CEPL — FY2026 Annual Financial Report Analysis

Capstone Energy+ (formerly Capstone Green Energy, and before that Capstone Turbine) makes microturbines: small gas turbines, about the size of a large refrigerator up to a shipping container, that generate electricity on site at factories, hospitals, oil fields, landfills and farms. It sells them mostly through distributors, services the installed fleet under long-term contracts, and rents units out. In the fiscal year ended March 31, 2026 (its "Fiscal 2026"), revenue rose 24% to $106.0 million and the company swung to a net profit of $2.8 million from a $7.2 million loss. The bigger story is the balance sheet: two years after leaving Chapter 11 bankruptcy, Capstone raised about $104 million in March 2026 and spent $83.5 million of it buying out the preferred holder of its operating subsidiary. That buyout produced a $69.6 million accounting charge that turns the $2.8 million profit into a $3.21 loss per share for common shareholders.

At a glance

• Revenue $106.0M, up 24%. Microturbine product sales grew 41% to $56.9M on 37.2 megawatts shipped (26.7 MW a year earlier), helped by US buyers rushing to lock in an expiring federal tax credit.
• Gross margin 32%, up from 27%. Every revenue stream earned more per dollar of sales; the product line went from 3% to 10% gross margin, which is what turned the year profitable.
• Operating cash flow -$2.5M despite $2.8M net income. Receivables grew $7.1M and customer deposits fell $6.1M, so the accounting profit did not show up as cash.

What happened in the year

n/m = not meaningful (sign change). The EPS line is after the $69.6M non-cash deemed dividend explained below; on net income alone it would be $0.14 per basic share, the company says.

Where the growth came from. The United States and Canada grew from $56.5M to $70.7M, which the 10-K attributes "primarily" to higher sales in the western US territories, "driven by customers taking advantage of the investment tax credit ('ITC') safe harbor ahead of its expiration." In plain terms: a federal tax credit for this kind of equipment was ending, and buyers could keep it by committing to purchases early, so some demand was pulled forward into this year. Latin America more than doubled, from $9.1M to $19.0M, mostly Mexico, where the company cites manufacturers moving production from Asia after US tariff announcements and new rules allowing larger grid-connected projects. Europe fell from $11.3M to $9.9M and Asia/Australia from $8.1M to $5.2M.

Why margins improved. Gross margin is the share of sales left after the direct cost of making and delivering the product. On products it rose from 3% to 10%, which the company puts down to "improved pricing realization and a more favorable product mix" (it has raised list prices twice in the past twenty months, and revenue per megawatt shipped rose from about $1.4M to $1.5M). Parts and service went from 56% to 64% on more parts sales, higher service-contract pricing and spreading fixed overhead over more work. Rentals went from 35% to 44% as average rent per megawatt rose from $29,500 to $33,300. Margins improved even though the company says tariffs and inbound freight costs rose.

Costs stayed flat. Operating expenses rose only $1.6M to $30.5M. Selling, general and administrative costs were $26.9M versus $26.2M: about $3.6M more for headcount and outside accounting and legal help, partly offset by $2.9M less in one-off costs from litigation, restated accounts and debt restructuring in the prior year. Research and development rose from $2.7M to $3.6M.

The Cal Microturbine deal. In August 2025 Capstone bought Cal Microturbine, its distributor for California, Hawaii, Nevada, Oregon and Washington, and now sells directly there as "Capstone West Territory." The acquisition added about $4.0M of revenue after closing. Before the deal Cal Microturbine was a customer, and it still accounted for 16% of the year's revenue. Four customers (E-Finity 17%, Cal Microturbine 16%, DTC 13%, Lone Star 10%) made up over half of sales.

Takeaway: The operating turnaround is real but thin. Gross profit rose $10.6M on better pricing in every line, yet operating profit was only $3.4M, less than the $4.1M of interest expense. The year's net profit depended on $3.3M of other income, which the company says came primarily from a customer deposit kept on a project that did not go ahead. Without that, the business roughly broke even before tax.

