Tecogen Inc (TGEN) 2021 Q4 法說會逐字稿

Greetings and welcome to the Tecogen Year End 2021 Results Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Jack Whiting, General Counsel & Secretary for Tecogen. Please go ahead, Jack.

Good morning. This is Jack Whiting, General Counsel & Secretary at Tecogen. Please note, the call is being recorded and will be archived on the Investors section of our website at tecogen.com for a couple weeks. The press release regarding our fourth quarter and year-end 2021 earnings and the presentation provided this morning are available in the Investors section of our website as well.

I would like to direct your attention to our safe harbor statement included in the earnings press release and presentation. Various remarks that we make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q under the caption Risk Factors, which are on file with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC Filings.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. Therefore, you should not rely on any forward-looking statements as representing our views as of any date subsequent to today. During this call, we will refer to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. The reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in the press release regarding our fourth quarter 2021 and year-end earnings and also in the Investors section of our website.

I will now turn the call over to Benjamin Locke.

Thanks Jack. First, I'd like to explain that our earnings release came out a little bit later in the day than is typical. It's up there right now and, of course, is available on our SEC website. I'm going to cover everything in the earnings release right now. But I just wanted to start off saying as the agenda on Slide 4 indicates, I'll do a brief company overview, followed by a detailed review of our fourth quarter and full year 2021 results. I'd like to point out that Bob Panora is not on our call today due to a prior commitment but is available for any additional discussion offline, as needed. We'll then talk about the key takeaways from earnings and turn the call over to the operator for questions. As a reminder, this presentation will be available for download in the Presentations section of our Investors page on our website.

Turning to Slide 5, I'd like to provide a short overview of Tecogen. Tecogen sells and maintains clean and efficient energy systems to provide resiliency and energy savings to customers while reducing greenhouse gas emissions for a cleaner environmental footprint. Our solution helps industries and facilities reach their environmental goals for carbon reduction while also providing resiliency to grid outages. As seen on this map, Tecogen has deployed thousands of these systems, and we have a steady recurring revenue stream through our 11 service centers to provide contracted maintenance to these customers.

Turning to Slide 6, many of our distributed generation systems operate as microgrids as shown on the left here, with the ability to maintain operation during a grid outage. Since our ranking as third in a 2019 study for the number of operational microgrid systems in the United States, we have deployed an additional 114 InVerde systems in 52 different facilities for a total of over 14.2 megawatts of microgrid-enabled capacity. As the grid becomes increasingly burdened and congested, this microgrid feature allows resiliency to outages and relief from peak electric rates.

In addition to our distributed generation systems, Tecogen offers industrial scale chillers with lower operating costs and reduced greenhouse gas footprint than traditional chillers. Our chillers are sought after for process cooling and in health care applications, but we have had particular success with our clean cooling products for use in controlled environment agriculture facilities. These indoor grow operations use a tremendous amount of power to maintain precise growth conditions. Our chillers substantially reduce the amount of electric capacity needed to operate the facility, while simultaneously providing heat for the facility heating and dehumidification.

Operating our chillers in these facilities not only reduces their electrical costs and grid capacity needs, but also provides net greenhouse gas reductions when compared to the grid. As of this week, we currently have over 14,000 tons of our clean cooling chillers in controlled environment agriculture facilities. And lastly, our Ultera emissions technology is recognized as a cost-effective solution for reducing CO, NOx and hydrocarbon emissions across a wide range of engine platform and sizes. Our Ultera system comes standard on all of our products, whether local regulations require it or not, and further reinforces the cleaner environmental footprint of our systems.

Slide 7 provides some relevant facts about our clean energy systems we've deployed to date. As I mentioned, with over 3,000 units shipped, we've saved over 200,000 tons of CO2 generating more than 2.1 million kilowatt hours of electricity from over 52 million hours of run time. These numbers continue to increase as we deploy more of our clean energy systems to customers, which, of course, is reflected in the continuous growth of our service O&M revenues.

Before I turn the call over to Abinand for a detailed review of our fourth quarter and year-end numbers, I'd like to remind investors of our 3 main revenue streams shown on Slide 8. Our product revenue consist of sales of cogeneration units, microgrid systems, and chillers to a range of markets, including multi-unit residential buildings, hospitals, industrial processing and controlled environment agriculture facilities. Our service revenues primarily consist of our contract in O&M service with a small component of installation services. And our third revenue stream is from energy sales whereby we sell electricity and thermal energy produced by our equipment on site at the customer's facility.

