TECOGEN INC. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Tecogen designs and sells natural-gas-fueled cogeneration systems, provides related maintenance services, and sells energy under long-term agreements. Figures below are in U.S. dollars.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $6.19 million | $5.38 million; up 15.0% |
| Gross profit / margin | $2.58 million / 41.6% | $2.09 million / 38.9% |
| Operating loss | $1.05 million | $1.45 million |
| Net loss attributable to Tecogen | $1.10 million; $0.04 per share | $1.49 million; $0.06 per share |
| Cash from operating activities | $248,216 | Cash used: $284,866 |
| Cash and cash equivalents | $1.51 million | $1.35 million at Dec. 31, 2023 |
| Working capital | $8.50 million | $9.82 million at Dec. 31, 2023 |
| Total liabilities | $14.85 million | $13.14 million at Dec. 31, 2023 |
Products revenue fell 12.8% to $1.49 million, primarily due to lower chiller sales. Services revenue rose 28.0% to $4.01 million, largely reflecting acquired Aegis maintenance contracts; Energy Production revenue increased 27.5% to $680,389. Gross margin improved mainly with higher service revenue, though Energy Production margin declined to 31.1% from 36.7% as gas and maintenance costs rose. Operating expenses increased 2.4% to $3.63 million.
Operating cash flow improved year over year, helped by inventory reductions and higher deferred revenue, but included a $500,516 cash use from lower accounts payable. Investing activities used $71,939 and financing activities used $17,112. Related-party notes payable were $511,905, including accrued interest, with the outstanding note due October 10, 2025. Lease obligations totaled approximately $2.20 million; acquisition liabilities totaled approximately $2.09 million.
Material changes and developments
- Q1 revenue growth was driven by Services and Energy Production, offset by lower Products revenue. Services growth included Aegis contracts acquired in 2023 and additional contracts acquired in February 2024.
- Backlog for product and installation projects, excluding service contracts, was $5.55 million at March 31, 2024, versus $7.05 million a year earlier.
- The company recorded a $1.43 million increase in right-of-use assets exchanged for operating lease liabilities in Q1, principally reflecting facility leases. Its new North Billerica facility commenced January 1, 2024; the former Waltham headquarters lease expired April 30, 2024.
- On May 1, 2024, Tecogen and Aegis amended their agreement to add 31 maintenance contracts; Aegis also agreed to assist in seeking contracts for 48 additional cogeneration units.
Outlook, risks, and unusual items
- Liquidity and going concern: Management said available resources, operating cash flows, and potential related-party borrowing are expected to fund operations for the next 12 months, but gave no assurance. It also said growth, chiller development, and facility relocation may require additional debt or equity financing. The filing highlights operating losses, an accumulated deficit of $43.98 million, and the risk that financing may not be available on acceptable terms.
- Operating outlook: The company cites new and expanded business, including hybrid-drive air-cooled chillers and maintenance contracts, as important to its forecasts. It reported a February order for three hybrid-drive chillers. No quantified revenue or earnings guidance is provided.
- Controls: Management concluded disclosure controls were not effective because of a material weakness involving general IT controls and a small number of individuals. Remediation is underway as resources become available.
- Contingency: A Canadian lawsuit alleges breach of contract, warranty, negligent misrepresentation, and nuisance relating to a cogenerator fire. Tecogen denies liability and maintains a $150,000 reserve for anticipated damages potentially not covered by insurance.
- Other risks: Management notes customer order delays or deferrals, facility closures, changing natural-gas and electricity prices, supply-chain and cybersecurity risks, and seasonal demand for chillers. It reported no material off-balance-sheet arrangements.
Investor verification priorities
- Assess cash runway, forecast assumptions, and whether additional financing or related-party borrowing will be needed; compare management’s 12-month liquidity assessment with the filing’s stated reliance on related-party financing.
- Track service-contract margins and the contribution, costs, and payment obligations associated with Aegis acquisitions and new contracts.
- Confirm the composition, timing, and conversion to revenue of the $5.55 million backlog and the status of the hybrid-drive chiller order.
- Review progress remediating the material weakness in IT general controls.
- Monitor the Canadian litigation and potential exposure beyond the recorded reserve.
- Reconcile the filing’s two different figures for Q1 revenue attributed to acquired Aegis contracts: $758,252 in MD&A and $758,762 in Note 7.