(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its results for the fourth quarter and
fiscal year ended June 30, 2019.
“Not only are we presenting our best year-end
results boosted by a strong fourth quarter, significant cash flows
from operating activities and important debt reduction, but we are
also showing that our business model continue to drive more
recurring sales, multiple sales synergies and accountable
customer-focus offering. Each of our three business pillars creates
opportunities for the other ones. As our footprint continues to
grow in the United States, notably through the acquisition of Hays
in Texas, but also abroad through the expansion of our distribution
sales networks and the addition of new products, H2O Innovation is
well positioned to address the growing and multiple needs of the
water industry. With our unique business model combining water
treatment system, Specialty Products, and O&M, the coming years
will certainly be promising for H2O Innovation as the
municipalities will continue to face challenges related to their
aging water infrastructures, constraints from new regulations and
growing shortage of manpower. On a global basis, our Specialty
Products lines such as PWT and Piedmont are also strategically
positioned to capture more opportunities from the anticipated
growth in desalination capacity within the next five
years,” stated Frédéric Dugré, President and Chief
Executive Officer of H2O Innovation.
(in thousands of Canadian dollars, except per share data) |
Three-month periods ended June
30, |
|
Twelve-month periods ended June
30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Revenues |
31,884 |
|
24,536 |
|
117,958 |
|
99,668 |
|
|
|
|
|
|
Gross profit before depreciation and amortization |
7,823 |
|
5,645 |
|
27,118 |
|
22,107 |
|
Gross profit margin before depreciation and amortization (%) |
24.5 |
% |
23.0 |
% |
23.0 |
% |
22.2 |
% |
|
|
|
|
|
General operating expenses |
1,444 |
|
1,020 |
|
5,693 |
|
4,004 |
|
Selling expenses |
2,183 |
|
2,126 |
|
7,743 |
|
8,073 |
|
Administrative expenses |
2,015 |
|
1,695 |
|
6,989 |
|
6,518 |
|
Total SG&A |
5,642 |
|
4,841 |
|
20,425 |
|
18,595 |
|
% SG&A over revenues |
17.7 |
% |
19.7 |
% |
17.3 |
% |
18.6 |
% |
|
|
|
|
|
Net loss |
(1,177 |
) |
(1,007 |
) |
(2,180 |
) |
(3,449 |
) |
Basic and diluted net loss per share |
(0.021 |
) |
(0.025 |
) |
(0.044 |
) |
(0.086 |
) |
|
|
|
|
|
Adjusted net earnings (loss) (a) |
105 |
|
(138 |
) |
1,086 |
|
688 |
|
Basic and diluted adjusted net earnings (loss) per share |
0.002 |
|
(0.003 |
) |
0.022 |
|
0.017 |
|
|
|
|
|
|
EBITDA (a) |
1,689 |
|
635 |
|
5,638 |
|
2,911 |
|
Adjusted EBITDA(a) |
2,375 |
|
1,099 |
|
7,213 |
|
4,125 |
|
Adjusted EBITDA over revenues (%) |
7.4 |
% |
4.5 |
% |
6.1 |
% |
4.1 |
% |
a) Non-IFRS financial measurement reconciled below.
Consolidated revenues from the Corporation’s three business
pillars for fiscal year ended on June 30, 2019 increased
by $18.3 M, or 18.4%, to reach $118.0 M compared to
$99.7 M for the previous fiscal year. This increase is
partially fueled by the acquisition of Hays Utility South
Corporation (“Hays”), adding $12.3 M of revenues, as well as
the organic growth from the Specialty Products and O&M business
pillars.
