Capstone Green Energy Corp (CGRN) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Capstone Turbine Corporation earnings conference call for third-quarter fiscal-year 2014 financial results ended on December 31, 2013. During today's call, Capstone management will be referencing slides that can be located at www.CapstoneTurbine.com under the investor relations section.

All participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mrs. Jayme Brooks, Vice President, Finance, and Chief Accounting Officer. Please proceed.

Thank you. Good afternoon and welcome to Capstone Turbine Corporation's conference call for the third quarter of fiscal-year 2014. I am Jayme Brooks, your contact for today's call.

Capstone filed its quarterly report on Form 10-Q with the Securities and Exchange Commission today, February 10, 2014. If you do not have access to this document and would like one, please contact investor relations via telephone at 818-407-3628 or email 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 provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, growth of the [acting] market, increased production rates, higher average selling prices, ongoing new order flow, reduced cash usage, growth in revenue, gross margin and backlog, attaining profitability, improvement in certain key performance indicators and strategic initiatives, achievement of our EBITDA and cash goals, increased aftermarket performance, shifts to larger markets for our products, benefits from our cost-reduction initiatives, and opportunities for our relationship with the Department of Energy and Oak Ridge National Laboratory.

Forward-looking statements may be identified by words such as expects, objective, intend, targeted, planned, and similar phrases. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties described in Capstone's Form 10-K, Form 10-Q, and other recent filings with the Securities and Exchange Commission that may cause Capstone's actual results to be materially different from any future results expressed or implied in such statements.

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 disclaim 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 will now turn the call over to Darren Jamison, our President and Chief Executive Officer.

Thank you, Jayme. Good afternoon and welcome, everyone, to Capstone's third-quarter fiscal 2014 earnings call. With me today is Ed Reich, our Executive Vice President and Chief Financial Officer.

I'll start with a general overview of the third quarter and then turn the call over to Ed, who will review the specific financial results. I will then close with some comments about our markets and new order flow. As Jayme said during her remarks, we will be referring to presentation slides that can be found on the Capstone website under investor relations.

Let's start with slide two of that presentation. Third quarter marks another significant milestone for the Company. We set new Company records for quarterly revenue, quarterly backlog, and operating loss, as well as strong new order bookings. But most importantly, we reached a new milestone with 20% gross margin that generated $7.3 million, up an outstanding 59% year over year and putting us on track to reach our goal of EBITDA breakeven in this current fourth quarter.

Total revenue was up 11% year over year to a record $37 million. Product revenue was up 14% year over year to a record $29.9 million. New product orders were an outstanding $40.5 million, which translates to a very good book to bill ratio of 1.4 to 1. We also ended the quarter with a healthy cash balance of $31.6 million.

Let's go ahead and turn our focus to slide three. Slide three shows the year-over-year margin expansion for the past four years. The third quarter marks our fifth sequential quarter of double-digit gross margin, with positive gross margin in 13 of the past 14 consecutive quarters.

For fiscal 2014, we provided the five key performance measures that you see on slide four. These performance measures are the best way to gauge our execution and success. First, let's look at higher average selling prices. In the third quarter, average revenue per unit increased 16% to approximately $184,000, compared to approximately $158,000 just a year ago.

Our second measure listed on slide four is a continued increase in C200 production rates, which is a reflection of our continuous refinements to our C200 production line and C200 supply chain. We will also have an annual price increase this coming April, which gives us some additional wind in our sales as we continue the migration to larger units and higher prices per megawatt.

The third key measure is our lower direct material costs. Our efforts to bring these costs down have had a positive impact in gross margin, as you are seeing in today's record numbers.

Fourth is a healthy new order flow. As I mentioned earlier, backlog reached a new record as of December 31, 2013. On a unit basis, we had 722 units, or 178.4 megawatts, in total backlog, compared to 646 units, or 152 megawatts, at the same time last year. As we always say, our ending backlog is a good indicator of future revenue growth, so we are feeling much better about our revenue outlook for next year.

And the fifth key measure is reduced cash usage. We are pleased with our efforts to manage working capital, and when combined with our lower net loss for the year, it has resulted in lower cash usage. We have adjusted our cash balance goal for the year end upward from $30 million to between $33 million and $36 million by March 31. This adjustment reflects $6 million in cash we received during the quarter from the exercised outstanding stock warrants.

