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TSXV:HEO
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Corporate Presentation
Marc Blanchet, CFO
July 2017
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, 2016 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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Water Matters
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2.5 Billion People don’t have access to
adequate sanitation
780 Million People don’t have access to
Clean Water
$US532 Billion Forecasted US Municipal Water Infrastructure
CAPEX Spend over next 10 years.
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Continuous growth Close to our clients
Headquarters : Quebec City, QC
Manufacturing plants:
• Ham-Nord (QC) : 60,000 ft2
• Minneapolis (MN): 30,000 ft2
• Vista (CA) : 20,000 ft2
Engineering & sales offices:
• Burlington (ON)
• Calgary (AB)
• Bilbao (Spain)
O&M contracts (USA):
• 39 municipalities (Water & WW plants)
in 8 states
Franchise
• H2O Innovacion de Mexico
• 580 employees
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We Serve the Water Utility
O&M services
Software, Data Acquisition & Monitoring
Specialty chemicals
Maple Equipment
Components for Water Plants
(couplings, cartridge filter housings)
Engineering
Water
Utility
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UF, RO, MBR, IFAS,
Systems Assembly
Design – Manufacture – Customize – Operate – Maintain
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Highly Scalable Platform
+ 700 systems installed
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Our Business is Based on Three Pillars
We promote customer retention through every steps of our business offering
Projects and Engineering
Solutions
Specialty Products
Operation &
Maintenance
Flagship Differentiator Convergence
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1st Business Pillar Projects and Engineering Solutions
• 100% North America – industrial and municipal;
• Differentiator: open-source platforms for membrane (FiberFlexTM, flexMBRTM);
• Backlog of $56.7 M (as of March 31, 2017), up 34.7%:
• Current backlog of $58.9 M (as of June 13, 2017);
• Main challenge: volatility in project schedules;
• Rich pipeline:
• Exposed to many diversified opportunities;
• Growing momentum into municipal wastewater;
• Well positioned for Design-Build-Operate: opportunities emerging from O&M.
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https://en.wikipedia.org/wiki/File:Carollo_Engineers_logo_with_tagline.png
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Diversification of our Project Business
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Applications
Technologies
Water Reuse
Drinking
Wastewater
Process Water
2015 2016 2017
NF/RO
UF
MBR
MM
UF/RO
Bio-wheel
15%
15%
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1.0 $
20.0 $ 14.7 $
20.8 $
38.3 $ 38.8 $
- $
10,0 $
20,0 $
30,0 $
40,0 $
50,0 $
60,0 $
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 - 2017(LTM)
Backlog
Revenues
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Project Business Evolution
56.7 $
3-year moving avg.
3-year moving avg.
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Market Drivers for New Projects
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• Increased infrastructure spending
• PM Trudeau’s 10-year infrastructure plan of $120 billion
• Wastewater treatment
• 25% of the existing WWTPs will require replacement or rebuilt ($20 billion by 2040)
• Unconventional water resourcing
• Desalination (RO): 215% of growth, from $150 M in 2016 to $475 M in 2020
• Wastewater and Water Reuse (MBR & UF): 25% of increase, from $8 billion in 2016 to $10 billion in 2020
• Aging infrastructure
• EPA estimates to $660 billion the required investments for drinking water, wastewater and storm water infrastructures over the next 20 years
• President Trump’s $1 trillion infrastructure plan - financed through both public and private capital
Source : GWI, Annual Report 2017 and EPA
https://en.wikipedia.org/wiki/Flag_of_the_United_Stateshttps://en.wikipedia.org/wiki/Flag_of_Canada
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2nd Business Pillar Specialty Products
Chemicals
• Green antiscalants (phosphate-free and super-concentrated);
• Speciality membrane cleaners (liquid or powder);
• Filter aids and coagulants;
• Manufactured in-house in Vista, California;
Digital Solutions & Software
• SCADATM , IntelogxTM, Clearlogx® (patented technology);
Corrosion resistant equipment for desalintation
• Flexible couplings (plastics, stainless steel, Duplex and SuperDuplex);
• Development of a new product line : FRP cartridge filter housings.
