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1 Message to Shareholders: Pure s long-term sustainable growth strategy remains focused on increasing our delivery of inspection and consulting services across multiple pipe types for our water, wastewater and oil and gas customers. By reducing our reliance on one-off and cyclical equipment sales limited to a specific market segment, we are continuing to establish a broader, more sustainable service suite and addressable market from which to drive our growth. While there is always more work to do, we are making good progress toward achieving our goals. On a trailing-twelve-month ( TTM ) basis, total revenue was $114.7 million, up 29%, and TTM Adjusted EBITDA was $16.4 million, up 23%, compared to the same period last year. We believe measuring Pure s financial performance on a yearly or TTM basis is more representative of our business cycle due to variables that sometimes create meaningful inter-quarter variability, including clientdriven scheduling and inclement weather, against a cost structure that is largely fixed. As is our typical pattern, we expect the second half of 2016 to be more active than the first half. For the second quarter, revenue of $29.2 million was comparable to last year s revenue of $29.4 million. PureHM our oil and gas business (23% of revenue) delivered another quarter of very strong year-over-year growth, with revenue up 27% to $6.7 million. In our water business, total revenue declined 7% to $22.5 million. Whereas this business inspection and consulting services revenue grew 5% to $20.2 million, equipment sales declined 90% to $0.3 million, as expected. Inspection and consulting activity in the Americas water business was consistent with the prior quarter. Higher activity in the U.S. North and West was offset by the deferral of work in the South to the second half of the year and by lower Wachs Water Services ( WWS ) revenue. Compared to the first quarter of 2016, however, second quarter WWS grew by 5% and the recent hiring of three senior business development staff is anticipated to generate improved growth for this division in future quarters. Outside the Americas, our international inspection and consulting services revenue grew 48% year-over-year to $3.3 million. Adjusted EBITDA of $4.6 million for the quarter was consistent with last year. We have delivered a meaningful reduction in our international cost structure, allowing for much improved margin contribution from this segment. We have also been able to absorb both the impact of a weakening Canadian dollar on foreign denominated costs as well as our increased investment in marketing and higher research and development expenditures. Within PureHM, as activity continues to increase, so must our trained worforce grow to meet this demand. Accordingly, we have placed a heavy emphasis on recruiting and development for this division. PureHM s operating margin remained relatively steady at 34%. Finally, we continue to make strong headway on our processes and systems. Our ERP and CRM systems went live in the quarter and we are beginning to see the benefits of better project control and visibility on opportunity pipelines. We continue to believe these new tools and certain other initiatives will move us towards our EBITDA margin target of 20% or better. We are pleased with our performance to date and are focused on delivering on a busy and productive rest of <signed> John F. Elliott, President & CEO August 8, w ww.puretechltd.com

2 August 8, 2016 Unless otherwise indicated, all financial information presented in this Management Discussion and Analysis ( MD&A ), including tabular amounts, is in thousands of Canadian dollars, and is prepared in accordance with International Financial Reporting Standards ( IFRS ). Reference in this MD&A to the Company or to Pure means, as the context may require, Pure Technologies Ltd. and all or some of its subsidiaries or joint arrangements. The MD&A is designed to provide the reader with a greater understanding of the Company s business, the Company s business strategy and performance, the Company s expectations of the future and how the Company manages risk and capital resources. It is intended to enhance the understanding of the unaudited condensed consolidated interim financial statements for the three and six-month periods ended June 30, 2016 and accompanying notes, and should therefore be read in conjunction with these documents and with the annual report and audited consolidated financial statements and related notes for the year ended December 31, Some indicators used by the Company to analyze and evaluate its results represent non-gaap financial measures. Consequently, they do not have a standard meaning as prescribed by GAAP, and are therefore unlikely to be comparable to similar measures presented by other issuers. Management believes that these indicators nevertheless provide useful information because they allow for the evaluation of the performance of the Company and its components based on various aspects, such as past, current and expected profitability and financial position. These non-gaap financial measures include the following Company indicators: EBITDA is defined as income from continuing operations before interest, income taxes and depreciation and amortization on property and equipment and intangible assets. Adjusted EBITDA and Adjusted Profit is defined as EBITDA and/or Profit before gains or losses on foreign exchange, costs directly attributable to acquisitions, stock-based compensation expense, restructuring costs, one-time training costs for the Company s ERP implementation, and other significant one-time expenses. Management believes that adjusted EBITDA and/or profit provides an indicator as to the ongoing ability of the Company to generate cashflow through removal from EBITDA of significant non-recurring items comprised of costs directly attributable to acquisitions as well as non-cash expenses comprised of stock based compensation expense. In addition, foreign currency gains (losses) are also excluded as they are not operational in nature but rather primarily arise from fluctuations in foreign exchange rates on the Company s foreign currency denominated monetary balances. Adjusted EBITDA percentage is defined as Adjusted EBITDA as a percentage of revenue. Net marketing, and net engineering and operations expenses are marketing, and engineering and operation expenses excluding depreciation and stock based compensation expense. Adjusted general and administrative expenses are general and administrative expenditures excluding stock based compensation, depreciation and non-recurring items such as transaction costs on 2 w ww.puretechltd.com

