Record Cash Flow Generation in Q1 Positions Tecogen For Further Growth in 2019

Tecogen Inc (US: TGEN – $3.49 & GER: 2T1 – €2.92), which designs, manufactures, sells, installs, and maintains high efficiency, ultra-clean, cogeneration products, announced first quarter revenues of $8,176,631, a decline of 19.7% from $10,175,427 for the same period in 2018. Gross profit declined 22.9% from $3,837,803 to $2,958,759. The investment community never wants to see declining year-over-year revenues; however, in the context of recently announced contracts, growing backlog and the reintroduction of Tecofrost, shareholders can look forward to growth in the remaining three quarters of 2019.

Despite the drop in revenue, adjusted EBITDA and working capital both significantly improved for Q1 2019 with the Company generating a record amount of cash flow. Moreover, backlog was $26 million at the end of the first quarter of 2019 and stood at $26.9 million as of May 13, 2019. This compares quite favorably to the backlog of $16.6 million at the end of 2018.

During the quarter, Tecogen sold eight energy producing assets, which were originally purchased as part of the American DG acquisition, for $7 million. This resulted in a combined gain on sale of assets of $1,081,049 and cash proceeds from the sale of $5 million. Shoring up the balance sheet is imperative so that the Company can move forward in fulfilling its recently signed contracts, while simultaneously spending on R&D to introduce new product lines.

Benjamin Locke, CEO of Tecogen commented, “While we are disappointed with the drop in overall revenues, the first quarter saw good progress in terms of positioning the Company for future growth. The sale of some of our ADG assets in the quarter significantly strengthened our balance sheet by eliminating our debt and providing working capital to meet our goals. With sales of our Tecofrost product expected to start in the second half of the year, we are excited to see further market attraction to our chiller products as well as our core CHP products. In combination with promising results from our Ultera emissions technology, we are excited for our prospects for the rest of the year.”

Natural gas generator upfitted with Tecogen Ultera in southern California

A natural gas generator upfitted with Tecogen’s Ultera in southern California

Fourth Quarter Financial Highlights


First Quarter Ended
March 31
Amounts in $000’s
Products Revenue
Services Revenue
Energy Production
Total Revenue
Cost of Products Sales
Cost of Sevices Sales
Cost of Energy Production
Total Cost of Sales
Gross Profit
Total Operating Expenses
Income (Loss) from Operations
Net Income (Loss)
Earnings (Loss) Per Share
Shares Out. – Diluted
Selected income statement data for the first quarters ending March 31, 2019 and March 31, 2018. Source: Company Filing.


Product revenues in the first quarter of 2019 were $3,024,526 compared to $3,673,506 for the same period in 2018, a decrease of 17.7%. While cogeneration sales increased by 3.1%, chiller sales declined 37% year-over-year. Service revenues in the first quarter of 2019 were $3,911,296 compared to $4,719,386 for the same period in 2017, a decrease of 17.1%. This decline was due to decreased installation activity for the quarter as service maintenance contract revenue grew 2% year-over-year. Energy production revenues in the fourth quarter of 2019 were $1,240,809, compared to $1,782,535 for the same period in 2018, a decrease of 30.4%. Energy production revenue represents energy revenues earned during the quarter by the American DG Energy.

Consolidated gross profit for the first quarter of 2019 was $3,837,803 compared to $2,958,759 in the first quarter of 2018, a decrease of 22.9% in overall gross profit year-over-year. Overall gross margin for the first quarter of 2019 was 36% compared to 38% for the same period in 2018. Product gross margin improved to 36% for the first quarter of 2019 compared to 34% for the same period in 2018. Overall service gross margin was 37% in the first quarter of 2019, four points lower than 41% for the same period in 2018 due to a decline in margins recognized on installation projects during the quarter. Energy production gross margin remained level at 36% for the first quarter of both 2019 and 2018.

