Tecogen Inc. (TGEN) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows a decline in gross margins and revenue, indicating financial struggles. Despite promising product developments and partnerships, uncertainties in tenant acquisition and unclear timelines for major projects raise concerns. The Q&A section reveals management's vague responses, further contributing to negative sentiment. Without market cap data, the overall outlook leans negative due to financial performance and uncertainties.
Key Financial Performance
Total Revenues $7.2 million, a 28.6% increase year-over-year from $5.6 million in Q3 2024, driven entirely by a 115% increase in product revenues.
Net Loss $2.13 million, an increase from $0.93 million in Q3 2024, due to decreased service margins from higher material and labor costs and increased operating expenses.
Gross Profit Decreased by 12% year-over-year, attributed to increased costs in the Services segment.
Gross Margin 30.4%, a decrease of 13.7% from 44.1% in Q3 2024, due to higher material and labor costs in the Services segment.
Operating Expenses $4.28 million, a 28% increase from $3.35 million in Q3 2024, driven by higher administrative and R&D payroll, recruitment costs, business insurance premiums, depreciation, stock-based compensation, and sales commissions.
EBITDA Loss $1.94 million, compared to $0.77 million in Q3 2024, due to decreased gross margins in the Services segment and higher operating costs.
Adjusted EBITDA Loss $1.7 million, compared to $0.75 million in Q3 2024, for similar reasons as the EBITDA loss.
Product Revenues $2.98 million, a 114.4% increase from $1.39 million in Q3 2024, driven by higher chiller and engineered accessory shipments, offset by a decrease in cogeneration shipments.
Product Margin 36.8%, a decrease from 42.7% in Q3 2024, due to higher material and labor costs and lower margins on initial shipments of RA cool chillers.
Services Revenue $3.94 million, a 2.4% increase from $3.85 million in Q3 2024, with a gross margin decrease to 25.3% from 44.4%, due to increased labor and material costs in New York City.
Energy Production Revenue $256,000, a 34.2% decrease from $389,000 in Q3 2024, due to contract expirations and temporary site shutdowns for repairs.
Energy Production Gross Margin 34.4%, a decrease from 45.2% in Q3 2024, due to temporary site shutdowns and additional repair costs.
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Operating Highlights
Data Center Cooling Strategy: Tecogen has pivoted into data center cooling, presenting solutions to NVIDIA, AMD, and hyperscale developers. Feedback has been positive, and the company is confident in its ability to succeed in this market.
Chiller Technology: Tecogen's chillers, which operate on natural gas, are being considered for 30%-50% of data center cooling by developers. These chillers reduce the need for electric power and offer cost advantages over traditional electric chillers.
Product Improvements: Investments in engine replacements and R&D have led to improved engine performance, longer service intervals, and better product reliability.
Expansion into Data Center Market: Tecogen is attracting interest from well-known colocation data center developers and hyperscale developers, marking a significant shift from initial leads from independent developers.
Strategic Partnerships: The partnership with Vertiv has gained momentum, with joint efforts to scale up natural gas solutions for larger developers.
Manufacturing Capacity: Factory layout changes and collaboration with contract manufacturers are underway to increase throughput and meet demand for chillers.
Financial Performance: Revenue increased to $7.2 million in Q3 2025, driven by a 115% increase in product revenue. However, net loss widened to $2.13 million due to higher material and labor costs.
Focus on Data Centers: Tecogen is prioritizing data center projects, aiming to secure initial projects from major developers to drive further opportunities.
Strategic Options: Exploring multiple strategic options to convert opportunities in the data center market into shareholder value, including scaling up manufacturing.
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Risk or Challenges
Manufacturing Capacity: The company needs to address manufacturing capacity to meet the validation requirements of larger developers. This includes making factory layout changes, working with contract manufacturers, and collaborating with Vertiv. Delays or inefficiencies in scaling up manufacturing could hinder the ability to meet demand from large developers.
Service Margin and Costs: Service margins have decreased significantly due to increased labor and material costs, particularly in New York City. This has impacted profitability and could continue to do so if costs remain high or increase further.
Financial Performance: The company reported a net loss of $2.13 million for Q3 2025, up from $0.93 million in Q3 2024. Operating expenses increased by 28%, and gross profit margins decreased by 13.7%. These financial challenges could impact the company's ability to invest in growth and innovation.
Validation Process for Larger Developers: The validation process for larger developers requires providing test data, computer modeling, and other information. Delays or failures in meeting these requirements could result in lost opportunities with major developers.
Dependence on Key Relationships: The company’s relationship with Vertiv is critical for scaling up manufacturing and meeting validation requirements. Any issues in this partnership could disrupt the company’s ability to deliver on its strategy.
Economic and Market Conditions: Increased material and labor costs, as well as general economic uncertainties, could impact the company’s financial performance and operational efficiency.
Revenue Concentration: The current backlog is heavily reliant on cannabis cultivation and the Las Vegas Convention Center service contract. A lack of diversification in revenue sources could pose a risk if these markets face downturns.
Energy Production Revenue Decline: Energy production revenue decreased by 34.2% due to the expiration of contracts and temporary shutdowns for repairs. This decline could impact overall revenue and profitability.
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Guidance & Outlook
Data Center Cooling Strategy: Tecogen is focusing on the data center cooling market, with significant interest from well-known colocation data center developers, hyperscalers, and chip companies like NVIDIA and AMD. The company is confident in its ability to succeed in this market due to the positive feedback received and the unique value proposition of its chillers.
Market Opportunity: The total combined IT capacity in the initial phase of a developer's build-out is expected to exceed 200 megawatts, with potential for substantial growth over time. Developers are considering using Tecogen's chillers for 30% to 50% of data center cooling needs.
