Thermal Energy International Inc. (TMG) is using new strategies in an effort to increase the company’s value throughout the upcoming year.
Company CEO and president, William Crossland, said the company has its sights set towards the “tipping point” where the market knows Thermal Energy, so it need not start from “ground zero” when approaching new customers.
“It’s the same challenge that we always face and that’s convincing companies to actually buy our product,” he said. “We’re a small company, they usually haven’t heard of the technology before, so convincing them to actually try it and in the case of heat recovery spend $500,000, $1 million, $2 million, $6 million on a technology that to them is unproven, even though we’ve done it other places, is a big hurdle.”
Thermal Energy, an Ottawa-based clean-tech company, retrofits buildings with different energy efficiency alternatives: the FLU-ACE heat recovery system captures and reuses energy normally lost in the production of steam; the GEM steam trap captures and removes condensate water in the pipes without any moving parts, a common problem with traditional models, according to Crossland; and the DRY-REX biomass dryer increases the efficiency of already installed traditional dryers.
For the past four years the company’s share price has hovered around five cents, an amount Crossland said undervalues Thermal Energy. With about 163.3 million shares, the market capitalization sits at about $8.2 million.
Low share value
David Jackson, a professor at the Sprott School of Business at Carleton University, says this low share value may benefit certain investors.
“It’s easy to invest in and hold for a long time something that has pennies for share compared to something that’s $50 per share. So someone who’s invested in this has probably invested in a bunch of other penny stocks, and hoping that one of the twenty of them will really take off.”
Thermal Energy reported almost double its sales in its most recent quarter, ending Aug. 31, over the same quarter last year, $1.5 million compared to $862,077 and about one third of the net loss, $278,107 compared to $922,621.
Now, Crossland said Thermal Energy is in position to make changes, largely the result of new orders and high foreign exchange rates. The ultimate goal – increase the company’s value.
Crossland said Thermal Energy now has the capital to continue research and development – a statement backed up by the most recent quarterly report where $69,274 was put into research and development. In the same quarter last year the company spent nothing on research and development because the focus was on marketing current products.
Back to research
“Research is always a good thing, so now that we’ve got money we’re starting to do it again,” Crossland said. “And it’s really just to expand our product group in the energy efficiency marketplace.”
\Crossland said Thermal Energy is developing patents for more products required as part of the installation of its FLU-ACE heat recovery system. Currently, Thermal Energy purchases these additional products from a supplier but in developing its own patents, Crossland hopes Thermal Energy can cut production costs.
Along with product development, Thermal Energy is developing strategies to maintain a continuing presence with the companies who already have its products.
“Our product lasts for twenty years, thirty years, almost forever,” Crossland explained, so there is not often a reason to follow up with a customer. In an effort to keep its face in the game Thermal Energy is testing a service and maintenance plan. The company will offer maintenance on its installed products for a fee, ensuring the customer gets the benefit of its products and giving Thermal Energy representatives a continuous presence with customers.
Under traditional plans Thermal Energy would leave after installation, giving competitors an opportunity to sneak in and sell similar products.
Looking for service contracts
“Service and maintenance is a bit of recurring revenue,” Crossland said. “So it’s a little more stable.”
Stability and financing are two challenges the company faces for continued growth. Celine Bak, president of Analytica Advisors Inc., said all energy efficiency sectors are still working out the kinks on financing issues.
“As a general rule financing of energy efficiency technology is lacking and there are many gaps in different industries, whether it’s in industrial manufacturing or real estate or other sort of oil and gas related energy efficiency and there are many different areas where the financing really still hasn’t been designed to go along with the energy efficiency offered.”
This is exactly what Thermal Energy is attempting to do. In an effort to secure more recurring revenue, Crossland said it is now offering a shared savings plan where Thermal Energy will install its FLU-ACE system then lease the equipment to the customer. The lease value is measured through a meter, much like hydro, based on the energy savings produced and used.
Crossland said customers are beginning to be receptive to this shared savings, at least in the industrial sector. One such company is Fortress Specialty Cellulose Inc. in Thurso Que., a dissolving pulp mill, where Crossland said the program is successful. The agreement was first signed in June 2010 and extended to December 2014, according to the Canadian News Wire.
When contacted, Fortress Specialty Cellulose declined to comment.
Thermal announced in a press release on Nov. 14 another shared savings purchase order for $1.2 million from a major hospital.
Cheap energy doesn’t help
Low energy costs in Canada have also created obstacles, explained Crossland. “North America is probably the worst energy market for us, anywhere in the world right now, because natural gas is so cheap.”
That has not deterred Thermal Energy from looking for North American customers, where Crossland said markets have untapped potential.
“The priorities are in Europe and the US,” Crossland identified more than once throughout the interview. “Those are close to home…and we’ve already got a presence.”
In acquiring Gardner Energy Management in 2008, the company gained a presence in the United Kingdom, but Crossland said they have yet to branch out further in Europe.
Thermal Energy is also looking at international markets, including Korea, where a distributer is in place, and Japan.
In a more direct effort to raise the value of Thermal Energy, the company announced a share buyback of up to 13 million shares over the next year.
“We’re doing it now because we think the shares are undervalued and it’s a good use of resources and should add liquidity to the market place,” Crossland said.
This is the company’s first share buyback.
“It can be kind of like a signal of the managers indicating that they think that the shares are somewhat under priced, which is like saying ‘we have a good company, better than you, the public, believes,” said Sprott School of Business professor, David Jackson.