Tecogen Inc. (TGEN) Earnings Call Transcript & Summary

Greetings, and welcome to the Tecogen Voluntary NASDAQ Delisting Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Galiteva, Chairperson of the Board of Directors. Thank you. Please begin.

Thank you so much. I'm Angelina Galiteva, the Chairperson of Tecogen. With me, we also have Benjamin Locke, who is the CEO of Tecogen as well as John Hatsopoulos, who is the lead Director of Finance for Tecogen. The purpose of this call is to discuss the listing of Tecogen with the OTCX markets. And I would like to invite John Hatsopoulos to please provide us a briefing and background for this initiative.

Thank you, Ms. Galiteva. I would like to address, because I've had more calls than I ever expected and letters about people that not only didn't understand why we act to delist from NASDAQ, the company, but also who is OTXB -- OTCX, I'm sorry. Because none of the investors -- not all of the investors had heard about the -- who OTX -- OTCX is. First, let me tell you the reason that we made a decision like this is, over the past couple of months, accelerating in the last 30 days, we had a tremendous amount of volume on the company and the stock would -- especially when Ben announced major positive events about the company, the stock would trade up in the day time, and later in the day, go down below $1. Now the ultimate event occurred May 7, when we announced a deal -- Ben actually announced a deal with a gas company to sell them one of our units and the stock in the morning made a high of $1.26, which I'm sure it pleased a lot of our investors at that time. Yet, at the end of the day, it took almost 1 million shares to take the stock down below $1. Now we closed -- we actually did 971,700 shares and the bulk of them were hitting the stock to take it down below $1. Now why is that dollar important to us? There is a rule that is done -- executed by NASDAQ that, a, if the stock of a company trades for over 30 days below $1, that the company is in danger of being delisted. They will be given 6 months to correct the matter and keep continue trading in NASDAQ. And maybe, as a matter of fact, I've been told, Jack Whiting, who's our General Counsel, and I had a long talk with various executives of NASDAQ. I had other calls with them too and they all -- I even tried to see if they can change that rule of getting a letter from NASD that we are in danger of being delisted. The problem of that letter is that this letter would have to be -- and it's correct, by the way, disseminated to all our shareholders and there are a lot of shareholders that manage money, especially in Europe, but I'm sure the same thing operates in the United States, that if there is a danger of a company being delisted, their investors can sue them, or at least threaten to sue them, that they were not diligent enough in their investments, and they bought a company -- they own the company that was about to be delisted. Now I should add that I was assured by NASD that there is a very good possibility, no guarantees in this world, that we'd get another 6 months to straight it out. The problem is that the moment that letter would hit the wires to our shareholders, some of our shareholders, some big shareholders would have an opportunity -- an obligation, rather, I'm sorry, to sell the stock. So now, we had 2 choices. One is to do a reverse stock split, which some companies have done. The other is to remove voluntarily from NASDAQ. And we chose the latter one. We chose to remove ourselves voluntarily and not having the stigma of being threatened, not being delisted because they weren't about to delist us, as I mentioned, for over 6 months or maybe a year, but we didn't want to have that obligation. Now you might think of it as crazy. And as it happens, being locked up in my house that I can -- I'm not allowed to move around. I watch a lot of financial television. And I noticed that some money managers managing shares, stock buys of various states are being sued by the people that get their pension from the states that they did not do the right investments. So the last thing anybody needs is to have to defend themselves for a lawsuit. Now on the other hand, the reverse stock split, my experience has been that it doesn't work. It eventually goes right back to where you were before the reverse stock split. Stocks have memory. And therefore, would end up not only that the price of the company, the value of the company would be dramatically down. But at the same time, we would have eliminated the outstanding float of Tecogen by whatever reverse split we did. And interestingly enough, for years -- for the past few years that I talked to a lot of our investors, which I happen to know from my previous 55-plus years in the market for Thermo Electron as a CFO, is that this is the biggest problem of Tecogen was that