Greetings, welcome to Tecogen's third quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator or technical assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. Joining us on our call today is Benjamin Locke, CEO, Robert Panora, President and COO, and Jack Whiting, General Counsel and Secretary. It is now my pleasure to introduce your host, Jack Whiting. Thank you, sir. You may begin.
Hello. This is Jack Whiting, General Counsel and Secretary at Tecogen. Please note this call is being recorded and will be archived on the investors section of our website at tecogen.com for two weeks until November 27th, 2020. A copy of the press release regarding our third quarter 2020 earnings is available in the investors section on our website as well. I would like to direct your attention to our safe harbor statement included in the earnings press release and presentation. Various remarks that we make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q under the caption Risk Factors, which all are on file with the SEC and available in the investors section on our website under the heading SEC Filings. While we may like to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. Therefore, you should not rely on any forward-looking statements as representing our views as of any date subsequent to today. During this call, we will refer to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP.
A reconciliation of these non-GAAP measures, financial measures to meet the most directly comparable GAAP measures is provided in the press release regarding our third quarter 2020 earnings and in the investors section of our website. I'll now turn the call over to Benjamin Locke.
Thank you, Jack. As the agenda on slide four indicates, I will start with a brief company overview, followed by a review of the third quarter overall results, followed by a review of the performance of each of our main revenue segments. I will then have some commentary on the results and expectations going into the fourth quarter. We will then provide an update on our Ultera emissions technology program, including some more color on our recently announced licensing arrangement with Origin Engines. We will, of course, take questions afterwards. Before I go into the numbers in more detail, I would like to provide a short overview of Tecogen's business as shown on slide five. Tecogen is in the business of selling and maintaining clean and efficient energy systems that reduce greenhouse gas emissions, provide significant operational savings, and provide resiliency to grid outages.
We are a leader in distributed generation technology due to our longevity and extensive technical experience. Our air conditioning and cooling products have the highest efficiency of any other equivalently sized system. Our proprietary Ultera emissions technology ensures the cleanest emissions possible, meeting even the most stringent air quality standards, such as those in Southern California. Our flagship InVerde cogeneration product is designed to transition from grid tied to off-grid operation seamlessly, providing power to a facility indefinitely until grid power is restored. Tecogen has deployed hundreds of these systems that can operate as microgrids, independent of grid operation, recently being ranked number three in terms of number of operational microgrids in 2019. We are well-positioned as our country and the rest of the world looks towards a low carbon future. Our high operational efficiencies enable significant carbon savings when compared to traditional sources.
Lastly, our Ultera emissions technology is recognized as the best solution for reducing CO and NOx emissions across a wide range of engine platforms and sizes. As I indicated in the press release on Tuesday, partnering with Origin Engines was a perfect fit given their significant presence and recognition in industrial engine markets. Turning to slide six. The third quarter of 2020 saw revenues of $7.2 million, compared to $8.67 million in the third quarter of 2019, an 18.5% decrease year-over-year. This decline is primarily due to a 30% drop in product revenues as some orders were delayed. We are seeing sales activity pick up from COVID delays and hope that the trend continues in the coming months. I will talk more about our product sales in a few minutes.
Service revenues were down 2% as installation activities were limited due to COVID delays, primarily in New York. However, we did see the O&M service contract component of the service segment hit a new record high of $2.6 million for the quarter, up 6% year-over-year. This is especially impressive as we still have some COVID-related service delays, which we hope will resume in the coming months. We expect our service contract revenues to continue this growth sequentially each quarter, as almost every unit we ship comes with a factory service contract. I will show a bit more detail about our service financials later in the presentation. Next, our energy production segment was the most impacted by continued COVID pandemic and facility closures, down 42% from the third quarter of 2019.
As I mentioned in our last call, many of our energy production sites are in markets with extended COVID closures, such as hotels and athletic clubs. I expect we will continue to see a slower rebound of our energy production revenues. With regard to margins, we are pleased our gross margin improved to 39%, as compared to a gross margin of 33% in the third quarter of 2019. This was largely driven by improvements in both product and service margins, which I've highlighted here in red. Turning to our operating expenses, our efforts to control costs and improve business processes have resulted in a reduction of 11% quarter-over-quarter, coming in at just under $3 million.
