REG - Water Intelligence - Full Year Trading Update

Water IntelligenceAnnouncement

15/02/2024 07:00

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RNS Number : 1976D  Water Intelligence PLC  15 February 2024

2023 Full Year Trading Update

Acquisition of Pittsburgh Franchise

 

Water Intelligence plc (AIM: WATR.L) ("Water Intelligence" or the "Group"), a
leading multinational provider of precision, minimally-invasive leak detection
and remediation solutions for both potable and non-potable water, is pleased
to provide a trading update for the year ended 31 December 2023 and also to
announce the re-acquisition of its Pittsburgh franchise by its American Leak
Detection ("ALD") subsidiary.  The Group is in-line with market expectations
and has launched 2024 with momentum for growth.

2023 Overview / 2024 Outlook

For the full year ended 31 December 2023, Water Intelligence performed in-line
with market expectations despite the sharp rise in interest rates and
persistent inflation adversely shaping consumer spending decisions.  In
keeping with its strategic plan of growing organically and through
acquisition, the Group has started off 2024 with recently announced insurance
wins and now the reacquisition of its Pittsburgh franchise and conversion to a
corporate-operated location.

Financials

All headline numbers were positive. Revenue during 2023 grew 7% to $76.0
million (2022: $71.3 million).   Statutory Profit Before Tax grew 13% to
$6.2 million (2022: $5.5 million).  Adjusted Profit Before Tax grew 12% to
$8.7 million (2022: $7.8 million). Statutory EBITDA grew 7% to $11.8 million
(2022: $11.1 million). Adjusted EBITDA grew 9% to $13.4 million (2022: $12.4
million).

Margins improved despite continued inflation in the US. Adjusted PBT margins
increased to 11.5% (2022: 10.9%); Adjusted EBITDA margins increased to 17.7%
(2022: 17.3%).

In terms of market capture, network sales (direct corporate sales and indirect
gross sales to third parties from which franchise royalty is derived) grew
approximately 3%, reaching approximately $170 million (2022: $165 million).
 

The balance sheet as at year-end 2023 remained strong, thus maintaining
capacity for capital to be allocated to growth investments in 2024. At 31
December, the Group had cash of $15.8 million and Total Debt (Bank Debt and
Deferred Payments for Acquisitions) of $22.8 million.  Hence, the Group's Net
Total Debt to EBITDA ratio was 0.60 and Net Total Debt to Adjusted EBITDA was
0.53.  With our conservative balance sheet position, we continue to have "dry
powder" to make investments during 2024 to further grow our business.

During 2023, we deployed capital both for acquisitions to unlock shareholder
value and for technology investments to drive organic sales growth by
reinforcing our brand differentiation and providing more offerings for our
customers.

During 2023, we acquired ALD franchises in Nashville, Tennessee, and Covina,
California. As noted above, we have started the year with the acquisition of
our Pittsburgh franchise. Moreover, we advanced several technology investments
that will contribute to sales in 2024. Firstly, the Group's Salesforce
customer management (CRM) software has been a key factor in two new insurance
wins for ALD and is expected to lead to additional wins during 2024, as
insurance companies seek the Group's robust data capabilities and security,
unique for water leak detection and repair service providers. ALD's national
channel structure and operating footprint across the US plus now deploying a
leading CRM platform enable the Group to up-sell proprietary and third-party
products to our residential and commercial customers. Secondly, proprietary
products that were commercialized in 2023 in the UK (e.g. municipal sewer
diagnostic tools such as Pulse and LS1) are expected to contribute more
broadly to 2024 sales growth for Water Intelligence International.  Thirdly,
as previously announced, the Group is pleased with the commercialization of
its Ditch Lining water management system during Q4 2023.  We are gathering
performance data and will be updating the market on its sales pipeline during
Q1 2024. Finally, the Group is building a state-of-the-art training facility
in Bridgeport, Connecticut, to train more professional technicians to meet
increased market demand. Leveraging its location proximate to the headquarters
of several national insurance companies, the facility will also include
R&D capabilities for new product offerings sought by our insurance
partners. The Group expects that the facility will be completed during Q1
2024.