we didn't have enough float and enough shares to trade, so that an institution, a large institution can buy their shares and eventually, obviously, be able to sell them. We traded somewhere around between 5,000, maybe 10,000 shares a day. And all of a sudden, in the past few weeks, we have been trading, for a company that had 5,000 or so or more shares on the float to trade, we've been trading days with, as I mentioned to you, over 970,000 shares, over 200,000 shares, over 300,000 shares. It's beyond my comprehension how and where these shares come from. Now there are various possibilities why this thing is happening. And I'm not going to tell you that I know what it is. I'm not that smart. In the good old days I used to be able to go to the American Stock Exchange for a small stock and look at the book, but right now, there is no book, it's computers. And obviously, one of the possibilities is that computers were trading with one another. The other option is that somebody wanted our stock down because it's obvious when day after day after day the stock is over $1, and this thing started when our stock was well over $2, that they hit the stock in the last 10, 15, 20 minutes to make sure it goes below $1. Why they do it? I have no idea. Maybe somebody is interested in having the stock down. Maybe some people and investor -- one of our biggest investors and an adviser to me, about the trading of the company, somebody who is a partner in a major bank, small bank but very well respected, has been telling me that it's obvious that somebody wants the stock to trade 30 days below $1. So now we had to make a decision. We are not interested in selling the company, which I know that some of you might want to, but at this point we're not interested in selling the company. We think that we have so much technology that makes the value of the company a hell of a lot higher than where it is right now. And my family has no interest in selling shares or requesting somebody to bid for the company. Now you can say, "Why not? Why not get it over with?" Well, I did something which drove our Chief Scientist and President of Tecogen, Bob Panora, crazy because he had to write an analysis. And even he found the result spectacular that mathematically the future of cogeneration at combined heat and power is hell of a lot better than even he thought it is. Now Wall Street doesn't believe that. Wall Street that I talk to, one of our bankers, we spent a couple of hours discussing the future of the company, and he said "Well, you know, Wall Street doesn't believe in combined heat and power right now. So it's going to affect your revenues and your profitability in years -- for the next year." So we disagree. And as a matter of fact, if any of you have not seen the summary of Bob Panora's report, we'd be glad to send it to you. On top of it, there is a, I think, 11 page report that does all this analysis. It's a very scientific report. It took me 3 times to read it to understand it, because I'm not a scientist, as you know. So this is where we are. On the other hand, obviously, we the management and board believe strongly in the long-term future because these things go in cycles. And maybe within, I don't know, 6 months, 6 years, people would realize that the technology we have in eliminating emissions, which, by the way, is insured by Lloyd's of London to defend us in case anybody wants to violate our patents, so we feel that we were very well protected, and whenever this kind of negative feeling about our business will disappear and we will get the real value or close to the real value of the company. I should also tell you that we put our money where our mouth is. Ben Locke bought some shares. And I should tell you, unfortunately, he's not a very wealthy man, and maybe he disagrees with me on the phone, but I think he bought some shares at a time when he doesn't have that kind of money. Then I bought 25,000 shares myself. On the advice of a banker that I fully respect, I bought them 5,000 at a time. Every time I'd buy 5,000, one minute later, somebody else would come in and sell a few hundred shares to again bring the stock down. And lastly, but not least, another one of our major board members just bought early this week, and I don't know exactly, but I know it's filed with the SEC, all these are filed with the SEC, so I'm not giving you any inside information, bought 100,000 shares. And frankly, if the stock value continues to act as it's been acting right now, maybe some of us would continue, I can't guarantee it, but continue to keep buying because I believe that our technology, forgetting our revenues and profits and whatever, but our technology is worth for a stock, a hell of a lot higher than it is right now. With that, I would like to leave it open. If Angelina -- I mean Ms. Galiteva or Ben Locke want to add something to it.

