Capstone Turbine Corporation (“Capstone”, “We” or the “Company”) develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation and distribution networks applications including energy efficient cogeneration combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”), as well as renewable energy, natural resources, and critical power supply applications. Microturbines allow customers to produce power on-site in parallel with the electric grid or stand-alone when no utility grid is available. Several technologies are used to provide “on-site power generation” (also called “distributed generation”) such as reciprocating engines, solar photovoltaic power (“PV”), wind turbines and fuel cells. Our microturbines can be interconnected to other distributed energy resources to form “microgrids” (also called “distribution networks”) located within a specific geographic area and provide power to a group of buildings. For customers who do not have access to the electric utility grid, microturbines provide clean, on site power with fewer scheduled maintenance intervals and greater fuel flexibility than competing technologies. For customers with access to the electric grid, microturbines provide an additional source of continuous on-site power generation, thereby providing additional reliability and potential cost savings compared to the local utility. With our stand alone feature, customers can produce their own energy in the event of a utility power outage and can use microturbines as their primary source of power for extended periods of time unlike traditional diesel standby generator sets. Because our microturbines also produce clean, usable heat energy, they provide economic advantages to customers who can benefit from the use of hot water, chilled water, air conditioning and steam. In addition, our microturbines have been used as battery charging generators for hybrid electric vehicles and to provide power to a vessel’s electrical loads in marine applications. Our microturbines are sold, installed and serviced primarily through our global distribution network. Together with our distributors, we offer new and remanufactured parts as well as a comprehensive Factory Protection Plan (“FPP”) through long-term service agreements ranging from 5 to 20 years. We offer microturbines designed for commercial, industrial and onshore and offshore oil and gas applications with product offerings ranging from 30 kilowatts (“kW”) to one megawatt (“MW”) in electric power output, which can be deployed in arrays up to 10 MWs. Our microturbines combine patented air bearing technology, advanced combustion technology and sophisticated power electronics to form efficient and ultra-low emission electricity and cooling and heat production systems. Because of our air bearing technology, our microturbines do not require lube oil, grease, or traditional coolants. This means they do not require routine maintenance to change and dispose of lube oil, grease, or other liquid lubricants, as do the most common reciprocating engines. Our microturbines can be fueled by various sources including natural gas, propane, butane, sour gas, renewable fuels such as landfill or digester gas, kerosene, diesel and biodiesel. Our microturbines are available with integrated unit mounted heat exchangers, making them easy to engineer and install in applications where hot water, chilled water, air conditioning and steam is desired.
Our operating history is characterized by net losses. We anticipate further losses and we may never become profitable.
Future issuances or sales of our common stock or exercises by holders of our outstanding warrants could lower our stock price and dilute the interests of existing stockholders.
We may be unable to fund our future operating requirements, which could force us to curtail our operations.
If we are unable to either substantially improve our operating results or obtain additional financing, we may be unable to continue to operate at current levels.
Impairment charges on our long‑lived assets, including intangible assets with finite lives would adversely affect our financial position and results of operations.
A sustainable market for microturbines may never develop or may take longer to develop than we anticipate which would adversely affect our results of operations.
We depend upon the development of new products and enhancements of existing products.
Our operating results are dependent, in large part, upon the successful commercialization of our products. Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.
Commodity market factors impact our costs and availability of materials.
Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict.
Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.
We operate in a highly competitive market among competitors who have significantly greater resources than we have and we may not be able to compete effectively.
Our products involve a lengthy sales cycle, and we may not anticipate sales levels appropriately, which could impair our results of operations.
If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our results of operations will suffer.
Our business and financial performance depends in part on the oil and natural gas industry, and a decline in prices for oil and natural gas may have an adverse effect on our revenue, cash flows, profitability and growth.
Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.
Changes to trade regulation, quotas, duties or tariffs, and sanctions caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs or limit the amount of raw materials and products that we can import, or may otherwise adversely impact our business.
Our business may be impacted by international instability, war, terrorism, and geopolitical events.
We may not be able to retain or develop relationships with OEMs or distributors in our targeted markets, in which case our sales would not increase as expected.
If any of our distributor relationships is not successful, we may terminate or choose not to renew the related distributor agreement, which may result in interference with the wind down of the relationship or the transition of end-user service agreements, and could potentially negatively impact our distribution channel or result in litigation costs or other expenses.
We have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on our cash flows and results of operations.
We may experience a delay in payment or may not collect on the Accounts Receivable Assignment Agreement or Promissory Note with Turbine International, LLC.
Loss of a significant customer could have a material adverse effect on our results of operations.
We may not be able to develop sufficiently trained applications engineering, installation and service support to serve our targeted markets.
Changes in our product components may require us to replace parts held at distributors.
We operate in a highly regulated business environment, and changes in regulation could impose significant costs on us or make our products less economical, thereby affecting demand for our microturbines.
Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell our products.
We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales.
Potential intellectual property, labor, product liability, stockholder or other litigation may adversely impact our business.
Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.
We may incur costs and liabilities as a result of product liability claims.
We have significant tax assets, usage of which may be subject to limitations in the future.
Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than anticipated.
Operational restructuring may result in asset impairment or other unanticipated charges.
We may not be able to manage our growth effectively, expand our production capabilities or improve our operational, financial and management information systems, which would impair our results of operations.
Our success depends in significant part upon the continuing service of management and key employees.
Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control.
We cannot be certain of the future effectiveness of our internal controls over financial reporting. If we are unable to maintain effective internal controls over our financial reporting, investors may lose confidence in our ability to provide reliable and timely financial reports and the value of our common stock may decline.
We are subject to a number of pending lawsuits.
If we fail to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and adversely affect our ability to raise needed funds.
The market price of our common stock has been, and may continue to be, highly volatile and you could lose all or part of your investment in our securities.
Our business could be negatively affected as a result of a proxy contest.
Provisions in our certificate of incorporation, bylaws and our NOL rights plan, as well as Delaware law, may discourage, delay or prevent a merger or acquisition at a premium price.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
We do not intend to pay cash dividends. We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our securities will likely depend on whether the price of our common stock increases.
Revenue Revenue for the first quarter of Fiscal 2020 decreased $2.0 million, or 9%, to $19.2 million from $21.2 million for the first quarter of Fiscal 2019. The change in revenue for the first quarter of Fiscal 2020 compared to the first quarter of Fiscal 2019 included decreases in revenue of $2.7 million from the United States and Canadian markets and $0.9 million from the Europe and Russian markets. These overall decreases in revenue were offset by increases in revenue of $1.5 million from the Asia and Australian markets and $0.1 million from the Middle East and African markets. The decrease in revenue in the United States and Canadian markets during the first quarter of Fiscal 2020 compared to the same period last year was primarily because we deployed a 1.0 megawatt C1000 Signature Series system under our factory rental program and a 0.6 megawatt system as a customer demo unit. The decrease in revenue in the European and Russian markets was primarily because of a decrease in product shipments into the microgrid market vertical. Our revenue in the European and Russian markets continues to be negatively impacted by the ongoing geopolitical tensions in these regions and a strong U.S. dollar in certain markets making our products more expensive in such markets. The increase in revenue in the Asian and Australian markets was primarily because of an increase in system shipments into the natural resources market vertical during the first quarter of Fiscal 2020 compared to the same