Earnings call transcript: Thermal Energy’s Q3 2025 revenue drops 4.1%

Thermal Energy International Inc. reported a 4.1% decrease in revenue for the third quarter of 2025, totaling $5.8 million. Despite the revenue decline, the company emphasized its strong business development pipeline and strategic investments, which it expects to drive growth in the coming fiscal year. The company’s stock showed resilience, with a 4.35% increase in its last trading session, closing at $0.125. According to InvestingPro data, the company maintains healthy liquidity with a current ratio of 1.42, indicating strong short-term financial stability. The stock currently trades below its InvestingPro Fair Value, suggesting potential upside opportunity.

Key Takeaways

• Thermal Energy’s Q3 revenue fell to $5.8 million, a 4.1% decline year-over-year.
• The company reported a net income loss of $400,000 for the quarter.
• Stock price increased by 4.35% in the latest session, closing at $0.125.
• Thermal Energy completed 11 heat recovery projects and secured a $500,000 engineering contract.
• The company is focusing on expanding its U.S. presence and maintaining a strong order backlog.

Company Performance

Thermal Energy International’s performance in Q3 2025 reflected challenges with a 4.1% drop in revenue compared to the same period last year. Despite this, the company remains committed to its strategic growth initiatives, which include expanding its presence in the U.S. and developing energy-saving projects. The company’s emphasis on flexible and geographically diverse supply chains positions it well to navigate potential market uncertainties.

Financial Highlights

• Revenue: $5.8 million (4.1% decrease year-over-year)
• EBITDA: -$130,000 for the quarter
• Net Income: -$400,000 for the quarter
• Cash and Cash Equivalents: $5.1 million
• Working Capital: $2.4 million
• Long-term Debt: $1.4 million

Outlook & Guidance

Thermal Energy anticipates that its recent investments will drive profitable growth in fiscal 2026. The company is not planning additional growth-oriented expenses for the next quarter, focusing instead on leveraging its existing business development pipeline. The forward-looking guidance suggests optimism about overcoming current challenges and achieving long-term growth.

Executive Commentary

CEO Bill Crossland expressed confidence in the company’s future, stating, "We fully believe we are in a temporary low and are encouraged by our strong business development pipeline." He also highlighted the company’s robust project development efforts, saying, "We have a number of customers that we’re actively developing more projects for."

Risks and Challenges

• Market Uncertainty: Potential risks from tariffs and trade policies could impact operations.
• Supply Chain Management: While diverse, the supply chain must remain agile to adapt to global changes.
• Financial Performance: Continued revenue declines could strain financial resources.
• Competitive Landscape: The need to maintain a competitive edge in energy efficiency solutions.
• Economic Conditions: Broader economic pressures could affect customer investments in new projects.

Q&A

During the earnings call, analysts questioned the unique structure of a $500,000 engineering contract and discussed potential macroeconomic uncertainties. The company addressed these by emphasizing its strong project development pipeline and the flexibility of its supply chain to mitigate potential risks.

Full transcript - Thermal Energy International Inc. (TMG) Q3 2025:

William Crossler, Moderator: You you start. Good morning, everyone. I am William Crossler. Okay.

Bill Crossland, CEO, Thermal Energy International: I could

William Crossler, Moderator: say it if you want, but I might How

Bill Crossland, CEO, Thermal Energy International: do I know when when it’s when it’s live, or is it live now? No.

William Crossler, Moderator: Just when we tell. Yes.

Russell Stanley, Equity Analyst, Beacon Securities: When you tell. Go. Okay. Okay.

William Crossler, Moderator: Okay. Your camera’s on right now, Bill, just so you

Bill Crossland, CEO, Thermal Energy International: know. Okay. Here we go. Okay. We’re ready to go?

Russell Stanley, Equity Analyst, Beacon Securities: Yep.

Bill Crossland, CEO, Thermal Energy International: Yes. Okay. Good morning, everyone. I’m William Crossland, CEO of Thermal Energy International. Thank you for joining us today for our earnings call for the third quarter ended 02/28/2025.

