Thank you. Good afternoon and welcome to Capstone Turbine Corporation's conference call for the first quarter of fiscal year 2016 ended June 30, 2015.

Capstone filed its Quarterly Report on Form 10-Q with the Securities and Exchange Commission today, August 6, 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; adequacy of liquidity in capital resources; improved operating leverage and organization efficiency; new product development; product reliability; shift to larger markets for our products; benefits from cost-reduction initiatives; performance in light of macroeconomic headwinds; continued NASDAQ listing, implementation of new Capstone finance business, collection of reserved accounts receivables, continued opportunities in Russia, improved brand equity and product recognition and leveraging of lean manufacturing practices.

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 first quarter of fiscal year 2016 earnings call.

Joining me today is Jayme Brooks, our Chief Financial Officer and the Chief Accounting Officer. I’ll begin today’s call with a brief overview of our highlights for the first quarter and then I’ll hand the call over to Jayme, who’ll review our quarterly financial results.

After which I’ll return and discuss our overall business strategy and give a brief update on some of our key initiatives. As the operator mentioned during the opening remarks, we will be using presentation slides that can be found on Capstone’s website under Investor Relations.

Let’s go ahead and turn to slide 2 and slide 3. Opening slides illustrate the highlights for the first quarter.

Let me first say I’m extremely pleased to report that we had the second strongest first quarter revenue in our 20-year history with revenue increasing more than 16% over last year’s first quarter revenue to $27 million. Our gross margin subsequently increased more than 200 basis points to 17% compared with last year’s first quarter.

We also reduced our net loss to $6 million which compares to $6.8 million a year ago first quarter. However I’d like to point out that the $6 million net loss for the quarter includes one-time charges for severance and other termination expenses totaling approximately $600,000.

These strong revenue results were driven by execution of our corporate strategy devised by our leadership team and executed by a very dedicated team of distributors and sales professionals. We achieved these improved financial results by diversifying our vertical markets as well as our geographical footprint.

This quarter we witnessed a rebound in our oil and gas industry as Horizon Power was our leading all of our other distributors in new orders and product shipments for the quarter. After Horizon, the next few distributors rounding out the top five in orders for RSP systems in New York, Trinity in Philadelphia, E-Quad in Germany, and Virgin Power, all of them benefit from the continued strong growth from the combined heat and power or CHP market.

Bookings improved over Q4 levels and we finished with 0.7 to 1 book-to-bill ratio which is below our target of 1 to 1 but over Q4’s book-to-bill ratio of 0.6 to 1. Our backlog as of June 30, 2015 was $160.5 million down from $175.2 million as of June 30, 2014.

Jayme will give you more details on the specific backlog during her presentation. In terms of market verticals, the greatest portion of our backlog is still in oil and gas market but the CHP market is growing and growing steady every quarter.

We believe that our revenue increase this quarter is a positive sign in light of the continuing macroeconomic headwinds and that this quarter’s revenue, we did not have any product shipments to be BC in Russia for the first time in the last nine years. Historically, as you know BPC has been one of our largest contributors of revenue.

For the first quarter of fiscal 2016, we recognized approximately $500,000 in total revenue from BPC which has some 2% of our total for the quarter. For the first quarter of fiscal 2015 was approximately 13% of revenue.

So we have even more reasons to be particularly proud of our results given the low revenue contribution from the traditionally biggest customer BPC. On a geographical basis, as you can see on slide 4, the North American, European and Asian markets were the largest components of our revenue in the quarter.

But we saw some growth from South America and we’re making in-roads into Africa and the Middle East. And I’m very confident they’ll contribute more soon.

And this year we continue to receive orders from new parts of the world, we recently obtained our second order from Puerto Rico, and some of our first orders in Portugal, Lithuania and Finland. For the first quarter of fiscal 2016, revenue from our accessories partner service business increased $1.1 million or 19%, the $6.8 million from $5.7 million from the first quarter a year ago.

Our product development and liability programs are going extremely well and we achieved 95% of our internal R&D goals for the first quarter, as we continue to improve the liability, the performance and the cost of the flagship C200 and C1000 series product. Distributor and employee morale are all-time highs with great levels of cooperation, empowerment, engagement as we continue to gain market acceptance of our innovative Capstone products and services.

With that I’ll take a break and turn the call back over to Jayme and let her discuss the Q1 financial results.

