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Tecogen blazes a greener path in the energy space

The eco-friendly Texas company offers investors a compelling financial argument to go green

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Tecogen may convert going green into shareholder green

The “going green” movement for many companies is more perception than it is a reality. Truth be told, most CEOs and business owners are focused on their bottom line more than their carbon footprint.

In the end, it comes down to costs. Shareholders worry about profits this quarter and next rather than what will be left for their grandchildren.

While this may sound like gloom and doom, it isn’t. The same capitalism that has prevented a true green movement is the same thing that will ultimately be the driving force see eco-friendly business adaptations come to fruition.

Eco-friendly products can also be money-saving products. The bigger the savings, the easier the change becomes for business owners to make. Tecogen Inc (NASDAQ:TGEN) is one of those rare eco-friendly companies that offers a compelling financial argument to go green.

The Texas-based clean-energy company provides ultra-efficient, clean, natural-gas-powered on-site heating, cooling and power equipment. The company has been in business for more than 35 years shipping over 3,000 units consisting of natural gas engine-driven heat and power systems, air conditioning systems, and high-efficiency water heaters.

Recently, the company has expanded into the vehicles markets cleaning up the ugly emissions the world sees from cars, trucks, and forklifts as well as the cannabis industry, believe it or not.

Past to present to future

The focus on Tecogen shouldn’t be solely about the past 35 years, but more about its bright future. The $90 million company was once part of much larger Thermo Fisher Scientific Inc (NYSE:TMO). In fact, the current chairman emeritus and co-founder, John Hatsopoulos, is the retired president and vice chairman of $100 billion Thermo Fisher.

With $10.18 million in revenue and breakeven earnings per share this past quarter, no one is going to confuse Tecogen with Thermo Fisher, but its story may actually be more interesting.

Although profitability has yet to reach the bottom line, gross profits grew by 31.7% this past year. After adjusting for one-time merger costs and stock compensation expenses, non-GAAP earnings before interest, tax, depreciation, and amortization soared 59%.

Despite the limited profitability, Tecogen’s balance sheet is not one filled with concern. The company recently entered into a line of credit agreement with Webster Business Credit Corp for up to $10 million on a revolving secured basis. Additionally, the current assets are more than double the current liabilities.

Breaking it down 

What separates Tecogen from other energy companies is its products. Not only are they clean, but their efficiency makes them worthy of consideration for hundreds of companies across the globe.

The core of Tecogen’s offerings center around its patented customized catalyst formulation for its Ultera emissions reduction process. The patent covers the material composition and manufacturing method used in its production. This material provides excellent performance while being impervious to corrosion in applications where the engine fuel contains significant contaminants such as sulfur and phosphorus.

Its advanced modular energy systems centered around the Ultera emissions control offer Tecogen three distinct advantages:

  1. Cheaper – Efficiency and reduced exposure to expensive electricity create a financial benefit.
  2. Cleaner – Near-zero emissions for most products
  3. Reliability – Tecogen offers real-time monitoring, blackout protection, and improved grid resiliency
  4. In-house engineering and installation – Tecogen nor its customers do not depend on other companies
  5. Proprietary and patented technology – In addition to the Ultera emissions control, the company offers inverter Microgrid Architecture, Natural Gas engine optimization, and proprietary PMG technology.

Breaking down its product offering provides a clear view of the diversification this small company has to offer:

1. Cogeneration: Electricity and Heat

a.  InVerdee offers a best-in-class electrical efficiency with remote monitoring.

b. Tecopower offers cost-effective heat and power ideal for fitness centers, industrial facilities with hot water requirements, and locations with many beds like hotels, dormitories, prisons, apartment buildings.

2. Chillers: Heating and Cooling

a. Tecochill is the only natural gas engine driven chiller on the market, 30-60% cheaper than equivalent electric chillers. This is ideal for sports facilities like swimming pools and ice rinks or industrial facilities with both heating and cooling requirements.

b. Tecochill is seeing an exciting new use in Indoor Agriculture as well. This rapidly growing market is expected to growth 5x over the next 5 years thanks to the surge in cannabis. This product eliminates the need to upgrade electrical infrastructure, removes heat generated by lighting, dehumidifies the air, and pumps our virtually pure carbon dioxide exhaust that can be used to speed plant growth. Given the current need for cannabis supply, this could be a key driver of growth for Tecogen

3. Water Heater

a. Ilios is the world’s most efficient water heater. It measures 2-3x the efficiency of a conventional boiler.

This all circles back to the Ultera Emissions Control. The ability to reduce criteria pollutants like NOx, NMOG, and CO to near zero is key. These engine systems can be retrofitted to existing engines with no performance loss. Currently, Tecogen is working with PERC (Propane Education and Research Council) on a natural gas retrofit engine for forklifts that fits into existing fork trucks.

The possibilities of expanding a solid base of products with high growth sectors like the vehicle and cannabis markets could provide superior growth for the next decade especially given the current diversification already present in the company.

Revenue generation has come from a diverse stream of business sectors. The company earned 39% from multi-unit residential, 10% from healthcare,11% from hospitality and recreation, 15% from education, 10% from industrial and manufacturing, and 15% from other categories.

This diversification continues in the form of business units. About 25% of Tecogen’s revenue came from cogeneration, 12% from energy production, 23% from installation, 26% from service contracts, and 14% from chillers.

Combine this revenue diversification stream with the strong backlog of $21.3 million and strong growth drivers in cannabis and the vehicle market, Tecogen may convert going green into shareholder green.

--At the time of publication, Tim Collins had no positions in the stocks mentioned--

 

Follow Tim Collins on Twitter @retrowallst and @darknovelisttim

Quick facts: Tecogen Inc

Price: 2.29 USD

NASDAQ:TGEN
Market: NASDAQ
Market Cap: $56.89 m
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