The end result was a net loss of $232,000 for the quarter, as compared to a net loss of $586,000 in the third quarter of 2019, and an adjusted EBITDA of -$67,000 for the third quarter, as compared to an adjusted EBITDA of - $422,000 in the third quarter of 2019. The adjusted EBITDA is shown in more detail on slide seven. While our goal, of course, is to reach profitability, in the period, we reduced our loss by almost half quarter-over-quarter, and our negative adjusted EBITDA by almost 6x in a quarter where product revenues were the most impacted by COVID. When product revenues pick back up, as we expect, the combination of our improved gross margin and reduced expenses make the path towards profitability much more attainable. Moving to slide eight, I'd like to provide more color on our quarterly revenues in each segment.
First, as I mentioned, we saw product revenues drop 30% from the third quarter of 2019, mainly due to COVID-related project delays. Over the past few months, we have seen the engineering and construction community resume somewhat normal activity, which for us is project design and equipment specifications, followed, of course, by orders. The initial widespread closures in the early days of the COVID pandemic did not impact product orders already in hand, but the lack of activity impacted orders we would have typically received for the third quarter. With the cycle of project design and equipment specification resuming, we expect order flows to resume. I will also point out that the drop in chiller sales for the quarter from the previous year is not trending of any drop in chiller demand. In fact, we expect much of the pent-up sales activity I just discussed to be chiller sales.
As the press release mentioned, we had another Tecofrost sale, this time to a food processing facility. Facilities using refrigerated compression systems such as food processing, cold storage, and other markets where our traditional CHP or chiller products would not be a fit are now a new sales target for TecoFrost, offering the same operational cost savings, resiliency, and greenhouse gas benefits of our other products. Next, you can see the detail of our service revenues, which dropped 2% quarter-over-quarter due to curtailed installation activity as a result of COVID. However, as I mentioned previously, our service contracts and parts segment reached an all-time high of $2.6 million, despite some continued COVID closures.
I would like to point out that our service contract revenues have grown by an average of 7% per year for the last five years, from $8.1 million in 2015 to $10.5 million in 2019. My hope is this trend will continue, particularly as we anticipate the startup of over 3 MW of installed CHP capacity in Toronto in early 2021. As I mentioned, our energy production segment will be slower to rebound because they exist in sites that have prolonged COVID closures, such as hotels, health clubs, and recreational facilities. Lastly on this slide, just again highlighting our gross margin came in at 39% as we continue to make sustainable improvements to our overall business. Turning to slide nine, I'd like to reiterate some of the key takeaways for the quarter.
First, our core business of product sales and service performed well despite the enormous challenges of the COVID pandemic. Product sales were down as order flow was interrupted by COVID delays. As I mentioned, in the past few months, we have seen the cycle of project design and equipment specification resume, which will result in a resumption of order flow. Service revenues were down only 2% despite a 13% reduction in the installation component. The installation reductions were offset by the continued growth in our contract service revenues, which will continue to grow as we add new units to our service fleet. Lastly, as we are seeing longer disruptions for some of our energy production sites and some facilities harder hit by COVID.
The next key takeaway is sustainable improvements to our business that have reduced our OpEx 11% quarter-over-quarter, and a bit more when compared to last quarter. We have also improved our accounting functions and streamlined many of our business processes which, combined with our improved margins, put us in excellent position to reach profitability when product order flows pick up in earnest. This leads me to the backlog, which currently stands a little over $10 million, but consisting primarily of product orders with some installation activity still planned. I'd like to point out just a few things about our backlog, as it's representative of the trends we are seeing driving future projects. First, you will see that multi-unit residential remains as the largest segment, which is not surprising, as those buildings typically are the best candidates for cogeneration.
Next is healthcare, which is also typical, since hospitals and assisted living facilities are also excellent fits for our cogeneration and chiller systems. Next, you will see indoor growing as a large part of our backlog, which is almost exclusively our chillers because of their compelling operational cost savings. With the recent approval of recreational use of marijuana in several states, including New Jersey and Arizona, we anticipate this trend to continue as more grow facilities are designed and built within each state. The last observation is, while smaller, the office building segment. In this case, the resiliency benefits of our microgrid solution oftentimes allow projects to move forward despite slightly longer payback savings. I hope this trend continues also.
