Shareholders grumble despite Thermal Energy success

Increased sales and foreign investments led Ottawa-based clean-tech company, Thermal Energy International Inc. (TSX-V: TMG) to bounce back from its worst fiscal year on record in 2015, to nearly doubling its revenue in 2016.

“2016 was a very successful year for us, up significantly more than 2015. Although, 2015 wasn’t exactly a stellar year,” Thermal Energy chief executive officer (CEO), William Crossland told shareholders at the company’s annual general meeting on Nov. 28.

The company’s revenue of $12.4 million in 2016 substantially improved from $6.8 million in 2015. However, the most recent quarter that ended on Aug. 31, the first of 2017, wasn’t as positive. Revenue of $2.1 million was lower than the $2.5 million of the previous year. But a decrease in the cost of sales led to a profitability increase of $372,867 as the quarter achieved a loss of $79,730 compared to last year’s loss of $452,597.

Livio Filice, a shareholder with Thermal Energy, explained he’s happy with his investment in the clean-tech market.

“I think they’re in the right space at the right time. Energy efficiency is becoming the new fuel. A lot of money, a lot of capital is flowing into it,” he said.

Thermal Energy sells products to industrial facilities that re-use waste heat, providing environmental sustainability and savings. Its products include GEM steam traps, FLU-ACE – direct contact condensing heat recovery and Dry Rex –  a low temperature biomass drying system.

Shareholder questions

Despite posting positive results, not all shareholders are happy. At the meeting, Crossland received questions about the sales staff not selling enough, a lack of partnerships and the low stock price at $0.11 on Dec. 2. The stock hit its 52-week high on Oct. 7 at $0.23 and its 52-week low on Sept. 13 at $0.035. Crossland responded by saying it’s unrealistic to expect the company’s growth rate to improve drastically overnight.

“I understand people’s frustration, and I think a lot of the long-term shareholders bought into something that wasn’t actually reality,” Crossland told the meeting. 

The discontent is nothing new for the company. Thermal Energy was started by Thomas Hinke, CEO until his dismissal in 2005 after being accused of violating security regulations and withholding material information from company executives and the board. That led to a lawsuit settled in 2011. The dysfunction in the management resulted in losses year-after-year.

In 2009, Thermal Energy revamped its staff, replacing numerous existing management and board members. The result has been steady growth since.

“Over the long term, since 2009, which is really when this board and this managing team came in, we’ve grown the company,” Crossland said.

Marketing outside Canada

Thermal Energy has an annual compounded growth rate of 18 per cent since 2009— tripling in size. Part of the growth can be attributed to foreign marketing as opposed focusing on sales at home.

“Canada has not been a good market for us,” Crossland said. “Until about a year ago it hasn’t had an interest.”

Crossland said key areas to focus on for future growth, include the mid-western U.S., the Caribbean and Germany.

Julia Flynn, chief financial officer, said foreign investments in the United Kingdom also benefited Thermal Energy this past year. This was because of the weakening pound sterling compared to the Canadian dollar following the late June Brexit referendum. 

However, not all the overseas ventures have been a success. In 2012, Thermal Energy attempted to tap into the Chinese petrochemical market, supporting Cyheat Energy Technology Inc. The project was backed by the Canadian government, as it received funding from the ISTP, a funding agency providing money for product development in multiple countries.

Robert Triebe, chief operating officer at Thermal Energy, said the company developed and designed the products and the Chinese partners, Cyheat Energy, hosted the system. However, the deal never panned out.

“Unfortunately the company we were connected to; they’re barely operating… So we’re looking at bringing the system back here and testing it locally,” Triebe said.

Flynn said the most recent venture with China was a good investment because of the funding. However, China is not a prioritized market for the company, as it is focusing more on the home markets of North America and Europe.

But government investments could also shape the future of the company. With the Liberal government under Justin Trudeau taking an active role to combat climate change, Triebe said he is optimistic this may increase Thermal’s sales.

“If there’s a significant amount contributed to the project by the government, the project has not just a slightly better chance of going forward—it almost makes the project go forward,” he said. “So if the Trudeau government starts announcing incentives to contribute to energy efficiency, yeah, we should see a substantial business.” 

Few competitors

However, energy efficiency is currently at risk with president elect, Donald Trump stating he will pull the U.S. out of the Paris climate agreement, a United Nations Framework Convention on Climate Change to cut down emissions by 2020. Crossland said he isn’t worried as he believes individuals will do their part.

“Whether it’s China to improve the air quality, India to control some of the severe weather, everyone has their own self-interests to battle climate change,” he said. 

When questioned about competition in the market, Crossland explained there are few competitors in the field of heat recovery. The main challenge is convincing customers to invest.

“Generally most of the business we do, we don’t compete with anybody,” Crossland said.

One company mentioned by a shareholder was International Wastewater Systems, however, Crossland said it specializes in wastewater heat recovery, whereas Thermal Energy focuses on steam.

Despite the recent year’s success, Thermal Energy’s revenue has fluctuated over the past six years. Through that there has been steady growth, with zero debt and a decreased reliance on mega deals—orders worth more than $2 million in revenue, which at one time kept the company afloat.

Not all shareholders were pessimistic. Filice believes the direction of the economy means investments in clean technology will pay off.

“As of right now, the company is significantly undervalued so for it to take off at any point would be a given,” he said.