Water Intelligence plc (AIM: WATR.L)

Interim Results

Water Intelligence plc (AIM: WATR.L) (the "Group" or "Water Intelligence"), a leading multinational provider of precision, minimally-invasive leak detection and remediation solutions for both potable and non-potable water, is pleased to provide its unaudited Interim Results for the period ending 30 June 2021. 

The Group delivered strong growth in revenue and profits in 1H 2021 compared with 1H 2020, despite the impact of COVID-19 during both periods. 

During 1H 2021, the Group's revenue grew by 44% to $24.7 million (1H 2020: $17.1 million) and statutory profit before tax rose by 92% to $3.8 million (1H 2020: $2.0 million).  Profit before tax adjusted for non-cash expenses of amortization and share-based payments increased 77% to $4.2 million (1H 2020: $2.4 million). EBITDA grew 75% to $5.6 million during the period (1H 2020: $3.2 million).  

From 2016 to 2020, the Group delivered a revenue CAGR of 33% and a profit before tax CAGR of 53%.  For full year 2020, revenues increased by 17% and profit before tax by 78%.  1H results reinforce the Group's trajectory.

During 1H, the Group completed a number of corporate transactions including several acquisitions, as well as, B2B sales.  Accomplished individuals were also added to the board and to the management team. These corporate development achievements are expected to contribute to the scaling of the business and provide strong trading momentum for 2H 2021 and 2022.

Financial Highlights

Corporate Development (including Subsequent Events):

·    Acquisitions

o  Franchises: Central Florida; Northeast Florida (Subsequent Event); Reno, Nevada; Las Vegas, Nevada; Phoenix, Arizona (Las Vegas/Phoenix a Subsequent Event)

o  Plumbing company: Louisville, Kentucky

o  IP assets for irrigation and stormwater run-off; launch of Intelliditch brand and subsidiary

·    Business Development

o  Four national insurance contracts

o  Commercialization of proprietary sewer diagnostic product

·    Human Capital

o  Addition of Board member with substantial financial markets experience

o  Addition of Chief People Officer with substantial industry experience

·    Corporate Finance

o  Expansion of bank credit facility by $3.2 million

o  Oversubscribed equity capital raise of $10.2 million (Subsequent Event)

Dr. Patrick DeSouza, Executive Chairman of Water Intelligence, commented:

"Once again we are pleased to report outstanding results for the half year. These results are the product of an experienced execution team, strong board and supportive institutional and high net worth shareholders. Our "build and buy" growth plan continues to unlock significant shareholder value. Organic growth remains strong with new national channel customers. And we have exciting new product offerings for both sewer management and stormwater runoff coming to market during the second half.  Given our robust sales and distribution footprint for water infrastructure solutions across the U.S. and in the UK, Australia and Canada, we are seeing an increasing number of opportunities for acquisitions and partnerships that enable us to build a platform company or a "One Stop Shop" as we have termed in our Annual Reports.

We are on a mission to provide private sector leadership and solutions to water and wastewater infrastructure problems. Market demand from consumers and municipal customers and from ESG investors is ever-increasing, driven to new levels by public awareness of water resource scarcity, the consequences of climate change and collateral public health issues stemming from COVID-19 and wastewater management.  We remain ambitious in our goal to build a world-class company that makes a difference."

Enquiries:

Water Intelligence plc   Patrick DeSouza, Executive Chairman Tel: +1 203 654 5426

RBC Capital Markets - Joint Broker   Jill Li, Elizabeth Evans Tel: +44 (0)20 7653 4000

WH Ireland Limited - NOMAD & Joint Broker Tel: Adrian Hadden, Ben Good +44 (0)20 7220 1666 

Dowgate Capital Ltd - Joint Broker   Stephen Norcross Tel: +44 (0)20 3903 7721

Chairman's Statement

Overview

Undeterred by COVID-19, we continue to build a multinational growth-oriented company that provides minimally-invasive technology solutions for a worldwide problem of water-loss from leakage in pipes whether residential, commercial or municipal.  Around the world, 15-40% of daily water use is lost through leakage. We have a significant opportunity to make a difference in front of us.

The key pillars in our growth plan were first outlined in 2016 in our annual report and we continue to focus on these components today: (i) organic development through national sales channels that leverage our more than 150 locations; (ii) accretive acquisitions (franchise and third party); (iii) technology investments that differentiate our brand and sustain future growth; and (iv) corporate finance transactions to fuel accelerated growth.  Since 2016 following this core strategy the Group has delivered compounded annual growth in revenue of 33% and profit before tax of 53% respectively, whilst investing in developing a scalable world-class organization as discussed below.  Our 1H results continue to advance our growth trajectory and we continued to make investments during 1H 2021 that are expected to add further momentum to 2H 2021 and 2022.

