Tecogen Announces Third Quarter 2017 Results
Tecogen has now Generated Positive GAAP Net Income in Four out of the Last Five Quarters
WALTHAM, Mass., November 9, 2017 - Tecogen® Inc. (NASDAQ:TGEN), a leading manufacturer of clean energy
products which, through patented technology, nearly eliminate criteria pollutants and significantly reduce a
customer's carbon footprint, reported revenues of $8,501,198 for the quarter ended September 30, 2017 compared to
$6,616,455 for the same period in 2016, or 28.5% growth in top line revenue. The completion of the merger with
American DG Energy on May 18th added $1,556,115 in revenue to the quarterly result.
Income from operations was $85,539 compared to $249,493 in the prior year comparable period. Similarly, Tecogen
delivered net income for the quarter of $27,211 compared to $207,868 in the third quarter 2016. The quarter's
results included non-recurring expenses totaling $37,445 related to the company's merger with American DG
Energy.
Depreciation and amortization jumped to $160,061 for the third quarter of 2017 from $66,484 for the same period
in the prior year. The increase is related to the depreciation of the equipment that American DG Energy owns to
deliver energy to its customers and the amortization of the corresponding contracts. Excluding merger related
expenses, adjusted non-GAAP EBITDA(1) was a positive $295,755 for the third quarter of 2017 versus $382,802 for
the third quarter of 2016, a decrease of $87,047. (Adjusted EBITDA is defined as net income attributable to
Tecogen Inc, adjusted for interest, depreciation and amortization, stock based compensation expense, and merger
related expenses. See table following the statements of operations for a reconciliation from net income to Adjusted
EBITDA as well as important disclosures about the company's use of Adjusted EBITDA).
Commenting about the quarter, Tecogen Co-Chief Executive Officer Benjamin Locke noted, "Operationally, it was
another positive quarter for Tecogen. The addition of revenue from American DG Energy more than offset lower
product revenue, pushing total revenue to a quarterly record. With our backlog hovering near record levels, we are
poised for a strong finish to the year. We have a handful of internal projects under way in the fourth quarter that
should help to sustain our momentum going into 2018. We are rolling out an update of our Tecopower CHP unit,
upgrading our chiller manufacturing capacity, and updating some internal software systems to improve our
operational efficiency."
Revenue results were driven by solid growth in services related revenues as well as the addition of energy
production revenues provided by newly acquired American DG Energy. Total services related revenues for the third
quarter of 2017 grew 20.0% over the prior year period, driven primarily by installation activity, while product
revenue declined 14.9% compared to the third quarter of 2016. Chiller and heat pump sales more than doubled,
partly offsetting a 30.2% decline from what were record cogeneration sales in the year-ago period.
Changes in sales mix, partly offset by a full quarter of ADGE's high margin contribution, resulted in an 8.6%
decline in gross margin to 38.3% compared to 41.9% in the third quarter of 2016. Nevertheless, this remains well
within management's targeted 35-40% gross margin range.
On a combined basis, operating expenses increased to $3,172,492 for the third quarter 2017 from $2,525,325 in the
same quarter of 2016. An increase in selling expenses, which rose 37.0% to $503,415, merger related expenses of
$37,445, and the consolidation of ADGE's core overhead, accounted for most of the increase. The increase in
selling expenses was due to an uptick in marketing related activity and higher sales commissions.
Backlog of products and installations was $14.5 million as of third quarter end, and stood at $16.8 million as of
November 8, 2017.
Speaking about the results Mr. Locke added, "The third quarter of 2016 was a breakout quarter for the company, but
as such is a tough quarter to benchmark against. Despite that, the bottom line of this year's third quarter actually
compares quite well. We had some remnant merger related expenses to take care of and we chose to increase the
budget for selling expenses as an investment in future growth. Getting the merger with ADGE done required a lot of
effort and non-quantifiable costs by management and administrative staff. Its successful completion was an
important milestone for Tecogen and enables us to now focus squarely on that future growth. In all, I am quite
pleased with how the quarter turned out."
Co-CEO John Hatsopoulos said, “The third quarter showed the strategic importance of Tecogen’s acquisition of
American DG Energy. It adds another stable stream of revenue to help cushion the ups and downs of our product
revenue. We’ve now been profitable for five quarters in a row based on adjusted EBITDA(1) and are in a position of
strength to meet the opportunities that lie ahead."
Major Highlights:
Financial
• Gross profit for the third quarter of 2017 was $3,258,031 compared to $2,774,818 in the third quarter of
2016, an increase of 17.4% versus the same period in the prior year. This substantial growth was generated
by the full-quarter contribution of American DG Energy.
