Thank you. Good afternoon and welcome to Capstone Turbine Corporation's Conference Call for the fourth quarter and fiscal year 2015 ended March 31, 2015.

Capstone filed its annual report on Form 10-K with the Securities and Exchange Commission today, June 15, 2015. If you do not have access to this document and would like one, please contact us by email at [email protected], or you can view all of our public filings on the SEC website at www.sec.gov or on our website at www.capstoneturbine.com.

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 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; achievement of our EBITDA and cash goals; adequacy of liquidity in capital resources; improved operating leverage, new product development; shift to larger markets for our products; benefits from cost-reduction initiatives improving conditions with respect to foreign currencies; continued NASDAQ listing, implementation of new Capstone finance business, collection of reserved accounts receivables, continued opportunities in Russia, growth of key markets; advantages of recent policy developments and compliance with government regulations.

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 revisions 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 will now turn the call over to Capstone's President and Chief Executive Officer, Darren Jamison.

Thank you, Clarice. Good afternoon, and welcome, everyone, to Capstone's fourth quarter and fiscal year 2015 earnings call.

Joining me today is Jayme Brooks, our Chief Financial Officer and the Chief Accounting Officer. I would like to take a moment and welcome Jayme in her newly expanded role that includes responsibilities of the CFO position.

Jayme has taken this in addition to her existing role of Chief Accounting Officer which she has held since 2008. I’ve had the pleasure to work with Jayme for over eight years and look forward to her ongoing contributions to the company and leadership team as we execute against our future growth strategy.

Today I will start with a review of our business in fiscal 2015 and then Jayme will review the specific detailed financial results for the fourth quarter and full year. I will then go back to discuss our global pipeline, our sales activity, give you an update on policy developments, talk about our fiscal 2016 strategy, our fiscal 2016 goals and management’s expectations for the upcoming year.

As the operator said during our remarks we’ll be referring to a presentation slides that can be downloaded on Capstone website under investor relations. Let's go ahead and turn to slide two.

Slide two shows our fiscal 2015 business and review. It’s a very simple slide, fiscal 2015 was a challenging year for Capstone, but we’ve adapted to the global and economic market dynamics in ways that I believe we’ve built a stronger, more resilient Capstone today and for the future.

Unfortunately the operating progress we made during fiscal 2015 was eclipsed by the three very challenging macroeconomic headwinds that we faced during the year and continue into this year. First, came the U.S.

and European sanctions in Russia in response to the invasion of Ukraine which devalued the ruble and severely damaged the Russian economy. The steep decline in the ruble had a substantial impact on one of our biggest and most important partners, BPC Engineering.

Second, the strengthening U.S. economy versus sluggish economies around the rest of the world created a substantially stronger U.S.

dollar making our products that much more expensive overseas. This had a major impact considering that we ship nearly half of our product internationally.

And last but not least, was the fall in crude oil prices as global production outstripped the worldwide demand resulting in the U.S. rig count and drilling activity being reduced substantially.

As of the start of fiscal 2015, Capstone was generating about 60% of its revenue from the oil and gas markets worldwide. In light of each of these macroeconomic headwinds we experienced delayed orders, delayed shipments; obviously it impacted the timing of our revenue which led to a decline in annual product revenue for the first time since I joined the company back in 2007.

However, service revenue grew 7% year-over-year as FPP contracts increased and product quality drove contribution margin expansion. That being said, our growing aftermarket service business was not enough to offset the 18% decline in product revenue.

Unfortunately this pushed out our anticipated achievements of EBITDA breakeven in Q4. On a more positive note, the operational improvements to our cost structure that we’ve implemented over the past several years resulted in flat gross margin of 16% of revenue for fiscal 2015, even with a 13% overall decrease in topline revenue.

Additionally we continued to make significant progress in strengthening our company by further diversifying our business, growing and maturing our distribution network and improving our product reliability all the while expanding into promising new geographies. Let’s go ahead and turn to slide three.

Slide three shows our worldwide shipments by megawatts for fiscal 2015, the main drivers of these results are shown above and below the map. Above the map are the ongoing macro drivers that are helping to accelerate the overall market acceptance to our products and fuelling new business opportunities.

These favourable trends include heightened corporate focus or reducing energy costs through energy efficiency and substantially low cost sustained environment of natural gas. Wide spread issues such as grid reliability and new gas flaring regulations and more stringent emission requirements and fuel standards, also help drive the business.

The bottom of the slide you can see are the key factors that made fiscal 2015 particularly challenging for our business which I previously discussed. Essentially FY 2015 was a very challenging year with the perfect storm of macroeconomic environment events but Capstone pushed through in many areas to still drive relatively good results considering the headwinds we had.

With that, I’ll pause and turn the floor over to Jayme for the specific financial results.

Thanks, Darren, good afternoon everyone. Let’s begin on slide four with the review of the fourth quarter.

Revenue for the fourth quarter of fiscal 2015 was $29.9 million compared to $30.1 million for the third quarter and $36.4 million for the same period last year. Product revenue was $22.5 million for both the fourth and third quarter of fiscal 2015 and $30 million for the fourth quarter and fiscal 2014.

For the fourth quarter of fiscal 2015 revenue from accessories, parts and service was $7.3 million as compared to $7.6 million for the prior quarter and $6.4 million for the fourth quarter of last year. Gross margin for the fourth quarter was $3.5 million or 12% of revenue compared to $6.1 million or 20% of revenue for the third quarter and $6.1 million or 17% of revenue for the same period last year.

It is normal to see a sequential margin dip in the third quarter to the fourth quarter because of yearend adjustments, however this year we had a couple of significant onetime items that impacted our fourth quarter margins. First we recorded a $1.2 million noncash charge for slow moving inventory related to our waste heat recovery generator product.

Additionally, gross margin was negatively impacted by $0.7 million of product shipped where we did not recognize the associated revenue as of March 31st. Without these two items, gross margins for the fourth quarter of fiscal 2015 would have been $5.4 million or 18% of revenue which is approximately 100 basis point increase over the fourth quarter of 2014 despite the 18% year-over-year drop in recorded revenue.

