Capstone Green Energy Corp (CGRN) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Capstone Turbine Corporation earnings conference call for fourth-quarter and fiscal year 2011 financial results, ended March 31, 2011. My name is Stacey, and I'll be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes. During today's call, Capstone Management will be referencing slides that can be located at www.CapstoneTurbine.com, under the investor relations section. At this time, I would like to introduce your host for today, Ms. Jayme Brooks, Vice President of Finance, and Chief Accounting Officer. Please proceed.

Thank you. Good afternoon, and welcome to Capstone Turbine Corporation's conference call for the fourth quarter and year ended March 31, 2011. I am Jayme Brooks, your conference host for today's conference call. Capstone filed its annual report on Form 10-K with the Securities and Exchange Commission today, June 14, 2011. If you do not have access to this document and would like one, please contact Investor Relations via telephone at 818-407-3628 or e-mail IR@CapstoneTurbine.com, or you can view all of our public filings on the SEC website at www.SEC.gov, or on our website at www.CapstoneTurbine.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 and attaining profitability, the ability to reduce costs and improve inventory turns and contribution margins, higher average selling prices, continued growth in current market conditions, the availability of the line of credit, the success of the C200 and C1000 products, new products and technologies, compliance with certain government regulations and increased government awareness and spending of our products, growing market share and market adoption of our products, new applications for our products, growth in the oil and gas and hybrid electric vehicle markets, increased opportunities in Japan, revenue growth and increased sales volume, our success in key market segments, 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, and the expansion of production capacity, manufacturing efficiency, and improved relationships with suppliers.

These forward-looking statements are subject to numerous 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 our manufacturing costs, the growth in our backlog has significantly exceeded our internal forecasts, in order to meet this increased demand, we may need to raise additional funds to meet our anticipated cash needs for working capital and capital expenditures, the current economy could make it difficult or impossible for us to raise necessary funds, and for our customers to buy our products.

We may not be able to utilize our line of credit, for example, as a result of failure to meet a financial covenant, we may not be able to expand production capacity to meet our demand for our products, we may not be able to obtain sufficient material at reasonable prices, if we fail to meet all applicable NASDAQ global market requirements, and NASDAQ determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment, and adversely affect our ability to raise needed funds. We have substantial accounts receivable and increased bad debt expense or delays in collecting accounts receivable could have a materially adverse effect on our cash flows and results of operations.

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 our increased profitability in the future, we may not be able to obtain or maintain customer, distributor, and other relationships that are expected to 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, at which case our sales would not increase as expected, we may not be able to successfully integrate the acquired Calnetix assets, and achieve productivity relationships with its distributors, and if we do not effectively implement our sales and marketing, service, and product enhancement plans, our sales would 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 10-Q and other recent filings with the Securities and Exchange Commission for a description of these and other Risk Factors. Because of these risks and uncertainties, Capstone cautions you not to place undue reliance on these statements, which speak only as of today. We undertake no obligation and specifically any obligation to release any revision to 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 over the call to Darren Jamison, our President and Chief Executive Officer.

Thank you, Jayme. Good afternoon and welcome to Capstone's fourth-quarter and fiscal year-end March 31, 2011 earnings call. With me today is Ed Reich, our Executive Vice President and Chief Financial Officer, and Mark Gilbreth, our Executive Vice President and Chief Technology Officer. Today, I'll start the call with a general overview of the fourth-quarter and fiscal 2011 annual results, and then turn the call over to Ed, who will review the specific financial results. Ed will then turn the call back to me, and I'll discuss what is happening in some of our key markets, and update you on our progress toward our strategic objective of improving gross margins, and generating positive cash flow. As the Operator mentioned, we will be using several slides today in our presentation that can be found on Capstone's website, under investor presentations.

During the fourth quarter, Capstone set new records for product orders and product revenue. Capstone received orders for a record $41 million in new product during the quarter, on the strength of the developing US shale gas market, and very strong order flow from our Russian markets for both oil and gas and combined heat and power applications. As you can see from slide two, this pushed our total product backlog to over 118 megawatts, or $106 million at the end of fiscal 2011. In addition, we generated a record $19.2 million in new product revenue, which is up from Q3's record $18.9 million in new product revenue.

Product shipments would have been higher for the quarter, if not for some supply chain constraints as several vendor part shortages impacted March deliveries. In order to fulfill as much new product demand as possible, we had to divert parts from our after market operations, which contributed to lower accessories, parts, and service revenue, which dropped from $5.3 million in Q3 to $3.5 million in Q4. This impacted not only the top line, but also gross margin rates, as accessories, parts and service revenue contribute much higher gross margins than product sales. These supply chain constraints were not a result of part supply from Japan, but a result of Capstone's step change in production rates in the second half of our fiscal year.

Capstone's revenue was $35 million in the first six months of the year and jumped 34% to $47 million in the second six months of the year. Unfortunately, some of our vendors struggled to meet this deep step change in production ramp, over such a short period of time. These part shortages not only impacted production in after market revenue, but also had a large impact on manufacturing costs in the form of increased overtime, increased freight, and expediting charges. As a result, our production, labor, and overhead expenses were up substantially, on slightly lower revenue for the quarter.

We recently hosted a global supplier conference, which was well-timed, given the recent events. We had approximately 65 suppliers attend from as far away as China, Japan, Germany, Mexico, and Brazil. The conference was very successful, and will go a long way in improving the costs, parts supply, and improved payment terms. As part of the conference, we included factory tours, and overall, the vendors were extremely impressed with the factory, new leadership team, and Capstone's overall growing business strategy. The entire Capstone leadership team participated in the conference, and for each one of us, we all feel very good with our supply chain's ability to recover quickly and our ability to successfully leverage our supply chain as we grow the business to even higher levels in fiscal 2012.

In addition, we were less successful in matching planned production slots in Q4 with orders, as we were in Q3. As a result, we had a $430,000 increase in finished goods on the dock at the end of the quarter. Also impacting the fourth quarter were adjustments for inventory, scrap, and warranty for another $1 million drag on quarterly margin rates. However, when evaluating progress in the fourth quarter, it's important to look at all of this from a year-over-year perspective, and not a sequential basis. As you see from slide three, Q4 2011 was substantially better than Q4 2010. As I said in previous earnings calls, at this stage of our business development, Capstone is indeed a lumpy enterprise, and it's much more meaningful to look at our business in a prior-year quarter-over-quarter basis than a current quarter sequential basis. Based on Q4 year-over-year results and the continued improvement in our key performance indicators, I am very satisfied with the fourth-quarter results.

