Good afternoon, ladies and gentlemen, and welcome to the BluMetric Environmental Incorporated Full- Year 2024 First Quarter Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star, zero for the operator. This call is being recorded on Thursday, February 29, 2024. I would now like to turn the conference call over to Brandon Chow, please go ahead.
Thank you, operator. Welcome everyone to BluMetric Environmental's Quarterly Earnings Conference Call. This call will cover BluMetric's financial and operating results for the 2024 first quarter ended December 31, 2023. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Scott MacFabe, BluMetric's CEO, and Dan Hilton, the company's CFO. Before we begin with our forward 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 in any forward-looking statements due to a variety of factors which are discussed in detail in our regulatory filings.
It may also be references to certain non-IFRS measures such as EBITDA, backlog, working capital, free cash flow, and net cash. These non-IFRS measures are not recognized measures under the International Financial Reporting Standards and do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. Please see our disclosures of further information and reconciliations of these non-IFRS measures. I will now hand it over to Scott MacFabe. Please go ahead, Scott.
Thank you, Brandon. Welcome, everybody to our First Quarter of the Fiscal Year 2024 Earnings Call for BluMetric Environmental. We appreciate all of you for taking the time to join us on today's conference call. As per usual, I'll start off by providing an overview of the first quarter, then Dan will go over our financial results in more detail. As a reminder, BluMetric is a full-service environmental consulting and clean tech firm, focusing on professional services and providing agile water and wastewater systems. Through a track record that spans over 45 years, BluMetric has evolved into a full-service integrator of environmental solutions in the fields of water and wastewater treatment, and professional environmental services. We aspire to be the environmental solutions and water clean tech company of choice globally. Now let's discuss first quarter in a little more detail.
We had a good start to the year, showcased by our continued profitability and gross margins reflecting more ideal contracts. We continue to maintain a long-term focus on profitability in addition to a robust balance sheet. This is always the fine balance as we're making strategic investments for growth, particularly in our clean tech water systems division. The next 12 months will be important for us as we execute on our record backlog, expand the geographic reach of our clean tech systems, and explore potential tuck-in acquisitions on the consultancy or technology side. Revenues for the quarter were down a bit over the same period prior year. However, we note that in Q1 2023, it was unusually high due to the completion of a large remediation project, which included substantially lower-margin third-party subcontracts as a pass-through.
Dan will elaborate a little bit more on those dynamics to better understand the progress we're making, as well as the lumpiness that you may see on a quarter-to-quarter basis in our business. As mentioned last quarter call, we're currently sitting on a record backlog, which potentially sets us up well for the modest revenue growth as we execute through it for fiscal year 2024 and beyond. Furthermore, gross margins were up quarter-over-quarter, representing a significant increase from 32% to 42%. As we alluded to last conference call, we've undertaken a deep dive to evaluate our gross margins. This has identified a market consensus among our peers, such as WSP, Stantec, and BioRem to only report direct costs in the cost of goods sold. As a result, we are now retroactively reporting t he same way as our peers to be consistent.
Again, Dan will explain more of this on the call later. The company saw higher operating expenses, which were majorly, excuse me, the result of increases in IT consulting, compensation costs, and travel expenses as we sell more work. Thankfully, we continue to utilize our strong balance sheet to support these growth initiatives, which is important in the current market we're in. Some of these growth initiatives include our continued expansion of key sales personnel, which we saw the start in fiscal 2023 for our overall business. In response to increased demand by our clients, we've currently opened a satellite office in Halifax. This office will be important to support our business development efforts, and provide improved service and support to our clients in that region. Initiatives like these show our ongoing investment into our clean tech water systems division, as we aim to increase our geographic reach.
Furthermore, to expand our service and support capabilities, we've reorganized to support a dedicated operation and maintenance division within our clean tech business. This new division will expand our capability to service and support what we sell and our clients' existing systems. As we build our team of field service representatives, we can better serve a broader geography, including international assets. I'm also pleased with our recent win, which was announced after the quarter, which was a CAD 5.3 million extension on the service and support contract for Canada's Department of National Defence Reverse Osmosis Water Purification Units, or ROWPUs. This contract is expected to be delivered in calendar year 2024, and our ambition is to complete this assignment this fall in order to free up shop capacity for the Rheinmetall ASUWPS production.
