Reliable power when and where you need it. Clean and...
Transcript of Reliable power when and where you need it. Clean and...
Management Presentation September 2015
Reliable power when and where you need it. Clean and simple.
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Safe Harbor Statement This presentation contains “forward-looking statements” regarding future events or financial performance of the Company, within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements relate to, among other things -- growth and diversification of our end markets; strengthened distribution channels; ongoing new order flow; reduced cash usage; growth in revenue, gross margin and backlog; attaining profitability; adequacy of liquidity and capital resources; improved operating leverage and organizational efficiency; new product development; product reliability; shifts to larger markets for our products; benefits from our cost reduction initiatives; performance in light of macroeconomic headwinds; advantages over competing technologies, Nasdaq listing; implementation of a new Capstone finance business; collection of reserved accounts receivable; opportunities in New York; improved brand equity and product recognition; and a strengthened aftermarket. Forward-looking statements may be identified by words such as “expects," "objective," "intend," "targeted," "plan" and similar phrases.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties described in Capstone's Form 10-K, Form 10-Q and other recent filings with the Securities and Exchange Commission that may cause Capstone's actual results to be materially different from any future results expressed or implied in such statements. 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, and specifically disclaim any obligation, to release any revision to any forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.
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Why Capstone?
Capstone Turbine is the world’s leading developer and manufacturer of clean-and-green microturbine power generation systems. With over 100 patents and years of advanced engineering,
Capstone offers a comprehensive product line, providing scalable solutions from 30kW to 30MW. Capstone serves six major market
verticals, including Oil & Gas, Energy Efficiency, Renewable Energy, Critical Power Supply, Transportation and Marine.
These award-winning, low-emission energy systems operate on a variety of fuels and are compliant with all current emissions
regulations without after-treatment. Capstone microturbines provide reliable power when and where you
need it. Clean and Simple.
Product Competitive Advantages
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DOWNTURN IN THE OIL MARKETS
CONTINUED STRENGTH OF
THE U.S. DOLLAR
ONGOING GEOPOLITICAL
TENSIONS
DELAYED ORDERS AND SHIPMENTS
RUSSIAN SANCTIONS AND RUBLE
CORPORATE FOCUS ON REDUCING
COSTS
SUSTAINED LOW COST GAS
ENVIRONMENT
DECLINING GRID
RELIABILITY
NEW GAS FLARING REGULATIONS
NEW TIER 4 EMISSIONS
REQUIREMENTS
47MW
2MW
7MW
12MW
2MW
5MW
5
<1MW
16MW
Macro Drivers and Headwinds
Note: The map above depicts megawatts of microturbines shipped for the fiscal year ended on March 31, 2015
Megawatts Shipped FY15 91MW
SOUTH AMERICA
NORTH AMERICA
EMEA ASIA
Distributor Employees
Distribution Locations
OEMs
Distributors 31
190
42
3
19
124
41
30
303
15
145
28
TOTAL
95
762
158 47
0 5 1 9
Growing Channel to Market
Note: The above employee and location figures are based on data provided by distributors and have not been independently verified.
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Goal is to add 100 new sales people into our existing global distribution channel
INITIATIVE GOAL STATUS
Build the Highest Quality Product in the Distributed Energy Industry All Products 99% uptime – 14,000 hr. MTBF.
C30 & C65 currently meet goal. Flagship C200/C1000 Series MTBF improved from 6,500 hours to a projected 9,158 in July. This is from new improvements to the engine, filtration system, stator, electrical system and a new software release. Goal is to reach 14,000 hours by end of the fiscal year.
Increase Global Brand Equity and Product Recognition Drive global brand & product awareness
Recently launched new Capstone website. The intuitive platform is easy-to-use and features a more modern look, intended to serve as a primary resource for market, product and service information. The new design, content and features will help to facilitate a higher level of customer and distributor interaction with an increased use of marketing assets, project case studies and social media.
Improve Efficiency and Effectiveness of our Sales and Marketing Process
Improve project close rate from 11% to 20% of $1.5 billion in identified projects
Rolled out a new distributor key performance indicator (KPI) program to better measure and manage distributor performance and help focus on improving lead generation, project development, customer relationships and drive up order close rates. Conducted third party sales training in four different geographic locations around the world.
Leverage Lean Manufacturing and Organizational Practices
Keep operational costs flat while continuing to leverage the business with top line revenue growth
New leaner C200/C1000 Series manufacturing line with a new engine-building clean room, upgraded test cells, new emission testing equipment and improved manufacturing visual work instructions. These improvements have already led to higher engine yields and lower overtime expenses. Flattened our organizational structure to lower operating costs by eliminating three top-level executive positions that save the company an estimated $2 million dollars annually after severances and one-time termination expenses.