Slide four highlights the results of our key performance indicators, which are the underlying foundation of our business, and are what are critical to reaching our goal of improved gross margins and positive cash flow. The key metrics to Capstone's success are continuing to increase our product production rates, our average selling prices, lowering our direct material costs, increasing new orders, and obviously, cash. Supply chain constraints are important, and we need to make improvements, but production, selling price, material cost, new orders and cash are the bedrock of our future success, and all these metrics continue to show improvement in the fourth quarter.

Now, let's take a minute and review the entire year. Fiscal 2011 was another year filled with many achievements, and critical milestones, as Capstone continued to see increasing market adoption of our clean and green MicroTurbine technology. Capstone's products are benefiting from improving overall micro business trends, as the world moves toward more energy-efficient solutions, renewable portfolio standards, and even lower emission requirements. In fiscal 2011, Capstone again set Company records in total revenue, Company record for gross margin, and backlog during the year.

Slide five compares fiscal 2011 results versus fiscal 2010, and slide six outlines the specific achievements of fiscal 2011. Revenue for fiscal 2011 increased another 33% year-over-year, to a record $81.9 million. This growth was on top of fiscal 2010, where revenue increased to $62 million for a similar 40% increase over fiscal 2009's revenue of $44 million. This is very impressive in light of the poor economic conditions over the last four years and the fact that fiscal 2009 was in itself a 40% increase growth over fiscal 2008.

If you turn to slide seven, you'll see the impressive revenue growth over the last several years under Capstone's new leadership team. We also continued our winning streak with quarterly revenue as shown on slide eight. Capstone's year-over-year quarterly revenue has increased for 16 straight quarters, an achievement unmatched by the vast majority of today's public companies. More importantly, as you can see from slide nine, Capstone has achieved its tremendous top line revenue growth without substantially increasing its production labor head and overhead rates.

In fact, Capstone added only two full-time equivalents on the shop floor this year to achieve this record annual revenue. Our team of lean manufacturing engineers continue to make progress in improving our production efficiencies, which allows us to continue to build more product, without adding significant additional touch labor. During fiscal 2011, Capstone achieved positive gross margins for the first time in Company history. As shown on slide 10, the year-end margins after taking out non-cash items were positive $5.4 million or 7% versus the negative $537,000 or 1% loss on a GAAP basis. This cash-positive gross margin is a major milestone and one in which the Capstone Management and Board of Directors are very proud.

As you can see from slide 11, the key to our improving gross margin is our improving average selling prices and lower direct material costs. Continued margin growth has been and will be the key area of focus for the Company in fiscal 2012. In spite of the record product shipments for the year, Capstone again substantially increased its product backlog in fiscal 2011 to the record $106 million mentioned previously. This was a 23% increase over fiscal 2011 backlog of $86.3 million which was a 40% increase over fiscal 2009. It's important to remember the majority of this backlog continues to be the new C200 and C1000 products, the greater portion of which is scheduled for delivery in this new fiscal year.

In addition to this backlog, Capstone has increased its long-term factory protection plan, or FPP, service backlog to a record $29.7 million during the fiscal year. This long-term service revenue protects hundreds of units and is critical to our success, as it is both high margin and re-occurring revenue stream, that also helps keep Capstone close to our end-use customers. Capstone continued to gain market share in all five of its major markets as shown in slide 12. In energy efficiency, we continued to penetrate hotels, office buildings, retail and industrial applications around the world. Oil, gas and other natural resources had a major impact in our business, as we sold our first dozen C1000s into the US shale gas market. The shale gas market represents an excellent opportunity for Capstone's highly-reliable and low-emission products as energy efficiency producers are looking to better ways to supplying clean and reliable electricity to their remote drilling operations.

The next slide, slide 13 shows two of our recent installations in the Eagle Ford and Marcellus Shale plays. In the critical power market or critical power supply data center product, its performing well in data center installations ranging from Syracuse University's new data center to United Technologies' new corporate data center, to a couple Homeland Security sites here in the US. Renewable energy continues to be the backbone of our business, as we ship products for applications on landfill gas, digester gas, cow or pig manure, and bio-diesel applications around the globe.

Capstone's mobile products market utilizes turbines for electric vehicles, are gaining increasing interest as range extenders and electric buses, trucks, cars, and even the marine industry. However, make no mistake, continued success in our critical areas of revenue growth, margin improvement, backlog growth, and product manufacturing ramp made fiscal 2011 the best year in Capstone's 20-plus year history. Capstone's Management team and Board of Directors look forward to delivering continued growth in all of our critical areas in fiscal 2012; however, we specifically look forward to delivering gross margin growth as we execute against our plan to increase our average selling prices, and lower our average direct material costs.

We look forward to meeting the building global demand for distributed energy as the world looks to both lower their carbon footprint and supply clean, reliable energy-efficient electricity worldwide. I'll now turn the call over to Ed to review the specific financial results. Ed?

Thanks, Darren. Good afternoon, everyone. I'd like to provide you with our financial results for the fourth quarter and full fiscal year 2011, which ended March 31, 2011. Let's begin with a recap of the major items on our balance sheet.

Significant sequential changes from Q3 to Q4 2011 were as follows. Inventory increased slightly in Q4 to $20.7 million from $18.4 million in Q3, with inventory turns at approximately 3.6 times. Our shortages contributed to the increased inventory, as we weren't able to completely meet our scheduled production slots. Accounts receivable continued to decrease in Q4 to $19.3 million from $22.6 million in Q3. We had another very successful quarter, collecting approximately $26 million in outstanding receivables. On accounts payable and accrued expenses, they increased to $21.8 million in Q4 from $19.2 million in Q3, corresponding to our increased inventory purchases, as our sales continued to ramp.

