American DG Energy, Inc. (NYSEMKT:ADGE)
Q3 2013 Earnings Call
November 14, 2013 10:00 a.m. ET
Jesse Herrick – CFO
John Hatsopoulos – CEO
Charlie Maxwell – Chairman
Barry Sanders – President and COO
Anthony Loumidis – Chief Advisor
Good morning, and welcome to the American DG Energy 2013 Third Quarter Financial Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions)
Now, I would like to turn the call over to American DG Energy. Please go ahead.
Good morning ladies and gentlemen. This is John Hatsopoulos. Usually we have the Chef Financial Officer read the legal write-up but before we do that, I wanted to mention that this is an exciting period for us. Chief Financial Officer became the chief advisor to the company and I wanted to thank Anthony Loumidis who happens to be present right now. And I will ask him to share a couple of words.
He has been extremely valuable to us for the past 11 years. He has taken care of all our documentation for our investors, everything that the Chief Financial Officer has done. The time has come to move on. He became Chief Financial Officer actually – six offices from mine right now in another group from Thermo Electron, that is going public, that’s needed his talent in helping them go public. But that doesn’t mean Anthony is not part of us, not only he is part of us and we thank him for this. But he will continue to vest [ph] as long as he is our financial advisor. He will continue to vest his options on various companies that he has helped create. Before I move on, I would like Anthony to share his two words.
Well, thank you very much, John, using terrific language. John, as you probably most of you know for a long time, John and I go back a few years, 24 to be exact. John has been my mentor, has helped me a lot in my career and I am very grateful for that. As we have stated in our company’s filings, my resignation was not a result of a disagreement with John, or change the way I view the American DG Energy business. I am a shareholder, so my interest and yours are still aligned.
My departure was related to an opportunity as John mentioned to get involved as a CFO of a start-up biopharma company developing inhaled nitric oxide products. As a matter of fact, the company is based here in Waltham. So since October 1, when I come into the building instead of taking a left to come to American DG, I take the right to go to Genome LLC which is the new company. Therefore I know that far and as some of you know and John mentioned, I plan to remain a consultant to American DG Energy as long as John wants me to. And I am here to help – I am here – very happy to help Jesse in his new role as CFO of American DG Energy.
Thank you very much. Now before I move on to introduce the new Chief Financial Officer, I wanted to mention to you that we had another very exciting event, a gentleman called Rowe. John joined our board. John Rowe, some of you might know, is a retired ex-CEO and Chairman of one of the most successful utilities in the United States called Exelon. I have been talking with John. John is quite a famous man for a lot of his activities and I am not going to go through them right now. But I wanted to mention that I got calls and emails and letters of a lot of people asking me why would John Rowe, a man of such vein join a small company yours? And I asked him the same question and he said because I believe that the future of energy and electricity is in a company like yours and he has joined the board.
To go back to where we started, we have a new Chief Financial Officer. He is not only the financial man. He was –been a manager director of an equity research firm – various equity firms. He is also an engineer which I think gives us a tremendous edge by having more than financial man and a design engineer as our Chief Financial Officer, because he can assist the staffs in making decisions of accepting or bidding for various orders. He was a design engineer at Lawrence Livermore National Lab and he was a consultant for by a year or so of DARPA on energy.
With that, I would like to ask Jesse to introduce himself and read us the standard legal statement. Jesse?
Thank you for the introduction, John and good morning everybody. The part that you’ve all been waiting for the safe harbor clause. I am going to go through that quickly and then turn it back over to John and Barry.
Various remarks that we may make about the company’s future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
We may make forward-looking statements about our future financial performance that involve risks and uncertainties. These risks and uncertainties could cause our results to differ materially from our current expectations. We encourage you to look at the company’s filings with the SEC to get a more complete picture of our business, including the risks and uncertainties just mentioned.
Also during the call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of non-GAAP financial measures used on this call to the most directly comparable GAAP measures is available in our press release and in the tables accompanying that release.
While we may like to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. And therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
I’ll now turn the call back over to John and Barry to start on the quarter.
Jesse, by the way I didn’t mention his last name is Jesse Herrick. And I wanted to ask all of you that are on the phone, before you start calling him and asking him questions about the company, give him a few weeks to get fully acclimated with everything that’s going on with the company, because he is new, he doesn’t have all the experience of Anthony and from the beginning of time. He is a very fast learner but give him a few weeks to be able to answer your calls.
