45 First Avenue, Waltham, MA 02451
781-466-6400 • 781-466-6466 (fax)
www.tecogen.com
®
February 14, 2018
Dear Shareholders:
Greetings! Given the long gap between our third quarter and fourth quarter earnings calls, we wanted to
take a moment to provide an update. As we speak, we are now hard at work on our year-end 2017
numbers and preparing for the auditors. While we won’t release results until late March, we believe they
will prove to be worth the wait. Until then, we’d like to share with you some of the major accomplishments
of the company in 2017.
First, on December 14th we paid down the entirety of the $3.15 million convertible secured note held by
Michaelson Capital Partners. We were able to pay it off a full year, almost to the day, before it would have
come due, and without a prepayment penalty. Funds were sourced from cash generated by operating
activities as well as cash received from the dissolution of ULTRATEK. It is hard to overstate the importance
of relieving ourselves of our debt burden. The note was loaded with restrictive covenants and secured by
our entire balance sheet. Our ability to maneuver was substantially constrained. Now that we are free of
this convertible note, we have an opportunity to pursue a bank line of credit should we need any additional
capital to fund growth.
Second, our order flow was exceptionally strong in the back half of 2017, both for cogeneration and chillers.
As the chart below indicates, unit orders for both chillers and cogeneration units rose sharply even on top
of 25% growth in the second half of 2016. The strong jump in cogeneration (also called CHP) growth is
especially remarkable. The roll out of the dramatically upgraded InVerde e+ in early 2016 resulted in a huge
surge of orders at the time and we were still able to grow orders by a third for all of 2017 over 2016. This
speaks volumes to the sustainable traction we are getting. Our relationships with building owners, REITs,
ESCOs, property management firms, and other major market players in the healthcare, biotech, and
hospitality sectors were all important contributors to our CHP growth. We expect these trends to continue
in 2018.
0%
25%
50%
75%
100%
125%
150%
175%
Chillers Cogeneration
Year-over-Year Growth in Units Ordered
2nd Half of 2016 2nd Half of 2017Source: Tecogen, Inc.
45 First Avenue, Waltham, MA 02451
781-466-6400 • 781-466-6466 (fax)
www.tecogen.com
As we’ve highlighted repeatedly over the last year, the indoor grow market, especially of cannabis, has
turned out to be a highly prospective driver of new business. It’s been a key driver in the growth in demand
for our chillers that the chart above shows. It is also under intense political scrutiny. So far, our sales into
the cannabis market have been almost entirely to medicinal growers, to whom Congress gives some degree
of protection from federal prosecution via the Rohrabacher-Farr Amendment. This annual amendment to
the appropriations bill that funds the Department of Justice, which currently runs until March 23rd of this
year, prohibits the US Attorney General from using funds to prosecute the medical use of cannabis.
In January, US Attorney General Jeff Sessions withdrew the Cole memo, which had directed US attorneys to
take a hands-off approach to the recreational market as well. This obviously throws some shade on the
prospects for the recreational cannabis industry, although none of the US attorneys in districts where
recreational use has been legalized have yet to take any action against it. Importantly, none of the potential
cannabis-related prospects in our pipeline have fallen off in response.
Nevertheless, we are eager to diversify our customer base in the indoor grow market. As we mentioned in
our mid-year 2017 letter, the amount of physical space dedicated to indoor growing is set to jump more
than five-fold globally over the next five years, with the result that annual indoor farming revenue could
grow by over $6 billion. Interest for our products among other non-cannabis growers is beginning to
emerge. In October, for example, we announced a sale to a cucumber farmer in Ontario’s sizeable indoor
grow industry.
Growers of leafy greens have also expressed interest. Indoor growing of leafy greens is an ideal application
for our natural gas-powered chillers; leafy greens are extremely sensitive to both temperature and
humidity. In addition, their short shelf life puts a premium on growing them close to centers of demand.
That means converting legacy industrial sites near urban centers into grow facilities. Frequently, the
electrical infrastructure at these sites is outdated and cannot meet the load that indoor growing requires.
As our chillers run on natural gas, they can enable growers to greatly reduce, and even eliminate, costly
upgrades to the power supply.
Third, regarding our Ultera emissions technology efforts, 2018 is underway on a positive note. We have
entered into a contract with a major research institute to work on optimizing the catalyst formations
utilized by our Ultera emissions technology for gasoline powered engines. This work is expected to take
four months and will be paid for out of the company’s operating cash flow. This is an important step on the
way to our goal to commercialize Ultera for automotive applications. Our testing of the retrofitted fork
truck continues as well. We hope to be able to provide more color on the March call.
Fourth, we completed the acquisition of American DG Energy (ADG) in the second quarter of 2017. The
acquisition added the on-site utility business to Tecogen, making us a completely vertically integrated clean
technology company able to offer equipment design, manufacturing, installation, financing, and long-term
maintenance service. The ADG fleet is contributing and will continue to contribute steady, annuity type
revenue to supplement Tecogen’s other revenue streams.
45 First Avenue, Waltham, MA 02451
781-466-6400 • 781-466-6466 (fax)
www.tecogen.com
Finally, and most importantly, we have generated tremendous and sustainable financial growth over the
past five quarters. After demonstrating profitability in the second half of 2016 and the first quarter of 2017,
we showed good results in the second quarter of 2017 when the ADG acquisition was completed, taking
into account non-recurring merger related expenses, the ADG fleet depreciation, and other non-cash
expenses. We then achieved profitability again in the third quarter. We believe we can continue this
success into 2018.
As we move forward, there promises to be a lot more for us to talk about on a wide range of important
developments. We expect our core CHP business to continue showing the success demonstrated in 2017.
We will take advantage of the indoor growing trends to position our gas chillers as the best option for
cooling large facilities. The ADG fleet will continue to provide steady, annuity type revenues for the
company even as we systematically improve the fleet’s performance. We expect our Ultera emissions
technology to create optionality for additional growth, first with the fork truck program and ultimately with
the automotive vehicle program.
In all, we have greatly improved our financial strength and flexibility and look forward to delivering
profitable growth and strong returns for our shareholders. We eagerly look forward to an exciting year.
Sincerely,
John Hatsopoulos, Co-CEO Benjamin Locke, Co-CEO
Forward Looking Statements
This press release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on our present intent, beliefs or expectations, and
are not guaranteed to occur and may not occur. Therefore, you should not rely on any of these forward-looking
statements. Actual results may differ materially from those contained in or implied by our forward-looking statements
as a result of various factors such as economic conditions, significant product and service competition and other
factors described in Item 1A "Risk Factors" in our most recent Form 10-K. Forward-looking statements can be
identified by words such as: "anticipate," "will," "believe," "plan," "should," "continue," and similar references to
future periods. Examples of forward-looking statements include, among others, statements we make regarding
expected operation results such as revenue growth and earnings, strategies for business development and customer
base growth.
Any forward-looking statement made in this press release is based only on information currently available to us and
speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking
statement, whether written or oral, that may be made from time to time, whether as a result of new information,
future developments or otherwise.