Cash, including $1.3 million in restricted cash, increased to $34.7 million in Q4, from $30 million in Q3. The increase was due to $11.2 million in net cash proceeds from warrant inducements during the quarter, and the release of $1.3 million of restricted cash by Wells Fargo on our credit line. We used $5 million in cash and operations during the quarter, providing us with almost neutral cash usage in operating activities over the last six months or two quarters.

Sequential changes from the Q3 to Q4 income statement were as follows. Total revenue decreased 6% sequentially to $22.8 million, product revenue, however reached an all-time high of $19.2 million in Q4, up 2% from the prior quarter. Units shipped were comparable to the third quarter, when we shipped 171 units as compared to 168 in Q4. Average selling price increased 4% quarter-over-quarter to $114,000 from $110,000. Accessories, parts and service revenue decreased approximately $1.8 million from the prior quarter, the majority of the decrease was a result of lower parts sales as a result of the supply chain constraints we experienced during the quarter.

We continued to make progress in our average selling price per unit and materials cost reduction during the quarter, as you can see on slide 11. Note that project margins have improved significantly as higher average selling price per unit continues to increase, along with the corresponding decrease in average material cost per unit. I'm pleased with the progress we're making against our 30% materials cost reduction target to date. We were targeting to complete the remaining 10% to 12% of the reduction over the next 12 months.

As you can see on slide three, as Darren pointed out, although we made significant progress improving average selling prices and materials costs, we incurred a gross loss of $1.1 million in Q4. Margins were effected by $500,000 in lower contribution from accessories, parts and service, also margin was impacted by product mix of $500,000 related to Q3 sales of nine C1-D2 offshore units, and we didn't have any of those such sales in Q4. Previously mentioned supply constraints caused us to incur overtime in the factory, along with higher payroll-related costs because our fourth quarter begins on January 1. In addition, physical inventory, scrap, freight and expediting fees all contributed to drive margins down for the quarter. Finally, margins were affected by incremental warranty costs, primarily related to field upgrades on C200 and C1000 series products, and our continued efforts to bring fielded units up to current factory specs.

We spent $2 million in the fourth quarter on research and development, which was flat compared to the same quarter last year. We spent less on salaries, and other departmental costs, although we didn't have the benefit of the United Technologies Corporation C200 development programs in this year's fourth quarter like we did in last year's fourth quarter. Selling, general administrative costs were $7.2 million for the fourth quarter, which was down $690,000 from the same quarter last year, on lower professional services expense, including legal, insurance, and accounting fees, which were offset by increased sales commission on our higher revenue levels. Our net loss was $28.8 million for the fourth quarter and $0.12 per share compared to $12.9 million and $0.04 per share from the prior year quarter.

Let's now review the fiscal 2011 operating results. Total revenue grew 33% from the prior year to $81.9 million. Product revenue increased 36% from fiscal 2010 levels to $66.3 million. Unit shipments also increased by 112 units to a total of 611, and for the year, the average selling price per unit also increased to $109,000 from the prior year's $98,000, which was an improvement of 11%. Correspondingly, the megawatts shipped increased as well by 32% to 69.7 megawatts. Accessories, parts and service revenue grew 21% to $15.6 million from the prior year.

The gross loss for the year was $500,000, or 1% of revenue, compared to $8.4 million or 14% of revenue during fiscal 2010, a 13 point improvement. The improved gross loss was driven by the sale of higher margin C200 based products, that contributed an incremental $10.2 million in margin. The $10.2 million improvement was offset by an increase in production service center, labor and overhead expenses of $1.5 million and warranty expense of $800,000, again on higher revenue. R&D expenses were approximately $7 million for both fiscal 2011 and fiscal 2010. R&D expenses are reported net of benefits from cost-sharing programs such as our current DOE funding. During fiscal 2011, benefits from cost-sharing programs decreased by $800,000, which were offset by lower spending for salaries and consulting for $800,000 as well.

SG&A expenses decreased $2.2 million or 8% to $26.2 million for fiscal 2011. The net decrease in SG&A expenses is attributable to lower salaries, consulting and professional fees of $3.1 million, reduced by $500,000 in facilities expense, and $400,000 in increased travel. Capstone's net loss of $38.5 million or $0.16 per share for fiscal 2011 is an improvement of $28.7 million from the $67.2 million or $0.34 per share we recorded last year. Remember that the net loss for both fiscal years was affected by the adoption of Accounting Standards Quantification 815, derivatives and hedging, which affects our accounting for warrants with anti-dilution provisions.

We recorded non-cash charges of $3.7 million from warrant liability expense during fiscal 2011 and $22.9 million in fiscal 2010. Backlog at the end of the fourth quarter was $106.4 million, that was up $20.1 million from last year. That concludes my comments on Q4 and fiscal year-end 2011 results. Now back to Darren.

Thanks, Ed. An encouraging sign of economic recovery in the MicroTurbine product acceptance, is we continue to see quotation and order activity grow in all of our geographic territories, which we now are showing you on slide 14. You will note the tremendous uptick in the Americas regions, which is a result of the US economy recovering, and our penetration into the US shale gas market. You can also see from this slide that Asia has been a lagging market for Capstone, compared to the Americas and Europe, because of our product premium first cost and the region's low cost of labor and maintenance on the machines.

However, based on the news reports of current and future power shortages in Japan, resulting from the terrible earthquake and tsunami on March 11, we received inquiries from three former Capstone distributors and two new potential Capstone distributors. The damage from the earthquake and subsequent tsunami shut down multiple nuclear power plants and is expected to result in supply shortfalls this Summer of 5 million-kilowatts in the Tokyo Electric Power service area, and 1.3 million-kilowatts in the Tahoku Electric Power service area. The Japanese government is directing a very ambitious 15% to 25% power conservation effort to potentially avoid power outages this Summer, and the following Winter.

Based on the current situation, all five of these potential new distributors report that commercial industrial companies are looking for ways to avoid the planned rolling blackouts, and the tremendous risk of unexpected outages this Summer. Capstone is currently in discussion with all five potential new distributors, and hopes to have one or more back online shortly to address this new market demand. Obviously, it's very difficult to estimate the number of turbines that could be sold and installed later this year, but Capstone is putting together a contingency manufacturing plan, in order to properly prepare for the potential surge in orders from Japan, and not adversely impact our current customers and current backlog.