No, I just want to reiterate that you're completely right on the technology, John, and that the markets and the energy market transitioning to a more distributed and decentralized energy structure are going to be relying on microgrids and islanding and black-start capability with low emissions in combination with efficiency in distributed generation and renewable. And our technology fits in very nicely into that paradigm. And after the coronavirus, the general consensus is that we're going to be transitioning even faster to these realities. So we should be seeing an uptick in technology being even more attractive because it provides flexibility, it provides reliability and resiliency, and it also enables the integration of more renewables. And the added benefit that we never also talk about is that we can be flexible with the fuel. We don't necessarily only need to be dependent on natural gas. We can transition to biofuels or even synthetic methane, if and when those fuels become available. So the combination of having very high flexibility, low emissions, modularity and ability to complement many operations and the energy scale is going to make us a very valuable partner in this new energy reality that we're going to be seeing implemented very quickly.

Thank you. Thank you, Ms. Galiteva.

Shall we open it for questions?

Yes. I think we should. I think we should.

Okay. Let's see if there's questions.

[Operator Instructions] Our first questions comes from the line of Joe Vidich of Manalapan Oracle Advisers.

I appreciate you having this call. I have a lot to say on this, believe it or not, because I've been in the equity markets a long, long, long time. And I've dealt with a lot of Investor Relations people, and I've owned a lot of small companies. The first thing I'd like to say is just a number of things that you guys have done over the past several months, this as well as getting rid of your bank line of credit, have taken investors' confidence away in the company. And whether it's justified or not, it's a different issue, but that's my perception. I may be wrong, but that's my perception. When you didn't renew a new bank line, the fear is that, well, why not? And when you're delisting your stock from the NASDAQ and going to the OTCX, there are issues with that because there are a lot of brokerage firms that don't allow their investors to actually buy stocks on the OTCX. There's a lot of great companies there. I don't find that an issue at all. But it is definitely an issue for certain companies. I mean Merrill Lynch, I know doesn't -- I believe, doesn't allow it. And now when you talk about institutional ownership issues, what's happened over the past 10 years is institutions really don't get involved in companies with market caps under $100 million, not any of the big institutions. You have small players who are involved and you have individuals. So your target investor really is not an institutional owner. It's a -- maybe it's a hedge fund, maybe it's a large individual, but it's not the T. Rowe Prices or the Fidelities or any of the big funds. They're just not -- they're so big, they can't get involved in little companies. So the real question is, who are your investors? I mean you talk about your investors being European and they have certain rules. I know the rules have changed dramatically recently. And so I guess my question really is this: What are you going to do to bring confidence to your investors who believe in your company and they believe in cogeneration? And by the way, there's plenty of companies that do cogeneration that are doing quite well in the marketplace. So it's not like investors don't believe in it. But they want to see an offensive play. And the question is, they want to see a company that believes in itself and is willing to show that you're going to be around. I guess my question is, how are you going to -- what's your approach to give investors confidence?

Let me try and answer it. And then I'm going to ask Ben to talk about our competition because I'm not involved in operations. He's running the company. But first, let me tell you that most people don't realize that OTCQX has a lot of major companies listed there. Let me give you some names, Roche.

That's international.

Footwear company called Adidas. The French communications company Public Group (sic) [ Publicis Groupe ]. A U.K. company, Anglo American. U.S. Grayscale Investment, The Bitcoin Investment Trust and so forth. So we've had a lot of companies, and we meet all the requirements of SEC. As a matter of fact, one of the triggers, I think, and that's my own opinion, maybe I'm wrong, to take the stock down was when we did a shelf registration. What people didn't realize, and it's our fault rather than anybody else's, that we always had a shelf registration just in case we need some share, some money. And what had happened is the shelf registration, which shows that the SEC approves of us, and we do all our filings properly, whether we're in NASDAQ or OTC, we still have -- but we do the shelf registration, not near-term to sell shares to raise money, but as an insurance policy in case we have a major event. Now as far as paying off our debt, we have, I'm told, and again, if Ben wants to butt in, please do. We have enough money to run the company successfully for the next few months or years or whatever, without needing a debt that was costing us, I don't know, $25,000 a year just to have a line of credit that we know we're not going to use. So it would have been bad management if we did not -- if we kept that line of credit when we had guaranteed that we're not going to use it. Now with interest rates going down, maybe someday, and I believe we have talked to various banks, we might get a line of credit someday with somebody at a much better term, but we don't need it right now. Now Ben, would you like to answer the other questions?

