by Debra Fiakas CFA

Last week microturbine manufacturer Capstone Turbine (CPST:  Nasdaq) reported financial results for the final quarter of its fiscal year ending March 2016.  Sales were $18.9 million in the quarter, bringing total sales for the year to $85.2 million.  FY2016 sales shrank 26.2% from the prior fiscal year for the second year in a row.  Some shareholders may be taking solace in the FY2016 net loss of $25.2 million or $1.39 per share in that it is an improvement over the even deeper loss in the year before.  That does not necessarily mean that operating performance has improved for Capstone.  The year-over-year comparison is muddied by a special charge in FY2015 for bad debt expense totaling $10.1 million.  Then in the more recently reported FY2016, $1.5 million in bad debt recovery worked in the company’s favor.

No one should be surprised at recent deep losses.  Capstone Turbine has been reporting operating and net losses since  –  well, since the beginning.  The continued deep losses beg the question:  will Capstone Turbine every turn a profit?

The company staged an initial public offering sixteen years ago this month in June 2000, disclosing losses as far back as 1998.  In that long-ago year, Capstone achieved the first commercial sale of its versatile Model C30 turbine.  This was followed close on in 2000 by the introduction of the Model C60 using natural gas as fuel.  Shareholders must have had high hopes for that second model, and sales initially popped to $36 million in FY2001 only to drop back to $19.5 million in 2002, well below sales achieved even by the first Model C30 turbine product.  In both years, cost of goods far exceeded sales.

This last metric provides a clue to what might be Capstone’s bottom line struggle.  Even as the product line expanded and unit production increased, cost of goods exceeded sales up through 2011.  In FY2012, the Company
finally reported a positive gross margin of $5.4 million on $109.4 million in total sales.  Unfortunately, it was still far too small to cover $37.1 million in operation costs, leaving an astounding operating margin of negative 28.9%.

Fast forward to the most recently reported fiscal year, the gross profit margin has improved to 15%, allowing the company to pull out $12.8 million of sales to cover operating expenses.  Except that gross profits are not sufficient cover operating expenses.  Spending on research, development, selling general and administrative activities totaled $37.3 million.

Of course, this is a look at reported net losses, which presents only part of the picture of operating results.  Cash flow from operations brings the rest of the image into focus.  It is not any prettier.

Capstone Turbine has never reported positive operating cash flow, relying year after year on cash resources to support operations.  In FY2016, the Company used $22.5 million in cash resources for operations.  There was $11.7 million in cash on the balance at the end of March 2016.  At the recent spending rate the cash balance could last another six months.

Thus capital resources are an issue for Capstone Turbine.  Management has avoided debt, and at the end of March 2016, there were $435,000 in notes payable and lease obligations on the balance sheet.  The bias against debt has forced the company to go back to the equity capital markets every year for additional equity capital.  In May 2014, the company staged a negotiated offering of 900,000 shares of common stock at $34.00 per share to a single investor, bringing in $29.8 million in new capital.   Capstone has raised a total of $853.3 million in equity capital since inception, nearly all of which has been burned up by operations with losses totaling $827 million.

In August 2015, a little more than a year after the follow-on offering, the Company entered into an at-the-market equity offering program to sell shares of its common stock.  By the end of March 2016, the Company had sold 6.9 million shares under this $30 million facility and took in another $12.7 million in new equity capital after expenses and fees.  I estimate the balance of the equity facility could provide support for Capstone’s operations for another eight months

Capstone shares are trading near $1.40 per share, which given the long history of weak results seems a bit dear.  Microturbines offer the promise of energy efficiency and for some investors the whiff of environmental benefit may be enough to put up with dismal operating performance.  I do like all things green, including money.  Unfortunately, Capstone does not appear to be able to deliver any of that kind of green to shareholders.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Capstone Turbine: Not a Pretty Picture appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Last week Capstone Turbine (CPST:  Nasdaq) announced changes around the table in its boardroom, bragging of the costs savings it can achieve.  Capstone is a well established manufacturer of microturbines used in power generation.  The company claims over 8,000 of its turbines are in use around the world.   Despite the clear footprint in the wind power market, Capstone needs to achieve efficiency.  Sales of its turbines totaled $122 million in the twelve months ending December 2014.  Unfortunately, the period ended with a net loss of $20.6 million or $0.06 per share.

