Capstone Quest for Profits Approaches Deadline

Executives at Capstone Turbine Corp. are pleased with the progress of the company and feel confident they can meet challenges as they execute its growth plan. The Van Nuys microturbine manufacturer has a goal of reaching positive earnings before interest, income tax, depreciation and amortization, known as EBITDA, in the first quarter of the 2021 fiscal year, which ends June 30 of next year. Chief Executive Darren Jamison said in a conference call in early August with analysts the first quarter is traditionally not the strongest in Capstone’s fiscal year so in that respect he was pleased this time around. The positive impact of new business initiatives were evident in the increase in the gross profits to $2.9 million from $1.8 million for the first quarter in the previous fiscal year. “This speaks volumes on the progress to reaching our near-term profitability goal, which only requires modest revenue growth to be successful,” Jamison said during the call. In the fiscal first quarter ending June 30, Capstone reported a net loss of $5.6 million (-8 cents a share) compared with a net loss of $4.9 million (-8 cents) in the same period a year earlier. Revenue dropped 9 percent to $19.2 million. The company attributed the drop to lower product shipments due to an allocation of 1 megawatt of product production slots into the company’s new long-term rental fleet and 0.6 megawatts for a biogas-to-energy demonstration project in Asia. Capstone’s share price hit a high price of $10.20 in mid-March but has since fallen. A 10-to-1 stock split on Oct. 22 resulted in a drop in the share price, which closed at $2.56 on Nov. 6. Eric Stine, an analyst who follows Capstone at Craig-Hallum Capital Group LLC in Minneapolis, said in a research note in early August he remains encouraged by the steps Capstone has taken to drive its double-digit revenue goal and improve margins. “Namely (by) diversifying its revenues geographically and by end market, ramping its distributor activity, and growing its higher margin rental and service revenues,” Stine wrote in the note. “That said, revenue growth and gross margin improvement have remained elusive and we reiterate our Hold rating as we look for more progress to be demonstrated in both regards.” During the quarter, Capstone shipped a total of 9.5 megawatts of new microturbine product through a variety of distributors in different geographies, Jamison said during the conference call. “We continue to focus on various geographies across diverse set of distributors, while identifying the market verticals we think have the greatest near-term potential,” he added. “This diversification is a critical part of our business maturity and supports us moving into a more resilient position in today’s dynamic macroeconomic and dynamic geopolitical market.” Recently, the company received an initial order for six C65 microturbines for a critical flare gas pilot project in France through Microturbine Power, an exclusive European distributor, as well as its first offshore oil and gas order from India for two C65 microturbines for use on a wellhead platform in the Arabian Sea. Critical to the company’s near-term profitability plan is growth of the aftermarket service business. Revenue from accessories, parts and service increased by 20 percent to $9.1 million in the first quarter compared to $7.6 million in the same quarter last year, Jamison said. The company’s factory protection plan bought in a record $4.2 million for the quarter, he added. “Make no mistake, this is a direct result of our increased focus on the critical part of our business and our completion of the transition of our California distribution change to Cal Microturbine,” Jamison said. Cal Microturbine was brought in as the California distributor last year to replace Regatta Solutions Inc., in San Juan Capistrano. In his research note, Stine outlined some of the business risks associated with Capstone, including that it operates in an emerging market with few customers and limited repeat business. “As a result, the company has a history of operating losses as it is dependent on growing unit sales to achieve a profitable cost structure,” Stine wrote. “If a sustainable microturbine market and higher volumes are not achieved, then it would have an adverse impact on financial performance.”