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H2O Innovation Inc (2)
Symbol HEO
Shares Issued 20,926,551
Close 2016-02-05 C$ 1.19
Market Cap C$ 24,902,596
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H2O Innovation earns $174,221 in fiscal Q2

2016-02-08 08:23 ET - News Release

Mr. Frederic Dugre reports

H2O INNOVATION REPORTS FISCAL 2016 SECOND QUARTER RESULTS - CORPORATION MAINTAINED GROWTH WHILE IMPROVING ITS FINANCIAL RESULTS

H2O Innovation Inc. has released its results for the second quarter of fiscal year 2016 ended Dec. 31, 2015. Even though the corporation's revenues slightly decreased by 3.8 per cent to $13.2-million, down from $13.7-million in the comparable quarter of the previous fiscal year, the net earnings and earnings before interest, taxes, depreciation and amortization increased significantly.

"These great results were fuelled by our gross profit margin, which went from 23.2 per cent for the comparable quarter to 31.3 per cent in the second quarter of fiscal year 2016. It is the result of constant efforts, sound business mix and gradual addition of new innovations that differentiates our offering and pushing profit margins up," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

Even though revenues decreased from the comparable period, the ratio of adjusted EBITDA over revenues increased, from 5 per cent for the three-month period ended Dec. 31, 2014, to 7.8 per cent for the comparable period ended Dec. 31, 2015. This notable improvement of the company's adjusted EBITDA over revenues is fuelled by the organic growth of the company's specialty products and services business line in addition to the sound cost management in the company's water treatment projects business line.

The revenue level maintained during the quarter is derived from the increase in revenues from SP&S, which reached $7.3-million compared with $5.0-million in the comparable quarter of the previous fiscal year, representing an increase of 45.7 per cent. This strong increase in SP&S revenues is the direct result of investments made during the last year in the company's operating and selling functions to support the growth of this business line. Clearlogx, which assets were acquired during the second quarter of fiscal year 2016, strengthened the increase in SP&S revenues. For the corporation, it is still a constant priority to continue to grow the specialty products and services business.

Revenues from water treatment projects decreased to $5.9-million compared with $8.7-million in the corresponding period of the previous fiscal year, representing a 32.1-per-cent decrease. The decrease in revenues from water treatment projects despite the increasing backlog is due to the larger projects composing the company's order backlog, thus stretching the revenue recognition over a longer period of time, based on the different milestones reached.

In this second quarter of fiscal year 2016, the corporation generated a 31.3-per-cent gross profit before depreciation and amortization, a higher level than the 23.2-per-cent gross profit before depreciation and amortization generated in the second quarter of fiscal year 2015. The revenue mix in this quarter shows that revenues from SP&S represent a fair proportion of total revenues compared with the corresponding period of the previous fiscal year (55.0 per cent in fiscal year 2016 versus 36.3 per cent in fiscal year 2015), affecting positively the company's gross profit. The constant work on improving the execution and the procurement for the company's water treatment projects business line is paying off, supporting the positive effect on the gross profit.

                                      CONSOLIDATED RESULTS

                                                 Three-month period            Six-month period
                                                  ended on Dec. 31,           ended on Dec. 31,
                                                  2015         2014          2015          2014

Revenues                                   $13,165,590  $13,689,060   $25,424,918   $24,908,191
Gross profit before depreciation
and amortization                             4,126,602    3,171,532     7,331,088     6,204,483
Gross profit before depreciation
and amortization                                 31.3%        23.2%         28.8%         24.9%
Operating expenses                             318,886      232,817       652,866       433,303
Selling expenses                             1,611,384    1,069,354     2,969,117     1,975,643
Administrative expenses                      1,188,169    1,126,033     2,231,720     2,113,829
Research and development expenses -- net        35,610       49,502       120,174        89,424
Net earnings                                   174,221      117,524       226,550       400,111
Basic and diluted earnings per share             0.008        0.006         0.011         0.019
Adjusted EBITDA                              1,030,502      685,427     1,472,276     1,600,802
            

The corporation secured $9.6-million in new bookings for water treatment projects over the quarter. These new bookings, combined with the realized revenues from water treatment projects during the quarter and the significant weakening of the Canadian dollar compared with the U.S. dollar, have brought up the backlog at $43.1-million as at Dec. 31, 2015, compared with $29.6-million as at Dec. 31, 2014, and reached record-high level at $50.8-million on Jan. 6, 2016. This level of order backlog gives the corporation a fairly good perspective over the coming quarters in terms of volume of revenues. The company's team has demonstrated that it can manage the execution challenge that comes with such large order backlog and the company has structured the organization in order to achieve even more.

The corporation's ratio of selling, operating and administrative expenses as a whole over revenues amounted to 23.7 per cent for this quarter, up from 17.7 per cent for the corresponding quarter of the previous fiscal year. This increase is mostly attributable to the additions of personnel to support the company's overall operations and its continuing growth. Management aims to keep the annual average SG&A ratio around 20 per cent through a tight management of SG&A expenses and an increase in revenues.

Adjusted EBITDA for the quarter was recorded at $1,030,502, compared with $685,427 for the same period ended Dec. 31, 2014, representing a ratio of 7.8 per cent of adjusted EBITDA over revenues for this quarter compared with a ratio of 5 per cent for the same quarter of the previous fiscal year. This significant increase in adjusted EBITDA, despite the slight decrease in revenues, demonstrates the company's operational efficiency and the improvement of the company's business model over the last year. Indeed, once the corporation's fixed costs are covered, the gross profit will directly impact the EBITDA. Therefore, volume of revenues matters, as well as a sound cost management.

The net earnings amounted to $174,221 or 0.8 cent per share for the second quarter of fiscal 2016 compared with $117,524 or 0.6 cent per share for the second quarter of fiscal 2015. The increase in net earnings is the result of an improved level of gross profit before depreciation and amortization.

Operating activities generated $128,383 in cash for the three-month period ended Dec. 31, 2015, compared with a loss of $549,922 of cash used during the corresponding period ended Dec. 31, 2014. The variation is mainly attributable to the change in working capital items and the unrealized exchange loss on the long-term debt contracted during the period.

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