QUEBEC CITY, QUEBEC--(Marketwired - Feb. 14, 2017) - H2O Innovation Inc. (TSX
VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO)(OTCQX:HEOFF)
Key highlights
- Continuous revenue growth of 51.6% to reach $19.9 M, compared to $13.2 M for the same period of the previous fiscal
year;
- 82.7% of the revenues recorded in this second quarter are coming from O&M and SP&S activities, which are recurring
in nature;
- Backlog for water treatment projects increased from $43.1 M for the second quarter of fiscal year 2016, to reach $54.3 M
for the corresponding period of this fiscal year, while O&M backlog stands at $54.9 M, for a consolidated backlog of
$109.2 M as at December 31, 2016;
- Adjusted EBITDA(1) at $809,625, compared to $1,030,502 for the same quarter last year;
- Net (loss) earnings amounted to ($1,093,270), compared to $174,221 for the same period of the previous fiscal year;
- Cash generated by operating activities reached $1,083,117 compared to $128,382 for the same quarter of the previous fiscal
year.
All amounts in Canadian dollars unless otherwise stated.
H2O Innovation Inc. ("H2O Innovation" or the "Corporation") announces its results for the second quarter
of fiscal year 2017 ended December 31, 2016. During this quarter, the Corporation's revenues increased by 51.6% to $19.9 M, up
from $13.2 M for the same quarter of fiscal year 2016. This increase is largely attributable to the acquisition of Utility
Partners, effective July 1, 2016, which added significant revenues coming from Operation & Maintenance ("O&M")
activities.
For this second quarter, 44.0% of the revenues came from O&M activities, 38.7% of the revenues came from the Specialty
Products & Services ("SP&S") and 17.3% came from water treatment projects. "Our business model has fundamentally evolved
where 82.7% of the revenues recorded on this second quarter are coming from the O&M and SP&S business pillars, considered
recurring in nature. This revenue distribution between the pillars is allowing us to gain predictability in our business model
and secure long-term relationship with customers", stated Frédéric Dugré, President and Chief Executive Officer of
H2O Innovation. The Corporation's adjusted EBITDA stands at $809,625,
compared to $1,030,502 for the same quarter last year. The consolidated backlog as of December 31, 2016 stood at $109.2 M, with
$54.3 M coming from our projects business pillar and $54.9 M from the O&M activities.
Revenues from water treatment projects have declined momentarily to $3.4 M compared to $5.9 M in the corresponding period of
the previous fiscal year, representing a 41.8% decrease. This is not unusual since revenues from projects vary from quarter to
quarter and depends on the different milestones reached for revenue recognition. The decrease for the first part of the
Corporation's fiscal year is explained by the fact that the nature of projects has changed. The actual water treatment projects
backlog consists of projects that have a more extensive engineering phase. During the second half of this current fiscal year,
the projects will enter into the manufacturing phase which will allow the recognition of significantly more revenues as
fabrication moves forward. Also, project execution can sometime be postponed due to situations outside of the control of the
Corporation, and therefore impacts revenue recognition. Even though revenues are slower and lumpy, the water treatment projects
are still a growth vehicle of the Corporation. The water treatment projects order backlog stands at $54.3 M as at December 31,
2016, compared to $43.1 M a year ago, representing a 25.8% increase over the last 12 months.
| (1) |
The definition of adjusted earnings before interest, tax depreciation and amortization (adjusted EBITDA)
does not take into account the Corporation's finance costs - net, stock-based compensation costs, gain on purchase price
adjustment, unrealized exchange (gains) / losses and acquisition and integration costs. See reconciliation of this non-IFRS
measure below. The definition of adjusted EBITDA used by the Corporation may differ from those used by other
companies. |
Revenues from SP&S reached $7.7 M compared to $7.2 M in the comparable quarter of the previous fiscal year, which
represents an increase of 6.6%. Over the last twelve months, revenues reached $28.9 M, which represents an increase of 21.9%
compare to the previous twelve months where revenues were at $23.7 M. This strong increase in SP&S revenues is the direct
result of investments made during the last few years in our operating and selling functions to support the growth of this
business line. Just over the last six quarters the Corporation has developed, launched and acquired new proprietary technologies
such as the High Brix™, Smartrek™, Clearlogx® and SPMC™, which boosted revenues up.
Revenues coming from O&M amounted to $8.8 M. These revenues are recurring sales and came mainly from Utility Partners. The
backlog related to these O&M contracts stood at $54.9 M as at December 31, 2016 and consists of long-term
contracts, mainly with municipalities, which contain multi-year renewal options. "Since the acquisition, the integration plan is
moving very well as expected by management. The change of leadership is transitioning very smoothly. We have successfully renewed
all the contracts that were in renewal phase and have also secured some cross selling sales", added Mr.
Dugré.
In this second quarter of fiscal year 2017, the Corporation generated a 24.2% gross profit before depreciation and
amortization, a lower level than the 31.3% gross profit before depreciation and amortization generated in the second quarter of
fiscal year 2016. The revenue mix has been modified with the acquisition of Utility Partners which operates in a different model
than our previous core activities. Indeed, O&M activities generally generates lower gross margin. Therefore the integration
of Utility Partners into H2O Innovation, which in this quarter represents 44.0% of the total revenues, puts pressure
on the overall gross margin of the Corporation, although increasing the predictability and stability of the financial
results.