Lastly, as I previously said, our backlog consists of products and installation revenues and does not contain our recurring long-term maintenance contract revenues, which is a consistent contributor each quarter. Again, this is very important when considering the expected revenue contribution from our new Toronto service center early next year. Moving to slide 10, we'd like to give you an overview of our activity with the Ultera emissions technology. First and foremost, as you saw in the press release earlier this week, we announced a licensing agreement with Origin Engines to use the Ultera emissions technology on a range of their engine systems for use in a wide range of industrial applications such as forklifts, generators, and water pumps.
Origin is a recognized leader in providing reliable industrial engines, and the addition of the Ultera emissions technology will allow them to further improve their market potential by offering Ultera emissions reduction. Bob will describe the Origin arrangement in more detail, as well as the status of our other Ultera emissions initiatives. I want to reiterate that we are confident that this licensing arrangement will eventually result in revenue contributions to the company while still maintaining our options for further Ultera commercialization with MCFA or any other partner, and for all automotive and/or truck applications. We are obviously being prudent about resourcing these longer-term business activities, but we are excited to have an arrangement with Origin by which we can begin to see the financial upside of our Ultera technology investment.
With that, I'd like to ask Bob to provide a little more detail about Origin Engines as well as an overall emissions technology update since we skipped it last call. Bob?
Good morning. Thank you, Ben. First, about Origin. Origin is a growing OEM supplier of engines from 4.3 to 10.3 L. They're a U.S. company that is aggressively pursuing increased share in the industrial natural gas and propane markets. These would be familiar stationary markets for, as Ben mentioned, generators and water pumps, but also off-road mobile markets, notably forklifts. This is our first commercial licensing agreement of Ultera, which is an important milestone. Moreover, we see significant potential because Origin offers multiple engine sizes in a variety of markets and is not limited to a single OEM customer in any particular one. For example, there are many forklift manufacturers, and Origin could sell to them all in all the various size ranges that their agreement covers.
Moving on to the next bullet, our California Water District order for 2 800-horsepower Ultera kits has been received and is in the process of fabricating the components. It will be delivered in Q1. Again, the next bullet. As some may recall, we had been investigating catalyst formulations with a U.S.-based research institute. Their program, completed some months ago, identified a highly effective catalyst composite that shows great promise. We are pursuing further development in the form of a full scale of catalyst element and also a patent disclosure. This would potentially give the company, Tecogen, a proprietary component in the Ultera kit. Lastly, we remain on hold with Mitsubishi Caterpillar, or MCFA, until the COVID travel restrictions are lifted. With that, I'll go back to Ben.
Thanks, Bob. Before I turn it over for questions, I'd like to briefly reiterate what I think are the most important takeaways for the quarter. Despite our lower product revenues, the combination of our improved margins and reduced OpEx helped us reduce our loss for the quarter. We fully expect product order flow to resume and our service revenues to continue growth, both of which will put us in excellent position to reach profitability. Lastly, we're very excited about the Origin Engines agreement and look forward to making accomplishments on the milestones that that sets forth. With that, I'd like to turn the call over to the operator for questions.
Ladies and gentlemen, we will now have our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. For any participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment please while we now poll for questions. Our first question comes from Sameer Joshi with H.C. Wainwright. Please proceed with your question.
Morning, Sameer.
Thank you. Hello, Ben, Bob. How are you? Good morning.
Good. How are you?
First question on Origin. Can you describe the next steps in this relationship and when we should start seeing some meaningful revenues?
Yeah. Sameer, as I recall in the agreement, they have specific timelines they have to adhere to, which will be the expected things you have to do, which is to develop the device, the prototype for their particular engine they're going to start with, followed by the certification and then commercial sales after that. I don't want to talk about the timeline precisely. I'm actually not down to the months that it is, but it's fairly aggressive, and we feel we should be having results not too far in the future. That's about all I can say or want to say right now.
I'd just add that, Sameer, when we crafted the agreement, we were very careful to make sure that we outlined terms and milestones and everything. That's all been considered. Origin's a great customer. As I think we mentioned in the press release, we've been buying our engines since we introduced the InVerde version two, the InVerde e+, a few years ago. We've been using their engines and a real good partner. Most importantly, very well respected and connected within the industrial engine community.
Got it. Okay. As far as the Eastern Municipal Water District in California, the size of the order and what is the timeline in your process?
