Interview conducted by:
Senior Editor, CEOCFO Magazine,
Published – April 6, 2012
CEOCFO: Mr. Greco, what attracted you to XZERES, and what are the strengths you bring to the table as CEO?
Mr. Greco: I have over twenty-five years of manufacturing and product development experience. I entered the distributed wind business back in 2004 and was CEO of Southwest Wind Power. I saw that the distributed wind market was a very large opportunity that would grow in the coming years. Southwest only had sizes up to 3 kilowatt and I saw the market changing where purchasers of the wind systems were looking for larger devices that would offset a larger percentage of their consumption. Therefore, I became interested in XZERES, because they had a very strong foundation with their 10 kilowatt machine, were very entrepreneurial in spirit and was looking to continue to develop that product along with others. I joined XZERES in July of 2010 and was very excited about the opportunity to advance their products as well as increase their ability to globally market the product.
CEOCFO: What has changed for XZERES since you have become CEO?
Mr. Greco: The Company's initial focus was on selling turbines in the domestic marketplace. However, the board and our management team decided to move aggressively toward building a global company and sell our systems worldwide. We launched an aggressive product development campaign, which added aesthetic improvements, performance, and state-of-the-art electronic controls that enhanced an already very strong and reliable machine. With that, XZERES has achieved global certifications and is now marketing its products not only in the US, but also within the UK, EU and Asia. We now have a global footprint and are experiencing the benefits of accelerated growth by selling to a much bigger total market.
CEOCFO: What is different about your equipment?
"XZERES has achieved global certifications and is now marketing its products not only in the US, but also within the UK, EU and Asia. We now have a global footprint and are experiencing the benefits of accelerated growth by selling to a much bigger total market. The distributed wind market is growing rapidly, more so than the utility scale wind at a rate of about 35% compounded annually. That is expected to continue through 2015"
- Frank Greco
Mr. Greco: The original design of the equipment was based on forensics. The designer had worked for insurance companies that did analysis on failed turbines. He took that knowledge and, quite frankly, built a system based on what worked and what did not. That created a very strong foundation. What we did to set it apart or make it best in class was an oversized rotor with a very strong alternator. That meant that it had the ability to convert wind into useable energy, kilowatt hours, at a very efficient rate for small wind turbine, which operates at a 35% efficiency compared to the average of around 29%. The largest differentiating factor is also the controller, which is really the secret sauce in small wind turbine developments. Our controller provides for optimizing performance throughout the range of wind that the turbine would see as well as online health monitoring and remote monitoring. There is also the ability to remotely provide software upgrades that we develop.
CEOCFO: What is the competitive landscape for XZERES?
Mr. Greco: There are probably around fifteen competitors in the market in our size range. By comparison if you look at total cost, we are not the cheapest turbine on the block, but it is about what it produces. It has a twenty-year life span, so if you look at the installed cost of the system over twenty years that include maintenance and the cost of money, we have by far the lowest cost of energy of all our competitors.
CEOCFO: How you reach potential customers?
Mr. Greco: We sell through two channels. We have a good number of dealers and distributors worldwide and in key markets such as a few states here in the United States, such as New York and California. We also focus on direct sales force where we offer the complete package from site assessment to installing the system and commissioning. We do that here in the United States and we also do that in the UK, which by far is the largest market, given the wind resource and a great feed in tariff. We use our existing dealer network for the installations as well, so it is a win/win for our channel as well.
CEOCFO: How do you break down between the US and international, and where do you see the most growth?
Mr. Greco: Frankly, I see the most growth internationally. In Europe, we are most active in the UK currently, which has an excellent feed in tariff. That means an individual or business can purchase renewable energy device and not only offset their consumption, but actually collect a rate equivalent to about $0.40 a kilowatt hour for twenty years. The feed in tariff rate also has a 4% escalation rate built in, so it offers a very good economic value to the customer. Second in line for Europe would be Italy, which has a feed in tariff very similar to the UK. Asia is another key region for us, where it is simply a demand for power need, because of the growth. We have also launched an island electrification program in Viet Nam. We also believe that Japan will be a large market given their recent crisis and their release of an attractive feed in tariff starting in April of this year.
CEOCFO: Do you find the US market weak because of the negative talk in the last few months on alternative energy?
Mr. Greco: There are parts of the US market that are very strong; New York is a very strong market. It has a very good state-sponsored rebate program, which is based on performance; California as well. Then, there is the federal grant, a 30% rebate program for businesses, which has affected the US market to a great extent and is coming to a close. The utility rates in other parts of the world, like in the UK and Europe, are much higher than here in the states, so it offers better economics. As I said, in Asia it is driven by growth demand and there are over a billion people in Asia that currently do not have access to power.
CEOCFO: Would you tell us about the recent capital raise and the financial picture today for XZERES?
