TECOGEN INC. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 23, 2023. The filing reports annual results, not standalone fourth-quarter results. Tecogen designs, manufactures and services natural-gas CHP systems, chillers and heat pumps, and also sells energy under long-term agreements. Its three segments are Products, Services and Energy Production.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $25.00 million | $24.40 million |
| Gross profit / margin | $11.07 million / 44.3% | $11.59 million / 47.5% |
| Operating loss | $2.35 million | $1.22 million |
| Net income (loss) attributable to Tecogen | $(2.45) million | $3.70 million |
| Net income (loss) per share | $(0.10) | $0.15 |
| Cash from (used in) operating activities | $(1.35) million | $0.47 million |
| Cash and cash equivalents, year-end | $1.91 million | $3.61 million |
| Working capital, year-end | $14.34 million | $16.19 million |
Products revenue rose 10.1% to $11.16 million, led by cogeneration sales; service revenue fell 3.7% to $12.06 million, principally because installation revenue dropped to $257 from $938,831; energy-production revenue increased 2.7% to $1.79 million. Products gross margin contracted to 33.5% from 44.7%, primarily due to higher material costs. Service gross margin improved to 54.2% from 51.0%; energy-production gross margin rose to 44.2% from 38.2%.
Operating expenses increased 4.8% to $13.42 million, including higher general and administrative and R&D expenses; selling expense declined. The 2021 net profit included $3.77 million of PPP loan-forgiveness income and $1.28 million of employee-retention credits. Those items did not recur in 2022, contributing to the year-over-year net loss.
Year-end current assets were $22.03 million and current liabilities were $7.69 million. Inventory increased $2.72 million to $10.48 million, while accounts receivable declined. The company reported no notes payable at year-end; operating lease liabilities totaled $1.31 million. Future minimum operating lease payments were $1.45 million before imputed interest. Management said current resources and expected operating cash flows should cover working-capital needs for the next 12 months, but noted that growth, chiller development and facility relocation may require additional debt or equity financing.
Changes, outlook and risks
- Revenue increased 2.5%, but gross margin declined 3.2 percentage points and operating losses widened. Cash used in operations increased from $1.82 million net cash provided in 2021.
- Product and installation backlog was $6.72 million at year-end, down from $11.32 million a year earlier. Backlog excludes service-contract and energy-contract revenue and may change with customer financing, permitting or project delays.
- Management cited supply-chain constraints, inflation in materials, customer order deferrals, and facility closures or remote work affecting service and energy-production activity. Product sales are high-dollar, low-volume and difficult to predict.
- The company introduced its Tecochill Hybrid-Drive Air-Cooled Chiller in February 2023 and expected incremental revenue in the fourth quarter of 2023; this is an expectation, not a quantified forecast. It also established NetZero Greens to pursue low-carbon controlled-environment agriculture.
- After year-end, Tecogen agreed to assume maintenance agreements covering 202 cogeneration systems from Aegis Energy Services, anticipated to close April 1, 2023. Terms include $170,000 for vehicles, an inventory purchase exchanged for a $300,000 equipment-purchase credit, and revenue sharing with Aegis for up to seven years.
- A Canadian lawsuit alleges a Tecogen cogenerator fire caused facility damage and seeks CDN $1 million. Tecogen recorded a $150,000 reserve for anticipated costs potentially not covered by insurance. The company also has guarantees related to previously sold energy-producing assets, though it did not expect material payments under them at year-end.
- Three energy-production customer sites ceased operations during 2022; associated asset impairment was $156,655, partly offset by a $151,981 noncash reversal of unfavorable contract liabilities. No goodwill impairment was recorded.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022, citing a material weakness related to the small number of employees handling IT security and user access controls. The independent auditor issued an unqualified opinion on the financial statements, but did not audit or opine on internal-control effectiveness.
- Other material risks include dependence on suppliers and major customers, exposure to natural-gas/electricity price spreads, regulatory and utility interconnection barriers, customer-contract expirations, potential financing needs, and limited OTCQX share liquidity. One customer represented 12% of 2022 revenue.
Most important facts for investors to verify
- Whether operating cash flow and cash balances stabilize, and whether Tecogen obtains additional financing on acceptable terms.
- Whether backlog converts into shipments and revenue, including the effect of supply constraints, permitting and project deferrals.
- Whether product margins recover from material-cost inflation and whether the new hybrid chiller generates revenue as expected.
- Whether the Aegis maintenance-agreement transfer closes and adds profitable recurring service revenue after revenue sharing and related costs.
- Progress in remediating the disclosed material weakness, and developments in the Canadian lawsuit and energy-asset guarantees.