Tecogen Inc. 2026 Q2 Earnings Call

Morning. This is Jack Whiting, the General Counsel and Secretary of Tecogen. This call is being recorded and will be archived on our website at tecogen.com. The press release regarding our second quarter 2026 earnings and the presentation provided this morning are available in the investor section of our website. I'd like to direct your attention to our safe harbor statement included in our earnings press release and presentation. Various remarks that we make about the company's expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by forward-looking statements as a result of various factors, including those discussed in the company's most recent annual and quarterly reports on forms 10-K and 10-Q under the caption Risk Factors filed with the Securities and Exchange Commission and available in the investor section of our website in the heading SEC Filings. While we may elect to update forward-looking statements, we specifically disclaim any obligation to do so you should not rely on any forward-looking statements as representing our views as of any future date. During this call, we will refer to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is provided in the press release regarding our Q2 2026 earnings and on our website.

I will now turn the call over to Abinand Rangesh, Tecogen's CEO, who will provide an overview of the second quarter 2026 activity and results, and Roger Deschenes, Tecogen's CFO, will provide additional information regarding Q2 financial results.

Abinand? Thank you, Jack. Welcome to Tecogen's Q2 2026 call.

Today, I would like to start with the key question that many of you may be wondering about. Given that Tecogen has been working on the data center strategy for a while, and the product seems to make perfect sense for the market, what is taking so long for orders to close? Is there something missing in the story? To answer those questions, I believe we need to start with the objective. In my view, the objective is, what is the fastest way to maximize the value of Tecogen, given we have great technology but have resource constraints as a small company? Originally, our strategy was to target smaller data centers. We could then use that as a reference to get the bigger names interested.

As we got bigger names interested, the company's technology starts to become incorporated by big brand data centers, and now we have technology that everyone wants, making Tecogen very valuable. Now, we may have an opportunity to go straight for the end goal, which is the hyperscale and big brand developers. In March this year, I shared an opportunity pipeline with you. Many of these opportunities were with data centers that were of smaller scale. While many of these projects will likely close, these projects are subject to external factors such as tenants, delays in construction permits, et cetera. The big brand data centers don't have the same limitations. In addition to these smaller opportunities, we have been simultaneously working on access to the larger names. It has taken an enormous amount of work on the part of our sales team to make inroads on some of the larger names.

But now I believe we have managed to gain some serious traction. Over the last two months, we have hosted 12 product demonstrations, six in-person and six virtual. The in-person group included four data centers that are hyperscale or building hyperscale campuses and partners. The virtual visit group included chip manufacturers, engineers, and another four data centers. These data centers collectively represent greater than 8 gigawatts of data center capacity operating today and multiple gigawatts in construction. Although I cannot tell you the names of the data centers that attended, I'm sure you will know many of them. To put this into perspective, the data centers that attended, either virtually or in person, collectively represent 15%-20% of present data center capacity in the U.S. The natural question at this point is, does attending this product demonstration show any real commitment or interest?

For the in-person group, given how busy data center engineers and senior-level people are, blocking off a whole day for multiple people is a significant commitment. It has taken many months of finding the right internal champions with influence at these larger companies and educating them on the value of our products before we got to this point. Second, beyond the list that attended, we are talking to other large and hyperscale data centers. The ones that are earlier in the process declined attending. This is consistent with our experience in other markets, where once a potential customer attends a site visit, our close rate is usually high, as they're serious about entering a business relationship. Lastly, I think the market has also evolved. In addition to power, there are some key challenges that the bigger data centers are facing that our products solve.

As you may have read in the press, many data centers are facing opposition for on-site water use, noise, and air pollution. Here is where our products really shine. We solve all three problems. The dual power source chiller is closed loop, so there is no water evaporation. Our products already operate in noise-sensitive environments, such as on rooftops next to penthouse apartments. Recently, during the scorching Fourth of July weekend, black smoke could be seen in northern Virginia from continuous diesel generator usage from data centers. Diesel generators were being used to avoid a blackout as the utility grid was running out of power and forcing data centers to shed load. Therefore, unlike a diesel generator that attracts noise complaints and pollutes, data centers can install our products without worry. This is where seeing a product demo brings these benefits to life.

There is a difference between seeing a data sheet with a decibel reading and hearing our products in person, or reading about near zero NOx and carbon monoxide emissions versus seeing the readout from an emissions analyzer in real time. There is also a big difference between saying you can add extra megawatts for compute during hot days versus watching in real time a jump in cooling load and seeing the electrical power remain capped, or saying you can provide uninterruptible cooling during a power outage versus watching someone shut off the electrical power to the chiller while it is running. These big name data centers have permitted projects, capital, and the ability to shape the whole industry.

The feedback has been extremely positive across the board and specific projects, delivery dates, et cetera, have been discussed, so we feel confident enough to begin building some inventory of our dual power source chiller and power gen modules to get a head start. In addition to the data center push, our base business backlog now stands at greater than $8 million. In addition to what is already in backlog, we expect a further $2 million-$3 million in projects to close over the next few months. This means we expect product revenue to increase in Q3, and we expect to collect more deposits, improving cash flow. Although our focus has predominantly been on our data center strategy, during the last call, we mentioned that we expected to reduce expenses in our service group to increase margins.

During Q2, these reductions were made mid-quarter, so the full impact will be seen beginning in Q3. One-time costs in Q2 reduced margin by around seven percentage points. Without these one-time costs, margin is starting to recover in service. In addition to cost reductions, we have also started to make contract pricing adjustments where appropriate and are working with customers, especially on larger sites, to make improvements that would help them increase run hours and help us increase revenue and margin. Given that our service revenue was substantially higher year-over-year, this continuous improvement is expected to result in higher margins and therefore a significant increase in gross profit dollars. I will now hand over to Roger to talk about the financials.

Thank you, Abinand, and good morning, everyone. I will begin with the results for the second quarter. Our total revenues decreased 21% or $1.5 million in the second quarter to $5.8 million, compared to $7.3 million in the second quarter of 2025. This is due mainly to lower product segment revenue. As Abinand indicated just moments ago, we expect revenue to increase in the third quarter based on the recent increase in our backlog and the anticipation of expected projects that will close in the next few months. Our gross profit decreased 11.9% to $2.2 million in the second quarter of 2026, compared to $2.5 million in the comparable period in 2025. Again, this is due to products segment revenue. Our gross profit margin increased, excuse me, by 4% to 37.8% in the second quarter of this year, from 33.8% in 2025.