Operating Expenses Drop to Lowest Level in
14 Years - Aftermarket Service Business Complements and Strengthens
Business Operations
Capstone Turbine Corporation (www.capstoneturbine.com)
(Nasdaq:CPST), the world’s leading clean technology manufacturer of
microturbine energy systems, reported financial results for its
third quarter of fiscal 2017 ended December 31, 2016.
The company reported total revenue of $20.2
million for the third quarter of fiscal 2017 an increase of 35%
from $15.0 million for the second quarter of fiscal 2017.
Additionally, the company reported that the factory protection plan
(“FPP”) service contract backlog continued to grow during the
quarter and achieved record levels of $77.2 million and that
service revenue for the quarter was $3.7 million with a service
gross margin of 35%.
Operating expenses for the third quarter of
fiscal 2017 were $6.1 million, which are down $3.8 million, or 38%,
from the year-ago quarter and down an additional $0.3 million, or
5%, compared to prior quarter.
Darren Jamison, President and Chief Executive
Officer of Capstone, said, “We have full confidence in our business
profitability plan and believe that our results show the solid
progress we have made to develop new revenue and growth
opportunities, and we continue to grow our aftermarket service
business, while at the same time streamlining our organization and
reducing our cost structure to levels not seen in fourteen
years.”
The company continues to focus on expanding into
new geographical markets to achieve a target market vertical mix of
40% energy efficiency, 40% natural resources and 20% renewable
energy and other. Progress was made during the third quarter of
fiscal 2017, as the company shipped its first products into Qatar
and Libya. The company also improved the vertical market mix, with
product shipments from efficiency markets comprising 53% of revenue
compared with 71% in last year’s third quarter, natural resources
comprising 38% of revenue compared with 22% of revenue in last
year’s third quarter and renewable energy and other comprising 9%
of revenue compared with 7% of revenue in last year’s third
quarter.
As previously announced, cash used in the third
quarter of fiscal 2017, excluding net proceeds from equity
issuances, decreased 56% over the prior quarter. Cash and cash
equivalents increased $3.3 million to $19.4 million as of December
31, 2016, compared to cash and cash equivalents of $16.1 million at
the end of the prior quarter. Each of these balances includes $5
million of restricted cash related to the Wells Fargo credit
facility, and the December cash balance includes net proceeds from
equity issuances that occurred during the third quarter.
“We remain focused on minimizing our cash burn
by controlling our operating expenses and tightly managing our
working capital. We have lowered our operating expenses 38% from
last year’s third quarter levels and we remain committed to
streamlining our cost structure and increasing our margins with
better materials pricing, work flow efficiencies and matching our
organizational size to expected future activity levels,” added Mr.
Jamison.
During the third quarter of fiscal 2017, the
company decided to retrofit proactively select fielded
non-Signature Series C200 microturbines in order to improve
performance, reliability and customer satisfaction. This proactive
retrofit program has the potential to decrease significantly future
warranty and FPP expense. As a result of this decision, the company
recorded a one-time non-cash warranty charge of approximately $5.2
million, which was offset by the proactive retrofits performed in
the third quarter, leaving a warranty reserve liability at the end
of the quarter of approximately $3.0 million remaining for future
proactive retrofits. However, as a result of this one-time warranty
charge, the timing of inventory adjustments and the closeout of
certain purchase agreements, the gross margin for the third quarter
of fiscal 2017 was negative 20% compared to 5% in the prior
quarter.
The company also recorded a non-cash benefit of
$1.8 million for the change in the fair value of the warrant
liability during the third quarter of fiscal 2017. This decrease in
net loss was the result of the adoption of Accounting Standards
Codification 815 “Derivatives and Hedging” which affects the
company’s accounting for warrants with certain anti-dilution
provisions. Net loss for the third quarter was $8.9 million,
compared with a net loss of $6.0 million in last year’s third
quarter. Capstone’s net loss for the third quarter before
considering the non-cash warrant liability benefit would have been
$10.7 million (calculated by subtracting the $1.8 million warrant
liability benefit from the $8.9 million reported net loss), or
$0.31 basic loss per share ($0.33 diluted loss per share),
(calculated by subtracting a $0.05 basic and diluted gain per share
attributable to the warrant liability benefit from the reported
$0.26 basic loss per share ($0.28 diluted loss per share)),
compared to the $6.0 million, or $0.34 basic and diluted loss per
share (split adjusted) for the third quarter of fiscal 2016, which
did not include a warrant liability benefit.
