Pure Technologies Announces Third Quarter 2016 Results

CALGARY, Nov. 8, 2016 /CNW/ - Pure Technologies Ltd. ("Pure" or the "Company") (TSX: PUR) announced its financial performance for the quarter ended September 30, 2016.

Third Quarter and Year-to-Date Highlights:

  • Revenue of $28.5 million for the third quarter, down 4% quarter-over-quarter. Year-to-date revenue of $82.8 million, up 12% (4% organically excluding foreign exchange) compared to the same period last year.
  • Adjusted EBITDA of $4.2 million in the third quarter, up 9% compared to last year. Year-to-date Adjusted EBITDA of $9.9 million, up 54% compared to last year, reflecting revenue growth and operating efficiencies.
  • Profit for the third quarter of $0.9 million compared to $1.1 million last year. Year-to-date losses improved from $0.8 million to $0.6 million in 2016.
  • The Americas region (75% of third quarter revenue) grew 2% and 12% for the three and nine-month periods, respectively, compared to last year. Adjusted EBITDA improved 10% and 13% for the third quarter and year-to-date periods, respectively, over 2015. The quarter was impacted by client deferral of work in Canada. Year-to-date, Americas region revenue includes incremental first quarter revenue from Wachs Water Services ("WWS", acquired April 1, 2015).
  • WWS has stabilized and returned to profitability in the third quarter. Third quarter revenue was US$4.1 million, consistent with last year. Order bookings, a leading indicator of future business activity, are up 28% over the same period.
  • International region revenue declined to $1.7 million in the third quarter from $4.3 million last year due to project delays. Year-to-date, revenue declined to $7.8 million from $10.5 million last year. Third quarter adjusted EBITDA relatively unchanged at $(0.3) million with year-to-date adjusted EBITDA meaningfully improved to $1.4 million from $0.2 million last year due to cost savings.
  • PureHM revenue (19% of total Q3 revenue) is up 23% and 52% for the third quarter and year-to-date periods, respectively, compared to last year. Adjusted EBITDA improved 32% and 97% for the third period and year-to-date periods, compared to last year.

"Third quarter revenue of $28.5 million was below our expectations primarily due to scheduling and procurement delays in our International and Canadian regions in our core water business," said Jack Elliott, President and CEO of Pure. "Despite the decline in revenue, adjusted EBITDA for the quarter increased 9% year-over-year, mainly due to strong growth in our oil and gas pipeline integrity business. On a trailing-twelve-month-basis ("TTM"), revenue was up 12% and TTM adjusted EBITDA was up 10% when compared to the same period last year.

"Within our water business (which includes Wachs Water Services), Americas revenue grew 2% year-over-year with adjusted EBITDA growing 10%. Our International revenue fell 60% to $1.7 million, while adjusted EBITDA was relatively unchanged. Although we continue to face scheduling and procurement delays in our core business, we remain the world leader in condition assessment of water and wastewater pressure pipelines and we are growing our opportunity pipeline as utilities adopt our technology-based Assess & AddressTM strategy for proactive infrastructure management. As disclosed in our October 6, 2016 news release, we were recently awarded new, multi-year work by several U.S. water agencies in the amount of $14 million. These awards were made on the basis of our experience, expertise and industry-leading solutions for the management of water pipelines consisting of multiple pipe types and sizes around the world. Furthermore, we are seeing an increase in the number of requests for proposals (RFPs) related to our solutions including the largest RFP of its kind, issued by a major Californian regional water agency. We expect these developments to generate continuing growth for our water business over time.

"Our Wachs Water Services business generated revenue of US$4.1 million, essentially flat year-over-year. WWS has stabilized and returned to profitability in the third quarter. By refocusing on the core business, together with the addition of new sales staff and improved cost control, the outlook for WWS is improving. In fact, bookings, which are a leading indicator of future revenue, are up 28% year-over-year.

"PureHM, our oil and gas pipeline integrity business, continued its strong performance in the third quarter. Revenue increased 23% in the quarter, while adjusted EBITDA increased 32%. PureHM continues to expand its business development activities and introduce new, innovative solutions to help clients manage critical integrity challenges.  Pilot projects are being planned to demonstrate the efficacy of these solutions. These opportunities represent significant long-term growth potential within a very large, regulatory-driven, North American addressable market. In addition to new business development, PureHM continues to place a heavy emphasis on recruitment and training to keep pace with anticipated growth.

"As we continue to grow, we will seek out additional cost and efficiency opportunities to better optimize our cost structure and increase profitability. As usual, the fourth quarter is our busiest based on scheduled work and we look forward to closing the year on a high note."

Financial Highlights for the Three and Nine Month Periods Ended September 30, 2016
For further details on the results, please refer to Pure's Management Discussion and Analysis (MD&A) and Consolidated Financial Statements which are available on the Company's website (www.puretechltd.com).