• Overall gross margin in the third quarter of 2017 decreased to 38.3% compared to 41.9% in 2016. A shift in
sales mix to lower margin items was partly offset by the addition of high margin energy production
revenue.
• Product gross margin was 36.6% for third quarter of 2017 compared to 39.8% in third quarter of 2016 as
revenue from chiller sales accounted for a larger portion of product sales compared to the year-earlier
period.
• Services gross margin declined to 34.0% in the period compared to the 43.5% in the prior year. Strong
growth in lower margin turnkey installations accounted for the lion's share of the drop in margin.
• Energy production gross margin was an exceptionally strong 53.5% following the completion of the merger
with American DG Energy on May 18th. We would expect energy production gross margin to fluctuate
materially due to seasonality.
• On a combined basis, operating expenses rose to $3,172,492 for the third quarter of 2017 from $2,525,325
in the third quarter of 2016. The consolidation of ADGE's operations, $37,445 in merger related expenses
and an increase in selling expenses to $503,415 from $367,412 accounted for most of the year-over-year
increase.
• Excluding non-recurring merger related costs and stock compensation expense, adjusted non-GAAP
EBITDA(1) was $295,755 for the quarter compared to adjusted non-GAAP EBITDA of $382,802 during the
comparative third quarter of 2016.
• Consolidated net income attributable to Tecogen, for the three months ended September 30, 2017 was
$27,211 compared to $207,868 for the same period in 2016.
• Net income per share was $0.00 compared to $0.01 for the three months ended September 30, 2017 and
2016, respectively.
• Current assets at quarter end of $23,592,614 were more than double current liabilities of $9,399,283.
Current liabilities include $850,000 of short-term debt due to a related party, which came to Tecogen via the
acquisition of American DG Energy.
Sales & Operations
• Product revenues declined 14.9% from the same period in 2016. The launch of the InVerde e+ in early 2016
and uncertainty regarding the outlook for NYSERDA funding caused sales to jump in the second half of
2016. While cogeneration sales have pulled back 30.2% after last year's surge, they remain well above sales
levels prior to InVerde's upgrade. In contrast, chiller sales increased 176.3% year over year. Increasing
interest from both the indoor agriculture market and the growing recognition of the value proposition of
"mechanical CHP" are the key drivers.
• Services revenues grew 20.0% year-on-year, benefiting from increasing penetration in service contracts and
favorable operating metrics for the installed fleet as well as an active period for installations work.
Continued penetration of our 'turnkey lite' offering, which includes custom value-added engineering design
work as well as custom factory engineered accessories and load modules, has been a good source of
services revenue growth and is expected to continue to develop as an important revenue stream.
• Current sales backlog of equipment and installations as of Wednesday, November 8, 2017 was $16.8
million, driven by strong traction in the InVerde and Tecochill product lines and Installation services. As of
September 30, 2017 the backlog was $14.5 million, in line with the Company’s goal of consistently
delivering a quarter-end product backlog greater than $10 million.
• Indoor agriculture continues to be a rapidly emerging new opportunity for growth, particularly for the
Tecochill line of natural gas powered chillers. To-date, Tecogen has inked eight transactions in the space, all
but one of which is to buyers who intend to grow cannabis. Interest for our products from new growers
entering the market is ongoing.
• On September 28th, Tecogen filed an 8-K declaring that it was exercising its right to terminate its TTcogen
joint venture with Tedom. The 8-K also states that Tecogen "intends to work together with Tedom to come
to an amicable decision to create a new path forward for TTcogen and the relationship between the
Company and Tedom and/or facilitate an amicable wind up of TTcogen's affairs as provided for in the LLC
Agreement and in accordance with the terms therewith."
Emissions Technology
• ULTRATEK - Subsequent to the quarter close, Tecogen announced that the Company and its co-investors
have agreed to dissolve their Ultra Emissions Technologies S.à r.l. ("ULTRATEK") joint venture. The
dissolution process will take place under Luxembourg law and is expected to close by the end of the year.
Once the process is complete, all unspent funds will be distributed to the ULTRATEK investors as agreed
by a unanimous consent of the shareholders executed on October 24, 2017. As part of this disbursement,
Tecogen will receive all its invested funds, $2 million in cash, and the sole exclusive IP that it licensed to
ULTRATEK. Tecogen will then purchase all the non-cash assets of ULTRATEK, including all intellectual
property, for $400,000. The IP includes two awarded patents, four patent applications, and all data and
knowhow associated with the emissions testing performed by AVL.
