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American DG Energy Inc. (NYSEMKT:ADGE)

Q2 2014 Earnings Conference Call

August 14, 2014 10:00 ET

Executives

Charlie Maxwell - Independent Chairman

Barry Sanders - President, COO

John Hatsopoulos - CEO

Gabriel Parmese - CFO, Treasurer, Secretary

Analysts

Ralph Wanger - RW Investments

Operator

Good morning, and welcome to the American DG Energy Second Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

Now, I would like to turn the conference over to Gabriel Parmese. Mr. Parmese, please go ahead.

Gabriel Parmese

Hi. Welcome to our conference call. Let me read the forward-looking statements. Various remarks that we make about the company's future expectations, plans and prospects constitute forward-looking statements for the purpose of the Safe Harbor provision 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 this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of the 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 elect 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 subsequent date to today.

And with that, I will turn the call back over to Barry.

John Hatsopoulos

This is John Hatsopoulos. First, I want to thank everybody for being on our conference call. This is an outstanding period for us and it's almost like déjà vu, as [George Bernard] (ph) used to say all over again. We had this thing happen twice before every time we joined Russell 3000 and each others started attacking the stock. But this time it was worst than ever, we not only have a little over 550,000 shares short up from 85,000 shares. But they are continuing doing it for their own benefit.

The interesting thing as the stock did go down, but both times with the Russell 3000, our stock eventually recovered by virtually – usually took two or three months maybe Barry remembers more than that. But, I think that's about what it does and then it recovers and goes back where some of us believe it belongs.

Now, where does the company stand? First, we grew the first six months of this year that reported at 20% per year annual growth. So which isn't bad in this economic environment and my hope is that this will continue. And again, I stress the word hope because there are no guarantees in this world.

Why did the stock go down – as usually up and doing this for almost 50 years, I never had that kind of a bad experience. A lot of people tell that we didn't go to the right bankers, but I would like to mention to you people that shuffled the bankers that we went to and we went to Merriman's, Scottdale, [Ardour] (ph), AEGs, AMLV, Northland, Johnson and so forth. And even our old friends (indiscernible) which used to do all of the Thermo Electron early stage company – who is that?

Barry Sanders

Someone sneezed.

John Hatsopoulos

Oh, okay. (indiscernible) they sold their company after losing quite a bit of money, I don't know how much. And the British company that bought within a year. The reason all these things are happening is because the government in their wisdom eliminated the trading of microcap stocks by forcing market makers to charge in pennies instead of fractions.

When I was in the American Stock Exchange, we had about – give or take 1000 microcap companies that we managed and we had something like between 10 and 15 market makers groups. Unfortunately, the government in their wisdom eliminated the potential for this people to make a profit by forcing them to make one or two or three cent markets, which one would think is good for the investors, unfortunately it's not that good for the investors because the New York Stock Exchange bought the American Stock Exchange, the bulk of this market makers disappeared.

So right now, we find ourselves in the hands of computers rather than human beings. The first trade and I will finish with this, the first trade that American DG did on Monday morning when we announced the public offering, it had closed Friday night at $2.19. It opened at a $1.43 on -- approximately 50,000 share trade, computer-to-computer in less than 60 seconds and as a matter of fact the public was completely eliminated on this trade – on this trade computer-to-computer. So this gives you an idea of what's going on and that's why we are not the only microcap-company that has suffered.

Now where do we stand right now, we have a little more 11 million and Barry will give you the exact number of cash in a balance sheet depending how fast we grow. We have about years worth of cash. We could continue to raise cash, I will tell you, I'm not planning to go to the public market at least the way we judge that again for very simple reason that our new market makers on government microcap stocks have no chance.

We are not the only company that got clobbered. According to our lawyers there are tens or more of them that did. So we will do a private placement or we'll find somebody to invest in the company. We get various people approach us to invest in the company, interestingly enough a Chinese group has been talking to us. We have turned them down at least up to now simply because they have been known to copy technology may be this time they won't and we have others on the groups that have offered to do private money for us. We have a whole year to manage our business freely, it will need a little extra money, maybe my family can provide cash if we couldn't do a private placement.

