Mr. William Crossland reports

REVENUE GROWTH OF 124% DRIVES THERMAL ENERGY'S IMPROVED THIRD QUARTER FINANCIAL RESULTS

Thermal Energy International Inc. has released its financial results for the three months (third quarter) and nine months (year to date (YTD)) ended Feb. 29, 2016.

Highlights:

• Revenue increased 124 per cent for Q3 and 94 per cent YTD;
• Gross profit increased 185 per cent for Q3 and 95 per cent YTD;
• Positive earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) and adjusted cash flow for the quarter and YTD;
• Net income of $418,000 for Q3 narrowed YTD loss to $9,000.

"We had strong sales growth and higher margins in both our heat recovery and GEM steam trap businesses in the third quarter," said William Crossland, chief executive officer of Thermal Energy. "Hospitals continued to be a good source of revenue during the quarter. We also had repeat business from a Fortune 500 food and beverage customer and a leading performance materials company, both of whom we signed corporate supply agreements with last year. The strong year-to-date results are evidence of the efforts we have made to grow our base business and become less susceptible to the timing of occasional larger orders. In fact, when excluding project values of $1.5-million or larger, our revenue over the first nine months has grown at a rate of approximately 23 per cent compounded annually since 2012 and is higher than it was in the first nine months of both fiscal 2012 and fiscal 2014, when we had record and near-record revenue years, respectively."

                                SUMMARY FINANCIAL RESULTS  
                           (In thousands, except percentages)

                                  Three months ended              Nine months ended 
                        Feb. 29, 2016  Feb. 28, 2015   Feb. 29, 2016  Feb. 28, 2015

Revenue                        $3,221         $1,441          $8,279         $4,275
Gross profit                   $2,029           $712          $4,746         $2,434
Gross margin                    63.0%          49.4%           57.3%          56.9%
Operating expenses             $1,571         $1,431          $4,735         $4,490
EBITDAS                          $505          $(647)           $187        $(1,792)
Net income (loss)                $418          $(658)            $(9)       $(1,817)
Adjusted cash flow               $496          $(467)           $245        $(1,278)

Q3 2016 financial review

Revenue for the quarter more than doubled to $3.2-million from $1.4-million for the third quarter of last year. Sales of heat recovery systems increased 122 per cent, while GEM sales were up 125 per cent compared with the same quarter a year ago.

Heat recovery sales in the quarter included revenues from two hospital projects, as announced Nov. 5 and Nov. 23, 2015, respectively, as well as projects at a gypsum company, as announced Oct. 26, 2015, a dairy supplier, as announced March 4, 2015, and a leading animal feed supplier, as announced Nov. 11, 2015.

GEM sales in the quarter included fulfilment of the second phase of the order from a health care company, as announced Aug. 17, 2015, as well as the partial completion of conversions at two major hospitals and the conversion of four further sites of a leading Fortune 500 food and beverage company.

Gross profit for the quarter increased 185 per cent to $2.0-million compared with $700,000 for the same quarter a year earlier. As a percentage of sales, gross profit for the quarter improved to 63.0 per cent from 49.4 per cent in the third quarter a year ago. The higher gross profit as a percentage of sales was a result of improved margins achieved from both GEM and heat recovery sales in the quarter.

EBITDAS for the quarter was $505,000, representing an improvement of approximately $1.2-million compared with the third quarter of last year. The improvement was due to the higher revenues and gross margins achieved during the quarter, partially offset by a $146,000 increase in operating expenses, which was mostly attributable to higher sales commissions paid during the quarter.

The company had a net income of $418,000 for the quarter versus a loss of $658,000 in the third quarter of last year.

Adjusted operating cash flow (defined as net income for the period, plus items not involving cash, plus lease payments received) for the quarter was positive $496,000, compared with cash outflow of $467,000 for the same period a year ago.

As at Feb. 29, 2016, the company had a net cash balance of $1.3-million and had an estimated $105,000 of unused borrowing capacity under its bank loans. Management believes that it has sufficient capital resources to finance existing operations and anticipated capital requirements for the remainder of the fiscal year and into fiscal 2017.

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.

Orders and backlog summary

As previously announced, during the quarter the company received GEM orders totalling approximately $154,000 from a Fortune 500 food and beverage customer, bringing the total value of orders from this customer to approximately $664,000 for the year to date.

During the quarter the company received GEM orders totalling $86,000 and a further $140,000 subsequent to Q3, representing repeat business from a leading performance materials company, bringing the year-to-date total to $293,000 from this customer.

Several other smaller, individual orders were also received during the quarter.

Order backlog as at April 14, 2016, was approximately $4.7-million compared with $4.6-million a year ago. The company includes in order backlog the value of projects in respect of which purchase orders have been received but have not yet been reflected as revenue in the company's published quarterly financial statements.

We seek Safe Harbor.