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H2O Innovation Reports Record Fiscal Year 2022 Revenues and Profitability

T.HEO

Key Financial Highlights

  • Revenues reached $184.4 M for fiscal year 2022, representing a $40.1 M growth, or 27.7%, compared to $144.3 M for the previous fiscal year;
  • Revenue growth in each pillar, with an organic revenue growth of 17.7% and acquisitions impact of 10.9% and a foreign exchange impact of (0.9)%;
  • Net earnings of $5.1 M or $0.058 per share for fiscal year 2022, compared to a net earnings of $3.1 M or $0.039 per share for the previous fiscal year. Net earnings for the current fiscal year were impacted by a deferred tax recovery of $4,6 M;
  • Adjusted net earnings1 reached $8.8 M or $0.100 per share for this fiscal year compared to $6.5 M or $0.081 per share for the previous fiscal year;
  • Adjusted EBITDA1 reached $18.1 M, or 9.8% of revenues for this fiscal year compared to $14.6 M, or 10.1% of revenues, for the previous fiscal year.

All amounts in Canadian dollars unless otherwise stated.

QUEBEC CITY, Sept. 28, 2022 (GLOBE NEWSWIRE) -- (TSX: HEO) – H2O Innovation Inc. (“H2O Innovation” or the “Corporation”) announces its financial results for the fourth quarter and fiscal year ended June 30, 2022.

“Our fiscal year 2022 was marked by a remarkable growth of 27.7%. Such growth is the result not only of the three acquisitions completed in the year, but most importantly of a 18.0% organic growth that we generated during our last fiscal year. These results testify to all the investments we have done according to our three-year strategic plan, the growing needs for clean, safe, and reused water and the increasing demand for ESG-related products and business solutions. Among the key business achievements in fiscal year 2022, we successfully renewed and expanded our largest operation, maintenance, and management (O&M) contract, adding $56.0 M to our combined backlog, which stood at $163.0 M as of June 30, 2022.This backlog allows us to have good visibility on the upcoming quarters and puts the Corporation in a good position to continue to generate organic growth. The derailment of the supply chain and logistics combined with the hard labor market caused higher inflation on materials, transport, gas, and wages, which impacted the margin. However, our teams have strived to mitigate these impacts. Such efforts resulted into an improvement of our profitability, and an adjusted EBITDA of $18.1 M, representing and increase of 23.6% year over year. Moreover, we remain focused on the proper integration of our acquired companies to gain operational efficiency and capture business synergies. Our mergers and acquisition agenda remains the same, framed by a disciplined approach, reasonable valuation multiples and high-potential business synergies”, stated Frédéric Dugré, President and Chief Executive Officer of H2O Innovation.

Financial results for the fiscal year 2022

H2O Innovation relies on three well-balanced business pillars, which reduces the risk of volatility in the Corporation’s revenues. Consolidated revenues from the Corporation’s three business pillars, for fiscal year ended on June 30, 2022, increased by $40.0 M, or 27.7%, to reach $184.4 M compared to $144.3 M for the comparable period of the previous fiscal year. These results were driven by organic revenue growth2 of $25.5 M, or 17.7%, and acquisition growth of $15.8 M, or 10.9%. This overall increase was mainly fuelled by the gradual recovery of economic activities despite the ongoing pandemic combined with the continuous synergy between our business pillars.

(In thousands of Canadian dollars) Three-month periods ended
June 30,
Twelve-month periods ended
June 30,
2022 2021 ) 2022 2021
$ % (a) $ % (a) $ % (a) $ % (a)
Revenues per business pillar
WTS 12,997 25.0 7,074 20.1 42,440 23.0 30,355 21.0
Specialty Products 13,360 25.7 10,334 29.4 54,397 29.5 43,920 30.4
O&M 25,689 49.4 17,796 50.6 87,519 47.5 70,049 48.6
Total revenues 52,046 100.0 35,204 100.0 184,356 100.0 144,324 100.0
Gross profit margin before depreciation and amortization 13,464 25.9 10,002 28.4 49,607 26.9 39,945 27.7
SG&A expenses(b) 9,667 18.6 6,947 19.7 33,376 18.1 25,493 17.7
Net earnings (loss) 2,445 4.7 (195 ) (0.6 ) 5,107 2.8 3,119 2.2
EBITDA2 1,999 3.8 3,206 9.1 13,079 7.1 14,485 10.0
Adjusted EBITDA2 4,754 9.1 3,089 8.8 18,101 9.8 14,646 10.1
Adjusted net earnings2 1,627 3.1 457 1.3 8,848 4.8 6,471 4.5
Recurring revenues3 43,543 83.7 30,980 88.0 156,511 84.9 126,050 87.3
  1. % of total revenues.
  2. Selling, general operating and administrative expenses (“SG&A”).

