H2O Innovation Inc.

Thank you. And good morning everyone.

My name is Marc Blanchet, I’m CFO of H2O Innovation. This call will be held in English, but I'll just say a brief word in French or French audience, [Foreign Language] 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 third quarter of 2021.

And I will be presenting the financial result of this quarter ended March 31. Please take a moment to read the forward-looking statement on Page 2 and the non-IFRS financial measures on Page 3 of the presentation.

I'll now hand over the call to Frederic.

Thank you, Marc. And thank you for joining me today.

Well, once again, we are extremely proud to present a strong financial performance for our Q3 results. As we continue to build our platform of complimentary water treatment technologies and services through acquisition and innovations, we multiply the synergies between these technologies and services, which simultaneously foster an exceptional business culture full of diverse talents.

Let's have a look at the business highlights during the third quarter and then March 31, 2021 presented at Page 4. Boosted by the acquisition of GMP in Spain, announced on February 1, 2021, allowing us to expand our specialty chemicals capabilities and sales coverage in Latin America, revenues increased by 8.6% to stand at $39 million for this third quarter and increased by 11.8%, almost 12% reaching $109 million for the nine-month period.

Both gross profit and adjusted EBITDA continued to expand and reach 28% and 11.5% respectively. This continuous margin improvement is driven notably by a few factors, such as our constant focus to secured projects at superior margins, an increasing amount of specialty production sales, more specifically the chemicals, our dedication to operational excellence in the O&M group and its business combination announced previously in their last quarter.

And finally, to a tight control on our fixed cost expenses. This certainly pays off since we are presenting a record high net earnings of $2.1 million for this third quarter, posting for a fourth quarter in a row, a constant and growing net earnings.

The multiple synergies become our competitive advantage as they generate value for our customers and help the company preserved long-term business relationships, thus posing high recurrent revenues. For this third quarter, recurring revenues remain high as 83% upset a little bit by the growing proportion of revenues coming from the projects.

On an LTM basis, recurrent revenues accounted for 87% of our overall revenues. The sustained free cash flow of $10.2 million generated for operations – generated from the operations combined with constant margins improvement, that's defined for the work of the last months and even years.

This cash from operations, allow us to improve our balance sheet and reduce constantly our debt. With a strong financial position, showing a net debt to adjusted EBITDA ratio of 0.2, we have room to invest in organic growth opportunities and to realize strategic acquisitions, in other words, to achieve our three-year plan.

Now, let's have a look at the performance of each of our business pillar. Starting at Page 5, with our first business pillar, the Water Technologies and Services names WTS.

As expected, we are finally seeing growth momentum regaining the WTS business pillar. The significant increase in the revenues and the EBAC is notably explained by three reasons: projects have started to move from the engineering phase to the fabrication phase and from the fabrication phase to the commissioning phase, allowing us to accelerate revenue recognitions.

Also with dedicated additional efforts to grow proactively service and aftermarket sales, contributing to customer retention, thus recurrent revenues. Finally, the significant improvement in our WTS profitability or the EBAC, is notably due to our determination to pursue opportunities at the higher margin profile.

It is also the result of restructuration completed at the end of Q4 in the previous fiscal year. Our backlog, which stands at $35 million at the end of Q3, is more diversified with a greater number of industrial projects.

Indeed, the industrial projects account now for 34% of the overall backlog, whereas municipal related projects represent 66%. This is the result of our strategic focus to pursue more actively in the [indiscernible] opportunities, without neglecting obviously or strong presence and recognition in the municipal sector.

That being said, we want to reiterate that we welcome very positively, the $30 billion water-related infrastructure plan announced earlier by President Biden at the end of April. We believe many opportunities will emerge from the stimulus plan, notably for new water reuse projects in order to fight back the growing water scarcity in southern states.

As mentioned previously, by extending our services and aftermarket team, we have been able to diversify or ethanol-related customer base and added ten new customers, which most likely will continue to bring recurrent revenues for the company. We also delivered a SILO or new MBR technology to an industrial customer.

This is the picture that you see at the bottom right corner of this slide. In other words, it is a package MBR system capable to treat wastewater and industrial effluent in a very efficient way at low energy cost.