With that, I'd like to turn the call over to Abinand to review our numbers in more detail, and then I'll have some additional comments on takeaways for the year and comments about our expectations for 2020. Abinand?

Thank you, Ben. Tecogen had a successful fourth quarter with higher revenues than previous quarters in 2021 and positive income from operations. Net income was $63,000 or $0 per share. We also generated cash from operations and our year-end cash balance was $3.6 million. Revenues were $7.18 million, which is a 27% increase compared to Q4 in 2020. The largest gains in revenue were in the Products segment. Our service revenue, although down in total when compared to Q4 2020, were primarily due to reduced installation activity. Our O&M business was up 16.8%. As we have discussed in past earnings calls, we made a choice to curtail turnkey installations and focus our efforts on the higher margin portions of our business. As a result, overall gross profit margin was 48% in Q4 2021. I will discuss the details of segment revenue and gross profit in a moment.

For the full year 2021, our earnings per share was $0.15 per share. Net income was $3.69 million. This was predominantly driven by the forgiveness of the Paycheck Protection loans and the employee retention credit and the significant improvement in our gross margin and operating income. I also want to highlight that in fiscal year 2021, we generated cash from operations of $465,000. For 2021, our revenue decreased 13.6% compared to fiscal year 2020. The largest change was in the Services segment due to our decision to minimize installation activities. In fiscal year 2021, our operational expenses decreased 23% from $16.7 million to $12.8 million.

The fiscal year 2020 OpEx included $2.8 million of goodwill impairment charges associated with our energy production contracts acquired with American DG in 2017. COVID resulted in some facilities ceasing operations in 2020. As a result, we determined that the underlying contracts were impaired, and we reduced the associated goodwill value. In fiscal year 2021, we had no goodwill impairment charges associated with the ADG assets. Q4 adjusted EBITDA. Our adjusted EBITDA was positive at $284,000 in Q4 2021. This is predominantly from improved operations in the fourth quarter. Adjusted EBITDA in Q4 2020 was a loss of $929,000.

I would like to emphasize that we did not receive any employee retention credit or other government assistance in the fourth quarter and these results are purely from operational improvements. Year-end adjusted EBITDA. Adjusted EBITDA for the full year 2021 was $667,000. This number is favorably impacted by $1.2 million of employee retention credit. Compared to 2020, this is an improvement of $2.8 million. Without the employee retention credit, this still represents an improvement of $1.6 million compared to fiscal year 2020.

Q4 performance by segment. Product revenue increased by 92% quarter-to-quarter. There was a 257% increase in chiller shipments. The product backlog for chillers is also strong and Ben will discuss that more later. As we outlined in our letter to shareholders last year, we continue to focus on segments of the market where we believe Tecogen has significant competitive advantages. As can be seen by chiller shipments, this strategy is starting to show results. In many of the controlled environment agriculture projects, we are able to sell chillers concurrently with our cogeneration equipment.

Service revenue declined 6% quarter-to-quarter. However, when we look more closely, installation revenue is now almost 85%. These installation projects have less than 10% margin, and we made a conscious choice to limit such projects. Our service contracts or O&M revenue is up almost 17%. This is driven by our Canada operations, contract escalations and new units starting up. Energy production decreased 9% predominantly due to seasonal variations and residual impact of the COVID pandemic on some customers. The overall gross margin across all segments was 48%. Overall gross profit rose 47% quarter-to-quarter from $2.3 million to $3.45 million.

Performance by segment for the full year 2021. Product revenue decreased 12% year-on-year. This was due to lower-than-normal product shipments during the first 9 months of the year. In Q1 and Q2, the low product number resulted from COVID-related declines in sales activities. Our sales cycle can take upwards of 6 months and the restriction in sales related activities in 2020 resulted in lower product shipments in 2021. In Q3, we saw supply chain disruptions that resulted in a delay of product shipments resulting in reduced revenue.

As we discussed in our previous call, we believe that although supply chain issues and labor shortages continue to be prevalent, we believe that we have taken appropriate steps to mitigate disruption to our business. In fiscal year 2021, we saw a 340% increase in chiller shipments. Some of these results from our strategy to focus on clean cooling. However, the 2020 number also included a higher-than-normal amount of cogeneration orders. In 2020, we had a large order for cogeneration systems in Canada. Going forward, although we expect chiller sales to be strong, we are finding that some of our chiller projects also lead to concurrent cogeneration sales.