Stepping back and looking at the overall size of the markets, it's important to note that as impressive as the $41 million in new orders was in Q4, and how impressive our record $106 million in product backlog is, it is still a fraction of the total market opportunity across our addressable markets. As you can see from slide 15, Capstone's addressable markets are estimated to be in excess of $14.6 billion annually, with potential targeted capture of Capstone of $1.5 billion over the next seven to 10 years. Today, General Electric and Caterpillar together dominate this space, and shipped an estimated $3.5 billion to $4 billion into this market last year, with what we would see as an inferior, older reciprocating engine technology.

It's important that all of our markets in all of our geographic areas are growing year-over-year, but I'm most encouraged by the activity in the oil and gas, and hybrid electric vehicle markets. Within the oil and gas space, we are seeing increased order flow from BPC Engineering in Russia, and pumps and service in the US shale gas fields. BPC is selling engineering, installing dozens of C1000 series units to operate on associated gas in Russian oil fields. The objective of these projects is to increase the level of associated gas utilization at the oil fields in compliance with the Russian government's 2009 declaration to dramatically decrease atmospheric pollution from gas firing.

Associated gas utilization for power will allow Russian oil field customers to avoid emission penalties, and to significantly reduce power costs at the oil field level. The electricity generated by the C1000 MicroTurbines usually covers all of the energy needs of the oil field, and allows the site to use the electric grid, if available, as back up power for peak loads. The Capstone product not only increases the reliability, but also decreases the cost of electricity, and substantially, compared to that of electric utility rates. Typically, the MicroTurbine power station operates in standalone mode and powers oil treatment units, oil transfer pumps, as well as infrastructure of the actual wells. The MicroTurbines run on the fully automatic mode, under control of the Capstone advanced power server, that distributes the load between the units and provides highly efficient operation, and flexibility. This control system is equipped with the capability of remote monitoring of the MicroTurbines by Capstone's call center, here in Chatsworth, California.

Here in the US, Capstone has recently received more than 14 megawatts of MicroTurbine orders for some of the world's largest independent oil and gas companies. Capstone's distributors pumps and service E-Finity received the bulk of these orders from oil and gas companies exploring large shale reserves, or plays, in the United States as shown on slide 16. The shale gas market is expanding rapidly as is the market for Capstone in these plays. The market is expected to grow substantially, especially since the US Environmental Protection Agency's Clean Air Act has strict requirements for emission levels at natural gas sites.

Most MicroTurbines delivered are providing prime power to central processing facilities and metering stations at remote well sites in the Eagle Ford Shale play in South Texas. The Eagle Ford play is expected to emerge as a major oil and gas play in the United States over the next decade. Experts estimate they will rank sixth in size among the all-time giant oil fields in the US. Most of these sites are extremely remote and unmanned, which means 24/7 distributed power is paramount. Even more important, producers must meet tough EPA air permitting requirements, which meets Capstone's clean and green, low-emission highly-reliable MicroTurbines very attractive.

The reliability of the Capstone MicroTurbines along with their low emissions, low cost of ownership and the distributor's ability to deliver total solutions are all contributing to our overall market penetration and success. Another recent win was with one of North America's largest gas producers, featuring a C600 MicroTurbine that will be installed at a site pumping gas for the Marcellus Shale play. This play spans from West Virginia to Pennsylvania to Southern New York.

To return our focus to the mobile product space, Capstone continues its multi-pronged strategy to capture market share in the fast growing electric vehicle market. Our strategy is to target new Class 3 to Class 8 trucks and select retrofit opportunities with new Capstone-branded complete system solutions as shown on slide 17. The electric and hybrid vehicle market is in a significant growth phase, with essentially every manufacturer of trucks, buses and automobiles looking for the right solution to serve their customers' future needs. Capstone's MicroTurbine technology offers many benefits for these applications, including our extremely low emission levels to meet the most stringent car or EPA 2010 requirements without any exhaust after treatment.

Slide 18 shows some of our current HEV partners and their current product offerings. In developing this solution, Capstone partnered with CalMotors in California, and Parker SOC Drive Systems in North Carolina to develop this new product. As part of the complete drive solution, Capstone is providing the entire system except batteries. Capstone and CalMotors developed an automotive-grade water cooler inverter system, that replaces the Capstone engine control module and battery control module.

The first couple of systems are complete, and have been shipped to customers for field testing and validation. One such customer validation demonstration project is with a major US manufacturer of Class 5 to Class 8 heavy duty trucks that is utilizing the Capstone C65 MicroTurbine as a clean efficient range extender in a hybrid electric drive system. I'm pleased to report the demonstration and validation testing with the major heavy duty truck OEM is progressing well, and we look forward to finishing our work on the test track shortly and move to the next stage of development this Summer. This demonstration project is only one of several vehicle applications we are pursuing, and will use the new Capstone Drive Solution, as we recently received another purchase order from another Class 5 to 8 OEM truck to build another similar prototype vehicle.

We also continue to pursue the marine application for both auxiliary power and propulsion, as we recently announced an order for two C30 liquid natural gas MicroTurbines that will be installed on a Type C tanker for inland shipping, and will be certified by Lloyd's Register of Shipping as illustrated on slide 19. The MicroTurbines will operate an N plus-one setting for main power supply on board, and heat from the MicroTurbine exhaust will be used in the LNG vaporizer to provide fuel to the MicroTurbines, as well as the main propulsion engines. Our new Capstone Drive Solution offering should open up a lot of opportunities for electric drive systems, where our ultra-low emissions and high efficiency have an advantage over more traditional prime movers. These successful demonstrations of the Capstone new Drive Solution in the heavy duty truck application should have significant market impact on our ability to penetrate all mobile applications.

Turning to the bus market, Capstone continues to work with several bus partners, including DesignLine here in the United States. DesignLine is currently conducting testing for its new C65 powered bus at the Altoona Bus Research and Testing Center in Pennsylvania. The DesignLine bus is currently in process of undergoing extremely rigorous Federal Transit Administration bus testing. Under this program, testing is required in all new model buses before they can be purchased utilizing federal funds. Obviously, successful testing is a critical step for DesignLine to sell the new C65 enabled electric transit buses in the US market.

