Your presentation and answers to the questions, including mine about the reverse share split, at the shareholder's meeting last Thursday was very informative. If there had been an opportunity to ask another question after the presentation however, I would have asked why you did not say anything about potential distributors in China.
Capstone currently has five distribution partners in China focused on different market verticals or geographies. China has tremendous potential as it faces an environmental crisis, especially air pollution; no one expected this to be a top political priority four years ago, but now the government is making clean air a critical part of its forward looking energy policy and five- year plan.
I was disappointed that there was no plant tour after the Annual Meeting. As a retired industrial engineer, I was interested to see what changes had been made since the last meeting I attended two years ago. Do you always have the same security at the door, or was this just for the annual meeting?
Unfortunately, we had to cancel the plant tours, add extra security and implement door screening this year because of credible threats from disgruntled stockholders. It is disappointing because we have made several changes and upgrades to both manufacturing floors, and the year-over-year improvements are very noticeable. However, the safety and security of our directors, employees, stockholders and honored guests are of utmost importance.
At the Annual Meeting Darren voluntarily chose to answer a shareholder question about dilution by saying “Again, we do not need to raise capital this year” And just a day later the company announces a $30 million Sales Agreement with Cowen for an At The Market offering.
As discussed in the Q&A portion of the annual meeting of stockholders, management’s internal business plan for the fiscal year does not indicate that the company needs to raise additional equity at this time. However, the cash levels in the plan are very tight; even small changes in revenue or working capital swings could drive the need for additional capital.
In an effort to avoid a large secondary equity offering to deliver the annual business plan, management took a two-pronged approach. First, we worked with Wells Fargo to increase the capacity on the asset-based credit facility from $15 million to $20 million, which was successfully completed in June 2015. Second, we worked with Cowen and Company, LLC (Cowen) to put in place an “at-the-market,” or ATM, program. ATMs are not good for large equity requirements but can be beneficial for small incremental cash needs on a case-to-case basis as required.
The ATM is subject to certain limitations in the sales agreement and compliance with applicable law, but under the ATM the Company has the discretion to deliver a sales notice to Cowen at any time throughout the term of the sales agreement. The number of shares that are sold by Cowen after receipt of a sales notice will fluctuate based on the market price of the common shares during the sales period and the limits management sets with Cowen. Because the price per share of each share sold will fluctuate based on the market price of our common stock during the sales period, it is not possible to predict the number of shares that will be ultimately issued.
The ATM has lower commissions than a secondary offering and, with current market conditions, an ATM avoids selling CPST shares into the market at a large discount or with warrant coverage. Management believes the ATM, in conjunction with the expanded Wells Fargo line, will enable us to deliver this year’s fiscal plan without the need for a large-scale secondary offering.
I overheard at the annual meeting in reference something called "Apollo project”?
Capstone uses code names for internal projects, and “Apollo” is the code name for one of our critical product performance programs.
Darren, thought you did a great job in explaining Capstone, current market problems, and answering all those shareholder questions. Thanks especially for Ask Management! Any chance of getting a word/character counter to facilitate question length?
Capstone will take this request under review and double the word/characters allowed if it is not cost prohibitive.
Can you give us some insights on how things went at the Jeffries presentation? Do you expect a buy recommendation could follow soon?
Approximately 30-35 people attended the CEO’s presentation, and management had several 1 x 1 investor meetings while at the conference. In addition, the Company hosted two tours of the 12-unit C65 CCHP installation at the New York Palace Hotel. Jeffries currently does not have the Company under coverage, so they are not at liberty to offer a recommendation on CPST.
Were there any incentives given to distributors for hiring the additional salesmen announced in a news release a few months ago. If so, what were those incentives?
Capstone offered a small special discount on any new products sold by the 100 new salespeople within eighteen months of joining the distributorship. Projects must be approved by Capstone and be active in SalesForce.com to qualify for the discount program.
Could you confirm me that the stock will be maintained in Nasdaq list?
Capstone has until December 14, 2015 to regain compliance with the Nasdaq listing requirements by having a closing bid price of at least $1.00 for a minimum of ten consecutive trading days. At the most recent Annual Meeting of Stockholders held on August 27, 2015, the stockholders approved a proposal to amend the Company’s Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split in the Board’s discretion.
What are you doing to increase sales between now and the time that the 100 additional sales personal are hired and get up to speed?
Capstone’s management team has an extensive business strategy to increase revenue and achieve our goal of becoming EBITDA breakeven and a world-class distributed generation solutions company. The addition of 100 new salespeople in our distribution channel in the next 170 days is but one part of the overall strategy.
Every quarter we are improving the quality of our products, with a goal of achieving 99% customer uptime and 14,000-hour Mean Time Before Failure (MTBF). We continue to focus our R&D efforts on making the C200/C1000 Series product achieve the world-class reliability targets that we currently enjoy with our more robust and mature C30 and C65 products.
We are working on strengthening our global brand equity and overall product recognition. As part of those efforts, we recently launched our new website. This 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. Additionally, customers will be able to find most of what they’re looking for in three clicks or less.
We are improving the efficiency and effectiveness of our salespeople and process. We recently rolled out a new distributor key performance indicator program (KPI program) to better measure and manage distributor performance and help us both focus on improving lead generation, project development and customer relationships and improving order close rates from today’s approximately 11% to a world-class 20%.
We are developing new product improvements and enhancements to improve end use customer satisfaction and our competitiveness in the growing 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.
We are growing and cultivating our global distribution channel. Through trust and innovation, we have established our distributor network as one of our top competitive advantages and differentiators from other new distributed generation technologies. Our 90 distributors and 9 OEM partners provide the vital link between Capstone and our end users by collaborating with us to provide the highest-quality products and services in the industry. Our refined distribution network extends our present workforce by approximately 740 distributor employees across 152 locations around the world.
Also, we are expanding our global reach by adding new distribution partners in emerging market regions. New distributors were recently added in France, Jordan, Kuwait, the Netherlands, Republic of Moldova, Saudi Arabia, Trinidad and Tobago, Turkey and the United States.
In addition, we seek to further leverage our unprecedented long-term FPP aftermarket service offering that sets us apart with a 5-year and 9-year bumper-to-bumper life cycle cost guarantee. We are actively working with our authorized service providers, or ASPs, to strengthen our offering and fine-tune our FPP program to provide higher availability through a more comprehensive customer focused service package.
Finally, we look to drive top line revenue growth by providing customers with competitive and creative factory backed finance programs. We are embarking on developing a new Capstone Finance JV business to provide those necessary solutions to help grow top line revenue. We are continuing to make significant progress on this initiative, and should have more information available shortly.
I've been a shareholder for a while and I've been wondering has management considered a reverse stock split?
You should have been mailed information relative to the Annual Meeting of Stockholders of Capstone Turbine Corporation to be held on August 27, 2015. In the printed proxy materials you received, the Board of Directors recommends that you vote FOR proposals 1, 2, 3, 4 and 5. Specifically, Proposal 2 is a vote on a proposed reverse stock split.
Capstones management and Board of Directors believe that the amendment to the Certificate of Incorporation, which will allow for a reverse stock split, is important for several reasons. First, a reverse stock split may be necessary to maintain the listing on the Nasdaq Capital Market. Second, a reverse stock split could improve the marketability and liquidity of the Common Stock. Third, a reverse stock split will further facilitate potential future financings. In addition, many potential investors, vendors and end use customers assess Capstone’s long-term viability and liquidity based upon share price and not the balance sheet or market cap.