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H2O Innovation Inc (2)
Symbol HEO
Shares Issued 20,926,551
Close 2015-09-22 C$ 1.45
Market Cap C$ 30,343,499
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H2O Innovation earns $272,425 in fiscal 2015

2015-09-22 08:12 ET - News Release

Mr. Frederic Dugre reports

H2O INNOVATION REPORTS FISCAL YEAR 2015 YEAR-END RESULTS: BEST FINANCIAL PERFORMANCE OF ITS HISTORY

H2O Innovation Inc. has released its results for the fourth quarter and 2015 fiscal year ended June 30, 2015. H2O Innovation's fiscal year 2015 results showed revenues of $48.7-million up from $34.8-million for fiscal year 2014, a 40-per-cent increase over last year. Adjusted EBITDA was $2,548,092 compared with $77,155, for fiscal year 2014. For fiscal year 2015, it represents a ratio of 5-per-cent adjusted EBITDA over revenues. Net earnings were at $272,425 compared with a net loss of $1,456,131 in fiscal year 2014.

"This significant increase in fiscal year 2015 compared with fiscal year 2014 is due to the important growth of revenues derived from water treatment projects. It demonstrates the scalability of the corporation. Indeed, once the corporation's fixed costs are covered, the gross profit directly impacts the adjusted EBITDA. Therefore, volume of revenues coming from project sales matters, which is fuelled by the important project order backlog," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

"In fiscal year 2015 revenues from water treatment projects increased by 61 per cent at $28.4-million compared with $17.6-million in fiscal year 2014, which is a direct result of the conversion of the project order backlog into revenues. On the other end, the 18-per-cent organic growth of the specialty products and services, which are mainly recurrent revenues by nature, allowed an improvement of the gross profit margin at 27.9 per cent compared with 26.6 per cent last year.

"The increase of revenues from sales of specialty products and services reached $20.3-million in fiscal year 2015 compared with $17.2-million in fiscal year 2014. It is the result of our steady efforts aimed at increasing the organic growth associated with our specialty products offering for both maple syrup production and maintenance of membrane systems. Our strategic decisions such as the acquisition of Piedmont Pacific Corp. Inc. in December, 2013, which is now fully integrated, and the start-up during the current fiscal year of a new venture in the leasing and operating and maintenance of water treatment systems also contributed to increase our revenues," added Mr. Dugre.

This strategy for organic growth of revenues from sales of specialty products and services is proven to be winning since it minimizes the impact of revenue volatility associated with revenues derived from water treatment projects, it reinforces long-term relationships with the company's customers and it maintains a higher gross profit.

                                       CONSOLIDATED RESULTS

                                                   Three-month periods        12-month periods
                                                     ended on June 30,       ended on June 30,
                                                      2015        2014        2015        2014

Revenues                                       $11,670,028  $7,896,401 $48,699,860 $34,831,514
Gross profit before
depreciation and amortization                    3,467,768   2,117,494  13,566,370   9,250,488
Gross profit before
depreciation and amortization                        29.7%       26.8%       27.9%       26.6%
Operating expenses                                 315,025     204,718   1,030,099     859,483
Selling expenses                                 1,271,641   1,071,346   4,541,164   4,042,511
Administrative expenses                          1,315,396   1,100,644   4,776,986   4,100,167
Research and development expenses -- net            91,395      21,497     265,821     220,145
Net earnings (loss)                              (284,023)   (269,242)     272,425 (1,456,131)
Basic and diluted earnings (loss) per share        (0.003)     (0.002)       0.013     (0.084)
Adjusted EBITDA (loss)                             420,590   (201,458)   2,548,092      77,155
Adjusted EBITDA (loss)                                3.6%      (2.6%)        5.2%        0.2%
           

As at June 30, 2015, corporation's project order backlog stands at $36.5-million compared with $38.3-million as at June 30, 2014. It increased at $44-million after the announcement of $7-million of new bookings on Aug. 31, 2015. Over the last four quarters, the corporation was able to maintain the pace and deliver its large backlog, while it booked new projects, showing that it can manage growth and higher volume of productivity in water treatment projects activities. The bookings over revenues ratio of the corporation's stood at 0.9 for fiscal year 2015, compared with 2.4 for fiscal year 2014. Investments in sales force, notably with the addition of new sales resources in United States and investments into innovative initiatives are paying off.

