H2O Innovation Inc. (OTCQX:HEOFF) Q1 2023 Earnings Conference Call November 10, 2022 10:00 AM ET
Company Participants
Marc Blanchet – CFO
Frédéric Dugré – President and CEO
Conference Call Participants
Michael Glen – Raymond James
Frederic Tremblay – Desjardins Securities Inc.
Gabriel Leung – Beacon Securities Limited
Endri Leno – National Bank Financial, Inc.
Daniel Rosenberg – Haywood Securities Inc.
Operator
Good morning, ladies and gentlemen, and welcome to the H2O Innovation Q1 FY 2021 Financial Results Conference Call This call is being recorded on Thursday, November 10, 2022. I would now like to turn the conference over to Frederic Dugre and Marc Blanchet. Please go ahead.
Marc Blanchet
Yes. Thank you, Madam. Thank you, and good morning, everyone. My name is Marc Blanchet, CFO of H2 Innovation. This call will be held in English, but I’ll just say a brief word in French to our French audience. Before we begin, I invite you to download a copy of today’s presentation, which can be found on our website at h2oinnovation.com in the section Investors. Frederic Dugre, President and CEO, is joining me today for the call, which duration is approximately 30 minutes. During this call, Frederic will give an update on the business and present highlights of the first quarter ended September 30, 2022, and I will be presenting the financial results. Please take a moment to read the forward-looking statements on Page 2 and the non-IFRS measurements on Page 3 of the presentation. I’ll now hand over the call to Frederic.
Frédéric Dugré
Thank you, Mark, and thank you for you joining the call today. Well, following a remarkable previous year ended June 30, 2022, we are starting a new fiscal year on a really good foot. Indeed, we are proud to present for the first quarter of our fiscal year 2023, record high revenues of $56.1 million. This represents an increase of 46% year-over-year. What is most impressive is that 25% of this growth is supported by organic growth, and this is compared to 7.7% in Q1 of previous fiscal year. All our business lines contributed to this growth, driven by high demand of our specialty products, the start-up and scope expansion of operation and maintenance of tracks and the award of new capital equipment projects generating additional services and after sales. As we proved in the past 2 years, our business is economically resilient and we serve customers that required our essential products and services. We could even say that the water industry and our business is recession set. Indeed, our unique business model, promoting customer retention throughout the 3 business pillars posted recurring revenues by nature of 89% at the end of the first quarter of the fiscal year 2023. This high-return revenue level is due to our focus to grow the business first towards the services, the operational maintenance and the specialty Keops. For this quarter, the momentarily lower revenues coming from the projects contributed to inflate the percentage of accrued revenues.
Looking at our sales pipeline, rich and diversified municipal and industrial opportunities at the strength of our redistribution network for specialty products and at our consolidated backlog of $182 million, which is up 48% compared to the Q1 of the previous fiscal years. We envision continuation of strong organic growth with a focus on margin improvement. Despite the pressure on a gross profit margin emerging from high inflation on material and wages, we believe that price increase initiatives and other measures have been implemented to improve margins in the coming quarters. For the first quarter, our adjusted EBITDA finished at $5 million.
This is up 24% from the previous year. Our team will continue to strive on improving the EBITDA margin to a double digit and even better for 2023. I remain confident to see improvements throughout this fiscal year since the new projects and the operation and maintenance contracts secured in our consolidated backlog includes adjustments on current market price in material and wages. On a long-term basis, considering our LTM revenues and adjusted EBITDA, our business continued to show strong growth momentum. Indeed, on a last 12-month basis, our revenues have reached $202 million, representing an increase of 37% almost from the previous fiscal year.
On a 5-year basis, our compound annual growth rate stands at 14.4%, including acquisitions and organic growth. On in, the adjusted EBITDA and the LTM basis reached $19 million, an increase of 25.5% compared to the previous fiscal year. What is remarkable is that the adjusted EBITDA has increased by 27.5% on a Kedar basis, showing our dedication to scale up the business and grow the bottom line faster than our revenues. Now let’s move on Slide #5 and review each of our business pillar activity, starting first with the operation and maintenance. Our O&M team is playing offense and defense at the same time. During the first quarter of our new fiscal year, not only we secured 1 new O&M projects in the Southwest region for an initial term of 2-year period, but we also renewed 2 new O&M projects in the state of Georgia and New York here, while we also expanded scope of work in 7 projects. The acquisition of JCO and EC in the State of New York completed in December 2021, impacted also positively or Q1. These new own projects combined to the renewal and scope expansion has pushed the O&M backlog to a new high of $135 million, representing an increase of 65.9% year-over-year.