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CONSOLIDATED RESULTS
Selected financial data |
Three-month period
ended on December 31,
(Unaudited) |
|
Six-month period
ended on December 31,
(Unaudited |
|
| 2016 |
|
2015 |
|
2016 |
|
2015 |
|
| $ |
|
$ |
|
$ |
|
$ |
|
| Revenues |
19,957,831 |
|
13,165,590 |
|
39,826,693 |
|
25,424,918 |
|
| Gross profit before depreciation and amortization |
4,834,439 |
|
4,126,602 |
|
9,297,976 |
|
7,331,088 |
|
| Gross profit before depreciation and amortization |
24.2 |
% |
31.3 |
% |
23.3 |
% |
28.8 |
% |
| Operating expenses |
486,003 |
|
318,886 |
|
924,407 |
|
652,866 |
|
| Selling expenses |
1,615,633 |
|
1,611,384 |
|
3,211,524 |
|
2,969,117 |
|
| Administrative expenses |
2,132,083 |
|
1,188,169 |
|
3,992,813 |
|
2,231,720 |
|
| Research and development expenses - net |
33,872 |
|
35,610 |
|
115,244 |
|
120,174 |
|
| Net (loss) earnings |
(1,093,270 |
) |
174,221 |
|
(2,175,356 |
) |
226,550 |
|
| Basic and diluted (loss) earnings per share |
(0.027 |
) |
0.008 |
|
(0.074 |
) |
0.011 |
|
| Adjusted EBITDA |
809,625 |
|
1,030,502 |
|
1,438,640 |
|
1,472,276 |
|
The Corporation's ratio of selling, operating and administrative expenses ("SG&A") as a whole over revenues amounted to
21.2% for this quarter, down from 23.7% for the corresponding quarter of the previous fiscal year. This decrease is mostly
attributable to the acquisition of Utility Partners in July 2016 which has lower selling and operating expenses.
Adjusted EBITDA for the quarter was recorded at $809,625, compared with $1,030,502 for the same period ended December 31,
2015. The adjusted EBITDA over revenues represents 4.1%, compared to 7.8% for the same quarter in fiscal year 2016. The decrease
in the adjusted EBITDA over revenues ratio is due, in part, to a lower volume coming from revenues of water treatment projects.
Moreover, the shift in product mix and the addition of Utility Partners results impacted negatively the overall gross margin,
decreasing the adjusted EBITDA. Once the volume of revenues will increase, the Corporation expects this percentage to increase
accordingly since all the fixed charges are already covered.
The net (loss) earnings amounted to ($1,093,270) or ($0.027) per share for the second quarter of fiscal year 2017
compared with $174,221 or $0.008 per share for the second quarter of fiscal year 2016. The increase in net loss is largely
due to the acquisition of Utility Partners and the related acquisition and integration costs and to a higher level of SG&A
expenses, aimed to support the constant growth of the Corporation.
Operating activities generated $1,083,117 in cash for the three-month period ended December 31, 2016, compared with $128,382
of cash generated during the corresponding period ended December 31, 2015. The increase is due to the changes in working capital
items, to the addition of Utility Partners, and the increase in non-cash items, subdued by the loss before income taxes in the
second quarter of fiscal year 2017.
Reconciliation of adjusted EBITDA to net (loss) earnings
Even 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 management, and to better understand the financial performance, notwithstanding the impact of GAAP
measures.
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Three-month periods ended December 31, |
Six-month periods ended December 31, |
|
| |
2016 |
|
2015 |
2016 |
|
2015 |
|
| |
$ |
|
$ |
$ |
|
$ |
|
| Net (loss) earnings for the period |
(1,093,270 |
) |
174,221 |
(2,175,356 |
) |
226,550 |
|
| Finance costs - net |
321,870 |
|
216,217 |
656,295 |
|
364,254 |
|
| Income taxes |
(88,127 |
) |
8,000 |
(391,593 |
) |
212,853 |
|
| Depreciation of property, plant and equipment |
181,436 |
|
144,643 |
356,464 |
|
271,986 |
|
| Amortization of intangible assets |
837,666 |
|
236,426 |
1,501,522 |
|
468,105 |
|
| Gain on purchase price adjustment |
- |
|
- |
- |
|
(375,977 |
) |
| Unrealized exchange loss |
135,467 |
|
203,681 |
177,868 |
|
257,087 |
|
| Acquisition and integration costs |
347,124 |
|
47,314 |
1,020,829 |
|
47,418 |
|
| Stock-based compensation costs |
167,459 |
|
- |
292,611 |
|
- |
|
| Adjusted EBITDA |
809,625 |
|
1,030,502 |
1,438,640 |
|
1,472,276 |
|
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 2017 second quarter in further details at 10:00 a.m. Eastern Time on
Tuesday, February 14, 2017.
To access the call, please call (877) 223-4471 or (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 NYSE Euronext Alternext's site. 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, performance and achievements and the estimate of amounts that cannot yet be determined. Forward-looking statements
include the use of words such as "anticipate", "if", "believe", "continue", "could", "estimate", "expect", "intend", "may",
"plan", "potential", "predict", "project", "should" or "will", and other similar expressions, as well as those usually used in
the future and the conditional, notably regarding certain assumptions as to the success of a venture. Those forward-looking
statements, based on the current expectations of management, involve a number of risks and uncertainties, known and unknown,
which may result in actual and future results, performance and achievements 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 26, 2016 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; ii) specialty products and services, including a complete line
of specialty chemicals, consumables, specialized products for the water treatment industry as well as control and monitoring
systems; and iii) operation and maintenance services for water and wastewater treatment systems 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.