Yes. Yes, I'm on the line. I don't know what exactly the question was. I heard concerns about investor confidence...

The question was...

Ben, the question really is, what can you do to give investors confidence that the company is not pulling in its horns all over the place, but is actually taking a more proactive, positive approach to building its business. I mean having -- the reason investors like to see a company have a bank line is because in case you get a big order, you may need to have something like that. It's a level of confidence. I don't know how much costs your bank line. But I mean these are things that investors look at when -- as positive. And so my question to you -- and I know your business, there's a tremendous possibility for your business, don't get me wrong, but I've been buying the stock, and I know the Director has been buying the stock, which is great. But obviously, somebody is selling and whatever the reason, who knows, so the question...

Well, let me...

Build the confidence in for investors. That's really the question. What is it...

Well, you had another question. Excuse me, you had another question or a statement that a lot of other cogeneration companies are taking away business from us.

I didn't say taking away business, I said investors are investing and those stocks are doing well. I didn't say taking away business. No, I didn't.

I thought you said that we are losing cogeneration business to somebody.

No, no, no.

We're not losing. Oh, I misunderstood you. I am sorry.

So, Joe, let me say a few words, if I could. So first, about the line of credit, John is absolutely right. That line of credit was very important to us when we needed it. And it helped us out in a time when we needed it. And we have spent a lot of time, and I've said this in the past few calls, trying to get our business to run leaner and more efficiently because there is a lot of room for improvement, I thought. And we've been doing that. And in doing so, part of that has been our cash management. And we took tremendously good steps in terms of managing our cash over the past 6 to 9 months to the point where we felt that we didn't need this line of credit anymore. We've got our vendors, we've got our suppliers, our AR, our AP all in good shape, and we had us a very expensive line of credit. It was 10 -- we were paying for a $10 million line of credit that we would only occasionally use a few million dollars on. And in fact, I really strived to not use much of it because I wanted to show that I could survive. And when the opportunity came for us to be able to end that line of credit, I took it because I'm confident in my balance sheet right now. I'm confident in the business. We had this whole pandemic thing cause a lot of businesses to worry. I mean 2 months ago, nobody knew where we were going here, right? Nobody knew where this was going and how long it was going to go. So we put into a very stringent plan about our operations to make sure if the worst happens, we're going to persist as a company, of course, hoping and expecting that business will get back to normal, order flow will get back to normal, and all our hopes and dreams to be very successful as a company will start to come back into focus. We're just about there now. It was a very -- you know how it went the past few months. It was touch and go with many businesses. But we kept our orders going. We kept our products on. We kept everything going. We had an opportunity to reduce our line of -- eliminate our line of credit. We took it. I've never been more confident in the business than right now, Joe. I have got a good balance sheet. Yes, some things have slowed down, but things are coming back to life. I'm starting -- our engineers and our sales guys are more active. And things are starting to wake up. So I know that's not maybe a concrete answer for you, Joe. But in terms of the line of credit, I was really happy about that. I think that's -- and if we need money in the future, if we get another big order, there's going to be cheaper money available than what we had with that particular line of credit.

Our next question has come from the line of Alex Blanton of Clear Harbor Asset Management.

So this is directed to Ben. Please, Ben, you answer. What is the difference in terms of being delisted and what's the effect is on market price? What's the difference between getting a letter from NASDAQ and doing it voluntarily, you're still delisted. I don't understand that?

Well...

No, no. Ben. Please, Ben, answer.

Alex, I really defer to John on these things, and I think he could probably give you a more accurate answer. I'd like him to explain.

