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

So first of all, thank you to everybody for joining us for the 3 and 6 months ended June 30, the financial statements of Water Ways Technologies. We are here at the Earnings Call with myself, Dor, the CFO of the company; and also Ohad Haber, CEO of the company. I think on the agenda, we will basically begin with a few words by Ohad about the first 6 months we've had, a little bit about the future, about some of the challenges we've had and then I will give a financial review of the financial statements so far. And eventually, if we have a Q&A option, please do write us in the chat, and we will try to address most of the things by the end of the call. So okay, let's begin with Ohad.

Again, thank you, everybody for the time to be with us in this conversation. I know it's like a crucial moment because we finished 6 months and we can see how the 6 months to come are going to be. And we have to be honest and to say it's not a good year for us. We are in -- we begin with not getting the project that we was used to be due in -- like we did in '21. We hardly found ourselves not in the right tempo of getting projects from the beginning of the war in Europe, Russia, Ukraine and all what done with that. And even in other countries that we are involved like Ethiopia. Ethiopia is getting now not a good moment. There is a civil war there. So we find ourselves getting to '22 with not so good condition. And when we understand that, we decided to do like shift to move as much as we can from our business to the continental America. Most of that will be in North America, Canada and the U.S. We see it like a better place to do business, better place for agriculture. The economy of the countries are more stable, and we find ourselves -- make ourselves bigger and bigger in this country. We still have a nice operation in Peru and we think that if we do the things as it comes to now, we're going to be in the same value as we was in '22. And we did now just 6 months in '23. The other subject that is a very, very -- with improvement about our business, it is a big change of the clean -- the clean water, the places that is not raining, places that it's too much raining, places that it's too hard. The world has changed, but has changed very, very quick. So in a lot of country and a lot of places, people decide not to do now their project in agriculture. They think to go back and to design it again like it will be more appropriate for the different condition that they find as a trap each one in his country. From this season, Canada is in a better position because areas that before was very cold. Now it's not so cold and some places that was not with a lot of day of sun, we find ourselves that we can work more days in the year. So we believe that this area in the world will take us back to the same volume that we was in '21. So it's not a good moment, but it's like something that we can see it. We can calculate it. We can organize ourselves for the future. And I think that the next 6 months will be more or less the same that was 6 months that we already did in this year. So more big change, we're going to see just in 2024. And I can assume that people that are looking about the value of the share are not happy. I myself, I'm not happy because I'm the big holder of the percentage of the company. But we was in this point before, and we find some way to take it back to big numbers. So I really believe that we can do it again. It will take a little time. It's not in days, not in weeks, but we can do it again, with different areas of activity. And the 2 issues more that I want to summarize is because we see in a lot of countries that is not enough water for irrigation. So we understand that it will be good for us to be with more machines like for the simulation and more machines to take some treatment for water. So we're going to ship a little more our activity from just irrigation to be more involved about the quality of the water, because we see the need of that. So that is basic what I wanted to assume for the first 6 months and to give everybody confidence that we are okay for the 6 months to come and we believe that we can find the right way how to take it back to the numbers that we knew before, like in '21. Dor, if you can take more about the numbers.