Our first half deliverables only underscore the success of our "game plan":  more national insurance channel sales; six acquisitions (four franchises, one plumbing company and one set of IP assets for our product roadmap) and corporate finance transactions both expanding our bank facilities and building our institutional investor base to fuel further growth.  We exceeded our historic CAGR even though critical mass has grown delivering 44% growth in revenue to $24.7 million (1H 2020: $17.1 million) and 92% growth in profit before tax to $3.8 million (1H 2020: $2.0 million).  We continue to expand operations across the U.S., UK, Australia and Canada.  And importantly, we continue to add to our strong board and management to create the type of organization that can continue to scale based on its winning formula.  Moreover, global market demand continues to grow, encouraging us to be even more ambitious. The Biden Administration's American Jobs Plan outlined during April only underscores the size of the opportunity ahead of us with its target of spending $100 billion on water infrastructure.

As we proceed into the second half of 2021, we are enthusiastic about our growth prospects and our ability to be a leader in providing solutions to preserve the world's most precious resource.  We are sharpening our brand as an asset and are pleased to be recognized with the Green Economy Mark from the London Stock Exchange and increasing levels of interest from the ESG investment community.  Whilst there continue to be challenges with the persistence of COVID-19, we are deemed to be an "essential service" in all the jurisdictions that we operate.  We take our social responsibility to deliver water and wastewater solutions seriously and during these difficult times we look to offer leadership in the communities that we service.

Financial and Operational Results

                Our strong first half reinforces our CAGR trajectory.  As noted, during 1H 2021, the Group delivered 44% revenue growth to $24.7 million and 92% statutory profit before tax growth to $3.8 million.  More broadly, profit before tax adjusted for non-cash items of amortization and share-based payments grew by 77% to $4.2 million (1H 2020: $2.4 million).  Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 75% to $5.6 million (1H 2020: $3.2 million). Our ability to generate significant additional cash from operations annually enables us to reinvest to sustain our growth trajectory.  Despite COVID-19, we have invested in new products, such as solutions for both sewer diagnostics and storm water management, as well as, a suite of Salesforce.com applications to scale our business by automating lead generation, scheduling, delivery, invoicing, payments and data security.

It is important to note that the Group has a much bigger sales footprint than is transparent from IFRS accounting.  During the first half of 2021, the Group executed above $70 million in total gross sales to customers or above $140 million on an annualized basis. Because the Group operates through franchise locations, approximately $50 million of such 1H 2021 gross sales are reported as $3.8 million of 1H 2021 royalty income under IFRS thus leading to our reported $24.7 million of revenue ($20.9 million of direct corporate sales and $3.8 million of royalty income).  On the other hand, part of the Group's strategy is to continue to reacquire select franchises and add a portion of that $100 million in annualised current gross sales to the Group's P&L that currently is recorded as royalty income.  Our plan is to continue to grow the franchise System and royalty income while pursuing such franchise reacquisitions. During the first half of 2021, royalty income has continued to grow by 6% despite 8 franchise acquisitions during 2020 which removed franchises from the available pool of royalty income for 2021.  Such acquisitions unlock operating scale and significant shareholder value.

Key Performance Indicators (KPIs)

The Group executes its growth plan through two principal subsidiaries - American Leak Detection (ALD) and Water Intelligence International (WII) - and captures KPIs for each subsidiary.  ALD operates largely across the US through franchise and corporate locations focusing on residential and business-to-business (insurance, property management) leak detection and repair.  WII operates largely in the UK, Canada and Australia through corporate locations focusing primarily on municipal leak detection and repair.  ALD and WII are increasingly working together to create a comprehensive set of offerings to cross-sell to residential, commercial and municipal customers across all of the Group's geographies.

The Group's KPIs capture three operating priorities.  Our first operational task is to continue to grow our ALD brand across the US whether solutions are delivered through our corporate or franchisee channels.  ALD's more than 150 locations across 46 states enables us to leverage a competitive advantage of being the only nationwide provider in the US for pinpoint leak detection and repair solutions.  Given the size of the addressable market for water infrastructure solutions, especially residential and insurance, there is plenty of upside ahead and market share to capture.  Our competition may be characterized as fragmented, local service providers with neither our proprietary technology nor our data security investments, which are of great importance for insurance company work.  The Group's second operational task is to continue to supplement our growth trajectory by developing our WII sales footprint in the UK, Australia, Canada and foreign geographies.  While WII focuses on municipal infrastructure problems, we look to supplement WII execution by selling our ALD residential and commercial expertise through WII and expanding ALD into foreign jurisdictions.   Our third task is to meet ever increasing market demand by reinvesting for future growth by providing more offerings to ALD and WII customers such as sewer management, storm water run-off and irrigation.   

