Thermal Energy hoping sales heat up

After one of its worst fiscal years on record, Ottawa-based cleantech company Thermal Energy International (TSX-V: TMG) says its potential to grow lies in the hands of its sales department.

“Sales is what drives the future of this company,” Thermal Energy Chairman John B. Kelly told shareholders, at the company’s annual general meeting on November 12.

From 2014 to 2015, Thermal Energy saw a 48 per cent decrease in revenue.

“The board and management are not happy about the outcome of last year, I might even say this is an understatement,” Kelly says.

Despite the poor showing in 2015, CEO William Crossland says Thermal Energy does not intend to change its long-term strategy. Last year was a record for Thermal Energy, with a revenue of more than $13.1-million and a net profit of $978,267.

The company currently sells two products aimed at increasing industrial energy efficiency: GEM steam traps and FLU-ACE heat recovery systems.

Revenue fluctuations

Crossland explained that Thermal relies on a small number of large sales to drive its bottom line, causing large year-to-year fluctuations in revenue.

“You have good years and you have bad years,” Crossland says in a phone interview.

This year has already proven to be better for the company, with Thermal announcing three new major contracts in the last month alone. The company reported revenue of $2.6 million in its first quarter, compared to $1.1 million in the same quarter last year—a yearly growth of 118 per cent.

“We set out a strategy and we want to implement it,” Crossland says.

Thermal’s current strategy, a sales-driven approach, can be traced to 2011, when the company added six employees to the sales team, as well as a marketing and sales coordinator.

The results have been mixed so far, with Thermal earning profits in 2012 and 2014, but incurring losses of more than $2 million in both 2013 and 2015.

Crossland believes Thermal’s strategy and personnel are ideal for the current market. He’s also bullish about the demand for high-efficiency, emissions-reducing products.

“We’re in the right place, at the right time, with the right people,” says Crossland.

The need for local sales

Ashley Thibaudeau, a cleantech analyst from the economic development agency Invest Ottawa, says one of the challenges that a small cleantech company may face is the inability to sell in its own backyard.

Thibaudeau says one of the challenges that small cleantech companies face is the inability to sell in its own backyard.

Thibaudeau said in the case of Thermal Energy finding and selling to Ottawa customers is difficult because she says, “The only real clientele for these companies [in Ottawa] is the federal government.” Thibaudeau says local companies, like Thermal Energy, often overlook opportunities with the government.

Thibaudeau says government philosophy, in addition to movements like COP21 and the possibility of a carbon tax or cap and trade system can help press the issue of emissions reduction and drive increased investment in the cleantech industry.

“We’re all feeling pretty warm and fuzzy,” says Thibaudeau.

“But we also know that theses things, getting policy actually pushed through, can take a long time,” she says.

International focus

While optimistic about the effect a federal Liberal government could have on the cleantech industry, Crossland is more focused on international opportunities.

“The US and China’s movements are more exciting than Canada’s because the world will follow them,” says Crossland.

One aspect of Thermal’s strategy that changed this year is customer service. Crossland says a lack of communication between Thermal and its existing client base led to several clients being lured away by competitors.

Crossland gave an example of a Thermal sales person who left the company, taking his client contact information with him. Incidents like this opened the door for major competitors, notably US-based steam company Spirax Sarco, to come in and make a sales pitch if ever a GEM steam trap wasn’t working properly.

The issue, Crossland admitted, was that there aren’t any direct economic benefits in following up with clients. “We’re still figuring out a business model, it’s a challenge. But for now it’s important to keep up our reputation,” he says.

Crossland says Thermal has taken steps to address the problem. It has added stickers with the company’s information to all of its steam traps and sends out anniversary cards to its clients. It also transferred its paper trail of client contact information to a user-friendly database.

Thermal Energy’s current strategy is in stark contrast to that of the company’s founder and original CEO, Thomas Hinke.

Fired in 2005, Hinke attempted a strategic partnership approach in the late 1990s, in which Thermal would attempt to form relationships with more established companies, who would provide sales and customer service.

Grumpy shareholders

Another difference with Thermal’s current strategy is share price. The share price, which was as high as $2.85 per share under Hinke, currently sits at $0.04 per share. The low price has angered some, including longtime shareholder Youssan Duvnjak.

“Even though the company is doing crappy, the share price doesn’t have to be crappy,” Duvnjak says. “We need to bring the sexiness back to our stocks.”

But Crossland disagrees with the shareholder’s comment at the annual meeting. He explained how Thermal had focused too much on self-promotion in the past. The CEO says he did not want to create an illusion of the company’s worth and that it needed to earn a higher share price.

Thibaudeau says, while a strong sales team is an important indicator of a company’s potential survival, what is crucial are the every day decisions made at the top.

“It’s on that business owner to say well we’ve had enough. Or to say, well no actually, we’re going to push through this,” Thibaudeau says.

The message at the annual general meeting was clear—the company and its shareholders expected better from its board of directors.

“I hope if things don’t look good ahead, that you’ll look at yourselves to make some changes,” says Duvnjak, addressing the board of directors.

“We know we can’t come back here with the same outcome,” Kelly says.

Crossland remains optimistic. “We have the best in-class products, there is no reason to not to be successful,” he says.