Capstone Green Energy Corp (CGRN) 2008 Q1 法說會逐字稿

Welcome to the first quarter 2008 Capstone Turbine earnings conference call. My name is Grace Ann and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's conference, Mr. Ed Reich, Vice President Financial Planning and Analysis. Please proceed, sir.

Thank you. Good afternoon, and welcome to Capstone Turbine's Corporation's conference call for the first quarter of fiscal 2008 for the June 30th, 2007. I'm Ed Reich, your contact for today's conference call. Capstone filed its quarterly report on Form 10Q with the Securities and Exchange Commission today, August 8th, 2007. If you do not have access to this document and would like one, please contact Alice Barsoomian at 818-407-3628, or you can view all of our public filings from the SEC website at www.SEC.gov. 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 provision of the Private Securities Litigation Reform Act of 1995. These statements relate to among other things: future financial performance and attaining positive cash flow, the ability to reduce costs and improve operational efficiencies, improvement in inventory turns, compliance with certain government regulation, potential for licensing and selling certain technologies, new applications for our products, our ability to approval overall product liability, revenue growth, and increased sales volume, our success in key markets, our ability to enter into new relationships with channel partners and distributors and other third parties, the spread of distributed generation in China, the ability of our products to lower greenhouse gases and solve important energy reliability and utility capacity issues, increasing our focus on customers and building strong long-lasting customer relationships, our ability to approve the efficiency of our sales group and to improve sales effectiveness and execution, our ability to finalize and commercialize the company's C200 product and our ability to sell the liquid fuel C60/65 products.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties including the following: our expectations about expansions into key markets may not be realized, certain strategic business initiatives and relationships may not be sustained and may not lead to increased sales, we may not be able to reduce costs or improve customer satisfaction, our release of new products may be delayed or new products may not perform we expect, we may not be unable to increase our sales and sustain or increase profitability in the future. We may not be able to obtain or maintain customer distributor and other relationship that is result in an increase and volume in revenue. We may not be able to apply with all applicable government regulations, we may not be able to retain or develop distributors or dealers in our target markets, in which case our sales without not increase as expected.

If we do not effectively implement our sales, marketing service, and product enhancement plans, our sales will not grow and therefore may not generate the net revenue we anticipate. These are among many factors which may cause Capstone's actual results to be materially different from future results predicted or implied in such statements. We refer you to the the company's Form 10K, 10Q, and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. Because of the risks and uncertainties, Capstone cautions you not to place undue reliance on these statements, which speak only as of today. We undertake no obligation to 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'll now turn the call over to Darren Jamison, our President and Chief Executive Officer.

Thanks, Ed. Good afternoon, and welcome, everyone, to Capstone's first quarter earnings call. With me today is Mark Gilbreth, our Executive Vice President and Chief Technical Officer, and Chuck McBride, our Executive Vice President and Chief Financial Officer. Today I would like to start the call with a review of our financial results for the first quarter of fiscal 2008 and then discuss our progress towards our strategic objectives and what you can expect to see from Capstone in the future. And then I'll open the call up for your questions. At this point of the call, I'd like to turn the call over to Chuck to review our first quarter results.

Thank you, Darren. Good afternoon, everyone. I'd like to provide you an update of our results for the first quarter ended June 30th, 2007. Backlog at the end of the quarter was $5.3 million, which increased approximately 6% from the prior quarter and decreased approximately 2% from the same quarter last year. Our revenue for the first quarter was $5.6 million, which decreased approximately 3% from $5.8 million in the prior quarter and decreased about 14% from the same period last year. Our gross loss for the quarter was $2.5 million or 44% of revenue compared to $1.2 million or 19% of revenue from the same period last year and $1 million or 17% of revenue from our prior quarter. The increase gross loss from the prior year was because of the decreased sales of higher margin C60 series unit and lower absorption into ending inventory of $1.5 million, which was offset by lower manufacturing costs, warranty expense, and inventory charges.