So in conclusion, we are in very good shape. The start doesn't look, but we are in very good shape. We have a lot of friends that are actually delighted in a way that the stock is down so they can buy shares at a lower price. And we'll talk to you next quarter.

With that, I'd like to have Barry continue to give you a little review about our operations. Thank you.

Barry Sanders

Thank you, John. And welcome everyone on our second quarter call. Slightly a different structure for this call, I'm going to review primarily American DG Energy's operations and then approximately at 10.30 Eastern Standard Time, we're going to have our Managing Director of EuroSite Power, Paul Hamblyn do similarly on EuroSite Power. EuroSite Power has had some nice growth and so we want to give some special timeframe to describe that business as well.

As a reminder to existing shareholders and certainly for new listeners, we're in the business that we sell energy as an alternative to selling equipment. That's typically in a form of electricity, heat, hot water, and cooling. We own and operate the equipment and these are typically over long-term contracts frequently the most common is a 15-year contract and we are selling that energy to our clients every month. The kinds of technology we own is primarily combined heat and power, but we also own the very innovative chillers, heat pumps, boilers and the like.

The core fuel and a nice part of our growth is because the natural gas and that's the primary fuel on. So that's a very important fuel to us and the current structure of relatively inexpensive natural gas has some good operating benefits and sometimes hurt our top-line, but our other parts it's a big part.

In the second quarter, we did a little over $2 million worth of revenue, that's around 17% increase from a year ago for the same quarter as John mentioned so far a year-to-date we are a little over 20% increase. Total energy produced was around $23.4 million kilowatt hours for the period that's all energy produced. I will add and I've been commenting this every quarter. Oh, Boy! I think for two years now, again, in the second quarter, our both the rates that we charged our clients continue to lower a little bit both in electric and gas. We do think we are near the valley of those prices. When those prices start to increase, we see a nice add to the profitability of our site. But they did continue to go down during the quarter.

If you looked at our operating expenses, our operating expenses were a little over $1.2 million down from a year ago, the big part of that was lowering our G&A expenses that's an important part we are trying to work on the company. As we get closer and closer to that profitability on a continual basis. We are trying to stabilize those costs and only input resources into where we need and so that continue to be I think the first quarter the same trend occur as well. And so we want to keep up on that.

Just to clarify a little bit of a number that John just presented. We do have a little over $11 million in cash, but if you include cash, networking capital and also the money we have already spent on prepaid projects and mostly that's equipment. We purchased in advance the total – the little under $15 million most of that money goes into our various projects and backlog as we continue to add those systems into it. Yet again, a number that we tend to track every quarter, if you look into value of our contracts to-date, and into the future, again, it's a shade under $330 million worth of total contracts.

We currently have 122, 1-2-2 energy systems operating of a backlog, in addition to that again, we are using the phrase backlog, so we have made some – some people give us some suggestions so we refer that by our end process projects or another 36 systems. To give you a little sense of those 36 systems about 1/3rd are actively being installed, another third are some customer issue delays and not a problem with the customer, but some operating situations, we have one customer that has a change of ownership, it has asked to hold off until those projects that sale – I'm sorry is consummated.

We have another one because the kind of institution it is, it's a university. It's a timing issue. And so they only want us to work on campus during a certain period. And so we are supposed to honor that. And so again, third is actively being installed, a third is in process and third is being held a little bit until we can walk through those issues that the client needs to go through on the other side.

Another thing we have been tracking is, is to give to little folks some visibility where our revenue comes from. If you look into the second quarter, these changes based on various equipment we have out there and also changes based on some seasonality. But if you look at in the second quarter about 25% of our revenue came from fitness, these are anywhere from athletic facilities out there. 22% from hotels and hospitality; 22% from housing, and these are mostly multifamily, large residential kind of properties; 12% from healthcare; healthcare had a little bit of lower revenue because again the mix of our systems; 8% of education; and then hodge-podge of others with another 11%.

