Tecogen targets 50%+ service margins and expanded data center orders as backlog reaches $4.7M

Earnings Call Insights: Tecogen Inc. (TGEN) Q2 2025

MANAGEMENT VIEW

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CEO Abinand Rangesh opened the call by highlighting progress in Tecogen’s data center strategy, stating the company "hit some key milestones and have generated leads for much larger projects." He announced the shipment of the first hybrid chiller units and discussed the launch of a new dual power source 300-ton data center-specific chiller, which is designed for minimal on-site engineering and offers "increased efficiency and more cooling at data center liquid cooling conditions." Rangesh explained, "We have signed our first LOI with a 100-megawatt-plus data center... delivering 6 STx chillers in Q4 or early next year, depending on the customers' construction schedule." He also noted the potential for a site expansion to over 500 megawatts.

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Rangesh addressed lower gross profit margins for the quarter, attributing this to the early stages of hybrid chiller production and increased labor costs in the Service segment, especially in New Jersey and Manhattan. He outlined initiatives to improve labor efficiency and stated, "With these changes and the increased InVerde service intervals, we are still targeting gross profit margins on service of greater than 50% within the next 9 to 12 months."

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CFO Roger Deschenes reported, "Total revenues for the quarter increased $2.5 million to $7.3 million, which compares to $4.8 million in the second quarter of 2024... due to a $3.1 million or a 54% increase in products revenues... offset by reductions in our service and energy production revenue segments." Deschenes added, "Our net loss decreased in the second quarter to $1.46 million, which compares to $1.54 million in the second quarter of 2024." He cited increased revenue and gross margins as key factors.

OUTLOOK

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Management aims to convert the recently signed LOI into a purchase order and is focused on securing larger orders, with Rangesh emphasizing, "Our goal is to attempt to sell all our capacity for 2026 to one or two customers even if this takes a little longer to secure."

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The company continues to target service gross profit margins above 50% in the next 9-12 months. Rangesh also noted ongoing efforts to remove factory and supply chain bottlenecks in the second half of this year.

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No direct analyst estimate comparisons were provided due to lack of sufficient data.

FINANCIAL RESULTS

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Total revenues for Q2 2025 were reported as $7.3 million, up from $4.8 million in Q2 2024. Net loss decreased to $1.46 million from $1.54 million in the prior year period. Gross profit increased 18%, while gross margin declined to 34% from 44% year-over-year.

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Product revenues rose to $3.2 million, with a margin of 29%—affected by higher costs for air-cooled chillers and a discounted prototype unit. Service revenue fell slightly to $4.0 million, with gross margin at 38%. Energy production revenue dropped to $174,000, with a gross margin of 25%.

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The company’s cash position stands at $18.7 million post-capital raise, and backlog is $4.7 million, not including new LOIs or expected cannabis project closings.

Q&A

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Alfred Shopland Moore, ROTH Capital Partners: Asked about the timeframe for converting the LOI to a PO and initial delivery, the evaluation phase, and the total opportunity size. Rangesh responded that risk purchasing of materials is planned, with partial shipment possible in Q4 and Q1. He estimated the initial 6 chillers represent "between $1.5 million and $2 million" and noted the project could expand to "20 to 30 chillers per phase."

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Moore further inquired about the likelihood of needing pilot phases for larger projects and the prioritization of modular data center opportunities. Rangesh explained that larger opportunities may not require pilot phases, as customers seek significant reductions in power allocation for cooling, and said, "If we can show them that we can actually hit a meaningful amount of their overall power needs... that's really what's driving that decision."

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Moore also asked about the dual power source chiller’s customer-driven design. Rangesh confirmed it was "almost fully customer-driven," with customers looking for air-cooled options and larger capacity units to save space and address specific cooling needs.

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Alexander M. Blanton, Clear Harbor Asset Management, queried about Vertiv’s potential role in expanding manufacturing capacity. Rangesh said the original marketing agreement "always contemplated Vertiv helping us with the supply chain" and plans to leverage Vertiv for larger opportunities.

SENTIMENT ANALYSIS

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Analysts expressed strong interest in Tecogen’s data center momentum, with Moore offering congratulations and probing for details on project scalability and customer demand, reflecting a positive yet inquisitive tone.

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Management maintained a confident and proactive tone, emphasizing operational improvements, customer-driven product development, and efforts to secure large-scale orders. Rangesh acknowledged short-term challenges but reiterated, "My goal is to maximize the value of Tecogen."

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Compared to the previous quarter, the tone is more focused on execution and scaling, with less emphasis on general market positioning and more on tangible project milestones and customer feedback.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language shifted from a broad data center market opportunity to specific milestones: converting the LOI into a PO and selling all 2026 capacity to major customers.

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Strategic focus expanded to include the launch of a dual power source chiller and operational measures to support larger-scale data center projects.

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Analysts’ questions evolved from general backlog and hiring to specific customer orders and product design, reflecting increasing interest in near-term execution.

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Financial results show a continued revenue increase but also highlight new cost pressures and margin challenges from ramping new products.

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Management’s confidence remains strong, now underpinned by concrete project leads and recent capital raise.

RISKS AND CONCERNS

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Management cited lower gross profit margins tied to hybrid chiller production and increased labor costs in service markets.

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Ongoing supply chain and factory capacity constraints were identified, with plans to address these through minor factory modifications and contract manufacturing.

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Project timing is contingent on customers securing anchor tenants and construction financing, introducing external risk to near-term order conversion.

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Service margin pressures from overtime and travel inefficiencies in Manhattan and New Jersey remain a short-term profitability concern.

FINAL TAKEAWAY

Tecogen’s management communicated clear progress on its data center strategy, highlighted by a signed LOI for a 100-megawatt-plus project, the launch of a new dual power source chiller, and targeted service margins above 50% in the coming year. With a strengthened balance sheet and increasing project pipeline, the company is focused on removing operational bottlenecks and converting large leads to orders, aiming to capitalize on growing demand in the data center market.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/tgen/earnings/transcripts]

MORE ON TECOGEN

* Tecogen Inc. (TGEN) Q2 2025 Earnings Call Transcript [https://seekingalpha.com/article/4813167-tecogen-inc-tgen-q2-2025-earnings-call-transcript]
* Tecogen: Huge Opportunity In Data Center Yet To Be Reflected [https://seekingalpha.com/article/4805021-tecogen-huge-opportunity-in-data-center-yet-to-be-reflected]
* Financial information for Tecogen [https://seekingalpha.com/symbol/TGEN/income-statement]