3 acquisitions and ERP training costs. These measures are provided to give readers an indication of the ongoing cash components of operating expenditures to better understand future cash needs of the business excluding the impact of new capital investment. Readers are cautioned that EBITDA and Adjusted EBITDA, Adjusted EBITDA percentage, Adjusted Profit, Net marketing and engineering and operations expenses, and Adjusted general and administrative expenses should not be construed as alternatives to profit as determined in accordance with IFRS. Gross profit is defined as revenue less cost of sales. Gross margin is revenue less cost of sales divided by revenue expressed as a percentage. Cost of sales includes direct materials, sub-trades and travel related expenditures, but excludes labour. Cash flow from operations before working capital changes is defined as the amount of cash generated from revenues excluding cash spent on capital investments, financing income or costs, and changes in current assets and current liabilities. Management believes that this measure, in conjunction with Adjusted EBITDA, provides further indication of the cash generation of the business through exclusion of the impacts of timing of collection and payment of working capital. PURE S BUSINESS Pure is a world leader in the development and application of innovative technologies for inspection, monitoring and management of aging physical infrastructure. From monitoring the health of large bridges and structures, to assessing the health of water, wastewater and oil & gas pipelines, the Company s technologies and expertise are being used around the world to help manage deterioration and reduce loss. Detailed information on each of the Company s technologies and services can be found at: Pure s main business streams consist of: 1. Sale of proprietary, real-time monitoring systems for pipelines, bridges and structures The Company has developed and acquired innovative, unique technologies which are used around the world to provide continuous remote health monitoring of critical infrastructure including bridges, buildings and water and wastewater pipelines. Pure designs, installs, commissions and maintains all equipment it sells prior to real-time monitoring which generates recurring revenue. The high-strength steel wire, or cables of bridges, and the tendon systems in buildings and structures are continuously monitored under related contracts. In the case of large-diameter pre-stressed concrete cylinder pipe (PCCP) water and wastewater pipelines, Pure s monitoring systems track the condition of each pipe section and can quickly alert clients to intervene when there are signs of rapid deterioration, which without intervention can lead to catastrophic and costly pipeline ruptures. Pure also provides pig tracking services for large diameter oil and gas pipelines and is actively working to adapt the related 3 w ww.puretechltd.com

4 technology to include real time and permanent monitoring of affected pipelines for environmental and condition changes. The PCCP market represents approximately 3% of the total North American water pipeline inventory (over 862,000 miles installed U.S. EPA, 2009). While sales of monitoring equipment to this market has and will continue to be an integral component of Pure s total revenue, sales will likely decline as an overall percentage moving forward as Pure s service offering expands. Technology brief: SoundPrint acoustic monitoring technology is a patented system used to provide continuous remote health monitoring of water and wastewater pipelines, bridges, buildings, parking structures and other infrastructure components. SoundPrint Acoustic Fibre-Optic (AFO) technology is a patented, acoustic fibre-optic monitoring system for structural monitoring of prestressed concrete water and wastewater pipelines. Armadillo Tracks Remote Tracking Units, a PureHM technology acquired in 2014, is an internet based pig tracking and pipeline monitoring system that integrates acoustic geophones, magnetic sensors and other technologies to monitor pipelines for pig passages and environmental changes which could be indicative of threats to pipeline integrity. 2. Technical services utilizing proprietary pipeline inspection, leak detection and condition assessment technologies and associated field services including proactive valve and hydrant maintenance programs Aging pipelines, increasing costs of failures and high replacement costs are significant challenges facing pipeline owners worldwide. Pure's leading edge technologies and services for pipeline system management for in-line and over-line indirect pipeline inspection and assessment address this ongoing need, providing valuable information to maximize the life of these assets, and are used to assess the current health of water and wastewater and oil and gas pipelines. Technology brief: PureEM electromagnetic technology is a system which provides a snapshot of the condition of large-diameter water and wastewater transmission pipelines. PureEM technology can be used to inspect PCCP (and all other types of concrete pipe) and metallic pipelines. SmartBall in-line inspection technology is a patented, innovative leak detection system. It consists of a free-swimming ball with an instrumented aluminum core capable of detecting and locating very small acoustic events in water, wastewater and oil and gas pipelines. It can also log pressure and temperature. The SmartBall system can be inserted in a pipeline and travels with the water or oil flow for many hours, collecting information over several kilometers of pipeline in a single deployment. SmartBall Pipe Wall Assessment (PWA) 4 w ww.puretechltd.com