The Group's capability to deploy capital is expected to increase during 2024.
In December 2023, the Group announced that it had increased its acquisition
line of credit with M&T Bank by $5 million at a floating rate of interest
that is capped and subject to downward adjustment as and when interest rates
decline. Free cash flow will further increase as the Group's prior
investments, such as Salesforce and related applications, are expected to
reduce during H2 2024 as we complete implementation. The Group will be
reviewing its 2024 capital allocation during Q1 2024 now that it has closed
the books on 2023.

Franchise Acquisition

The Group is pleased to announce the reacquisition of its Pittsburgh,
Pennsylvania franchise. The purchase price of $0.5 million is based on pro
forma sales of $0.5 million and net income of $0.12 million. The Group
believes that the Pittsburgh location was underperforming as a franchise and
sees an opportunity to increase its growth trajectory.

Compensation in Shares

Consistent with prior years, members of the Board have elected that they would
prefer to receive their compensation in equity, in lieu of cash compensation
for the year ended 31 December 2023, in order to benefit from capital gains as
the Company executes on its growth strategy.  These directors have been
issued ordinary shares of 1 penny each in the Company ("Shares") at a price
per Share of 390 pence, based on their closing price on 14 February 2024,
being the day before this announcement.  Dr. DeSouza, Mr. Ewell and Ms. Hills
will each receive 7,650 Shares. Mr. Meckley will receive 2,050 Shares. The
total number of Shares to be issued to Board members will be 25,000. At the
same time, certain employees also will receive Shares as part of 2024
compensation. The total amount of Shares to be issued for these employees will
be 25,000. All of the Shares to be issued will be drawn from treasury and will
not change the fully diluted number of Shares outstanding. Full details of the
Directors' Shareholdings are detailed below.

2023 Highlights

Financial Performance

v Group Revenue increased by 7% to $76 million (2022: $71.3 million)

 

American Leak Detection subsidiary

§ Franchise royalty remained flat $6.7 million (2022: $6.7 million) (despite
additional franchise reacquisitions reducing the pool of franchise royalty for
2023)

·    Excluding acquisitions franchise royalty would have grown 3%

§ Franchise Related Activities (Insurance Channel; Equipment Sales) grew 6%
to $11.3 million (2022: $10.6 million)

§ US Corporate locations grew 6% to $50.4 million (2022: $47.3 million)

·    Same store sales grew 2% to $48.1 million (2022: $47.3 million)

 

Water Intelligence International subsidiary

§ International corporate locations grew 14% to $7.6 million (2022: $6.7
million)

 

v Adjusted EBITDA* grew 9% to $13.4 million (2022: $12.4 million)

§ Statutory EBITDA grew 7% to $11.8 million (2022: $11.1 million)

 

v Adjusted PBT* grew 12% to $8.7 million (2022: $7.8 million)

§ Statutory PBT grew 13% to $6.2 million (2022: $5.5 million)

 

v Balance Sheet at 31 December 2023

§ Cash at $15.8 million

§ Cash net of bank debt at $1.4 million

§ Cash net of Total Debt** at $(7.0) million

§ Net Total Debt** to EBITDA (Statutory) of 0.60

§ Net Total Debt** to EBITDA Adjusted of 0.53

 

* Adjusted EBITDA and Adjusted PBT both adjusted for non-core costs and
non-cash expense of share-based payments; Adjusted PBT also adjusted for
non-cash expense of amortization.

** Total Debt defined as bank debt plus all deferred franchise acquisition
payments

 

2023 Corporate Developments:

 

v Expansion of Acquisition Credit Facilities (additional $5 million available
at a capped interest rate of approximately 8% through 2028 with interest rates
to adjust lower if market rate falls)

 

v Franchise Acquisitions:  Nashville, Tennessee; Covina, California

 

v Salesforce and related web applications continue to be developed and
implemented across all US locations (automating all aspects of workflow:
scheduling and delivery; marketing follow-up; e-commerce; highest level of
data security in Salesforce Cloud)

 

v New Service Offerings developed and commercialized: Municipal and
Residential Pulse (sewer diagnostic tools); Municipal LS1 (snapshot survey
tool) and Ditch Lining Water Management product

 

v Building of new state of the art training facility in Bridgeport,
Connecticut to train more technicians and host more R&D, especially for
insurance-related products.