Services revenue was down 16%. This is primarily because of the 81% decrease in installation activities. The service contracts or O&M revenue is a high margin recurring stream, which continues to grow year-on-year. In 2021, we saw 15% increase in our O&M revenue with a corresponding increase in margin from 37% to 51%. Across the board, we saw margin increases in all our segments. This resulted in an overall gross profit margin of 47%, up from 38% in 2020. As a result, our gross profit increased 7% to $11.5 million from $10.8 million.

At this point, I'll hand over to Ben to do the earning takeaways.

Thanks, Abinand. Turning to Slide 15, I'd like to discuss what I feel are the important takeaways from the quarter in the full year 2021. First, we continue to see a recovery in product sales from the economic challenges due to COVID. While our product sales were down for the year compared to 2020, we finished the year strong with fourth quarter product revenues coming in at almost 2x product revenues compared to the fourth quarter of 2020. We expect product revenue to continue this pace as demand for our systems continue.

Our backlog as of yesterday is $11.8 million, consisting of an even mix of cogeneration and chiller systems. It is important to note that our backlog is in the business areas we are focusing on based on growth potential for our clean cooling solutions, such as process cooling and controlled environment agriculture facilities. As I mentioned in the earnings release today, controlled environment agriculture is a fast-growing industry we are focusing on given the tremendous benefits of our clean cooling solution.

We have dozens of facilities using our systems to reduce energy costs and dependence on the grid while many more in design as the growth needs for year long, high value crops increases. Part of our focus on expanding chiller sales is through the expansion of sales network by adding manufacturer’s representatives and sales agents in geographies and markets where we see the most potential for our cooling products. These sales partners are an important way to cost effectively reach customers for our products and establish long-term sales networks in new and expanding geographies. In 2021, we established 3 new manufacturer representative agreements and 3 new strategic partnership arrangements for our clean cooling products.

While each of these arrangements will lead to different degrees of sales return, the agreements are an effective way to grow sales presence while utilizing internal resources efficiently. Second, we continue to see consistent growth in our Service O&M segment. While the Service segment as a whole was down 16% year-over-year, as Abinand mentioned, this is directly attributable to the installation projects that concluded in 2020. Our service O&M in parts, which is the true driver of repeatable revenues, was up 15% year-over-year and 17% quarter-over-quarter with gross margins increasing to 51% versus 37% in 2020. We are very proud of the work our supervisors and technicians do, keeping our fleet operational every day, every week, every year, which keeps our service revenues growing strong.

The third takeaway is the corporate improvements we began in late 2020 and continued throughout 2021 have resulted in improved margins in both product and service segments. And we have implemented operational and manufacturing improvements that put us in excellent position to deliver our production backlog in 2022. Lastly, our balance sheet is strong with cash at the end of the year of $3.6 million. Since the end of the year, we have added to this balance with current cash at $4.2 million. It is important to note that our cash balance will be further bolstered when we receive the $1.2 million of the employee retention credit later in 2022.

Turning to Slide 16. We continue to stay focused on the pathway to growth we shared earlier this year. We indeed made progress focusing on markets where we provide the best solution for energy savings and resiliency, such as indoor cultivation facilities. We will continue focusing on cannabis cultivation, given the abundance of activity in that space and already have a dominant position in some regional markets. We've set a goal for ourselves to have sales to customers representing at least 30% of Canada's cultivation facilities, over 10,000 square feet.

Next, we're making good progress on the development of our hybrid drive air cooled chiller, which will fill a gap in our Tecochill offering. The hybrid drive will substantially expand the sales potential for Tecochill in many of our markets where an air cooled chiller system is needed. Our goal remains to have the hybrid drive product ready for pilot operation in late 2022 with sales beginning in 2023. I'll provide more updates over the summer as the system comes together.

And lastly, we see a promising opportunity for our technology as it is an important foundation for clean and efficient microgrids. For a facility looking for resiliency or independence from the grid, our clean cooling products provide the first level of cost savings and resiliency. And our modular InVerde system, with its proprietary inverter and microgrid controls, can provide the additional power generation needed for complete grid resiliency and integrate other on-site power systems to maximize savings in greenhouse gas benefits. I hope to continue showing results against these goals and look forward to providing updates over the next few months.