For the period ended

September 30

Three
months
2016

Three
months
2015

Change

Nine
months
2016

Nine
months
2015

Change

$

%

$

%

Revenue

28,453

29,559

(1,106)

(4)

82,763

73,636

9,127

12

Cost of sales

6,415

8,142

(1,727)

(21)

17,823

19,564

(1,741)

(9)

Gross profit

22,038

21,417

621

3

64,940

54,072

10,868

20

Gross margin (%)

77

72


-

78

73


-

Operating Expenses1

21,282

20,721

561

3

65,525

58,223

7,302

13

Adjusted EBITDA2

4,216

3,883

333

9

9,876

6,393

3,483

54

Adjusted EBITDA (%)

15

13



12

9



Profit (loss) for the period

895

1,076

(181)

(17)

(596)

(811)

215

(27)


Per share – basic                                         

0.02

0.02



(0.01)

(0.02)




Per share – diluted                                                        

0.02

0.02



(0.01)

(0.02)



Cash Flow from Operations Before Working Capital Changes2

4,192

3,507

685

20

9,308

5,747

3,561

62

Adjusted Profit (Loss) for the period2

931

808

123

15

(413)

(2,638)

2,225

(84)

Total assets3

139,948

147,080

(7,132)

(5)

139,948

147,080

(7,132)

(5)

1.

Excludes Libya accounts receivable recovery and loss or gains on asset disposals

2.

See Non-GAAP Measures. 

3.

Comparative figure is as at December 31

 

The Company's total revenue is derived from product groups, each with varying gross margin which, in isolation or in combination, is subject to volatility in part due to contract timing, seasonality and the unique needs of clients. Current sales mix included a high volume of inspection services and was positively impacted by the inclusion of the results of operations from Wachs Water Services ("WWS"), acquired April 1, 2015, which were not included in the first quarter of 2015 revenues. 

  • Third quarter revenue decreased by 4% to $28.5 million from $29.6 million in 2015, reflecting a $2.6 million or 60% decrease in the International division partially offset by a $1.0 million or 23% increase in the PureHM division
  • Year-to-date revenue grew $9.1 million, or 12%, including:
    • $4.2 million of first quarter revenue from WWS
    • $4.9 million, or 7% organic growth, resulting from:
      • a $5.8 million or 52% increase from PureHM;
      • a $1.8 million or 4% increase in the Americas Water Business Unit (excluding WWS); and
      • a $2.7 million or 26% decline in the International Water Business Unit
    • Year-to-date revenues increased $2.6 million, or 4%, organically, excluding the impact of foreign exchange
  • Gross margin percentage increased in the third quarter to 77% (Q3 2015 – 72%) and for the year-to-date to 78% (2015 – 73%), reflecting:
    • Increased attention to direct project costs combined with the mix of inspection and consulting projects; and
    • Prior year-to-date period included an equipment sale to the Company's Chinese joint arrangement, Pure Technologies China Ltd. ("PTCL"), at a lower margin
  • Adjusted EBITDA was $4.2 million in the third quarter of 2016, up 9% compared to $3.9 million for the same period in 2015, reflecting:
    • Increased activity and resulting contribution from PureHM
    • Improved gross margins as described above
    • Current period cost savings, primarily in the Water Division, as a result of the Company's cost optimization plan implemented in 2015

     Offset by:

    • Lower international activity due to the delayed timing of projects;
    • Increased investment in marketing in the Americas region, as planned, but with limited current period revenue impacts; and
    • Increased utilization of research and development personnel to support certain operational activities, reducing amounts capitalized
  • Cash flow from operations before working capital changes in the third quarter of 2016 increased to $4.2 million from $3.5 million in the same period of 2015 and to $9.3 million for the first nine months of 2016 from $5.7 million in the same period of 2015
  • Profit for the third quarter decreased to $0.9 million from $1.1 million, reflecting the impacts of $0.7 million of foreign exchange gain in 2015 (nil in 2016) and income tax recoveries of $0.2 million in 2016 compared to expense of $0.3 million of income tax expense in 2015
  • Loss for the nine months ended September 30, 2016 reduced to $0.6 million in 2016 from $0.8 million in 2015 as a result of increased activity and the results of cost optimization, as noted above, offset by a $1.1 million foreign exchange loss in 2016 (2015: $1.6 million gain)
  • As at September 30, 2016, Pure had $7.0 million of cash and $35.3 million of working capital and a $10 million undrawn credit facility
    • Pure maintains a strong financial position, combined with healthy cash flow and low capital requirements, which provides a financial foundation that will facilitate execution of the Company's growth plan

Outlook

Consistent with prior years, the fourth quarter for the Americas region is expected to be the busiest of the year based upon scheduled work.  While current year results have been impacted by procurement delays, particularly in Canada, a large part of this work has now commenced. In addition, and as announced on October 6, 2016, the investment in sales and marketing is beginning to bear fruit with awards of multi-year program work by U.S. water agencies related to the inspection and management of critical water pipelines which, in aggregate, total up to CAD $14 million. This includes a two-year renewal contract with City of Atlanta, GA, for up to $4 million, to provide condition assessment and related services for primarily metallic water distribution and transmission mains. Work starts in the first quarter of 2017. Similar work worth up to $10 million in the aggregate was awarded by agencies in California, Arizona and Texas, with work commencing on all three projects in the fourth quarter and extending into 2017.