 

 

Commenting on the Group's performance, Executive Chairman, Dr. Patrick DeSouza
remarked:

"2023 was a year of solid performance. We are ready for our next phase of
growth and we look forward to the rest of 2024.  Over the last two years, we
have navigated both persistent inflation and sharply rising interest rates. We
are pleased that despite such volatility, we have maintained sales and profit
growth. Given our strong balance sheet and continued performance in generating
profits, we are able to invest in capital projects that sustain our long-term
growth: (i) strategic franchise reacquisitions to provide regional corporate
support to grow neighboring franchisees; (ii) customization and implementation
of web applications to promote operating efficiencies and upselling
opportunities; (iii) new products and solutions for water and wastewater
infrastructure problems.

We remain confident in our strategic growth plan and the attractiveness of the
water and wastewater infrastructure platform that we are building for both
customers and investors.  During the first half of 2024, we will be upgrading
our web presence to enable the Group to communicate more effectively with the
marketplace through video and social media.  We remain confident in our
opportunity to take a leadership position in the market given our
differentiated technology brand and growing operating footprint.

The financial information in this trading update is unaudited. The Company
expects to announce its audited full year results for the year ended 31
December 2023 by early June 2024 as usual.

 

This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.
 

 

Enquiries:

 

 Water Intelligence plc
 Patrick DeSouza, Executive Chairman               Tel: +1 203 654 5426
 WH Ireland Limited - NOMAD & Joint Broker         Tel: +44 (0)20 7220 1666

 Hugh Morgan

 James Bavister

 Isaac Hooper

 RBC Capital Markets - Joint Broker                Tel: +44 (0)20 7653 4000
 Rupert Walford

 Elizabeth Evans

 Daniel Saveski

 Dowgate Capital Ltd - Joint Broker                Tel:  +44 (0)20 3903 7715
 Stephen Norcross

Appendix

Total Voting Rights

Following the issue of the Shares from treasury, the Company holds 79,000
Ordinary Shares in treasury. The total number of voting rights in the Company
is 19,488,688. There are 17,408,688 Ordinary Shares, which are admitted to
trading on AIM and entitle the holder to one vote per Ordinary Share and
2,080,000 B Ordinary Shares of 1 penny each which are not admitted to trading
on AIM, but do still entitle the holder to one vote per ordinary share, but
carry no economic rights. The shares held in Treasury are excluded from this
calculation on voting rights which may be used by shareholders as the
denominator for the calculations by which they determine if they are required
to notify their interest in, or a change to their interest in, the Company
under the Financial Conduct Authority's Disclosure and Transparency Rules.
Accordingly, the Company's total voting rights will be 19,488,688 shares. This
total voting rights number may be used by shareholders at Admission as the
denominator for the calculations by which they will determine if they are
required to notify their interest in, or a change to their interest in the
Company under the FCA's Disclosure Guidance and Transparency Rules.

Director Shareholdings

Following admission of the Shares to trading, the Directors will hold the
following number of Shares:

 Director            New Shares issued  Total Voting Rights  Percentage of voting rights
 Dr Patrick DeSouza  7,650              4,874,760            25.0%
 Laura Hills         7,650              130,373              0.7%
 Dan Ewell           7,650              41,320               0.2%
 Bobby Knell         -                  27,000               0.1%
 Phil Meckley        2,050              2,050                0.0%

 

 1.  Details of the PDMR / person closely associated
 a)  Name                                                         Patrick DeSouza
 2.  Reason for the notification
 a)  Position / status                                            Executive Chairman
 b)  Initial notification / amendment                             Initial notification
 3.  Details of the issuer, emission allowance market participant, auction
     platform, auctioneer or auction monitor
 a)  Name                                                         Water Intelligence plc
 b)  LEI                                                          213800AL3BNXJ1HQLP10
 4.  Details of the transaction(s): section to be repeated for (i) each type of
     instrument; (ii) each type of transaction; (iii) each date; and (iv) each
     place where transactions have been conducted
 a)  Description of the financial instrument, type of instrument  Ordinary Shares

