Pure Technologies Announces 2016 Year End Results

CALGARY, March 9, 2017 /CNW/ - Pure Technologies Ltd. ("Pure" or the "Company") (TSX: PUR) announces its financial performance for the year and three-month period ended December 31, 2016.

2016 Year Highlights:

Video: Pure Technologies - 2016 & Beyond

• Revenue of $115.1 million, up 10%, which includes:
  • $4.2 million of first quarter revenue from Wachs Water Services ("WWS"), acquired April 2015;
  • $6.4 million of organic growth, mostly due to a 41% increase in PureHM revenue (oil and gas pipeline integrity division);
• Gross margin percentage increased to 78% (2015 – 76%), due to reduced direct project costs and favourable revenue mix
• Adjusted EBITDA of $15.1 million, up 14%, reflecting:
  • PureHM business growth; improved gross margins; Water Division cost savings
    Offset by:
  • Delayed Americas and International segment activity; increased marketing investment in the Americas segment; and
  • Lower WWS activity during 2016, however, showing signs of improvement (bookings up 31% at the end of 2016)
• Cash flow from operations (before working capital changes) increased to $14.6 million from $11.4 million in 2015 as a result of the aforementioned reasons
• Profit increased to $1.3 million from a $0.1 million loss in 2015
• At year-end, Pure had no debt, $5.4 million of cash, $34.3 million of working capital and a $10 million undrawn credit facility
• View a new corporate video entitled, "2016 Highlights and Beyond" and read the full 2016 Message to Shareholders on Pure's IR website: https://investors.puretechltd.com/

"While we are pleased with the pace of growth within PureHM, 2016 marked the second consecutive year of lower than expected growth within our water business with corresponding impacts on profitability. Having said that, we have taken a number of corrective steps we believe will benefit Pure's water business, and the Company as a whole, this year and into the future," said Jack Elliott, President and CEO of Pure.

"Overall in 2016, we continued to strengthen our leadership position in the delivery of innovative technology-enabled engineering solutions to owners of water and oil and gas pipelines, while delivering 10% revenue growth and 14% adjusted EBITDA growth on a consolidated basis.  Our water business delivered year-over-year revenue and adjusted EBITDA growth of 5% and 10%, respectively, while our oil and gas business (PureHM) grew revenue and adjusted EBITDA by 41% and 52%."

Financial Highlights for the Three and Nine Month Periods Ended December 31, 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 IR website.

For the period ended December 31			Three months 2016	Three months 2015	Change		Twelve months 2016	Twelve months 2015	Change
					$	%			$	%
Revenue			32,311	30,787	1,524	5	115,074	104,423	10,651	10
Direct costs			7,569	5,958	1,611	27	25,392	25,522	(130)	(1)
Gross profit			24,742	24,829	(87)	(0)	89,682	78,901	10,781	14
Gross margin (%)			77	81			78	76
Operating Expenses^1			22,797	21,449	1,348	6	88,322	79,672	8,650	11
Adjusted EBITDA^2			5,243	6,895	(1,652)	(24)	15,119	13,288	1,831	14
Adjusted EBITDA (%)			16	22			13	13
Profit (loss) for the period			1,917	677	1,240	183	1,321	(134)	1,455	NA
	Per share – basic		0.03	0.01			0.02	(0.00)
	Per share – diluted		0.03	0.01			0.02	(0.00)
Cash Flow from Operations Before Working Capital Changes^2			5,301	5,612	(311)	(5)	14,609	11,359	3,250	29
Adjusted Profit (Loss) for the period^2			1,770	1,244	526	42	1,357	(1,394)	2,751	NA
Total assets^3			143,578	147,080	(3,502)	(2)	143,578	147,080	(3,502)	(2)

1.	Excludes direct costs, Libya accounts receivable recovery and loss or gains on asset disposals, includes depreciation and provisions
2.	See Non-GAAP Measures in the Company's Annual Management Discussion and Analysis
3.	Comparative figure is as at December 31

Additional Highlights:

• Fourth quarter revenue increased by 5% to $32.3 million, reflecting increases in the International Water, WWS and PureHM segments as noted below, offset by project delays in the Americas Water segment
• Fourth quarter Adjusted EBITDA of $5.2 million, down 24% compared to last year, reflecting the aforementioned delays and PureHM revenue mix (PureHM: gross profit as a percentage of revenue reduced from 76% to 69%; revenue increased 15% to $5.0 million)
• Profit for the fourth quarter of $1.9 million compared to $0.7 million last year
• The Americas segment:
  • Q4 revenue declined 5% to $17.7 million; Adjusted EBITDA declined 25% to $5.4 million
  • Full year revenue grew 4% to $61.8 million; Adjusted EBITDA grew 2% to $17.0 million
  • The quarter and full-year were impacted by procurement delays in Canada, however, subsequent to year-end, new meaningful work has been awarded and is in the process of being contracted
• International segment:
  • Q4 revenue grew 11% to $3.8 million in the fourth quarter as a result of increased activity in Europe and recognition of monitoring revenue in Mexico; Adjusted EBITDA grew 108% to $1.4 million due to favourable revenue mix along with lower overall costs
  • For 2016, revenue declined 17% to $11.6 million due to lower activity in Australia and the Middle East, and the inclusion of a $1.0 million equipment sale to the Company's joint venture in China in the first quarter of 2015; Adjusted EBITDA grew 203% to $2.9 million due to the same reasons above
• WWS' business continues to improve following its efforts in re-investing in sales personnel and refocusing management:
  • Q4 revenue improved 34% to $5.7 million; Adjusted EBITDA increased by $0.4 million to $0.4 million
  • 2016 revenue grew 29% to $19.7 million; Adjusted EBITDA declined 43% to $0.6 million. The full-year results reflect an additional quarter of revenue compared to 2015 and lower activity in the first half of the year due to post acquisition sales force attrition and integration challenges. The addition of sales personnel and a refocused management team resulted in revenue and profitability improvements in the second half of 2016
  • Bookings, a leading indicator of future business activity, are up 31% at the end of 2016
• PureHM continues to be Pure's fastest growing division. The acquisition of the business and assets of E-MAC Corrosion Inc. ("E-Mac", acquired December 30, 2016) is expected to enhance PureHM's operating capacity and adds new customer relationships to the business:
  • Q4 revenue is up 15% to $5.0 million; adjusted EBITDA declined $0.7 million to $0.7 million due to higher operating costs related to current quarter sales mix and a $0.3 million marketing cost reclassification from the Americas segment. Excluding the reclassification, adjusted EBITDA would be 19% of Q4 revenue
  • For the full-year, revenue is up 41% to $21.9 million and adjusted EBITDA increased 52% to $7.0 million, due to significant contract awards and increasing market acceptance of PureHM's services

Outlook

While the Americas Water segment results for the year were impacted by longer than expected procurement processes, particularly in Canada, a large part of this work has now started with new meaningful work awarded in early 2017. In addition, and as announced on October 6, 2016, Pure was awarded 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 USD$4 million, to provide condition assessment and related services for primarily metallic water distribution and transmission mains.  Work started in the first quarter of 2017. Similar work worth up to USD$10 million in aggregate was awarded by agencies in California, Arizona and Texas. Work started on all three projects in the fourth quarter and will extend into 2017. Pure expects organic growth in this segment of between 5% and 15% for 2017. 

International activity has historically been driven by large projects, resulting in inter-quarter and year-over-year volatility. In 2017, Pure expects much of its International growth to be from Europe where several large projects developed and planned in 2016 are anticipated to be executed in 2017.  One project was a major inspection for a repeat customer completed in early 2017.       

Within other regions and based upon the current pipeline of opportunities, moderate growth is expected.  Long term inspection and licensing programs continue within Asia and South American regions and potential partnership arrangements are being assessed in key markets. Contract renewals are expected to occur for projects in the Middle East and Mexico. Given the current variability in project size and duration, Pure expects to continue its strategy of minimizing international overhead through utilization of small focused regional sales offices and partnership agreements where possible.  

While both 2015 and 2016 were negatively impacted by significantly lower than expected WWS activity and related profitability, Pure believes that WWS has stabilized through the replacement and addition of sales staff and a refocusing of the business. At the end of 2016, bookings, which are the leading indicator of future activity, are up 31% over last year. Through these actions and based upon the growth in bookings, Pure expects that WWS will return to pre-acquisition activity levels by 2019, with a corresponding increase in profitability.

PureHM continues to be the Company's fastest growing business division. Market acceptance continues to grow for the Spectrum XLI^TM and SmartBall^TM technologies in the oil and gas sector. First quarter activity is expected to remain strong as the division integrates the operations of E-MAC, continues to broaden its customer base while also focusing on increasing services provided to existing key customers. The E-MAC acquisition is expected to enhance PureHM's operating capacity and adds new customer relationships to the business. Management remains focused on the continued recruitment, training and development of its workforce, a critical component in sustaining these high growth levels.  

Pure continues to invest in research and development to protect and enhance its technology leadership in the area of pipeline condition assessment, monitoring and data analysis.  Current initiatives include: (1) the development of a system for monitoring oil pipelines that pass under rivers, which are of great concern to operators due to the high risk and high consequence of failure; and (2) a major initiative to improve the capabilities of the Company's PipeDiver^TM platform to generate higher resolution condition information across a broad range of pipe materials.  Pilot projects with both of these products are expected to be conducted in the first half of 2017. 

Conference Call and Webcast

A teleconference and webcast will be held tomorrow morning, March 10, 2017, at 10:30 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 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: 1182

Webcast & Information 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 new IR website, https://investors.puretechltd.com/, under the "Events" heading
• 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 forecasted growth rates, the stabilization and growth of the Wachs Water Services business, 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.

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

Related Links

http://www.puretechltd.com