Greetings, and welcome to the Tecogen Year-End 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Bonnie Brown, CAO, Treasurer and Secretary. Thank you, Bonnie, you may begin.

Thank you, Jessie. Good morning and thank you all for joining our year-end 2018 earnings call. On the call with me today are Benjamin Locke, our CEO; and Robert Panora, our President and Chief Operating Officer. Please note, this call is being recorded and will be achieved on the Investor section of our website for 30 days following the call. A copy of the press release regarding our year-end 2018 earnings is also available in the Investor section of our website. Before we begin, let me briefly cover our safe harbor statement. Various remarks we may make about the Company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under 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 SEC and available in the Investor section of our website under the heading SEC filings. We may elect to update forward-looking statements at some in the future. We specifically disclaim any obligation to do so. Therefore, you should not rely in any forward-looking statements as representing our views as of any date subsequent to today. During this call, we will refer certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. Reconciliation of these GAAP financial measures to the most directly comparable GAAP measures is available in our earnings press release and in the Investor section of our website. I'll now turn the call over to Ben for a business update.

Thank you, Bonnie. So, at the agenda on Slide 4 indicates. I'll start with a brief Company overview, followed by a top level review of the Company's performance and financial results for the fourth quarter and full year 2018 along with recent achievements and accomplishments. Bonnie will then discuss the financials in more detail, followed by Bob, who will give an overview of our emissions technology development efforts. I will then have some final remarks before we take questions. As always, I'd like to start off by reminding those who maybe new to our company about Tecogen's core business model shown on Slide 5. Heat, power and cooling that is cheaper, cleaner and more reliable. Our proprietary technology for improving efficiency, emissions and grid resiliency is truly disruptive to the traditional methods of heating, cooling and powering buildings and infrastructure. Turning to Slide 6. The fourth quarter of 2018 saw revenues of 9.3 million, a 17.3% increase over the third quarter of 2018 and 9.2% decrease over the fourth quarter of 2017. Despite the drop in revenues quarter-over-quarter, our adjusted EBITDA came in at 502,000 for the quarter versus 533,000 for the fourth quarter of 2017. Our gross margin for the quarter improved to 40% versus 37% in the fourth quarter of 2017. Also notable in the quarter was an increase in chiller sales, which I will talk more about later in the call and growth in our service maintenance revenue as we bring more systems with maintenance contracts online. Also in the quarter, we recognized the goodwill impairment a 4.4 million. This was due to the acquisition of the ADG assets in corresponding accounting treatment. Bonnie will address this more in her discussion. For the year, 2018 saw record revenues of 35.9 million, an 8% increased over 2017. Gross…

Thank you, Ben. I would like to start with a discussion on the fourth quarter results and then move to year-end. Slide 12 contains some of the highlights of the Q4 year-on-year financial results. Overall, consolidated gross margin was 40% and consolidated gross profit was $3.7 million for the fourth quarter 2018 compared to 37% and $3.8 million for Q4 2017. A 2% decrease in gross profit year-over-year. Total product revenues for the quarter decreased by 20% compared to fourth quarter of 2017. Total sales were 21% year-over-year, making a strong showing in the quarter end for the year 2018. Product gross margins remain consistent at 21% for both Q4 2018, 2017. Long-term service contracts and part sales increase by 11% on year-over-year basis and continue to provide its annuity-like revenue stream. Total service and installations earnings declined by 4% for the quarter compared to the fourth quarter of 2017; however, did continue to deliver more than half our products and service revenue for the quarter. Service gross margin was 39% for Q4 2018 compared to 34% for Q4 2017, a 15% improvement. Energy production activities from our ADG sites contributed $1.6 million to revenue for the quarter with gross margin of 41%. This revenue source provided an important second source of annuity-like cash flows with its long-term contract. In Q4 2018, following the performance of our annual goodwill impairment test, the Company recorded a goodwill impairment loss of $4,391,000. By way of explanation of this impairment loss, let me start by saying our goodwill resulted from our stock-to-stock merger with ADG in 2017 which was accounted for as an acquisition. The assets we acquired in the merger comprised our energy production reporting unit. A goodwill impairment results when the fair value of those assets become less than what we've…