Thanks Darren, good afternoon everyone. The first quarter of fiscal 2016 was characterized by higher revenues in megawatts shipped compared to the first quarter of fiscal 2015.

The revenue improvement was primarily from a rebound in the global oil and gas market coupled with continued strong revenue from the CHP market. We also benefited from an increase in revenue from the Asian and South American markets, as a result of our continued efforts to improve our distribution channels in these developing regions.

However, the macroeconomic headwinds experienced in fiscal 2015 continued to be a challenge. These includes the continued softness of the global oil and gas markets over historical levels, a strong U.S.

dollar which makes our product more expensive overseas, and the ongoing geopolitical tensions in Russia, North Africa and the Middle East. Please turn to slide 5 for the financial results for the quarter.

Revenue for the first quarter of fiscal 2016 was $27 million, a 16% or $3.7 million increase from last year’s first quarter of $23.3 million. This as Darren mentioned earlier was our second strongest first quarter revenue in our company’s 20-year history.

Product revenue was $20.2 million for the first quarter of fiscal 2016 which compared to $17.6 million in the first quarter of fiscal 2015. We shipped 20.8 megawatts during the first quarter of fiscal 2016 which compares to 17.9 megawatts in the first quarter of fiscal 2015.

The increase in product revenue and megawatt shipped in the first quarter of fiscal 2016 over the prior year was a result of a shift in product mix as we sold a higher number of our C1000 series systems during the first quarter of fiscal 2016. Revenue from accessories, parts and service was $6.8 million for the first quarter of fiscal 2016 as compared to $5.7 million for the first quarter of last year.

Gross margin for the first quarter increased to $4.7 million or 17% of revenue compared to $3.4 million or 15% of revenue for the same period last year. The 200 basis points improvement in the year-over-year gross margins was primarily driven by the shift in product mix that I mentioned earlier and by revenue recognized during the quarter without any associate to direct material cost.

This revenue is related to portions of the $0.5 million of revenue recognized by BPC during the quarter that was for products shipped in the fourth quarter of fiscal 2015, for which revenue was not recognized at the time of shipment due to the uncertainty of collect-ability. As a reminder, during the fourth quarter of fiscal 2015, we recorded an accounts receivable allowance of approximately $7.1 million for BPC.

Since that time, BPC has now agreed to payment terms of cash on delivery, at which time the revenue will be recognized plus a premium which would be applied to the past few balance that has not been fully reserved. R&D expenses for the first quarter increased by $2.4 million compared to $2.3 million in the first quarter a year ago.

SG&A in the first quarter of fiscal 2016 increased $0.3 million or 4% to $8.1 million from $7.8 million in the first quarter of fiscal 2015. SG&A in the first quarter of fiscal 2016 included $0.5 million of the total $0.6 million charge for severance and other one-time termination costs related to the flattening of our organizational structure that we announced in April 2015.

If you recall, we expect this change charged to our organizational structure to result in annual savings of approximately $2 million once netted with the one-time cost. Operating loss for the quarter of fiscal 2016 decreased approximately 15% to $5.8 million compared to $6.7 million for the first quarter of fiscal 2015.

Net loss for the quarter decreased 12% to $6 million from the $6.8 million for the first quarter a year ago. Net loss per share was unchanged from the prior year at $0.02 per share.

Now, I’ll provide some comments on our backlog and balance sheet. Our product backlog as of June 30, 2015 was $150.5 million compared to $165.7 million as of March 31, 2015 and $175.2 million as of June 30, 2014.

The year-over-year decrease was $14.7 million or 8%. This decrease in backlog was primarily a result of the macroeconomic headwinds we experienced throughout fiscal 2015.

Our FPP service contract backlog at June 30, 2015 achieved a new record level of $63.2 million compared with $61.2 million as of March 31, 2015 and $49.3 million at June 30, 2014. These increases over the past periods refers our growing installed base in microturbines as well as the ongoing efforts of our more mature distributors to sell our FPP service contracts, which enables the end-user to achieve a lower cost of ownership.

Our receivables as of June 30, 2015, net of allowances were $16 million compared to $13.1 million at March 31, 2015 and $24.2 million a year ago. DSO was 54 days during the first quarter of fiscal 2015 a decrease of 41 days compared to the first quarter of fiscal 2015.

The improvement in the year-over-year DSO was largely due to the accounts receivable allowances recorded in fiscal 2015 for BPC and EMI. As a reminder, during the fiscal 2015 we also recorded an accounts receivable allowance of approximately $2.6 million for EMI.

