Water Ways Technologies Inc. (WWT) Earnings Call Transcript & Summary

So I think we can begin. Thank you, everybody, for joining us. We will start with a couple of things by Ohad, our CEO, and then we will continue into the financial review, and talk a bit about what we see for the rest of the year. And if you have any questions, obviously, we will grab the answer. So let's begin.

Hi, everybody. Nice to be in the meeting. I apologize that I was not in the last month when it was a conclusion of the activity of 2022 for some reasons of misunderstanding, but I'm very pleased to be here today. What we can say about the first quarter of 2023, that in general, what we saw in '22, we're still in the same position in the '23. The market is not yet very active even for us and even for other company that is playing in the same field. So we decided to focus our activity in the places that we have a company, in the places that we have people that get up in the morning and doing their best as best as they can, first of all, in Canada. And the people in Canada is the same people that is working in the U.S.A. and the same in China. So we have not so big activity, but very, very controlled activity. So we put our effort to maintain the territories that we are known to do it well. And we are not spending, not money, and not effort for other territories that are not yet giving so much result. So at the end, we have a nice quarter that we are feeling that we find the way to work in a market that is not so active. And we think that the second year from July to the end of the year will be more activity. And then we find ourselves in the same territories that we are working now but with more active in them and in few territories is more just begin to be more activity like Peru and the Mexico. But this is in general what we see in the first quarter. As my colleague Dor know better than me all the financial results he will go with you guys with our presentation. Thank you.

