Capstone Green Energy Corp (CGRN) 2003 Q2 法說會逐字稿

Welcome to the Capstone Turbine Corporation second quarter 2003 earnings conference call. (CALLER INSTRUCTIONS). I would now like to turn the program over to your host for today's conference with Capstone Turbine, Head of Investor Relations, Mr. Wade Welch. Please proceed sir.

Thank you. Good afternoon and thank you for joining us today to discuss Capstone Turbine's results for the second quarter of 2003. I am Wade Welch, and I am responsible for Investor Relations at Capstone.

By now, you should have received a copy of the press release which was issued this afternoon. If not, please call us at 818-734-5428 and we will get a copy to you.

On today's call are Emily Liggett, interim Chief Executive Officer, and Karen Clark, Chief Financial Officer.

During the course of the call, management may make projections or other forward-looking statements regarding the events or future financial performance of the Company within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous assumptions, risks and uncertainties which may cause Capstone's actual results to be materially different from the future results expressed or implied in such statements. Capstone undertakes no obligation to release any revision to any forward-looking statements. For a detailed discussion of factors that affect Capstone's operating results, we refer you to the Company's filings with the Securities and Exchange Commission.

At this time, I will turn the call over to Emily Liggett.

Thank you Wade. Good afternoon and thank you for joining us. During today's call, I will update you on our business and highlight some of our accomplishments this quarter. Then, Karen Clark will review our financial results for the quarter. After that, Karen and I will be happy to take your questions.

As you are all aware, the soft economic environment continued during the second quarter of 2003. This impacts the demand for our products as it does for other power product manufacturers. Sales during the period totaled 4.7 megawatts. We exited the second quarter with 5.1 megawatts of orders scheduled for shipments primarily during the third quarter. This compares with 1.3 megawatts sold during the first quarter and a backlog of 7 megawatts entering the second quarter. Net orders received during the second quarter were 2.8 megawatts. We continue to see variability in both the size and timing of orders.

In this difficult economic environment, we are working with our business partners to increase adoption of Capstone microturbines around the world. In our second quarter, roundtable meeting with many of our North American distributors, we brought together our collective insight into the needs and purchasing structures of specific vertical markets that we are targeting. This type of information is valuable in honing our approach to these markets.

While we continue to work to identify ways to increase market penetration, we are pleased with some of the recent higher profile installations that have received attention. Last Thursday, an A&P Waldbaum's supermarket on Long Island held an open house to showcase their C-60. In that installation, the C-60 not only helps the supermarket conserve energy on the strained Long Island power grid, its exhaust is used to dehumidify the in-store air. This conserves even more energy by cutting air-conditioning use.

Other recently installations include the Santa Fe Hilton, where the microturbine exhaust heats an outdoor pool and a Wisconsin landfill, running an array of bio-gas fueled Capstone microturbines.

To increase awareness of real world microturbine applications, we've published case studies that we call Capstone On-site. These show how Capstone solutions have benefited a wide variety of businesses and facilities. The Capstone on-site can be viewed on our website at microturbine.com.

When visiting our web site, you can also monitor the growth in operating hours of the fleet at (ph) field at Capstone microturbine. At the second quarter the fleet surpassed the documented 4 million cumulative operating hours. On the web site below the operating hours counter is a link to descriptions of some other Capstone installations around the world.

Now I would like to update you on the progress being made by our strategic partner, UTC Power. Working with UTC's carrier division, UTC Power has sold several units to date. We expect growing sales going forward from this partnership.

As to UTC's absorption chilling product designed to work with our microturbines, they are continuing to make progress in this development effort. This combined product is aimed at enabling businesses to cut their total energy costs by generating electricity on-site with the microturbines and using the microturbine exhaust heat to run air-conditioning for their facilities.

On our last conference call, we discussed our efforts to provide total solutions for select vertical markets. In particular, we noted that we had just unveiled to our business partner an entirely new integrated combined heat and power product built on our C-60 system. This integrated system provides both electricity and hot water. In comparison to our previous offering, this new all in one system offers higher efficiency, a smaller footprint, more flexible operation and it's easier to install. We shipped the first commercial integrated CHP units during the second quarter and we're pleased by the successful reception of this new offering.

