Pure Technologies Announces Second Quarter 2016 Results

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

Second Quarter and Year-to-Date Highlights:

• Revenue of $29.2 million for the second quarter comparable with $29.4 million in 2015. Year-to-date revenue of $54.3 million, up 23% (14% organically) compared to the same period in 2015.
• Adjusted EBITDA of $4.6 million in the second quarter compared to $4.6 million last year. Year-to-date Adjusted EBITDA of $5.7 million compared to $2.5 million last year, reflecting revenue growth and operating efficiencies.
• Profit for the second quarter of $1.0 million compared to $0.4 million last year. Year-to-date losses improved from $1.9 million to $1.5 million in 2016.
• Inspection and consulting activity grew by $2.2 million (9%) and $13.1 million (39%) for the three and six month periods, respectively, over 2015 offset by lower equipment sales in both periods. Wachs Water Services revenue grew 5% over the first quarter of 2016. Second quarter inspection and consulting growth was driven by the International and PureHM segments.
• $2.5 million of inspection work and equipment sales in the South region planned for the second quarter deferred to the second half of 2016.
• PureHM total revenue grew by $1.4 million (27%) and $4.7 million (71%) to $6.7 and $11.4 million for the three and six month periods, respectively.

"While there is always more work to do, we are making good progress toward achieving our goals," said Jack Elliott, President and CEO of Pure. "On a trailing-twelve-month ("TTM") basis, total revenue was $114.7 million, up 29%, and TTM Adjusted EBITDA was $16.4 million, up 23%, compared to the same period last year. We believe measuring Pure's financial performance on a yearly or TTM basis is more representative of our business cycle due to variables that sometimes create meaningful inter-quarter variability, including client-driven scheduling and inclement weather, against a cost structure that is largely fixed. As is our typical pattern, we expect the second half of 2016 to be more active than the first half. 

"We continue to be excited by the performance of PureHM, our rapidly growing oil and gas pipeline integrity division, representing 23% of total revenue for the quarter compared to 18% of total revenue last year. Revenues in that division grew 27% to $6.7 million in the second quarter and by 71% to $11.4 million compared to the prior six-month period. As activity continues to increase, so must our trained workforce to meet this demand and accordingly, we are placing a heavy emphasis on recruiting and development for this division.

"Inspection and consulting activity in the Americas water business was consistent with the prior quarter. Compared to the first quarter of 2016, second quarter revenue for Wachs Water Services grew by 5% and the recent hiring of three senior business development staff is anticipated to generate improved growth for this division in future quarters.  Outside the Americas, our international inspection and consulting services revenue grew 48% quarter-over-quarter.

"Finally, we continue to make strong headway on our internal processes and systems. Our Enterprise Resource Planning and Customer Relationship Management systems went live in the quarter and we are beginning to see the benefits of better project control and visibility on opportunity pipelines. We continue to believe these new tools and certain other initiatives will move us towards our adjusted EBITDA margin target of 20% or better."

Financial Highlights for the Three and Six Month Periods Ended June 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).

• Revenue decreased slightly in the second quarter and increased 23% year-to-date for the reasons stated above.
• Gross margin as a percentage of revenue increased to 82% and 79% for the three and six-month periods in 2016, respectively, compared to 75% and 74% in 2015. The increase was reflective of product mix and increased attention to direct project costs.
• Operating expenses, excluding gains on asset disposal and changes in provisions, increased 7% in the second quarter and by 18% year-to-date compared to 2015. The majority of the increase in both periods reflect the planned sales personnel additions required to deliver on Pure's growth plans, increased hourly labour supporting increased activity in PureHM's business, first quarter costs of WWS acquired in the second quarter of 2015, higher bonus provisions based on current expectations of performance and one-time training costs for the new ERP system, offset by cost efficiencies realized as a result of the Company's Growth and Optimization Plan announced in 2015.
• Adjusted EBITDA was consistent for the quarter and up 126% for the six-month period compared to the respective periods of 2015 for the reasons stated above.

Outlook

Pure's long-term sustainable growth strategy continues to be driven by increasing its inspection and consulting services, utilizing Pure's increasing proprietary inspection technologies and analysis capabilities across multiple pipe types for water, wastewater and oil and gas customers.   Accordingly, equipment sales, which tend to be focused on Acoustic Fibre Optic monitoring systems for prestressed concrete cylinder pipes and subject to high degrees of variability, are expected to reduce as a percentage of revenue over time. 

In the second quarter, revenue from the Americas water business was impacted by lower equipment sales, compared to the same period of 2015. Inspection and consulting activity was consistent with the prior quarter as higher activity in the U.S. North and West regions was offset by the deferral of work in the South region to the second half of the year and by lower Wachs Water Services revenue. The recent hiring of three senior business development staff at Wachs Water Services is anticipated to generate growing revenue for this division in the future.  As in prior years, we expect the second half of the year to be more active than the first. 

International revenue increased by 19% in the second quarter of 2016 and declined 2% in the first half of 2016 over the same periods of 2015, respectively.  Second half activity in 2016 is also expected to increase, mainly driven by projects in Europe and Africa, partially offset by expected lower activity in Asia.   

The Company continues to capitalize on its PureHM acquisition, Pure's fastest growing business segment, which grew revenues to $6.7 million in the second quarter of 2016 from $5.3 million in the prior year. Market acceptance continues to grow for Pure's Spectrum XLI and SmartBall technology in the oil and gas sector. Year-to-date revenues increased from $6.7 million to $11.4 million. Second half activity is expected to remain strong as the division continues to broaden its customer base while at the same time focusing on increasing services provided to existing key customers. Management is currently focused on the continued recruitment, training and development of its workforce, a critical component in sustaining these growth levels.  

The benefits of Pure's cost optimization initiatives had a positive impact on the Company's profitability.  These initiatives were partially countered by higher hourly labour costs to deliver increased PureHM activity, the impact of a weaker Canadian dollar on foreign denominated costs, a higher current year bonus provision, increased investment in marketing activities, and a higher research and development expense as less development activity was capitalized in 2016.  Bonus provisions are based upon the Company's current expectations of profitability relative to performance targets. The Company continues to invest in research and development initiatives that are focused on increasing the capability and efficiency of Pure's technology platforms in both the water and oil and gas sectors. Pure anticipates commercialization of several of these initiatives in late 2016 or 2017 with corresponding positive impacts on revenue and profitability. 

The strength of Pure's financial position, combined with strong cash flow and low capital requirements provides a financial foundation that will facilitate execution of Pure's growth plan. Pure ended the quarter with $6.5 million of cash and $38.9 million of working capital, a decrease of $4.6 million in cash and $7.8 million of working capital from the end of 2015. The decrease is a result of lower activity in the first half of 2016 relative to the latter half of 2015, the timing of annual tax, bonuses, and certain pre-payments, and foreign currency losses of approximately $1.0 million on U.S. dollar working capital as the Canadian dollar strengthened during the period. Pure expects these balances to grow through 2016 as revenue and profitability increase.

Conference Call and Webcast

A teleconference and webcast will be held tomorrow morning, August 9, 2016, at 10:00 am EDT. 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: 00644

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 grow the Wachs Water Services business through 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.

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SOURCE Pure Technologies Ltd.