Inventories were $26.4 million as of June 30, 2015 up from $25.4 million at March 31, 2015 and inventory turns were 3.4 times compared to 4 times at the end of fiscal 2015. The increase in inventories, were primarily the result of not fully achieving our planned number of product shipments due to the continuation of the headwinds I mentioned earlier.

At June 30, 2015 we had cash and cash equivalents of $22.4 million and $5 million in restricted cash related to our Wells Fargo credit facility for a total of $27.4 million compared to $32.2 million as of March 31, 2015. Our cash used in operating activities for the first quarter of fiscal 2016 was $6.9 million as compared to $9.1 million in the first quarter fiscal 2015.

We spent $0.9 million in capital expenditures in this quarter compared with $0.2 in the first quarter of fiscal 2015. Lastly, on June 18, 2015, we received approval from the NASDAQ stock market to transfer the listing of our common stock from the NASDAQ Global Market to the NASDAQ Capital Market.

In order to regain compliance, the minimum bid price per share of our common stock must be at least $1 for at least 10 consecutive business days before December 14, 2015. If we fail to regain compliance during this grace period, the company’s common stock will be subject to delisting by NASDAQ.

Therefore we have requested stockholder approvals of a potential reverse stock split at the company’s upcoming Annual Shareholder meeting to be held on August 27, 2015. That concludes my remarks and I will now turn the call back to Darren.

Thank you, Jayme. Now let’s turn our attention to slide 6 and also slide 7 to review some of our key business strategies and provide updates on progress we’ve made during the quarter to achieve those goals and our overall goal of becoming a world-class distributed generation solutions company.

At Capstone we strive to build the highest quality product in the distributed generation industry with a goal of achieving 99% customer uptime and 14,000, mean time before failure or MTBS. We continue to focus our efforts on making the C200 and C1000 series our flagship series product achieve these world-class reliability targets that are more mature C30 and C65 products already achieved.

In July we completed several reliability programs that have pushed the C200, C1000 series MTBS from the historical approximately 6,500 hours to a projected 9,158 hours. That’s an outstanding amazing 40% increase in reliability.

This is achieved in multiple improvements of the engine, the filtration systems, the stator, the electrical systems and a comprehensive new software release. However we’re not done, we’re not satisfied.

We will continue to work and improve until the flagship product reaches our goal and what our other products already have achieved which is 14,000 hour mean time between failures. In order to gain additional recognition of the global marketplace we’re working on building our global brand and our product recognition.

As part of those efforts we recently launched our new website at our 2015 Capstone Global Distributor Conference in Palm Springs California. This intuitive platform is easy to use and it features more modern look, intended to serve more as a primary resource for market product and service information.

The new design, content and features will help facilitate a higher level of end use customer and distributor interaction with an increase new sub marketing assets project case studies, social media. Additionally, potential end-use customers would be able to find most of the information they’re looking for in three clicks or less.

Improving the efficiency and effectiveness of our global distribution channel is certainly key to our continued growth and future success. In support of this objective, we recently rolled out a new distributor key performance indicator program or KPI program, this program is a better measure and manage distributor performance and help us focus on improving lead generation, improving product development, customer relationships and most importantly improving order close rates from today’s approximately 11% to a world-class 20% and beyond.

If you remember, we have $1.5 billion in indemnified project leads therefore every 1% of close rate improvement in project close rate equals $15 million in additional revenue. As far as our progress on leveraging lean manufacturing processes and practices, we keep operational cost flat we’re continuing to leverage the business with top line revenue growth.

We’ve taken several steps recently including finishing a new leaner C200 and C1000 series manufacturing layout in our [indiscernible] manufacturing facility. That new facility now has new engine build clean room, upgraded test cells, new emission testing equipment and very much improved manufacturing digital world constructions.

These improvements have already led the higher engine yields and lower overtime expenses. For lean does not apply to our manufacturing processes, we recently planned our organizational structure to lower operating cost and increase adaptability as well as foster additional innovation and creativity.

We eliminated three top level executive positions that will save the company an estimated $2 million annually as Jayme discussed earlier. These costs were expensed in Q1 therefore we’ll begin to see the benefits of this new leaner cost structure starting Q2 and beyond.