And with that, I'd like to turn it over to the operator for questions.

(Operator Instructions) Our first question today is coming from Amit Dayal from H.C. Wainwright.

Well good to see you guys making progress as the economic recovery is taking place and the financials are starting to reflect that. With respect to the 2022 outlook, are we going to be dependent on any particular end market to sort of drive growth? Or are you seeing [really the growth in] your key segments?

Yes, sure. I think where our backlog is -- and by the way, our backlog is entirely product. There's no more installation activity planned right now. We might have some little bits of installation come up in the future. But as Abinand indicated, most of that installation activity was finished up in 2020-2021. So the backlog is entirely product, which means that much more near at hand, which is good. And it's a pretty even mix of cogen and chillers. The chillers are not just indoor cultivation. Of course, we're doing very well with that. And we're wise to focus our resources on that which we're doing well in. So we continue to do focus on that, but we're also still selling the chillers to our traditional multi-unit residential and hospitals and assisted care facilities.

So all the verticals are still intact. It's just the indoor cultivation one is really doing well for us. And the cogen sales, of course, are there as well. We had a nice order. You might have seen, Amit. About a month ago, it was chillers and cogen, and it was really a good testimony to the model of, okay, here's your facility. You want to reduce the massive electric load. Let's first put out the chillers on gas, which is what we did, 3 Tecochills, 1,600 tons, and then whatever power needs they need afterwards, let's point a bunch of InVerdes. So we put in 8 or so InVerdes in that site, and it was a nice, tidy, efficient solution.

And that's the type of things that we're seeing more of. So again, in summary, Abinand -- Amit, I think we're seeing the main verticals we've always seen. There's not so much incentives anymore. I understand that New York incentives aren't there anymore. Massachusetts incentives are starting to go away. I think it's important that we're finding traction in these markets without incentives because the natural market drivers are bringing them to us. So I hope that answers your question.

With respect to these new air cooled chillers that you are looking to maybe launch later this year or early next year, can you give us a sense of the market opportunity, sales strategy and whether this product line maybe cannibalize your existing offerings?

Yes, sure, sure. And the quick answer is no, absolutely not. It's completely complementary. In terms of how chillers are done, you either have a chilled water loop with the cooling tower, like a hospital will have or another facility won't want to have all that infrastructure. They won’t want to have a cooling tower and a chilled water loop. They just want to have an air cooled chiller that -- the vent -- it's heat to the atmosphere, not to this cooling tower. And so as you walk down the street, for every 2 big buildings, for every 5 big buildings, maybe 1 or 2 of them have a circulated hot water, a cooling tower. The other 3 or 4 all have air cooled chiller. So it was indeed a gap in our offering.

Indeed, Amit, sometimes when we're doing sales, we're not trying to necessarily sell them on the Tecochill. We're trying to sell them on a chilled water loop, which is a more sophisticated and industrial scale way to cool buildings. But some people just opt for an air cooled solution because sometimes that's an easier infrastructure thing to do. So we've got an air cooled product we had for many years, but it's not very sophisticated. And it certainly didn't have -- not up to the efficiency of some of these sealed-bearing compressor technologies that are out there that are super efficient.

So what this new product is going to be is it's going to be an air cooled chiller. So now when we come across those buildings that don't want to have a chilled water loop, they want to put on an air cooled chiller, we've got a solution for them. It's not something that's antiquated technology. Indeed, it's using all the hermetically sealed compressor technology that's out there today. So it's completely complementary to us. And I'll let, Abinand maybe chime in a little bit too because he has some market perspective as well.

Yes. Amit, I think one of the key things with this air cooled chiller is it brings the advantages of the existing Tecochill, which is the combination of hot water and chilled water at the same time. But also, it does a few other special things. One is it can run on both the electrical grid or the engine or a combination of the 2. And then on top of that, as Ben already mentioned, right, it doesn't need a cooling tower. So what this allows us to do is to go after some of the process cooling market that we're just not able to address right now.

