Executive Summary

Calendar Q3 2025 (Capstone’s FY26 Q2) delivered revenue of $28.4M (+25% YoY), gross margin of 32% (+100 bps YoY), and net income of $0.8M, marking the sixth straight quarter of positive Adjusted EBITDA ($4.5M) .
EPS from operations was $0.04, but reported EPS was a loss of $(0.89) due to non-cash preferred unit accretion under HLBV accounting; management emphasized underlying profitability despite this accounting effect .
Product strength and higher rental utilization underpinned growth; the August 13 acquisition of Cal Microturbine contributed ~$0.7M revenue and ~$0.2M earnings in the quarter .
Management highlighted positioning at the intersection of microgrids and AI/data centers; transcripts and investor materials reinforced focus on high-voltage/data center power systems and continued DFMA cost-outs .
Consensus estimate comparison: Wall Street consensus from S&P Global was unavailable at time of request due to temporary limits; we cannot assess beat/miss versus estimates (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

Six consecutive quarters of positive Adjusted EBITDA ($4.5M in Q2) on stronger product mix and rental pricing; gross profit rose $2.0M YoY to $9.0M with gross margin at 32% (+100 bps YoY) .
Return to net profitability: net income of $0.8M versus $(0.4)M YoY, driven by higher gross profit and ~$0.9M lower non-recurring professional/bad debt expenses .
Strategic expansion: Cal Microturbine acquisition broadened direct distribution and service; contributed ~$0.7M revenue and ~$0.2M earnings in the partial quarter .

Quotes:

“Six Straight Quarters of Positive Adjusted EBITDA highlight continued discipline.” – Press release .
“Capstone… positioned to expand participation in… microgrids and data centers.” – CEO Vince Canino .
“Our improving financial health reflects the renewed confidence of our customers coupled with significant operational improvements.” – Interim CFO John Miller .

What Went Wrong

Reported EPS was a loss of $(0.89) due to non-cash accretion of preferred units under HLBV accounting despite positive operating EPS of $0.04, creating headline noise .
Cash and restricted cash ended at $7.7M, down ~$1.0M since March 31, 2025, as working capital consumption increased (A/R and deferred revenue timing), and financing cash outflows rose YoY .
Tariffs on imports from China added cost pressure; DFMA cost-outs offset part of the impact, but tariff headwinds remain an external risk .

Financial Results

Consolidated Metrics (Quarterly)

Metric	Q4 FY25 (Mar 31, 2025)	Q1 FY26 (Jun 30, 2025)	Q2 FY26 / Cal Q3 2025 (Sep 30, 2025)
Revenue ($M)	$27.051	$27.871	$28.385
Gross Profit ($M)	$7.508	$7.564	$8.962
Gross Margin (%)	28%	27%	32%
Net Income (Loss) ($M)	$(0.126)	$(0.698)	$0.834
EPS (Reported)	$(0.01)	$(0.04)	$(0.89)
EPS from Operations	n/a	n/a	$0.04
Adjusted EBITDA ($M)	$2.829	$2.698	$4.527

Notes: Reported EPS in Q2 reflects preferred unit accretion under HLBV accounting; “EPS from operations” highlights underlying operating performance .

Segment Revenue Breakdown ($M)

Segment	Q2 FY25 (YoY Comp)	Q1 FY26	Q2 FY26
Product & Accessories	$11.270	$15.720	$16.112
Parts & Service	$7.924	$7.938	$7.861
Rentals	$3.528	$4.213	$4.412
Total Revenue	$22.722	$27.871	$28.385

KPIs and Balance Sheet Highlights

KPI	Q4 FY25	Q1 FY26	Q2 FY26
Cash & Restricted Cash ($M)	$8.671 cash	$6.628 cash	$7.697 cash + restricted
Consecutive Positive Adj. EBITDA	n/a	5 quarters	6 quarters
Compliance with Covenants	Yes	Yes	Yes

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Company Guidance	FY26/Q3 and beyond	Not provided	No quantitative guidance provided in Q2 release/call	n/a