This overall increase in organic revenue growth is coming from the synergies generated by the integration of the acquisitions made over the last 4 years, the investment made in adding new sales resources and the sales of new products and innovations launched over the last few years. In FY2022 all our business pillars generated significant organic revenue growth.

Revenues from the Water Technologies and Services (“WTS”) business pillar increased by $12.1 M, or 39.8% compared to the previous fiscal year, to reach $42.4 M compared to $30.4 M. The increase was primarily due to the growth in service activities. This growth was driven by higher organic revenue in water treatment systems projects and an increase of our sales coming from the service group. The Corporation’s three-year strategic plan consists of prioritizing WTS projects with higher gross profit margins, or projects that can fuel opportunities for other business pillars, and to expand service activities.

Revenues of the O&M business pillar for increased by $17.5 M, or 24.9%, compared to previous fiscal year, to reach $87.5 M compared to $70.0 M. Such increase was driven by organic revenue growth of $8.6 M, or 6.0%, and acquisition growth of $9.8 M, or 6.8% resulting from the acquisition of JCO, Inc. (“JCO”) and Environmental Consultants, L.L.C. (“EC”).

Revenues from the Specialty Products business pillar increased by $10.5 M, or 23.9% compared to previous fiscal year, to reach $54.4 M compared to $43.9 M last year. These results were driven by the acquisition growth of $5.9 M, or 4.1% over total revenue, coming from Genesys Membrane Products, S.L.U. (“GMP”), and by the organic revenue growth of $4.8 M, or 3.3% over total revenue, coming from a strong performance of all our specialty products revenues lines, Specialty Chemicals Group, Piedmont and Maple and coming from the investments in sales resources, marketing, product innovation and the synergies coming from the integration of the acquisition of Genesys and GMP.

The Corporation’s gross profit margin before depreciation and amortization stood at $49.6 M, or 26.9%, for the year ended June 30, 2022, compared to $39.9 M, or 27.7% for the same period of last fiscal year, which represents an increase of $9.7 M, or 24.2%. The overall gross profit margin slightly decreased in % due to high inflation of material costs, pressure on salaries and higher percentage of revenue coming from the WTS and O&M business pillars compared to previous fiscal year. Nevertheless, all business pillars contributed to an increase gross margin in dollars, compared to the same period of the previous fiscal year. H2O Innovation’s business model relies on three different business pillars enabling it to reduce the volatility of the Corporation’s profitability through diversification.

The Corporation’s SG&A reached $33.4 M for the year ended June 30, 2022, compared to $25.5 M for the same period of the previous fiscal year, representing an increase of $7.9 M, or 30.9%, while the revenues of the Corporation increased by 27.7%. The acquisition of JCO and EC on December 15, 2021 partly contributed to this increase. The remainder of the increase is due to the pressure on salaries, the hiring of additional resources, the resumption of travel activities, as well as higher stock-based compensation costs. The Corporation also incurred uplisting fees of $0.2 M following the listing of its common shares on the TSX in March 2022.

Net earnings amounted to $5.1 M or $0.058 per share for fiscal year ended June 30, 2022 compared to a net earnings of $3.1 M or $0.039 per share for the previous fiscal year. The variation was impacted by the reduction in gross profit margin, higher depreciation and amortization, higher acquisition costs and the change in fair value of the contingent consideration– net, offset by the current income tax recovery and deferred tax recovery. Moreover, the SG&A ratio increased from 17.7% to 18.1%.

