Key Financial Highlights
(All comparisons are relative to the
three-month period ended March 31, 2022, unless otherwise
stated)
- Revenue growth of 31.7% reaching $68.4 M from $51.9 M ;
- Organic revenue growth1 of 17.8%, compared to 15.3%, with
recurring revenues1 by nature of 86.8%;
- Adjusted EBITDA1 of $6.9 M , compared to $5.3 M ;
- Net earnings of $0.4 M , compared to $1.3 M ;
- Adjusted net earnings1 of $2.7 M , compared to $3.4 M; and
- Consolidated backlog1 of $202.9 M up 86.3%.
- Net cash flows generated from operating activities of $10.4 M
for the three-month period.
All amounts are in Canadian dollars unless otherwise stated.
(TSX: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces its financial results for the third
quarter of its fiscal year 2023 ended March 31, 2023.
“We continue to execute, focusing acutely on profitable growth
with another strong performance for our third quarter of fiscal
year 2023. For four consecutive quarters, we are realizing organic
revenue growth higher than 17% compared to similar periods. Such
growth is underpinned by repeatable and increasing business with
existing customers, as well as new customers. The Company is
experiencing strong sales synergies and most importantly, sustained
sales momentum across all our business lines. We are delivering on
new capital equipment sales to major industrial customers,
capturing significant orders for specialty products delivered to
some of the largest desalination plants in the world and broadening
the scope of work expansion within our renewed O&M customer
base. Managing such growth in a tight labor market with a volatile
supply chain makes for a challenging environment. However, we
achieved a sustained adjusted EBITDA growth rate of 28.6% compared
to the same period last year. Cash management and paying down debt
continues to be a focus for the Company, and we intend to continue
to improve our cashflow conversion cycle and remain selective on
our growth capital expenditures. The cash generated from operations
reached $10.4 M and led to a reduction of our net debt to $49.4 M.
With a diversified backlog of $202.9 M combined with a high level
of recurring revenues, we have strong visibility to sustained
growth and improving margins and are aligned with our Three-Year
Strategic Plan”, stated Frédéric Dugré, President, President and
Chief Executive Officer of H2O Innovation.
Third Quarter Results
With three strong and complementary business pillars, the
Corporation is well balanced and not dependent on a single source
of revenue, enabling it to generate a sustained revenue growth for
the three-month period ended March 31, 2023. Consolidated revenues
coming from the Corporation’s three business pillars, for the third
quarter ended March 31, 2023, increased by $16.4 M, or 31.7%, to
reach $68.4 M compared to $51.9 M in the corresponding period of
previous year. This increase mainly came from an organic revenue
growth of $9.2 M, or 17.8%, and an acquisition growth of $4.3 M, or
8.4% following the acquisition of Leader Evaporator (“Leader”) on
June 30, 2022, combined with a favorable exchange rate impact of
$2.8 M, or 5.5%.
1 Non-IFRS measures are presented as
additional information and should be used in conjunction with the
IFRS financial measurements presented in this press release. A
definition of all non-IFRS measures and additional IFRS measures
are provided in the MD&A in the section ‘’Non‑IFRS financial
measurements’’ to give the reader a better understanding of the
indicators used by management. Quantitative reconciliations of
non-IFRS financial measures are presented below under the section
“Non-IFRS financial measurements”.
(In thousands of Canadian dollars)
Three-month periods ended March
31,
Nine-month periods ended March
31,
2023
2022
2023
2022
$
% (a)
$
% (a)
$
% (a)
$
% (a)
Revenues per business pillar
WTS
14,053
20.6
11,892
22.9
35,081
18.7
29,442
22.3
Specialty products
24,228
35.4
15,909
30.6
66,540
35.3
41,038
31.0
O&M
30,079
44.0
24,116
46.5
86,738
46.0
61,830
46.7
Total revenues
68,360
100.0
51,917
100.0
188,359
100.0
132,310
100.0
Gross profit margin before depreciation
and amortization
17,948
26.3
14,128
27.2
48,468
25.7
36,144
27.3
SG&A expenses (b)
11,478
16.8
9,098
17.5
31,700
16.8
23,709
17.9
Net earnings for the period
364
0.5
1,330
2.6
993
0.5
2,710
2.0
EBITDA2
5,626
8.2
4,382
8.4
15,446
8.2
11,082
8.4
Adjusted EBITDA1
6,857
10.0
5,332
10.3
18,278
9.7
13,149
9.9
Adjusted net earnings1
2,670
3.9
3,378
6.5
7,972
4.2
7,269
5.5
Recurring revenues 1
59,355
86.8
43,311
83.4
167,006
88.7
112,969
85.4
(a)
% of total revenues.