Our news release, financial statements and MD and A are available on our website and have been filed on SEDAR. Following my prepared remarks, we will have a question and answer session, at which time qualified equity research analysts joining us on MS Teams will be able to ask questions. If you’re joining us online, you should be able to see our slide presentation on your screen now. So before we get started, I’ll point out that today’s earning call may contain forward looking statements within the meaning of applicable securities laws. Forward looking statements are subject to risks and uncertainties and undue reliance should not be placed on such statements.

Certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements. For additional information, please refer to our financial statements, our MD and A for the quarter and other filings with the Canadian securities regulators. As an overview, although our revenue was a little softer in the quarter, our revenue for the year to date period was in an all time high 25% ahead of last year. Compared to last year, our quarterly margins were impacted by heat recovery projects that delivered much higher than normal margins last year and a bit lower than average this year. We see the current period as a temporary lull as our business development pipeline remains very strong.

Moreover, our strong balance sheet and the investments we’ve made in our business over the past two years has positioned us to drive profitable growth. Revenue for the quarter was $5,800,000 reflecting a decrease of 4.1% from the year before. This decrease was primarily driven by lower contributions from heat recovery projects as several existing projects neared completion while newly launched ones were still in early mobilization phase. When looking at the trailing twelve months ended February 28, our revenue was 30,500,000.0 which is just off the record mark we set for the trailing twelve month period 11/30/2024. As you can see on the slide, our trailing twelve month revenue is up 76% over the past two years.

Our EBITDA for the quarter swung to a negative $130,000 as a result of the lower revenue and reduced gross margin on heat recovery projects, Plus, we continue to incur additional growth oriented expenses that are expected to drive results in fiscal twenty twenty six and beyond. We remain EBITDA positive on a trailing twelve month basis with EBITDA of about $1,100,000 And I want to point out that our profitability over the past two years has been lower as a result of the significant investments we’ve made in our business. Importantly, we’re not currently planning to incur any additional growth oriented expenses over the coming quarter, but instead are going to focus on maximizing the return on the investments already made. We expect these investments to start realizing benefits to our top line and to our profitability in fiscal twenty twenty six, which is right around the corner. For net income, we had a loss of $400,000 for the quarter, but again, we remain profitable on a trailing twelve month basis with net income of $230,000 Again, we expect the investments made in our business to allow us to continue driving higher revenues and for those higher revenues to contribute more to profitability.

Our balance sheet remains strong. At the February, we had cash and cash equivalents of $5,100,000 and working capital of 2,400,000.0 We also continue to pay down our long term debt, which was down to 1,400,000.0 at quarter end. Over the last two years, we’ve reduced our debt by approximately $2,100,000 and our net working capital increased by approximately $600,000 all from internally generated cash flow. I’d like to talk briefly on a subject that’s getting a lot of press these days, tariffs and more specifically, the on again, off again threat of a trade war with The United States. Although there’s a lot of uncertainty with regard to tariffs and trade policies will likely continue to evolve, we do not expect them to significantly disrupt our operations.

Based on what we currently know, we believe that tariffs are unlikely to have a material negative impact on thermal energy. Our supply chain is both flexible and geographically diverse. Since most of our manufacturing is outsourced, we typically work with various manufacturing partners and suppliers across various regions, often within the same country where our projects are based, which mitigates the threat of changing trade conditions. And we also wanted to highlight that we have established a U. S.

Presence with EEI Boiler Room Equipment, which is based in Pennsylvania. By the end of the third quarter, we had year to date order intake of $17,000,000 including orders of about $7,000,000 in the quarter. While our revenue for the year to date was at an all time high, our order intake for the year to date remains behind where we were at this time last year. Our engineering and production team has done a good job converting our backlog, which stood at $14,800,000 at quarter end. Since the end of the third quarter, we received an additional $2,300,000 in orders, including the $1,000,000 heat recovery expansion project we announced on April 16.

