Tecogen Reveals Excellent Emissions Reductions for Gasoline Vehicles
Initial tests by Ultra Emissions Technologies (Ultratek), which is 50% owned by Tecogen Inc (TGEN – $4.43), conclusively prove that the Ultera technology is highly effective in reducing harmful pollutants from a gasoline powered light duty vehicle.
The test results show that the non-invasive Ultera system reduces levels of carbon monoxide emitted from a gasoline powered test vehicle by as much as 90 percent during simulated driving cycles prescribed by federal regulations for vehicle certification. In addition, Ultera decreases levels of non-methane hydrocarbons (NMOG) by as much as 80 percent.
Needless to say these are outstanding initial test results. As far as we know no other technology in the world has ever accomplished similar results with gasoline powered engines.
Tests at AVL
The phase one test focused on simulated driving cycles prescribed by U.S. federal regulations for vehicle certification. In these tests, criteria pollutants (those contributing to smog and negatively impacting human health) were reduced in all simulated drive conditions. Ultera benefits were particularly noteworthy during aggressive driving conditions found in certain federal test cycles.
The vehicle used in the tests was a new 2016 model driven for several months to complete its “break in” period, as recommended by the manufacturer’s specifications, and was in compliance with emissions regulations as currently tested on federally prescribed simulated driving cycles.
All these tests were conducted by AVL North America at their state-of-the-art California Technology Center in Lake Forest, CA. Its laboratory, in addition to its ability to accurately replicate driving conditions, can measure pollution output of the vehicle in real time with extreme precision.
AVL is the world’s largest independent company for the development, simulation, and testing of powertrain systems for passenger cars, trucks, and large internal combustion engines. For more than 60 years, AVL, which reached 1.15 billion euro in sales in 2014 and employs 7,500 people, has been working in partnership with companies all over the world.
Ultratek
The fully-patented Ultera system is the only 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, Ultratek was founded in December 2015 to adapt the near-zero emissions technology for transportation applications powered by spark-ignited engines (including gasoline, natural gas, and propane fueled vehicles) in the automotive and truck categories.
Although the emissions scandal for vehicles has primarily been about diesel engines, for which the Ultera technology is not suited, the emissions performance of gasoline engines has also been brought into question. While there has been no suggestion of improper testing, there is a growing awareness that the pollution output measured in controlled laboratory drive cycles significantly underrepresents the true emissions output of vehicles in real world driving.
Real world test conditions include road conditions (e.g., icy, uphill), high speed or aggressive driving, stop-and-go traffic, cold temperatures, high AC and other accessory load use, the number of passengers and amount of cargo, and many more veriables.
Following Tests
Although initial results are tremendously encouraging, there’s still plenty of work to do. All the test results continue to be meticulously analyzed, as the Ultratek team is very careful to ensure that the development process is carefully managed and that any published results are both robust and rigorously tested.
The Company is in the process of evaluating its next steps, and it will undoubtedly announce more about that in the coming months.
First Quarter Financials
In other news, Tecogen announced financial results for its first quarter, ended March 31, 2016. Sales for the first three months of 2016 were $5.1 million, a decrease of about 17% compared with sales of $6.1 million in the first quarter of 2015. Net loss in the first quarter of 2016 was $893,168, or $.05 per diluted share, compared to a loss of $617,464, or $.04 per diluted share, for the comparable period of 2015.
The financials were adversely affected by a couple of temporary measures and a one-time event. First, there is a temporary suspension of incentive programs in New Jersey for CHP and New York for chillers. These incentives are expected to restart mid-2016. Also, progress on several other installations was slowed due to permitting and other site-readiness issues that were outside of Tecogen’s control. And lastly, service costs were impacted by a cost-overrun related to a single legacy installation project. Processes are in place to prevent such overruns in the future.
Despite these challenges, the Company posted modest improvements over fourth quarter of 2015 revenue results. Moreover, the current sales backlog of equipment and installations as of Friday May 6, 2016 was $13.1 million. Significantly above Tecogen’s goal of delivering product backlog greater than $10 million. Noteworthy is that the backlog does not include service contract revenues which were more than one third of the Company’s revenues in 2015.
| First Quarter Ended March 31 | ||||
| Amounts in $000’s | 2016 | 2015 | ||
| Product Revenues | 2,266 | 3,538 | ||
| Service Revenues | 2,809 | 2,566 | ||
| Total Revenues | 5,076 | 6,103 | ||
| Cost of Goods Sold | 3,356 | 3,878 | ||
| Operating Expenses | 2,626 | 2,845 | ||
| Income (Loss) From Operations | (907) | (620) | ||
| Other Income (Expense) | (39) | (33) | ||
| Pre-Tax Income | (946) | (653) | ||
| Profit Non-Controlling Interest | 53 | 35 | ||
| Net Income (Loss) | (893) | (617) | ||
| Earnings (Loss) Per Share | (0.05) | (0.04) | ||
| Shares Out. – Diluted | 18,479 | 16,225 | ||
| Most important income statement data for the first quarters ended March 31, 2016 and March 31, 2015. Source: Company Press Release | ||||
Revenue results were helped by 9.5% growth in services related revenues over the prior year period. Total service revenue growth benefited from increasing penetration in service contracts and favorable operating metrics for the installed fleet.