The strong backlog gives us an excellent visibility in the revenue growth expected in the coming quarters and fiscal years. On an LTM basis, the O&M revenue stood at $97.2 million, representing an increase of 37% compared to fiscal year 2022. Over the same period, the EVA has moved from $10 million to $11.6 million, showing an increase of 15%. In the coming fiscal year, we will continue to work on renewing operation and maintenance projects and capture CPI adjustments to improve our gross profit margin and the EBA margin as well.
Moving to Page #6. Let’s have a look now at the highlights of our Water Technology and Services business pillar. Our WTS business pillar started the new fiscal year on a strong basis. In Q1 only, WTS was able to secure 10 new projects totaling $12 million. Now 4 of them are for municipal applications and 6 others are dedicated to additional applications. This diversification , is in line with our strategy to focus on industrial customers to further grow the business, and this is allowing us to capture more recurrent revenues originating from the water, from the aftermarket service sales and consumables. Post bibs new bookings, WTS backlog now stood at $45.6 million at the end of Q1, representing an increase of 13% compared to the previous quarter in Q1. With just the backlog, we are expecting revenues continue to grow in the coming fiscal year.
These new projects added to our backlog are done with prices reflecting the latest material and wage increases. For these reasons, we’re confident seeing an improvement in our margins in the coming quarters. We’re also proud to report for the first time the commissioning of a silo, a membrane bilobal reactor for an unders wastewater application. Moreover, we finalized 2 water reuse projects for the city of Santa Monica. One of which is being used for the renewal of PFAS contaminants.
Another important water reuse project is approaching the commissioning phase. Indeed, major equipment get delivered to the city of Escondido also in California in Q1 fiscal year 2020. As you can see through these picture grams, our business activity for WTS remain high as our engineering and fabrication teams are extremely busy. We are expecting the teams will remain busy for the coming quarter as well as it’s based on a robust backlog that we have. In the coming quarters, we should also observe an increase into our revenue recognition as the projects will move from the engineering phase to the fabrication phase where usually most of the revenues are being recognized. On an LTM basis, WTS revenues reached $43.4 million, representing a 31% increase compared to the last fiscal year. Pressure on margins remain our #1 challenge for this business pillar. However, through recent change orders negotiated with customers and the addition of new booking store backlog, taking into account umaterial and wages prices, as I said, we’re confident in being able to improve our EBAC performance in the course of the fiscal year.
Let’s look at Page #7 on the performance of our Specialty Products business pillar. The first quarter showed an impressive growth of 62%, where 3/4 of this is generated by the organic growth and the remaining coming from the acquisition of Leaders completed on June 30, 2022. The organic growth is clearly driven by high demand we are experiencing from our specialty products, the strength of our large distribution network and the growing interest of the end user for a green chemistry and our eco-friendly water tuning solutions. To continue to fuel such growth, we will be using next week in Doba, our international distributor Summit with 150 delegates coming from around the world to learn more about our specialty products, components and business solutions. This 3-day event will also be a unique occasion to solidify business relation with each of our distributors and meet new ones that we haven’t been able to meet since or likely to do the Summit in 2020 prior to the pandemic. We’re also proud to announce that our laboratory in metro specialized in membrane copays for the global water industry and purpose in the development of innovative and sustainable training solutions received the award for Research Center of the Year during the Alder conference in Chile 2 weeks ago.
During this first quarter, Piedmont signed agreements with new distributors covering 4 countries where we have no coverage or local presence in the territory. As we’re getting now into the season for the naval farming equipment, this business now is extremely busy. Coping with growing demand of its products and working on the integration of Leader as well that we just acquired. This high demand is certainly responsible for the increase into our inventory, and Mark will talk about it during the financial review. However, this inventory is made of products that will be delivered to customers in Q2 and Q3, and they’re all based on orders that we have in hand. For this reason, we should see a decrease actually into our maple inventory in the coming 2 quarters as we’re getting into the high season of the maple syrup production.