Good morning and thank you, Bonnie. My discussion today is in the past would be to provide an update to our work relating to commercial applications for engine emissions technology, Ultera. Before doing so, I want to speak out about our TecoFrost experience 15 plus years ago that Ben spoke about earlier. At that time, we had strong interest in the products especially in California, which is not surprising. The reason is a major agricultural and food processing center as well as having abundant industrial cooling applications. In that era, we sold units wineries, bottling and ice making plants at the dairies. However, two problems emerged. Since regulations became more restrictive to which we had no robust solution while natural gas prices were steadily increasing, which was a major concern to our customers. Today, the picture in that the industrial cooling market especially in California strong while emissions rates are of course still tight. But Ultera technology is available to us with good success in so call even in unfamiliar engine products like the pump application that we've done in January and so forth. Perhaps most importantly though, natural gas prices did materialize to such an extent that our customers -- customer base has a strong confidence in a stable inexpensive supply for many years, all-in-all a very good time to return to this market. Now going back to emission, we have several initiatives that are ongoing but I'll start with the one that we believe to be the most important, which is our fourth project. By way of background, we received our initial funding from the propane industry whose numbers are keenly interest in the technology is being importance in maintaining market share relative to electric power trucks. Central to the issue off course is emission, particularly the ones…

Thank you, Bob, for that update. I'd like to talk now about what investors should expect in 2019. So looking at slide 17, I'd like to reiterate first, what are some of the key value propositions of Tecogen's clean, reliable, distributed generation systems. As I mentioned earlier at the beginning, our systems use clean and abundant natural gas to reduce heating, cooling and energy that is cheaper, cleaner and more reliable. Our cogeneration systems are designed with the U.S. utility structure in mind in terms of interconnect certifications, micro grid functionality and incorporation of other distributed generation assets such as storage. As we are seeing in California, this functionality is becoming mandatory in some areas, but the economic benefits of providing these great support services will ultimately benefit the economics of using Tecogen technology. Next, Tecogen has no competitors in the gas engine chiller market. We are focusing our efforts on new and existing markets for Tecochill such as indoor growing and will begin selling TecoFrost into the ammonia refrigeration market later this year. And last but most consequential in terms of the investor update, we have shown the scalability and effectiveness of our Ultera missions technology on many engine platforms and sizes, from General Motors engines to Ford engines, generac generator engines, caterpillar engines, whether newer retrofitted, and more recently with the Mitsubishi engine on the forklift project. The result of our retrofits on each of these engines is the same, Near Zero emissions on power to filter. We think our message is reaching a larger investor audience and I look forward to sharing and other update in Q1 call in May. With that, I'd like to turn it over to the operator for questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator instructions] Thank you, our first question is from the line of James Jang with Maxim Group. Please proceed with your question.

So, I just want to ask about, Ultera seems like a very novel approach to what's going on in the sector, but there are a couple of competitors out there they're using batteries for these for trucks. So, is there some type of internal deadline to get this commercialize? And if you can kind of elaborate on your thoughts on the competition with the EVs? That will be great.

It's a good question. We've heard that certainly a lot and maybe I'll start answering and I'll hand up to Bob for his thoughts on the matter. But certainly, batteries are an option. But that by definition involves a new fleet. If you've got an existing fleet of propane fork trucks and you're going to switch the batteries, well, obviously, you have to get rid of your -- you have to add those for the fleet and that's a cost. And that's number one. And number two, that the power density of propane is very important. And then in terms of practicality using a forklift, that the power density of heavy lifting and making sure that you've got a thankful and you're not going to get interrupted during a load cycle is very important. And of course, what we're bringing on here is an alternative approach, which is a simpler retrofit. You don't have to buy them fork trucks. You can make it a retrofit and still have all the benefits of propane. So that's my immediate reaction, but Bob I think has been interacting more closely with a propane folks because they have many drivers have their own.

Yes, the propane industry is of course they want to sell propane. So they're very interested in it. But from the manufacturers' perspective, they realized that first of all the propane fork trucks performed better and customers prefer them. And so all things being equal, the propane trucks are very desirable to operate, they're easy to operate. But they have this emissions problem that's been sneaking up. So, the electrics are not for everybody. They don't last to a full shift there often and so forth, and there's a shortcomings. So again, it's -- there will be electric fork trucks and gas fork trucks, or propane fork trucks that will coexist. And I think MCFA people would like to see their primary products they stay there as long as I can. And I see a future for a little meeting vehicle was being a way to last with propane for many years to come.

So I mean you did not under any pressure internally to try to get things out quicker? Can you just kind of [indiscernible].