These adjustments are detailed in slide five of the presentation. Fourth quarter R&D expenses were $2.9 million compared to $2.4 million for the third quarter and $2.5 million for the fourth quarter of last year.

SG&A expenses were $14.7 million for the fourth quarter of fiscal 2015 compared to $7.5 million for the third quarter and $6.8 million for the fourth quarter of last year. The large year-over-year increase in SG&A expenses was primarily because of bad debt reserve of approximately $7.1 million that was recorded during the fourth quarter of fiscal 2015 against receivables owed to us by our Russian distributor BPC Engineering, which has been impacted by the steep decline of the Russian ruble.

In comparison, the company had no such expenses of this magnitude during the third quarter of fiscal 2015 or the fourth quarter of 2014. Since the close of the fiscal year, the ruble has stabilised and we are continuing to do business with BPC but now on a cash on delivery basis.

In addition, BPC has indicated it will repay the $7.1 million of reserve accounts receivables that they owe us over time. So in the future as we collect money from BPC we will treat those payments as reductions to our SG&A during the quarter in which they are received.

The loss from operations for the fourth quarter of fiscal 2015 was $14.1 million compared to $3.8 million for the third quarter and $3.1 million for the fourth quarter of last year after removing the impact of the $7.1 million increase in bad debt reserves the $1.2 million in inventory reserves and the $0.7 million of product shipped to BPC that was recorded in the fourth quarter of fiscal 2015 our adjusted loss from operations is $5.1 million. Net loss was $14.3 million or $0.05 loss per share for the fourth quarter of fiscal 2015 compared to a net loss of $3.9 million or $0.01 per share for last quarter and a net loss of $3.4 million or $0.01 loss per share for the fourth quarter of last year.

After removing the impact of adjustments as mentioned earlier, the adjusted net loss for the fourth quarter of fiscal 2015 is $5.3 million or a $0.02 loss per share. Please turn to slide 6 and I will now discuss our reports for fiscal 2015.

Revenues for fiscal 2015 was $115.5 million compared to a $133.1 million for fiscal 2014 and consisted of $89.4 million of product revenue, down 18% year-over-year and $26.1 million of aftermarket service revenue up 7% year-over-year. As Darren mentioned the decline in product revenue was primarily due to three major headwinds we faced during the year.

The Russian economy, the strong U.S. dollar and lower oil prices which impacted revenue across most of our geographical region.

However, we did experience increases in Australia and South American markets by $3.6 million and $0.8 million respectively. As a result of our continued efforts to improve our distribution channels in these developing regions.

A couple of other key revenue related metrics that I would like to point out are that at the end of the year with product backlog of $165.7 million, down 3% year-over-year and FPP service contract backlog of $61.2 million up 30% year-over-year. The record service backlog reflects our growing install base of microturbines as well as the ongoing efforts of more mature distributors and selling our FPP service contracts as a way of further enabling our end customer to achieve a lower total cost of ownership versus traditional alternatives.

Fiscal 2015 gross margin was $18.3 million or 16% of revenue compared to fiscal 2014 gross margin of $21.7 million or 16% of revenue. As Darren pointed out, even though annual revenue decreased 13% gross margin percentage was flat compared to fiscal 2014 which is the result of our focus on cost savings over the last few years.

The changing gross margin dollars is driven by multiple factors including lower volatility expense of $1.2 million, lower production in service labor and overhead expenses in millions and lower warranty expense of $0.4 million. The positive impact of these factors was offset by the adverse impact of lower volume, lower average selling prices, a change in product mix of $5 million and higher inventory charges of $1 million.

R&D expenses were $9.7 million for fiscal 2015 compared to $9 million for fiscal 2014. Benefits from cost sharing programs decreased by approximately $0.9 million to $0.5 million for fiscal 2015 and from $1.4 million in fiscal 2014.

In addition, professional service expense decreased $0.2 million in fiscal 2015 as compared to the previous year. SG&A expenses were $39.5 million for fiscal 2015 compared to $28 million for fiscal 2014.

The net increase in SG&A expenses was comprised of $9.9 million increase in bad debt reserve of which $7.1 million was recorded in the fourth quarter of fiscal 2015 as I mentioned earlier. Along with increases in salaries, professional services, marketing and business travel expenses partially offset by a decrease in facilities and supply expense.

Our loss from operations was $30.9 million for fiscal 2015 compared to a loss from operations at $15.3 million for fiscal 2014. After removing the impact of the $9.9 million increase in bad debt reserves, the $1.2 million in inventory reserves and the $0.7 million of products shipped to BPC that was recorded in fiscal 2015 our adjusted loss from operations is $19.1 million.

Net loss was $31.5 million or $0.10 loss per share for fiscal 2015 compared to a net loss of $16.3 million or $0.05 loss per share for fiscal 2014. After removing the impact of the adjustments as mentioned earlier, the adjusted net loss for fiscal 2015 is $19.7 million or a $0.06 loss per share.

Now I'll now provide some comments on cash flow and balance sheet. Our cash used in operating activities for fiscal 2015 was $23 million as compared to $14.5 million in fiscal 2015.

We spent $1.6 million in capital expenditures in 2015 and $1.2 million in 2014. At March 31, 2015 we had cash and cash equivalents of $32.2 million compared to $27.9 million as of March 31, 2014.

Between our cash on hand and our Well Fargo credit facility, we believe that we have sufficient liquidity to fund our growth plans and to meet our working capital requirements. We continue to focus on reducing our fixed operating expenses, manage our inventory and minimize our cash usage.

Additionally, the initiatives that we announced in April regarding funding our organizational structure are expected to result in $2 million of annual savings net of the associated severance cost. Receivables were $13.1 million at March 31 compared to $28 million a year ago.

DSO was 40 days at March 31 after adjusting for the amount owed by BPC which had fully been reserved. This compares to DSO of 70 days at March 31, 2014.

