Good morning, everyone. I'm William Crossland, CEO of Thermal Energy International. Thank you for joining our earnings call for the second quarter ended November 30th, 2024. Our news release, financial statements, and MD&A will be posted on our website and have been filed on SEDAR. After my prepared remarks, we'll have a question-and-answer session, at which time qualified equity research analysts joining us on MS Teams will be able to ask questions. If you're joining us online, you should be able to see our slide presentation on your screen now. First, I need to point out that today's earnings call may contain forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and undue reliance should not be placed on such statements.
Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information, please refer to our financial statements, our MD&A for the quarter, and our other filings with the Canadian securities regulators. In terms of a quick overview, our revenue continued to be very strong in the second quarter, as we again set new records for quarterly revenue and revenue on a trailing 12-month basis. We remained profitable. However, changes in product mix and the investments we've made in the future growth of the business lowered our EBITDA and our net income for the quarter. Nevertheless, we continue to have positive operating cash flow. We exited the quarter with a strong balance sheet and were well positioned for growth.
Taking a closer look at our top line, our revenue for the quarter was a record CAD 8.7 million, up from CAD 7.1 million a year ago and more than double our revenue from the same quarter two years ago. Our turnkey heat recovery business was a standout performer, achieving its highest quarterly revenues in five years and record revenue on a trailing 12-month basis. The significant growth in our heat recovery business reflects continued strong demand for turnkey energy efficiency solutions and the effectiveness of our solutions in meeting our clients' needs. When looking at the trailing 12 months ending November 30, our revenue is at an all-time high of CAD 30.7 million, representing an increase of CAD 4.6 million from the 12-month period the year before and more than double from two years ago.
EBITDA: While the company remained profitable for the quarter, the substantial swing in product mix had a negative impact on our gross profit, EBITDA, and net income. As many of you are aware, turnkey heat recovery projects, while contributing significantly to our top-line growth, typically carry lower margins. This shift in revenue composition was the primary factor in influencing our profitability metrics this quarter. Our EBITDA for the quarter was CAD 270,000 compared to CAD 830,000 a year ago and a loss of about CAD 30,000 second quarter two years ago. In addition to product mix, our lower EBITDA reflects the higher expenses related to the substantial investments we've been making in the future growth of the business. For the trailing 12-month period, we had EBITDA of CAD 1.6 million compared to CAD 3.2 million the prior 12-month period and a loss of about CAD 700,000 for the trailing 12 months ended November 30th, 2022.
As I called out in our previous earnings call, the trailing 12-month 2024 period included our exceptionally strong quarter for fiscal 2023, which had EBITDA of CAD 1.2 million in that quarter alone. Meanwhile, our trailing 12-month 2025 had a higher cost base, mostly due to CAD 2.3 million related to investments to drive future growth, including headcount, digitization, and systems automation, and costs related to our new larger U.K. plant. Most of the benefits of these investments are still to be realized. We had net income of CAD 28,000 compared to CAD 486,000 in the second quarter of last year and a loss of about CAD 270,000 two years ago. For the trailing 12-month 2025, we had net income of CAD 672,000, which was down from CAD 2.1 million the year before, but still up significantly from a loss of CAD 1.8 million two years ago.
Similar to my comments on EBITDA on the prior slide, the trailing 12-month 2024 included our exceptionally strong fourth quarter, and the trailing 12-month 2025 expenses include the CAD 2.3 million in the investments we've made for future growth. Now, let's talk about these investments a little bit. As we've discussed, over the last two years, we've been investing significantly in the future growth of the business, and most of the benefits of these investments are still to be realized. Our investments included moving our U.K. operations to a much larger production facility with more than double the throughput capacity, as well as growing our team, adding 18 new positions over the last two years. As you can see in the slide, we added six people to our sales and marketing team, 11 people to engineering and production, and one in finance and admin.