Business Developments and Milestones
Recently Achieved:
- Capstone Energy Finance (“CEF”) partnered with Sky Solar for
additional project capital and with Acresis and Bridge Bank for
distributor product financing. Orders through CEF are developing,
and the company anticipates that CEF will execute the initial power
purchase agreements in the coming quarters.
- In December 2016, the company announced that it changed audit
firms and insourced the investor relations function, which is
anticipated to result in savings of approximately $600,000 for
fiscal 2018 compared to fiscal 2016.
- The company continued to move forward with its product
development roadmap with a new Tier-4 liquid fuel injector design
and a new partnership with the Department of Energy on High
Hydrogen fuels. The company also completed successful testing on
its Butane fuel program and implemented cost reductions with
respect to the Signature Series products.
- Domestic product orders increased after the Presidential
election with the largest orders coming from RSP Systems (“RSP”)
and Horizon Power Systems (“Horizon”). During the third quarter,
the company shipped a Signature Series C1000 to RSP to be installed
in a leading food retailer facility within the New York
area.
- Horizon secured a follow-on order for a Signature Series C800,
two Signature Series C600s and multiple C65 and C30 microturbines
totaling in excess of 2.6 megawatts to be installed in the Mancos
and Gallup shale plays, located in the San Juan Basin. This was the
largest single oil and gas order the company had received in
approximately 11 months.
- The company continued to focus on reducing manufacturing costs,
which lowered certain previously negotiated raw material costs for
the new Signature Series products, reduced supplier material lead
times and increased inventory turns for the third quarter compared
to the second quarter and the same period last year.
- The company anticipates that the recovery in oil prices should
restart stalled projects in the pipeline, as capital budgets slowly
show signs of activity.
- The company continues to see improvement in the Russian market,
as BPC Engineering represented 16% of the third quarter revenue as
a result of shipping four Signature Series C1000 microturbines.
Three of these systems were installed in a greenhouse for a major
Belarusian plant growth facility in the Minsk region. To date, the
company collected $1.5 million from BPC and the remaining balance
of its receivable as of December 31, 2016, was $6.5 million.
- The company sales opportunity pipeline by region increased $172
million, or 22%, to $1.1 billion during the third quarter compared
to the prior quarter.
Mr. Jamison concluded, “As a team, we remain
firmly focused on shortening our path to profitability by lowering
our expenses, growing our product and service revenues,
diversifying our business, launching new products, creating new
partnerships and managing our balance sheet.”
Financial Highlights for the Third
Quarter of Fiscal 2017:
- Total revenue increased 35% to $20.2 million for the third
quarter of fiscal 2017 from $15.0 million for the second quarter of
fiscal 2017.
- Service revenue for the quarter was $3.7 million with a service
gross margin of 35% and FPP service contract backlog up 19% to
$77.2 million compared to same quarter last year.
- Operating expenses decreased 38% for the quarter to $6.1
million compared with $9.9 million in the year-ago third
quarter.
- Cash used in the third quarter, excluding net proceeds from
equity issuances, deceased to $3.5 million, or 56% lower than the
previous quarter. Cash and cash equivalents, including $5 million
of restricted cash related to the Wells Fargo credit facility,
increased $3.3 million to $19.4 million as of December 31,
2016.
- Inventories as of December 31, 2016 were $16.7 million compared
with $22.7 million at the end of the year-ago third quarter, a
decrease of $6.0 million.
- Accounts payable and accrued expenses were $12.1 million
compared with $21.4 million at the end of the third quarter of
fiscal 2016.
- The company booked product net orders of approximately $11.5
million during the third quarter, for a 0.9:1 book-to-bill ratio,
compared with $8.9 million of product net orders received and
booked during the second quarter, which was a 1.1:1 book-to-bill
ratio.