Mr. Greco: XZERES has spent the last year and a half from a relatively unknown entity, establishing itself in the marketplace and positioning itself globally. Around September, we had already opened up a subsidiary in the UK, because we saw that market was going to grow tremendously. One of our largest competitors in September went into receivership and we became the heir apparent for that system. They had over 500 installed in the country. We signed an exclusive agreement with the largest dealer installer in the UK and in exchange, we did an exclusive agreement for certain parts of the country in the north, in exchange for their exclusivity of our size turbine in that range. We also launched a combined dealer and direct sale campaign in the south with our team we moved into the south. That opened up a tremendous rate of growth, which put a large demand on capital, and we went out on capital raise to be able to support that growth and get to profitability here in 2012.
CEOCFO: What do you see in the next year or year and a half?
Mr. Greco: I see our global market growing. I would see us as far as a mix of 25% domestic and 75% international. Therefore, over the next two years, I can tell you we see a significant growth rate from starting up to a very strong 25% to 35% CAGR year over year. This volume and the pricing structure will take us very quickly to profitability as well as self-sustaining on cash given the way we do business on a go-forward basis. Additionally, we made an acquisition back in April of last year of a power factor correction device line. We have already integrated that into our manufacturing, made enhancements to the system, and differentiated us from competitors in offering a wider range of products. Those are also being marketed globally. We will continue to look at acquisition opportunities and product development that fit between the point of consumption and the point of generation, which include not only renewable energy devices, but energy efficiency as well.
CEOCFO: Do you have the personnel and facilities for the expected growth?
Mr. Greco: Yes we do. We have aligned ourselves with large suppliers who would love to see more volume out of us. Therefore, our suppliers have significant capacity to support us. Additionally, we are establishing second source suppliers on some of the key components, so that we are able to meet this high growth demand. Currently, our facility is more than large enough and has more than enough capacity to meet this growth.
CEOCFO: How do you reach potential investors?
Mr. Greco: We do that both through investment banking firms and then also through current relationships with current investors and broker dealers.
CEOCFO: Why should investors choose XZERES?
Mr. Greco: The distributed wind market is growing rapidly, more so than the utility scale wind at a rate of about 35% compounded annually. That is expected to continue through 2015. Additionally, beyond that point, it is still expected to be a significant growth rate at 25%. The fact that our systems are globally certified and that we have anchored ourselves on focusing on high return markets, also allows us to price our products more advantageously, growing our margin. Additionally, we see the power efficiency devices as an untapped market that was normally focused more on heavy industry and that left the light industrial and commercial markets relatively un-serviced. Therefore, in those markets, anybody that has an electric bill is a potential customer. Given our position, our certifications, our focus on customer service and our high quality and reliability, it would be a sure bet that we will see that significant growth year over year.
The distributed wind market is very promising, especially over the next three to seven years. In the early stages it was not really recognized because of the large overshadow from the utility scale systems. However, with advancements in technology, it has become a very good solution, because it does not require transmission costs. It is point of use and it can easily be logistically transported to locations. In addition, it has a small footprint; it is very versatile and very efficient in relatively light winds and very shorter towers. That market is now starting to come into its own and XZERES has positioned itself as a leader in that market, and we are very confident we will gain the sales that we are projecting.
Frank Greco BIO- President and CEO
Frank Greco has been Chief Executive Officer of XZERES since August 19, 2010. He comes to XZERES Wind Corporation with 34+ years in leadership roles for small and medium size companies in manufacturing, technology and high growth businesses. He brings hands on experience in Operations, Material Planning, Marketing & Sales, Plant Engineering and Human Resources. He is responsible for the overall aspects of the business and his initial focus will be on product portfolio expansion, domestic / global growth and optimization of products and channels. From April of 2004 to March of 2010, Mr. Greco was Chief Executive officer and Director of Southwest Windpower Inc. He positioned Southwest for its next level by growing revenues 6 times in size with continued high CAGR and brought the organization to industry leadership status. Additionally he led the launch of 2 new product platforms, successfully re-engineered the company into new facilities and markets, established EU Operations and a China Joint Venture, and lead the effort to successful achievement of international and domestic patents and trademarks. From July 1996 to March 2004, Mr. Greco was Vice President of Operations at SSC, Inc. where he was a key contributor to 300% growth within three years of a new company start-up, focusing on results and revenues to grow the company to over $900,000/month in revenue. He achieved over $50 million in annual cost reduction projects through equipment investment, project implementation, and operational improvements with less than two years ROI. He provided corporate leadership and successfully recruited and trained staff for multiple project sites. From February 1974 to June of 1996, Mr. Greco was the President and General Manager of Kropp Forge Company. He held various leadership roles during his tenure prior to becoming President, which included VP of Sales & Marketing, VP of Materials & Planning, Director of Human Resources and Plant Engineer. He was responsible for increasing annual revenues by over 75% in two years, reducing a multimillion dollar income loss and achieving profitability. He also Reduced material cost of sales from 50% to 39% by implementing cost reduction programs coupled with changes in material procurement methods and negotiated long-term agreements with major customers such as Boeing, Allied Signal, Caterpillar, and General Electric and expanded sales internationally to Canada and Europe.