International Wastewater Systems Inc CEO on Recycling Heat Energy from Wastewater
International Wastewater Systems Inc (CNSX:IWS) CEO Lynn Mueller joins The TenBaggers to discuss his company’s innovative and cost-saving heat exchange system that recyles heat in commercial buildings’ wastewater into a the buildings heating system. With a payback that happens over a number of years, building developers around the world are clamouring to install IWS’s Sharc and Pirahana systems.
[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Lynn Mueller:
James West: Thanks for joining us today, Lynn.
Lynn Mueller: My pleasure, sir.
James West: Lynn, why don’t you give us an overview of the value proposition for investors in International Wastewater Systems?
Lynn Mueller: Well, the value proposition for investors of International Wastewater is that we’ve got a very unique and proprietary technology to recover waste heat from sewage. So when you think of sewage, you think it’s just a cost for everybody involved to deal with it, but about 30 percent of the energy in the world ends up going down the sewer pipes every day. So our system has developed a cost-effective way to recover that energy. I like to refer to it as the world’s most ultimate renewable energy, because you really use the same energy every day: you use it, goes down the drain, you recapture it and you use it again.
James West: Boy, there’s a lot of comic material potentially in there, but we won’t go there because this is a G-rated show.
Ed Milewski: My question is, to get the energy that’s in the waste, are you using the energy in the waste itself, if you know what I mean?
Lynn Mueller: We’re a thermal energy company. We don’t convert to anything, we don’t make electricity, we don’t do it. We’re just a thermal energy mover, so heat. A good example for you guys is that if you have a shower every morning, you use a certain amount of hot water and it goes down the drain. Well, we just capture that energy back and we just put it back into hot water. So we use the efficiency of a heat pump to move that energy back. So we recover the energy at an efficiency of about 400 to 500 percent, so for every dollar it costs to run a Shark or a Piranha unit, we recover $4 to $5 worth of energy, and it’s just in the same form, it’s just heat. Thermal energy.
James West: So you extract the heat from the sewage and distribute it to another location in another form in the building to reduce the costs of electrical consumption to heat?
Lynn Mueller: Yeah, exactly, or natural gas, we can offset. You know, with the climate meetings and stuff in Paris right now, everybody’s real keen to reduce carbon, and that’s really what we do: we just recycle waste heat. Every year, for instance, in the US, 350 billion kilowatt hours of heat is put down the drain, so our proposition is, we just want to recover that. That’s a $40 billion opportunity.
Ed Milewski: Are you generating any revenue right now?
Lynn Mueller: Oh yeah, we’re operating, we have systems around the world now that are operating, and we are anxious to do more, obviously, but we generate revenue.
Ed Milewski: And what would you do for the fiscal year that you’re in right now? What will be the revenue?
Lynn Mueller: We will do approximately $3 million this year.
Ed Milewski: And is that sufficient to be cash flow positive?
Lynn Mueller: Not quite, but we’re getting very close. Next year we will be, for sure. We’ve been growing so fast, we expect to have revenues in the $60 million range within the next three years.
James West: Wow, that’s impressive.
Ed Milewski: That’s very impressive.
Lynn Mueller: We only launched six years ago; we’ve only really been commercial for the last two years, and the growth curve is just staggering.
Ed Milewski: How many shares are out there, Lynn?
Lynn Mueller: Roughly 80 million.
Ed Milewski: And the stock’s around $0.30, is that right?
Lynn Mueller: It’s about $0.45, I think, yesterday.
James West: So do you have enough cash on hand to achieve profitability next year, do you think, Lynn, or are you going to need to raise more money from the market?
Lynn Mueller: Well, I think we’re going to do some selective raises. We have some wonderful opportunities in Europe with what’s called the renewable heat incentive, and to really take advantage of that, we need to ramp up pretty quickly and get equipment in the market. So we’re going to do some selective raises. Operational-wise we’re good, but to grow at the rate we want, we’re probably going to do the raise early in the New Year.
James West: Okay, well that’s interesting. Can you give me some examples of the size of building that your systems are in, and some actual real-world examples of places that are using them?
Lynn Mueller: Oh, for sure. So a good example right now that’s pretty recognizable in Canada is the Wall Centre. They’re building a new Wall Centre here in Vancouver at Boundary and Kingsway, and it’s a 1,000-unit condo building, basically. So what we do – it’s on two sections on two pieces of property – so 600 on one property, so we have a Shark system installed on that property, and it recovers all the waste heat from hot water for 600 units, and we sold that one for somewhere in the $400,000 to $450,000 range.
And the other section of the building is smaller, so we use our Piranha unit, which is built for smaller buildings like that, so we have two Piranhas in there, and they recover the heat from the 400-unit section. In all, they will get a significant energy savings as well as a significant carbon reduction. Once the energy starts to flow in the building, we just recycle it. We just move heat from the sewer back into domestic hot water, and the two water sources never come close to each other; we’re just moving the heat.
Ed Milewski: How many people work at your company?
Lynn Mueller: We’ve got about…let’s see…we’ve got eight here in the Vancouver office, and we’ve probably got another eight over in England.
James West: Do you manufacture and assemble your own equipment?
Lynn Mueller: Yeah, and we do some third party manufacturing, so third party components we assemble here in Port Coquitlam, and our philosophy of the company is, we want to be a truly sustainable company. I mean, we want to walk the walk. So we have great social policies in place here, and we like to build where we sell products, and we like to be cost-effective, and we really like to develop our internal personnel.
