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Capstone-AR2011.pdf

Page Number: 055

PDF Text: developing new processes and enhancing training to assist those who apply, install and use our products. An overview of our direction, targets and key initiatives follows: 1) Focus on Vertical Markets—Within the distributed generation markets that we serve, we focus on vertical markets that we identify as having the greatest near-term potential. In our primary products and applications (energy efficiency, renewable energy, natural resources, critical power supply and mobile products), we identify specific targeted vertical market segments. Within each of these segments, we identify what we believe to be the critical factors to success and base our plans on those factors. During Fiscal 2011, we booked orders for 91.9 megawatts and shipped 69.7 megawatts of products, resulting in 118.6 megawatts in backlog at the end of the fiscal year. Our actual product shipments in Fiscal 2011 were: 41% for use in energy efficiency applications, 14% for use in renewable energy applications, 39% for use in natural resources applications and 6% for use in other applications (including critical power supply and mobile products). 2) Sales and Distribution Channel—We seek out distributors and representatives that have business experience and capabilities to support our growth plans in our targeted markets. In North America, we currently have 36 distributors and OEMs, which include six distributors added as a result of the CPS transaction. Internationally, outside of North America, we currently have 61 distributors and OEMs, which include 11 distributors added as a result of the CPS transaction. We continue to refine the distribution channels to address our specific targeted markets. 3) Service—We serve our customers directly and through qualified distributors, who will perform their service work using technicians specifically trained by Capstone. We offer a comprehensive FPP where Capstone charges a fixed annual fee to perform regularly scheduled maintenance, as well as other maintenance as needed. Capstone then performs the required maintenance directly with its own personnel, or contracts with one of its local distributors to do so. In January 2011, we expanded the FPP to include total microturbine plant operations if required by the end use customer. Capstone provides factory and on-site training to certify all personnel that are allowed to perform service on our microturbines. Individuals who are certified are called ASPs and must be employed by a distributor in order to perform work pursuant to a Capstone FPP. FPPs are generally paid quarterly in advance. Our FPP backlog at the end of Fiscal 2011 was $29.7 million which represents the value of the contractual agreement for FPP services that has not been earned and extends through Fiscal 2026. Service revenue in Fiscal 2011 was approximately 8% of total revenue. 4) Product Robustness and Life Cycle Maintenance Costs—To provide us with the ability to evaluate microturbine performance in the field, we developed a ‘‘real-time’’ remote monitoring and diagnostic feature. This feature allows us to monitor installed units and rapidly collect operating data on a continual basis. We use this information to anticipate and more quickly respond to field performance issues, evaluate component robustness and identify areas for continuous improvement. This feature is important in allowing us to better serve our customers. 5) New Product Development—Our new product development is targeted specifically to meet the needs of our selected vertical markets. We expect that our existing product platforms, the C30, C65, TA100, C200 and C1000 Series microturbines, will be our foundational product lines for the foreseeable future. Our product development efforts are centered on enhancing the features of these base products. We are currently focusing efforts on developing a more efficient microturbine Combined Heat and Power (CHP) system. The first phase of the 35

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