Inventories were $25.4 million at March 31, up $21 million a year ago. We turned the inventory four times in the fourth quarter of 2015 compared to 5.3 times in the fourth quarter of 2014.

Turning to our control environment, I’m happy to report that we have remediated the material weakness from fiscal 2014 and we do not have a material weakness this year. And then lastly, we have submitted our application to NASDAQ for an additional 180 day period.

And it will be reviewed after the exploration of the initial 180 day period which is on June 17. That concludes my comments, now I will turn the call back to Darren.

Thanks, Jayme. Now I’ll talk about our strengthening aftermarkets, our maturing market channels, potential market opportunities by its regional commentary and give you our strategy and expectations for fiscal 2016.

Let’s go ahead and start with slide seven. As Jayme mentioned our FPP backlog grew approximately to $61.2 million as of March 31, 2015, a new record level and a direct results for strengthening after market service business.

Our market leading FPP closely aligns our service offering with a customer requirements and we believe it’s virtually unmatched in the industry. Our over 85,000 units shipped to date 8500 units shipped to date provide a large installed base which affords us scalability and our aftermarket service business.

We are also seeing improved liability which decreases both our warranty cost as well as our maintenance cost associated with this fixed price five and nine year factory protection plans. Today we have three Capstone service centers globally supporting a large fleet of operating units, approximately 20% of our units in the field are currently under FPP leaving plenty of head room or opportunity for both to expand and further scale our aftermarket service business which as you all know carries higher contribution margins than our product margins.

We expect the portion of aftermarket services to increase as a percentage of our total revenue as our global fleet continues to grow everywhere each year and we sign more long term factory protection plan contracts. Let’s turn our focus on slide eight.

Our growing channel to market, throughout fiscal 2015 we continue to grow and mature our distribution network, and as a result our distributors are becoming more productive and more efficient. We consider our worldwide distribution network which we have developed grassroots from the ground up over the last eight years to be our most valuable intangible asset.

Our 88 distributors and nine OEM partners gives us a manpower and global presence of approximately to 740 employees collectively spreading out among 150 locations around the world. Each one of our distributors has strategically placed independent partner that is out on the front line marketing, applying, selling and servicing the Capstone product and the FPP service contracts.

Please turn to slide nine, slide nine shows Capstone’s $1.5 billion pending project opportunity pipeline. Based on opportunities that have been identified our global distributors as you can see a significant portion of this pipeline is in markets in which we are always starting to scratch surface and make inroads like Latin America, Africa and Middle East.

Essentially the pie chart shows where you can expand the business to overcome some of the temporary macroeconomic headwinds we faced in fiscal 2015 at the beginning of 2016. Capstone’s ability to execute on this pipeline with our distributors over time is a major factor of market acceptance for our solutions and maturation of our distributors, and its our responsibility to continue develop, cultivate, coach and help our distributors through education, training and factory support to achieve as much of this pipeline as fast as we can.

Obviously it is a key area focus for us strategically because as I mentioned earlier our distribution channel is extremely valuable and extremely critical to our future growth of our business. We think that our own flexibility and working with and supporting our distributors in this most challenging environment last year has further strengthen our relationships and fostered a mutual bond of loyalty and its building long lasting trust.

With finely tuned sales and distributor training programs we can work to accelerate our close rates and shorten our cycle times and driver top-line revenue growth from these new markets. Let’s turn to slide 10.

It gives kind of a global update here, I won’t read each slide but I’ll go over to brief recap of our achievements with our distributors and what we’re seeing in the field. First, in the U.S.

and Canada, in U.S. Hawaii has been very promising market for Capstone for several years with the highest cost of electricity of any state and the smallest electrical grid.

Hawaii is a prime for distributed generation and needs our product. At the beginning of April, we receive the 3 megawatt order from our new Hawaiian distributor for upgrading several high profile luxury resorts on the island of Maui.

Our new distributors in Midwest recently we’ve received an order of ground breaking order for a Mission Critical Datacenter at Minnesota. The prevailing theory for many year have been that the Midwest is not a good market for CHP or CCHP projects and poor project economics, in combination with conservative nature of the customers in the market, it’s just not a good opportunity.

But lower natural gas prices coupled with rising electric rates have created an opening for a best-in-class CHP, CHP systems like Capstone. And the OATI, South Campus with the Capstone MicroTurbine and other generation and other NG storage technologies will play an important role in proving how micro grids can bring significant benefit for building owners everywhere.

We can also share some good news from our distributors in the shale regions. Despite the precipitous drop in oil prices, shale gas production continues to expand just at a slower and more deliberate rate than the past couple of years.

At June 3rd we announced an order for 25 C65s to expand existing oil and gas customer fleets in key shale plays in the Western United States. This is surely after 1.4 megawatt order out of Marcellus and Utica Sale plays and support two new shale compressor stations.

I think these order should be consider as a good market indicator, but despite the low energy prices shale gas producers are continuing to focus on the increasing efficiency while lowering through operational costs. Turning to Europe, although Europe remains economically constraint, we’re also encouraged by the strength in demand for CHP and CCHP application in a number of countries.

Most importantly, Germany and Italy but also Austria, Switzerland, Finland, Poland and United Kingdom, we’re continuing to diversify our channel in Europe for example, Turner in the United Kingdom has added several new sales people. We have a new distributor in Hungary working out of strong product pipeline.

In addition, despite the tough Russian market BPC Engineering is diversifying its business by selling CHP and CCHP plants within Russia’s manufacturing sector, but also in neighboring Kazakhstan and Belarus. The Mexican Energy Reform has established reduced electrical cost and natural gas prices.

This is creating an opportunity for Capstone. Our distributor, Industrias Energeticas secured two of the largest orders in Capstone history recently and the participation of the loss from Ramones pipeline project in eastern Mexico.

With the freer market energy policy in place, natural gas development in Mexico is poised for substantial growth. And with these types of wins, Mexico certainly poised to be one of our top markets throughout fiscal 2016 and beyond.