5 technology identifies and locates pipe wall stress within metallic pipelines and has all the original features of the SmartBall technology. Sahara in-line inspection system is a patented, leak detection and high resolution video inspection system used for detecting and locating leaks, gas pockets, illegal taps and other anomalies in water and wastewater pipelines. Inspections are conducted while the pipeline remains in service by inserting tethered sensors into the line. Additional enhancements have been made to this inspection platform including the aforementioned PWA technology. PipeDiver in-line inspection system is an innovative, free-swimming condition assessment platform specifically designed for in-service inspection of water and wastewater pressure pipelines. In conjunction with PureEM sensor arrays, the system can be used to inspect PCCP (and all other types of concrete pipe) and metallic pipe. PureRobotics inspection system is a powerful modular robotic pipeline inspection platform capable of performing long-range multi-sensor inspections in dry pipe or while submerged. PureMFL is an electromechanical method of non-destructive testing used to detect, locate and quantify corrosion-induced wall loss in metallic pipe. This technique, commonly known as smart pigging has been actively used in the oil and gas sector for over 40 years. Pure has enhanced the technique to provide higher resolution and has adapted it for use in metallic water pipelines. Armadillo Tracks Remote Tracking Units, described previously, are used to track pipeline pigs and to benchmark inline inspections to allow correlation of anomalies inside the buried pipeline with above ground features on the right of way. Armadillo Tracks can be used to track the SmartBall technology, PureMFL, and can also be used to track and benchmark any inline inspection or smart pig used in the oil and gas or water industry. Spectrum XLI technology, a PureHM technology, is a patented, advanced and comprehensive above ground indirect auditable inspection system for buried pipelines, combining global positioning and geographic information system mapping, depth of cover, depth of water, gas leak detection, cathodic protection survey, coating condition assessment, and more. PipeWISE is an integrity data management software that is specifically designed to manage inspection data for pipelines, to facilitate correlation of inspection and repair data, and for the analysis of the pipelines fitness for service. Wachs Valve and Hydrant Services ( WWS ), acquired by Pure on April 1, 2015, provides proactive valve and hydrant maintenance programs among other complementary services, utilizing a fleet of vehicles with specialized equipment and a trained workforce. Locating and maintaining valves and hydrants is critical in minimizing the impact area around a water pipe failure. The combined Pure and WWS offering provides a unique risk mitigation strategy and allows water utilities to manage their network with increased confidence. 5 w ww.puretechltd.com

6 3. Specialized engineering services in areas related to asset management, primarily in the area of pipeline condition assessment for water and wastewater infrastructure Pure provides its clients with actionable information for the proactive management of their underground assets. Its innovative Assess and Address strategy, which uses advanced analytical modeling and risk analysis fed by data collected by Pure s inspection and monitoring technologies, is increasingly being adopted by water and wastewater utilities as a cost-effective alternative to conventional asset replacement strategies. As part of its services, Pure provides an integrated utility data solution known as PureNet. PureNet is a proprietary software solution that consolidates information from existing utility databases such as billing systems, hydraulic models, workload programs and maintenance management systems into one platform to improve efficiency. The solution is able to merge pipeline condition assessment and monitoring data into the platform to provide operators with valuable and comprehensive information on asset condition and to facilitate a risk based approach to inspection prioritization. 4. Recurring revenue Pure generates recurring revenue as a result of its monitoring installations, using the proprietary monitoring equipment listed above, including data analysis and site maintenance, and from technology licensing contracts. STRATEGY Pure s mission is to promote a sustainable future by providing owners and users of critical infrastructure with innovative, cost effective solutions that reduce the risk and consequence of failures, maximize value and, where applicable, discharge their regulatory obligations. Using complementary business streams, the Company provides its clients with a comprehensive understanding of the condition of their infrastructure assets, ultimately allowing for proactive management and asset optimization at a fraction of the cost of complete replacement programs. Pure focuses on the following strategic priorities: Revenue and profitability growth through targeted sales, world class execution and disciplined cost control; Investment in complementary, new and enhanced technologies and services; Investment in employee development to enhance services and position Pure for success; and Selective and accretive acquisitions that enhance Pure s technology portfolio and increase market penetration. 6 w ww.puretechltd.com

7 GROWTH AND COST OPTIMIZATION PLAN As discussed in 2015, Pure is undertaking several specific measures to increase sales, enhance workforce flexibility to better align with project timing volatility and drive operational efficiencies without sacrificing quality or its ability to deliver on long term growth expectations. Management continues to execute a plan to drive operational and administrative improvements with a target of optimizing the work force and cost of project delivery. This is expected to result in annualized cost efficiencies of between $6 and $8 million. To date, Pure has completed or commenced the following efficiency initiatives, the impacts of which are outlined below: Efficiency Initiative Voluntary attrition and involuntary staff departures without replacement 2016 Impact $2.6 million annual reduction to fixed E&O costs (YTD: $1.3 million) Reduction in Employee Share Purchase Plan $1.0 million total reduction to operating expenses (YTD: $0.5 million) Implemented effective January 1, 2016 Consolidation of WWS shared services $1.1 million annualized G&A cost reductions to commence in the second half of 2016 $1.0 million reduction in marketing costs (YTD: $0.5 million) Restructuring certain outsourced relationships and international office costs Closure of Salt Lake City office $0.3 million annual reduction in E&O costs. Office was closed in Q The remaining additional operational and administrative improvements being undertaken in 2016 include: Improved project management through better process, governance and performance management systems. Much of this work is underway in conjunction with the Company s ERP implementation which was implemented on May 1, 2016, on time and on budget; Strengthening short and medium term project forecasting and scheduling to facilitate better resource (human and capital) management and asset allocation and expense optimization. Progress has been made with respect to organizational planning with further refinements in 2016; and Continued rationalization of non-essential and discretionary expenditures including spending on corporate initiatives without compromising future growth or execution of Pure s business strategy. Pure management believes execution of this plan will result in a more focused and productive work force and business which will result in an improved service to our customers, a dynamic and flexible work environment for employees and an increased return to our investors. 7 w ww.puretechltd.com

