Capstone Turbine Still Charged About Future

• The Company: Capstone Turbine Corp., a producer of low-emission microturbine systems.
• The Filing: FORM 10-Q filed with the SEC on November 10, 2008.
• The Finding: Nothing much as changed at Capstone Turbine since I posted about the microturbine manufacturer back on September 26. The Company continues to incur significant operating losses, and sales growth remains insufficient to cover operating costs.

The Upshot: Demand remains limited for its microturbine energy systems, with two customers, Banking Production Centre (”BPC Energy Systems”) and UTC Power (United Technologies affiliate) accounting for 17 percent and 13 percent of total revenue for the six months of fiscal 2009 ended September 30.

Backlog at the end of the second-quarter was 543 units, or 58.9-megawatts, valued at $50.4 million, of which 485 units, or 53.3 megawatts, valued at $46 million were current and expected to be shipped within the next twelve months. Curiously, only 10.4-megawatts, worth $9.9 million in sales, were shipped in the second-quarter of fiscal 2009, which suggests that the alleged contracts may lack “take or pay agreements.”

In my September column, I cautioned readers that if Capstone failed to complete the specified development and commercialization of its C200 microturbine product, the non-exclusive, perpetual, and worldwide license to the C200 would revert to UTC Power. On a positive note-during the three months ended September 30-the company achieved the microturbine build completion milestone. Capstone needs only to complete the last phase of commercialization to fulfill the terms of the original September 2007 Development and License Agreement.

To date, Capstone Turbine remains long on promise and short on results, as it continues to fund its activities primarily through private and public equity offerings. At September 30, the company had cash on-hand of $46 million, primarily from the net proceeds of a 21.5 million shares stock offering back in September.

The company’s cash burn rate was $17 million in the last quarter, primarily attributable to continued operating losses and investments in inventory buildup and production equipment (related to the C200 and C1000 Series products).

The Question: Management says the increase in backlog is proof of product acceptance. Might inventory being shipped out the door and the balance sheet turning cash flow positive be better barometers of success?