Key highlights
(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its results for the second quarter of
fiscal year 2019 ended December 31, 2018. Revenues for the
second quarter of fiscal year 2019 amounted to $29.4 M,
representing a $3.6 M, or 13.8% increase, as compared with
revenues of $25.8 M recorded for the second quarter of the previous
fiscal year. This increase is partially fueled by the acquisition
of Hays Utility South Corporation (“Hays”), as well as the organic
growth from the Projects & Aftermarket and O&M business
pillars. The Projects & Aftermarket business pillar is showing
a revenue increase of $2.2 M, or 21.9%, while having a healthier
backlog with better projects’ diversification. The Corporation will
focus on improving its gross profit margin before depreciation and
amortization in this business pillar prior to focusing on growing
the volume of revenues. Therefore, to reach that goal, H2O
Innovation is executing more industrial and wastewater projects
previously secured in the backlog and is observing positive upside
in the gross profit margins being recorded. Specialty Products
business pillar is showing a momentary decrease of $1.6 M, or 21.4%
of revenues, for the second quarter of fiscal year 2019 compared to
the same quarter of the previous fiscal year. This decrease is
partially explained by delays beyond Corporation’s control in
delivering significant orders of couplings for recurring customers.
Specialty Products business pillar’s revenue was also impacted by a
general slowdown in the maple syrup industry due to adverse weather
conditions during the last maple syrup season. As a result, maple
syrup producers have experienced a challenging year resulting in a
lower production, thus lowering the investments they can spend in
new capital equipment purchase. As for PWT, our specialty chemicals
product line, the Corporation increased its in-house manufacturing
capacity of liquid cleaners. This manufacturing improvement, along
with the addition of new distributors in strategic territories,
enabled the increase of the Corporation’s gross profit margin
before depreciation and amortization. Regarding Piedmont’s
operations, the bookings of new couplings and filter housings
orders have reached a new high at the end of the second quarter, as
explained in the press release of January 31, 2019. However, most
of the revenues from these large orders have not been recognized in
this current quarter. The O&M business pillar is showing a
constant growth, with a revenue increase of $3.0 M, or 35.2%,
during the second quarter of fiscal year 2019, compared to the same
quarter of the previous fiscal year. This significant revenue
growth is explained by a sustained organic growth mostly driven by
scope of work increases on existing projects, and the acquisition
of Hays, adding $1.5 M of revenues to this business pillar for the
second quarter of fiscal year 2019.
“We are already seeing upsides from the
acquisition of Hays in Texas completed on December 1, 2018.
Indeed, additional revenues are impacting positively this quarter’s
results and cross-selling synergies have been targeted for the
coming quarters. Our $147.7 M combined backlog is not only
providing visibility on revenues but is an unbelievable source of
additional sales synergies generated by our multiple product lines.
With proper business mix, combining Projects & Aftermarket,
Speciality Products and O&M, I am confident to see an
improvement in our gross profit margin and thus our EBITDA’s
performance”, stated Frédéric Dugré, President and Chief
Executive Officer of H2O Innovation.
(in thousands of Canadian dollars, except
per share data) |
Three-month periodsended
December 31, |
|
Six-month periodsended
December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Revenues |
29,378 |
|
25,819 |
|
53,749 |
|
48,437 |
|
|
|
|
|
|
Gross profit margin before depreciation and amortization |
6,244 |
|
6,213 |
|
11,750 |
|
10,667 |
|
Gross profit margin before depreciation and amortization (%) |
21.3 |
% |
24.1 |
% |
21.9 |
% |
22.0 |
% |
|
|
|
|
|
Operating expenses |
1,246 |
|
1,009 |
|
2,574 |
|
1,886 |
|
Selling expenses |
1,990 |
|
2,218 |
|
3,637 |
|
3,856 |
|
Administrative expenses |
1,671 |
|
1,625 |
|
3,072 |
|
3,112 |
|
Total SG&A |
4,907 |
|
4,852 |
|
9,283 |
|
8,854 |
|
% SG&A over revenues |
16.7 |
% |
18.8 |
% |
17.3 |
% |
18.3 |
% |
|
|
|
|
|
Net loss |
(1,212 |
) |
(1,341 |
) |
(1,535 |
) |
(2,431 |
) |
Basic and diluted net loss per share |
(0.027 |
) |
(0.033 |
) |
(0.036 |
) |
(0.061 |
) |
|
|
|
|
|
Adjusted net loss (a) |
(343 |
) |
(783 |
) |
(14 |
) |
(842 |
) |
Basic and diluted adjusted net loss per share |
(0.008 |
) |
(0.020 |
) |
(0.000 |
) |
(0.023 |
) |
|
|
|
|
|
EBITDA (a) |
910 |
|
1,227 |
|
2,005 |
|
1,349 |
|
Adjusted EBITDA(a) |
1,377 |
|
1,358 |
|
2,643 |
|
1,946 |
|
Adjusted EBITDA over revenues (%) |
4.7 |
% |
5.3 |
% |
4.9 |
% |
4.0 |
% |
- Non-IFRS financial measurement reconciled below.
