Thermal Energy International Inc. (TMG.V) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual Meeting of Thermal Energy International, Inc. Please note the meeting will be recorded. I would like to introduce William White, Chair of the Board of Directors of the corporation. Mr. White, the floor is yours.

Good morning, and welcome to the Annual Meeting of Shareholders of Thermal Energy International, Inc. My name is William White. I'm Chair of the Board of Directors of Thermal Energy International, and I will be acting as Chair of this meeting. As is our custom, we will conduct the formal portion of our meeting first. Following the conclusion of the formal meeting, Bill Crossland, Thermal Energy's CEO, will provide a presentation on the company's financial performance in fiscal year 2025 and a business update. Following this, there will be an opportunity to ask general questions. Validated shareholders may ask questions in the Ask a Question text box on the web portal. Please note that this meeting is being recorded. I'd like to introduce each of the present members of the management and Board. From the Board, we have David Spagnolo, Mike Williams and Will Ollerhead. From the company, Julia Zhang and Robert Triebe. I would also like to introduce Shane McLean, corporation's legal counsel, Labarge Weinstein, who will act as Secretary of the meeting. The company has appointed TSX Trust Company to act as scrutineers of the meeting, who is represented today by Emma Mackenzie. The company has been provided with an affidavit of mailing confirming the mailing of the meeting materials, and I have received a preliminary report on attendance from the scrutineers and have determined that a quorum is present. Therefore, I declare the meeting to be regularly called and properly constituted for the transaction of business. We will conduct the votes on the matters before us by poll. On a poll, each registered shareholder or their duly appointed proxy holder is entitled to vote on the matter. They have 1 vote in respect to each share entitled to be voted on the matter and held by the shareholder. The poll will be open for all resolutions at the same time. Click the voting button on the left menu on your screen when the poll is announced. This will allow you to choose to vote on each resolution immediately or wait until conclusion of discussion on each resolution prior to casting your vote. There will be an opportunity to ask questions on each resolution in turn. To submit a question, click the Ask a Question button on the left menu of your screen and type your question in the text box. Once discussion on all items of business has concluded, I will give you 20 seconds to enter your votes and then declare voting closed on all resolutions. The first item of business is the presentation of the edited -- audited, excuse me, financial statements of Thermal Energy for the year ended May 31, 2025, and the auditor's report. Links to electronic copies of the financial statements and auditor's report were delivered in advance to each of the shareholders. I would ask that any questions on the financial statements or auditor's report be postponed until after the formal business of the meeting has been completed. Next slide. The polls are now open for voting, and I will describe each of the matters to be voted upon at this meeting. The first matter to be voted upon is the election of directors. The number of directors currently holding office is 5. The following 5 individuals, all of whom are currently directors of the company were identified in the management information circular that accompanied notice of this meeting for as directors. William B. White, William Crossland, William Ollerhead, Michael Williams, David Spagnolo . Are there any further nominations?

No new nomination from the floor.

Thank you. As there are no additional nominations, I declare the nominations closed. There are 5 individuals nominated for 5 positions. The second matter to be voted upon is the appointment of auditors and to authorize the Board of Directors to fix their remuneration. The company has proposed that Welch LLP be appointed as auditors of Thermal Energy to hold office until the close of the next Annual Meeting of Shareholders or until their successors are appointed and that the directors be authorized to fix their remuneration. Is there any discussion about the 2 matters proposed for voting? If there is no further discussion, we will move to a vote on these matters. If you've not already done so, registered shareholders or valid proxy holders, please click the Voting button on the left menu on your screen in order to vote on each resolution. We will provide 20 seconds for shareholders to submit their votes. [Voting]

20 seconds has passed, but we'll allow an additional 20 seconds now to get them completed. Now that everyone has had the opportunity to vote, I now declare the polls closed. We will now take a moment to determine the results of the polls. We have been informed by the scrutineer that the preliminary vote report shows that a majority of the votes cast at the meeting have been cast in favor of the nominees for election to the Board and in favor of the reappointment of Welch LLP as auditors of the corporation and authorization of the Board of Directors to fix their remuneration. In light of the voting results, I declare that the nominees named for election to the Board have been duly elected to hold office until the close of the next Annual Meeting of Shareholders and that Welch LLP has been appointed as auditors of Thermal Energy International, Inc. for the upcoming year, and the Board of Directors has been authorized to fix their remuneration. So that concludes the formal business schedule to come before the meeting. I remind you that there will be a management presentation following the formal portion and an opportunity to ask questions after that.

