Welcome to the Tecogen First Quarter 2015 Financial Earnings Conference Call. [Operator Instructions]. For you information this conference is being recorded. As a reminder a recording of this conference call will be available for play back, approximately one hour after the end of the call and will remain available until Friday, May 15, 2015. Individuals may access the recording by dialing 877-344-7529 from inside the United States 855-669-9658 from Canada or 412-317-0088 from outside the United States enter the replay conference number 10065324 followed by the pound sign. Now I would like to introduce David Garrison, Chief Financial Officer. Please go ahead.

Thank you, Allison. I will read the Safe Harbor statement to start our call. This presentation contains forward-looking statements as that term is used in Federal Securitas Laws. Our growth backlog of orders, cash usage, gross margin, profitability, meeting our EBITDA and cash goals, adequacy of capital resources, our cost reduction goals and other recent activities. Forward-looking statements may be identified by such words as; expects, goals, intent, planned, and similar phrases. These forward-looking statements are subject to numerous assumptions, risks and uncertainties described in the company's Form 10-K and other recent filings with the Securities and Exchange Commission that may cause Tecogen's actual results to be materially different from any future results expressed or implied in such statements. Because of these risks and uncertainties Tecogen cautions you not to place undue reliance on these statements which speak only to the date of this presentation. We undertake no obligation and specifically disclaim any obligation to release any revisions to any forward-looking statements to reflect events or circumstances after the date of this presentation. I now turn the call over to John Hatsopoulos, Co-CEO.

Ladies and gentlemen, thank you very much for participating in our conference call. This is probably the most confusing quarter I’ve ever had in my personal history which started with a 45 years of Thermo Electron and a horrible news. Now the great news were the obvious ones, our revenues increased dramatically and all these things that I will tell you I will let my partner Ben Locke explain to you. Our margin increased but unfortunately our profitability were down, it was up over last year quite a bit but it went down over what we had hoped to be. The reason it went down believe it or not was the weather. We have major events here in New England we had for days to shut down our facility, we had problems in the all-in-all feast [ph] where a lot of vendors did not deliver products and services that we needed to complete various products but all-in-all we still manage to have a big increase of revenues and a big increase in gross profit. With that the gross profit by the way was up 56% which is substantial year-over-year. With that I'm going to ask Ben Locke to describe exactly what I'm talking about.

Thanks, John. Before I get into the details of our results I just wanted to give a reminder to those who might be new to our earnings call. Tecogen's core business model and mission is clear, heat, power and cooling that is cheaper, cleaner and more reliable. Our gas powered energy systems, chillers and heat pumps are sought after in markets with high electric prices and/or where grid liability is a problem. Looking back at 2014 our focus was the position sales, manufacturing and management for sustained revenue growth and strong product margins in 2015 and beyond. Our first quarter results are good start to the year with revenues higher than any previous quarter. The first quarter has historically being the lowest of any quarter for a few reasons such as inventory reviews at the beginning of the year and whether related events. This year in particular had several weather related disruptions that reduced the productivity of both our manufacturing capacity and our turnkey operations. Despite these challenges we showed good progress in the three major metrics for our success. As John mentioned revenues for the first quarter grew to over 6.1 million, a 45% increase over the first quarter of 2014 and as I mentioned the highest revenues for any first quarter previously. Second gross margin showed continued strength at 36.5%, 8% increase over the first quarter of 2014. And lastly we maintain a robust backlog of projects. Backlog as of May 5th, 2015 was 10.9 million which continues a trend of three straight quarters of backlog over $10 million. While some of this backlog includes construction projects that extend to 2016 the majority of it will be realized in 2015. Our loss for the quarter as John mentioned was approximately $617,000. Again weather related disruptions caused delay in…

