Q3 2020 Tecogen Inc Earnings Call
[music].
Greetings and welcome to the Tecogen third quarter earnings conference call at.
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A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Joining us on our call today is Benjamin Locke CEO.
Robert Panora, President and COO.
And Jack Whiting General Counsel and Secretary.
It is now my pleasure to introduce your host Jack Whiting. Thank you Sir you may begin.
Hello, This is Jack White, and general Counsel and Secretary antique engine.
Please note. This call is being recorded and will be archived on the investors section of our website at Teekay agenda calm for two weeks until November 27 2020.
A copy.
The press release regarding our third quarter 2020 earnings is available in the investors section of the website as well.
I would like to direct your attention to our Safe Harbor statement included in the earnings press release and presentation.
Various remarks that we make about the company's future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provision under that.
The private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the company's most recent annual report on form 10-K, and quarterly reports on form 10-Q under the caption risk factors, which are on file with the.
We have the SEC and available in the investors section on our website under the heading.
SEC filings.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so therefore, you should not rely on any forward looking statements represent our views as of any date subsequent to today.
During this call we will refer to certain.
Financial measures not prepared in accordance with generally accepted accounting principles or GAAP.
A reconciliation of these non-GAAP measures financial measures to meet the most directly comparable GAAP.
GAAP measures is provided in the press release regarding our third quarter 2020 earnings and in the investors section of our website I will now turn the call over to Benjamin.
Yes.
Thank you Jack.
[noise] agenda on slide four indicates I'll start with a brief company overview, followed by a review of the third quarter. Overall results followed by a review of the performance of each of our main revenue segments.
I will then have some commentary on the results.
Yes, and expectations going into the fourth quarter.
He will then provide an update on our Ultera emissions technology program, including some more color on our recently announced licensing arrangement arrangement with origin engine.
We will of course take questions afterwards.
Before I go into the numbers in more detail I'd like to provide a short overview of CICC.
Good friends business as shown on slide five.
Take a giant is in the business of selling and maintaining clean and efficient energy systems that reduce greenhouse gas emissions provides significant operational savings and provide resiliency to grid outages.
We are a leader in distributed generation technology due to our longevity in extensive.
Technical expertise experience.
Our air conditioning and cooling products have the highest efficiency of any other equivalent CSI system.
Proprietary ultera emissions technology ensures the cleanest emissions possible, meaning even the most stringent air quality standards, such as those in southern California.
Our flagship inverted cogeneration product is designed the transition from grid tie to off grid operation seamlessly providing power to a facility indefinitely until grid power is restored.
Tecogen has deployed hundreds of these systems that can operate as microgrids independent of grid operation recently being ranked number three.
Three in terms of number of operational Microgrids in 2019.
We are well positioned as our country and the rest of the world looks towards a low carbon future our high operational efficiencies enable significant carbon savings when compared to traditional sources.
And lastly, our Ultera emissions technology is recognized.
As the best solution for reducing C O and I know EPS submissions across a wide range of engine platforms and sizes.
And as I indicated in the press release on Tuesday, partnering with origin engine was a perfect fit given their significant presence in recognition in industrial engine markets.
Turning to slide.
Slide six.
The third quarter of 2020 saw revenues of $7.2 million compared to $8.6767 million in the third quarter of 2019, and 18.5% decrease year over year.
This decline is primarily due to a 30% drop in product revenues as some orders were delayed.
We are seeing sales activity pickup from Kobe delays and hope that that trend continues in the coming months I will talk more about our product sales in a few minutes.
Service revenues were down 2% as installation activities were limited due to covert delays primarily in New York.
However, we did see on M. service.
The OEM service contract component of the service segment hit a new record high of $2.6 million for the quarter up 6% year over year.
This is especially impressive as we still have some cobot related service delays, which we hope will resume in the coming months.
We expect our service contract revenues.
To continue this growth sequentially each quarter as almost every unit we ship comes with the factory service contract.
I will show a bit more detail about our service financials later in the presentation.
Next our energy production segment was the most impacted by continued Covance pandemic quote and facility closures down.
Down 42% from the third quarter of 2019.
As I mentioned in our last call many of our energy production sites are in markets with extended coated closures, such as hotels and athletic clubs.
I expect we will continue to see a slower rebound of our energy production revenues.
With regard to margins we are pleased.
Gross margin improved to 39% as compared to a gross margin of 33% in the third quarter of 2019.
This was largely driven by improvements in both product and service margins, which I highlighted here in red.
Turning to our operating expenses, our efforts to control costs and improve.
Are those processes have resulted in a reduction of 11% quarter over quarter coming in at just under 3 million.