8 The Company made significant strides in 2015 in establishing a foundation for growth in 2016 and beyond, more than doubling its workforce through two acquisitions since 2014, broadening its service offerings and expanding its customer base in its core water business, the wastewater sector and the oil and gas sector. As integration concludes and sales and execution of the aforementioned initiatives take hold, the Company expects EBITDA margins to return to or exceed its stated target of 20%. OUTLOOK Pure s long-term sustainable growth strategy continues to be driven by increasing its inspection and consulting services, utilizing Pure s increasing proprietary inspection technologies and analysis capabilities across multiple pipe types for water, wastewater and oil and gas customers. Accordingly, equipment sales, which tend to be focused on AFO systems for PCCP and subject to high degrees of variability, are expected to reduce as a percentage of revenue over time. Revenue for the second quarter of 2016 was consistent with the prior year as increased inspection and consulting activity in the International and PureHM divisions was offset by lower equipment sales in the current period. Inspection and consulting activity in the Americas region was consistent with First half revenue in 2016 increased by 23% over the same period of 2015 as a 39% increase in inspection and consulting activity was partially offset by lower equipment sales in the current period. In the second quarter, revenue from the Americas water business was impacted by lower equipment sales, compared to the same period of Inspection and consulting activity was consistent with the prior quarter as higher activity in the U.S. North and West regions was offset by the deferral of work in the South region to the second half of the year and by lower Wachs Water Services revenue. The recent hiring of three senior business development staff at Wachs Water Services is anticipated to generate growing revenue for this division in the future. As in prior years, we expect the second half of the year to be more active than the first. International revenue increased by 19% in the second quarter of 2016 and declined 2% in the first half of 2016 over the same periods of 2015, respectively. Second half activity in 2016 is also expected to increase, mainly driven by projects in Europe and Africa, partially offset by expected lower activity in Asia. The Company continues to capitalize on its PureHM acquisition, Pure s fastest growing business segment, which grew revenues to $6.7 million in the second quarter of 2016 from $5.3 million in the prior year. Market acceptance continues to grow for the Spectrum XLI and SmartBall technology in the oil and gas sector. Year-to-date revenues increased from $6.7 million to $11.4 million. Second half activity is expected to remain strong as the division continues to broaden its customer base while at the same time focusing on increasing services provided to existing key customers. Management is currently focused 8 w ww.puretechltd.com

9 on the continued recruitment, training and development of its workforce, a critical component in sustaining these growth levels. The benefits of Pure s cost optimization initiatives had a positive impact on the Company s profitability. These initiatives were partially countered by higher hourly labour costs to deliver increased PureHM activity, the impact of a weaker Canadian dollar on foreign denominated costs, a higher current year bonus provision, increased investment in marketing activities, and a higher research and development expense as less development activity was capitalized in Bonus provisions are based upon the Company s current expectations of profitability relative to performance targets. The Company continues to invest in research and development initiatives that are focused on increasing the capability and efficiency of Pure s technology platforms in both the water and oil and gas sectors. Pure anticipates commercialization of several of these initiatives in late 2016 or 2017 with corresponding positive impacts on revenue and profitability. The strength of Pure s financial position, combined with strong cash flow and low capital requirements provides a financial foundation that will facilitate execution of our growth plan. We ended the quarter with $6.5 million of cash and $38.9 million of working capital, a decrease of $4.6 million in cash and $7.8 million of working capital from the end of The decrease is a result of lower activity in the first half of 2016 relative to the latter half of 2015, the timing of annual tax, bonuses, and certain pre-payments, and foreign currency losses of approximately $1.0 million, primarily on U.S. dollar working capital as the Canadian dollar strengthened since year end. Pure expects these balances to grow through 2016 as revenue and profitability increase. 9 w ww.puretechltd.com

10 OVERVIEW OF 2016 SECOND QUARTER RESULTS SUMMARY OF CONSOLIDATED FINANCIAL RESULTS Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Revenue 29,189 29,411 (222) (1) 54,310 44,077 10, Cost of sales 5,159 7,464 (2,305) (31) 11,408 11,422 (14) (0) Gross profit 24,030 21,947 2, ,902 32,655 10, Gross margin (%) Operating Expenses 1 23,132 21,619 1, ,243 37,502 6, Adjusted EBITDA 2 4,552 4,595 (43) (1) 5,660 2,510 3, Adjusted EBITDA (%) Profit (loss) for the period (1,491) (1,888) 397 (21) Per share basic (0.03) (0.04) Per share diluted (0.03) (0.04) Cash Flow from Operations Before Working Capital Changes 2 3,997 3, ,116 2,239 2, Adjusted Profit (Loss) for the period (507) (78) (1,347) (3,248) 1,901 (59) Total assets 3 136, ,080 (10,361) (7) 136, ,080 (10,361) (7) 1. Excludes Libya accounts receivable recovery and loss or gains on asset disposals 2. See Non-GAAP Measures. 3. Comparative figure is as at December 31 The Company s total revenue is derived from product groups, each with varying gross margin and which, in isolation or in combination, is subject to volatility in part due to contract timing, seasonality and the unique needs of clients. Current year sales mix included a high volume of inspection services and was positively impacted by the inclusion of the results of operations from WWS, which were not included in the first quarter of 2015 revenues. For the quarter ended June 30, 2016, revenue decreased by 1% to $29.2 million from $29.4 million in As noted above, the second quarter results reflect a $1.1 million and $1.2 million increase in inspection and consulting activity in the International and PureHM divisions, respectively, offset by lower equipment sales in the period. Year-to-date revenue grew $10.2 million to $54.3 million as a result of the contribution of $4.2 million of revenue from WWS, acquired April 1, 2015, and an increase of $6.0 million or 14% on account of organic growth (9% excluding the impact of foreign exchange). Organic growth included sales increases in PureHM to $11.4 million for the six month period ended June 30, 2016 from $6.7 million in Gross margin percentage increased in the second quarter to 82% (Q %) and for the year to date to 79% ( %), with the current quarter gross margins reflecting increased attention 10 w ww.puretechltd.com