So you look at a lot of the places where you end up using a cooling system, not everything needs as large a system as we currently sell, right. And then on top of that, there's a lot of places where you want additional resiliency by having the engine and the grid. And you particularly look at sort of the lab market or the biotech or a lot of the food processing. There are certain areas where we bring some real big advantages, so we can bring that air cooled chiller on there. And you might – it also allows us to hit buildings that are a little smaller. So right now, even on the cannabis side, just to give you an example there, we need about a 200-ton chiller.

So one of our smaller chiller is for every 10,000 square feet. But if you have a facility that's a little smaller than that, then they may not want to put a cooling tower in there. With the air cooled chiller, you can go out there. You can put this in very quickly. So you get a much, much larger segment right now. I mean, typically the air cooled segment tends to sell in like 2, 3, sometimes even 4x the number of volume compared to a water cooled system. And especially in the markets that we're targeting, where we can bring that hot water and the chilled water at the same time, we can bring the same savings that we have with our other chillers, but really go and disrupt some of these other process cooling markets.

Understood. And just maybe on the operating cost side in terms of outlook. What should we look for 2022? Similar levels to 2021 or any other sort of investments or increases in expenses that may take place this year?

So we're expecting pretty similar OpEx other than sort of the usual cost of living type changes that every company goes through. We're expecting pretty similar OpEx numbers. One thing that you will see quarter-to-quarter, and I want to highlight this, is our selling expenses sometimes will change quarter-to-quarter depending on how much is done through the manufacturer's reps. And that just -- we pay external commissions. It just moves our selling expense number up or down quarter-to-quarter. The baseline number should remain pretty constant 2021 to 2022. We're not expecting any large changes or any major changes within the company.

Your next question today is coming from [Michael Zuk], from a private investor.

Congratulations on a very successful year. My question is directed toward geographies. Can you give us an update on what we're doing in New York City and in Florida and in California?

Sure. I'll go respectively. So in New York, as I mentioned, the incentives aren't there anymore, but that's fine. Those incentives were good, but they had a lot of strings attached that were kind of a pain in my neck in terms of closing up projects, et cetera. But I'll tell you that the economic drivers in New York stand on their own right now. Electric rates were just -- so, [Mike], of course, with the ADG assets, we get pretty good visibility at electric rates and they're going up. They're going up. And what was maybe an okay value proposition in New York is now a more compelling value proposition. So I think the economics in New York are getting stronger and we have kind of taken it upon ourselves to revisit some of the projects that will now have very compelling economics.

So even without the incentive and even with this sort of natural gas kind of sideways looking things that's going on in New York, the economics going to stand for themselves. So I think New York, with rising electric rates, is going to still be a market for us. Florida, indeed, still continues to be there. The fact that we've got a service center down there now has helped our ability to attract new projects. Now we can reach in the Georgia a little bit, in fact. So we're looking at some grow operations there. It seems to be mostly chillers, I think, in Florida, Mike , because the spark spread is the way it is. But because there's a lot of, again, industrial grow facilities and just a lot of industry down there in Florida in general, the chillers is where we're finding a home.

California, Mike , still is a challenge. They got the spark spread and everything, but they have a lot of difficulties and biases against the on-site generation that make it more difficult for us. Now, I think, what my hopes and dreams are for California these days, Mike , is in the cannabis in the street getting themselves on their feet. And they're fiddling around in California. They've got this big California city project going on there and they're issuing permits, but it's a very -- it's not the same process, an orderly process, like for example, we followed in Massachusetts and we're following in New York and following with New Jersey in terms of how they put out permits. They kind of put out permits to anybody and it becomes very difficult to track down who's actually doing what. But my long way of saying my hopes and dreams for California really reside with the indoor cultivation side of things just because on-site generation continues to be a bit of a prickly point for the utilities out there, unless you're solar or cold fusion or some other such thing.

Perhaps opportunity. Is there any opportunity in EV charging stations using our systems?

Sure. We've thought about that, [Mike], and indeed you get these remote locations that maybe can't get enough 3-phase power there to do the fast charges that are needed. You can't just have the slow charges. You need to have the power infrastructure to have to do the fast charging and you need to be able to do them on a big scale, these speedways outside on the highways, et cetera. And so indeed that's an opportunity, Mike . We're kind of up against other things that might be able to do the same thing. Ideally, we could find, of course, a home for our unit that could do all that and provide the heat for some useful purpose. So that you're indeed getting that full efficiency of our system down there as opposed to just having some generating asset like the cartoon of a EV plugged into a box, a house, as a big diesel gen set inside the house. We don't want to be that. We want to be efficient. So finding those opportunities is a little more challenging.