The Specialty Products business pillar is
showing an increase of revenues of $2.1 M, or 9.6%, for fiscal
year 2019 compared to the previous fiscal year, despite the fact
that maple sales decreased. The increase in revenues of this
business pillar is fueled by Piedmont’s operations, with the
bookings of couplings and filter housings reaching a new high at
the end of the fiscal year. PWT, the Corporation’s specialty
chemicals product line, also supported the growth as it increased
its in-house manufacturing capacity of liquid cleaners and added an
automated-filling line in its facility. These manufacturing
improvements, along with the addition of new distributors in
strategic territories, enabled the increase of the Corporation’s
revenues and gross profit margin before depreciation and
amortization. The financial results of the Specialty Products
business pillar were also impacted by a general slowdown in the
maple industry, due to adverse weather conditions during the 2018
maple syrup season. As a result, maple syrup producers have
experienced a challenging year resulting in a lower production,
thus lowering the investments spent in new capital equipment
purchase. Such slowdown affected sales of the Maple products by
16.7% this year, compared to the previous fiscal year. The Maple
business line had to scale-down its expenses to adjust its cost
structure according to a lower sales volume. While this business
line is dealing with a slowdown, the Corporation’s continues to
push for product innovation and gross profit margin improvements
through manufacturing process and sourcing optimization. Overall,
the Specialty Products revenues stood at $24.9 M, compared to
$22.8 M in the previous fiscal year. The financial results of
this business pillar reflect the ongoing effort to expand its
distribution networks and to launch new products, to complete its
extensive product offering. Despite the decrease seen in the Maple
industry, the EBAC4 of this business pillar increased from
$4.5 M for fiscal year 2018 to reach $4.6 M for fiscal
year 2019. The gross profit increased from $9.8 M for fiscal
year 2018 to reach $10.2 M for fiscal year 2019 due to of
Piedmont’s business line growth. The decrease in % for the gross
profit margin and the EBAC is explained by the business mix within
the business pillar.
The O&M business pillar is showing a
sustained organic growth combined with an external growth from the
acquisition of Hays. Hence, for fiscal year 2019, the O&M
revenues increased by $16.9 M or 47.0%, compared to the
previous fiscal year. The recurring revenues coming from the
O&M business pillar stood at $52.8 M for fiscal year 2019,
compared to $35.9 M for fiscal year 2018. This significant
revenue growth is explained by the Hays acquisition and by a
sustained organic growth mostly driven by new projects won in
Texas, by the renewal of existing projects and scope expansions, as
well as by annual consumer price index adjustments. The acquisition
of Hays added $12.3 M of revenues to this business pillar for
fiscal year 2019. The gross profit margin stood at $9.6 M for
fiscal year 2019, compared to $6.1 M for fiscal year 2018,
representing an increase of $3.5 M, to which Hays contributed
$2.3 M. The EBAC of this business pillar also shows an
increase of $1.7 M this fiscal year, with Hays contributing by
$1.6 M to this increase. The remaining performance obligation
(“backlog”) coming from O&M contracts stood at $82.7 M as
at June 30, 2019, representing an increase of 21.4% compared
to the $68.1 M backlog as at June 30, 2018, and
consists of long-term contracts, mainly with municipalities,
comprising multi-year renewal options.
The Projects & Aftermarket business pillar
is showing a decrease of $0.7 M or 1.9%, while having a
healthier backlog with better projects’ diversification. The focus
for this business pillar is to improve the gross profit margin
prior to focusing on growing the volume of revenues. Therefore, to
reach that goal, H2O Innovation is executing more industrial and
wastewater projects and is observing positive upside in the gross
profit margins being recorded. The Corporation developed a more
diversified backlog portfolio between water and wastewater
projects, with 29.8% of the projects being in the field of
wastewater as of June 30, 2019, compared to 25.0% as of June 30,
2018. Diversification is also seen between industrial and municipal
projects, with 38.3% of the projects being for industrial customers
as of June 30, 2019, compared to 31.0% as of June 30, 2018. Both
wastewater and industrial projects are characterized by better
gross profit margins, while reducing the risk related to focusing
on a single market. Consequently, the gross profit margin of this
business pillar increased by $1.2 M and stood at $7.3 M
for fiscal year 2019, compared with $6.1 M for the previous
fiscal year. Furthermore, the improvement in the gross profit
margin and the reduction of the SG&A expenses over revenues
impacted positively the EBAC as at June 30, 2019, which
reached $3.3 M compared with $1.4 M for the previous
fiscal year. The current Projects’ pipeline remains very rich in
opportunities and, as of June 30, 2019, the backlog stood at
$45.2 M, compared to $53.6 M for fiscal year 2018.
