Mr. Frederic Dugre reports

RECORD-HIGH REVENUES AND EARNINGS AFTER NINE-MONTH IN FY2015

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

Results for the three-month period ended March 31, 2015:

• Revenues of $12.1-million, up by 23.4 per cent from $9.8-million for the same period in fiscal year 2014;
• Gross profit before depreciation and amortization up by $1,205,000 at 32.1 per cent, compared with 27.3 per cent for the same period in fiscal year 2014;
• Adjusted earnings before interest, taxes, depreciation and amortization at $712,652, compared with $299,122 in the previous fiscal year;
• Operating, selling and administrative expenses at 24.1 per cent of revenues, up compared with 23.2 per cent for the same period in fiscal year 2014, impacted by non-recurring expenses of $230,862;
• Net earnings of $150,490, up compared with a net loss of $216,314 for the same period in fiscal 2014;
• Order backlog for water treatment projects stood at $40.4-million as at March 31, 2015, compared with $23.5-million a year ago.

Results for the nine-month period ended March 31, 2015:

• Revenues of $37.0-million, up by 37.5 per cent from $26.9-million for the same nine-month period in the previous fiscal year;
• Gross profit before depreciation and amortization up by $2,959,000 at 27.3 per cent, compared with 26.5 per cent for the same nine-month period in fiscal year 2014;
• Adjusted EBITDA at $2,127,503 compared with $278,613 for the same nine-month period in fiscal year 2014;
• Operating, selling and administrative expenses at 20.1 per cent of revenues, compared with 24.6 per cent for the same nine-month period in fiscal year 2014;
• Net earnings of $550,601, compared with a net loss of $1,186,889 for the same nine-month period in fiscal year 2014.

During this quarter, the company's revenues increased by 23.4 per cent to $12.1-million, up from $9.8-million in the comparable quarter of the previous fiscal year, generating a gross profit before depreciation and amortization up by $1,205,000 at 32.1 per cent compared with 27.3 per cent in the third quarter of fiscal year 2014. "We are presenting cumulated record-high revenues and sustained profits, after only nine months! Achieving such high growth shows that our business model is scalable. That being said, we are still expecting growth from organic activities and envision accelerating it with targeted acquisitions. As a disciplined acquirer and experienced integrator, we have built a solid platform to rapidly leverage a targeted company in synergies with our business activities," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

Revenues for the third quarter of fiscal year 2015 totalled $12.1-million, representing a $2.3-million, or 23.4 per cent, increase, as compared with revenues of $9.8-million for the same quarter of fiscal year 2014. The substantial increase is largely attributable to revenues from projects which reached $5.6-million compared with $4.4-million in the corresponding period of the previous fiscal year, representing a 26.1-per-cent increase. During the third quarter of fiscal year 2015, the company has completed the production phase of a large industrial project and new projects have reached the production phase, which have now triggered revenue recognition and invoicing related to delivery milestone. This high level of revenues was expected as the company started the current fiscal year with a record-high order backlog of $38.3-million as of July 1, 2014.

The increase of revenues from projects has been accompanied by an increase of revenues from sales of specialty products and services which reached $6.5-million in this quarter compared with $5.4-million in the comparable quarter of the previous fiscal year. This 21.1-per-cent increase is in part the result of Piedmont's integration since its acquisition in December, 2013. In addition, the company has increased its market share in United States for maple syrup production equipment and products. 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. On a last-12-month basis, revenues from specialty products and services have increased by 27.6 per cent and have reached $19.9-million, a result of the continuous focus to grow this business segment and maximise customer retention. As these revenues are recurring in nature, and through multiple initiatives, the company has solidified its business model.

