I'm William Crossland, CEO of Thermal Energy International. Thank you for joining us this morning for our third quarter earnings call. Our news release, financial statements, and MD&A are available 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 and institutional investors joining us on MS Teams will be able to ask some questions. If you're joining us online, you should be able to see our slide presentation on your screen now. Before we go any further, I have to point out that today's call may contain some forward-looking statements within the meaning of applicable security laws. Wait a minute. Okay, there we go. 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 and MD&A for the quarter and our other filings with the Canadian Securities Regulators. In terms of an overview, I'm pleased to share that Thermal Energy delivered solid performance in the third quarter, highlighted by record Q3 revenue of CAD 9.4 million and record trailing 12-month revenue of CAD 33.3 million. We also saw signs of operational leverage with sharp improvements in adjusted EBITDA and net income, both in the quarter and over the past year. Our balance sheet remains very healthy with virtually no debt and strong cash and working capital positions.
Our order intake for the quarter was up 26% with our trailing 12 months up 41% to an all-time high of CAD 31.3 million. We had revenue of CAD 9.4 million for the quarter, which is a record for our fiscal third quarter. It also represented a 62% increase compared to our third quarter last year. Our heat recovery revenues remained near all-time highs, and our GEM revenues were up year-over-year as well. Looking at the trailing 12 months ended February 28, we had revenue of CAD 33.3 million, which is a new record amount and up 92% from three years ago. We had operating expenses of CAD 3.1 million in Q3, which was up about CAD 548,000 from a year ago.
However, the variance was mainly due to an increase in foreign exchange loss of CAD 402,000. On a trailing 12-month basis, operating expenses were up CAD 1.6 million. Again, the largest variance driver was a CAD 538,000 decrease in foreign exchange gains. Other significant drivers included approximately CAD 240,000 as a one-time investment in technologies and facilities, an increase in staff incentive cost of about CAD 109,000 because of significantly higher profit, and a CAD 480,000 increase in general salaries and benefits. As many of you know, we invested a fair amount in growing our business starting in Fiscal 2024 and Fiscal 2025. This included expanding our sales, marketing, and engineering team.
As we communicated then, we expected these investments to negatively impact profitability over the short- term, but they would begin to pay off in Fiscal 2026. This is clearly demonstrated here on Slide number six. While our adjusted EBITDA was down in both Q3 2024 and Q3 2025, it has reversed course quite significantly. In fact, adjusted EBITDA climbed to CAD 519,000 for the quarter, up CAD 686,000 year-over-year and highlights the operational leverage possible as we scale our business. On a trailing 12-month basis, our adjusted EBITDA almost doubled year-over-year to about CAD 2.1 million.
It's a very similar story when it comes to net income, which was up CAD 741,000 in the quarter to CAD 338,000, which was a nice but expected reversal from what we reported in Q3 the last couple of years. On a trailing 12-month basis, we had net income of CAD 1.3 million, which was an increase of about CAD 1.1 million from a year earlier. From some of our previous earnings calls, you will know I like to highlight that our business produces robust operating cash flow. On Slide eight, we show how operating cash flow, excluding changes in working capital items, tends to be significantly higher than our net income.
You can clearly see this is the case when looking back at our trailing 12-month periods for each of the past 4 years, during which time our operating cash flow totaled CAD 7 million. For the trailing 12-month period, our net income was only about CAD 230,000, but we generated nearly CAD 1.6 million in cash flow. For our most recent 12-month period, our net income was approximately CAD 1.4 million, but we had cash flow of more than CAD 2.2 million. Over the last few years, we've used our operating cash flow to materially strengthen our balance sheet, bolstering liquidity, maintaining a solid working capital position, and aggressively reducing down debt. This year, we also spent about CAD 500,000 buying back 3.6 million shares.
We ended the quarter with CAD 4 million in cash, up 41% from the CAD 2.8 million we had at year-end, and we had CAD 3.7 million in working capital in the third quarter, up 53% from the CAD 2.4 million at year-end. Additionally, we are now essentially bank debt-free after paying down over CAD 3.9 million in term loans since May 2022, including CAD 1.4 million in the last four quarters, and we've done all of this with our own internal operating cash flow. As a result, we now have a cleaner, stronger, more flexible financial base to support continued growth. In addition to our strong financial results for the quarter in Q3, we continued to receive a good flow of orders, including repeat business.
I want to take a moment to highlight some of the key orders we received in the quarter. Back in the middle of December, we received a CAD 3.2 million turnkey heat recovery order from a leading multinational frozen food company. This was our second heat recovery project with this customer, which happens to have over 40 manufacturing sites around the world. Also, around the middle of December, we received a CAD 1.5 million order for a turnkey heat recovery project from a multinational building materials company. This project includes four two-stage Heat Sponge boiler economizers to be installed at a second customer site. We had our first turnkey order from this customer last July at a different site. The third order I wanted to highlight is a CAD 1 million turnkey heat recovery project secured in February.
The scope includes installing a two-stage Heat Sponge economizer on each of three natural gas-fired boilers to capture waste heat from their exhaust stream. This marks our ninth turnkey projects with this global customer and our third consecutive Heat Sponge turnkey deployment with them. Since 2019, we've delivered more than CAD 14.6 million in projects for this client and have now at least partially penetrated 28 of their manufacturing sites across nine countries, with many more to go. The orders I just highlighted contributed to a total order intake of CAD 8.7 million for the quarter, up 26% from last year, and CAD 31.3 million for the trailing 12-month period ended February 28th, which is up 42% from the same period a year earlier. At the end of the third quarter, we had an order backlog of about CAD 15 million.
