(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the first
quarter of fiscal year 2021 ended September 30, 2020.
“We are delighted to present, on the heels of a
solid fourth quarter, strong financial results for this first
quarter of our new fiscal year. As we continue to grow our revenues
organically and through acquisitions, we are enjoying margin
expansion of our gross profit and adjusted EBITDA concurrently,
which translate into an increasing net earnings of $1.0 M for
the first quarter – a record-high quarterly performance for the
Corporation. Our business strategy to focus first on recurring
revenues is working and providing financial stability in such
uncertain and volatile market conditions. Despite the on-going
pandemic, the water sector remains resilient and essential to our
day-to-day. In addition, our business model is robust and our
financial situation is strong, allowing us to envision the coming
fiscal year with confidence and with the ability to complete other
potential acquisitions of Specialty Products and O&M
businesses,” stated Frédéric Dugré, President and
Chief Executive Officer of H2O
Innovation.
|
Three-month periods ended September
30, |
|
(In thousands of Canadian dollars) |
2020 |
2019 |
|
|
$ |
%(a) |
$ |
|
%(a) |
|
Revenues per business pillar |
|
|
|
|
WTS |
6,242 |
17.8 |
8,205 |
|
29.1 |
|
Specialty
products |
11,389 |
32.5 |
5,192 |
|
18.4 |
|
O&M |
17,365 |
49.7 |
14,826 |
|
52.5 |
|
Total revenues |
34,996 |
100.0 |
28,223 |
|
100.0 |
|
|
|
|
|
|
Gross profit
margin before depreciation and amortization |
9,477 |
27.1 |
6,707 |
|
23.8 |
|
SG&A
expenses(b) |
6,209 |
17.7 |
5,052 |
|
17.9 |
|
Net
earnings (loss) for the period |
984 |
2.8 |
(1,033 |
) |
(3.7 |
) |
|
|
|
|
|
EBITDA2 |
3,105 |
8.9 |
1,065 |
|
3.8 |
|
Adjusted
EBITDA1 |
3,482 |
9.9 |
1,625 |
|
5.8 |
|
Recurring
revenues1 |
31,568 |
90.2 |
22,639 |
|
80.2 |
|
(a) |
%
over revenues. |
(b) |
Selling, general and administrative expenses (“SG&A”). |
First Quarter Results
Consolidated revenues from our three business pillars, for the
three-month period ended on September 30, 2020, increased
by $6.8 M, or 24.0 %, to reach $35.0 M compared to $28.2 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 $2.8 M in revenues
during this quarter, and by the acquisition of Gulf Utility
Service, Inc. (“GUS”) on July 1, 2020, which contributed
$1.5 M in revenues during this quarter. The growth is also
explained by the increase of $3.4 M coming from the organic
growth of the Specialty Products business pillar and $1.1 M
coming from O&M, partly offset by the decrease in revenues of
$2.0 M from WTS. 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 WTS business pillar with higher
gross profit margins, or projects that can fuel opportunities for
other business pillars.
The Corporation’s gross profit
margin2 stood at $9.5 M, or 27.1 %, during the first quarter
of fiscal year 2021, compared to $6.7 M, or 23.8 % for the previous
fiscal year, representing an increase of $2.8 M, or 41.3 %. The
percentage increase of gross profit margin is explained by the
business mix, with more sales coming from the Specialty Products
business pillar, which are characterized with higher gross profit
margins’ product, compared to the same quarter of the previous
fiscal year. These higher-margin sales, positively affected by the
acquisition of Genesys and the strong growth of Piedmont business
line, contributed significantly to increase the gross profit margin
in the first quarter of fiscal year 2021. Additionally, the WTS
business pillar showed an improvement of gross profit margin
percentage, in line with the Corporation's strategy.
