Bill Crossland took the tiller at Thermal Energy International Inc. when the Ottawa clean tech company seemed barely afloat, but he could now be on his way to making it shipshape.
Thermal Energy has raked up losses consistently ever since it went public in 1994. It ousted its former CEO and founder in 2006, and a legal dispute continues to this day.
Over the years, the company has ridden waves of high expectations and disappointment. Plummeting fuel costs during the 2008 crash hit Thermal Energy hard. That’s when Crossland became CEO.
Tougher than it should be
“I couldn’t figure out why [the company] wasn’t successful,” he says.
The systems pay for themselves in energy savings within one to three years, and there’s almost no competition for Thermal Energy’s particular brand of heat recovery technology. But the company has always faced a range of impediments.
Thermal Energy’s heat recovery system re-uses exhaust heat. It’s usually installed on industrial boilers. The company also makes steam traps, which remove water from steam-power systems. Thermal Energy’s steam trap is distinctive in that it has no moving parts, so its failure rate is much lower than standard industry models.
Both products should be winners. The systems pay for themselves in energy savings within one to three years, and there’s almost no competition for Thermal Energy’s particular brand of heat recovery technology. But the company has always faced a range of impediments.
Not every factory can re-use waste heat, says Ruper Merer, National Bank Financial’s lead clean-tech analyst. “The waste heat needs to match the demand in terms of timing and quality (temperature). This match is actually relatively rare,” Merer says in an email. Low natural gas prices are another hindrance, Merer adds.
Canada’s small market for clean tech doesn’t help the industry either, says Marc McArthur, manager of the Ottawa Cleantech Initiative, a promotional industry group.
That’s “largely due to the fact that we don’t have as many environmental challenges as a lot of places around the world.”
At one point at least, Thermal Energy also had a customer service issue. In 2006, it won a contract to install its heat recovery technology at a Quebec hospital. “The technology is nice but it needed a lot of adjustment and the company wasn’t always there to accompany us,” says Pascale St-Pierre, a communications officer with the Centre hospitalier universitaire du Quebec. The hospital eventually hired another company to follow up. Thermal Energy did not respond to Ottawa Insight’s request for comment on this incident.
A technological challenge
According to Crossland, one of Thermal Energy’s biggest challenges is convincing potential customers that its technology works. “People are always hesitant with anything that’s new and unfamiliar,” he says. He’s tried to shift the company into high marketing gear, hiring a slew of new representatives.
“I’m like a broken record, it’s not brain surgery: steady revenue growth, protect your margins, control your costs, improve profits and generate positive cash flow.”
Generally speaking, marketing is one of the biggest problems for many clean tech companies, McArthur says. “We recognize that as an industry, we’re generally poor communicators.”
A lot of clean tech companies are very small and headed by engineers – as Thermal Energy was for most of its existence.
Crossland, on the other hand, worked as an investment banker with National Bank for 18 years, where he helped alternative energy companies secure financing. He holds both a bachelor of science and an MBA – he’s a suit-wearing, hard numbers-driven environmentalist.
Crossland’s formula since becoming CEO has been simple, he says: “I’m like a broken record, it’s not brain surgery: steady revenue growth, protect your margins, control your costs, improve profits and generate positive cash flow.”
He’s also steered the company’s focus away from China, where a previous CEO had built a partnership, and back to traditional markets: the U.S. and Europe. Crossland says cultural and language differences in China were making it a difficult market to tap into.
As for the type of industry he’s targeting, Crossland says heat recovery and steam traps are effective on any steam-power system. All kinds of factories could benefit, from pharmaceuticals to food processing.
The company is now celebrating its most solid results to date. In 2009, it signed its biggest contract, only to surpass it this year with a $5.8 million deal to install heat recovery technology at a Quebec pulp mill.
Relying on big deals
Total sales in fiscal 2011 were up 143 per cent from 2009, to $9.7 million. The nearly constant losses the company has incurred since it went public softened to $142,582, and it generated positive operating cash flow for four quarters in a row.
“I don’t think [the company is dependent on big deals] but it’s an important part of the business.”
That streak of positive operating cash flow ended in the first quarter of this financial year, which closed August 31, 2011. Sales were down 52 per cent compared with the same quarter last year, and net loss went from next to nothing to $315,529.
The bleaker results could be a blip. The company explains them in a press release by noting that one large contract has just finished, while revenue from the next one has not started to roll in.
The results could indicate, however, that Thermal Energy relies on single, large deals.
“I don’t think [the company is dependent on big deals] but it’s an important part of the business. And how do you keep doing it? It’s just, you keep selling them. You have to keep going out and finding new opportunities,” Crossland says.
On the bright side, the company’s order backlog is now approximately $8.6 million compared with $2.7 million at the same time last year.
Share price hasn’t reflected any of the turn-around Thermal Energy might now be undergoing under Crossland’s lead. It’s been hovering around six cents for three years.
Grumpy shareholders
“The company’s been public for 16 years and for a large portion of that, people thought the company was about to take off and it never did,” Crossland says. “People are a bit hesitant to jump back in.”
The directors said they had wanted to buy stock this year but were unable to for several reasons.
Thermal Energy shareholders can be a boisterous group. At the most recent annual general meeting in October, some of them questioned why some board members hadn’t yet bought shares of the company. John Kelly, a director since 2005, had only 65,000 shares, while James Ansell, also on the board since 2005, had none.
The directors said they had wanted to buy stock this year but were unable to for several reasons. First, the company was undergoing a TSX Venture Exchange review, and second, TSX rules prevent insiders from trading two weeks before the release of quarterly financial results, or before the announcement of important deals. Consequently, there were only a handful of days in the past year when the directors were allowed to buy shares, they said. They promised to invest in the company as soon as they are able.
Crossland, for his part, has a significant stake in Thermal Energy, with 1.7 million common shares and 1.5 million options. He’s betting on himself to complete the turnaround.