Has the dynamic with larger data center operators evolved, particularly regarding their willingness to scale with Tecogen despite current capacity limits?

Yes, the dynamic has evolved. Discussions during demos indicate applications where Tecogen can start small and grow with large data centers, such as retrofits or phased expansions. This approach helps mitigate initial capacity concerns, and building inventory further addresses lead time issues. “We're starting to find, I think, applications that we could essentially start small and grow with them. That is also one of the advantages of these bigger data centers that have existing locations because you could either add almost as a retrofit as a pilot or you can do it as part of one phase of a bigger project. So there's ways to do this without having to have all that capacity upfront.”

Can you provide a sense of the size and cost associated with building inventory ahead of data center orders?

Management is anticipating demand for late 2026/early 2027, aiming to build enough inventory to cover potential needs from multiple customers. The strategy is to balance risk and cash flow, ensuring quick shipments upon receiving purchase orders and deposits, rather than committing to a specific dollar amount. “What we're thinking about is what would people want, let's say, in the very end of this year towards the early part of next year, right? What's sort of a rough number that -- and then if we can -- if we, let's say, have three or four different potential customers saying, I need roughly this amount of capacity, then we'll say, okay, our odds -- if we build x amount, then we'll sell it to at least 1 out of the 3 or 1 out of the 4, right? We -- our odds are good in terms of getting that sold.”

What is the progress towards finalizing the Master Purchase Agreement (MPA) with Vertiv and the status of projects where Vertiv was specking Tecogen's products?

Management cannot comment on the Vertiv relationship or specific progress without prior approval from both parties. They prefer to save the approval process for more substantial announcements, advising to 'stay tuned' for future deals. “In this particular case, I talked to my counter-parties, and we decided that let something close so that we save the approval process with Vertiv for something that's more substantial. So at this point, I can't comment too much on that without -- so I think stay tuned, let things happen, and we'll announce deals as they happen.”

TGEN

Tecogen (TGEN) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 13, 2026

Source: earnings call transcript

Executive summary

Tecogen Q2 FY26 — Data Center Strategy Gains Traction, Base Business Backlog Grows

Tecogen is strategically shifting its data center focus to hyperscale and big brand developers, reporting significant traction with 12 product demonstrations and positive feedback. The company is proactively building inventory to reduce lead times for potential large orders. Concurrently, the base business backlog has grown, driven by increasing power constraints, while the Service segment is implementing cost reductions and pricing adjustments to improve margins. Despite a decline in overall revenue and widening losses, the company sees strong potential in its technology to address critical data center challenges like water usage, noise, and air pollution.

Highlights

Data center strategy gaining "serious traction" with 12 product demonstrations, including 4 hyperscale data centers, representing 15%-20% of US capacity.
Base business backlog increased to greater than $8 million, with an expectation of $2 million to $3 million more projects closing.
Service revenue increased 10% year-over-year to $4.4 million.
Gross profit margin increased by 4% to 37.8% from 33.8% in Q2 2025.
Product segment gross margin increased 19.2% to 48.5% from 29.3% in Q2 2025.

Concerns

Total revenues decreased 21% or $1.5 million to $5.8 million.
Net loss increased to $2.2 million from $1.5 million in Q2 2025.
Adjusted EBITDA loss was $1.7 million, higher than $1.2 million in Q2 2025.
Product segment revenue decreased 64% to $1.1 million.
Operating expenses increased 11.6% to $4.3 million.
Energy Production gross profit margin decreased to 9% from 25.2% due to a $100,000 guaranteed shortfall.

Guidance & targets

Category	Target	Timeline	Confidence
Product revenue	increase medium materiality	Q3 · FY26	Medium
Deposits and cash flow	collect more deposits, improving cash flow medium materiality	Q3 · FY26	Medium
Base business projects to close	$2 million to $3 million medium materiality	next few months	High
Service group expense reduction impact	full impact will be seen beginning in Q3 medium materiality	Q3 · FY26	High
Service segment margins and gross profit	higher margins and therefore, a significant increase in gross profit dollars medium materiality	ongoing	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Products Revenue decreased significantly year-over-year from $3.2 million, as Q2 2025 benefited from shipments to customers seeking IRA tax credits. Gross margin improved due to price increases and a change in product mix. Gross margin increase: 19.2%	$1.1 million	-64%	—	48.5%
Services Revenue increased year-over-year from $4 million due to higher billable activity and increased operating hours of equipment. Gross margin was essentially flat but would have been 7% higher without $300,000 in one-time costs incurred mid-quarter. Full impact of cost reductions expected in Q3.	$4.4 million	10%	—	essentially flat
Energy Production Revenue increased year-over-year from $0.17 million due to increased uptime at certain sites. Gross profit margin decreased from 25.2% due to a guaranteed shortfall of just under $100,000 recognized in the quarter.	$0.24 million	35%	—	9%

Orderbook & backlog

Base business backlog >$8 million Q2 FY26

increased

Expected $2 million to $3 million in additional projects to close over the next few months.