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Business Strategy Update
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Business Strategy Update
INITIATIVE GOAL STATUS
Continuously Develop New Products, Product Improvements and Services
Improve customer satisfaction and our competitiveness in the global energy market
We recently finished the cut-in of several C200 and C1000 Series product improvements, including C1000 package improvements, new C1000 marine grade paint, and improvements to our overall system flexibility and controls.
Build Strong and Loyal Worldwide Distribution Channel
Grow sales force by 100 salespeople across the global channel by the end of calendar 2015
Current network extends our present 225 employee workforce by adding another 762 distributor employees across 158 locations around the world. At our recent Global Distributors conference, our distributors committed to grow their sales force by 100 salespeople across the global channel by the end of calendar 2015.
Offer Unprecedented Long-Term FPP Factory Backed Service Offering
Limit customer downtime, improve the end customer experience and provide a high margin long-term revenue stream
Launched new “TechShare” diagnostic software program that provides a continuously learning and improving failure analysis diagnostic tool that can be utilized real-time in the field to troubleshoot down units more accurately to reduce the mean-time-to-repair (MTTR) and the number of trips required to service or repair a unit.
Diversify our Vertical Markets and Expand our Geographic Footprint
Grow CHP market and expand our business in South America, Asia, Africa and the Middle East
Q1FY16 continued the diversification of market verticals, including: a groundbreaking C600 order in a Midwest data center; CHP in a office facility and two orders for C1000 for CHP projects in New York City. New orders in Puerto Rico, Portugal, Lithuania and Finland.
Competitive and Creative Factory Backed Finance Program
Drive top line revenue growth and improve overall profitability by financing or owning high internal rate of return (IRR) projects
Embarking on developing a new Capstone Finance JV business to provide creative solutions to help grow the top line revenue. We are continuing to make significant progress on this initiative.
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Global Market Segments
US and Canada $475,748,355
Latin America $557,949,940
Europe $218,324,540
Africa/Middle East $85,236,054
Asia/Australia/ Russia
$177,083,245
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Total Project Pipeline
Goal is to improve close rate from approximately 11% to 20% with tools and training
Total identified project pipeline
$1.5 billion
DataobtainedfromtheCapstoneTurbineCorpora4onDistributorpipelineinSalesforce.com
Energy Efficiency – CHP/CCHP
CHP/Type Efficiency
Notes Electric Total
Hot water 33.0% 85.0% Heat exchanger
Steam 33.0% 60.0–95.0% Steam generator
Capstone chilled water 33.0% 85.0% Absorption chiller
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Capstone C1000 (1MW)
Steam Generator
Absorption Chiller
CHP/CCHP Example: RSP Systems - New York City
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NYC is a great example or microcosm of our growing global CHP opportunity:
• More than 14MW at 70 locations in the NYC metro area and counting.
• CHP and CCHP can be used in all types of facilities.
• Diversified clientele with systems installed at affordable housing projects, high-end residential buildings, retail buildings, office buildings, hotels, hospitals, universities, dormitories and manufacturing facilities.
• Units covered under the Capstone Factory Protection Plan (FPP) are remotely monitored 24/7 by the local distributor RSP Systems.
Efficiency – CHP/CCHP
Installations in new facilities and the renovation and upgrading of existing facilities are driving new opportunities for both Capstone and RSP. In New York, NYSERDA (New York State Energy Research & Development Association) is
granting significant funds via CHP programs that are further driving sales up in the state.
