Mr. Marc Blanchet reports

H2O INNOVATION REPORTS FISCAL 2015 FIRST QUARTER RESULTS; COMPANY RECORDS NET EARNINGS AND STRONG ADJUSTED EBITDA

H2O Innovation Inc. has released its results for the first quarter of fiscal year 2015.

Highlights:

• Revenues of $11.2-million, up by 35.0 per cent from $8.3-million for the same period in fiscal year 2014;
• Gross profit before depreciation and amortization increased at 27.0 per cent, compared with 25.8 per cent for the same period in fiscal year 2014;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at $809,827, compared with $69,670 for the same period in fiscal year 2014;
• Operating, selling and administrative expenses at 18.7 per cent of revenues, down compared with 24.9 per cent for the same period in fiscal year 2014;
• Net earnings of $282,587, up compared with a net loss of $469,994 for the same period in fiscal 2014;
• Order backlog for water treatment projects stands at $36.1-million as at Sept. 30, 2014, supported by $5.1-million of new bookings.

During this quarter, the company's revenues increased by 35.0 per cent to $11.2-million, up from $8.3-million in the comparable quarter of the previous fiscal year -- generating a gross profit of 27.0 per cent compared with 25.8 per cent in the first quarter of fiscal year 2014. The company returned to positive adjusted EBITDA this quarter after one quarter of negative adjusted EBITDA for the fourth quarter ended June 30, 2014. The order backlog for water treatment projects is still solid at $36.1-million as at Sept. 30, 2014, compared with $12.4-million a year ago. "The results of our first quarter of fiscal year 2014 demonstrates the reliability of our business model which is now better supported by the enhancement of our specialty products and services offering and by sufficient revenues from projects, contributing to better gross profit," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

Revenues for the first quarter of fiscal year 2015 totalled $11.2-million, representing a $2.9-million or 35.0-per-cent increase, as compared with revenues of $8.3-million for the same quarter of fiscal year 2014. The substantial increase is largely attributable to revenues from projects which reached $7.3-million compared with $5.1-million in the corresponding period of the previous fiscal year, representing a 42.8-per-cent increase. During the first quarter of fiscal year 2015, several large municipal and industrial projects entered production phase and reached invoicing milestones, contributing to higher invoicing converted into revenues during that period. For the last four quarters, the company has aimed its efforts to increase its order backlog which reached its highest level ever -- at $38.3-million as the company started this fiscal year. "The investments done in growing our sales force are now paying off," added Mr. Dugre. The revenues level achieved during the quarter is a reflection of the projects composing the company's order backlog, which are moving from their initial design and engineering phases to the higher revenue-generating phase as the company progresses in fiscal year.

The increase of revenues from projects has been accompanied by an increase of revenues from sales of specialty products and services which reached $3.9-million in this quarter compared with $3.2-million in the comparable quarter of the previous fiscal year. This 22.6-per-cent increase is in part the result of the company's integration of Piedmont activities acquired last December. These revenues are recurring in nature. The company's efforts deployed throughout last fiscal year to enlarge its specialty chemicals distributors' network have also contributed to increase revenues from sales of specialty products and services. For the company, it is still a constant priority to continue to grow the specialty products and services business.

In this first quarter of fiscal year 2015, the company was able to generate a 27.0-per-cent gross profit before depreciation and amortization, a level higher than the 25.8-per-cent gross profit before depreciation and amortization generated in the first quarter of fiscal year 2014. The revenue mix in this quarter shows that revenues from specialty products and services still represent a significant proportion of total revenues compared with the corresponding period of the previous fiscal year (35.1 per cent in fiscal year 2015 versus 38.6 per cent in fiscal year 2014), even though the volume of revenues has increased substantially. This sustained proportion of revenues derived from specialty products and services is partly explainable by the acquisition of Piedmont, which activities also helped stabilized the company's gross profit before depreciation and amortization.

                                                                    
                                 CONSOLIDATED RESULTS
                                                        Three-month period ended Sept. 30,
                                                          2014                       2013                     

Revenues                                          $ 11,219,131               $  8,311,219                
Gross profit before depreciation and amortization    3,032,951                  2,141 991                
Operating expenses                                     200,486                    182,586                  
Selling expenses                                       906,289                    966,669                  
Administrative expenses                                987,796                    919,063                  
Research and development expenses -- net                39,922                     43,407                   
                                                  -------------              -------------
Net earnings (loss)                               $    282,587               $   (469,994)
                                                  =============              =============                
Basic and diluted earnings (loss) per share              0.003                     (0.008)                  
Adjusted EBITDA                                        809,827                     69,670                   

The company secured $5.1-million in new bookings for water treatment projects over the quarter. These new bookings, combined with the realized revenues from water treatment projects during the quarter, have brought the order backlog for water treatment projects to $36.1-million as at Sept. 30, 2014, which is significantly more than $12.4-million as at Sept. 30, 2013. "This level of order backlog gives the company a fairly good visibility over the coming quarters in terms of volume of revenues," added Mr. Dugre. Surely, this large order backlog represents an execution challenge for the company but H2O is convinced that its people are ready and able to take it up. The company's bookings over revenue ratio for projects have remained stable at to 0.7 this quarter compared with the corresponding quarter of fiscal year 2014 even though the revenues from water treatment projects have increased significantly.

The company's ratio of selling, operating and administrative expenses as a whole over revenues amounted to 18.7 per cent for this quarter, down from 24.9 per cent for the corresponding quarter of the previous fiscal year. This decrease is largely attributable to the enhancement in volume of water treatment projects business and improvement in volume of sales from specialty products and consumables and due to a similar level of SG&A expenses. Management aims to keep the SG&A ratio to a level under 20 per cent through a tight management of SG&A expenses and an increase in revenues.

Adjusted EBITDA for the quarter was recorded at $809,827, compared with $69,670 for the same period ended Sept. 30, 2013. The higher revenues recorded during the quarter compared with the corresponding quarter of the previous fiscal year and the similar SG&A expenses also contributed to generating higher adjusted EBITDA. The company returned to positive adjusted EBITDA this quarter after one quarter of negative adjusted EBITDA for the fourth quarter ended June 30, 2014. Net earnings were $282,587 or 0.3 cent per share for the first quarter of fiscal 2015 compared with a loss of $469,994 or 0.8 cent per share for the first quarter of fiscal 2014. This improvement is primarily due to higher revenues, to an improved gross profit of 27.0 per cent and to a similar level of SG&A expenses. Operating activities generated $411,225 in cash for the period ended Sept. 30, 2014, compared with $494,483 of cash generated during the corresponding period ended Sept. 30, 2013. The decline is mainly attributable to the change in working capital items and is softened by improvement in net earnings in the first quarter of fiscal year 2015.

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