Revenue from long term contracted maintenance and service agreements accounts for over one third of the Company’s revenues, providing a reliable annuity-like revenue stream. This stable revenue should continue to grow as the installed base and fleet operating hours grow, helping to smooth the impact of cyclical sales that are typically found in Tecogen’s industry.
Product revenues suffered in the first three months of 2016, posting a decline over the prior year comparable quarter of 36%. This decline in total product revenue was impacted by a 12.2% decline in chiller and heat pump sales as well as a decline in cogeneration sales.
General & Administrative expenses fell 13.0% to $1,892,220 for the first quarter of 2016 compared to $2,174,747 in the prior year period ended March 31, 2015. This improvement is a demonstration of management’s disciplined expense control and effectiveness of the operating efficiency program.
On a combined basis, operating expenses fell to $2,626,210 for the first quarter 2016 from $2,844,584 in the first quarter of 2015, a 7.7% improvement. The Company’s goal is to deliver full year operating expenses near $10 million. With first quarter expenses typically higher than other quarters, management’s efforts to reduce OpEx are paying off and the Company is clearly on track to reach its goal.
Overall gross margins in the first quarter of 2016 decreased to 33.9% compared to 36.5% in 2015. The gross margins benefited from continued product-related cost control initiatives, but these improvements were offset by a legacy installation project that unavoidably went over budget.
| Amounts in $000’s | March 31, 2016 | March 31, 2015 |
| Cash and Cash Equivalents | 4,254 | 1,984 |
| Accounts Receivable | 5,888 | 5,410 |
| Inventories | 5,302 | 3,756 |
| Total Current Assets | 17,547 | 13,312 |
| Property and Equipment | 549 | 627 |
| Intangible Assets | 1,048 | 1,035 |
| Total Assets | 19,244 | 15,105 |
| | | |
| Accounts Payable | 2,377 | 3,097 |
| Accrued Expenses | 1,080 | 1,278 |
| Total Current Liabilities | 4,441 | 5,119 |
| Promissory Note | 2,963 | 3,000 |
| Total Liabilities | 7,728 | 8,484 |
| Total Stockholder Equity | 11,516 | 6,621 |
| Most important balance sheet data for the periods ended March 31, 2016 and March 31, 2015. Source: Company Press Release | ||
Tecogen finished the first quarter of 2016 with more than $4.2 million in cash. A strong improvement compared with less than $2 million the Company had on its balance sheet a year ago.
In August of last year, Tecogen sold in a single transaction 1.25 million shares of common stock at $4.00 for a total raise of $5,000,000. Moreover, in conjunction with the launch of the Ultratek joint venture, Tecogen raised a further $3 million via private placement, solidifying the balance sheet. Thanks to these funds, Tecogen is well positioned to fund ongoing operating expenses and future growth initiatives.
Consolidated working capital on March 31, 2016 was $13,105,989 compared to $8,192,419 on March 31, 2015, a strong increase of $4,913,570. Tecogen has a very solid current ratio of 3.61.
Conclusion
Quarter-to-quarter financials may continue to show some volatility for a while, but it’s important to note that the delays in product orders will gradually relent in the coming quarter as the substantial backlog is brought into production. Moreover, the Company has redoubled its efforts to improve product margins and reduce SG&A costs as a foundation to build on additional revenue growth in 2016.
In response to increasing competitive pressure, Tecogen recently introduced the new InVerde e+ CHP module that further differentiates our solution from competing inverter-based products and contains several patented technologies exclusively offered by Tecogen. New features that competing products fail to offer include higher efficiency, faster black-start capability, and quieter operation.
Tecogen opened a new sales office in Florida and added sales representatives in several new territories including Canada, Puerto Rico, Chicago and Atlanta.
In addition, the Company continues to benefit from a growing installed base of units carrying annuity-like long term maintenance agreements with attractive margins; providing a reliable revenue stream that can be used to fund future growth initiatives.
And finally, there’s significant upside potential when positive advancements continue to be made by the Ultratek team on automotive emissions control. Buy recommendation.
| Smallcaps.us Advice: Buy | Price Target: $9.41 | Latest Company Report (pdf) |
| For important disclosures, please read our disclaimer. | ||