11 to direct project costs, the mix of inspection and consulting projects and a higher proportion of high margin license revenue relative to other quarters in the year. Additionally, the prior year included an equipment sale to the Company s Chinese joint arrangement, PTCL, at a lower margin. The Company recorded Adjusted EBITDA of $4.6 million in the second quarter of 2016 compared to Adjusted EBITDA of $4.6 million for the same period in The result reflects the current period cost savings which absorbed higher variable engineering and operations costs on increased PureHM activity, the impact of a weaker Canadian dollar on US dollar denominated costs, higher bonus provision, a planned increased investment in marketing, and a lower current period rates of capitalization on research and development spending. As a large proportion of the Company s cost base is fixed, Pure anticipates higher profitability as the benefit of increased marketing spending is realized and activity increases. Profit for the second quarter was $1.0 million ( $0.4 million), benefiting from a $1.1 million recovery of accounts receivable from Libya in the current quarter, which were provided for in While the Company continues its efforts to recover accounts receivable from its Libyan customer, there remains no certainty on ultimate collection (refer to Critical Accounting Estimates ). Yearto-date losses improved from $1.9 million to $1.5 million in Profits and losses were impacted by foreign exchange, which resulted in a $0.2 million and $1.0 million loss in the three and six month periods ended June 30, 2016 ( $0.2 million and $0.9 million gains), and by $0.3 million of training costs on the Company s ERP system which was implemented in Taking into account these factors, Adjusted Profit declined $0.5 million for the second quarter, and Adjusted Loss improved $1.9 million for the six-month period ended June 30, Operating expenses, excluding gains on asset disposal and recovery of Libyan accounts receivable, for the second quarter were $23.1 million or 79% of revenue, compared to $21.6 million or 73% of revenue for The quarterly increase reflects: (1) higher marketing salaries as a result of newly hired sales force required to deliver the Company s growth plans; (2) higher variable engineering and operations expenditure driven by PureHM s increased activity; (3) one-time training costs incurred on the Company s new ERP system; and (4) maintaining a higher bonus provision in 2016 on account of a higher outlook for the duration of the year compared to For the six-month period ended June 30, 2016, operating expenses, excluding gains on asset disposal and recovery of Libyan accounts receivable, increased to $44.2 million from $37.5 million. In addition to the factors noted for the second quarter, this increase was a result of: (1) $3.9 million of incremental costs attributable to the WWS business; (2) a $1.2 million higher bonus provision compared to 2015 as full year projected results are higher than 2015; (3) approximately $0.8 million as a result of the adverse impact of a weakening Canadian dollar; (4) incremental hourly labour costs in PureHM of $1.0 million to deliver higher work volumes; (5) $0.4 million increase in depreciation on account of prior period investments and acquisitions; and (6) $1.8 million increase in marketing and research and development expenses. These increases are offset by the cost efficiencies realized as a result of implementing the cost optimization plan, as previously discussed. 11 w ww.puretechltd.com

12 Cash flow from operations before working capital changes increased to $5.1 million (2015: $2.2 million) for the same reasons as the changes in Adjusted EBITDA. The impact of the Company s fixed cost base is levered in Adjusted EBITDA in the seasonally slow first half of the year, though Management believes the growth and cost optimization plans will result in improvements in the Company s efficiency metrics on its annual results. RESULTS FROM OPERATIONS Revenue Product Groups Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Equipment sales 479 3,169 (2,690) (85) 902 5,367 (4,465) (83) Inspection and consulting services 25,467 23,274 2, ,248 34,113 13, Monitoring, licensing and technical support 3,243 2, ,160 4,597 1, Total 29,189 29,411 (222) (1) 54,310 44,077 10, Total revenue grew for the six-month period ended, and declined for the quarter ended June 30, 2016 as compared to the prior year for the reasons previously described. Equipment Sales Equipment sales decreased to $0.5 million and $0.9 million for the three and six-month periods ended June 30, 2016 from $3.2 and $5.4 million for the respective periods in Equipment sales continue to be variable quarter to quarter, and the Company s client s service needs have gravitated to a higher volume of inspection and consulting services. Prior year revenues included a higher volume of activity in Canada and the United States, and the sale of AFO equipment to PTCL in the first quarter of Inspection and Consulting Services Inspection and consulting services revenue for the second quarter of 2016 was $25.5 million, an increase of $2.2 million or 9% from The quarter s increase was a result of a $1.2 million increase in revenues from PureHM where continued investment field employees and marketing efforts is reflected in work delivered. International revenues also increased $1.1 million as a result of project deliveries in Europe and South America. Year-on-year inspection and consulting revenue increased to $47.2 million from $34.1 million. This increase is largely due to: the addition of the WWS service lines which contributed $4.2 million in the first quarter (acquired in the second quarter of 2015); a $4.4 million increase of PureHM inspection revenues to $9.7 million in 2016; and increased activity in the Americas in the first quarter. Organic growth of 26% (21% adjusted for foreign exchange) was driven by multiple large 12 w ww.puretechltd.com

