Tecogen Inc.

Greetings and welcome to the TECOGEN year-end 2024 conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed into question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Jack Whiting, General Counsel. Please go ahead, sir.

Good morning. This 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 fourth quarter and year-end 2024 earnings and the presentation provided this morning are available in the investor section of our website as well. I would like to direct your attention to our safe harbor statement included in our earnings 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 investor 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. Reconciliation of non-GAAP financial measures to the most recently excuse me, most directly comparable gap measures is provided in the press release regarding the fourth quarter and year-end 2024 earnings and on our website. I'll now turn the call over to Abhinav Rangesh, TKGEN CEO, who will provide an overview of fourth quarter and year-end 2024 activity and results. And then Roger Deschamps, TKGEN CAO, will provide additional information regarding fourth quarter and year-end 2024 financial results. Thank you, Jack.

Welcome to our 2024 earnings presentation. There are some exciting developments at TicoGen. As many of you have seen, we signed a sales and marketing agreement with Virta, the leader in thermal management for data centers. Before Roger gives us an overview of the financials for Q4 and fiscal year 2024, I'll provide more information on the data center market, what our target market segment is, why we signed this agreement with Vertiv and what data center sales could mean for the company. In addition to the data center market, sales prospects for our other market segments are also looking extremely favorable. We have many new leads, our backlog is strong, a majority of which we expect to ship in the next nine to 12 months. We are also expecting to close more multi-unit orders over the next few months. Our recurring revenue from service and energy has also grown to greater than $18 million for 2024. So with product revenue growth, we expect to see higher revenues in 2025 compared to previous years. Overall, Q4 revenues were in line with forecasts. We had forecast $6 million for Q4 and higher from there. Our gross profit margin also increased by 5 percentage points to 45%. Although our operating expenses were higher than in past quarters, This contains a few one-time expenses, such as a $109,000 increase to the credit loss reserve because a hospital customer that went into Chapter 11, and also a $217,000 goodwill impairment charge because a couple of energy contracts have reached an end of life. We also expect to see increased manufacturing efficiencies and hence margins as the product revenue increases. Lastly, we collected significant customer deposits, so our cash at year-end was greater than $5 million. In order to understand why we think the partnership with Vertiv is so exciting, I'd like to explain the underlying data center cooling opportunity in more detail. As we've discussed in past calls, the market opportunity for AI and data centers is massive compared to our current size. Using a simple calculation of the number of chips the main chip manufacturers are shipping per year and looking at the amount of cooling required over the next 10 years puts the market in excess of $20 billion. As the power density of AI chips has increased, the need for cooling has also increased. The cooling system for a data center needs to be designed for the worst case scenario. For example, when it's 90 degrees Fahrenheit outside, and all the AI chips are operating at full capacity. It doesn't matter if the cooling capacity is used at peak power for one minute or a thousand hours. The maximum power at the worst case scenario is what needs to be allocated to the cooling system. Once this power has been allocated to cooling, it is no longer available for computing. This means that a data center could be losing 15 to 30% of the total power available because they're using electric chillers. Given that computing is the primary revenue source for a data center, freeing up this power can directly impact a data center's bottom line. This is not just a problem for new construction data centers that are short of power. It is also a problem for existing data centers trying to upgrade to AI or repurpose existing buildings to data centers. As I've mentioned before, ArticoChill represents an easy way for a data center to free up this power because it runs on natural gas. It is also faster to install than an on-site power plant, especially in the case of an existing data center since it can use the existing cooling infrastructure. It can be a direct swap for an existing electric chiller or be installed side-by-side with an electric chiller or as a completely new build. In the case of a new build, the TECO chill doesn't need any long lead time switch gear or electrical panels to power the chiller. The TECO chill also comes as standard with our Altera emission system with best-in-class NOx and CO emissions, making it easy to obtain air permits in almost any jurisdiction. So how does the TECO chill compare against the alternatives? Compared to the nearest other gas cooling technology called an absorption chiller, The TECO chill consumes half the amount of gas for the same amount of cooling. The TECO chill has also been proven in many critical cooling applications, including hospitals, ice rinks, and cannabis. And compared to an electric chiller, the TECO chill has both a lower annual operating cost and frees up power. Lastly, the TECO chill is made in the USA, so we are less