Good morning, ladies and gentlemen, and welcome to the First Quarter 2024 Tecogen Investor Update Call. Our host for today's call is Jack Whiting, General Counsel and Secretary. [Operator Instructions] I would like to now turn the call over to your host. Mr. Whiting, you may begin.

Is Jack Whiting, General Counsel and Secretary of Tecogen. This call is being recorded and will be archived on our website at tecogen.com. The press release regarding our first quarter 2024 earnings and the presentation provided this morning are available in the Investors section of our website. I'd like to direct your attention to our safe harbor statement included in our earnings press release and presentation. Various remarks that we make about the company's 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 forward-looking statements as a result of various factors, including those discussed in the company's most recent annual and quarterly reports on Forms 10-K and 10-Q under the caption Risk Factors filed with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC Filings. While we may elect to update forward-looking statements, we specifically disclaim any obligation to do so, so you should not rely on any forward-looking statements as representing our views as of any future date. During this call, we will refer to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is provided in the press release regarding our first quarter 2024 earnings and on our website. I will now turn the call over to Abinand Rangesh, Tecogen's CEO, who will provide an overview of first quarter 2024 activity and results; and Roger Deschenes, Tecogen's CAO, who will provide additional information regarding first quarter 2024 financial results.

Thank you, Jack. Welcome to Tecogen's Q1 2024 earnings call. First, I'd like to start by giving investors an update on our factory move on the 83 service contracts we acquired this year. Then I'd like to talk about our marketing. To me, our marketing has been our weakest link, but also holds the greatest upside potential. A recent experience made us look at our marketing in a new way. We were recently talking to a prospective industrial customer. They had two electrical services from the same utility into two different sides of the same factory. On one side of the building, they experienced power outages. On the other side, they didn't. Clearly, power constraints are very local, but every facility that has a problem knows what they do. This led to the question, how do we make more facilities like this one find us? Before I tell you how we changed our marketing and the results from that, let me update you on our factory move on service. We've now moved into our new facility in Billerica. [indiscernible] is still the manufacturing space fit-out on the test cells. We faced a tremendous amount of cash by using our own labor for some of this fit-out but it means limited production until the end of Q2. After this, we should benefit from reduced operational costs and should see product revenue recover in Q3. We saw record service revenue in Q1. We were cash flow positive in Q1, so we have not had to draw further into the credit line as of today. We have acquired service for another 83 units that's year-to-date, 16 units in February, 31 in May and 36 coming online in the next two quarters. We also anticipate a further 30 to 50 service agreements over the…

Thank you, Abinand, and good morning, everybody. First quarter 2024 revenues were $6.2 million, which compares to $5.4 million in the comparable period in 2023, which represents an increase of 15%, which is due primarily to as Abinand spoke previously, increased services revenue and also increases in our energy production segment. Our net loss for the first quarter was $1.1 million, which compares to $1.5 million in the first quarter of 2023. The decrease in the net loss is primarily due to increased revenues and increased gross profit margin. Our net loss per share was $0.04 per share for the first quarter of 2024, which compares to $0.06 per share during the comparable periods. We will discuss margin in the segment review. Our operating expenses increased 2.5% quarter-over-quarter, and this is due to duplicate rent costs, which resulted in approximately $160,000 of additional costs, which were incurred in the first quarter of 2024 and also an increase in testing costs as we -- which will increase service intervals. The impact of these product improvements are expected to be rolled out across the service fleet later in the year, and we anticipate these efforts will result in improved margins beginning in the fourth quarter of 2024. Our energy production revenue increased 28% quarter-over-quarter, and this is due in part to the [indiscernible] energy site, which had been dormant since March of 2020 and a higher run hour rate across the fleet. Our gross margin was negatively impacted by the higher natural gas prices and additional maintenance costs that were incurred in the first quarter of 2024. I'll now turn the call back over to Abinand.

Thank you, Roger. In summary, we plan to finish up the factory move this quarter, so we can be back to full production by Q3. We are going to keep growing the service revenue and cash flow. This has already grown 20% year-on-year, and we expect a further 20% growth this year. For me, though, the most exciting bit is that we finally worked out a recipe to consistently get new leads using advertising. This is highly scalable. As a country we're running out of power, Tecogen has compelling solutions to this problem. Now we have a way to reach customers who have power constraints. We published a short shareholder letter on our website outlining this problem on how Tecogen is solving this. If anybody wants -- it can be found on the Presentation section of our website or I can e-mail it to anybody that wants. I also hope to be able to announce further orders within the next one to three months, some of which should be pretty significant and par with these power-constrained customers. And I hope now that with this new advertising, we're going to see some product growth over the next 3 to 6 months. At this point, I'll now hand over to the operator for questions.