Can I -- I just want to add...

Go ahead.

I think Abinand has a core commentary to that because he's actually looked at EV charge and he were looking at from the solar side back then in the day.

Yes, but I wanted to actually also address the earlier thing of the New York thing, the market because New York City is one thing. But what we're also finding is the Greater New York area is still very, very active for us because you look at -- I mean, not just when I say Greater New York, I'm including New Jersey as well as Long Island and some of the surrounding regions because they've seen much higher electrical rates and there still continues to be a lot of demand for both cogen as well as the chiller products.

And I think that's going to continue to be the case. And I mean we're still doing projects in New York without an issue. But a lot of markets in other parts of the country as well that earlier may not have had as much of a viability because of the low electrical rates are starting to become much more viable like Michigan, sort of, Memphis. Those kind of areas are starting to get much higher rates, more driven towards time of day type rate again that favors our chiller products. So you're likely to see things from our -- from us over the next few years where markets where we didn't operate in might actually be completely viable.

And there is a follow up. Is anything happening in Canada? I know the relations between the United States and Canada are somewhat strained, but we had made significant progress in Canada. Any updates on what's going on there?

Yes. Well, the biggest update is that fleet's running fantastically. The uptime of those 31 units or whatever it is that we got under contract, I mentioned a few months ago, is phenomenal. And that's a great thing for our service revenue. That increase we saw in service O&M, [Mike], that 16% of wherever it was quarter-over-quarter, large part from that's -- that's that Toronto facility running and that's going to happen every quarter for the next 20 years. So that's pretty promising. Now in terms of new opportunity up there first off, any type of trade or international, nothing really matters to us there. Nothing's really inhibiting us there. There are opportunities. I think where we're seeing opportunities up there is, again, it comes down to these indoor cultivation facilities.

They have a lot of clean power up there, Mike . So some of the natural drivers aren't there because they've got all the hydro up there. So the carbon footprint of the -- for the grid is pretty good, but I think where we're starting to see drivers, again, are these facilities where they just need more power than the grid can give them. They need 3 megawatts and the grid can only give them one. And so they're looking for supplemental power. So we're making progress up there. I mean, getting Toronto service up and running towards fullest potential was our main goal in 2021 to be sure. And we got that done. And now that those fellows that are up there can start to look at other business development opportunities up there. It's pretty key have. It's important to have a guy on the ground to be able to look at these opportunities and find them. So hopefully we'll be getting more business up there.

So from that answer, do I glean that we have direct sales in Canada? Are we also pursuing manufacturers reps?

Yes. It's a good question, [Mike]. So we don't have a direct sales up there per se. The guy we have up there is the guy that's managing the fleet. But of course, he's a smart fellow and he can hold his end of a conversation with a potential customer and walk a facility. And that's exactly what we want out of these service supervisors, but he's not a salesperson per se. He'd probably hit me if I told him he had anything to do with sales. But importantly though we are starting to establish some arrangement. These 3 partnerships that I kind of mentioned occurred in 2021. Without giving too much detail of them have geographies that go into Canada. Some of those partnerships were based not on geography but based on a market vertical, for example, indoor cultivation. So we do have some indirect sales resources up there.

And then any potential in the Texas market?

Say that again, [Mike]?

Any potential in the Texas market?

Oh, Texas. Yes, sure. We spent a little time in Texas, but I'll tell you no, that the spark spread is really difficult there. The electric rates are pretty inexpensive. Despite everything that happened, of course, a few years ago with our cut mix and everything, electric rates are pretty good down there. And I think we've got -- we do have our – you might remember Vilter is our partner for Tecofrost, [Mike]. Vilter provides the refrigeration component of our Tecofrost. And so we're kind of shoulder to shoulder with Vilter, trying to sell these in this market -- refrigeration market. And they've got folks in Texas that we've been interacting with and trying to see if there's a good market for us there. But if the spark spread isn't there, I'd much rather focus my valuable resources on where it is or rather than try to find something that may not be there. So we've got our eyes on Texas, but it's just not in my top -- really not my top 10, Mike , to be honest with you.

Again, congratulations for a good year. And I think you've directed the company in the correct areas where the growth and the profits are. And I look forward to a very productive 2022.