With that, I would like to say this is an exciting period. We were cash flow almost breakeven. I think in the United States, we lost something like $24,000 worth of gas and we finished the quarter with [indiscernible] making of cash which is for a cash company – it mean cash like ours, this was extremely important.
Having said that, I would like to pass to Barry to give you an update to what’s going on in the company.
Thanks, John and welcome everyone on today’s call. I also want to echo the opinion and thank Anthony for his great service to the company and certainly his future contrition and welcome Jesse Herrick to the company. He’s had a busy first months of trial by fire and so we got all the financials out and [indiscernible] smoother over the coming months for us.
As I always like to do, in case there are some new listeners to our call, I’ll just remind what our business is. I think this is an important piece. We are an annuity based business. We put assets of energy type equipment into buildings and we sell energy. We don’t sell equipment, we sell the energy that comes off of those equipments and long term contracts typical of 15 year contracts, and what you see in our press release is in our discussions. Those contracts today have a value of almost $300 million. These are long term energy contracts that we are selling for electricity, heat, hot water and cooling.
Now let’s go to the quarter. Our third quarter was our strongest third quarter in the history of the company. We had almost $1.8 million of total revenue, that’s compared to about $1.4 million of revenue a year ago, or a 26% increase. A big part of that was our cooling revenue, I will talk a little bit more about that as we go on. But in North America, our gross profit from our energy sales was a strong 44%, using the third quarter as our strongest margin quarter and that’s played out very nicely for us. And so we’re actually quite bullish that in the future if energy rates are to rise, we will see a nice reflection on both revenue and certainly gross profit as well.
And for our various energy systems out there, for our customers I should say, electricity priced dropped about a percent and gas prices – natural gas prices continued to drop an additional 6%. Now we were able to get the growth of the 26% growth in revenue through a variety of efforts. The most obvious one is a more systems in the fleet operating. A reminder that our newer systems continue to be larger, we basically have a lot of early 60-kilowatt systems in the fleet. Our newer systems seem to be larger 100-kilotwatt systems or of course, the chillers which are even larger. And needless to say, larger systems produce more energy and so therefore greater energy for a unit.
And we continue to actually work very hard on improving our sites. You can see that in improved efficiency on the bulk of our fleet. That’s a continuous effort by the team. I think that’s paid off for us in a variety of ways. As John mentioned, we focus on North America with American DG Energy. We always do a non-GAAP calculation of cash inflows and outflows. We were down about $26,000 for the quarter. I want to add, we would have actually been positive this quarter but we did have a one-time extraordinary expense due to the dividend that we issued in August, most of that was just one-time accounting expenses that were well very extraordinary. And so we are actually quite excited going forward that we can avoid some of these one-time expenses. We can grow that piece of business and begin to get more and more positive.
From an operations perspective, we added a 30-ton chiller to our fleet in a hotel and again cooling is becoming a bigger and bigger part of our business. We acquired a couple systems at a customer – excuse me, existing customer and a third party had some systems onsite. We thought it was a good value for the company to buy and acquire those systems and they are running quite well. We’ve added a variety of other type systems both here in the US and our European subsidiary EuroSite Power.
One thing we did a little bit different this quarter is we started to sell feasibility studies. Feasibility studies for us is really a great value and some good profit on the feasibility studies. Feasibility studies are really a step one part of a larger sales effort where for some customers they are trying to learn about some of these technologies and are curious of how a third party could own. Like the idea of actually doing a study. And so we are adding to do that and we are going to do more and more of that during the quarter.
A big step for us this quarter is we’ve had a big system customer in New York City. We finally got approvals and approval of operation in New York City for those systems. So we have six systems that were finally approved this week, that we hope to make a formal announcement next week of those systems that are operating. And finally, from an operations perspective, we just signed – it wasn’t part of our press release and we haven’t formally announced it, we will be announcing it next week. But this week, we did sign a major deal for seven systems for a customer and they will be coming out next week.
So here is our count of systems. So we have 109 energy systems currently running. I want to be clear those 109 energy systems don’t include the six systems I just referred to that they are now approved in New York but will be formally operating next week. Our backlog has 34 systems, and those 34 systems don’t include the seven systems I just referred to that were signed this week that we will formally announce next week. So a total systems both operating and backlog are 143 systems. As I mentioned earlier, our energy production grew by 32% for the quarter, a record 22.7 million kilowatt hours for our third quarter, and again all of the 2013 has, for us, been a record quarter of energy production, as our systems keep performing like we intend them to do.