                Our KPIs are derived from these operating priorities. During the first half of 2021 we continued to grow the ALD brand.  We added national insurance accounts and started working with national property management companies in order to launch another formal channel.  Royalty income from the franchise System grew by 6% to $3.7 million (1H 2020: $3.5 million).  Our insurance channel fed jobs to the franchise System.  Fees for national insurance jobs grew by 15% to $4.5 million (1H 2020: $3.9 million).  It is important to note that the growth of the insurance channel is understated given that fees for national accounts are accounted for under IFRS only with respect to the franchise System and not corporate locations.  The national channel structure produces efficiencies for both the franchise System and corporate operations leveraging our installed base of locations across the U.S.  The segmental tables, set forth herein, show that profits associated with royalty income grew 33% to $1.3 million (1H 2020: $1.0 million).

                During the first half of 2021, ALD and WII corporate revenue and profits surged.  Segmental tables herein help illuminate the unlocking of shareholder value.  ALD corporate operations grew 75% to $13.3 million (1H 2020: $7.6 million).  Profits more than doubled to $3 million (1H 2020: $1.45 million).  Operating margins for ALD corporate operations increased to 23% (1H 2020:19%).  Meanwhile, WII corporate operations grew 65% to $2.8 million (1H 2020: $1.7 million).  Profits more than doubled to $0.2 million (1H 2020: $0.08 million).  Operating margins for WII corporate operations grew to 7% (1H 2020: 5%).  Lower margins for WII relative to ALD are a reflection of the regulated nature of municipal work.

                The surge of ALD and WII revenue and profits is attributable both to organic growth and the addition of revenue and profits from reacquired franchise operations.  The Group is pleased that many of the successful franchise owners are remaining in the business post transactions to add to the Group's execution capabilities.  Such managerial experience is reflected in improvements to the operating margins for corporate operations.  Again, we should underscore that despite the reacquisition of eight franchises during 2020 that contributed to the surge of Group revenue and profits in 1H 2021, the franchise System has continued to grow rapidly as well with royalty income growing in absolute terms by 6%.

                As noted above, the Group's growth plan has always required an injection of corporate finance resources to fuel accelerated growth.  The Group added to its robust balance sheet by first expanding its credit facilities by $3.2 million in February and then adding approximately $10.2 million in an oversubscribed July fund raise.  The Group plans to use such resources, as it always has, to execute a "build and buy" strategy. There is significant shareholder value still to be unlocked through franchise reacquisition given that franchise royalty income has continued to grow in absolute terms and represents now more than $100 million in profitable annual gross sales to customers.  Corporate operations are producing strong and growing profit margins creating a neutrality between franchise execution and corporate execution under the same ALD brand that customers experience.

Outlook

                The Group has remained resilient in the face of COVID-19 and continues to deliver on our growth strategy.  We have an important mission with respect to providing minimally-invasive solutions for water and wastewater infrastructure problems.  Jurisdictions have recognized our work as "essential services."

                While such stability is important, market demand globally for water and wastewater infrastructure solutions is growing rapidly as issues such as water scarcity, health and climate change drive public awareness and economics.  Opportunities for market capture abound.  Yet we are disciplined with our choices as we create a valuable multinational company that is a leader in safeguarding the world's most precious natural resource.  We have invested in our board and senior management to create a team that can make good judgments, successfully seize additional opportunities as they emerge and deliver on our ambitions over the next decade.

Because we have already built robust sales and distribution channels for our current solutions with insurance and property management partners across the U.S. and in the UK, Australia and Canada, we may be able to accelerate our growth trajectory even further with acquisition and partnership opportunities that are increasingly afforded to us.  We are becoming a "One Stop Shop" platform with an ability to upsell additional solutions to our multinational base of customers.

                We will stay the course on our "build and buy" growth formula: (i) national sales channels to organically grow our installed base of locations and customers; (ii) select franchise reacquisitions to unlock shareholder value and add critical mass of revenue and profits; (iii) accretive third party acquisitions to add to our solutions portfolio; and (iv) reinvestment in new technologies for our product roadmap and sustainable growth.  

Patrick DeSouza

Executive Chairman

September 13, 2021
 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2021

Consolidated Statement of Financial Position as at 30 June 2021