As Ed noted on our second-quarter call, the remaining warrants expired on October 31, and there are no longer any outstanding warrants in Capstone's capital structure. With nearly $32 million in cash at the end of December 31, we are very close to achieving our year-end cash goals.

At this point, I will pause and turn the call over to Ed for more details on the third-quarter financial results.

Thanks, Darren. Good afternoon, everyone. Let's begin on slide five.

Revenue for the third quarter of fiscal 2014 was $37 million, up 5% from $35.3 million for the second quarter and up 11% from $33.3 million for the same period last year. Product revenue was $29.9 million and increased 4% quarter over quarter and 14% year over year.

For the third quarter of fiscal 2014, revenue from accessories, parts, and service was $7.1 million, compared to $6.6 million in the prior quarter and $7 million for the third quarter last year. This year-over-year increase is primarily related to increased factory protection plan enrollments and higher sales of parts, offset by decreased service billings.

Gross margin for the third quarter was $7.3 million, or 20% of revenue, compared to $4.9 million and 14% of revenue for the second quarter and $4.6 million or 14% of revenue for the same period last year.

As Darren mentioned, the 600 basis-point year-over-year increase in gross margin was primarily related to $2.2 million in additional revenue from increased shipments of C65 and C1000 and lower direct material costs during the third quarter. In addition, royalties were down $400,000 and warranty was down $100,000 on higher revenue during the three months ended December 31, compared to the same period last year.

Our warranty expenses are declining as a result of completion of our liability and repair programs for the C200 and C1000 series systems and the continued maturation of these products. Also, as noted on last quarter's call, our royalty expense was down because the fixed-rate royalty for each MicroTurbine system covered by our agreement with Carrier Corporation, successor in interest to UTC Power, was reduced by 50% during the second quarter. This permanent reduction benefited gross margins $600,000 in the third quarter and, of course, will continue to benefit margins in future periods.

On slide six, you can see the progress that we've made on our long-term goal to achieve 35% gross margins. As we've said in the past, this will be accomplished due to a combination of factors, including higher average selling prices, material cost reductions, lower warranty, and the now accomplished rate reduction on the royalty. We made good progress towards this goal during the quarter, with the gross margin percentage increasing by 600 basis points sequentially.

R&D expenses were $2.3 million for the third quarter of fiscal 2014, compared to $2 million last quarter and $2.2 million for the same period last year. The slight year-over-year increase was primarily related to higher supplies expense. We continue to invest in R&D as we focus on new product development, product robustness, and direct material cost-reduction initiatives.

SG&A expenses were $7 million for the third quarter, up from $6.6 million last quarter and $6.8 million in the same period last year. The year-over-year increase was primarily due to a combined $300,000 increase in travel and bad debt, offset by a $100,000 decrease in marketing expenses.

Net loss from operations for the third quarter of fiscal 2014 decreased to $1.9 million, an improvement over the $3.7 million operating loss for the second quarter, as well as an improvement over the $4.4 million operating loss for the same period last year. Net loss was $2.2 million, or $0.01 per share, for the third quarter, compared to a net loss of $3.9 million, or $0.01 per share last quarter, and a net loss of $4.5 million, or $0.01 per share, for the same period one year ago.

I'll now provide some comments on the balance sheet and cash flow activity. Please turn to slide seven. Cash and cash equivalents totaled $31.6 million at December 31, 2013, and increased $3.3 million from the $28.3 million cash balance at the end of the second quarter. Capital expenditures for the third quarter of fiscal 2014 were $200,000, compared to $300,000 in the second and flat when compared to the same period last year.

Receivables were $22 million, compared to $18.4 million in the prior quarter and $19.3 million a year ago. DSO increased on a sequential basis to 54 days for Q3, compared to 48 last quarter and 53 days for the same period last year. Inventories were $25.1 million at December 31, an increase of $1.3 million sequentially, and inventory turns increased to 4.9 times, compared to 4.6 times last quarter.

Finally, on slide eight you can see a visual record of our growth in backlog since fiscal 2007. As Darren mentioned, we ended the quarter with a backlog of $160.4 million, up 8% from the beginning of our fiscal year and up 18% from one year ago. Recall that this backlog is product only; it doesn't include our factory protection plan backlog, which has topped $45 million for the first time.