Second quarter typically – is mostly electricity and thermal fees. It was just a touch of cooling in June, and so that reflects on our revenue. And so 60% of our revenue came from sales of electricity about – little over 30% came from selling, heat and hot water primarily domestic hot water and 9% was cooling, our air conditioning in the third quarter obviously, you would expect, we have the largest traditionally cooling market is because most of our outfits are in the northeast of the U.S.

Our significant sale for the quarter was a retirement home called Green Hill Community in New Jersey. This is a very important client to us. Green Hill is managed by a group called Morrison Senior Living. They have 450 properties around in 41 states throughout the U.S. We are actively working with them on a variety of fronts to expand from that initial sale. They are a great organization. They understand our onsite utility concept of us owning the asset. They also understand there is a breadth of technology though this initial project was a combined heat and power device. These other properties are in various locations where combined heat and power may not be a match. But that's okay because there is some boiler, chiller and heat pump opportunities for some of these other properties. So that's an important client and then again, that's part of our strategy of working into these larger property holders. We did install some systems primarily chillers into the quarter, we want to get those ready obviously in the air conditioning season for this summer.

On the sales front, again, we continue to focus – some folks have asked me to talk about specific proposals to be open, we don't think that's appropriate. But I can assure you that we are continuing to focus on larger REITs primarily in the hospitality space. Healthcare, hospitals and the like continue to be a strong marketplace for selling into as well as multifamily. And again, this whole strategy of about expanding geographically as well as technology has been critical in us and as we talk into those marketplaces.

So the last thing, I think is important to mention, a number of investors have asked, sometimes on these calls, sometimes on offside – there is a lot of thing is going on with the government in the – certainly in the U.S. but frankly around the world as well. A lot of it's related to energy, sometimes emissions, sometimes carbon, and there is a belief that we need to be more active in communicating with these organizations we agree. And so one of the organizations we have become very active is the Pew Charitable Trust.

The Pew Charitable Trust is taking a lead and some of you may know them more from watching if you watch PBS, they have a lot of dollars; they invest into a variety of areas. Well, energy and the environment has become a core cornerstone of that organization. They have recognized combining heat and power specifically as a technology that can aim those efforts. And we become a participating group the companies in general and we actually – myself specifically on a variety of events with them. And speaking at some of their events and this fall, we are likely will be hosting an event for them to show off to various government agencies.

What we are doing, what can be done with combined heat and power and those technologies. So we think that's an important piece of our future and continue to work with the government.

And with that John, I think that's the summary of American DG.

John Hatsopoulos

Maybe we should open it up for questions.

Barry Sanders

We will go for a few questions now. Then we will open for Euro and if there is more questions we will take them at the end.

Question-and-Answer Session

Operator

Okay. Thank you. We will now being the first question-and-answer session. (Operator Instructions) And the first question comes from Thomas Oar, a Private Investor.

Unidentified Analyst

Hey, good morning guys. How are you? Couple of questions, bear with me if I ramble a little bit. I'm just looking at your Q1 press release versus your Q2, in your Q1 you actually said you had 123 systems operating now, it's down to just 122, so I mean – I'm trying to understand how you actually have negative one system. And I just want to go through a couple of things that concern me.

I know Q2 is a seasonally down quarter, but if I look at the breakdown of revenues, energy revs for the quarter they just stand over 1.752 million, there was a pretty big chunk at turnkey non-recurring revs. I mean those were down – those were really flat and actually down year-over-year that concerns me. EBITDA negative cash flow first quarter only negative 147 for AEG now negative 295 in this quarter, same with EuroSite, big jump up, energy sold was down 22% sequentially. So to me I look at the second quarter as no orders negative –

John Hatsopoulos

Tom, we lost you. Hello? Hello? Tom.

Operator

Mr. Oar.

John Hatsopoulos

Tom, we lost you. Operator, why don't you, if he calls back bring him back into the questions, now, we will go to the next question.

Operator

Okay. Next, next yes – the next question comes from…

John Hatsopoulos

But please add him back if he calls in.