I don't want to provide the cost, but I can say the timeline is we were delivering the whole group of components about five months from the order. We must be about two months in. I'm thinking January-ish or February is the time frame.
Got it. Understood. In this backlog, the products backlog, is there anything that you see that is related to the New York 97, or is that something that we will start seeing only in 2021 or 2022?
Sure. Yeah. In that backlog are absolutely projects in New York. Residential buildings, I believe, are some of the ones that are in there. That's not their driver, is Local Law 97, but it certainly is one of their considerations. The fact that they can not have any penalties on a Local Law 97 for many years to come is what drives it. I think the economics of the operational savings alone is what's compelling, but the Local Law 97 benefits are absolutely being acknowledged now, and we'll see how much that continues. Now that, Sameer, they're putting these grades on the buildings, every building in New York has to have a big grade, like your report card as a kid.
I think that's going to drive some behavior too, as people want to have a higher grade on their building. CHP certainly, and the greenhouse gas reductions that come with it, is a way for them to improve their grade.
Understood. Thanks for that color. Just two more from me. In terms of the fourth quarter, I know even on the last call, you had said the second half is expected to be stronger. The third quarter was not that great. As far as the fourth quarter goes, do you expect at least a flat or relatively only slight dip year-over-year?
Yeah. I certainly expect that the biggest struggle we had this quarter, Sameer, obviously, was our product revenues, right? Our services did great. The little dip in installation, I'm not too concerned about. I'm more happy and impressed with our O&M services growing. We get that product revenue back on track, we're in business, and I'm very confident that the product order flow is going to resume again. It's too bad that things got delayed as they did. As I tried to describe in the call, what happens is a time cycle here where a project gets designed, and then they do the equipment selections, and then the people fight it out, and then you finally get your equipment specified. Once that equipment is specified, ultimately it goes to a contractor, and the contractor buys your equipment.
I'm not saying all jobs go that way, but certainly on the chiller side of the things, that's kind of the prescribed flow. It's a nice system because it's predictable and it's somewhat more reliable than sometimes what these cogen sales are. There was a slowdown. There was a two-month period there in the beginning of the year where a lot of that stopped, the initial COVID results, and that didn't impact the product orders you had in hand. It impacted the product orders that were coming down the pipe. Now, Sameer, we're seeing those product orders coming back down the pipe. We're seeing ourselves getting specified and everything. It's just that we lost some time, and I think the third quarter is where we're paying the biggest penalty for that.
Understood. The last question is just, I think this was discussed on previous calls as well, or at least the last call. The MCFA is in a standstill or holding pattern. What are the reasons that travel is absolutely essential for this to proceed?
I can explain that. The testing that we've done up to now has been in an actual fork truck where we defined a road test, if you will. You pick up something, you drive, you pick up something, and so forth. That is not the way an engine gets certified. You remember the next step was to pursue the certification. The way the engine would be certified is they would have a bare engine with the emission system attached to it on a dynamometer, and it runs through a cycle of, it's almost like a pedal going back and forth, where it's accelerating, decelerating, and holding an RPM and a load for a certain time. It's a very complicated but aggressive type of drive cycle that's imposed on the engine.
What we believe is that the best chance of getting to the certification numbers we need would be to have the engine tuner right there on the site to make adjustments in case they're needed, to make sure the test is a success. Which is routine. That's how it's done. Originally we said, "Okay, we have to have that Japanese fellow from Japan, from the engine company, be here for that test with his retuning software, and firmware equipment, programming equipment." That's the hang-up. I've talked a little bit to MCFA, and they've brainstormed a little bit on their own, like, maybe we get around that by doing this or that, or approach it this way. I think the Japanese folks are pretty adamant they want to be there. They, of course, run the program. They run the store. That's where we're at now.
Maybe that'll change, given what's happened with Origin. I don't know.
Okay. Understood. It is the Japanese people that want to make sure they are there. Okay. Understood.
Yeah.
Okay. Thanks. Those are all my questions.
Thank you.
All right. Thanks, Sameer.
Thank you. Our next question comes from Joe Vidich with Manalapan Oracle Advisers. Please proceed with your question.
Hi, Joe.
Yeah. Hey, Benjamin. Hey, Robert. How are you guys doing?
Good.
Good. Good to talk to you.
Yeah. Congratulations getting through this tough time period.
