After racking up tens of millions of dollars in losses while it struggled to find a market niche, Ottawa cleantech firm Clearford Water Systems believes it’s finally tapped into the right formula to generate consistent recurring revenue.
Clearford (TSX-V:CLI) announced late last week it has agreed to acquire ASI Water, the wastewater treatment division of southern Ontario-based ASI Group. Pending shareholder and regulatory approval, the $6-million cash-and-share deal is expected to boost Clearford’s annual revenues by about $5 million.
Financial markets seemed to be giving the agreement their seal of approval on Monday, with Clearford’s shares up two cents to 4.5 cents in late-afternoon trading on the TSX Venture Exchange. That’s still a far cry from their peak value of 50 cents set back in July 2015.
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CEO Kevin Loiselle told OBJ Monday he sees the firm’s latest acquisition as a key plank in its strategy to become a full-service water and wastewater management systems provider.
“This positions us in a place where we have a regular revenue stream coming from the operations,” he said. “Our goal really is to try to sell water as a service and really become a utility.”
It’s a direction Clearford began steering toward nearly two years ago, when Loiselle announced the company was pivoting away from working with subcontractors and focusing on becoming a one-stop shop for water treatment services.
With the acquisition of ASI, Loiselle says Clearford – which designs and sells sewage treatment and water purification systems to municipalities and private clients – is now the largest privately owned operator of water treatment plants in Ontario with nearly 200 facilities and 100 employees across the province.
Many of Clearford’s customers are smaller towns that can’t afford to build and operate water treatment plants on their own. Instead, they hire the Ottawa firm to construct and run the facilities for them, paying monthly fees.
“That’s the market we’re trying to go after,” Loiselle said, adding the acquisition of ASI gives his company the “critical mass” of customers it needs to turn into a profitable operation.
Getting into the black has been an elusive goal for Clearford, which has accumulated losses of about $45 million over the years. It spent much of that cash acquiring other operations such as fellow wastewater treatment firm Koester Canada and UV Pure, which makes a system that disinfects water at treatment plants using ultraviolet light rather than chlorine.
Rising losses
While Clearford’s sales have been steadily rising as it continues to expand its services, its losses have mounted at an even faster rate.
Clearford’s total revenues for fiscal 2018 were $6.4 million, the company announced last week, nearly twice the $3.9 million it brought in the year before. But financing costs on its long-term debt rose to nearly $4 million, saddling the company with a net loss of $12 million – more than double its 2017 loss of $5.6 million.
Clearford’s operating losses in 2018 were more than $6.9 million, but Loiselle said the acquisition of ASI and recent high-profile customer wins such as a long-term contract to provide wastewater treatment systems at Amazon’s new distribution centre on Boundary Road have put the firm on more solid footing. He said he expects Clearford to start breaking even on its operations by the end of this year.
Paying down its “substantial” debt load is now the firm’s biggest hurdle, Loiselle conceded.
“We have made a few missteps in the past and have tried to build upon those, but we have accrued a level of debt that is quite high.”
The CEO said Clearford will be looking to raise more capital to either trim its debt directly or pursue more acquisitions in the hope of creating new revenue streams that can be used to pay off creditors.
Loiselle said he is confident that finding fresh equity will be easier in the wake of last week’s acquisition. Not only will ASI bring in additional revenue, he explained, the deal also delivers intangible benefits – including a growing roster of satisfied customers that can attest to the system’s cost efficiencies.
“We have these business units that are operating at a much higher level,” he said. “We’re going to have a revenue base that allows us to show that we’re a substantial company, and we’re going to have reference sites.”
