Alternext: MNEMO: ALHEO
Company takes $7.6 million charge related to impairment of goodwill and intangible assets
- Revenues of $10.2 million, up from $7.1 million for the same period in fiscal 2011.
- Gross profit at 26.4%, compared to 33.3% for the same period in fiscal 2011.
- EBITDA1 at $1.3 million, compared to $0.4 million for the same period in fiscal 2011. Excluding change in fair value of contingent considerations, EBITDA stood at $434,551.
- Net loss of ($7.7 million), compared to ($125,006) for the same period in fiscal 2011.
- Net loss of ($52,810) excluding goodwill impairment of ($8.2 million), ($0.4 million) impairment of intangible assets, changes in fair value of contingent considerations of $0.8 million and deferred tax benefit of $0.2 M, compared to ($125,006) for the same period in fiscal 2011.
- Operating activities used ($424,814) in cash, compared to $396,954 of cash generated for the same period in fiscal 2011. Before change in working capital items, operating activities generated $566,586 in cash for the period, compared to $346,024 for the same period in fiscal 2011.
All amounts in Canadian dollars unless otherwise stated.
QUEBEC CITY, May 14, 2012 /CNW Telbec/ - (TSXV: HEO) - H2O Innovation Inc. ("H2O Innovation" or the "Company"), a complete water treatment solutions company providing integrated technological water treatment solutions to municipal, energy & mining end-users, announces its results for the third quarter of fiscal year 2012. These consolidated financial statements have been prepared under International Financial Reporting Standards (IFRS). During the quarter ended March 31, 2012, the Company's revenues significantly increased by 43.4% to $10.2 M, up from $7.1 M in the comparable quarter of the previous fiscal year. H2O Innovation recorded a 26.4% gross profit margin and returned to positive EBITDA, with an EBITDA of $1.3 M ($434,551 excluding change in fair value of contingent considerations).
"During this third quarter of fiscal 2012, our revenues reached a record-high $10.2 M, the highest quarterly revenues in our 12-year history and a very significant increase of 43% compared to last year's third quarter. As we started the fiscal year with our highest order backlog ever, revenue growth was expected for the second half of the year as we advanced with project execution. We are also encouraged to be back in positive EBITDA territory and to have finished the quarter very close to net earnings if it were not for the goodwill and intangible assets impairment charge", stated Frédéric Dugré, President and CEO of H2O Innovation Inc.
The Company also brought in a healthy $6.0 M in new bookings for water treatment systems and equipment in the quarter. These new bookings kept the Company's order backlog high at $28.1 M as at March 31, 2012. The Company's bookings over revenue ratio for systems and equipment was close to 1 at 0.9 for the quarter and well above 1 at 1.48 for the last twelve months, showing sound replenishment of the order backlog. With the record revenues of this third quarter and an order backlog remaining high nine months into the fiscal year, management continues to expect reaching record-high revenues at year-end.
| CONSOLIDATED RESULTS
Selected financial data
| Three-month periods
ended March 31
| Nine-month periods
ended March 31
|Changes in fair value of contingent considerations||(849,502)||-||(849,502)||-|
|Impairment of goodwill||8,221,423||-||8,221,423||-|
|Impairment of intangible assets||378,728||-||378,728||-|
|Net loss for the period||(7,651,400)||(125,006)||(8,954,127)||(1,278,309)|
|Basic and diluted net loss per share||(0.127)||(0.002)||(0.149)||(0.021)|
1 Earnings before finance costs - net, income taxes, depreciation, amortization, and impairment (EBITDA) is a measurement of earnings that excludes finance costs - net, income taxes, depreciation, amortization and impairment. Management believes that EBITDA is a measurement commonly used by readers of financial statements to evaluate a company's operational cash-generating capacity and ability to discharge its financial expenses.
Revenues from water treatment systems and equipment increased by 79% compared to the third quarter of fiscal 2011. Our second business sector, specialty chemicals and consumables, has also experienced growth during the quarter. Compared to the corresponding quarter of fiscal 2011, sales of specialty chemicals and consumables increased by 4%, from $3.3 M to $3.5 M.
During the quarter, the Company's California-based Professional Water Technologies business unit launched a new high performance antiscalant, SpectraGuard™ 350. This new product has been developed to provide a higher level of protection and control over inorganic and colloidal species in water reclamation plants and brackish water reverse osmosis plants. Recently certified for use by the National Sanitation Foundation (NSF) to ANSI/NSF Standard 60, SpectraGuard™ 350 is already in use in a major water reclamation plant in Arizona.
H2O Innovation's significant revenue growth also came along with an increase in gross profit margin compared to the previous quarter ended December 31, 2011. H2O Innovation's operations during this third quarter produced a 26.4% gross profit margin, compared to 22.2% last quarter, where several factors had combined to negatively affect gross profit margin. While this quarter's margin is not as high as the unusually high level at which it was recorded a year ago when systems and equipment revenues reached a low point, management finds that gross profit margin positively progressed during the quarter to a sound level.
Selling, operating and administrative expenses remained fairly stable during the quarter and are on track with budgeted levels. Increases in selling and administrative expenses were mostly offset by a decrease in operating expenses. With the quarter's higher revenues, selling, operating and administrative expenses as a whole represented 21.4% of revenues, compared to 30.1% in the previous fiscal year, demonstrating the scalability of the Company's business model.