The end result was a net loss of 232000 for the quarter as compared to a net loss of $586000 in the third quarter of 2019.
And an adjusted EBITDA of negative 60.
7000 for the third quarter as compared to an adjusted EBITDA of negative 422000 in the third quarter of 2019.
The adjusted EBITDA is shown in more detail on slide seven.
So while our goal of course is to reach profitability in the period, we reduced our loss.
By almost half quarter over quarter, and our negative adjusted EBITDA by almost six six in a quarter where product revenues were the most impacted by coated.
When product revenues pick back up as we expect the combination of our improved gross margin and reduced expenses make the path towards profitability much more attainable.
These.
Moving to slide eight I'd like to provide more color on our quarterly revenues in each segment.
First as I mentioned, we saw product revenues dropped 30% from the third quarter of 2019, mainly due to covert related project delays.
Over the past few months, we have seen the engineer.
Generic and construction community resumed somewhat normal activity.
Which for US is project design and equip equipment specifications followed of course by orders.
The initial widespread closures in the early days of the Cobot pandemic did not impact product already has already in hand, but the lack of activity impacted or.
Orders, we would have typically receive for the third quarter.
With the cycle of project design and equipment specification resuming we expect order flows to resume.
I will also point out that the drop in chiller sales for the quarter from the previous year is not trending of any drop in chiller demand.
In fact.
We expect much of the pent up sales activity I, just discussed to be chiller sales.
And as the press release mentioned, we had another teco Frost sale this time to a food processing facility.
Facilities, using refrigerated compression systems, such as food processing cold storage and other markets, where our traditional CHP rich.
A chiller products would not be a fit are now new sales target for Taco Frost offering the same operational cost savings resiliency and greenhouse gas benefits of our other products.
Next you can see the detail of our service revenues, which dropped 2% quarter over quarter due to curtailed installation activity.
As a result of Covance.
However, as I mentioned previously our service contracts in parts segment reached an all time high of $2.6 million. Despite some continued coated closures I.
I would like to point out that our service contract revenues have grown by an average of 7% per year for the last five years from.
Point $1 million in 2000 $15 million to $10.5 million 2019.
My Hope is this trend will continue particularly as we anticipate the startup of over three megawatts of installed CHP capacity in Toronto in early 2021.
And as I mentioned in our energy production segment will be slower rebound.
Because they exist in sites that prolong covert closures, such as hotels health clubs and recreational facilities.
And lastly on this slide just again highlighting our gross margin came in at 39% as we continue to make sustainable improvements to our overall business.
Turning to slide nine I'd.
I'd like to reiterate some of the key takeaways for the quarter.
First our core business of product sales and service performed well despite the enormous challenges of the cobot pandemic.
Product sales were down as order flow was interrupted by cobot delays.
But as I mentioned in the past few months, we have seen the cycle of project design in.
Equip equipment specification resume which will result in a resumption of order flow.
Service revenues were down only 2% despite a 13% reduction in the installation component.
The installation reductions were offset by the continued growth in our contract service revenues, which will continue to grow as we add new units to our server.
Sleep.
And lastly, as we are seeing longer disruptions for some of our energy production sites in some facilities harder hit by covert.
The next key takeaway is sustainable improvements to our business that have reduced our opex, 11% quarter over quarter and a bit more when compared to last quarter.
We have also improved our accounting functions and streamline many of our business processes, which combined with our improved margins put us in excellent position to reach profitability when product order flows pick pick up in earnest.
This leads me to the backlog, which currently stands a little over $10 million.
Buck the consent.
Consisting primarily of product orders with some installation activities still plan.
I'd like to point out just a few things about our backlog as it's representative of the trends, we are seeing seeing driving future projects.
First you will see it at multi unit residential remains at the largest segment, which is not surprising as those buildings typically are the best.
Candidates for cogeneration.
Next is health care, which is also typical sets hospitals and assisted living facilities are also excellent fits for our cogeneration and chiller systems.
Next you will see indoor growing as a large part of our backlog, which is almost exclusively our chillers because of their compelling up.
Operational cost savings.
With the recent approval of recreational use of marijuana in several states, including New Jersey in Arizona, We anticipate this trend to continue as more growth facilities are designed and built within each state.
And a last observation is while smaller the office building segment.
In this case, the resiliency benefits of our micro grid solution oftentimes our projects to move forward, despite slightly longer payback savings I hope is continuing this trend continues also.
And lastly, as I previously said our backlog consists of products and installation revenues and does not contain our recurring long term maintenance.
