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:

• Revenue of $115.1 million, up 10%, which includes:
  • $4.2 millionof first quarter revenue from Wachs Water Services ('WWS'), acquired April 2015;
  • $6.4 millionof 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 millionfrom $11.4 millionin 2015 as a result of the aforementioned reasons
• Profit increased to $1.3 millionfrom a $0.1 millionloss in 2015
• At year-end, Pure had no debt, $5.4 millionof cash, $34.3 millionof working capital and a $10 millionundrawn 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'sIR website.

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 millioncompared to $0.7 millionlast 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 millionin the fourth quarter as a result of increased activity in Europeand recognition of monitoring revenue in Mexico; Adjusted EBITDA grew 108% to $1.4 milliondue to favourable revenue mix along with lower overall costs
  • For 2016, revenue declined 17% to $11.6 milliondue to lower activity in Australiaand the Middle East, and the inclusion of a $1.0 millionequipment sale to the Company's joint venture in Chinain the first quarter of 2015; Adjusted EBITDA grew 203% to $2.9 milliondue 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 millionto $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 millionto $0.7 milliondue to higher operating costs related to current quarter sales mix and a $0.3 millionmarketing 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 millionand 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 millionin aggregate was awarded by agencies in California, Arizonaand 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 Europewhere 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 Asiaand South American regions and potential partnership arrangements are being assessed in key markets. Contract renewals are expected to occur for projects in the Middle Eastand 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 XLIand SmartBall 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 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).

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 forpipelines, bridges and structures;
• Recurring revenue from data analysis, site maintenance, and from technology licensing;
• Premium technical services includingpipeline inspection,leak detection andcondition assessment;
• Specialized engineering services in areas related toasset 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.