The Nasdaq-listed firm, the world’s leading clean technology manufacturer of microturbine energy systems, implemented the EPR back in 2015 to reduce material costs associated with the company’s expanding aftermarket service business.
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In a statement on Tuesday it said the cumulative demonstrate ”the continued sustainable progress against its strategic initiative to increase gross margin and achieve its near-term profitability goals.”
Darren Jamison, Capstone’s President and Chief Executive Officer commented: “The recent success of our parts remanufacturing program has been masked by a temporary vendor part reliability issue and the overall availability of used 40,000-hour parts to build up a significant pool of parts available to be remanufactured.
“However, as we enter the back half of this fiscal year both these issues should be behind us, and investors should begin to see the true gross margin impact of our EPR program.”
Strategic reusing, repurposing, and refurbishing
The company previously announced its focus on improving the clean and green microturbine business in areas that it has direct control of, and in areas that are not impacted by outside market forces, macroeconomic conditions, geopolitical events, tariffs or trade wars.
The EPR focuses on the strategic reusing, repurposing, and refurbishing of microturbine parts returning from the approximately 9,000 microturbines worldwide from both scheduled and unscheduled maintenance activities.
Kirk Petty, Capstone’s Senior Vice President of Manufacturing, noted: “While the initial focus of the project team concentrated on the basic cleaning, inspection and screening of parts, the overall remanufacturing program smartly evolved into developing cost-efficient rework methods.
“In some cases, these remanufacturing efforts resulted in savings of over 90% of the cost of a new part, while achieving the same original standard of quality our customers have come to expect.”
Environmentally friendly steel recycling program
The EPR program also helps to address a Capstone corporate value initiative, which is to reduce its global environmental footprint both in its products and in its microturbine manufacturing efforts.
Darren Jamison said: “This is essentially an environmentally friendly steel recycling program that is on top of the estimated $253 million in annual energy costs and 350,000 tons of carbon we have saved end-use customers.”
The remanufacturing program coincides with multiple efficiency improvements the company has realized over the last several years in its critical aftermarket business, supporting its stated strategic goal to completely absorb all operating expenses through margins contributed from the aftermarket business.
UK transformation project to complete in 2020
Jeff Foster, Capstone’s Senior Vice President of Customer Service and Product Development commented: “In realizing the initial successes of the remanufacturing program at Capstone’s headquarters, we determined that even greater savings could occur by moving the processes upstream to our forward-operating United Kingdom facility.
“Over the last several years, our Capstone United Kingdom facility has been transformed from a field services hub to a state-of-the-art facility that has similar remanufacturing capabilities to that of our corporate worldwide manufacturing headquarters in California.
“When we complete this U.K. transformation project in 2020, we will have greatly reduced the costs associated with our growing fleet operating in Europe, Russia, the Middle East, and Africa.”
“We believe the expected results from the remanufacturing program will be reflected in future continued, sustainable improvements in aftermarket gross margins, as well as overall company margins,” Foster concluded.
In afternoon trading in NewYork, shares in Capstone Turbine were 1.5% higher at $0.741.
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Contact Jon Hopkins at [email protected]