I'm pushing everything really hard James, I'm just kidding. No, we certainly don't have any regulatory deadlines, but suffice to say as Bob was saying, there is an imperative in the industry to show that you can have a propane solid fork trucks with Near Zero emissions. And then you can imagine this propane fork truck fleets that are in long beach port in all these other areas where they have very significant emissions problems. If you can retrofit that fleet to have near zero emissions without, requiring bazillion dollars of new battery for trucks. That's pretty compelling.

And my final question is, so you guys have been growing double-digits in 2012. 2018 was a little slow down. What are some vertical forces? Are you seeing that's leading to this is just a slight pullback or slowdown in construction or improvement spending? Or is it something else that we're not catching here?

Well, I think the slowdown is not so pronounced that you put it there and certainly, there's timing as I kind of alluded to James and I mentioned it before, we had a tremendous slug of orders, when we introduced our InVerde e+ plus because the much improved functionality of that thing. And of course, designed that way, particularly for these New York projects, we saw a slug of activity in 2017 and on that product. And the installations of those things then kind of drag little bit out, which is another reason why James, I did try to break out the installations part of our backlog because having a big project like that is very good, it's great for units. There is going to be a construction element that takes a little bit longer. So, you end up having a slug of product sales and then a lingering bit of install. And the timings of those things sometimes overlap, okay, sometimes not. So, I don't think you are seeing anything that is alarming or predictive. I will acknowledge though that we are seeing this uptake in chiller sales and all things being equal. If I can flip a project to a hotly-competitive cogen project, if I can flip that into a chiller project and eliminate the competition, I will absolutely do so. So, we are getting a little bit more smarter James in term of how we approach some of these cogen project and seeing if we can get a better system in there and the chillers seem to be a good way to leverage our strengths.

So, my final question is answered. So, chillers are going to be -- you think that's going to be a huge, pretty sizable driver in near term?

Yes, I like it to be, I'm positioning as of that way because it's a great place to be in. It's just so much more predictive, selling chiller because people buy and sell chillers all the time. They install them all the time. It's not like you are buying a piece of art or something with sometimes cogen projects turn into. So, it's a much more transactional type of sale, which I think will be a good place for us to be in.

Our next question is coming from the line of Amit Dayal with HC Wainwright. Please proceed with your question.

The fourth quarter, year-over-year decline in sales, you attributed so that through sales efforts being directed towards chillers, is there anything else that caused, that drop, any comment on that would be helpful?

Yea, again, not so much, I mean, if there were some real negative trend that was bottling up our pipeline for products like cogen, I would certainly point it out, some of the incentives that will start in the sunset. Another reason why I'm happy, the chiller product segment is growing because if you can have product that they can subsist on without subsidy and that's a good place to be. But you know you've still seen the backlog growing and as I said, these waves of projects come in slugs and we have this slug of orders and then we were fulfilling out the installations of them now and our backlog I think you've seen in the next slug. So, I think our -- this business is still pretty strong. But with that said, I'm absolutely conscious and trying to take advantage of more sales and chillers, if the opportunity present top over cogen.

Understood. And just going to the backlog, at the end of 3Q, backlog was around $20.2 million and then you know, for the press release, you had 16.6 at the end of 2016 which now jumped to around $29 million. Can you walk us though sort of what happened between the drop in 4Q and the pickup in the first quarter you seen? And is that more sort of product backlog that has grown in the first quarter or installation backlog that has grown?

I think the best example is probably the data center order, which I said is a great order, not just because of $8.3 million but because data centers are just such a perfect application for the InVerde in terms of the you know you can get the backup power, you can do the fast disconnect and reconnect for the grid, all kind of things. But that was a big order that went in the backlog. And then you add on to that, we had a number of orders. We had the 12 unit micro grid order late last year. We had a large residential building a couple of months ago or maybe a few weeks ago, an order that was a large -- they own a bunch of buildings and we got all the buildings, that was around 6 units. So, the backlog is continuing to grow. And we're just, again, just trying to focus on the chillers. Because ultimately, I think that's going to be a much better growth segment for us.

Understood. Just forward looking at a little bit in terms of the outlook for 2019. Do you expect to sort of be at double digit growths, backend double digit growth again in 2019? And in that context, should we expect some sequential improvements in revenues in the first quarter of '19 versus fourth quarter of '18?