Turning now to the development of our C-200 product, we have previously told you that we had begun interim testing for the new C-200 and during the second quarter, we've reached another important milestone by beginning testing the C-200 power electronics. Although there are risks in any new product development, we continue to target commercial release of the C-200 in 2004.

Before I turn the call over to Karen, there are two more areas to address briefly, our Nasdaq listing and the status of the CEO search.

During the second quarter, we received notification from Nasdaq that our stock had re-gained compliance with its listing requirements in advance of the September 15 deadline. These requirements generally state that our stock must trade above $1 per share.

Finally, I would like to talk about the search for a permanent CEO. The goal is to hire a quality CEO to take the Company forward. At the beginning of the process, the Board of Directors understood this could be a difficult and extended search. That's why they made sure the Company had interim leadership. This process has been given attention and effort however, we have no committed timeline when this search will be complete.

I will now turn the call over to Karen.

Thank you, Emily. As an overview of the quarter's results, revenues were $4.1 million as compared to $7.4 million in the same period a year ago. The loss for the quarter was $9.4 million or 12 cents per share compared to a $30.8 million loss or 40 cents per share loss during the second quarter of 2002. Remember that nearly 60 percent of the loss in the second quarter of last year resulted from two charges, a $16 million charge from the impairment of the marketing rights and $1.8 million related to excess inventory.

Now let's walk through key data supporting our results. Capstone shipped 4.7 megawatts of product in the quarter versus 7.4 megawatts in the same period of 2002. This quarter, shipments consisted of 60 C-30s and 48 C-60s. This compared to 165 C-30s and 41 C-60s shipped in the second quarter of 2002.

During the second quarter this year, sales were $4.1 million compared to $7.4 million in the same period a year ago. While sales this year were lower than last year, they are the highest we have reported since that time.

We had a gross loss in the quarter of $2.6 million compared to a $4.2 million loss for the same period in the prior year. Last year, second quarter gross loss included the $1.8 million charge related to excess inventory.

Research and development or R&D costs increased to $2.5 million this period as compared to $1.6 million in the second quarter of 2002 and compared with $1 million in the first quarter of 2003. R&D expenses are reported net of contract offsets. These offsets were $100,000 this quarter compared to $1.3 million a year ago and $1.7 million in the first quarter this year.

Selling, general and administrative expenses in the period of $4.7 million were less than half of the $9.7 million reported in last year's second quarter.

Moving now to our balance sheet, our accounts receivable balance was $3 million at the end of the quarter, down from $4.9 million at the end of the year in 2002. Total inventory has decreased $1.5 million from the end of the year to $14.4 million. $1.1 million of the inventory is now classified as long-term versus 6.8 million at the end of last year.

As of June 30, 2003, we had $126.4 million in cash and cash equivalents. We used $6.2 million of cash in the second quarter this year as compared to $9.2 million in the same period a year ago and $7.7 million in the first quarter of 2003. Cash used in the second quarter of this year for operating activity and for investing activities was the lowest since Capstone became a public company.

That completes our financial review. Emily?

Thank you Karen. While this was our strongest sales quarter of the last four, we still see challenges ahead. The soft economy will continue to impact demand for capital goods, including our products. However, we are continuing to move the business forward. We've been developing new product offerings to meet customer needs, products such as the integrated CHP system and the C-200. We're working with our business partners to further develop sales. Our relationship with UTC Power and the development of their microturbine sales and integrated chiller product are proceeding as expected.

These are important foundational developments for our future and we are pleased with the recent installations at the A&P Wauldbaums and the Santa Fe Hilton. Initial installations in chain operations are important to demonstrating the benefits our products can bring and to create follow-on sales. So we are making progress despite the challenging market environment.

With that said, Karen and I will now respond to any questions that you have.

(CALLER INSTRUCTIONS). Eric Proudy.

Karen, a quick question on the SG&A line. In Q1, I think there was a benefit from a refund you had done from a dispute with a contracting firm. Yet again in Q2, the SG&A level stayed fairly similar with that Q1 level without the benefit. Was that simply from additional cost reductions or was there another onetime benefit in the June quarter on the SG&A line?

There is no corresponding onetime benefit in June of a similar nature.

Okay, so that is pure cost-cutting you guys have done in the business?

Right. We have reduced cost, as you know, and we had previously said that in Q1 while we were reducing costs, some of the activities, we wouldn't see an immediate financial benefit from because they cost money before we got the benefit and I think you are now starting to see some of the true benefits of the efforts we previously undertook. Additionally Eric there are always timing issues in the occurrence of expenses.