[Operator Instructions] Your first question comes from Alex Blanton with Clear Harbor Asset Management.

Just a little housekeeping item at the moment. I don't know if other people experienced this, but the sound quality coming from the speakers from Tecogen is distorted quite a bit. The person from the conference call company is fine. So it's not my end, I don't think, but you might want to look into that. I wanted to ask the service revenue that you forecast $0.7 million this year and $1 million next year. Is that an additional $1 million?

Correct. No, sorry, no. So the $700,000 this year, it's going to -- so we're currently a run rate per quarter, right, of about $4 million. So we're talking somewhere around $16 million for the year. So this year, we'd probably see an additional $700,000 and then next -- so we'll be at $16.7 million or so, and then next year we'll be in the $17 million-something range. Because of the timing of these service contracts coming online, we won't necessarily see a full year worth of revenue over [ that ].

So it's not $1 million on top of the $70,000.

No, not at this point, though I'm going to try.

Okay. Okay, fine. I wanted to ask about the condition of the move. You said the move was finished and at the beginning, and then you said the move was going to be finished this quarter. Are you?

I'll clarify that? Yeah. So what's happened is we've moved all of the offices, all the material, everything is in place but to actually be able to build the product and ship it, we need all our test cells operating. And that is going to take a little longer because some of it's being held up by permits. Some of it is just -- the amount of labor that it takes to put the test cells back together. So there's just a little more fit-out that needs to happen for those test cells to be fully operational. And that's really what's going to limit how much product that -- I mean, that's combined with the order cycles right now. We're going to limit how much product go out this quarter. So our product revenue for Q2 is going to be weak. But Q3 onwards, we should be back to full production.

This is what I was going at because when you had in our last conference call in January, it sounded like you were going to be in that situation in the first quarter. But no, you had shipments to actually rise in the first quarter above last year. But the drop in shipments is going to be in the second quarter then?

Yeah. That's kind of where it's shaking out right now because there were certain delays that happened towards the end of the first quarter in permits. So it just ended up -- we were able to do more production in the first quarter, but it's hitting us more in Q2. So that's where I think we're going to be. We're, of course, going to try and get this done as quickly as possible. But I believe it's going to be weak in Q2 for product shipment.

Right. And then you're going to have a catch-up period in the second half?

That is where things are looking like because the first, as I mentioned, right, the New York City orders, they've dropped down substantially, but we've got a bunch of projects that are very, very close to getting purchase orders right now. The timing on those we're pushing as hard as we can to get those projects in, get the deposits and get producing. But if the timing of those looks like one to three months to get them so once we get them in theory, we can start shipping those units in Q3. So it should be -- my hope is that Q3 and Q4 will be much stronger on product shipments. So that, combined with the strong service number should put us in a very, very solid position for the second half of the year.

And could you characterize the kinds of projects those are in terms of the kinds of customers we're talking about here.

Yeah. So I can give you some broad brushes there. I won't get into specifics. So some of those are industrial customers that are looking to do expansions where, again, they don't have enough power. In fact, we just recently sold one air-cooled chiller to a customer like that. We're also looking at a couple of large facilities that have time-of-day charges that are getting to be punitive. So they're looking to use some of our chillers to reduce those time-of-day charges. And then there's a few other mix -- similar type of requirements, but they're all over the country. They're not just in the Northeast. So those are the kind of customers that we're seeing right now for our products.

All over the country.

Yes. I mean there's some -- they're not in our normal Northeast region. There's some in Florida, some in -- I mean we shipped some last year to yeah it's in different parts of the country right now. Again, I will -- once we get our orders in, I will announce these -- you'll be able to see the kind of projects we have.

And finally, how did you get those projects? How did you come into a traditional marketing that you've been doing and how long have you had them in your backlog of projects?

So these are actually not in the backlog right now because again.

I mean the backlog of projects [Technical Difficulty].

Yeah, it's in the pipeline. So these ones we started working on them early part of last year. They came through some of the sales channel partners that we signed up last year. Some of them came through some of the articles that we wrote in the various trade publications. And then the rest -- yeah, so those were sort of the areas that we really got some of these projects through. And that's also why we're going to continue that approach. But what I see going forward is we've now added online marketing as well to our arsenal marketing tools that we have. So we've now got another way to generate new leads. Thanks Alex. And we'll take care of the sound issue. It seemed fine on the sound check that we did, but clearly, it wasn't. So we'll check into that for the next call.