In addition, a CAD 0.4 million proof- of- concept contract was recently awarded by a multinational defense contractor to optimize onboard potable water quality systems. This will be an interesting project, as we tackle new solutions for customers that rely on our expertise to deliver mission-ready water solutions, particularly on the service side. Contingent upon a successful outcome, we anticipate a broader application of this solution. These contracts highlight BluMetric's versatile clean tech service capabilities, which extend across both land and sea applications. They're an important part of our overall growth strategy to build a larger base of recurring and higher-margin revenues. In our key markets, government revenues remain consistent with the previous quarter last year. Our commercial-industrial segment had a decrease in revenues year-over-year, mainly explained by the previously mentioned large remediation project that relied on third-party subcontractors.
Our military market saw an increase in revenues, mainly due to an increase in services. As a reminder, our CAD 12.2 million contract with Rheinmetall Canada is expected to see delivery throughout fiscal year 2025. Lastly, our mining market saw a decrease in revenues, mainly due to our shift towards higher-value services and improving our client portfolio, particularly in areas such as Northern Quebec. We remain optimistic about our military market and clean tech systems, given the robust pipeline we're seeing through active proposals.
Recent service contract wins should reduce the overall variability in our top line, and we remain committed to the advancement of our unique water technologies and the market's growing need for resilient water solutions. Overall, our financial position, consisting of adequate working capital and minimal debt, offers the ability for us to continue capturing opportunities and delivering on our record order backlog. I'd now like to hand this over to Dan Hilton for a more detailed overview of the quarterly financials. Please go ahead, Dan.
Thank you, Scott. Today, I'll be presenting BluMetric's 2024 fiscal first quarter results in more detail. Revenue for the fiscal quarter was CAD 8.5 million, compared to CAD 10.5 million for the fiscal quarter ended December 31, 2023. As Scott mentioned, revenues were down mainly due to the completion of a large remediation project in the first quarter of fiscal 2023, which included significant low-margin subcontractors and had the effect of increasing our revenues, but lowering our margins in the prior year. I'd like to take a moment to provide some additional context on our revenues. While the gross revenues are down year-over-year, the net fee revenues generated have increased for the third year in a row, i t's a positive indicator that our core business continues to grow, when we remove volatility introduced from third-party subcontractors.
Our gross margin was 42% for the first quarter compared to 32% in the year prior. We have historically captured all of our professional employee labor costs, and associated benefits in the calculation of gross profit. We completed an analysis of publicly reporting entities in the environmental engineering services sector, and noted a consensus to report only direct project costs within gross profit. With the impending growth of clean tech revenues, we felt it was the appropriate time to reflect this change in our reporting methodology to align better with the market. This change in reporting has no impact to our net income, and only reflects a change in the allocation of expenses to various income statement components. This change is now reflected as a restatement, and its intent is to enhance transparency, conform to marketplace standards and ensure a clearer financial presentation. Hopefully, this is clearer for you now.
To give you some context, with the previous calculation method, our gross margin would have been 28% versus 22% in the same quarter in the prior year. I am pleased to see how our work is progressing to improve our gross margins, which we believe is possible with the continued cost controls, price increases, and risk management initiatives that we are rolling out. Operating expenses for the first quarter came in at CAD 3.1 million compared to CAD 2.6 million in the prior year. The increase is mainly due to increases in IT consulting services, compensation costs, and travel expenses. EBITDA for the first quarter was CAD 0.6 million compared to CAD 0.9 million in the prior year. The decrease in EBITDA is mainly due to the previously mentioned increases in operating expenses. Net earnings for the first quarter was CAD 241,000 compared to CAD 455,000 in the prior year.
On December 31, 2023, BluMetric had a net cash balance of CAD 0.8 million compared to a net cash balance of CAD 2.9 million on December 31, 2022. The decrease in net cash is mainly attributable to the timing of customer billing cycles, which are often based on milestone deliverables. The milestone billings are often tied to the fiscal periods of our clients, which typically fall in the December 31 and March 31 periods.
BluMetric remains well-financed to achieve its objectives, and maintains a clean capital structure with minimal debt and a very strong working capital position of CAD 11.2 million. As of December 31, 2023, the company had approximately CAD 4.1 million in immediate cash availability between its operating line and cash balances, and the company remains in compliance with all of its banking covenants. That concludes my update on the financials, and I'd like to thank everyone for taking the time to allow us to present our results to today. I now hand the time back over to Scott.
Thank you, Dan. That was a great update. We'll now take questions from all participants, and we'll pass it back over to the operator.
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. If you have a question, please press star followed by the number one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star, two. Please ensure you leave the handset if you're using a speakerphone before pressing any keys. Once again, it is star, one to ask a question. As a reminder, if you have any questions, please press star, one on your telephone keypad. Your first question comes from the line of Tom Fedichin from Micro Cap Connection. Your line is now open.
