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Capstone Turbine Corporation

Capstone Turbine is leading the charge in a green energy revolution

Snapshot

The company builds low-emission, clean-energy microturbine technology for consumer and commercial use globally

Turbine

Quick facts: Capstone Turbine Corporation

Price: $0.51

Market: NASDAQ
Market Cap: $37.49 m
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  • Capstone holds more than 100 patents and produces a range of innovative microturbines that generate clean, green electricity
  • A new market for Capstone microturbines is blossoming among cannabis producers
  • Capstone expects to see both product and aftermarket service revenue grow in coming quarters

What Capstone Turbine does:

Capstone Turbine Corp (NASDAQ:CPST) is a multi-faceted energy company that manufactures low-emission, clean-energy microturbine technology for consumer and commercial use globally.

Based in Van Nuys, California, Capstone holds more than 100 patents and produces a range of innovative microturbines that generate clean, green electricity for anything from heating and chilling water for hot showers and air conditioning to powering new generation green skyscrapers.

CEO Darren Jamison compares Capstone’s microturbines, which have only one moving part, to small jet engines that produce electricity and heat while still being green – powered by a range of alternative clean fuels including natural gas, biogas and propane.

The microturbines range from a 30-kilowatt, consumer-level unit up to 200-megawatts – enough to power skyscrapers.

In New York City alone, the company’s microturbines are used in hundreds of buildings, including two units at Hudson Yards, One Vanderbilt next to Grand Central Terminal, as well as Kings County Hospital in Brooklyn and by big businesses such as Fresh Direct.

With a legacy in the oil and gas space, Capstone saw an opportunity to join the green energy revolution when oil prices plummeted to around $30 per barrel from about $125 in 2014, putting a dent in the business and promoting diversification.

The move to clean energy, Jamison says, responds to growing demand on a global scale as architects, engineers and real estate investment trusts (REITs) go green and embrace on-site power generation.

With 9,000 machines in 73 countries, including Latin America, the Caribbean, Middle East, Africa, Europe, Fiji, Mali and other underserved parts of the world, Jamison cheerfully compares Capstone to the United Nations in the scope of its international energy footprint.

Its 932 megawatts shipped have generated enough energy to power every home in Philadelphia. And with electricity costs rising globally, demand for the company’s microturbines is growing.

How is it doing:

In recent months, Capstone has taken advantage of a few opportunities to highlight its products.

Capstone, along with customer and biogas producer Green Energy Sustainable Solutions Inc, sponsored a race car at the 103rd running of the Indianapolis 500 to foster awareness of biogas and renewable natural gas as the clean-energy fuels of the future as a way to help combat the effects of climate change. 

At that time as well, Green Energy agreed to spend $13 million to buy 12 Capstone microturbines -- the company’s biggest order in four years. 

A massive power failure in New York City over the summer gave the company another chance to tout its microturbines. The blackout plunged a broad swath of Manhattan into darkness, including the Times Square area. But those hotels outfitted with the turbines (which run on natural gas) as backup power in the affected area were able to keep the lights on and the hot water flowing.

As for Capstone’s finances, in its fiscal first quarter of 2020 (its most recent reporting period which ended June 30), the company’s order book for low-emission microturbine energy systems filled up rapidly. 

The company booked new gross product orders of $17.4 million for a book-to-bill ratio of 1.7:1 in the quarter, compared with $16.3 million in the same period in the previous year for a book-to-bill ratio of 1.2:1. That represents a 7% increase or $1.1 million year-over-year.

Gross margin grew significantly for the first quarter compared to the same period last year despite $2 million in lower total revenue. Gross margin increased by $1.1 million from $1.8 million in the year-ago quarter, to $2.9 million, representing a 61% increase. Gross margin as a percentage of revenue expanded to 15% from 9% in the prior quarter.

Adjusted EBITDA loss narrowed to $3.4 million, or $0.05 per share for the fiscal first quarter, compared to a loss of $3.9 million, or $0.06 per share in the same period in the previous fiscal year.

Concerning capital financing, Capstone in February secured a $30 million three-year note from Goldman Sachs to replace a $15 million credit facility. And in September the company raised $5.1 million in a registered direct offering. 

Inflexion Points:

A new market for Capstone microturbines is blossoming among cannabis producers, who are renting spaces to build new grow houses but can’t get the energy they need from local utilities, which leads them to Capstone’s microturbines.

“Our product creates more energy while still being green,” Jamison says, and that appeals to a new generation of cannabis growers who like “the green aspect of our product.”

Demand is highest, he says, in Colorado, California and increasingly in Canada, where medical and recreational marijuana has already been legalized.

Another revenue driver the company is pushing is its aftermarket business -- getting its established customers to purchase long-term service contracts for its Factory Protection Plans which enable customers to have predictable and stable maintenance costs for up to 20 years.

The FFPs protect customers from future cost increases associated with changes in replacement spare-parts pricing, commodity-price increases, import tariffs and interest-rate changes.

Jamison said the aftermarket business comprised about 47% of the company’s fiscal first-quarter 2020 revenue and “accounted for approximately 97% of the gross margin, which is why growing the aftermarket business is so fundamental to our near-term return to positive adjusted EBITDA (earnings before interest, tax, depreciation and amortization) and long-term profitability goals.”

What the boss says:

CEO Darren Jamison: “That’s our goal for the next year. To really grow revenue, to grow our top line.”

What the broker says:

Maxim Group recently initiated coverage of Capstone with a Buy rating and a price target of $2. The stock over the last 52 weeks has traded between $0.50 and $1.13 a share. 

Analyst Tate Sullivan said Maxim’s decision was based Capstone securing an order from a Wyoming energy company, winning two new US patents related to using hydrogen and liquid fuels to generate electricity and an improving balance sheet. In a later note, Sullivan said that Capstone’s factor rental program could boost the company’s revenues and have much higher margins than sales of natural-gas turbines. 

Contact the author: [email protected]

Follow him on Twitter @PatrickMGraham

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