Tecogen Announces First Quarter 2018 Results
Source: Nasdaq GlobeNewswire / 15 May 2018 09:01:08 America/New_York
With Another Positive Quarter and Financial Resources, Tecogen is Primed for Growth
WALTHAM, Mass., May 15, 2018 (GLOBE NEWSWIRE) -- 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 $10,175,427 for the quarter ended March 31, 2018 compared to $6,846,767 for the same period in 2017, or 48.6% growth in top line revenue. The energy production revenue from the sites of our wholly-owned subsidiary, American DG Energy, added $1,782,535 in revenue to the quarterly result.
Income from operations was $70,906 compared to $77,702 in the prior year comparable period. Similarly, Tecogen delivered net income for the quarter of $20,759 compared to $44,787 for the first quarter 2017. The quarter's results included an unrealized loss on EuroSite Power Inc. common stock of $19,681 (previously presented in "Other Comprehensive Loss") and non-recurring expenses totaling $9,610 related to the company's merger with American DG Energy.
Depreciation and amortization jumped to $199,181for the first quarter of 2018 from $64,281 for the same period in the prior year. The increase is related to the depreciation of American DG Energy's energy producing equipment net of the amortization of the corresponding contracts. Excluding the unrealized loss on EuroSite Power's shares and merger related expenses, adjusted non-GAAP EBITDA(1) was a positive $303,757 for the first quarter of 2018 versus $190,825 for the first quarter of 2017, an increase of $112,932, or 59.2%. (Adjusted EBITDA is defined as net income attributable to Tecogen, adjusted for interest, depreciation and amortization, stock based compensation expense, unrealized loss on equity securities 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).
Tecogen's Chief Executive Officer Benjamin Locke noted, "Having another quarter with a positive net income shows that the Company is successfully growing, and supports our positive outlook for the future. With the addition of a $10 million revolving line of credit, the Company now has access to funds that will allow us to focus on growth, including our research and development efforts, and expansion into new markets for our products, and our ability to take on larger projects."
Revenue results were driven by solid growth in product and services related revenues as well as the addition of energy production revenues provided by American DG Energy. Total services related revenues for the first quarter of 2018 grew 16.8% over the prior year period, driven primarily by installation activity, while product revenue increased by 30.9% compared to the first quarter of 2017. Chiller sales grew by 273.8%, partially offset by a 23.2% decline in cogeneration sales from the year-ago period.
Changes in sales mix resulted in an 11.5% decline in gross margin to 37.7% compared to 42.6% in the first quarter of 2017. Nevertheless, this remains well within management's targeted 35-40% gross margin range.
On a combined basis, operating expenses increased to $3,766,897 for the first quarter 2018 from $2,836,971 in the same quarter of 2017. An increase in research and development expenses of 67.3% to $302,230, and selling expenses, which rose 50.9% to $675,118, and the consolidation of American DG Energy's core overhead accounted for the increase. The increase in selling expenses was due to an increase in marketing related activity and higher sales commissions.
Backlog of products and installations was $14.6 million as of first quarter end, and stood at $16.6 million as of May 14, 2018.
- Consolidated gross profit for the first quarter of 2018 was $3,837,803 compared to $2,914,673 in the first quarter of 2017, an increase of 31.7%, or $923,130, in gross profit year over year.
- On a combined basis, operating expenses rose to $3,766,897 for the first quarter of 2018 from $2,836,971 in the first quarter of 2017. The consolidation of American DG Energy's operations, an increase in research and development expenses of $121,616 and an increase in selling expenses to $675,118 from $447,452 accounted for the year-over-year increase.
- Excluding non-recurring merger related costs and stock compensation expense, adjusted non-GAAP EBITDA(1) was $303,757 for the quarter compared to $190,825 for the first quarter of 2017.
- Net income attributable to Tecogen for the three months ended March 31, 2018 was $20,759 compared to $44,787 for the same period in 2017. As discussed above, net income includes an unrealized loss of $19,681 due to market fluctuations in the EuroSite Power common stock owned by American DG Energy due to the implementation of a recent accounting standard change adopted by Tecogen in Q1 2018. Prior to this accounting change, unrealized gains and losses on this investment were accounted for as "other comprehensive income (loss)", falling below the net income line.