It is also extremely easy to operate and there are barely no moving parts, since the system is driven by gravity. We are very excited about this new installation as it could open up the door to many other opportunities and units that we're going to sell in the coming months or quarters.

In general, the WTS teams remain extremely busy with now 32 projects on their engineering phase, up 10 from the previous quarter. As these projects will enter the fabrication phase in the coming quarters or coming months, we should be able to maintain our growth of revenues in the coming quarters.

Let's look now at Page 6 and the progression of our Specialty Products business pillar. During the third quarter, revenues from Specialty Products have slightly declined by 8.4% compared to the same quarter in the previous year.

The decrease is mostly explained by the lowered volume of sales coming from Piedmont on this third quarter, compared to last year where Piedmont represented the record high revenues. We need to keep in mind that last year Piedmont revenue was just complete record high year ever.

However, on a nine-month period, the revenues have increased by 18%, pushed mostly by the organic growth over specialty chemicals, product line PWT and Genesys and by the sustained growth of our Maple product business line. On an LTM basis our Specialty Products business pillar continued to show revenue and profitability growth.

During this third quarter, the acquisition of GMP was an important catalyst to our business growth and membrane chemicals capabilities expansion. I will talk about it in a minute on the following slide.

In parallel, Genesys obtained two new ISO certifications related to health and safety and continuity of business. This is clearly a pledge to the quality of the work performed in our UK facility and to the care that we have for our employees.

These two new certifications are both in line with our strategic objectives presented in our three-year plan. To enhance our focus in water reuse in North America and to consolidate our efforts to expand the business in Latin America, notably following the acquisition of our new business GMP with their office in Chile, we hired a new VP to coordinate this marketing effort.

It is a total now of 20 distributors that we have in Latin America, representing Piedmont, Genesys and PWT production lines. We believe there is a lot of upside to be captured for the business in the coming quarters.

Talking about South America, well, we are pleased to report that we have secured a new distributor agreement in Brazil for our Piedmont product line. Lastly, in order to support the sustained growth of our maple business line, which is currently facing significant and sustained growth since the last couple of quarters, we secured a new lease agreement allowing us to increase by 40% or manufacturing capabilities in our plant in Ham-Nord.

This extension will allow us to use this additional space to support the anticipated growth also of our WTS business pillar for the manufacturing of membrane filtration system. Moving to Page 7, [indiscernible] behind the acquisition of GMP announced on February 1, 2021.

Our desire to acquire this business was essentially motivated by our vision and goal to develop the world's largest membrane specialty chemical and service supplier through distribution. The laboratory based in Madrid is globally recognized as a preeminent membrane autopsy facility in the industry.

This lab has performed thousands of membrane autopsies over the years, providing us with a cutting-edge knowledge in the full spectrum of membrane [indiscernible]. Also, it's worth mentioning that during this period, we renewed four O&M contracts, for municipal customers in the Northeast region.

These renewals testified to the quality of the service and care provided on the assets that we operate and maintain. Talking about customer care, I would like to salute and thank our colleagues in Houston Area that had to deal with the unexpected freeze during the last two weeks of February.

This Polar Vortex was responsible for damage of multiple water in wastewater infrastructure on top of causing multiple mechanical upsets on various equipments, pump failures, pipe burst, and water service interruptions. Since H2O innovation doesn't own any equipment nor infrastructure or exposer and responsibilities are limited.

Our job essentially was to do everything we can to ensure in the safest manner. The continuity of the service provided to our 85 customers.

Our team worked continuously to lift approximately 45 boiling advisory notification within three to six days following the freeze event. In a nutshell, our workforce did a fantastic job without injury and was able to restore water services to all customers.

Moving to Page 9. Despite the last thing COVID-19 pandemic, the water sector remains very resilient and shows that our business model combined to the essential nature of the products and services we offered is robust.

The multiple synergies between our different business lines become or competitive advantage as they generate value for our customers and help the company preserve long-term business relationships, thus causing high recurrent revenues. This high level of recurrent revenues also allow us to not only gain financial predictability, but also contribute to significantly de-risk of the business, improve cash flow and gross profit margins.

At the end of the third quarter, the recurrent revenues accounted for 87% of our consolidated revenues on an LTM basis, driven by our specialty products that we manufacture and sell through a large network of distributors. By the operation and maintenance, we are providing to 275 water and wastewater utilities in North America and by our service activities and aftermarket sales.