susceptible to tariffs. The economics of having more power available are highly compelling. AI data centers are typically built out in 8 to 9 megawatt chunks, with 2,000 tons to 5,000 tons of cooling. This example shows a 2,000-ton chiller plant. This is equivalent to four or five of our big PTX chillers. A larger co-location data center might have 10,000 tons of cooling or more. AI data centers charge their tenants based on the peak power needed at the rack. This example uses 160 kilowatts per month. But a recent CBRE report shows that the average in some markets is greater than $180 per kilowatt per month. This 2,000-ton TECO chill plant will free up close to 1,000 kilowatts or 1 megawatt. So this increase in available power is worth more than $2 million per year. Given that the alternative is an electric chiller, which is a cost center rather than a profit center, by increasing available power, our chiller will directly impact the data center's bottom line. Although the economics are compelling, one of the biggest challenges of a smaller company is competing against some of the incumbent electric chiller manufacturers. As you can see by this chart from a report on data center efficiency, the market is moving to larger co-location and hyperscale data centers. This means that each project is likely to have large chiller plants. However, to achieve significant sales in this market, we need to be able to influence multiple decision makers, the data center owner, the design engineer, equipment suppliers of complementary systems, etc. Having the right partner that can influence the multiple stakeholders involved in a sale will substantially improve the odds of successful sale. We believe that Vertiv is that partner because they have end-to-end expertise. They have more than $8 billion in revenue in 2024, predominantly from data centers, and have a world-renowned brand name in the industry. Conversely, for Vertiv, having Artiller as part of their offering gives them a compelling solution as power constraints become more prevalent. I believe this relationship with Vertiv is a critical part of our go-to-market strategy. Although large portions of our discussions with Vertiv are confidential, both sides see this as a precursor to a larger supply agreement. I also believe that Vertiv's market reach is going to be extremely beneficial to obtain orders from larger colocation data centers. The press release associated with the partnership has already been picked up by numerous data center publications worldwide. Given Virta's strong presence outside the USA, we are also hopeful that we will see orders from overseas locations. Last call, I mentioned we would have our first data center project by early 2025. We have a couple of pieces of good news here. The first is one of our existing sites commissioned in 2024 is powering an enterprise data center in Manhattan. we received an order for an inverting for an existing cloud storage data center in Connecticut. The customer compared us against other alternatives, including fuel cells and competitors, before choosing our inverting as the superior option. The other data center projects we're working on are still moving through the procurement process. The customers are working on signing up AI tenants before placing equipment purchases. Some of these projects have also been scaled up significantly in size because of market demand. I've also been asked by shareholders about the impact of data center sales. Here I have an illustrative example of a 50 megawatt data center. In this example, the cooling load is greater than 11,000 tons. This means that if the customer chose to install our DTX chillers for the full plant, it would result in between 13 million and 16 million in revenue for us. This means a single sale to a medium-sized data center like this could result in profitability for us. Our present adjusted EBITDA break-even point is approximately $30 million per year. Given that our present backlog is strong and other market segments are also facing power constraints, we hope to see increased quarter flow across the board. Although the PAC-3 move was highly disruptive to our revenues, cash flow, and operations last year, We are now well set up for both chiller and co-generation production. The overhead cranes in the new location allow us to move chillers easily, and we have the capacity to scale up product revenue past our breakeven point. We are presently focused on working with our supply chain to improve manufacturing throughput. The backlog is presently at 12.2 million. We're expecting another $3 million or so of projects to close over the next few months. The cash position was $5.4 million at the end of Q4 and is presently approximately $4 million. We were successful in collecting customer deposits at year end and some of the outstanding rebates. The current cash position is lower than at year end as we ramped up working capital for manufacturing and also because some of the rebate money was passed through on behalf of customers. We have also extended the repayment timeline on the credit line with John Hesopolis to 2026 so that we could use our cash for revenue increases. Just as a recap, we have three revenue segments. Our product revenue consists of sales of cogeneration units, micro-bid systems, and chillers to a range of markets and customers. Our service revenue primarily consists of our contracted operations and maintenance services. Our energy production revenue stream is from energy sales including sales of electricity and thermal energy produced by our equipment onsite at customer assistance. I'm now going to hand over to Roger to walk through our financial numbers.