Sure. Secondly, A&P, I know in a news article they had put out, it stated that there were certainly testing these units with the potential for a wider rollout within the store base. Can you give any more flavor on that? Is there a set trial period that they have discussed with you guys where if its successful it might equate into additional orders?

Eric, this is Emily. We do not have a firm timeline from them on a rollout but it's very typical these chains will put in some demonstration units to prove to themselves the economics before they move forward.

Great. Any idea again, the potential size could be? Obviously it might not occur, but any discussions with them to lead you to believe what the potential market there might be?

No, we cannot speculate on that.

Was that done in conjunction with United Technologies as a partner?

No, it was not.

Okay, it was you stand-alone. Okay, thanks a lot.

(CALLER INSTRUCTIONS). Harold Webber, Smith Barney.

Hi. I was wondering if you could give me a little more information on what the progress is as far as the CEO, where you are at with that as well as the outlook, what you see out there as far as the larger versus the smaller systems and the CHP system, what kind of feedback you're getting from UTC on this?

Howard, I'm not sure I got all of it. Let me get the parts I caught. On the CEO search, I have said all I can say about what we know of this search but we're moving the business forward so the Company is very focused on execution and making progress on applications (technical difficulty)

-- the news, the CHP (technical difficulty) we need to educate the people more on the combined application so they see the sooner payback benefits of a combine system versus -- which they had known about previously. Where do we go, what kind of progress have we made in that direction?

You are talking about small and large CHP systems?

Well, (inaudible) alone.

We are happy to sell microturbines anywhere.

Okay. (inaudible)

The integrated CHP units that we introduced this past quarter is a hot water unit attached to our C-60 and UTC is selling those as well as all of our business partners so those can be sold anywhere. The combined heat and power products that UTC are developing are related to their chiller technology, where they are using our direct exhaust for heat based air-conditioning so that --

That's another application?

That's another application of using the microturbine, so they are interested both in C-60s and the new C-200 that's coming out for that application.

What about educating the people out there of the expanded diversity of the product, what it can offer them? How is that going?

Well, let's see. We do that in many ways. We have the on-sites that we mentioned today where we have referenced accounts, where people can look at those on our website and talk to customers that are currently using them. We expect the demand creation also to happen through our distribution partners, so UTC's carrier sales force and UTC Power's own sales force will create demand as well as our distributors around the world, so they get the word out, in addition to the efforts that we make at Capstone.

Okay. I am wondering what type of -- I don't know, program that we have done on the company itself has done rather than just our partners, domestically specifically? Are we doing anything specific in order to get the word out more rather than just depending on our resellers to do so?

Certainly, most of what we do is through our public relations effort and publishing articles and trade journals and reference sites kinds of things. We did have a distributor roundtable meeting in June where we did show more to our distributors and train them because they are the ones on the frontline talking to engineers and contractors and specifying these products. But we also have mailing programs we do and advertising and the usual sorts of things that a principal like Capstone would do to generate demand.

How is that being received?

Very well, very well so far. We have launches that we do often in partnership with our partners where engineers are brought into the company where we can talk to them about our applications and products.

(CALLER INSTRUCTIONS). Kathleen Buttedick.

Good afternoon. I was just wondering if there has been any reduction in red tape in hooking up new units? Are the utilities behind which these units are installed still as difficult to accept the new technology as we have seen in the past?

That varies by utilities and state regulation but in general, I would say the reception by utilities to distribute the generation has not always been warm so there continue to be standby charges and departing (ph) low charges and things that we are always working with. At Capstone, we have our own regulatory affairs manager who tries to work with the different municipalities and state and federal.

Would you say the situation is improving or deteriorating in the last 18 months?

I would say it's improving, for sure. There have been new interconnection standards written in California that are very favorable to microturbines and in fact, Capstone had a lot to do with writing those interconnection standards and they are being adopted more widely and California is being used as an example so I would say they are definitely in the right direction.

Okay thanks.

We have no further questions at this time. Ms. Liggett, please continue with your closing remarks.

Okay. We thank you for joining us today and look forward to talking to you again in the future.

(CALLER INSTRUCTIONS).

(CONFERENCE CALL CONCLUDED)