Bulletin #133

Smallcap Discoveries:

Solid Growth and Fundamentals in a Super Hot Sector

Thermal Energy International Inc


Current Price: $0.10

52 Week Hi/Low: $0.06 / $0.11

Average Daily Volume (3month): 98K

Issued and Outstanding: 161,152,616

Options: 14,259,193 (*NIL Warrants)

Fully Diluted: 175,411,809

Current Price: $0.10

Market Capitalization: $16M

Insider Ownership: 8% – 12,884,572

TTM Earnings: $372K

TTM Revenues: $21.9M



P/E: 43x

P/S: 0.73x

Debt: $2.4M

Cash: $5M

Last Financing: 2008 – $15M at $0.22


  • Profitable
  • 33% compounded annual growth since 2015
  • Award-winning products offering high ROI
  • Customers in diversified industries with large TAM (Total Addressable Market)
  • Normal Course Issuer Bid
  • $5M in cash, hasn’t diluted since 2008
  • Ranked as one of Canada’s Top Growing Companies in 2019
  • Undiscovered

What is Thermal Energy International?

Thermal Energy is an innovative Canadian cleantech company. The Company is an established global supplier of proprietary, proven energy efficiency and emissions reduction solutions to the industrial and institutional sectors.

Thermal Energy saves customers money and improves their bottom line by reducing the amount of fuel they use and cutting their carbon emissions.

The Company is a fully accredited professional engineering firm. By providing a unique mix of proprietary products together with process, energy, and environmental engineering expertise, Thermal Energy can deliver unique turnkey projects with significant financial and environmental benefits for its customers.

By specializing in the engineering and supply of pollution control, heat recovery systems and condensate return solutions the Company has developed and acquired proprietary products that capture up to 80% of wasted energy from boiler plant and steam operations and recycle the saved energy.

Their customers include many Fortune 500 and other leading multinational companies across a wide range of industry sectors, including companies such as PepsiCo, Goodyear, Kellogg’s, Cargill, Resolute Forest Products, Johnson Controls and American Electric Power.

Thermal Energy has a global presence comprising of 65 employees and offices in Canada, the U.K., the United States, Italy and China.

The Company is also a proud member of the Chicago Climate Exchange (CCX).

What do they do and how does it work?

Thermal Energy has developed and/or acquired several proprietary products which include:

GEM™  Steam Traps and condensate return systems

  • More efficient than traditional mechanical traps
  • No moving parts reduces maintenance and eliminates the need to replace
  • Typical payback period 1 – 2 years
  • 100s to 1,000s of traps per location
  • Typical order $5K – $500K

FLU-ACE®  Direct contact condensing heat recovery

  • Waste heat is recovered from exhausts
  • Returned as hot water for use in process or heating
  • Typical annual fuel saving of between 5% and 25%
  • Reduces CO2, NOx and SO2 emissions as well as particulate matter (PM)
  • Typical payback period 2 – 5 years
  • Typical order $100K to millions

HEATSPONGE  Indirect contact condensing heat recovery systems:

  • Mass customization via modulated design
  • Sale via manufacturing reps and OEM
  • All sizes of industrial, commercial and institutional sites
  • Order value $5K to $150K

DRY-REX™  Low temperature biomass drying systems.

These award-winning products are applicable across a wide variety of industries and have an excellent track record of longevity, proven reliability and performance which provides significant energy savings, reduced GHG emissions, improved water efficiency, lower maintenance costs, improved product quality and increased production efficiency.

The key point is that these products offer a 10-30% reduction in energy costs, high ROI with short, compelling paybacks of 1-5 years for customers.

These products are being used by a broad range of clients in industries including pulp and paper, laundry, healthcare, food & beverage, building materials, chemical, petrochemical, brewing, mining, rubber, pharmaceutical, and agribusiness.

This is a massive market for Thermal Energy to penetrate. They are already embedded with some of the world’s largest companies and we believe it’s a function of time before there’s more pressure on these organizations to improve their ESG (Environmental, Social and Governance) initiatives. Thermal Energy has a long-standing track record for delivering quality to its clients, and the industrial recovery industry is an estimated $450B market opportunity.

To get a better understanding of GEM™ technology, click here for a video

What’s changed? Why now?

The business history of Thermal Energy is quite colorful and dates back to 1997 when they first went public. At that time, it was a founder-led business, had zero sales and established its business with marquee partner, Honeywell. Eventually, the founder was pushed out of the business, and later sued Thermal Energy.

After that, a new CEO took the helm and subsequently there was an unraveling eerily similar to the previous departure. The CEO eventually stepped down and along with him there was a series of board resignations and a CFO who was wrongfully dismissed, for which Thermal Energy eventually settled. Alarmingly, the TSX Venture Exchange halted the Company at one point, for a full audit of the Company from poor transactions and related party issues.

Those days are now long behind the Company, after Bill Crossland, who was already a Director of the Company, became CEO in 2009.

Under Mr. Crossland’s tenure, there’s been drastic improvements to the overall health of the Company.

Historically Thermal Energy had never achieved a full year of profitability and in 2009 was losing roughly $3.2M a year. After a full year of Mr. Crossland taking the reigns, the operating expenses were reduced, and it started to reflect in the numbers. By the end of 2011, Thermal Energy had four straight cash flow positive quarters and by 2012 had their first year of net profits of $71K.

Since 2016 the Company has been consistently EBITDA positive and is setting new annual revenue records peaking in 2019 with $21M.