The Corporation’s SG&A reached $6.2 M during
the first quarter of fiscal year 2021, compared to $5.1 M for the
previous fiscal year, representing an increase of $1.1 M, or 22.9
%, while the revenues of the Corporation increased by 24.0 %. The
acquisition of Genesys in the second quarter of the previous fiscal
year contributed $0.6 M of this increase. The acquisition of GUS on
July 1, 2020 contributed $0.1 M of this increase. Also,
following the acquisition of Genesys located in another country
(United Kingdom), the Corporation incurred higher professional
fees, compared to the same quarter of previous fiscal year. On a
sequential basis, when compared to the fourth quarter of last
fiscal year, the Corporation’s SG&A increased by $0.2 M to
$6.2 M, from $6.0 M, partly due to the acquisition of GUS on
July 1, 2020. Overall, the percentage of SG&A over revenues is
maintained below 18.0 %.
Net earnings amounted to $1.0 M for the first
quarter of fiscal year 2021 compared to a net loss of ($1.0 M) for
the comparable quarter of fiscal year 2020. The variation was
impacted by the increase in the Corporation’s consolidated
revenues, the improvement in gross profit margins, lower
acquisition and integration costs and lower taxes costs. Moreover,
the SG&A percentage over revenues remained stable.
The Corporation’s adjusted EBITDA increased by
$1.9 M, or 114.3 %, to reach $3.5 M during the first quarter of
fiscal year 2021, from $1.6 M for the comparable period of fiscal
year 2020. The adjusted EBITDA % improved and reached 9.9 % for the
first quarter of fiscal year 2021, compared to 5.8 % 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.
Cash flows from operating activities reached
$1.3 M for the quarter ended September 30, 2020, compared to $2.2 M
of cash flows generated from operating activities during the
comparable quarter of the previous fiscal year. The cash flows for
the three months ended September 30, 2020 resulted primarily from
the net earnings of $1.0 M, plus $2.1 M of non-cash
adjustments to the net earnings consisting primarily of
depreciation and amortization, stock-based compensation costs,
changes in fair value of contingent considerations, finance costs –
net, partially offset by the share of profit of an associate and
deferred taxes, and $1.8 M in unfavorable changes in working
capital items. In comparison, the cash flows for the three months
ended September 30, 2019 resulted primarily from the net loss of
$1.0 M, plus $2.2 M of non-cash adjustments to the net loss
consisting primarily of depreciation and amortization, stock-based
compensation costs, changes in fair value of contingent
considerations, finance costs – net, partially offset by deferred
taxes, and $1.0 M in favorable changes in working capital
items.
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
considerations and acquisition and integration costs. 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 September
30, |
|
(In thousands of Canadian dollars) |
2020 |
|
2019 |
|
|
$ |
|
$ |
|
|
|
|
Net earnings
(loss) for the period |
984 |
|
(1,033 |
) |
Finance
costs – net |
579 |
|
453 |
|
Income
taxes |
(296 |
) |
(9 |
) |
Depreciation
of property, plant and equipment and right-of-use assets |
789 |
|
689 |
|
Amortization of intangible assets |
1,049 |
|
965 |
|
EBITDA |
3,105 |
|
1,065 |
|
|
|
|
Unrealized
exchange (gain) loss |
214 |
|
(103 |
) |
Stock-based
compensation costs |
43 |
|
60 |
|
Changes in
fair value of the contingent considerations |
62 |
|
114 |
|
Acquisition and integration costs |
58 |
|
489 |
|
Adjusted EBITDA |
3,482 |
|
1,625 |
|
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 coming from a business with a recurring
customer 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.
Net debt The 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. For more details, please consult the
"Non-IFRS financial measurements" section of the MD&A.
Net-debt-to-adjusted EBITDA ratio is a non-IFRS measure without a
standardized definition within IFRS. The Corporation uses this
ratio as a measure of financial leverage and it is calculated using
our trailing twelve month adjusted EBITDA.
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 first quarter
financial results in further details at 10:00 a.m. Eastern
Time on Tuesday, November 10, 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 first quarter financial report is
available on www.h2oinnovation.com. 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 275
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. 2 Gross
profit margin presented before depreciation and
amortization.
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