The solution, decided the top minds at Capstone, is to ‘reorganize’ and along the way cut executive compensation costs.  Edward Reich, who has been with the company since 2005 and the chief financial officer since 2008, will be leaving the company.  The CFO seat will now be occupied by Jayme Brooks, who has been the chief accounting officer and also serves as Vice President of Finance.  Brooks joined the company at the same time as Reich and has actually served in the past as interim CFO.  She will retain the position of chief accounting officer and assume the role of chief financial officer.

The expected savings in salary, benefits, bonuses and travel costs are estimated to be $2 million per year.  One man leaves a company and operating costs are reduced by 5%!  Reich’s compensation totaled $485,873 in fiscal year 2014.  Investors are left to conclude that the rest of the savings must be coming from reduced benefits, travel and other costs associated with keeping Reich on as CFO.  For every $1.00 the company paid Reich in salary and bonuses, it spent another $3.00 on benefits and travel.

The announcement has focused a bright light on Capstone’s compensation practices. Is Capstone spending more on leadership than is justified by its size?  If Reich’s departure tells shareholders nothing else it reveals that Capstone spends quite lavishly on benefits and travel for its leadership that is not otherwise reported in detail to shareholders.

In the year 2014, total compensation for the top four executives at Capstone was $2.3 million, including salary, stock and option awards and non-equity incentives.  The company reported a total of $2.1 million in stock compensation in the year 2014, for all recipients, but I estimate non-cash option and stock awards were near $978,000 for the four top positions.  If the information we get from the Reich departure is a valid measuring stick, then shareholders can conclude that the company spent another $6 million on benefits and travel for this bunch.

There is more than extravagant spending that captured my attention in this story.  Jayme Brooks, the new CFO is obviously capable of handling the position.  However, she is going to continue in her capacity as chief accounting officer as well, which means she will be doing two jobs for the price of one.  For Brooks’ sake I hope Capstone at least gave her a raise of some kind.  As these things go, shareholders should not be surprised if Brooks is expected to do the job of two for far less than what Reich was being paid.   Reich is leaving now, but shareholders should be wondering what it was that Reich was doing at Capstone to justify spending $2 million for his compensation and various accoutrements.  Apparently, he is easily replaced by a professional who can do his work and her own together.

Anyone who owns shares in Capstone Turbine has to be pleased with the efforts to reduce costs.  The stock closed at the end of last trading last week at $0.62 per share.  That may appear egregiously undervalued for a company that is expected to deliver over $150 million in sales in the current fiscal year.  However, traders might be applying a discount for the company’s spendthrift management.   

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post The (Spend)thrifty Ways of Capstone Turbine appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA
Capstone Turbine Corporation (CPST:  Nasdaq) made it to the Efficiency Group of our Mothers of Invention Index because of its line of low-emissions micro-turbines.  The company has sold 6,500 of them around the world.  The fruits of this building installed base are evident in Capstone’s top-line, which has increased in each of the last three years and reached $109.7 million in the fiscal year ending March 2012.  The bottom-line has followed in the same direction, but is still in the red.  In the last fiscal year, Capstone recorded an $18.8 million loss.

The $18.8 million loss included a $14.0 million benefit from the change in fair value of warrants Capstone issued in the course of capital raises over the last five years.  Accounting treatment of warrant liabilities is a non-cash item, whether a benefit associated with the write-down of the liability or a charge resulting from a write-up of the liability.  This means the net loss was closer to $32.8 million.  In the previous two years Capstone recorded loss associated with outstanding warrants.

All that marking up and marking down of some illusory warrant liability makes Capstone’s bottom line a bit noisy, not to mention useless.  That is why cash flow from operations is such a valuable measuring stick for companies like Capstone.  In the last fiscal year Capstone used $21.4 million in cash resources to support operations.  The company used a total of $21.9 million in fiscal year 2011 and used $36.6 million in fiscal year 2010.

