Tecogen Revenue Up Almost 50% in First Quarter 2018

Tecogen Inc. (NASDAQ: TGEN – $3.82 & Fra: 2T1 – €3.01) has started 2018 with a bang. For its first quarter, ended March 31, 2018, the Company reported revenue of $10,175,427 compared to $6,846,767 for the same period in 2017, an outstanding increase of 48.6%. American DG Energy (ADGE), which was acquired in May 2017, added $1,782,535 in revenue to the quarterly result, which means that organically sales grew by $1,546,125.

Revenue results were driven by solid growth in product and services related revenue as well as the addition of energy production revenue provided by American DG Energy. Total services related revenue 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.

This brings Tecogen’s trailing four quarters revenue to $36.5 million and represents the sixth quarter of profitability over the past seven quarters, with the exception being the second quarter of 2017 when the ADGE acquisition was completed.

Also importantly, the Company achieved adjusted EBITDA of $304,000 in the first quarter of 2018 compared to $191,000 in the first quarter of 2017. This is the seventh consecutive quarter of positive adjusted EBITDA which further demonstrates the sustained success the Company has achieved over the past 21 months.

Net income for the quarter ended March 31, 2018 was $20,759 compared to $44,787 for the first quarter of 2017. The 2018 first quarter result included an unrealized loss on EuroSite Power’s common stock of $19,681 (see First Quarter Financials) and a non-recurring expense totaling $9,610 related to the Company’s merger with American DG Energy.

Gross margin for the quarter was 37.7% compared to 42.6% in the first quarter of 2017, well within management’s targeted 35-40% gross margin range.

The Company’s sales backlog of equipment and installations stood at $14.6 million at the end of the first quarter and has further increased to $16.6 million this week. The solid backlog is mainly driven by strong traction in the InVerde and Tecochill product lines and installation services.

Note that the backlog does not include service contract revenues, nor does it include ADGE’s estimated undiscounted future energy production revenue, which exceeds $50 million, stretching over the next 15 years.

Tecogen’s Chief Executive Officer Benjamin Locke noted, “Coming off a full year of profitability in 2017, our first quarter results are tremendously positive as we look forward to maintaining success in 2018.”

Superb First Quarter Financials

Product sales grew by 30.9% in the first quarter of 2018 over the prior year comparable quarter. 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 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 good source of services revenue growth and is expected to continue to develop as an important revenue stream.

ADGE’s energy production revenue of $1.78 million was an improvement over prior quarters – for example, up 18.5% compared with Q4 of 2017 – due partially to increased runtime of the fleet during the cold winter months as well as continual improvements of the fleet capability.

First Quarter Ended
March 31
Amounts in $000’s
Products Revenue
Services Revenue
Energy Production
Total Revenues
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, 2018 and March 31, 2017. Source: Company Filing.

Product gross margin was 34.4% in the first quarter of 2018, compared to 37.4% for Q1 of 2017. Service margin was 41% for Q1 2018, compared to 46.1% for 2017. Installation projects, which carry a lower margin than service maintenance contracts, were a higher percentage of product mix as compared to last year, bringing the overall service margin down on a comparative basis.

Energy production activities from the ADGE fleet provided a 36% gross margin and $637,000 in gross profit, bringing the consolidated gross margin to 38% for the quarter and consolidated gross profit to $3.8 million for Q1 2018, compared to $2.9 million for Q1 2017, an increase of $923,000 or 32% in gross profit year-over-year.

Operating expenses, although higher in absolute terms, have improved 10.7% year-over-year, as a percentage of revenue, dropping to 37% of revenue for Q1 2018 compared to 41.4% for Q1 2017. There are a number of items that accounted for the dollar rise in expenses. First are research and development expenses, which increased 67.3% to $302,230. Also selling expenses rose 50.9% to $675,118, which was due to an increase in marketing related activities and higher sales commissions. Finally, the consolidation of American DG Energy’s core overhead also accounted for an increase.

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 included an unrealized loss of $19,681 due to market fluctuations in the EuroSite Power common stock owned by the Company. In January 2016, The Financial Accounting Standards Board (FASB) issued an accounting standard update related to investments in equity securities requiring unrealized holding gains and losses to be included in net income. 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.