Management did not issue numeric revenue, margin, OpEx, OI&E, tax, or dividend guidance in the materials reviewed.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY25 & Q1 FY26)	Current Period (Cal Q3 2025 / FY26 Q2)	Trend
AI/Data Centers	Positioning to participate in data center growth; elevated interest noted	Emphasis on high‑voltage/data center power systems; strategic focus reiterated on AI/data center environments	Increasing strategic focus
Microgrids/Distributed Generation	Core to strategy; market momentum cited	“Expand participation” in microgrids; demand tailwinds highlighted	Strengthening demand
DFMA Cost-Out/Operational Excellence	DFMA cost-outs and price realization drove GM gains	Continued GM expansion; DFMA offset tariff costs	Sustained execution
Supply Chain/Tariffs	Tariff sensitivity acknowledged	New China tariffs raised costs, partially offset by DFMA	Ongoing headwind with mitigations
Rental Fleet Utilization	Improved utilization contributing to revenue	Continued strength in rentals and pricing	Stable to improving
M&A/Distribution Expansion	n/a	Cal Microturbine acquired; immediate revenue/earnings contribution	Execution inorganically expanding reach
Leadership/Board	Stable through Q1 call	CFO change; Interim CFO appointed; former Chair resigned	Governance transition, continuity asserted

Management Commentary

“Capstone today is a different company – more resilient, more focused… positions Capstone to expand participation in… microgrids and data centers.” – Vince Canino, CEO .
“Six consecutive quarter of positive Adjusted EBITDA… supported by solid growth in both product and rental revenues.” – John Miller, Interim CFO .
“Gross margin expansion reflected higher profitability across all revenue streams, supported by ongoing DFMA cost-out initiatives… which helped offset… tariffs.” – Press release .
Q1 framing: “Delivering on Strategic Pillars… five straight quarters of positive Adjusted EBITDA.” – Q1 release .
FY25 framing: “First full‑year positive Adjusted EBITDA… improved services and rental revenues, cost efficiencies, and price increases.” – FY25 release .

Q&A Highlights

Technology roadmap: Management spotlighted high‑voltage solutions targeting data centers and the broader AI infrastructure opportunity; reinforced intent to serve electrification-driven growth with resilient, low‑emission distributed generation .
Cost discipline: Continued DFMA initiatives and global sourcing cited as levers to counter input/tariff pressures and sustain margin gains .
Leadership transition: Commentary indicated a “deep leadership bench” and continuity of strategy following CFO transition and Board changes .
Commercial mix: Color on product strength (>50% of mix) and healthy rental pricing/utilization supported the margin framework .

Estimates Context

S&P Global consensus (EPS and revenue) for FY26 Q2 (calendar Q3 2025) was unavailable at the time of this analysis due to temporary access limits. We cannot formally assess beat/miss versus consensus at this time. Values from S&P Global were not retrievable (Daily Request Limit exceeded).
Management’s pre‑announcement indicated a profitable quarter with ~25% YoY revenue growth, which was confirmed in final results .

Key Takeaways for Investors

Underlying profitability is improving: positive net income, six straight positive Adj. EBITDA, and margin expansion to 32% reflect durable execution on pricing, mix, and DFMA .
Accounting nuance matters: headline reported EPS of $(0.89) was driven by non‑cash preferred unit accretion (HLBV) despite $0.04 operating EPS—focus on operating earnings and cash conversion for valuation discussions .
Growth vectors in place: product momentum and rental utilization are sustaining top‑line growth; inorganic expansion via Cal Microturbine enhances direct distribution and near‑term earnings .
Strategic narrative is resonating with secular demand: microgrids and AI/data centers create a credible long‑term TAM; near‑term pipeline benefits from resilience and decarbonization themes .
Watch working capital and liquidity: cash + restricted cash at $7.7M with operating cash use driven by A/R growth and deferred revenue timing; monitor collections and inventory turns .
External risks persist: tariff exposure remains a cost headwind; DFMA and sourcing mitigations are key to sustaining gross margins .
Trading implications: absent consensus comparisons, narrative catalysts include continued profitability, data center/microgrid positioning, and potential follow‑through on cost discipline; governance transitions bear monitoring for execution continuity .

Appendix: Additional Context Sources

Q2 FY26 earnings press release and full financials (8-K Item 2.02 with Exhibit 99.1) .
Q2 FY26 pre-announcement and leadership changes (8-K) .
Q1 FY26 earnings release and financials (8-K) .
FY25 Q4 and full-year results (8-K) .
Earnings call transcript and investor materials: Seeking Alpha transcript & slides, Investing.com transcript summary, Capstone IR webcast/presentation .

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