The Maple farming equipment business has certainly seasonality. We usually build inventory in Q4 and Q1 and then recognized most of the revenue in the coming quarters. Looking at the level of inventory, I can tell you that we’re now getting really busy and getting ready for the busiest maple season we ever had. Recently, we honestly our first distributor meeting, combined leader in H2 innovation, all the American dealers that we have. This event allowed us to consolidate our selling platform or portfolio of products and to provide a clear vision on our growth strategy. Earlier this year, as per the press release announced on Monday, we launched our unique 24/7 self-service store for a maple customer. This first time to absorb that is being used for using state-of-the-art technology to ensure secured access to our customers as well as flexible and simple electronic invoicing. We believe this new platform will create a new business proximity with our customers and producers, isolates and remote geography.
As per the chart on the right-hand side, our LTM Specialty Products revenues reached $61.5 million at the end of September. This represents an increase of 40% compared to our previous fiscal year in 2022. In the same fashion, the LTM back stood at $16.3 million, a $4.9 million increase or the equivalent of 43% compared to the previous year. As mentioned on the year-end call, our business is growing fast and demand for our green finistry and eco-friendly solutions are gaining tremendous momentum. The expansion of our international sales team in Southeast, Middle East, India and Latin America is also paying up in a big way. In addition, the expansion of our distribution network is also contributing to the growth of income that we have. I will now pass the call to Mark, our CFO, who will review and discuss the financial performance of this quarter.
Marc Blanchet
Thank you, Fred. Now I’d like to go to Page #9 and go over some of the financial highlights for Q1. The main highlight is the significant revenue growth. We’re reporting revenues of $56.1 million compared to $38.5 million last year. This represents an increase of 46%. Despite the challenging macroeconomic impact, we’re able to generate an important organic growth of 25%. The increased demand for water treatment solutions, the strong performance of our specialty products, along with efficient marketing strategy execution have led to higher revenue contribution from new and existing customers.
Revenue coming from GCO and C, both acquired in December 2021, a leader of operator acquired on June 30 and generated 20% growth. The gross profit margin stood at $13.5 million or 24.1% compared to 10.9% or 28.4% last year. As explained in previous quarters, the decrease in percentage was primarily due to high inflation on material costs, pressure on salaries and higher percentage of revenue coming from operation and maintenance business pillars, combined with a business mix factor within the specialty product business do. We’re closely monitoring the evolution of the gross profit margin of our product and project and mitigation measures are implemented to overcome these situations such as price increase, procurement strategy, escalation clouds in our project, scope expansion and CPI adjustments with our operation and maintenance customers.
The adjusted EBITDA also improved by 23.6% compared to Q1 last year, reaching $5 million compared to 4 last year. The adjusted EBITDA percentage decreased to 8.8% compared to 10.5% last year. This negative variation is mostly explained by the decrease in gross profit margin, which I just explained. The percentage of SG&A over sales has decreased compared to Q1 last year, investments made in sales and business development are being up since revenue are growing faster than the SG&A ratio.
As for the gross profit margin, it is still impacted by the high inflation on material costs and the pressure on salaries and business mix. We have implemented action plan to mitigate the cost pressure. On Page 10, I will just quickly address the foreign exchange rate impact on our revenue given the opposite fluctuation of certain currencies. — for the first quarter, so I want to attract your attention on the right side of this, right? For the first quarter, it had a global positive impact of $300,000 on revenue. The USD was very favorable, but it was offset by the pound, the British time and the euro. So for modernization purposes, each 100 point base of U.S. CAD variation has an impact of $1.1 million on revenue and $160,000 on the EBITDA. For the pound at each 12 an impact on 1.20 on the revenue and 40 for the EBITDA. Now I’ll go over the financial results of each of the business lines. For the Operation and license business, filler revenue for Q1 stood at $27.7 million compared to 18% last year, representing an increase of 53%. 20% is organic growth generated from important scope extension and new projects secured in previous quarter and 29% is acquisition growth related to the acquisition of ECGC acquired last December.
Operation and maintenance back reached $3 million compared to 2% for the same quarter last year, representing an increase of 53%, but remained stable in percentage of our revenue. Even though EBAC percentage was stable, our gross profit margin is affected by higher pressure on labor costs, combined with additional resources hired to support the impressive growth. The gasoline pipes also have an effect on the margin here. Since 70% of our employees are working so 70% of our employees are working for this business pillar. The operation and maintenance gross profit margin of the end feedback was more impacted by factors related to workforce.