Revenues from Projects & Aftermarket stood
at $11.9 M compared to $9.7 M in the corresponding period of the
previous fiscal year, representing a 21.9% increase. The
Corporation developed a more diversified backlog portfolio between
water and wastewater projects, with 32.7% of the projects being in
the field of wastewater as of December 31, 2018, compared to 34.0%
as of December 31, 2017. Diversification is also seen between
industrial and municipal projects, with 38.8% of the projects for
industrial customers as of December 31, 2018, compared to 23.0% as
of December 31, 2017. Both wastewater and industrial projects are
characterized by better gross profit margins. The current Projects’
pipeline remains very rich in opportunities and, as of December 31,
2018, the backlog stood at $52.5 M, compared to $51.9 M for the
comparable quarter of fiscal year 2018.
On the Specialty Products side, recurring
revenues stood at $5.9 M, compared to $7.5 M in the comparable
quarter of the previous fiscal year, representing a $1.6 M, or
21.4% decrease. The decrease in revenue for this business pillar is
attributable to timing of significant orders related to Piedmont,
which were delayed by the customers. It was also impacted by a
general slowdown in the maple syrup industry, due to adverse
weather conditions during the last maple season. Specialty Products
business pillar expanded its products offering by adding new
products and new distributors, broadening its existing offering and
positioning the Corporation strategically in the market. The
Corporation continues to improve its gross profit margin before
depreciation and amortization by manufacturing some products
in-house, while the manufacturing of these products was fully
outsourced during the comparable quarter of the previous fiscal
year.
The recurring revenues coming from O&M
business pillar stood at $11.6 M for the second quarter of fiscal
year 2019, compared to $8.6 M for the comparable period of fiscal
year 2018, representing an increase of $3.0 M or 35.2%. Of
this increase, $1.5 M is attributable to the acquisition of Hays
and represents revenues for the one-month period following the
acquisition’s effective date. The growth of the O&M business
pillar during this quarter is also explained by the renewal of
projects and scope expansions, as well as annual consumer price
index (“CPI”) adjustments. The backlog coming from O&M
contracts stood at $95.2 M as at December 31, 2018, representing an
increase of 48.3% compare to the $64.2 M backlog as at
December 31, 2017, and consists of long-term contracts, mainly with
municipalities, comprising multi-year renewal options.
In this second quarter of fiscal year 2019, the
Corporation generated a 21.3% gross profit margin before
depreciation and amortization compared to 24.1% for the second
quarter of fiscal year 2018. The gross profit margin before
depreciation and amortization was fairly stable at $6.2 M, while
revenues increased by 13.8%. This decrease of gross profit margin
before depreciation and amortization in % is explained by the
business mix, with an increase of the sales coming from the O&M
business pillar characterized by lower margins but steadier
revenues and profits. Lower revenues coming from the Specialty
Products business pillar also impacted negatively the gross profit
margin before depreciation and amortization in % since this
business pillar is characterized by a higher gross profit margin
before depreciation and amortization.