Capstone now has fewer layers of management and employees today are more empowered on taking on a wider range of responsibility. The organization will efficiently enhance our overall response times to meet product development deadlines improving during the quarter and we substantially improved our performance by achieving 95% of our stated Q1 R&D goals during the quarter.

In order to provide world-class products we are continuously developing new product improvements and enhancements to improve the use of customer satisfaction, and our competitiveness in the global energy market. We recently finished the cut-ins of several C200 and C1000 series product improvements, not to mention a few just including C1000 package improvements, new C1000 marine grade paint, new improvements to the overall system flexibility and controlled architecture.

One of our biggest competitive advantages is our stronger loyal global distribution channel. Through trust and innovation, we have established our distributor network as one of the top competitive advantages and differentiators from other new distributor generation technologies, are now 90 distributors and 9 OEM partners provide the vital link between Capstone and end-use customer base by collaborating with us to provide the highest quality products and services in the industry.

Our refined distributor network extends our present workforce of approximately 225 Capstone employees, by adding another 740 distribution employees across 152 locations worldwide. At our recent Global Distributors Conference, our distributors committed to grow their sales force by 100 sales people across the global channel by the end of 2015.

Again, 100 new sales people across the channel by the end of the year, 170 days. We’re obviously very pleased with this commitment and we’re collectively targeting and advancing the pursuit of growing distributor generation markets and have best ways to use these new assets.

Our global reach is increasing with our 10 new distribution partners signed in just the last year. We’re focusing on emerging market regions so to quickly contribute to our growth, new distributors in France, Jordan, Kuwait, the Netherlands, Republic of Moldavia, Saudi Arabia, Trinidad & Tobago, Turkey, and a couple of the United States joined our ranks as part of the Capstone crusaders.

Capstone unprecedented long-term FEP service offering sets apart from other companies with our five-year and nine-year all-in bumper-to-bumper lifecycle cost guarantee program. We’re actively working with our authorized service providers or ASPs to strengthen this offering and find tuner FEP program to provide higher availability to more comprehensive customer focused service package.

In addition we continuously strive to limit customer downtime by decreasing unit diagnostics and repair times. To this end, we recently rolled out a new tech share diagnostic software program that provides our ASPs a continuously learning and improving failure analysis diagnostic tool that can be utilized real-time in the field by technicians, control shoot-down units faster and more accurately to reduce the mean-time between repair and the number of trips required to repair the unit.

We believe this will not only improve customer satisfaction but improve customer uptime that will also lower the future cost of our FEP service contracts for Capstone and some margins of those contracts. As we build our business, we’re focused on delivering - diversifying our market verticals and expanding our geographic footprint, in areas that we believe will give us the greatest near-term potential.

Capstone received several significant orders this quarter which represents our successful diversification of our market verticals. These orders include the groundbreaking C600 in the Midwest for Open Access Technology International, that’s the new datacenter for us and an office facility, an order for 25 C65 microturbines from an, existing oil and gas user that intends to use them in numerous facets of shale oil and gas production process.

Includes two orders for C1000 microturbines for energy efficiency projects or CHP in New York, one is at the New York University Research Center and Learning Facility and a second is the River Park Towers, which is a residential complex in the Bronx. In addition, we recently received an order for C1000 microturbine for a power generation facility owned and operated by Kineticor Resource Corporation a Canadian energy services company will utilize it for flare gas utilization.

Providing customers with competitive and creative factory back finance programs is another critical element to our growth and ability to compete in larger more traditional companies like Caterpillar and GE. Therefore, we’re embarking on developing a new Capstone finance business to provide these necessary solutions to help grow the top-line revenue.

We’re continuing to make significant progress and we’ll have more information on this initiative at our Annual Shareholder Meeting on August 27. In summary, Capstone had a great first quarter.

We achieved our second highest first quarter revenue in the last 20-year history. The only first quarter as better was back in FY13 at $28.8 million.

We diversified our business both geographically and by market verticals. We have commitments from our distributors to add 100 new sales people to our network.

We have become a leaner and more nimble organization from top to bottom. We are succeeding despite with some have termed a perfect storm of macroeconomic headwinds.

And we have the strategy in place to become a world-class distributed generation solution company. I want to thank our employees and our distributors for their efforts in the first quarter to make it so successful.

And we look forward to welcoming the new members of our global sales force as we add 100 additional sales people in the months ahead. I also look forward to seeing everyone who attends our Annual Shareholder Meeting, I guess we’ll get a chance this year to not only ask questions about the business but see the Capstone empowered Wal-Mart wave truck up close and in person.

