Tecogen Revenue Jumps 54% in Q2

Tecogen (TGEN -2.83%), a maker of distributed generation and specialized cooling solutions, reported its Q2 2025 results on August 12, 2025. The company posted revenue growth of 54.3% year-over-year (GAAP), reaching $7.29 million, as new chiller product launches and expanded data center market activity drove notable gains. Earnings per share (GAAP) remained at a $(0.06) loss, matching last year's result, as gross margins compressed sharply and operating expenses increased. There were no analyst estimates available for direct comparison this quarter. Overall, the quarter highlighted major topline progress offset by tighter profitability and a reduced cash balance, with a significant capital raise completed just after the reporting period.

Business Overview and Key Strategic Focus Areas

Tecogen designs and manufactures equipment for combined heat and power (CHP), air-cooled chillers, and emissions control, serving commercial, industrial, and niche data center clients. Its core Products segment offers hybrid-drive air-cooled chillers—specialized systems that use both mechanical and thermal energy to provide high-efficiency cooling solutions. The company’s service operations provide ongoing maintenance for installed systems, while its Energy Production business, now a minor contributor, sells electricity and heat produced on-site at customer locations.

Key to Tecogen’s competitive position is a focus on innovation, particularly around emissions control technology and hybrid chiller development. Regulatory compliance and market expansion—especially into data centers—are central to its growth. The company’s efforts to improve supply chain resilience, manage costs, and maintain financial stability are also crucial, especially as it navigates project-driven revenue and cash flow swings.

Quarter Highlights and Drivers

Tecogen achieved record revenue of $7.29 million (GAAP), up from $4.73 million (GAAP) a year earlier. This growth was primarily driven by a significant increase in Products segment sales, which reached $3.16 million (GAAP) following the launch of new hybrid-drive air-cooled chillers. These chillers serve data centers—large facilities that house computer systems—and other demanding commercial settings, marking an entry into higher-value project markets. Early shipments of this chiller, however, carried higher production costs. Management noted, "Product margin was lower because we started shipping the hybrid air-cooled chiller. As expected, the first few units had higher costs due to low volume material purchasing and as our team gained experience building the product. We expect the hybrid chiller margin to increase with volume production."

The Services segment delivered $3.97 million in GAAP revenue, a decrease of 3.9% from last year due to lower revenues from acquired Aegis maintenance contracts. A one-time cost for a bulk oil system upgrade in the Manhattan/NJ region temporarily suppressed margins but is expected to yield future maintenance efficiencies. The Energy Production segment continued its downward trend, contributing just $0.17 million (GAAP) as contracts expired and some sites required repairs, making this once-core segment only a small part of total company sales.

Tecogen advanced its data center market strategy, leveraging direct sales, pilot projects, and a partnership with Vertiv—a major infrastructure company. "We received our first LOI for a great pilot project. This is for a 100+MW data center" management reported. The company has now quoted two large projects involving 60–100 chillers each and is exploring multiple other opportunities. These potential deals dwarf previous order sizes and, if converted, could significantly reshape Tecogen’s revenue mix in coming years.

Product and market progress came at the expense of profitability. Gross margin (GAAP) fell from 44.0% to 33.8%, largely due to higher per-unit costs from early hybrid chiller shipments and isolated service segment cost overruns. Operating expenses increased by 9.0%, primarily due to payroll, recruitment, and sales commissions tied to the ramp-up for anticipated large projects.

On operations, Tecogen’s supply chain saw cost inflation and ramp-up inefficiencies as it scaled up manufacturing. Management added resources, including hires in key engineering and manufacturing roles, to support future volume while trying to manage production risk. The company’s cash position shrank to $1.64 million (GAAP) at quarter end, nearly exhausted before an $18.2 million capital infusion completed after the quarter. That raise was intended to increase factory output and support marketing, reflecting the lumpy, project-based nature of Tecogen’s growth strategy.

Outlook and What to Watch

Management did not provide clear quantitative financial guidance for the coming quarter or the rest of fiscal 2025. It did hint at expectations for the pilot project letter of intent to convert to a formal purchase order later in the year, which, together with the two large quoted opportunities in the data center segment, could drive significant future revenue if realized.

Looking ahead, investors will need to monitor the pace at which hybrid chiller margins improve and whether large pipeline projects in the data center market are converted into signed orders and revenue. Tecogen does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.