Conference Call and WebcastThe
company will host a live webcast today, February 9, 2017 at 1:45 PM
Pacific Time (4:45 PM Eastern Time) to provide the results of the
third quarter of fiscal 2017 ended December 31, 2016. The company
will discuss its financial results and will provide an update on
its business activities. At the end of the conference call,
Capstone will host a question-and-answer session to provide an
opportunity for financial analysts to ask questions. Investors and
interested individuals are invited to listen to the webcast by
logging on to the company's investor relations webpage at
http://www.capstoneturbine.com. A replay of the webcast will be
available on the website for 30 days.
About Capstone Turbine
CorporationCapstone Turbine Corporation
(www.capstoneturbine.com) (Nasdaq:CPST) is the
world's leading producer of low-emission microturbine systems and
was the first to market commercially viable microturbine energy
products. Capstone has shipped approximately 9,000 Capstone
Microturbine systems to customers worldwide. These award-winning
systems have logged millions of documented runtime operating
hours. Capstone is a member of the U.S. Environmental
Protection Agency's Combined Heat and Power Partnership, which
is committed to improving the efficiency of the nation's energy
infrastructure and reducing emissions of pollutants and greenhouse
gases. A UL-Certified ISO 9001:2008 and ISO 14001:2004 certified
company, Capstone is headquartered in the Los Angeles area with
sales and/or service centers in the United States, Latin America,
Europe, Middle East and Asia.
This press release contains "forward-looking
statements," as that term is used in the federal securities laws,
about reducing costs generally, diversifying our business,
increasing margins, achieving profitability, the impact of the
retrofitting of non-Signature Series C200 microturbines on warranty
and FPP expense, the execution by CEF of power purchase agreements,
and the impact of the recovery in oil prices on our project
pipeline. 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 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.
Capstone cautions readers not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
release. Capstone undertakes no obligation, and specifically
disclaims any obligation, to release any revisions to any
forward-looking statements to reflect events or circumstances after
the date of this release or to reflect the occurrence of
unanticipated events.
"Capstone" and "Capstone Microturbine" are
registered trademarks of Capstone Turbine Corporation. All
other trademarks mentioned are the property of their respective
owners.
Financial Tables Follow
CAPSTONE TURBINE CORPORATION AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands, except share amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
March 31, 2016 |
Assets |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
14,361 |
|
|
$ |
11,704 |
|
Restricted cash |
|
|
5,009 |
|
|
|
5,002 |
|
Accounts
receivable, net of allowances of $7,050 at December 31, 2016 and
$8,909 at March 31, 2016 |
|
|
13,213 |
|
|
|
13,575 |
|
Inventories |
|
|
14,732 |
|
|
|
16,126 |
|
Prepaid
expenses and other current assets |
|
|
3,339 |
|
|
|
2,636 |
|
Total
current assets |
|
|
50,654 |
|
|
|
49,043 |
|
Property, plant and
equipment, net |
|
|
2,829 |
|
|
|
3,537 |
|
Non-current portion of
inventories |
|
|
1,949 |
|
|
|
2,143 |
|
Intangible assets,
net |
|
|
736 |
|
|
|
941 |
|
Other assets |
|
|
234 |
|
|
|
228 |
|
Total |
|
$ |
56,402 |
|
|
$ |
55,892 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
$ |
12,126 |
|
|
$ |
13,187 |
|
Accrued
salaries and wages |
|
|
1,430 |
|
|
|
1,880 |
|
Accrued
warranty reserve |
|
|
4,311 |
|
|
