(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the third
quarter of fiscal year 2020 ended March 31, 2020.
“These financial results testify to the success
of our strategy to focus on building a business relying on
recurring sales. In the third quarter, our recurring revenues
amounted to 88%. They are notably driven by (i) our Specialty
Products that we manufacture and export to more than 80 countries
and by (ii) the operation & maintenance (“O&M”) of 200
water and wastewater utilities in North America. Also, thanks to
the acquisition of Genesys and our focus to improve our profit
margins, the gross profit margin has increased from 23.3% to 28.7%.
Today, by delivering earnings of $1.6 M before the non-recurring
and non-cash impairment charges related to intangible assets and
goodwill associated to the Projects & Aftermarket business
pillar, we demonstrate the resiliency of our business model.
Despite a slowdown in our Project business, our combined backlog
remains strong and diversified at $143.8 M. In light of the
COVID-19 crisis, we believe many opportunities will emerge for us
in the coming months and years, notably from our large distribution
network of Specialty Products and also from our O&M business
pillar. We believe that small and mid-size municipalities, private
utilities, and industries will rely more on contracted operators,
such as H2O Innovation. Our financial situation remains
strong and our balance sheet is not over leveraged, allowing us to
navigate through the COVID-19 crisis in a positive manner with
multiple opportunities ahead of us,” stated Frédéric
Dugré, President and Chief Executive Officer of H2O
Innovation.
1 These non-IFRS measures are presented as
additional information and should be used in conjunction with the
IFRS financial measurements presented in this report. Definition of
all non-IFRS measures and additional IFRS measures are provided at
the end of this press release to give the reader a better
understanding of the indicators used by management. Comparative
figures have not been adjusted to reflect the adoption of IFRS 16 –
Leases as set out in the accounting policy.
(In thousands of Canadian dollars) |
Three-month periods ended March 31, |
Nine-month periods ended March 31, |
2020 |
2019 (b) |
2020 |
2019 (b) |
|
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
Revenues per business pillar |
|
|
|
|
|
|
|
|
Projects & Aftermarket |
6,726 |
18.7 |
8,945 |
27.7 |
22,316 |
22.9 |
31,083 |
36.1 |
Specialty products |
12,893 |
35.8 |
8,033 |
24.9 |
28,459 |
29.2 |
18,111 |
21.0 |
O&M |
16,442 |
45.6 |
15,347 |
47.5 |
46,843 |
48.0 |
36,880 |
42.8 |
Total revenues |
36,061 |
100.0 |
32,325 |
100.0 |
97,618 |
100.0 |
86,074 |
100.0 |
|
|
|
|
|
|
|
|
|
Gross profit margin before
depreciation and amortization |
10,336 |
28.7 |
7,544 |
23.3 |
25,310 |
25.9 |
19,294 |
22.4 |
SG&A expenses(c) |
6,777 |
18.8 |
5,501 |
17.0 |
17,732 |
18.2 |
14,784 |
17.2 |
Net earnings (loss) for the period |
(3,097) |
(8.6) |
532 |
1.6 |
(5,040) |
(5.2) |
(1,003) |
(1.2) |
Earnings (loss) before impairment charges1 |
1,630 |
4.5 |
532 |
1.6 |
(313) |
(0.3) |
(1,003) |
(1.2) |
EBITDA1 before impairment |
3,890 |
10.8 |
1,945 |
6.0 |
6,044 |
6.2 |
3,950 |
4.6 |
Adjusted EBITDA1 |
3,775 |
10.5 |
2,196 |
6.8 |
7,692 |
7.9 |
4,839 |
5.6 |
Recurring revenues1 |
31,796 |
88.2 |
26,485 |
81.9 |
83,731 |
85.8 |
63,960 |
74.3 |
- % over revenues.
- Comparative figures have not been adjusted to reflect the
adoption of IFRS 16 – Leases as set out in the accounting
policy.
- Selling, general operating and administrative expenses
(SG&A).
Third Quarter
ResultsConsolidated revenues from our three
business pillars, for the three-month period ended on March 31,
2020, increased by $3.8 M, or 11.6 %, to reach $36.1 M compared to
$32.3 M for the comparable quarter of previous fiscal year. This
overall increase is fueled by the acquisition of Genesys during the
second quarter of fiscal year 2020, which contributed $3.1 M in
revenues during this quarter. The growth is also explained by the
increase of $1.8 M coming from the organic growth of the
Specialty Products business line and $1.1 M coming from O&M,
partly offset by the decrease in revenues of $2.2 M from the
Projects & Aftermarket. The increase is in line with our
business plan to grow first the Specialty Products and O&M, as
well as prioritize projects with higher gross profit margins,
fueling opportunities for other business pillars.
