Pure Technologies Announces 2015 Year End Results

CALGARY, March 15, 2016 /CNW/ - Pure Technologies Ltd. ("Pure" or the "Company") (TSX: PUR) announces its financial performance for the year ended December 31, 2015.

2015 Year Highlights:

• Revenue: $104.4 million, up 34%
  • Wachs Water Services ("WWS") and Hunter McDonnell Pipeline Services Inc. ("HM") acquisitions contributed $15.3 and $9.6 million in incremental revenue, respectively; excluding acquisitions, revenue increased 2%.
  • Inspection and consulting revenue in the Americas segment grew 15% organically (excluding acquisitions and foreign exchange impacts); inspection and consulting revenue for this segment represents 60% of total revenue and is a key indicator of organic growth.
  • Lower equipment sales combined with reduced international business offset Americas' inspection and consulting growth.
  • Pure's oil & gas pipeline integrity services, through PureHM, generated 15% of revenue in 2015, up from 8% a year ago; PureHM is Pure's fastest growing business segment with Q4/15 revenues up 57% organically over Q4/14.
• Adjusted EBITDA of $13.3 million compared to $15.6 million last year
  • Despite overall increased revenues, the impact of a slow first quarter combined with higher fixed costs from acquisitions had an impact on full-year Adjusted EBITDA.
• Loss of $0.1 million compared to a loss of $3.9 million last year
  • 2015 loss included a $1.6 million recovery on the accounts receivable from a customer in Libya, which was fully provided for in 2014.
• Growth and cost optimization plan well underway
  • $6-8 million in annualized operating cost efficiencies expected by the end of 2016 without impacting Pure's ability to continue growing its business. Commenced on a number of initiatives which in aggregate have an efficiency impact of $6 million annualized.
• Cash on hand of $11.1 million with no debt

"2015 was a landmark year for Pure," said Jack Elliott, President and CEO of Pure. "For the first time in our history, we exceeded $100 million in revenue and we have consolidated our position as the world leader in water pipeline condition assessment. Through the acquisition of WWS on April 1, 2015 and our continuing focus on research and development, we have broadened the range of services and solutions we can provide to the water sector.

"Looking beyond water, our acquisition of the HM business on October 1, 2014 has allowed us to penetrate the large and established market for integrity services to oil and gas pipeline operators. Even in an environment of depressed oil and gas prices, the requirement to maintain integrity of the vast existing base of pipeline infrastructure provides us the opportunity to materially expand our business.  We are one of the few companies with exposure to the oil and gas sector that is actually growing.

"The year was not without its challenges as we integrated these two significant acquisitions. The postponement of anticipated large projects, combined with a slowdown in the WWS core business, resulted in revenue that was below our expectations. Having said that, I am confident that the platforms we have built in the water, wastewater and energy pipeline sectors, combined with the cost reductions and improved management processes we have recently implemented, will drive aggressive revenue and margin expansion in 2016 and beyond."

Financial Highlights for the Three and Twelve Month Periods Ended December 31, 2015
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 December 31 (000's)		Three months 2015	Three months 2014	Change		Twelve months 2015	Twelve months 2014	Change
				$	%			%	$
Revenue		30,787	27,614	3,173	11	104,423	77,806	26,617	34
Cost of sales		5,958	5,841	117	2	25,522	17,506	8,016	46
Gross profit^2		24,829	21,773	3,056	14	78,901	60,300	18,601	31
Gross margin (%)^2		81	79			76	78
Operating Expenses^1		21,449	14,660	6,789	46	79,672	53,833	25,839	48
Adjusted EBITDA^2		6,895	8,716	(1,821)	(21)	13,288	15,629	(2,341)	(15)
Adjusted EBITDA (%)^2		22	32			13	20
Profit (loss)		677	(4,729)	5,406	(114)	(134)	(3,886)	3,752	(97)
	Per share – basic	0.01	(0.09)			(0.00)	(0.07)
	Per share – diluted	0.01	(0.09)			(0.00)	(0.07)
Cash Flow from Operations Before Working Capital Changes^2		5,612	8,672	(3,060)	(35)	11,359	14,243	(2,884)	(20)
Adjusted profit^2		1,244	5,140	(3,896)	(76)	(1,394)	5,767	(7,161)	(124)
Total assets		147,080	130,989	16,091	12	147,080	130,989	16,091	12

1.	Excludes Libya accounts receivable, other provisions, and loss or gains on asset disposals
2.	See Non-GAAP Measures as discussed in the 2015 year end Management's Discussion and Analysis

• Total revenue up 11% and 34% for Q4 and the full-year, respectively.
  • WWS provided $4.3 million and $15.3 million of incremental revenue for the fourth quarter and full-year, respectively; PureHM provided incremental revenue of $9.6 million for the year.
  • Excluding acquisitions, revenue decreased 4% for the fourth quarter. A 20% increase in inspection and consulting revenues in the Americas (of which 4% was organic) combined with a 57% increase in PureHM revenues (organic) were more than offset by lower equipment sales and the impact of a large South African project in Q4/14 that did not recur in Q4/15.
  • On a full year basis excluding acquisitions, revenues increased by 2%. A 33% increase in inspection and consulting revenues in the Americas (of which 15% was organic) combined with a 12% increase in PureHM revenues (organic) were partially offset by lower equipment sales and reduced international activity, mainly in Mexico and South Africa. Growth was negatively impacted by significant contract delays, including the renewal of an existing program and commencement of a new program in the Americas as well as implementation of master service agreements in PureHM as part of integration activities. All of these contracts have now been signed and projects are underway.
  • Through recent acquisitions and investment in strategic initiatives for wastewater and metallic pipe condition assessment, Pure is moving quickly away from past dependency on a small number of large projects to a broader and more diverse revenue mix, expected to result in less revenue volatility in the future.
• Gross margin of 76% compared to 78% in 2014.
  • Decline mainly due to pass through costs in Australia and the inclusion of lower margin revenues from WWS.
• The increase in operating expenses reflect:
  • $3.7 million and $16.6 million of incremental costs for the three and twelve month periods, respectively, attributable to the PureHM and WWS businesses;
  • increased average headcount, relative to prior year, as a result of hiring of salaried personnel in the second half of 2014 to support future growth;
  • the adverse impact of a weakening Canadian dollar; and
  • $0.7 million of direct costs related to acquiring WWS, mainly incurred in Q2/15.
• The Company recorded Adjusted EBITDA of $13.3 million or 13% of revenues in 2015 compared to Adjusted EBITDA of $15.6 million or 20% in 2014. Despite overall increased revenues, the impact of a slower first quarter combined with a higher fixed cost base, resulted in a reduction in Adjusted EBITDA on a full year basis.