For the passenger vehicle market, Capstone is targeting automotive OEMs via strategic drivetrain partners. Capstone is still in discussions with two automotive drivetrain component manufacturers to build a high-volume, low-cost automotive version of our C30 and C65 product. However, discussions have slowed recently, as the parties have been unable to reach mutual agreement on specific licensing terms, and agreeable royalty fee structures. In addition, two new companies focused on emerging automotive market in China, have approached Capstone and indicated an interest in the MicroTurbine technology for electric vehicles in China.

At this point, as CEO, I believe it's prudent to step back and reevaluate this emerging market, and carefully analyze each opportunity to select the most appropriate partner for Capstone and its stockholders. However in the interim we'll continue to focus on deploying as many units in the field as possible in the transit bus, heavy duty truck and marine markets to gain valuable product experience and develop a stronger leveraging position in the ongoing negotiations.

In conclusion, over fiscal 2011, Capstone again delivered strong top line revenue growth, improved gross margins, successfully managed operating expenses, improved manufacturing efficiencies, all the while simultaneously lowering our direct material costs, increasing our average selling prices, and improving management of inventory and cash burn. And fiscal 2012 looks like another exciting year for Capstone to look forward to continuing to execute against our strategic business plans, and again, delivering steady growth and ever-improving financial results.

In fiscal 2012, Capstone will build on the positive momentum achieved over the last four years, and make sure that Capstone is not only sustainable, but positioned for near-term profitability for the Capstone tomorrow can provide the next generation of innovative, efficient and clean energy solutions this world wants and needs today. At this point, I'd like to open the call up to our analysts for questions.

(Operator Instructions). Your first question comes from the line of Sanjay Shrestha with Lazard Capital Markets. Please proceed.

Great. Thank you. A couple of questions, guys. First, on the backlog. So out of this, by the way, pretty impressive new bookings number here, so on that backlog, how do we think about how much of that is a 12 month backlog, number one, and maybe it's a function of sort of your supply and production increases, but, and two, how do we think about the inherent profitability in that backlog, now that you've been very successful increasing ASP and reducing direct material cost?

Sure, Sanjay. First of all, all the backlog is considered within 12 months. Obviously the big key will be increasing our manufacturing production rates to ship that backlog in the next 12 months. As I mentioned in the call, we had a very good meeting with our vendors. The vendors are responding to our increased manufacturing levels, and I can report this quarter since we're fairly far into Q1, they're stepping up nicely. We still have a few issues that are lagging, but for the most part, we're seeing big improvements over Q4, so you should look at this backlog as all being delivered within the fiscal year.

Secondly, all of this is off the current, latest pricing. Some of this may have some level of discounts, but I would assume, most of it would be 3% to 4% discount for larger orders, so all this should be very fresh pricing, and you should continue to see higher ASPs and lower DMCs as we move forward in the next few quarters, and lastly you didn't ask the question, but I'll throw it out there. Obviously, we're a long way through the first quarter. I'd say Q1 is also very strong in bookings, so this is not a one-time anomaly in Q4, so we are seeing increased booking rates in both Q3 and Q4, which is very encouraging.

So kind of a follow-up on that then, because you guys have a lot of things going your way so when you look at end market opportunity and sort of prioritizing from what do you go after kind of thing, you briefly touched on towards the end of your prepared remarks, so how are you guys thinking about that? Help us understand. Are you sort of focusing more now on the shale opportunity, oil and gas opportunity, or because this backlog gets you to profitability if you just get the supply right, and get to your target gross margin right, so how are you really thinking about strategically saying, here is the top market, here is what we need to do from a supply standpoint, and here is how we get to profitability.

Yes, let me take the back part first. On the supply standpoint, we've got a dedicated team internally reporting to Mark that is very focused on reducing costs. We continue to get cost reductions, and in fact we had two very nice cost reductions that happened late in Q4, so had very little impact on Q4 margin rates but will impact Q1, so I think we're -- obviously timing of those cost reductions are critical but in most cases, we have a purchase order in place or in process of bringing the new part in, so I think we're probably three quarters away from realizing all that, maybe four, but it's all in-process and we should realize it this year. Beyond that, obviously the C250 is critical for additional cost reduction for the C1000 series product, as we have four in the box instead of five. I think that's really the key.

As far as biggest markets there's no doubt that the Russian-associated gas market and the US shale plays are dominating our current backlog, and recent orders. That being said, we're seeing several new distributors pick up the pace. We're starting to see combined heat and power projects come back to life as the economy improves, so our strategy, even though we're getting a lot of orders out of the oil and gas market today, is still to go after all five market segments to continue to nurture all 100 distributors and continue to push the value proposition to as many markets and distributors as we can.

Okay, two more questions, if I could. One on the -- so you briefly touched on Asia, and the recent unfortunate events in Japan. What can we really sort of expect to see from that? So what's sort of like the sales cycle in your mind on that and can you touch on that a little bit as to how that could end up unfolding into new bookings plus the revenue opportunity for you guys?

Yes. Great question, Sanjay. The Asian market, Japan specifically was actually one of Capstone's biggest markets in the early days and some of the product, early generation product issues spoiled that market, and we worked very hard the last four years to kind of recultivate and reopen that market. There's probably over 700 MicroTurbines that have been sold in Japan and more than 400 are still running today. That being said, we don't have very strong distribution in Japan, and unfortunately, this terrible tsunami and earthquake has kind of reopened the door for us back into Japan and I think out of the five potential new distributors, I think we'll probably get at least two or three across the finish line. I would expect all of them to have initial orders probably in Q2, and then growing from there, so the real question is how bad is the rolling blackouts this Summer, and how fast can they put product on the ground, but as I mentioned in the call, we're looking at potential supply chain strategies to handle an increased order flow from Japan without decreasing, or impacting our current backlog, because obviously our backlog is getting quite large, and we have a lot big customers that want the product who don't want to have Japan interfere with those shipments.

Last question for me then. What exactly was that -- two part question. What exactly was that inventory charge that impacted gross margin in Q4, and two, are you, am I reading too much into this, or are you kind of changing your strategy a little bit in terms of strategic partnership in the automotive or the truck market for you guys, or is this taking longer than expected, and can you comment on that?

