(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the fourth
quarter and fiscal year ended June 30, 2020.
“The fourth quarter and year-end financial
results of fiscal year 2020 are solid and representative of all the
improvements implemented by the Corporation. The sustained net
earnings shown in the fourth quarter and the continuous EBITDA
improvement testify to the success of our strategy to focus on
building a business relying on recurring sales, which represented
86.2 % of our revenues. The revenue growth was notably driven
by the acquisition of Genesys, completed in the second quarter of
this fiscal year. This acquisition has enabled us to double our
distribution network, expand our chemical manufacturing
capabilities in the United Kingdom and complement our specialty
chemical product line. Organic growth was also driven by Piedmont
which successfully secured and delivered major coupling and filter
housing orders, including one for the largest desalination plant in
the world (Tawelaah, UAE - 900,000 m3/d). From these new client
relationships in the Middle East, the Corporation expects to
generate more synergies through the selling of its specialty
chemicals. The strong cash flow from operating activities of
$12.3 M generated during the year, allowed us to reimburse a
portion of our bank loans and minimize risks associated to market
uncertainties. Thanks to our O&M business pillar that
represents 48.0 % of the consolidated revenues, we have been
able to maintain continuous free cash flow. This strong performance
allowed us to complete the acquisition of Gulf Utility Service
right after our year-end, adding more revenues, opportunities, and
operational synergies in the State of Texas. Despite a slowdown in
our Water Technology and Services (“WTS”) business pillar in the
last fiscal year, the strategic orientation to focus on industrial
and higher margin projects is starting to pay off. Indeed, our
backlog is growing with the addition of 6 new industrial and
municipal projects, worth $17.8 M, as announced on August 24, 2020.
In light of the COVID‑19 pandemic, we came to realize even more
that the water sector is in good position and that we have a
resilient and robust business model. Our consolidated backlog
stands at $125.4 M, our financial situation is strong, and our
balance sheet is not highly leveraged, positioning us positively to
navigate through a possible extended COVID-19 crisis with multiple
opportunities ahead of us. Finally, it is with honor and humility
that we have seen H2O Innovation nominated earlier in March, along
with 3 other large water companies, as Water Company of the Year by
the Global Water Intelligence”, stated Frédéric Dugré,
President and Chief Executive Officer of
H2O Innovation.
(In thousands of Canadian dollars) |
Three-month periods ended June 30, |
Twelve-month periods ended June 30, |
2020 |
2019 (b) |
2020 |
2019 (b) |
|
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
Revenues per business pillar |
|
|
|
|
|
|
|
|
WTS |
6,982 |
19.4 |
9,162 |
28.7 |
29,298 |
21.9 |
40,245 |
34.1 |
Specialty
Products |
11,716 |
32.6 |
6,832 |
21.4 |
40,175 |
30.1 |
24,943 |
21.1 |
O&M |
17,281 |
48.0 |
15,890 |
49.9 |
64,124 |
48.0 |
52,770 |
44.8 |
Total revenues |
35,979 |
100.0 |
31,884 |
100.0 |
133,597 |
100.0 |
117,958 |
100.0 |
|
|
|
|
|
|
|
|
|
Gross profit
margin before depreciation and amortization |
10,598 |
29.5 |
7,824 |
24.5 |
35,908 |
26.9 |
27,118 |
23.0 |
SG&A
expenses(c) |
6,016 |
16.7 |
5,641 |
17.7 |
23,748 |
17.8 |
20,425 |
17.3 |
Net
earnings (loss) |
813 |
2.3 |
(1,177) |
(3.7) |
(4,227) |
(3.2) |
(2,180) |
(1.8) |
Earnings
(loss) before impairment and restructuring costs1 |
1,219 |
3.4 |
(1,177) |
(3.7) |
906 |
0.7 |
(2,180) |
(1.8) |
EBITDA1 |
3,954 |
11.0 |
1,688 |
5.3 |
4,690 |
3.5 |
5,638 |
4.8 |
Adjusted
EBITDA1 |
4,832 |
13.4 |
