(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its results for the third quarter of
fiscal year 2019 ended March 31, 2019.
“We are extremely pleased to post these strong
results, as they represent effectively the uniqueness of our
business model providing high recurring revenues, high customers’
retention, multiple sales synergies between our business pillars
and a proven acquisition platform capable to integrate rapidly, and
with efficiency, new acquisitions. Each of our six business lines,
regrouped under three business pillars, continues to strive for
revenue growth, gross margin improvements, SG&A expenses
optimization, product innovation and business process improvements.
Our road map is clear, and our objectives remain ambitious: we want
to scale-up our business with projects providing sales synergies
for the other business lines, develop and add new specialty
products capable to improve our gross profit and leverage our sales
distribution networks, and continue to consolidate the fragmented
market of O&M in North America. Our business has never been as
strong as it is now. Our third quarter results show sustained
EBITDA performance with net earnings along with a strong balance
sheet, paving the way for a strong year end”, stated
Frédéric Dugré, President and Chief Executive Officer of H2O
Innovation.
(in thousands of Canadian dollars, except per share
data) |
Three-month periodsended March
31, |
|
Nine-month periodsended March
31, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Revenues |
32,325 |
|
26,695 |
|
86,074 |
|
75,132 |
|
|
|
|
|
|
Gross profit margin before depreciation and amortization |
7,544 |
|
5,794 |
|
19,294 |
|
16,461 |
|
Gross profit margin before depreciation and amortization (%) |
23.3 |
% |
21.7 |
% |
22.4 |
% |
21.9 |
% |
|
|
|
|
|
Operating expenses |
1,576 |
|
1,098 |
|
4,250 |
|
2,984 |
|
Selling expenses |
1,923 |
|
2,091 |
|
5,560 |
|
5,947 |
|
Administrative expenses |
2,002 |
|
1,713 |
|
4,974 |
|
4,824 |
|
Total SG&A |
5,501 |
|
4,902 |
|
14,784 |
|
13,755 |
|
% SG&A over revenues |
17.0 |
% |
18.4 |
% |
17.2 |
% |
18.3 |
% |
|
|
|
|
|
Net earnings (loss) |
532 |
|
(12 |
) |
(1,003 |
) |
(2,442 |
) |
Basic and diluted net earnings (loss) per share |
0.010 |
|
(0.000 |
) |
(0.021 |
) |
(0.061 |
) |
|
|
|
|
|
Adjusted net earnings (loss) (a) |
1,329 |
|
544 |
|
1,188 |
|
(397 |
) |
Basic and diluted adjusted net earnings (loss) per share |
0.024 |
|
0.014 |
|
0.025 |
|
(0.01 |
) |
|
|
|
|
|
EBITDA (a) |
1,945 |
|
927 |
|
3,950 |
|
2,275 |
|
Adjusted EBITDA(a) |
2,196 |
|
1,078 |
|
4,839 |
|
3,023 |
|
Adjusted EBITDA of revenues (%) |
6.8 |
% |
4.0 |
% |
5.6 |
% |
4.0 |
% |
(a) Non-IFRS
financial measurement reconciled below. |
For the third quarter, consolidated revenues increased by $5.6
M, or 21.1%, to reach $32.3 M compared to $26.7 M for the
comparable quarter of previous fiscal year. This increase is
partially fueled by the acquisition of Hays, contributing
$5.1 M in revenues this quarter, as well as the organic growth
from the Specialty Products and O&M business pillars.
Revenues from Projects & Aftermarket stood
at $8.9 M for this quarter compared to $9.8 M for the corresponding
quarter of the previous fiscal year, representing a decrease of
$0.9 M, or 8.8%. The focus for this business pillar is to improve
the gross profit margin before depreciation and amortization prior
to focusing on growing the volume of revenues. Therefore, to reach
that goal, H2O Innovation is executing more industrial and
wastewater projects previously secured in the backlog 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 37.7% of the
projects being in the field of wastewater as of March 31, 2019,
compared to 23.2% as of March 31, 2018. Diversification is also
seen between industrial and municipal projects, with 35.8% of the
projects being for industrial customers as of March 31, 2019,
compared to 26.8% as of March 31, 2018. Both wastewater and
industrial projects are characterized by better gross profit
margins, while reducing the risk related to focusing on a single
market. The current Projects’ pipeline remains very rich in
opportunities and, as of March 31, 2019, the backlog stood at $48.1
M, compared to $55.0 M for the comparable quarter of fiscal year
2018.