Let me take the first one. As far as the inventory charge, this isn't that different than what we saw in Q4 last year. Unfortunately, we shut the business down for two to three weeks at the end of each fiscal year to do a complete inventory. Most of the challenges or the write-off we find are not within our four walls.

They're at our subcontractors, so we actually send people out to do physical inventories there, and that's where we find scrap or inventory charges, so we're not happy with it. We're making changes internally. It's unacceptable to have an annual adjustment like that, but I guess, the good news is it's lower than last year on higher revenue, so it is improving but we have more room to do there, and I think part of the impact of 30% to 40% growth compounded year-over-year, some of the challenges and growing pains you're going to have are in your supply chain and with your inventories in scrap and such, so not acceptable, but it is improving and we'll continue to improve it in the new fiscal year.

The automotive piece is a little bit of a change. The two folks that have come forward interested the Chinese market have thrown a little bit of a wrench into it. The leadership team and the Board has determined what we believe our product value is in that market, and if we can't get the right deal, we aren't going to make a bad deal just to make a deal, so I think we're stepping back and saying okay, we now have instead of two players in the market to negotiate with, we now have four, and let's be a little more patient and not rush to make that deal we're going to regret later and the reality is, we're not in a huge hurry. We have a lot we can do in the bus space, a lot we can do in the truck space, and a lot we can do in the marine space, and still negotiate the automotive piece. So a little bit of a change, but I see it as actually a good event that we've got more folks in the hopper to have conversations with.

That's a fair point. Great. That's it for me guys, thank you.

Thanks.

Your next question comes from the line of Eric Stine with Northland Capital Markets. Please proceed.

Hi, everyone. Just a few questions.

Hi, Eric.

It sounds like you're making progress with the supply chain. I'm just wondering what steps you're taking as far as opening up build slots, because I know that's not something you can necessarily do overnight, and in that context, how we should think about the next few quarters.

Yes, I think we're adding build slots obviously every quarter. Q4, we weren't able to build all the slots that we had, which was disappointing. In fact you actually saw, our inventories went up slightly because we brought in materials anticipating more slots than we could actually fill. Unfortunately with 150 vendors, if one or two of them stumble, we can't finish the machine, and we're impacted by that. So we are, obviously, we'll have more build slots in Q1 and planning more build slots again in Q2 and we're working with our vendors on a daily basis to make sure they can meet those slots because we want to bring in extra inventory, but we do want build as much as possible, so don't want to give guidance for Q1, but obviously, we expect the supply chain to stabilize in Q1, and we would have more build slots available than we did in Q4.

Okay, and then given the supply chain sounds like a few little things to still iron out, but we should assume accessories, parts and service starting to get back to normal levels?

Yes, I'd say accessories, parts and service won't be back to the Q3 levels in Q1, but they'll be higher than Q4, correct.

Okay. Maybe just turning to ASPs. You may have said this in your remarks when you answered the last question, but as far as the ASPs, what inning do you think that you're in on that? Is this still something over the next four quarters, you get through, or to the higher-priced product?

It depends on mix. We shipped a lot of the lower price older ASPs in the last couple quarters so I think Q1 and Q2, you'll see more upward pressure on the ASPs. DMCs, as I mentioned, we had some nice cost reductions that came in late in the quarter you'll see more impact in Q1, so if you look at the chart we have in the deck, it shows a nice increase in both ASPs and decrease of DMC. You should expect to see that in again Q1 and Q2, maybe softening a little bit in Q3 and Q4 but Q1 and Q2 should be fairly substantial in that area. We should expect to be back to positive gross margins again.

Okay, and maybe just turning to the shale opportunity. I know you get this question often, but any thoughts on what the size of the opportunity is, with maybe, within each of these customers and how you view each opportunity on a yearly basis?

Yes, I mean, Pioneer Natural Resources, Anadarko, both those folks are looking at probably 20-plus megawatts a year, and potentially more. That wouldn't be all their business. It would be a nice piece of their business. Obviously, there's more folks that we're working with than just those two. Those are the ones that have been the big early adopters, so the real key for us is monitoring each one of those sites, making sure the installations go well, jumping on any kind of reliability or product issues we have, and then keep growing the relationship, so I'd fully expect to see nice revenue growth out of both of those companies, as well as finding some more, and I think the whole shale play, I think will grow over time.

And the use of MicroTurbines in the play, if we continue to do a good job, will continue to grow, so if you look at the rest of the Americas, very steep increase in quotation activity, those are quotations that have not turned into orders, so you're seeing shale gas impact, as well as just some of the general economy improving. We are seeing nice orders out of our California distributors, both of them, nice orders out of the East Coast as well, so I think we're seeing additional market coming back for combined heat and power opportunities as well as the US shale, so the US market should look much better in the next couple years.

Okay, and last two for me. Were there any sales to Carrier or shipments to DesignLine in the quarter?

Carrier did have a shipment in the quarter, so they are back into, I think for their annual revenue, between the new product shipment and FPP, they are about $1 million in revenue. Far cry from where they were, still looking for additional opportunities to improve that relationship. DesignLine, as you know, has gone through several challenges in the last six months. We did not ship them anything in the quarter, but they do have some production slots in Q1 that we're looking to fill here June and as I mentioned, they are, at the Altoona test facility with a C65 product, which frankly, I don't want to be a back seat driver. We probably should have done that first before they took a product into New York, but I think they are now doing the necessary testing and validation of that bus with our technology in it, that will be very successful to get that done.

Okay, but they have and this is a little different than in the past, they have open build slots once that testing is complete?

Actually have open build slots for C30s in June and C65s once the testing is complete, correct, so they've got additional funding. They are building buses again, both for the US market as well as overseas.

Thanks a lot.

Thanks, Eric.

Your next question comes from the line of Shawn Severson with ThinkEquity. Please proceed.

Thank you. Good afternoon.

Hi, Shawn.

Darren, could you talk a little bit more about the attach rate of parts and service contracts to that backlog? Obviously it's nice backlog build, but one of the things you've been driving towards is getting a higher attach rate, and can you just give us some color on that level within that backlog?

Yes, the FPP attachment rate on new product shipments is about mid 20%, 25%. We would like to see that closer to 40% or 50%. We think the value of our FPP is really unmatched within the industry, and if customers really understand the value proposition, it's a no-brainer for them. We are seeing it both in the US and overseas in all of our markets. All of our distributors are actively attempting sell the FPP, with the new actual order, so it's improving. We still have a ways to go.