While the Americas' results have been negatively impacted by significantly lower than expected WWS activity and related profitability, Pure believes that WWS has stabilized through the addition of new sales staff and a refocusing of the business. Current quarter revenue of US$4.1 million was consistent with the same period of 2015 and bookings, which are the leading indicator of future activity, are up 28% over the same period of last year. 

Internationally, Pure continues to see opportunities for growth in its regional markets. International activity has historically been driven by large projects, resulting in inter-quarter and year-over-year volatility. While activity in the fourth quarter is expected to be busier than the third quarter, Pure expects full year revenues from the International division to be lower than 2015 reflecting the aforementioned volatility.

PureHM continues to be the Company's fastest growing business unit. Market acceptance continues to grow for the Spectrum XLI and SmartBall technologies in the oil and gas sector. Fourth quarter activity is expected to remain strong as the division continues to broaden its customer base while also focusing on increasing services provided to existing key customers. Management remains focused on the continued recruitment, training and development of its workforce, a critical component in sustaining these high growth levels.  

Conference Call and Webcast

A teleconference and webcast will be held tomorrow morning, November 9, 2016, at 10:30 am EST. Senior Management will speak to the results and provide a financial and business update.

Teleconference:  The telephone numbers for the conference are toll-free 1-800-319-4610 (within Canada & USA) and 416-915-3239 (Local / International).

  • Callers should dial-in 5 to 10 minutes prior to the scheduled start time and simply ask to join the Pure Technologies Ltd. Conference Call
  • A replay will be available approximately two hours after the call for two weeks. Access the replay by calling 1-855-669-9658 (toll-free within Canada & USA). Use the following Passcode followed by the number sign: 0884

Webcast & Presentation Slides:  Investors will be able to listen to the conference over the Internet as well as access supplemental information slides (in pdf format).

  • Links to the webcast and slides will be available approximately 30 minutes prior to the call on Pure's website. Under the "Investors" main menu tab, select "Presentations, Events and Webcasts".
  • The webcast will be archived for 90 days.

About Pure Technologies Ltd.

Pure Technologies Ltd. is an international asset management, technology and services company which has developed patented technologies for inspection, monitoring and management of critical infrastructure around the world. Pure's business model incorporates four distinct but complementary business streams:

  • Sales of proprietary monitoring technologies for pipelines, bridges and structures;
  • Recurring revenue from data analysis, site maintenance, and from technology licensing;
  • Premium technical services including pipeline inspection, leak detection and condition assessment;
  • Specialized engineering services in areas related to asset management, primarily in the area of pipeline condition assessment for water and wastewater infrastructure.

Forward-Looking Statements

This News Release contains forward-looking statements, including, without limitation, statements containing the words "should", "believe", "anticipate", "may", "plan", "will", "continue", "intend", "expect", "estimate" and other similar expressions.  These statements constitute "forward-looking information" within the meaning of applicable Canadian securities laws.  These statements are based on the Company's current expectations, estimates, forecasts and assumptions. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other important factors that could cause the Company's actual performance to be materially different from that projected. Examples of these statements would include those where the Company forecasts the timing of new and existing projects and the success of the Company's new technologies and entering new markets. The assumptions, risks and uncertainties that could cause actual results to differ materially from the forward-looking information, include, but are not limited to the stabilization and growth of the Wachs Water Services business through the addition of senior business development staff, market changes, the Company's ability to deliver services in a timely and cost effective manner, technological change, changes in general economic conditions and other risks detailed from time to time in our ongoing filings with the Canadian securities regulatory authorities, including those in the Company's Annual Information Form, which filings can be found at www.sedar.com. Given these assumptions, risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by applicable securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements either as a result of new information, future events or otherwise.

® Registered Trademarks, property of Pure Technologies Ltd.

"The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this release"

SOURCE Pure Technologies Ltd.

For further information: To find out more about Pure Technologies Ltd. (TSX: PUR), visit our website at www.puretechltd.com or contact Paul Moon, Director of Investor Relations; (403) 537-3244 or investor.relations@puretechltd.com

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