"The rigorous testing completed by ULTRATEK resulted in unassailable documentation and proof of the
effectiveness of the Ultera process in reducing criteria emissions from gasoline-powered vehicles with no
loss of performance or fuel economy," said Robert Panora, Tecogen President and COO. "Our engagement
with both regulators and leading industry manufacturers has provided us with strategic insight regarding the
path we should take to gain the confidence of the automotive industry that we possess a practical solution to
a difficult problem, one that will neither be resolved in the near or medium term by electrification nor
tolerated by the public and regulators. We very much look forward to taking this exciting technology to the
next level."
• PERC - As reported in the last quarter of 2016, we received research grant funding from the Propane
Education and Research Council (PERC) to demonstrate the viability of our emissions technology in fork
trucks. The program’s goal is to develop a retrofit emissions system for fork trucks to reduce their
emissions to levels more acceptable for air quality in indoor work environments. Earlier in the year,
baseline testing of the unmodified fork truck was completed utilizing a donated fork truck from a major
manufacturer that has expressed strong interest in Ultera and has agreed to assist our research effort. The
data indicates that the fork truck is an excellent fit for Ultera technology, exhibiting an emissions profile
that can be significantly impacted by our process. At this time, we have completed modification to the fork
truck associated with the Ultera retrofit and are beginning shakedown testing of the system. Executives
from the manufacturer and PERC are tentatively planning to visit Tecogen in December to view the
prototype operation first hand.
• California Air Permit for Ultera on Standby Generators - Now that facility technical staff have overcome
some unrelated technical issues with the final generator, we are able to report that all generators at the
facility have been retrofitted with the Ultera system and commissioned for their normal, intended use.
Informal testing utilizing our portable emissions analyzers confirmed that all units are compliant to the
Southern California standard. We anticipate the customer will complete third party “source testing” of the
units, the final step in the permit process, in the upcoming month, at which time we will have independent
confirmation of our ground-breaking emissions reduction capability applied to this very stringent
application.
Conference Call Scheduled for Today at 11:00 am ET
Tecogen will host a conference call today to discuss the third quarter results beginning at 11:00 am eastern time. To
listen to the call dial (877) 407-7186 within the U.S. and Canada, or (201) 689-8052 from other international
locations. Participants should ask to be joined to the Tecogen 3rd quarter 2017 earnings call. Please begin dialing
at least 10 minutes before the scheduled starting time. The earnings press release will be available on the Company
website at www.Tecogen.com in the "News and Events" section under "About Us." The earnings conference call
will be webcast live. To view the associated slides, register for and listen to the webcast, go to
http://investors.tecogen.com/webcast. Following the call, the webcast will be archived for 30 days.
The earnings conference call will be recorded and available for playback one hour after the end of the call through
Thursday November 23, 2017. To listen to the playback, dial (877) 660-6853 within the U.S. and Canada, or
(201) 612-7415 from other international locations and use Conference Call ID#: 13672659.
About Tecogen
Tecogen Inc. designs, manufactures, sells, installs, and maintains high efficiency, ultra-clean, cogeneration products
including natural gas engine-driven combined heat and power, air conditioning systems, and high-efficiency water
heaters for residential, commercial, recreational and industrial use. The company is known for cost efficient,
environmentally friendly and reliable products for energy production that, through patented technology, nearly
eliminate criteria pollutants and significantly reduce a customer’s carbon footprint.
In business for over 20 years, Tecogen has shipped more than 2,300 units, supported by an established network of
engineering, sales, and service personnel across the United States. For more information, please visit
www.tecogen.com or contact us for a free Site Assessment.
Tecogen, InVerde, Ilios, Tecochill, Ultera, and e+, are registered trademarks or trademark pending registration of
Tecogen Inc.
Forward Looking Statements
This press release and any accompanying documents, contains "forward-looking statements" within the meaning of
the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements
can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate,"
"expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of
forward-looking statements include, among others, statements we make regarding:
• The future structure and funding of Tecogen and any of its joint ventures.
• The status of any intellectual property rights or assets.
• Expected operating results, such as revenue growth and backlog.
• Strategy for growth, product development, and market position. AND
• Strategy for risk management.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are
based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans
and strategies, projections, anticipated events and trends, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are outside of our control. Our actual results and
financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you
should not rely on any of these forward-looking statements. Important factors that could cause our actual results and
financial condition to differ materially from those indicated in the forward-looking statements include, among
others, the following:
• Competing technological developments.
• Lack of market interest in our joint venture’s products.
• Issues obtaining intellectual property protection.
• Issues in the research and development of new products.