13 inspections performed in the first quarter in the Americas and increased International and PureHM activity. Monitoring, Licensing & Technical Support Revenue from this product group grew 9% to $3.2 million during the quarter and 34% to $6.2 million for the 6-month period ended June 30, 2016 from $3.0 and $4.6 million for the three and six month periods in The increases are the result of higher licensing revenues in PureHM and internationally, as well as an increase in monitoring revenues in the Americas as a result of prior periods equipment installations. Gross Profit and Margins Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Revenue 29,189 29,411 (222) (1) 54,310 44,077 10, Cost of sales 5,159 7,464 (2,305) (31) 11,408 11,422 (14) (0) Gross profit 24,030 21,947 2, ,902 32,655 10, Gross margin (%) Cost of sales includes direct materials, contract labour, sub-trades and travel related expenditures. The internal labour used to generate such revenue is included in engineering and operations expense. Gross margins increased to 82% from 75% for the quarter, and to 79% from 74% for the year to date for the reasons discussed above. The Company s total revenue is derived from product groups which may be, in isolation and/or in combination, subject to volatility in part due to contract timing, seasonality and the unique needs of clients. In 2015, gross margins were negatively impacted by a lower margin equipment sale to China. Furthermore, gross margin is calculated by combining the effects of varying margin in each product group that make up total revenue. Given these factors, gross margin can vary in shorter time periods given more pronounced changes in sales mix. Due to a higher proportion of high margin license revenue typically recognized in the second quarter, margins in this period tend to be higher than the annual average. Operating Expenses Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Marketing 4,175 3, ,758 6,238 1, Engineering and operations 11,558 10, ,438 17,692 3, General and administrative 7,076 6, ,066 12,849 1,217 9 Research and development ,132 21,619 1, ,243 37,502 6, w ww.puretechltd.com

14 Total operating expenses for the year to date increased by $6.7 million over the same period in 2015, and increased by $1.5 million for the quarter, as a result of the reasons discussed previously and below. Marketing Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Marketing expenses 4,175 3, ,758 6,238 1, Depreciation (15) (6) (9) 150 (22) (11) (11) 100 Stock based compensation (77) (136) 59 (43) (112) (323) 211 (65) Net marketing expenses 4,083 3, ,624 5,904 1, Marketing expenses increased 14% to $4.2 million compared to $3.7 million in The increase is a result planned increases in business development staff to undertake the Company s growth initiatives, a $0.3 higher bonus provision compared to 2015 (YTD - $0.6 million), the unfavorable impact of the strengthening U.S. dollar offset by $0.3 million savings as a result of reduced use of international consultants. The above noted factors, as well as an incremental $0.5 million of expense from WWS in the first quarter, of which there was none in the comparative period, contributed to a $1.5 million increase to $7.8 million for the year to date. Further details on business development initiatives within Pure s major regions can be found in the reportable segment summary below. Engineering and Operations Three 2016 Three 2015 Change Six Six Change $ % $ % For the period ended June 30 Engineering and operations 11,558 10, ,438 17,692 3, Depreciation (1,439) (1,538) 99 (6) (3,223) (2,676) (547) 20 Stock based compensation (160) (56) (104) 186 (245) (227) (18) 8 Net engineering and operations expense 9,959 9, ,970 14,789 3, Engineering and operations expenses increased 6% to $11.5 million for the second quarter of 2016 compared to $10.9 million in Realized savings as a result of the cost optimization initiatives were offset by an additional $0.3 million of costs for PureHM, as the majority of PureHM s workforce is hourly and therefore increases with activity levels. Additionally, the Company has maintained a higher bonus provision compared to w ww.puretechltd.com

15 Year-to-date expenses increased $3.7 million to $21.4 million. This increase is mainly a result of $2.6 million attributable to WWS which was not part of Pure s operations in the first quarter of 2015, a $1.0 million increase in PureHM labour costs due to increased activity, $0.6 million of foreign exchange, and $0.3 of incremental bonus provision, offset by aforementioned cost optimization initiatives. As a percentage of revenue, engineering and operations expense decreased to 39% in 2016 compared to 40% in General and Administration For the period ended Three Three Change Six Six Change June $ % $ % General and administration 7,076 6, ,066 12,849 1,217 9 Depreciation (1,117) (1,276) 159 (12) (1,945) (1,988) 43 (2) Stock based compensation (574) (264) (310) 117 (920) (678) (242) 36 Training costs (100) - (100) 100 (280) - (280) 100 Acquisition costs - (559) 559 (100) - (709) 709 (100) Adjusted general and administration 5,285 4, ,921 9,474 1, General and administration expenses were $7.1 and $14.1 million for the three and six-month periods ended June 30, 2016, compared to $6.9 and $12.8 million for the same periods in Current year increases were primarily due to a higher bonus provision in 2016 compared to 2015 of $0.6 million and $1.0 million of first quarter 2016 WWS expenses (2015 nil). Bonus provisions are estimated based upon current year expectations relative to targets. Significant one-time expenditures in general and administrative expenses included training costs for the Company s ERP in 2016, and costs associated with the acquisition of WWS in General and administrative costs are expected to decrease in the second half of 2016 when the Company will consolidate certain shared service functions of WWS, which was completed in July Research and Development (R&D) R&D expenses were $0.3 and $1.0 million for the three and six month periods ended June 30, 2016, compared to $0.1 and $0.7 million for the same periods in During the quarter, the Company capitalized $1.0 million of development expenditures, primarily associated with ongoing development of Pure s existing technologies and platforms. Foreign Exchange Gain (Loss) Foreign exchange loss for the quarter totaled $0.2 million and $1.0 million for the year-to-date, largely arising from the impact of the Canadian dollar strengthening modestly from lows at the beginning of the year. Foreign exchange losses resulted primarily from the revaluation of foreign currency denominated intercompany funding of Pure s foreign subsidiaries. An additional $2.8 million translation adjustment was recognized during the period in comprehensive loss. The 15 w ww.puretechltd.com