Maple farming equipment
• Specialty products for maple production
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- $
5,0 $
10,0 $
15,0 $
20,0 $
25,0 $
30,0 $
2012 2013 2014 2015 2016 Q3 - 2017 (LTM)
2nd Business Pillar Specialty Products
Acquisition
Piedmont
Development SPMC Acquisition
Clearlogx
Patented High Brix
membrane process
FRP filter
housings Upgrade
Intelogx
PWT Rebranding
Up 113% over 5 years
$13.2 M
$28.1 M
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2nd Business Pillar Specialty Products
• Product business with multiple brands and sales channels ;
• Export in 40 countries through distributors and agents ;
• 30% North America & 70% worldwide ;
• Sales are recurrent in nature.
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3rd Business Pillar Operation & Maintenance (O&M)
• Acquisition of Utility Partners completed in July 2016 (Impact 100% of FY2017);
• Operation contracts with 38 municipal water and wastewater plants in 7 states (VT, NH,
MA, GA, MS, NM and CA);
• Backlog (signed contracts) of $60.4 M (as of March 31, 2017),
• Up $5.5 M from December 31, 2016;
• 7 contract renewals (since December 2016);
• 1 new contract (New Mexico).
• Integration completed;
• Opportunities (short and mid-term):
• Secure new O&M business in USA & Canada;
• Expand scope of work within existing projects;
• Maximize cross-selling opportunities (consumables, engineering, projects): MS, NH
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• Opportunities:
Only 8% of water & wastewater plants are operated by the private sector in North America
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2017 2018 2019 2020
Utility water $38.3 B $38.5 B $38.7 B $38.9 B
Utility
wastewater $39.1 B $41 B $43.1 B $45.3 B
Industrial $45.7 B $46.6 B $49 B $52.1 B
3rd Business Pillar Operation & Maintenance (O&M)
Operating Expenditure by Sector in North America
Source: GWI forecast 2017
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Business Model and Financial Performance
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Organic and Acquisition Growth Story
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2000
2009
to
2013
2014
2015 2016 2001
2002
to
2009
Foundation
of H2O
Innovation
Development of
Maple business
unit
Growth of the project
business (in USA since 2006)
Development of SP&S pillar
(PWT: 2009, Piedmont: 2013)
Launch of softwares &
acquisition of
Clearlogx®
Development
of O&M pillar
Average Growth of 32% (since 2006)
• Organic Growth of 18% /year
• External Growth of 31% /year
Process Equipment
O&M
Couplings
Softwares Consumables
Filter housings
Services
Engineering
New Water
Utility
Non-
recurrent
revenues
Recurrent
revenues
10-15%
4-8%
0.5-1% 2-5%
1-2% 0.5-2%
Typical Water
Spending on Utility
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Converting Projects to Recurrent Revenues
4/5 projects (80%)
Projects & Systems
Membranes &
Filters Softwares Services
Operation &
Maintenance Chemicals
Promote
customers' retention
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- $
10,0 $
20,0 $
30,0 $
40,0 $
50,0 $
60,0 $
70,0 $
80,0 $
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3-2017(LTM)
O&M
SP&S
Projects
Diversification: A Well Thought-out Strategy
Revenue Breakdown In CAD million $
Growth vehicle :
Gain predictability in our
business model;
Secure long-term relationship
with customers.
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19%
40%
41%
Q3 - FY2017 Revenues
Projects
SP&S
O&M
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Q3 – FY2017
Financial Improvement
Q3 results:
• 49.9 % increase of revenues largely
attributable to the acquisition of UP;
• New business mix: 81.4% of the revenues
are coming from O&M and SP&S
(recurrent in nature);
• Gross profit margin of 23.8% for the
quarter: expected with the acquisition &
integration of UP;
• SG&A : 22.6% down from 23.4% last year;
• Adjusted EBITDA impacted by:
• Lower volume of projects;
• Shift in product mix;
• Addition of Utility Partners results.