Contract revenues, which is a consistent contributor each quarter again. This is very important when considering the expected revenue contribution from our new top Toronto Service Center early next year.
Moving to slide 10, we.
We'd like to give you an overview of our activity with the Ultera emissions.
Technology.
First and foremost as you saw in the press release earlier this week.
We announced a licensing arrangement agreement with Origent engines to use the ultera emissions technology on a range of their engine systems for use in a wide range of industrial applications, such as forklifts generators in water pumps.
Origin or is a recognized leader in providing reliable industrial engines and the addition of the Ultera emissions technology will allow them to further improve their market potential by offering ultera emissions reduction.
Bob will discuss that describe the origin arrangement in more detail as well as the status of our other ultera emissions initiatives.
But I want to reiterate that we are confident that this licensing arrangement will eventually result in revenue contributions to the company, while still maintaining our options for further altera commercialization with Mcf a day or any other partner.
And for all automotive and or truck applications.
We are obviously being pre.
Prudent about Resourcing these longer term business activities, but we are excited to have an arrangement with origin by which we can begin to see the financial upside of our Alterra technology investments.
With that I'd like to ask Bob to provide a little more detail about origin engines as well as an overall emissions technology updates since we skip that last.
Bob.
Good morning, and thank you Ben.
First about origin origin is a growing OEM supplier of engines from 4.3 to 10.3 liters. There a us company that is aggressively pursuing increased share in the industrial natural.
For gas propane markets.
These would be familiar stationary markets for as Ben mentioned generate isn't water pumps, but also off road mobile markets, notably forklifts.
This is our first commercial licensing agreement of Alterra, which is an important milestone.
Moreover.
Moreover.
We see significant potential because origin offers multiple engine sizes in a variety of markets and is not limited to a single OEM customer in any particular one reason.
For example, there were many forklift manufacturers in origin to sell to the mall in all the various size ranges.
Their agreement covers.
Moving on to the next bullet, our California water District order for two 800 horsepower Altera kits has been received.
And is in the process of fabricating the components it will be delivered in Q1.
As some recall.
And the next bullet as some rating recall, we had been investigating catalyst formulations with the unit space Research Institute.
Their program completed some months ago identified a highly effective countless composite that shows great promise Ria pursuing further development in the form of a full fuel catalyst element.
Element and also a patent disclosure.
This would potentially give two companies seek region.
The prior period components in the Alterra kit.
Lastly, we remain on hold with Mitsubishi catalog.
AUM CFA until the Covance travel.
And yet restrictions are lifted and with that I'll go back to that.
Thanks, Bob.
So before I turn it over for questions I'd like to briefly reiterate what I think of the most important takeaways for the quarter.
Despite our lower product revenues, the combination of our improved margins and reduced opex help.
Thus reduce our loss for the quarter.
We fully expect product order flow to resume and our service revenues to continued growth both of which will put us in excellent position to reach profitability.
And lastly, we are very excited about the origin engine agreement and look forward to making a accomplishments on the milestones that thats sets for.
Helped.
With that I'd like to turn the call over to the operator for questions.
Ladies and gentlemen, we will now have our question and answer session.
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One moment, please while we now poll for questions.
Our first question comes from Sameer Joshi with H.C. Wainwright.
Please proceed with your question.
Good morning, Sarah Hello, Ben Bob how are you good morning.
So first question on origin.
Can you describe.
Nick that's in the.
And when you should start seeing some.
Meaningful revenues.
Yes, so some years as I recall in the agreement they have specific timelines they have to adhere to.
Which will be.
Expected things you have to do which is to develop.
On the device the prototype for their particular engine, they're going to start with followed by a certification.
And then commercial.
Commercial sales after that I don't want to.
Talk about the timeline precisely I am actually not.
Down to the months that it is but it's fairly aggressive and we feel we should be having results not too far in the future, but that's about all I can say I want to say right now.
And yes, I would just add that Samir and when we crafted the agreement we are very careful to make sure that we we outline the terms and milestones and everything.
So thats all been and considered and we're origins.
Origins are great customers as I think we mentioned in the press release, we have been buying our engines since we introduced the.
Inverting version two.
We have heard a plus a few years ago, we've been using their engines and real good partner when and most importantly, very well respected and connected within the industrial engine community.
Got it okay.
And Thats one of the eastern municipal lost and what the district in California the.
The sizes of the order.
Were and what the timeline.
In your process.
Yes, I don't want to provide the cost.
But I can say that timeline.
Is.
It was we were delivering of the the whole the whole group of components about five mines months with the order and.
We invested about two months in some think in January ish or February is that the time is a timeframe.
Got it understood.
So in this backlog the products backlog are there any.
Anything that you see that is related.
It to the New York Law 97, or is that something that you would start seeing on the ground if anyone or can be pretty too.
Sure Yeah, we in that backlog are absolutely projects in New York residential buildings.
I I believe or some of the ones that are in there.
Of which.
But that's not their driver is local law 97, but it certainly is one of their considerations.
And the fact that they can.
And not have any penalties on a local on 97 for many many many many many years to come.
It is what drives it so.
I think the the economics.
The operational savings alone is what compelling, but the local on 97 benefits or are absolutely being acknowledged now and we'll see how much that that continues now that now that we are that they're putting these grades on the buildings.
Every building in New York has to have a little bit grades like Harriet report card as a kit.
And.
And so I think thats going to some drive some behave.
Have your two as people want to have a higher grade on their building and CHP certainly in the greenhouse gas reductions that come with it is a way for them to improve their grade.
Understood Thanks for that color.
Two more from me.
So for the full quarter.
I know.
Even though.
On the last call you had said the second half is expected to be stronger.
Third quarter.
Was not that great, but that's one of the four core categories do you expect.
You are flat or maybe only slight.
Year over year.
Yeah, Yeah, well I'm sorry.
I certainly expect that.
That's the biggest struggle we had this quarter seem are obviously was our product revenues right on.
Our services to detect a great I think the little dip in installation I'm not too concerned about the I'm more happy and impressed with our installed with our own M service is growing.
We get that product revenue back on track, we're a business and I'm very confident that the product order flow is going to resume again, it's too bad that up things got delayed as they did.
As I tried to describe in the call you know what happens is as a test at the time cycle here, where project gets designed and then they they do the equipment selections and then.
People fight it out and then they you finally get your equipment specified and then once that equipment specified ultimately it goes to a contractor and the contractor badger equipment, So I'm not saying all jobs go that way.
But certainly on the Chello side of things, that's kind of the prescribed flow and it's a very it's a nice system it because it's predictable and somewhat more reliable than sometimes.
What these cogen sales are.
But but but there was a slowdown I mean, there was a two month period there in the beginning of the year, where a lot of that stopped the initial call good results and and that did impact product product orders you have in hand, it impacted the product orders that were coming down the pipe and so now Samir were seeing those product orders coming back down the pipe, we're seeing ourselves get specified and everything it's just.
So lost some time and I think the third quarters, where repayment the biggest penalty for that.
Understood.
Yeah.
And the last question is just I think this was discussed on previous calls as well or at least the last call.
The M.C. EFI is in a standstill on a holding pattern.
We.
What are the reasons that travel is absolutely essential for this to proceed.
Yes, I can.
Claim that the the testing we've done up to now has been in a national Fork truck when we redefined.
Road Test if you will you pick up something you've tried to pick up something and so forth.
So that is not the way an engine get certified you remember the next step was to pursue certification the way the engine would be certified as they would have a beer engine with the emission system.
Two it on and dynamometer in it runs through a cycle of pump, it's almost like a pedal going with that.
Whereas accelerating decelerating holding an.
An RFP eminent load for certain time, but its very complicated, but aggressive type of drive cycle thats imposed on the engine what.
What we we believe is that the best chance of getting to the certification numbers we need.
We'd be that.
The engine tuner right there on the site to make adjustments in case, you need it to make sure the test as access is a success, which.
Which is routine that's how it's done and so originally we we said okay. We have to have that Japanese style or even with Pelephone, Japan from the engine company be here.
How will that test was is between software and firmware equipment programming equipment. So thats the hang up.
We've gone I've talked a little bit to Mcf, a and they brainstormed a little bit on the wrong like maybe we get around that by doing this or that or approach. It this way.
But.
I think the Japanese folks are pretty adamant they want to be there and they of course from the run the program. They run the store. So that's where we're at now maybe that will change given what's happened with origin I don't know.
Okay understood. So it is the Japanese people that want to make sure that there okay.
Understood. Okay. Thanks, that's all they're all my question. Thanks.
Thanks Art Thanks Amir.
Thank you.
Our next question comes from Joe Vintage equipment now up an Oracle advisors. Please proceed with your question.
Hi, Joe.
Hey, Ben Hey, Robert how are you guys doing.
Good to talk to you yeah. Congratulations you know getting through this tough time period.
Thank you.
I was wondering you know I.
Just could you give me just a little more detail on what markets, you're excluding from the origin deal or.
I'm not quite sure if I caught that.
[noise], Yeah, sure and we Didnt provide it precisely because of course as part of the deal, but but I can tell you notionally. What we wanted to do in the deal. We wanted to enable origin to be successful of course, and so we we specified.
Engine size ranges.
And in market areas, where he would have freedom to operate in the go ahead and be successful and will of course help them in that et cetera. We.
We defined we made sure. We didnt include areas that aren't relevant origin engines, but are relevant to us like for example, the automotive right I mean I've already mentioned.
Involved automotive so we of course me in our Optionality for that.
And we've carved out a few other areas that we just want to make sure that we have protection on but mostly we've we've enabled origin in the engines that they work with and size ranges and in the markets that they are familiar with to have have freedom to operate.
Okay.
Yeah.
Would you be able to tell me what the proximate size.
Or just in terms of revenues.
How big the company is I'm, just I was trying to look it up and I just couldn't really couldn't find out much about them.
I actually don't know.
Joe I.
I don't want to hazard, a guess in front of the company and I don't have.
That information, but I will.
Let me tell you a little bit about them, which is there I guess as I said in the call very good shrewd company and with a reputation for for these industrial engines being strong in it it's a it's a market.
Anish that that I think they're going to be really successful and.
And a weak some of the customers that we know that they are reaching out to I think are going to be customers that are going to really help them grow the business. So we're we're supporting origin not just lessening the technology, but we're also going to help them engage customers and talk about what the customers and even if it.
Customer needs and Altera system that ultra ultra low COO and maybe Nox one way. That's one thing if you want to do in your business differently, but importantly, we're gonna help origin. The successful on this.
Okay. Okay.
That's great.
You know in terms of your overall business.
You know one of the things it's happening out there it seems in the world is that.
Companies in your business starts are basically.
Tying their equipment into distributed energy resource systems.
I I know generac and their recent.
And call they.
They announced they bought a company called and Bala, which is a basically a software company that ties together all the you know bill.
Buildings that have <unk> capability of generating electricity and and I was just wondering.
You know how you guys.
Look at that it <unk>, if you've thought about a man with with regard to your CHP systems, whether or not.
You've got any thoughts on that and and sort of.
The tying your equipment in somehow to.
Two.
To that bigger grid Ah.
And allowing your customers to actually sell into the grid.
Sure Yeah I understand the question Joe when it's a good once you know what there is absolutely a said you know our inverter product whats the the the variable speed in the Microgrid in the search and all that stuff and then the ultra low emissions in a minute.
In the certifications that the smart grid certification is perfect for those applications.
The tricky part is.
Ultimately, we're not a generator company, where a cogen company and so we.
We not only have to search for power applications, but we need to make sure we've got to use for that heat that.
We produce.
So it in applications in facilities, where they've got to heat load and that heat load can be many things you could even have these absorber air conditioners be the hiload, but if you're able to utilize the heat than absolutely. Those applications are a good fit for US now if you're not going to do it and you are going to operate our system simply as us I'd like a standalone gena.
But do you can you can you can certainly do that in fact, we've had a couple of projects were a good fit for that.
But the question is how do your economics compete with a typical standby generator set.
And so I think what we are seeing some niches where again the combination of our search microgrid, if we're able to incorporate the solar into.
And our inverter as well that helps and if there are mission particular missions constraints those are our calling card as well those controllers that company that you mentioned that generate bought that all is in our green box you know all of our controllers in terms of.
Making sure these things our load following et cetera are all contained in our box. So thats, a long way of saying Joe Yes there.
Who are the good application for it's just that it's a little bit different because you're not some of these applications don't have a use for the heat and therefore, making the economics pencil out for our equipment is a little more challenging but there's still at this there's still opportunities that we're looking at.
Right right right right. So your but your system you can tie into like a an embargo.
Software.
Yes, definitely definitely we really leaders I think in our world.
For integrating into micro grid systems and.
Computer controls, we're very well placed there I think.
Right right.
I guess.
The other question I have is with.
Got to the.
Yeah, Robert on the catalyst development.
Your comment was that would give you a proprietary component in the kit.
And I'm just curious.
Are any of the other components in the kit proprietary.
<unk> or is it I mean, what we.
What is it.
I understand your question Joe So Joe the if you look at the.
The the Ultera system in the process. It really we really patented a process where you have two stages of Catalent conversion, one being a at a low temp.
You want to be in high temperature and then so on and so forth, but if you look at that kids. The pods put on the table you will see that is devices that are non proprietary and is a control, though there is a air pump that is.
And a huge changes on what they are not things that Tianjin manufacturer is that.
Can't get anywhere else. So in this case however, what we found on what this research group found is that we are operating the second stage is a very unusual condition. You know this low temperature and that opens up.
Chemistry, this virtually not possible yeah Herman.
Just countless world.
And so what they put together was a very particular catalyst formation that can live in these cold temperatures and operate very effectively at a much lower cost than the catalyst today.
And they believe and I believe too that its very patentable.
And so where they have crafted a patent disclosure on it which we will own the rights of course.
And and will pursue that patent and unlike everything our current status right now now we've got a.
Catalyst that absolutely is our own I mean, it doesn't mean, we couldn't license in some.
Money, but we could actually control.
Who buys and what the prices so thats a new situation for us.
That may does that clear Joe It does yeah that makes that makes great sense I I appreciate it.
Thanks for the clarification.
On it.
That's all I got I appreciate.
Sundry answered thanks, Joe appreciate it.
Thank you.
As a reminder to our audience if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Michael So with Oppenheimer. Please proceed sir.
Question.
Good morning.
Good morning.
Now that we're getting the increased legislation with regard to marijuana use.
Almost what kind of marketing efforts that youre going to undertake to do.
Does that help.
A greater use of our systems in indoor growing.
Sure Mike Yeah, it's it's that something.
Something we obviously spend a lot of time with it we kind of try to follow the permits a you know they they issue permits for the funding their growth facilities in the permit holders obviously the ones that that are ultimately have the opportunity to build something and I say have a harp opportunity it's because somewhat.
Please permit holders then need to close their financing and then they're going to finance partners and then you can imagine that there's not all those stories and while but anyway that these permit all those that actually get their act together and get financing are the ones that we are absolutely paying attention to we know where.
Potentially the geography of where are they going to install it and.
And therefore, the availability of gas very important right.
Relative electric rates on electric capacity, and so well and as a reminder, Mike we've got a rep a manufacturer's rep in New Jersey that outstanding a one DMD engineering and we've been speaking with them very much and just just just up the other the other.
And they are having deep thought sessions about how we're going to make sure that we get.
On to the table as these indoor greenhouses are built.
Where do we entered the process to win or the process with the engineering companies are the design companies to enter the process with the financial.
People or do we even enter the process with the gas company.
Yeah that someday well a.
A little bit as each there Mike.
But I would say typically we would approach the engineers involves doing the specifications and and inform them of this alternative which they may or may not know about.
I think more often than not.
But we do know about it simply because we've been doing so many facilities with that we have so many case studies.
Good results.
And then up then so then then alternative.
Alternatively, you could be meeting what the facility owner or the person who is running the project to come hopefully is smart enough to understand operational cost savings and not so.
So kind of up in the closet all he wants to do is get started regardless of how much equipment. He buys.
Oh, but anyways once youve gotten in there and you can really showed just the cost savings might then then then there was the sales progress really goes in earnest and I would just like to kind of a strange thing about this is weak.
We come in there not so much.
Selling our tico channel as it is telling them. Please don't put in these very inexpensive low upfront costs, but extremely expensive to maintain electric systems don't put in 10 rooftop air source electric systems in your greenhouse, which are all going to fail.
Well sequentially as the months and years go by.
Put it in a more sophisticated but operationally cost efficient.
Water source choice system, So go to chilled water not kildair.
And then once you once what they were on the chilled water to track then it's all it's okay. It's really becomes a next step for them to see the benefits of the Picocell. So.
The real challenge, Mike or some of these grow up grow builders that just see the first costs and just buy a bunch of cheap electrics not understanding that this latent heat loads how much water you dump into these plants. That's all I've got to really remove you've got the medication needs and it can all play out very catastrophic way.
We've seen that in some of the.
It is here in Massachusetts that Didnt follow our kind of script have have had a lot a lot of problems and so that's the way we do it Mike we find out where the facilities are being built we immediately try to convince them to go with a water killed system and then go to the Picocell.
And along the way Mike of course, we're trying to sell cogeneration.
As well that's like that I think the Grand slams, if you get the Chillers plus cogen.
And then too.
Move from a little bit at one time, you had discussed relationships with a Florida gas utility.
As that relationship continued or we develop and Ed or what's the.
Potential with actually bringing our systems to the attention of gas utilities around the country.
Yes, absolutely Mike we are and I personally have been trying to do a lot of that outreach to the gas companies to to show them the sherritt benefit.
You might have noticed in our press release, Mike in.
One of the sales and operation highlights I wasn't able to identify them.
But we signed a joint sales and marketing agreement with the natural gas company up in Canada.
Who is very much.
Sees the value in gas engine cooling really is what they're looking at it is cooling as well as cogeneration, but cooling.
So yes, we are continuing to work.
With that with the gas companies down in Florida, Teco and the others. We've got this gas company that we actually signed a joint sales and marketing agreement with up in Canada.
This is the other gas companies around here that we're working with more informally, but but still what kind of a shared objective. So.
You're absolutely right that that's one of the ways that we're we're trying to.
Product offering forward is if these guys have these gas company sales representatives can be carrying our literature. That's a that's a win for us.
And then one final question in the 10.
$10 million backlog does that include the.
Contracts that were in a series of news releases at the.
I guess the end of September and early October or are there any.
Contracts that are.
After that.
Backlog figure.
Uh huh.
Mike I would have to check I I think I think the answer I'm not an EPS I'm sure. The answer is the announcements that you've seen.
Seen aren't are in the backlog I don't think anybody not put it this way no announcements that you've seen or not in the backlog.
But that that clarifies it for me. Thanks, I look forward to the fourth quarter and the first couple of quarters next year.
And safely.
Appreciate it thank you.
Thank you.
Our next question comes from Alex Blanton with clear Harbor asset management. Please proceed with your question.
Hi, Good morning, Hi, Alex how are you couple of a couple of housekeeping items first.
I wondered why you're going to archive this costs are only too.
Two weeks.
[noise] [noise] I I honestly don't know what Mike, except I know probably two years is too long.
But today, that's why we shortened so I think we decided to pick a time.
I don't think your cost you anything to archive.
Therefore, why wouldn't you are kind of it for a year.
Well the transcript will be available I mean from the transcript is always available right.
On the <unk> on this site, yeah, well, but some people like to listen to calls I just wondered since.
Since it doesn't cost you anything to do it well you don't.
[noise] okay.
Okay next question is.
I couldn't find the slides.
On your website I don't think they are posted there yet.
So it's nice that you have slide but.
It would be yes, I'll just have I'd like.
Alex I can tell you is on the earnings.
Earnings release, if you go to https back last IR Tecogen in news and events that they did there will be a links to the slides there I'm not going on to drive you for that I couldn't exercise now but I.
I couldn't find that it says related documents, but you can't get to slides from there.
Yeah, Okay, well, maybe offline outlets I can I can give you a call and we.
I can walk you through the progression of the website clicks to get you there.
Good how are you going to re list on NASDAQ once the stock is up above one dollar for a period of time.
Oh baby.
Oh, Oh, Oh, Alex we've not made any clear decision on that.
We we had reasons to go where we are right now and here, we are and I think as I've said in the past Alex My goal right now is the buckle down focus on the core business reach profitability and then the the next possible eventuality or or or question of do we want to get back on the NASDAQ or not I went away.
On that until I've done the first thing I said I was going to do okay.
Okay. My next question is regarding the.
The president elect Bidens.
Infrastructure client.
Included in that is it's a plan to retrofit 4 million buildings.
Great and this is in line with his goal to reduce the carbon footprint.
Substantially huh.
I think by 2030, I forgot the exact year, but he's got these long range plans.
ER to reduce carbon footprint and part of that is retrofitting 4 million.
Buildings.
What role would you have in that.
Isn't that spending.
Sure well what would typically what we would do Alex is we would be in and and then not to one comment from the way things do now is went to a contract or a project engineer.
Well arrive in a building and do substantial infrastructure upgrades they'll they'll change it from a two pipe to a four or five system they'll they'll they'll change windows out they'll change leipold for the many of these things and then putting in cogeneration is is that as a part of that overall project and but it's important that we're part of it at that stage because when you're doing that was very.
The big things like and these are the things that the the president elect plans talking about infrastructure upgrades is an old boilers old inefficient boilers and equipment. That's it's just really really got a bad carbon profile improving that and so we want to be part of that because it's when all those pipes are being cut and guidance.
As with hard hats wandering around that we want to be in there doing the same thing because then the in kind of an incremental cost of us, adding the cogent as opposed to just being a standalone Cogent project is much less so to answer your question. Alex we are watching those things and certainly some of our our partners. Some of the people that we work with that have much larger per views of installing boilers and doing.
Larger building things, we're in communication with them. So as they see these projects start to come forward, we'll be ready to work with them to propose either a cogen equipment or perhaps a chiller.
Well, there's there has anybody from your company or your partners been in touch with Biden transition team.
No no no no no it's not that yet I think you've probably got some bigger problems to deal with before he gets to me.
But but but but with that said, though.
Alex I.
What I do follow is ours is appointments and his appointments to some of the the the areas that are going to impact energy policy.
And and that's it and once those appointments are made and once the appointments I made after that and once the the little kind of cells get developed that's when the opportunity exist. You know later and lastly on operations, where I would get in there and I would get into the the the energy savings Guy and the infrastructure folks and start to make sure.
But that that our position in the world is kind of at least known to them. So I'm going to give me a little time debt.
That's my point in other words it strikes me that.
One of the features of your equipment is zero virtually zero carbon footprint.
And since the goal.
This project is to read.
So that's the carbon footprint it would seem there's a good opportunity for T. cogen there but.
But.
That opportunity for.
For some reason is not reflected in the pricier stock.
And that's a that's a puzzling to me that's a mystery to me.
But anyway.
That's that's in the site.
The micro grid.
That you mentioned that refers to the production of electricity offs off the grid right.
Well actually the definition of the micro grid is a tool more generating source is working in combination.
We'd like to be off the grid. So for example, if he had one in Verde at a site that's not a micro grid, but.
But if you've got four or five and vertis honest site or an inverted with a solar thing plugged into it that's a micro grid. So just to be clear on the on the definitions that we're talking about you said you were ranked number three among.
What.
Uhhuh among among everybody is it just the Google Microgrid providers in the U.S. I mean, I don't Wanna mention their names because I mean, I'm, probably not supposed to but but but but you know the names and to be number. It's not we're not number three in terms of megawatts out there by any means I think we're number 41 in terms of.
Pure micro grid capacity.
But in terms of number of operational Microgrids dot that push pins on the map where Uh huh.
Where I got number three in the U.S.
Oh, you can't name the other two.
[laughter] once you go check out the study.
It's a it's a Ah I CF study I believe.
Okay, Yeah, Yeah extended link Alex.
Finally last question on Toronto, what is the.
The significance of this you mentioned that start up in Toronto in 2021.
Yes, so we shipped.
You know over 20 units up there I know, we shipped about 3.3 megawatts of installed capacity up to Toronto This year.
And and and the the project developer isn't is installing them and we've been slowly commissioning them and then turning them off and commissioning turning off all in anticipation of.
The final fulfillment of this large job that this this this big developers doing and the.
The expectation the plan is the schedule is that all of these things are going to be up and operational the beginning of next year. In fact, I think thats a some incentives involved in Canada that required to be started by next year. So.
The significance of that Alex is that we're going to have a whole fleet of inverted generating service revenues quite nicely starting the beginning of next year that we didnt have this year, so that I'm pretty excited about that.
And what kind of a facility is.
There are other out multi unit residential.
Buildings that kind of these cookie cutter spread out amongst the campus I believe I've not been up there, but multi unit residential.
Okay and have what's the revenue recognition.
I know.
I know, you're not recognizing service revenue, yet, but what about the equipment you recognize that yet.
Yes, so the equipment as all shipped.
All of the Inverters are up there north of the border now so the equipment is done and so the the only direct revenue recognition. We have left on the equipment as we get a few bucks and we commissioned him Alex but then but then the real fun starts again once they once these things start running.
In earnest at the beginning of next year, that's when we'll start you'll start seeing those revenues appear in our services.
Segment can you say how much that is.
No no Alex I mean, and first off it's difficult for me to say because you're never sure exactly how much. These.
These things are going to run you know are they going to run 24, seven I also know they got around 20 hours a day are they going to run at half load because nobody take showers and building, one but double load because everybody take showers and building too there's actually a real considerations that need to be figured out before we start to see what the predictable revenues will be.
And finally.
When did this developer.
Lance.
Do more of these this is a big developer big residential and I should I should I, probably use that word develop a wrong I don't think developers the right word I'm not quite sure how to classify them I kept to say.
Any follow on guidance, yes.
Yes of course, yes of course, its a large.
Each company and we are I think we've done well by them, it's been a well executed project as we've been delivering units in starting them up and so I'm hopeful that there's going to be more business and I think as I've said in the past Alex now that we've got a a service center up there.
And guys in trucks driving around this.
The opportunities for us to start building more of a base there because if you've got service trucks. There that he can dispatch someone to look at this site and look at that site and then the customer gets to know them and actually you know you've got another order so.
I'm very.
Hopeful that this Toronto.
Geography is going to continue to grow.
Okay. Thank you. Thank you very much.
Let's take care.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to management for any closing remarks, you may have.
Well, thank you everyone for participating in the call.
Very good questions I know and I look forward to sharing the results of the fourth quarter and the full year of 2020.
On our next earnings call. Thank you again.
Ladies and gentlemen. This concludes today's webcast you may now disconnect. Your lines at this time. Thank you for your participation and have a great day.