Let me explain it that number one, Ben is running the company. And because of my background as Chief Financial Officer of Thermo Electron, I learned a little something about finance. We did not delist and go to an exchange or an area where we are penalized. But at the same time, by having not that $1 penalty, which would force people to sell shares legally, that's why I said that there are a lot of...

If you voluntarily delist, you're delisted. What difference it makes whether you do it or they do it?

Well, it doesn't, but it was going to happen anyway. And on the other hand, if they do it, then people are mandated -- some people are mandated to sell their shares.

Let me interrupt you. I agree with almost everything that the prior questioner said. What is causing the stock to be weak, I don't think is someone trying to knock your stock down. I think it's the fact that people have lost confidence in small companies because of the pandemic. And this decline started -- this decline, let me finish. This decline started when the pandemic hit the market back in February, so people are afraid that you're going to go out of business. Now what you need to do to combat that is to communicate better with the market. Now you don't have anybody following you. There isn't a single sell-side analyst that follows you. And one of the reasons is you've got a $25 million market cap, and nobody can make money following your company. That's a problem. You have to find some way to communicate with investors that you are in business. What Ben just said is very important. I mean what Ben said, if it were reflected in the stock price, your stock price would be back at $2.

Well, you're right. You're right. And that's why we have this call. I had a -- I know you and I had a little bit of a discussion about a year ago. And I think you're right. We'll continue to have communication as often as we can. And by the way, I should tell you that the virus has hurt us not in orders because the day that we announced an order, which was unbelievable, May 7, that we received a Tecochill order from Florida Gas company, and the stock did very well until the afternoon, after 3:00, somebody started selling and banging...

John, that's because a lot of people own your stock and they're afraid you're going out of business. So as soon as the stock has a move up, they sell. They can't sell when the stock is down because there are no buyers. They would have to knock the stock down in order to sell. So when the stock runs up, they say, "Oh, here's a buyer, a buyer has showed up, now is my chance to sell." The reason they want to sell is they're afraid you're going out of business because you're not communicating. Now I have a question regarding the announcement on May 19th of your deal with Ainsworth. It seems to me that's very positive. Could you please expand on that and what that means?

That's Ben. That is Ben.

Yes. Alex, this call is very specifically about this topic. We're not going to talk about any business operations.

Okay. But that's what I mean, why do you do that? You should talk about the business operations because you've got investors on the phone, and there's no reason that you can't talk about them. There's no rule that says you can't talk about them. So I would really like an answer.

Well, Ben will -- I'm sure...

Alex, we have questions in the queue about this topic. Alex, we have other people in the queue about this topic of the call. I'd like to go through the people that have questions about this topic before we loop around the things that are not related to the call, if that's okay with you.

The other thing...

That's fine.

Then we'll do down the road. As a matter of fact, you can call him, and he'll explain it to you. But anyway, let's see who is the next questioner. And I think Ben should handle it. I don't know what secrecy agreements he has. And that's why the purpose of this call was to explain specifically the process of listing in OTCX, which people don't know it even exists. You do, but maybe others don't. And as far as questions like this, first, you can call Ben. Second, if you suggest and Ben is allowed to discuss it, then we'll do another conference call to discuss it when the right time comes. But I have no idea at this point how much he can talk about it and how much he cannot. So let's stay on the listing, and the other, Ben will handle it, and I'll urge him to have another conference call at the right time to discuss it. Our quarter will end within a month or so, so not even a month, but anyway, next question.

Our next questions come from Naveed Uddin of Manalapan Oracle Advisers.

I got a quick question. Do you see any sort of cost savings involved in delisting? And are you planning to relist in the future at all?

Are we planning to do? I didn't hear the word, I'm awfully sorry. Are we planning to do something in the future, to do what?

To relist in the future?

