Capstone Turbine Reports Q1 Fiscal 2019 Financial Results
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Capstone Turbine Corporation (www.capstoneturbine.com) (Nasdaq: CPST), the world’s leading clean technology manufacturer of microturbine energy systems, reports financial results for its fiscal first quarter ended June 30, 2018.
Financial Highlights of Fiscal 2019 First Quarter:
Total revenue for the quarter increased 10% year-over-year
Product revenue year-over-year increase of 8%
Accessories, parts and service revenue increased 15% year-over-year
1.2:1 book to bill ratio representing new product orders from 11 different countries
Gross product orders for the six-month period ended June 30, 2018 were $32.5 million, compared to $16.4 million in the preceding six-month period ended December 31, 2017, an increase of 98% period-over-period
Total cash position increased $0.2 million despite pay down of accrued expenses and unplanned supplier prepayments during the first quarter.
Subsequent to the end of the first quarter, Capstone successfully negotiated with Carrier Corporation (“Carrier”) a one-time lump sum royalty settlement payment and removed non-compete provisions from the development agreement with Carrier.
Darren Jamison, President and Chief Executive Officer of Capstone said, “During the quarter, we maintained our focus on our key strategic initiatives that we set out at the beginning of the year and grew revenue year-over-year while maintaining our balance sheet and diversifying our revenue mix. We did experience some short-term volatility in our aftermarket business gross margin as part of normal business, but also experienced some additional unexpected headwinds due to a supplier issue that caused higher than expected service expenses in the quarter. This issue has been resolved and we expect business levels to normalize throughout the remainder of the year. In terms of the broader industry environments, overall conditions remained favorable, and we are encouraged by macro trends both domestically and internationally,” added Mr. Jamison.
Total revenue for the first quarter of fiscal 2019 increased 10%. Revenue increased to $21.2 million, compared to $19.2 million in the same period last year. For the first quarter of fiscal 2019, revenue from microturbine products increased $1.0 million, or 8%, to $13.6 million from $12.6 million for the first quarter of fiscal 2018 and revenue from our accessories, parts and service increased $1.0 million, or 15%, to $7.6 million from $6.6 million for the first quarter of fiscal 2018.
Capstone’s results show new gross product orders of approximately $16.3 million during the first quarter of fiscal 2019 generating a 1.2:1 book-to-bill ratio. Capstone booked $32.5 million in gross product orders for the six-month period ended June 30, 2018, compared to $16.4 million in the preceding six-month period ended December 31, 2017, an increase of 98% period-over-period. During the first quarter of fiscal 2019 certain product orders placed in prior periods by the company’s legacy California distributor where canceled and reassigned to Cal Microturbine, Capstone’s new exclusive distribution partner in California. During the first quarter of fiscal 2019, Capstone received new product orders from 13 different distributors in 11 countries including the United States, Mexico, China, Kuwait, Russia, Spain, Austria, Italy, Ireland, Netherlands, and the United Kingdom.
Cash, cash equivalents, and restricted cash increased $0.2 million during the first quarter of fiscal 2019 to $19.6 million as of June 30, 2018. This compared to cash, cash equivalents, and restricted cash of $19.4 million and $19.1 million as of March 31, 2018, and June 30, 2017, respectively.
During the first quarter of fiscal 2019, Capstone effectively leveraged both its expanded asset-based credit facility with Bridge Bank and its at-the-market equity offering program to help cover its operations, including $2.2 million in prepayments to one of Capstone’s single source suppliers. One of the company’s single source suppliers notified the company that they were at maximum capacity and would require prepayment and a significant increase in the price of multiple components in order to fulfill Capstone’s supply requirements for fiscal 2019. In addition, the company paid down its accrued expenses by $1.0 million with respect to Capstone’s one-time leadership incentive program compensation.
During the first quarter of fiscal 2019, Capstone experienced lower than anticipated gross margin from its accessories, parts and service aftermarket business because of higher than normal scheduled and unscheduled maintenance activities. The increase in unscheduled maintenance activities was due to an issue with a supplier that resulted in an elevated cost of goods and a lower gross margin than historically reported in the prior quarters.
“Volatility is a normal part of our aftermarket business as we have noted in the past that this business ebbs and flows based on the timing of prior equipment sales, service intervals and unscheduled maintenance which this quarter reflects that. Our long-term goals are unchanged, and we expect business to return to normal levels throughout the year,” explained Mr. Jamison.
Operating expenses for the first quarter of fiscal 2019 increased 8% to $6.6 million from $6.1 million in the year-ago period. This increase includes an increase in marketing expense primarily related to our new Distributor Support System program and legal expense primarily related to our recently filed registration statement on Form S-3.
The net loss for the first quarter of fiscal 2019 was $4.9 million, or $0.08 per share, compared to a net loss of $4.1 million, or $0.10 per share for the first quarter of fiscal 2018. The Adjusted EBITDA for the first quarter of fiscal 2019 was negative $3.9 million, or a loss of $0.06 per share, compared to an Adjusted EBITDA of negative $3.4 million, or a loss of $0.08 per share for the first quarter of fiscal 2018. The weighted average shares outstanding for the first quarter of fiscal 2019 were 61.8 million compared with 41.1 million in the year-ago period.
On July 25, 2018, Capstone and Carrier Corporation (“Carrier”) entered into an amendment to their development agreement whereby Capstone agreed to pay Carrier approximately $3.0 million to conclude the company’s current royalty obligation under the development agreement and release the company from any future royalty payment obligations.
The amendment also removed non-compete provisions from the development agreement, which allows Capstone to design, market or sell its C200 System in conjunction with any energy system and compete with Carrier products in the combined cooling, heating and power market (“CCHP”). This settlement will benefit the company’s quarterly product margins by approximately 2% at the current quarterly revenue levels and now allows Capstone to enter into strategic discussions and relationships with other global chiller manufacturers to improve future competitiveness in the CCHP market. “The amendment to the Carrier development agreement is a tremendous achievement that will give us strategic flexibility in our largest market vertical and save us millions of dollars in future royalty payments as we execute against our goal of double digit revenue growth and accelerated product orders as illustrated by our 98% improvement in our bookto-bill in the last six months,” concluded Mr. Jamison.
Conference Call and Webcast
Capstone will host a live webcast August 7, 2018, at 1:45 PM Pacific Time (4:45 PM Eastern Time) to provide the results of the first quarter fiscal 2019 ended June 30, 2018. Capstone 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 Capstone’s investor relation’s webpage at www.capstoneturbine.com. A replay of the webcast will be available on the website for 30 days.