2,374 |
7.4 |
12,524 |
9.4 |
7,213 |
6.1 |
Recurring revenues2 |
31,379 |
87.2 |
25,526 |
80.1 |
115,110 |
86.2 |
89,486 |
75.9 |
|
(a) |
% of
revenues. |
|
(b) |
Comparative figures have not been adjusted to reflect the
adoption of IFRS 16 – Leases as set out in the accounting
policy. |
|
(c) |
Selling, general operating and administrative expenses
(“SG&A”). |
Financial results for the fiscal year
2020 Consolidated revenues from our three
business pillars, for the year ended on June 30, 2020, increased by
$15.6 M, or 13.3 %, to reach $133.6 M compared to $118.0 M for the
previous fiscal year. This overall increase is fueled by the
acquisition of Genesys during the second quarter of fiscal year
2020, which generated $7.2 M in revenues during this fiscal
year. The growth is also explained by the increase of $8.0 M
coming from the organic growth of the Specialty Products business
pillar and $11.3 M coming from O&M, partly offset by the
decrease in revenues of $10.9 M from the WTS business pillar. Such
increase is in line with our business plan to grow first the
Specialty Products and O&M business pillars, as well as to
prioritize projects in the WTS business pillar with higher profit
margins, fueling opportunities for the other business pillars.
The net loss amounted to ($4.2 M) or ($0.061)
per share for the year ended June 30, 2020 compared to a net loss
of ($2.2 M) or ($0.044) per share for the fiscal year 2019. The net
loss variation is mostly due to the impairment of $5.3 M taken
in the WTS business pillar to reduce the value of the goodwill and
intangible assets, with related deferred tax impact of
($0.6 M) and restructuring costs of $0.4 M triggered by the
restructuring of the WTS business pillar. Without the impact of the
impairment and restructuring costs, the Corporation would present
net earnings of $0.9 M for the year ended June 30, 2020. The net
loss is also due to acquisition and integration costs in the amount
of $1.9 M and to the increased level of depreciation and
amortization. The increased level of depreciation and amortization
is mainly coming from the increased level of intangible assets
acquired through Genesys during the second quarter of the fiscal
year 2020 and the adoption of IFRS 16 – Leases,
which resulted in a depreciation charge for the right-of-use
assets.
The Corporation’s gross profit margin before
depreciation and amortization stood at $35.9 M, or 26.9 %, for the
year ended June 30, 2020, compared to $27.1 M, or 23.0 % for the
previous fiscal year, representing an increase of $8.8 M, or 32.4
%. The adoption of IFRS 16 – Leases resulted in a decrease of the
cost of goods sold (“COGS”) expenses of $0.5 M for the year
ended June 30, 2020. The increase of gross profit margin before
depreciation and amortization in % is explained by the business
mix, with more sales coming from the Specialty Products business
pillar, which are characterized with higher margins’ products.
The Corporation’s SG&A stood at $23.7 M for
the year ended June 30, 2020, compared to $20.4 M for the previous
fiscal year, representing an increase of $3.3 M, or 16.3 %, while
the revenues of the Corporation increased by 13.3 %. The general
increase of SG&A grew faster than the general level of
revenues, mainly due to the WTS business pillar, as the level of
revenue decreased while the cost structure remained the same. The
acquisition of Genesys in the second quarter also contributed
$1.7 M of this increase. The cancellation of marketing
activities combined to a reduction in travel, meals and
entertainment costs for resources in SG&A expenses generated
savings of $0.2 M as a result of the COVID-19 pandemic. The
adoption of IFRS 16 – Leases resulted in a decrease of the SG&A
expenses of $0.8 M for the year ended June 30, 2020. Overall,
the percentage of SG&A over revenues is maintained below
18.0 %.