Yes, well, I mean, my goal is to keep growing the core business of the Company and the emission stuff is great. We're making tremendous progress and that's wonderful, but the end of the day my goal is to keep the Company fundamentals growing. And so, yes, my goal is to keep this growth rate up. Now, can I keep it up? I hope so and when I look at chillers, I see that market segment as right for growth. When I look at the industrial, the industrial ammonia refrigeration market, here in the U.S. and in California, as Bob was saying. But those refrigeration units exist all over the world and I talked about the InVerde being a U.S. kind of focused product and it is. If it interconnects and all the reasons I talked about the InVerde, but that ammonia refrigeration system that TecoFrost system is ubiquitous throughout the world, ammonia compression. And so, ultimately, you could see us doing it, of course, the Americas with the TecoFrost. But by virtue of some of the sales networks that we have in our partner Filter has, you can see some ability for us to expand that outside of Europe and other locations where a cogen expansion with our InVerde wouldn't be practical. So, again, long time, long-winded answer Amit, but I think a lot of our growth, I hope a lot of our growth can come from our chillers and particularly this TecoFrost product, which could be sold in many places.

So this TecoFrost, can be expect it to show up in the backlog in the 1Q by the time you report a 1Q earnings?

Not quite so sure about that, Amit. Just to give a little flavor on how we're going to roll this thing out. We're going to roll it out on the East Coast first, kind of keep these first few sites close to home, if you will. And then start going out as Bob said a lot of opportunity on the west coast. I don't see it being a material meaningful contributor to the backlog probably later this year. You might see something in between now and then of some sales I hope you will see a press release about a sale of it in the coming months. But in terms of the backlog contributor, I'm thinking perhaps later this year, just to be conservative about the rollout.

And just last one on the Ultera side. Again, it looks like you're making a lot of progress with these testing related milestones. Should we remain conservative in terms of anything from Ultera showing up as part of a backlog this year?

Well, I'll maybe answer and my perspective on that and it's all that we can share, but certainly that MW that order that Bob mentioned of the retro sort of the caterpillar engine and that's going to be in our backlog. Once that gets to the point of the contract being finalized in the dollar amounts et cetera, that'll be in our backlog. On terms -- but beyond that, in terms of when we're going to retrofit a fleet of four trucks and is that going to be in the backlog? I think that getting ahead of ourselves a little bit. What I really want to see in 2019 is a demonstration of this on that Mitsubishi engine and it's a fork truck engine fine, but it's a Mitsubishi engine. It's really complete our slate of demonstrating all these different engine platform and sizes. And then at that point, I think we will be in a position to start talking about, okay, what's the next project? What's the fleet? We're going to retrofit? How much is that in? When will that go on the backlog? So my long way of saying, aside from this is caterpillar retrofit, which is very exciting. You probably won't see fork truck in Ultera related backlog, so maybe next year so. That's very -- that's a little bit further out.

Thank you. Our next question is from the line of Roger Liddell with Clear Harbor Asset Management. Please proceed with your question.

First, I'm encouraged by the data center opportunity because an ESCO is involved, presumably in the specking for the equipment and also the financial -- the finance arm getting involved. We've had flashes in the pan, in past years, a school district here and there with an ESCO involved, but I don't recall ever seeing any meaningful follow through. Is this data center situation? What are the implications of it?

Sure. Well, there's different types of ESCO, maybe I'll just start off by saying. And some people you mentioned ESCO, so some people immediately think of the big ones, there's Honeywell, Johnson Controls, Siemens, Amresco, et cetera. And indeed, we have done a fair amount of projects with some of those, but that being specific of course. But we have a few school districts and other projects that we've done with some of those name brand ESCOs, that perhaps Roger I could talk with you offline about. But these ESCOs that we're dealing with now or more financially focused. So, they're not outsourcing the project. So, they're now sniffing out that school system. They're turning to us with a portfolio of dollars and saying, we want to invest this and reliable in a revenue generating assets. Do you have any projects? And so, we end up, Tecogen does the due diligence on these things, which is very important, Roger. Because as you know, if you don't do proper due diligence on these long-term projects, you're going to get skinned alive. So we do our due diligence on them, we come up with a product, portfolio choice charge gen, cogen, chiller et cetera and the cost will present all of that to that ESCO. And if it meets their financial metrics and their horrible rates, they'll go forward and then they end up leading the agreement. It's a triangle agreement, Roger, right. So, the ESCO will set up an agreement with the host site in this case the building owner of the data center in Manhattan. The ESCO will set up an agreement with us to build a system, commission it and do the long-term O&M. And they're paying for everything and then they of course get the long-term revenue. So, the types of ESCOs we're working with on the data center project and the other one's going forward, STCL and other one, really financially involved and not -- this is a very important point, not trying to force project down our throats that don't make financial sense. We're only promoting projects them to make financial sense.