Operator

And the second question comes from Ralph Wanger, RW Investments.

Ralph Wanger - RW Investments

Hi, everybody. Actually that you're only spending $200,000 on selling – are we underinvested in sales force?

John Hatsopoulos

We definitely are out. I agree with you and that's why we went to try and raise money. And as a matter of fact by having an additional almost $4 million right now, it allows us to add some people. We definitely had got down on our selling effort. There is no question about it Ralph. As a matter of fact our leads salesman was Barry Sanders, we ended up killing him in both ways and both trying to raise money and also sell units you're right. But this is something that we're learning to correct.

Ralph Wanger - RW Investments

Okay.

John Hatsopoulos

Is Tom back on?

Operator

No, not as of yet, no.

Barry Sanders

You text him.

John Hatsopoulos

You just text.

Barry Sanders

Yes. We will take the next question --

Operator

Actually, Mr. Oar just did come back in so...

Barry Sanders

Okay, great.

Unidentified Analyst

Sorry about that guys. Did you hear the whole question or shall I just repeat it, I mean.

Barry Sanders

Well, I can address to the first part, may be if there is a second part, this is Barry speaking. We have a customer, they have a financial difficulty that we took their systems out of service and that is the biggest reason, the total unit count went down and that's the biggest reason of the difference between the productions. And so…

John Hatsopoulos

Tom, I'm going to be more blunt than Barry. One of our customers a hospital ran out of money and they put a company out for sale. And it looks like they are going to sell it as a matter of fact between honorable people. They've been giving us a little money here and there for what they owe us. And it looks like they are going to sell it, but then in the process, Barry being conservative [generally got things off] (ph).

Barry Sanders

Yes. The significant customer, it is a positive financial settlement, which I don't think we should discuss in this call on the capital side. But, operationally we did the prudent thing we don't want to run systems that was – the fear we won't get paid. There was a significant customer, but they're off the list that's why the numbers are correct and pure.

Unidentified Analyst

Yes. I am just -- I am looking at a couple of other things. I mean energy revenues, I mean turnkey is high that's fine I know its one big contract, but it's not recurring. I mean if I look at energy revenues year-over-year they're flat. If I look at them quarter-over-quarter they're way down, if I look at cost to sales fuel maintenance and installation way up negative cash outflow way up.

I am just trying to understand why, what's going on I mean revenue -- energy revenue has dropped, cost went up, no orders getting plugged in, we bought what all these orders all these systems three, four months, three, four quarters ago that are sitting around. I mean that we financed and pay for and they're not getting hooked up, its just I mean, I just don't understand what happened, other than I mean was the second quarter so distracting from the standpoint to try and raise money that we just didn't – we just didn't execute the entire quarter, what was it?

And what's going to make me think we're going to able to execute better going forward getting our cost down, our cash burn is rising, I mean its just -- it's a – we can talk about the shorts getting on the stock but if you execute operationally they'll get off the stock. I mean, if you're not then they'll stay on your stock that's the best way to get them out of your stock is to show better comps this was a dreadful comp year-over-year and quarter-over-quarter in my view. I want to understand how, why I am going to think it's going to look better Q3, Q4 going into the rest of the year that's what I'd like to hear?

Barry Sanders

Yes. Again, I'll say it again Tom, maybe you weren't listening to my answers. But the biggest thing is, we took a major customer that, and that's the difference we added that customer back in we would have been back at our typical 20%, 23% growth from the top side. We are suffering from lower energy rates that affects the top line and the bottom line. We did lower our operating costs which is something we are focusing hard to do. Openly, the second quarter weather wise -- was a weaker weather wise for us. Maybe you can – you remember the – we lost to a lot of heating revenue because of the weather in April. It was a very warm month. So again, you don't get the heating revenue.

So again, in all of those pieces on that place contributed. And openly, you are right about the back log, we have spent money on a number of those sites as I explained during the opening piece. Third, we are actively installing and they are moving forward. The other two-thirds are, one we are weighing for some customers. We are not going to push forward until the customer allows us to put the site on. Those are good contracts. We are not going to lose those contracts. But, we don't want to spend money on contracts or proceed with the contracts until we have that permission.