• Tecogen’s inability to properly fund its joint ventures. AND
• Such other factors as discussed throughout the "Risk Factors" section of Tecogen’s 10-K that was
filed with the SEC on March 31, 2017 and can be found at www.sec.gov.
Any forward-looking statement made by us in in this press release and any accompanying documents is based only
on information currently available to us and speaks only as of the date on which it is made. We undertake no
obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time
to time, whether as a result of new information, future developments or otherwise.
Tecogen Media & Investor Relations Contact Information:
John N. Hatsopoulos
P: 781-622-1120
E: John.Hatsopoulos@tecogen.com
Jeb Armstrong
P: (781) 466-6413
E: Jeb.Armstrong@tecogen.com
TECOGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2017 and December 31, 2016
(unaudited)
September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 2,077,047 $ 3,721,765
Accounts receivable, net 11,094,287 8,630,418
Unbilled revenue 3,063,089 2,269,645
Inventory, net 6,118,835 4,774,264
Due from related party 496,655 260,988
Prepaid and other current assets 742,701 401,876
Total current assets 23,592,614 20,058,956
Property, plant and equipment, net 15,502,974 517,143
Intangible assets, net 2,430,178 1,065,967
Excess of cost over fair value of net assets acquired 12,602,409 —
Goodwill 40,870 40,870
Other assets 2,462,870 2,058,425
TOTAL ASSETS $ 56,631,915 $ 23,741,361
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,356,449 $ 3,367,481
Accrued expenses 1,676,307 1,378,258
Deferred revenue 1,477,124 876,765
Loan due to related party 850,000 —
Interest payable, related party 39,403 —
Total current liabilities 9,399,283 5,622,504
Long-term liabilities:
Deferred revenue, net of current portion 386,494 459,275
Senior convertible promissory note, related party 3,149,086 3,148,509
Unfavorable contract liability 10,358,283 —
Total liabilities 23,293,146 9,230,288
Commitments and contingencies (Note 9)
Stockholders’ equity:
Tecogen Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized;
24,724,392 and 19,981,912 issued and outstanding at September
30, 2017 and December 31, 2016, respectively 24,724
19,982
Additional paid-in capital 56,081,026 37,334,773
Accumulated other comprehensive loss-investment securities (184,998 ) —
Accumulated deficit (23,065,226 ) (22,843,682 )
Total Tecogen Inc. stockholders’ equity 32,855,526 14,511,073
Noncontrolling interest 483,243 —
Total stockholders’ equity 33,338,769 14,511,073
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 56,631,915 $ 23,741,361
TECOGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
Three Months Ended
September 30,
2017
September 30,
2016
Revenues
Products $ 2,425,616 $ 2,850,901
Services 4,519,467 3,765,554
Energy production 1,556,115 —
Total revenues 8,501,198 6,616,455
Cost of sales
Products 1,538,515 1,715,462
Services 2,981,454 2,126,175
Energy production 723,198 —
Total cost of sales 5,243,167 3,841,637
Gross profit 3,258,031 2,774,818
Operating expenses
General and administrative 2,427,352 2,003,838
Selling 503,415 367,412
Research and development 241,725 154,075
Total operating expenses 3,172,492 2,525,325
Income from operations 85,539 249,493
Other income (expense)
Interest and other income 14,849 3,914
Interest expense (45,242 ) (45,539 )
Total other expense, net (30,393 ) (41,625 )
Consolidated net income 55,146 207,868
Income attributable to the noncontrolling interest (27,935 ) —
Net income attributable to Tecogen Inc. 27,211 207,868
Other comprehensive income - unrealized gain on securities 39,361 —
Comprehensive income $ 66,572 $ 207,868
Net income per share – basic $ 0.00 $ 0.01
Net income per share – diluted $ 0.00 $ 0.01
Weighted average shares outstanding – basic 24,720,613 19,640,812
Weighted average shares outstanding – diluted 24,930,624 20,229,120
Non-GAAP financial disclosure (1)
Net income attributable to Tecogen Inc. $ 27,211 $ 207,868
Interest expense, net 30,393 41,625
Depreciation & amortization, net 160,061 66,484
EBITDA 217,665 315,977
Stock based compensation 40,645 66,825
Merger related expenses 37,445 —
Adjusted EBITDA $ 295,755 $ 382,802
TECOGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
Nine Months Ended
September 30,
2017
September 30,
2016
Revenues
Products $ 8,349,159 $ 7,525,909
Services 12,259,037 9,853,369
Energy production 2,330,307 —
Total revenues 22,938,503 17,379,278
Cost of sales
Products 5,261,245 5,035,230
Services 7,464,193 5,746,992
Energy production 1,053,741 —