Thank you.
I was wondering, could you give me just a little more detail on what markets you're excluding from the Origin deal? I'm not quite sure if I caught that.
Yeah, sure. We didn't provide it precisely because, of course, it's part of the deal, but I can tell you notionally what we wanted to do in the deal. We wanted to enable Origin to be successful, of course. We specified engine size ranges, and market areas where he would have freedom to operate and to go ahead and be successful. We'll, of course, help him in that, et cetera. We made sure we didn't include areas that aren't relevant to Origin Engines, but are relevant to us. For example, the automotive, right? Origin Engine isn't involved in automotive, so we've, of course, remain our optionality for that. We've carved out a few other areas that we just want to make sure that we have protection on.
Mostly, we've enabled Origin in the engines that they work with in these size ranges and in the markets that they are familiar with to have freedom to operate.
Okay. Would you be able to tell me what the approximate size Origin is in terms of revenues? How big the company is. I was trying to look it up, and I just really couldn't find out much about them.
I actually don't know, Joe. I don't want to hazard a guess. They're a private company, and I don't have that information.
I will tell you a little bit about them, which is that they're, again, as I said in the call, a very good, shrewd company with a reputation for these industrial engines being strong. It's a market niche that I think they're going to be really successful in. Some of the customers that we know that they're reaching out to, I think are going to be customers that are going to really help them grow the business. We're supporting Origin, not just licensing the technology, but we're also going to help them engage customers and talk about what the customers need. If a customer needs an Ultera system that's ultra low CO and maybe NOx one way, that's one thing. If you want to do emissions differently. Importantly, we're going to help Origin be successful on this.
Okay. That's great. In terms of your overall business, one of the things that's happening out there, it seems in the world, is that companies in your business are basically tying their equipment into distributed energy resource systems. I know Generac in their recent call, they announced they bought out a company called Enbala, which is basically a software company that ties together all the buildings that have the capability of generating electricity. I was just wondering how you guys look at that, if you've thought about, with regard to your CHP systems, whether or not you've got any thoughts on that and sort of tying your equipment in somehow to that bigger grid, and allowing your customers to actually sell into the grid.
Sure. Yeah, I understand the question, Joe, and it's a good one. There is absolutely a fit. Our InVerde product with the variable speed and the microgrid and then the certs and all that stuff, and then the ultra-low emissions and the certifications, the smart grid certification is perfect for those applications. The tricky part is, ultimately, we're not a generator company, we're a cogen company. We not only have to search for power applications, but we need to make sure we've got a use for that heat that we produce. In applications and facilities where they've got a heat load, and that heat load can be many things. You could even have these absorber air conditioners be the heat load. If you're able to utilize the heat, then absolutely, those applications are a good fit for us.
If you're not going to do it and you're going to operate our system simply as a standalone generator, you can certainly do that. In fact, we've had a couple of projects where we're a good fit for that. The question is how do your economics compete with a typical standby generator set? I think we are seeing some niches where, again, the combination of our cert microgrid, if we're able to incorporate the solar into our inverter as well, that helps. If there are particular emissions constraints, those are our calling cards as well. Those controllers, that company that you mentioned that Generac bought, that all is in our green box. All of our controllers in terms of making sure that these things are load following, et cetera, are all contained in our box.
That's a long way of saying, Joe, yes, there is a good application for it. It's just that it's a little bit different because some of these applications don't have a use for the heat, and therefore, making the economics pencil out for our equipment is a little more challenging. There's still opportunities that we're looking at.
Right. Your systems can tie into an Enbala's software.
Yes, definitely. We're really leaders, I think, in our world for integrating into microgrid systems and computer controls. We're very well placed there, I think.
Right. I guess the other question I have is, with regard to the, Robert, on the catalyst development. Your comment was that would give you a proprietary component in the kit. I'm just curious, aren't any of the other components in the kit proprietary?
Sure. I understand your question, Joe. Joe, if you look at the Ultera system and the process, we really patented a process where you have two stages of catalyst conversion, one being at a low temperature, one being at a high temperature, and then so on and so forth. If you look at that kit, the parts, put them on a table, you'll see that there's devices that are not proprietary. There's a control valve, there's an air pump, there's a heat exchange and so on and so forth. They are not things that Tecogen manufactures that you can't get anywhere else. In this case, however, what we found or what this research group found is that we're operating that second stage at a very unusual condition, this low temperature. That opens up chemistry that's virtually not possible in the current high-temperature catalyst world.
