Revenue and income, prior to the inclusion of other income and deduction of taxes, were the highest ever for the first quarter for the company, demonstrating a growing market for its technologies and services.
There was continuing strong activity in the fibre-optic monitoring business during the quarter, with systems delivered to San Diego County Water Authority, San Francisco Public Utilities Department and the Great Man-Made River (GMRA) Project. The San Francisco installation is the first for this agency. The company’s consulting services business increased by 319% over last year, primarily as a consequence of the contribution of Price Brothers (U.K.) Ltd. (PBUK), acquired in May 2008. Recurring revenue continues to increase, up 85% over last year as a result of an increase in the installed base of monitoring systems. SmartBall activity should increase significantly as the year progresses and as the company completes large contracts in Australia and New Orleans, complemented by other projects. Work on the Washington Suburban Sanitary Commission contract commenced during the quarter and it is expected that revenue from this project will be recognized throughout the year.
Working capital and cash positions remain strong and the company remains debt-free. Based on the current visibility, the company anticipates that it will be able to maintain a high rate of growth for the year, subject to some quarterly volatility. This will be driven by sustained demand in the US, increased activity in the services sector, and contributions from new international markets. The company is planning to expand the range of premium inspection and assessment services it offers to water and wastewater agencies in the near future. These sectors offer significant sustainable growth opportunities due to the increasing emphasis on buried infrastructure renewal and loss reduction in water distribution systems worldwide.
Current confirmed backlog is in excess of CAD14.5 million. Pure has also received verbal confirmation of projects in excess of CAD3.4 million which are subject to the normal contract review process and final documentation. In addition, annualized monitoring and technical support revenue under contract is in excess of CAD4 million.
Financial Highlights:
Equipment sales have shown an increase of 18%. Of note is the fact that 2009 equipment revenue was generated from several sources, reflecting the increasing diversity of the company’s revenue base, whereas 2008 first quarter revenue was generated primarily from the completion of phases 1 and 2 of the GMRA project.
Revenue from monitoring and technical support increased by 85% in the quarter. With an increasing installed base of AFO systems, this revenue source continues to improve each year. As well, the first quarter of 2009 includes recognition of technical support for the GMRA contract that was awarded in late 2007 whereas the first quarter of 2008 included only a smaller technical support revenue component from previous GMRA contracts.
Gross margins were 70% compared to 67% in 2008. Above average margins were realized for specialized equipment sales. Other product lines maintained their target margins.
Marketing and promotion expenses for the quarter have increased by 53% over 2008. Additional staff were added for the North American market in the latter part of 2008 and early 2009 to service continuing growth in this market. Increased presence in the international market is a major focus for the company in 2009. Initiatives include the establishment of a branch office in Abu Dhabi and continuing SmartBall demonstrations in various countries for water, wastewater and hydrocarbon applications.
Engineering and operations expenses have increased by 95% over 2008. As revenue grows, the operations group will increase in order to support the growth. In late 2007 and further in 2008, the operations group was expanded to the offices located in the US Historically, all projects were supported through the company’s resources in Canada, but given the growth in the US market, this was no longer sustainable. In addition, the international market has grown and further specialized resources are required to support that market.
General and administrative expenses for the quarter have increased 95%. PBUK expenses account for 52% of the increase as the acquisition was completed in the second quarter of 2008 with no corresponding amounts reflected in the 2008 first quarter results. The remaining 48% is a factor of the additional resources added in 2008 subsequent to the first quarter and the streamlining of some expenses on a monthly basis rather than as a year end accrual.
Research and development expenses for the quarter decreased by CAD108,288 from 2008. There was no capitalization of development costs in the quarter. In 2008, the company was awarded a research grant through Arizona State University, payments from which are netted against expenses. In 2008, the payments were all deducted from the amounts capitalized, but since no costs were capitalized in 2009, these payments were deducted from the research and development expenses.
Depreciation and amortization for 2009 increased by 24% compared to the first quarter of 2008. The rise in depreciation and amortization expense reflects capitalization of development costs in 2008 as well as the amortization of intangible assets on the acquisition of PBUK.
