Good afternoon, and welcome to the Kontrol Technologies Third Quarter 2023 Earnings Conference Call. I'm joined by the CEO of Kontrol Technologies, Paul Ghezzi, and CFO, Claudio Del Vasto. Before we begin, please be reminded that certain statements and information included in the management discussion and analysis , financial statements, and presentations, including information related to future financial or operating performance and other statements that express the expectations of management or estimates of future performance, constitute forward-looking statements. For more information on the company's forward-looking statements and risk factors, please reference the management discussion and analysis and our financial statements. For all public information filings, please visit www.sedar.com. Thank you. I would now like to turn the conference over to Mr. Paul Ghezzi, CEO of Kontrol Technologies. Mr. Ghezzi, you may begin.
Hello, everyone, and welcome to the Kontrol Technologies Q3 2023 Earnings Conference Call. I'm joined on the call today by our CFO, Claudio Del Vasto. We are pleased with our progress and continued execution on our key strategic objectives for 2023. Ongoing cost reductions, combined with organic growth, have brought us to positive net income from continued operations ahead of schedule. We continue to make good progress in deleveraging and rightsizing the balance sheet. The company has entered new growth markets in our emission analyzer business, and we will continue to scale in these markets as we head into 2024. I'll have more to say on operations and business developments following our CFO's comments on the Q3 results. Claudio, over to you.
Thanks, Paul. The third quarter performance demonstrates the company's focus on executing its strategic objectives and driving to profitability. On a continuing operations basis, revenue, gross profit, earnings, and positive cash flow from operations increased for the nine months ended September 30, 2023, compared to the same period in the prior year. Further, we have reduced debt levels in 2023 as the company continues to deleverage the business. The consolidated income statement is presented in a manner that captures activities from continuing operations and discontinued operations. We're pleased with the company's cash flow generation and profitability. Cash flows from operating activities were CAD 2.2 million year to date, and net income was positive in the third quarter and year to date.
Revenues from continuing operations for the three months ended September 30, 2023, were CAD 4.5 million, up 32% over the same quarter in the prior year. Revenues from continuing operations for the nine months ended September 30, 2023, were CAD 13.7 million, up 28% over the same period in the prior year. Gross margin from continuing operations for the nine months was 64%, compared to 55% for the same period in the prior year. Adjusted EBITDA from continuing operations for the nine months was CAD 2.8 million, compared to CAD 1.5 million for the same period in the prior year.
Net income, including gain on disposal of discontinued operations for the nine months ended September 30, 2023, was CAD 22.1 million, compared to a net loss of CAD 2.4 million for the same period in the prior year. Net income from continuing operations for the three months and nine months ended September 30, 2023, was CAD 665 thousand and CAD 295 thousand, respectively. During the nine months, the company paid down CAD 4 million of principal toward the revolver and term loan. Debt reduction is a key priority, and efforts to decrease leverage were impactful to the company's financial position. During the nine months ended September 30, 2023, the operations of the company's former wholly owned subsidiary, Global HVAC & Automation, were discontinued. The vendor take-back liability of CAD 3.5 million has remained on Kontrol's balance sheet.
The VTB is enforceable against Global, and of course, Global is bankrupt. Kontrol itself has not provided any security to the holder of the VTB, and as such, Kontrol is currently reviewing with its auditor and its legal advisors whether it is still appropriate to retain the liability on Kontrol's balance sheet. I will now turn the call over to Paul to discuss further company updates.
Thank you, Claudio. As discussed on our last call, our primary strategic objectives are to be a self-sustaining company, operating with high gross margin, repeat and recurring revenues, and delivering positive net income. On a comparative basis, removing discontinued operations, we've demonstrated solid organic growth and improvement across our key financial metrics. Ongoing cost reductions, combined with continued organic growth, have brought us to positive net income ahead of schedule, and we continue to make good progress as we rightsize the balance sheet. I'm now going to be discussing some key business updates. Consolidation and rebranding to Kontrol Building Solutions. The company's operations in the commercial building sector will be consolidated and rebranded into Kontrol Building Solutions as of January 2024. As part of the consolidation, a unified platform delivering HVAC, air quality, and real-time energy monitoring will be established.
Under the rebranding, the company will continue to execute on its successful cost rationalizations, as well as integrate all the company's building solutions and technologies under one brand. This will also provide a platform for future acquisitions at the right time, both in Canada and the U.S., as we seek to expand our regional and national footprint and customer base. On the emissions business, the company will seek to expand its regulated emissions business and will continue to operate under the well-recognized brand of CEM Specialties. The company's emission platform has been expanding its offerings to include the regulated Ethylene Oxide market. Ethylene Oxide is widely used across various industries for the production of solvents, detergents, adhesives, antifreezes, textiles, and pharmaceuticals. Ethylene Oxide is also present in sterility for cosmetics, fumigants in hospitals for sterility of surgical equipment.