Last quarter we introduced the concept of beginning to give more data and breaking up how we get our revenue and where it comes from. We’ve continued that this quarter. In our press release, those of you that have been able to see that, we present the breakdown by market. One minor change – last quarter we actually presented it by production or in kilowatt hours. This quarter and going forward, we are going to do it in dollars and by revenue. There is some value internally for us to know by production but we think it’s going to be more meaningful for our investors to calibrate the business if we do it in dollars.
To give everyone the breakout in case you don’t have the press release handy to you is – about 22% of our revenue came from hospitality, housing and fitness. So hospitality was 22%, housing was 21% and fitness type facilities were 20% of our revenue base. Education was around 17% and healthcare was around 16%. So really – we now really have five big markets, ranging from 16% to 22% of our business. And so it’s hospitality, housing, education and healthcare, we really did get our revenues from.
The next piece that we are now having for folks to learn a little bit more about what we do is we are in the energy – what kind of energy we are actually selling. I think you’re all going to hear myself refer to the business, we sell electricity, heat, hot water and cooling. For us heat and hot water are the same. We call it thermal energy. So for the quarter on a revenue basis, 41% of our revenue came from selling electricity, 30% of our revenue came from thermal, or heat and hot water or in this case, all hot water due to the summer time. And the remaining 29% came from cooling.
And the cooling is a big part of our growth strategy going forward. Those of you who listened to these calls before know that obviously in the winter time we get a lot of space heat revenue. And for example, our first quarter is traditionally our strongest revenue quarter because of those heat sales. It’s been very important mandate of the business of us trying to backfill and get some cooling revenue to offset the heat revenue. And we’ve just about done that and you’re going to see a lot more cooling type projects from the business. And so again, we will allow you to keep tracking that going forward, how the each quarter or the energy types breakups.
Finally, some sales and distribution and marketing items for the quarter. A reminder to everyone – we’ve been asked occasionally by some investors, a little bit of our sale strategy and just a reminder, we really go to market two ways. We go to market through direct sales and through distribution and specifically representative and agents. We have about 25 representatives and agents. These are independent individuals. They are primarily companies. They sell a variety of products and services, that they also sell our products and services on a commission base. The bulk of our sales opportunities come directly from this distribution base, but we also have a direct sales force that works with our distribution and sells to customers directly.
A couple of marketing items for everyone. In North America, our website received over 6000 visitors during the third quarter. We received about 400 leads in the business and converted about 400 of those leads into real opportunities that we are working with and proposing and engaged all being to get to the point of closing for sales.
Some events that occurred during the quarter. We actually, or I actually spoke at a few events over the quarter. There was a big lodging conference in Phoenix for the hospital industry and I was a guest speaker at and actually in a distributor exhibitor [ph] at that. From the investment perspective, the Liolios Gateway conference in California, I was a speaker at, and I also was at the Lodging Green conference which was a sustainability conference for hotels during the quarter. Beyond that, we also exhibited at a variety of events, we actually participated in the big General Assembly Event for YMCAs. As you can tell, fitness has been growing market for us and YMCA is just a natural for us, both from an energy perspective and also capital or mere lack of capital perspective. So we are really bullish on that market segment for us.
And then we also were very active with a group based in Connecticut called the National Association of Housing and Redevelopment. Again, a good strong customer base for the business and last but not least, we participated in a National Grid conference. National Grid, for those who don’t know, is the largest utility in the Northeast and they are a big fan of both cogeneration or combining power technology and specifically our business model of doing owned and operate kind of systems.
And with that, John –
Well, I wanted to say, Barry, thank you very much, and it’s really exciting to hear what’s going on, not only for me but obviously for all our shareholders. But I wanted to mention a few words – to share a few words about EuroSite. We distributed a dividend of shares to the shareholders of American DG of EuroSite and it was a way for us to thank you for being shareholders. Now EuroSite is one of the most exciting ventures American DG has ever done, even though right now it’s obviously costing us some cash. But we do in a very short period of time. We’ve gotten orders for 21 units. We have 16 of them installed and starting to operate right now. And one of the reasons is – there are two reasons actually we are so successful in a such short period of time.