Thank you, Bill. Maybe we can move to Slide #6. Yes. Thank you, Bill, and good morning, everyone. As you know, my name is William Crossland, President and CEO of Thermal Energy International. Next slide, please. So for my presentation this morning, I'll quickly review key financial highlights for fiscal 2025 and the first quarter of 2026 and then focus on some recently announced orders, our record order intake and order backlog and our outlook for the balance of fiscal 2026. I'll also take some time to discuss a few new strategic initiatives that will support our continued growth going forward. Next slide, please. But of course, before I do that, I need to point out that this presentation may contain forward-looking statements within the meaning of applicable securities laws. So for additional information, please refer to our filings with Canadian securities regulators. Next slide, please. So starting with a quick look at our fiscal 2025 year. We had record revenue of $30 million, which was a 15% increase from the prior year and was up 41% compared to 2 years ago. Our profitability for the year was impacted by the investments we made in the business. That is our 2025 operating expenses included an additional $813,000 related to growth in our headcount, primarily sales, marketing and engineering teams. However, we still remained profitable with adjusted EBITDA of $1.1 million and net income of $160,000. And we continue to generate very strong operating cash flow of $1.7 million before the typical temporary changes in working capital items. Next slide, please. We finished the year with a strong balance sheet and a significant reduction in our bank debt being the key highlight. During the year, we repaid $2 million of long-term debt. And over the past 3 years, we've repaid $3.6 million in acquisition and pandemic-related debt, all from our own internally generated cash flow. And we're on track to retire the remaining balance in full by January. This will not only strengthen our bottom line going forward, but also unlock greater flexibility for future growth. Next slide, please.

Bill, I think you are muted.