Good morning. And thank you, Ben. I want to update investors today on several aspects of our patented emission technology. As announced previously we received three important orders from California based customers and I want to update the status. One is the updated 50 liter bio-fueled engine with a scaled up version of the Tecogen emission system. The equipment for this equipment for this order was fabricated and shipped in Q1 and we expect initial operation in June and we look forward to providing an update as soon as we have meaningful data at that time. The second order was in two phases from an industrial customer meeting stand by generators with very low emissions such as that they could be operated beyond the 200 hour limit of conventional gen-sets. As I discussed in the last call first phase is complete, in that phase we procured an office shelf generated a similar to those in operation at the customer sites and improve the performance in our laboratory that we can meet those very, very low levels. This proof of concept machine is being refitted for commercial service where we’re moving in some instrument and so forth and we anticipate shipping it to that customer in a few weeks. We’re going to miss this unit because it's very being useful on some of the important tours that Ben alluded to few minutes ago. Currently the customer has completed the permanent application for the engines to the [indiscernible] district in Southern California and we’re finalizing our quote for the onsite upgrades. Both the permit and the upgrade planning have been fairly evolved, these are multiple machines ranging from a 150 to 400 horse power and the [indiscernible] district because this is a very new system and at very, very low levels, wanted…

Thanks, Bob. As Ben noted earlier the gross margin of 36.5% in the first quarter represents an improvement over the same period last year, continued improvements when comparing to the same period in the prior year is representative of management's margin goals for both production and service businesses. With operational expenses, general and administrative expenses in particular we’re higher in the first quarter of 2015 and '14, we do not expect these expenses in the future quarter-over-quarter going forward. As previously mentioned the weather not only added delays to the projects but cost as well as our service production installation activities have many aspects that are outside and in the elements. Cash used in operations during the period was 25% of that used in the same period in 2014. Management continues to improve cash flow by changing our sales contract structures and implementing vendor consignment per materials and dramatically reducing our losses. These are the three elements that we again focus on in the near term to reach EBITDA breakeven. I now turn it over to Ben Locke for closing remarks before our Q&A.

Thanks, David. I will just spend a minute or two discussing how we see the rest of 2015 playing out. Our goal of course is going to be continued to building our three key metrics, revenues, consistent margins and maintaining a strong backlog. With regard to the product sales we expect high electric rates and favorable gas rates to continue supporting demand for our natural gas cogeneration in chiller systems. Furthermore as evidenced by the power outage experienced in Washington DC earlier this year there continues to be a need for CHP systems like our InVerde to provide resiliency degrade [ph] interruptions. We also expect with the current order of Ilios units to be operating later this year and once the savings are confirmed we expect to see further orders for Ilios systems as the technology becomes proven in our key market segments. Much like our chiller sales have shown in Mexico, when a unit demonstrates the predicted operations and savings other customers in similar industries are more likely to choose Ilios for the significant savings over traditional sources of heating and cooling. We expect our turnkey sales to continue robust growth in 2015. As mentioned in previous calls our turnkey projects established the basis for long term profitable service contracts. Lastly we will continue commercialization of our ultra-emissions retrofit systems. Similar to the Ilios product adoption curve, as initial orders for our emissions retrofit systems are filed and the technology is proved. We expect additional customers to embrace our ultra-emission systems for compliance was increasingly strict air emission regulations. We will relate any developments of the retrofit kit sales and potential partnership arrangements as they progress. In closing we’re looking forward to continuing strong growth in 2015 and will share developments with you as they occur. With that I would like to turn it over to the questions.

[Operator Instructions]. And our first question comes from Colin Rush from Northland Capital Markets. Please go ahead.

Can you give us a sense of how much revenue is going to get pushed from 1Q to 2Q and then what you think the margin impact was from the weather in the first quarter?

Yes, Colin, I don’t think we can give you an exact number, measuring the exact productivity decreases when as John our building was actually shutdown because of a two feet in the snow in the ground we can't quantify that and as related to our turnkey projects it really relates to a percentage completion. So we can't give a precise number. I mean some did indeed shift from the first quarter to the second quarter but we don’t have a precise number.

Let me add to this that even we didn’t realize our vendors have on us because if we put our team together in one facility ready to go to the next level and the vendor does not bring us the material to continue we end up paying the salaries of these people and nothing to do. So it's almost impossible to calculate what it is. I don’t know if you know, I'm sure you do that the temperature has got down to 2 degrees below Fahrenheit. So we up and closed and similar things happened in New York. But it's very difficult to calculate, how many people we pay to do nothing.

It also had an effect on service that’s not had the document but all the parts, many of the parts from the service group are fed from this facility. So if you’ve problem gaining parts shipment in this building it would affect the West Coast but not tremendously but to some degree so it had a lot of tentacles to that effect.

The good news is that the snow is gone and it's about 70 degrees right now, so hopefully that’s all behind us.

