H2O Innovation Inc.

Q1 revenue was $59.3 million, up 5.7% from $56.1 million last year; organic growth was 2.1%, with the balance from favorable FX, which management quantified as a $2 million, or 3.5%, tailwind. Gross profit increased to $25.5 million from $24.1 million. Adjusted EBITDA declined to $4.5 million from $5.0 million, or 7.6% of revenue versus 8.8% last year. Cash used in operating activities was $2.5 million, unchanged from Q1 2023. Net debt was $47.9 million at September 30, up from $39.9 million on June 30. Backlog reached a record $250 million, up 37% year over year and 31.7% since June 30. By segment, O&M revenue was $29.2 million (+5.2%), WTS revenue grew 41%, and specialty products revenue was $16.0 million (-13%). Management did not provide numeric next-quarter or full-year financial guidance, but said it remains confident in the fiscal 2024 revenue growth target and expects the backlog to support growth in coming quarters.

Frederic Dugre framed the quarter as a slower start on revenue but an encouraging one on profitability, saying multiple measures to improve gross margin are now showing a positive trend in operating profit. He emphasized that backlog growth, recurring revenue, and the company’s three business pillars give H2O visibility to reach its fiscal 2024 and three-year-plan targets. He also highlighted operational execution, including contract wins in O&M, strong WTS bookings, mobile fleet leasing demand, and the completion of the New York integration, while also addressing the announced sale process and the expected path to closing.

Marc Blanchet focused on the financial drivers behind the quarter: revenue of $59.3 million, gross profit of $25.5 million, and adjusted EBITDA of $4.5 million. He said gross margin improved in WTS and specialty products, with WTS gross margin rising to 24.6% from 18.9% and specialty products gross profit margin at 47.0% versus 41.7% last year. He also noted LTM revenue of $256.5 million versus $202.1 million, adjusted EBITDA of $21.0 million versus $19.1 million, working capital of $45.9 million, CapEx of $3.4 million, and net debt of $47.9 million, explaining the debt increase by working capital and growth investments.

There were no analyst questions on the call. As a result, the main management commentary centered on the announced transaction: a $4.25 per share all-cash deal, described as a 68% premium to the October 2 close and above analyst consensus and fairness opinion ranges, with no financing conditions. Management said the go-shop period ended with no superior proposal, shareholder voting is scheduled for November 28, and closing is expected before year-end if customary conditions are met.