The net loss amounted to ($3.1 M) or ($0.040)
per share for the third quarter of fiscal year 2020 compared to net
earnings of $0.5 M or $0.010 per share for the comparable quarter
of fiscal year 2019. The net loss is mainly due to the impairment
of $5.3 M taken in the Projects & Aftermarket business pillar
to reduce the value of the goodwill and intangible assets. Without
the impact of this non-recurring impairment, the Corporation would
present net earnings of $1.6 M for the three-month period ended
March 31, 2020 and a net loss of ($0.3 M) for the nine-month period
ended March 31, 2020.
The Corporation’s gross profit margin before
depreciation and amortization stood at $10.3 M, or 28.7 %, during
the third quarter of fiscal year 2020, compared to $7.5 M, or 23.3
% for the previous fiscal year, representing an increase of $2.8 M,
or 37.0 %. The increase in consolidated gross profit margin is
explained by the increase in revenues coming from Specialty
Products business pillar, characterized with higher gross profit
margins. These higher-margin sales, positively affected by the
acquisition of Genesys and the strong growth in the Piedmont
business line, contributed significantly to increase the gross
profit margin before depreciation and amortization in the third
quarter of fiscal year 2020. The gross profit margin was also
positively impacted by the improvement of the gross profit margins
coming from the Projects & Aftermarket business line. The
adoption of IFRS 16 – Leases resulted in a decrease of the COGS
expenses of $0.1 M for the third quarter of fiscal year
2020.
1 These non-IFRS measures are presented as
additional information and should be used in conjunction with the
IFRS financial measurements presented in this report. Definition of
all non-IFRS measures and additional IFRS measures are provided at
the end of this press release to give the reader a better
understanding of the indicators used by management.
The Corporation’s SG&A reached $6.8 M during
the third quarter of fiscal year 2020, compared to $5.5 M for the
same period of the previous fiscal year, representing an increase
of $1.3 M, or 23.2 %, while the revenues of the Corporation
increased by 11.6 %. The acquisition of Genesys in the second
quarter of this fiscal year contributed $0.7 M of this increase.
The general increase of SG&A grew faster than the general
level of revenues, mainly due to the first business pillar –
Projects & Aftermarket, as the level of revenue decreased while
the cost structure remained the same. The adoption of IFRS 16 –
Leases resulted in a decrease of the SG&A expenses of
$0.2 M for the third quarter of fiscal year 2020, as lease
expenses were reclassified to depreciation and amortization.
The Corporation’s adjusted EBITDA increased by
$1.6 M, or 71.9 %, to reach $3.8 M during the third quarter of
fiscal year 2020, from $2.2 M for the comparable period of fiscal
year 2019. The adjusted EBITDA % improved and reached 10.5 % for
the third quarter of fiscal year 2020, compared to 6.8 % for the
same quarter of last fiscal year. Improvement of the adjusted
EBITDA was driven by the increase in the Corporation’s consolidated
revenues and by the improvement in gross profit margins, partly
offset by the increase in SG&A. Furthermore, the adoption on
July 1, 2019 of IFRS 16 - Leases contributed to
reduce by $0.4 M the operating lease expenses for the quarter.
Excluding the adjustment from IFRS 16 - Leases, the adjusted
EBITDA would have been 9.4 %.
In the third quarter of fiscal year 2020, with
the COVID-19 pandemic creating uncertainty over the world economic
future, the Corporation performed an impairment test for its
goodwill and intangible assets. The COVID-19 pandemic forced
management to review the forecast of its business pillars with new
growth assumptions, notably for its first business pillar, the
Projects & Aftermarket – mostly impacted by projects being
delayed or cancelled. As a result of this analysis, management
recognised an impairment charge of $5.3 M against goodwill and
intangible assets pertaining to the Projects & Aftermarket
business pillar.
The decision to review to a lower percentage its
growth perspective for the Projects & Aftermarket pillar, is in
line with our strategic decision to further grow the Specialty
Products and O&M first, then the Projects & Aftermarket,
due to its unpredictability, challenging execution schedule and
lower gross profit margins. For the past two years, the Corporation
has strategically decided to target industrial and wastewater
projects, which generally generate higher gross profit margins.
This remain a focus for the Corporation, however, due to the crisis
and uncertainties caused by COVID-19, the growth perspective
associated to the Projects & Aftermarket have become less
predictable. Hence, the business plan of this pillar has been
revised, causing H2O Innovation to adjust its growth projections
for the first pillar, Projects & Aftermarket.
Management maintains its objective of improving
the Corporation’s profitability and will remain selective on the
projects on which the Corporation intends to bid. Management also
maintains its strategy, which aims at growing the other business
pillars in order to continue to grow recurring revenues, in
particular specialty products revenues, which are characterized by
higher gross profit margin.
Cash flows from operating activities generated
$0.9 M for the quarter ended March 31, 2020, compared to
($0.2 M) of cash flows used from operating activities during
the same period of previous fiscal year. The increase in the cash
flows from operating activities is coming from the improvement of
the earnings before income taxes and impairment charges.
