investor presentation q2 fy2018...investor presentation – q2 fy2018 frédéric dugré, ceo &...
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TSXV:HEO
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Investor Presentation – Q2 FY2018
Frédéric Dugré, CEO & President
Marc Blanchet, CFO
February 14, 2018
TSXV:HEO
Forward Looking Statement
• Certain statements in this presentation may constitute “forward-looking statements” that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of H2O Innovation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this presentation. These forward-looking statements involve a number of risks and uncertainties. For details of these risks and uncertainties please refer to the Company’s Annual Information Form dated September 26, 2017 available on SEDAR (www.sedar.com). H2O Innovation rejects any obligation to revise or update the prospective disclosures contained in this presentation.
• Cautionary Note Regarding United States Securities Laws This presentation does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. The securities of H20 Innovation have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, "U.S. persons," as such term is defined in Regulation S under the U.S. Securities Act, unless an exemption from such registration is available.
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Non-IFRS Financial Measurement
• In this PowerPoint presentation, the Corporation’s management uses measurements that are not in accordance with IFRS. The measurements “Adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA)” and “Net debt” are not defined by IFRS and cannot be formally presented in consolidated financial statements. These non-IFRS measures are presented as additional information and should be used in conjunction with the IFRS financial measurements presented in this report.
• The definition of adjusted EBITDA does not take into account the Corporation’s net loss from bank fraud and acquisition and integration costs. These items are non-recurring in nature and management believes that it allows a better comparison of the Corporation’s historical data as well as comparison with the information presented by competitors. The adjusted EBITDA also excludes other expenses otherwise considered in net earnings (loss) according to Generally Accepted Accounting Principles (“GAAP”), namely the unrealized exchange (gain) loss and the stock-based compensation. These items are non-cash items and do not have an impact on the operating and financial performance of the Corporation. The reader can establish the link between adjusted EBITDA and net loss based on the reconciliation presented below. The definition of adjusted EBITDA used by the Corporation may differ from those used by other companies.
• Even though adjusted EBITDA is a non-IFRS measure, it is used by management to make operational and strategic decisions. Providing this information to the stakeholders, in addition to the GAAP measures, allows them to see the Corporation’s results through the eyes of management, and to better understand the financial performance, notwithstanding the impact of GAAP measures.
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Scalability of Adjusted EBITDA
$0.8 M
$1.4 M
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
Q2 - FY2017 Q2 -FY2018
Adjusted EBITDA
$19.9 M
$25.8 M
0
5
10
15
20
25
30
Q2 - FY2017 Q2 -FY2018
Revenues
FY2017 vs FY2018
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68% growth
30%
growth
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Scalability of Adjusted EBITDA Q1 vs Q2 FY2018
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$22.6 M $25.8 M
0
5
10
15
20
25
30
Q1 - FY2018 Q2 -FY2018
Revenues
$0.6 M
$1.4 M
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
2
Q1 - FY2018 Q2 -FY2018
Adjusted EBITDA
14%
growth
131% growth
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• Consolidated backlog of $116.1 M, up 6.3% from $109.2 M in Q2 FY2017:
Projects backlog stands at $51.9 M, boosted by wastewater, water reuse and industrial activities;
O&M backlog stands at $64.2 M, supported by 100% contract renewal and scope expansion.
Revenues Trend
FY2017
FY2018 Last twelve
months
Previous
twelve
months
Q1 (adjusted)
Q2 Q3 Q4
Q1 Q2
(Q3, Q4
FY2017 & Q1,
Q2 FY2018)
(Q3, Q4
FY2016 & Q1,
Q2 FY2017)
Revenues from
Projects
$5.4 M $3.4 M $4.0 M $7.2 M
$8.2 M $6.6 M $26.0 M $18.7 M
Revenues from
SP&S
$5.9 M $7.7 M $8.6 M $7.3 M
$6.0 M $10.6 M $32.5 M $28.9 M
Revenues from O&M $6.2 M
(adjusted) $8.8 M $8.7 M $9.6 M
$8.4 M $8.6 M $35.3 M
$15.0 M (adjusted)
Total revenues $17.5 M
(adjusted) $19.9 M $21.3 M $24.1 M
$22.6 M $25.8 M $93.8 M
$62.6 M (adjusted)
(1) The adjusted results disclosed in this MD&A represent the results that should have been recorded in the financial statements for the six-month period ended December 31,
2016, with the acquisition of Utility Partners dated July 26, 2016, based on the audited financial results for fiscal year 2017. They have been adjusted to include only 5.2 months of
Utility Partners’ operations.