The net loss stood at ($2.2 M), from a net
loss of ($3.4 M) for the previous fiscal year, representing a
reduction of $1.2 M. This reduction is mostly due to an
improved gross profit margin and a reduction of the SG&A
expenses over revenues.
The gross profit margin before depreciation and
amortization improved to $27.1 M, or 23.0%, for fiscal year
2019, compared to $22.1 M, or 22.2%, for the previous fiscal
year, while revenues increased by 18.4% over the same period. This
increase of gross profit margin before depreciation and
amortization contributed to reduce the net loss. Indeed, this year
was particularly strong with increased gross profit margin in %
coming from Projects & Aftermarket and O&M business
pillars.
The Corporation’s SG&A reached $20.4 M
during fiscal year 2019, compared to $18.6 M for the previous
fiscal year, representing an increase of $1.8 M, or 9.7%,
while the revenues of the Corporation increased by 18.4%. The
increase of SG&A in dollars is mainly due to the acquisition of
Hays, contributing $1.1 M of this increase. Accordingly, the
SG&A over revenues in % decreased to 17.3%, compared to 18.6%
for the previous fiscal year.
The Corporation’s adjusted EBITDA increased to
$7.2 M for fiscal year 2019, from $4.1 M for the previous
fiscal year, representing an increase of $3.1 M, or 74.9%. The
adjusted EBITDA in % reached 6.1% for fiscal year 2019, compared to
4.1% for the previous fiscal year. The increase of the adjusted
EBITDA in % is due to the improvement of the gross profit margin
from Projects & Aftermarket and O&M business pillars as
well as a higher level of the Corporation’s revenues. The adjusted
EBITDA improvement is also due to the acquisition of Hays as of
December 1, 2018.
Cash flows from operating activities generated
$5.8 M for the fiscal year ended June 30, 2019, compared to
$2.2 M of cash flows used in operating activities during the
previous fiscal year. This variation of the cash flows from
operating activities reflects a healthier management of the
Corporation’s working capital items and the advancement of major
contracts, with significant invoicing milestones reached during the
fiscal year.
Financial results for the fourth quarter
of fiscal year 2019Revenues for the fourth quarter were up
by 29.9%, or $7.3 M, to $31.9 M from $24.5 M for the
same period of the previous fiscal year. This increase is partially
fueled by the acquisition of Hays, adding $5.9 M of revenues,
as well as the sustained organic growth from the Specialty Products
and O&M business pillars, while revenues coming from the
business pillar Projects & Aftermarket decreased.
For the quarter ended June 30, 2019, the gross
profit margin before depreciation and amortization increased to
24.5%, from 23.0% for the same quarter of the previous fiscal year.
This increase is due to the improvement of the gross profit margin
from Projects & Aftermarket and O&M business pillars as
well as a higher level of the Corporation’s revenues. During this
fourth quarter, adjusted EBITDA reached $2.4 M, or 7.4% over
revenues, compared to $1.1 M, or 4.5% over revenues for the
same period last year.
