(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the second
quarter of fiscal year 2021 ended December 31, 2020.
“We are delighted to present a solid financial
performance as well as continuous business improvements during our
second quarter of fiscal year 2021. These results are in line with
our short-term and 3-year financial targets which aim to continue
to expand our operational and EBITDA margins. Strategically, our
focus to maximize customer retention through recurrent products and
services offering, to push for innovation and operational
excellence is paying-off. Combined to our M&A strategy, in
which GMP’s recent acquisition fits perfectly, we are in a good
position to exceed our 11.0 % adjusted EBITDA target that we
set for FY2023. Moreover, the addition of two (2) new O&M
municipal long-term contracts in the state of Florida and New
Hampshire combined to the recent $3.2 M wins of high-profile
industrial and wastewater projects in the WTS business pillar,
solidifies our business model and our organic growth in the coming
quarters and position H2O Innovation as a water player of essential
reputation”, stated Frédéric Dugré, President and Chief
Executive Officer of H2O
Innovation.
(In thousands of Canadian dollars) |
Three-month periods ended December
31, |
Six-month periods ended December
31, |
2020 |
2019 |
2020 |
2019 |
|
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
$ |
% (a) |
Revenues per business pillar |
|
|
|
|
|
|
|
|
WTS |
6,944 |
19.9 |
7,384 |
22.2 |
13,186 |
18.9 |
15,589 |
25.3 |
Specialty
products |
10,387 |
29.7 |
10,375 |
31.1 |
21,776 |
31.1 |
15,567 |
25.3 |
O&M |
17,638 |
50.4 |
15,575 |
46.7 |
35,003 |
50.0 |
30,401 |
49.4 |
Total revenues |
34,969 |
100.0 |
33,334 |
100.0 |
69,965 |
100.0 |
61,557 |
100.0 |
|
|
|
|
|
|
|
|
|
Gross profit
margin before depreciation and amortization |
9,385 |
26.8 |
8,283 |
24.8 |
18,862 |
27.0 |
14,974 |
24.3 |
SG&A
expenses(b) |
5,840 |
16.7 |
5,896 |
17.7 |
12,049 |
17.2 |
10,955 |
17.8 |
Net earnings
(loss) for the period |
268 |
0.8 |
(909) |
(2.7) |
1,252 |
1.8 |
(1,945) |
(3.2) |
EBITDA1 |
2,827 |
8.1 |
1,113 |
3.3 |
5,932 |
8.5 |
2,154 |
3.5 |
Adjusted
EBITDA1 |
3,562 |
10.2 |
2,313 |
6.9 |
7,044 |
10.1 |
3,916 |
6.4 |
Recurring revenues2 |
31,163 |
89.1 |
28,033 |
84.1 |
62,731 |
89.7 |
50,672 |
82.3 |
(a) % over revenues.(b) Selling, general and administrative
expenses (“SG&A”).
Second Quarter
Results Consolidated revenues from the
Corporation’s three business pillars, for the three-month period
ended on December 31, 2020, increased by $1.7 M, or 4.9 %, to reach
$35.0 M compared to $33.3 M for the comparable quarter of previous
fiscal year. This overall increase is fueled by the acquisition of
Gulf Utility Services (“GUS”) on July 1, 2020, which contributed
$1.7 M in revenues during this quarter. Genesys, which was
acquired on November 15, 2019, contributed $3.0 M to the revenues
of the second quarter of fiscal year 2021, compared to $1.6 M for
the same quarter of fiscal year 2020. The first quarter of fiscal
year 2021 was strong for Specialty Products business pillar,
including the delivery of significant orders. Therefore, having an
exceptional first quarter, with several large-scale orders
delivered before September 30, 2020 had the effect of having less
orders delivered in the second quarter and consequently, less
revenue recognition. The O&M business pillar was positively
impacted by the acquisition of GUS and showed organic growth of
$0.3 M this quarter. During the second quarter, the O&M
team started a new 3-year contract for a municipality in Florida,
which also impacted positively the revenues of this business
pillar. Revenues coming from the WTS business pillar decreased by
$0.4 M compared to the same quarter of fiscal year 2020 but is
in line with the Corporation’s business plan to prioritize WTS’
projects with higher gross profit margins, or projects that can
fuel opportunities for other business pillars. With $3.2 M of new
industrial and municipal projects secured at the end of the second
quarter and early January 2021, revenues from the WTS business
pillar are expected to gain positive momentum in the coming
quarters of H2O Innovation’s current fiscal year.
The Corporation’s gross profit margin3 stood at
$9.4 M, or 26.8 %, during the second quarter of fiscal year 2021,
compared to $8.3 M, or 24.8 % for the previous fiscal year,
representing an increase of $1.1 M, or 13.3 %. The increase of
gross profit margin (%) is explained by the business mix in the
Specialty Products business pillar, with more sales coming from
Genesys, characterized with higher gross profit margins’ products,
compared to the same quarter of the previous fiscal year.