As for Mr. Crossland, when he joined the Company as a director, he only owned 400K shares. Over the past decade since his involvement, Mr. Crossland has actively purchased shares in the open market accumulating 5.7M shares.

While the Company is now operating profitably, it has also overcome many hurdles and hardships and we believe this record setting growth is indicative of managements successful long-term strategy. Additionally, from a macro economic perspective governments and industries around the globe are taking unprecedented action on climate change.

The last financing for Thermal Energy was in 2008 for CAD $15M to complete the acquisition of Gardner Energy Management Ltd. (GEM). Today, the Company has built up a $5M cash treasury from the operations cash-flows.

When combining all the evidence, Thermal Energy is a profitable, well-capitalized Company that’s experiencing growth from long-term investments and industry tailwinds with a decade of strong leadership managing the Company. Additionally, the Company has a strong backlog and a normal-course issuer bid.


Thermal Energy is currently trading with a market capitalization of $16M and an enterprise value of roughly $14.4M.

The Company has demonstrated consistent revenue growth over the past five years from $6.8M in Fiscal 2015 to $21.1M in Fiscal 2019.

Gross profit has trended in the same direction over the past five years from $3.6M in Fiscal 2015 to $9.2M in Fiscal 2019.

Gross margins have remained relatively stable around 40-50%. However, we do note that the gross margins in Fiscal 2019 dipped, which can be explained by project and product mix. We anticipate the Company’s gross margins to fluctuate but remain near the 40-50% level.

While some of the traditional valuation metrics don’t suggest Thermal Energy is cheap, where the Company trades at a price-to-earnings ratio of 43x and an EV/EBITDA ratio of 9x, the long-term investments the Company is making are inhibiting these traditional financial ratios.

As an example, over the course of 2018 and 2019, Thermal Energy has invested $1.3M in strategic expenses to drive the future growth of the business. These growth-oriented expenses are key to their strategy which is working as demonstrated by the overall improving financial health and robust multi-year growth.

All these investment activities can take at minimum 1-2 years before they show a return. The ongoing hiring, training and retention of the additional sales and technical staff, product, market and application R&D, enhanced marketing, upgraded operational systems have, over the past few years, resulted in higher operating costs and lower profitability. These are long-term investments. And while it impacts the Company’s bottom line in the short term, this thoughtful and measured reinvestment is key to their growth.

We recognize that the Company’s business is contract driven which creates lumpiness to their quarterly reporting and growth in backlog. We are monitoring the growth by tracking the Company’s backlog which currently sits at $8.2M or 67% higher than the same period last year. Furthermore, given the lumpy nature of the Company it must be reviewed on yearly metrics to get a better handle of operations and financial health.

With $5M in cash and limited debt totalling $2.4M from BDC Capital with reasonable commercial terms, the Company has strong working capital and sufficient liquidity that it will likely not require any financing to continue on its growth trajectory.

Investors should also pay attention to the comparable companies, Xebec Adsorption Inc (XBC-TSX.V) and Greenlane Renewables Inc (GRN-TSX.V) relative to Thermal Energy.

Currently, Xebec is generating revenues of $13M a quarter and $2.5M net profit (9-month period). Their respective market cap is $300M.

Greenlane is generating revenues of $5M a quarter and had $4M in net losses (9-month period) which included $2.2M in one-time costs. Their respective market cap is $37M.

Given the uptake and investor interest in both Xebec and Greenlane as their share prices are hitting new all-time highs, we think it’s a function of time before Thermal Energy follows trend. Thermal Energy is cheaper, has a long operating history, a global presence and a much larger addressable market.

What to look out for?

The most obvious issue with the stock is the total issued and outstanding shares. There’s 161M shares outstanding and with a relatively low insider ownership at 8%, it leaves a lot of stock in the public market. We think the Company would be more attractive to investors if the Company had less shares outstanding and it would improve the trading. However, we don’t believe the board and management will approve of a rollback anytime soon.

As earlier noted, this is a growth Company that needs to be evaluated on a year-to-year basis and will have lumpiness in its long-term growth trajectory. We note that investors will cause extra turbulence around good and bad quarters creating additional volatility in the shares.

While the decline in gross margins occurred in Fiscal 2019, due to a project and product mix, it’s an important metric we will be carefully watching. We do anticipate gross margins to stabilize but recognize that larger orders such as the $11M pulp and paper contract, will have an impact as large contracts are generally lower margin. Therefore, it’s key to understand what’s driving the margin change.

Lastly, and most importantly, we think this Company is early in its discovery process. Meaning, it potentially could take several quarters and years, before the Company begins to attract larger pools of capital. This can impact the liquidity for early investors.

Final Thoughts

Globally, governments and industries are taking unprecedented action on climate change. Energy efficiency remains the low-hanging fruit for industrial, institutional and commercial operations looking to reduce their energy spending and greenhouse gas emissions.

As Thermal Energy is becoming a one-stop-shop for all their customers’ sustainability needs, the Company’s proven and proprietary solutions with their high return on investment and short, compelling payback sets the Company in a leading position to take advantage of this growing trend.

Their strategy is working, and recent growth is attributed to management’s long-term investments in the business. Under strong leadership the Company has demonstrated it can grow profitably, keep operating costs low and allocate capital effectively.

We view this as a good, well-managed business that will in time generate value for long-term shareholders. Given that the Company is profitable, growing and has sufficient capital requirements we think its fortuitous timing this Company is meeting most of our criteria in a period where pools of capital are looking for exposure to ESG investments.

We are buyers and believe it is a strong buy up to $0.15.

To your wealth,

Paul, Brandon, and Trevor