- Net income per share was $0.00 for the three months ended March 31, 2018 and 2017.
- On May 4, 2018, the Company and its wholly-owned subsidiaries, American DG Energy Inc. and TTcogen LLC, entered into a Credit Agreement with Webster Business Credit Corporation, providing the Company with a line of credit up to $10 million on a revolving secured basis, with availability based on certain accounts receivable and inventory balances.
- Current assets at quarter end of $23,704,894 were more than double current liabilities of $10,965,253. Current liabilities for the three months ended March 31, 2018 included $850,000 of short-term debt due to a related party, that Tecogen assumed with the acquisition of American DG Energy, and repaid in full on May 4, 2018 upon the closing of the $10 million revolving line of credit.
Sales & Operations
- Product revenues increased 30.9% from the same period in 2017. Cogeneration sales have pulled back 23.2% after last year's surge, although they remain well above sales levels prior to InVerde's upgrade. In contrast, chiller sales increased 273.8% year over year. Increasing interest from both the indoor agriculture market and the growing recognition of the value proposition of "mechanical CHP" continue to be the key drivers.
- Services revenues grew 16.8% year-on-year, benefiting from increasing penetration in service contracts and favorable operating metrics for the installed fleet. 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 Monday, May 14, 2018 was $16.6 million, driven by strong traction in the InVerde and Tecochill product lines and installation services. As of March 31, 2018 the backlog was $14.6 million compared to $13.6 million as of March 31, 2017, showing a sustainable backlog at this level.
- Indoor agriculture continues to be a rapidly emerging new opportunity for growth, particularly for the Tecochill line of natural gas powered chillers. Interest for our products from new growers entering the market remains strong.
- On March 27, 2018, Tecogen completed the purchase of the 50% interest of TTcogen LLC owned by Tedom a.s. for $72.6 thousand. The purchase provides Tecogen with full ownership of all TTcogen in-process contracts as well as the exclusive right to market, sell and distribute Tedom's T35 combined heat and power equipment within an agreed upon territory. Tecogen will continue to provide services for Tedom equipment sold by TTcogen or Tecogen.
- 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 approaching fuel cell and electric versions. The program, while primarily funded by PERC, includes the participation of a major fork lift truck manufacturer that has supplied a test unit for modification and testing as well as technical assistance. The demonstration project is now in its final stages. Results have conclusively shown that the Ultera process is highly effective in improving the emissions output from the standard fork truck and shows a clear path to its certification as a “near-zero” emitting fork truck under California regulations, which has not yet been attained by any parties in this industry. Propane fueled fork trucks face competition from electric and fuel cell-based technology as operators contend with state-imposed emissions regulations for their fleets. An additional near-zero fork truck would favorably impact fleet averages in magnitude similar to the electric and fuel cell types. Notably, the standard propane powered units have additional shortcomings relating to indoor air quality that would also be alleviated by the Ultera process. These relate especially to carbon monoxide, affecting human health and warehoused food quality. The Company and third parties have demonstrated that the Ultera prototype eliminates to be over 90% of carbon monoxide, even in extreme duty cycles. Executives from the fork truck manufacturer and PERC are planning to visit Tecogen in May, 2018 to view the prototype design and operation first hand.
- Gasoline/Automotive - Our work in this application has continued with company funding. We have contracted a highly respected, independent institute that specializes in powertrain research and development to continue the technical portion of this work. Our goal is to upgrade one or more vehicles with Ultera that show full implementation of the technology with specialized automotive grade components. This will enable potential partners to develop confidence in their evaluation, especially regarding cost, space, and reliability. We have funded the initial phase of this work to the independent institute we are working with. Their initial work, which is midway at this point. requires about four months and is focusing on optimizing our catalyst formulations. The later phases will focus first on component development followed by completion and testing of the refined prototype.
