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Tecogen Announces Second Quarter 2018 Results

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Reporting $8.5 million in Revenue and 11.4% Top Line Growth

WALTHAM, Mass., Aug. 14, 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 consolidated revenues of $8,453,165 for the quarter ended June 30, 2018 compared to $7,590,540 for the same period in 2017, providing 11.4% growth in top line revenue. The energy production revenue from the sites of our wholly-owned subsidiary, American DG Energy, contributed $1,508,225 in revenue to the quarterly result. Consolidated gross profit for the second quarter of 2018 was $3,159,594 compared to $2,986,622 in the second quarter of 2017, an increase of 5.8%, or $172,972, in gross profit year over year.

As of the end of Q2 2018, on a trailing four quarters basis, revenue was a record of $37.4 million with revenue growth of 32.8% year over year and gross profit was a record $14.1 million.

Adjusted non-GAAP EBITDA(1), excluding the unrealized loss on EuroSite Power Inc.'s shares owned by American DG Energy, stock-compensation expense and merger related expenses from earnings, was negative $329,541 for the second quarter of 2018 versus positive $64,355 for the second quarter of 2017, a difference of $393,896. (Adjusted EBITDA is defined as net loss attributable to Tecogen, adjusted for interest, depreciation, amortization and accretion, 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 loss to Adjusted EBITDA as well as important disclosures about the company's use of Adjusted EBITDA).

The Company is investing in the future through (1) research and development, as discussed in the "Emissions Technology" section below resulting in an increase in research and development expenses of $191,055, or 87.3% to $409,779 year over year, (2) selling activities with such expenses increasing by $27,885 year over year and (3) energy production, with the addition of American DG Energy, contributing to the increase in general and administrative expenses of $344,461 year over year.

Loss from operations was $636,286 compared to $245,857 in the prior year comparable period. Similarly, net loss attributable to the Company for the quarter was $754,350 compared to a comprehensive loss for the quarter ended June 30, 2017 of $517,899, a difference of $236,451. The second quarter 2018 results included an unrealized loss on EuroSite Power's common stock of $59,042.  In 2017 this loss was presented in "other comprehensive loss"  and amounted to an unrealized loss of $224,359. Additionally, as discussed above, certain operating expenses increased due to our committed investment in our future.

"The second quarter of 2018 continued our trend of positive revenue growth quarter-over-quarter. We are seeing a strong uptick in demand for our Tecochill natural gas chiller systems as well as our flagship Inverde product, now certified to the new UL "smart inverter" standard," Tecogen's Chief Executive Officer Benjamin Locke noted.   "While we did not achieve full profitability for the quarter, we expect our strong backlog of over $20 million to drive profitability in future quarters."

Revenue results were driven by solid growth in service related revenues as well as the addition of energy production revenues provided by American DG Energy.  Total services related revenues for the second quarter of 2018 grew 20.6% over the prior year period, primarily due to installation activity, while product revenue decreased by 20.3% compared to the second quarter of 2017.

Overall gross margin for the quarter was 37.4% compared to 39.3% in the second quarter of 2017, within management's targeted 35-40% gross margin range.

On a combined basis, operating expenses increased to $3,795,880 for the second quarter 2018 from $3,232,479 in the same quarter of 2017. An increase in research and development expenses of 87.3% to $409,779, and selling expenses which rose 4.6% to $635,396, along with the consolidation of American DG Energy's core overhead accounted for the majority of this increase.

Backlog of products and installations was $14.2 million as of the end of the second quarter of 2018 and stood at $21.3 million as of August 10, 2018.

Major Highlights:

Financial

  • Consolidated gross profit for the second quarter of 2018 was $3,159,594 compared to $2,986,622 in the second quarter of 2017, an increase of 5.8%, or $172,972, in gross profit year over year.
  • Product gross margin was 39.9% for the second quarter of 2018 compared to 36.9% for the second quarter of 2017. Product gross margin was primarily helped by the materials and supplier arrangements put in place in previous quarters.
  • Service gross margin declined to 33.6% in the second quarter of 2018 compared to 37.6% for the second quarter of 2017. Service gross margin is impacted by margins realized on installation projects.
  • Energy production gross margin for the second quarter of 2018 was 44.3% compared with the previous year's second quarter, which was an exceptionally strong 57.3% following the completion of the merger with American DG Energy during that quarter. We expect energy production gross margin to fluctuate due to seasonality.
  • On a combined basis, operating expenses rose to $3,795,880 for the second quarter of 2018 from $3,232,479 in the second quarter of 2017. The consolidation of American DG Energy's operations, an increase in research and development expenses of $191,055 and an increase in selling expenses to $635,396 from $607,511 accounted for the year over year increase.
  • Net loss attributable to Tecogen for the three months ended June 30, 2018 was $754,350 compared to $293,540 for the same period in 2017 and comprehensive loss of $517,899 for the same period in 2017. As discussed above, net loss includes an unrealized loss of $59,042 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 as of January 1, 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 loss line.
  • Net loss per share was $0.03 for the three months ended June 30, 2018 and $0.01 for the comparative period in 2017.
  • On May 4, 2018, the Company and its wholly-owned subsidiaries, American DG Energy 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 $23,385,930 were more than double current liabilities of $11,270,213. Current liabilities as of June 30, 2018 included $2,557,817 of short-term debt on the revolving line of credit with Webster.

