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Saturday, May 28, 2022

Turbine Maker Powers Way to Operating Profit

Is Capstone Turbine Corp. finally on the brink putting it all together as a public company? Well, at least one investor thinks so, but the Chatsworth maker of microturbines has yet to convince the larger market. Shares of the company have lost about a third of their value over the last month even as the company raised more than $30 million from a single institutional investor in a dilutive offering that closed May 7. Chief Executive Darren Jamison said the offering was a necessary and prudent move to strengthen the balance sheet and raise more working capital as the company works to reduce a $171 million order backlog. “Ending backlog is a leading indicator of future revenue growth,” he said. Capstone, founded in 1988, manufactures more than 20 models of microturbines powered by liquid or gas fuels capable of generating from 28 kilowatts up to 1 megawatt for primary and backup power, cooling and heating. That’s a lot of power from turbines that range in height from about 2 feet to just more than 9 feet. The 30kw model produces enough electricity to power a convenience store, while the 200kw model gets used in larger hotels and office buildings. Capstone does not disclose pricing but they are more expensive upfront than typical internal combustion portable generators, which may cost $10.000 to $20,000. The company boasts its technology is cleaner, more reliable and requires less maintenance, with oil-and-gas exploration companies accounting for 60 percent of sales. Capstone last reported a profit in its second fiscal quarter 2011 when it posted net income of $1.3 million. In its most recent earnings for the fiscal third quarter ended Dec. 31, the company reported a net loss of $2.2 million (-1 cent a share), down from a net loss of $4.5 million (-1 cent) in the same period a year earlier. Revenue increased 11 percent to $37 million. Robert Stone, a managing director and senior research analyst in the Boston office of Cowen & Co., the New York investment firm, said he believes the company is moving in the right direction as it receives more repeat orders and awareness grows of its microturbines. Cowen began coverage of Capstone in October when the company finally started making an operating profit. Once net income turns positive, Stone expects the market to follow. “The investors will change and enlarge when they achieve profitability,” he added. The sale of the 18 million shares, priced at $1.70 each, diluted the number of outstanding shares by less than 10 percent. “It may be a sign that management sees an opportunity for strong growth and they need the capital to support that,” Stone said. Cowen and FBR & Co., in Arlington, Va., were the book-running managers of the offering. Still, shares are down 46 percent from a 52-week high of $2.60 on March 19. They closed May 14 at $1.40. Palm oil processing Capstone sold its first microturbine in 1998 and has about 7,000 in use worldwide. It employs a total workforce of 225 in its corporate headquarters and two plants in Chatsworth and Van Nuys, as well as sales and service centers in New York, Mexico City, Shanghai , Singapore and United Kingdom. Jamison expects that the oil and gas exploration market will account for the bulk of its sales in the near term. Exploration companies value the reliability and lower emissions – an issue in an industry sensitive about its public perception. However, the company is making a large effort to diversify its customer base. Recent orders include a palm oil processing plant in Malaysia, two Southern California hospitals, a Royal Air Force base in the United Kingdom, and natural gas shale operations in the Mid-Atlantic states. Its smallest microturbines are even suitable for large electric vehicles to charge batteries and to extend range and power acceleration and air conditioning. “We are starting to penetrate new markets like data centers, hospitals, marine and hybrid buses and trucks that will drive future revenue and growth,” Jamison said. Locally, Capstone micro-turbines are in use at Pierce College in Woodland Hills and at the Ronald Reagan Presidential Library & Foundation in Simi Valley. John Lehne, manager of the Air Force One Pavilion Building at the Reagan Library, said the 960 kilowatt natural gas-powered turbine in the pavilion was installed in 2005 as part of a $3 million co-generation plant to provide power, chilled water and heating water from a natural gas source. “Savings vary based on the cost of the natural gas we purchase to run it, but it is generating a positive return on our investment, Lehne said. Still, Capstone has plenty of challenges. It is still a small company with low brand recognition – something even Jamison acknowledged – and its balance sheet can’t compare to a growing number of competitors that include manufacturing behemoths like Caterpillar Inc. in Peoria, Ill., and Cummins Inc. in Columbus, Ind. that make less expensive internal combustion engine generators. Alternative energy companies also are going after the same market, including FuelCell Energy Inc. in Danbury, Conn., and Bloom Energy Corp. in Sunnyvale. “The biggest challenge is education of our customers on our technology and its features and benefits,” Jamison said. “Most company CEOs and CFOs don’t know about Capstone and don’t realize they have clean and green cost affordable energy options.”

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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