The orders received since quarter end have increased our order backlog to $17,100,000 as at 04/28/2025. I wanted to emphasize that while our order intake has been lower so far in fiscal twenty twenty five, our business has always been fairly lumpy in terms of when orders come in and when revenue is booked. But our business development pipeline remains very strong with many repeat opportunities with existing customers as well as potential opportunities with prospective new customers. We continue to see a lot of demand for energy efficiency and carbon emission reduction solutions and the payback on our projects from energy savings remains strong. A good example of that demand is the $500,000 engineering contract we signed in February with a new customer, another leading multinational pharmaceutical company.

This was our largest engineering contract ever. The scope of the engineering work to be completed under this contract is significantly more comprehensive than what we typically deliver under a project development agreement. In fact, we entered into a project development agreement with this client about a year ago and completed it. And based on the results of that engagement, they wanted us to carry out the full detailed engineering for the project that typically doesn’t happen until we receive the order. But this client prefers to approve things in stages.

But the fact that they’ve already spent more than $500,000 in this project leaves us optimistic we can turn this into a complete turnkey heat recovery project. This multinational pharmaceutical company is committed to achieving substantial carbon emission reductions and is aligned with the United Nations Race to Zero campaign, a global initiative encouraging non state actors, including businesses to take decisive steps towards having their global emissions by 02/1930. And they have come to thermal energy to help them achieve their goals. A great example of repeat business is a $1,000,000 heat recovery expansion project I mentioned earlier that we announced this month. In 2019, we completed a turnkey FlueACE heat recovery project for this leading food and beverage company at this very same U.

S. Location. After experienced the benefits firsthand of our project and our installation, the customer invited us to collaborate on an expansion project to recover additional waste heat from this multi boiler site. To date, we have successfully delivered 11 heat recovery projects across 10 of the customers’ global locations and installed 4,000 gemstraps at 60 of their sites. Our partnership continues to grow with many more opportunities for future projects, but both at these existing sites and at over 200 additional locations we’ve yet to engage.

So in summary, we had record revenue for the first nine months of fiscal twenty twenty five, but had softer revenue and margins in the third quarter. We fully believe we are in a temporary low and are encouraged by our strong business development pipeline. Importantly, the significant reinvestments we made in our business over the past two years positions us well for our next stage of profitable growth, and we expect these investments will start to bear fruit in 2026. This concludes my prepared remarks. I would now like to open the call for questions.

I’ll turn it over to Trevor Heisler at NBC Capital Market Advisors, who will moderate our Q and A. Please go ahead, Trevor.

William Crossler, Moderator: Good morning and thank you, Bill. If you are a qualified equity analyst joining us on MS Teams this morning and would like to ask a question, please notify me by using the raise your hand feature. And your first question comes from Russell Stanley at Beacon Securities. Please go ahead,

Russell Stanley, Equity Analyst, Beacon Securities: Good morning and thank you for taking my question. Bill, just to start with a question around the $500,000 engineering contract. That structure, I think, separates the engineering from the equipment. I’m just wondering if you’re seeing more interest in that type of structure from other customers, be it new or existing? And can you talk about the pros and cons of that structure for thermal energy?

Bill Crossland, CEO, Thermal Energy International: Yeah. I’m not sure there’s any pros and cons. We’re not seeing it. This is the first time it’s happened. Typically, you know, when we do the output from a project development agreement is a fixed price.

You know, we give the customer a fixed price with with with guaranteed savings. Usually, that’s enough for the customer to go ahead, and they don’t normally want to spend, you know, the $500,000 on the detailed engineering unless they’re definitely go ahead with the pro going to go ahead with the project. So it could be that that’s typically the way this customer does it. We will we don’t know. Or it could be just that this is the first time they’ve done a project with us, so they’re being a little bit more cautious.

But it’s it’s certainly not a trend that we’re seeing. Having said that, we wouldn’t care if that was the trend. I mean, for us, we’re kind of in in in different as long as we get the project in the in the end. And, obviously, you know, we’re we tend to be you know, part of the reason I mentioned that, you know, the the heat recovery projects margin was higher was higher than normal. It was unusually high this time last year.

And that’s because we also had some large engineering projects or a large portion of the revenue was engineering. So the engineering tends to have a higher margin. But in the end, you know, we we’ll go either way. It doesn’t really matter, and it’s certainly not a trend that we’ve seen yet.