The second point is I'm pleased with the 3 chiller sold to the Florida indoor grower. I don't think, you said cannabis, but if you could clarify your answer whether it's vegetables whatever versus cannabis? But I take the lack of a service center in Florida was a headwind in the past. Is this Tecochill order a harbinger of fewer headwinds, more tailwinds and will that service center help in trying to correct the healthcare facilities and the emergency, one on, I mean the long term backup power mandated after Iram?

Sure, yes. And you hit the nail in the head, Roger, about that those 3 chillers sold. Now that growth facility out of respect for the customer, I would tell it is not cannabis. It's some type of produce. But you are exactly right, that is the reason why we stood up our Florida service center because as I think we maybe have mentioned in the past, we reach a tipping point of engines. When you reach a certain amount of engines, it becomes cost effective from a revenue and margin standpoint to have a guide on there. And we reach that point and we now have our office set up done there. And the way this typically flows is as now that, you got a guide on there, you get more comfortable putting more engines there, and then he gets an assistance that eventually you stand up a real proper territory. And my goal for Florida off course is that they can see touchstone for the Caribbean. As we start to sell product maybe now cogen, but certainly as I'm visioning TecoFrost that would be the service centers to service the Caribbean. As to your other questions, absolutely, Florida and healthcare and the problems they have down there with resiliency comes to mind, how people check your chilling systems. And we have -- now with we have, off course, you know, our Tecochill and now we have TecoFrost, and we have even have seldomly talked about air sourced chiller unit, which is still very functional and uses some case and that air sourced unit is typical what you see in a nursing home, a 150 bed or 200 beds nursing home in Florida. And importantly Roger, as I mentioned repeatedly at this point, the chiller replacement has so much better economics in terms of ROI, all you have to do is justify your incremental cost. So, you can get away with a smaller spark spread is what we're getting at. So, areas like Florida may be don't have the robust spark spread like in Europe or California. They still got a good spark spread, this maybe not great for cogen but absolutely fitting for chillers. And so, we're starting to see that down there, the growing facilities erupting down there, it's certainly helpful to us, so a great way for us to really populate that Florida territory with engines.

California, you've touched on the fact that generators were now permitted. I take it this is a separate qualification permit from South Coast Air Quality Management District that was a year now as I recall. So, what's new? And talk to me about the opportunity? And if there isn't a meaningful opportunity, I would expect your candor on that? It's a nice that it's not going to be transformational?

Sure, I think, Bob closes to that, maybe let him answer that. Roger, you may have noticed the Bob is actually not on [indiscernible]. Okay there you are.

Yes, I'm sorry Roger, when you spoke the first sentence in your question, I'm getting an incoming call on my cellphone and it blocked your words. Could you repeat that question for me?

Yes, there was brief mentioned made of a level of permitting on generators, and I want to know whether this is different and advanced beyond the South Coast Air Quality Management District Certification of a year ago? And is there a meaningful opportunity in generation area in California? Or should I ignore it and move on to something else?

Yes, so just to be clear, we've done CHP in Southern California to that same rule. But when we do CHP, they give us a credit because of the hot water. We're allowing the hot water boil to shut off. So, we get a little bump in the number that we have to meet. And of course, any invention generators, they get a very much looser standard if they're only going to run 200 hours a year. So these machines have no heat recovery benefit, no limitation on run hours, and they were permanent to the lowest level ever under that rule. No one has done it as far as I know and I'm sure no one has done it. So, the question is. Can you make a market with this? And you could conceive -- conceivably sell to customers who want to do demand management of their peaks and valleys of power. You can see situations where people want resiliency and they want to have a grid that's going on, but we haven't been able to capitalize on that yet. Because frankly, in California, there's just not is a very regulatory bias against fossil fuels. That's one of our problems there. And so if you want to participate in the utility programs there, we were disappointed to learn that they prohibited anything but batteries from being in that demand management that a formal programs where you can get reimbursed by the utilities. This is not -- this is just for that, to this particular regulatory benefit is happening now. So that's, that's the kind of headwind we spend in California. So, it's an easy question. I think we have a ways to go in order to make hay, with this achievement.

Thank you. We have reached the end of our question-and-answer session. So, I would now like to refer back over to Mr. Locke for any additional concluding comments.

I want to thank all of you for your interest at Tecogen and I look forward to share more news with you on our progress as it occurs. Thank you again.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.