Okay. First, we'll talk a bit about the highlights in the first quarter. And I think that the company, during the last quarter of 2022 has made a strategic decision that we've talked about in the past. And to shift our focus basically to more stable territories. And I think that we can see the results very clearly in this quarter. We dedicated more efforts to develop the Canadian territory and basically our activity in North America, and we'll see in a bit the very good results we achieved, and how their improvement basically improve the result of the whole group. The other challenge we've had in 2023, which is a bit in remarkable situation in the world, and that is also the [indiscernible] the small decrease in revenues with that. It's basically affected the revenues. Basically, 2 decisions. One is our choice and the other one, we're not -- we don't have any -- we can't do anything about it. So the first one is in respect to the project. We understand that our customers the -- they're struggling to get financed in their project and obviously, it affected -- and it affects us. We can see it in the market. But still as the year progress, we still find, and the customers slowly understand the situation and slowly, they begin to plan their next project. And hopefully for 2023 by the second half of the year, we configure results. The second thing about the revenue about in the product segment. Overall, we had a pretty good quarter, especially the company in Canada. And we can see about the customers changing a bit their activities in the past used to order a lot for stock. Now the orders are just more precise. So the volume is a bit lower, but not as significant. And okay, let's start looking at the profit and loss. So we see a 30% decline mostly it relates to the projects. In previous years, we used to see better results. But still, we understand and the customers having a big trouble to get financing and hopefully, it will be -- we will see better results by the end of the year. And we can see that the Canadian company has managed to close its first big project in Canada for growing apple or apple grower in Canada. This will be part -- hopefully, it will commence on the third quarter and fourth quarter and maybe even the first quarter of 2024. But this is really substantial project that they've had in 2023. Hopefully, it will be much more. And it opens up an brands, the Canadian company, is a company who knows not only to sell products, but all in all -- but also knows how to do projects. We support them with our technical team here in Israel. And we've given them the know-how in the planning and help them deal with them and brand themselves as a project company. So if we look at the revenues by territories, we look at the segment in a bit about the segment by the revenue segment. But if we look at the territories than the Canadian and Chinese company's had a good quarters. We can see that the inflation in China is practically 0, hence they can do projects. We can see orders, we can -- we are still negotiating additional projects for the rest of 2023 in China, especially in the blueberries and crops. And in Canada, it's the apples. And the decrease is basically from the company in Israel that -- usually the company Israel works with the less-developed territories. And that is basically part of our strategy. I mean we talked about it a lot that we need to forego some of our customers and not working in risky territories, which sometimes they don't pay on time, which macro effects on them and it is less stable. So again, we're focused on the more developed -- on the developed countries and the companies that we know with we have working. Okay. I think one of the important things we can see in the reports is a great improvement in the gross profit. We were able to achieve a 21.5% gross margin, which is very good for us compared to 17% -- 17.5% in the first quarter of 2022. And I know we talked about it a lot in the past. It's one of the key factors in order for us to become profitable is, first of all, increase our revenue, obviously, but the more important is to be more efficient and to improve our margins. And we talked about it, with additional being 22% or around 23%. We were starting a profitable company. And I think we're on the right track. I mean one of our focus is for the rest of the year and for the upcoming quarters is try to maintain this gross margin, at least or at least stay above the 20% line. Usually along the way and our gross margin declined a bit, but this is our main focus right now. To be as efficient as we can and to try and maintain a gross margin of 20%. Meanwhile, obviously, we need to increase our revenues more, but we are on the right track. We can see, we have a small operating loss but this also compared to 2022, we were able to minimize it. And in spite of the fact that we are in lack of projects, our product segment, they work really well. And the main reason for it is basically the Canadian company. The Canadian company, HGWWT became the leading company, the leading subsidiary of the company in terms of revenues and in terms of profit, and it is a profitable company. And it manages to sell its products in a very good margin. They were around 22.5% in products, maybe a bit more than 23% almost. And they are basically contributing the most of the company's consolidated revenues. The other focus we initialized this quarter as we understand, we need to minimize our expenses as much as we can. We did it, and we also -- we did it in the beginning of January, and a bit at the end of 2022. It minimizes our expenses -- our operating expenses as much as we can. We did a broad salary reduction where we could, approximately 20% in all of the company. Because we understand when you know our cash flow, we know we need to minimize a bit in order to keep on track until the markets will open up a bit, and we will be able to get a bigger project. We basically maintain the company's strategy, first of all, with the continued work we developed in countries. And second of all, we always look for other acquisitions and this will contribute to the company. Obviously, we are looking for higher gross margin as much as we can. And our focus is right now, just in North America, in the United States, it will be in the Western Canada, but this is our focus right now. Overall, we turned up with a USD 319,000 in profit due to finance income that we had on our warrants. We had a -- we have it each quarter minimizing because warrants will now be under fair value. But overall, we finished the quarter with the [indiscernible] profit. About our segment, and this is an important chart because we can see clearly how each subsidiary [indiscernible] the same period last year. So we can see the very high improvement in the growth -- in the overall gross margin and especially in the Canadian in HGWWT gross margin. And they had -- this basically remains flat in the product revenue segment. In the project segment, there are a bit slower, but this is basically last year revenue recognition from project [indiscernible] in the last quarter of 2021, and the revenue was recognized during the first quarter of 2022. And again, this year, also, most of the revenue will be recognized in the last quarter or in the third and fourth quarter of 2023. The projects were estimated at around CAD 800,000. So we can -- we will see a great improvement in this revenue segment as well. And the Chinese company, which last year suffered from the COVID still in China, and they had serious lockdown last year. So the they have really poor results, and we can see the great improvement compared to the same period of time. And they are currently working on 2 global projects, and they are still negotiating other projects for the remaining period of the year. And again, in China, we can't and -- we cannot -- we don't feel basically the inflation already stagnation. We can see pretty well, the China subsidiary is working, and it's working well. And also, we continue to bring through the end of the year. And the only decline in revenues we can see in the subsidiary in Israel, and this is basically Ohad had talked about before. It usually works in less developed territories. We decided to forgo some of our customers or more unstable customers, and just put our efforts for more in the places we know that work well in Canada. About our balance sheet, we can see a 20% decrease in the cash position, hence the -- we've been quite an aggressive cutdown our expenses. We managed to cutdown 10%, and we will increase it even more during the next quarters in the overall expenses. A good increase in our receivables mainly to the operations that we have in China and Canada. And in respect to the payments in investor projects that we have in our balance sheet, just a reminder that this account is basically with respect to the projects we were supposed to do in Uzbekistan. And currently, we don't have any updates about those projects. So we decided that whatever fund we can take back, we will and hence, the decrease in that section to start collecting our money back, and the remaining amount that we'll have, we incorporated the amount as the inventory or for other projects. We keep a quite high level of inventory. And most of the inventory is currently located in Canada. And the reason for it is for us to be more prepared for the second half of the season because one of the products of HGWWT arise from the Europe. We know this will -- it can cause some delays in the chain supply. We decided as we do each year to maintain a high level of stock in order to support the mix in the next half of 2023 revenue. In terms of the liabilities, we've had 2 small private placements this quarter. And the first one is an equity replacement of CAD 314,000. And the other one is a small private placement of convertible debenture, CAD 92,000. So our overall working capital status is remains flat to Q4 of 2022 at CAD 2.3 million. I think it's a good time for any questions. If you have, please write it on the chat and for myself or for Ohad, please ask.

