(TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the third
quarter of fiscal year 2021 ended March 31, 2021.
“Once again we are extremely proud to present a
strong financial performance for our Q3 results. The sustained free
cash generated from our operations combined with constant margin
improvement testifies to the work of the last months, even years.
As we continue to build our platform of complementary water
treatment technologies and services through acquisitions and
innovations, we multiply the synergies between these technologies
and services which simultaneously fosters an exceptional business
culture full of diverse talents. The multiple synergies become our
competitive advantage as they generate value for our customers and
help the Corporation preserve long term business relationships,
thus causing high recuring revenues. With a strong financial
position showing a net debt-to-adjusted EBITDA ratio of 0.20, we
have room to invest in organic growth opportunities and to realize
strategic acquisitions, and therefore achieve our 3-year Plan.
Despite the lasting COVID-19 pandemic, our business model combined
with the essential nature of the products and services offered is
providing financial robustness and resiliency", stated
Frédéric Dugré, President and Chief Executive Officer of
H2O Innovation.
(In thousands of Canadian dollars) |
Three-month periods ended March
31, |
Nine-month periods ended March
31, |
|
2021 |
2020 |
|
2021 |
2020 |
|
|
$ |
% (a) |
$ |
|
% (a) |
|
$ |
% (a) |
$ |
|
% (a) |
|
Revenues per business pillar |
|
|
|
|
|
|
|
|
WTS |
10,095 |
25.7 |
6,726 |
|
18.7 |
|
23,281 |
21.3 |
22,316 |
|
22.9 |
|
Specialty
products |
11,810 |
30.2 |
12,893 |
|
35.8 |
|
33,586 |
30.8 |
28,459 |
|
29.1 |
|
O&M |
17,250 |
44.1 |
16,442 |
|
45.5 |
|
52,253 |
47.9 |
46,843 |
|
48.0 |
|
Total revenues |
39,155 |
100.0 |
36,061 |
|
100.0 |
|
109,120 |
100.0 |
97,618 |
|
100.0 |
|
|
|
|
|
|
|
|
|
|
Gross profit
margin before depreciation and amortization |
11,081 |
28.3 |
10,336 |
|
28.7 |
|
29,943 |
27.4 |
25,310 |
|
25.9 |
|
SG&A
expenses(b) |
6,497 |
16.6 |
6,777 |
|
18.8 |
|
18,546 |
17.0 |
17,732 |
|
18.2 |
|
Net earnings
(loss) for the period |
2,062 |
5.3 |
(3,097 |
) |
(8.6 |
) |
3,314 |
3.0 |
(5,040 |
) |
(5.2 |
) |
EBITDA1 |
5,347 |
13.7 |
3,890 |
|
10.8 |
|
11,279 |
10.3 |
6,044 |
|
6.2 |
|
Adjusted
EBITDA1 |
4,513 |
11.5 |
3,775 |
|
10.5 |
|
11,557 |
10.6 |
7,692 |
|
7.9 |
|
Adjusted
net earnings1 |
2,181 |
5.6 |
2,310 |
|
6.4 |
|
6,014 |
5.5 |
3,254 |
|
3.3 |
|
Recurring revenues1 |
32,339 |
82.6 |
31,796 |
|
88.2 |
|
95,070 |
87.1 |
83,731 |
|
85.8 |
|
- % of revenues.
- Selling, general and administrative expenses (“SG&A”).
Third Quarter
Results Despite the significant negative CAD-USD
foreign exchange rate impact, consolidated revenues from the
Corporation’s three business pillars for the three-month period
ended on March 31, 2021, increased by $3.1 M, or 8.6 %, to reach
$39.2 M compared to $36.1 M for the comparable quarter of previous
fiscal year. Assuming a constant USD exchange rate during this
quarter, the consolidated percentage increase would have been
12.1 %, or $4.3 M. This overall increase is fueled by the
strong performance of our WTS business pillar, the acquisition of
GUS on July 1, 2020, which contributed $1.3 M in
revenues, and the acquisition of GMP on February 1, 2021, which
contributed $1.5 M in revenues during this quarter.
Revenues coming from the WTS business pillar
increased by $3.4 M compared to the same quarter of fiscal year
2020. The increase was primarily due to the recent wave of projects
captured as well as the resumption of work following the delays
caused by the COVID-19 pandemic. 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
gaining positive momentum. It 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. The O&M business pillar was positively impacted by the
acquisition of GUS and showed organic growth of $0.5 M this
quarter, offset by an unfavorable USD exchange rate impact of
$1.0 M. Revenues coming from the Specialty Products business
pillar decreased compared to the same quarter of last fiscal year,
explained by the business mix and the timing of certain deliveries.
During the third quarter of fiscal year 2020, Piedmont business
line had exceptional deliveries which generated record revenues,
while during the third quarter of this fiscal year, the number of
deliveries for Piedmont business line was not at the same level.