Elsewhere in Latin America we shift our first CCHP C1000 to Colombia for an application in large urban complex of government buildings. El Salvador receives an order for upgrade of a plastics manufacturing plant and this also marks our first project in El Salvador which hopes to plant a seed for future development and future projects there.

The Caribbean is also a very attractive market for Capstone, the high and volatile price for electricity and the most important issue in the Caribbean energy sector where electricity prices are among the highest in the world. This makes CHP and CCHP a very attractive alternative for power generation.

Incremental growth in markets like Central, South America and the Caribbean is critical to Capstone’s future revenue growth and further diversifies and strengthen our global distribution channel. Let’s turn our focus on slide 11 and talk about Asia and Australia.

In Indonesia we expand our footprint with the 1.6 megawatt order and we are well positioned there as a new Indonesian government has committed to providing power to every island, village and town in the country. We’re seeing increasing businesses in Australia adopt CHP or CCHP, as Jayme said Australian business was up year over year.

These technologies are part of the push toward environmental best practices and green building initiatives. We secured a 3.2 megawatt order for us building in Australia, and recently delivered 1.4 megawatt order for a high profile project for the Sydney central business centric which has potential for several fall on orders.

New territory for us is Africa and the Middle East. We’ve seen a strong demand for flare gas reduction.

We have been very attractive and very active in sales training and marketing initiative, B2B events as well as adding new distributors in these areas. We see positive growth going forward as our distribution network matures in this region and we look at all of those different opportunities to apply the product.

And turning to slide 12, let’s take a minute to look at policy. As you see Capstone in partnership with our distributors is working diligently to drive changes in policies that relates to increased development and funding of key Energy efficiency, CHP and CCHP programs on both the state, national and obviously global basis.

In addition, we’ll continue to push for lower emission standards around the world as the innovative Capstone product offer substantial environment benefits over traditional reactivating power generation solutions. Turning to slide 13; discovers product development R&D for the year.

Our engineering and program teams continue to work in developing highest quality product in the energy industry worldwide and this slide builds our key achievement of fiscal 2015 and some of our R&D goals as we forwards. We made significant product developments in our flagship C200 and C1000 Series product line.

A liquid fuel version of the C1000 Series was produced and shipped with the use of Capstone lean premixed combustion technology based on the development of work done previously with the C200 liquid fuel system, additionally a dual mode, grid connect and standalone, digester gas C1000 which produced to run off the palm oil milling of effluent biogas produced as a by-product of the palm oil extraction process. The advancements realized in both of these products open up new markets for Capstone.

It also allowed for further development possibilities in the areas of liquid fuel and palm oil worldwide. We also continue to work with the U.S.

Department of Energy on the development of the C370 dual spool high efficiency MicroTurbine and they’ve extended the design contract to support a second attempt at successful operation of the bi-metal turbine wheel. Capstone was selected by the U.S.

DOE Advanced Manufacturing Office to present our C370 program at a Peer View of key DOE projects on a national scale. In addition, we’ve successfully completed the first two longer term endurance tests for the AFA stainless steel and the next milestone will be finish life testing and start field trials in this important low cost alloy.

Let’s go and go to slide 14. Slide 14 shows our business strategy and management’s expectation for 2016.

This past year we have focused on adapting quickly, executing better under very challenging macroeconomic headwinds. To accomplish this we closely evaluate all the areas within our business that we can control and took decisive actions that ultimately have made Capstone stronger, leaner, more flexible and better positioned for future growth and profitability.

As I mentioned earlier in April, we implemented the flattening of the organizational structure to streamline internal operations as well as the faster improved innovation and creativity process. In addition, we merge the Chief Financial Officer and Chief Accounting Officer roles by promoting Jayme.

We eliminate the SVP of Engineering and Product Development position, and the SVP of Customer Service position which thereby strengthen the linkage between sales, service and our application teams. In addition, we promoted several lower level managers and employees in the organization to better motivate and accountability and promote flexibility for the top down.

Obviously these are very tough decisions. The Capstone is now setup for more organizational transparency, better communication, improved collaboration, the lower operating costs result an estimated $2 million annual savings after severance cost.

Along with diversifying our global geographies we’ll focus on speeding up product adoption for datacenters, truck and marine markets to further diversify for new oil and gas vertical market. Manageable focus on training and the maturation of our global distribution channel and we’ll continue to drive growth in our aftermarket FPP service business.

We’ll continue to closely mange our cash through disciplined, expense control and inventory management. Based on the all the above actions management is planning for increased annual revenues in fiscal 2016 lead by a rebound of oil and gas and the stabilization of Russia, and moving to these other markets we’ve been discussing.

This revenue growth should expand our gross margin by at 200 basis points and should bring us to EBITDA breakeven milestone late in the fiscal year Let go and turn to slide 15. This slide really discusses the market assumptions that are basis for the comments that I’ve just made, discussed on the previous slide.

We’re already seeing what appears to be a stabilization of the ruble and improving conditions generally with respect to the foreign currency, recent orders can point to an uptick in shale activity in the U.S. and we anticipate our business to grow as we see gradual recovery in oil prices.

Additionally, our robust $1.5 billion project pipeline, so its continued momentum in CHP and CCHP in the U.S. and in new markets that are developing globally that we hope to tap.

The offset the strong U.S. dollar we did not follow our typical pattern of an annual April 1 price increases here.

So the traditional pull forward of orders from June quarter did not happened in March. The Mexican Energy Reform will be key driver for fiscal 2016 revenue growth and our significant untapped market opportunities in Central and South America, Africa, and Middle East should more than offset the downturn in Russia.

Finally, new tier 4 emission standards and new gas flaring regulations worldwide will continue to drive opportunities for unique Capstone product. And finally slide 16, highlights our long-term goals, this slide is a part of standard investor presentation for some time and highlights our outlook for the future growth and development of the company.

Up until the challenges of the fiscal 2015, we have demonstrated over and over the significant operating leverage of our business. Operating expenses have shown a remarkable stability, extremely flat over time despite significant revenue growth.