The Specialty Products business pillar is
showing an increase of $0.2 M, or 3.7% of revenues, for the
third quarter of fiscal year 2019 compared to the same quarter of
the previous fiscal year. Despite the slight increase of 3.7%, the
Specialty Products pillar was mostly impacted by a general slowdown
in the Maple industry, due to adverse weather conditions during the
2018 maple syrup season. Such slowdown affected sales of our Maple
products by 30.7% this quarter, compared to the same quarter of the
previous fiscal year. 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. The Maple business line had to scale-down it expenses to
adjust its cost structure according to a lower sales volume. While
this business line is dealing with a slowdown, they continue to
push for product innovation and gross profit margin improvements
through manufacturing process and sourcing optimization. The
increase in revenues seen in 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 third quarter. PWT,
the 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. This
manufacturing improvement, 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. Overall, the Specialty Products, presenting
recurring revenues by nature, stood at $8.0 M, compared to $7.8 M
in the comparable quarter of the previous fiscal year. The increase
in revenues for this business pillar reflects the ongoing effort to
expand its distribution network and to launch new products to
complete its extensive product offering.
The O&M business pillar is showing a
constant growth, with a revenue increase of $6.3 M, or 69.0%,
during the third quarter of fiscal year 2019, compared to the same
quarter of the previous fiscal year. The recurring revenues coming
from the O&M business pillar stood at $15.4 M for the third
quarter of fiscal year 2019, compared to $9.1 M for the comparable
period of 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
projects and scope expansions, as well as by annual consumer price
index (“CPI”) adjustments on existing projects. The acquisition of
Hays added $5.1 M of revenues to this business pillar for the
third quarter of fiscal year 2019. The backlog coming from O&M
contracts stood at $90.6 M as at March 31, 2019, representing an
increase of 33.0% compare to the $68.1 M backlog as at March
31, 2018, and consists of long-term contracts, mainly with
municipalities, comprising multi-year renewal options.
“Four months following the acquisition of Hays,
the integration is moving according to our plans. Indeed, not only
we have been able to retain all Hays’ customers and employees, but
we have also generated our first sales synergies with one of our
existing clients based in Texas. Moreover, we have already expanded
some scope of work, thus revenues, to other MUD (Municipal Utility
District) customers. But most importantly, we have created an
environment where Hays employees feel motivated, inspired by our
vision and want to strive to grow and improve the business. This is
how we are creating value for customers and shareholders in a
sustainable way”, added Frédéric Dugré.
In the third quarter of fiscal year 2019, the
gross profit margin before depreciation and amortization increased
by 30.2%, to reach $7.5 M, while revenues increased by 21.1%. The
increase of gross profit margin before depreciation and
amortization in % is explained by the business mix within the
Specialty Products business pillar, with more sales coming from
higher margins’ products this quarter compared to the same quarter
of the previous fiscal year. The Projects & Aftermarkets
business pillar, although showing a decrease in revenues for this
quarter, is also showing a healthier gross profit margin than the
comparable quarter of the previous fiscal year.
The Corporation’s selling, operating and
administrative expenses (“SG&A”) in dollar increased by
$0.6 M, or 12.2% this quarter, compared to the third quarter
of the previous fiscal year, to support the 21.1% revenue
increases. The increase is mainly due to the acquisition of Hays,
contributing to $0.5 M of this increase during the quarter.
The SG&A over revenues in % decreased to 17.0%, compared to
18.4% for the third quarter of the previous fiscal year. The
decrease is explained by a tight management of SG&A expenses,
while growing revenues over the same period.
The Corporation’s adjusted EBITDA increased to
$2.2 M for the third quarter of fiscal year 2019, from $1.1 M
for the comparable quarter of the previous fiscal year,
representing an increase of $1.1 M, or 103.7%. The adjusted EBITDA
in % increased to 6.8% for the three-month period ended March 31,
2019, compared to 4.0% for the same quarter of last fiscal year.
Increase of the adjusted EBITDA in % was due to an increase of the
gross profit margin before depreciation and amortization,
associated to a higher level of revenues with higher gross profit
margins coming from Specialty Products, and a reduction of the
SG&A %.
The net earnings reached $0.5 M, from a net loss
of ($0.01 M) for the same quarter of the previous fiscal year,
representing an increase of $0.5 M. The net earnings for this
quarter is mostly due to an improved gross profit margins due to
the product mix, as well as through a tight management of expenses.