Manufacturing Capacity: Tecogen is making factory layout changes to increase throughput and working with contract manufacturers to address manufacturing capacity. The company expects to receive the first articles for sheet metal assemblies for its dual power source chiller before year-end.
Partnership with Vertiv: Tecogen is collaborating with Vertiv to scale up its natural gas solutions for larger developers. Significant progress has been made recently, with Vertiv assigning a leader to the partnership.
Product Development and Validation: Tecogen is undergoing a validation process with established developers, which includes providing test data, computer modeling, and other performance metrics. The company is also working on technology improvements to enhance its chillers' performance and service intervals.
Revenue and Backlog: The current backlog is approximately $4 million, with expectations for additional multifamily and cannabis projects to close later this quarter or early next year. The company is prioritizing securing initial projects from well-known data center developers.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the update on the initial pilot for the 6 units and the potential timing for that?
A:All three projects are at a similar planning stage, as the developer is trying to secure tenants for all three simultaneously. Timing depends on tenant acquisition, which could take a few months. The developer is actively discussing with tenants, and Tecogen is part of the engineering design stage, increasing their odds of inclusion. However, tenants have a say in the final decision.
Q:What is the progress with the Vertiv relationship and validation/test data?
A:The Vertiv relationship has accelerated after restructuring their point of contact to the Head of U.S. chiller operations. Joint sales calls and teach-ins have been conducted. Validation efforts include running test data in their factory to meet data center requirements, which vary by location and conditions. The company has expanded its engineering team to support these efforts.
Q:How is Tecogen approaching contract manufacturing for the dual-source power unit?
A:Tecogen plans to outsource sheet metal assembly and refrigeration systems while handling power train and final assembly in-house. They expect to validate the first article within 1-1.5 months, after which scaling up production will be straightforward. The factory layout has been made flexible to accommodate different chiller varieties.
Q:What is the outlook for service margins and the impact of new engines?
A:Service margins have been inconsistent, ranging from 40% to 50%. New engines with improved systems and extended oil change intervals could significantly improve margins. Initial results show potential for doubling oil intervals, which would reduce site visits and improve profitability. However, the impact on margins will be clearer in the next two quarters.
Q:What feedback has Tecogen received from major names like NVIDIA and AMD?
A:Feedback indicates substantial power constraints in the industry, especially for data centers in hot regions like Texas and Virginia. Tecogen's natural gas chillers are seen as cost-effective compared to on-site power generation. The dual power source chiller is particularly attractive for its flexibility. The main challenge is building confidence in the technology through smaller initial projects.
Q:What is the estimated dollar volume for a data center with 200 chillers?
A:For 100 chillers, the estimated revenue ranges from $30 million to $50 million, depending on the chiller type and size. Developers often split systems between electric and gas chillers for dual supply chains, but Tecogen aims to increase its share as confidence in its technology grows.
Q:What is the status of the Las Vegas Convention Center project?
A:Tecogen has shipped all chillers for the project, and construction is ongoing. The site is expected to come online early next year. Revenue from the chillers has been recognized, but the service contract revenue will be recognized over the next 10 years.
Q:What is the timing for data center orders and opportunities for retrofits?
A:Timing for orders is uncertain and depends on tenant acquisition and validation processes. Some projects aim to be online by 2027, requiring deliveries in 2026. Retrofit opportunities are limited but may grow due to power constraints. Most current projects are new builds designed for the latest chips.
Q:What is the status of the Vertiv relationship and its impact on sales?
A:The relationship has recently accelerated with a new point of contact. Joint sales calls and teach-ins have been conducted. Most current opportunities came from Tecogen's direct marketing, but Vertiv is starting to quote potential customers. The relationship is expected to scale up.
Q:What are the cost savings of Tecogen's system compared to traditional systems?
A:Tecogen's system allows data centers to allocate more power to computing rather than cooling, increasing revenue. For example, freeing up 30 megawatts for computing can generate over $2 million per megawatt per month in additional revenue for colocation data centers. Operating cost reductions are smaller compared to the revenue increase.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines for data center orders, citing factors outside their control such as tenant acquisition and validation processes. They also gave broad estimates for revenue potential and cost savings without detailed breakdowns, citing variability in project specifics and NDAs with developers.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI center
AI chip
AI market
AI work
AMD hyperscale
Abinand capital
Center order
Center service
City capital
City engine
Convention Center
General sir
Group momentum
Instructions conference
LOI STX
LOI capacity
Las Vegas
NVIDIA
New York
Vegas Convention
York City
capital engine
chiller developer
chip company
cooling immersion
cost
developer validation
engine replacement
hyperscalers
interest developer
level interest
material labor
parameter
pathway manufacturing
power generation
requirement
territory New
TGEN Transcript
Tecogen Inc. (TGEN) Q3 2025 Earnings Call Transcript
Unknown11-13
The earnings call summary shows a decline in gross margins and revenue, indicating financial struggles. Despite promising product developments and partnerships, uncertainties in tenant acquisition and unclear timelines for major projects raise concerns. The Q&A section reveals management's vague responses, further contributing to negative sentiment. Without market cap data, the overall outlook leans negative due to financial performance and uncertainties.
Tecogen Inc. (TGEN) Q2 2025 Earnings Call Transcript
Positive8-13
The earnings call highlights strong financial performance with a 54% revenue increase and improved net loss figures, despite some margin declines. The Q&A reveals potential for significant growth in project capacity and customer-driven product development, which are positive indicators. However, management's lack of clarity on certain project details and confidentiality on partnerships like Vertiv could raise some concerns. Overall, the financial improvements and growth potential outweigh the uncertainties, leading to a positive sentiment.
TGEN Slides
TGEN Report
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