Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Tecogen Inc.    TGEN

TECOGEN INC.

(TGEN)
  Report  
SummaryQuotesChartsNewsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

TECOGEN : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
08/13/2019 | 02:51pm EDT

Forward-looking statements are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements include, among other things, statements regarding our current and future cash requirements, our expectations regarding suppliers of cogeneration units, and statements regarding potential financing activities in the future. While the Company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the Company's estimates change, and readers should not rely on those forward-looking statements as representing the Company's views as of any date subsequent to the date of the filing of this Quarterly Report. There are a number of important factors that could cause the actual results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Risk Factors" in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018.

Overview

Tecogen designs, manufactures and sells industrial and commercial cogeneration systems that produce combinations of electricity, hot water and air conditioning using automotive engines that have been adapted to run on natural gas. In some cases, our customers may choose to have the Company engineer and install the system for them rather than simply purchase the cogeneration and/or chiller units, which we refer to as "turnkey" projects. Cogeneration systems are efficient because, in addition to supplying mechanical energy to power electric generators or compressors - displacing utility supplied electricity - they provide an opportunity for the facility to incorporate the engine's waste heat into onsite processes, such as space and portable water heating. We produce standardized, modular, small-scale products, with a limited number of product configurations that are adaptable to multiple applications. We refer to these combined heat and power products as CHP (electricity plus heat) and MCHP (mechanical power plus heat).

Our products are sold directly to end-users by our in-house marketing team and by established sales agents and representatives. We have agreements in place with distributors and sales representatives. Our existing customers include hospitals and nursing homes, colleges and universities, health clubs and spas, hotels and motels, office and retail buildings, food and beverage processors, multi-unit residential buildings, laundries, ice rinks, swimming pools, factories, municipal buildings, military installations and indoor growing facilities. We have an installed base of more than 3,000 units. Our products have long useful lives with proper maintenance. Some of our units have been operating for over 35 years.

With the acquisition of American DG Energy Inc. ("ADGE") in May 2017, we added an additional source of revenue. Through ADGE, we install, own, operate and maintain complete distributed generation of electricity systems, or DG systems or energy systems, and other complementary systems at customer sites, and sell electricity, hot water, heat and cooling energy under long-term contracts at prices guaranteed to the customer to be below conventional utility rates. Each month we obtain readings from our energy meters to determine the amount of energy produced for each customer. We use a contractually defined formula to multiply these readings by the appropriate published price of energy (electricity, natural gas or oil) from each customer's local energy utility, to derive the value of our monthly energy sale, which includes a negotiated discount. Our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy (electricity, natural gas or oil) from our customer's local energy utility that month.

The Company's operations are comprised of two business segments. Our Products and Services segment ("Segment 1") designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Energy Production segment ("Segment 2") sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.

                                       18

--------------------------------------------------------------------------------

  Table of Contents
                                  TECOGEN INC.

Results of Operations

Second Quarter of 2019 Compared to Second Quarter of 2018

Revenues

Total revenues in the second quarter of 2019 were $7,867,396 compared to $8,453,165 for the same period in 2018, a decrease of $585,769 or 6.9%. This decrease is due to the sale of certain energy producing assets in the first quarter, therefore reducing the energy production revenue in the second quarter of 2019 compared to the same period in 2018.

Segment 1 - Products and Services

Product revenues in the second quarter of 2019 were $2,445,448 compared to $2,483,657 for the same period in 2018, a decrease of $38,209 or 1.5%. This decrease was the net of an increase in cogeneration sales of $125,127 and a decrease in chiller sales of $163,336, year over year. Such variations in product mix are to be expected. Service revenues in the second quarter of 2019 were $4,843,649 compared to $4,461,283 for the same period in 2018, an increase of $382,366 or 8.6%. This increase in the second quarter is due to a decrease in installation activity of $5,579 and an increase of $387,945 in service contract revenues. Service contract revenue in the second quarter of 2019 included certain engineering service projects accounting for this increase.

Segment 2 - Energy Production

Energy production revenues in the second quarter of 2019 were $578,299, compared to $1,508,225 for the same period in 2018, a decrease of $929,926 or 61.7%. Energy production revenue represents energy revenues earned during the quarter by our American DG Energy sites. This decrease is representative of the reduction in energy producing assets owned due to the sales of a portion of these assets as discussed in Note 6. Sale of Energy Producing Assets and Goodwill Impairment.