I will now pass it onto Marc Blanchet, our CFO who will review and discuss with you the financial performance of our company for this third quarter.

Thank you, Frédéric. So first let's look at each business pillar.

After business pillar, the financial performance. So first Page 11, water technology and services.

So revenue for the third quarter stood at $10.1 million, compared to $6.7 million last year. This is a 50% increase, which was primarily due to recent wave of project captured as well as the resumption of work following the delay caused by the pandemic last year.

So the gross profit margin stood at 19.2 for this Q3, compared to 18.6 last year. The gross profit margin was improved due to higher proportion of service activities, which funds with higher gross profit margin.

The EBAC, so the earning before admin costs, stood at $1 million during this quarter, compared to $100,000 last year. The increase of the EBAC is driven by the increase in revenue, the improvement of the gross profit margin and the reduction of the cost structure.

The significant improvement in WTS financial performance is also due to the reorganization, the reorg fleet we completed at the end of the fourth quarter last year, which allowed to reduce fixed cost and gain operational efficiencies, notably in the service and aftermarket team. On March 31, the backlog stood at $35 million, which is 14% decrease compared to last year with 3.2 million of new industrial and municipal projects secured at the end of the second quarter and early January, 2021 are included in the backlog.

The pipeline of project is still very original opportunity. Frédéric touched on it that $30 billion plan announced by President Biden related to water infrastructure investment will allow the funding of new project that will come out for bids in the next quarter.

This will increase our pipeline opportunities. So let's move to the following page, Slide 12.

Revenue from specialty products stood at $11.8 million compared to $12.9 million last year. Revenue from specialty product decreased by 8.5% compared to last year because of the product mix.

The decrease in revenue as Frédéric explained – is explained by the reduction of Piedmont business line this quarter compared to last year, but partially compensated by the organic growth in Maple and the addition of G&P. During the third quarter of last year, Piedmont had exceptional deliveries, which generate record high revenues.

While during the third quarter of this fiscal year, the number of deliveries of Piedmont business line was not at the same level as last year. Nevertheless, revenue coming from specialty product business pillars if we look at it on a 12-month basis.

So, on a last 12-month basis increased by 28% compared to the previous 12-month basis. So those increase of revenue is largely coming from acquisition and also organic growth of Maple and Piedmont over 12 months.

The gross profit margin percentage was improved at 46%, compared to 45% last year. This is due to the business mix.

The EBAC stood at 3.2 compared to 3.6 last year, representing a decrease of $400,000. The decrease is due to the lower level of revenue of Piedmont, while the cost structure remained the same.

If you move to the next Page 13, operation and maintenance. So the revenue for this business pillar stood at 17.3 during the third quarter, compared to 16.4 last year, representing an increase of $900,000 or 5%.

Revenue of this business pillar compared to last year were affected by the unfavorable U.S. exchange rate, since almost all of the revenue of O&M are in USD.

The impact of the currency variation compared to last year is $1 million. On the other end, this negative impact is offset by $0.5 million of organic growth and GUS revenue, which amount to $1.3 million during this quarter.

The gross profit margin stood at 22% for this third quarter, compared to 20% last year. This margin improvement, which represented $0.5 million is coming from operational efficiencies that we captured in some projects.

The EBAC stood up 2.8 compared to 2.2 last year, representing an increase of $600,000. It is explained by the reduction of SG&A, improvement of gross profit margin and cost synergies captured following the acquisition of GUS.

As of March 31, the O&M backlogs stood at 66.4, representing a decrease of 35% compared to almost 103 last year. The unfavorable U.S.

exchange rate also have an impact on the backlog. The percentage decrease would have been 27% assuming a constant U.S.

exchange rate. The O&M backlog consist of long-term contract, mainly with municipalities, which contains multi-year renewal option.

The decrease is explained by some contract approaching to their renewal date. O&M long-term contract had typical duration of three to five years, and at different anniversary date of renewal.

Therefore, the timing of renewal of these long-term O&M contract may create frustration in the O&M backlog. In the past, the corporation has seen a very high level of the renewal rate.

Therefore, management believes that the corporation is well positioned to renewed is important O&M contract and thus present an increase of winning backlog in the next 12 months. It's also important to note that contracts from Hays and GUS.

So the contract in Houston Area are not included in this backlog since most of the contracts are with municipal utility district or MUD. These contracts are generally evergreen and revenue coming from MUD represented approximately 30% of the O&M revenues.

Now, let's look at it on a consolidated basis. Page 14, financial highlights.

On the third quarter, we reported revenues of $39.2 million, compared to $36.1 million for the same quarter last year. It's an increase of 9%.

As explained earlier, this increase is mainly coming from the two acquisitions we did in the last 12 months, so GMP and GUS, as well as the strong performance of WTS business pillar. The gross profit margin ratio stood at 28%, compared to 29% last year.

This decrease in percentage is explained by the business mix with more sales coming from WTS business pillar, WTS and O&M business pillar showed an improvement of gross profit margin and percentage. And it's in line with the corporation strategy to focus on project with higher gross profit margin and capture operational efficiencies in the O&M contract.

SG&A expenses stood at 16.6% compared to 18.8% over revenue, the decrease is driven by lower travel expenses due to COVID and decrease of the U.S. exchange rates compared to the same quarter last year.

Moreover, the corporation had full impact of the 2020 restructuration plan of WTS business pillar, which reduced the SG&A this quarter, and partly offset by the acquisition of GUS and GMP, which increased a little bit with the SG&A. We're very proud to report net earnings as Fred, said for the fourth quarter in a row.

It stood at 2.1 for this third quarter, compared to a net loss last year of 3.1. Last year, we had an impairment that affected our net.

Also this year increase of revenue and lower SG&A ratio helped to improve that net. Also, we had a fair value of gain on a step acquisition of GMP.

I'll just briefly explain that point. When the corporation finalized the acquisition of the remaining 76% of GMP, the reevaluation at fair value of the initial 24% of equity and the risk we had in GMP, before the combination generated a $2.3 million net earning.

So this net earning was unfortunately negatively impacted by a litigation provision we took of $700,000. Again, this quarter, I want to bring your attention on the foreign exchange rate fluctuation between U.S.

and Canadian dollar. Since 70% of our revenues are in USD and are converted into Canadian dollar in our consolidated revenue, then the consolidated revenue are being impacted once we compare them to last year.

For the conversion of revenue and expenses in our foreign subsidiary in Canadian dollar, which is a reporting currency we're using, sorry, when we do the consolidation, we're using an average rate. The Q3 average rate was 1.27 and last rate was 1.34.

This is a difference of [indiscernible] and it had an impact on revenue of $1.3 million. We are seeing the U.S.

CAD continued its downward spiral from Q4 last year. Last year average was 139 for Q4.

Yesterday, the rates was at 119, today is around 120. So we might end up with an average of 123 this quarter.

Each cent of difference is impacting revenue of H2O by $185,000 and the EBITDA by about $40,000. I mentioned this because in the financial model, you have to pay attention to this factor.

As you can see, the impact is essentially on revenue, not that much on EBITDA since we aren't naturally edge because most of our expenses are also in USD. And now let's look at the EBITDA, Page 15, again, third quarter we're really proud to present the slide on adjusted EBITDA, $4.5 million this quarter, which is 11.5% compared to last year was at 10.5%.

It's an increase of 20% compared to last year. This increase of the adjusted EBITDA is driven by the increase in our consolidated revenues and the decrease in SG&A ratio.

Page 16 financial position, the working capital increased by $1.3 million since June 30. All the variation on working cap item are explained by the acquisition of GMP and GUS and the effect of the U.S.

exchange rate doesn't have any impact since receivable – impact on receivable is 1 million on inventory is 200,000 and its effect by 1.2 of impact on the payables. So at the end, it's zero impact over there.

So on that slide, I also want to highlight the level of GUS, which stands at $13 million. And this brings me to the following Slide 17, where we showed the net debt which is very low at $3.3 million.

It’s decrease of $7.2 compared to June 30, the ratio of net debt on adjusted EBITDA is very low at 0.2 compared to 0.84 on June 30. This decrease is mainly due to the cash flow from operating activities and favorable change in working cap items whch will be presented on the next slide.

And by the exercise of warrant, which amounted to $5.2 million during this last quarter. Therefore, we were able to reinforce our bank loans.

So we have no more line of credit used at this point. Page 18, cash flow from operating activities.

This quarter also our cash flow from operating activities were pretty good at $10.2 million for this last quarter compared to 0.9, compared to $900,000 last year. The cash flow generated from operating activities is mainly coming from $6.5 million of favorable change in working cap items.

So this concludes my remarks on a financial section. And I'll now hand the call over back to Frederic Dugre for conclusion remarks.

Thank you, Marc. As a closing remark, I will leave you with this chart on Page 19.

As they say, a picture worth sometimes a thousand words. So I believe this chart illustrates very well, how the company has evolved over the last years and how we have transformed year-over-year our business model and continuously strive to grow our EBITDA to a double-digit number now.

On an LTM basis, our revenues reached $145 million at the end of March 2021, whereas the adjusted EBITDA reached $16.4 million or the equivalent of 11.3% for revenues. The extension on our margins enabled us to generate a sustained $10 million of cash as Marc explained in our operation.

Thanks to our business model, promoting synergies between the different business lines and high recurring sales, we have continued our progression favorably, despite the last thing COVID-19 pandemic. Our resilience and diversified business model allows us to absorb the business fluctuation, notably, the one that Piedmont is currently facing due to the momentarily slowdown in the desalination industry.

We are confident and we are taking steps to regain positive momentum for Piedmont in the coming quarters. Overall, our balance sheet is very healthy and not over leveraged.

Our strong financial position will allow us to reinvest into organic growth opportunities to pursue the development of new products and to continue our acquisition plan. In summary, these results are in line with our three-year plan, which aim at growing the revenues to $250 million and our adjusted EBITDA above 11%.

That concludes our presentation today. I will now turn it back to the operator for the Q&A session.

Thank you.

Good morning and congrats on the strong result. First question for me is a bit more color maybe on capital allocation priority, given your strong balance sheet.

Now you mentioned some organic opportunities and new product developments and acquisitions. Can you go a bit deeper on those three elements and what you're taking of and sort of impact on, I guess, CapEx and your overall financial position from that?

Yes, absolutely. So in terms of CapEx for just to clear this one of for the operation itself of the ongoing business, the CapEx assumptions are not going to change.

We're still using a number which is around 1% or so of the overall revenues. So there's no big change over there that we're expecting for the following fiscal year.

Now indeed, I mean, we couldn't ask for a better timing. We are ending our year, most likely in a very, very strong financial position on June 30.

We are currently preparing our budget, updating our three-year plan. And as we have laid out the focus will be around more product innovation.

So we want to be able to reinvest into growth opportunities. We want to grow our sales organization, essentially.

We need more fees in the ground. We need more people to be able to develop and support the development of these products.

And yes, as we have announced, we still have the targets to now complete three acquisitions of tuck-ins in the next year to meet our three-year plan. We already did one in February, so there's three more to go.

And that's what we intend to do with our current financial situation.

And those acquisitions potentially would be still targeting O&M or a specialty product?

That's it. These are the two areas that we favored.

Perfect. Wanted to ask about inflation, obviously, a common theme with many companies, are you seeing any cost inflation for raw materials or labor?

And if you are, what are some of the things that you can do to offset that and protect margins going forward?

Yes. We're seeing it too.

I have to say, on the labor, I think we have been doing a relatively good job. We have some provision into some of our O&M contracts with CPI adjustments, where it is specified that there is 1% to 2% let's say increase per year.

So this mitigates, also this increase that we're providing to our employees and that we're receiving from our customer. But we are seeing some increase into raw material.

For example, steel, the cost of steel – stainless steel is increased. So all the other related products are also increasing.

And some were able to pass it on to our customer. I mean as it's a cost loss on some projects that we're doing.

So we have some protection there. We have been doing okay, I would say, with the chemicals so far, no important offset on the cost structure of our chemicals.

We do have from, time-to-time, some price increase that we're giving to our customer as well.

Perfect. Thanks for taking the question.

Good morning and thanks for taking my questions. A couple of follow-up – obviously very strong margin performance over the past couple of quarters and it seems like your EBITDA margins are – had exceeded your sort of business plan assumptions of about 11%.

So I'm curious are you in a position right now to make a revise your midterm margins plans? Or do you think the plan would be, as you might've mentioned earlier, Fred, to reinvest into some sales and marketing initiatives to accelerate top line growth, how should we think about the margin progression over the next little while?

Well, margin progression we haven't – we won't change what we have presented in terms of three-year plans. It’s still the same target.

We're shooting at above 11%. At this one, yes, we believe we're slightly ahead of our plan in time.

So that's perfect giving us the leisure now to reinvest again in organic growth. We want to be able to grow the business.

We believe there's tremendous opportunities out there coming from large merger, also just think about Veolia and Suez that merged together. This will certainly create many opportunities on talents that we could recruit.

I think about as Marc explained, and we touch the Biden infrastructure plan. I mean, we want to be in a position to be able to capture as much as we can, any investment that will be done along these lines.

So for us, we need more feet at the ground. So if we're a little bit in advance our preferred not necessarily to change at this point, the targets we have for EBITDA, but we try to reinvest in order to position the company on a very strong basis for organic growth.

Frédéric, thanks for that. Excuse me.

So likewise WTS, obviously, has a nice sequential end year-over-year rebound in terms of revenue performance. Now this has always been the lumpy as business line.

So I'm wondering if you provide some color around how fiscal Q4 the June quarter is sort of shaping up on the WTS side as well. As you look into fiscal 2022, now how should we think about the business line?

You are targeting sort of a percentage of growth for this business line? Are you thinking more, we'd like to maintain a certain dollar amount of revenue and say $30 million to $33 million?

Is that how you guys think about it for WTS?

Well, first within the WTS is, there's a portion that we're growing very aggressively and actively is the service side of the business. So this will remain for the coming quarters.

Again, as I said, we like into our business model is to make sure that once we get the system delivered, we do everything we can to keep this customer. So we put last year in faces to grow the service team which brought back results.

I mean, as I explained, we have been able to grow the number of customers we have in servicing, bringing additional recurring revenue. So moving forward, we still intend to grow more actively the service side of this business.

Now, if you look at the backlog, if you look at the number of projects we have on their engineering phase, everything indicates that at least we should be in a position to somehow replicate what we have done this year in terms of revenues coming out of projects. So I think we're an extremely nice and good position compared to where we were 12 months ago.

Most likely, we will be starting the new fiscal year with a strong visibility and a complete visibility and revenues were going to execute in the coming year coming out of this project, which was very different than last year. So if things comes to worst, I mean, we'll be just replicating what we have done this year.

But again, I mean, we're trying to grow the business. So, as you pointed out, it's the business that is hard to predict, but on the other end, we're starting the year, way better than we were last year with way more visibility in terms of revenue for the coming new fiscal year we are just focused on top of this to growth more actively the service side, which is recurring.

Got you. And then shifting to the Specialty Division in the MD&A you pointed out Piedmont being impacted by a slowdown in construction, in new, large international desalination plants.

I'm curious, what are you sort of seeing in the marketplace right now that gives you a comfort around a pickup of this in over the next call it 12 to 24 months. As you indicated in the MD&A, are you seeing the strength?

Are there any geographic pockets that are showing the strength Middle East? Perhaps any color there would be great.

Yes, so the dissemination market itself did a little pause, I would say, in the last fiscal year, there was so many constructions going in the previous two fiscal years, which Piedmont was able to surf on, let's say. But this year starting and impacted by the COVID suddenly all the large construction in the Middle East kind of slowed down there were in pause a little bit.

We're confident indeed, that this large construction industry desalination market will boom in the next 12 to 14 – 12 to 24 months. So, this is okay.

So, the strategy in the meantime for us is, as we have explained, find new and add more distributors into our distribution ship and expand the product offering. We need to grow and have more production which we are currently working on.

And this will enable us to not only diversify ourself, but tends to prevent margin erosion as well. So, when the desalination markets will bounce up again, we should be in a best position to have to capture a lot, I mean, capture the volume benefits from the productive vacation and have a larger distribution network in place.

Got you. And I just have two questions for Marc.

Marc, first, that increase in the manufacturing capacity in Quebec does that have any near-term impact on gross margins and other specialty or WTS. That's the first question.

Then the second question is do you mind just reviewing your current warrant position given that they'll probably be a nice source of cash for you over the next couple months, I guess?

So, the manufacturing facility expansion will – it's essentially on the Specialty Products [indiscernible] business line. So, I would say it will help to support the growth of this business line.

They've had very important growth this year, and even had to – they were maxed out, so they had ordered, they couldn't deliver because they were capped out. So, this should help to support the growth of this business line.

In terms of WTS, it will reduce as you can see, as Fred explained during the presentation, a lot of projects are now in engineering phase, they will hit the manufacturing floor. So, this will allow us to build house instead of building with third parties, outsource the manufacturing of it.

So may preserve the margin. So I hope it answers your question on that aspect.

And the warrant as of today, half of them have been exercised. So there's been additional two, three million that have been exercised since the end of the quarter.

So, there's a half of the warrant outstanding right now.

Thank you. Thanks for that and congrats on all the progress.

Yes. Thank you.

Thank you again.

Good morning Frederic and Marc. Thanks for taking my call.

Hello, Gerry.

Question for you, you mentioned the Biden's stimulus plan and it even sounded like you expected some revenue coming in the next, we'll say a couple of quarters. Have you seen any material uptick in conversations or planning by any of your customers on that front?

I would say it's still too early to be mentioned that we're seeing it on the tangible. If you look back on what happened in 2008, it took several quarters/years, with the CDS project being developed, because usually they go first into engineering phase, they hire consultants to do either their upgrade or plant expansion and then before the project hit the streets, for construction phase, it usually takes, a good 12 to 18 months.

Okay.

So, I would say Gerry is still a little bit early to see if it's a general trend. I mean, what I like about that is that it's shows the phases that the government is putting towards, the water infrastructure in general.

It shows the need to invest into this area. It shows, and then all the surrounding all the needs that is required to operate in these plans.

So it creates a whole awareness issue around water and wastewater infrastructure maintenance or growth. But it's a little nice to see the results.

Yes, I apologize. I think I misunderstood you on your comments, that’s all.

So, it sounded like there was something a little bit more sooner that's all. But that sort of fits with my expectations is to help us sort of rolls out.

The other thing I want to just – sticking with like the longer-term opportunities, you did mention that food and beverage, on the O&M side in Alberta, is there a longer-term opportunity to go track to some industrial users on that front or even the food and beverage for other areas as opposed to going after municipal players?

We’re trying. We're trying really harder, I mean, believe me it’s the area of focus.

And again, not that we want to neglect the municipal area, because it's an area where we're growing, we have good visibility, but we're taking solid steps, to be more active and go direct to industrial customers. For both the systems, the service, and ultimately the operation and maintenance.

And yes, I mean, this is an area where we're very active and will remain continue to push it hard.

Got it. And then the final question is, this, even though tell us what your comments on reinvesting some capital back, obviously things slowed down with COVID and distributors are a key part of the business plan and revenue expansion.

As we're starting to come out of COVID hopefully, do you have any plans to sort of re-engage, distributors who you used to do some – I don't know if distributor day is the right term…

Yes, meetings with distributors.

Yes. How do we look at that?

And would that – has that been a detriment to some of the growth in the past year, not being able to do that?

Well so far, the good news is that we haven't suffered from this. We have been able to maintain relationship differently.

So this is good. However, we shouldn't take it for granted.

We will have to revisit these customers will have to recreate, this, what will we're successful doing and creating these events, and bringing them together and bringing the culture of H2O, we are what we do and how we're taking care of our customers. This is really, really important for us.

However, I don't think that we're going to travel as we used to. I mean, the world has changed.

We're going to ramp up and see more traveling expenses coming up again. But I'm not sure that we're going to go back to where we were before.

Although there were years where we were doing 48 shows a year, for all the different business lines that we had. I don't think we're going to hit those numbers again, because we're doing things differently now.

I mean, we're using more webinars to stay engaged with our customers, we're doing things differently. But if there was anything, yes, customer, distribution, we're going to have again, these events to bring them together.

Got it. Super helpful.

I appreciate it. Thank you.

Thank you, Gerry.

Well, thank you very much for joining the call. And again, we'll look forward to catching up with you for the presentation of our year-end results in September.

Thank you very much. AMd have a great day.

Bye-bye