|
1,639 |
|
Deferred
revenue |
|
|
4,580 |
|
|
|
4,368 |
|
Revolving
credit facility |
|
|
8,665 |
|
|
|
9,459 |
|
Current
portion of notes payable and capital lease obligations |
|
|
476 |
|
|
|
361 |
|
Warrant
liability |
|
|
2,463 |
|
|
|
— |
|
Total
current liabilities |
|
|
34,051 |
|
|
|
30,894 |
|
Long-term portion of
notes payable and capital lease obligations |
|
|
30 |
|
|
|
74 |
|
Other long-term
liabilities |
|
|
168 |
|
|
|
184 |
|
Commitments and
contingencies |
|
|
|
|
|
|
Stockholders’
Equity: |
|
|
|
|
|
|
Preferred
stock, $.001 par value; 10,000,000 shares authorized; none
issued |
|
|
|
|
|
|
Common
stock, $.001 par value; 515,000,000 shares authorized, 35,841,462
shares issued and 35,724,994 shares outstanding at December 31,
2016; 23,857,516 shares issued and 23,753,873 shares outstanding at
March 31, 2016 |
|
|
36 |
|
|
|
24 |
|
Additional paid-in capital |
|
|
870,001 |
|
|
|
853,288 |
|
Accumulated deficit |
|
|
(846,245 |
) |
|
|
(826,955 |
) |
Treasury
stock, at cost; 116,468 shares at December 31, 2016 and 103,643
shares at March 31, 2016 |
|
|
(1,639 |
) |
|
|
(1,617 |
) |
Total
stockholders’ equity |
|
|
22,153 |
|
|
|
24,740 |
|
Total |
|
$ |
56,402 |
|
|
$ |
55,892 |
|
|
|
|
|
|
|
|
|
|
CAPSTONE TURBINE CORPORATION AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(In thousands, except per share data) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Product,
accessories and parts |
|
$ |
16,540 |
|
|
$ |
18,239 |
|
|
$ |
43,841 |
|
|
$ |
57,074 |
|
Service |
|
|
3,645 |
|
|
|
3,220 |
|
|
|
10,408 |
|
|
|
9,270 |
|
Total revenue |
|
|
20,185 |
|
|
|
21,459 |
|
|
|
54,249 |
|
|
|
66,344 |
|
Cost of goods
sold: |
|
|
|
|
|
|
|
|
|
|
|
|
Product,
accessories and parts |
|
|
21,828 |
|
|
|
14,979 |
|
|
|
46,806 |
|
|
|
48,039 |
|
Service |
|
|
2,356 |
|
|
|
2,429 |
|
|
|
7,772 |
|
|
|
7,641 |
|
Total cost of goods
sold |
|
|
24,184 |
|
|
|
17,408 |
|
|
|
54,578 |
|
|
|
55,680 |
|
Gross margin
(loss) |
|
|
(3,999 |
) |
|
|
4,051 |
|
|
|
(329 |
) |
|
|
10,664 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
1,282 |
|
|
|
2,905 |
|
|
|
4,254 |
|
|
|
8,193 |
|
Selling,
general and administrative |
|
|
4,848 |
|
|
|
7,002 |
|
|
|
15,631 |
|
|
|
21,796 |
|
Total
operating expenses |
|
|
6,130 |
|
|
|
9,907 |
|
|
|
19,885 |
|
|
|
29,989 |
|
Loss from
operations |
|
|
(10,129 |
) |
|
|
(5,856 |
) |
|
|
(20,214 |
) |
|
|
(19,325 |
) |
Other expense |
|
|
(436 |
) |
|
|
— |
|
|
|
(480 |
) |
|
|
(38 |
) |
Interest income |
|
|
8 |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
Interest expense |
|
|
(129 |
) |
|
|
(159 |
) |
|
|
(392 |
) |
|
|
(506 |
) |
Change in fair value of
warrant liability |
|
|
1,777 |
|
|
|
— |
|
|
|
1,777 |
|
|
|
— |
|
Loss before income
taxes |
|
|
(8,909 |
) |
|
|
(6,015 |
) |
|
|
(19,288 |
) |
|
|
(19,869 |
) |
Provision for income
taxes |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
3 |
|
Net loss |
|
$ |
(8,909 |
) |
|
$ |
(6,015 |
) |
|
$ |
(19,291 |
) |
|
$ |
(19,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common
share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.26 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.63 |
) |
|
$ |
(1.17 |
) |
Diluted |
|
$ |
(0.28 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.63 |
) |
|
$ |
(1.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
used to calculate net loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
34,761 |
|
|
|
17,824 |
|
|
|
30,823 |
|
|
|
16,975 |
|
Diluted |
|
|
37,947 |
|
|
|
17,824 |
|
|
|
30,823 |
|
|
|
16,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTACT:
Capstone Turbine Corporation
Investor and investment media inquiries:
818-407-3628
ir@capstoneturbine.com
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