Mr. William Crossland reports

THERMAL ENERGY REPORTS NINE MONTH REVENUES IN EXCESS OF FISCAL 2013 ANNUAL REVENUE

Thermal Energy International Inc. has released its financial results for the three months ended Feb. 28, 2014.

Highlights

• For the nine months ending Feb. 28, 2014, revenue of $8.4-million (including $2.9-million for the quarter) surpassed annual revenue for all of fiscal 2013.
• With net income of $57,000 for the quarter, year-to-date net loss narrowed to $63,000 compared with a net loss of $162,000 for the same period last year.
• Operating cash flow of $341,000 for the year to date (including $62,000 for the quarter) represented an increase of $1.4-million compared with the first nine months of fiscal 2013.
• Net cash position totalled $2.6-million, compared with $1.3-million as at May 31, 2013, and $701,000 at the same time last year.
• The company had an order backlog of approximately $5.3-million as at April 23, 2014.

The company includes in order backlog any purchase orders that have been received by the company but have not yet been reflected as revenue in the company's published financial statements.

"Our strong performance year to date is largely attributable to the investment we made in our sales and distribution capabilities in early fiscal 2013," said William Crossland, chief executive officer of Thermal Energy. "Thus far in fiscal 2014, we have been successful at cross-selling and winning other repeat business from a growing list of multinational customers across a growing number of industries. During the quarter we received initial GEM orders in the amounts of $160,000 from one of the world's largest beer companies and $161,000 from a global diversified health care company. We also received an initial $200,000 heat recovery order from a global mining and materials company, with mining being a new sector for our energy efficiency solutions. Each of these orders was from customers that have a number of additional sites, representing potential for repeat business."

                                    SUMMARY FINANCIAL RESULTS
 
In thousands              Three months ended Three months ended     Nine months ended   Nine months ended
except                         Feb. 28, 2014      Feb. 28, 2013         Feb. 28, 2014       Feb. 28, 2013
per cent data

Revenue                               $2,898             $4,209                $8,434              $6,331
Gross profit                          $1,391             $2,906                $4,236              $4,231
Gross margin                           48.0%              69.1%                 50.2%               66.8%
Operating expenses                    $1,325             $1,450                $4,328              $4,519
Net income (loss)                        $57             $1,472                 $(63)              $(162)
Operating cash flow (loss)               $62               $185                  $341            $(1,020)

Third quarter 2014 financial review

Revenue for the third quarter was $2.9-million compared with $4.2-million a year ago. Revenue for the third quarter of last year included $1.6-million resulting from the extension of the Greenpower purchase agreement with Fortress Specialty Cellulose, as announced Nov. 29, 2012. Sales of GEM condensate return systems increased by $94,000, or 9.2 per cent, and included the partial fulfilment of orders received from a major food and beverage manufacturer, as announced July 3, 2013, and a global premium beer company, as announced Feb. 10, 2014. Sales of heat recovery systems decreased by $1.4-million, or 44 per cent, compared with the third quarter of last year. Heat recovery sales for the quarter included revenues from projects at two sites of a major Fortune 500 food and beverage company, as announced Sept. 16, 2013; the installation at a major pulp and paper company as announced June 3, 2013; and the commencement of projects at two major hospitals, as announced Sept. 10, 2013, and Nov. 14, 2013, respectively. In addition to the $1.6-million extension of the Greenpower purchase agreement mentioned above, heat recovery systems sales for the third quarter of last year also included $1-million from the sale of a heat recovery system to a publicly owned hospital. Gross profit for the quarter was $1.4-million compared with $2.9-million for the same quarter last year. The decrease of $1.5-million, or 52 per cent, was almost entirely the result of the Greenpower purchase agreement extension in the previous year, which served to increase revenues with minimal additional cost. As a percentage of sales, gross profit for the quarter was 48 per cent compared with 69 per cent in the third quarter of last year (51 per cent excluding the impact of the Greenpower purchase agreement extension). Operating expenses for the quarter were $1.3-million, down from $1.5-million in the prior period. Higher staff costs in the quarter resulting from two additional sales staff were offset by reductions in commissions payable and amortization of intangible assets, which were fully amortized in July, 2013, as well as foreign exchange gains arising from the strengthening of sterling against the Canadian dollar.

Net income for the quarter was $57,000 compared with $1.5-million for the same quarter a year ago.

Operating cash flow (defined as net loss for the period, plus items not involving cash, plus lease payments received) for the quarter was $62,000 compared with $185,000 for the same period last year.

Year-to-date 2014 financial review

Revenue for the nine months ended Feb. 28, 2014, increased 33 per cent to $8.4-million compared to $6.3-million a year ago. Gross profit was largely unchanged at $4.2-million this year and last year. Net loss for the nine months ended Feb. 28, 2014, was $63,000 compared with $162,000 for the same period last year. However, last year's revenue, gross profit and net income were all positively impacted by the extension of the Greenpower purchase agreement with Fortress Specialty Cellulose. Excluding the impact of the $1.6-million extension of the Greenpower purchase agreement, revenue increased 77 per cent, gross profit increased $1.6-million, or 58 per cent, and net income increased $1.7-million.

Operating cash flow improved by $1.4-million with $341,000 generated during the nine months ended Feb. 28, 2014, compared with a negative $1.02-million for the same period last year.

Cash resources and working capital

As at Feb. 28, 2014, the company's net cash position amounted to $2.6-million, compared with $1.3-million as at May 31, 2013. The company also had an estimated $248,000 of unused borrowing capacity under its bank loans. With cash balances and unused borrowing capacity of approximately $2.9-million, management believes that it has sufficient capital resources to finance existing operations and anticipated capital requirements in the remainder of fiscal 2014 and into fiscal 2015.

Working capital as at Feb. 28, 2014, was $1.8-million compared with $1.5-million as at May 31, 2013.

Full financial results including management's discussion and analysis and accompanying notes to the financial results, are available on SEDAR and the company's website.

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