First, energy costs in Europe are a lot higher. Second, sooner or later and we don’t have a map on yet [ph] but we will, I say. We are getting paid for carbon emission elimination and thirdly and more important, they understand combined heat and power is helluva lot more than in the United States. When we visited people in the United States in the beginning and even now many times, people have no idea what’s combined heat and power is, nor some big chains have an interest in doing this. So they challenged Barry into going to make some of these which thank goodness, they are paying for to demonstrate to them how they can save money.
In Europe, we don’t have that problem. They all know what combined heat and power can do. We have colossal advantages with our equipment, everything from the size of the equipment, they can fit into a door or an elevator and whatever is extremely efficient and saves them money.
With that, I would like to see if Barry wants to add something to it or we should open it to a question and answer period.
No, John, I think we’ll go over to the Q&A, if anyone has a question for us today.
(Operator Instructions) And our first question will come from George Sam of Trilogy Systems [ph].
Hey Barry, nice results here on the kilowatt hour thing. I like that metric a lot. Hey, at the end of quarter two, you had 140 units in there, now 109. And that’s in entries of 5, but it appears that the backlog is down by 3 units to 34. Can you give us some clarification on this total of 143 and where the six from New York fit in as well as the seven that are under the new contract?
Yes, again, I hope we didn’t confuse folks, as you asked the question, because we wanted to get some information on lot of those late breaking. I believe we want [ph] to violate our policy of what’s an order and what’s a backlog. So we try to give the data. So here are the facts. So the 106 are our approved to operate, but they are not formally operating, so they are still in the backlog bucket of those numbers. We just want to let everyone know that they are approved to operate and so they should be, we are hoping at least – there’s going to a week or two, the formal press release next week, that they are operating, following our own internal policy of what’s operating and what’s not.
The seven units I just referred to is a signed order. We received that this week, again I don’t have a permission from the customer to announce it and again it’s for our internal policy. So those seven units are not part of the count at all. We thought it was important to let – because it happened, to let investors know that it did occur. So I orally presented it but it does not reflect in the number and there is a couple discrepancies in the number only because again, we do have some customers that don’t want announcements of any type, even us – so we don’t add them to the list, and we just need to honor those requirements. So hopefully it’s not confusing. I think the bottom line is the installed base increased and it will increase significantly very shortly and there’s some really new sales on the back forward coming in, again officially as early as next week, it’s a signed agreement, that we can announce.
So that will then add seven to your backlog when you make that announcement?
Can I also ask about EuroSite being a separate entity and how that helps us as ADG shareholders, because the stock that was distributed is there on the 65% in about 3 months?
Let me answer it. Number one, lot of the people that got the dividend had no clue what they were getting. And that’s why it will take couple of minutes to explain what EuroSite did. Number two, we created a separate company for a very simple reason, that we – as you know, my background is Thermal Electron, my brother and I started and managed Thermal Electron for something like 40 years. We gave options to all employees for their ventures. And it was important for Barry to get the top talent out of England, or out of Europe by giving them options of their own shares. Why did the stock go down – people don’t know what they have and they sold it. If you look at the filings, one was allowed, I went ahead and bought some shares and then we went into a blackout period. So shares could not be bought by people that know a little bit more about the company.
We have not done an effort to tell the story of EuroSite because we wanted – number one, we are in a blackout period. Number two, we wanted the stock to sell one way or the other. Having said that, we did raise $4 million – 3 million actually from Onsite investors, 4% convertible. So they have their own capital right now to operate. I think as EuroSite becomes more and more understood and known, and actually we do have better job in telling people what it’s all about. I think it might surprise you how well the company and the stock will do.
I guess curious to know, I think I understand that the reason EuroSite is separate is so that the Europeans can have options in a company that – but they can also have options in ADG, are they not?
Yes, but you see we discovered early in the Thermal Electron strategy that if you give people options on the parent, which is nice, if the stock goes up, it’s not their responsibility – and if the stock goes down, it’s upper management behaviour that took it down. So they don’t feel responsible for the success or failure of their business. That’s why we ended up having maybe more than we should have but we are really for public companies at Thermal Electron, so that people can have their ventures. If ADG goes up and you are in England, we will say, well 10 times bigger than we are, if they did well but we have nothing to do with it. I will tell you some day and I am not promising or making a commitment – some day when EuroSite is big enough, we might even consider merging the two companies, but not right now. We need for them to have the incentive to make a big success of the European venture.
So this is basically the Thermo Electron model being applied to EuroSite –
Our next question will come from Barry Brewer, a private investor.