(b)
Selling, general operating and
administrative expenses (“SG&A”).
WTS’ revenues for the third quarter of fiscal year 2023
increased by 18.2%, coming from organic revenue growth in water
treatment system projects. The Corporation’s WTS team strives to
develop relationships with industrial clients for whom water reuse
solutions could alleviate operational concerns emerging from water
scarcity and water tariff increases. This is becoming a growing
trend as many industrial companies are now taking steps to become
net water positive in their manufacturing processes as part of
their respective Environment, Social and Governance plans. WTS’
EBAC3 increased by $0.4 M, or 26.5%, representing an increase in
dollars and percentage mainly attributable to the improved project
performance.
The Specialty Products business pillar delivered a strong
financial performance for the third quarter of fiscal year 2023
with a revenue growth of 52.3% compared to the same period last
year. This increase came from an organic revenue growth of $3.7 M,
or 23.4%, which arise from supply contracts to deliver components
and consumables to large desalination plants and the strategic
breakthrough in certain regions of the Middle East. In addition,
Leader contributed to $4.3 M, or 27.3% of acquisition growth.
Furthermore, the Corporation achieved more sales synergies between
its various product lines creating a positive momentum. Specialty
Products’ EBAC2 increased by $1.3 M, or 31.3%, representing an
increase in dollars, but a decrease in percentage. This variation
in percentage is explained by two main reasons: the business mix
within this business pillar since more revenues are coming from
maple farming equipment, following the last acquisition, usually at
lower average gross margin; and the increase of raw material costs
for the manufacturing of the specialty chemicals.
During the third quarter of fiscal year 2023, O&M’s revenues
stood at $30.1 M, compared to $24.1 M for the same period last
year, representing an increase of $6.0 M, or 24.7%. The O&M
business pillar showed organic growth of $4.1 M, or 16.9%, coming
from scope expansions and new O&M projects secured in the
previous quarters, combined with a favorable foreign exchange rate
impact of $1.8 M.
1 Non-IFRS measures are presented as
additional information and should be used in conjunction with the
IFRS financial measurements presented in this press release. A
definition of all non-IFRS measures and additional IFRS measures
are provided in the MD&A in the section ‘’Non‑IFRS financial
measurements’’ to give the reader a better understanding of the
indicators used by management. Quantitative reconciliations of
non-IFRS financial measures are presented below under the section
“Non-IFRS financial measurements”.
2 The definition of EBAC means the
earnings before depreciation and amortization reduced by the
selling and general expenses. EBAC is a non-IFRS measure, and it is
used by management to monitor financial performance and to make
strategic decisions. The definition of EBAC used by the Corporation
may differ from those used by other companies.
The Corporation’s gross profit margin before depreciation and
amortization stood at $17.9 M, or 26.3%, during the third quarter
of fiscal year 2023, compared to $14.1 M, or 27.2%, for the same
period last year, The decrease in percentage is explained by high
inflation of material costs, pressure on salaries and business mix
within the Specialty Products business pillar.
The Corporation’s SG&A reached $11.5 M during the third
quarter of fiscal year 2023, compared to $9.1 M for the same period
last year, representing an increase of $2.4 M, or 26.2%, while the
revenues of the Corporation increased by 31.7%. The increase is due
to the pressure on salaries, the hiring of additional resources as
well as higher stock-based compensation costs. Despite the increase
in SG&A expenses, the percentage of expenses over revenues for
the three and nine-month periods decreased respectively by 0.7% and
1,1%, showing the scalability of the Corporation’s business model
as revenues continue to grow. Investments made in sales and
business development are paying off since revenues are growing
faster than the SG&A ratio.