Emma, you're right, I was. Sorry. Next slide, please. Okay. So for Q1, we had about $7 million in revenue. While that's lower than last year's record-breaking first quarter, it was still our second strongest first quarter ever. And in fact, our Q1 revenue this year was 32% higher than Q1 2024 and 119% higher than Q1 2023. Our Q1 operating expenses were down 7% compared to last year, and we remained profitable. Our operating cash flow before working capital changes remained strong at $1.1 million for the quarter, and we continue to pay down our bank debt, which had a balance of about $200,000 at quarter end. Next slide, please. During the first quarter, we received 2 orders totaling $5.1 million from a leading global pharmaceutical company. These orders were both related to a turnkey heat recovery project that started with a project development agreement in early calendar 2024, which was then followed by a $500,000 detailed engineering contract earlier in calendar 2025. Then the $5.1 million received in Q1 included a $1 million equipment order in June, followed a week later by $4.1 million for -- to fully implement and commission the project on a turnkey basis. Next slide, please. These orders contributed to our highest Q1 order intake ever. In fact, our Q1 order intake of $11.9 million this year was more than 4x what it was last year and well above our historical average for the first quarter. In fact, it would have been a record even without that $5.1 million, as you can see on this chart. The strong order intake in Q1 drove our order backlog to $18.5 million at quarter end, another record for our first quarter period and marking increases of 37% over last year, 60% over 2 years and 206% over 3 years. Next slide, please. And now on to the second quarter. Earlier this month, we received orders for 2 distinct turnkey heat recovery projects at a combined total of $1.5 million from a global nutrition company. Both projects are for a single site. These are the seventh and eighth turnkey heat recovery projects with this customer. In fact, since 2019, we've done approximately $14 million in business with this multinational company, and we continue to see significant additional potential with this customer. With heat recovery projects at 6 sites as well as GEM and HeatSponge and other solutions, we've partially penetrated about 27 of this customer sites in 9 countries in North America, Europe and Asia, and they have numerous other facilities worldwide that could also benefit from our technology. So with this customer, there's still lots of additional opportunities, not only at the 27 sites we've already done some business with, but also at many other sites worldwide. Next slide, please. Last week, we announced a $1.6 million order to supply 8 highly customized HeatSponge heat recovery units to a remote mining operation in the Arctic. This order follows an earlier but related order this past summer for 2 HeatSponge units from the same company. As you probably know, HeatSponge is a solution from our wholly owned subsidiary, Boilerroom Equipment Inc. in Pittsburgh, U.S.A. This project, which was sold by our direct sales team is the largest and most technically difficult HeatSponge project in Boilerroom Equipment's history. In addition to the HeatSponge units having to withstand harsh operating conditions, this project also presented significant logistical challenge, as you can probably imagine, getting to the Arctic. And this highlights our dedication to addressing complex energy challenges in the most demanding environments. It's also an excellent example of the strong synergies and collaboration between Thermal Energy and our subsidiary Boilerroom Equipment. While historically, the majority of Boilerroom Equipment's orders have come from their strong network of independent manufacturers representative companies, this order as well as an increasing number of larger, more strategic HeatSponge orders that we've been receiving are coming from Thermal Energy's direct sales team. Next slide, please. While we are very excited about our strong start to the year and our record Q1 order intake and orders received since then, we need to keep in mind that given the typical revenue cycle of large heat recovery projects, most of the revenue from these orders will likely be recognized in the second half of 2026. So as noted on our last 2 earnings calls, we anticipate that overall revenues for fiscal 2026 will be more heavily weighted toward the latter part of the year. Next slide, please. While the investments we made in our business in fiscal 2024 and 2025 -- just have a bit of a scratchy throat. So while the investments made in our business in fiscal 2024 and 2025 have temporarily weighed on profitability, they have positioned us well for the next phase of growth. In addition to this, during our first quarter earnings call, I identified some new key initiatives that we're implementing to further scale the business and drive profitable growth going forward. These include: one, to develop and enhance indirect sales channels in both North America and Europe; two, develop and promote standardized equipment packages; three, establish HeatSponge manufacturing in Europe; and four, leverage both our direct and indirect sales channels with our award-winning carbon reduction and efficiency scoping tool or CREST for short. I'll now talk a little bit more about each of these. Next slide, please. So we're planning to add and enhance indirect sales channels in both North America and Europe by developing and cultivating networks of independent manufacturers representative companies or IMRs for short. This is to drive the smaller, more regular equipment orders. IMRs are a proven channel for industrial products, including boilers and steam systems. IMRs promote, sell, commission equipment within their territories, often backed by service teams that maintain the equipment, the boilers, the burners, the steam traps. Crucially, they maintain strong relationships and regular contact with the end users. And while our wholly owned subsidiary, Boilerroom Equipment already uses IMRs to great effect in North America, there's untapped potential in this channel across our broader business in North America and Europe for all of our smaller equipment sale opportunities. In addition to providing extensive geographical coverage, the potential benefits include the opportunity to further grow sales with less investments since MRIs operate on a 100% success-based markup basis. And with MRIs handling the smaller, more regular orders, our internal sales team can focus more effectively on the larger, higher-value strategic opportunities with our customers. Next slide, please. And of course, related to the development of indirect sales channels in North America and Europe, we believe there's a further opportunity to boost sales by introducing and marketing a range of standardized equipment packages and pre-engineered heat recovery solutions tailored for the smaller, less complex projects. These offerings could be added to the IMR's line cards alongside their existing products and services. And by eliminating the need for custom design, these standardized solutions would streamline project development for smaller jobs, enabling quicker quoting and sales based on data supplied by our proprietary CREST survey tool, ultimately accelerating the sales cycle. Next slide, please. So while HeatSponge has been a strong performer for us in North America, we see significant potential for HeatSponge in Europe. To realize this potential, we plan to add HeatSponge manufacturing in Europe. Initially, our U.S. shop will supply components for local assembly and testing in Europe. But as demand scales, we'll consider transitioning to a contract manufacturing shop in Europe. Having manufacturing operations in Europe would result in shorter lead times and a more cost-effective way of servicing this largely untapped market. Next slide, please. Finally, as we've mentioned, both our direct and indirect sales channels will get a serious boost from CREST, our cutting-edge proprietary mobile app. CREST saves time, speeds up the sales cycle and empowers our sales team and independent manufacturers' reps to uncover valuable Thermal Energy savings and carbon reduction opportunities they might otherwise miss. This should result in more cross-selling and other repeat business, plus CREST can help speed up the training and ramp-up for our own direct salespeople as well as the independent manufacturer reps. We hope to update you on these key initiatives as plans progress. Next slide, please. So with that, the management team and I are happy to take any questions you might have. So I'll now turn it over to Julia Zhang, our CFO; and Robert Triebe, our COO, who will moderate our Q&A. Please go ahead, Julia and Rob.

Yes. Hello. Thank you, Bill. Thank you. There's right now only one question in the queue. Most public companies issue a press release each year outlining their AGM voting results. This is considered a best practice, but to my knowledge, TEI does not provide this information to the public, either through press release or via their website. In the interest of good governance and transparency, could TEI adopt such a practice?

Yes, we will -- I wasn't aware of that, and we will certainly be happy to consider it. So we'll discuss it with the Board and our legal counsel.

And yes, beyond that, there are no questions received.

Okay. Well, thank you very much, Julia and Rob. You had an easy job this year. So if there are no further questions at this time, I would just like to thank everyone for joining us today. We look forward to sharing our second quarter results and updates with you in January. And in the meantime, please have an energy-efficient day. Thank you very much, and take care.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.