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Capstone Turbine expands long-term microturbine rental business with one of the world’s largest oil and gas producers

Expanding Capstone's aftermarket business, which includes the long-term rental program, is key to helping the company achieve its near-term profitability goals

Capstone microturbine
The microturbines, which run on a variety of gaseous or liquid fuels, can easily relocated when a customer’s site loads change

Capstone Turbine Corporation (NASDAQ:CPST) announced Wednesday that it continues to expand its long-term microturbine rental business with an additional 1.6 megawatts on top of the initial 3.6 MWs deployed last fall with one of the world’s largest oil and gas producers.

The additional long-term rentals were secured by Capstone’s distribution partner, Lone Star Power Solutions, its exclusive distributor for Texas, Arizona and the Gulf States.

Capstone, based Van Nuys, California, said expanding its aftermarket business, which includes the long-term rental program, is key to helping the Company achieve its near-term profitability goals.

In fact, the Company said 98% of its fiscal 2019 gross margin came from the aftermarket business, which was only 38% of Capstone’s fiscal 2019 revenue.

READ: Maxim says Capstone Turbine’s rental-business growth may shrink fiscal 4Q earnings loss

“Our aftermarket business should continue to grow this year with the expansion of our long-term rental fleet from our initial start of 3.6 MWs to a total of 5.2 MWs with our future target of 10 MWs,” said CEO Darren Jamison. “At 10 MWs, our annual revenue from our long-term rental fleet would be approaching approximately $7 million a year. Rentals are key as the recurring revenue stream they generate will improve our expense absorption and gross margin, and help us reach our near-term profitability goals.”

Capstone said the large oil and gas company, which was not named, agreed to expand its use of the microturbines because they are easy to deploy, increase power capacity and accommodate the customer’s growing energy needs of its Permian basin installations.

Capstone microturbines, which run on a variety of gaseous or liquid fuels, are reliable and can easily be expanded or relocated when a customer’s site loads change.

Jim Crouse, Capstone’s executive vice president of sales and marketing, said that natural-gas generators are gaining popularity in the rental market due to their lower emission profile compared to the high environmental impact of diesel generators.

One industry obervier applauded Capstone's announcement.

“We believe this 3.6 MW order from one of the world’s largest oil and gas producers is yet another positive step towards Capstone’s profitability goals by adding high margin, recurring revenue to the Company’s aftermarket business, including their long-term rental program established last year,” said Shawn Severson, founding partner of alphaDIRECT Advisors, a micro-cap research firm. “We believe the Company’s more flexible balance sheet will enable Capstone to pursue long-term rental business like the one announced today and facilitate gross margin expansion.”

Capstone's stock recently traded up 0.65% to $0.87 a share.

-- Updates with analyst comment --

Disclosure: alphaDIRECT Advisors is paid a fee by Capstone Turbine to provide Investor Intelligence Program and Consulting Services. To read the full disclosure, please click here.

Contact the author: [email protected]

Follow him on Twitter @PatrickMGraham

Quick facts: Capstone Turbine Corporation

Price: 3.2 USD

NASDAQ:CPST
Market: NASDAQ
Market Cap: $26.93 m
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