BluMetric Environmental Inc. (BLM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the BluMetric Environmental Earnings for Q3 2022 Conference Call. [Operator Instructions] This call is being recorded on Monday, August 29, 2022. I would now like to turn the conference over to Graham Farrell. Please go ahead.

Thank you, operator. Good afternoon, and welcome, everyone, to BluMetric Environmental's quarterly earnings conference call. This call will cover BluMetric's financial and operating results for the fiscal third quarter ended June 30, 2022. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by BluMetric's Chief Executive Officer, Scott MacFabe, along with the company's Chief Financial Officer, Vivian Karaiskos. Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested any forward-looking statements due to a variety of factors, which are discussed in detail in our regulatory filings. I will now hand the call over to Scott MacFabe. Please go ahead, Scott.

Thank you, Graham. I'd like to welcome everybody to the inaugural quarterly conference call for BluMetric Environmental. And I'd like to take a moment to acknowledge the hard work of everyone at BluMetric during the last few months, especially coming out of the global pandemic. I'd also like to acknowledge our shareholders that have invested in our company. Hopefully, you're encouraged by the work we continue to achieve. During this call, I'll give an overview of our business and following where our CFO, Vivian Karaiskos, will give more in-depth overview of our financials. As we mentioned in our earnings release, we continue to see opportunities in most of our industrial verticals, and remain a key provider to the Canadian military. With BluMetric moving up 10 spots to a year ranking of 45 in the top 100 Canada's defense companies. Very proud of our work to the military partners. As a company, we remain driven by our clients' demands as we continue to creatively develop targeted solutions to complex environmental challenges. During the quarter, we did see also an increase in IT costs to support the growth and efficiency of our business, all necessary to operate a resilient business. The quarter we -- this quarter, we concluded several large projects that were related to COVID services. We expect the last remaining of those projects to be wrapped up by the end of this calendar year. That agile pivot into these projects identified additional opportunities for new areas of business with these new clients, and that -- we will continue to explore those opportunities going forward. Our mining business remains a focus for us during the coming quarters as we expand our client base in Northern Ontario and Northern Quebec. Mining industry as a whole is under considerable pressure to become more environmentally sustainable. And BluMetric is a trusted partner to help companies in this industry achieve their goals in a cost-effective manner. Turning our attention to government contracts. We experienced several small call-ups and under existing standing orders, which were a contributing factor to this quarter's numbers, our relationships with both provincial, territorial and federal governments are strong, and our pipeline in this business remains solid. On the cost side of the ledger, the company had made a strategic decision to invest both in its sales force and also in the IT systems. These initiatives are going to allow our sales process to become more efficient which should lead to growth in new business. In addition to the necessary costs, the company has begun fabrication of its mobile wastewater treatment plant. This system becomes an integral part of BluMetric future treatment solutions, and in my opinion, forms an exciting BluSky aspect to the company's prospects moving forward. In addition, we're in the process of developing our mobile potable water drinking system as well, so again, expanding our mobile agile systems. On the capital market side of our business, we've taken a few initiatives to enhance the public listing of the securities of the company. Over the summer, we've hired a strategic investor relations firm to improve our investor communications and outreach. Now the company is on a path to sustainable growth, we feel it's time to start engaging with new investors and capital markets participants to tell BluMetric story to a wider audience. I'll now hand this over to Vivian for an overview of the financials. Please go ahead, Vivian.

