Tecogen Achieves Record First Quarter Sales and Earnings

Tecogen Achieves Record First Quarter Sales and Earnings post image

Tecogen Inc. (TGEN – $3.80) couldn’t have started 2017 in a better way. For its first quarter, ended March 31, 2017, the Company reported revenue of $6,846,767 compared to $5,075,515 for the same period in 2016, an astonishing increase of 34.9%.

The strong rise in revenue was driven by both product and services related sales. Total services related revenues grew 43.8% over the prior year period, driven by installation activity. Product revenue grew 23.9% compared to the first quarter of 2016, due to the tremendous success of the Company’s flagship product, the InVerde e+ CHP. The technical superiority of the product is ever more recognized by Tecogen’s customers, such as engineering companies, ESCOs, and product developers.

Net income for the quarter ended March 31, 2017 was $44,787 or $0.00 per diluted share, compared to a loss of $893,168 or $0.05 per diluted share for the comparable period last year. Another excellent achievement, especially knowing that this is Tecogen’s third straight quarter of profitability.

Moreover, gross margin improved 25.7% in the quarter, bringing it up to 42.6% compared to 33.9% in first quarter of 2016, and above management’s targeted 35-40% gross margin range. The increase in gross margin was the direct result of cost control initiatives and product upgrades.

Finally, the Company’s sales backlog of equipment and installations currently stands at $17.5 million driven by strong traction in the InVerde product line. The number is well above Tecogen’s goal of maintaining sales backlog above $10 million.

Note that the backlog does not include service contract revenues, or sales of TEDOM products by the TTcogen joint venture. Mr. Ben Locke, Tecogen’s Co-CEO did mention during the first quarter conference call that the backlog at TTcogen is approximately $710,000.

Commenting about the quarter, Tecogen Co-Chief Executive Officer Benjamin Locke noted, “The first quarter of 2017 is the third straight quarter of profitable operation for the company. This is a direct result of the hard work completed in 2016 on cost controls, product improvements, and strategic sales partnerships. We are very pleased with these results, and hope to continue this trend throughout 2017.”

Record First Quarter Financials

Product sales grew by 23.9% in the first quarter of 2017 over the prior year comparable quarter. Higher cogeneration product sales more than delivered the entirety of the growth in product revenues, partially offsetting a year-on-year decline in chiller and heat pump sales. Variations in product mix are typical from quarter to quarter as customer orders for different products are not entirely predictable.

Services revenues grew 43.8% 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. This was the 17th consecutive quarter of year-over-year quarterly service revenue growth. Continued penetration of the Company’s ‘turnkey lite’ offering, which includes custom value-added engineering design work as well as custom factory engineered accessories and load modules, has been a strong source of services revenue growth and is expected to continue to develop as an important revenue stream.

Note that Product Revenue is derived from the sale of the various cogeneration and chiller units. Because the equipment is built to last 20 or more years, most of the product sales are to first time customers. The Company’s Service Revenue, however, lends itself to recurring revenue from long-term maintenance contracts, which provide the Company with a somewhat predictable revenue stream.

 
First Quarter Ended
March 31
Amounts in $000’s
2017
2016
Product Revenues
2,807
2,266
Service Revenues
4,039
2,809
Total Revenues
6,847
5,076
Cost of Goods Sold
1,757
3,356
Operating Expenses
2,175
2,626
Income (Loss) From Operations
78
(907)
Other Income (Expense)
(33)
(39)
Pre-Tax Income
45
(946)
Profit Non-Controlling Interest
53
Net Income (Loss)
45
(893)
Earnings (Loss) Per Share
0.00
(0.05)
Shares Out. – Diluted
20,317
18,479
Most important income statement data for the first quarters ending March 31, 2017 and March 31, 2016. Source: Company Press Release

Total cost of sales in the first quarter of 2017 was $3,932,094 a rise of only 17.2% compared with the same quarter last year. Another remarkable achievement, knowing that total revenues increased by almost 35%.

Gross profit for the first quarter of 2017 was $2,914,673 compared to $1,719,344 in the first quarter of 2016, an increase of 69.5% versus the prior year and a record number. This substantial growth was generated by improvement in both top line revenues and gross margins.

Product gross margin was 37.4% compared to 31.5% in first quarter of 2016. Product gross margin was primarily helped by the materials and supplier arrangements put in place over the past several quarters as well as by the product mix shift toward the new InVerde e+ model.

Services gross margin improved to 46.1% in the period compared to the 35.8% in the same prior year period. Services gross margin grew thanks to continued cost control as well as increasing penetration of the Company’s high-margin ‘turnkey lite’ offering on the installation side.

Income from operations was $77,702 compared to a $906,866 loss in the prior year comparable period.

Consolidated net income for the three months ended March 31, 2017 was $44,787 compared to a consolidated net loss of $893,168 for the same period in 2016.

Amounts in $000’s
March 31, 2017
March 31, 2016
Cash and Cash Equivalents
2,149
4,254
Accounts Receivable
9,102
5,888
Inventories
6,075
5,302
Total Current Assets
20,611
17,547
Property and Equipment
548
549
Intangible Assets
1,095
1,048
Total Assets
24,423
19,244
 
 
 
Accounts Payable
4,012
2,377
Accrued Expenses
1,154
1,080
Total Current Liabilities
6,073
4,441
Promissory Note
3,149
2,963
Total Liabilities
9,712
7,728
Total Stockholder Equity
14,712
11,516
Most important balance sheet data for the periods ending March 31, 2017 and March 31, 2016. Source: Company Press Release

Consolidated working capital at March 31, 2017 was $14.54 million compared to $13.11 million at March 31, 2016, an increase of $1.43 million. Included in working capital were cash and cash equivalents of $2.15 million at March 31, 2017, compared to $4.25 million in cash and cash equivalents at March 31, 2016, a decrease of $2.1 million.