Nevertheless, revenues coming from the Specialty Products business
pillar for the last twelve months increased by 28.0 % compared
to the previous twelve-month period, largely coming from
acquisitions.
The Corporation’s gross profit
margin2 stood at $11.1 M, or 28.3 %, during the third quarter
of fiscal year 2021, compared to $10.3 M, or 28.7 % for the
previous fiscal year, representing an increase of $0.8 M, or 7.2 %.
The decrease of gross profit margin (%) before depreciation and
amortization is explained by the business mix, with more sales
coming from the WTS business pillar and less sales coming from the
Specialty Products business pillar this quarter. The WTS business
pillar showed an improvement of gross profit margin (%) before
depreciation and amortization, in line with the Corporation's
strategy to focus on projects with a higher margin profile. O&M
business pillar’s focus is to improve efficiency through the
business combination of Utility Partners, Hays Utility South
Corporation and Gulf Utility Services announced on December 1, 2020
and effective on January 1, 2021. The merger of these
companies will enhance the vertical integration of our product and
service offering to our customers. By operating under a single
brand, the Corporation believes it should also facilitate the
generation of cross-selling synergies between the Corporation’s
different business lines. Moreover, this single brand identity will
contribute to elevate H2O Innovation profile and awareness within
the different geographies where H2O Innovation is established in
North America. From a financial and commercial perspectives, it
will allow the Corporation to generate additional savings, to
streamline the business processes and to solidify the O&M
platform for future acquisitions and organic growth opportunities.
This initiative shall continue to improve the gross profit
margin.
The Corporation’s SG&A reached $6.5 M during
the third quarter of fiscal year 2021, compared to $6.8 M for the
same period of the previous fiscal year, representing a decrease of
$0.3 M, or 4.1 %, while the revenues of the Corporation increased
by 8.6 %. The decrease is driven in part by lower travel expenses
due to the COVID-19 pandemic and the decrease in the USD exchange
rate compared to the same quarter of last fiscal year. Moreover,
the Corporation had full impact of the 2020 restructuring plan
related to the WTS business pillar, which reduced the S&GA this
quarter, partly offset by the acquisition of GUS on July 1, 2020
and the acquisition of GMP on February 1, 2021, which contributed
$0.1 M and $0.2 M respectively in SG&A expenses. On a
sequential basis, when compared to the second quarter of fiscal
year 2021, the Corporation’s SG&A increased by $0.7 M to
$6.5 M, from $5.8 M, partly due to the acquisition of GMP and
higher employee compensation costs compared to the previous
quarter.
Net earnings amounted to $2.1 M, or $0.026 per
share, for the third quarter of fiscal year 2021 compared to a net
loss of ($3.1 M), or ($0.040) per share, for the comparable quarter
of fiscal year 2020. The variation was impacted by the increase in
the Corporation’s consolidated revenues, lower impairment costs and
the fair value gain on step acquisition that were compensated by
higher other losses, higher income taxes expenses, higher finance
costs and higher acquisition and integration costs. Moreover, the
SG&A ratio decreased from 18.8 % to 16.6 %. The Corporation
recognized a gain of $2.3 M as a result of measuring at fair value
its 24.0 % equity interest in GMP held before the business
combination. Adjusted net earnings amounted to $2.2 M, or
$0.027 per share, for the third quarter of fiscal year 2021
compared to adjusted net earnings of $2.3 M, or $0.030 per
share, for the comparable quarter of fiscal year 2020. The
variation of the adjusted net earnings is explained by the same
factors mentioned above, and by an impairment taken during the
third quarter of fiscal year 2020.
The Corporation’s adjusted EBITDA increased by
$0.7 M, or 19.5 %, to reach $4.5 M during the third quarter of
fiscal year 2021, from $3.8 M for the comparable period of fiscal
year 2020. The adjusted EBITDA % improved and reached 11.5 % for
the third quarter of fiscal year 2021, compared to 10.5 % 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 the decrease of SG&A ratio, partly offset by a
gross profit margin in % reduction associated with product mix.
Cash flows from operating activities generated
$10.2 M for the quarter ended March 31, 2021, compared to
$0.9 M of cash flows generated from operating activities
during the same period of previous fiscal year. The cash flows for
the three-month ended March 31, 2021 resulted primarily from the
net earnings of $2.1 M, plus $1.6 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, income taxes, partially offset by the share of profit of an
associate and the fair value gain on step acquisition, and
$6.5 M in favorable changes in working capital items. In
comparison, the cash flows for the three-month ended
March 31, 2020 resulted primarily from the net loss of
$3.1 M, plus $7.1 M of non-cash adjustments to the net loss
consisting primarily of depreciation and amortization, impairment
of intangible assets and goodwill, stock-based compensation costs,
changes in fair value of contingent considerations, finance costs –
net, partially offset by deferred taxes, and $3.1 M in
unfavorable changes in working capital items.