The take-away from this little stroll through Capstone’s cash flow from operations is this:  the company’s operations are simply not producing the results one might expect for a company with significant installed base.  Investors long in CPST will probably roll their eyes on this statement.

The bull case points to Capstone’s large addressable market and the great promise in the oil and gas industry and manufacturing.  Capstone can point to a variety of applications for its product from powering oil and gas field equipment or providing economical power in remote locations.  Then there is the flexibility of its technology in accepting a variety of fuels from waste gases, to propane, to wet flash gas at gas well heads.

Frankly, I am also impressed with Capstone’s product line.  However, I am disappointed in management’s performance in conserving the company’s ample cash reserves.  Captstone has dipped into the capital market well several times with what has turned out to be dilutive equity offerings.  Total shares outstanding have increased 72% over the last three years.  There are 26.5 million warrants waiting in the wings for exercise that could bloat shares outstanding by another 9%. 

Dilution can be tolerated if at the end of the day there is more value to spread around.  Unfortunately, there is just something about a big bank account that brings the spendthrift out in a management team.  Even if that accusation cannot be made against Capstone’s management them, I would like to see the company undertake a cost-cutting program of some kind and more value falling to shareholders.  Even the Capstone bulls could not disagree with that.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. CPST is included in Crystal Equity Research’s The Mothers of Invention Index.

The post Capstone Turbine Ramps Revenue, Earnings Not So Much appeared first on Alternative Energy Stocks.

Green money managers’ stock picks after the Japanese nuclear crisis.

Even as the nuclear disaster in Japan unfolds, it’s clear that the world’s energy industry will be forever changed. Russian reactors were never considered safe, but a Japanese to have a nuclear meltdown is an entirely different story.

Market Reaction

Since Monday, nuclear stocks and ETFs have been plummeting. As of Wednesday night, The Market Vectors Uranium + Nuclear Energy ETF (NYSE:NLR), the iShares S&P Global Nuclear Energy Index (NASD:NUCL), PowerShares Global Nuclear Energy Portfolio ETF (NYSE:PKN), and the Global X Uranium ETF (NYSE:URA) are down 17%, 14%, 16%, and 29% respectively.

Yet we still need energy, and when the dangers of traditional energy once again rise in our awareness, the safety of renewable energy gains appeal. Over the same three days, the most liquid of the Clean Energy ETFs, the Powershares Wilderhill Clean Energy ETF (NYSE:PBW), the First Trust ISE Global Wind Energy ETF (NYSE:FAN), and the Guggenheim Solar ETF (NYSE:TAN) gained 1%, 2%, and 11%, respectively, even as the S&P 500 fell 3%.

The market thinks that the outlook for clean energy in general and solar in particular, has improved greatly. This makes sense, because as the Japanese rebuild their energy infrastructure, they will stay away from nuclear, and focus on electricity that’s safe, and quick to deploy. Green energy fits the bill.

Stock Picks

If green energy will do well in general, which stocks will do the best? I emailed my contacts among green investment fund managers, and asked them each to pick one stock they thought was particularly well positioned. Here are their picks.

Garvin Jabusch: LDK Solar

Jabusch manages the Sierra Club Green Alpha Portfolio. He thinks that, in the long run, solar will be the big winner, followed by wind. His top pick is LDK Solar (NYSE:LDK), which his fund holds. He also blogs about green investing, and has just finished an article on Japan, Nukes, and Solar.