The Corporation’s adjusted EBITDA increased by $1.5 M, or 28.6%,
to reach $6.9 M during the third quarter of fiscal year 2023, from
$5.3 M for the same period last year, while the revenues of the
Corporation increased by 31.7%. Consequently, the adjusted EBITDA %
decreased and reached 10.0% for the third quarter of fiscal year
2023, compared to 10.3% for the same period last year. This
variation is explained by the gross profit margin decrease
considering that the profitability has been impacted by ongoing
macroeconomic trends on the supply chain, higher inflation,
increased wages, and freight and logistic costs.
Net earnings amounted to $0.4 M or $0.004 per share for the
third quarter of fiscal year 2023 compared to net earnings of $1.3
M or $0.015 per share for the comparable quarter of previous
fiscal. This variation is mostly explained by the reduction of the
Corporation’s gross profit margin, higher depreciation and
amortization and higher finance costs, partially offset by other
gains related to the debt extinguishment.
As at March 31, 2023, the combined backlog of secured contracts
between WTS and O&M reached $202.9 M compared to $108.9 M as at
March 31, 2022, which is an increase of 86.3%. This combined
backlog provides good visibility on revenues for the upcoming
quarter of fiscal year 2023 and beyond.
The net debt stood at $49.4 M, compared to $50.3 M as at June
30, 2022, representing a $0.9 M decrease attributable to a higher
cash balance.
Non-IFRS financial measurements
Certain indicators used by the Corporation to analyze and
evaluate its results, which are listed below, are non-IFRS
financial measures or ratios, supplementary financial measures or
non-financial information. Consequently, they do not have a
standardized meaning as prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. These
non-IFRS measures are presented as additional information and
should be used in conjunction with the IFRS financial measurements
presented in condensed interim financial statements. Even though
these measures are non-IFRS measures, they are used by management
to make operational and strategic decisions. Providing this
information to the stakeholders, in addition to the Generally
Accepted Accounting Principles (“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. However, these measures should not be
viewed as a substitute for related financial information prepared
in accordance with IFRS.
The following non-IFRS indicators are used by management to
measure the performance and liquidity of the Corporation: Earnings
before interests, income taxes, depreciation and amortization
(“EBITDA”), adjusted earnings before interests, income taxes,
depreciation and amortization (“Adjusted EBITDA”), adjusted EBITDA
over revenues, earnings before administrative costs (“EBAC”),
adjusted net earnings, adjusted net earnings per share (“Adjusted
EPS”), Organic revenue growth, reconciliation of net earnings to
adjusted net earnings, net debt including and excluding contingent
considerations, net debt-to-Adjusted EBITDA ratio, recurring
revenues by nature, organic revenue, backlog.
Additional details for these non-IFRS and other financial
measures can be found in section “Non-IFRS financial measurements”
of the Corporation’s MD&A for the three-month period ended
March 31, 2023 which is available on the Corporation’s website
www.h2oinnovation.com and filed on SEDAR at www.sedar.com.
Reconciliations of non-IFRS financial measures and ratios to the
most directly comparable IFRS measures are provided below.
EBITDA and Adjusted EBITDA
Reconciliation of Net Earnings to EBITDA and to Adjusted
EBITDA
(In thousands of Canadian dollars)
Three-month periods
ended March 31,
Nine-month periods ended March
31,
2023
2022
2023
2022
$
$
$
$
Net earnings for the period
364
1,330
993
2,710
Finance costs – net
1,655
556
4,186
1,606
Income taxes (recovery)
575
39
1,255
262
Depreciation of property, plant and
equipment and right-of-use assets
1,432
938
4,192
2,690
Amortization of intangible assets
1,600
1,519
4,820
3,814
EBITDA
5,626
4,382
15,446
11,082
(Gain) on debt extinguishment
-
-
(1,029)
-
Unrealized exchange (gain) loss
(6)
(113)
313
(665)
Stock-based compensation costs
552
330
1,752
823
Changes in fair value of the contingent
considerations
471
496
942
1,451
Acquisition and integration costs
214
237
854
458
Adjusted EBITDA
6,857
5,332
18,278
13,149
Revenues
68,360
51,917
188,359
132,310
Adjusted EBITDA over revenues
10.0%
10.3%
9.7%
9.9%
Reconciliation of Net Earnings to Adjusted Net
Earnings
(In thousands of Canadian dollars)
Three-month periods
ended March 31,
Nine-month periods ended March
31,
2023
2022
2023
2022
$
$
$
$
Net earnings for the period