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• Revenues of $25.8 M, up 29.4% from Q2 FY2017;
• Business mix is well balanced : Projects contribute to volume, SP&S improve margins, O&M add predictability
• Recurring revenue (SP&S + O&M) represent 74.5% of total revenues, for the Q2 FY2018.
Q2-FY2018 Business Mix
$19.9 M $25.8 M
26%
41%
33%
Q2-FY2018 - Revenues
Projects
SP&S
O&M
17%
39%
44%
Q2-FY2017 - Revenues
Projects
SP&S
O&M
Recurring
Revenues
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1st Business Pillar Water & Wastewater Treatment Projects
• 100% North America – industrial and municipal;
• Differentiator: open-source platforms for membrane (FiberFlexTM, flexMBRTM);
• Backlog of $51.9 M, as of December 31, 2017 ($56.1 M as of February 7, 2018), compared to $54.3 M during Q2-FY2017;
Flagship water reuse project: $10 M for the City of San Diego;
Secured 2 projects with flagship industrial customers (with revenue recognition within 12 months).
• Sales pipeline is diversified with market (municipal vs industrial) and applications (water, water reuse and wastewater).
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- $
10,0 $
20,0 $
30,0 $
40,0 $
50,0 $
60,0 $Revenues
Backlog
3-year moving avg.
3-year moving avg.
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$11.7 M $13.2 M
$17.2 M $20.2 M
$27.7 M $29.5 M
$32.5 M
0
5
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017 Q2FY2018(LTM)
Revenues
2nd Business Pillar Specialty Products & Services (SP&S)
• SP&S revenues reached $10.6 M, compared to $7.7 M for Q2 FY2017, representing a 37.6% increase;
Secured a first significant filter housing order for a 250,000 m3/day desalination plant in the Middle East.;
Investments made in the operating and selling functions to support and fuel the growth;
Constant investments in new products and addition of new distributors, to broaden the existing market and improve the products offering;
Record sales for the Maple business line, as the activities are ramping up to the Maple season.
• Develop digital solutions : ClearlogxTM and IntelogxTM.
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Global Outreach through our Specialty Products Distribution
Since July 2017 :
• 8 new PWT and Piedmont Distributors, up 19%
• 4 new Maple Distributors, up 8%
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3rd Business Pillar Operation & Maintenance (O&M)
• Renewed 100% of our O&M contracts following the acquisition of Utility Partners;
• Secured 5 new O&M contracts since the acquisition, 3 in FY2018;
• Expanded the O&M business in new geographies :Texas and Alberta;
• O&M backlog stands at $64.2 M as December 31, 2017 compared to $54.9 M at the same
period of the previous fiscal year, a 16.9% increase over a year;
• The weighted average remaining life of current contracts in the O&M backlog amounts to
1.89 years at the end of Q2 FY2017.
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$57.3 M $54.9 M $60.4 M $55.1 M
$50.6 M
$64.2 M
0
10
20
30
40
50
60
70
Q1-2017 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018
Backlog O&M
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U.S. Water Market Favorable to O&M
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• U.S. industry CAPEX was valued at $40 B in 2016, of which 92.4% relates to Utility needs;
• OPEX expenses reached $116 B in 2016, representing 74% of the total water US market;
• Texas estimates at $62.5 B their investment required in water management for the next 50 years;
• Population of Texas is expected to grow 40% by 2040.