On the technology side, we developed and launched a custom-developed mobile app called CREST, which stands for Carbon Reduction and Efficiency Scoping Tool, which is exactly what it is because CREST helps our sales and engineering teams quickly and efficiently identify thermal energy savings and carbon reduction opportunities and projects while on site with customers. We're also investing in a robust global accounting program and ERP software to create agility in our accounting, manufacturing, and fulfillment. And again, while these investments have lowered our profitability in the short term, they will help drive profitable growth in the long term. Turning to our balance sheet, at the end of November, we had cash and cash equivalents of CAD 2.8 million, which was lower this quarter due to temporary fluctuations in working capital items. At quarter end, we had CAD 3.7 million in working capital and CAD 1.9 million in debt.
I'd like to highlight that even with the significant investments we're making for future growth, we continue to generate positive cash flow from operations, which is somewhat unusual for a company of our size, particularly our similarly sized peers. Over the last two years, we have reduced our debt by CAD 1.8 million and increased our working capital by CAD 1.9 million, all from internally generated cash flow. That's something we are quite proud of and plan to continue. Order intake: While order intake for fiscal 2025 started off slower than anyone would have liked, we were encouraged to see a sharp increase in the second quarter compared to the first quarter, driving our order intake to CAD 10.1 million for the first six months of fiscal 2025 and resulting in an order backlog of about CAD 13 million at the end of the second quarter.
Both figures are still lower than they were a year ago, but our pipeline and value of projects and paid development with customers remains as strong as ever, and recent momentum we're seeing in the business is very encouraging. Since the end of the second quarter, we received an additional CAD 5 million in orders, including the CAD 2.8 million in repeat business from a leading multinational pharmaceutical, as we announced back in December. That was our third significant order from that customer since they signed a Global Master Services Agreement with us back in September 2023, so just over, you know, a year and a half. The orders received since quarter end increased our order backlog to about CAD 18 million as of January 27th, 2025. In summary, we're proud of the record revenue performance achieved this quarter and over the trailing 12 months ended November 30th.
While the shift in product mix and our investment in future growth have lowered our profitability, we continue to have positive cash flow from operations, and our balance sheet continues to strengthen. Importantly, while we have yet to really see the benefits from the significant investments we've made in the business, we believe they position us well for our next stage of growth, and we expect these investments will bear fruit for us in fiscal 2026 and beyond. This concludes my prepared remarks. I would now like to open the call for questions. I'll turn it over to Trevor Heisler at MBC Capital Markets Advisors, who will moderate our Q&A. Please go ahead, Trevor.
Thank you, Bill, and good morning. If you are a qualified equity analyst joining us on MS Teams and would like to ask a question, please notify me by using the raise-your-hand feature at this time. It looks like our first question will be coming from Jesus Sanchez from Castañer Investment Fund . Please wait a second while I unmute your line. Jesus, your microphone should be opened. Please go ahead. Okay, we don't seem to have Jesus here. We have Russell Stanley online. I'm going to unmute your mic, Russell. Just a second, please. Please go ahead, Russ.
Yep. Good morning. Can you hear me?
Yes, we can.
Yes. Yep. Great. Thanks for taking my questions. Maybe just to dive in on the revenue mix for the quarter, understanding that, you know, the gross margins reflect, you know, the lower margin, lower gross margin, heat recovery projects. Can you give us some color to how revenue mix broke down in the quarter and how you expect it to evolve through the second half of the year? I know you don't provide guidance, but just trying to understand how we should expect gross margins to evolve from here. Thank you.
Yeah, thanks, Russell. So, yeah, as you said, we don't disclose the exact breakdowns of turnkey versus custom equipment, but turnkey represented about two-thirds of our revenue in the past quarter compared to about a third the same quarter a year ago. The margins were lower than typical, and lower than we would expect this quarter. We expect the margins will typically be, you know, as I've said before, sort of between 35% and 40%. So, you know, for this quarter, they're sort of at the lower end of that, but we don't expect that to continue.
Great. Thank you. And then I'm sorry if I missed it, but in the deck, but I guess where's the latest update on project development agreements? And I think you talked about the value of the PDA pipeline looking particularly strong. Wondering if you can quantify that at all?
Yeah, I can. The number of PDAs, because we've actually been awarded a number of contracts over the last 12 months, the number of PDAs hasn't really changed. It wasn't in the deck this time. It hasn't really changed much from last time we reported it. But, you know, we track these things pretty carefully, both the total value of the projects that are under development and, more importantly, the weighted value. And I can tell you the weighted value has gone up. So we're feeling, you know, fairly positive about the future.