- Patents - The Company was notified by the European Patent Office in May of its intent to grant a patent for Tecogen’s Ultera emissions technology. This patent will give Tecogen exclusive control over the Ultera technology in markets in Europe where Tecogen files for national protection, including the United Kingdom, Ireland, France, and Germany, which are markets where Tecogen hopes to commercialize the Ultera technology. This patent supplements Tecogen’s portfolio of Ultera technology patents and patents-pending in numerous other markets, including the United States.
Commenting on the fork truck project, Tecogen's President and Chief Operating Officer, Robert Panora, stated, "The fork truck demonstration program is ending on a very positive note. The impressive test results, while expected, are nevertheless compelling while simultaneously addressing a compelling market need for all stakeholders; including propane suppliers, OEM’s, and operators who often prefer lower cost and extended operation of propane units to the electric alternative."
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 first quarter 2018 earnings call. Please begin dialing 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 June 14, 2018. 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#: 13679190.
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 35 years, Tecogen has shipped more than 3,000 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 e+, Ilios, Tecochill, and Ultera are registered trademarks or pending trademark registrations of Tecogen Inc.
Forward Looking Statements
This press release and any accompanying documents, contain “forward-looking statements” which may describe strategies, goals, outlooks or other non-historical matters, or projected revenues, income, returns or other financial measures, that may include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "target," "potential," "will," "should," "could," "likely," or "may" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements.
In addition to those factors described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under “Risk Factors”, among the factors that could cause actual results to differ materially from past and projected future results are the following: fluctuations in demand for our products and services, competing technological developments, issues relating to research and development, the availability of incentives, rebates, and tax benefits relating to our products and services, changes in the regulatory environment relating to our products and services, integration of acquired business operations, and the ability to obtain financing on favorable terms to fund existing operations and anticipated growth.
In addition to GAAP financial measures, this press release includes certain non-GAAP financial measures, including adjusted EBITDA which excludes certain expenses as described in the presentation. We use Adjusted EBITDA as an internal measure of business operating performance and believe that the presentation of non-GAAP financial measures provides a meaningful perspective of the underlying operating performance of our current business and enables investors to better understand and evaluate our historical and prospective operating performance by eliminating items that vary from period to period without correlation to our core operating performance and highlights trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures.
Tecogen Media & Investor Relations Contact Information:
John N. Hatsopoulos
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2018 December 31, 2017 ASSETS Current assets: Cash and cash equivalents $ 1,202,334 $ 1,673,072 Accounts receivable, net 11,790,537 9,536,673 Unbilled revenue 4,745,320 3,963,133 Inventory, net 5,096,023 5,130,805 Due from related party — 585,492 Prepaid and other current assets 870,680 771,526 Total current assets 23,704,894 21,660,701 Property, plant and equipment, net 12,048,483 12,265,711 Intangible assets, net 2,948,359 2,896,458 Goodwill 13,365,655 13,365,655 Other assets 462,870 482,551 TOTAL ASSETS $ 52,530,261 $ 50,671,076 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 6,835,299 $ 5,095,285 Accrued expenses 1,705,890 1,416,976 Deferred revenue 1,509,224 1,293,638 Loan due to related party 850,000 850,000 Interest payable, related party 64,840 52,265 Total current liabilities 10,965,253 8,708,164 Long-term liabilities: Deferred revenue, net of current portion 303,002 538,100 Unfavorable contract liability, net 7,464,950 7,729,667 Total liabilities 18,733,205 16,975,931 Commitments and contingencies (Note 9) Stockholders’ equity: Tecogen Inc. stockholders’ equity: Common stock, $0.001 par value; 100,000,000 shares authorized;