Sales & Operations

  • Product revenues decreased 20.3% from the same period in 2017 primarily due to timing of equipment deliveries.
  • First half 2018 chiller sales increased 95% over first half 2017 and current chiller backlog increased to a record $6.1 million through Q2 2019. Chiller backlog expected to increase as Tecochill has become the basis of design for many indoor grow facilities.
  • Additional product developments are underway to expand Tecogen's exclusive gas cooling technology segment. 
  • InVerde cogeneration fleet hit milestone and is surpassing 3.5 million hours of operation since its introduction in 2008.  Tecogen has more inverter-based natural gas engine cogeneration systems in operation than any other manufacturer in the US.
  • Tecopower gets an upgrade with a 5% increase in electrical efficiency, reduced gas pressure requirements, and 5 dBa decrease in noise level, resulting in highest savings and quietest operation of any competitive product.
  • Services revenues grew 20.6% 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 August 10, 2018 was $21.3 million, driven by strong traction in both the InVerde and Tecochill product lines, and installation services.  As of June 30, 2018, the backlog was $14.2 million compared to $12.7 million as of June 30, 2017, showing a sustainable backlog at this level.

Emissions Technology

  • Our development program for emissions technology in fork trucks with the Propane Education and Research Council (PERC) has concluded.
  • The results have conclusively shown that the Ultera process is highly effective in improving the emissions output from the standard forklift truck and shows a clear path to its certification as a "near-zero" emitting forklift truck under California regulations.
  • Tecogen met with executives from the manufacturer and PERC, for purposes of demonstrating the prototype, at the end of May. The manufacturer has informed us that they would like to proceed to the next steps of the program and provide us with engineering support to enhance the prototype followed by its relocation to their facility for evaluation.
  •  At the request of PERC, we submitted a scientific paper describing our forklift program and emissions reduction results for the World LPG Forum in October which is the premier global event for the LPG industry (Liquified Petroleum Gas or commercial propane). Our paper was accepted for presentation at the conference, which is a good opportunity for showcasing the technology to other manufacturers and applications.
  • In June, the company was informed that our Ultera patent was granted in Japan. This patent gives Tecogen exclusive control over the Ultera technology in Japan and augments the Company's Ultera patent portfolio which also includes the EU, North America and Australia.
  • More recently, the company was informed that its patent application for a corrosion resistant catalyst was granted by the USPO. This is an entirely different aspect of the Ultera intellectual property, not discussed previously, that involves a specialized Ultera catalyst material developed by the company with an outside firm that specializes in catalyst material development. The patented catalyst achieves excellent performance while being nearly impervious to corrosion related to sulfur and other compounds found in some fuels that are important to the Company in expanding applications of Ultera (gasoline, biofuels, and some sources of natural gas and propane).  
  • In the area of mobile, gasoline applications of Ultera, our development work continues under company funding subcontracted to a highly-respected, independent institute that specializes in powertrain research. Their work has identified a specific course of research to enhance the Ultera process which we are pursuing.

Commenting on the fork truck project, Tecogen's President and Chief Operating Officer, Robert Panora, stated, "We are very pleased with this outcome and consider this an important step in gaining acceptance of the Ultera technology into higher volume, mobile markets."

Conference Call Scheduled for Today at 11:00 am ET
Tecogen will host a conference call today to discuss the second 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 second quarter 2018 earnings call.  Please begin dialing 10 minutes before the scheduled starting time.  The earnings press release and supplemental earnings call slides will be available on the Company's website at www.Tecogen.com in the "Investor Relations" section under "Financial Results" (http://ir.tecogen.com/financial-results).

The conference call will be available live via telephone and webcast. To listen to the audio portion, dial (877) 407-7186 within the US and Canada or (201) 689-8052 from other international locations. Participants should ask to be joined to the Tecogen second quarter 2018 earnings call. Please begin dialing at least 10 minutes before the scheduled starting time. Alternately, to register for and listen to the webcast, go to https://bit.ly/2vjp0bh.