Your next question comes from [ Norman Heyman ] with [ Technology Investment ].

Yes. I have a lot of history with Tecogen, [indiscernible]. So I've been following you guys and I've owned your stock for an extended period of time. I'm also an engineer by training. I must applaud you for doing the hard work that it takes here to there, and that is a true felt complement. The question I have is more top down in a sense. One is the impact of time-of-day -- it kind of seems to me that's a highly identifiable and marketable technique. And I wonder if your traction from that concept is real or will it take an extended period of time.

Thank you, Norman. The time-of-day question that was very interesting question. So what we initially tried to do to identify some of these regions where we might have good opportunities was not only look at areas, again, with these high time-of-day charges but also look at areas where the utility of offering programs to curtail power those times of day. So we've definitely done some marketing in that space. But what has typically happened is customers, in a lot of cases, don't even -- it just gets baked in and they don't -- it's not enough of an impetus for a lot of them to actually make a change. And that tends to be the same for any energy-saving technology. When you degrade that urgency, they either need to do something right now. And some of that is driven by the need to put a generator and put some of these other metrics, and that's really what we're finding. I mean we -- the time-of-day, the very, very high utility rates helps us close the deal. But typically, the driver underneath that will be something much more time constrained.

Okay. Great answer. I appreciate it. It will take time. That's fine, but I think it's real. Second question has to do with these large AI centers, their need for constant power. I have a colleague who is in the field. And I really wonder about how a large energy demand you can satisfy -- is the AI large centers beyond your size of generation or is that, in fact, still an opportunity?

So that, again, great question. The AI data centers typically running above 5 megawatts. So they are better suited by the large turbines. We're probably not the ideal for that size rate, but the place that we can help in that area of the cooling because a lot of those areas are still not only power constrained, they're cooling a lot of these big data centers. [Technical Difficulty] operate at slightly higher temperatures than they did before, but they still need a lot of cooling. And that's really where we're trying to break into that market. If you happen to have any introduction there, we'd love some. It's a pretty tough market to break in. We are working with partners trying to get into that. But the other knock-on effect of those AI data centers is everything around it. And that's also where we see the big opportunity because there's a ton of industrial facilities that have power needs between 100 kilowatts and 1 megawatt, and they also have cooling in that size range. And that's really what we're targeting right now because those people are all constrained by these data centers taking all the available power. So when they're trying to expand the power is not available. So there is where I see the market for Tecogen's products.

What kind of customer would that be not specifically [ be ] generically?

Pretty much any industrial customer that has a need for heat either as process hot water or an industrial customer that is requiring climate control. So just to give you an example, food processing, right, anywhere -- like let's just take meat processing as an example. I mean they need a cool dry environment. They -- again, they would use our chillers, they would use the chiller to cool the air and then remove the humidity from there and then warm it back to the temperature they need using the waste hot water. We've seen people like chocolate manufacturing, which, again, they've used our equipment. There's plenty of industrial processes that use hot water year around. And then, of course, any multifamily, any residential building, I mean they don't tend to be quite as large [ a set ] of power users, but they have a consistent hot water load. So those are all good customers for us as well.

Would that include what do you call centers for aged centers or whatever you want to call it, medical facilities for home or general care home for aged people, stuff like that because these are relatively large systems, the systems, meaning numbers of buildings, does that represent a market?

Yes, definitely. And I'm glad you mentioned that, yeah, the healthcare industry as a whole is a very, very good market for Tecogen's products. I mean we see large hospitals using our chillers, again, because the need for it to power can be used in other parts of the hospital for MRI [Technical Difficulty] and things like that. So they use our chillers. Then a lot of these rehabilitation and nursing facilities use our cogeneration machines. They're usually smaller, but they do have a constant need for hot water for domestic and other requirements, some cases for heating and they'll use the power year-round. So pretty much for the cogen product anywhere with a bed is a very good fit for us. And with the chiller product anywhere that you are controlling the climate is a good -- where you're controlling both temperature humidity is a very good fit for us.

I'm sorry, final last question. I don't mean to take this much time, but the third top-down question is the question of regionality. I kind of sense that over the last two or three years, you've expanded your geography. That's a generic question. I don't know if that's true. And how would you describe your expansion of your geography or not, either one?