Three-month periods
ended March 31,
Last nine months
ended March 31,
2017 2016 2017 2016
Revenues $21.3 M $14.2 M $61.1 M $39.6 M
Projects $4.0 M $4.8 M $12.8 M $17.9 M
SP&S $8.6 M $9.4 M $22.3 M $21.7 M
O&M $8.7 M - $26.0 M -
Gross profit margin 23.8% 31.8% 23.5% 29.9%
SG&A $4.8 M $3.3 M $12.9 M $9.2 M
Net (loss) earnings ($1.3 M) $0.6 M ($3.5 M) $0.9 M
Cash flows from
operating activities ($1.1 M) ($0.3 M) ($1.7 M) ($0.4 M)
Adjusted EBITDA $0.4 M $1.2 M $1.9 M $2.7 M
Adjusted EBITDA over
Revenues (%) 1.9% 8.8% 3.0% 6.9%
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Financial Position 2017-Q3 Review
(in Canadian dollars,
except for ratios)
Nine-month
period ended
March 31, 2017
Period ended
June 30, 2016
Working capital $11.3 M $8.3 M
Working capital ratio 1.66 1.55
Net debt $14.4 M $6.3 M
Equity $45.9 M $26.6 M
Net debt to equity ratio 0.31 0.24
• Working capital ratio improved to 1.66;
• Receivables increased by $3.5 M since June 2016, coming
essentially from SP&S activities (maple & Piedmont);
• Inventories increased by $0.9 M to $5.3 M, to support maple equipment and specialty chemicals;
• Net debt increased by $8.1 M, following the acquisition of UP;
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(in Canadian dollars)
Three-month
period ended
March 31, 2017
Three-month
period ended
March 31, 2016
Cash flows from
operating activities
$(1.1 M) $(0.3 M)
• $0.64 M earn out paid for Clearlogx acquisition;
• CAPEX of $0.97 M ($0.56 M PPE & $0.4 M intangible)
• Total capital reimbursement of $0.63 M.
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• Project sales backlog: $58.9 M (as of June 13, 2017);
• Growing pipeline driven by large infrastructure investments.
• Expanding sales network with new distributors and agents;
• Sales (or customers) are recurrent by nature;
• Products innovation and acquisitions in SP&S group is driving growth: 113% over the last 5 years.
• Backlog of $60.4 M for operating and maintenance contracts (as of March 31, 2017);
• Multiple cross selling opportunities between the three pillars;
• O&M is fragmented, thus ideal for mergers & acquisitions.
Robust Business Model
Growth platform based on 3 distinct & complimentary pillars
• Record-high combined backlog of $117.1 M (projects and O&M) as of March 31, 2017 (+ $8.7 M in new project contracts as of June 13, 2017)
• 81.4% of the revenues are recurrent by nature (SP&S and O&M)
Projects Specialty Products O&M
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Investment Highlights TSX Venture: HEO / OTCQX: HEOFF
• End-to-End, fully integrated water treatment Company
• The need for water treatment solutions is becoming increasingly important
• A three pillar approach provides cross-selling and diversification
• History or organic growth boosted by acquisitions
• Q3FY17 = 49.9% YoY revenue growth driven by UP acquisition
• Record Backlog of $117.1 M
• Recurring revenue (over 80%) provides predictability
• Profitable
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TSXV:HEO
Corporate Information TSX Venture : HEO / OTCQX : HEOFF
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Board of Directors :
Philippe Gervais, Chairman Principal, Navigator
Frédéric Dugré, President & CEO Mechanical Engineer, Founder
Richard Hoel, Director Lawyer, Founding partner of Winthrop & Weinstine
Stephen A Davis, Director Managing Partner, Ventry Industries LLC
Peter Dorrins, Director President & CEO, Junex
Élaine Phénix, Director & Chair of Audit Comm. Former VP Montreal Stock Exchange, financial consultant
Jean-Réal Poirier, Director Former VP Operations, Canam Group
Lisa Henthorne, Director CTO Water Standard, Former IDA Chairman
Pierre Côté, Director Former CTO, Zenon / GE
Shares outstanding : 40,144,214
2.5 million of options
Top management (Officers): 10%
Institutional: 50% (IQ: 18% / CDPQ: 15%)
Directors: 10%
Officers :
Frédéric Dugré, President & CEO
Marc Blanchet, CFO
Guillaume Clairet, COO
Management :
Greg Madden, V.P. - SP&S
Denis Guibert, V.P - Engineering & Projects
Rock Gaulin, V.P. - Manufacturing & Operations
Bill Douglass, V.P. - Utility Partners
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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
info@h2oinnovation.com
www.h2oinnovation.com
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