What they put together was a very particular catalyst formation that can live in these cold temperatures and operate very effectively at a much lower cost than the catalyst today. They believe, and I believe too, that it's very patentable. They've crafted a patent disclosure on it, which we will own the rights, of course, and we'll pursue that patent. Unlike everything, our current status right now we've got a catalyst that absolutely is our own. It doesn't mean we couldn't license it to somebody, but we could actually control who buys that and what the price is. That's a new situation for us. Is that clear, Joe?
It does. Yeah, that makes great sense. I appreciate it.
Yeah.
Thanks for the clarification.
Yep.
That's all I got. I appreciate your answering.
Thanks, Joe.
Thanks, Joe.
Appreciate it.
Thank you. As a reminder to our audience, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Michael Zuk with Oppenheimer. Please proceed with your question.
Good morning.
Good morning.
Good morning.
Now that we're getting increased legislation with regard to marijuana use, tell us what kind of marketing efforts that you're going to undertake to develop a greater use of our systems in indoor growing.
Sure, Mike. Yeah, it's something we obviously spend a lot of time with. We try to follow the permits. They issue permits for the indoor growth facilities, and the permit holders are obviously the ones that ultimately have the opportunity to build something. I say have the opportunity, it's because some of these permit holders then need to close their financing and then they're going to finance partners, and then you can imagine that there's not all those stories end well. Anyways, these permit holders that actually get their act together and get financing are the ones that we are absolutely paying attention to. We know where, potentially the geography of where they're going to install it, and therefore the availability of gas, very important. The relative electric rates and electric capacity.
As a reminder, Mike, we've got a rep, a manufacturer's rep in New Jersey that's outstanding, D and E Engineering. We've been speaking with them very much just the other week, having deep thought sessions about how we're going to make sure that we get to the table as these indoor greenhouses are built.
Where do we enter the process? Do we enter the process with the engineering companies or the design companies? Do we enter the process with the financial people, or do we even enter the process with the gas company?
A little bit of each there, Mike. I would say, typically, we would approach the engineers involved doing the specifications and inform them of this alternative, which they may or may not know about. I think more often than not, they do know about it simply because we've been doing so many facilities with it. We have so many case studies and good results. Alternatively, you could be meeting with the facility owner, the person who's running the project who hopefully is smart enough to understand operational cost savings and not so up in the clouds that all he wants to do is get started regardless of how much equipment he buys. Anyways, once you've gotten in there and you can really show the cost savings, Mike, the sales progress really goes in earnest.
I would just like. A strange thing about this is we come in there not so much selling our TECOCHILL as it is telling them, "Please don't put in these very inexpensive, low upfront costs, but extremely expensive to maintain electric systems. Don't put in 10 rooftop air source electric systems in your greenhouse, which are all going to fail sequentially as the months and years go by. Put in a more sophisticated but operationally cost-efficient, water-source chiller system. Go to chilled water, not chilled air." Once they're on the chilled water track, it really becomes a next step for them to see the benefits of the TECOCHILL.
The real challenge, Mike, are some of these grow builders that just see the first cost and just buy a bunch of cheap electrics, not understanding that there's latent heat loads, how much water you dump into these plants. That's all got to be removed. You've got dehumidification needs. It can all play out very catastrophically. We've seen that in some of the facilities here in Massachusetts that didn't follow our kind of script, have had a lot of problems. That's the way we do it, Mike. We find out where the facilities are being built. We immediately try to convince them to go with a water-chilled system, go to the TECOCHILL. Along the way, Mike, of course, we're trying to sell cogeneration as well. That's like the grand slam, is if you get the chillers plus cogen.
To move forward a little bit, at one time, you had discussed relationships with a Florida gas utility. Has that relationship continued, or are we developing it, or what's the potential with actually bringing our systems to the attention of gas utilities around the country?