Reconciliation of net loss to adjusted net earnings
(loss) |
|
Three-month periods ended June 30, |
|
Twelve-month periods ended June 30, |
|
(in thousands of Canadian dollars) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Net earnings (loss) |
(1,177 |
) |
(1,007 |
) |
(2,180 |
) |
(3,448 |
) |
Impact of U.S. tax reform |
- |
|
- |
|
- |
|
1,061 |
|
Acquisition-related costs, integration costs and other
costs Canada (net of tax 0%)5 |
91 |
|
- |
|
97 |
|
81 |
|
Acquisition-related costs, integration costs and other
costs USA (net of tax 23.71%) |
107 |
|
303 |
|
534 |
|
303 |
|
Net loss on bank fraud Canada (net of tax
0%)5 |
- |
|
- |
|
- |
|
443 |
|
Amortization of intangible assets from acquisition
Canada (net of tax 0%)5 |
72 |
|
39 |
|
191 |
|
158 |
|
Amortization of intangible assets from acquisition
USA (net of tax 23.71%) |
727 |
|
420 |
|
2,136 |
|
1,652 |
|
Stock based compensation expenses Canada (net of
tax 0%)5 |
75 |
|
106 |
|
308 |
|
438 |
|
Adjusted net earnings (loss) |
105 |
|
(138 |
) |
1,086 |
|
688 |
|
Reconciliation of net loss to EBITDA and
to adjusted EBITDAEven though EBITDA and adjusted EBITDA
are non-IFRS measures, 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 periods ended June
30, |
|
Twelve-month periods ended June
30, |
|
(in thousands of Canadian dollars) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
Net loss
for the period |
(1,177 |
) |
(1,007 |
) |
(2,180 |
) |
(3,448 |
) |
Finance
costs – net |
219 |
|
364 |
|
2,071 |
|
1,264 |
|
Income
taxes |
652 |
|
231 |
|
422 |
|
1,146 |
|
Depreciation of property, plant and equipment |
482 |
|
331 |
|
1,349 |
|
1,139 |
|
Amortization of intangible assets |
1,513 |
|
716 |
|
3,976 |
|
2,811 |
|
EBITDA |
1,689 |
|
635 |
|
5,638 |
|
2,911 |
|
|
|
|
|
|
Unrealized exchange (gains) losses |
131 |
|
72 |
|
222 |
|
(36 |
) |
Stock-based compensation costs |
75 |
|
106 |
|
308 |
|
438 |
|
Net loss
on bank fraud |
- |
|
- |
|
- |
|
443 |
|
Acquisition-related costs, integration costs and other costs |
232 |
|
398 |
|
797 |
|
479 |
|
Change in
fair value of contingent consideration – net of related costs |
248 |
|
(112 |
) |
248 |
|
(111 |
) |
Adjusted EBITDA |
2,375 |
|
1,099 |
|
7,213 |
|
4,124 |
|
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 fourth quarter and full
fiscal year 2019 financial results in further details at
10:00 a.m. Eastern Time on Wednesday, September 25, 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 annual financial report is available
on www.h2oinnovation.com and on the NYSE Euronext Alternext
website. 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 24, 2019 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 Corporation defines recurring revenue as:
recurring revenue by nature which is a non-IFRS measure and is
defined by management as the portion of the Corporation's revenue
coming from customers with whom the Corporation has established a
long-term relationship and/or has a recurring sales pattern. The
Corporation’s recurring revenues are coming from the Aftermarket,
Specialty Products and O&M business lines.
2 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, change in fair value of contingent
consideration and acquisition and integration costs. The reader can
establish the link between adjusted EBITDA and net loss. The
definition of adjusted EBITDA used by the Corporation may differ
from those used by other companies.
3 The definition of adjusted net earnings (loss)
excludes acquisition-related costs and integration costs, impact of
U.S. tax reform, amortization of intangibles assets from
acquisition and stock-based compensation costs. The reader can
establish the link between net loss and adjusted net earnings
(loss) with the reconciliation items presented in this report. The
definition of adjusted net earnings (loss) used by the Corporation
may differ from those used by other companies. Adjusted net
earnings (loss) is a non-IFRS measure and it is used by management
to monitor financial performance and to make strategic
decision.
4 The definition of earnings before
administrative costs (‘’EBAC’’) means the gross profit before
depreciation and amortization reduced by the general operating and
selling expenses. EBAC is a non-IFRS measure and it is used by
management to monitor financial performance and to make strategic
decisions.
5 For Canada the tax rate is 0% since the
Corporation does not recognise the deferred tax asset.
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