16 adjustment is more pronounced than prior periods due to the variability in the Canadian dollar and net asset position higher than prior years, largely resulting from the investment in WWS. Income Taxes Income taxes consisted of a $0.1 million expense in the first half of 2016 compared to recovery of $0.2 million in Income tax expense in 2016 reflects the change in the mix of taxable income amongst Company subsidiaries and jurisdictions. EBITDA, Adjusted EBITDA and Adjusted Profit (see Non-GAAP Measures) For the period ended June Profit (loss) for the period (1,491) (1,888) Depreciation and amortization 2,708 2,805 5,378 4,933 Net finance (income) expense Income tax expense (recovery) (198) EBITDA 4,516 3,709 4,122 2,891 Foreign currency (gain) loss 189 (230) 1,024 (897) Stock-based compensation ,334 1,369 Training costs Acquisition costs Libyan accounts receivable recovery (1,100) - (1,100) (1,562) Adjusted EBITDA 4,552 4,595 5,660 2,510 For the period ended June Profit (loss) before tax 1, (1,430) (2,086) Foreign currency loss (gain) 189 (230) 1,024 (897) Libyan accounts receivable recovery (1,100) - (1,100) (1,562) Training costs Acquisition costs Adjusted profit (loss) before tax 931 1,202 (1,226) (3,836) Adjusted income tax expense (recovery) (121) (588) Adjusted Profit (Loss) (1,347) (3,248) Adjusted EPS (0.02) (0.06) The Company recorded Adjusted EBITDA of $4.6 million for the second quarter of 2016 compared to $4.6 million in 2015, and $5.7 million for the six-month period then ended compared to $2.5 million in Adjusted Profit for the quarter declined to $0.1 million from $0.6 million, and Adjusted Loss improved to $1.3 million from $3.2 million. Second quarter project deferrals, previously discussed, incurring full bonus provisions and increases in marketing spend offset the 16 w ww.puretechltd.com

17 impact of realized savings resulting from the Company s cost optimization initiatives and increase in PureHM revenues which resulted in a flat second quarter result. REPORTABLE SEGMENT SUMMARY Pure s business operations span over 50 countries around the world. The Company s technologies, related services and customer base have grown dramatically over the past several years through a combination of in-house technical advancements, organic growth and selective acquisitions. The Company has over a dozen regional offices to support activities in its major markets. Business development activities, with a view to strengthen and diversify the Company s revenues and operations, remain a key strategic initiative of Pure. The following tables illustrates revenue and profitability by major market segment before factoring in corporate expenditures such as shared services, corporate administration, research and development and taxes. The results of Mexico and South America have moved to the International segment to conform with changes in the management reporting structure within Pure. Further details can be found in Note 2 in the Company s financial statements For the three ended June 30 Americas International PureHM Total Revenue Equipment sales Inspection and consulting services 16,915 3,275 5,277 25,467 Monitoring, licensing & technical support 1, ,253 3,243 18,713 3,766 6,710 29,189 Profit before corporate expenditures, other expenses, and taxes 5,635 1,047 2,261 8, For the three ended June 30 Americas International PureHM Total Revenue Equipment sales 2, ,169 Inspection and consulting services 17,033 2,212 4,029 23,274 Monitoring, licensing & technical support 1, ,223 2,968 Profit before corporate expenditures, other expenses, and taxes 20,957 3,152 5,302 29,411 6, ,833 8, w ww.puretechltd.com

18 2016 For the six ended June 30 Americas International PureHM Total Revenue Equipment sales Inspection and consulting services 32,941 4,570 9,737 47,248 Monitoring, licensing & technical support 3,364 1,294 1,502 6,160 36,825 6,058 11,427 54,310 Profit before corporate expenditures, other expenses, and taxes 8,430 1,657 3,736 13, For the six ended June 30 Americas International PureHM Total Revenue Equipment sales 3,706 1, ,367 Inspection and consulting services 24,796 3,980 5,337 34,113 Monitoring, licensing & technical support 2, ,223 4,597 Profit before corporate expenditures, other expenses, and taxes Americas 31,187 6,206 6,684 44,077 8, ,181 10,203 The Americas segment revenue decreased to $18.7 million from $21.0 million in the same quarter of 2015, mainly due to lower equipment sales in Canada. Inspection and consulting revenues in the second quarter were consistent with the prior year as increased activity in the North and West regions were offset by the deferral of certain projects in the South region and lower Wachs Water revenues. For the year to date, revenues increased $5.6 million or 18% to $36.8 million, primarily driven by the $4.2 million of incremental first quarter revenue from WWS and increased activity in the North and West regions. The strong U.S. dollar had a $1.9 million positive impact on the regions revenues. Excluding foreign exchange and WWS impacts, inspection and consulting revenues increased $3.5 million, or 14%, offsetting a $3.2 million decline in equipment sales, and segment revenues increased 3%. Americas revenue continues to be driven by the successful Assess and Address approach where pipeline condition assessment and isolated spot repairs are implemented. This approach mitigates pipeline risk for significantly reduced capital costs as compared to the conventional approach of complete replacement. 18 w ww.puretechltd.com