We like to think we’re a pretty unique company where we really value our employees, we want long term employees, we want to help them with things like educating their children; we have a fund, anybody that has a child working here, we will help pay for their university education, and part of that is paying it forward, so when they get their university degrees, we want them to actually come back and think of working for the company.
Ed Milewski: How much cash do you have on hand right now?
Lynn Mueller: Oh, we’ve probably got $1 million in cash on hand right now, give or take a few bucks.
Ed Milewski: If you’re correct in your forecast of, say, $60 million revenue, what kind of profit do you expect to make at that point?
Lynn Mueller: We’re sort of without competition, so we tend to be very profitable, so we’re running in margins of 30 to 40 percent on these jobs. But the greatest thing that we have in the UK is the renewable heat incentive pays a continual revenue for 20 years, so we get a rebate based on performance for 20 years. So we have a phenomenal residual income fund started.
James West: Oh wow. That’s interesting.
Lynn Mueller: Every three months they check the meter on the output of our units and mail us a cheque. It’s just the greatest thing ever.
James West: Sure. So let me ask you, Lynn: you say that your basic assessment was a $40 billion opportunity.
Lynn Mueller: That’s in the US.
James West: Just in the US, okay. And you’re going to do $3 million this year. So my question is twofold: it’s, how much of that $40 billion opportunity in the US do you think you can capture, how long will it take you?
Lynn Mueller: Well, I’m 60 years old, so we’re going to get there in five years.
James West: Okay, because you need to retire!
Lynn Mueller: Well, I need to get this business growing. It’s the greatest opportunity I’ve ever seen and probably the worst surroundings. So I think we have a five year plan to get there, but it’s not only in the US; we’ve been embraced by the world. We’ve just recently won the 2016 Green Product of the Year award from an organization called ASHRAE, which is the American Society of Heating, Refrigeration and Air Conditioning Institute, and that is kind of like your peewee hockey team winning the Stanley Cup. It’s launched us onto a world stage that we’re just so excited about, because we’re in the ASHRAI show in Orlando in January, and we’ve literally had inquiries and appointments set up from people around the world, from Iran to Jakarta to Australia, and we’re ready to launch on a world stage. We’re key to ramp up to that. We can’t do it tomorrow, but next year, we sure can.
Ed Milewski: Lynn, what percentage of the company do you own?
Lynn Mueller: Do I own? Not enough right now. I own approximately, probably control about 10 million of the 80 million shares.
James West: That’s a good position.
Ed Milewski: Okay. Okay. And is that the largest, are you the largest shareholder?
Lynn Mueller: No, we have a gentleman named Paul Lee who’s our largest shareholder, who probably controls about 27.5 million shares. To show the faith that we all have in our company, we all converted any debt we had to the company to shares when we went the public route. Everyone involved is 100 percent committed.
Watch a video of International Wastewater Systems product demonstration:
Ed Milewski: How long have you been public?
Lynn Mueller: We’ve been public now for about 3.5 months.
James West: So is there a barrier to the rate at which you can grow, that’s relative to how fast you can scale manufacturing of the Piranha and the Shark?
Lynn Mueller: A little bit is ramping up our suppliers, but everybody is on board and can kind of see it coming. We’re going to have to scale up from one unit a week to one a day, but we’re confident we can do that. We’ve got fantastic suppliers and quality has always been paramount with us, so we’ve developed a very good supply chain and everybody is really on board to grow with us, and has kind of seen it coming.
James West: Wow. And is there a product for the retail segment? Is it something that I could put in my home here that was built in 1870?
Lynn Mueller: Not yet. But oddly enough, that’s a big priority of ours over in Europe, as we’ve been approached by the Horizon 2020 people to actually make a scalable unit. That’s on our R&D horizon.
Ed Milewski: If a person buys your product that you were talking about for this apartment building, what’s the payback to them? If they spend $500,000, how long does it take them to recoup that $500,000 in energy savings?
Lynn Mueller: That’s the great thing. It’s usually within, depending on where you are in the country, so it’s dependent. Here in BC, because we have pretty reasonable electricity rates and stuff, it can be as low as five years. In other parts of the country like Ontario, for instance, where your electricity rate’s a little higher, you may be 10 or 12 years. but almost every building now that’s being built has an energy requirement as far as equipment going in, so we’re positioned that we are, of the alternate energy sector, we’re the most reasonably priced equipment in the market for the LEED points you need. So we’re positioned very, very well in the new green market.
Ed Milewski: Are you an engineer, Lynn?
Lynn Mueller: No, I’m not an engineer.
James West: Okay, so how do you make these products?
Lynn Mueller: We have a number of – well, you know, by trade all of my life I’ve been in the heat moving business. I was Canadian president of a company called Water Furnace, and we were, at that time, the world’s leading manufacturers of geothermal heat pumps. And that was in the 90s, and I’ve always been an inventor and love, you know, the only trick I know is to move heat, and I am very good at it, and I developed the Shark and the Piranha, actually, myself. It’s just from a long history of moving heat. I’m a farmer from Alberta, so a lot of practical, hands-on experience.
James West: So you’ve been knee-deep in it for a long time.
Lynn Mueller: I’ve been moving heat for a long time. I was just telling a guy this morning that when I was growing up on the farm, we didn’t have electricity, so I used to steal the gas engine off my mother’s washing machine and make things around the farm with it.
James West: Okay, well, then, that’s a great first interview. I’d like to thank you for joining us today.
Lynn Mueller: My pleasure, gentlemen, anytime, and hope you have a great holiday season.
James West: Thank you. You too.
Ed Milewski: Thank you, Lynn.
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