In this third quarter of fiscal year 2015, the company was able to generate a 32.1-per-cent gross profit before depreciation and amortization, a level higher than the 27.3-per-cent gross profit before depreciation and amortization generated in the third quarter of fiscal year 2014. During the third quarter of fiscal year 2015, the company agreed to terminate a contract with a customer under certain terms agreed upon. This cancellation has impacted positively the company's gross profit during the quarter. The revenue mix in this quarter shows that revenues from specialty products and services still represent a fair proportion of total revenues compared with the corresponding period of the previous fiscal year (53.6 per cent in fiscal year 2015 versus 54.6 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 and also fuelled by the organic growth of the other business lines, which helped stabilized the company's gross profit before depreciation and amortization.

                                                                                                                                            
                                    SELECTED FINANCIAL DATA   
    
                                                                Three-month period ended March 31,
                                                                      2015                   2014

Revenues                                                      $ 12,121,641            $ 9,826,466
Gross profit before depreciation and amortization                3,887,460              2,682,096
Gross profit before depreciation and amortization                    32.1%                  27.3%
Operating expenses                                                 281,771                253,535
Selling expenses                                                 1,293,880              1,053,254
Administrative expenses                                          1,347,761                972,410
Research and development expenses  net                              78,344                 51,197
Net earnings (loss)                                                150,490               (216,314)
Basic and diluted earnings (loss) per share                          0.007                 (0.010)
Adjusted EBITDA                                                    712,652                299,122

The company secured $16.4-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 up the backlog at $40.4-million as at March 31, 2015, compared with $23.5-million as at March 31, 2014. This level of order backlog gives the company a fairly good perspective over the coming quarters in terms of volume of revenues. Over the last four quarters, the company was able to maintain the pace and execute its large backlog, showing that the company can scale up significantly its water treatment projects activities. The company's bookings-over-revenues ratio for projects have increased to 2.9 this quarter compared with 2.4 for the corresponding quarter of fiscal year 2014, even though the revenues from water treatment projects increased significantly.

The company's ratio of selling, operating and administrative expenses (SG&A) over revenues amounted to 24.1 per cent for this quarter, up from 23.2 per cent for the corresponding quarter of the previous fiscal year. This increase is attributable notably to the non-recurring administrative expenses of $230,862. Without these non-recurring expenses, the ratio would have been 22.2 per cent, below the ratio from last year corresponding period. Management is still convinced that focused investments in SG&A expenses are a trigger to generate higher level of revenues. The company aims to keep the SG&A ratio to a level of 20 per cent through a tight monitoring of SG&A expenses and an increase in revenues, which was nearly achieved with 20.1 per cent for the nine-month period ended March 31, 2015.

Adjusted EBITDA for the quarter was recorded at $712,652, compared with $299,122 for the same period ended March 31, 2014. The higher revenues recorded during the quarter compared with the corresponding quarter of the previous fiscal year contributed to a higher adjusted EBITDA level.

The net earnings were $150,490, or 0.7 cent per share, for the third quarter of fiscal 2015 compared with a loss of $216,314, or one cent per share, for the same quarter of fiscal 2014. This improvement is primarily due to higher revenues and an improved gross profit before depreciation and amortization of 32.1 per cent.

Operating activities generated $1,392,269 in cash for the period ended March 31, 2015, compared with $298,938 of cash used during the corresponding period ended March 31, 2014. The increase is mainly attributable to the change in working capital items and the improvement in net earnings in the third quarter of fiscal year 2015.

Over the nine-month period ended March 31, 2015, the company's revenues totalled $37.0-million, compared with $26.9-million for the corresponding period ended March 31, 2014, showing an increase of 37.5 per cent. During this same period, the company recorded net earnings amounting to $550,601 and a positive adjusted EBITDA of $2,127,502, compared with a net loss of $1,186,889 and an adjusted EBITDA of $278,613 for the corresponding period of fiscal year 2014. For the nine-month period ended March 31, 2015, the company generated $1,253,573 of cash flows from its operating activities, compared with $2,816,771 used by its operating activities for the corresponding period of fiscal year 2014.

The third quarter financial report is available on the company's website. Additional information on the company is also available on SEDAR.

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