PURE TECHNOLOGIES LTD. ANNOUNCES RESULTS FOR THIRD QUARTER ENDED SEPTEMBER
30, 2010
CALGARY, Nov. 15 /CNW/ - Pure Technologies Ltd., ("Pure") (TSX-V: PUR) is pleased to announce strong financial results for the third quarter and nine months ended September 30, 2010. Total revenue for the quarter was $13.3 million and EBITDA was $1.77 million, compared to $3.9 million and ($1.2 million) for the third quarter of 2009. Net income was $961,000 for the quarter. Year-to-date revenue was $31.8 million and EBITDA was $3.65 million.
"This was a landmark quarter in Pure's history as we closed our acquisition of the Pressure Pipe Inspection Company ("PPIC") and started integrating the businesses," said Peter Paulson, Chief Executive Officer. "The transaction has established Pure Technologies as the world leader in water and wastewater pipeline condition assessment. Our solid financial results for the quarter demonstrate the growth opportunities generated by this acquisition and the continuing impact of our investment in global business development activities."
In addition to the acquisition of PPIC, highlights of the quarter included the completion of a scheduled equipment shipment for the Great Man-Made River Project in Libya, and the award of a $7.5 million change order to our existing contract with the Washington Suburban Sanitary Commission (WSSC). We continue to expand our international business. Our business in Southeast Asia is growing as a result of contracts in the Philippines and Hong Kong, and we were awarded significant contracts in Ecuador and Mexico. With the recent acquisition of Aqua Environmental Pty. (Aqua), we have also established a presence in the Australian market.
Based on current business activity, we are anticipating a strong fourth quarter. Confirmed backlog is approximately $49 million, compared to $7 million for the corresponding period in 2009. This excludes annualized licenses, monitoring and technical support revenue under contract, which is in excess of $ 5.2 million.
Financial Highlights
Overall, revenue has increased by 243% in the third quarter compared to the same period in 2009. Year-to-date revenue has increased by 69%. EBITDA has increased 245% for the third quarter and approximately 155% for the year. PPIC contributed approximately $156,000 to EBITDA during the quarter. The third quarter has typically been the lowest revenue-generating quarter; however with increased inspection services resulting from the PPIC acquisition, coupled with equipment sales growth associated with the Great Man-Made River Authority (GMRA), Pure realized a substantial increase in revenue versus last year. The US and Middle East continue to generate the majority of revenue, with a significant increase in Mexico following the PPIC acquisition. Pure recently announced in a press release that the first AFO contract in Mexico was signed and is expected to be completed this year. This contract builds on previous electromagnetic inspection work performed by PPIC.
Equipment sales for the quarter and year-to-date were $5,697,018 and $16,906,974 respectively, an increase of 738% for the quarter and 82% year-to-date. As mentioned above, the scheduled shipment to Libya was completed in the third quarter, which greatly contributed to this. As a result of the PPIC acquisition, inspection service revenue was $4,919,870 for the quarter and $6,590,140 year-to-date, an increase of 528% and 167% respectively.
Revenue from consulting services increased moderately by 14% both over the three and nine month period while revenue from monitoring and technical support also increased by 8% and 25% respectively. Revenue from consulting services and monitoring and technical support continue to grow as new contracts are added through our various subsidiaries. We continue to broaden our revenues with additional SmartBall licenses in the oil and gas sector as well as in Europe.
Gross margins for the quarter were 62% compared to 67% in the third quarter of 2009 and 62% versus 68% year-to-date. Equipment sales have historically produced lower margins than inspection services revenue. EBITDA margin is down somewhat compared to the second quarter due to the impact of one-time integration costs and unrealized G&A savings. We expect to reverse this trend in the future as savings in G&A expenses are realized and operational efficiency is improved.
Marketing expenses for the quarter have increased by 57% over the third quarter of 2009. The majority of this increase is due to the marketing expenses incurred by PPIC. Year- to-date marketing expenses have increased by 32%, attributable to an increased presence in the international arena. Engineering and operations expenses have increased by 94% over the third quarter of 2009 and 56% year-to-date.
Nearly half of the additional costs incurred over the quarter were due to the acquisition of PPIC as operations expenses associated with their service-oriented business are higher than Pure's historic figures. Additional contracts on a global scale have necessitated expanding our workforce and adhering to proper training as new staff are trained for three to six months before being qualified for field work. Inspection, monitoring and consulting services are heavily dependent on labor and as these areas increase in revenue, operational expenses are likewise affected.
General and administrative expenses for the quarter have increased 67%. The PPIC portion of G&A costs substantially added to the overall combined total. Year- to-date expenses have increased by 29%. As a percentage of revenue, these expenses have decreased from 24% to 19% year-to-date. Research and development expenses for the quarter increased by 53%, the majority of which is attributed to PPIC's R&D initiatives. Year-to-date R&D expenses have increased by 73%. Depreciation and amortization for 2010 increased by 135% compared to the third quarter of 2009 and 72% year-to-date. The majority of the quarterly increase is due to the addition of PPIC's fixed assets and amortization of the purchase price allocation.