The Corporation’s adjusted EBITDA increased by $3.5 M, or 23.6%, to reach $18.1 M for the fiscal year ended June 30, 2022, compared to $14.6 M for the previous fiscal year. The adjusted EBITDA % over revenue decreased to 9.8% for the fiscal year ended June 30, 2022, compared to 10.1% for the previous fiscal year. The variation is explained by a decrease of the gross margin and by the investments in SG&A to generate organic growth. The ongoing pandemic context has affected the Corporation’s gross margin mainly due to the supply chain challenges, the increased costs of materials as well as the pressure on employee salaries due to staff shortage and the inflation.

As at June 30, 2022, the net debt stood at $40.3 M, compared with $0.5 M as at June 30, 2021, representing an increase of $39.8 M, mainly attributable to the financing of the JCO and EC acquisitions on December 15, 2021, the investment in our chemical manufacturing facilities in Vista, CA, USA and Cheshire, UK, the purchase of equipment required to execute some of the work related to the scope expansion of O&M contracts, and the investment in working capital items to support Corporation’s organic growth.

Non-IFRS financial measurements

EBITDA and adjusted EBITDA

EBITDA means earnings before finance costs – net, income taxes, depreciation and amortization. The definition of adjusted EBITDA excludes expenses otherwise considered in net earnings according to Generally Accepted Accounting Principles (“GAAP”), namely the unrealized exchange (gains) losses, the change in fair value of contingent considerations and the stock-based compensation costs, the fair value gain on step acquisition and litigation provision. These items are non-cash items and do not have an impact on the operating and financial performance of the Corporation. Management has also elected to exclude the acquisition and integration costs, as they are not directly linked to the operations. The reader can establish the link between adjusted EBITDA and net earnings based on the reconciliation presented below. The definition of adjusted EBITDA used by the Corporation may differ from those used by other companies. 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.

Reconciliation of net earnings (loss) to EBITDA and to adjusted EBITDA

(In thousands of Canadian dollars) Three-month periods ended
June 30,
Twelve-month periods ended
June 30,
2022 2021 2022 2021
$ $ $ $
Net earnings (loss) for the period 2,445 (195 ) 5,107 3,119
Finance costs – net 753 360 2,359 2,335
Income taxes (recovery) (3,927 ) 1,174 (3,618 ) 1,703
Depreciation of property, plant and equipment and right-of-use assets 1,122 820 3,812 3,187
Amortization of intangible assets 1,606 1,047 5,419 4,141
EBITDA 1,999 3,206 13,079 14,485
Unrealized exchange (gain) loss 484 15 (181 ) 654
Stock-based compensation costs 480 132 1,303 253
Changes in fair value of the contingent considerations 1,114 (257 ) 2,565 462
Acquisition and integration costs 677 (7 ) 1,135 489
Uplisting fees - - 200 -
Fair value gain on step acquisition - (4 ) - (2,351 )
Litigation provision - 4 - 654
Adjusted EBITDA 4,754 3,089 18,101 14,646

Adjusted net earnings

The definition of adjusted net earnings excludes acquisition and integration costs, amortization of intangible assets from acquisition, unrealized exchange (gain) loss, change in fair value of the contingent considerations, stock-based compensation costs, fair value gain on step acquisition, litigation provision, and realized net (gain) loss on swap termination. The reader can establish the link between net earnings 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 and adjusted net earnings per share are non-IFRS measure and they are used by management to monitor financial performance and to make strategic decisions.

Reconciliation of net earnings (loss) to adjusted net earnings

(In thousands of Canadian dollars) Three-month periods ended
June 30,
Twelve-month periods ended
June 30,
2022 2021 2022 2021
$ $ $ $
Net earnings (loss) for the period 2,445 (195 ) 5,107 3,119
Acquisition and integration costs 677 (7 ) 1,135 489
Amortization of intangible assets related to business combinations 1,477 986 5,026 3,839
Unrealized exchange (gain) loss 484 15 (181 ) 654
Changes in fair value of the contingent considerations 1,114 (257 ) 2,565 462
Stock-based compensation costs 480 132 1,303 253
Fair value gain on step acquisition - (4 ) - (2,351 )
Litigation provision - 4 - 654
Realized net (gain) loss on interest swap termination - - (237 ) 237
Deferred tax recovery (4,570 ) - (4,570 ) -
Income taxes related to above items (480 ) (217 ) (1,300 ) (885 )
Adjusted net earnings 1,627 457 8,848 6,471

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. Revenues excluded from the definition of “recurring revenue by nature” come from water treatment system projects which are characterized by the lumpiness factor. This non-IFRS measure is used by management to evaluate the stability of revenues from one year to the other. The definition of recurring revenues by nature used by the Corporation may differ from those used by other companies.