Amounts in $000’s
March 31, 2018
March 31, 2017
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, 2018 and March 31, 2017. Source: Company Press Release

Consolidated working capital at March 31, 2018 was $12,739,641 compared to $12,952,537 at December 31, 2017, a decrease of $212,896. Included in working capital were cash and cash equivalents of $1,202,334 at March 31, 2018, compared to $1,673,072 in cash and cash equivalents at December 31, 2017, a decrease of $470,738. The decrease in working capital and cash was the result of longer collection periods and pre-buying for production.

Note that on May 4, 2018 Tecogen entered into a Credit Agreement with Webster Business Credit Corporation that provides the Company a line of credit of up to $10 million on a revolving and secured basis, with availability being based on certain accounts receivables, raw materials, and finished goods.

Fork Truck Project Offers Huge Potential in Short Term

Late 2016, the Propane Education and Research Council (PERC) provided Tecogen with a research grant to demonstrate the effectiveness of the Ultera emissions systems on propane fueled fork trucks.

The project has significant potential for the industry, as these vehicles generally operate indoors, where health concerns are magnified. In recent years, the market share for propane powered fork trucks has been eroded by battery-operated versions, mainly because of this issue.

Given these regulatory market drivers, the Company secured a commitment from a major fork truck company to support the Tecogen engineering team and to supply a fork truck for testing. The initial results from these tests are superb.

The table below shows results from a representative test run for the fork truck under heavy use. In this heavy lift test, the truck is subjected to 20 repeated lifts in a 12-minute period. This is a strenuous duty cycle as the weight, 4,300 pounds, is close to the 5,000 pound rating of the truck. Both Tecogen and a third party lab conducted this test with comparable results.

Third Party
Emission reductions achieved during heavy lift tests were confirmed by an independent third party.

As shown in the table, the Ultera reduced Carbon monoxide (CO) emissions with 99% and 91% respectively. Total hydrocarbons (THC) emissions were reduced by over 52% according to the third-party, while Tecogen instrumentation wasn’t able to measure this pollutant. The Ultera also improved nitrogen oxides (NOx) emissions by 24% and 29% as measured by Tecogen instruments and that of the third party, respectively. This is another true validation of the Ultera capabilities!

Below is also a graph that shows the results of a different test, which was completed at low load. For this test, the engine tuning was somewhat altered, which resulted in quite low NOx concentrations (solid red line). The detrimental side effect of this tuning however, is that the factory system was less effective in treating CO (solid blue line). With the Ultera added to the fork truck, both CO and NOx emissions were eliminated.

In the next few weeks, the Company plans one final test with the fork truck. In order to produce an even more effective factory after-treatment system, they will determine the precise chemical constituents that should be used in the catalyst.

If all goes according to plan, we could see multiple fork trucks, equipped with an Ultera, being tested in a warehouse in real-world situations by the end of 2018.


Tecogen is off to a fantastic start in 2018. The Company’s first quarter results have set the pace for the rest of the year.

Revenue grew with an impressive 48.6% to $10,175,427 an absolute first quarter record. The positive results carried all the way to the bottom line with net income for the first quarter coming in at $21,000. While this is lower than the Company’s profit of $45,000 in the first quarter of 2017, it was tempered by an unrealized loss in the EuroSite Power holdings of around $20,000, and approximately $10,000 non-recurring cost related to the ADGE acquisition.

Indoor agriculture continues to be a rapidly emerging new opportunity for growth, particularly for the Tecochill line of natural gas powered chillers. Interest from new growers entering the market for this product category remains strong.

The Company’s results in its fork truck program are impressive. The cooperation with a major fork truck manufacturer is going very well. This could become the first of several blue sky opportunities for Tecogen to mature.

Lastly, it’s important to emphasize that Tecogen recently obtained a $10 million line of credit from Webster Business Credit Corporation. This line of credit allows the Company to financial flexibility to both grow its core business as well as its emissions technology development in fork trucks and automobiles. Recommendation: BUY.

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