Thank you, Scott. We're pleased to present to you today BluMetric's quarterly performance for fiscal Q3 2022. The company's fiscal year-end is September 30, 2022. BluMetric had quarterly revenues of $8,353,226 with gross profit representing $1,958,341 for gross margin of approximately 23%. The company's EBITDA was $572,652 with net earnings of $317,862 or $0.01 per share. Year-over-year, we experienced a slight drop in overall revenue due mainly to higher margin, COVID-related projects coming to end. Overall, the company's results were in line with the company's internal expectations. On June 30, 2022, the company had a cash and cash equivalents balance of $5,960,177 and an increase of $1,232,757 or an approximate 26% increase from the previous quarter end. The company remains well-financed to achieve its objectives and maintains a very clean capital structure with minimal debt. On April 20, 2021, the company entered into a letter of agreement with its bank for a new $2 million term loan. The term loan has a closed 4-year term and carries an interest rate of 3.28% per annum with monthly blended payments of $44,517 that commenced May 31, 2021. It matures April 30, 2025, is carried at amortized cost and is subject to the same covenants of the company's short-term credit facility. As at June 30, 2022, BluMetric had access to approximately $8,650,000 between its operating line and cash balances and remain compliant with all its covenants. With respect to cash flow, cash produced from operating activities was approximately $2 million in the 9 months ended June 30, 2022, compared with cash produced from operating activities of $2.3 million in the same period in 2021. The decrease was a result of lower revenue and gross profit and higher operating expenses, as well as an increase of approximately $1 million in working capital. Investment activities consumed $74,786 of cash in the first 9 months of 2022 compared to cash consumed by investing activities of $132,391 in the same period for 2021. For the 9 months ended June 30, 2022, cash used in financing activities was $692,227 compared to cash used by financing activities of $859,421 in the same period of 2021. In Q3 2021, the company made principal payments of $500,000 on its existing term debt before refinancing the remaining $2 million to its bank on April 20, 2021. In Q1 2022, $130,000 of that debt that had been previously postponed in favor of the bank was released and paid off. In addition, stock options exercised provided cash of $126,060 during the 9 months ended June 30, 2022, compared to $44,200 for the similar period last year. We will report fiscal Q4 and year-end 2022 results in January 2023. I would like to thank you for taking the time to allow us to present our results to you today. We will now take questions from call participants.

[Operator Instructions] First question on the line comes from John Louis, an investor.

Congrats on another solid quarter of revenue and profit. I have 2 questions. The first one is, can you share with us how big your sales pipeline is? Is there an order backlog? Also, some of the financial metrics, revenue, gross profit margin, EBITDA fell a little this quarter as operating expenses increased, which you covered off. Are there any upcoming catalysts to improve any of these metrics? Is the business seasonal? And I'm just curious to see how you feel for the remainder of the year.

Okay. Great question, John. Let me answer it this way. As we've spoken about historically and currently, our market mix with our 4 key markets gives us a fair amount of diversity, which gives us the kind of hopeful leveling we'll see even greater into the future. So right now the 4 markets when we see, say, 2 of the 4 are really going strong, and a couple either flat or in minor decline, we typically see the kind of results that we're seeing now. And that is not all our markets are taking off. We see solid and our commercial industrial business is steady. We see investment, but we've yet to realize the benefit of our investment in our mining sector, but we expect those things to happen. And on military, we continue -- those are the longer sales cycle, larger jobs. We have a pipeline of opportunities. What we're seeing is delays in review and execution of those contracts, but nothing has been canceled. So I think sort of part of our clients coming out of the pandemic into an endemic and then wondering what it looks like for a recession, there's extreme caution. But at the same time, we press on what -- how I would explain this last quarter, and even this year is, base at baseball, singles and doubles. We love it when we get grand slams and home runs, but the business is based on singles and doubles. We do have some good things in the pipeline that we hope to close on that would probably be a little -- it's premature for me to discuss those at this point. But to answer your question on the pipeline and the size of it, we are now in the process with our new CRM systems being able to quantify those things a little better. And from the standpoint of what we think the future looks like, again, I see it as a solid picture. I'm not at liberty to give dollars and cents out in terms of how we develop the pipeline, a factored number or anything like that yet, but we're moving in that direction. So hopefully, what you see as we continue to move forward, the company is on good, solid ground, come a long way in the last 4, 5 years, and we continue to build off of that. So we're pretty happy with where we're at, but we're never satisfied. So hopefully, that answers your question.

Yes, it does. The mobile wastewater treatment plant and also there's another -- I think there -- sounds like there's a couple of products, the second one. Are there ready-made products sales available? Do you have any idea what that marketplace would look like? And you're in a competition with the D&D. If you got that or won that, whoever wins that, are there orders in behind that? Or how should we look at that?