H2O Innovation's 2018 First Quarter Results Show Sustained Organic Growth Driven by a Solid Business Model
- For clarity and fair comparison, the first quarter of fiscal year 2018 numbers should be compared to the unadjusted numbers of the first quarter of fiscal year 2017, which includes a full three months of Utility Partners' operations;
- Revenue growth of 13.8% to reach $22.6 M, compared to $19.9 M for the first quarter of fiscal year 2017;
- Recurring revenues from Specialty Products and Services ("SP&S") and Operation & Maintenance ("O&M") business pillars represent 63.9% of total revenues;
- Consolidated backlog, combining Projects and O&M, stood at $105.3 M as of September 30, 2017, compared to $98.5 M for the period ended September 30, 2016;
- Adjusted EBITDA stable at $0.6 M during the first quarter of fiscal year 2018 and for the comparable quarter of fiscal year 2017;
- Net loss of ($1,089,875), compared to ($1,082,086) in the first quarter of previous fiscal year.
All amounts in Canadian dollars unless otherwise stated.
On the SP&S side, revenues reached $6.0 M compared to $5.9 M in the comparable quarter of the previous fiscal year, which represents an increase of 1.1%. This increase in SP&S revenues is a result of investments made in the operating and selling functions to support and fuel the growth of this business line. "With the maple season kicking in, we expect the SP&S revenues to increase in the next coming quarters, which should drive the gross profit margin up", stated Frédéric Dugré, President and CEO of H2O Innovation.
Revenues coming from O&M activities are recurring in nature and stand at $8.4 M, compared to revenues for a full three-month of $8.5 M in the corresponding quarter of last fiscal year, representing a 1.1% decrease. Without foreign exchange impact and considering a full three months of revenues, the O&M business pillar is showing organic growth of 2.4% since last year, if compared in US dollars. Since these revenues are recurrent, this growth will keep impacting positively the upcoming quarters. The backlog coming from O&M contracts stands at $50.6 M as at September 30, 2017, and consists of long-term contracts, mainly with municipalities, which contain multi-year renewal options.
"One year following the acquisition of UP, allowing us to build the foundation of our O&M 3rd business pillar, we can claim that our business model is really coming to fruition. Altogether, our three business pillars keep growing, improving and are proposing to our customers a unique integrated offering. Our business model is generating multiple synergies across the three pillars and is allowing us to increase the ratio of recurring revenues. Boosted by the award of the 40 MGD flagship water reuse project for the City of San Diego combined to 100% of renewal of our O&M contracts, our consolidated backlog, standing to $105.3 M, is providing us an excellent visibility of the revenues for the current fiscal year. We continue to strive for innovations at all three business pillars allowing us to secure new sales, increase customers retention and recruit new distributors for our speciality product lines. Overall, our business has never been so well balanced, predictable and position for growth", added Frédéric Dugré, President and CEO of H2O Innovation.
In this first quarter of fiscal year 2018, the Corporation generated a 19.7% gross profit before depreciation and amortization compared to 22.5% gross profit before depreciation and amortization generated in the first quarter of fiscal year 2017. This decrease is explained by the revenue mix, which has been modified with the increase of revenues coming from Projects business pillar. Indeed, Projects and O&M activities generally generates lower gross margin. Therefore, having 63.7% of revenues coming from these two pillars puts pressure on the overall gross margin of the Corporation.
The Corporation's ratio of selling, operating and administrative expenses ("SG&A") as a whole over revenues amounted to 17.7% for this quarter, down from 19.6% for the corresponding quarter of the previous fiscal year. This decrease in percentage of SG&A over revenues is mostly attributable to the increase of the overall revenues without impacting proportionally the selling, operating and administrative expenses. The overall level of SG&A was somewhat stable for the first quarters of fiscal year 2017 and fiscal year 2018.
The net loss amounted to ($1,089,875) or ($0.027) per share for the first quarter of fiscal year 2018 compared with ($1,082,086) or ($0.028) of basic loss per share for the first quarter of fiscal year 2017. The increase in net loss is mostly caused by the product mix with more revenues coming from the Projects and O&M business pillars, putting pressure on the gross profit margin and to the net impact of the external fraud perpetrated through the Corporation's banking online platform.
Operating activities, after the working capital items, used $3.0 M in cash for the period ended September 30, 2017, compared with $1.7 M of cash used during the corresponding period ended September 30, 2016. The net loss impact was mitigated by the increase of depreciation and amortization, but also to a significant impact of change in working capital items, such as a higher volume of activities during this quarter, compared to the first quarter of fiscal year 2017, an increase of level of finished goods inventory to meet the growing demands and a timing difference within the projects production phases affecting the invoicing milestones reached. The operating activities were also impacted negatively by the external fraud perpetrated through the Corporation's banking online platform during the first quarter of fiscal year 2018. Investment in property, plant and equipment was also realized, totaling $0.4 M, from which $0.1 M was made for direct support of O&M specific plants.
| CONSOLIDATED RESULTS |
Selected financial data
| Three-month period |
ended on September 30,
|2017|| 2016 |
|Gross profit before depreciation and amortization||4,454,386||4,291,226||4,463,537|
|Gross profit before depreciation and amortization||19.7%||24.5%||22.5%|
|Research and development expenses - net||8,515||81,372||81,372|
|Basic loss per share||(0.027)||(0.024)||(0.028)|
|Diluted loss per share||(0.027)||(0.024)||(0.027)|
|Adjusted EBITDA over revenues||2.6%||3.6%||3.2%|
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 financial results for 2018 first quarter in further details at 10:00 a.m. Eastern Time on Tuesday, November 14, 2017.
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.
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, 2017 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.
 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.