Capstone Turbine ‘executing effectively’ on its strategic business initiatives

Capstone Turbine Corporation (NASDAQ:CPST) announced Tuesday that it is “executing effectively” on its strategic business initiatives. 

In a statement, the maker of clean-energy turbines also reiterated its goal to achieve adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the quarter ending June 30, 2020. 

Capstone Turbine had previously announced its goal of reaching positive adjusted EBITDA by focusing on improving the business in areas that it has direct control of, and in areas that are not impacted by project delays, macroeconomic conditions, geopolitical events, and trade wars, among other issues.

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During the recent first-quarter earnings call, the company outlined a gross margin growth strategy that would produce an estimated $5.4 million, or a 24% gross margin in the upcoming quarter ending June 30, 2020.

Capstone now expects it can lower its average quarterly operating expenses to a range of $5.2 million to $5.7 million, including in the upcoming quarter ending June 30, 2020, which could potentially generate a positive adjusted EBITDA result during the quarter.

“The Capstone Leadership Team and each of our employees, suppliers and distribution partners are executing well against our multiple strategic initiatives, which should lead to a reduced quarterly cash burn, improved gross margins, lower direct material costs and lower operating expenses,” said CEO Darren Jamison.

“The Leadership Team is confident we can achieve our stated goal of achieving positive Adjusted EBITDA in the June 2020 quarter. However, this is just the first step in building a sustainable and profitable business quarter-over-quarter and reach a positive cash flow to better support our long-term growth plans.”

Capstone said the current management focus is on the following areas to improve the business:

• Lower average quarterly operating expenses from approximately $6.5 million to $5.2 million to $5.7 million;
• Reduce direct material costs by $3 million on an annual basis;
• Expand the current 6.2 megawatts (MW) factory long-term rental fleet to 10 MW; 
• Improve Factory Protection Plan contract attachment rates from 38% to 45%;
• Grow the Distributor Support System program; and
• Increase aftermarket spare parts margins to 55%

In September, the company ended its lease obligations at its Chatsworth, California facility, saving an estimated $1.5 million in annual rent, utilities, maintenance, logistics and insurance costs. In addition, the company has an ongoing program to lean out its manufacturing, engineering, sales and marketing efforts. 

Additional company highlights

Capstone said it has been able to reduce direct material cost (DMC) approximately $1.3 million against a stated goal of $3 million annually. This equates to an average 6% reduction in DMC for the C65 product over the past three months and 2% for the C1000 product over the past six months.

The new higher-margin, recurring revenue, long-term microturbine rental fleet initiative continues to make progress with an installed base of 6.2 MW, against a 10 MW target, primarily directed at major oil and gas producers. 

Capstone also said it has reached a new record of 250 MWs under long-term Factory Protection Plans (FPP) service contracts. The innovative FPP aftermarket product remains a key strategic initiative, and the company continues to sign new contracts as well as transitioning existing customers with a record of $4.2 million in first-quarter FPP revenue. 

The company noted that this is the third-highest aftermarket revenue quarter and the highest ever first-quarter aftermarket revenue in Capstone’s history. Another key milestone was reached in the quarter with an FPP attachment rate of 38%, which is a record for the company and demonstrates it is well on the way to the stated near-term target of 45%. 

Lastly, the innovative Distributor Support System (DSS) program is estimated to yield the company in excess of $2 million in cash annually to help offset branding, sales and marketing expenses.  

Capstone, based in Van Nuys, California, offers a product line-up of microturbines that can produce anywhere from 30 kilowatts to 10 MWs of power, operating on a variety of gaseous or liquid fuels.

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Story by ProactiveInvestors