Tecogen’s net income for the first quarter of 2019, exclusive of the goodwill impairment of 3,693,198, was $413,121 compared to $20,759 for Q1 2018, an firm increase of $392,362. The Company’s operating expenses excluding the goodwill impairment and the gain on sale of asset decreased 2% from $3,766,897 to $3,693,747. This cost containment is impressive considering that R&D expenses rose 14% from $302,230 to $345,083 in support of the market roll-out of Tecofrost and continued development of its Ultera emissions technology. Adjusted EBITDA, which excludes non-recurring merger related costs, goodwill impairment, mark to market adjustments and stock compensation expense, more than doubled from $303,732 to $678,086 for Q1. Growth for both net income and EBITDA was driven by the gain on sale of assets of $1,081,049.

American DG Asset Sale Drives Record Working Capital Improvement


Amounts in $000’s
March 31, 2019
March 31, 2018
Cash and Cash Equivalents
Accounts Receivable
Total Current Assets
Property and Equipment
Intangible Assets
Total Assets
Accounts Payable
Accrued Expenses
Total Current Liabilities
Unfavorable Contract Liabilities
Total Liabilities
Total Stockholder Equity
Selected balance sheet data for the periods ending March 31, 2019 and March 31, 2018. Source: Company Press Release


Tecogen significantly improved its working capital and eliminated all debt through the sale of some American DG sites and contracts. When comparing the balance sheet ended December 31, 2018 to March 31, 2019, cash and equivalents increased from $272,552 to $2,610,235. Total current assets increased from $26,368,572 to 26,763,765 while total current liabilities decreased from $13,198,320 to $10,567,241. As a result, working capital (current assets less current liabilities) increased over $3 million from $13,170,252 to $16,196,524. This is a record quarter-to-quarter improvement on working capital and cash flow despite the decreased revenues and gross margins. Improving an already robust working capital figure is important because it further reduces the Company’s need to finance in the near future as it fulfills its backlog and introduces new product lines to the market.

It is important to note that Tecogen did not sell these assets out of desperation, having just purchased them as part of the overall ADG acquisition in 2017. Instead, an opportunity arose because of the Company’s ability to extract synergies between the ADG acquisition and its core operations. Tecogen increased the productivity and reliability of the sites acquired in 2017 to the point where it received significant interest from buyers. Management decided to sell a portion of the assets to Sustainable Development Corporation LLC. The sale includes an O&M agreement for Tecogen to continue servicing these sites. There are currently no further plans to sell remaining ADG sites still owned and operated by Tecogen.

Tecofrost: Set To Start Generating Revenues in 2019

As previously mentioned, backlog was $26.9 million as of May 13, 2019, an increase of $10.3 million from $16.6 million at the end of 2018. Although this already implies significant revenue growth as at least two-thirds of the backlog is expected to be fulfilled in 2019, this figure does not include any sales from the Company’s renewed Tecofrost product. Tecogen is carefully developing several projects to demonstrate key vertical markets for the product and expects Tecofrost to add a meaningful contribution to the backlog by year-end and ultimately become a solid product revenue contributor next year. Tecogen is already approaching new customers about Tecofrost and expects to install several units before the end of 2019. Full rollout across the United States is expected next year with plans to leverage the Company’s compressor manufacturing partner Vilter Manufacturing’s sales networks in the Americas and Europe.


The market had little reaction to Tecogen’s Q1 results. This is to be understood as revenue and gross profits declined which will generally not attract the attention of new investors not familiar with the Company’s story. What is more important is that Tecogen has set itself up for a lucrative 2019 by shoring up its balance sheet, nearly doubling backlog since the end of 2018 and continuing with plans to market Tecofrost, which will only add to revenues and backlog for 2019 and beyond.

TGEN remains an under-the-radar stock. As the stock price remains fairly steady, existing shareholders can view the first quarter financial statements as one step closer to Tecogen achieving its goal of consistently profitable revenue growth. Its thinly traded nature makes it a prime candidate for a major run towards our target price on positive news or demonstrated profitability. We believe that this is possible in 2019 as sales backlog transforms into more record revenue numbers and profitability on subsequent quarterly results. Smallcaps Recommendation: BUY. Advice: BuyPrice Target: $9.41Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

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