Tecogen's Q3 2025 Earnings Call: Contradictions Emerge on Vertiv Partnership, Data Center Market Size, and Project Phasing

Date of Call: None provided

Financials Results

• Revenue: $7.2M, up $1.6M vs $5.6M in Q3 2024 (driven by a 115% increase in products revenue)
• Gross Margin: 30.4%, down 13.7% from 44.1% in Q3 2024

Business Commentary:

• Data Center Strategy and Market Interest:
• Over the last three months, Tecogen has seen significant forward momentum on its data center strategy, with interest from well-known colocation data center developers.

• The company has presented its solution to NVIDIA, AMD, and hyperscale developers, receiving positive feedback and indicating confidence in its success in this market.

  

• Financial Performance and Product Sales:

• Total revenues increased by $1.6 million in Q3 to $7.2 million, marking a 115% increase in products revenue compared to the same period last year.

• The growth in product sales was driven by increases in chiller and engineered accessory shipments, offset by a decrease in cogeneration shipments.

• Operational Challenges and Expense Increase:

• The net loss increased to $2.13 million in Q3, reflecting a 13.7% decrease in gross margin due to increased costs in the Services segment.

• Costs were elevated due to investments in engine replacements and increases in operating expenses, including administrative and R&D payroll, benefits, recruitment, and business insurance premiums.

• Vertiv Partnership and Manufacturing Expansion:

• Tecogen has advanced its relationship with Vertiv, assigning the head of its U.S. chilled water group to lead the partnership, which has accelerated progress.
• The company is exploring both contract manufacturing and vertical integration to increase manufacturing capacity and meet growing demand for its data center solutions.

Sentiment Analysis:

Overall Tone: Positive

• CEO: "I'm now very confident that Tecogen will be successful in this market." Management emphasized accelerating interest from NVIDIA, AMD, hyperscalers and a recently restructured Vertiv partnership; CFO reported Q3 revenue $7.2M (vs $5.6M), gross margin 30.4% (vs 44.1% prior year) and net loss $2.13M (vs $0.93M).

Q&A:

• Question from Chip Moore (ROTH Capital Partners): Any update on timing for the initial 6-unit pilot and the potential scale/follow-on sites?
  Response: Timing depends on the developer securing tenants; Tecogen is included in engineering design and odds of winning are high, but delivery timing is tied to tenant/financing schedules.

• Question from Chip Moore (ROTH Capital Partners): Progress on the Vertiv relationship and the validation/test-data requirements from larger data center developers?
  Response: Vertiv reassigned the Head of U.S. chiller operations ~3–4 weeks ago which has accelerated collaboration; Tecogen has expanded engineering and runs units in factory test cells to produce the validation data developers request.

• Question from Chip Moore (ROTH Capital Partners): Is the contract manufacturing effort for the dual-source chiller and how are you approaching it?
  Response: Outsource sheet-metal and refrigeration assemblies to a contract manufacturer while keeping powertrain and final assembly in-house; first article expected in ~1–1.5 months to validate and then scale throughput.

• Question from Chip Moore (ROTH Capital Partners): How will the new engines affect service margins and timing of benefits?
  Response: New engines have doubled/extended oil-change intervals at initial sites, which should materially improve service margins once data across the fleet supports broader rollout; timing uncertain over the next two quarters pending results.

• Question from Chip Moore (ROTH Capital Partners): What feedback have you received from NVIDIA/AMD/hyperscalers regarding receptivity?
  Response: Feedback validates the value proposition—power constraints and cost delta vs on-site generation—however adoption hurdles are about derisking the technology (hence dual-source chiller appeal) rather than product economics.

• Question from Alexander Blanton (Clear Harbor Asset Management): What is the dollar volume for ~100 chillers in a 200-unit data center example?
  Response: Ballpark $30M–$50M (varies by chiller size and whether dual-source or standard units).

• Question from Alexander Blanton (Clear Harbor Asset Management): Why would developers keep electric chillers if gas chillers save so much?
  Response: Developers mix systems initially for comfort/derisking and to phase adoption; partial deployments and turbine-cooling trials let them prove performance before broader conversion.

• Question from Alexander Blanton (Clear Harbor Asset Management): Status and timing of the Las Vegas Convention Center project?
  Response: Product chillers shipped and installation is underway; site expected to come online early next year and product revenue has been recognized.

• Question from Alexander Blanton (Clear Harbor Asset Management): What is the expected timing for data center orders broadly?
  Response: Unpredictable: the LOI could move quickly if tenants sign; independent developers targeting online 2027 (deliveries 2026); large developers' timelines depend on validation steps and may move faster.

