The shop floor is feeding back to us if you could change the design here, it would cut two hours out of assembly and those kind of things. The service group have been taking units apart, swapping engines, performing maintenance intervals so they can see what they can do from improving the maintainability of the product. Really what we're into now is getting the assembly line up and running. We're still hand building units today. We want to get the assembly line up so we can get the volume up as I mentioned in the call and then the other issue is to make sure the vendors can deliver parts on time to the right quality specs that we need. So this is really more of an non-engineering assignment, it's more of a manufacturability and vendor assignment.

Okay. Great. You said you're considering ramping up the production of the 200 in calendar year 2009. I believe you said 208.

Four units a week, that's correct.

Okay. Is it more of a function of securing the necessary financing for this or is it procuring the materials or what's the biggest hurdles there?

The main thing we want to do is we've had a great in rush of orders. We want to make sure that that is a sustainable level and that the order rate continues to increase or to flat line. We don't want to start driving a bunch of materials and have the order board soften a little bit. We don't think that will happen, but another quarter will give us some of that visibility. We also need to see what we can do as far as the assembly line to reach those kind of levels. So the working capital part of it is a significant piece, but I'm comfortable that if we can build them and we believe the market is there, we'll find a way to get by the working capital issues.

Okay. And then, Ed, one last one for you. I know with regard to the R&D and SG&A, the $2 million and $7 million, is that a good run rate to use on a quarterly basis?

Yes. If you look back at what we've been trending, Ron, and the UTC funding will expire in early fiscal 2010, but if we get more funded programs then you should expect to see it go at the same rate and conversely, if we didn't, we would expect to reduce our efforts to make it run at the same rate or lower.

Okay.

From the sales side go, Ron, because we have about 60 distributors today, about 30 in the US and 30 outside the US, most of our product goes to our distributors, so we don't anticipate adding a lot of additional personnel. We did add an additional body in Houston, recently, just because the demand in oil and gas is so strong. We just were limited on the amount of customers we could see and presentations we could do. We may put another body in India as that market comes up, but that's probably about it at least for the next year, so you shouldn't see a huge increase in sales expense. G&A, obviously, we're a publicly traded company are already. Our accounting staff and our back office costs should not go up more than just cost of living.

Right.

So the SG&A should remain fairly flat flat going forward.

Great. Thank you.

Thanks, Ron.

Ladies and gentlemen, at this time I would like to turn the call back over to Darren Jamison, the CEO. Please proceed, sir.

Great. Well, thank you. I appreciate everybody taking interest in our company and listening to the earnings call. We've had a lot going on this quarter and the next quarter should also be very exciting as well as we see the launch of our new product. Obviously we've got our shareholder meeting coming up at the end of August as well. So I invite any shareholders that want to come see us at the Ronald Reagan library, which is one of the nice installations of our product. Thanks very much and have a great day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.