Thermal Energy International ((TSE:TMG)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Thermal Energy International’s recent earnings call painted a mixed picture of the company’s financial health. On the one hand, the sentiment was buoyed by record-breaking revenues and strong cash flow, signaling robust growth potential driven by strategic investments. However, there was a palpable concern over declining profitability metrics and lower margins, attributed to a shift in product mix. While the company’s increased order backlog offers a positive outlook, the current order intake falling short of last year’s figures remains a concern.
Record-Breaking Revenue
Thermal Energy International reported a record revenue of $8.7 million for the quarter, up from $7.1 million a year ago, and more than double from two years ago. The trailing 12-month revenue reached an all-time high of $30.7 million, marking a $4.6 million increase from the previous year. This achievement underscores the company’s growth trajectory and market competitiveness.
Strong Performance in Heat Recovery Business
The heat recovery segment demonstrated impressive performance, achieving its highest quarterly revenues in five years. This success reflects the growing demand for energy efficiency solutions, positioning the company as a leader in this niche.
Positive Operating Cash Flow and Strong Balance Sheet
Despite substantial investments, Thermal Energy International continues to generate positive operating cash flow, supported by a healthy balance sheet with $2.8 million in cash and cash equivalents, $3.7 million in working capital, and $1.9 million in debt. This financial stability is crucial for sustaining future growth initiatives.
Significant Investments for Future Growth
The company has made significant investments, including expanding its UK facility, increasing its workforce by 18 positions, and launching new technology initiatives like the CREST app. These efforts are aimed at driving long-term growth and enhancing the company’s competitive edge.
Increase in Order Backlog
An encouraging development is the increase in order backlog, which reached approximately $18 million by January 27, 2025. This growth was fueled by an additional $5 million in orders received since the end of the second quarter, providing a solid foundation for future revenue.
Decline in Profitability Metrics
The earnings call revealed a concerning decline in profitability metrics, with EBITDA falling to $270,000 from $830,000 a year ago, and net income dropping to $28,000 from $486,000. These figures highlight the financial challenges the company faces amid a changing product mix.
Lower Margins Due to Product Mix
A shift towards lower-margin turnkey heat recovery projects negatively impacted the company’s gross profit, EBITDA, and net income for the quarter. This change in product mix is a strategic challenge that needs addressing to maintain profitability.
Order Intake Lower Than Previous Year
Despite the backlog increase, order intake for the first six months of fiscal 2025 was $10.1 million, with both intake and backlog figures still lower than a year ago. This shortfall could impact future financial performance if not addressed.
Guidance and Future Outlook
Looking forward, Thermal Energy International remains optimistic about its growth prospects. The company expects its recent investments, including the larger UK plant and the CREST app, to yield benefits in fiscal 2026 and beyond. While profitability has taken a hit, the company maintains a positive outlook, anticipating growth driven by its strategic initiatives.
In conclusion, Thermal Energy International’s earnings call highlighted a company in transition. While record revenues and strategic investments paint a promising picture, challenges like declining profitability and lower margins need addressing. The company’s increased order backlog offers hope for future growth, but concerns over current order intake persist. Investors will be keenly watching how the company navigates these challenges in the coming quarters.
