Tecogen Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparison with FY2020. Tecogen designs, manufactures and services natural-gas engine-driven combined heat and power systems, chillers and heat pumps, and sells energy under long-term agreements. Its segments are Products, Services and Energy Production.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $24.40 million | $28.25 million |
| Gross profit / margin | $11.59 million / 47.5% | $10.83 million / 38.3% |
| Operating loss | $1.22 million | $5.96 million |
| Net income (loss) attributable to Tecogen | $3.70 million | ($6.15 million) |
| Basic and diluted EPS | $0.15 | ($0.25) |
| Cash from operating activities | $0.47 million | $1.41 million |
| Cash and cash equivalents at year-end | $3.61 million | $1.49 million |
| Working capital at year-end | $16.19 million | $13.02 million |
| Note payable at year-end | None | $1.87 million |
FY2021 net income included $3.77 million from forgiveness of two Paycheck Protection Program loans and $1.28 million in Employee Retention Credit benefits. The company therefore remained loss-making at the operating level despite reporting net income. Operating cash flow was positive but lower than in 2020. Year-end current assets were $24.97 million and current liabilities were $8.78 million.
- Products revenue: $10.13 million, down 11.6%; cogeneration revenue fell 64.6% to $3.26 million, partly offset by chiller revenue rising 340.1% to $5.72 million.
- Services revenue: $12.53 million, down 16.2%; maintenance-contract revenue rose 15.0% to $11.59 million, while installation revenue fell 80.7% to $0.94 million.
- Energy Production revenue: $1.74 million, down 5.3%, or 7.1% of consolidated revenue.
- Gross margin improved by 9.2 percentage points, which management attributed mainly to a lower proportion of lower-margin installation activity.
- Total product and installation backlog was $11.32 million at year-end, versus $8.27 million a year earlier; it excludes maintenance and energy-contract revenue and may change or be delayed.
Liquidity, debt and financial position
Cash increased by $2.12 million during 2021, including $1.87 million of proceeds from the second-draw PPP loan; that loan was forgiven in September. Both the original and second-draw PPP loans were forgiven during 2021. The company reported no note payable at year-end, but had $1.96 million of operating lease liabilities and $1.24 million of total unfavorable contract liabilities. Management said available resources, operating cash flows and anticipated ERC proceeds of $1.28 million were expected to cover working-capital needs for the next 12 months; growth may require additional capital.
Outlook, commentary and risks
- COVID-19 continued to cause supply-chain constraints, customer order delays or deferrals, installation and service disruptions, and weaker energy usage at some customer sites. Management said the duration and financial impact remained uncertain.
- The company began developing a hybrid air-cooled chiller in Q3 2021. It expected a prototype by Q4 2022 and incremental revenue in early 2023; these are expectations, not reported results.
- Management cited risks from component and supplier availability, long and variable sales cycles, changing fuel and electricity prices, utility interconnection rules, customer collections, and the expiration or modification of customer energy contracts. Backlog conversion is subject to customer financing, permitting and specification changes.
- Under agreements connected with prior energy-asset sales, Tecogen guarantees minimum collections and may owe shortfalls; management said it did not expect material guarantee payments based on projected site performance. In October 2021, one site’s minimum guarantee was reduced by $35,000 annually after the customer sold the site.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2021 because of a material weakness involving limited personnel responsible for IT security and user-access controls. Management was implementing remediation. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- The independent auditor reported no critical audit matters. No material pending legal proceeding was disclosed.
Key facts for investors to verify
- Whether core operations can reach operating profitability without PPP forgiveness or ERC benefits, and whether operating cash flow can improve.
- Whether the $11.32 million product and installation backlog converts to shipments and revenue, considering supply, permitting and customer delays.
- Collection and timing of the $1.28 million ERC receivable, alongside the $8.48 million net accounts receivable balance and $549,206 doubtful-account allowance.
- Progress in remediating the disclosed material weakness and improving disclosure and financial-reporting controls.
- Progress and commercial timing for the hybrid chiller, and exposure under the energy-sales agreements’ guarantees and customer-contract renewals.