Total cost of sales 13,779,179 10,782,222
Gross profit 9,159,324 6,597,056
Operating expenses
General and administrative 7,042,500 5,898,230
Selling 1,558,378 1,217,533
Research and development 641,064 524,696
Total operating expenses 9,241,942 7,640,459
Loss from operations (82,618 ) (1,043,403 )
Other income (expense)
Interest and other income 21,033 9,575
Interest expense (115,026 ) (131,973 )
Total other expense, net (93,993 ) (122,398 )
Consolidated net loss (176,611 ) (1,165,801 )
(Income) loss attributable to the noncontrolling interest (44,933 ) 64,962
Net loss attributable to Tecogen Inc. $ (221,544 ) $ (1,100,839 )
Other comprehensive loss - unrealized loss on securities $ (184,998 ) $ —
Comprehensive loss $ (406,542 ) $ (1,100,839 )
Net loss per share - basic and diluted $ (0.01 ) $ (0.06 )
Weighted average shares outstanding - basic and diluted 22,643,406 19,071,497
Non-GAAP financial disclosure (1)
Net loss attributable to Tecogen Inc. $ (221,544 ) $ (1,100,839 )
Interest expense, net 93,993 122,398
Depreciation & amortization, net 402,939 198,766
EBITDA 275,388 (779,675 )
Stock based compensation 138,329 117,065
Merger related expenses 156,298 35,690
Adjusted EBITDA $ 570,015 $ (626,920 )
TECOGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2017 and 2016
(unaudited)
Nine Months Ended
September 30,
2017
September 30,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net loss $ (176,611 ) $ (1,165,801 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net 402,939 198,766
Provision (recovery) of inventory reserve 43,609 (90,000 )
Stock-based compensation 138,329 117,065
Non-cash interest expense 577 37,923
Loss on sale of assets 2,909 640
Provision (recovery) for losses on accounts receivable 8,000 (6,000 )
Changes in operating assets and liabilities, net of effects of acquisitions
(Increase) decrease in:
Short term investments — 294,802
Accounts receivable (1,908,655 ) (2,664,462 )
Unbilled revenue (776,365 ) (1,024,276 )
Inventory, net (1,279,847 ) 714,896
Due from related party (236,971 ) 744,266
Prepaid expenses and other current assets (18,673 ) (100,398 )
Other non-current assets (32,251 ) —
Increase (decrease) in:
Accounts payable 1,641,206 (279,196 )
Accrued expenses and other current liabilities (233,824 ) 122,809
Deferred revenue 407,379 184,103
Interest payable, related party 21,378 —
Net cash used in operating activities (1,996,871 ) (2,914,863 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (315,205 ) (130,499 )
Purchases of intangible assets (34,551 ) (71,223 )
Cash acquired in acquisition 971,454 —
Cash paid for investment in Ultra Emissions Technologies Ltd (2,000,000 )
Payment of stock issuance costs (367,101 ) —
Distributions to noncontrolling interest (31,362 ) —
Net cash provided by (used in) investing activities 223,235 (2,201,722 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from demand notes payable, related party — 150,000
Payment of stock issuance costs — (28,548 )
Proceeds from debt issuance costs — (2,034 )
Proceeds from the exercise of stock options 128,918 312,698
Proceeds from exercise of warrants — 2,700,000
Net cash provided by financing activities 128,918 3,132,116
Net decrease in cash and cash equivalents (1,644,718 ) (1,984,469 )
Cash and cash equivalents, beginning of the period 3,721,765 5,486,526
Cash and cash equivalents, end of the period $ 2,077,047 $ 3,502,057
Supplemental disclosures of cash flows information:
Cash paid for interest $ 95,550 $ 94,049
Exchange of stock for non-controlling interest in Ilios $ — $ 330,852
Issuance of stock to acquire American DG Energy $ 18,745,007 $ —
Issuance of Tecogen stock options in exchange for American DG Energy options $ 114,896 $ —
(1) Non-GAAP Financial Measures
In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, this news
release contains information about EBITDA (net income (loss) attributable to Tecogen Inc adjusted for interest,
depreciation and amortization, stock based compensation expense, and merger related expenses), which is a non-
GAAP measure. The Company believes EBITDA allows investors to view its performance in a manner similar to
the methods used by management and provides additional insight into its operating results. EBITDA is not
calculated through the application of GAAP. Accordingly, it should not be considered as a substitute for the GAAP
measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP
measure. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not
be comparable to a similarly defined non-GAAP measure used by other companies.