Water Infrastructure Investment Need by State Market Breakdown
Source: Environmental Protection Agency and Global Water Intelligence
> $25 Bn $5 - $25 Bn
$2.5 - $5 Bn
$1 - $2.5 Bn Did not participate
< $1 Bn Regions of interest for business development
$40.5 Bn 26%
$116.2 Bn 74%
CAPEX
OPEX
Total Water
Market:
$157.7 Bn
O&M Contracts in North America Total of 36 O&M contracts
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• We are operating in 8 states and 2 provinces:
California
New Mexico
Mississippi
Georgia
Massachusetts
Vermont
New Hampshire
Texas (NEW, started in January 2018)
Quebec
Alberta (NEW, starts in April 2018)
• We signed 5 new contracts since Utility Partners’ acquisition in New
Mexico, Georgia, New Hampshire, Texas and Alberta.
2 1 7
3
9
1
10
1 1
1
Business is really shaping-up
Revenue Breakdown In CAD million $
Our business model allows us to :
Gain predictability in our business
model with 74.5% of recurrent
revenues;
Promote sales synergies between
three business pillars;
Secure long-term relationship with
customers.
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- $
10,0 $
20,0 $
30,0 $
40,0 $
50,0 $
60,0 $
70,0 $
80,0 $
90,0 $
100,0 $O&M
SP&S
Projects
$6.6 M
$10.6 M
$8.6 M
Q2-FY2018 Revenues
Projects
SP&S
O&M
13.4%
growth
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Financial Performance – Q2 FY2018
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Financial Highlights Q2 FY2018
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Three-month periods
ended December 31,
Six-month periods
ended December 31,
2017 2016 2017
2016
(adjusted)(1) Revenues $25.8 M $20.0 M $48.4 M $37.4 M
Projects $6.6 M $3.4 M $14.8 M $8.8 M
SP&S $10.6 M $7.7 M $16.6 M $13.6 M
O&M $8.6 M $8.8 M $17.0 M $15.0 M
Gross profit before
depreciation and
amortization (%) 24.1% 24.2% 22.0% 24.4%
SG&A $4.9 M $4.2 M $8.8 M $8.1 M
Net loss ($1.3 M) ($1.1 M) ($2.4 M) ($2.0 M)
Adjusted EBITDA(a) $1.4 M $0.8 M $1.9 M $1.4 M
Adjusted EBITDA over
revenues (%) 5.3% 4.1% 4.0% 3.8%
• 29.4% increase of revenues: fueled by the
organic growth of the Projects and
Specialty, Products & Services business
pillars;
• SG&A : 18.8% down from 21.2% for the
comparable quarter of FY2017:
Mostly attributable to the increase of the
overall revenues without impacting
proportionally the SG&A expenses.
• The net loss was impacted by:
the Tax Cuts and Jobs Act, leading to
an additional deferred tax expense of
$1.1 M for this quarter;
the foreign exchange, as most of the
revenues are in U.S. dollars.
(1) The adjusted results disclosed in this MD&A represent the results that should have been recorded in the financial
statements for the six-month period ended December 31, 2016, with the acquisition of Utility Partners dated July 26,
2016, based on the audited financial results for fiscal year 2017. They have been adjusted to include only 5.2 months
of Utility Partners’ operations.
Adjusted EBITDA
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Three-month periods
ended December 31,
Six-month periods
ended December 31,
2017 2016 2017
2016
(adjusted) (1)
Net loss for the period ($1.3 M) ($1.1 M) ($2.4 M) ($2.0 M)
Finance costs – net $4.7 M $0.3 M $0.8 M $0.7 M
Income taxes $1.2 M ($0.08 M) $1.3 M ($0.4 M)
Depreciation of property, plant and
equipment $0.2 M $0.1 M $0.5 M $0.4 M
Amortization of intangible assets $0.7 M $0.8 M $1.4 M $1.4 M
Unrealized exchange (gains) /
losses $0.03 M $0.1 M ($0.07 M) $0.2 M
Acquisition and integration costs - $0.3 M $0.08 M $1.0 M
Stock-based compensation costs $0.1 M $0.2 M $0.2 M $0.3 M
Net loss on bank fraud - - $0.4 M -
Adjusted EBITDA $1.4 M $0.8 M $1.9 M $1.4 M
• Adjusted EBITDA increased by $0.5 M
or 67.8%, to reach $1.4 M;
Pushed by the significant increase
in revenues for the Projects and the
SP&S business lines
Driven by a decrease of the selling,
general and administrative
expenses (SG&A) as a percentage
over revenues, impacting positively
the net loss before income taxes
• Ratio of EBITDA over revenues is at
5.3%, increase from 4.1% in Q2
FY2017 .