Risks & headwinds

One-time costs in Service segment Q2 FY26

$300,000

Mitigation:Cost reductions implemented mid-quarter, full impact expected in Q3.

Guaranteed shortfall in Energy Production Q2 FY26

just under $100,000

External factors affecting smaller data center projects ongoing

delays

Mitigation:Shifting focus to larger data centers which have fewer such limitations.

Capacity limits for large data center orders near-term

potential constraint

Mitigation:Proactively building inventory of dual-power source chillers and power gen modules to cut lead times.

What to watch in Q3 FY26

Data center pilot project closure

next few months

Current Discussions ongoing, specific projects discussed

Target Closure of a pilot project with a big brand data center

Why it matters

Securing a pilot project with a major brand is crucial for validating the data center strategy and shaping future industry development.

If we land even a pilot project with a big brand data center, what does it do to our prospects industry-wide?

Find out whether TGEN delivers this. Inve re-checks your case every morning.

Q&A highlights

Were all 12 demos with different potential customers, and was there an acceleration in scheduling, particularly for larger clients?

Out of 12 demos, 8 were with direct end customers, the rest with influential engineers or partners, including a chip manufacturer. The scheduling was intentionally escalated, with the most important ones towards the end, leading to a higher installed capacity represented in later demos.

“So out of the 12, 8 were potential direct end customers. The rest were engineers or other people, either designing data centers or partners that could help us accelerate some of that. So generally, it was all high-profile visitors. Definitely, what we tried to do with regards to the scheduling was to schedule the most important ones towards the end, just so we got better practice with the demonstrations as well.”

asked by Robert Brooks · answered by Abinand Rangesh

3 min read 7 chapters

Detailed narrative

Data Center Strategy Evolution

Tecogen is evolving its data center strategy, shifting from initially targeting smaller data centers to directly pursuing hyperscale and big brand developers. This change is driven by the company's resource constraints as a small entity and the belief that securing larger names will maximize company value and accelerate technology adoption across the industry.

While smaller projects are still in the pipeline, the focus is now on the more influential players.

Data Center Traction and Product Demonstrations

The company has gained significant traction with large data center players, hosting 12 product demonstrations (6 in-person, 6 virtual) over the past two months. These included 4 hyperscale data centers and chip manufacturers. Attendees collectively represent 15% to 20% of the present data center capacity in the U.S., operating over 8-gigawatts today and with multiple gigawatts in construction.

Management views the commitment shown by these busy executives as a strong indicator of serious interest.

Product Solutions for Data Center Challenges

Tecogen's products are highlighted as solutions to critical challenges faced by large data centers, including opposition to on-site water use, noise, and air pollution. The dual-power source chiller is closed-loop, eliminating water evaporation. Products operate in noise-sensitive environments, making them quieter than diesel generators. They also offer near-zero NOx and carbon monoxide emissions, providing a cleaner alternative to diesel generators used during grid strain.

Base Business Strength and Market Trends

The company's base business (non-data center projects) shows strength, with a backlog exceeding $8 million and an additional $2 million to $3 million in projects expected to close soon. This growth is attributed to increasing power constraints across various markets, long lead times for electrical equipment, and rising utility rates, driving demand for cogeneration and standard power generation solutions in sectors like multifamily buildings.

Service Segment Improvements and Cost Management

The Service segment implemented cost reductions mid-quarter, with the full financial impact anticipated in Q3. These reductions, along with contract pricing adjustments and collaborations with customers on larger sites, are expected to improve run hours, increase revenue, and significantly boost gross profit dollars. Despite one-time costs of $300,000 in Q2, which reduced service margin by 7 percentage points, the underlying margin is recovering.

Proactive Inventory Build for Data Centers

To address potential capacity limitations and compress lead times for data center orders, Tecogen has begun building inventory of its dual-power source chiller and power gen modules. This strategic move aims to enable quick response to purchase orders and facilitate rapid scaling once initial units are shipped, balancing cash flow management with the need to capitalize on the interest from large data center clients.

Financial Performance Overview

Total revenues for Q2 FY26 decreased 21% year-over-year to $5.8 million, primarily due to a 64% decline in Product segment revenue to $1.1 million. Despite this, the overall gross profit margin improved by 4% to 37.8%. Operating expenses increased 11.6% to $4.3 million, contributing to an increased net loss of $2.2 million and an adjusted EBITDA loss of $1.7 million.

Energy Production revenue grew 35% to $0.24 million, but its gross margin declined due to a $100,000 shortfall.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.