H2O Innovation’s 2019 Second Quarter Results – Hays’ Acquisition in Texas Integrated to our Business Model Strives for Additional Recurring Revenues and Synergies

Press Release

Key highlights

• Sustained revenue growth of $3.6 M, or 13.8% over the same period of the previous fiscal year, reaching $29.4 M for the second quarter of fiscal year 2019;
• Recurring revenues from Aftermarket, Specialty Products and Operation & Maintenance (“O&M”), representing 70.8% of total revenues;
• Selling, operating and administrative expenses (“SG&A”) decrease to 16.7% for the second quarter of fiscal year 2019, from 18.8% for the same quarter of the previous fiscal year;
• Consolidated backlog, combining Projects and O&M business pillars, stood at $147.7 M as of December 31, 2018, compared to $116.1 M for the period ended December 31, 2017;
• Adjusted EBITDA¹ of $1.4 M, or 4.7% over revenues, during the second quarter of fiscal year 2019;
• Net loss decreased by $0.1 M to reach ($1.2 M) for the second quarter of fiscal year 2019, from a net loss of ($1.3 M) for the same quarter of the previous fiscal year;
• Adjusted net loss² stood at ($0.3 M) for the second quarter of this fiscal year, compared to an adjusted net loss of ($0.8 M) for the same quarter of the previous fiscal year.

All amounts in Canadian dollars unless otherwise stated.

Quebec City, February 13, 2019 – (TSXV: HEO) – H2O Innovation Inc. (“H2O Innovation” or the “Corporation”) announces its results for the second quarter of fiscal year 2019 ended December 31, 2018. Revenues for the second quarter of fiscal year 2019 amounted to $29.4 M, representing a $3.6 M, or 13.8% increase, as compared with revenues of $25.8 M recorded for the second quarter of the previous fiscal year. This increase is partially fueled by the acquisition of Hays Utility South Corporation (“Hays”), as well as the organic growth from the Projects & Aftermarket and O&M business pillars. The Projects & Aftermarket business pillar is showing a revenue increase of $2.2 M, or 21.9%, while having a healthier backlog with better projects’ diversification. The Corporation will focus on improving its gross profit margin before depreciation and amortization in this business pillar prior to focusing on growing the volume of revenues. Therefore, to reach that goal, H2O Innovation is executing more industrial and wastewater projects previously secured in the backlog and is observing positive upside in the gross profit margins being recorded. Specialty Products business pillar is showing a momentary decrease of $1.6 M, or 21.4% of revenues, for the second quarter of fiscal year 2019 compared to the same quarter of the previous fiscal year. This decrease is partially explained by delays beyond Corporation’s control in delivering significant orders of couplings for recurring customers. Specialty Products business pillar’s revenue was also impacted by a general slowdown in the maple syrup industry due to adverse weather conditions during the last maple syrup season. As a result, maple syrup producers have experienced a challenging year resulting in a lower production, thus lowering the investments they can spend in new capital equipment purchase. As for PWT, our specialty chemicals product line, the Corporation increased its in-house manufacturing capacity of liquid cleaners. This manufacturing improvement, along with the addition of new distributors in strategic territories, enabled the increase of the Corporation’s gross profit margin before depreciation and amortization. Regarding Piedmont’s operations, the bookings of new couplings and filter housings orders have reached a new high at the end of the second quarter, as explained in the press release of January 31, 2019. However, most of the revenues from these large orders have not been recognized in this current quarter. The O&M business pillar is showing a constant growth, with a revenue increase of $3.0 M, or 35.2%, during the second quarter of fiscal year 2019, compared to the same quarter of the previous fiscal year. This significant revenue growth is explained by a sustained organic growth mostly driven by scope of work increases on existing projects, and the acquisition of Hays, adding $1.5 M of revenues to this business pillar for the second quarter of fiscal year 2019.

“We are already seeing upsides from the acquisition of Hays in Texas completed on December 1, 2018. Indeed, additional revenues are impacting positively this quarter’s results and cross-selling synergies have been targeted for the coming quarters. Our $147.7 M combined backlog is not only providing visibility on revenues but is an unbelievable source of additional sales synergies generated by our multiple product lines. With proper business mix, combining Projects & Aftermarket, Speciality Products and O&M, I am confident to see an improvement in our gross profit margin and thus our EBITDA’s performance”, stated Frédéric Dugré, President and Chief Executive Officer of H2O Innovation.

Read More: https://www.h2oinnovation.com/wp-content/uploads/2019/02/HEO_press_release_Q2-2019_ENG_FINAL.pdf

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