Absolutely, Mike. We are, and I personally have been trying to do a lot of that outreach to the gas companies to show them the shared benefit. You might have noticed in our press release, Mike, in one of the sales and operation highlights, I wasn't able to identify them. We signed a joint sales and marketing agreement with the natural gas company up in Canada, who very much sees the value in gas engine cooling. Really is what they're looking at, is cooling as well as cogeneration, but cooling. Yes, we're continuing to work with the gas companies down in Florida, TECO and the others. We've got this gas company that we actually signed the joint sales and marketing agreement with up in Canada. There's the other gas companies around here that we're working with more informally, but still with kind of a shared objective.
You're absolutely right that that's one of the ways that we're trying to get our product offering forward is if these guys, if these gas company sales representatives, can be carrying our literature. That's a win for us.
One final question. In the $10 million backlog, does that include the contracts that were in a series of news releases at the, I guess, the end of September and early October, or are there any contracts that are after that backlog figure?
Mike, I would have to check. I'm 99% sure the answer is the announcements that you've seen are in the backlog. Put it this way. No announcements that you've seen are not in the backlog.
That clarifies it for me. Thanks. I look forward to the fourth quarter and the first couple of quarters next year. Stay safe.
Thanks a lot, Mike. Appreciate it.
You too. Thank you, Mike.
Thank you. Our next question comes from Alex Blanton with ClearHarbor Asset Management. Please proceed with your question.
Hi. Good morning.
Hi, Alex. How are you?
A couple of housekeeping items first. I wondered why you're going to archive this call for only two weeks.
I honestly don't know it, [Mike], except I know probably two years is too long, right? Two days is probably too short. I think we just had to pick a time.
I don't think it costs you anything to archive it. Why wouldn't you archive it for a year?
Well, the transcript will be available. I mean, the transcript is always available, right?
On the site. Yeah. Well, some people like to listen to calls. I just wondered, since it doesn't cost you anything to do it, why you don't. Okay. Next question is, I couldn't find the slides on your website. I don't think they're posted there yet. It's nice that you have slides, but it would be useful to have the slides.
Alex, I can tell you, on the earnings release, if you go to https://ir.tecogen.com in News & Events, there'll be a link to the slides there. I'm not gonna drag you through that.
I couldn't find that
Exercise now, but.
I couldn't find that. It says related documents, but you can't get the slides from there.
Yeah. Okay. Well, maybe offline, Alex. I can give you a call, and I can walk you through the progression of the website clicks to get you there.
Good. Are you going to relist on NASDAQ once the stock is up above $1 for a period of time?
Maybe. Alex, we've not made any clear decision on that. We had reasons to go where we are right now. Here we are, and I think as I said in the past, Alex, my goal right now is to buckle down, focus on the core business, reach profitability, and then the next possible eventuality or question of do we want to get back on the NASDAQ or not, I'm going to wait on that until I've done the first thing I said I was going to do.
Okay. My next question is regarding President-elect Biden's infrastructure plan. Included in that is a plan to retrofit 4 million buildings. This is in line with his goal to reduce the carbon footprint substantially, I think by 2030. I forgot the exact year. He's got these long-range plans to reduce carbon footprint, and part of that is retrofitting 4 million buildings. What role would you have in that spending?
Sure. Well, typically what we would do, Alex, is we would be. It's not too uncommon from the way things do now is when a contractor or a project engineer will arrive in a building and do substantial infrastructure upgrades. They'll change it from a two-pipe to a four-pipe system. They'll change windows out, they'll change light bulbs. There are many of these things. Then putting in cogeneration is a part of that overall project. It's important that we're part of it at that stage, because when you're doing those very big things like these are the things that the President-elect's plan is talking about, infrastructure upgrades, is old boilers, old inefficient boilers, and equipment that's just really got a bad carbon profile, improving that.
We want to be part of that because it's when all those pipes are being cut and guys with hard hats wandering around that we want to be in there doing the same thing because then the incremental cost of us adding the cogen as opposed to just being a standalone cogen project is much less. To answer your question, Alex, we are watching those things and certainly some of our partners, some of the people that we work with that have much larger purviews of installing boilers and doing much larger building things, we're in communication with them. As they see these projects start to come forward, we'll be ready to work with them to propose either a cogen equipment or perhaps a chiller.
Has anybody from your company or your partners been in touch with the Biden transition team on this?
