June quarter sales were below our expectations. The company reported revenues of $16.1 million up 13% year over year but down 4.5% sequentially and below our $18.5 million forecast. The company is in the middle of a transition towards rental and service business, which will provide for more steady revenues but will have less of the big ticket items that sometimes boost sales in a given quarter. Management believes rentals and sales are still being negatively impacted by COVID and supply chain issues specifically pointing to Italy, India and Brazil where Capstone does business. Costs rose causing margins and cash flow to shrink. Adjusted EBIDTA was ($2.3) million versus $0.1 million. Cost of goods sold rose to $13.4 million versus $10.8 million pushing gross margins down to $2.6 million (16%) versus $3.4 million (24%). We had hoped for the gross margin percent to remain at 24%. Operating costs were $6.2 million versus $3.9 million last year. Net income was ($4.8) million excluding a non-cash gain on the extinguishment of debt versus ($1.8) million and our ($2.8) million forecast."Steps taken over the last 6-12 months should help out results in the next 6-12 months." The company has yet to sell its first Baker Hughes Turbine but expects to do so in the third quarter. Likewise, it has not reached significant blended hydrogen/gas turbine or energy storage agreements but believe sales are coming. These are all initiatives begun just this spring. Management expressed a goal of showing positive year-over-year sales growth each quarter and has set a goal of being Adjusted EBITDA positive each quarter. We are extending out our expectations for positive cash flow in response to lower-than-expected June quarter results and lowering our price target to $10 from $13. Rating remains outperform. We believe the future looks bright for Capstone but also believe it may take longer than expected to get there. We now look for the company to report positive EBITDA by the end of the year and see cash flow growing at a slower rate in the next several quarters. The decrease in our price target is a reflection of our revised projections. Read More >>