Our backlog as I mentioned, is almost a $30 million in contracts and that's taken over $1 million a quarter out of the backlog, so obviously our book-to-bill ratio on FPPs is still strong, so it's key, north of 50% margin is where we target and sell it, but more importantly, it keeps us close to our customers and we understand what's going on with our units, and any future improvements we make, one of the things we're working on right now is a remanufacturing program for our injectors. If we can remanufacture an injector instead of putting a new piece in, that only helps our FPP margins going forward and Parker Hannifin is one of the partners we're looking to do that with, so I think there's lots of things we can do from a cost reduction, total cost of ownership, improvement that will help our customers but also help us if we have FPP on the product.

And is it a matter of educating the distributor or what's the pushback from the customer on this usually? Is it because it seems to be the economics are pretty straightforward, but what's the resistance?

Well some customers don't want to sign it during the warranty period. We try to convince them, that hey, you can sign it, we include scheduled maintenance and unscheduled, so there's some value to have it during the warranty period or we can start it after the 13th month. Some of the distributors I think, were just traditionally used to being a call-out service model to where they ship a product, wait for it to fail, and then get a call from a customer and dispatch. So this is a little more proactive approach, kind of pre-selling the service work on an annual basis so I think it's more of a distributor maturation process. Again you look at our 95-plus distributors, most of them are new in the last two years and a lot in the last 18 months, so they're learning the technology, they're learning the applications. As you know, we have a lot of different vertical markets and ways to install the product plus the service piece, so it's something that we're very focused on, and we expect to keep growing quarter-over-quarter.

Okay, and on the backlog, at $106 million, do you normally expect for a turns business as well over 12-month period? Is it kind of 20%, 30% turns business over a typical 12-month period? Or is that too high?

No, on the last three or four years, whatever we entered the new fiscal year with in backlog is roughly what we did in product shipments and revenue, so that would tell you we should be looking at a revenue for fiscal year 2012 of well over $100 million. I think that's where most of you folks have us modeled anyway. I've been pushing to try to turn that backlog quicker, but I think with the way its building right now, it's probably a safe assumption to assume we're going to turn it at least one time in the next 12 months.

And there's no Japan in the current backlog?

Zero Japan in the current backlog, correct.

Just to clarify, the supply chain bottlenecks, you said you worked on improving those and you had your meeting with the supply base, but is this just that they didn't have capacity or they just weren't believing the order rates, or specifically what was the problem? And following onto that, where do you, where would you expect another bottleneck to occur, or is this something you fix it now, and it's good, there's never going to be an issue again, or is it something if you get a surge in revenue in the December quarter this year that your supply chain still can't deliver?

Yes, I think the first point is, a lot of our vendors have been burned in the Company in the past by not hitting expectations. This is probably the first year that the leadership team has hit their internal plan. As much as I'm proud of our team's efforts, Capstone historically has been more optimistic than what they can deliver. This year we pretty much delivered the revenue plan that we intended and so I think our vendors were a little bit conditioned to take a factoring approach to our forecasts, and fortunately, unfortunately, we pretty much hit our forecast, and we caught them doing that, so I think they are believers now, bringing them in and having them see the plant, see the efficiencies, meet the leadership team, and really understand our story and our markets.

And very much what we're doing talking about the success in the shale markets, and the opportunity in Japan, what's going on in Russia, got them to understand these are real numbers we're giving them, and they need to tool up and spin up and be ready for it so we may push things around a little bit, but for the most part, I think they are drinking the kool-aid and they're on board, and it always helps to get all your vendors in one room, because you always have some overlap, and from a competitive standpoint, that's good as well, so knock on wood, we're not going to see any major issues after Q1, but it's going to take a lot of planning and hard work and communication to make sure they can keep up with us.

Thank you.

Your next question comes from the line of Walter Nasdeo with Ardour Capital.

Hi, Walter.

This is Travis Steed on for Walter.

Hi, Travis.

First question is as the business matures and grows, do you expect maybe like a fourth quarter seasonality where in the future the fourth quarter may be a low point or is it just a one-time anomaly?

Definitely from a revenue standpoint, it was a one-time anomaly, the fact that it was our fourth quarter had nothing to do with the part shortages. It was more the fact that Q3 was such a big quarter over Q2, that our vendors had trouble doing it two quarters in a row, and then also, we've got fairly steep requirements for Q1 and Q2, as well. Q4, from an end-of-year adjustment standpoint, we always shut down the plant for physical inventories, we do our annual audit with Deloitte, so we always tend to have more adjustments as the dust settles, and you look at the books, but we expect to improve that year-over-year, and as I said before, our inventory adjustments, our scrap adjustments were down from the prior year on higher revenue, but still not acceptable for where we want to be, so I think as the business matures, and the team matures, we'll look to improve that on a timely basis, but hopefully every quarter, every shareholder would like to see improving revenue, better margins, that just may not be the reality on a sequential quarterly basis, but obviously quarter-over-quarter, year-over-year we expect to have very substantial improvements.

One more. What was the non-cash warrant liability charge for the fourth quarter?

It was about $3.6 million.

Okay. Thanks a lot.

You're welcome.

Thanks, Travis.

Your next question comes from the line of Ajay Kejriwal with FBR Capital Markets. Please proceed.

Hi. So just wanted to follow-up on that supply chain question, so it sounds like it was a couple vendors not broad-based, so what would it take for these suppliers to come on board or increase their capacity, if you will? Is it just a matter of drinking the kool-aid, as you put it, or is it they have to put additional capital resources and expand their capacity? What is the issue with those suppliers?

Yes, it was probably about four or five suppliers, Ajay. It was not a capacity issue as much as they didn't drive the raw material requirements that they needed to, so unfortunately when they realized we were hitting the numbers we were trying to hit, they struggled to get the raw materials in. That being said, we had very high expenses of freight and expediting charges, where we actually flew product around via airplanes to make what we did for the quarter, so worked very hard to keep as many customers happy as possible, and paid the price to do that. Now, they are driving more raw materials, and really from a manufacturing standpoint, most all of them have plenty of capacity, it's a matter of having materials to make the sub-components.