No. Not that yet. I think he's probably got some bigger problems to deal with before he gets to me. With that said though, Alex, what I do follow is appointments, and his appointments to some of the areas that are going to impact energy policy. Once those appointments are made and once the appointments are made after that and once the little kind of cells get developed, that's when the opportunity exists, later after the inauguration, where I would get in there and I would get into the energy savings guy and the infrastructure folks and start to make sure that our position in the world is kind of at least known to them. I'm going to give him a little time.
That's my point. In other words, it strikes me that one of the features of your equipment is virtually zero carbon footprint. Since the goal of this project is to reduce the carbon footprint, it would seem there's a good opportunity for Tecogen there. That opportunity, for some reason, is not reflected in the price of your stock. That's a puzzlement to me. That's a mystery to me. Anyway, that's an aside. The microgrid that you mentioned, that refers to the production of electricity off the grid, right?
Well, actually, the definition of the microgrid is two or more generating sources working in combination to be off the grid. For example, if you had one InVerde at a site, that's not a microgrid. But if you've got four or five InVerdes on a site or an InVerde with a solar thing plugged into it, that's a microgrid. Just to be clear on the definitions that we're talking about.
You said you were ranked number three. Among what? Among who?
Among everybody. Just Google microgrid providers in the U.S. I don't want to mention their names because I'm probably not supposed to, but you know the names. To be number three. Now, we're not number three in terms of megawatts out there by any means. I think we're number 41 in terms of pure microgrid capacity. But in terms of number of operational microgrids, push pins on the map, we're again, number three in the U.S.
You can't name the other two?
Why don't you go check out the study? It's an ICF study, I believe.
Google? Okay.
Yeah. I'll send you the link, Alex.
Last question on Toronto. What is the significance of this? You mentioned a startup in Toronto in 2021.
We shipped over 20 units up there. We shipped about 3.3 MW of installed capacity up to Toronto this year. The project developer is installing them, and we've been slowly commissioning them and then turning them off and commissioning them, turning them off, all in anticipation of the final fulfillment of this large job that this big developer is doing. The expectation, the plan is, the schedule is that all of these things are going to be up and operational the beginning of next year. In fact, I think there's some incentives involved in Canada that require it to be started by next year. The significance of that, Alex, is that we're going to have a whole fleet of InVerde generating service revenues quite nicely starting the beginning of next year, that we didn't have this year.
Right.
I'm pretty excited about that.
What kind of a facility is it?
They're all multi-unit residential buildings.
Residential.
They're kind of these cookie cutters spread out amongst the campus, I believe. I've not been up there, but multi-unit residential.
What's the revenue recognition? I know you're not recognizing service revenue yet, but what about the equipment? Have you recognized that yet?
Yeah. The equipment has all shipped. All of the inverters are up there north of the border now. The equipment's done. The only revenue recognition we have left on the equipment is we get a few bucks when we commission them, Alex. The real fun starts again. Once these things start running in earnest at the beginning of next year, that's when you'll start seeing those revenues appear in our services segment.
Can you say how much that is?
No, Alex. First off, it's difficult for me to say because you never share exactly how much these things are going to run. Are they going to run 24/7? I hope so. Are they going to run 20 hours a day? Are they going to run at half load because nobody takes showers in building one, but double load because everybody takes showers in building two? There's actually real considerations that need to be figured out before we start to see what the predictable revenues will be.
Finally, what if this developer plans to do more of these? This is a big developer, big residential.
Yeah. I probably used that word developer wrong. I don't think developer is the right word. I'm not quite sure how to classify them except to say.
I mean, is there any follow-on business?
Yes, of course. Yes, of course. It's a large company. I think we've done well by them. It's been a well-executed project as we've been delivering the units and starting them up. I'm hopeful that there is going to be more business. I think, as I've said in the past, Alex, now that we've got a service center up there, and guys and trucks driving around, there's going to be opportunities for us to start building more of a base there. Because if you've got service trucks there, then you can dispatch someone to look at this site and look at that site, and then the customer gets to know them, and the next thing you know, you got another order. I'm very hopeful that this Toronto geography is going to continue to grow.
Okay. Thank you. Thank you very much.
Thanks, Alex. Take care.
Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks you may have.
Well, thank you everyone for participating in the call. Very good questions, I know, I look forward to sharing the results of the fourth quarter and the full year of 2020 on our next earnings call. Thank you again.
Ladies and gentlemen, this concludes today's webcast. You may now disconnect your lines at this time. Thank you for your participation, have a great day.