Full Year 2020 Tecogen Inc Earnings Call
[music].
Greetings and welcome to the Tecogen year end 'twenty 'twenty earnings Conference call. At this time, all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on the telephone keypad.
A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Joining us today, our CEO, Benjamin Locke, President and COO, Robert Panora from truck waiting General Counsel and Secretary.
Now my pleasure to turn the call over to Jack Whiting General Counsel and Secretary. Please go ahead Sir.
Good morning. This is Jack Whiting General Counsel and Secretary of <unk>. Please.
Please note. This call is being recorded and will be archived on the investors section of our website at <unk> Dot com for two weeks until March 'twenty five 2021.
A copy of the press release regarding our 2020 earnings is available on the investors section of our website as well.
I'd 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.
Forward looking statements for purposes of the Safe Harbor provisions on.
The private Securities Litigation Reform Act of 1995.
Actual results.
<unk> 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 Securities and Exchange Commission and available on the investors section of our website under the heading.
SEC filings.
While we may elect to update forward looking statements at some point in the future.
Specifically day claim disclaim any obligation to do so therefore, you should not rely on any forward looking statements as representing our views as of any subsequent date 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 financial measures to the most directly comparable GAAP measures is provided in the press release regarding our 2020 earnings and in the investors section of our website.
I'll now turn the call over to Benjamin Locke.
Thank you Jack.
As the agenda on slide four indicates I'll start with a brief company overview, followed by a review of key takeaways from the quarter and the year.
I will then go on to the detailed financial results for the fourth quarter on full year 2020 before turning the call over to Bob for a review of our initial emissions commercialization efforts.
Oh, well that have some final comments before opening the call for questions.
So turning to slide five I'd like to provide a short overview of tecogen.
<unk> is in the business of selling and maintaining clean and efficient energy systems that reduce greenhouse gas emissions provide significant operational savings and provide resiliency to grid outages.
We are a leader in distributed generation technology due to our longevity and extensive technical expertise.
Our air conditioning and cooling products have the highest efficiency of any other equivalent the XI system.
Our proprietary emissions technology ensures the cleanest emissions possible meeting even the most stringent air quality standards, such as those in southern California.
Our flagship and very day cogeneration products designed to transition from grid tied off grid operations seamlessly providing power to facilities and definitely until grid power is restored.
He goes on has deployed hundreds of B systems. They can operate as micro grids independent of grid operation recently being ranked number three in terms of operational micro grids in 2019.
We are well positioned as our country and the rest of the world looks towards a low carbon and grid resilient future.
Our high operational efficiencies enabled significant carbon savings when compared to traditional sources and our certified smart inverter technology allows seamless transition to micro grid mode to maintain power during grid outages.
And lastly, our Alterra emissions technology is recognized as the best solution for reducing C. O N O ex and hydrocarbon emissions across a wide range of engine platforms and sizes.
Bob will go into a bit more detail about our arrangement with origin engine later on the call, but they are U S engine manufacturer, we significant presence and recognition and industrial engine markets and we are already making good progress identifying initial customers for on Alterra equipped near zero emission origin engine.
Yeah.
Turning to slide six and before going into the details of the numbers I would like to give some top level commentary on our fourth quarter and full year results.
Suffice to say the challenges posed by the COVID-19 pandemic were significant for many businesses.
We are fortunate that we were able to able to sustain our operations through route but the impact was certainly felt across all our business segments.
Product sales were down for the quarter and full year as well as installation activity and energy production revenues.
<unk>, our service contracts and parts portion of service revenues continued to grow outgrow each quarter up 4% from the fourth quarter in 2019 and up almost 3% year over year.
As COVID-19 restrictions are slowly lifted we expect some rebound in our energy production assets, although some customers such as hotels and athletic facilities will take longer to resume operations.
In fact, we had to recognize an impairment due to the closure of two large hotel facilities during the year I won't mention this impairment and the associated bad debt write off again, when I review our financials.
Importantly for the year, despite our lower revenues, we were able to generate $1 $4 million of cash from operations as opposed to cash used by operations of $4 5 million in 2019.
This is directly due to our concerted efforts to improve on our collections and overall cash management and does not include the cash received from the first PPP loans.
We ended the year with a cash balance of $1 $49 million something that we've been able to build on over the past few months.