Nine-months results Revenues
stood at $109.1 M, compared to $97.6 M last year; gross margin was
$29.9 M, or 27.4 %, compared to $25.3 M, or 25.9 % last year;
adjusted EBITDA was $11.6 M, or 10.6 %, compared to $7.7 M, or 7.9
% last year; and net earnings was $3.3 M, or $0.042 per share,
compared to a net loss of ($5.0 M), or ($0.079) per share last
year, essentially for the same reasons mentioned for the third
quarter.
Reconciliation of net earnings (loss) to
EBITDA and to adjusted EBITDA The definition of adjusted
earnings before interest, income 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,
impairment of intangible assets and goodwill, the faire value gain
on step acquisition and litigation provision. 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 March 31, |
|
Nine-month periods ended March 31, |
|
(In thousands of Canadian dollars) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Net earnings
(loss) for the period |
2,062 |
|
(3,097 |
) |
3,314 |
|
(5,040 |
) |
Finance
costs – net |
862 |
|
469 |
|
1,975 |
|
1,508 |
|
Income
taxes |
590 |
|
(631 |
) |
529 |
|
(937 |
) |
Depreciation
of property, plant and equipment and right-of-use assets |
789 |
|
702 |
|
2,367 |
|
2,082 |
|
Amortization
of intangible assets |
1,044 |
|
1,139 |
|
3,094 |
|
3,123 |
|
Impairment of intangible assets and goodwill |
- |
|
5,308 |
|
- |
|
5,308 |
|
EBITDA |
5,347 |
|
3,890 |
|
11,279 |
|
6,044 |
|
|
|
|
|
|
Unrealized
exchange (gain) loss |
(3 |
) |
(273 |
) |
639 |
|
(616 |
) |
Stock-based
compensation costs |
39 |
|
55 |
|
121 |
|
169 |
|
Changes in
fair value of the contingent consideration |
615 |
|
57 |
|
719 |
|
268 |
|
Acquisition
and integration costs |
212 |
|
46 |
|
496 |
|
1,827 |
|
Fair value
gain on step acquisition |
(2,347 |
) |
- |
|
(2,347 |
) |
- |
|
Litigation provision |
650 |
|
- |
|
650 |
|
- |
|
Adjusted EBITDA |
4,513 |
|
3,775 |
|
11,557 |
|
7,692 |
|
Adjusted net earnings The
definition of adjusted net earnings excludes acquisition and
integration costs, amortization of intangibles assets from
acquisition, unrealized exchange (gain) loss, change in fair value
of the contingent considerations, stock-based compensation costs,
impairment of intangible assets and goodwill, fair value gain on
step acquisition, litigation provision and realized net loss on
swap termination. The reader can establish the link between net
earnings (loss) and adjusted net earnings with the reconciliation
items presented in this report. The definition of adjusted net
earnings used by the Corporation may differ from those used by
other companies. Adjusted net earnings is a non-IFRS measure and it
is used by management to monitor financial performance and to make
strategic decision.
Reconciliation of net earnings (loss) to
adjusted net earnings
|
Three-month periods ended March 31, |
|
Nine-month periods ended March 31, |
|
(In thousands of Canadian dollars) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Net earnings
(loss) for the period |
2,062 |
|
(3,097 |
) |
3,314 |
|
(5,040 |
) |
Acquisition
and integration costs |
212 |
|
46 |
|
496 |
|
1,827 |
|
Amortization
of intangible assets related to business combinations |
931 |
|
1,018 |
|
2,853 |
|
2,544 |
|
Unrealized
exchange (gain) loss |
(3 |
) |
(273 |
) |
639 |
|
(616 |
) |
Changes in
fair value of the contingent considerations |
615 |
|
57 |
|
719 |
|
268 |
|
Stock-based
compensation costs |
39 |
|
55 |
|
121 |
|
169 |
|
Impairment
of intangible assets and goodwill |
- |
|
5,308 |
|
- |
|
5,308 |
|
Fair value
gain on step acquisition |
(2,347 |
) |
- |
|
(2,347 |
) |
- |
|
Litigation
provision |
650 |
|
- |
|
650 |
|
- |
|
Realized net
loss on swap termination |
237 |
|
- |
|
237 |
|
- |
|
Income taxes related to above items |
(215 |
) |
(804 |
) |
(668 |
) |
(1,206 |
) |
Adjusted net earnings |
2,181 |
|
2,310 |
|
6,014 |
|
3,254 |
|
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. 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.
(In thousands of Canadian dollars) |
March 31, 2021 |
|
June 30, 2020 |
|
|
$ |
|
$ |
|
Bank
loans |
- |
|
3,415 |
|
Current
portion of long-term debt |
2,971 |
|
2,782 |
|
Long-term
debt |
13,647 |
|
13,766 |
|
Less: Cash |
(13,308 |
) |
(9,417 |
) |
Net debt |
3,310 |
|
10,546 |
|
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 Thursday, May 13, 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 third 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 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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