Thanks, [Mike]. And just a note on that. We fully intend to keep it up, right? I mean, that's the goal here. Keep up those product revenues. The service keeps growing. We are profitable this quarter. All the cost changes that we made and all the improvements we had aren't temporal. I mean, they're long lasting. We’re running the company in a very lean manner right now. So I'm really looking forward to keeping this up.

(Operator Instructions) Our next question is coming from Alex Blanton from Clear Harbor Asset Management.

Have you published a backlog figure?

Yes, yes. The Backlog, that was $11.8 million Alex. And yes, that was -- it was in the -- is in the press release. Oh, actually, I don't think it was in the press release. It was in the earnings, but it's $11.8 million, and that’s, Alex, all product. There's no install in that.

Where do we see that? It's not in the press release.

Yes. It's not on the press release. It's in the earnings presentation, Mike, (sic) [Alex] which is on -- again on the website.

This is Alex.

Oh yes. Sorry. I was just talking with [Mike]. Yes, thanks Alex.

Well, the presentation is not on the website. At least I can't find it.

Yes. If you go to the Investors section of the website and click on that black bar on -- it should be there, Alex. But I think what we'll do is we'll just email it to you just to make sure that you have it. It's easy enough that way.

Well, shouldn't it be with the third quarter presentation? There's a fourth quarter presentation.

Yes. It should be on there, Alex. And if it’s not on there, it's because I've been arm wrestling with our IT provider all morning. That's why our earnings came out a little bit late as well. So if it's not on there right now, it will be very shortly.

Okay. Does it include the breakdown of the backlog according to markets?

It does. It does indeed, Alex. And...

A pie chart.

Yes, it does indeed. And I can tell you what it is and I'm sorry you can't access it very quickly, but I'll go by size. So multi-unit residential still remains strong at 20%. The CEA space, Alex, controlled environment agriculture is up to 27%. That's higher than it's been in the past. Hospitality, hotel, 14%; healthcare, 11%; other, which is kind of a mix of I think universities and some assisted living, is about 30%. So the indoor cultivation right now is almost a little under a third of what the pie chart is.

So what were the big contributions to the backlog in the fourth quarter? The orders? We didn't really get a lot of order news during the quarter, so I don't really have a feel for that.

Yes, sure, sure. I think -- and by way, Alex, just by way of editorial comment here we're trying not to put out press releases on every little order here because it just -- I think it becomes an echo chamber and it costs money. And so I would rather just announce the ones that are material. And I think that the material orders that you probably would've seen, of course, with us, one where we had a combination of cogen and chillers. I didn't mention the geography. I was trying to be very respectful of the facility. But it was 1,600 tons of chillers in these 8 cogen units. So that's something that's material. And that went into the backlog and we're working away on those units right now.

Okay.

Yes, and then we had another one, Alex, in January where we had a New York hotel that wanted to actually expand upon. We had some chillers there. Now they wanted to put in some cogen. Again, this is this model that we're seeing, where it's okay. The first thing I did is I'm a smart person. I put in your chillers. Now I'm trying to be even more smart by putting in some of your marginal cogens. And that's exactly what this hotel did. They're putting in a megawatt of our cogens to supplement that facility.

So those are -- those 2 big ones -- that first one was in November, the 2.5-megawatt system for controlled environment agriculture. The 1 megawatt for the hotel was in January. Those are a pretty decent component of our backlog. The rest of it, Alex, there's some cats and dogs. There's some couple of InVerdes in there. There's a few STxs. There's a few of our Tecopowers in there that I didn't feel was relevant to announce on the onesey-twosey basis. It's the big orders that I think that are representative of the markets that we're going after, that we're trying to publicize anyways.

That hotel, New York City? Is it...

It is in New York City, yes, in the five boroughs.

Is this a -- hotel is part of a chain, or just a standalone?

Now, I can't tell you, Alex. I will tell you this, Alex. The developer of this hotel -- this owner of this hotel is a really big fan. And he really appreciates what we're doing and helping him with. And as such, I'm trying to be very respectful of his own brand and how he chooses to represent himself. I would never want to have my bragging about having my equipment in there go against however he's positioning the hotel. There might be a joint press release, in fact, once we get these things running later this year, but I'm certainly deferring to his own judgment on that.

