Trojan Technologies, Inc. announced its operating and financial results for the quarter ended Nov. 30, 2001.
Revenue for the quarter totalled $18.6 million, compared to $18.4 million in the same quarter in fiscal 2000. Earnings before interest, taxes, amortization and equity income ("EBITDA") were $496,000 for the quarter compared to $271,000 in the quarter to November 2000. The improvement is primarily attributable to increased gross margins. After taxes, the company reported a net loss of $0.4 million or $0.02 per share compared with a net loss of $0.6 million or $0.03 per share in the prior year.
Revenue for the quarter increased by 1 percent. Revenue from Municipal wastewater systems declined, but was more than offset by increases in the Municipal drinking water, Environmental Contaminant and the Industrial and Commercial businesses. The increases in revenue in these segments reflects the Company's strategy to further penetrate each of these exciting market opportunities and, by focussed efforts, grow each of these businesses to critical mass. Results by segment are as follows:
- Municipal wastewater disinfection revenue was $12.8 million, compared to $16.0 million last year. Revenue from after market sales and service increased by over $1 million to $4.6 million, but was offset by lower production of systems for delivery in both Europe and North America. This reduction reflects the timing of delivery on current contracts and is anticipated to improve in the second quarter.
- Municipal drinking water disinfection revenue was $0.8 million compared to $0.1 million last year. The North American market for Municipal drinking water disinfection using ultraviolet light is beginning to emerge, and during the quarter systems were produced for North Bay, Ontario and North Battleford, Saskatchewan.
- Environmental Contaminant treatment revenue was $1.8 million. This is a new market segment for Trojan; accelerated market entry was achieved through the acquisition of Advanced Ultraviolet Solutions in March 2001.
- Industrial and commercial revenue, increased to $2.1 million from $1.1 million. North American revenues increased to $1.8 million from $0.3 million, reflecting the benefits of the acquisition of Pureflow Ultraviolet Inc. effective Sept. 1, 2001.
- Residential market revenue was $1.1 million compared to $1.2 million last year. Last year's revenue was particularly strong as the company was continuing to meet demand created following the outbreak of e-coli in Walkerton, Ontario, in May 2001.
At the annual meeting held in London, Ontario, the company announced a number of new contracts and distribution relationships. New municipal wastewater contracts, aggregating $12.2 million, have been awarded, including 7 contracts in Europe where the Company's competitive position is improving. The company was selected on a total of 8 new Municipal drinking water projects, aggregating $4.7 million, including large projects in Albany, New York and Seattle, Washington. The Seattle project is the largest drinking water UV project ever awarded, and provides a strong indication of the growing trend to adopt UV as part of a multi-barrier disinfection strategy among municipalities in North America.
In the industrial and commercial market and the residential market, the company has been focussed on extending its distribution reach. In conjunction with Pureflow, systems valued at approximately $1 million have been delivered to Suntory, a large bottled water provider. After a successful test market in selected stores in Ontario, Home Depot has agreed to expand the offering of UVMAX, the company's residential product, to other regions of Canada.
The first quarter showed continuing improvements in the company's gross margin. Despite operating at relatively low production levels, gross margin improved to 36.8 percent compared to 36.4 percent a year ago. The improvement reflects the company's ongoing cost reduction and margin improvement efforts.
Expenses were $6.3 million or 34.2 percent of revenue, compared to $6.4 million or 34.9 percent of revenue last year. Administrative and general expenses declined by just over $100,000, with research and development expenditures at approximately the same level.
For the quarter, the company generated positive cash flow from operations of $1.0 million, compared to $5.5 million in the same period last year. The positive cash flow in both years reflects improvements in working capital management in excess of the net loss in both periods. These improvements were achieved primarily by improved production planning and by negotiating progresspayments on large projects. Cash used in investment activities declined to $232,000 from $623,000, primarily as a result of reduced investment in capital additions.
On Dec. 17, 2001, the company announced the completion of the issue and sale of 2,110,000 units for gross proceeds of $15.8 million. Each unit consists of one common share and one-half of one warrant to purchase an additional common share within 18 months at an exercise price of $8.25. The net proceeds of the sale of the common shares were used to repay in full the borrowings drawn under the Company's operating credit facility. The issue of shares increased the capital of the Company to approximately 19.7 million shares, and if all warrants are exercised, approximately 20.8 million shares.
"The results for the first quarter are in line with the expectations we established back in October," said Allan Bulckaert, President and CEO since Oct. 1, 2001. "I am confident that we will be able to build on this past quarter and, with the higher levels of production anticipated for the balance of the year, we are on target to achieve our 2002 objectives for revenue growth and earnings.
Our first objective is to execute our plans to grow revenues this year in excess of 15 percent. I am encouraged by the sales activity and growth demonstrated in our first quarter market activity - particularly in the municipal drinking water and the industrial and commercial markets. I expect second quarter production revenues to exceed $22 million. Order backlog of $40 million for the delivery of municipal systems in the current year is unchanged from Aug. 31, 2001.
Second, we must ensure we continue to supply the right products by expanding our technology leadership and actively pursuing the acquisition of complementary technologies.
Our third objective is to translate revenue growth into profits by delivering after tax earnings this year in the range of 4 to 5 percent of revenue. With the anticipated growth in revenue and the gross margin improvement demonstrated during the quarter, we are well positioned to increase gross margins to exceed 40 percent for the year and to reduce selling, general and administrative expense ratios. Our recent equity issue will be positive for the company. In the short term, the impact on earnings will be less than $0.01 as the benefit of reduced interest expenses will be offset by the increased number of shares outstanding. By freeing up our credit lines, the company is in a much better position to finance growth, whether internally generated or from acquisitions."