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Office Building & Mixed Use Manufacturing Affordable Housing Projects
• Hudson Yards Complex • 7 Bryant Park • 1350 Ave of the Americas
• Alexion Pharmaceuticals • Firestone • Astor Chocolate
• Third Ave Bronx Buildings • Fordham Housing Projects • Fox Point
Hotels (Boutique to Large) Hospitals Universities
• Archer Hotel • Downtown Marriott Hotel • The NY Palace Hotel
• Memorial Sloan Kettering • The New School • New York University • Beecher Road School • Pomfret School
The Palace Hotel Astor Chocolates Syracuse University
New York CHP/CCHP
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Transportation
• Market Size: *Over $2 billion − Target market is class 6,7,8 vocational
use trucks • Potential Capture: *$90 million in 7 years • Medium & Heavy Duty Trucks
− 250,000 Class 8 tractors built in U.S. alone each year
• Already meet and exceed 2007 & 2010 CARB standards without aftertreatment
Highest potential savings to end user
*MarketSizeandPoten4alCapturedataobtainedfromIHSAutomo4ve
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Marine
• Potential Capture: *$100 million in 7 years
• Workboats – Lloyd’s Register Marine Type Approval for C30
& C65 Liquid Fuel, Non-Essential Service
– In process for C30 & C65 Gaseous Fuel, Essential Service Type Approval
• Luxury Yachts – Completing GL Type Approval
– Working with yacht designers & builders
– Exhibited at key boat shows • Operational C30 at 2015 Palma Superyacht Show
*Poten4alCapturedataobtainedfromPowerSystemsResearch
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Microgrids
• Market Size: *$25.28 Billion by 2022
• Potential Capture: *3% by 2022 ($750 million)
• Solution: Based on C65 Microturbine
– 30kW Continuous Power
– 65kW Peak Power
– 10 to 30kW Solar Array Power
– 20 to 60kWh Energy Storage Capacity
– Average 30% efficiency gain vs. traditional solutions
• Based on modular design – Fully customizable to each site load profile
– Expandable for future growth
*MarketSizeandPoten4alCapturedataobtainedfromMarketsandMarketspublishedreport
• Contributing to overall gross margin
• Record FPP contract backlog
• 8,500 unit install base provides scalability
• C200/C1000 reliability improving
• Lower product warranty expense
• Improved reliability decreases FPP costs and increases customer satisfaction
Global Customer Footprint
Strengthening Aftermarket
• Supporting 95 Distributors/9 OEM partners in 73 countries
• 3 Capstone service centers globally
• 1,000+ units under FPP and growing
• Establishing regional remanufacturing centers to lower logistical costs and service
• Improved alignment with Sales and Aftermarket
FPP Contract Backlog ($M)
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$0
$10
$20
$30
$40
$50
$60
$70
$29.7 FY 2011
$33.7 FY 2012
$35.0 FY 2013
$47.2 FY 2014
$61.2 FY 2015
Bearing Housings
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Capstone Finance JV
• New business to accelerate the adoption of MTs and reduce flaring in oil and gas industry by offering clients financing via Power Purchase Agreements (PPAs).
• Proposed Capstone Finance JV will offer customers finance solutions with no direct equity investment by CPST for several years.
• Solution also helps to validate the technology, returns and sets the foundation for future relationships, partnerships and growth.
• Operating projects can be sold or flipped into a Yieldco or JV can accept new equity.
• Near-term goal is to leverage up to $10M in equity with reasonably priced debt with “blue chip” oil and gas and CHP customers.
• Distributors have lost $22M in FY16 and over $50M in FY15 due to lack of financing options.
Significant Operating Leverage
Operating expenses have remained stable over time despite significant revenue growth. 19
Long Term Goals
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PAST FY15
PRESENT(1) 1-3
YEARS 3+
YEARS
Gross Margin -24% 17% 25% 35%
Operating Expenses 162% 34% 25% 20%
Operating Margin -185% -17% 5% 15%
Critical Power Market 0% 8% 12% 15%
Mobile Power Market 0% 1% 5% 10%
New Product Offerings C30 C65
C200 C1000 C250 C370
Financing Solutions None 3rd Party Capstone JV Capstone Finance
Positive operating margins driven by improved gross margins and operating leverage.
(1) Present margins for the fiscal year 2015 and exclude $1.2 million inventory charge, $0.7 million of product shipped to BPC and $9.9 million increase in bad debt reserves.
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Buy – Price Target $1.00
First Revenue Beat In 12 Quarters. Looking For A Return To Double-Digit Revenue Growth In FY16 Despite Challenging Outlook
Accumulate – Price Target $0.60 CPST reports lower-than-expectation 1Q16 results, but shows signs of recovery
Outperform – Price Target $0.75 Coming Out of the Abyss; Strong Results and Diversification
Neutral – Price Target $0.33
CPST posted its first revenue beat in 12 quarters with improved gross margins as it navigates a still challenging environment (low oil prices, a strong USD, and a challenging market in Russia). Orders were up Q/Q on strength in CHP and follow-on orders in U.S. O&G, and CPST expects sequential order improvement for the rest of the FY, particularly as it makes progress on its CPST Finance vehicle.
Capstone's results came in better than expected and we believe we have hit a trough for the company as they have trimmed expenses and diversified their product line and geographic exposure. Strength in the CHP segment and decreased dependence on Russian revenue bode well for future revenue growth.