Well, that would be really welcome, that kind of publicity for the company. The reason I was asking was if you get a chain of hotels to adopt your equipment, that would be very, very welcome. So that's why I was asking that question. Another question on California. You said that, in California, the utilities were prickly about on-site generation. Could you fill in a little bit on that? What is the reason for that?

Yes. Well, I guess it really depends on the type of on-site generation. If you're using a fossil fuel to do on-site generation like natural gas, then you're not eligible for any of the SGIP benefits, incentives. You are eligible for the standby tariffs and the non-bypassable charges that take a very good adjustable electric rate and makes it less addressable. Instead of $0.16 per kW, well, the non-bypassable charge is $0.03. The standby charge is this. It doesn't become a very good economic proposition. So it’s really the way that fossil on-site generation is differentiated from other types of on-site generation, which is a bit frustrating.

I think I probably said this to you, Alex. Fuel cells are out there. Yes. They can run on hydrogen. That's great, but there's no hydrogen out there. So what are they running on? Natural gas, which is a fossil fuel, but they get kind of special dispensation for doing that. It's electron discrimination. But what can I do about that? And I'll tell you what I try to do about that, Alex. I try to beat the system in a different way, by, again, going after their cooling loads. And the cooling load, if I put a 200-ton chiller in there, well, now I am addressing that full $0.16 electric load that's now being mitigated.

Do they care about whether or not there's any carbon emissions from your generation units?

Oh, of course. Of course. Yes.

Do they take that into account? Because if there isn't any, what's their objection. That doesn't make sense.

Yes. Yes. Well, I guess they would say, Alex, and in the fullness of time, our grid is going to be clean 24/7. And therefore, any alternative to the grid would be a bad alternative. Now, of course, that's true for maybe a few hours a day when the sun is shining, and the grid is indeed clean.

How are they generating their electricity?

Well, again, it’s a combination of solar. But when the sun goes down and the wind stops blowing it's the same combined cycle -- gas.

They're not doing the whole thing from clean energy, but they’re objecting you providing it. Is that it?

Yes. Yes. Alex -- and believe me, we're both scratching our head looking over there about why they think the way they do. But I can't change that. But what I can do is be clever and that's what I'm trying to do with this hybrid drive, which is okay, look fine, fine. I admit it. The grid's better than me sometimes of the day. I'll defer it to you, when this chiller is going to keep your building cool, while I seamlessly transition over to this perfect imaginary grid, right. But again, when the sun goes down and the wind stops blowing, we would seamlessly transition right back to the gas engine drive, right.

Because now we're cleaning the grid and it's not one or the other. It could be 100-0, 80-20, 60-40, 50-50, and ramping on downwards. That's the beauty of this hybrid drive is we can take the right blend of those 2 together, but that's the way I'm going to be successful in California, Alex, is what this hybrid drive that acknowledges this -- the notion that the grid's going to be cleaner most parts of the day. And I would say fine, however, you're clean, I'll run on you, but when you're not clean, I'll run on what I normally run on. And so that's the way I think I see ourselves getting around this little conundrum of California. So I hope that kind of makes sense to you.

Yes, fine. One final question, how -- you just said your cash went up in January. What was the reason?

Hard work and collections.

Okay. You [pressured some]....

Yes. You might have noticed, maybe you didn't noticed, Alex. Our unbilled revenue number went down. And so slowly chipping away at that, you might remember what the unbilled revenue number is there, Alex. It’s this New York incentive that was tiered 1/3, 2/3, 3/3. And that 3/3, that last bit, was -- required every I to be dotted in the perfect sense and so on. And so we've been chipping away at that and making good progress on that. But again, part of it is just being a little bit more smart about our collections and Abinand certainly and his team have been doing a lot.

So some of it, Alex, is also because of the type of products we're selling now with the chillers -- because we essentially have a much stronger – we have very little competition that we're able to get a much larger deposit out of clients before the units even shipped. So generally, our cash cycle is much better than it's ever been. And then on top of that, of course, collections and then the combination of collecting all this rebates that we have outstanding from NYSERDA and various entities.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Well, again, thank you, everyone, for your participation and listening to our earnings call. We're pretty excited about what we've accomplished here in 2021. And it's not too long from now that we'll be having our Q1 results. And we're pretty excited about what we'll be talking about then. So until then, thank you for investing in Tecogen and we're happy to take any questions if people want to reach out to us directly.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.