So, and you kind of alluded to this, that you expect a little bit of this issue to linger in the first quarter, but you'd expect things to come back on track, meaning versus your plan for this year, starting the second quarter?

Yes, so Q1 we're fairly far into. We've got a few folks that are still catching up, but they are manufacturing at the highest rates they ever have for us, so we expect Q1 to be solid and Q2 to be fully recovered.

And what were the implications for gross margin? So you've done a great job with the ASPs, and I would imagine that the backlog that you have now, the lower margin backlog, you kind of probably already have eaten some of that last quarter, and you eat a lot of that in the first quarter but so starting second quarter, some of that higher margin backlog starts kicking in and hopefully the supply chain issues get resolved, and you've done work on the material cost reduction, so would it be fair to presume that you have nice gross margins, maybe even touching double digits starting the second quarter or would that be more in the second half?

I don't want to get over the tips of my skis on too much guidance, but the safest way to say it is we expect Q1 to be our best quarter ever, which would put it over Q3 last year, which is our best quarter, so we would expect to have higher revenue than Q3 and improved gross margins in Q3. From that, we should hopefully sequentially build every quarter, and our revenue might bounce around a little bit, plus or minus $1 million here and there, but for the most part, you should see as you said increasing average selling prices and decreasing direct material costs. So we're again, we think year-over-year fiscal 12 will be a substantial increase over fiscal 2011, which was a substantial increase over fiscal 2010 so I don't want to give too much quarter to quarter guidance, but year-over-year, we should be positive gross margin for the year, and have a substantial improvement from a cash flow and revenue basis.

Good and then on the shale gas, obviously a lot of opportunity for you, and you said you're seeing a lot of activity, but maybe just talk about what would it take for these customers to kind of place a large order? Is it just a matter of time and did you see the performance of your existing install base, is that kind of what's holding them back, or are there other issues like financing or competitors selling at lower prices? What is the issue?

Yes, definitely it's not financing. All these customers are large oil and gas producers, where access to capital, where balance sheet is not a challenge. They don't tend to adopt new technologies quickly, and we've actually been surprised and happily surprised at how quickly some of these folks have adopted our technology but they've only done that after seeing El Paso Gas and some other installations get a year's worth of run time so we expect -- we had some very nice orders in Q4 and continuing orders in Q1. We would expect that to continue for most of the year and continue to drive top line growth for us. Assuming we continue, one of the real keys I'm pushing our leadership team on is, any issues they have, we need to be Johnny on the spot, fix them quickly and give them platinum-level service on the product.

Good and maybe last question. Any change you're seeing the competitive dynamics with respect to CAT or GE? Have you seen them become more aggressive in their selling tactics? Everybody knows the shale gas is such a huge market that's opening up, so is that something that they are trying to attack as well, and becoming a lot more aggressive?

We're definitely taking market share mostly away from Caterpillar, here in the US shale market. We have not seen them change their strategy, per se, but it doesn't mean that they won't. We're already selling at a premium price, so it's really somewhat apples and oranges, for them to compete price-wise, they are already much cheaper. The issue is really reliability and emissions, and so I think it will be hard for them, if a customer wants to go with a newer technology, which is higher reliability and lower emission, plus a single CAT unit has a lot of single points of failure. A C1000 with five C200s in the box does not have the same level of single point of failures. Your average shale gas site, if it loses production for the day, you're looking at $1 million, $1.5 million in lost revenue, so the reliability piece that's inherent in our technology, combined with the emissions are really what's making folks make that decision.

Good. Thank you.

Great. Thanks, Ajay.

At this time I'd like to turn the call back over to Darren Jamison for closing remarks.

Thank you. I know this has been an interesting quarter and a great year. The supply chain constraints, I know probably surprised a lot of people, but the reality is, 2011 was a fantastic year for the Company, with great top line growth, great margin improvement, I think our operation expenses, I'm very proud of the team, what we've managed to do with continuing to grow the business year-over-year, like we have, without increasing operational expenses.

Manufacturing efficiencies, our team continues to do a great job. We have our five manufacturing engineers that are working about seven lean manufacturing projects within the plant, delivering great results with virtually no budget or no cost associated with them. Material costs continue to come down. Our team is motivated, and has all the support in the world, and we've got a new team in place with Rob leading our program office to help all this come on time and on budget, very happy with his addition to the team.

Our average selling prices are pretty much baked into the backlog that we have, and so they will continue to increase quarter-over-quarter. Inventory turns, we still are chasing around four turns and beyond and I think the team will get that done here this year. If you look at cash burn, 2009 I think we burned about $55 million. 2010, we burned $34 million, and this year was a little less than $22 million.

This is the first year I believe as CEO I didn't have to go out and do a large secondary to keep the Company going. We did exercise or induce some warrants, but that's a small cry from what we've done in the past, so I think Ed said it in his prepared remarks. The last two quarters were basically cash neutral, and the first half of the year was really $21 million, so big improvements in cash. Big improvements in receivables. No significant dilution this year, and we don't see anything coming in the near term. We've got additional warrants that expire in January. It will be another $10 million and we expect the burn to be manageable between then and now, so very excited about that as the business.

As we enter fiscal 2012, coming off a $41 million booking quarter with strong bookings again in Q1, obviously that gives us a great position from which to start the year. The US shale gas and Russian-associated gas markets continue to pay dividends as we penetrate those markets. The $34.7 million in cash gives us enough of the balance sheet to really run the business for this year. As I mentioned, cash neutral the last two quarters. The growing opportunity pipeline, that's something we hadn't shared with folks before, but I think you can look at it, and you can see the improvement we've had year-over-year, quarter-over-quarter and what the US market and the shale gas market has done for the US opportunity for us.

So we look for our distribution channel to continue to mature. The business itself will continue to mature. We're going to focus on the FPP business and a year ago, our bank, our partner, Wells Fargo was restricting $5 million of our $10 million in cash. Today, I'm proud to say, all that money has been put back. We have no cash restrictions after this last quarter, so I think it shows that even our partners on the financial side have a lot of confidence in the business, and where we're going, and what the future holds so I look forward to talking to everybody again at the end of Q1, and thank you very much.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect and have a great day.