Cost of Sales

Cost of sales in the second quarter of 2019 was $4,441,481 compared to $5,293,571 for the same period in 2018, a decrease of $852,090, or 16.1% due to the decrease in revenue. Overall gross margin for the second quarter of 2019 was 43.5% compared to 37.4% for the same period in 2018.

Segment 1 - Products and Services

Cost of sales for products and services in the second quarter of 2019 was $4,076,927 compared to $4,453,850 for the same period in 2018, a decrease of $376,923 or 8.5%. During the second quarter our overall gross margin for our product and services segment was 44.1% compared to 35.9% for the same period in 2018.

Segment 2 - Energy Production

Cost of sales for energy production in the second quarter of 2019 was $364,554 compared to $839,721 for the same period in 2018, a decrease of $475,167 or 56.6% due to the decrease in revenue as discussed above. Gross margin for this segment was 37.0% for the second quarter of 2019 compared to 44.3% for the same period in 2018.

Operating Expenses

General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses for the quarter ended June 30, 2019 were $2,683,252 compared to $2,750,705 for the same period in 2018, a decrease of $67,453 or 2.5%.

Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the second quarter of 2019 were $704,700 compared to $635,396 for the same period in 2018, an increase of $69,304 or 10.9% which tends to vary quarter to quarter depending on timing of certain activities.

                                       19

--------------------------------------------------------------------------------

Table of Contents

                                  TECOGEN INC.

Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses in the quarter ended June 30, 2019 were $372,545 compared to $409,779 for the same period in 2018, a decrease of $37,234 or 9.1%. R&D expenses were incurred due to the Company's continued efforts in connection with the Tecofrost and projects relating to industrial refrigeration and potential commercialization of the Company's Ultera emissions technology for certain non-stationary applications.

Income (Loss) from Operations

Loss from operations for the second quarter of 2019 was $334,582 compared to a loss of $636,286 for the same period in 2018, a difference of $301,704. The improvement was a result of the increase in gross profit and margin for the second quarter of 2019 compared to the same period in 2018.

Other Income (Expense), net

Other income, net for the three months ended June 30, 2019 was income of $2,742 compared to expense of $64,014 for the same period in 2018. Other income (expense) includes interest and other income and expense of $66, interest expense of $17,005 and an unrealized gain from market value fluctuation of our investment in EuroSite Power Inc.'s common stock of $19,681 for the second quarter of 2019. For the same period in 2018, interest and other income and expense was $4,830, unrealized loss from market fluctuation of $59,042 and interest expense was $9,802.

Provision for state income taxes

The provision for state income taxes in the second quarter of 2019 and 2018 was $15,955 and $38,864, respectively and represents estimated income tax payments net of refunds to various states.

Noncontrolling Interest

The income attributable to the noncontrolling interest was $9,334 and income of $15,186 for the three months ended June 30, 2019 and 2018, which represents the noncontrolling interest portion of American DG Energy's 51% owned subsidiary, ADGNY, LLC.

Net Loss Attributable to Tecogen Inc.

Net loss attributable to Tecogen Inc. for the three months ended June 30, 2019 was $357,129 compared to a loss of $754,350 for the same period in 2018, a difference of $397,221, year over year. The improvement was a result of the increase in gross profit and margin for the second quarter of 2019 compared to the same period in 2018.

                                       20

--------------------------------------------------------------------------------

Table of Contents

                                  TECOGEN INC.

First Six Months of 2019 Compared to First Six Months of 2018

Revenues

Total revenues for the first six months of 2019 were $16,044,027 compared to $18,628,592 for the same period in 2018, a decrease of $2,584,565 or 13.9%.

Segment 1 - Products and Services

Product revenues in the first six months of 2019 were $5,469,974 compared to $6,157,163 for the same period in 2018, a decrease of $687,189 or 11.2%.This decrease was a combination of an decrease in chiller sales of $867,104 and a increase in cogeneration sales of $179,915. Such variations in product mix from period to period are to be expected. Service revenues in the first six months of 2019 were $8,754,945, compared to $9,180,669 for the same period in 2018, a decrease of $425,724 or 4.6%. This decrease in the first six months of 2019 is due to an decrease in installation activity of $851,513 and an increase of $425,789 in service contract revenues. While service contract revenue remains relatively constant, the first half of 2019 included certain engineering service projects accounting for this increase. Installation activity can vary widely depending on the status of various projects.