Organic revenue growth

Year ended June 30, 2022
(In thousands of Canadian dollars)
2022
Revenues
2021
Revenues
Variation Foreign
exchange
impact
Acquisitions
impact
Organic
revenue growth
$ $ $ % $ % $ % $ %
WTS 42,440 30,355 12,085 39.8 - - - - 12,085 39.8
Specialty Products 54,397 43,920 10,477 23.9 (308) (0.2) 5,966 4.1 4,820 3.3
O&M 87,519 70,049 17,470 24.9 (1,019) (0.7) 9,796 6.8 8,692 6.0
Total revenues 184,356 144,324 40,032 27.7 (1,327) (0.9) 15,762 10.9 25,597 17.7

Net Debt
The definition of net debt consists of bank loans and long-term debt less cash, excluding and/or including contingent considerations. Net debt is a non-IFRS measure without a standardized definition within IFRS and is used by management to measure the liquidity of the Corporation. The definition of net debt used by the Corporation may differ from those used by other companies.

(In thousands of Canadian dollars) June 30,
2022
June 30,
2021
Variation
$ $ $ %
Bank loans 45,562 - 45,562 100.0
Current portion of long-term debt 1,563 2,975 (1,412 ) (47.5 )
Long-term debt 510 12,941 (12,431 ) (96.1 )
Contingent considerations 10,017 6,738 3,279 48.7
Less: Cash (7,382 ) (15,409 ) (8,027 ) (52.1 )
Net debt including contingent considerations (1) 50,270 7,245 43,025 593.9
Contingent considerations 10,017 6,738 3,279 48.7
Net debt excluding contingent considerations (“Net debt“) (1) 40,253 507 39,746 -
Adjusted EBITDA (1)(2) 18,101 14,646 3,455 23.6
Net debt-to-adjusted-EBITDA ratio (1) 2.23 0.03 - -

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 fourth quarter and full fiscal year 2022 financial results in further details at 10:00 a.m. Eastern Time on Wednesday, September 28, 2022.

To access the call, please call 1-888-396-8049 or 416-764-8646, 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 annual 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, performance and achievements and the estimate of amounts that cannot yet be determined. 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 the said forward-looking statement. Such risks and uncertainties include, but are not limited to, the Corporation’s ability to grow its business as per the strategic plan, to reach specific financial objectives and targets, to maintain its financial position and to improve its business, as well as its capacity to execute, complete or deliver its backlog, in a timely manner and without additional costs, considering the challenges resulting from the global supply chain, and to create the expected synergies within its business pillars. Information about the risk factors to which the Corporation is exposed is provided in the Annual Information Form dated September 27, 2022, which is 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

Innovation is in our name, and it is what drives the organization. H2O Innovation is a complete water solutions company focused on providing best-in-class technologies and services to its customers. The Corporation’s activities rely on three pillars: i) Water Technologies & Services (WTS) applies membrane technologies and engineering expertise to deliver equipment and services to municipal and industrial water, wastewater, and water reuse customers, ii) Specialty Products (SP) is a set of businesses that manufacture and supply a complete line of specialty chemicals, consumables and engineered products for the global water treatment industry, and iii) Operation & Maintenance (O&M) provides contract operations and associated services for water and wastewater treatment systems. Through innovation, we strive to simplify water. For more information, visit www.h2oinnovation.com.

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 in section ‘’Non-IFRS financial measurements’’ to give the reader a better understanding of the indicators used by management.

2 Organic revenue is a non-IFRS financial measure corresponding to the amount of revenue of a given period, excluding the effect of acquisitions and foreign currency changes of the same period. Organic revenue growth is a non-IFRS ratio calculated by comparing the amount of organic revenue of a given period with the amount of revenue of the comparative period.


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