MagneGas increases revenue by 46 percent in 2016

MagneGas Corp., a clean technology company in the renewable resources and environmental solutions industries headquartered in Clearwater, Florida, announced financial results and provided a business update for the full year ending Dec. 31, 2016.

Financial highlights:

• revenue for the year ended Dec. 31, 2016 increased 46 percent to $3.5 million compared to $2.4 million for the same period last year;
• revenue for the three months ended Dec. 31, 2016 increased 50 percent to $2.5 million compared to $1.8 million for the same period last year;
• gross margins for the year ended Dec. 31, 2016 increased 384 basis points to 43 percent from 39 percent for the year ending Dec. 31, 2015; and
• gross margins for the three months ended Dec. 31, 2016 increased 441 basis points to 46 percent from 41 percent for the same period last year.

Recent business highlights:

• gasification system installed and commissioned at Louisiana industrial gas company to supply gulf states;
• business development in Europe gaining traction in multiple markets including signing definitive agreement for $2.65 million equipment sale to German company;
• Fortune 100 auto manufacturing company converted its second factory from acetylene to MagneGas2 for metal cutting;
• two divisions of the New York Department of Transportation selected MagneGas2 for metal cutting and repairs;
• expanded product offering in Florida to include beverage CO2;
• MagneGas significantly reduces production cost of MagneGas2; and
• management initiated aggressive cost reduction program.

Ermanno Santilli, CEO of MagneGas, says, "We are pleased to report a 50 percent increase in revenue and 441 basis point increase in gross margin for the fourth quarter of 2016 versus the same period last year. We have benefited from our MagneGas2 product line, which enables us to drive enhanced value for our clients in a price competitive and commoditized landscape.

Our business model to leverage MagneGas 2 has continued to mature, as the premier wedge product in the industry. This has been a critical driver of revenue growth and has allowed the company to continue to rapidly gain market share. As a result, MagneGas has experienced impressive growth versus the overall welding supply and gas industry market growth rate of just 2 to 3 percent annually. We expect sales will continue to increase as we expand into additional locations and add new partnerships.

"We have also been focused on reducing costs and streamlining operations heading into 2017.  First, we identified a more cost-effective feedstock, which will enhance our gross margins. At the same time, we have consolidated vendors, reduced headcount and refocused resources on sales and marketing.  We believe these initiatives will help drive sales and enhance profitability going forward.

"On the commercial front, the marketing program we implemented with our distribution partner in 2016, AWISCO Corporation, attracted new customers including the NYC Department of Transportation, which selected MagneGas2 for metal cutting and repairs, as well as the New York Iron Workers Joint Apprentice Training Facility, which added MagneGas2 to its training program for new iron workers. Moreover, in January of this year, MagneGas2 was selected as a metal cutting fuel for the Long Island railroad Brooklyn accident repairs in New York."

"At the same time, we are gaining greater market penetration in the state of Florida, with the reasonable goal of expanding to a majority of the metropolitan markets in the state of Florida by the end of 2018. We recently announced plans to expand into the Tampa, Florida, market with direct sales of industrial gases, welding supplies and MagneGas2 due to strong demand in the area. We believe adding new locations will enable us to drive high margin revenue growth in these and other key markets in the coming months."

"We also expanded our product offering to include the commercial sale of carbon dioxide (CO₂) as a complimentary product to our industrial gas line of products. We initially tested this strategy with success in Sarasota and Fort Myers, and are now planning to roll this out into other retail locations in the state of Florida in the coming months. We plan to initially sell CO₂ in the restaurant, travel and leisure markets where there is a large amount of CO₂ use in carbonated beverages."

"We are gaining a strong foothold in the U.S. automotive market as well. Earlier this year, we announced the direct sales of industrial gases, welding supplies and MagneGas2 to a Fortune 100 U.S. automaker. That relationship has since expanded to include a second facility in October 2016. The facilities we are currently servicing produce light trucks and automobiles, and are using MagneGas2 as the exclusive fuel for metal cutting due to its faster cutting speed and hotter flame temperature compared to existing cutting fuels. Given our recent success in the Midwest and automotive markets, we hired an experienced industrial gas sales executive to support this key client, while further expanding our market presence in these markets."

"Earlier this month, we announced that we successfully installed a 100-kilowatt Plasma-Arc Gasification system at Green Arc Supply LLC in Louisiana. As previously announced, Green Arc Supply of Louisiana, purchased a gasifier to manufacture and distribute MagneGas2 exclusively in certain regions of Louisiana and Texas. Pursuant to the terms of the Gasifier Purchase Agreement, MagneGas received a total of $775,000 for the purchase of the system in addition to recurring royalty payments. We are excited to have our first operating system at a customer location, and plan to replicate this model which includes upfront payments plus long-term, high margin royalties.

"In January 2017, we signed a definitive agreement for a $2.65 million equipment sale of our proprietary gasification and sterilization system, MagnesGas2 fuel and cylinders to a company based in Germany. This transaction represents the largest sale in our company's history and MagneGas Corp.'s first equipment sale in Europe. Moreover, the German company has indicated their interest to purchase additional systems for multiple markets. These first two systems are expected be used for demonstrations and service contracts with the goal of entering the agriculture, municipal wastewater treatment and industrial gas markets in Germany. We believe this transaction positions MagneGas Corporation for expansion across Europe and globally."

Revenues for the year ended Dec. 31, 2016 were $3.55 million compared to $2.43 million for the same period last year. For the years ended Dec. 31, 2016 and 2015, MagneGas generated revenues from its industrial gas segment of $2.77 million compared with $2.38 million last year. The company also experienced close to 20 percent revenue growth versus the same period last year for MagneGas fuel sales. This increase was primarily due to additional customers and distributors acquired through ESSI and the results of marketing our company.

Gross margins increased to 43 percent from 39 percent for the full year ending Dec. 31, 2016 versus Dec. 31, 2015. This improvement was in part due to increased sales of our higher-margin offerings, including MagenGas2 and our proprietary equipment sales as well as controlling the cost of materials. In addition, the gross profit from the Green Arc sales was higher than anticipated due to lower component costs and installation expenses.

Operating expenses increased approximately $3.6 million for the full year ending Dec. 31, 2016 to $13.7 million from $10.1 million for the same period last year. The increase in our operating expense in 2016 was primarily attributable to the completion of our new headquarters and increased consulting expenses related to research and development, investor relations, public relations and new business development.