John Segrich CFA: Capstone Turbine

Segrich manages the top-performing Gabelli SRI Green Growth Fund (SRIGX). Like many contrarian investors, he’s not great at following instructions (I asked for no more than three sentences), but he has interesting things to say:

The big beneficiary in the aftermath of the Japan nuclear crisis will be natural gas related companies. In particular Japan is likely to rebuild generation infrastructure with natural gas and in particular liquid natural gas (LNG). The pushback against nuclear will not necessarily be the boon to renewable that many are suggesting. Renewables are not failsafe in a disaster scenario (look at how many solar panels were shattered in the quake) and they cannot replace baseload power. Gas is the logical and cleanest and safest solution and we would expect Japan, Italy, and Germany to build more gas vs increase emphasis on renewable. … one interesting way would be to look at companies whose business model is gas based and can handle local based generation with rapid deployment:

Capstone Turbine (NASD:CPST) makes gas powered microturbines that can be locally installed and can provide immediate efficient and clean power generation for stand alone facilities (hospitals, schools, hotels, critical infrastructure) – we are already seeing deployment on infrastructure in the US to provide constant, reliable, failsafe power. I would expect to see adoption of these solutions for rapid deployment in disaster areas such as Japan at the moment to provide critical power on a local level as needed. Longer term, integrating these turbines as a backup/distributed power solution also makes sense for future emergency planning.

Sam Healey: MEMC Electronic Materials

Sam Healey manages a Cleantech stock portfolio at Lamassu Capital. He thinks MEMC Electronic Materials (NYSE:WFR) has two chances to benefit from the disaster. First, the nuclear renaissance stalls, it will boost to the Solar industry, and MEMC will benefit. By year end WFR will be vertically integrated from Poly [silicon] production through installation via Sun Edison and will be able to capitalize on any global expansion of solar power. Second, and more important in the near term, Japan accounted for 10-20% of the global Poly manufacturing of Semi[conductor] Wafers. Therefore, MEMC, will be able to gain share in the near term as it absorbs some of the demand for Semi Wafers, and perhaps will also have better pricing. MEMC does have one plant in Japan that is currently off line as a result of the earthquake.  The plant does not produce raw poly but was one of MEMC’s 8 plants that manufacture 300 MM wafers and 1 of 3 MEMC plants that engage in wafer polishing and slicing.  The risk is that they will not be able to replace this production at their non Japan plants.

Tom Konrad CFA: NGK Insulators

My own pick is NGK Insulators (Tokyo:5333, Pink:NGKIF). NGK has fallen along with the Japanese market, but stands to benefit from the rebuilding of the northern Japanese grid. NGK’s manufacturing is located in the central and southern part of the country, so the company should not have been too badly hurt by the earthquake and tsunami. NGK also sells the most mature, high capacity grid-based electricity storage technologies: the Sodium-Sulfur (NaS) battery. Especially on a small island like Japan, electricity storage is very helpful for integrating the variable power from solar and wind, and the Japanese are likely to favor this home-grown technology over foreign rivals.

Solar, distributed Natural gas, Electric grid & storage: they could all be winners. What do you think? The comments are open. I’ve also started a poll.

This article was published on Tom Konrad’s Green Stocks blog on March 18th.

DISCLOSURE: No Positions. I did not ask the money managers interviewed if they own their picks, but we can assume they do.

Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions
of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Four Green Money Managers’ Top Stock Picks appeared first on Alternative Energy Stocks.

Charles Morand

The DOE made public earlier today the amount of money that will awarded to clean power projects in lieu of the usual tax breaks: $3 billion.

This will allow project proponents to receive a direct cash grant now instead of a Production Tax Credit or an Investment Tax Credit later on. The guidance document notes the following:

“Section 1603 of the Act’s tax title, the American Recovery and Reinvestment Tax Act, appropriates funds for payments to persons who place in service specified energy property during 2009 or 2010 or after 2010 if construction began on the property during 2009 or 2010 and the property is placed in service by a certain date known as the credit termination date (described more fully below in the Property and Payment Eligibility section). Treasury will make Section 1603 payments to qualified applicants in an amount generally equal to 10% or 30% of the basis of the property, depending on the type of property.”
 
This is the cherry on a sundae of cash handouts announced over the past few months for the alt energy and cleantech industries. Solar and wind installations – which account for the lion’s share of alt energy investments – have yet to come back to life in any significant way. It is hoped by both government and industry people that this new measure will provide sufficient impetus in the near term to carry the sector through the remainder of the recession.