Good morning, guys. Thank you for taking my call. Would like to know what the outlook is for the balance of the year. I know you've got a record backlog, but if you were to try to guess how the revenues would be placed throughout the year, first of all, do you think you'll hit CAD 35 million or CAD 40 million in sales? I think you did CAD 35 million last year, so I'm just breaking that down as to say, if it's CAD 40 million, what that would look like on a quarterly basis moving forward.
Sure. Thank you for your question. I think we've been very consistent, almost painfully so, to hit around CAD 35 million on our top line, and the goal is to push that closer to CAD 40 million. I think what's going to be the differentiator there is increasing the pass-through, and revenue production in our clean tech side of the business. I think if we can do that, we can hit that higher number, and that is our desire. Without making promises, I mean, we're working very diligently with the clean tech business, with investment in new personnel. Actually, we've doubled the size of our footprint, and so the ambition is definitely to gear up to be able to have a stronger revenue contribution from clean tech to get closer to that CAD 40 million range where we think we should be or beyond.
Okay. T he revenue breakdown, would it be the back half of the year that you would see increased revenues with Q2? I think there's seasonality in your business. I believe you said on the last call that towards year-end, things do slow down a little bit. I forget how you worded it, but would you suggest that Q3, Q4 would be the strongest quarters moving forward?
I would say from where we sit right now, that would be a fair statement.
Okay. You had mentioned about an acquisition. I'm talking acquisitions as well. What sort of size are you talking about? What sort of costs would you presume this would cost?
I'm going to let Dan answer that. I think we work on a pipeline of opportunities, but in terms of the range that we're looking at currently, Dan, I'll pass it to you.
Sure. I think there's two different perhaps perspectives on this. One is on the professional services side of the business. In that range, to the extent that we see something strategic that we see being very additive to what we're offering to the markets today, based on the value of our balance sheet and our worth as a business, we're sort of looking at companies in the 25-30 headcount space, and we have a few of those that we're sort of in discussions with on a regular basis. Nothing beyond that at the moment on that side of the business, but those are more strategic and we're looking for interesting tuck-ins there that might help the business to grow. On the clean tech side, it's a little different.
On that front, we're looking more for technologies that would help us realize higher margins, and try to lock down certain aspects of both potable and wastewater businesses that we're deploying within the military, especially. We're seeing a lot of interest there. I think on that front, the dollar amounts of these things are probably sub-CAD 5 million acquisitions that we have our eye on at the moment, but not necessarily large headcount, but more strategic from a technology perspective, things that will help us garner a little bit more traction in that marketplace.
Wonderful. Now, you did speak in the press release about opportunities abroad and outside of Canada. Would these acquisitions be within Canada or outside their borders?
Well, I think we're keeping our eyes open and our minds clear as the opportunities present themselves. W e realize that our current hard footprint really is mostly in Canada, and we have made all the right, I think adjustments to really run a tight business to now look beyond our borders. W e don't limit it necessarily to a particular geography. I mean, we know we have a relationship with a large environmental consulting company in the U.S., where we can work pretty much anywhere we need to by association. B eyond that really, it's NATO countries that really see the value, especially in our clean tech. It travels well, and there is a demand.
Okay. You'd mentioned in the press release that there was I think a CAD 400,000 contract with a foreign multinational company. Can you guys kind of explain more about that opportunity, and what it presents and where you see that going?
Yeah. The reason we bring that up, is because it really speaks to our position or our cachet in the market. We're looked to as a water leader for water treatment with the Department of National Defence. T here's boat builders that look to us to help them troubleshoot specific issues that come up post-production, that they need improvement of water quality, things like that. T hat particular contract is a first commission to do a proof of concept of a bit of a system, that we can add to an existing build to improve water quality. If it proves that as we expect it will, then of course it's a broader application to a host of other assets and that could grow to CAD 3 million-CAD 4 million.
Wow, o kay. Wonderful. Well, thank you, guys. I appreciate your time.
Our pleasure. Thank you for the questions.
Once again, if you have any questions, please press star, one on your telephone keypad. There are no further questions at this time. I will now hand the call over to Scott MacFabe. Please continue.
Well, thank you, everybody for attending the call today. We really appreciate your interest. We hope we've answered all of your questions, and look forward to our next conversation as we drive the business forward and hopefully exceed your expectations. T hank you for your time, and we look forward to our next conversation.
Ladies and gentlemen, this concludes today's conference call.