As a reminder, you can see this relationship in business leverage on slide 20 of our appendix. Back to slide 16 if you look at the middle of slide of 16 you can see the growth rates for two of our key markets, critical power and mobile power, these are based under distributor pipeline and recent economic forecast.

We’ve expanded our product capabilities through our flagship C200 and C1000 Series which have already built substantial traction worldwide and our new product development will continue in the future with the C250 and C370 as we execute against our future R&D product development roadmap. If you look out into one to three year outlook, you can see Capstone Finance joint venture.

This is a new opportunity for us to drive additional top-line revenue growth. We’ve spent the last 18 months meeting with dozens of potential financial partners and are presently in discussion with one potential partner to develop a new company that would be a joint venture which will provide the necessary initial capital to develop several projects.

The new JV will own the assets and sell the power and thermal energy under long-term FPP or power purchase agreements. Capstone would be of minority owner of this new entity, and sole purpose would be to provide customers with alternative to spending their own capital dollars and drive additional top-line revenue growth for Capstone business.

A fully-owned Capstone Finance business is still in the cards but it maybe over three years away. But we’re still very excited about this JV as we’re starting to put together a pipeline of good potential customers and solid project anticipation of closing this round of financing and funding.

With that, I would like to open it up the call for questions from analysts.

Hi, Darren, hi Jayme.

Hi, Eric.

Hello.

Hey, maybe can you start with backlog and I’m just wondering give some comments on the health of backlog, I’m sure you scrubbed it, but is it something where going forward, given your headwinds, I mean, you’re thinking about cancellations of potentially or I mean is it still more about just timing push outs?

Yes, great question. We have scrubbed a very hard.

We’ve seen very little cancellations in the last two quarters especially in Q4. We do believe that is – we’ll continue to see some push outs.

But I think we’re encouraged with the stabilization of crude oil prices and in the ruble we’re going to see some acceleration of that backlog going forward. So I think as we look at it we kind of believe that we are through the worst of it and that will come out the other side of the trough especially in Q1 and Q2, look for a strong second half of the year.

So, we don’t see any reason to modify the backlog and again we’ve not seen any recent cancellations.

And is BPC, can you speak to and it's probably in the Q, but can you speak to what percentage they are of the backlog or how much they are?

We don’t break them out, but let’s talk about BPC in general, we took a very large AR hit this quarter, that is a reserve not a write-off which is there’s obviously a very big difference. We thought it was the prudent thing to do in working with our auditors and way to properly reflect the risk in the business and the lack of visibility that we have.

That being said, they’ve made some payments already in the first quarter. We expect more payments by the end of June.

We expect to reverse some of the product that we shift and take revenue on it from last quarter as well as probably get some recovery on the bad debt reserve. That should happen each quarter going forward.

They are on cash up front. But again this is a fairly large distributor.

We got 10-year relationship with them. They are not going out of business.

It’s not a green environment situation. We just believe it was a prudent thing to do with the lack of visibility that we had.

But we met with their key ownership last week in Amsterdam, still very confident about the business. We’ll be shipping them product on a cash up front basis and as Jayme said in her remarks letting them make payments on the balance owed, so we do not see them going away.

They’ve got 1400 microturbines running in Russia, lot of good customers and projects. So, definitely we’ve seen a slowdown that’s gone from our biggest customer to still in the Top 10 but definitely on the lower end of that Top 10.

But we do think especially in the second half of the year they’re going regain their footing a little bit and move forward.

Okay. And you mentioned that they’ve made some payments, you expect more, I mean, is there any way you quantify and maybe what cash collections have been at this point in this first quarter or perhaps what your expectations are for the balance of the year.

I know it’s tough to sometimes look at working capital, but thoughts there would be helpful?

Yes. I think we are very focused on working capital obviously with the drop in top-line, we took a little bit of a hit from a inventory turn standpoint, went from five to four obviously with growing revenue we’d been closer to six or seven.

Our goal is to get the turns to six or seven by the end of the year. We are managing the product and the parts flow very tightly, obviously we’re also managing our payables in our expenses.

We expect that the cash we have on the balance sheet is more than enough to get us through this year and beyond. Our auditors agree with us that’s why there is no - if you read the K there is no issue as far as our going concern opinion which is positive.

So I think our auditors get it, our board gets it, doesn’t mean we don’t have to manage our cash but we do have enough cash and we think that if properly managed we’re in good shape going forward.

Okay. Got it.

And then CHP you mentioned, well you didn’t necessarily talk about it, but it was in the slide presentation, just the pipeline there and it looks like you’re targeting June, July some strong bookings just maybe what is going on in the market that gives you the confidence that those are on the horizon?

Yes. If you look at our top five distributors in Q4, Optimal is number one that was all CHP, number three was Critchfield Pacific which is our Hawaiian distributor that’s all CHP, Regatta was next which is all CHP, and E-Finity was mostly CHP.

So the only non-CHP customer on our Top Five in Q4 was Industrias Energetícas] which was the next phase of the pipeline in Mexico. If you look back to Q3 very similar DTC in Mexico, CHP, Optimal, E-Finity, Horizon was really the only non-CHP customer, so the last two quarters we’ve seen a mix of CHP increase as oil and gas has slowed down.

But I’d say the recent order in both Marcellus and Utica Shale as well as the Horizon order do bode well. Oil and gas is despite the precipitous drop is not dead, it just slowing down.

But really I think we’re going to come out the other side of this a better business, we’re going to be more geographically diversified and more market vertical diversified which will make us a much stronger business going forward. So as difficult as this year has been, I think we’re going to come out in 2016 with a nice revenue growth and a more diversified, more robust business.

Got it. Okay.

Last one from me, I know you’ve talked in the past about large orders in the pipeline. Just given some of the challenges, maybe your outlook there has that changed since your last few calls and do you expect – do you expect any of those closing in fiscal year 2016?

Yes. Most of our large scale projects are oil and gas based, a lot of them are either shale gas or flare gas.

So I would say, the outlook has gotten a little bit worse in that area. We still have a few large projects we’re chasing, that will be in Ecuador again shortly as we have 30 megawatt order there we’re chasing.