We are encouraged by CPST’s first revenue beat in more than two years, and with recent downside consensus estimate revisions, we see expectations as more reasonable going forward. We continue to remain on the sidelines, however, awaiting further fundamental improvement in CPST’s oil and gas end market. We would also prefer to see CPST make strong progress toward EBITDA breakeven given the company’s cash position.
A Positive Surprise in FQ1
CPST continued to show decreases in booking and backlog in 1Q16, leading us to lower our FY16 sales estimates again. However, book-to-bill ratio improved to 0.7 from 0.6 sequentially with encouraging signs that its main oil & gas distributor led in new orders and product shipments. This is in agreement with the latest industry report that the US rig counts increased three weeks in a row.
Eric Stine August 7, 2015
Jeffrey Osborne August 7, 2015
JinMing Liu August 10, 2015
Matt Koranda August 7, 2015
Capstone Analyst Coverage
Appendix Additional Information
Reliable power when and where you need it. Clean and simple.
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$10.2
$28.3 $31.6
$17.7 $12.6
$17.0 $24.1 $21.0
$31.3
$43.9
$61.6
$81.9
$109.4
$127.6 $133.1
$115.5
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
FY2000 (a) FY2001 (a) FY2002 (a) FY2003 (a) FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015
Current CEO Leadership
(a)Adjustedtoconformtocurrentfiscalyearperiods.
Historical Revenue – Under Current CEO Leadership
Historical Financial Results
$0
$25
$50
$75
$100
$125
$150
$82 FY 2011
$109 FY 2012
$128 FY 2013
$133 FY 2014
$116 FY2015
Revenue (in millions)
-5%
0%
5%
10%
15%
20%
-1% FY 2011
5% FY 2012
11% FY 2013
16% FY 2014
16% FY2015
Gross Margin
$0
$50
$100
$150
$200
$106 FY 2011
$139 FY 2012
$149 FY 2013
$172 FY 2014
$166 FY2015
Product Backlog (in millions)
0%
10%
20%
30%
40%
50%
41% FY 2011
34% FY 2012
28% FY 2013
28% FY 2014
43% FY2015
OpEx as % of Revenue
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Capstone Investment Highlights
Large, Underpenetrated Vertical Markets and Geographies
Leading Manufacturer of Low Emission, Ultra Reliable, Highly Efficient, Electric/
Thermal Generators
• Microturbines are scalable from 30kW to 30MW and can operate on a variety of gaseous or liquid fuels: natural gas, propane, landfill gas, digester gas, diesel, aviation and kerosene
• Four major design features: advanced combustion technology, patented air-bearing technology, digital power electronics, remote monitoring and advanced control capability
• Optimized performance results in lower emissions, higher reliability and higher total system efficiency over a variable power range and harsh environmental conditions
• Annual addressable market of approximately $15 billion; potential capture of $1.5 billion • Diversified across end markets and geographies – currently in 73 countries, over 8,500 units shipped • Favorable macro trends such as corporate and regulatory trends towards energy efficiency and
stringent emission and fuel standards
Experienced, Proven Management Team
• 95 distributors and 9 OEMs reaching 158 market locations throughout the world • Built from the ground up over the last 8 years and the equivalent of 762 Capstone dedicated employees • As network continues to mature and grow, distributors become more productive and efficient
• Company has significant industry experience at senior leadership and operational levels • Leadership team has combined 113 years of energy industry experience
Growing Installed Base and Compelling Environmental and Value Proposition Enables Increased Market Penetration
• Microturbines are more environmentally friendly and offer lower total cost of ownership versus standard internal combustion engine solutions and lower cost than fuel cells without incentives
• Growing installed base helps drive new customer adoption across verticals and geographies • Broad and scalable product range supporting a number of end markets • Poised to penetrate new verticals (marine, transportation and critical power) and geographies (Middle
East and South America) • Market-leading service offering with 5 & 9 year contracts, provides recurring revenue
Future Revenue Growth, Continued Margin Expansion and Operating Leverage Drive
Path To Profitability
• Stronger, leaner, more flexible and better positioned for rapid growth than ever before • Projected revenue growth, steady margin improvements and positive operating leverage all support path
to profitability; balance sheet supports growth plans • Developing Capstone financial solutions business to leverage top line growth • Two manufacturing plants operating on a single shift, 5 days a week, 35% capacity
Maturing Distribution Network Lays Foundation for Long-Term Growth
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NASDAQ: CPST
www.capstoneturbine.com