We are optimistic about the growth of this new market as these new regulations take hold across the U.S. We have entered into a letter of intent to sell one of our operating subsidiaries. All of Kontrol's operating subsidiaries are operating profitably. Through a combination of organic growth and operating on a lean cost structure, we have delivered solid financial performance across each operating subsidiary. However, as part of our strategic review and growth plans, we will be laser-focused on those operating subsidiaries with higher equipment and software sales. In this regard, the company has entered into a letter of intent to sell its wholly owned operating subsidiary, ORTECH Consulting, for approximately CAD 6.6 million. The acquirer is a large USA integrator of environmental consulting companies.
The transaction is anticipated to close prior to December 31st and is subject to customary approvals and documentation, which includes the completion of an asset purchase agreement. Proceeds from the proposed sale will have an immediate impact in further accelerating the right sizing of the company's balance sheet. Following the completion of the proposed sale, the company will provide more information on its growth plans as it relates to scaling its operating subsidiaries with higher equipment and software revenues. While the past year has been very challenging, we've taken all the right steps, and the team has worked diligently to get back to profitability. We are comfortable that we will continue to pay down the debt, continue to deleverage, and operate profitably.
I'll point out that the long-term debt or, sorry, that the term debt is classified as a current obligation on the balance sheet, and this has concerned many investors. This is the accounting treatment required on the balance sheet under a Forbearance Agreement. Our view as management is that we've been able to manage this debt to date and will continue to do so. From a normalization perspective, a debt to Adjusted EBITDA ratio in the 3x range is a reasonable target. While we have more work to do, we are certainly on the right path. This market continues to be one of the most difficult environments for microcap and small-cap public companies. Microcap and small-cap stocks primarily trade off sentiment and liquidity. The sentiment has been more than negative, and the market liquidity has mirrored that sentiment.
On that front, we'll continue to demonstrate in our financial performance that we are executing, and further, as the largest shareholders in the business, our equity position is a significant incentive to continue to grow, de-risk the balance sheet, and continue to scale the business profitably. I'll now turn it over to the operator for the Q&A portion of the meeting.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. If you would like to withdraw from the question queue, please press star two. If you're using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question. The first question comes from Mike Mazarkis, private investor. Your line is already open.
Hey, Paul, can you hear me?
I can hear you.
Hey, just congrats on a great quarter, by the way. Just a question, great to see the positive EBITDA, especially the positive net income. Any other color or commentary you can add on the balance sheet and, future growth prospects?
For sure. So I think, we have to admit that the balance sheet has been a challenge for the past year. As we've, you know, said on the previous two calls, we are grinding down on that debt, and there's really two sides to that. You know, can we build our cash? Can we build our EBITDA, get to net income, which I think we demonstrated, you know, with a solid Q3 net income of around CAD 665,000. And then how does that relate to the size of the debt? And I think we're getting into that spot where, you know, the EBITDA and the net income start to line up with the debt levels. And of course, we wanna reduce that debt. We've got the letter of intent to sell one of our subs.
That's a strategic decision, but that also helps us improve the balance sheet. So I think if you look at where we started the year and the concerns investors had, which I think, you know, some of those were warranted, maybe overdone, but warranted, and you look at where we are today, I think you can see the path of growing profitability, a balance sheet that's, you know, getting better, high gross margins, and I think we're well on our way to the next stage of our growth. So appreciate the question, and you know, from our perspective, we remain the largest shareholder, so we want this improved faster than anyone else, I think. So we're definitely aligned with our shareholders.
Anybody else you can comment on where you're seeing the most growth, or you two adding on into that?
Yeah. So the highest organic growth is coming from our analyzer group, being driven by new U.S. customers, being driven by Ethylene Oxide, as well as integrating emission systems. And what we really like about that business and why we're excited to really laser-focus scale there is it's a regulated industry. You know, customers have to buy a certain level of equipment in their facilities. It's monitored at the state and federal level, and we think we can grow into that market. That's primarily a U.S. market, and we've certainly enjoyed U.S. customer growth, and we anticipate doing more business in the U.S. in the coming quarters.
Well, definitely, I'll pass on some notes. Thanks a lot. Thank you.
Ladies and gentlemen, as a reminder, if you have a question, please press star one.
I did receive an email question, which I'll address. I'm not gonna talk about the metrics of the ORTECH subsidiary because we don't report each subsidiary. We report consolidated revenues. I can say that we've had a gain on that proposed sale, which we're pleased with. And I can say that we are focused strategically on growing our equipment, hardware, and software business. I can provide more comments at year-end, but for now, that's what we're gonna say on that letter of intent. Thank you.
There are no further questions at this time. I would hand over the call to Mr. Ghezzi for closing comments. Please proceed.
All right, thank you. So, in conclusion, we wanna thank you for joining the call. We appreciate you spending time with us. We look forward to continuing to work toward operational excellence and driving value for our shareholders as we enter the next stage of our growth. Anyone that has questions can reach us at info@kontrolcorp.com. I'll now turn it back to the operator.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.