Aftermarket gross margin percentages continue to improve, as our strategy and vision for customer service, led by Paul Campbell, is paying dividends via reductions in waste and efficiencies within our remanufacturing organization. Specifically, we had reduced aftermarket pretty substantially and we had meaningful reductions in cost of engine repairs. This, coupled with increased reliability, has given us a great foundation to work with in fiscal 2015 and beyond.

That concludes my comments; back to Darren.

Thank you, Ed. Let's go ahead and turn to slide nine for our third-quarter global shipment mix.

59% of the shipments were oil and gas applications, 19% used in energy efficiency applications, 3% in renewable applications, and the last 19% for use in other applications, including critical power supply and mobile products.

We have seen a particularly strong pickup in critical power supply solutions this year as customers want solutions that can handle both primary and backup power. We're also experiencing what we believe is an important paradigm shift in the way Capstone's solutions are being perceived in the overall market. Capstone used to be considered primarily for 1- to 5-megawatt opportunities or installations, but we've migrated up in project size where Capstone is now being considered frequently as a solution for projects in the 5-megawatt to 25-megawatt range.

Geographically, we are becoming well diversified in terms of distribution. In North America, the US market is being led by the oil and gas sector, where we have lots of activity in the Marcellus and Eagle Ford shale plays, as well as our first major order in the Permian Basin of Texas and New Mexico.

We recently received new orders from Hawaii and Alaska, two markets that have been historically underperforming, so this is a very positive development for Capstone. And of our top five distributors for the trailing 12 months, four are in North America, including two that are based in Mexico, where we continue to broaden our footprint in this very dynamic evolving market.

The European market has picked up, due primarily to the strength in the Russian oil and gas market. Continental Europe is still down year over year, although we've had some recent success with new orders out of Germany and Italy. However, according to our European distributors, we are still a year to 18 months away from the previous levels of activity we enjoyed across Europe.

Turning to slide 10, you can see our order flow since the beginning of the third quarter. Starting with multiple orders from our new Alaskan distributor, Chenega Energy, the orders were for a single C1000 and multiple C200s for use on offshore platforms in Alaska's Cook Inlet.

Chenega Energy President Greg Porter summed up the opportunity in Alaska nicely when he said Capstone market turbines are an amazing solution for Alaska's growing energy needs. With the state that covers an area one-third the size of the contiguous 48 states, our challenges are diverse. Rising energy costs, remote locations, and the lack of statewide grid infrastructure require creative and reliable solutions.

In addition, often in this Arctic climate, 70% of our needs are heat. I believe we are seeing the beginning of a proliferation of Capstone solutions in Alaska across multiple industries and market sectors.

I agree with Greg and look forward to his future success.

Next in the US was an order for two C1000s for the use of a combined heat and power application at a pharmaceutical facility in northern California. This project was sold by Regatta Solutions. We also received an order from a Hawaiian resort for a C1000 to be used in a combined cooling, heat, and power application. Our system was chosen as the preferred option for power generation due to its high efficiency and ability to provide stable power operating on propane.

In the US oil and gas market, we received multiple orders from E-Finity for MicroTurbines to be used for operations in the Marcellus and Utica shale regions. These orders totaled 6.4 megawatts and came from two current customers and two new customers. We also recently announced orders from Horizon Power for two C1000s and an order for 25 C65s to be used in oil and gas production in the Permian Basin, located beneath west Texas and southeastern New Mexico.

The oil and gas market continues to be our fastest-growing market worldwide, and in Russia, we received two orders totaling 24 megawatts from BPC for new associated gas and pipeline projects. This is a good example of what -- the shift we are seeing to bigger orders for larger load regimes. BPC continues to be a very strong partner for Capstone and today has over 1,200 Capstone units successfully operating throughout their territory.

In addition to the US and Russia, we are seeing significant interest from producers in Africa and the Middle East for Capstone's highly reliable, low maintenance associated gas -- oil and gas solutions.

Finally, in the food industry, we received orders for 2 C600s for use in two Italian food manufacturing plants. This was a positive sign of increased order flow from IBP, our Italian distributor, as the continental European market continues to slowly strengthen and rebound.

Turning to R&D, in R&D we continue our careful balance of applying critical investments to maximize short-term value by supporting longer-term goals for strategic growth. Last December, we were invited by the DOE to participate in the American Energy and Manufacturing Competitiveness Summit in Washington, DC. The purpose of this annual event is to discuss and share American innovation, progress, and competitiveness in energy and manufacturing sectors with senior leaders from government, industry, academia, and the national laboratories.

