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To Our Stockholders We are pleased to report that the Company had another outstanding year. Chief among its accomplishments, Capstone achieved a major milestone in fiscal 2011. We reached the first of our profitability goals, recording positive gross margin (net of non-cash items) for the first time since the Company went public. While we are still working our way to full profitability and positive net income, passing this first milestone shows we are making progress. Overall, Capstone continued to see increasing market adoption of our clean and green microturbine technology despite the sluggish global economy. Capstone’s products are benefiting from improving overall macro business trends as the world moves towards more energy efficient solutions, renewable portfolio standards and ever lower emission requirements. In fiscal 2011 Capstone again set company records, including: • Backlog Growth: Capstone again substantially increased its product backlog in fiscal 2011 to a record $106.4 million, even in light of record product shipments for the year. This was a 23% increase over fiscal 2010’s backlog of $86.3 million, which was a 40% increase over fiscal 2009. The majority of this backlog continues to be for the new C200/C1000 products, the greater portion of which is scheduled for delivery in fiscal 2012. In addition, Capstone increased its long term Factory Protection Plan or “FPP” service backlog to a record $29.7 million during the year. This long-term service revenue protects hundreds of units and is critical to Capstone’s success as it creates a recurring revenue stream that helps keep the Company close to its end use customers. • Revenue Growth: Revenue for fiscal 2011 increased another 33% year over year to a record $81.9 million. This is the fourth consecutive year of revenue growth in excess of 30%, including 40% growth in each of fiscal 2009 and 2010. This is particularly impressive in light of the challenging economic conditions since 2008. Capstone’s year over year quarterly revenue has increased for 16 straight quarters, an achievement unmatched by most companies in today’s economic climate. More importantly, as you can see from the chart to the right, Capstone has achieved this tremendous top line revenue growth without substantially increasing its production labor and overhead expenses over the past five years. • Gross Margin Growth: We reported a gross loss of $537,000 for the year, which was a 13-point improvement from the prior year. When non-cash items are excluded, margins were a positive $5.4 million, or 6.6%. The non-cash items relate to depreciation and amortization, stock-based compensation, warranty, inventory and equipment disposal. This is a major milestone and one in which the Capstone management and Board of Directors are very proud. Continued margin growth has been and will continue to be a key area of focus for the Company in fiscal 2012 and beyond. A reconciliation of the non-GAAP financial measures is provided to the right. • Market Growth: Capstone continued to gain market share in all five of its major markets. In Energy Efficiency we continued to expand sales to hotel, office building, retail and industrial applications around the world. Oil, Gas and Other Natural Resources had a major impact on our business as we sold our first dozen C1000 units into the U.S. shale gas market. The shale gas market represents an excellent opportunity for Capstone’s highly reliable and low emission products as energy producers are looking for better ways to supply clean and reliable electricity to their remote drilling operations. The Critical Power Supply product is performing well in data centers from the U.S. to Australia in installations ranging from Syracuse University’s new data center to United Technologies Corporation’s new corporate data center and two homeland security locations. Renewable Energy continues to be the backbone of our business as we shipped products for application on landfill gas, digester gas, associated gas, cow and pig manure and bio diesel applications around the globe. Capstone’s Mobile Products turbines for electric vehicles are getting increasing interest as range extenders in electric buses, trucks, cars and the marine industry. Success in these four critical areas of growth made fiscal 2011 the best year in Capstone’s over 20 year history. Capstone’s management and Board of Directors look forward to delivering continued improvement in all areas in fiscal 2012. However, we specifically look for higher positive gross margins. We look forward to meeting the global demand for distributed energy as the world looks to lower carbon emissions and use clean, reliable, and efficient sources of electricity. On behalf of the entire Board, management and employees of Capstone, we want to thank you for your continued support and confidence in our growing company. Sincerely, Revenue (Millions) Production Labor & Overhead $81.9 FY 2011 $17.0 $12.6 $24.1 FY 2006 $31.3 $21.1 $44.0 FY 2009 $61.6 FY 2010 FY 2004 FY 2005 FY 2007 FY 2008 Reconciliation of Non-GAAP Measures Gross loss – GAAP Add back non-cash items: Depreciation and amortization Stock-based compensation Provision for warranty expenses Inventory write-down Loss on disposal of equipment Gross margin – excluding non-cash items Gross margin % – excluding non-cash items $ $ Fiscal Year 2011 (537) 2,401 209 2,089 1,123 155 5,440 6.6% Gary D. Simon Darren R. Jamison Chairman of the Board President and CEOPDF Image | 2011 Annual Report Capstone Turbine Corporation
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