I also want to note that our efforts to improve business practices across the board during the pandemic slowdown yielded improvements that directly resulted in significant and importantly, sustainable reductions to our operating expenses.
Our opex was down 10% year over year, and excluding one time items I will discuss in a moment down 23% from the fourth quarter of 2019.
And with regard to the Paycheck protection program or PPP. Our first loan was forgiven in January of 2021, and our second loan draw was received in February of 2021.
Lastly, our backlog is beginning to slowly increase again up $9 to $9 3 million the majority of which is product sales.
With those top level takeaways in mind I will now turn to slide seven for a more detailed look at the fourth quarter and full year financials.
Fourth quarter revenues came in at $5 7 million, a 35% decrease from the fourth quarter of 2019.
This was primarily due to a drop in product revenues due to customer delays and decreases in the installation portion of our service segment.
As I mentioned earlier it is encouraging to see our maintenance contract and parts segment continued to growth. Despite lingering COVID-19 closures of some hotel on fitness center customers.
And although a much smaller portion of our overall revenues.
Energy production was significantly down due to COVID-19 related closures with the two previously mentioned hotel customers ceasing operations altogether, and therefore, requiring us to write down on those assets.
Our gross margin from the quarter came in at 41%, which is an improvement over the fourth quarter of 2019, and as I mentioned earlier, excluding onetime bad debt provisions, we reduced our operating expenses to just under $2 9 million for the quarter.
This is a significant improvement from the fourth quarter of 2019, and while Opex will always vary somewhat quarter to quarter. We expect overall opex for 2021 to be in the $12 million range. Since many of the reductions in Opex, we attained in the third and fourth quarters of 2020 are sustainable through 2021.
Our net loss for the quarter came in at $4 1 million, but much of this is due to the noncash goodwill impairment, we recognized related to the write down on the facilities and our energy product fleet that close.
On an adjusted EBITDA basis, the loss was 929000.
I'll return to the adjusted EBITDA number in just a moment.
Turning to the full year results on slide eight.
Revenues for the full year 2020 were $28 3 million compared to $33 4 million in 2019.
Similar to the fourth quarter overall service segment revenues were down year over year, but maintenance service and parts portion continued growth year over year of 3%.
Energy production revenues for the year were down by the same reasons I outlined previously.
Gross margin for the year improved slightly to 38% and as I mentioned earlier, our operating expenses for the year, excluding the bad debt provision were down 10% year over year.
The result was a net loss for the year of $6 2 million compared to a loss of $4 7 million in 2019.
In both years goodwill impairment with a significant portion of the net loss.
And lastly, adjusted EBITDA for the year came in at negative $2 2 million.
Slide nine shows some more detail on our fourth quarter adjusted EBITDA calculation, whereby we add back and noncash adjustments.
Again, the fourth quarter adjusted EBITDA number was adversely impacted not just from lower sales, but from a onetime charge relating to bad debt due to customers failing on their obligations.
Slide 10 shows the same detail on the full year adjusted EBITDA I would like to point out that our interest expenses are lower for the year as we closed out the Webster line of credit in 2020.
With that I'd like to turn the call over to Bob to discuss our progress with origin engines and our overall altera emissions technology development.
Bob.
Thanks, Ben and good morning, let me begin with origin.
As we announced in November we have completed an agreement with origin engines to commercialize the altera after treatment system for their industrial product line.
Origin is a domestic tier one manufacturer that currently produces about 60 engines per day, which converts to about 15000 on an annualized basis as our CHP engine supplier for the last five years.
Getting to know them, well I would characterize them as an innovative fast growing supplier.
And there they are industrial engines are robust and the management has a strong awareness of the growing value of low emissions to their customers.
The agreement covers engines from 80 to 280 horsepower the bottom limit being set to retain our ability to continue with M. CFA.
The fuels covenant agreement non restricted but we expect them to be primary primarily natural gas on propane.
Importantly, multiple markets covered including oil and gas production forklifts power generation.
And distributed energy systems.
I want to point out that diesel progress magazine got wind of the agreement and wrote a nice article in the February edition.
About it it can be found on on a linked in webpage dated February 4th.
Now on regarding our outlook for Alterra first first off we will be shipping on our two 800 horsepower kits to the Socal water district shortly.
These will be used on to caterpillar natural gas engines, and we believe additional orders may fall.
I want to emphasize that the origin program on the other hand has a very positive outlook. It's written to written agreement first for Altera.