While this is down a little from a year earlier, given the higher order intake and higher revenue, the slight reduction in our backlog highlights that we have been more efficient at converting orders into revenue over the past couple of quarters. We attribute this, at least in part, to the investments we made in our engineering team these past couple of years. As a quick summary before opening the call up for questions, we had record Q3 revenue and record trailing 12-month revenue. We achieved significant increases in adjusted EBITDA and net income for the quarter and trailing 12 months. Our balance sheet has been strengthened and remains very solid with virtually no bank debt. We had strong order intake for the quarter and for the trailing 12-month period, and we continue to have a healthy order backlog.
Overall, we believe we are very well-positioned sorry, to continue executing our strategy and creating long-term value for our shareholders. That's it for my prepared remarks. I would now like to open the call for questions. I will turn it over to Trevor Heisler at MBC Capital Markets Advisors, who will moderate our Q&A. Please go ahead, Trevor.
Thank you, Bill. If you are a qualified equity analyst or institutional investor joining us on MS Teams this morning and would like to ask a question, please notify me by using the Raise Your Hand feature. Your first question comes from Donangelo Volpe at Beacon Securities. Please go ahead, Donangelo?
Hey, good morning, guys. Thanks for taking my question. I am calling on behalf of Russell Stanley. First off, just given the impact that the revenue mix has on gross margins, can you provide any color on the revenue mix this quarter and how that compares to the revenue mix within your current backlog?
Yeah, it's as I've said before, traditionally, turnkey projects were about two-thirds of our revenue, and equipment sales were about a third. You know, during the COVID period, that switched because we couldn't get to site, and now it's trending more back towards 2/3, 1/3. That's basically where it's at, both from our revenue standpoint and our backlog.
Okay, thanks for the color there. Were there any gross margin headwinds in the quarter beyond revenue mix?
Headwinds, the quarter, the gross margin varies pretty significantly in the quarter, generally. Overall, over the last few quarters, we have been improving our margins and that's been strategic on our part.
Okay, thank you. A final question from me, then I'll pass the line. The prior quarter, top line featured some turnkey heat recovery project revenue that came a bit sooner than you guys expected. Did you see any similar pull-forward demand of work in this quarter, or were there any deferrals that you'd like to call out?
No, this quarter was, I think it was largely in line with what we expected, you know, at the beginning of the quarter, you know, on our call, you know, back in January. You know, maybe a little bit more than we expected, but generally in line with what we were expecting in terms of revenue.
Okay, thanks for answering all my questions. I'll hop back in the queue.
Thank you. Your next question comes from Jesus Sanchez at Castañar Investment Fund.
Hi, good morning and congrats.
Good morning.
on realizing this great quarter. It is great to, from my point of view, to see that all that backlog that we have been accumulating all these past quarters is finally transforming to revenue. My only concern will be, how are we in capacity terms? Are we doing good or do we have some spare capacity in case we receive further orders and our backlog start to increase again?
No, we've got pretty good capacity right now. You know, if we get lots of orders beyond our expectations, then, you know, we might need to hire an engineer or two, but I think we're in pretty good shape right now to continue growing the business. We don't have any plans to add people at this point.
Are the people that we hire and train, like two years ago, are already making results in the company? Have you start noticing that effort being paid off?
Yes, it's starting to, for sure. Yeah, especially with the engineers. As we've seen, we've been able to deliver some of these projects quite quickly with improved margins and so, you know, we believe that's the additional engineering capacity that we've added over the last few years and the training.
I don't know if you can comment on the geography mix of the revenues. How are we seeing things? How our European business is doing compared to our American one?
It, it always varies a little bit. It goes up and down, both North America and Europe. Over the longer- term, it's always been around 50/50, Europe and North America. This year, North America is a little bit stronger. Last year, Europe was a little bit stronger. You know, we would've expected North America, because natural gas prices are very inexpensive in North America compared to Europe, but it keeps keeping pace, so we're pretty pleased with that. Like I said, this year, you know, North America is stronger than Europe. Last year it was the other way around. I don't see the, the mix changing much from the sort of 50/50.
From your conversation with your customers, do you think that we will see an uptick in request or bidding due to the high prices of natural gas and energy that we are seeing in the U.S.?
Yeah. It's still early days, but I would think we will. We did see that pretty significantly in Europe, you know, when the war in Ukraine started and the natural gas prices spiked. You know, there's a lot of natural gas, liquified natural gas terminals being built in North America that we think will, you know, push prices up in North America for natural gas over the longer- term, so we're still pretty optimistic. In terms of, you know, with the Iranian war, we haven't really seen. We expect it will have an impact because customers will tell us even if prices go back down, they're seeing some pretty significant volatility. That was their concern, and that has been their concern since the Ukraine war. War.
I think it'll be positive for us, but I can't say yet.
Well, I guess it's too early.
Yes
People are still assessing the volatility. The last one for me, Bill. Some, the Supreme Court of the U.S. drop the tariffs. I don't know if we can or are gonna submit any claim for the tariffs paid.
You know what? If it is, if we, if we are able to, it'll be a small amount. We're pretty well set up in both the U.S., Canada, and Europe. We can manufacture our product in the U.S. if we can. We haven't really been hugely impacted by the tariffs, which would imply we haven't got any sort of significant claim coming.
Okay. No pain, no gain.
Yeah.
Perfect. Thank you very much, Bill.
Yeah. Thank you very much, Jesus.
Okay. It looks like there are no further questions at this time. Please go ahead, Bill.
Well, I just, I want to, as always, thank everyone for their continued support and interest in Thermal Energy International, and we look forward to, speaking with you again next quarter. Have a great day and bye for now.