As explained in previous quarter, our team is currently addressing the challenge with our customers and partners as soon as there is an opportunity to do so. Most of our operation and contract operation and maintenance contract, we are entitled to increase our annual fee base on CPI customer price index. Therefore, such channel will see increases will be effective with our customers as each contract reaches its annual contractual adjustment date. At the end of the quarter, the operation and maintenance backlog stood up $135.4 compared to 81 at the same time last year. It’s an increase of 65.9% on I would also like to raise your attention that contracts in Texas and in the New York State are usually evergreen and therefore, are not included in the backlog.
Let’s move to Page #12 and look at Water Technology and Services, or WTF financial performance. So the WTS revenue improved by 11.3%. The boat is essentially organic and from service activities and capital equipment projects. WTS feedback stood at $0.5 million compared to $1 million last year. It’s a decrease of 15 million or a decrease of 52%. The decrease is mainly explained by the deterioration of gross profit margin, which was negatively affected by higher material costs related to capital equipment projects. As most of these projects were agreed with customers several months or even a year ago. We were impacted by higher cost of raw material and some of the components manufactured projects. To mitigate the impact, our sales team included price adjustment costs based on inflation and contracts. And going forward, we should see this margin issue being resolved as we move forward in 2 quarters. SG&A expenses were also higher, primarily due to new hirings of sales resorts, higher labor costs and commissions as well as resumption of travel in our participation in some trade shows and conferences.
The WTS backlog stood at 46.6% compared to 41%, which is an increase of 13%. As Fred explained earlier, the backlog is well balanced between industrial and municipal projects and provide excellent visibility on revenue for the upcoming quarter, keeping the focus on industrial projects, which comes with better gross profit margin. Now let’s look at Slide #13, the Specialty Product business pillar. Specialty Products, just to remind you, includes revenue from Maple, Piedmont and Chemical. It had a very strong performance of set far earlier from all those 3 business lines compared to previous quarter. Revenue stood at $18.4 million compared to $11 million, which is an increase of 62% of which 46% of that growth of that is organic growth. So leader evaporator, which was acquired in June generated $2.6 million or 23%. The GPB foreign exchange variation had a negative impact of $800,000. The Feedback stood at $4.6 million compared to $3.6 million, representing a $1 increase of $1 million, but a decrease in percentage, which is mainly explained by the deterioration of the gross profit margin. The gross profit margin stood at $41.7 million compared to 52.6%. The decrease is explained by the business mix within the business pillar. When we compare to last year, revenue coming from both Pipa and Maple business line were higher in proportion compared to previous year. And they generally have an average gross profit margin lower than the specialty Clinicals.
Additionally, the increased cost of material brought the gross profit margin to decrease compared to the same quarter of last fiscal year. Price increase and procurement strategy has been implemented in the recent quarters, which should remediate the gross profit margin erosion issue in the upcoming quarters. The SG&A increased by $600,000. The main reason are the hiring of sales resource, pressure and salary in connection with inflation level and resumption of travel combined with the acquisition of leader. Slide #14, financial position for especially on working capital here, I’d like to bring your attention on certain variation on working cap, such as the account receivable. It increased by 11.6% since June 30, which is pretty much in line with revenue growth. Of that 11.63%.6% of this increase is as explained by the foreign exchange variation. If we look at the inventory level, it increased by 23% since June 30. The impact of FX is only 4% for that variation.
The explanation is because we’re responding to the nation continuing high customer demand as shown by our revenue growth. We are still maintaining inventory at higher levels to mitigate the current supply chain uncertainty. Also, Maple business line is currently building its inventory for the upcoming maple season. As Fred explained earlier, the inventory is made of products that will be delivered to customers in Q2 and Q3 based on orders that we have in hand. For this reason, we should see a decrease into the maple inventory in the next 2 quarters as we will get into the high season of the maple surf production.