Operator, at this time, we’d like to open the call up for questions from our analysts.

Yes, it’s Eric Stine. Thanks for taking the questions, congrats on the quarter.

Thank you, Eric. Maybe first on the health of the backlog as we look at the rest of the year, can you just talk about that whether you’re seeing any push-out in timing or any cancellations there?

We’ve seen very little cancellations I think if you notice, it’s probably two C1000s that just appeared this quarter for one project that got cancelled. But still we’re seeing some push outs which is what played this last year and last fiscal year.

I think the growing markets that we’re seeing in South America, Mexico, I think Europe is going to get stronger, Australia is going to have a nice quarter. So, I think we’re going to see some new order flow especially from the CHP distributed energy side of the business, it’s going to make up for some of that oil and gas softness that we’re continuing to see.

Okay, good. And then, you talked about BPC a little bit, can you just give a little more color there on status of collections and outlook for the rest of the year with them?

Yes, no, I think they traditionally are about $20 million revenue for us. As I mentioned before, we’re pretty happy with the fact that we put up the second best quarter in Q1 in company history without BPC contributing significantly.

However, it would be better if they would contribute. We are expecting them to be 3 or 4 megawatts in the second quarter, which obviously means we’ll have to make some payments against their past two balance, we’ll pay for the product upfront, so that will help us from a cash flow and revenue perspective.

They’re anticipating their business to be down about 50% year-over-year, we’re forecasting a number a little bit lower than that. But we’re staying very close to it, we’re talking to them on a regular basis.

Jim and maybe I, both of us would be over there in September as well as trip through Africa, South America, Jim is in Australia today. So, we’re really spending a lot of time with our distribution channels especially as they have these 100 new sales people to get as much leverage and get the revenue growth engine back up and going.

Good, thanks. And then maybe on lastly on CHP obviously, you guys are seeing some nice strength there.

Can you just give us a little bit of update on the related companies and what you might be seeing there for the rest of the year?

Yes, I think New York is going to have a better year for us, if you look at all the CHP going on in New York, that market is really starting to open up for us. I think we’re up to 14 megawatts 70 locations in New York.

We’ve done everything from, different kind of clients from affordable housing projects, high-rise residential buildings, retail buildings, office buildings, hotels, hospitals, universities, manufacturing facilities. Obviously, we got related with Hudson Yard, Seven Brand Park.

For the manufacturing side we have Alexion Pharmaceuticals, Fire Stone, After Chocolate, from affordable housing we’ve got Third Avenue in the Bronx, Fordham Housing Project, Fox Point Hotels, obviously New York Palace is one of the gems of our installed base, we got the Marriott downtown, Archer Hotel, Memorial Sloan Kettering is a nice insulation for us. And then universities, there is the new school NYU, Beecher Road School.

So we’ve really got a nice 70 locations in New York and we think New York will be one of our shining stars for the U.S. for CHP this year.

Thanks for taking the questions.

Hi guys, good afternoon.

Hi Matt.

I just wanted to start out with end-market shipments. I think you guys usually have a slide in your presentation that breaks out shipments by end-markets, so oil and gas, CHP and that sort of thing.

Could you just run through that for us real quickly?

Yes, well, Jayme looks for the numbers it should be in the Q. But I think again roughly typically we’re usually 60% to 70% oil and gas, that number has switched to CHP has grown and oil and gas has slowed down a little bit.

I would say the number is probably closer to 50-50 today. I think we’re going to see for the rest of the year oil and gas continue to be somewhat soft.

Now we did see Horizon have the best order quarter and shipment quarter of any of our distributors which is a great sign. And that’s oil and gas projects throughout the U.S.

Hi Matt, we had 55% was in our natural resource applications, 35% in our energy efficiency and then 10% in our renewal energy.

Okay, got it. That’s helpful.

Maybe if you could also just help us understand in terms of how the pipeline is shaping up, I mean, I would assume that it’s quite a bit more skewed towards CHP and energy efficiency type projects at this point in time. But could you talk about the mix as it pertains to your pipeline of opportunities that’s out there?

Yes, I think the pipeline it was very similar to what you see in shipments this quarter. We’re seeing tremendous growth of CHP opportunities globally not just in the U.S.

obviously the U.S. is very strong.