Russell Stanley, Equity Analyst, Beacon Securities: Great. That’s helpful color. Maybe more generally, understanding your comments around tariffs and really no direct impact, I’m wondering just more generally on the macro picture, it’s clouded a bit since the last conference call. I’m just wondering, looking beyond the new orders and the backlog numbers, do you have any are you seeing any macro uncertainty filtering into conversations with customers? Are you seeing any additional reluctance to pull the trigger on, on projects?

Is that filtering through, or or is this just, are we just seeing evidence of of the lumpiness, lumpy nature of the business? Thanks.

Bill Crossland, CEO, Thermal Energy International: Yeah. It’s it’s always hard to know, Russell. Certainly, there has been, you know, when you when you just look at our order intake, there’s been a a little bit of a slowdown, certainly started before the tariffs, and people were starting to talk last fall about a bit of a slowdown. So we’re not sure whether, you know, what it’s what it’s related to, but it also could be just the lumpiness of our business. You know, it’s it’s we’re still you know, with with $30,000,000 in revenue, we’re still we’re much bigger than we used to be, but we’re still a relatively, you know, small company.

So there is some some lumpiness when you’re talking about 4 or $5,000,000 order sizes, you know, and $30,000,000 in revenue. So it could be just normal, you know, lumpiness or it could be, you know, the the initial signs of, excuse me, a bit of a slowdown or it could be people’s uncertainty due to tariffs. But excuse me. For us, we’re we’re very well positioned on the tariff side because we have manufacturing and suppliers, in all our key markets. So we don’t think it’s going to have a significant impact on us regardless of what happens.

Russell Stanley, Equity Analyst, Beacon Securities: Great. Maybe one more for me and I’ll hop back in the queue. Just on gross margins, you talked about the revenue base in the quarter kind of transitioning out of some projects or finishing, just ramping up on some new projects. And is that, I guess, the connection there that you’ve got some front end loaded costs on the new projects? The MD and A notes that higher expected costs played a role in the quarter, so just wanted to bridge the gap on on that comments on that commentary.

Thanks.

Bill Crossland, CEO, Thermal Energy International: Yeah. It’s just one of the, one of the challenges with with the heat recovery projects in in that they’re, the revenue and the profitability is booked on a percent complete basis. So each quarter, we have to estimate at what percent of the project has been completed and what the new budget is. So there’s always a bit of up and down. With every project, we do take a risk and contingency amount that’s in the budget, but we don’t book that to the end.

So often, we sometimes see a little bit of a increase in the margin right at the end when we book the risk and contingency because we, you know, to be conservative, we can’t we can’t take that into account until right at the end when we know there’s no further costs. So if we see the costs going up, you know, midway through the project, then that’s gonna impact the margins at that time. But then we often will catch up because it’s, you know, we’re not booking any further risk and contingency. So there is a bit of a variance in the margin as we work through the project from any given project from start to finish. And there’s nothing we really can do about that.

That’s just sort of the accounting policies.

Russell Stanley, Equity Analyst, Beacon Securities: That’s great. Thanks for the color. I’ll get back in queue.

William Crossler, Moderator: Thank you, Russell. Again, if you are a qualified equity analyst joining us on MS Teams this morning and would like to ask a question, please notify me by using the raise your hand feature. And it looks like there are no further questions at this time. Please go ahead, Bill.

Bill Crossland, CEO, Thermal Energy International: Well, thank you for your continued support of Thermal Energy. I look forward to speaking with you again next quarter. And I’d also, you know, like to point out to partly in response to Russell’s question, you know, there we we do have a little bit of lull right now, but, we we believe our pipeline is exceptionally strong. You know, Russell said our our customers sort of, delaying a little bit, and and that’s not what we’re seeing. We have a number of customers that we’re actively developing more projects for.

So we haven’t seen any real slowdown in the market in terms of project development at all yet. But there has, as I noted, been a little bit of a slowdown in order intake. Thank you so much, and, bye for now.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.