And I’d like to mention that none of our inventory is exposed to obsolescence or sudden depreciation. Regarding the contingent consideration, the decrease is related to the partial payment related to the GMP acquisition, which was paid in July. Let’s move to Slide #15, the net debt. On that slide, you can see the evolution of the net debt since Q1 2022. As of September 30, 2022, the net debt stood at $48.3 million compared to $40 million on June with $28 million increase. And this increase is explained by the payment of the contingent consideration of the amount of $4 million and cash flow used in operating activities, essentially in working capital, as I explained, mostly in inventory. This wraps up the presentation of the financial results. I will now hand the call back to Frederic for conclusion remarks.
Frédéric Dugré
All right. Thank you, Mark, and let’s take a look at Slide #16 for conclusion remarks. Well, after a first quarter posting strong growth, even though impacted by the pressure on our margins, we continue to try towards our 3-year plan target. If we had the $200 million based on an LTM basis, the growth coming from the 3 latest acquisitions, combined with the organic growth momentum we are currently facing, supported by our $182 million backlog and higher recurrent revenue that we have, we are very well positioned to reach the upper part of the $188 million to $250 million bracket for 2023. Such growth positions us very favorably as well for the following fiscal year in 2024. In general, we aim to deliver every year a double-digit growth on revenues while maintaining an adjusted EBITDA superior to 10%.
I — looking forward, robust organic growth is expected to continue, while our business mix and price initiatives should normalize our margin profile in the coming quarters. As our organic growth rate has accelerated over the last 2 quarters. I mean, it was 25% in this quarter and 32% in the Q4 of the previous fiscal years. The company has made significant investments in working capital. A is a growth company in a growth sector, the water industry. And while the investments we have made are having short-term impact on our business and our free cash flow generation, we’re very confident that the strategy are accretive to our long-term business plan. On top of growing the revenues, we equally focus on improving our profit margins and generate a maximum level of cash to reduce our net debt. The water investment thesis has never ever been so strong, supported by key fundamentals, such as the population growth, increasing drought digitals, aging infrastructure, growing demand for eco-friendly and green water treatment solutions and sustained willingness to invest more and more into water renew solutions. Now it’s time to harvest for HD. Thank you.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. Your first question comes from Michael Glen from Raymond James.
Michael Glen
Raymond James Ltd., Research Division. So I just want to dig into the working capital situation a bit more. For accounts receivable and accounts receivable first, what should we think about like exiting fiscal year ’23, what should the appropriate level of accounts receivable be for the business?
Marc Blanchet
You mean in percentage of our sales…
Michael Glen
Raymond James Ltd., Research Division. Can you give a gross dollar figure, if possible?
Marc Blanchet
If I do so, you — I think I’ll give you a bit too much information because you’ll be able to figure out revenues. I mean in terms of accounts receivable will follow revenues quarter-over-quarter. So you look at the AR in Q4 versus the AR at the end of Q1, they grew by about 8%, and the rest is FX impact. So it will follow revenues. That’s kind of our matrix to modelize. That’s what I would propose you to.
Michael Glen
Raymond James Ltd., Research Division. Okay, outside of the revenue growth, is there any parts of the AR that we should have any type of concern about electron
Michael Glen
Raymond James Ltd., Research Division. No, not at all. I mean it’s very short period of payments such as operation and maintenance contracts. They come with payment terms that are very standardized by our businesses. So AR for O&M will be between — you invoice on the first, you’re being paid within 30 days. And our project is more between 45 to 60 days and some international project reaches 90 days. But it’s very in line. The trends are not changing. And right now, nothing is exposed to bad debt. Otherwise, we would take a provision right away.
Frédéric Dugré
Also very good point and Glanalso for just for perspective, I would say about 50% of our revenues come from operation and maintenance. And the operation and maintenance part has for the AR has barely nothing beyond the 30 days because customers, most of them are paying to ensure that we keep going and operating their clients, right? So this portion is extremely, I would say, secured I can put it this way because of the ongoing activity that we have with each of these customers…
Michael Glen
Raymond James Ltd., Research Division. Okay. And then just similarly on the inventory, are you able to give some guidance at all for like how much we should think about inventories coming off the current level?