What the headline numbers hide

• Profit did not turn into cash. Net income was $2.8M, but operations used $2.5M of cash, against $7.7M of cash generated a year earlier. Receivables (money owed by customers) jumped 83% to $12.9M while revenue rose 24%, and days sales outstanding (how long customers take to pay) stretched from 30 to 34 days. Customer deposits fell $6.1M as orders were shipped, and inventory grew $4.2M as the company bought long-lead parts for future shipments. Total inventory of $24.8M is up about 24%, in line with sales, so the receivables build is the part to watch.
• The $69.6M "deemed dividend." When Capstone emerged from bankruptcy in December 2023, a related entity (CDSS) held preferred units in the operating subsidiary that had a priority claim on its value. Capstone redeemed them for $83.5M on March 31, 2026. Accounting rules required marking those units up to their maximum redemption value just before the buyout and charging the difference to common shareholders. That charge is why net income of $2.8M becomes a $66.8M loss to common holders. It involves no cash beyond the $83.5M redemption itself, and it will not repeat because the units no longer exist. It does mean most of the money raised in March went to buying out a prior claim, not into the business: financing brought in a net $23.7M for the year.
• Heavy dilution. Common shares outstanding rose from 18.6M to 30.2M through two private placements (November 2025 at $2.00 a share and March 2026 at $4.50). On top of that sit 3.82M pre-funded warrants (exercisable for $0.001 a share) and $80M of new Series A convertible preferred held by Monarch Alternative Capital, convertible into 16.0M shares at $5.00. Counting all of those, the share count is roughly 50M against about 19M a year ago, so each share's claim on future profit has been cut by more than half. The preferred also accrues a 5% annual dividend paid in additional preferred, which grows the number of shares it converts into.
• Debt due in December 2026. $25.3M of exit notes from the bankruptcy (secured on substantially all assets, at a floating SOFR + 7% rate) mature on December 7, 2026. The 10-K says the company "has not yet secured additional financing" to repay them. Year-end cash of $28.2M would just cover them, leaving little cushion for a business that used cash this year.
• Tax rate is not a driver. The company pays almost no tax because it carries a full valuation allowance against its deferred tax assets (tax losses it has not yet been allowed to count as an asset). The $54K tax benefit was a prior-year true-up.
• Controls fixed. A material weakness in accounting for service contracts reported last year has been remediated, and the auditor, CBIZ, issued a clean opinion.

Since year-end: the June 2026 quarter

The 10-Q for the quarter ended June 30, 2026 (the first quarter of Fiscal 2027) is already out. Revenue fell 11% to $24.9M from $27.9M, with US and Canada down $5.5M on "fewer microturbine deliveries" and lower rental use, partly offset by +$2.4M in Latin America. That US drop is consistent with the tax-credit pull-forward in Fiscal 2026. Gross margin rose further to 35% from 27%, and net income was $0.04M against a $0.7M loss. One distributor, Horizon Power Systems, accounted for 41% of quarterly revenue, mostly from 8 MW of rental units it bought. Operating cash flow was +$5.4M, helped by a $3.7M customer deposit, and cash reached $31.6M.

Three things changed after the quarter. The stock moved from the OTC market to Nasdaq on July 8, 2026 under the ticker CEPL. That cancels a clause that would have raised the preferred dividend by 2 points a year if the stock was not listed within 18 months. A $500M shelf registration became effective on August 6, letting the company sell new securities quickly; none had been sold as of the 10-Q. And in August, California's Air Resources Board issued a notice of violation covering 27 units sold or leased in California. No penalty amount has been set, and the company has not booked a liability.

Outlook

Capstone does not give revenue or earnings guidance. Management's pitch rests on AI data centers that cannot get grid power fast enough: it is developing a 250-kilowatt C250 turbine and an 800-volt direct-current system meant to plug straight into GPU server racks. The 10-K states plainly that "we have not yet generated revenue from AI data center applications," so none of that is in these numbers yet.

Our read: the margin gains look durable because they show up in all three revenue lines and continued into the June quarter. US volume is the weak spot. Part of Fiscal 2026's growth was a one-time rush ahead of the tax credit's expiry, and the June quarter shows US deliveries falling back. The near-term test is the December 2026 debt maturity. The Nasdaq listing and the effective shelf make a refinancing or new equity raise easier, but another raise would add to dilution that already more than doubles the share count. What to watch in the next filings: whether the exit notes are refinanced on what terms, whether receivables come back in line with sales, how much revenue depends on one or two distributors, the size of any CARB penalty, and the first actual AI data center order.