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H2O Innovation Reports Record Fiscal Year 2022 Revenues and Profitability

Press Release

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, September 28, 2022 – (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 growth1 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 Twelve-month periods ended
June 30, 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 revenues2 43,543 83.7 30,980 88.0 156,511 84.9 126,050 87.3
  • % of total revenues.
  • 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.

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