The Corporation’s adjusted EBITDA increased by
$5.3 M, or 73.6 %, to reach $12.5 M for the year ended June 30,
2020, compared to $7.2 M for the previous fiscal year. The adjusted
EBITDA % improved and reached 9.4 % for the years ended June 30,
2020, compared to 6.1 % for the same period of last fiscal year.
The adoption on July 1, 2019 of IFRS 16 - Leases
contributed to reduce by $1.3 M the operating lease expenses
for fiscal year 2020. Excluding the adjustment from
IFRS 16 - Leases, the adjusted EBITDA would have
been 8.4 %.
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, WTS –
mostly impacted by projects being delayed or cancelled. As a result
of this analysis, management recognized an impairment charge of
$5.3 M against goodwill and intangible assets pertaining to the WTS
business pillar. The decision to review to a lower percentage its
growth perspective for the WTS pillar, is in line with our
strategic decision to further grow the Specialty Products and
O&M first, then WTS, due to its unpredictability, challenging
execution schedule and lower gross profit margins.
On August 24, 2020, the Corporation announced a
strategic change in its business alignment. The Water &
Wastewater Treatment Projects and Aftermarket Services business
lines are now combined into a single business called WTS. The
Corporation’s strategy is the change in focus of this business
pillar towards customers which will value the long-term services
and consumables and create financial sustainability from a more
stable revenue stream. The restructuring of this business pillar
combined with the notice of cancellation for a major project
announced on May 5, 2020, led unfortunately to layoffs.
The restructuring costs recognized for the year ended
June 30, 2020 were mainly severances and termination
costs amounting to $0.4 M.
Management maintains its objective of improving
the Corporation’s profitability and will remain selective on the
WTS projects on which it intends to bid. Management also maintains
its strategy, which aims at growing the Specialty Products and
O&M business pillars to continue to grow recurring revenues, in
particular Specialty Products revenues, which are characterized by
higher gross profit margins.
Cash flows from operating activities generated
$12.3 M for the year ended June 30, 2020, compared to $5.8 M of
cash flows generated from operating activities during the previous
fiscal year. The increase in the cash flows from operating
activities is driven by the increase in revenues as well as by the
improvement of the gross profit margins and the change in working
capital items.
Financial results for the fourth quarter
of fiscal year 2020 Corporation’s consolidated revenues
for the fourth quarter of fiscal year 2020 were up by 12.8 %, or
$4.1 M, to $36.0 M from $31.9 M for the same period of the
previous fiscal year. This increase is partially fueled by the
acquisition of Genesys, adding $2.5 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
WTS decreased.
The Corporation’s gross profit margin before
depreciation and amortization stood at $10.6 M, or 29.5 %, during
the fourth quarter of fiscal year 2020, compared to $7.8 M, or 24.5
% for the previous fiscal year, representing an increase of $2.8 M,
or 35.5 %. The increase in consolidated gross profit margin is
mainly explained by the increase in revenues coming from the
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 Piedmont
business line, contributed significantly to increase the gross
profit margin before depreciation and amortization in the fourth
quarter of fiscal year 2020. The adoption of IFRS 16 – Leases
resulted in a decrease of the COGS expenses of $0.1 M for the
fourth quarter of fiscal year 2020.
The Corporation’s adjusted EBITDA increased by
$2.4 M, or 103.5 %, to reach $4.8 M during the fourth quarter of
fiscal year 2020, compared to $2.4 M for the comparable period of
fiscal year 2019. The adjusted EBITDA % improved and reached 13.4 %
for the fourth quarter of fiscal year 2020, compared to 7.4 % 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 $0.3 M the operating lease expenses for the quarter.
Excluding the adjustment from IFRS 16 - Leases, the
adjusted EBITDA would have been 12.5 %.
Subsequent events On July 2,
2020, the Corporation announced the acquisition of Gulf Utility
Service, Inc. (“GUS”), a company offering complete operation,
maintenance and management services to water and wastewater
infrastructures for different type of clients such as
municipalities, municipal utility districts (commonly known as MUD)
and public water systems in the State of Texas (United States). The
total purchase price amounts to $3.7 M (US$2.8 M) and is subject to
certain adjustments. The Corporation secured an additional
long-term debt of $2.1 M in order to complete this acquisition. The
remaining portion of the purchase price is financed from the
working capital of the Corporation.