To be continued… 

The post $3 Billion For Cleantech & Alt Energy appeared first on Alternative Energy Stocks.

Capstone Turbine Corp (CPST) announced today that it has received an order for a nationally recognized health care facility totaling approximately $1.2 million of Capstone C65 Micro Turbine® energy systems. The multi-pac cogeneration energy system will be installed in one of their facilities in Southern California. The 65-kilowatt systems are the latest generation of MicroTurbine energy systems developed by Capstone. In addition to a net power output of 65 kilowatts, the Integrated Combined Heat and Power (ICHP) systems have 80% electrical efficiency, and NOx emissions of less than 5 parts per million. [ more ]

The post Capstone Receives $1.2 Million Order appeared first on Alternative Energy Stocks.

Northern Power, a subsidiary of Distributed Energy Systems Corp (DESC), has signed an original equipment manufacturing (OEM) agreement with Elliott Energy Systems (Stuart, FL). The agreement gives Northern Power exclusive worldwide rights to incorporate Elliott technologies in the development of microturbine-based products for the oil and gas industry. Northern Power has also signed a distributor agreement with Elliott to sell and service its existing microturbine-based systems. [ more ]

The post Elliott Energy, Northern Power Agree to Develop & Distribute Microturbine-based Products for Oil & Gas Market appeared first on Alternative Energy Stocks.

Fuelcell Energy Inc (FCEL) and Capstone Turbine Corp (CPTC) announced that its patented Direct FuelCell/Turbine® (DFC/T®) achieved a record-setting performance establishing a mark of 56 percent electrical efficiency in the sub-megawatt (sub-MW) class for 800 continuous hours during initial testing. This significantly exceeds the electrical efficiency of other distributed generation technologies of similar size. For example, gas engines have an electrical efficiency of 30 to 42 percent, low temperature fuel cells have an electrical efficiency of 30 to 35 percent and microturbines have an electrical efficiency of 25 to 30 percent. [ more ] I always love when these small companies get together and build something that is better than their indvidual efforts alone. The system they have built takes directs the excess heat that is generated by the fuel cell and powers a modified Capstone microturbine.

The post FuelCell Energy and Capstone Achieves Record in Electrical Efficiency appeared first on Alternative Energy Stocks.

Capstone Turbine Corp (CPTC) announced that Capstone-branded products have been approved by the General Services Administration (GSA) and are now on the GSA Schedule.

“As a result of our continuing efforts to place Capstone MicroTurbine® products into large market potentials, we have now created an avenue for the sale of Capstone-branded microturbine products to the U.S. government,” said Capstone CEO John R. Tucker. “We are very pleased to receive this GSA approval and recognize the importance of being qualified as a GSA Schedule supplier. We have proactively taken this step, and created this opportunity, to provide Capstone products to one of the largest potential distributed generation buyers worldwide.” [ more ]

Shares of Capstone rose 11% yesterday on this news and the stock is up another 1% in pre-market trading this morning.

The post Capstone Products Receive GSA Schedule Listing appeared first on Alternative Energy Stocks.

Capstone Turbine Corp (CPTC) announced that next month the company will begin shipping an enhanced line of 65-kilowatt microturbine models that will replace its popular C60 series of power and heat generators. The new natural gas fueled C65 and C65-ICHP (with factory-integrated heat recovery) will deliver higher electrical and thermal output without any change to the product’s weight and dimensions, which are much lighter and more compact than similar capacity generators. This reduces footprint requirements and enables greater flexibility in indoor, outdoor and rooftop setting. [ more ] Capstone also released news that the new C65 model will also be retrofitted so that it can use waste gases from landfills and sewage treatment plants as an alternative to natural gas. The stock gapped up this morning over 6% and looks like it is trading nicely off the current near-term support levels of $3.50. I will be adding to my current holdings of this stock this morning in the Marketocracy mutual fund. This will bring my total up to 2/3rds of my planned holdings for this stock.

The post Capstone Introduces a New Generation of MicroTurbine Energy Systems appeared first on Alternative Energy Stocks.