The earnings conference call will be recorded and available for playback one hour after the end of the call through August 28, 2018. To listen to the playback dial (877) 660-6853 within the US and Canada or (201) 612-7415 from other international locations. Use Conference Call ID #: 13672659. The webcast will be archived for 30 days following the call.

About Tecogen

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 trademarks pending registration 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: 

Benjamin Locke
P: 781-466-6402
E: Benjamin.Locke@tecogen.com

John N. Hatsopoulos
P: 781-622-1120
E: John.Hatsopoulos@tecogen.com

TECOGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

  June 30, 2018   December 31, 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 1,015,435     $ 1,673,072  
Accounts receivable, net 11,440,542     9,536,673  
Unbilled revenue 4,540,997     3,963,133  
Inventory, net 5,533,590     5,130,805  
Due from related party     585,492  
Prepaid and other current assets 855,366     771,526  
Total current assets 23,385,930     21,660,701  
Property, plant and equipment, net 11,361,440     12,265,711  
Intangible assets, net 2,951,033     2,896,458  
Goodwill 13,365,655     13,365,655  
Other assets 408,129     482,551  
TOTAL ASSETS $ 51,472,187     $ 50,671,076  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Revolving line of credit, bank $ 2,557,817     $  
Accounts payable 4,961,741     5,095,285  
Accrued expenses 1,946,301     1,416,976  
Deferred revenue 1,804,354     1,293,638  
Loan due to related party     850,000  
Interest payable, related party     52,265  
Total current liabilities 11,270,213     8,708,164  
Long-term liabilities:      
Deferred revenue, net of current portion 319,663     538,100  
Unfavorable contract liability, net 6,782,608     7,729,667  
Total liabilities 18,372,484     16,975,931  
       
Commitments and contingencies (Note 10)      
       
Stockholders' equity:      
Tecogen Inc. stockholders' equity:      
Common stock, $0.001 par value; 100,000,000 shares authorized;
24,819,646 and 24,766,892 issued and outstanding at June 30,
2018 and December 31, 2017, respectively
24,819     24,767  
Additional paid-in capital 56,317,160     56,176,330  
Accumulated other comprehensive loss-investment securities     (165,317 )
Accumulated deficit (23,695,154 )   (22,796,246 )
Total Tecogen Inc. stockholders' equity 32,646,825     33,239,534  
Noncontrolling interest 452,878     455,611  
Total stockholders' equity 33,099,703     33,695,145  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,472,187     $ 50,671,076  
               
               

TECOGEN INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)

  Three Months Ended
  June 30, 2018   June 30, 2017
Revenues      
Products $ 2,483,657     $ 3,116,198  
Services 4,461,283     3,700,150  
Energy production 1,508,225     774,192  
Total revenues 8,453,165     7,590,540  
Cost of sales      
Products 1,491,810     1,965,881  
Services 2,962,040     2,307,494  
Energy production 839,721     330,543  
Total cost of sales 5,293,571     4,603,918  
Gross profit 3,159,594     2,986,622  
Operating expenses      
General and administrative 2,750,705     2,406,244  
Selling 635,396     607,511  
Research and development 409,779     218,724  
Total operating expenses 3,795,880     3,232,479  
Loss from operations (636,286 )   (245,857 )
Other income (expense)      
Interest income and other expense, net 4,830     7,397  
Interest expense (9,802 )   (38,082 )
Unrealized loss on investment securities (59,042 )    
Total other expense, net (64,014 )   (30,685 )
Loss before provision for state income taxes (700,300 )   (276,542 )
Provision for state income taxes 38,864      
Consolidated net loss (739,164 )   (276,542 )
Income attributable to the noncontrolling interest (15,186 )   (16,998 )
Net loss attributable to Tecogen Inc. $ (754,350 )   (293,540 )
Other comprehensive loss - unrealized loss on securities     (224,359 )
Comprehensive loss     $ (517,899 )
       
Net loss per share - basic and diluted $ (0.03 )   $ (0.01 )
Weighted average shares outstanding - basic and diluted 24,818,459     23,120,351  
           
           
Non-GAAP financial disclosure (1)          
Net loss attributable to Tecogen Inc. $ (754,350 )   $ (293,540 )
Interest & other expense, net 64,014     30,685  
Income taxes 38,864      
Depreciation & amortization, net 187,069     178,595  
EBITDA (464,403 )   (84,260 )
Stock based compensation 38,062     48,842  
Merger related expenses 96,800     99,773  
Adjusted EBITDA $ (329,541 )   $ 64,355  
           
