You saw in our — in Q1, as we said in Capital Markets Day, our costs were relatively flat, lower CapEx spending and operating costs that were relatively flat. And that’s bumping up against a relatively higher inflationary environment as well. So we are looking very hard at all of our costs and focusing the company on where the market opportunities are. And we’ll be able to — as we explore these other financing options the particular emphasis on the nondilutive ones, we’ll bring out more information as those become more solving.
Craig Shere: Fair enough. Just on that first question to finish this point, I mean, you had a very strong fourth quarter and sales seasonally fell and you have a working capital benefit, is it unreasonable to think that heading into a fourth quarter surge that there would be a working capital drain.
Randy MacEwen: Yes. Yes, we would expect that as sales come up, our receivables and inventory is building throughout the year. Our receivables will be building, and then we’ll see the receivable inflow in Q1 as we did in this Q1. So we expect that pattern to continue. We are, though, also as part of — as we’re looking at our cash flows and as we come up to scale, looking at all aspects of working capital, customer terms, inventory reduction, inventory management, tighter on that and payment terms with our suppliers as well. So, all of it is a big focus of mine.
Craig Shere: All right — go ahead
Randy MacEwen: Sorry, Craig. I might just add to that, when we kind of look at 2023 last year, we really implemented a number of activities really sharpened the focus to make sure that we have this right balance of investing for the future, making sure we have competitive products, not just today, but five years from now and 10 years from now, and at the right cost structure, et cetera. And so we rationalized the product portfolio last year. We reduced the number of active product development programs. We dropped corporate development investments and discontinued certain legacy noncore activities. So we’re taking a very careful look to make sure that we are investing resolutely kind of on the long term, but protecting the balance sheet.
Craig Shere: Okay. That’s very helpful and it feeds right into my second question, which also digs into the answer to Rupert’s first question. And that related to this multiyear contracts and providing your customers lower pricing on an annual basis and planning to kind of leg into that with even more reductions on your internal costs. It feels like that is a challenging effort. I mean, it’s very hard to predict with certainty the time lines for these things when the market will scale and if you have a growing order book with falling annual pricing, but the ultimate market scaling takes whatever, another 12 months or 18 months for various reasons beyond anyone’s control, that maybe — I’m just — is that very challenging in your mind? Is there a risk that if things turn dramatically different than anticipated for any macro reason that you could suddenly find yourself leaving a lot more cash in 18 months than expected?
Randy MacEwen: Yeah. So Craig, everything about the hydro fuel cell industry is challenging, right? This is not for the faint of heart. But what I would say is when we sign a long-term agreement, and we’re committing to future forward pricing, we have very high probability on what our costs are. We’re not taking risk on that, right? So there is some development risk, and there’s some very modest volume risk, but not kind of what you’re talking about. So I feel very confident, very confident that our cost reductions will exceed our selling price reductions based on the work that we’re doing and based on the supply chain visibility I don’t view that there’s lots of risks. I think about it at night, that’s not one of them.
Craig Shere: All right. Good to hear. Thank you.
Operator: Our next question comes from Vikram Bagri with Citi. Please go ahead.
Vikram Bagri: Hi, there. A couple of questions on gross margin. Could you just remind us if there are any impairments this quarter and then just looking at the Power Products backlog that was picked up this quarter. How should we be thinking about that going forward? And how does that impact your outlook for the fourth quarter for that breakeven target? Is that mix consistent with the next 12-month order book that you see?
Paul Dobson: Hey, Vikram. So just on the gross margin question. So as we said, we’ve had a gross margin of minus 37%, which was a 5-point improvement from Q1. And then looking underneath the gross margin, we just talked about contribution margin, so price minus the direct labor and direct materials. It was broadly the same quarter-to-quarter. But both the products contribution margin as well as TS improved. So we are starting to see some expansion in the products as we become more of a commercial products company. But it was flat overall because the mix of products. We have more products with generally lower contribution margins than our technology solutions. So overall, it was flat. But underneath, the product contribution margin is expanding.
And then looking at our fixed and other costs, including the fixed overhead warranties and other provisions, that improved by about 6 points overall. And we had a net reduction in our warranty approvals as certain warranties expired and that provided the benefit — net benefit with — we also had a few other very small inventory write-down in the quarter, but nothing — nothing like what we saw in Q4 of last year. So overall, as we continue to invest in our products, we continue to expect to deliver product cost reductions, and when combined with the increasing sales volume and spreading that sales over our fixed cost, we expect to see gross margins improving over time.
Vikram Bagri: Got it. Okay. That’s very helpful. And just one follow-up. Last quarter, there was a customer that had impacted the backlog. I think the project was being delayed. Could you just talk about if there’s any update there? Could we expect to see that customer reenter the backlog at some point? Just any update would be helpful. Thanks.
Randy MacEwen : Yes. We’re staying very close to that situation literally almost daily. So we have very good visibility on what’s happening there. And they’ve made a lot of progress since December, and we’ll — we’re expecting them to get resolved likely in the next quarter, let’s call it, but we’ll wait to see that. And we’ll see at that time what the impact is to the order backlog.
Vikram Bagri: Got it. Thank you.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Randy MacEwen for any closing remarks. Please go ahead.
Randy MacEwen : Thank you for joining us today. Paul, Kate and I look forward to speaking with you next quarter. Thank you.
Operator: This concludes the question — and this concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