So I would say not as bullish as I was just because oil and gas base slowdown in general, but that being said there’s still opportunities out there and I still think we’re going to get more than our fair share of some of these projects especially as the oil starts to recover a little in the second half of the year.

Okay. Thanks a lot.

Thanks, Eric.

Yes, good afternoon. Most of the questions were asked by Eric.

But couple on my end. I was wondering Darren, if you could just touch on the gross margin levers for next year you mentioned 200 basis points.

What would need to play out to exceed that or with the dollar where it is if there is some pricing pressure that maybe as a headwind as we’ll look out into 2016?

Yes. Again I think it’s really disappointing that we have the accounting adjustments that we had and the headwinds we had for the year, because the reality is even on the surface revenues down 13% and margins are flat, the reality as you dig underneath we discounted more this year more than any other year with the strong dollar almost every order we’ve received the customers are looking for additional discount because our product went up 30%, 40% overnight in some cases because of the change in the dollar and strengthening dollar.

So despite these additional discounts we’ve given, despite the revenue being down and despite the accounting adjustment even though they are non-cash we’re still flat. So you start backing out some of those things and the numbers look very good very quickly.

So I’m very proud of the margin we’ve been able to generate. I think even if you just take out the accounting adjustments alone we’re up 100 basis points.

But any kind of revenue growth as we continue to flatten up the organization, lean up the organization, we have several Six Sigma events going on this year. We’re going to get leaner, faster, better and when you start adding revenue growth on top of that as well as the FPP growth the margin expansion of 200 basis points is actually probably conservative.

Got it. Thank you.

Question for Jayme for the R&D little bit higher than we’re expecting this quarter and certainly prior quarters, what should be the run rate and R&D going forward with the initiatives you have?

R & D should run pretty much the same it has historically this year compared to prior years we had less costs offset from DOE programs.

That’s really what you’re saying is the number of R&D folks has not changed. The only reason the number looks like its getting larger as the DOE contribution getting smaller every year.

And at this point we’re down to a fairly low number with DOE. And that’s really by choice.

When I came to Capstone we had a lot of DOE programs, most of them were not going to deliver any kind of product in the near 10-year time frame. And as we move the company from being an R&D company to being a product company its harder and harder to find alignment with DOE to find projects that makes sense for both of us.

So, unlike some other people in our space who are out there actively speaking a lot of DOE programs, they take revenue on those programs. We see this an offset and we will not take U.S.

tax payer dollar unless it’s going to create a product, it’s going to create a U.S job.

Understand. I just have two questions about the financing JV that you’re contemplating or moving forward with the partner that you mentioned.

One is as the board indicated what the maximum dollar commitment that you would make as an up front, capital commitment to that, that financing arm that would be helpful to understand just given the situation that’s transpired over the past 12 months. So that’s question one.

And question two around that is what’s the accounting treatment of both from a cost of goods as well as revenue perspective per units that are sold to the JV?

Yes. So I think if you look at we’re working on and if I should put this on prepared remarks the partner we’re looking for is to have them bring the equity.

We’ll be using zero Capstone dollars in this JV. We’re going to be supporting it with selling the products at a discount into the JV which would be similar to what we sell to our distributors.

We’ll be giving engineering experts, legal accounting support. So we’re going to giving services and not dollars.

That was really the key for this caps on JV was to find a way that to solve customer problems without using our own dollars, it’s our balance sheet we don’t want to be tying up capital at this point. When we get to Capstone Finance, that’s wholly on subsidiaries after we’re profitable than we look to use our own equity once we’re generating profits, but from an accounting standpoint it will really look like a sale to a distributor, it will look no difference than anything else there.

Right. Certain percentage of the profit would not recognize as the inner company, but it will be an equity investment basically, so that would just the equity accounting.

There won’t be -- will be a consolidation.

Yes. If you look at it the goal is we’ve lot of especially oil and gas where lot of customers still have good projects, but their capital budget been severely limited because of precipitous drop in oil.

So if we can have this be an operating type expense where they just sign a long-term purchase agreement. We put the equipment in place, the JV does and we sell power to that entity, that’s the right answer.

And then as we make more profit we’ll reinvest that into the entity and continue to go. I know lots of people are talking about YieldCo.

This is not a YieldCo, this is going to be Capstone financial joint venture that’s going to driver good projects and then we’ll deliver that equity up with some debt and then hope we do some more projects. Eventually we could sell these YieldCo, but I don’t see – we’re not going to be large enough to be our own YieldCo any time soon.

But the real reality is we’re trying to solve customer problems, get around their equity constraints and get good projects running as fast as possible.

Got you. And then last one from me is what’s the philosophy over the next three to six months as it relates to communication around the issue with BPC as you receive those checks, if they’re meaningful, is it something you think you would be press releasing to highlight that or what’s the overall strategy there given the magnitude of the charges?

Yes. We’ve had other charges like this.

We had another one with another distributor. I don’t know press release and I want to our lawyers about this.

This is really kind of continuing course of business. I guess the BPC were to file Chapter 11 or have some major business change we would press release that but I think as long as they are continuing to by parts and buy units and make payments we can through that the kind of new course of business.

The only real difference is put a reserve in place and we’re making them be cash up front instead of allowing them to have their credit line. So I think it’s a business decision and I think it allows the street to see the magnitude of the potential, but really I look at it and say this is a one time pain in Q4 that we’re going to get benefit over the next four to six quarters as we paid on that credit line.

And it will also allow us to reset relationship a little bit. I think we all love our Russian business.

I think but if it was a smaller part of our overall portfolio when we had a little lower exposure to Russia that would be probably good thing at the end of the day. That being said, they bought over $150 million of equipment over the year, so still been an important part of our business.

Okay. Thank you.

Appreciate it.

Thanks, Jeff.

Hi, guys. Thanks for taking my questions.

Lot of been answered already, but maybe we can just cover some market stuff here. So you guys had mentioned some positive indicators from key shale plays, so I just wonder if you can take down little deeper and talk about where you’re seeing strength in what particular shale plays.