Financial Position
(in Canadian dollars,
except for ratios)
Period ended
December 31,
2017
Period ended
June 30, 2017
Working capital $8.0 M $9.0 M
Working capital ratio 1.31 1.42
Net debt $15.6 M $12.6 M
Equity $39.7 M $43.3 M
Net debt to equity ratio 0.39 0.29
• Working capital ratio decreased from $9.0 M to $8.0 M;
Receivables stood at $17.1 M, compared to $13.2 M as at June
30, 2017
o Invoicing milestone reached in Projects;
o Increase in revenue level.
• Inventories increased by $1.3 M to $6.2 M as at December 31, 2017
from $4.9 M as at June 30, 2017;
Finished goods manufactured during the summer in preparation for
the start of the maple syrup production season;
Higher level of inventories to better respond to demand from
customers and expedite deliveries;
Impact on the use of the bank loans, as the Corporation need to
build up the inventory.
• Work in progress - net (WIP) decreased by $1.9 M since June 30. This
decrease is due to the differences between project advancement and
project invoicing schedules.
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Cash Flows from Operating Activities
19
Impact of net loss subdued by the increase of
depreciation and amortization compared to the
second quarter of fiscal year 2017;
Significant impact of change in working capital
items, such as:
• Higher volume of activities during this
quarter compared to the second quarter
of fiscal year 2017 ;
• Increase of level of finished goods
inventory to meet the growing demands;
• A timing difference within the projects
production phases affecting the
invoicing milestones reached.
Total investment of $0.4 M in property, plant and
equipment for the three-month period ended
December 31, 2017.
$1.1 M
$0.6 M
$0.4 M
$1.4 M
$0.1 M
$0.4 M
0
0,2
0,4
0,6
0,8
1
1,2
1,4
Q2 FY2017 Q2 FY2018
Cashflow
Cashflow for operating activities before change inworking capital itemsCAPEX
Movement of the Net Debt
20
$12.6 M
$15.6 M
$1.6 M ($1.0 M)
($1.0 M)
$0.4 M
$3.0 M
0
2
4
6
8
10
12
14
16
18
June 30, 2017 Increase in long-termdebt
Reimbursment oflong-term debt
Guaranteed depositcertificate
Variation of bankoverdraft and loans
Impact in cash &cash equivalent
December 31, 2017
Série2
Série1
Bank overdraft, loans and
cash & cash equivalents
Long-term debt
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• Project sales backlog: $51.9 M (as of December 31, 2017);
• Growing momentum for industrial and wastewater projects;
• Secured a $10 M contract for the City of San Diego and two flagship industrial projects.
• Sustained organic growth of 37.6% supported sales network expansion;
• First significant filter housing order for a 250,000 m3/day desalination plant in the Middle East
• Keep developing new products, including digital solutions.
• Backlog of $64.2 M for operating and maintenance contracts (as of December 31, 2017);
• Pursue growth in new geographies: Texas and Alberta;
• 100% of expiring contracts were renewed.
One Focus, Three Pillars: Retain Customers • EBITDA growth of 68% increases faster than Revenues growth of 30%;
• Combined backlog of $116.1 M (Projects and O&M), as of December 31, 2017, remains strong and diversified;
• 74.5 % of the Revenues are recurrent by nature (SP&S and O&M);
• Our business model proposes many sales synergies among three business pillars.
Projects SP&S O&M
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H2O Innovation Unique smart water player
Headquarters
330 rue St-Vallier Est, suite 340
Quebec City, QC
G1K 9C5 Canada
1-418-688-0170
www.h2oinnovation.com