Segment 2 - Energy Production

Energy production revenues in the first six months of 2019 were $1,819,108, compared to $3,290,760 for the same period in 2018. This decrease is representative of the reduction in energy producing assets owned due to the sales of a portion of these assets as discussed in Note 6. Sale of Energy Producing Assets and Goodwill Impairment

Cost of Sales

Cost of sales in the first six months of 2019 was $9,659,353 compared to $11,631,195 for the same period in 2018, a decrease of $1,971,842, or 17.0%.

Segment 1 - Products and Services

Cost of sales for products and services in the first six months of 2019 was $8,494,922 compared to $9,645,819 for the same period in 2018, a decrease of $1,150,897 or 11.9%. During the first six months of 2019, our product and service gross margin was 40.3% compared to 37.1% for the same period in 2018, a 3% increase. The increase in margin was a result of an increase in installation margin.

Segment 2 - Energy Production

Cost of sales for energy production in the first six months of 2019 was $1,164,431 compared to $1,985,376 for the same period in 2018. During this period our gross margin for energy production was 36.0% for 2019 compared to 39.7% for the same period in 2018.

Operating Expenses

General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses for the six months ended June 30, 2019 were $5,338,663 compared to $5,540,255 for the same period in 2018, a decrease of $201,592 or 3.6%. The decrease was mainly due to management's focus on cutting costs wherever possible.

Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the six months ended June 30, 2019 were $1,397,954 compared to $1,310,514 for the same period in 2018, an increase of $87,440 or 6.7%. The increase is due to a larger sales team and increased trade show and sales activities.

Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses for the six months ended June 30, 2019 were $717,627 compared to $712,009 for the same period in 2018, an increase of $5,618 or 0.8%. R&D expenses were incurred due to the Company's continued efforts in connection with the Tecofrost and projects relating to industrial refrigeration and potential commercialization of the Company's Ultera emissions technology for certain non-stationary applications.

                                       21

--------------------------------------------------------------------------------

Table of Contents

                                  TECOGEN INC.

A gain on the sale of assets of $1,081,049 was recognized during the six months ended June 30, 2019 in connection with the sale of certain energy producing assets. See discussion in Note 6.Sale of Energy Producing Assets and Goodwill Impairment in the accompanying consolidated financial statements.

Goodwill impairment relating to the ADG sites of $3,693,198 was recognized during the six months ended June 30, 2019. See Note 6. Sale of Energy Producing Assets and Goodwill Impairment to the accompanying consolidated financial statements for further discussion of this charge.

Loss from Operations

Loss from operations for the six months ended June 30, 2019 was $3,681,719 compared to a loss of $565,381 for the same period in 2018, a difference of $3,116,338. The goodwill impairment of $3,693,198 accounts for the significant difference from the six months ended June 30, 2019 compared to the same period in 2018.

Other Income (Expense), net

Other expense, net for the six months ended June 30, 2019 was $64,113 compared to $97,780 for the same period in 2018. Other income (expense) includes interest and other income of $598, interest expense of $45,031, and unrealized loss on investment securities of $19,680. For the same period in 2018, interest and other income was $3,758, interest expense was $22,815, and unrealized loss on investment securities was $78,723.

Provision for state income taxes

The provision for state income taxes six months ended June 30, 2019 and 2018 was $7,786 and $38,864, respectively and represents estimated income tax payments net of refunds to various states.

Noncontrolling Interest

The loss attributable to the noncontrolling interest was $116,412 for the six months ended June 30, 2019 which represents the noncontrolling interest portion of American DG Energy's 51% owned subsidiary, ADGNY, LLC. For the same period in 2018, income attributable to noncontrolling interest was $31,567.

Net Loss Attributable to Tecogen Inc

Net loss attributable to Tecogen for the six months ended June 30, 2019 was $3,637,206 compared to $733,592 for the same period in 2018, an increase of $2,903,614. The goodwill impairment of $3,693,198 accounts for the significant difference from the six months ended June 30, 2019 compared to the same period in 2018.

Liquidity and Capital Resources

Consolidated working capital at June 30, 2019 was $15,527,643 compared to $13,170,252 at December 31, 2018, an increase of $2,357,391. Included in working capital were cash and cash equivalents of $1,087,970 at June 30, 2019, compared to $272,552 at December 31, 2018, an increase of $815,418. The increase in working capital and cash was the result of the cash received upon the sale of certain energy production assets.

