CEO Provides Update Letter to the Shareholders of Thermal Energy International

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(TheNewswire)

Ottawa, Ontario / TheNewswire / January 29, 2018Thermal Energy International Inc. (“Thermal Energy” or the “Company”) (TSXV: TMG), a global provider of industrial and institutional energy efficiency solutions, would like to provide a corporate update to shareholders from its CEO, William Crossland.

 

Letter to Shareholders

 

The first half of fiscal 2018 was strong for Thermal Energy International and it looks like this is shaping up to be a banner year for our company. Revenue for the first half of the year was up 31% to $6.8 million, and demand for our proprietary energy efficiency solutions is at an all-time high --- as evidenced by the receipt of the largest order in our history subsequent to the end of the first half and our current order backlog being at an all-time high. Our strong revenue growth and record-high order backlog are a testament to our growth strategy and the ability of our team to execute it.

 

Our strong revenue growth in the first half of the year was driven by increased demand for our FLU-ACE® heat recovery technology. Sales of our heat recovery systems increased by $2.4 million, or 132%, compared to the first six months of fiscal 2017. Heat recovery revenue in the first half of fiscal 2018 included revenue from five major ongoing projects, including the partial installation of a system at a leading producer of industrial and fuel alcohols, an installation at a major hospital, the final stages of two other hospital installations, plus the substantial completion of a project at a leading Fortune 500 food and beverage producer – our sixth heat recovery site with this particular customer.

 

While revenue from the sale of our GEM™ Condensate return systems was down 23% for the year-to-date, the comparable period in fiscal 2017 was an outstanding one for our GEM business, with revenue growth of 42% compared to the first six months of fiscal 2016.

 

Having heat recovery systems comprise a significantly larger proportion of our sales mix in the first half of fiscal 2018 had an impact on our gross profit and margins. As a reminder, our heat recovery systems typically have a lower contribution margin than our GEM sales. Despite the higher revenue for the period, gross profit was on par with the first half of last year at approximately $3.4 million. Our gross margin for the current period was 49.4% compared with 64.9% in the first half of last year.

 

Growing our team & global presence

 

We remain focused on growing our business, and to do so we must grow and invest in our team. A year ago we added our first sales person in the strategically important market of Germany, and six months ago we added an EU Sales Director. In the last 12 months we have also added an experienced, Ottawa-based marketing manager; two junior engineers, in part to support a proactive approach to access government incentive funding on behalf of our customers; and, as discussed below, we also recently added a senior engineer to support both growth in our existing product lines and expand our product offerings.

 

As a result of costs associated with additional sales and technical staff, and other costs related to strategic growth initiatives, our operating expenses were higher in the first half of the year. However, operating expenses as a percentage of revenue decreased to 51.5% from 61% for the same period last year.

 

In the near term, we plan to hire a second salesperson for the German market; a technical sales person in Texas to service the gulf coast petrochemical sector; and, an experienced UK-based marketing manager.

 

Expanding our offering and our capabilities

 

In the first half of fiscal 2017 we added both engineering and sales expertise in order to target the cogeneration market with our super-efficient, FLU-ACE® augmented solution. In the first half of this fiscal year we announced our first order in this target market. With a similar objective of expanding our product offerings and capabilities, back in October we welcomed Luc Mandeville onboard as our new Senior Project Engineer. Luc came from Sofame Technologies where he was the Chief Technology Officer, and brings extensive experience developing and implementing a large number of energy efficiency projects in a wide variety of sectors. While much of Luc’s experience is similar to our existing business, much more is complementary in terms of both product and application expansion. He has considerable expertise in the areas of condensing heat recovery, direct fired water heaters, boilers, and NOx control. We are excited about both the depth and breadth Luc adds to our growing engineering and project development capabilities.

 

Breaking a few records as we enter the second half

 

Continuing our momentum into the second half of the year, in December we announced an $11 million energy efficiency mega project with Resolute Forest FP. The project includes the installation of two of our FLU-ACE Heat Recovery Systems and the conversion of the site’s steam traps to our GEM Steam Traps, and represents our largest heat recovery order and our largest GEM order to date. This project also secured $5 million in funding from the Ministry of Research, Innovation and Science through the TargetGHG Industrial Demonstration Program administered by Ontario Centres of Excellence. We expect the project to be substantially completed and revenue earned over the next 17 months.

 

On the back of this mega project and several smaller orders, our reported order backlog reached a record high $17.5 million. As a reminder, we include in our order backlog, any purchase orders that have been received but have not yet been reflected as revenue in our published financial statements. We consider order backlog a useful performance measure as it’s an indicator of the short term future revenue of our company resulting from already recognized orders.

 

Looking toward the balance of fiscal 2018 and beyond, we will continue to execute our multi-faceted strategy focused on growing our sales productivity and expanding the business by growing our team and global presence, as well as introducing new products.

 

In closing, I would like to extend a big thank you to our team for all of your efforts, our customers for allowing us to improve your energy efficiency and lower your greenhouse gas emissions, and last but not least, our shareholders for your continued support.

Sincerely,

 

Bill

  

# # #

 

Forward looking statements

 

The shareholder letter above contains forward-looking statements relating to, and amongst other things, based on management’s expectations, estimates and projections. Statements relating to the expected installation and revenue recognition for projects, statements about our backlog, statements about our hiring plans and statements about execution of our strategy to grow sales productivity and expand the business by growing our team and global presence, as well as introducing new products, are forward looking statements. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, some of which are outside of the Company’s control, could cause events and results to differ materially from those stated. Fulfilment of orders, installation of product and activation of product could all be delayed for a number of reasons, some of which are outside of the Company’s control, which would result in anticipated revenues from such projects being delayed or in the most serious cases eliminated.  The term “backlog” as used in this news release has the meaning given to it above and the Company’s use of such term may not be comparable to “backlog” presented by other issuers who may define such term differently (see further discussion of this non-IFRS measure in the Company’s MD&A for the second quarter ended November 30, 2017). Orders in the Company’s backlog as described above may not turn into revenue due to many factors, some of which are outside of the Company’s control, including but not limited to the Company’s ability to deliver products on time and in accordance with specifications and the continuing financial viability of the customer. We may not be able to hire individuals with the skillsets desired within the time frames expected, if at all.   Our growth and product strategies may not proceed as anticipated or the market may not be receptive to our strategy. Readers are referred to additional risk factors set out in our public disclosure documents available at www.SEDAR.com.  The Company disclaims any obligation to publicly update or revise any such statements except as required by law.  

 

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 

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