We’re seeing CHP projects in the Midwest like I mentioned. Mexico CHP is doing extremely well.

Our distributors, DPC is having a better year and it should do even more next year. We’re seeing a lot of opportunities in Brazil, I mean the Ecuador twice recently, there is opportunities down there both oil and gas and CHP, same as Brazil.

But the Middle East has got opportunities in oil and gas, Africa has got opportunities in oil and gas, CHP and oil and gas both in Australia. So I think the reality is, there is still oil and gas opportunities.

I think it’s going to be a smaller portion of our business one because it’s softer and because of the oil prices but two, because the CHP business is going to continue to grow for us, especially in some of the more developing markets. So I think 50% oil and gas and 35% CHP or 40% CHP is probably we going to see going forward.

Okay, helpful. Maybe we could just talk about bookings here, I mean, book-to-bill it looks like it bounced back a bit quarter-over-quarter.

Maybe if you could just comment on sort of trends and order flow since the close of the quarter, what’s the environment been like in July, have you seen any sort of acceleration until you do believe that book-to-bill is going to continue to improve sequentially?

Our target is 1 to 1, I think we’ll get closer to that in Q2, I’m not sure we’ll get all the way back to 1 to 1. I think in the kind of second half of the year, Q3 and Q4, we’ll get back to 1 to 1 or even more.

We still have a lot of very large pending orders that could move those numbers faster we’re still chasing about 50 megawatts in Ecuador, 30 megawatts on one project. We got a robust pipeline in Brazil we said Mexico has got a good pipeline as well as most of our U.S.

distributors. Africa and Middle East, lots of new opportunities that obviously plus business for us.

Australia should have a very nice second quarter, they’ve got a 4 megawatt project, they’re very close to closing as well as Origin is looking to hopefully buy some more C30s so that Australia can see a nice pick-up especially in the second half of the year. So, I think we’ve conservatively, we’ll say we probably have an 8 to 9 to 1 in Q2, but I think in Q3 and Q4 we’re going to come out to the side of this.

And again in BPC we’ll get back on track in the second half of the year. I think if they can do even half of what they projected in Q2, I’ll be happy with that.

But I think they’ll get back on track in Q3 and Q4.

Okay, great. One last one from me and then I’ll jump back in queue.

I thought it was interesting you guys mentioned potentially being able to double your close rate in slide 6. I mean, could you just give us a little additional color on what you think standard industry close rates are like, how does your 11% currently compare, I mean, is that below average and you think you’re going to bring it up because it’s below right now or are you talking about improving close rates to better than peer average, just a little color on the thinking there?

Yes, no, if you look at our pending pipeline resalesforce.com all of our distributors have seats and they pour to win. All of our price books are in sales force.

So we’re getting end-user for the rest of the year as we started the year pretty good analytics on what works and what doesn’t work and what good distributors can do and what more mature distributors can do. Our better more effective, more mature distributors like Keith Entity is a good example, their close rates are north of 20% and growing.

And so I think as distributors get better, they’re better at targeting projects, they’re better at solving problems they’re better at getting around customers, expectations or customer’s roadblocks. And so I think we easily can see 20% close rate, I think world-class is probably 20%, maybe 25% for these types of industrial projects.

Obviously, each market is a little bit differently based on economics. But I think 11% is what our average is today.

And the cycle is fairly long. So, anything we can do to improve the distribution, training, maturation, sales tool, the website, everything we can do to make that more effective to get that close rate up and the cycle times down so that we can close more projects faster.

And again we identified plenty of projects 1.5 billion is a pretty robust opportunity for us. It’s really about how do we close more and how do we close faster.

Got it, very helpful, and I’ll jump back in queue. Thanks guys.

Great. Thank you.

Hi, thanks for taking my question.

No problem.

Yes, firstly is question regarding your new distributor performance indicator program, so, I’m just wondering what are you going to do with that program, what kind of new attendees are kind of putting in place to on your force, the lean information generates from that program?

Yes. So, what we do is all of our distributors have planned sales for the year.

When we build our budget or our capital plan for the year, all of this comes from information we get from our distributors. And so we look at their project portfolio of pending projects, of current projects and backlog.

We look at how many new orders they put in place, how many new orders become leads and quotes and negotiations and their close rates, how they perform the trade shows both locally and large scale trade shows. So it’s really a comprehensive kind of report card, almost like going to your doctor every quarter to check how your cholesterol is and your blood pressure, we did the same thing with our distributors.