While all operating expenses have increased, the majority of this increase is attributable to the PPIC acquisition. Removing the acquisition, the operating expenses are consistent with the second quarter of 2010. For the fourth quarter we expect savings in combined SG&A expenses and we have targeted approximately $4 million in annualized savings in combined Pure/PPIC SG&A expense, although there will be some one-time costs associated with this. We are working through capital and operating efficiencies that we expect to result in synergies for operating and capital expenditures. These are necessary steps from an integration perspective and will be continually evaluated as the Company progresses its business. Our vision is to direct capital investment towards endeavors with the strongest cash flow potential, and highest anticipated return on capital. Our continued focus on integration will include an ongoing review of staffing and expense levels to ensure that efficiencies are achieved throughout our business over the next year.
| 2010 Q3 Financial Highlights | ||||||||||
| (unaudited) | ||||||||||
| Consolidated Statement of Operations | Three months | Nine months | ||||||||
| ended | ended | |||||||||
| September | September | September | September | |||||||
| 30, 2010 | 30, 2009 | 30, 2010 | 30, 2009 | |||||||
| Revenue | ||||||||||
| Equipment sales | 5,697,000 | 680,000 | 16,907,000 | 9,279,000 | ||||||
| Inspection services | 4,920,000 | 783,000 | 6,590,000 | 2,472,000 | ||||||
| Consulting services | 1,512,000 | 1,323,000 | 4,848,000 | 4,257,000 | ||||||
| Monitoring and technical support | 1,179,000 | 1,093,000 | 3,486,000 | 2,799,000 | ||||||
| Total Revenue | 13,308,000 | 3,879,000 | 31,831,000 | 18,807,000 | ||||||
| Cost of sales | 5,062,000 | 1,268,000 | 12,181,000 | 5,945,000 | ||||||
| Marketing | 1,545,000 | 983,000 | 4,042,000 | 3,066,000 | ||||||
| Engineering and operations | 1,784,000 | 922,000 | 4,287,000 | 2,751,000 | ||||||
| General and administration | 2,457,000 | 1,471,000 | 5,890,000 | 4,582,000 | ||||||
| Research and development | 691,000 | 451,000 | 1,787,000 | 1,033,000 | ||||||
| Depreciation and amortization | 834,000 | 356,000 | 1,741,000 | 1,006,000 | ||||||
| Foreign exchange (gain) loss | (66,000) | 704,000 | (72,000) | 1,298,000 | ||||||
| Interest income | (36,000) | (22,000) | (77,000) | (78,000) | ||||||
| Net income (loss) before income taxes | 1,037,000 | (2,254,000) | 2,052,000 | (796,000) | ||||||
| Income taxes | 76,000 | 36,000 | 154,000 | 63,000 | ||||||
| Net income (loss) | 961,000 | (2,290,000) | 1,898,000 | (859,000) | ||||||
| Net income (loss) per share | ||||||||||
| - basic | $ | 0.02 | $ | (0.07) | $ | 0.05 | $ | (0.03) | ||
| - diluted | $ | 0.02 | $ | (0.07) | $ | 0.05 | $ | (0.03) | ||
| Weighted average number of shares outstanding | ||||||||||
| - basic | 42,567,427 | 33,426,164 | 39,832,928 | 33,186,695 | ||||||
| - diluted | 43,500,276 | 34,124,113 | 40,756,913 | 33,844,103 | ||||||
| Consolidated Balance Sheet |
|||||||||||
| (unaudited) | September 30 | December 31 | |||||||||
| 2010 | 2009 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | 20,885,000 | 15,565,000 | |||||||||
| Accounts receivable | 32,290,000 | 17,297,000 | |||||||||
| Inventory (note 5) | 4,098,000 | 1,475,000 | |||||||||
| Prepaid expenses | 798,000 | 819,000 | |||||||||
| Net investment in lease | 55,000 | 75,000 | |||||||||
| 58,126,000 | 35,231,000 | ||||||||||
| Property and equipment | 5,093,000 | 2,859,000 | |||||||||
| Goodwill | 22,250,000 | 1,988,000 | |||||||||
| Intangible assets | 11,031,000 | 1,977,000 | |||||||||
| Net investment in lease | - | 37,000 | |||||||||
| 96,500,000 | 42,092,000 | ||||||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | 10,543,000 | 4,812,000 | |||||||||
| Deposits on sales contracts | 467,000 | 125,000 | |||||||||
| 11,010,000 | 4,937,000 | ||||||||||
| Future income taxes | 1,149,000 | 239,000 | |||||||||
| Shareholders' equity: (note 6) | |||||||||||
| Share capital | 89,494,000 | 45,576,000 | |||||||||
| Contributed surplus | 2,289,000 | 1,591,000 | |||||||||
| Share Purchase Warrants | 993,000 | - | |||||||||
| Accumulated other comprehensive loss | (274,000) | (192,000) | |||||||||
| Deficit | (8,161,000) | (10,059,000) | |||||||||
| 84,341,000 | 36,916,000 | ||||||||||
| 96,500,000 | 42,092,000 |
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 (SoundPrint®, SoundPrint® AFO);
- Recurring revenue from data analysis and site maintenance for these technologies, and from technology licensing;
- Premium technical services including inspection, leak detection and condition assessment (P-Wave®, SmartBall®, Sahara®, PipeDiver™, PureRobotics™);
- Specialized engineering services in areas related to asset management, primarily in the area of pipeline condition assessment for water and wastewater infrastructure (Openaka Corp., Price Brothers UK Ltd, and Jason Consultants).
Forward-Looking Statements
This release contains forward-looking statements. Forward-looking statements, without limitation, may contain the words "believes", "expects", "anticipates", "estimates", "intends", "plans", or similar expressions. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions and the Company's actual results could differ materially from those anticipated. Forward-looking statements are based on the opinions and estimates of Management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. In the context of any forward-looking information please refer to risk factors detailed in, as well as other information contained in, the Company's filings with Securities Regulators (www.sedar.com).
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For further information:
To find out more about Pure Technologies Ltd. (TSX-V: PUR), visit our website at www.puretechnologiesltd.com. Or contact James E. Paulson, Chairman or Karen Keebler, Chief Financial Officer at (403) 266-6794 or e-mail to [email protected].
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