During the quarter, inventory decreased $1.6 million or 7% from the prior quarter. Research and development costs were $2.7 million for the first quarter and increased about $700,000 or 35% from the prior quarter and improved about $100,000 or approximately 4% from the same period last year. R&D expenses are reported net of the benefit from cost sharing programs such as our DOE funding program. There was no such benefits this quarter and $500,000 for the same period last year as well as approximately $400,000 for the same prior period quarter. We expect R&D expenses in fiscal 2008 to be lower than fiscal 2007. This change is expected to occur as a result of lower overall spending due to outside funding of our C200 commercialization. SG&A expenses were $5.9 million for the quarter, an improvement of $400,000 or 6% from the prior quarter and flat compared to the same period last year. The improvement from prior quarter is due primarily to lower selling expense. We expect SG&A costs for fiscal 2008 to be lower than prior year. Our first quarter net loss was $10.4 million or $0.07 per share, an increase of $1.1 million from the $9.3 million loss, or $0.09 per share reported for the same period last year.

Cash balances decreased by $10 million during the first quarter. And as of June 30th, 2007, cash and cash equivalence were $50.3 million. Our goal remains to achieve cash flow positive between March and December of 2008. I'll now turn the call back over to Darren.

Thank you, Chuck. Looking back at the first quarter of fiscal year 2008, our revenues are about the same quarter-over-quarter. Our backlog was slightly up. But obviously not enough. However, what is not surprising to me as we are just now starting to see the benefits of our new sales organization, new distribution channel, and new OEM partners. Our sales opportunities continue to grow during the quarter and we anticipate seeing the increase in quotation activity, translated to new orders, in the second and third quarters. The increase in gross loss is disappointing, but was a direct result of our actions to reduce Capstone's overall finished goods inventory. This strategy was successful in lowering our overall finished goods inventory by more than $2 million, which is the lowest finished goods inventory value since June 2005. Unfortunately, this resulted in less factory overhead absorption and increased gross loss. As sales volumes increase, we plan on continuing to improve our inventory turns. Our goal over the next year is to at least double our annual inventory turn rate.

As an update to last quarter, our primary R&D efforts are focused on the commercialization of the C200 product. We are still in heavy negotiations with the partner to help fund the commercialization effort and help complete the agreement -- hope to complete the agreement before the end of the calendar year. Despite the modest growth in backlog quarter-over-quarter, I believe we are making significant steps in several key markets and industries. Europe continues to be our strongest market. Our European distributors are providing positive growth and consistent order volume. In addition, we do not expect to see the seasonality we experienced in the second quarter of last year. The New York market, we have finally resolved the microturbine installation and application issues with the New York Fire Department and New York Department of Buildings and we recently received an 11 unit order from a marquise client for a project in the New York metropolitan area.

California remains a strong market opportunity, which has seen limited sales year-to-date absent a CARB-2007 certified product. Our engineering team has received third party emissions results, which we believe most stringent of emission standards. Final certification from the air resources board will enable us again to reengage this tremendous market in our own backyard.

To look at the oil and gas sector, we have several projects pending with new customers around the globe from Saudi Arabia to Australia to the north slope of Alaska to the Pacific rim, we are seeing increased interests in our innovative technology and unprecedented reliability. We are seeing increased interest from the Telecom industry and I'm pleased to announce today that in July we entered into a national account agreement with one of the three largest telecommunication companies in the U.S. The Telecom microturbine application would be used to power certain cell power sites with more robust and greener power generation solutions. I recently completed a trip to the far east and the market in China for combined heat and power and resource recovery is beginning to accelerate. China's central government has increased its focus on energy savings, efficiency, and the reduction of greenhouse emissions. With the renewal energy law, announcement and implementation of Shanghai CHP incentive program, I look for distributed generation in China to spread across the country. While I was there I visited with several of our current distribution partners, had meetings with several potential new partners and continued our important discussions with [Broad] Chiller Company to sell the microturbines for their integrated chiller solutions specifically targeted at the large Chinese market.

The last key area of strategic focus I've talked about is being a customer focused and market driven company. As I spend more time in the market, I consistently get two requests from our customers and channel partners. First, the large -- the need for a larger product, and second, a liquid fuel C65. In response to this we've begun an internal development program to commercialize the C200, as I've indicated previously. We have also begun development of a liquid fuel C65 and expect to begin taking orders shortly. Not only are we developing this for diesel fuel, but we're also developing this liquid fuel product to operate on biodiesel and ethanol, as the market demand for product operating on these deals is growing tremendously.