I'm very proud to say Capstone was featured at this event as a leader in American innovation and energy productivity for green distributed generation. In fact, the DOE-sponsored video of our story can be found on their official website at www.energy.gov.

I am also pleased to see our continued work with the DOE's Advanced Manufacturing Office and Oak Ridge National Laboratory to develop a new class of corrosion and creep resistant steels. We are currently in Phase I of a commercial viability and expect to have preliminary results this summer. This is an exciting opportunity to significantly reduce the material cost of our MicroTurbine by having a lower-cost alternative to the traditional high-temperature nickel-based alloys used in today's product. I look forward to sharing our progress on this exciting program on future earnings calls.

We are very pleased with the success we have been having in penetrating our key markets; and at the same time, we've been successful in bringing down material costs, lowering warranty costs, reducing royalty expense, all while increasing revenue and holding production labor and manufacturing costs in line.

We expect to meet our year-end cash and EBITDA goals during the current fourth quarter, and we look forward to closing out another year of exceptional progress for Capstone and achieving another historic milestone in the Company's history.

That concludes our prepared remarks for today. Thanks for your continued attention. Operator, we are now ready to open the call up to our analysts' questions.

(Operator Instructions). Rob Stone, Cowen and Company.

Hi, guys. Wanted to ask a couple questions with respect to backlog and incoming orders. Darren, you mentioned that the average order size, average ASP is going up, and you're seeing larger projects. Can you say if there is a change in project lead times? Are those getting any shorter or longer, and what would you say is the average project lead time?

Great question, Rob. I think the average project lead time really depends on the market vertical. Oil and gas tends to be longer lead time than CHP or other markets, renewables. I would say as we move into the larger load regimes, the project cycles are going to be on the -- tend to be on the longer side.

That being said, when we have 10, 20, 25 megawatts at a crack, we will need some time to obviously get the supply chain ramped up. So it's actually a good thing for us. Overall, our backlog of $160 million is what we believe will be delivered in the next 12 months. That's typically the case. Sometimes, it flips out; sometimes, it delivers sooner. But in general, I would say nine to 12 months is a fair average lead time to ship our product.

So with respect to the backlog versus -- you've traditionally said backlog is a good way to think about the next four quarters of revenue. But your backlog doesn't include FBP's backlog. So is $160 million -- a product revenue number for the next 12 months, and how much might FBP add to that?

Traditionally, what we have seen is whatever the kind of ending-year backlog is is a good sign for the following year. Obviously, some of that backlog flips outside of the 12 months, and that kind of gets backfilled with accessories, parts, and service.

With that, I think our FBP backlog is growing at a nice pace. Ed mentioned in his comments that we are over $45 million now in backlog, but traditionally, I'd still guide to the total product backlog as being your best indicator (multiple speakers) for total revenue, correct.

Great, thanks. I'll jump back in the queue.

Philip Shen, ROTH Capital.

Hey guys, it's Matt on for Phil. Thanks for taking our questions. Just wanted to dig into the gross margins. First of all, congrats, guys. That's a huge improvement quarter over quarter.

Just wondering, maybe, if you can break out the improvements into specific buckets, so you guys usually break out stuff by pricing, cost reduction, warranty, and royalty. If you can break those out a little bit more for us, that would be helpful.

We can comment on the royalty part of that equation, for sure. We picked up about two points from there. I said earlier that it was a $600,000 benefit from the rate reduction on royalty, and that's worth about two points on the quarter's revenue. The remainder of it is a mix between improved warranty costs quarter over quarter, and then slightly higher ASPs and some benefit from cost reductions.

I think you can -- you can look at our previous waterfall chart and you can kind of walk through the changes quarter over quarter.

Okay, that's helpful, guys. And then, can you just give us your latest update on specific cost-reduction measures? So that 10% in margin gains you guys have on slide six, how long will it take to capture that full 10%?

What we've said is cost reduction is probably still 18 months to 24 months out to finalize the program, but we will be getting reduction as we go.

The 3% price increases, last year's price increase; as we said on the call, we've got another price increase that's not included in this waterfall chart that will go into effect. The warranty is down quarter over quarter on higher revenue, so obviously the more we shift, the more warranty reserve we put in place, so that's actually even more impressive than it looks at first blush.

