Mr. Marc Blanchet reports

H2O INNOVATION REPORTS FISCAL 2016 FIRST QUARTER RESULTS - CORPORATION RECORDS NET EARNINGS AND POSITIVE ADJUSTED EBITDA

H2O Innovation Inc. has provided its results for the first quarter of fiscal year 2016 ended Sept. 30, 2015. During this quarter, the corporation's revenues increased by 9.3 per cent to $12.3-million, up from $11.2-million in the comparable quarter of the previous fiscal year -- generating a gross profit of 26.1 per cent compared with 27.0 per cent in the first quarter of fiscal year 2015. The corporation maintained a positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the first quarter ended Sept. 30, 2015. The order backlog for water treatment projects stands at $44.3-million as at Nov. 5, 2015.

Revenues for the first quarter of fiscal year 2016 totalled $12.3-million, representing a $1.1-million or 9.3-per-cent increase, as compared with revenues of $11.2-million for the same quarter of fiscal year 2015. Revenues from water treatment projects were somewhat stable and reached $7.2-million compared with $7.3-million in the corresponding period of the previous fiscal year, representing a 1-per-cent decrease. The revenues level maintained during the quarter is a reflection of the numerous water treatment projects composing the company's order backlog, which are reaching different milestones, from initial design and engineering phases to higher revenue-generating phases such as manufacturing.

The increase of revenues from projects has been accompanied by an increase of revenues from sales of specialty products and services (SP&S) which reached $5.1-million in this quarter compared with $3.9-million in the comparable quarter of the previous fiscal year. "This strong increase of 29.0 per cent in SP&S revenues is the direct result of investments made during the last year in our operating and selling functions to support the growth of this business line," stated Frederic Dugre, president and chief executive officer of H2O Innovation. For the corporation, it is still a constant priority to continue to grow the specialty products and services business.

In this first quarter of fiscal year 2016, the corporation generated a 26.1-per-cent gross profit before depreciation and amortization, a lower level than the 27.0-per-cent gross profit before depreciation and amortization generated in the first quarter of fiscal year 2015. The revenue mix in this quarter shows that revenues from SP&S still represent a fair proportion of total revenues compared with the corresponding period of the previous fiscal year (41.2 per cent in fiscal year 2016 versus 35.1 per cent in fiscal year 2015). However, even though the volume of SP&S sales increased by additional maple syrup production equipment sales during the first quarter of fiscal year 2016, the corporation has recorded punctually a lower level of sales of specialty chemicals compared with the corresponding period of the previous fiscal year, creating pressure on the gross margin.

                            CONSOLIDATED RESULTS
                           Selected financial data                       

                                                  Three-month period ended on Sept. 30,
                                                        2015                      2014                      

Revenues                                            $12,259,328               $11,219,131                
Gross profit before depreciation and amortization     3,204,486                 3,032,951                 
Gross profit before depreciation and amortization         26.1%                     27.0%                     
Operating expenses                                      333,980                   200,486                   
Selling expenses                                      1,357,733                   906,289                   
Administrative expenses                               1,043,551                   987,796                   
Research and development expenses -- net                 84,564                    39,922                    
Net earnings                                             52,329                   282,587                   
Basic and diluted earnings per share                      0.003                     0.014                     
Adjusted EBITDA                                         441,669                   900,781                   

The corporation secured $9.0-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 $38.3-million as at Sept. 30, 2015, compared with $36.1-million as at Sept. 30, 2014. "We have never been exposed to so many opportunities of water treatment projects sales. In order to face this upcoming array of bidding opportunities, we have invested in [selling, operating and administrative] expenses, which proved to be a winning move, as the order backlog reached $44.3-million as at Nov. 5, 2015," added Frederic Dugre. "Our team has demonstrated that we can manage the execution challenge that comes with such large order backlog and we are confident that our team is able to achieve even more."

The corporation's ratio of selling, operating and administrative expenses (SG&A) as a whole over revenues amounted to 22.3 per cent for this quarter, up from 18.7 per cent for the corresponding quarter of the previous fiscal year. This increase is mostly attributable to the distributors' event held in August. Management aims to keep the annual average SG&A ratio around 20 per cent through a tight management of SG&A expenses and an increase in revenues.

Adjusted EBITDA for the quarter was recorded at $441,669, compared with $900,781 for the same period ended Sept. 30, 2014. The lower net earnings recorded during the quarter compared with the net earnings for the corresponding quarter of the previous fiscal year and the adjustment for the gain on the purchase price adjustment for the Piedmont's transaction caused the decrease in adjusted EBITDA.

The net earnings amounted to $52,329 or 0.3 cent per share for the first quarter of fiscal 2016 compared with $282,587 or 1.4 cents per share for the first quarter of fiscal 2015. The decrease in net earnings is partly due to the distributor event, which is held every two years, and to a higher level of SG&A expenses, aimed to support the constant growth of the corporation.

Operating activities used $227,303 in cash for the period ended Sept. 30, 2015, compared with $411,225 of cash generated during the corresponding period ended Sept. 30, 2014. The decline is mainly attributable to the decrease in net earnings before income taxes in the first quarter of fiscal year 2016 and to the gain on purchase price adjustment on the Piedmont's transaction.

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

(1) The definition of adjusted earnings before interest, tax depreciation and amortization (adjusted EBITDA) does not take into account the corporation's finance costs -- net, stock-based compensation costs, gain on purchase price adjustment and unrealized exchange loss. The reader can establish the link between adjusted EBITDA and net earnings. The definition of adjusted EBITDA used by the corporation may differ from those used by other companies.

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