Capstone Turbine's Neverending Underdog Story

• Report this Comment On November 13, 2008, at 3:34 PM, shepherd0513 wrote:

  I'd like some explanation of the statement: "if it ever became profitable, conglomerates like General Electric (NYSE: GE) and Siemens (NYSE: SI) could crush it like a bug."

  In my understanding, Capstone holds several patents on various components of microturbine technology (e.g. foil bearings) which would make it impossible for these larger companies to compete directly. They would be forced to either wait until the patents expire, or buy Capstone.

  Perhaps the author has some information that I am not aware of in this regard? Please enlighten us on the patents issue.

• Report this Comment On November 13, 2008, at 6:26 PM, Jonesicus wrote:

  ^ You're right about the fact that Capstone has patents that won't expire for another 6 to 16 years, but are GE and Siemens not developing microturbine technology of their own? Capstone can't even make a normal profit in the microturbine industry, and they're the sole competitor! I believe that GE and SI have the resources to develop their own systems should they ever choose to enter the market, but maybe I'm wrong. Either way, this is an exciting company, and I love an underdog story so much that I hope things go favorably for Capstone. Just my $0.02. Thanks -- Chris Jones

• Report this Comment On November 13, 2008, at 6:53 PM, mankstar77 wrote:

  Capstone is a one of a kind company. I give the company > 2 years to make a profit. We have already seen the company hit greater than 4 dollars in July when they are not even profitable. They have a great niche, and the extended Tax incentive bill in their favor for the U.S.. Obama's green energy plans on our side as well. I see great potential for this Mighty Company in the near future. Chris already gave his 2 cents so this is my 3 cents. ~Jon~

• Report this Comment On November 13, 2008, at 7:16 PM, wsquared58 wrote:

  I predict that he is short Capstone. Thats fine, just say so.

  I'm thinking this is the same guy who wrote up a skewed evaluation last quarter. Never discount the desire of folks to try and force their short positions on the market.

  Rather than come out and say "I don't like these guys" for whatever reason, he couches his evaluation on psuedo-technical jargon that makes it sound like an honest appraisal. He uses a link to a write up that is a)three years old, and b) disregards the fact that Capstone is targetting a completely different niche than that provided by large frame gas and steam turbines. To get a better feel for the niche that Capstone looks to exploit, look towards those facilities that use small to medium sized diesel generators for main or back-up power. My facility has two medium sized steam turbine generators, rated at 48 & 56 megawatts and we could easily put several of Capstones units to use if we had natural gas available. Since we don't, we are stuck with diesel generators for use as emergency back-up power supplies.

  That link write up is not only outdated it is the equvelent of comparing apples and oranges. Go tour any big gas or steam turbine power plant and you WILL find some small back-up source of power that is most typically diesel powered.

  Oh, and the statements about "We may never be profitable", read any start-ups Q's and you will find the same exact statement. It is called a disclaimer. Every Q ever written has one just like it.

  What a lot of folks don't realize is that after getting a new CEO (Jamison) who has really turned this company around from years of lackluster performance, things are starting to come together for CPST. Their biggest headwind today is the overall state of the economy here and globally.

  Actually, management has given guidance when they expect to become profitable on several occasions, they just haven't come out and said on DD/MM/YYYY we will be profitable.

  What is telling in my opinion is that more and more analysts are getting positive about Capstone.

  11-Nov-08 Upgrade Ardour Capital Accumulate → Buy

  10-Jul-08 Initiated Wachovia Outperform

  26-Jun-08 Initiated Broadpoint Capital Buy

  13-Jun-08 Reiterated Ardour Capital Accumulate $2.50 → $4

  19-May-08 Reiterated Northland Securities Outperform $3.25 → $5

  12-May-08 Initiated Merriman Curhan Ford Buy

  30-Jan-08 Initiated Northland Securities Outperform $2.20

  08-Jan-08 Reiterated Ardour Capital Accumulate $1.50 → $2.50

  06-Nov-07 Initiated Lazard Capital Buy $2.50

  If one is willing to read the excerpts below, which come from the most recent quarterly report it is relatively easy to draw a line that targets a profitability date. Note that the gross loss number has decreased substancially as had the R&D number.

  "Capstone’s backlog at the end of the second quarter was $50.4 million, an increase of approximately $7.7 million, or 18%, from the prior quarter and an increase of approximately $40.0 million, or 385%, from the same period last year. "

  “This quarter we increased production rates and achieved $13 million in revenue while having another strong bookings quarter with over $17 million in new orders,” stated Darren Jamison, Capstone’s President and Chief Executive Officer. “I am also proud of our achievements in the successful early launch of the C200 product line,” added Jamison."