Growth and Cost Optimization Update

As announced in the previous quarter, Pure is undertaking several specific measures to increase sales, enhance workforce flexibility to better align with project timing volatility and drive operational efficiencies without sacrificing quality or its ability to deliver on long term growth expectations. These include, but are not limited to:

Growth in revenue by investing in sales resources:

• Pure has hired nine of twelve sales personnel to address targeted sales force improvements for broader service line and regional coverage within North America. Training of new hires is currently underway with expected benefits to begin showing early in 2016;
• PureHM has added four sales and business development individuals to promote the division's best-in-class services to the oil and gas pipeline integrity market.

Focused Reduction in Operating and Administrative Costs:

The Company is focusing on operational and administrative improvements with a target of optimizing the work force and cost of project delivery by mid-2016.  This is expected to result in annualized cost efficiencies of between $6 and $8 million.

To date, Pure has completed or commenced the following initiatives which in aggregate have an efficiency impact of $6 million annualized:

• Reduction to fixed engineering and operations costs through non-replaced attrition - $2.6 million;
• Operating expense reduction through changes to employee share purchase plan - $1 million;
• Reduced G&A through mid-2016 consolidation of WWS shared services - $1.1 million;
• Marketing cost reductions internationally and through reduced outsourcing - $1 million;
• Office closure - $0.3 million.

The remaining additional operational and administrative improvements being undertaken in 2016 include (balance of $2 million in efficiencies):

• Improved project management through better process, governance and performance management systems. Much of this work is underway in conjunction with the Company's ERP implementation, expected to go live in the second quarter of 2016;
• Strengthening short and medium term project forecasting and scheduling to facilitate better resource (human and capital) management and asset allocation and expense optimization. Progress has been made with respect to organizational planning with further refinements in 2016; and
• Continued rationalization of non-essential and discretionary expenditures including spending on corporate initiatives without compromising future growth or execution of Pure's business strategy.

Outlook

In 2015, Pure's focus continued to be the development of its core North American water, wastewater and oil and gas markets while remaining opportunistic in its international expansion activities.  Over the last 2 years, Pure has grown its revenues by 71% organically and through the acquisitions of PureHM and WWS to $104.4 million in the current year from $60.9 in 2013.  As a consequence, the Company spent much of 2015 with a heavy internal focus on the integration of PureHM and WWS and establishing the foundation for future growth. This focus is within the context of the Company's long-term growth strategy of being the leading provider of pipeline condition assessment and network management services in both the water and oil and gas industries.

WWS, acquired in the second quarter of 2015, is a key part of the Americas' growth strategy.  It expands Pure's services towards a full network management offering, including valve, hydrant and non-revenue water (NRW) services and broadens Pure's customer base to include more small and medium sized utilities. The combination of Pure and WWS forms the platform for significant growth in 2016 and beyond.

The Company continues to capitalize on its PureHM acquisition, which is Pure's fastest growing business segment with pro forma organic growth in 2015 of 12% over 2014.  In the fourth quarter of 2015, organic growth over the same period of 2014 was 57% as product acceptance increased for both the Spectrum XLI and SmartBall technology for the oil and gas sector. The focus of PureHM's growth strategy includes expansion into the U.S. and other western states, resulting in large contracts being awarded in California; increasing services to existing clients; and targeting of other major pipeline companies for new business.  A proactive approach to sales in this division is resulting in an increased amount of work being booked into the first quarter of 2016 relative to the same period of 2015.

The Company made significant strides in 2015 in establishing a foundation for growth in 2016 and beyond, more than doubling its workforce through two acquisitions, broadening its service offerings and expanding its customer base in its core water business, the wastewater sector and the oil and gas sector.  As integration concludes and sales and execution of the aforementioned initiatives take hold, the Company expects EBITDA margins to return to or exceed its stated target of 20%.  

Conference Call and Webcast

A teleconference and webcast will be held tomorrow morning, March 16, 2016, at 10:30 am EDT. Senior Management will speak to the results and provide a financial and business update.  Presentation slides will be made available on the Company's website prior to the call.

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: 00296

Webcast & Presentation Slides:  Investors will be able to listen to the conference over the Internet as well as access presentation slides (in pdf format) to follow along during the call.

• Links to the webcast and presentation 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 relating to the benefits expected to be realized from the Company's Growth and Cost Optimization Plan, integration of recent acquisitions, where the Company forecasts the timing of new and existing projects, the success of the Company's new technologies and entering new markets, the Company's ability to generate future cash flows and the timing and amount of future dividend payments. 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 Company's ability to successfully implement its Growth and Cost Optimization Plan, integrate the Wachs Water business into its existing operations, 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.

To find out more about Pure Technologies Ltd. (TSX: PUR), visit our website at www.puretechltd.com or contact Paul Moon, Investor Relations; [phone] or [email protected].