[Foreign Language]

Yes. Good question. We visit there, and we saw that it's not like the presentation that this company was done doing for us. So we decided that in this time, we are not going to close it. We'll give the chance to bring them to a situation that it very, very close for what our presentation was for us. So it's not dead yet but it's not look so good in the situation that we can close it. So we decided to give more time for this trying. If it will be go okay and that it will come very close to what they are present for us, we are going to close it. If not, [indiscernible] we decided that it's too risky for us in this time to take this consolidation with the company in Chile. So we are very contact with them. We speak every week, but we are not in condition to make the closing.

Just to add on what Ohad said, in order to secure the interest of our shareholders and our investors. And -- we've been served into the agreement, some thresholds that they need to hold up to in 2023. When we came to examine the threshold, I don't know, for example, a certain amount of their working capital. And they did not manage to do it. And even though we are -- we believe -- we still believe they are a solid company. They have good work, and we need to secure our investors investments. We need to secure our shareholders, and to protect them, and if they do not live up to certain thresholds and that we will not take this risk. We will wait patiently. We are -- they're sending us their financial statements. And -- but we will not do anything that will compromise anything. We'll wait, we will be patient and we will continue to examine. But as of now, there's no progress. And we have another question. Are there any capital raisings planned for this year? I believe the answer is yes. And we still don't know the timing exactly, but yes, we are planning to do more capital raises. We have another question. Can you discuss the expansion of your business in the states? And do you have any transaction for this and which states?

Okay. The connection with the U.S.A., it's first with all the clients that always were working with John Paul, our management in Canada. And when we make some growing up with the apple, we find a few colleagues to work with them in the area of Michigan. And we find some places to work with the berries and with the potatoes. We are looking now, and I will be there at the end of the month, if we can find another company like company that we have in Toronto, Ontario, more or less the same size with good management, and we will try to give them some offers that they will work with us more closing, more close. And we have lot of interest to find that, but we didn't find yet how to grow in the U.S.A. as we are growing in Canada. But if you ask me for now for 3 years, so I think that if we finish this operation for this year in the operation in Canada around CAD 6 million, CAD 7 million, CAD 8 million, so we can do the same volume in the other side of the border that all these together will be around CAD 14 million, CAD 15 million in a few years more because we know we have to work there. We are looking for that, and we'll begin to work there in the same way that we're beginning 3, 4 years before in Canada. So we're making in some ways the same steps that we did in Canada. We are doing them now in the U.S.A.

We wait 1 minute to is if anyone has any more questions to write? What about expansion into Western Canada? Okay. Do you want to take it?

[Foreign Language] Okay. I will say it in some because we are a public company and we cannot say everything that we try to do but we put a lot of effort and the deal was connected for a lot of company, even financial company, even people that work in the West to fund ourselves and to find a way to work in this part of Canada, but with no succeed yet. We're still looking for that. I think we know now everybody that work in the West. We know that [indiscernible]. We know the company that work there, even some of them even buy from us, but we didn't find yet who can be our partner to do the same progress that we did in the East. We have a nice opportunity in the beginning of the year, but it didn't go for the site that we wanted to go. So it's still waiting for some progress in this year.

I'll just add that we did some expense market research in West Canada. As I mentioned, we know the company is there. We've been in contact with some of them. And we are still looking. We're still looking for the right company in the right size. But definitely, to be in the state of Western Canada. Yes. Okay. We'll wait one more minute if anyone has additional questions. Okay. So thank you, everybody, for joining us. And you can always send us additional questions to myself or Ohad by e-mail. And we thank you for taking the time.

Thank you, everybody. Again, apologize, no participate here last month, but here I am and always available. Last month, it was bad communication, but now we are okay. Thank you, everybody.