Yes. Thank you, Ohad. So as Ohad mentioned, one of our biggest challenges, the best 6 months and especially during the second quarter was our revenues and it relates to a lot of aspects, some of them are in the macro level, which we do not have any effect on. And some of it is based on planned strategic that the company has decided to take in order to secure a better cash flow from the customers. For example, the company had decided not to sell to several customers or not to sell to our old customers who has bad habits of payments. We can't finance them anymore. So in a strategic decision, we decided to forego these customers, knowing that it will cost us in revenues. But still, we understand that this is a difficult time for companies. And we want to make sure that each customer that we sell to, is obligated to pay us and will not encounter any problems. One of the other micro level in the decrease in our revenues has a lot to do with the change in the irrigation industry. From what we can see with our competitors, our vendors, there's a -- let's say, global decrease with all companies with all of our vendors in the irrigation market. And it relates to the thing that Ohad mentioned. And it relates to the change in climate. It relates to the change of how people use water. And a lot of it is in respect to the fact that customers, our customers or our customer's customer do not execute new projects right now or at least not expanding them or not doing any new ones. They're mostly small projects or keeping things as they are now, which obviously affects us, especially on the project side. Our revenue from project is very low this year. But again, this is something that can change. A lot of it has to do with the inflation and stagnation and the cost of money in a lot of the regions we work in. And that connects to the company's strategic decision basically to shift to more stable countries which less affected by inflation and basically places that we can secure projects, just as we did. And obviously, the company's natural decision was to work in Canada. Which we already know, which we already operate in. We already announced one project that's supposed to take place by the -- or at least commence in the last quarter of this year. Of course, obviously, we hove to expand it and continue working with this customer because it has a lot of potential. And also, of course, other projects or irrigation projects in Canada. The Canadian subsidiary has not yet commenced it's, a huge project. The first one is supposed to begin in the last quarter. But hopefully, this will be a breakthrough for them because we can supply the knowledge to the customer. And we know the Canadian customer has a lot to learn. And we know that Canadian farmers has a lot to run and we as an irrigation company can contribute a lot to them. And obviously, it will increase our revenues. Combined with the fact that we put our efforts there and we understand that this is the place we need to be right now. So all of the other territories of the company is minimized in hope to get better results in Canada, if not this year, probably or we hope so for next year. Okay. So let's start working on the profit and loss. We see a decline in the revenues, especially in the project because of the following reasons that we just mentioned. We also see a decline in the product segment. And again, one of the main reason is the change of the customer behavior. If in the past, our customers, which we know for a lot of years, used to do huge orders, box of stocks to their inventory, because they need to sell to their customers, because they sell it to other projects that their customer is doing. So the customer changed a bit or not a bit. They changed their behavior. The customers are much more precise right now, less for inventory, but they take products for specific needs, which obviously affects us in our revenues. Combine that with the fact that we needed to forgo some of our customers, especially in South America, which is less stable. We will see the change or the decrease in revenues in South America soon. So there is a decrease in both of the revenue segments. We were able to maintain our gross margin compared to the same period last year. The gross margin declined a bit from last -- from the first quarter of 2023. But again, we did -- we had to do some lower-margin sales in order to keep the company running. Obviously, the gross margin needs to be around 20%, 17% is still not enough. But the company is still making a lot of changes, especially if the focus will be on Canada, which usually has a higher gross margin sales. The gross margin is usually around 19% to 20%. And so we'll keep our focus there. Our gross margin will keep on increasing. A positive thing on the reports is that the company was able to reduce its costs and expenses. It's General and Administration Expenses, it's Marketing Expenses by almost 16%. And that relates also to reducing head count in the company and reducing salaries, especially senior management salaries. We understand the situation and the reduction has to be made. We will -- we obviously need to keep on working on the reduction to be on the 20% side reduction. But this is a good thing to hold a bit on the expenses. And we did had some finance income as we -- Again, it depends on the share price and the period of the warrants we have. So we had about USD 600,000 in income -- finance income. Our warrants are estimated at fair value, hence, the finance income, which brings us to a total profit of $26,000. One other thing that we can say about the second quarter, which was not the best one we've had. But still, we need to also mention that with respect to the Canadian subsidiary, HGWWT. It also had some decline in its income, but this is due to revenue recognition. Some of the revenues for the Canadian subsidiary has shifted to Q3 and Q4, which also reflects on Q2 results, especially on the products. So some of the revenues is shifted towards Q3 and Q4. We can see it translated into high-level inventory, especially in Canada, meaning the Canadian subsidiary had a lot of inventory as of June 30, which was not translated to revenue yet. But obviously, the inventory will decrease in the third and fourth quarters, and it will be translated into revenues. And so there is a revenue shift towards next quarters. About the profit and loss according to the territory segment and also according to each subsidiary. So we can see that the IRRI-AL TAL, the subsidiary in Israel is at 1.5% almost in revenues. And again, this is especially due to the reason that we minimize our operations from Israel to -- and the world, usually the subsidiary in Israel sell to the less developed countries like Ethiopia, South America, and we minimize it, not as much as we can, but just to the secure customers that we know, we have no problems with them and we'll keep our cash flow running. The Canadian subsidiary amounts to total sales of 2.7%, which is good. We can see slowly that, they're beginning -- their revenues from projects beginning to take place. Although last year, it was a bit higher. It was around $360 million. This year, it's only $111 million. But again, the big project of the company should commence on the last quarter. So this number should change. And the subsidiary in China, the project company is pretty much stable and consistent with last year with $0.5 million almost USD 600,000 in projects. Which bring us to a total of $4.7 million in revenues. We can see the decrease in South America. And again, we spoke about the reason or about the main reason. South America, as you know, suffers from great inflation, orders are much more precise, not like they used to be in previous years, they would order a huge orders of stock of everything they can get. And now it's much more precise. So less stock, which obviously is translated into less sales for the company. Here, we can see basically the top 3 customers of the company. And I think that the main thing we can take from that is that our top 2 customers are in Canada. This is very, very usually our biggest customers were from South America or Asia. But right now, our biggest customers are from Canada, which is a very good thing. It just gives us strong fact that our focus and all of our efforts that we put in Canada translated into the sales in Canada. About our Balance Sheet. So our cash position is not as good as it used to be in December. The company is working on another capital raise. Obviously, we will update as soon as we can. But obviously, we will need another cash boost to keep the company in a strong cash position. We have an increase in our receivables. Obviously, and also an increase in our payables. But we do, however see a high level of stock, almost 400 more compared to December '22. And as I mentioned before, this should translate into sales, a large bulk of it from the stock should translate into sales in a quarter 3 and 4. I do want to take one moment to comment on one of the things in our noncurrent liabilities. Last Friday, the company issued a press release with respect to the transaction in China and I had some questions from investors about it. So we're not talking about any new transaction that the company made. Everything that was mentioned in the press release is with respect to the Chinese subsidiary, which is already existing since 2020 and is an operating subsidiary of the company. One of the terms in the agreement, which was published in 2020, it was that we have a share issuance liability to the person of which we purchased their assets from. And the share issuance liability, it's in our financial statement since 2020 is on the amount of USD 700,000 and the company would like or basically the company asked for the TSXV permission to translate this liability into capital and to basically issuing the shares that they deserve. This will become into effect once it will be approved in the general meeting of the shareholders, and they will vote on it according to the request of the TSXV and then we can shift this liability into the shareholders' equity. That's it, which brings us to also -- our working capital is okay, almost $2 million. A lot of our receivables or let's say, the increase in receivables plus the inventory gives us quite good assurance that the company is running and operating well. That's it about the balance sheet. I think this is a good time for questions. Please write us in the chat, and we will try to answer it as best as we can.

We'll wait a few minutes if anyone has any questions.

[Foreign Language].

Update from China. Ohad, do you want to take this?

I will say a few words. And if you think I have to say more, please do that. We'll begin the operation in Canada.

In China.

China, So we begin at the end of '18. And the moment, we began the Corona time was beginning. So we had a lot of patient to wait to see that China is coming back. Our expectation was to go there like $4 million of sale as that mean 2 million for 6 months and we are not in the rhythm of that we have to be. So we're still waiting and we still help them to come for the numbers that we think they can do it. But China after Corona time, it's not the same China that we knew before Corona. So we are like waiting this big country will come to work as we are expecting. But time is running, and we don't see this improvement. We don't see it change in the way, we wanted to see change, but we work with a very good people, very professional people. So we have to find some more patients to see what will happen in the 12 months to come. 6 months in this year and 6 months in the next year, because it didn't come to the level that we are expected this market to be.

I think China is -- it's quite stable. I mean it keeps its revenue around $1 million each year. Obviously, it's not as much as we would wish it would be, and we expected some growth. But it's quite stable. It's usually is a profit company. It works on high margins. But again, the volume is not high enough, the volume of revenues. And it keeps its stability. We can't make it grow right now. And as Ohad mentioned, we had a lot of expectations and then the COVID changed a lot of the things. The government in China really shifted its -- let's say, agriculture influence and shifted it towards other things. If in the past, a lot of funds were transferred into apples and blueberries. So right now, it's more to a wheat and a like more stable, let's say crops. And we usually try to focus ourselves on high-value crops. And -- so again, China is still working and working good on its blueberries projects. But as of now, we can't make it grow even more than we wished. Ohad there is questions. Are we planning to enter the U.S. market?

Okay. Our strategy will be -- we begin it already. It's going with 2 factors. One factor, it's crops and we decided to begin with the Apple. And there are other things, like when we got like stores that are in all over the country, and they are buying -- they need to buy every 6 months what they want to sell. So we're going to come first to the countries that have border with Canada, like Michigan in this area that they have also these 2 things. The Apple and the need of irrigation material. And the same like from Vancouver, it's pretty close to California and then to do the same job that we were going to do in the East. So I think that to the 2024 we'll have a lot of things to tell more exactly from the people that buy from us, that we didn't give that yet published. We didn't publish it yet.

Okay. I have another question we have. How is the partnership with AgroScout is doing?

Okay. This is very interesting because the market is giving a lot of interest to know how to manage the farms. And because we just begin it, it's still like meetings and to give them a showroom and visiting the farms but it's put a lot of interest from the both side of the border, even in Canada and even in the U.S., I hopefully, that even in this year, we will give some announcement about the first project. And I'm sure that in the 12 months to come, we're going to do a great joint venture with this company because they are very clever. They are like 2 ways before it's market.

Just in two words maybe explain what they are doing.

I will say it like that normally the farmers are taking examples or they are taking that from the soil or they are taking that from the plant or they taking that from the air with a picture. So this company found the way how you take the 3 -- the 3 resources of information and giving real time the knowledge, what you have to do in your farm. It's a new system and nobody is giving that. They're the first one to do that. There is other company and good company that they are doing just in one level. They are the first one to do it in 3 levels, from the soil, from the plant and from the satellites.

Okay. I just want to comment on the last thing. I wanted to say at the beginning of the conversation and good thing that Andy brought it up is the communication with investors. Yes, definitely, management takes responsibility on the last quarter communication to its investors. And obviously, it will improve this from now on. Definitely. We took it into consideration. We've had some comments about it, and we promise to make it better. Okay. So I think if anybody else has anything last question. We can say thank you for everybody for joining us and listen. And you can always address us by e-mail. Ohad anything else?

Just for last word. Again, thank you, everybody, and we take the message. We're going to do this meeting every 3 months. And thank you, everybody that find the time to be with us and going with us in this journey.

Thank you very much, everybody.