The decline in cash and cash equivalents can be more than attributed to the surge in accounts receivable from $5.89 million a year ago to $9.10 million at March 31, 2017, along with the modest rise of inventories of $0.77 million.

Overall, Tecogen has a solid and improving balance sheet.

Ultera Emissions Technology

Next to CHPs, chillers, and high-efficiency water heaters, Tecogen also markets an emissions control technology called Ultera.

The fully-patented Ultera system is a muffler-like non-invasive emissions control technology for natural gas powered engines proven to bring emissions of harmful criteria pollutants (NOx, CO, and hydrocarbons) down to near-zero levels. Producing low emissions on par with fuel cells and fully in compliance with the air quality standards set by the California Air Resource Board, the strictest standards in the world, the Ultera technology has been independently verified as effective by New Jersey’s Department of Environmental Protection and by AVL California Technology Center.

In October 2015, in light of the Volkswagen emissions crisis, Tecogen formed an Emissions Advisory Group to evaluate the application of its Ultera emissions control technology to the gasoline vehicle market. In order to pursue this massive opportunity, Ultra Emissions Technologies Ltd (ULTRATEK), a joint venture with a group of strategic investors, was founded to test, verify and develop the Ultera system for gasoline powered automotive engines.

Results from Phase I and Phase II testing of Ultera on vehicles indicated that the system is highly effective at delivering emissions reduction in criteria pollutants (those contributing to smog and negatively impacting human health) in excess of currently available commercial technology. Also very important to know is that consistent with the experience of the Ultera in stationary industrial applications, the system did not increase the fuel usage of the test vehicle.

Last month, this test data was presented at the prestigious SAE International World Congress in Detroit, MI and was very well received. Subsequently, discussions have been initiated with potential automotive partners. More news from these initiatives is expected later in the year.

Meanwhile, two additional Ultera related patents have been awarded, while filing recently for three others specifically involving the integration of the technology to gasoline vehicles.

Also, in October 2016, Tecogen was awarded research grant funding from the Propane Education & Research Council (PERC) to develop the Ultera technology for propane powered fork trucks. This could be another lucrative opportunity, knowing that 70,000 propane powered fork lift trucks are sold each year in the United States alone.

During the past few months, testing was initiated utilizing a donated fork truck from a major manufacturer that has expressed strong interest in Ultera and has agreed to assist the Company with the research effort.

Finally, Tecogen received the California Air Permit for a stationary standby generator system retrofitted with the Ultera emissions technology. The installation of the Ultera kits on the generators is being completed, and commissioning is anticipated in the third quarter of 2017. If successful, this could be another huge market opening up for the Ultera technology.

Conclusion

2016 represented a year of tremendous progress for Tecogen in terms technology development, sales & marketing improvements, business development activities and financial performance. The Company now continues to build on that solid foundation.

Consequently, we expect 2017 to be a very successful year for the Company, as its systems create energy efficiency, financial savings, and emissions reductions to many different types of products and applications.

The merger between Tecogen Inc. and American DG Energy, Inc. is nearing its final stage with the acceptance of the registration statement by the SEC. Once the merger is ratified by the stakeholders of both companies, the combined entity will soon thereafter become a fact.

The expected completion of the ADGE acquisition will create a completely vertically integrated clean energy company with strong recurring revenues, which will supplement Tecogen’s existing revenues. This will add steady revenue with good margins to the financials of Tecogen, helping to offset some of the peaks and valleys of products sales. In 2016, ADGE made substantial improvements to the operational and financial production of their installed fleet. As a result of the merger, further improvements to the fleet are possible, which will provide more revenue and improved operating margins.

Also TTcogen, the joint venture with Czech CHP-manufacturer TEDOM, continues to make steady progress. So far, three smaller units have been installed with several more planned.

Tecogen continues to strengthen its relationships with various energy service companies, or ESCOs. CHP has become an important part of performance contracts that ESCOs provide for school systems, municipalities, and other large energy consumers seeking cost saving measures.

Moreover, the emissions program for the fork truck and automotive markets is steadily progressing and creates substantial upward potential for the Company’s stock price.

Tecogen has the best in class technology, a sophisticated and informed customer base and game-changing emissions technology. In addition, its key financial metrics such as revenues, margins, and backlog are turning in the right direction.

This is clearly an exciting time for Tecogen and its shareholders. Recommendation BUY.

Smallcaps.us Advice: BuyPrice Target: $9.44Latest Company Report (pdf)
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3 comments… add one
  • Chris Johnson May 14, 2017, 12:09 am

    Excellent review on TGEN! Would convince any investor to buy some shares!

  • Chris Johnson May 14, 2017, 12:11 am

    TGEN definitely has a bright future. They are doing all the right things!

  • John Peters (editor) May 14, 2017, 9:57 am

    Hi Chris,

    Thank you for your comment. You’re absolutely correct. Tecogen has some phenomenal technology and the demand for clean emissions products will only continue to grow in the US and abroad.

    Also, the upcoming integration of ADGE will give the company another boost.

    On top of that, both the ULTRATEK and TTcogen JVs have significant upside potential.

    This is a stock that should be in a portfolio for a long time and which has the potential to triple and much more.

    Cheers,

    John

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