Frédéric Dugré
So inventory is really affected by seasonality. So right now, half of the amount of the inventory or inventory for the maple. And the Maple recognize its revenue essentially 70% of their revenue of its revenue is recognized between Q2 and Q3. So as Fred explained a bit earlier, we’re building inventory in Q4 start to building it in Q4 and in Q1. Q1 is a at highest level. And then as we move forward in Q2 and Q3, we start to deliver these equipments to the metal producers. So that inventory is converted into revenue and then converted into receivables, which will be cashed in generally Q3, Q4. So that’s the cycle there for Maple. The maple season this year is twice as big as it has ever been because we bought leader and leader is doubling the size of our Maple business. So that seasonality effect that we used to have in the working cap, inventory and receivable and into revenue is twice the size that it was in the past. So I’d like to bring your attention to that. it explains part of that inventory increase compared to previous quarters.
Michael Glen
Raymond James Ltd., Research Division And just on Specialty Products, that segment overall continues to do quite well from a margin perspective. As we think about leader or Maple products representing a higher share, does that pressure — should we think about that also pressuring the percentage margin in that segment?
Marc Blanchet
In that segment, slightly because in proportion, it will be a bit higher. But in the consolidated picture, it will improve the gross profit margin overall because it comes with higher gross profit margin than O&M, for example, or even some projects. So it will drive margin up on a consolidated basis.
Operator
Okay. The next question comes from Fredrik from Brad.
Frederic Tremblay
Desjardins Securities Inc., Research Division. Thanks. First question for me is on the backlog. Just I guess, some comments on the composition of the backlog between municipal and industrial customers, how that has continued to evolve and what the implications of that would be on your margin expectations or your goals of improving margins going forward?
Marc Blanchet
So as I mentioned earlier in the call, based on the last projects we secured, I mean, 6 out of the 10 were industrial related. So more and more, we’re waiting towards initial opportunities that we’re chasing. Now if you look backwards on the overall backlog that we have accumulated, there’s still a great proportion of them coming from mental However, moving forward, the strategies we focus more on to initial for the reasons I’ve just said higher margins are possible, particularly after sales and return business on the tail end of it. So I think it’s a good mix. And so far, we have been waiting more efforts towards the initial sector.
Frederic Tremblay
Desjardins Securities Inc., Research Division Okay. Greg, maybe a couple of questions on O&M. First, on the labor environment, wondering if your current labor force at full capacity or if there is room for incremental business to be taken on in O&M, whether with your current workforce or through the coding of the employees?
Marc Blanchet
Well, in the O&M, I mean, we can, I would say, make money a little bit on the edges in a sense that we can stretch a little bit and add more scope of work on given team. However, some municipalities and some projects are calling for a specific number of full-time resources employee we need to have. So if we have a given municipality, let’s say, for $1 million, they may request us for the specific task and the specific scope of work to have, let’s say, 5 minutes release full time. So we can then expand and stress a little bit by having, let’s say, an extra 50,000 an extra $100,000 for scope of work expansion with more or less the same team. We can do that, but there’s also a limitation on what we can do. But this is why the scope of work expansion, as I mentioned, is strategic into our ways to also not only grow the revenue but improve the gross margin. This is what we’re currently pushing and going through, and we feel good about that.
Frederic Tremblay
Desjardins Securities Inc., Research Division Okay. And just staying with O&M here. Just on the CPI adjustment. Is there a way for you to — if you characterize where you’re at in that process, whether it’s how many of your product proportion of your contracts have been adjusted so far? And what’s left to be done and sort of the timing of it as well when we can expect that those adjustments to be sort of fully complete understanding that the recession environment moving forward is a bit uncertain, but based on what we now colic.
Marc Blanchet
So this is happening on a monthly basis by lipolytic. I mean, such as when we are meeting with customers, I mean, we are calling or just in our pricing we can. There’s also a every year at the anniversary date of each of our projects we’re enclcalling for CPI or asking for CPI adjustment. So if you look at the portfolio of projects we have, they are being disused throughout the year at different periods and different moments. I would say right now, we have probably went through 1/3 of adjustments on the overall backlog or overall projects we have in the portfolio. And if it keeps going and added and changing every month as we move in time.
Operator
Next question comes from Gabriel from IA Capital Markets.
Gabriel Leung
Beacon Securities Limited, Research Division. Do you have any deleveraging target for fiscal year ’22?