On an aggressive schedule for implementation.
Moreover.
It has a strong potential to expand on alterra to other markets as I mentioned, but also to other forklift manufacturers, including I would say M CFA.
Lastly.
Regarding our capital development program.
We are expanding this work with a third party research group relative to an improved material for the altera process.
The new formulation, which is made possible by the reduced temperatures.
In the Alterra catalysts system will improve <unk> performance and potentially reduce cost sub contactor subcontract or other SW IRI, which was formerly the southwest Research Institute will be supplying us a full sized catalyst for evaluation in our engine Test laboratory, we bill.
Please the formulation to be patentable, it could potentially be a tangible component that can become that could become a T cogent product for the company.
And that's all I have on that if I wanted to switch back to then go ahead.
Yes.
Thanks, Bob.
So turning to slide 13, I'd like to make some final comments regarding the outlook for the company.
2020 was a difficult year as I just reviewed but it also gave us an opportunity to focus on making improvements to our business activities across the board that puts us in good position to achieve profitability in 2021.
Those improvements are most evident in our reduction in opex with our goal to maintain an annualized opex of under <unk> under $12 million for 2021.
Our cash position at the end of 2020 was $1 $49 million and has improved since then with the additional PPP funds and overall improved cash management.
The resiliency aspect of our product offerings are becoming increasingly sought as grid disruption events, such as Texas last month, and the California wildfire wildfires earlier this year expose the tremendous health and safety risk of prolonged grid outages.
The greenhouse gas benefits of all of our products are similarly, being recognized especially as cities and states put carbon emission reduction goals and in some cases penalties if those goals are not net.
And lastly, we feel that our agreement with origin engines is the best opportunity to get Altera commercialized in many key industrial markets with the eventual goal of having altera fitted on fleet transportation vehicles.
With that I'd like to turn the call over to the operator for questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be play from the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like tumor growth question from the queue.
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One moment, please while they pull for questions.
Our first question today is coming from Alex Blanton from clear Harbor asset management. Your line is that line.
Hi, good morning.
Can you hear me now.
I can hear you fine Alex this is Beth.
First.
I wanted to ask you about the on the lift truck.
Situation there.
Engineer and charges.
You're a venture with them.
In Japan because of the pandemic zone thing was held up from.
For the past year, because he couldn't get back because of travel restrictions could you update us on that as he free to travel now.
Ken.
Yeah.
Going forward is as envisioned.
I did contact them a few weeks ago, just to get an update for today.
It has not been lifted they are still not willing to travel.
And I'll, just say that there are big Big company and they they move slowly Alex which as you know.
It's just the way it is.
I would say Alex that the.
Our approach with the origin engines.
Two forklift markets.
Cfa's competitors as well.
Is the more tangible approach, where we're getting more receptivity I didnt really did not want the fate of our forklifts to beyond the slowness of this one particular company in Japan, and so what we're able to make progress now with origin. Despite the slowness and the restrictions of M CFA, which is now MLA.
When you say, there's a license agreement.
Does that mean youre, not selling equipment to them or you're just getting a royalty.
Exactly.
That's what the Orange network.
That's what the origin agreement described yes, okay. So how do you vision turning this into real money.
So the agreement has several milestones Alex for volumes of.
Of units that they will be retrofitting and therefore are eligible for the licensing free.
They're pretty aggressive milestones, we don't want them origin to sit on this with their fingers crossed for three years.
Very real milestones in.
The first few years of that agreement that dictate what type of development in sales they need to have that warrant us to give them. This license one more point Alex is debt.
If you caught on at the end of the presentation.
The reason why one of the reasons why I'm so.
So high on this catalyst development program is that the formulation of our catalysts that we have a patent on its debt and it works as well as we expect that would give us something as I said tangible that we could conceivably have as the tecogen product, which would which would change the picture a lot I think.
Okay, when you say fleet transportation vehicles.
I mean, what do you mean by that.
That was your last comment.
Yes.
That would be Alex so we've I've articulated the goal of getting altera on on vehicles on automotive applications and as you know we had our efforts a few years ago.
On the automotive manufacturers and that's an extremely difficult business to get into or getting them to acknowledge that there's even a problem of course at the time was that challenge enough and so since then I've articulated the vision of Alterra.
