NASDAQ: CGRN

Capstone Green Energy

Company Overview

Capstone Green Energy is a leading provider of customized microgrid solutions and on-site energy technology systems focused on helping customers worldwide meet their environmental, energy savings, and resiliency goals. Capstone Green Energy focuses on four key business lines: energy as a service (EaaS), energy conversion products, energy storage products, and hydrogen energy solutions.

The company provides EaaS through its industry-leading factory protection plan (FPP) long-term service program, microturbine-based rental fleet, and distributor support system (DSS), which is essentially a subscription model providing distributors access to the products, training, and customer-acquisition activities. Energy conversion products include its existing patented, low-emission microturbine products and additional energy conversion and storage products, including larger frame Baker Hughes industrial gas turbines. Its energy storage products business line will begin to manufacture modular hybrid energy stations and lithium-ion battery energy storage systems (BESS) to be sold either individually or combined as part of a custom microturbine battery storage solution. Hydrogen products will focus on expanding the company’s capability to use hydrogen as fuel in its gas microturbines with a development roadmap to a 100% hydrogen solution.

The company was founded in 1988 and is headquartered in Van Nuys, California.

Our Insights

The Opportunities

Capstone has experienced a variety of cycles and shifts in the industry over the past decade. Still, management believes it has never been better positioned to leverage what is now a sea change in how energy is viewed, created, and delivered. The transition to Capstone Green Energy, and the expanded products and services offered by the company, positions it to better leverage the microgrid megatrend currently taking place. The recent transformation and expansion of the business segments to include storage and other energy technologies should provide the company with a broader set of solutions, create a larger TAM, and solidify stronger partnerships with customers. By becoming a solutions provider versus a technology supplier, the revenue opportunities grow, and management believes this will enable the company to increase revenue faster and create longer-term, predictable cash flows. The proliferation of renewables, a focus on energy security and reliability, outdated power grids, and EaaS are all driving change. The company’s long history as a leading supplier of low-emission micro gas turbines will lead the push forward. Still, there is a much-improved capability to provide additional products and services in a comprehensive microgrid solution. It is important to note that the core gas turbine business is not experimental but has been deployed in wide-scale commercial applications for decades. The platform has proven itself to be as advertised. It is demonstrated by the fact that the company has, to date, shipped over 10,000 systems into 83 countries, successfully logging millions of operating hours.

The Obstacles

Although there are numerous favorable tailwinds, there are also challenges that must be navigated and overcome. The company’s expansion and transformation are still in the very early stage, and execution risk exists. There will also be additional competitors pursuing similar strategies to capture share in managing comprehensive microgrid solutions as the economic opportunity is attractive. Additionally, despite significant YOY improvement, the company is still not cash-flow positive, which can create pressure on the balance sheet. The company will likely need a strong balance sheet to execute the Capstone Green Energy strategy as partnerships will need to be developed, employees added, and possibly higher working capital demands.