Marc Blanchet
Well, you’re thinking of a debt-EBITDA ratio or — I mean, it’s going to be our cash flow generating from operating activities. And I think — I mean, what said Fred a few quarter — like last conference call, this year is the year to harvest for us. We’ve invested a lot over the last year. We’ve invested in our U.K. facility to expand our capacity to manufacture chemicals. We did 3 acquisitions, we invested into scope of work. And this year really is to harvest. I mean right now, a lot of our cash is invested into working cap to feed the growth. But afterwards, it’s to harvest is to deleverage. So is there an objective? There’s nothing that has been publicly disclosed. But if you want to modelize something, it will be in line with our revenue. That’s what I can say. It’s tough to say — I don’t want to put any guidance here, but — but it will be to deleverage. You will see that ratio going down over the next few quarters.
Operator
Your next question comes from Endri Leno from National Bank.
Endri Leno
National Bank Financial, Inc., Research Division. So the question I have is that when we talk to different companies that we cover, I mean, they are trying to increase the prices, and when they talk to their clients, the clients are usually receptive to this price increases. I was wondering if you can talk a little bit about kind of when you discuss with the clients, I mean, do you have to push hard or are we just generally open to you increasing prices even when it comes to, like, for example, going above CPI and either scope to go above EPI especially when it comes to WTF and O&M segment
Marc Blanchet
Yes. So 2 things. Yes, there was some extent. When we’re talking about EPS, we usually have fixed price contracts. So it’s projects that are win at a fixed price out of a given scope of work. However, in some cases, we have provisioned for price escalation that we can claim on, but it’s different from each project of each contract. So this is why sometimes we go and ask for the customer for scope price increases with change orders. This is something we have done. This is something that is still happening every day, every month and what we do. For the other specialty products, we have been doing multiple price increases as we move in time. It happens last year, multiple times.
This year, we feel that now we see less pressure on the incoming and the raw material coming to us. So this is why we won’t be as aggressive as we were in price increases. And I think this is why we could see some margin improvement or expansion in the course of the year because right now, the material that we’re paying for is starting to either remain stable or to reduce, for example, the price of steel has started to reduce, and we have fixed higher prices on our retail price for products. So this is now could play in our favor moving forward. And for the operation and maintenance, when it comes to adjustments or CPI, well, it is sometimes written most of it by contracts for the fixed term long-term projects we have for operational maintenance. Then for the other ones that are evergreen, mostly in the area of New York and Houston, Texas. And while we go on a month-to-month, we negotiate with the customers, either price increases on the operation and maintenance contract or even on schedule of values related to other material and pass-through that we’re having with customers. So we’re playing this , I would say, the strategy on pet every day in all our business segments with all our business lines.
Endri Leno
National Bank Financial, Inc., Research Division. And the last question, fame, if you can share a bit of any kind of color and update on leader. I mean you said the integration is going well, but any kind of thing unexpected either on the positive or negative side that you found in the business as you bring it together with your own make operations legacy ones?
Marc Blanchet
Well, we have done already a fairly good amount of work on the floor plans to redesign, rearrange the way the fabrication is being handled, the way it does. So this line was positive impact. Obviously, I think though, on the negative or positive impact it is creating additional stress for the overall organization. Our team is already thin in terms of overhead and resources. And now combined to the current growth that we’re experiencing organic growth with higher demand for our products, it’s, let’s say, great, but stressful time in let’s say for team. So it’s all in one deck to ensure delivery because, as Mark said, we have never seen the backlog for Maple business products so high. So usually, we pick up orders till, let’s say, June and July, and then we see slowdown in the course of the summer. But now we started to receive orders in our backlog back in May, continued in June, continued in July, ramped up as well in August and September. So this is why this increase in inventory is not an estimate on what will we be selling. It’s based on orders in hand that we need to deliver in the coming quarters. stressful… Fun to watch.
Endri Leno
National Bank Financial, Inc., Research Division. Okay. No, that’s good. That’s good to hear. And one quick follow-up there. I mean, you said that the team, it’s a bit stretched. I mean, would you be looking to increase the team there? And — or you’re good for the time being?
Frédéric Dugré
No, I think it’s for the time being. I think that as we implemented new business processes, we’re going to gain efficiency, and this is what we owe for. Our team is pretty eager antedated and they were like looking for at this transaction growth happening. So we don’t expect to increase the overhead. We’re expecting to gain more efficiency of the combination of the 2 manufacturing platform in Vermont and in Amarga, and this should pay off. It’s just that the growth combined to the integration phase is kind of a perfect storm. But let’s say, I think overall in the next 6 to 9 months, we’re going to start to really benefit from this business combination.