24,807,096 and 24,766,892 issued and outstanding at March 31,
2018 and December 31, 2017, respectively
24,807 24,767 Additional paid-in capital 56,264,398 56,176,330 Accumulated other comprehensive loss-investment securities — (165,317 ) Accumulated deficit (22,940,803 ) (22,796,246 ) Total Tecogen Inc. stockholders’ equity 33,348,402 33,239,534 Noncontrolling interest 448,654 455,611 Total stockholders’ equity 33,797,056 33,695,145 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 52,530,261 $ 50,671,076
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2018 March 31, 2017 Revenues Products $ 3,673,506 $ 2,807,347 Services 4,719,386 4,039,420 Energy production 1,782,535 — Total revenues 10,175,427 6,846,767 Cost of sales Products 2,409,115 1,756,849 Services 2,782,854 2,175,245 Energy production 1,145,655 — Total cost of sales 6,337,624 3,932,094 Gross profit 3,837,803 2,914,673 Operating expenses General and administrative 2,789,549 2,208,905 Selling 675,118 447,452 Research and development 302,230 180,614 Total operating expenses 3,766,897 2,836,971 Income from operations 70,906 77,702 Other expense Interest income and other expense, net (1,072 ) (1,213 ) Interest expense (13,013 ) (31,702 ) Unrealized loss on investment securities (19,681 ) — Total other expense, net (33,766 ) (32,915 ) Consolidated net income 37,140 44,787 Income attributable to the noncontrolling interest (16,381 ) — Net income attributable to Tecogen Inc. $ 20,759 $ 44,787 Net income per share - basic $ 0.00 $ 0.00 Net income per share - diluted $ 0.00 $ 0.00 Weighted average shares outstanding - basic 24,803,527 20,037,795 Weighted average shares outstanding - diluted 24,881,185 20,317,142 Non-GAAP financial disclosure (1) Net income attributable to Tecogen Inc. $ 20,784 $ 44,787 Interest & other expense, net 14,085 32,915 Depreciation & amortization, net 199,181 64,281 EBITDA 234,050 141,983 Stock based compensation 40,416 48,842 Unrealized loss on shares of EUSP 19,681 — Merger related expenses 9,610 — Adjusted EBITDA $ 303,757 $ 190,825
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2018 March 31, 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income $ 37,140 $ 44,787 Adjustments to reconcile net income to net cash used in operating activities: Depreciation, accretion and amortization, net 199,181 64,281 Provision (recovery) of inventory reserve 1,000 (36,000 ) Stock-based compensation 40,416 48,842 Non-cash interest expense — 203 Loss on sale of assets 4,120 2,909 Provision for losses on accounts receivable 4,600 — Changes in operating assets and liabilities, net of effects of acquisitions (Increase) decrease in: Accounts receivable (1,496,737 ) (471,660 ) Unbilled revenue (549,647 ) (77,410 ) Inventory, net 33,782 (1,265,013 ) Due from related party — (75,705 ) Prepaid expenses and other current assets (99,153 ) (199,561 ) Other non-current assets 19,681 (69,875 ) Increase (decrease) in: Accounts payable 855,949 644,323 Accrued expenses and other current liabilities 288,913 (224,394 ) Deferred revenue (64,122 ) 61,364 Interest payable, related party 12,575 — Net cash used in operating activities (712,302 ) (1,552,909 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (145,326 ) (73,330 ) Proceeds from sale of assets 3,606 — Purchases of intangible assets (83,856 ) (53,608 ) Cash acquired in asset acquisition 442,786 — Expenses associated with asset acquisition (553 ) — Distributions to noncontrolling interest (23,338 ) — Net cash provided by (used in) investing activities 193,319 (126,938 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercise of stock options 48,245 106,835 Net cash provided by financing activities 48,245 106,835 Change in cash and cash equivalents (470,738 ) (1,573,012 ) Cash and cash equivalents, beginning of the period 1,673,072 3,721,765 Cash and cash equivalents, end of the period $ 1,202,334 $ 2,148,753 Supplemental disclosures of cash flows information: Cash paid for interest $ — $ 31,150 Exchange of stock for non-controlling interest in Ilios $ — $ 330,852
(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 attributable to Tecogen Inc. adjusted for interest, depreciation and amortization, stock based compensation expense, unrealized loss on investment securities 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.
- Consolidated gross profit for the first quarter of 2018 was $3,837,803 compared to $2,914,673 in the first quarter of 2017, an increase of 31.7%, or $923,130, in gross profit year over year.