     Identification code                                          Ordinary Shares

                                                                  GB00BZ973D04
 b)  Nature of the transaction                                    Shares issued for 2023 compensation

 c)  Price(s) and volume(s)                                       7,650 shares at 390 pence
 d)  Aggregated information                                       See above
     -      Aggregated volume
     -      Price
 e)  Date of the transaction                                      14 February 2024
 f)  Place of the transaction                                     London Stock Exchange, AIM Market

 

 1.  Details of the PDMR / person closely associated
 a)  Name                                                         Laura Hills
 2.  Reason for the notification
 a)  Position / status                                            Non-Executive Director
 b)  Initial notification / amendment                             Initial notification
 3.  Details of the issuer, emission allowance market participant, auction
     platform, auctioneer or auction monitor
 a)  Name                                                         Water Intelligence plc
 b)  LEI                                                          213800AL3BNXJ1HQLP10
 4.  Details of the transaction(s): section to be repeated for (i) each type of
     instrument; (ii) each type of transaction; (iii) each date; and (iv) each
     place where transactions have been conducted
 a)  Description of the financial instrument, type of instrument  Ordinary Shares

     Identification code                                          Ordinary Shares

                                                                  GB00BZ973D04
 b)  Nature of the transaction                                    Shares issued for 2023 compensation

 c)  Price(s) and volume(s)                                       7,650 shares at 390 pence
 d)  Aggregated information                                       See above
     -      Aggregated volume
     -      Price
 e)  Date of the transaction                                      14 February 2024
 f)  Place of the transaction                                     London Stock Exchange, AIM Market

 

 1.  Details of the PDMR / person closely associated
 a)  Name                                                         Dan Ewell
 2.  Reason for the notification
 a)  Position / status                                            Non-Executive Director
 b)  Initial notification / amendment                             Initial notification
 3.  Details of the issuer, emission allowance market participant, auction
     platform, auctioneer or auction monitor
 a)  Name                                                         Water Intelligence plc
 b)  LEI                                                          213800AL3BNXJ1HQLP10
 4.  Details of the transaction(s): section to be repeated for (i) each type of
     instrument; (ii) each type of transaction; (iii) each date; and (iv) each
     place where transactions have been conducted
 a)  Description of the financial instrument, type of instrument  Ordinary Shares

     Identification code                                          Ordinary Shares

                                                                  GB00BZ973D04
 b)  Nature of the transaction                                    Shares issued for 2023 compensation

 c)  Price(s) and volume(s)                                       7,650 shares at 390 pence
 d)  Aggregated information                                       See above
     -      Aggregated volume
     -      Price
 e)  Date of the transaction                                      14 February 2024
 f)  Place of the transaction                                     London Stock Exchange, AIM Market

 

 1.  Details of the PDMR / person closely associated
 a)  Name                                                         Phil Meckley
 2.  Reason for the notification
 a)  Position / status                                            Non-Executive Director
 b)  Initial notification / amendment                             Initial notification
 3.  Details of the issuer, emission allowance market participant, auction
     platform, auctioneer or auction monitor
 a)  Name                                                         Water Intelligence plc
 b)  LEI                                                          213800AL3BNXJ1HQLP10
 4.  Details of the transaction(s): section to be repeated for (i) each type of
     instrument; (ii) each type of transaction; (iii) each date; and (iv) each
     place where transactions have been conducted
 a)  Description of the financial instrument, type of instrument  Ordinary Shares

     Identification code                                          Ordinary Shares

                                                                  GB00BZ973D04
 b)  Nature of the transaction                                    Shares issued for 2023 compensation

 c)  Price(s) and volume(s)                                       2,050 shares at 390 pence
 d)  Aggregated information                                       See above
     -      Aggregated volume
     -      Price
 e)  Date of the transaction                                      14 February 2024
 f)  Place of the transaction                                     London Stock Exchange, AIM Market

 

 

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