The corporation's ratio of selling, operating and administrative expenses (SG&A) as a whole over revenues amounted to 21.3 per cent for fiscal year 2015, down from 25.9 per cent of the previous fiscal year. This decrease is attributable to a higher level of revenues derived from water treatment projects sales. Management is still convinced that focused investments in SG&A expenses are a trigger to generate higher level of revenues. The objective is to keep the SG&A ratio to a level of 20 per cent through a tight monitoring of SG&A expenses and an increase in revenues.

Working capital increased from $7.4-million as at June 30, 2014 (current ratio of 1.71) to $8.4-million as at June 30, 2015 (current ratio of 1.75). The increase is attributable to the $1.0-million, $300,000 and $30,000 increase in accounts receivable, accounts payable and accrued liabilities, and costs incurred in excess of billings, respectively, and the decrease of $700,000, $80,000 and $200,000 in inventories, billings in excess of costs incurred and current portion of long-term debt, respectively.

The net debt which stood at $4.1-million as at June 30, 2015, decreased by nearly $100,000 compared with $4.2-million as at June 30, 2014. This decrease is attributable to the reimbursement of a portion of the long-term debt, but subdued by a long-term debt contracted to support the remodelling of the company's Ham-Nord premises, more specifically its office, its maple store and showroom.

Equity stood at $26.0-million as at June 30, 2015, compared with $22.6-million as at June 30, 2014. As at June 30, 2015, the net debt equity ratio was 0.16 whereas it was 0.19 as at June 30, 2014, showing that the corporation is not overleveraged and has improved its overall financial situation.

Net cash generated by operating activities amounted to $2,121,544 in fiscal year 2015 compared with $2,486,316 of net cash used by operating activities during the previous fiscal year. This improvement is attributable to the significant net earnings in fiscal year 2015 compared with a net loss in fiscal year 2014.

Financial results for the fourth quarter of fiscal year 2015

Revenues for the fourth quarter were up by 48 per cent to $11.7-million from $7.9-million for the same quarter of the previous fiscal year. The increase is explained by the increase of $3.4-million in revenues from water treatment projects.

For the quarter ended June 30, 2015, the gross profit before depreciation and amortization increased to reach 29.7 per cent, from 26.8 per cent for the same quarter of the previous fiscal year.

The fourth quarter SG&A expenses were somewhat higher than the first three quarters of fiscal year 2015. They stand at $2.9-million in this current quarter compared with $2.4-million in the fourth quarter of fiscal year 2014. The increase is mainly due to hiring to support operations, to the increase of selling expenses related to high bidding activities, which includes hiring of resources in the company's project sales team, and related to commissions recorded for bookings secured during the quarter.

Adjusted EBITDA for the fourth quarter was $420,590 compared with a loss of $269,242 last fiscal year. As for the net loss of $284,023 for this quarter, it is caused by the increase of the SG&A expenses explained in the previous paragraph.

Strategic outlook for fiscal year 2016

"We begin this fiscal year 2016 with confidence as we are presenting the best financial performance of our history and an important projects order backlog to start this coming fiscal year. The current pipeline of water treatment projects remains very rich in opportunities which should allow the corporation to renew its project order backlog and support its revenue growth. We maintain strong bidding activities and business development mainly in Canada and in United States. The corporation is notably capturing new bookings in California and Texas where the severe drought and population increase generate massive investments in water treatment infrastructures. The business activity in the United States is exceeding the noticeable slowdown in the Canadian energy market. The strategic investments we have made in 2014 and 2015 are paying off and they will allow us to continue towards this direction," stated Mr. Dugre.

The corporation shall also benefit from the growth of revenues coming from its specialty products and services. In addition to the growth associated with revenues from the maple syrup production equipment, the specialty chemical products PWT and Piedmont Pacific equipment expected in fiscal year 2016, the corporation will also benefit from a complete fiscal year of revenues coming from its new venture in the leasing and operating and maintenance of water treatment systems, and revenues coming from the success of its SPMC software. The revenues of specialty products and services are mainly recurrent by nature which stabilizes the gross profit margin and brings predictability in the business model.

We seek Safe Harbor.

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