Most of it is, it's still a big pile.

And then can you update us on any sort of mobile applications that you guys are working at this point for the emission system certainly there is a real sizeable opportunity there. I would love to hear some progress.

We’re being very careful and specific about how we’re starting to roll out the emissions technology. As Bob, has mentioned just now and in previous calls we started retrofitting other engines and then we began retrofitting generators and Bob, mentioned this other application which we’re looking to get some potential funds for fitting the emissions to it. So it's a step wise process, we’re not going to jump straight in the vehicles right away. We want to make sure that we have got our intellectual property together, because once you start doing that you better make absolutely sure your intellectual property is solid. We make sure we have our intellectual property together, we make we know these systems are going to perform before we start to embark on any of that. So it's coming but we’re being cautious about how we perceive.

And then if you can just give us an update year-over-year as you look into 2Q, in terms of the sale cycle obviously you guys have made a lot of progress in terms of the growth of the organization but are you seeing any compression of the sales cycle just from first contact to actual commissioning of these systems?

I would say the sales cycle is about the same. You get outliers, you one that close real quick those are nice and you get the ones that are slog and you got to work through the condo boards and you got to work through the legal etcetera, but all in all I think our sales cycle of around 4 to 6 months sometimes a little bit longer is a about right. I don’t think there is any compression or expansion of it that’s gone on recently.

And one final one for me, actually [Technical Difficulty] just on financing options, have you guys being qualifying any new finance partners at this point for the combining power solutions?

So by financing partners how do you mean? How do you mean? Can you just describe that a little bit more?

Yes, is there anybody [indiscernible] finance for you. So if you’re going and making sale are there new - are you guys bringing partners to table with you or is that all with the customer or with--

If you’re asking if we’re planning to have somebody help us raise capital we don’t have anybody right now.

What I'm talking about is just at the project level. You go arm in arm with the bank.

Yes we have people approach us all the time but if an organization wants to buy our equipment and then they will install it similar to what American DG does. There are many of them out there, American DG is a great customer of ours, they are certainly doing it. There is others out there that we have talked with, some are more active than others. There is a lot of project finance guys out there because they see that this market is moving along pretty strongly. There is also ESCOs [ph] that we have been working with - I won't mention their names if you Google large ESCOs you will probably see a couple of them that we’re working with. These are the companies that are will go [indiscernible] for example a school district and do the entire environment kind of efficiency upgrade, they will replace the lights, they will put in some solar, they will insulate it and they will put in some co-gens. We have excellent working relationships with some of these top tier ESCOs who have chosen our product and our installing them again, call it the mush sector which is municipalities universities schools and hospitals. So working with the ESCOs is very good.

The next question comes from Alex Blanton from Clear Harbor Asset Management. Please go ahead.

On that the excess expenses in the first quarter that you mentioned I think you indicated that part of it, just having to pay your normal expenses but not getting any product out during a period is that correct?

Yes and it's also the added cost of store removal and that’s not just here in the building, that’s on-job sites and that leads to some of that productive loss as well.

So that’s what I was going to ask, so how big was that? There was expenses that you wouldn’t normally have above a normal level. There was expenses that you wouldn’t normally have, above a normal level.

That combined with several other things, we believe that going forward you’re going to see the operational expense to be 10% or more less going forward. so we should get down to the same level we were at the in the fourth quarter, the target.

Which expenses are 10% less?

So the G&A and the operational expenses.

Okay, what about cost of goods sold?

In the cost of goods sold there are a lots of areas that we’re working to produce those, but we have the same margin contraction in the cost of goods sold where in the fourth quarter we were at 40% and in the first quarter we were at the 36.5% and we hope that margin will get back closer to where we were in the fourth quarter.

Okay, so we could recalculate the income statement if you will for a more normal situation if we used the fourth quarter margins.

Yes.

Okay, the second thing is you mentioned ESCOs, what are they?

So ESCOs are energy service companies and just name a few so Honeywell, Johnson Control, Siemens, Ameresco and Eresco [ph] these are all the big guys that go around and do product finance again for these municipalities.

What do you see as your large markets right now geographically? Are you getting the most inquires or orders?