And then maybe if you could also just get a little more granular in terms of the own gas market, how does it look on the compression front, production exploration, if you just kind of split it out for us that would be great?

Yes I think if you saw the one announcement made was Utica and Marcellus. Eagle Ford has been by far our most successful shale play.

We tend to be more midstream though we are having some conversations that I am looking at different applications to solve some of the drilling challenges. We mentioned that I think in some of our prepared slides but it's really more of the same, Anadarko is up to several hundred units.

They are primarily a C65 customer so I’m guessing a lot of the recent C65 as we sold the Horizon are going to go down to Anadarko. I think the reality is the pace at which things were happening has slowed down but is still happening.

And I think as we figure out some of the cyclical load issues by different battery solutions we can get into more of the drilling the pump jack applications which have alluded us so far. So I think if you look at it we’re continuing to move in the U.S.

market. I think we can expand into the oil field into different applications as we make some modifications to the product.

Obviously South America there is a lot of oil and gas applications that we’ve yet to tap. Middle East is a huge untapped market for us and I think you are going to see a lot of opportunity there from oil and gas standpoint.

So I think we can diversify geography wise in oil and gas and I think we can get higher penetrations in more areas within oil and gas but all this can take some hard work this year.

Okay, great. And if you could just also discuss competitive landscape for us.

I mean, I think you have alluded to it a bit with the financing option here but it looks like maybe some competitors being more aggressive on pricing and on financing terms maybe you could just talk about the general environment you are seeing there?

Sure. I mean you know being Caterpillar with their balance sheet and their products with Cat finance they can easily go in and take a product off the table or a project off the table that’s always been challenging for us.

And so I think with our load of balance sheet to have a financial instrument that we can use its going to be a huge, huge opportunity for us. So, my guess is that entity will start with probably 10 million in capital and we’ll get some leverage behind that and it may turn that into 40 or 50 million will probably eventually would not too long maybe you could find some additional money.

I think once we get the JV up in going we show good products, projects with good returns most of these projects are 16 % to 18% IRR the reliability of the product is phenomenal. So I think that the ones we can prove that attracting more money is not going to be a challenge, it will be just finding in projects and getting them built.

Okay, great that’s helpful. And last one from me in terms of the revenue outlook, you have alluded to double digit revenue growth for the year, and maybe you could just break that out for us in terms of what’s the contribution from FPP versus product this year?

Yes I think you are going to see the aftermarket services as we bundle it together FPP and parts and training. It’s going to probably be atleast 20% of revenue.

It’s historically been around that number I think we’ll see both a product revenue growth and FPP will grow together so keep that number in a kind of maybe 20%, 22% range. But I really think product growth is key because again FPP is great but it really moves the topline number we've got to get the product engine running again and I think we are going to see that again through strong U.S., strong Mexico, strong Canada we’ll be building in South America, Africa, Middle East and very happy with going down in Australia.

We changed distributors a couple of years ago and are putting up some very good numbers. I think the real weakness we’re going to have is going to be Russia.

Russia will be down year-over-year and then parts of Europe will be down but I think we can see especially the second half of the year I think we’ll see Germany pick up, Italy pick up and we’re getting a lot of revenue out of new places Finland, Hungary you know very small parts of Europe that have opportunities. The U.K.

has always underperformed for us as has Alaska, Hawaii, Caribbean. I think there are some good markets where we have new distributions that we can also pick up.

But again, for us that $1.5 billion is more than of opportunity. It’s really how fast can we get orders closed and how is our rate going to be.

I mean today we call it 11% closed rate and a 182 day average cycle. We need to get that close rate upto 15% or 20% and drive that cycle down.

Got it. Very helpful.

Let me just snick one more in here if I could. In terms of speeding adoption rates for the non oil and gas markets you guys referenced in your slides.

Just talking about the leverage you have there, and obviously pricing is one but if you have other levers maybe you could highlight those as well for us.

Yes I would say pricing is probably the least effective and the reality is you know we are 30% higher first cost with a strong dollar that’s made it worse in some areas people aren’t buying is because of the low cost solution frankly and you can buy from Caterpillar or GE, nobody has been ever fired for buying from those guys if we got into a pricing war with GE or Caterpillar we wouldn’t win, so people are buying our product because of the liability, they are buying it because of the low emissions, the riding because of its better products. So, we are not going to play a price war with folks, but the reality is they need to be drilled to the product, they need to see if the features and benefits and we need to continue to make the product that much more robust.

And as I mentioned, we’ve done a lot of work this year and we’ll do it again in 2016 on improving the reliability, improving the applications and making different minor changes to the architecture to make it even better for our customers. And I think that’s really what’s key is we are meeting customer satisfaction today but we need to blum [ph] away and exceedingly more I think that’s been a driver.

We talk about double digit revenue growth, one of these years we’ve going to wake up and see you know much higher revenue growth rates and I think we did it and overnight the reality is we are continuing to do all the right things with improving the product, coming up with unique features and benefits, building out a distribution channel, there is nobody in our states that’s got a distribution channel close to us and obviously Caterpillar has got a 100 year old channel that’s pretty amazing but we’ve gone a long way in eight years. So if we can have a product that’s better than Caterpillar and distribution channel that’s close to Caterpillar we’re going to be pretty formidable in the future.

Okay, great thanks Darren I’ll jump back in queue.

Great.

Thanks for taking my question. Firstly, regarding your pricing, did I hear it correctly that the lower ASPs were a reason for lower revenue last year.

Did you lower your price over its course of last year or it’s simply due to a product mix issue?

Yeah you’ve got a product mix issue and then we have done more discounting as I mentioned before since the strong dollar more distributors are asking for discount, but for us we don’t get into a price battle. We may give a 5% discount but nothing significant, it’s really more mix than anything else.

But as I also said we did not do our April 1 price increase just because with the strong dollar we don’t think that will be beneficial.

Okay. Regarding the situation with BPC, why you do shipped there [ph] on a $7 million products to BPC in the first quarter?