Operator
[Operator Instructions ] your next question comes from Gabriel are Capital Markets.
Gabriel Leung
Beacon Securities Limited, Research Division. So I still have another question. Is there any key initiatives or priorities that you want to advance in 2023?
Well, for us, really, with the current organic growth that we have one word, just harvest. It all ends on deck to deliver on this huge backlog. It all ends I’m back to push and continue to promote the green chemistry we have, the innovative products that we developed in the last year that now we’re pushing to the customers, it’s really harvesting both. And I think the time is now. And for us, it’s we’re excited about the future. So — the key initiative is just stay focused, execute harvest, deliver backlog… And grow the business. Perfect. And what kind of update or can we expect at the AGM in December? So usually, at the AGM, we’ll give an update on 2 elements, and we’ll do the update on the 3-year plan to kind of give the shoulders of where we are. So this will be the third time that we give a 3-year plan update. So this is more like a long-term vision, things we want to do, how we want to transform and grow the business. And obviously, we’re going to give an update as well on how we’re marching towards our 2023 objectives. And equally, we’re going to give an update as well on our ESU plan, what we have achieved, the progress we’re doing and what are the key numbers and the key initiatives we’re pursuing along the ESD plan. Thank you.
Operator
That’s Your next question comes from David Rollon from BconSecurities.
Daniel Rosenberg
Haywood Securities Inc., Research Division. Congrats on the progress One thing just one for me. Obviously, a lot of organic initiatives underway right now. I’m curious how that impacts your thought process around M&A number one. And number two is, is this going to require you to add some additional, I guess, capacity into your business? And what kind of impact could that potentially have on your sort of near-term EBITDA margin sort of 11% EBITDA margin targets?
Marc Blanchet
Well, right now, as I said earlier, same answer. I mean for us, it’s really — we’re into harvesting. Our growth strategy has always been part of a combination of acquisition and organic growth. We have already completed in the last 12 months, let’s look at it. I mean, 3 acquisitions. So we’re delivering on that end. For us, right now, this fiscal year, I think, will be more weighted towards collecting, harvesting. And we believe that on the other hand, things may play in our favor for future transactions in a way that will let the market slow down a little bit, multiple may come down a little bit. So time in this case will be our best brand, let’s put it this way, not only because we’re coping with such organic growth that were not forced. We’re not on to pressure to make acquisition. And in the long run, if we position ourselves, let’s say, in 12 to 18 months from now, not only will have deleverage the balance sheet, but we may see a better multiple on transactions, one opportunities we’re looking at right now. So we’re not in a hurry, but we’re hurry to harvest on what we have planted in the business…
Daniel Rosenberg
Haywood Securities Inc., Research Division. Even, just on in terms of expanding the capacity of your existing business, what are your thoughts around that? And do you think that might have some impact on your sort of near-term 11% EBITDA margin targets?
Marc Blanchet
Yes. So this is a very good point. Our business mix, I mean, if you remove a second, let’s say, the inflation, the impact on wages, the impact on material and all that. If you remove that the second, if you look at our business, there’s a fairly good amount of movement on the EBITDA percentage that is linked to the business mix. Now I’ll make good news or [tene] but in good news, if you look at it, the growth on the operation and maintenance has been slightly more than what we anticipated. And this is good on the good hand on the bad side is that this business is coming usually with lower margins than the specialty products, for example.
So as much as we’re growing fast, the Specialty Products, which is the high-margin business, on the other hand, the O&M business is not spend still leader. If they’re growing as well. And in dollars, they’re contributing a lot. So this has a big influence on the overall percentage of EBITDA. However, as we said, we’re going to continue to strive towards a double-digit EBITDA. And I think on feel very confident that measures in place on litigation, on prices, mitigation on the wages and all that are going off and start to pay off in the coming quarters, and we should regain momentum and margin expansion there.
Operator
The are no further questions at this I’ll turn the call back to Mr. Dugré for core remarks.
Frédéric Dugré
Well, thank you very much, and look to talk to you again, and we’re invited to join our year and the Annual General Meeting of Shareholders, which will be December 6, where we will give you an update on the 3-year plan as well as our ESG report and plan. Thank you very much. Have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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