So yes, that is definitely the case. In the past, we've -- our sale has been predominantly dominated by high utility rate areas and very driven by just pure payback on the equipment. And in most cases, we can have the energy cost. But then if your energy cost is low to start with, the payback is going to be further out. So we've typically stayed in areas which have had very high utility rates like New York, Connecticut and Massachusetts and the West Coast. But now we're seeing the combination of power constraints and then utility rates becoming much more time-of-day based. And then right now, I mean, we have the tax credit that's helping improve the payback. But it also seems that customers are looking at our type of solution, just part of how we're selling has also changed a little bit in terms of really showing a customer that you've got -- having some savings better than none. And I mean, it's -- you don't necessarily need a really short payback [Technical Difficulty] existing equipment like a chiller, it's just a net cost to the customer, whereas even if it has a slightly longer payback in the region that has a lower utility rate, everybody sees the utility rates are going up with the time. So putting something in now during a replacement cycle can help them benefit. So we've also changed how we sell, how we go to market. A lot of the sales channel partners that we have right now have good customer relationships that they're taking us to. So the end [Technical Difficulty].

I guess I was directed more to the service side, the expansion of your serviceability. Is that true or not?

So right now, the service expansion has been predominantly in the areas that we've already got service that [Technical Difficulty] yeah, yeah. But we will add additional service if we see a certain concentration of engines in a region, we'll put a service center there.

[Operator Instructions] Your next question comes from [ Michael Zuk ], a Private Investor.

There are new mandates coming down from a federal government with regard to converting systems, utilizing heat pumps. We have a legacy heat pump technology. Is there any opportunity to expand that area for us?

So my view and this is where I think there is an opportunity. We're still looking at this very carefully. There -- the heat pump market is pretty interesting in the sense that there are a lot of legacy buildings that would go heat pump for heating. But the way heating is usually set up in a lot of these buildings they're designed for boilers, which operate at relatively high temperature. So where we see a potential opportunity is retrofits on those buildings because they hit -- most heat pumps that you buy electric heat pumps are really designed for lower temperature. So if you did a retrofit, you're either going to lose capacity on an electric heat pump. You'll need one much larger than what you would have had before with the boiler or you have to change all of the hot water distribution system in the building. Where we think there's an opportunity by having an engine-driven heat pump that's much larger that could be built on the back of our air-cooled chiller that might be able to boost the temperature. But this is something that we are very early on just looking at it as a potential opportunity. We don't how big that opportunity is. If we think there is enough potential then we may put a product out. The Ilios heat pump is still there. It's something that the customer really wants we could, but we don't see that as being where the market really is going to go. We see it really in the retrofit where people are trying to do this. They don't have necessarily enough electrical capacity or they don't want to replace everything, it's all the piping inside the building, where we might have an advantage.

Good. Fair enough. And then can you give us an update on the activity in Florida?

So we've definitely been pushing for new projects over there. We -- some of what's in the backlog already right now is down in Florida. We've got a few other projects that are brewing out there that we hope to close over the next 3 to 6 months that are all, again, very good market for us, both cogen and chillers. So that's a market that we're really trying to expand right now.

And refresh my memory, do we have a service center in Florida?

Yes, we do.

Is there the potential to add a second center at some point in time?

So yes, what we're -- we may do is expand the service center more towards the Georgia, Alabama region, where we see some opportunities there as well. So our service center right now is closer to having something a little further north. You might help us also handle some of that region.

And then a question on a personal note. Would I be able to stop by sometime in July and see the new facility? I'm going to be in the New England area for a couple of weeks.

Of course, any time just let me know and feel happy to host you.

All right. And congratulations on the progress of moving to the new facility. It sounds like we're going to be much more efficient in our new plant facility.

Thank you, yes. And I mean, it's the other thing that we didn't mention, but it's taken a lot of energy from some of our key people here. So we're also going to see improved productivity just by not having that move looming in front of us. So hopefully, we're going to see much stronger results over the second half.

Well, I'm looking forward to a productive quarter three and quarter four.

At this time, there are no further questions in queue. I'd like to turn the call back over to our presenters for any closing remarks.

Thank you all for attending our Tecogen Q1 2024 conference call. If anybody has any further questions, feel free to e-mail me, and I'll be happy to answer them by e-mail or set up a separate call. Thank you.

This concludes the first quarter 2024 Tecogen investor update call. Thank you for attending. Have a wonderful rest of your day.

Thank you. Bye-bye.