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Capstone Turbine sees healthy growth in aftermarket services margins as it posts 3Q results

The microturbine energy systems manufacturer saw its aftermarket service business increase its margins by 20% over the quarter

CEO Darren Jamison expressed optimism that the Van Nuys, California-based company would reach positive adjusted EBITDA by June 2020

Capstone Turbine Corporation (NASDAQ:CPST), the microturbine energy systems manufacturer, saw its aftermarket service business increase its margins by 20% during its fiscal third quarter despite lower product shipments.

CEO Darren Jamison expressed optimism that the Van Nuys, California-based company would reach positive adjusted EBITDA by June 2020 thanks to higher gross margins.

Total gross margin increased by $400,000, or 18%, to $2.6 million compared to $2.2 million in the year-ago quarter despite lower product shipments, the firm said on Thursday afternoon as it posted its fiscal 3Q results.

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A major highlight of the quarter was the company’s accessories, parts, service, rental, and Distributor Support System (DSS) revenues of $9.5 million, up 20% from $7.9 million in the year-ago quarter.

Gross margin percentage expanded by 25% to 15% from 12% in the year-ago quarter, but was flat on a sequential basis despite lower revenues, Capstone said.

"Capstone's service, DSS, and rental programs continue to grow according to plan and are the driving forces behind our three-point margin expansion year-over-year despite lower than expected product shipments," Jamison told shareholders in a statement.

"Even on a slightly lower revenue base, our margin expansion illustrates the importance of the high margin aftermarket business we are building and why we remain optimistic and committed to achieving our goal of reaching positive Adjusted EBITDA in the June 2020 quarter.”

Total revenue for the quarter came in at $17.4 million, compared with total revenue of $18 million in the year-ago quarter. The decrease in revenue was the result of lower megawatts shipped due to weakness in the US natural resources market vertical, according to the firm. Net loss per share was $0.59 compared to $0.50 in the year-ago quarter.

Path to profits

Capstone outlined plans to reach positive adjusted EBITDA by improving the business in areas that it has direct control over and that are not directly impacted by external factors like macroeconomic conditions and project delays. Last October, the company announced that it expected to lower its quarterly operating expenses to a range of $5.2 million to $5.7 million, which would potentially generate positive adjusted EBITDA during the first quarter of fiscal 2021, which ends on June 30, 2020.

It also recently announced that it had divided its sales and marketing team into two separate organizations to lower cost and improve overall effectiveness.

In January, it completed significant upgrades to its International Remanufacturing Facility in the UK designed to improve future aftermarket margins.

"We are continuing to execute on our strategic initiatives designed to reduce quarterly cash burn, improve gross margins, lower direct material costs, and lower operating expenses,” Jamison said.

“Importantly, we have built this plan to succeed with conservative revenue assumptions despite our belief that we are in the early stages of a long-term growth cycle being driven by distributed energy generation and energy as a service."

Shares of Capstone traded at $2.66 at Thursday’s close.

Contact Angela at [email protected]

Follow her on Twitter @AHarmantas

Quick facts: Capstone Turbine Corporation

Price: 1.22 USD

Market: NASDAQ
Market Cap: $11.12 m

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