With over 20 years of experience in the
operation and maintenance sector of water and wastewater treatment
systems, GUS offers its services to approximately 40 municipal and
private customers, servicing more than 10,000 users. These
additional clients and users are added to the Corporation’s O&M
customer base in Texas, totaling now 85 customers. On a combined
basis, the Corporation can now count on 110 employees based in
Texas to support its operations and future growth.
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, acquisition and integration costs, restructuring
costs and impairment of intangible assets and goodwill. The reader
can establish the link between adjusted EBITDA and net earnings
(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 June 30, |
Twelve-month periods ended June 30, |
(In thousands of Canadian dollars) |
2020 |
2019 |
2020 |
2019 |
|
$ |
$ |
$ |
$ |
Net earnings
(loss) for the period |
813 |
(1,177) |
(4,227) |
(2,180) |
Finance
costs – net |
529 |
219 |
2,037 |
2,071 |
Income
taxes |
618 |
651 |
(319) |
422 |
Depreciation
of property, plant and equipment |
798 |
482 |
2,880 |
1,349 |
Amortization
of intangible assets |
1,196 |
1,513 |
4,319 |
3,976 |
EBITDA |
3,954 |
1,688 |
4,690 |
5,638 |
|
|
|
|
|
Impairment
of intangible assets and goodwill |
- |
- |
5,308 |
- |
Unrealized
exchange (gain) loss |
272 |
131 |
(344) |
222 |
Stock-based
compensation costs |
54 |
75 |
223 |
308 |
Changes in
fair value of the contingent consideration |
61 |
248 |
329 |
248 |
Acquisition
and integration costs |
85 |
232 |
1,912 |
797 |
Restructuring costs |
406 |
- |
406 |
- |
Adjusted EBITDA |
4,832 |
2,374 |
12,524 |
7,213 |
Recurring revenues Recurring
revenue by nature 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 Specialty
Products and O&M business pillars as well as the service
activities of the WTS business pillar. 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 impairment and restructuring costs
Earnings (loss) before impairment and restructuring costs is
defined as the net earnings (loss) before the impairment charges
and related deferred tax impact, following the impairment test
performed during the third quarter of fiscal year 2020, and
restructuring costs. This non-IFRS measure is used by management to
evaluate the results of the Corporation before this non-recurring
item.
|
Three-month periods ended June 30, |
Twelve-month periods ended June 30, |
(In thousands of Canadian dollars) |
2020 |
2019(1) |
2020 |
2019(1) |
|
$ |
$ |
$ |
$ |
Net earnings
(loss) for the period |
813 |
(1,177) |
(4,227) |
(2,180) |
Impairment
of intangible assets and goodwill |
- |
- |
5,308 |
- |
Restructuring costs |
406 |
- |
406 |
- |
Deferred tax impact on impairment |
- |
- |
(581) |
- |
Earnings (loss) before impairment and
restructuring costs |
1,219 |
(1,177) |
906 |
(2,180) |
(1) Comparative figures have not been adjusted
to reflect the adoption of IFRS 16 – Leases as set out in the
accounting policy.
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 2020 financial results in further details at
10:00 a.m. Eastern Time on Thursday, September 24, 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 annual financial report is available
on www.h2oinnovation.com and on the NYSE Euronext Growth Paris
website. Additional information on the Corporation is also
available on SEDAR (www.sedar.com).
Prospective Disclosures Certain
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 23, 2020 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 Technologies and 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 70 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 names Utility Partners, Hays
Utility South Corporation and Gulf Utility Service. Together, they
employ nearly 470 employees for the operation of more than 200
utilities in two Canadian provinces and twelve 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.com Contact: Marc Blanchet
+1 418-688-0170 marc.blanchet@h2oinnovation.com 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. 2 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.
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