But overall, you see over the next two years, we kind of continue the march from the 20% margin today up to that 35%. Obviously, the C250 will be additional benefit; the [AFA] fields could be additional benefit; we will continue to do price increases where the market will bear it. So we feel very good about the trajectory we are on.

As we've talked about for Q4, to get the EBITDA breakeven, you need about, roughly, $40 million in revenue and 21%, 21.5% margin. So we are very close to both of those numbers. So we feel very good about continuing the trend and achieving those goals.

Great, that's helpful. Just one more here, if I may. The critical power piece of revenues looks like it was up pretty significantly. You guys just briefly commented on that. Maybe you could provide just a little bit more color as to what's going on there. What are you seeing in this market, and is the sort of a normal mix going forward or is this kind of a blip on the radar here?

I would characterize it as a Sandy effect. I think folks that are buying turbines today, there's an option to buy in grid parallel or in standalone or both. So they are opting to go fully loaded and do the standalone application to where they can run in parallel with the grid or run standalone without the grid.

So I think customers are seeing the value of not only distributed generation onsite, but then having the ability to back up key loads, life safety, data centers, and the like. So, that's a good shift for us. I think it strengthens our value proposition and it shows that people are learning from the unfortunate mistakes of the past and weather conditions and other natural disasters.

That's helpful, guys. Thanks. I'll jump back in queue.

Eric Stine, Craig-Hallum.

Great to see that gross margin in the quarter. Maybe could we just start on the -- you talked about, and this has been a dynamic that's been happening for some time, but number of orders in the pipeline, the size. Any thoughts? What do you attribute that to? Is it that the C200 has been in the market for a number of years and is proven? Is it your distributor base getting built out? Any thoughts there?

I would say it's a combination of both. The C1000, C200 series product has been in the market four years. That's enough time for a lot of customers to get comfortable with the performance and the reliability of that product.

In addition, as you know, we've been working hard to improve the reliability and performance of that product. We pareto every failure and we work diligently through our R&D group to make that product even more robust. So as the product matures, as it gets more happy customers in the field and we get more hours on the machines, that's leading to more opportunities.

I think the paradigm shift we are seeing is a lot of folks are saying a MicroTurbine really isn't that micro when you put it in a megawatt solution, and the fact that you can daisy-chain together as many megawatts essentially as you want, people are realizing that it may make sense for 10-megawatt, 20-megawatt, 15-megawatt solutions to use our technology, which is excellent. Obviously, that will give us more revenue growth, baseline, some bigger customers, and open more doors for us.

I think our distributors in general are maturing. You mentioned the overall pipeline, our pipeline is still well north of $1 billion, about $1.3 billion. So as we see more and more opportunities, it's really about the maturation of our distributors how to turn those opportunities into orders. So the better the distributor, obviously the higher the hit rate or the close rate.

We still see a lot of especially commodity heat and power projects that are slow to close. I mentioned obviously before the Palace Hotel in New York. It took four years to close the project with less than a three-year payback. I still think we're going to see some of that, but as the economy improves, hopefully we will see those projects close much faster. And as the distributors basically mature and get better at closing those jobs, I think they will knock the hurdle down even quicker than they've done in the past.

But it's fair to say that you -- I mean, I guess we've seen a sizable order announcement in early January. Fair to say whether fourth quarter of fiscal-year 2015 we should see more of those?

Timing is always difficult, but I would say we've got probably close to a dozen larger than 5 megawatt orders that are getting fairly mature. So hopefully if we don't close some in Q4, we'll be announcing them in Q1. But I think they will start impacting next year's revenue and definitely the year after that.

So I think -- and again, once we get some larger sites, that's going to help other customers take the same plunge and get more comfortable with using our technology and those load regimes.

Yes, absolutely. Maybe just talking about orders, any thoughts or an early read on what you're seeing in the March quarter, just in light of the December quarter being pretty strong? Any change to the thought that the March quarter would be your seasonally strongest?

We talked about that last earnings call. Obviously year-end, since we do a lot of oil and gas work, we tend to get a little bit of a spike in the third quarter because of unused capital budgets that people have to use them before they lose them, so we did see some nice oil and gas orders in Q3.

Obviously in Q4, we will have our price increase April 1, so that should potentially drive a little bit of customers that maybe are on the fence ordering the order in March.

