Capstone Turbine Corporation (NASDAQ:CPST), responding to the global coronavirus pandemic, has enacted a new Business Continuity Plan to keep employees safe and to support the company’s financial goals in the June quarter.
In a statement Tuesday, the maker of clean-energy microturbines said its leadership team has volunteered to take a 25% temporary salary cut as well as taking any fiscal 2020 executive bonus in equity in lieu of cash, if earned.
In addition, about 25 other top company managers with the California-based company have volunteered to take a 15% reduction in salary.
“With over 1,000 confirmed cases in California and a ‘Shelter-in-Place’ order for all of California, we enacted an emergency Business Continuity Plan designed to keep employees safe, continue to support our critical Aftermarket Factory Protection Plan (FPP) long-term service contracts and spare parts deliveries to our Essential Critical Infrastructure Customers, as well as to sustain our key long-term business initiatives,” CEO Darren Jamison said.
“In these unprecedented and uncertain times, the health and safety of our Capstone and distributor employees, their families, and our communities are of the highest importance as well as doing everything possible to still deliver on our stated goal of positive EBITDA by reducing operating expenses and leveraging our high margin reoccurring revenue streams.’
As part of the Business Continuity Plan, Capstone is taking the following steps:
- Beginning March 30th, Capstone is furloughing approximately 70% of its direct workforce, leaving behind only staff deemed essential for day-to-day administrative operations for a minimum period of 45 days. This will ensure those who remain can more easily practice safe and proper social distancing
- During this period (March 30-May 18), Capstone will have a limited production capability of new microturbine products, but has recently pre-built approximately 5 megawatt of microturbine finished goods for shipment
- Capstone will maintain a crew of essential operations employees to manufacture service engines, remanufacture spare parts and provide service spares in support of FPPs and global distributor spare parts orders and is pre-building and shipping immediately to sustain critical customer sites
The continuity plan provides the following benefits to employees, distribution partners, and company shareholders:
- Provides the generally recommended safety environment for our employees while still maintaining liquidity and business continuity
- Supports Essential Critical Infrastructure Customers globally with reliable energy to maintain operations at hospitals, clean water. facilities, and other critical services
- Maintains all employees’ health insurance during the period of business interruption
- Continues to support the critical aftermarket business and 60-plus worldwide distributors
- Complies with the LA County “Shelter-at-Home” restrictions
- Provides flexibility to bring back employees sooner if conditions improve
- Provides operating expense reduction with the lowest risk of employee turnover
- Best supports management’s goal of Q1 FY21 Positive Adjusted EBITDA
“I was overwhelmed by how quickly the executive leadership of the company volunteered to reduce their salaries to support our ability to provide medical benefits for all furloughed employees as well as to reduce operating expenses to offset the impact of lower revenues as a result of COVID-19,” Jamison added.
COVID-19 impact on EBITDA
Capstone said it expects the ongoing, global economic impact from the coronavirus pandemic to have an adverse impact on its revenue and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the fourth quarter of fiscal 2020 and said it also may have an adverse impact on its financial condition and results of operations for the first quarter of fiscal 2021.
The company said the pandemic will negatively impact its net income and adjusted EBITDA in fiscal 2020, which includes losses related to new product order delays for ongoing projects, backlog pushouts in the oil and gas markets, witness test cancellations due to travel restrictions, supply chain shortages caused by vendor manufacturing plant shutdowns, increased logistics costs caused by flight cancellations, border shutdowns and lack of personnel to move freight, and anticipated order cancellations, among other challenges.
Capstone said it may also be unable to comply with the financial and other material covenants under its debt and other material agreements, and may not be able to negotiate waivers or amendments to such material agreements in order to maintain ongoing compliance.
In addition, if Capstone experiences any additional unexpected delays in the resumption of its full production capacity or incurs additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such production delays and unanticipated costs and expenses will have a further adverse impact on Capstone’s business, financial condition and results of operations in fiscal 2020 and 2021.
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