• Question from Alexander Blanton (Clear Harbor Asset Management): Opportunity to retrofit existing centers?
  Response: Most current activity is new ground-up builds for latest chips; some retrofit opportunities exist for smaller or cloud conversion centers and are expected to grow as power constraints intensify.

• Question from Barry Hymes (Sage Asset Management): When was the Vertiv contact change, are you doing joint sales/teach-ins, who will service orders, and what percent savings do you quote?
  Response: Vertiv reassigned leadership ~3–4 weeks ago; Tecogen has run teach-ins and some joint calls and Vertiv has begun initial quoting; the primary customer benefit is increased available IT capacity (revenue uplift), not just OPEX savings—examples cited ~$150–$200/kW/month revenue benefit.

Contradiction Point 1

Vertiv Partnership and Sales Process

It directly affects the company's sales strategy, partnerships, and potential revenue streams, which are crucial for investors.

Could you elaborate on the Vertiv relationship and the validation and test data requirements? - Alfred Moore (ROTH Capital Partners)

20251113-2025 Q3: Vertiv has recently assigned their Head of U.S. chiller operations to lead the partnership, accelerating progress. - Abinand Rangesh(CEO)

Can Vertiv assist with capacity needs? - Alexander M. Blanton (Clear Harbor Asset Management)

2025Q2: The original marketing agreement with Vertiv includes assistance with supply chain and component procurement. - Abinand Rangesh(CEO & Director)

Contradiction Point 2

Data Center Market Opportunity Size

It involves differing perceptions of the market opportunity size in the data center segment, which could impact strategic planning and investment decisions.

What is the status of the initial pilot for the 6 units, and what are the additional opportunities and their scale? - Alfred Moore (ROTH Capital Partners)

20251113-2025 Q3: We see opportunities to provide chilled water solutions for cooling data centers and other high-intensity thermal load applications like cryogenics. - Abinand Rangesh(CEO)

What is the size of the total addressable market for chilled water in data centers? - Alexander Blanton (Clear Harbor Asset Management)

2025Q1: We see another $500 billion opportunity in providing chilled water for data centers to meet cooling demand in this critical industry. - Abinand Rangesh(CEO)

Contradiction Point 3

Initial Project Phasing and Scale

It impacts expectations about the timeline and scope of initial projects, which could influence investor perceptions of the company's growth trajectory.

Can you provide an update on the 6-unit pilot and what’s the scale of additional opportunities? - Alfred Moore (ROTH Capital Partners)

20251113-2025 Q3: The three projects are at similar stages in terms of planning. The timing could range from a few months depending on tenant availability. - Abinand Rangesh(CEO)

Can you clarify the timeline from receiving a PO to site delivery; and how to evaluate the assessment phase? - Alfred Shopland Moore (ROTH Capital Partners)

2025Q2: We plan to start constructing some units in Q4, aiming for delivery in Q4 and Q1. - Abinand Rangesh(CEO & Director)

Contradiction Point 4

Vertiv Partnership and Sales Process

It highlights a change in the leadership and sales process of the partnership with Vertiv, which could impact the effectiveness and timeline of sales efforts.

Can you provide more details on the Vertiv relationship and test data requirements? - Alfred Moore (ROTH Capital Partners)

20251113-2025 Q3: Vertiv has recently assigned their Head of U.S. chiller operations to lead the partnership, accelerating progress. - Abinand Rangesh(CEO)

What's the progress with Vertiv's partnerships and sales, and are data centers and hyperscalers receptive to the system? - Alexander Blanton (Clear Harbor Asset Management)

2025Q1: We are actively selling with Vertiv. The sales team is fully trained, and it's going well. - Abinand Rangesh(CEO)

Contradiction Point 5

Data Center Market Opportunity Size

It involves differing perceptions of the market opportunity size in the data center segment, which could impact strategic planning and investment decisions.

Can you update on the initial pilot for the 6 units? Can you expand on additional opportunities and their scale? - Alfred Moore (ROTH Capital Partners)

20251113-2025 Q3: We see opportunities to provide chilled water solutions for cooling data centers and other high-intensity thermal load applications like cryogenics. - Abinand Rangesh(CEO)

What is the size of the total addressable market for the chilled water business in data centers? - Alexander Blanton (Clear Harbor Asset Management)

2025Q1: We see another $500 billion opportunity in providing chilled water for data centers to meet cooling demand in this critical industry. - Abinand Rangesh(CEO)