H2O Innovation Reports Fiscal Year 2023 Results – Maintained Growth Momentum and Strenghtened Financial Position

Key Financial Highlights
(All comparisons are relative to the year ended June 30, 2022, unless otherwise stated)
• Revenue growth of 37.4% reaching $253.3 M from $184.4 M;
• Organic revenue growth1 of 20.1%, compared to 17.7%, with recurring revenues by nature1 of 88.5%;
• Adjusted EBITDA1 of $21.4 M, compared to $18.1 M;
• Net loss of $1.3 M, compared to net earnings of $5.1 M which were positively impacted by a deferred tax recovery of $4.6 M;
• Adjusted net earnings1 of $7.8 M, compared to $8.8 M;
• Consolidated backlog1 of $189.6 M up by 16.3%; and
• Net cash flows generated from operating activities of $28.9 M, compared to $6.3 M of cash flows used last year. All amounts are in Canadian dollars unless otherwise stated.

Quebec City, September 27, 2023 – (TSX: HEO) – H2O Innovation Inc. (“H2O Innovation” or the “Corporation”) announces its financial results for the fourth quarter and fiscal year ended June 30, 2023.

“Our growth momentum remained strong during our fiscal year 2023 and is among the best in the industry, with an organic revenue growth above the industry average in all our business pillars. The strategy to expand the sales of our Specialty Products in key locations with the addition of strategic sales resources and distributors, combined with our focus on industrial opportunities for the Water Technologies and Services (WTS) business pillar has really paid off. We also directed our efforts towards the development of the Corporation’s O&M customer base through scope of work expansions. Meanwhile, the pressure on gross profit margins represented our main challenge for FY2023, notably in the Maple business line as previously mentioned in September 19, 2023 press release. After managing constant price increases in our supply chain and high inflation in the labor market, we now see more stability on the horizon. We have implemented
initiatives to recover and improve our gross profit margin profile in the coming quarters, such as amongst others, price increase programs, CPI adjustments on O&M contracts and the insourcing of some of our manufactured products. With an improvement of cash flow generated from operating activities resulting into
a reduction of our net debt level, we look into the future with confidence in maintaining the sustained organic revenue growth and improved margin profile as per our Three-Year Strategic Plan. The Corporation’s financial position, more favorable market conditions and our disciplined approach for mergers and acquisitions (M&A) should enable us to capture new organic and acquisition growth opportunities. Overall, we remain committed to our 3-Year Strategic Plan and objectives,” stated Frédéric Dugré, President, Chief Executive Officer and co-Founder of H2O Innovation.

1 Non-IFRS measures are presented as additional information and should be used in conjunction with the IFRS financial measurements presented in this press release. A definition of all non-IFRS measures and additional IFRS measures are provided in the MD&A in the section ‘’Non -IFRS financial measurements’’ to give the reader a better understanding of the indicators used by management. Quantitative reconciliations of non -IFRS financial measures are presented below under the section “Non-IFRS financial measurements.”

Financial results for fiscal year 2023

With three strong and complementary business pillars, the Corporation is well balanced and not dependent on a single source of revenue, enabling it to generate a sustained revenue growth for the fiscal year ended on June 30, 2023. Consolidated revenues coming from the Corporation’s three business pillars, for fiscal year ended on June 30, 2023, increased by $68.9 M, or 37.4%, to reach $253.3 M compared to $184.4 M for the comparable period of the previous fiscal year. This increase mainly came from an organic revenue growth1 of $37.1 M, or 20.1%, and an acquisition growth1 of $24.3 M, or 13.2%, combined with a favorable exchange rate impact of $7.6 M, or 4.1%.

WTS’s revenues for the year ended June 30, 2023 increased by $7.7 M, or 18.1%, coming from organic revenue growth related to service activities and water treatment systems projects combined with a favorable foreign exchange impact. WTS’ EBAC2 increased by $0.7 M or 17.1%, representing an increase in dollars, but a slight decrease in percentage over revenues. The increase of WTS’s EBAC in dollars is mainly attributable to improved project performance, but the decrease in percentage over revenues is due to higher selling and general expenses to support sales important growth.

Specialty Products’ revenues stood at $85.5 M for the year ended June 30, 2023, compared to $54.4 M for the previous fiscal year, representing an increase of $31.1 M, or 57.2%. This increase was driven by strong sales and an efficient marketing strategy execution combined with the addition of strategic sales resources. Specialty Products’ business pillar delivered components and consumables to large desalination plants and penetrated strategic regions in the Middle East during the third quarter of fiscal year 2023. This momentum was sustained during the fourth quarter of fiscal year 2023 with a breakthrough in the Israeli market. Furthermore, enhanced sales synergies between the Corporation’s various product lines were achieved, combined with a growth of $12.1 M from the acquisition of Leader, which led to a significant revenue growth. Specialty Products’ EBAC2 increased by $3.1 M, or 20.4%, representing an increase in dollars, but a decrease in percentage over revenues. Even if Specialty Products’ EBAC was positively impacted by strong sales growth, pressure on gross margin and business mix between specialty chemicals, components, consumables, and maple farming equipment negatively affected the ratios

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