  Capstone’s revenue for the second quarter ended September 30, 2008 was $13.1 million, an increase of approximately 82% from the same period last year. Capstone shipped 172 units in the second quarter of Fiscal 2009, compared to 96 units for the same period last year.

  The reported gross loss for the first quarter was $0.3 million, or 2% of revenue, compared to $0.8 million, or 10% of revenue, for the same period last year. The decrease in the gross loss and corresponding improvement in the gross loss percentage reflects increased sales of C30, C60 Series and C200 Series units along with higher absorption of overhead costs into ending inventory, offset by increased manufacturing and warranty expenses.

  Research and development costs were $2.0 million for the second quarter, a decrease of $0.4 million, or 17%, from the same period last year. R&D expenses are reported net of benefits from cost-sharing programs. There were approximately $2.3 million of such benefits this quarter and $0.1 million of such benefits for the same period last year. The overall net decrease in R&D expenses resulted from additional funding from UTC Power Corporation for the cost-sharing program for the C200 commercialization, offset by increased spending for supplies, consulting, shared costs and labor expense.

  Selling, general and administrative costs were $7.7 million for the second quarter, an increase of $1.8 million, or 31%, from the same period last year. The net increase in SG&A expenses was comprised of an increase in non-cash stock compensation and labor, travel, consulting and professional expense. The increase in labor and travel costs reflected the continued effort in developing worldwide distributors and launching the C200 and C1000 Series products.

  "We believe that effective execution in each of these key areas will be necessary to leverage Capstone’s promising technology and early market leadership into achieving positive cash flow with growing market presence and improving financial performance. Based on our recent progress and assuming achievement of targeted contribution margins, our most current financial model supports positive cash flow when we ship approximately 280 units in a quarter, depending on product mix. We believe our manufacturing facilities located in Chatsworth and Van Nuys, California have a combined production capacity of approximately 2,000 units per year, depending on product mix. With approximately $10 to $15 million of capital expenditures, we believe we can expand our combined production capacity to approximately 4,000 units per year, depending on product mix. We have not committed to this expansion nor identified a source for its funding, if available."

  Revenue. Revenue for the six months ended September 30, 2008 increased $7.8 million, or 61%, to $20.6 million from $12.8 million for the same period last year. Revenue from microturbine product shipments increased $6.2 million, or 71%, to $14.9 million for 261 units during the six months ended September 30, 2008 from $8.7 million for 173 units during the same period last year. Shipments of microturbine units were 15.4 megawatts during the six months ended September 30, 2008 compared with 9.5 megawatts during the same period last year. Revenue from C30 product shipments increased $0.7 million, or 38%, to $2.5 million for 60 units during the six months ended September 30, 2008 from $1.8 million for 50 units during the same period last year. Shipments of C30 product were 1.8 megawatts during the six months ended September 30, 2008 compared with 1.6 megawatts during the same period last year. Revenue from C60 Series product shipments increased $4.8 million, or 70%, to $11.7 million for 197 units during the six months ended September 30, 2008 from $6.9 million for 123 units during the same period last year. Shipments of C60 Series products were 12.8 megawatts during the six months ended September 30, 2008 compared with 7.9 megawatts during the same period last year. Revenue from C200 product shipments was $0.7 million for four units during the six months ended September 30, 2008. Shipments of C200 product were 0.8 megawatts during the six months ended September 30, 2008. There were no C200 product shipments in the same period last year. Revenue from accessories, parts and service during the six months ended September 30, 2008 increased $1.6 million to $5.7 million from $4.1 million during the same period last year. The overall revenue increase included a $4.1 million increase in revenue from the North American market, a $2.1 million increase in revenue from the Asian market, a $1.3 million increase in revenue from the European market and a $0.3 million increase in revenue from the South American market, all primarily the result of efforts to improve distribution channels. The timing of shipments is subject to change based on several variables (including customer payments and customer delivery schedules), some of which are not in our control and can affect our quarterly revenue and backlog. As such, we evaluate historical revenue in conjunction with backlog to understand the growth trend of our revenue.

• Report this Comment On November 19, 2008, at 5:47 PM, Tomzombie wrote:

  I am excited about the company and have been buying more as I read stock reviews and conduct my own research. For the pricing of the company, I see so much in future returns, that they far outweigh the risk of negative results. Sure, GE could buy the company, but I own shares there too.

  That aside, I believe Capstone will be around in the future, producing more and more products. The recent buyers will be great references for future purchasers.

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