Got it, and then maybe around CREST, I know it's early days on that, but just wondering if you can provide color on how effective it's proving to be and how well people are using it, given it is new?
Yeah. I mean, certainly too early days to determine how effective it's going to be, but we do have some data on how people are using it, and you know, we had some training that was to be done by all the users, and I could say close to 100%, if not 100%, of everybody has completed all of the training, and the last two Fridays, we've had sort of drop-in sessions for anybody to drop in and ask some questions, and you know, the good news is that there wasn't a lot of questions, so there was some positive feedback. You know, we will continue to tweak it over time as you do with any app, but initially, I would say the take-up is as good as we could have possibly hoped, and the impact will, you know, show over the next, you know, six, 12, 24 months.
Got it. Maybe just one last question before I get back in the queue and hand it off. Just around the recent or less recent election, Trump's reelection in the U.S., changing political winds elsewhere, I guess two questions. One, you know, thoughts on tariffs globally impacting sales. I imagine that would be more the GEM steam trap revenue component that might be vulnerable there. And then secondly, you know, historically or recently, you've talked about how the emissions benefits of your suite have come to dominate the energy savings as far as customers go. And I'm wondering if that conversation is changing at all with the changing political winds, if you will. Thanks.
Yeah, it's still early days, and I would never want to speculate what Trump may or may not do, but we have looked at it. Obviously, it's a risk when he starts talking about tariffs. You know, and the risk for us is we do operate pretty much on a North American and a European basis. So, you know, some of the, it's not just GEM. Some of the heat recovery, generally, GEM is manufactured in the U.K. and then shipped to North America. Heat recovery can be manufactured in Canada or the U.S.
Sorry, somebody should mute. We're getting some interference there, so we've actually taken a look at it, right? Because we can source the equipment in the U.S. if we do have a couple of big heat recovery projects right now that we're executing in the U.S. And so that, you know, that's where there could be a potential tariff. And so we've looked at it that probably if the tariffs are 25% and if it applies to us and if we can't, you know, work with our customers to mitigate the impact, it'll probably have about a $200,000 impact on us in the short term. In the longer term, because that's equipment that's already been ordered for projects, so we can't cancel those orders. But in the longer term, we, you know, we will make sure we source the equipment.
If tariffs are an issue, we'll source the equipment from the U.S. We've done it before. We can do it again. The GEM coming from the U.K. is less of an issue. There's things that we can do there. We can also longer-term manufacture the product in the U.S. if we have to. So bottom line is we think it's CAD 200,000 short-term impact if, in the worst case, and that is where, you know, he imposes 25% tariffs on our product going into the U.S. And then on the, you know, the world's desire to reduce carbon emission, that's a good question. You know, I could tell you in his first term, it had no impact whatsoever that we were able to determine.
Now, he seems more aggressive this time, but it's hard for me to imagine, you know, our top customers, all very large multinational, food and beverage, pharmaceutical, all of whom have very publicly disclosed their carbon emission reduction targets and their global companies as well. It's hard for me to imagine that all of a sudden they're going to say, "Well, we don't care anymore." And, you know, those targets that we said we were going to achieve, we're not going to achieve them and we're not going to pursue them. You know, there could be something like that over long term, but that's hard for me to imagine that it's going to change just because, you know, Trump has said that.
The second thing is, you know, what we realized last time is that most of the carbon emission reduction initiatives are driven at the state level, not at the federal level. So again, last time we saw virtually no impact. This time it could be different, but I don't expect it to be significantly different.
That's great. Thanks for the color. I'll get back in the queue.
Thank you. Again, if you are a qualified equity analyst joining us on MS Teams and would like to ask a question, please notify me by using the raise-your-hand feature and it looks like there are no further questions at this time. Please go ahead, Bill.
Okay. Well, thank you, everyone, for your continued interest and support in Thermal Energy International. We look forward to speaking to you again next quarter. If you have any further questions, don't hesitate to reach out. Thanks so much, and have a great day.