Yes, so we shipped a fewer [ph] thousand to BPC during the quarter. We planned on taking revenue on it during the quarter after the quarter ended, after through with our auditors we decided to reserve the AR of the $7 million therefore we can’t take revenue and reserve AR in the same quarter from accounting perspective, so when we ship the product, with revenue but as we close the books we’ve have not taken revenue.

So payments in Q1 were close to allowing us to take revenue on that product that we shipped and then all of the 100% margin in Q1 when we take the revenue for that order.

Okay got that. And regarding the joint venture you potentially will set up -- will you need to put in the equity investments into that joint venture?

No we’re going to put sweat equity but not dollars.

Good for you. Lastly regarding your cash position.

It looks like you have to keep a good cash reserve due to the credit facility arrangement. Your potential cash burn and the cash reserve required for the credit facility, it looks like you'll have to do some financing this year, is that right way to think?

Yes we don’t think our cash burns for the year will be more than probably $10 million from operations, I don’t think the revenue comes back and the margins continue to improve you got a lot of inventory we can turn to around [ph] so I think that we don’t think that we’ll have to do an equity raise this year. I think if you look at the $32 [ph] million based on our operating margins now.

We also have the piece of that Wells Fargo line that we have not exercised we think the overall size of that line but have not done it yet.

Okay. Got that.

Thank you.

Thank you.

Thank you. Great questions everybody.

I know this is a difficult quarter and a challenging year. We put a lot out there for you to look out and again in a very short period of time.

I think the reality is if you look at any business that had three major macroeconomic headwinds impact their biggest portions of their business they will only be down 13% revenue is actually somewhat remarkable, but all that being said we did not get to even our break even in Q4 like we had planned on and we’ve talked about and we own that, I own that, that’s why we made the changes we made during the quarter to flatten the organization and to show that we are that dedicated that we will even go to the leadership team level to get this company to profitability. If you look at it from a reserve standpoint it’s challenging to put reserves in place, again these are not write-offs, these are reserves, these are non-cash.

I am dedicating to collecting every dollar that is owed [ph] to those prior distributors. And if you look at the total year I think we have about $10 million reserve from an AR standpoint, we plan on getting all $10 million back hopefully as fast as possible.

It may take more than fiscal 2016, my guess is we’re looking at probably six or seven quarters but we’ll have good traction hopefully every quarter to get that done. From an inventory standpoint we didn’t talk about the major inventory hit that we took, or reserve that we took was for the ORCs, the organic rank in cycle heat recovery modules.

As we remember correctly we had a deal with General Electric, we brought 15 of them originally and exchanged for some exclusivity in the microturbine space. We sold five over the years and we have appealed for nine those sell ten that are on the books.

Unfortunately moving one of the years is not exactly fast moving inventory and the PO that we have for nine is where the customer has some financing challenges right now so we took the reserve again but we still plan on selling that inventory and when we do sell it will be a 100% profit for the company. We’ll reverse the reserve obviously so were working diligently to get that done also.

So I think all of the reserves that we have taken for the year adequately reflect the challenges we’ve had in the business and the risks in the business but that doesn’t mean that we are going to capitulate and write them off. We’re going to put the reserve in place and work very hard to reverse those reserves as fast as we can.

Also the share price has taken a big hit in the last year, again I think that with a 13% reduction in revenue we got more than a 13% hair cut in share price and hopefully that will turn back the other way as we grow revenue double digit we’ll get more than double digit increase in our share price. But then today all we do is the best thing for the business and work hard every day with our distributors and our vendors and our customers to improve the business.

I would say from a company standpoint, my morale is probably as high as it has ever been. I think morale in turning the company is as high as it’s ever been.

I think everybody is very excited about the upcoming year. I think we weathered the perfect storm of bad events and sun is coming up and think it’s going to be very good going forward.

It’s not going to be easy but I think each quarter hopefully better. From a Q1 standpoint I think if you look the last two years we had very challenging first quarters I think $23 million, $24 million in revenue.

I believe we’ll do much better than that in the first quarter it will be great. I think did not start the year with on a down quarter.

I think we feel very confident going into the New Year. I think you know loss in all this was our warranty expense was down for the year.

Our FPP margins are improving, they have tripled in the last 11 quarters as the product is more reliable, well more reliable product lowers our cost but it also improves customer satisfaction. Satisfied customers are about sales people and that’s going to get us to grow going forward.

And again from reliability and R&D perspective we’re still working on the 250 to 370 and AFA materials. We’re still making prior improvements with 201,000 and we’ll continue to do that until we get the product perfect and make sure it’s the best it can be.

I think we are excited about the 250, the 370 turbine wheel, the first bonding attempt was good it did not work in the full speed operation, but we’re going to go back to do it again with help from our partners and we are very excited about where that program can go and of the AFA for me cost of material standpoint and our recuperators [ph] a very important program to us we continue to look at. Our distribution channel again I think is the most under rated part of our story, and there is nobody else that’s in our space that’s building anything close to what we have in our distribution channel.

We have 220 Capstone employees and 740 Capstone folks working on our behalf and channels, so it’s amazing we think about the leverage that we have and how flat our operating expenses are. So that’s an investment that takes a lot of time and effort, but like anything you take the high road to long road the dividends are going to get for years to come are going to be impressive.

I think if you look at getting back to growth and profitability, it’s going to come from a diversified portfolio both verticals end markets like tapping some new markets, marine trucks, data centers but also new geographies. We have to be geographically diversified just like the intermediaries [ph] stock portfolio is.

So I think for us, this is a marathon not a sprint. We had a difficult lap this year but I think these macroeconomic headwinds are easing, oil prices have come back above lows, the ruble has stabilized and come back a little bit and again we’re still hearing I think our customers are very confident we are going to have a very good year going forward.

So with that I think we’ll leave it until the next earnings call and look forward to talking about Q1 and showing the progress we made since the Q4 report. Also we have the annual shareholding meeting coming up.

I look forward to seeing the folks come out for that. Thank you.