It's actually Hispanic, which is very promising. I mean a year ago my answer to that question will be New York, New England and then the West Coast. Now we’re seeing really expansion down the East Seaboard. We’re putting in units in Virginia, in Maryland, at Delaware and as we mentioned we started up this office now in Florida to address markets in Florida and as well as the islands. So our dominant markets are still the Northeast but we’re seeing a lot of expansion to the Eastern Seabornes.

How do you account for that geographical spread, you’re not sending sales, and they are not knocking at doors are you? I mean what is bringing that back?

Yes, and I did want to Mexico as Bob, just pointed out to me. The way we do it just so as you know Alex is we have direct salesman on the East Coast and the West Coast and now more recently in Florida. The next tier of sales is have manufacturers' representatives we’re not going to Mexico and closing these sales we’re helping them close but we have a manufacturers' representative there. We have a manufacturers' representative in various states along the Eastern Seaborne. So they are supported by our sales staff here Waltham but they are the ones that are - they are knocking on the doors and accumulate miles on their cars.

Our next question comes from JinMing Liu from Ardour Capital. Please go ahead.

First David, can you give us a breakout for your product sales during the first quarter in co-gen and in chiller?

That will be in the - I didn’t have that document in front of me, I don’t want to give you the--

But it will be in the 10-Q.

Yes it's in the 10-Q so co-gen is 2.5 million to 7 million and the chiller is $970,000.

That’s very good number for the chillers.

Very good number for the first quarter, yes.

Yes. Okay. A question regarding your backlog numbers. So as of March 21, you reported $12.2 million, and as of yesterday, you had $10.9 million. And I just run through your earnings - the news releases, you spoke to us at least it looks like five more units. So just based on my very rough calculation, it looks like you shipped out roughly about $2 million orders during that period from March 21 to yesterday. So I'm just wondering how much sales you booked during the last 10 days of last quarter, and how much will be in the second quarter, so just want to get a good sense whether you have head start for the second quarter?

Should you did find a nice pattern that we have in our business, and that is that we tend to have large equipment shipments towards the end of the period, and that gives us some of that lumpy backlog to sales ratio as we go through the period. So we fully expect to run into that on a routine basis, just by the way our customers look for the deliveries and how the deliveries are scheduled out to their locations. So that is in fact the way it was. We had a very large amount of shipments at the end of the quarter, as well as at the end of this particular quarter, there was a lot of installed work done, obviously towards the end of the period because the snow had been handled by the end of March. So there is nothing inaccurate with your assessment.

Okay, got that. Okay. That's all from me. Thanks.

Our next question comes from Roger Liddell from Clear Harbor Asset Management. Please go ahead.

Yes. Good morning, Roger. This is John Hatsopoulos. Nice to hear from you again.

Well, thank you, John. Good to hear from all of you. Just a group of questions and then I'll drop off, but I may have additional ones, so make sure the operator queries us in case we have a follow-up. The announcement this morning of the two sales of Ilios units in Puerto Rico. Are those the same ones referred to in the press release? I took the press release - the first quarter review to - and with two Caribbean units noted there. Are those the same?

Yes, that’s the same one. I think clear PRNewswire put out our earnings one. And then the others one came after. So that's the same one. You're correct.

Same ones, yes, okay. I'm not sure what of the implications are for the outlook or the revenue generating on the standardized product design on standby generation. It sounds like one-offy right now, but your earlier description, there appears to be a meaningful opportunity there, I think particularly in South Coast Air Quality Management District. Can you put some texture onto the timing and the size? Does it move the needle in that area?

So, are you referring to the - I just want to make sure I understand your question, Roger. Are you referring to the Ultra retrofits or are you talking about the cogen InVerde?

Well, it has do with the standby generation, and I - perhaps that is strictly the Ultra?

Yes. Well, I'll give two parts of the answer and you can ask for more clarity on either part of it. Bob had mentioned our retrofitting natural gas gensets with the Ultra technology, and so that's proceeding. And so that’s proceeding but I think what you're getting at is the InVerde, which is again cogen, that’s saving you money, running ideally 24/7. But in the event of an outage, it can continue to run, because it's got the ability to run off-grid. That is indeed seeing a lot of increased activity in some of the islands, in Hawaii for example, and again some of the Caribbean islands were grid instability exists and the need for stable power supply almost outweighs even the economic benefits served by the cogen.

So when do you think we’re going to actually see something that moves the revenue and the gross margin needle on that application?