364
1,330
993
2,710
Acquisition and integration costs
214
237
854
458
Amortization of intangible assets related
to business combinations
1,452
1,442
4,337
3,549
Unrealized exchange (gain) loss
(6)
(113)
313
(665)
Changes in fair value of the contingent
considerations
471
496
942
1,451
Stock-based compensation costs
552
330
1,752
823
Income taxes related to above items
(377)
(344)
(1,219)
(820)
Adjusted net earnings
2,670
3,378
7,972
7,269
Adjusted basic EPS
0.030
0.038
0.089
0.083
Adjusted diluted EPS
0.028
0.037
0.086
0.084
Revenue Growth
(In thousands of Canadian dollars)
Three-month periods ended
March 31,
Foreign exchange impact
Acquisitions impact
Organic revenue growth
2023
2022
Variation
$
$
$
%
$
%
$
%
$
%
Revenues per business pillar
WTS
14,053
11,892
2,161
18.2
717
1.4
-
-
1,444
2.8
Specialty products
24,228
15,909
8,319
52.3
257
0.5
4,336
8.4
3,726
7.2
O&M
30,079
24,116
5,963
24.7
1,894
3.6
-
-
4,069
7.8
Total revenues
68,360
51,917
16,443
31.7
2,868
5.5
4,336
8.4
9,239
17.8
Net Debt
(In thousands of Canadian dollars)
March 31, 2023
June 30, 2022
Variation
$
$
$
%
Bank loans
54,526
45,562
8,964
19.7
Current portion of long-term debt
234
1,563
(1,329)
(85.0)
Long-term debt
270
510
(240)
(47.1)
Contingent considerations
4,884
10,017
(5,133)
(51.2)
Less: Cash
(10,534)
(7,382)
(3,152)
(42.7)
Net debt including contingent
considerations (1)
49,380
50,270
(890)
(1.8)
Contingent considerations
4,884
10,017
(5,133)
(51.2)
Net debt excluding contingent
considerations (‘’Net debt’’) (1)
44,496
40,253
4,243
10.5
Adjusted EBITDA (1)
23,032
18,101
4,931
27.2
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 11, 2023.
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 third quarter financial report is available on
www.h2oinnovation.com. Additional information on the Corporation is
also available on SEDAR (www.sedar.com).
Forward-Looking Statements
Certain information and statements contained in this press
release and in other Corporation’s oral and written public
communications regarding the Corporation’s business and activities
and/or describing management’s objectives, projections, estimates,
expectations or forecasts may constitute forward-looking statements
within the meaning of the applicable securities legislation.
Forward-looking statements include the use of words such as
“anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”,
“if”, “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, although
not all forward-looking statements include such words. H2O
Innovation would like to point out that forward-looking statements
involve a number of uncertainties, known and unknown risks and
other factors which may cause the actual results, performance or
achievements of the Corporation, or of its industry, to materially
differ from any future results, performance or achievements
expressed or implied by such forward-looking statements. Major
factors that may lead to a material difference between the
Corporation’s actual results and the projections or expectations
set forth in the forward-looking statements include, without
limitation, statements regarding future capital expenditures,
revenues, expenses, earnings, economic performance, indebtedness
and financial position; business and management strategies;
expansion and growth of the Corporation’s operations; the
Corporation’s backlog, the execution of such backlog and the timing
of new and existing projects and contracts; the Corporation’s
ability to deliver projects and contracts in due time, without
additional costs, considering labor shortage and the global impact
on supply chain; the Corporation’s ability to generate future cash
flows; the Corporation’s ability to capitalize on future growth
opportunities; anticipated trends in the Corporation’s revenue
streams and business mix; expectations of customers’ needs;
customers’ acceptance of and confidence in the Corporation’s
existing technologies and product innovation; and other
expectations, beliefs, plans, goals, objectives, assumptions,
information and statements about possible future events, conditions
and results and such other risks as described in the Corporation’s
Annual Information Form dated September 27, 2022, which is
available on SEDAR (www.sedar.com). The forward-looking information
contained in this press release is based on information available
as of the date of the release and is subject to change after this
date. Unless otherwise required by the applicable securities laws,
H2O Innovation disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230511005284/en/
Marc Blanchet +1 418-688-0170
marc.blanchet@h2oinnovation.com
H2O Innovation (EU:ALHEO)
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