The Corporation’s selling, operating and
administrative expenses (“SG&A”) in dollar remained stable at
$4.9 M this quarter and for the comparable quarter of the
previous fiscal year. The SG&A over revenues in % decreased to
16.7%, compared to 18.8% for the second quarter of the previous
fiscal year. This decrease is explained by a stable level of
SG&A expenses, while revenues grew by 13.8% over the same
period.
The Corporation’s adjusted EBITDA was stable at
$1.4 M for the second quarter of fiscal year 2019 and for the
comparable period of fiscal year 2018. The Corporation’s adjusted
EBITDA over revenues decreased to 4.7% for the three-month period
ended December 31, 2018, compared to 5.3% for the same quarter of
last fiscal year. The decrease of the adjusted EBITDA in % is due
to a decrease of the gross profit margin before depreciation and
amortization, associated to a lower level of revenues having higher
gross profit margins and coming mainly from the Specialty Products
business pillar.
The net loss amounted to ($1.2 M), or ($0.027)
per share, for the second quarter of fiscal year 2019 compared with
a loss of ($1.3 M), or ($0.033) per share, for the comparable
quarter of fiscal year 2018. The net loss of the comparable quarter
of the previous fiscal year was significantly impacted by the Tax
Cuts and Jobs Act, a tax legislation reducing the federal tax rate
enacted by the U.S. government and leading to an additional
deferred tax expense of $1.1 M for that quarter. Without the $1.1 M
impact from the new U.S. tax legislation, net loss for the second
quarter of fiscal year 2018 would have been ($0.2 M). This quarter,
the net loss is mostly due to an increase of non-recurring costs
associated with the acquisition of Hays and the related financing,
amounting to $0.4 M and $0.3 M respectively. Furthermore, the
decrease of the gross profit margin before depreciation and
amortization also contributed to the net loss.
The definition of adjusted net earnings (loss)
excludes of acquisition-related costs and integration costs. The
reader can establish the link between net loss and adjusted net
earnings (loss) with the following reconciliation items. The
definition of adjusted net earnings (loss) used by the Corporation
may differ from those used by other companies.
|
Three-month periods ended December
31, |
Six-month periods ended December
31, |
(in thousands of Canadian dollars) |
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Net loss |
(1,212 |
) |
(1,341 |
) |
(1,535 |
) |
(2,431 |
) |
Acquisition-related costs, integration costs and other costs USA
(net of tax 23.71%) |
307 |
|
- |
|
333 |
|
- |
|
Net loss on bank fraud Canada (net of tax 0%)3 |
- |
|
- |
|
- |
|
363 |
|
Amortization of intangible assets from acquisition Canada (net of
tax 0%)3 |
39 |
|
39 |
|
79 |
|
79 |
|
Amortization of intangible assets from acquisition USA (net of tax
23.71%) |
448 |
|
413 |
|
951 |
|
821 |
|
Stock based compensation expenses Canada (net of tax 0%)3 |
75 |
|
106 |
|
158 |
|
226 |
|
Adjusted net loss |
(343 |
) |
(783 |
) |
(14 |
) |
(942 |
) |
Operating activities generated $2.1 M in cash
for the quarter ended December 31, 2018, compared to $0.6 M of cash
generated during the same period of previous fiscal year. The cash
flow increase generated by operating activities is a reflection of
the change in the working capital items. This change is mostly due
to the advancement of major projects, for which significant
invoicing milestones have been reached during the
quarter.Reconciliation of net loss to adjusted
EBITDA
Even though adjusted EBITDA is a non-IFRS
measure, it is used by management to make operational and strategic
decisions. Providing this information to the stakeholders, in
addition to the GAAP measures, allows them to see the Corporation’s
results through the eyes of the management, and to better
understand the financial performance, notwithstanding the impact of
GAAP measures.