You're talking about the emission system, just standby generator? Right, Roger?

Yes.

Yes, we have a fair number of quotations we're doing and if we begin to have success, then I think it will see some revenue that we can talk about, hopefully in the next few quarters.

Yes. I think the way we're treating it is much like Ilios was last year. I mean, Ilios - we promised people that it would save them lots of money and run, and until you actually install it and demonstrate it, you can see it you get skeptics and then the orders don't line up the way you'd like them to. Well, we're at the point right now with Ilios where they’re running, they’re operating, people are seeing the savings and the orders are starting to pour in. So I think with the Ultra retrofits, we are in the stage where we’re confident they're going to perform but people are skeptical, and until they actually see these things installed on a generator or installed on a big Caterpillar engine in a water district, and then see the flat line of CO and NOx for days, weeks, month and end, after that happens then we’re really going to see the order start to pick-up. So we’re at that stage now, as Bob indicated, where we’re installing these things and we're going to show that they perform, and then we can start to kind of have a more widespread sale effort put in.

Roger, let me tell you a little story that maybe it’ll bore everybody. In the 70s, Thermo Electron had developed a new means of running a gas furnace for heat treating aerospace, oil drilling and automobile parts.

Yes, your ROTO-CARBs.

I’m sorry?

Wasn't that your ROTO-CARB?

Yes, that's right. And we went to GM and they tried to persuade them to buy it, and we told them that they'll save a lot of money. They said, does Ford use it, and we said no. They said, well, if Ford doesn't use it, why should we use it and fall up our production. Then we went to Ford. They said the same thing for to Chrysler and so forth and so on. It was the most frustrating year in our history. And then there was a little shortage of natural gas, I forget which year it was, and they were forced to use our technology at least as a trial to see if they can save gas. Our revenues for that division went out 7x in the next five years, from $5 million to $350 million. It was unbelievable, but it took one year. We couldn't give it away. And I think we're trying where - maybe Bob and Ben don't agree with me, but I think we're sort of seeing the same thing right now.

No. I agree and I'm feeling pretty confident that once these system operators start to see how stable our emissions are as compared to some of the other technologies out there, some more controlled technologies, it's really the stability and to make sure it stays flat and lower strings [ph]. You can refer back to Bob's presentation back in February, we showed some actual data. Once people see that, I think they’re really going to be believers.

And we haven't done marketing into the genset customer base to any great extent. The big milestone - and this is what I believe will be the permit. When a permit is granted for natural gas engine in L.A., Los Angeles area for these super low levels, it will be absolutely first and you can point to the permit that you have, and then you have something you can really walk around with. That's what people want to see. So I'm anxiously looking forward to that permit that will occur when these get in, and then you got something really you can show people and you can show the tests go through the permit. That's where the rubber meets the road.

By the way, so if you don't think that I don't know how to multiply, it’s 70x not 7x. It was $5 million to $350 million.

[indiscernible] what's an order of magnitude. The final question for now, give me a sense of the timing, a range of timing on the issuance of that permit. I think it's the one you referred to earlier as the air quality regulators are being particularly careful and making you perhaps do and redo qualification. So, are we looking at June, or December, or 2017?

We have a machine that we’ve just put together here. We’re putting to the final cleanup on it from its testing. It’s going to head out and be installed I think in June. And at that time, it should have been a permit granted at that time, and the permit will say, subject to a source test, which will be an official third-party test to proclaim the emissions actually meet those low standards. So that's going to happen within the summer time range. The second, third and thereafter, there is a stag at production of retrofits, if you will. And I think those real other retrofits will begin in earnest at the end of the year. That's when they have to be done by the end of the year, whether it’s November, December, I don't know, but the goal is to get them all done by the end of the year. But this initial one will be ahead of the others because it's done. It’s ready to go.

Yes. Okay, thanks. I'll step back into the queue.

[Operator Instructions] We have a follow-up question from Alex Blanton from Clear Harbor Asset Management. Please go ahead.

Yes, I do have a quick question on your EBITDA. But first, I want to say, John, you did sell that to Caterpillar, because I saw them installed in 1989 in Caterpillars’ East Peoria tractor plant, transmission plant I should say. Was that before or after GM?