Gross profit margin before depreciation and amortization improved
at $7.5 M, for the third quarter of fiscal year 2019, compared to
$5.8 M for the comparable quarter of the previous fiscal year,
while revenues increased by 21.1% over the same period. This
increase of gross profit margin before depreciation and
amortization contributed to the net earnings of this quarter.
Indeed, this third quarter was particularly strong with increased
revenues coming from the Specialty Products and O&M business
pillar, while the Projects & Aftermarkets business pillar
presented a slower quarter.
The definition of adjusted net earnings (loss)
excludes acquisition-related costs and integration costs. The
reader can establish the link between net earnings (loss) and
adjusted net earnings (loss) with the following reconciliation
table. The definition of adjusted net earnings (loss) used by the
Corporation may differ from those used by other companies.
|
Three-month periodsended March 31, |
|
Nine-month periodsended March 31, |
|
(in thousands of Canadian dollars) |
2019 |
2018 |
|
2019 |
|
2018 |
|
|
$ |
$ |
|
$ |
|
$ |
|
Net earnings (loss) |
532 |
(12 |
) |
(1,003 |
) |
(2,442 |
) |
Acquisition-related costs, integration costs and other costs USA
(net of tax 23.71%) |
99 |
- |
|
431 |
|
- |
|
Net loss on bank fraud Canada (net of tax 0%)3 |
- |
- |
|
- |
|
363 |
|
Amortization of intangible assets from acquisition Canada
(net of tax 0%)3 |
39 |
39 |
|
118 |
|
118 |
|
Amortization of intangible assets from acquisition USA (net
of tax 23.71%) |
584 |
411 |
|
1,409 |
|
1,232 |
|
Stock based compensation expenses Canada (net of tax
0%)3 |
75 |
106 |
|
233 |
|
332 |
|
Adjusted net earnings (loss) |
1,329 |
544 |
|
1,188 |
|
(397 |
) |
Operating activities used $0.3 M in cash for the
quarter ended March 31, 2019, compared to $2.1 M of cash
generated during the same period of previous fiscal year. This
variation of the cash flows from operating activities reflects the
advancement of major projects, with significant invoicing
milestones reached during the quarter, impacting the change in
working capital items. Moreover, following the equity financing
related to the Hays acquisition, significant accounts payable were
paid, reducing the pressure on cash flow management, but
deteriorating momentarily the change in working capital items.
Reconciliation of net earnings (loss) to
adjusted EBITDAEven though adjusted EBITDA is a non-IFRS
measure, 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 periodsended March
31, |
|
Nine-month periods ended March
31, |
|
(in thousands of Canadian dollars) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
Net
earnings (loss) for the period |
532 |
|
(12 |
) |
(1,003 |
) |
(2,442 |
) |
Finance
costs – net |
352 |
|
76 |
|
1,852 |
|
900 |
|
Income
taxes |
(210 |
) |
(124 |
) |
(229 |
) |
914 |
|
Depreciation of property, plant and equipment |
300 |
|
258 |
|
867 |
|
808 |
|
Amortization of intangible assets |
971 |
|
729 |
|
2,463 |
|
2,095 |
|
EBITDA |
1,945 |
|
927 |
|
3,950 |
|
2,275 |
|
|
|
|
|
|
Unrealized exchange (gains) losses |
47 |
|
(35 |
) |
91 |
|
(108 |
) |
Stock-based compensation costs |
75 |
|
106 |
|
233 |
|
332 |
|
Net loss
on bank fraud |
- |
|
80 |
|
- |
|
443 |
|
Acquisition-related costs, integration costs and other costs |
129 |
|
- |
|
565 |
|
81 |
|
Adjusted EBITDA |
2,196 |
|
1,078 |
|
4,839 |
|
3,023 |
|
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 financial results for 2019 third quarter in
further details at 10:00 a.m. Eastern Time on Wednesday, May
15, 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 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 25, 2018 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 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 and acquisition and integration costs. The reader
can establish the link between adjusted EBITDA and net earnings.
The definition of adjusted EBITDA used by the Corporation may
differ from those used by other companies. |
2 |
The definition of adjusted net earnings (loss) excludes
acquisition-related costs and integration costs. The definition of
adjusted net earnings (loss) used by the Corporation may differ
from those used by other companies. |
3 |
For Canada the tax rate is 0% since the Corporation does not
recognise the deferred tax asset. |
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