And if there is an area we see that they’re underperforming or could be performing better, we then do diagnostics to figure out what’s wrong there, whether that’s sales issue or its marketing issue or some effectiveness or maybe just be general market conditions have changed. And so, really it’s a tool to help us help them because we want to manage them to be as good as they can be.

Obviously we can run analytics and say based on the number of units you have in the field, you should have this many technicians, based on how many utility rate users you have in your territory and population, here is how many sales people you should have. So it really helps them manage their business better and make sure that they’re doing all the right things in their sites appropriately.

If you look what we had our International Sales Conference and the distributor mood was very good despite share price and a few other questions they had. Overall they’re very excited about the product.

When we talked about the challenge of adding sales people, they came back as a group and said that they would add 100 sales people in 170 days. You don’t do that if you don’t feel good about the technology and the markets and the growth of the industry.

Okay. Switch through the CHP market, are you currently still only work with your distributors or all three of credits ASCO companies?

We do work with ASCO companies but in partnership with the distributors. And so, we’ve hired some national sales people in oil and gas, we have another one the CHP side.

But even when we are calling on a customer at a high level at C3 level, we still bring the local distributor even if projects cross multiple distributor lines we try to have all the distributors participate. If a customer wants to buy direct they can but it’s going to be at list price and will rebate the distributor of their discounts.

So there is no pricing advantage for a customer to buy direct, and frankly the customer needs a local distributor for FEP service and start up and commissioning and support for balance plant. So, we really, we want to sell at the local level as well as the corporate level.

We want to make sure that the distributor’s part of that process. So it’s very much I think, there is a lot of things people don’t understand about our business but the value of our distribution channel over the next several years will become more and more evident to the industry.

If you look at Caterpillar they probably have the best distribution channel in the world and it’s probably their biggest competitive advantage. And anybody can reverse engineer your product, they can steal your customers, they can steal your employees.

It’s hard to steal somebody’s distribution channels especially when it’s large and its global and it’s dedicated.

Okay, got that. Thank you.

Thank you.

Thank you. I appreciate all the questions from the analysts, good questions as usual.

I know it’s a busy earnings season and you’re all jumping in the call to call. So I appreciate you taking the time and asking great questions.

As I look at the quarter again, it can always be better but I am happy that this is the second best revenue in Q1 we’ve had in company. If you look back last year I think we’re roughly $23 million, FY14 was about $24 million.

We were very close to the record of $28.8 million in fiscal ‘13. Again this was about our biggest partner BPC contributing.

So I think if you look at what we’ve done despite the macroeconomic headwinds we have in oil and gas, in the strong dollar, and obviously Russia specifically we’ve actually put up some pretty nice numbers. I know everybody is frustrated about the current share price.

I am too, I get it. Rest assured, no one is more frustrated than me and Capstone employees and many of our distributors and our Capstone shareholders.

However the share price in my opinion is, it has never really been disconnected from the forms of the company. I look at the company today and believe the strongest we’ve ever been.

I think our employees feel that way and leadership team and the board. And we’re off to a great start to the fiscal year.

Plus the oil prices are giving us an opportunity in some way to get in and actually talk to oil and gas uses, the overall drill-drill-drill last several years and getting their attention for new technologies was difficult. Now we’re having a lot of conversations and lunch-n-learns.

These are only gas companies are more focused on operating costs than they are drilling. If you look at Flare Gas, it’s a huge global opportunity for us.

I mentioned the one project we just did up in Canada, but most of the opportunities are in Ecuador and South America, Flare Gas as well as the Middle East. Using Flare Gas is an onsite fuel to generate electricity for the turbines, not only makes economic sense from an operational standpoint but make environmental sense.

So it is truly one of the best win-win situations you’re going to find. In oil and gas, oil prices do recover and they will, it’s cyclical, it always does.

You talk to folks in Houston and they just see this is another cycle they have to go through. At Capstone we’re better positioned for success and growth than ever before.

We’re close to the network of solving our pump jack or high cycle load issues we’ve got a couple of different paths on that we’re working both with them. Hopefully we’ll have some new products available soon, to really broaden our market opportunities in the oil and gas when that market does return.

If you look at it, a lot of people don’t see that the energy efficiency evolution or revolution is going on. But as I mentioned, New York is a great microcosm.