19 International Internationally, Pure continues to see opportunities for growth in its regional markets. The 2016 second quarter revenue increased to $3.8 million from $3.2 million as a result of increased inspection works in Europe and South America. Year-to-date revenue was $6.1 million compared to $6.2 million for 2015 as higher consulting and inspection activity was offset by a $1.0 million AFO sale to PTCL in the first quarter of 2015 which did not recur in International activity has historically been driven by large projects, resulting in inter-quarter and year-over-year volatility. Management anticipate the majority of the year s international work will be delivered in the second half of PureHM The PureHM segment includes revenues from inspections of oil and gas pipelines using the Armadillo Tracks remote tracking, Spectrum XLI, SmartBall technology, and the PipeWISE technologies and equipment sales. In the second quarter of 2016, PureHM recorded revenues of $6.7 million ( $5.3 million) and profit, before corporate expenditures and taxes, of $2.3 million ( $1.8 million). Year to date revenues increased to $11.4 million ( $6.7 million) and profit, before corporate expenditures and taxes, increased to $3.7 million from $1.2 million in Revenues were generated primarily on services being performed in Canada and California. The U.S. business in particular has grown through significant contract awards which reduces seasonality of the business, and market acceptance of PureHM s services, driving organic growth. First quarter increases were a result of overcoming administrative post-acquisition delays in 2015 that delayed project delivery. PureHM s ongoing strategy is to grow its legacy business of oil and gas pipeline inspections organically and by offering enhanced service offerings to new and existing clients. Commercialized in 2013, PureHM s major technologies, Spectrum XLI and Armadillo Tracks remote tracking, are innovative solutions that are expected to have continued market adoption. SUMMARY OF QUARTERLY RESULTS ($000s Canadian dollars, unless otherwise indicated) Q Q Q Q Revenue 29,189 25,121 30,787 29,559 Adjusted EBITDA 4,552 1,108 6,895 3,883 Profit (loss) for the period 967 (2,458) 677 1,076 Profit (loss) per share basic 0.02 (0.05) diluted 0.02 (0.05) Weighted average common shares outstanding basic 54,120,569 54,081,239 53,822,149 52,531,536 diluted 54,928,460 54,081,239 54,073,387 54,366, w ww.puretechltd.com

20 ($000s Canadian dollars, unless otherwise indicated) Q Q Q Q Revenue 29,411 14,666 27,614 17,118 Adjusted EBITDA 4,595 (2,085) 8,716 2,120 Profit (loss) for the period 416 (2,303) (4,729) (218) Profit (loss) per share basic 0.01 (0.04) (0.09) (0.00) diluted 0.01 (0.04) (0.09) (0.00) Weighted average common shares outstanding basic 52,504,834 52,693,817 52,216,626 51,857,137 diluted 54,441,080 52,693,817 52,216,626 51,857,137 LIQUIDITY AND CAPITAL RESOURCES NET CASH POSITION Maintaining a strong financial position with net cash sufficient to meet expected operating, investing and financing plans is a key financial objective of the Company. The Company s cash position as at June 30, 2016 was $6.5 million compared to $11.1 million at December 31, The decrease reflects the timing of collections of accounts receivable, timing of certain annual corporate tax and pre-paid expenditures, capital investments and the quarterly dividend payments, offset by return of cash previously restricted from use. The decrease in cash balances in the second quarter is consistent with the Company s expectation and reflects the timing of activity levels and relative collection periods from customers. As activity increases over the balance of the year, cash balances are expected to grow. The Company anticipates being able to finance its 2016 capital spending and dividends from cash flow from operations. The Company has a secured credit facility (the Facility ) with a Canadian Chartered Bank (the Lender ). The Facility consists of: (i) a revolving facility of $10.0 million, (ii) a letter of credit facility of $10.0 million, (iii) a risk management facility of $2.0 million, (iv) a credit card facility of $1.5 million; and (v) an uncommitted accordion facility for acquisitions of $20.0 million. Other than the accordion facility, the Facility is committed for 3 years and payable in full on maturity. The revolving credit facility is subject to a borrowing base comprised of certain accounts receivable and inventory amounts. Interest and standby fees are tiered based on the Company s debt to earnings before interest, depreciation and amortization ratio. At June 30, 2016, the Company had issued $0.8 million of letters of credit outstanding and $0.5 million drawn on the credit card facility. Further details on the Facility are available in Note 12 of the Company s annual financial statements. FINANCIAL POSITION The following chart highlights significant changes in the Condensed Consolidated Interim Statements of financial position from December 31, 2015 to June 30, 2016: 20 w ww.puretechltd.com