But in general, I would say the same macro environment is what we have seen. Very strong market in the US. Hawaii and Alaska obviously are nice kind of windfalls with new opportunities there and two markets that make a lot of sense, but just have never really performed very well for us. Mexico is going through a lot of changes with Pemex, and with the local utility grid there, I think there's going to be more privatization and more opportunities in Mexico. It's already a big market for us, so that's getting better.

I was just in Colombia last week. That market has a lot of opportunity, both oil and gas and CHP. Brazil, we are excited about opportunities there.

Currently, we've got folks over in the Middle East; that's a market we've done very little in the past, but has some very good upsides. I think Africa is going to be something we're going to talk a lot about over the next couple of quarters.

So I think in general, besides Europe, the rest of the world is either trending the right direction or continuing to be strong. We'd like to get more out of Asia. China and India still aren't as strong as they could be for us, but I think in general the majority of the markets we are in and the majority of the verticals are all trending in the right direction.

Okay. That's great. Maybe just last one from me, talking about the oil and gas orders out of Russia. On the associated gas side in early January, it looks like the order announcement was not with Tatneft. So just curious, maybe a way to size the opportunity with that customer, but then, also, potential timing we maybe should look for in terms of a follow-on from Tatneft. Thanks.

Thank you. That is correct. That order for the 24 megawatts is not with Tatneft. It's with other oil and gas users in Russia, and specifically associated gas. The follow-on Tatneft order we expect in the next probably two quarters, hopefully Q4, but if not, Q1.

I would say they're getting very comfortable with the technology, with the performance, and so as we are down to how big the next order is going to be, and pricing obviously is a bit of an issue. Even though our margins have improved dramatically at 20%, we're still not inclined to discount the product substantially. So it's obviously an ongoing conversation. But I'd look for probably at least a 10-megawatt order out of Tatneft in the next couple quarters.

Thanks a lot.

Colin Rusch, Northland Capital Markets.

Thanks so much. Can you guys give us an update on the upgrading of the distributor network? You've talked a little bit about going through an ongoing review process with some of those distributors. Can you just get us up to date on where you are with that now, particularly as you look at expanding into developing economies?

We're up to 99 distributors, I believe, today. We're still doing a lot of what we call -- we used to call it weed and feed, now we're calling it feed and weed. It's a little more positive, but the reality is we are giving the good distributors more territory. We are working hard on the weaker distributors to make sure they improve.

But I think it's an area that we'll focus on probably for the next several years. As we continue to grow the distribution channel, that's key to our overall success.

Great. And then, can you give us an update on what's going on with the REIT market in the US? Obviously, you're going geography by geography, but it seems like there is still a material opportunity there. Are there some big fish out there that are -- that you guys are working with, potentially?

Absolutely. The first units for Related will be commissioned here probably next quarter. I think as Related gets several of their buildings going, that will be kind of our first foray into that market. Obviously, the equity [options] of the world will [focus] behind that.

Okay, great. And then, can you talk a little bit about the mix shift? Obviously, you're seeing ASPs go up per unit, but that seems largely to be a product of just the system size. Can you talk a little bit about the pricing dynamics as you talk about your targets? How much of that is being driven by just the shift in unit size and how much of it is on a per-watt basis?

I think the biggest shift we are seeing is just more C1000s, just shifting to the larger machines. I think C65s have done well. We've seen a slowdown in C30s, but I think the biggest shift we are seeing is multiple C1000s and larger load regimes, like I talked about. So as we start doing more north of five megawatt sites, it is going to obviously drive the C1000 business much faster than the rest of the business.

Great. Thanks a lot, guys.

That concludes our Q&A session. I would now like to turn the call over to Mr. Darren Jamison for closing remarks. Please proceed.

Great. Thank you, everybody. Great questions, as usual.

Obviously, this is the best all-around quarter in Company history. We're very happy with the results. Highest revenue, highest product revenue, gross margin in both dollars and percentage. Record backlogs, like we've discussed, both in FTP and in product. A tremendous book-to-bill ratio of 1.4 to 1, average selling prices at the highest levels, and strong cash. I think our cash position is becoming more of a strength for us.

So, we look forward to moving up into larger load regimes and we look forward, obviously, to more oil and gas fueling our growth. As I mentioned, Mexico, Colombia, Brazil, the Middle East, Africa, all very promising; Alaska and Hawaii here in the US. So we still are maintaining our goals for Q4, of [turning out] break even, and a cash balance of $33 million to $36 million. So hopefully, we're going to achieve those goals and have a great Q4 call. Thank you, everybody.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.