Oh, well, I'll tell you, as a matter of fact, at a certain point, we can always list when the stock is over $2. We can always list in the New York, which offered us all kinds of incentives to list through them. We cannot do it now at the price of the stock. But when the stock goes over $2, we'll have to discuss with the Board whether we should list in the New York Small-Cap part. That is a possibility. But I don't want to -- I'm not authorized even to tell you that, that we're going to do it, because we haven't decided it. But we could be. The answer is, yes, it could be. Anybody else?

There are no other questions at this time. So I'll hand the call back over to management for any closing remarks.

Ben, why don't you share a couple of words. And Clear Harbor is right, we should do more. I confess I objected to a lot of calls because it sounded like we were boring people to death. And as a matter of fact, I had somebody call me and tell me to stop Bob Panora to keep talking about the forklift trucks, which, by the way, were hurt by the virus, now which is a crazy statement I'm making, but we need -- even though we have proven that our technology works, very successful to American engineers, both of Mitsubishi and Caterpillar, they wanted to send somebody from Japan, and they cannot travel. So that just put a stop to us for something which I think will be a major event for the stock when they are allowed to do that. But Ben, is there anything else you want to add?

Sure. I will, since I have the opportunity. Why not. Alex, that agreement with Ainsworth is significant. It's very good. I tried to capture all the key elements of it in the press release. So not too much there except to say that they're a very big company in Canada. And they provide these high-quality technical services for HVAC. They're not just like your kind of a mom-and-pop refrigeration, HVAC contract. They're very well regarded, and they do premium services. They're a great partner for us. They recognize the opportunity to bring a gas cooling package or a cogen package to their customers as a way of their overall kind of portfolio of savings that they're going to give to that building. They have the connections, they have the trucks, they have all of that to do that. So this teaming agreement basically allows them now to have all of our technical expertise at their service, at their disposal as they start to offer our products into their packages that they're selling into the Canadian market. Again, Tecochill is figuring pretty prominently about cogeneration as well and even Tecofrost, our ammonia refrigeration system. Ainsworth does all of that type of work. And importantly, they do the construction and engineering side of things. And as I've said before, Alex, I'm trying to get myself out of the construction business, and instead, aligning myself with important partners that will -- I can rely upon for that part of the business so I don't have to do it. And this is case in point, up in Canada anywhere, where again, we got a good running start with our Toronto -- that big Toronto order, 3.4 megawatts of cogen. We just started our service center up there. And now we've got this teaming agreement with one of the top-tier HVAC contractors in Canada. So that's pretty exciting. I see a lot of potential for us up there. As I've said before, the way you really do business development is to demonstrate to customers that you have customer service and feet on the ground and people that can drive to your facility and get that cogen up and running. It's hard to service things from hundreds of miles away. So the very fact that we have that service center up there now is going to, I believe, unlock more business for ourselves because they'll open up confidence into us and not our competitors because they don't have services there. And even more importantly, having this teaming agreement really is a force multiplier for our sales side to get more equipment out there in Canada. So that's my take of the Ainsworth teaming agreement. They are a great bunch of people, very bright bunch of engineers. We're working with them very closely, developing joint marketing materials, et cetera. So I'm feeling pretty good about that particular market right now.

But obviously, I apologize. I think you are right that we should communicate more often.

Alex, we've been trying to not put out too many press releases that are just kind of like nonsensical or doesn't move the needle because, of course, that's resource that we try to protect. Anything we put out, we try to make sure is -- it's got some meaning and value to it. It is not just a space filler. Alex, is that okay? Does that kind of answer some of the thoughts you might have had? I don't think Alex is on the line anymore. But John, I think we might be running out of our time here. So maybe it's best if we finish up.

I think we should call this meeting off. Jack has told me that he's going to file the minutes of this conference call with the SEC just in case somebody feels that we had some -- we gave some kind of information that we shouldn't have, and it's up to our General Counsel, Jack Whiting, whether he wants to file it or not. I have no idea if he does, but he thought he might. Again, thank you very much for everybody.

Thank you, John. Thank you, everyone.

Okay. Thanks, everyone. Bye now.

Bye-bye.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.