           

TECOGEN INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)

  Six Months Ended
  June 30, 2018   June 30, 2017
Revenues      
Products $ 6,157,163     $ 5,923,543  
Services 9,180,669     7,739,570  
Energy production 3,290,760     774,192  
Total revenues 18,628,592     14,437,305  
Cost of sales      
Products 3,900,925     3,722,730  
Services 5,744,894     4,482,739  
Energy production 1,985,376     330,543  
Total cost of sales 11,631,195     8,536,012  
Gross profit 6,997,397     5,901,293  
Operating expenses      
General and administrative 5,540,255     4,615,148  
Selling 1,310,514     1,054,963  
Research and development 712,009     399,339  
Total operating expenses 7,562,778     6,069,450  
Loss from operations (565,381 )   (168,157 )
Other income (expense)      
Interest and other income 3,758     6,184  
Interest expense (22,815 )   (69,784 )
Unrealized loss on investment securities (78,723 )    
Total other expense, net (97,780 )   (63,600 )
Loss before provision for state income taxes (663,161 )   (231,757 )
Provision for state income taxes 38,864      
Consolidated net loss (702,025 )   (231,757 )
Income attributable to the noncontrolling interest (31,567 )   (16,998 )
Net loss attributable to Tecogen Inc. $ (733,592 )   (248,755 )
Other comprehensive loss - unrealized loss on securities     (224,359 )
Comprehensive loss     $ (473,114 )
       
Net loss per share - basic and diluted $ (0.03 )   $ (0.01 )
Weighted average shares outstanding - basic and diluted 24,811,034     21,587,589  
           
           
Non-GAAP financial disclosure (1)          
Net loss attributable to Tecogen Inc. $ (733,592 )   $ (248,755 )
Interest & other expense, net 97,780     63,600  
Depreciation & amortization, net 386,250     242,876  
EBITDA (210,698 )   57,721  
Stock based compensation 78,478     97,684  
Merger related expenses 106,410     118,853  
Adjusted EBITDA $ (25,810 )   $ 274,258  
           
           

TECOGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

  Six Months Ended
  June 30, 2018   June 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Consolidated net loss $ (702,025 )   $ (231,757 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation, accretion and amortization, net 386,250     242,876  
Gain on contract termination (124,732 )    
Provision on inventory reserve 1,000     25,609  
Stock-based compensation 78,478     97,684  
Non-cash interest expense     389  
Loss on sale of assets 13,343     2,909  
Provision for losses on accounts receivable 4,395     1,335  
Changes in operating assets and liabilities, net of effects of acquisitions      
(Increase) decrease in:      
Accounts receivable (1,732,029 )   355,740  
Unbilled revenue (345,324 )   (952,864 )
Inventory, net (403,785 )   (1,242,782 )
Due from related party 585,492     (118,612 )
Prepaid expenses and other current assets (83,840 )   (99,601 )
Other non-current assets 74,424     65,687  
Increase (decrease) in:      
Accounts payable (1,017,610 )   786,419  
Accrued expenses and other current liabilities 529,325     (10,362 )
Deferred revenue 247,669     176,852  
Interest payable, related party (52,265 )   8,523  
Net cash used in operating activities (2,541,234 )   (891,955 )
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property and equipment (149,453 )   (209,265 )
Proceeds from sale of assets 3,606      
Purchases of intangible assets (149,264 )   (22,539 )
Cash acquired in asset acquisition 442,786     971,454  
Expenses associated with asset acquisition (900 )    
Payment of stock issuance costs     (365,566 )
Distributions to noncontrolling interest (34,300 )    
Net cash provided by investing activities 112,475     374,084  
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from revolving line of credit 5,053,453      
Payments on revolving line of credit (2,350,625 )    
Payments for debt issuance costs (145,011 )    
Proceeds from the exercise of stock options 63,305     114,034  
Payment on loan due to related party (850,000 )    
Net cash provided by financing activities 1,771,122     114,034  
Change in cash and cash equivalents (657,637 )   (403,837 )
Cash and cash equivalents, beginning of the period 1,673,072     3,721,765  
Cash and cash equivalents, end of the period $ 1,015,435     $ 3,317,928  
       
Supplemental disclosures of cash flows information:      
Cash paid for interest $ 79,079     $  
Cash paid for taxes $ 38,864     $  
Issuance of stock to acquire American DG Energy $     $ 18,745,007  
Issuance of Tecogen stock options in exchange for American DG Energy options $     $ 114,896  
               

(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.

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