Unidentified Analyst

So in the third quarter…

Barry Sanders

Going forward, I do think our sites, we are actively actually with board approval working on our existing sites. We are actively looking at ways to improve the profitability. We have a very strong mandate on that. It's clearly there is about third of the fleet we are actively putting into service. I can't tell you where utility rates would go. We are just believing everything, folks are telling us is that we are at the valley on the utility rates. I don't know if that's true or not. Again, I can only reflect what we actually see, but hopefully that period of decreasing.

So we are actively looking at improving the performance of the fleet on the margin side. We are continuing to reducing the operating cost of the team.

Unidentified Analyst

So the third of the backlog is in the process of installation so does that mean it's likely that three months from now, you will have 12 more systems installed or 10 or something close to that, is that reasonable to suppose?

Barry Sanders

On this call, I'm not going to say that because it's in the construction. As I look through the list as we speak, that seems reasonable. But, I'm not going to promise that this 20 projects tend to go. But, those one-third are in good shape.

Unidentified Analyst

All right. And how about, I mean orders have really dropped off U.S. here noticeably, I mean incredibly slow now. Why do you think that is, why – I mean if we have such a great product and everybody is jumping on solar and fuel cells and everything else, why aren't we selling systems like hot cakes. Why do you think that is?

Barry Sanders

Yes. I think – have addressed as well. I think openly your good question earlier – did operation – I take onwards to operation, do we take the eye of the ball. But, I do think on the sales side we did, I think that's a fair assessment. And John, the Board is very dedicated to okay, for the remainder of this year into next year, let's get back to operating the business. And that's what we are doing. And so we are gaining back into sales mode. And there are good opportunities on there. We are getting back to focusing on closing those. And so the eye is back on the ball on the sales, and I think that is an area that we did take the eye off somewhat during this fund raising period.

Unidentified Analyst

Just one last question, I will go because I know you want to move to EuroSite. It's a little confusing for me not to read, now, there are two separate press releases for a little while, 80G standalone and then there was an ability to look at them both kind of consolidated. Is this the way you are going to do it for now and set – put out two separate reporting stuff?

John Hatsopoulos

This is John Hatsopoulos. American DG is consolidated. EuroSite is totally independent as a matter of fact they have their own stock. We didn't bother to separate them last year because the revenues were so small. But from now on, we are going to give you a consolidated because American DG Energy, all was 70%.

Of EuroSite – but EuroSite should get credit for their own success and as a matter of fact I think you – saw that a day or two ago they started an additional unit, am I correct?

Barry Sanders

Yes. That's right.

John Hatsopoulos

An additional unit and they continued to operate more and more units and have pretty large amount of outstanding proposals. So I believe that we will be doing the service to our shareholders of EuroSite, not to show that their success at EuroSite discovering right now.

Unidentified Analyst

All right. When I look energy revenues consolidated statement of operations 80G, 1.752 million, is the 409,000 that EuroSite contributed added in that number?

John Hatsopoulos

Absolutely correct.

Unidentified Analyst

All right, okay.

John Hatsopoulos

But, they own 70% of it. So they got 70. Let's move on to the…

Unidentified Analyst

All right. Thank you. Thanks.

John Hatsopoulos

Thank you, Tom.

Unidentified Analyst

You are welcome. Thank you.

Barry Sanders

All right. You can now change it. No more questions for the moment. We should – certainly have questions at the end. We need EuroSite power presentation and allow Paul Hamblyn to present that.

Paul Hamblyn

Okay. Barry, thank you very much. Welcome everybody, pleased to give you an update in respect to EuroSite Power. As John said, I think it's important that we demonstrate some of the success that we are having on the side of the Atlantic. Very pleased to report that our energy revenue has increased 218% compared to this time last year and topped out to just over $416,000 of energy revenue.

And in fact if you look at the first half of 2014, we have already now exceeded total revenues that we generated through the whole of the financial year 2013. And this maybe reflects the fact that the fleet is operating well. We generated for the first half of this year, pretty much the same amount of energy as we generated in the whole of last year, and in fact for the quarter two. We generated some 4.9 million kilowatt hours of energy from the fleet that is operating.

We now have 19 systems operating. And as John just stated one of those 19 became operational as of last week. And that gives us a 11 signed contracts in our backlog. In terms of those 11, we already have 3 of them under construction at the moment. And a third a side of them are waiting timing consent which we are hopeful will come through within the next two to three months to enable us to move forward on those side pretty quickly as well. And then a couple, sorry – two or three others are still in the design stages and will be moving to consent very shortly.

The revenue here in the U.K., we will have a slightly different revenue mix because in addition to getting our revenues from some electricity and heat, we used to have a third proportion of revenue that comes from sharing of only carbon taxes that we draw here in the U.K. Just to give you a sense of that split, the electricity revenue for the last quarter 51% of our revenue came from electricity. 39% from heat side and around 10% just over 10% from carbon taxes – on the share of carbon taxes.

This balance has actually slightly changed from the same period last year. And that maybe reflects some of the underlying changes that we are seeing in utility tariffs across our customers. To sum that up in simple terms, we found that electricity rates have generally risen between 2% and 3% over the last period.

Gas prices have remained broadly flat, but we have seen some fair increases in the carbon taxes in particular there is a tax called the CRC Energy Efficiency Scheme here in the U.K. And in fact the tax rate there went out from 12 pounds of ton of carbon to 16 pounds a ton of carbon. We share in that increase effectively in our carbon revenue.

On the sales side, we successfully closed an order for 7 new CHP schemes with mainly hotels. Those projects were worth some just shy of $23 million across the life of the contracts in terms of future revenue. Those seven projects will have a further 860 kilowatts of CHP capacity to our operating fleet once they are installed and running.

What's interesting about the customer there is, actually the hotels are run and owned by a property group, a private investment group, whose principal activity is in investing in commercial real estate. They have over 270 properties of which these hotels are a part and they're very actively seeking to expand their profile of the hotels in particular. In fact just this week they announced the acquisition of the further 8 hotels bringing their total hotel portfolio in the U.K to 30 and we're already busy talking to them about having some and hopefully all of those hotels into our fleet and have additional orders.

What's also very interesting when we look at EuroSite Power and where we go next is that they are currently considering further acquisitions of two hotel chains that are actually based in Mainland Europe. And I've always have to view that one of a very important move for us expanding out to the U.K. is to go with the customer and certainly we have our eyes on top of the group helping us to achieve that.

On the sales side elsewhere we secured a small turnkey order from an existing customer Roko Health Club see to repair 40 chiller. It was only just over $50,000 worth of business and however the fees in there really is, it shows the strength and relationships that we have with our customers it actually came back to us and asked us to work that isn't necessarily our core business, but we are well capable of doing and we are able to make money on.

On sales volume continues to grow strongly we have a number of key opportunities in that pipeline. And I think one of the key areas that we are focused on is expanding our operation in the healthcare sector. Here in the U.K. many of you may know that the health service is government funded, and the National Health Service is particularly target on reducing both carbon emissions than its underlying costs.

We've identified over some 350 sites that match the contract that we signed just before Christmas with the hospital called Clifton Hospital and we're busily engaged on developing a procurement solution for the NHS that meets all the public procurement rules here in U.K.

We got some other interesting opportunities being presented by some changes to quality emissions regulations particularly in the London area and one of the great things about the Tecogen product that we've been using is that it meets those requirements today and so we don't need to make any additional investments in the product or changing the product. But it puts us in a very strong position in terms of being able to achieve new standards.

From a marketing perspective, we've been supporting our activity with a range of events. For example, we attended an event called Accountex in London, Dockland in May. That event actually directly led on to signing a strategic partnership with a firm called the Sports Consultancy, who are specifically involved in advising local authorities counsels here in the U.K. and government on the most appropriate matters managing their ledger and sports facilities. They very often tender for works for these particular types of organizations and energy is part of that and we are very excited to sign them up as a partner.

Elsewhere we are seeing continued coverage in terms of PR and social media and we are going to participate in the further live case study event the two that we did through last year with our partner DONG Energy.

Just turning to the installation side quickly once again. We actually completed the installation of two projects through the quarter; one being the Clifton Hospital that I mentioned earlier and we also the largest single system that we put in to-date the 200 kilowatts also became operational as well.

I think on the installation, one thing to be working on doing is to speed the process up. We've been trying to move to a standardized contained life solution for as many of our projects as possible. The aim of this is to reduce the cost of installation and the speed of the consent process commissioning an installation all those aspects. We've also been working hard with the various regulatory bodies that we have to deal with and trying to streamline that process and I am pleased to report that we now have approvals to self-certification to the occasion most of the utility connections that we do without only one exception now across the U.K. And we also finalized our accreditation for those here in the U.K. as well the team need to be congratulated in having achieved that.

In terms of operations, I mean the kilowatt hours that we are generating are really seem to speak for themselves it may interest you to know that the fleet now is clocked up over 1400 hours of operation and of course day-by-day that number continues to increase. We are seeing improvements in the operational efficiency of the fleet we work very hard and we continue to work very hard to improve the operational efficiency and because ultimately that's what helps us to achieve improved margins site to site.

One of the other aspects of that is to bring our maintenance cost down and we worked very hard with our maintenance partner to both lower the price our maintenance which we've been able to do in the very recent past and then secondly, it also moved then to a performance related contract whereby they're only paid as and when the machines are operating. And I am pleased to say that contract is now in place.

So to sum up, I am very pleased with the performance of the operation to-date and I am pleased to take any questions you have regarding EuroSite Power.

Question and Answer Session

Operator

Thank you. (Operator Instructions)

John Hatsopoulos

Before the questions, I wanted to double up on Tom Oar's statement. I mentioned to you seven broker firms as we work with to try and raise capital. Actually I didn't mean what I mentioned. Landenberg which is one of our best supporters – we killed Barry because he was in a constant road show Tom instead of running his business. We are a small company and that's why we decided that's it. We are not going to do this again one way or the other way as always I am here unless conditions change – economic conditions change we are now going to do another public offering the traditional way. If we need money we'll raise it at through a private placement as I used to do in the past just that we were short that we could raise the money right now because of the stock market and then we found out that no, no it's not so. But we are only one of 10s of companies that have gone destroyed by road shows like this.

Barry Sanders

Any EuroSite questions to start with?

Operator

There are no more questions at present. (Operator Instructions)

John Hatsopoulos

Well, if there are no more questions…

Operator

One second sir, we actually do have a question from [Tom Toule] (ph) a Private Investor.

John Hatsopoulos

Tom?

Unidentified Analyst

Yes. Hi how are you?

John Hatsopoulos

Oh, I am sorry, hi.

Unidentified Analyst

How are you?

John Hatsopoulos

Very well. Very well.

Unidentified Analyst

Can I ask my question or…

John Hatsopoulos

Sure please do.

Unidentified Analyst

Great, okay. Does, is it Tecogen or is that the correct pronunciation?

John Hatsopoulos

Tecogen, yes.

Unidentified Analyst

I am sorry Tecogen. Now does Tecogen compete with ADGE, do they…

John Hatsopoulos

No.

Unidentified Analyst

They do not, they don't…

John Hatsopoulos

Let me answer it the proper way. Tecogen is a manufacturer of equipment and does also do some sites that they install. Their bulk of their marketing is done by distributors like Johnson Controls, Honeywell, Siemens and so forth. American DG even though is a customer of Tecogen in many cases sells energy. Once in a while a customer who will ask them for an installation and they want to put up the capital.

At the end of the day, American DG has a tail in more than – most of these cases, but accounting wise Barry did not want to put them as part of energy sales because we have for example, I know one that we have for many years that we have a service contract. I'm trying to remember the name of the company that you have a long-term five years or something like this.

Barry Sanders

Oh, yes. We do have a few customers. We have some recurring revenue…

John Hatsopoulos

I wasn't finding the right word. But, basically that's the difference. One is, manufacturing, and selling equipment and one is, selling energy of some sort. Air conditioning, hot water, boilers, et cetera.

Unidentified Analyst

Okay. Thank you.

John Hatsopoulos

You are welcome.

Operator

Thank you. And we also have a question from George (indiscernible).

Unidentified Analyst

Yes. Hello. My concern is with the decimation in shareholder value, during the last three months especially in light of the Chairman, or the CEO remarks in Kansas City a couple of years ago that he would not go to the secondary market to do funding. And why in the world, did he do that when he said that he would not?

And also you had two attempts to raise money, the first one failed, and the second one was basically a disaster and you lost 60% of shareholder value in three months. How do you account for that?

John Hatsopoulos

First, you are correct, I did say that we would not – at that point we didn't need the money and that is two years later number one. Number two, we have – the market was so different that we didn't realize that it would destroy the shareholder value. Believe it or not, I'm a big shareholder and so is my family and then that was the last thing we wanted to do. There wasn't much we could which happened. Hopefully, the shareholder value will come right back as they have twice before.

As I said, two years ago, we weren't planning to do it, as a matter of fact, there was no market. At this point, we were assured that there was a market. The first time we did, we were told that we went to the wrong brokers or bankers. The second time, hopefully we went to better bankers but it didn't work.

Unidentified Analyst

So you are not planning to go back to the secondary market again?

John Hatsopoulos

Not for the next few years. The only way we would raise money on a long-term basis is, I used to do it before, is go to the private market to people that I know that are enthusiastic about our company and are willing to, to take a private placement on the company. That is correct.

Unidentified Analyst

All right. That clarifies it. Thanks.

John Hatsopoulos

No, no, no. It's a very good question. I fell for it because we weren't assured that it was a – a slam-dunk. We haven't realized that even after that only then did I talk with our general counsel, which is (indiscernible), which told us that we are not the only company, there were tens of companies that have fallen into this trap. Believe me, I can only make a mistake once or twice. I don't do it again.

Unidentified Analyst

You are right. Thanks for the clarification.

John Hatsopoulos

Thank you.

Charlie Maxwell

There is another way out. This is Charlie Maxwell. Let me outline briefly. That is along the line that Tom Oar suggested which we all take and understand which is that we recognize that we are already deeply involved in an asset base that can be improved. And can be changed in modest ways at reasonable costs to give us a higher return. And believe me we will be concentrating on that very strongly. And Barry and John, all of us are behind this effort. It was referred to briefly, but I think it's a major part of what we are going to do over the next year. Thank you

Unidentified Analyst

Could you elaborate that on a little bit for us?

Charlie Maxwell

Well, it's just some units are doing sensationally well. And there are certain cases…

John Hatsopoulos

Charlie, let me take this.

Charlie Maxwell

All right.

John Hatsopoulos

This is John Hatsopoulos. There are installations that are very profitable and some that are not. We are learning everyday as a matter of fact five of the big technology of American DG is to managing these units. The units that are doing very well are the ones that are in constant need of flood water. We have a facility here in New England that vacillates between hot and cold and we have been working to try and find the middle of the road. So our equipment does not turn on and off. And these are things that we are learning and spending an awful lot of time, which is by the way why we miss Barry, when is not – he is all out with the world trying to raise money to try and improve the efficiency of lot of units.

Unidentified Analyst

That makes sense. Thanks.

John Hatsopoulos

Thank you.

Operator

Thank you. And actually, there are no more questions at the present time. Does management have any closing comments?

John Hatsopoulos

Thank you very much. Thank you.

Operator

Thank you. The conference is now concluded. Thank you for attending today's presentation. Please now disconnect. Have a nice day.

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Source: American DG Energy's (ADGE) CEO John Hatsopoulos on Q2 2014 Results - Earnings Call Transcript
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