We sold the furnaces, not only to Caterpillar, but everybody that used production furnaces. As a matter of fact, in 1979 to ‘81 Hubie Clark was coming to Thermo Electron on a weekly basis with his private plane to persuade my brother to sell Thermo Electron to Hughes Tool, Baker Hughes at that time, and somehow my brother had enough goal to reject it. He went over to the presidency of Baker Hughes, so you have very good memory.

Yes, well I was there. Well, it's interesting you chose that analogy because it seems to me that your product is more or less the same thing. If this product can do what it does in one building or several buildings or dozens of buildings, why not thousands of buildings? I mean, is there anything different about the customers that you're selling this to that give them a unique advantage from this product? Why wouldn't it be just as good for the guy next door?

Bob.

Yes, this particular customer, this industrial customer had a very specific reason to run his generators beyond 200-hour limit. It's not money. It's an operational issue that they have to turn them on, on this schedule. So that's his process, so he had no place of concern.

I'm really talking about all your product line. Once you're installing in all this different buildings.

Yes, I'm talking just about the gensets. The other products that save energy, there is a widespread application out there for us on cogeneration, chillers and so forth. So do you want me to comment else about the genset in particular, or if the products in general?

No, I'm just asking about products in general.

Yes, okay.

Well, I think in products in general, you’d like to see them in every building certainly, but there are some criteria that needs to exist, for example, for a cogen to go into your typical building in Manhattan. If the building - if everyone has their own electric meter - if it's not master meter, if everyone has their own electric meter, that's the difficulty. If the building does not have gas, well you can of course get guess. So every building is a little bit different, and some, it just becomes the cost authorize as you start to add things to it and it may not be - the payback extends. So some buildings are better than others. The majority of them are good fits. Then you start to get into financing thing, and as I mentioned, there are companies out there like American DG that can finance the installation of it and sell the energy back. So it's not every building, but it's the majority of the buildings that are a fit.

In New York City, Mayor de Blasio has a program that he talked about last fall of reducing the energy usage and - New York City buildings of which I think there were 2,000 and reducing the emissions from those facilities. And that’s the continuation of something that Mayor Bloomberg started. Have you had any discussions with that group to show them what you can do?

Sure. We've actually had some - and it's not Ticogen directly, it usually ends up being our project partners, whether that's an engineering firm or a construction firm, that will take our product and understand all the benefits and bring them to whether it's the Governor’s Carbon Challenge or what you just mentioned or whether its Elite Certification, they'll take all the benefits from our system and build it into the overall press releasable carbon savings or energy savings. So we've got a few examples of that. Again we’ve got a building in Brooklyn, the Toren I believe it’s called, that's got significant lead points as a direct result of our cogen installation.

Okay. Thank you.

Absolutely.

[Operator Instructions] We have a follow-up question from Roger Liddell.

I believe Roger has one more question and that makes that the last question.

Yes. Last summer there was the hope that price increases could be put into effect in various pieces of equipment. Where do you stand now? Was there an ability to raise prices?

Yes, in some areas, Roger. As you might imagine, this is a very competitive business, and pricing is the number one top on the list. So we're very careful about how we price these things. Well obviously we can't just rise prices and expect the money to come pouring in, because then we lose projects. So we did go through some repricing, just on basic facts such as the parts that are needed, pricing might have change for that. And we did make some price adjustments on some of our lines. We did not make price adjustments on other of our lines, and I really don't give much more detail than that because of the competitive nature of this.

And since you brought up the competitive market, are there any credible players out there who are effectively delivering, except for Ultra, the same suite of products that you have?

Yes, there is a few out there. Certainly you’ve got fuel cells and solar and these guys. But I'll tell you what, the real competitor is utility. It's the public utilities that we're competing with, and we can compete with them because we show the economics that we can produce much cheaper than them, that the electricity generated has much more value to the customer, the hot water generated from the natural gas utility. So again, there is guys running around there with different technologies but I really consider the utility to be the main competitor, and I think we’re feeling pretty strong with that right now.

Yes. Okay, thank you.

Thank you. John Hatsopoulos: Thank you very much everybody. I think we should - anybody wants to call me or anyone of my colleagues should feel free to call directly and ask any questions. Let's not overdo it though, because all four of us are loaded. This business is taking off and I know, Ben for example works 12 hours a day and so does Bob. So thank you very much.

Good day.

Thank you all for attending today's conference call. This concludes today's presentation.