Whitefish, MT / October 7, 2014 / Broadly speaking, Wall Street took some lumps last week at the hands of many influences, including overseas conflict, reaction to uncertainty related to the Ebola virus, protests in Hong Kong and a healthy pullback in stocks as part of a long-term bull market. A sector that is still advancing amid the widespread losses is utilities. XLU, the Utilities Select Sector SPDR Fund holding companies like Duke Energy (NYSE: DUK) and Sempra Energy (NYSE: SRE) posted gains on the week of 1.8%. The Dow Jones Utility Average Index (UTIL), containing 15 companies, including Edison International (NYSE: EIX) and Exelon Corp. (NYSE: EXC), also went against market trends by moving upward by 1.3%. While these major utility plays are rising, small cap On-Site Utility provider American DG Energy Inc. (NYSE MKT: ADGE) looks to have hit bottom and appears to have started to climb from its recent low.
American DG Energy, a leading On-Site Utility offering cogeneration (Combined Heat & Power or CHP) systems for clean electricity, heat, hot water and cooling solutions to hospitality, healthcare, housing and athletic facilities, was in an uptrend since touching $1.20 in June 2013, taking the stock price to a 2014 high of $2.59 in April. In June, the stock starting coming under heavy pressure, taking it to 6-1/2 year low of 92 cents on September 24. The catalyst seemed to be the company filing a prospectus supplement with the SEC for a proposed public offering of up to $20 million of its common stock. Although the stock was trading near $2.20 at the time with a tight structure of about 50 million shares outstanding that could probably absorb the offering, the markets reacted unfavorably to the idea of the capital raise. With the share price falling, the company cut the raise short at $4 million in order to mitigate dilution.
To add a little more color as to American DG Energy's position at the end of the first quarter, the company had about $8.1 million in cash on hand, revenue for the quarter was $2.4 million and the net loss for the quarter was $1.7 million, or 3 cents per share. Compared to the year prior quarter, sales were up about 23% and net loss widened from $1.17 million, or 2 cents per share. At the time of the quarterly report in May, shares were flat on the day at $2.20.
During the first quarter of 2014, American DG Energy operated 123 energy systems, representing 30.2 million kWh of total energy sold (a record for the company), compared to 98 energy systems, representing 28.1 million kWh of installed electricity plus thermal energy for the same period in 2013, an increase of 7.6%. Backlog at the end of the quarter was 36 systems.
Taking a look at the second quarter, American DG Energy had $11.1 million in cash on hand, revenue increased by 17% to $2.1 million compared to $1.8 million for the same period in 2013. Net loss was $1.3 million, or 3 cents per share, versus $1.0 million, or 2 cents per share, a year earlier. The company was operating 122 energy systems, representing 23.4 million kWh of total energy production.
Long story short, while investors always want to see sequential quarterly expansion, not much had changed fundamentally for American DG Energy and, while net loss increased year-over-year, the top line improved.
In the third quarter, the company announced that it signed an agreement to supply and operate a 75 kW CHP system to Green Hill Retirement Community in West Orange, New Jersey. The 15-year Power Purchase agreement has a revenue value of approximately $1,800,000 to American DG Energy. The company announced a similar agreement to own and operate a 75 kW CHP system at Wolman Hall student housing at The Johns Hopkins University in Baltimore, Maryland.
Further, in what could be a watershed moment for American DG Energy, the company signed an agreement with CommunityWorks, a division of Morrison Senior Living in Atlanta, Georgia. Currently, American DG Energy's systems are centered in the New York/New Jersey region, but this pact could greatly expand the company's footprint. Under the terms of the agreement, American DG Energy will partner with CommunityWorks, to promote CHP, Chillers, Heat Pumps and other On-Site energy systems to over 450 senior living facilities across 41 states, in the Morrison Senior Living network, including some of the largest and most prominent senior living communities in the United States. In the past, management has discussed going after "elephants" or large national REITS or large national retirement communities, and this arrangement with Morrison Senior Living network appears to be a major step in executing that plan. For any company, market penetration is a grand challenge and this could be the opportunity that paves the way to expansion and branding for American DG Energy.
It's also worth noting that while some investors have sold shares, American DG Energy's CEO John Hatsopoulos has been buying shares of his company. According to regulatory filings, John Hatsopoulos bought another 10,000 shares at the end of September to go along with the other 30,000 he purchased in recent months.
Sometimes a company losing half its value quickly is easily understood, such as that of a biotech that delivers bad clinical data on its only drug candidate. Other times, as in the case of American DG Energy, it's a bit of a conundrum, as the drop doesn't seem to be supported by any change in business prospects. In fact, the growth potential took a sharp upturn with the CommunityWorks partnership, which could explain why the stock has recovered 20% from the recent low.
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SOURCE: Emerging Growth LLC