Over the last two quarters, Capstone has successfully overhauled our sales organization, changed from a direct sales model to a two-tier distribution model, and changed channel partners in several of our key markets. And despite all of these facts, we still manage to keep revenues intact and backlog slightly up. I look forward to the success of our newly overhauled sales organization and marketing organization, which includes the addition of several key new distributors like the recently announced Collicutt Energy Systems, who will represent us in California and western Canada. The addition of these high-quality new distributors and partners are just now beginning to bring forward new customers and solid opportunities.

I'm confident we are building positive momentum and are much stronger and are a more diversified company than when I joined Capstone in December. With the ever-growing environmental awareness and shifting corporate policies, it is important that our branding and image of Capstone be upgraded to reflect our products and capabilities. We are well along the path of branding Capstone as the green, clean and reliable energy provider that we are. We are enhancing our corporate image with the new direction of a corporate brochure and updated product brochures, as well as new marketing materials and campaigns. We are currently in the process of updating our website, not only to feature this new branding, but also to be more educational in the economic and social value of our systems and also be more interactive with our potential customers and investors. We are working with several media outlets to get our story out and better educate our customers in the market for the company.

Another key element of our strategy is working with state and federal governments to educate the policy makers on how Capstone products can help contribute to lowering greenhouse gases, solve important energy reliability and utility capacity issues. Whether it's meeting with local California assemblyman, Lloyd Levine, like I recently did to discuss California's self-generation incentive program, or participating in a Clinton Global Initiative Conference, as I will in late September, it is critical to Capstone to be at the forefront of the global energy policy and be a true solution provider to the changing world. Thank you. And with that, I'd like to open the call for questions.

(OPERATOR INSTRUCTIONS) And please stand by for your first question. And your first question comes from the line of Sanjay [Suipa].

Hi, guys. It's actually Graham Madison in for Sanjay.

Hi, Graham, how are you doing?

Good, how are you guys?

Good.

Just a couple questions. One of the orders you mentioned, the 11 units in the New York City area, are those in backlog now? Or have they been installed?

No, that order was received at the -- after the quarter had closed. So they're currently in our backlog, but not in today's numbers.

Great, and what's the date for installation for those or the target?

I do not have that. That is through one of our channel partners.

Got you. All right. But that definitely shows some good traction in the area there.

Absolutely. We're very confident that the iceberg in New York is finally melting and we're going to see some serious traction going forward.

Is there a potential for followons from this customer?

Yes. This is a national marquise customer. Correct.

Great. All right. And then also on the oil and gas side. Is part of your recent agreement with the company in Canada, Collicutt, is that also related to the oil and gas trying to get in the oil sands area there?

Yes, absolutely. The oil sands area in Canada is very good potential market for us. They've got a long track history if you go to their website in the oil and gas sector in both compression and power generation. They recently have moved into California, purchased the local KOHLER generator distributor and have three locations in California, as well.

Okay. Great. And then just one final question. In terms of cash flow breakeven, are you still on target for March 2008?

Well, we haven't changed our guidance.

No change there.

We're -- what we've said is between March and December of 2008.

All right. Great. Alright Great. I'll jump back in queue. Congratulations on the orders in New York.

Thank you, Graham.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Walter Nasdeo.

Hi, good afternoon, guys.

Hey, Walter, how you doing?

I'm doing good, how are you all?

Doing great.

Good. Listen, can you give me a little bit of color or how the development of the liquid fuels are going? And what's the -- what's your time frame on rolling something like that out? And just kind of a little bit more info on that.

Okay. The liquid fuel 65 is in beta tests. The design is complete. We are just doing some validation testing. We actually have a part number and pricing that's been given to sales and we're actively quoting that product.

Okay. And that runs on all the liquid fuels that you mentioned? The diesel -- or is that just diesel?

No. That would be diesel, biodiesel, and ethanol.

Okay.

We're still testing different levels of biodiesel to see what we certify on.

I see, okay. Okay. All right. Well, thank you.

Thank you, Walter.

And you have no questions at this time, sir.

Okay. I'd like to thank everybody for their time today and appreciate it. Look forward to talking to next quarter. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect.