Tecogen, the Waltham, Massachusetts-based manufacturer of ultra-clean cogeneration products, is at a crossroads. Facing headwinds in its once-dominant New York City market due to anti-gas sentiment, the company is undertaking a bold, nationwide expansion. But hidden within the Q1 2024 earnings call transcript lies a subtle clue, a phrase uttered almost in passing, that could hold the key to unlocking Tecogen's profitability potential: "billable work."

While analysts have focused on the company's factory move, online marketing strategy, and ambitious "cooling as a service" model, the potential of this simple phrase has gone largely unnoticed. This "billable work" refers to the expansion of Tecogen's service offerings beyond its core cogeneration and chiller maintenance contracts to encompass a broader range of services for existing customers.

Imagine this: Tecogen technicians, already on-site servicing a customer's chiller system, are now also equipped to handle maintenance for ancillary equipment like pumps, heat exchangers, and controls. Not only does this generate immediate, high-margin revenue, it also deepens Tecogen's customer relationships, positions them as a one-stop shop for building energy needs, and, crucially, allows for optimization of existing systems to increase run hours.

The potential impact of this strategy is significant. CEO Abinand Rangesh hinted at the possibility of a 10% to 20% increase in run hours through improved system setup. This translates into increased energy savings for customers, higher service revenue for Tecogen, and a greater contribution from recurring revenue to cover fixed costs.

Projected Service Revenue Growth

Tecogen's service revenue is already on an upward trajectory. With the strategic expansion of "billable work," the potential for further growth is substantial.

Let's delve into the numbers. Tecogen's service revenue has already seen a 20% year-on-year increase, fueled by the acquisition of new service contracts. With the addition of 83 contracts year-to-date and a projected addition of 30 to 50 more in the next three months, service revenue is on track to reach $16.7 million in 2024 and exceed $17 million in 2025.

But this is just the tip of the iceberg. If Tecogen successfully expands its "billable work" offerings, the impact on revenue and profitability could be transformative. A 10% increase in run hours across their service fleet, coupled with additional billable work for ancillary equipment, could potentially add millions to their top line and significantly boost service margins, which already recovered to over 50% in Q4 2023.

This strategy aligns perfectly with Tecogen's broader goal of achieving profitability through a robust recurring revenue stream. As the company navigates the volatility of product sales and the uncertainty of a nationwide expansion, "billable work" offers a reliable and scalable avenue for growth.

While the future of Tecogen hinges on its ability to successfully execute its multi-pronged strategy, the potential of "billable work" cannot be ignored. This seemingly minor detail, overlooked by many, could be the catalyst that propels Tecogen towards sustainable profitability, transforming the company from a struggling pioneer into a dominant force in the distributed energy landscape.

"Hypotheses and Supporting Data"

Expanding "billable work" will significantly increase service revenue and margins.

CEO's statement of potential 10%-20% increase in run hours through improved system setup, service margin recovery to over 50% in Q4 2023.

"Billable work" will reduce Tecogen's reliance on volatile product sales and contribute to a stable recurring revenue stream.

20% year-on-year increase in service revenue, acquisition of 83 contracts year-to-date, projected acquisition of 30-50 more contracts in the next three months.

"Billable work" will strengthen customer relationships and position Tecogen as a trusted partner for a broader range of building energy needs.

Focus on demand response programs and "cooling as a service," highlighting Tecogen's commitment to providing comprehensive energy solutions.

"Fun Fact: Did you know that Tecogen's cogeneration systems have been used to power iconic locations like the Empire State Building and the Statue of Liberty? Talk about powering American landmarks!"