For vehicle applications to be on type of trucks retrofit type model you might've seen Amazon's order of natural gas are equipped trucks to that type of model IC, where theres conversions happen all the time for fleet vehicles from diesel to natural gas etcetera, what I envision us having alterra being.
Of that conversion as well so you can get a fleet of vehicles for Amazon or for UBS or something that not only were converted to efficient natural gas, but also had on altera emissions near zero emissions onto it now that's the goal and how do you get there.
And you don't just get there overnight working with origin is the first step towards getting there and again. This is with industrial engine does not with fleet engines, but the more we get alterra out there Alex on the more people recognize it I think we're going to start to have the ability to have conversations now with fleet owners, I'm, not saying with Amazon, but it could be a fleet on that just have a small fleet of bands that they want.
On a convert and importantly, working with the industry that do that the industry that do these fleet conversions. So that's in the works and that's what I meant by that final statement. Alex is that we're pretty excited about origin for industrial engines, but I still want to come to work my strategy on the industrial fleet renovations for Altera.
We're talking with Oshkosh.
Do they have an abstract to do the the new post office trucks.
Running on a GAAP.
I did hear that I've read about that.
No we haven't yet because we're not we don't have a direct line, but we are we are.
We're actively thinking about who we can contact and I would include we were talking about it is we didn't use the company name on our discussion, but we called on them, we called it forced on the trucks. So we are we on thinking about how to reach it reach out to those folks and I don't want to say anything more than that.
I know some people there should I call them.
Absolutely.
If you want to call us after the phone call.
The discussion, we'll be happy to and I would say.
I followed the company I don't follow it closely now, but I did at one time, so I think I still know on some of the people on yes.
Yes, and I would say, Alex and I would say to all of our listeners as well that day.
The presentation debt.
Debt.
The operation, we gave gave to the park.
Group, which is also referenced on our earnings release and on our website as well has an excellent overview of the Alterra technology.
I would encourage anyone if you have someone that wants to know more about it to watch that presentation. They get themselves understanding of it and hopefully that will generate interest that's on that.
The <unk> website.
Yes, that's on the FERC website under their technology series I believe we can send you. The link makes it easy for you, yes, that'd be great. Thank you.
Sure shift gears for a minute then I'll get off.
You said you were ranked number three in micro grid number three in one.
Operational micro grids. So so if you if that number of sites.
Okay.
Yeah.
Not overall capacity.
Okay.
Yeah.
Any plans to go back to NASDAQ.
But your stock is up a bit.
Yeah, well, we don't have any current plans to do so I mean things change and that May change, but right now we don't have any plans.
Is it cost money to do that.
It's just our interest our plan for right now is to maintain on the OTC and if something changes and we have some change of thought we'll consider it but okay.
That's about where we are.
A couple more nursing homes you know.
It is.
To me that the.
Ability to generate emergency power would be very important to us.
As you've seen in Texas.
Yeah.
Sure Alex and.
I'll comment on that and then on going to ask the operator go on to the next call.
To get back on afterwards, I, just want to give some more people a chance to ask some questions, but you're absolutely right about one more comment.
Okay sure all right you should get archived this calls for more than two weeks doesn't really cost or anything different.
I don't know.
Point taken point ticket, okay, great. Thanks Allison.
Homes.
Yes, yes, yes nursing homes.
Again that has that has been a focus of ours for some time.
It's got on the right scale it can't be a there'll be a little 40 bed nursing homes that you may see here.
Not a fit.
You've heard me talk before about beds, Alex and everything kind of in my mind transforms the bed hospital beds multi unit residential beds, because that implies the scale of our units and so we need.
Nursing homes on those facilities to at least be 100, or maybe a little bit more beds for it to be viable on that that terms are down a little bit.
But then it comes down to working in finding the right ones that work and we have a few of them in our atg portfolio, we have many customers in there.
Resiliency piece is certainly important and is what I was trying to say on that slide is it Texas. Historically has not had a very good spark spread the electric rates are very inexpensive in Texas on until.
Until they werent and so that day.
They spiked enormously and I think theyre going to come back down in Texas, because they ultimately they have very low cost of generation.
He is working on the weather's, okay, but I think what that did for Texas in bulk at not just nursing homes, but any multi unit residential is et cetera or is it really scared them about the debt.
The prospect of long term grid outages and you saw what happened there and I think that resiliency focus is going to get people to look past, perhaps a longer oi for our system. So if I would come into a nursing home.