EBITDA for the quarter was recorded at $1.3 M, compared to $369,211 for the same period ended March 31, 2011. The fair value of contingent considerations was reduced based on actual and forecasted sales of certain wastewater equipment and this reduction had a positive effect of $0.8 M to the quarter's EBITDA. On a trailing twelve-months basis, comparing the April 1 to March 31 periods ended in 2011 and 2012, EBITDA progressed from ($527,094) to $707,947.
"At the beginning of the year, our objectives were to continue the company's growth and bring it to a level of positive EBITDA. With one quarter to go in the year, this quarter's positive EBITDA and the progress recorded during this year's first nine months are encouraging and demonstrate that we are moving in the right direction. With higher revenues, we have taken advantage of the scalability of our business model to generate higher EBITDA and close in on net earnings, without needing to proportionally add resources or grow costs", concluded Frédéric Dugré.
Goodwill impairment charge and impairment of intangible assets
In the third quarter of fiscal 2012, the Company performed its annual impairment test for goodwill and re-evaluated the book value of its goodwill mainly related to the acquisitions of Itasca Systems, Inc. in July 2008 and of Wastewater Technology, Inc. in April 2008. Two factors have required the Company to re-evaluate the book value of its goodwill related to the two aforementioned acquisitions. First, the prolonged decrease in its systems and equipment sales in the ethanol production sector, and second lower sales of its patented Bio-Wheel™ and Bio-Brane™ systems in the U.S. municipal sector through its network of manufacturer's representatives.
As at March 31, 2012, the Company reviewed the carrying amounts of its intangible assets and determined that some intangible assets related to the cash-generating unit "United States" were no longer used and were not generating material cash flows. Therefore, the recoverable amount of the intangible assets was estimated to nil. The impairment loss of the intangible assets is due to the prolonged decrease of the Company's operations in the industrial sector - mainly the ethanol production subsector.
The result of these re-evaluations was respectively a $8.2 M and $0.4 M decrease in the book value of goodwill and intangible assets. This increased the net loss for the quarter. The net loss for the quarter totaled $7.7 M or ($0.127 per share), including the non-monetary loss of $7.6 M related to the goodwill impairment charge, impairment of intangible assets, deferred tax income benefit, and changes in fair value of contingent considerations, compared to ($125,006) or ($0.002 per share) for the third quarter of fiscal 2011.
After the end of the quarter, the Company realigned its sales strategy for the Bio-Wheel™ and Bio-Brane™ systems. It is now mainly targeting sales of containerized systems for small municipal streams and industrial applications (such as support to man camps and remote locations), two segments where its unique technology is highly differentiated and can attain stature as a preferred solution. While systems and equipment sales to ethanol producers remain scarce, the Company stays engaged and quite active in the ethanol production sector, serving an important customer base with specialty chemicals and consumables.
Conference call & webcast
H2O Innovation will hold a conference call today Monday, May 14, 2012 at 4 p.m. (Eastern Time) to review the results. The call will begin with a presentation by the management. A question-and-answer period will follow.
A slide presentation intended for simultaneous viewing during the call will be available before the call this afternoon on the Financial Reports and Webcasts page of the Investors section of the Company's website.
Shareholders, analysts and institutional investors are invited to participate. The North American toll-free number to dial for access is 1-800-820-0231 and international participants are invited to dial +1 416-640-5926. The participant passcode is 2694744.
Media representatives and other interested parties may participate in listen only mode or may follow the live webcast of the conference call (audio and slides) at www.h2oinnovation.com. The webcast will remain available for replay on the Company's website for 90 days in the Investors section.
The third quarter financial report is available on www.h2oinnovation.com and on NYSE Euronext Alternext's site (www.alternext.fr). Additional information on the Company is also available on SEDAR (www.sedar.com).
Certain statements set forth in this press release regarding the operations and the activities of H2O Innovation as well as other communications by the Company to the public that describe more generally management objectives, projections, estimates, expectations or forecasts may constitute forward-looking statements within the meaning of securities legislation. Forward-looking statements concern analysis and other information based on forecast future results and the estimate of amounts that cannot yet be yet determined. Forward-looking statements include the use of words such as "anticipate", "if", "believe", "plan", "estimate", "expect", "intend", "may", "could", "should", "will", and other similar expressions, as well as those usually used in the future and the conditional, notably regarding certain assumptions as to the success of a venture. Those forward-looking statements involve a number of risks and uncertainties, which may result in actual and future results of the Company to be materially different than those indicated. Information about the risk factors to which the Company is exposed is provided in the Annual Information Form dated September 28, 2011 available on SEDAR (www.sedar.com). Unless required to do so pursuant to applicable securities legislation, H2O Innovation assumes no obligation to update or revise forward-looking statements contained in this press release or in other communications as a result of new information, future events and other changes.
About H2O Innovation
Building on 12 years of experience, H2O Innovation provides integrated technological water treatment solutions based on membrane filtration technology to municipal, energy & mining end-users. H2O Innovation designs state-of-the-art custom-built water treatment systems for the production of drinking water and industrial process water, the reclamation and reuse of water, and the treatment of wastewater, while providing a complete line of specialty chemicals and consumables for membrane filtration and reverse osmosis systems. With more than 110 employees and seven locations in North America, H2O Innovation is also a founding partner of H2O Innovation India, a joint venture based in Mumbai, India. Shares of H2O Innovation are listed on the TSX Venture Exchange (HEO) and the NYSE Euronext Alternext Exchange (MNEMO: ALHEO). For more, visit www.h2oinnovation.com.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) nor the Alternext Exchange accepts responsibility for the adequacy or accuracy of this release.
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H2O Innovation Inc.