Five years ago we had four or five sites, today its 70, 14 megawatts. And this is all picking up speed, picking up momentum as I mentioned so many different opportunities whether it’s a hospital, hotel, mixed used property.

That’s just New York, that’s just one city. We’re seeing the same thing.

I was recently in Puerto Rico we’ve got almost 30%, price per power down there. Even with all the pharmaceuticals most of the projects I’ve visited in a week were lessened to your payback.

So CHP is something they’ve never done but they’re very excited about doing it. And that story is getting more and more similar around the world.

So, I look at it, CHP is going to continue to grow and it’s probably going to grow faster and it’s going to spread to more and more countries. If you think about it, buying power from your local grid, probably 10 or 20 years from now, this about stranger is having a landmine in your house or going to Blockbuster and renting a movie.

Buying power the way your parents and grandparents did just because you have to is not the case anymore. With regards, our recent channels growing, it’s maturing.

We’re up to 90 distributors. It takes time to build a distribution channel.

Caterpillar has been building theirs for almost 100 years. We’ve come a long way in eight years and we’ve got a dedicated motivated entrepreneurial group of folks that are putting a lot of effort and their own money into growing our business.

Again, if you think about the fact, we have 225 employees here at Capstone and almost 750 in the channel. It’s amazing the leverage we have with the team.

We’re in 73 countries today, and that list is continuing to grow as we mentioned. As I said, the 100 sales people that we’re adding in say 170 days is going to yield a lot of benefits in the next couple of years.

Our flagship C200, C1000 series product continues to sell well. You see for the quarter, C65 sales and C30 sales were down but the C1000 sales were doing very good, very solid.

That product just got 40% more reliable. What did that can do for our customers, to make our customers more money it can make them more excited.

Our customers like our product today but they’re going to love it very soon. And when they love the product that’s when we’re really going to get some more growth.

We continue to add new features, new benefits to C200 and C1000. I know folks are hungry for the C250 and C370 but we need to make the C200 and C1000 the best they can be before we move on to the next architectures.

And we’re not done, not by long-short. And we’re leaning out our manufacturing process, we’re leaning out our management team, we’re flattening the organization, we’re empowering employees like never before and morale is at all-time high.

We’re very excited about that, we’re doing a lot of great things just even from an employee development perspective and HR perspective that things are pretty cutting edge. We have a tremendous new website, if you’ve not visited please do.

I think it’s excellent. Customers can learn more about the product, they can watch case studies.

A video case study of a customer similar to you is the best sales marketing tool we can ever have. If you’re a hospital and you can see another hospital using our product and the same kind of application that you have making money with a viable power, green power, that’s a great tool, a very powerful tool.

We’re putting two of them in place to better measure and manage our distributors to help them run their business more effectively, to be more efficient. As we said in the Q&A period, every 1% improvement in close rates is $15 million in annual revenue.

So that’s what we need to focus is how do we get more efficient, how do we close more, how do we build a better distribution channel, how do we get more customers comfortable with our brands and our technology. Our service business continues to grow.

As Jayme said we’re up to the record level of FEP contracts, service business is up year-over-year. We’ve got more units running in the field than ever.

The population is aging which is going to mean more spare parts. But we’re putting more tools in place to maintain those products more efficiently, more effectively, quicker, that’s going to help customer satisfaction and lower our costs for FEPs.

But the most important and exciting thing, despite everything else we’re working on is launching of our new Capstone finance business. We really need to take care of customers that are good customers, that have great projects, IRs north of 25% but don’t have the capital dollars to do it or priorities limit them from doing that.

So, I’m excited about talking about that at our next opportunity which probably would be at the - our Annual Shareholder Meeting. Again, I feel terrible about our recent share price performance, I apologize for that.

But everyone related to oil and gas, anybody who is doing business in Russia, anybody that’s drawing exporter like we are, they’re suffering heavy selling pressure. My opinion is to sell off is way over done but that’s typically how our markets work.

Most companies that are in space or trading, I don’t know, they’re all-time lows like us. However, I firmly believe at Capstone we’re doing all the right things, we’re making the business better, we’re diversifying our business both from a vertical and geography, we’ve got great products, we have great partners, we have great customers.

So I look forward to adding to my position the next time I can whenever the lawyers let me, when the windows are open. But I think we’ve got a great product and I’m very excited, we had a great start of the fiscal year.

And so I look forward to talking to everybody in August. Thank you.