Cash used in operating activities for the six months ended June 30, 2019 was $2,080,213 compared to $2,541,234 for the same period in 2018. Our accounts receivable balance decreased to $11,628,702 at June 30, 2019 compared to $14,176,452 at December 31, 2018, providing $2,517,901 of cash due to timing of billing, shipments, and collections. In addition, inventory and unbilled revenue increased using $695,835 and $936,106, respectively, using $1,631,941 of cash from operations.

Accounts payable decreased to $6,234,846 as of June 30, 2019 from $7,153,330 at December 31, 2018, using $918,484, in cash flow from operations. Deferred revenue decreased as of June 30, 2019 compared to December 31, 2018, using $966,776 of cash from operations. The Company expects accounts payable and deferred revenue to fluctuate with routine changes in operations.

                                       22

--------------------------------------------------------------------------------

Table of Contents

                                  TECOGEN INC.

During the first six months of 2019 our investing activities provided $4,896,394 of cash from the proceeds of the sale of energy producing assets of $5.0 million, offset by purchases of property and equipment of $52,444, and expenditures related to purchases of intangible assets of $22,738.

During the first six months of 2019 our financing activities used $2,000,763 compared to cash provided by financing activities of $1,771,122 for the same period in 2018. Financing activities for the first six months of 2019 included net payments on the line of credit of $2,021,519 as well as proceeds from the exercise of stock options of $20,756.

As of June 30, 2019, the Company's backlog of product and installation projects, excluding service contracts, was $25.3 million, consisting of $19.0 million of purchase orders received by us and $6.3 million of projects in which the customer's internal approval process is complete, financial resources have been allocated and the customer has made a firm verbal commitment that the order is in the process of execution. Backlog at the beginning of any period is not necessarily indicative of future performance. Our presentation of backlog may differ from other companies in our industry.

Significant Accounting Policies and Critical Estimates

The Company's significant accounting policies are discussed in the Notes to its respective Consolidated Financial Statements in its Annual Report on Form 10-K. The accounting policies and estimates that can have a significant impact upon the operating results, financial position and footnote disclosures of the Company are described in the above notes and in the respective Annual Report.


Significant New Accounting Standards or Updates Not Yet Effective
Except for the updates to the Company's lease accounting policy for the adoption
of ASU No. 2016-02, "Leases" ("the new lease standard" or "ASC 842"), the
Company's critical accounting policies have remained consistent as discussed in
the Company's Annual Report on Form 10-K for the year ended December 31, 2018,
filed with the SEC on March 29, 2019.
See Note 1, Description of Business and Basis of Presentation, to the Condensed
Consolidated Financial Statements included elsewhere in this Quarterly Report on
Form 10-Q.
Seasonality

We expect that the majority of our heating systems sold will be operational for the winter and the majority of our chilling systems sold will be operational for the summer. Our cogeneration sales are not generally affected by the seasons. Our service team does experience higher demand in the warmer months when cooling is required. Chiller units are generally shut down in the winter and started up again in the spring. The chiller "busy season' for the service team generally runs from May through the end of September.

Off-Balance Sheet Arrangements

Currently, we do not have any material off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.

                                       23

--------------------------------------------------------------------------------

Table of Contents

                                  TECOGEN INC.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on TECOGEN INC.
10/17TECOGEN : Schedules Earnings Release and Conference Call for Third Quarter 2019 ..
AQ
10/15TECOGEN INC. : Regulation FD Disclosure, Financial Statements and Exhibits (form..
AQ
10/10TECOGEN : Sells Chiller to Large NYC Residential Building
PU
08/13TECOGEN : Management's Discussion and Analysis of Financial Condition and Result..
AQ
08/13TECOGEN INC. : Results of Operations and Financial Condition, Regulation FD Disc..
AQ
08/07TECOGEN : Sells Microgrid System to New York Nursing Home
AQ
08/01TECOGEN : Sells Chiller to Nevada Cannabis Cultivation Facility
AQ
07/25TECOGEN INC. : Change in Directors or Principal Officers, Financial Statements a..
AQ
07/25TECOGEN : Submission of Matters to a Vote of Security Holders (form 8-K/A)
AQ
06/10TECOGEN INC. : Submission of Matters to a Vote of Security Holders (form 8-K)
AQ
More news