My question is, how does it benefit ADGE to be split off or not to be combined with EuroSite or even Tecogen for that matter of fact, which you all work together?
Well, it benefits ADGE in two ways. The first one obviously when the revenues go up as actually in 12 months they went from 20,000 to 150,000 to 160,000 and normally this time next year there will be very substantially higher. Number two, we still own over – if I remember correctly 70% of the stock, and it’s an investment that even at $0.30, $0.40, or $0.50 is worth a helluva lot of money.
So interestingly enough, in the good old days of my counting, and it’s been out, add that to the value of the company accounting wise, it doesn’t any more, they changed the rules about a year or two ago. But in reality the success or failure of EuroSite as a separate company is extremely important to American DG.
I can’t say that I am completely satisfied as a shareholder, because of the way things have gone, or lack of communication of what’s going on in the company. But I still don’t understand it doesn’t make any sense to me. I might be one of the few but it doesn’t make a lot of sense to me why you don’t merge?
Let me tell you. If the company merges right now, we would end up losing some of the top talent that we got because they have options of their own, in their own merger. Now that’s the last thing we need to do. We have some terrific talent at some very reasonable salaries in the UK which we have been able to accomplish it by giving them options in their venture and a challenge for them to succeed. Interestingly enough, the 21 units that we have got are more than we got in the first few years of American DGE in the United States. And I think you can achieve tremendous growth in both revenues and facilities in Europe and it’s not going to be only England but it’s going to be the whole of Europe, whether it’s Spain, or Italy or Poland or whatever.
I understand that and I can see the growth would have been 21 units and 16 already installed, we’ve had 37 units over the past year and 3 have installed, that’s – I can see they are doing a good job of getting their units installed over there and things are looking up, I guess that’s one of the biggest – and I understand where you are coming from. You are talking about right now as oppose to future, I guess I have been in this stock for so long as a shareholder, I get sick and tired of watching the – it seems like downfall this time. I get tired of it.
Well, I apologize that you do – a big show or two, I would love the stock to do a helluva lot better but as it happens we are progressing. I told investors a few years ago that our goal is to try and grow at 20% or better. It looks like we are doing it and I think you would see that not only the United States but especially EuroSite where the market is a helluva a lot better on the short term basis any way than the United States could help us. Right now people don’t know what it is or what their goals are and that’s why I took a couple of minutes to explain it. Now I wish I could find a way to make the stock go to 20 but it’s better than projection [ph]. Maybe someday it will.
The next question will come from Thomas Ore, [ph], a private investor.
I mean echoing the sentiments of – or the frustration of the prior caller, and I can understand that too, I think there has obviously been some glitches getting some of these systems installed. Great news this year that the six system order has been approved in New York finally and also about the new seven system order, that’s fantastic. Just I just want to review – got a couple of things from the prior calls. So Barry, in the last update you said one major customer has five systems and you thought they would be installed possibly by the end of October. Another had six systems which I assume is the one you referenced and possibly by the end of September, so that one seems like it’s been approved and then the university orders totaled seven systems, probably not till the end of November. Can you just provide an update on that first major customer with five systems, the university orders with seven, and also on this new order for seven systems, is that a New York order, and are you envisioning that we will have the same measure of delay in getting the thing installed? Because I think that’s where the frustration has been with investors that from the US side, the time to kind of scale these things in has been frustratingly slow. So lot of questions, but maybe you go through those one at a time if you don’t mind.
Yes, sure and if I miss one time, obviously please back on that. Regarding the five and six, you are actually correct, the six is the one that you know. The five system order, it’s still in the same place as the six was, meaning we are dealing with the city building department. It’s a combination of some approval and some noise issues that the city is bringing up, it’s moving forward but it’s not moving as fast as the other job. The universities are going through. The only thing we’ve got to do with the universities is we do have to do work when they allow us to do it, which is a little bit frustrating, meaning for example, we are doing a lot of work over Thanksgiving at actually a couple of different universities. Why, no kids there and we can make all the noise that we want for the construction place. So we do have a bits and rules there but actually both projects seem to be moving.
The good news on the seven unit order, it’s not New York city, so from an approval building department, we don’t have an issue. Actually in the site, I was telling John the story other day, I was going to mention in the call but we have a project in Maryland that we actually got the building approval in 24 hours, but obviously good news, just to give you the other side of the coin, our different jurisdictions, given areas, act differently. So seven are in New York, so there are some chillers in that one, again sort of getting ahead myself. Again sort of timing wise, it doesn’t make sense to put money into chillers but they are going to run in the summer time, so those will run till sometime next summer.
All right, that’s great news on that new order announcement. I mean it looked like you are pretty good on cash outflows were the best for the year. One other thing you mentioned the expense – onetime expense associated with the dividend distribution, where do I see that on the balance sheet? Where do I see that in your financial reporting? Where does that line item pop out?
That was under our G&A operating expense, that’s where we put it. That’s why it hurt the profit, because again but it’s a onetime expense that we had to pay the auditors, accountants sort of make hit the tails of that.
Let me add something here. This is the craziest event I have had in my long history as being – I was a CFO of Thermo Electron. The new regulations, the auditors do not give us an opinion whenever we give a dividend. We have to go to outside firms to certify that we are doing the proper thing to our auditors. So we have paid double or triple the cost – it’s outrageous what’s going on with the new regulations. And as a matter of fact, I have a meeting with a professor from Northeastern of – a gentleman, a brilliant gentleman called Marc Meyer tomorrow because as a Northeastern graduate, actually he is on one of our boards. We want the business department to write a paper. Our auditors, our partners said to me, not only I agree with you, the partner of the audit firm, not only I agree with you that these new regulations have created tremendous cost for a start-up but I have seen companies refuse to go public, because of these kind of new expenses, because stocks -- and a lot of cash available.
It is crazy what is going on. And let me brag a little for a second. Thermo Electron right now has 30,000 employees. If you have a spin-out of Thermo Electron, we are well over 40,000 employees that we created when my brother and I started Thermo Electron in 1956. I guarantee you Thermo Electron could not be created today under these regulations because we gave options which did not count as our P&L, which by the way is the craziest thing in the world, congress forces us to take a loss on options that we give and the IRS does not recognize it as a loss. So we have two government agencies disagreeing with one another and the company loses on both ends. And everything we do like a dividend, or whatever, we have to get an outside opinion and pay them thousands of dollars on our P&L. This is the craziest period of finance and you are worried, and people are worried why there is no more employment. Start-ups, except for biotech start-ups which people would pay anything, for any crazy idea that somebody has, they are not starting nowadays, than being penalized, and anybody wants to call me directly, my number is 781-622-1120, I will give you more details.
And in showing no additional questions in the queue, this will conclude the question and session. I would like to turn the conference back over to the management of American DG Energy. Would you have a follow up question, if you would like to take it? That question will come from George Sam of Trilogy Systems [ph].
Yes, just a couple of clarifications on cash flow from financing activities. What is the $244,000 distribution to a non-controlling interest?
Oh, thank you. We have brilliant minds here doing a great job as always. We have an LLC with a partner for some projects primarily in New Jersey. And so the way we actually pay this person – this company I should say distribution is related party consumption. It’s presented with ownership of that. We have about – I don’t know – 10 sites that we own and complement this company. So each site we own and in some cases we own 80% of an individual project, sometimes we own 55%. And so each quarter we pay basically his part of the ownership. In fact, really that was the first deal the company ever did. That’s been there, if you could go back a little bit in history you will see that, that’s always been there.
All right, and the similar thing under – changes in assets and liabilities, there is $415,000 item that’s to do from a related party, is that the same kind of deal or is that something different?
Yes, what we did is to get some good pricing on equipment. We actually bought some equipment from Tecogen in advance and actually did some prepaying to get a discount, they owe us more asset. That’s a question actually the [indiscernible] of our cash. That’s why we are confident that our cash is going to be searching a little bit while because in some case we’ve actually prepaid for some equipment.
When we spun out American DG, we separated Tecogen and American DG. We made a commitment that we won’t sell from one to the other at different prices that we do with our distributors. And Barry took advantage of an opportunity of receiving extra money from Tecogen for equipment that it was going to get down the road and in return for that he got a substantial discount which allows on a long term basis, less depreciation and more profit.
And showing no additional questions in the queue, that will conclude our question and answer session. I will turn the conference back over to the American DG Energy management for closing remarks.
I think that’s it, John.
I think that’s it, and again thank you everybody and again I was – Billy, you mentioned that I don’t – we don’t probably [ph] call me. Any questions you have, call me. Again my name is 781-622-1120 and you can get me any time. My assistant finds me somehow no matter whether I am in Afghanistan or in Downtown Boston.
Bye everybody, thank you.
Ladies and gentlemen the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.
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