|
Three-month periodsended
December 31, |
|
Six-month periods ended
December 31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
Net loss for the period |
(1,212 |
) |
(1,341 |
) |
(1,535 |
) |
(2,431 |
) |
Finance costs – net |
969 |
|
473 |
|
1,500 |
|
824 |
|
Income taxes |
72 |
|
1,177 |
|
(19 |
) |
1,039 |
|
Depreciation of property, plant and equipment |
288 |
|
243 |
|
567 |
|
550 |
|
Amortization of intangible assets |
793 |
|
675 |
|
1,492 |
|
1,366 |
|
EBITDA |
910 |
|
1,227 |
|
2,005 |
|
1,348 |
|
|
|
|
|
|
Unrealized exchange (gains) losses |
(11 |
) |
25 |
|
44 |
|
(73 |
) |
Stock-based compensation costs |
75 |
|
106 |
|
158 |
|
226 |
|
Net loss on bank fraud |
- |
|
- |
|
- |
|
363 |
|
Acquisition-related costs, integration costs and other costs |
403 |
|
- |
|
436 |
|
81 |
|
Adjusted EBITDA |
1,377 |
|
1,358 |
|
2,643 |
|
1,945 |
|
H2O Innovation Conference Call
Frédéric Dugré, President and Chief Executive Officer and Marc
Blanchet, Chief Financial Officer, will hold an investor conference
call to discuss the financial results for 2019 second quarter in
further details at 10:00 a.m. Eastern Time on Wednesday,
February 13, 2019.
To access the call, please call 1 (877) 223-4471
or 1 (647) 788-4922, five to ten minutes prior to the start time.
Presentation slides for the conference call will be made available
on the Corporate Presentations page of the Investors section of the
Corporation’s website.
The second quarter financial report is
available on www.h2oinnovation.com. Additional information on the
Corporation is also available on SEDAR
(www.sedar.com).
Prospective disclosuresCertain
statements set forth in this press release regarding the operations
and the activities of H2O Innovation as well as other
communications by the Corporation to the public that describe more
generally management objectives, projections, estimates,
expectations or forecasts may constitute forward-looking statements
within the meaning of securities legislation. Forward-looking
statements concern analysis and other information based on forecast
future results and the estimate of amounts that cannot yet be
determined. Forward-looking statements include the use of the words
such as “anticipate”, “if”, “believe”, “continue”, “could”,
“estimate”, “expect”, “intend”, “may”, “plan”, “potential”,
“predict”, “project”, “should” or “will” and other similar terms as
well as those usually used in the future and the conditional. Those
forward-looking statements involve a number of risks and
uncertainties, which may result in actual and future results of the
Corporation to be materially different than those indicated.
Information about the risk factors to which the Corporation is
exposed is provided in the Annual Information Form dated
September 25, 2018 available on SEDAR (www.sedar.com). Unless
required to do so pursuant to applicable securities legislation,
H2O Innovation assumes no obligation to update or revise
forward-looking statements contained in this press release or in
other communications as a result of new information, future events
and other changes.
About H2O Innovation H2O
Innovation designs and provides state-of-the-art, custom-built and
integrated water treatment solutions based on membrane filtration
technology for municipal, industrial, energy and natural resources
end-users. The Corporation’s activities rely on three pillars which
are i) water and wastewater projects and services; ii) specialty
products, which include a complete line of maple equipment and
products, specialty chemicals, consumables and specialized products
for the water treatment industry; and iii) operation and
maintenance services for water and wastewater treatment systems and
utilities. For more information, visit
www.h2oinnovation.com.
Neither TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) nor the Alternext Exchange accepts
responsibility for the adequacy or accuracy of this release.
Source: H2O Innovation Inc.
www.h2oinnovation.com Contact: Marc
Blanchet+1 418-688-0170
marc.blanchet@h2oinnovation.com
1 The definition of adjusted earnings before
interest, taxes, depreciation and amortization (adjusted EBITDA)
does not take into account the Corporation’s finance costs – net,
stock-based compensation costs, net loss on bank fraud, unrealized
exchange (gains) / losses and acquisition and integration costs.
The reader can establish the link between adjusted EBITDA and net
earnings. The definition of adjusted EBITDA used by the Corporation
may differ from those used by other companies.
2 The definition of adjusted net earnings (loss)
excludes acquisition-related costs and integration costs. The
definition of adjusted net earnings (loss) used by the Corporation
may differ from those used by other companies.
3 For Canada the tax rate is 0% since the
Corporation does not recognize the deferred tax asset.
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