Additionally, the WTS and O&M business pillars showed an
improvement of gross profit margin (%), in line with the
Corporation's strategy to focus on projects with a higher margin
profile.
The Corporation’s SG&A reached $5.8 M during
the second quarter of fiscal year 2021, compared to $5.9 M for the
same period of the previous fiscal year, representing a decrease of
$0.1 M, or 0.9 %, while the revenues of the Corporation increased
by 4.9 %. The decrease is driven by the reduction in selling and
general expenses in the WTS business pillar following the
restructuring implemented by the Corporation in the fourth quarter
of fiscal year 2020, partly offset by the acquisition of GUS on
July 1, 2020 and the acquisition of Genesys on November 15,
2019, which contributed $0.1 M and $0.4 M respectively in
SG&A expenses. On a sequential basis, when compared to the
first quarter of fiscal year 2021, the Corporation’s SG&A
decreased by $0.4 M to $5.8 M, from $6.2 M, partly due to
higher professional fees occurred in the first quarter. Overall,
the SG&A ratio is maintained below 18.0 %.
Net earnings amounted to $0.3 M and $0.003 per
share for the second quarter of fiscal year 2021 compared to a net
loss of ($0.9 M) and ($0.014) per share 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 that were
compensated by higher taxes expenses and higher other losses
resulting from fluctuations in the exchange rates. Moreover, the
SG&A ratio decreased from 17.7 % to 16.7 %.
The Corporation’s adjusted EBITDA increased by
$1.3 M, or 54.0 %, to reach $3.6 M during the second quarter of
fiscal year 2021, from $2.3 M for the comparable period of fiscal
year 2020. The adjusted EBITDA % improved and reached 10.2 % for
the second quarter of fiscal year 2021, compared to 6.9 % for the
same quarter of last fiscal year. Improvement of the adjusted
EBITDA was driven by the increase in the Corporation’s consolidated
revenues, by the improvement in gross profit margins and the
decrease of SG&A ratio.
Cash flows from operating activities used ($0.3
M) for the quarter ended December 31, 2020, compared to
($0.4 M) of cash flows used from operating activities during
the same period of previous fiscal year. The cash flows for the
three-month ended December 31, 2020 resulted primarily from the net
earnings of $0.3 M, plus $2.5 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
$3.1 M in unfavorable changes in working capital items. In
comparison, the cash flows for the three-month ended December 31,
2019 resulted primarily from the net loss of ($0.9 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 $1.7 M in
unfavorable changes in working capital items.
Six-months results Revenues
stood at $70.0 M, compared to $61.6 M last year; gross margin was
$18.9 M, or 27.0 %, compared to $15.0 M, or 24.3 % last year;
adjusted EBITDA was $7.0 M, or 10.1 %, compared to $3.9 M, or 6.4 %
last year; net earnings was $1.3 M, or $0.016 per share, compared
to a net loss of ($1.9 M), or ($0.033) per share last year,
essentially for the same reasons mentioned for the second
quarter.
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 endedDecember 31, |
Six-month periods endedDecember 31, |
(In thousands of Canadian dollars) |
2020 |
2019 |
2020 |
2019 |
|
$ |
$ |
$ |
$ |
Net earnings
(loss) for the period |
268 |
(909) |
1,252 |
(1,945) |
Finance
costs – net |
534 |
610 |
1,113 |
1,039 |
Income
taxes |
235 |
(297) |
(61) |
(304) |
Depreciation
of property, plant and equipment and right-of-use assets |
789 |
691 |
1,578 |
1,380 |
Amortization of intangible assets |
1,001 |
1,018 |
2,050 |
1,984 |
EBITDA |
2,827 |
1,113 |
5,932 |
2,154 |
|
|
|
|
|
Unrealized
exchange (gain) loss |
428 |
(241) |
642 |
(344) |
Stock-based
compensation costs |
39 |
54 |
82 |
114 |
Changes in
fair value of the contingent consideration |
42 |
96 |
104 |
211 |
Acquisition and integration costs |
226 |
1,291 |
284 |
1,781 |
Adjusted EBITDA |
3,562 |
2,313 |
7,044 |
3,916 |
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 second quarter
financial results in further details at 10:00 a.m. Eastern
Time on Thursday, February 11, 2021.
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 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 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. Forward-looking statements concern
analysis and other information based on forecast future results and
the estimate of amounts that cannot yet be determined and are based
on the estimates and opinions of management on the date the
statements are made.
In this press release, such forward-looking
statements include, but are not limited to, statements regarding
the Corporation’s ability to grow its business and to reach
specific financial objectives and targets and involve several risks
and uncertainties. Those risks and uncertainties include, without
limitations, the Corporation’s ability to maintain its financial
position and its business improvements and to complete, deliver and
execute new WTS and O&M projects, in due time and as expected
by the customers, despite the challenges the world is facing with
the current COVID-19 pandemic. 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).
Should one or more of these risks or
uncertainties materialize, or should the assumptions underlying
those forward-looking statements prove incorrect, actual results
may vary materially from those described herein. 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 75 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. 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
press release. 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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