Reconciliation of Net Earnings (Loss) to
EBITDA and to Adjusted EBITDA 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, 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 by looking
at the reconciliation presented below. The definition of adjusted
EBITDA used by the Corporation may differ from those used by other
companies.
Even 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 March
31, |
Nine-month periods ended March
31, |
(In thousands of Canadian dollars) |
2020 |
2019 |
2020 |
2019 |
|
$ |
$ |
$ |
$ |
Net earnings (loss) for the
period |
(3,097) |
532 |
(5,040) |
(1,003) |
Finance costs – net |
469 |
352 |
1,508 |
1,852 |
Income taxes |
(631) |
(210) |
(937) |
(229) |
Depreciation of property,
plant and equipment |
702 |
300 |
2,082 |
867 |
Amortization of intangible
assets |
1,139 |
971 |
3,123 |
2,463 |
Impairment of intangible assets and goodwill |
5,308 |
- |
5,308 |
- |
EBITDA before
impairment |
3,890 |
1,945 |
6,044 |
3,950 |
|
|
|
|
|
Unrealized exchange (gain)
loss |
(273) |
47 |
(616) |
91 |
Stock-based compensation
costs |
55 |
75 |
169 |
233 |
Changes in fair value of the
contingent consideration |
57 |
- |
268 |
- |
Acquisition-related costs,
integration costs and other costs |
46 |
129 |
1,827 |
565 |
Adjusted EBITDA |
3,775 |
2,196 |
7,692 |
4,839 |
Net DebtThe definition of net
debt consists of bank loans and long-term debt less cash. The
definition of net debt used by the Corporation may differ from
those used by other companies.
(In thousands of Canadian dollars) |
March 31, 2020 |
June 30, 2019 |
Variation |
|
$ |
$ |
$ |
% |
Bank loans |
7,182 |
7,545 |
(363) |
(4.8) |
Current portion of long-term
debt |
2,809 |
1,863 |
946 |
50.8 |
Long-term debt |
14,770 |
6,578 |
8,192 |
124.5 |
Less: Cash |
(6,649) |
(6,206) |
(443) |
(7.1) |
Net debt |
18,112 |
9,780 |
8,332 |
85.2 |
Recurring RevenuesThe
Corporation defines recurring revenues 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. However, there is no
guarantee that recurring revenues will last indefinitely. The
Corporation’s recurring revenues are coming from the Aftermarket,
Specialty Products and O&M business lines. This non-IFRS
measure is used by management to evaluate the stability of revenues
from one year to the other.
Reconciliation of net earnings (loss) to
earnings (loss) before impairmentEarnings (loss) before
impairment is defined as the net earnings (loss) before the
impairment charges taken following the impairment test performed
during the third quarter of fiscal year 2020. This non-IFRS measure
is used by management to evaluate the results of the Corporation
before this non-recurring item.
|
Three-month periods ended March
31, |
Nine-month periods ended March
31, |
(In thousands of Canadian dollars) |
2020 |
2019 |
2020 |
2019 |
|
$ |
$ |
$ |
$ |
Net earnings (loss) for the
period |
(3,097) |
532 |
(5,040) |
(1,003) |
Impairment of intangible
assets and goodwill |
5,308 |
- |
5,308 |
- |
Deferred tax impact on impairment |
(581) |
- |
(581) |
- |
Earnings (loss) before impairment |
1,630 |
532 |
(313) |
(1,003) |
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 third quarter financial results in further
details at 10:00 a.m. Eastern Time on Wednesday, May 13,
2020.
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 third
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 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 main pillars.
The first one is Water & Wastewater Projects, and
Aftermarket Services and includes all types of projects as
well as digital solutions (IntelogxTM and Clearlogx®) to monitor
and optimize water treatment plants. H2O Innovation’s second
pillar, Specialty Products, includes a complete
line of maple equipment and products, specialty chemicals,
consumables and specialized products for the water industry,
through H2O Innovation Maple, PWT, Genesys and Piedmont. The
Corporation is now exporting his specialty products in more than 80
countries. Finally, H2O Innovation operates, maintains, and repairs
water and wastewater treatment systems, distribution equipment and
associated assets for all of its clients and ensures that water
quality meets regulatory requirements, through the third pillar –
Operation and Maintenance – under the Utility
Partners and Hays Utility South Corporation brands. Together, they
employ 435 employees for the operation of more than 175 utilities
in two Canadian provinces and eleven US states, mainly on the US
Gulf coast, Southeast, Northeast (New England) and the West Coast.
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 NYSE Euronext Growth Paris accepts
responsibility for the adequacy or accuracy of this release.
Source: H2O Innovation Inc.
www.h2oinnovation.comContact: Marc
Blanchet+1 418-688-0170 marc.blanchet@h2oinnovation.com
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