Mr. Marc Blanchet reports

RECORD HIGH FINANCIAL RESULTS FOR H2O INNOVATION, THE WATER TECHNOLOGY COMPANY OF THE YEAR: ADJUSTED EBITDA GROWS FASTER THAN REVENUES

H2O Innovation Inc. has released its results for the third quarter ended March 31, 2016. During this quarter, the corporation's revenues increased by 17.1 per cent to $14.2-million, up from revenues of $12.1-million for the same quarter of fiscal year 2015, generating a gross profit margin of 31.8 per cent. "The outstanding financial results presented quarter over quarter proves the scalability of our business model and the value created by our proprietary technologies. Moreover, being voted 'water technology company of the year,' [in] a worldwide competition against the largest companies in the world, is the testimonial of our constant innovation and thrive for an improved customer experience, through creativity, entrepreneurship and expertise," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

Key highlights

• Revenues reached $14.2-million for the period, compared with $12.1-million for the same period in fiscal year 2015;
• Net earnings of $646,422, compared with net earnings of $150,490 for the same period in fiscal year 2015;
• Gross profit margin at 31.8 per cent, compared with 32.1 per cent for the same period of fiscal year 2015;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at $1,245,324, compared with $897,846 for the same period in fiscal year 2015;
• Ratio of adjusted EBITDA over revenues reached 8.8 per cent, a significant increase compared with 7.4 per cent for the comparable period of fiscal year 2015;
• Solid order backlog for water treatment projects at $42.1-million as at April 28, 2016;
• Integration of Clearlogx during the quarter, aimed at strengthening the business sector dedicated to water treatment systems.

The ratio of adjusted EBITDA over revenues also increased from 7.4 per cent for the three-month period ended March 31, 2015, to 8.8 per cent for the comparable period ended March 31, 2016. This notable improvement of the company's adjusted EBITDA over revenues is fuelled by the impressive organic growth of the company's specialty products and services business line and the sound cost management in the company's water treatment projects business line. The business mix between projects and specialty products and services business line is allowing the company to gain predictability in its business model, to secure long-term relationship with customers and to maintain high gross profit. The investments done in the past to support the growth of the corporation are now paying off, as the company is currently seeing an improvement of its gross profit generated by the operations.

The significant revenues level achieved during the quarter is mostly derived from the increase of revenues from the specialty products and services business, which reached 66.3 per cent of the revenues of the quarter, compared with 53.6 per cent for the comparable quarter of the previous fiscal year. Specialty products and services revenues reached the record high level of $9.4-million, compared with $6.5-million in the comparable quarter of the previous fiscal year. This strong increase is the result of the investment made in the sales efforts and the investment made in the development of new proprietary technologies such as the Smartrek, Clearlogx or SPMC, which boosted revenues up, along with the gross profit. The company's proprietary technologies allowed it to differentiate itself from its competitors and also allowed the recent winning of the water technology company of the year awarded by Global Water Intelligence (GWI), a United Kingdom-based international organism, announced on April 20, 2016.

Revenues from water treatment projects decreased to $4.8-million compared with $5.6-million in the corresponding period of the previous fiscal year, representing a 15-per-cent decrease. The decrease in revenues from water treatment projects, despite the increasing backlog, is not unusual since revenues from projects vary from quarter to quarter and depend on the different milestones reached for revenue recognition.

In this third quarter of fiscal year 2016, the corporation generated a 31.8-per-cent gross profit before depreciation and amortization, a level somewhat stable compared with the 32.1-per-cent gross profit before depreciation and amortization generated in the third quarter of fiscal year 2015. The revenue mix in this quarter shows that revenues from specialty products and services represent a significant proportion of total revenues compared with the corresponding period of the previous fiscal year (66.3 per cent in fiscal year 2016 versus 53.6 per cent in fiscal year 2015), affecting positively the company's gross profit margin. The constant efforts deployed on improving the execution and the procurement for the company's water treatment projects business line are also paying off, contributing positively to the gross profit margin.

             CONSOLIDATED RESULTS -- SELECTED FINANCIAL DATA

                                 Three-month period         Nine-month period
                                  ended on March 31,        ended on March 31,
                                  2016         2015         2016         2015                               

Revenues                   $14,199,860  $12,121,641  $39,624,778  $37,029,832
Gross profit before
depreciation and
amortization                 4,522,640    3,887,460   11,853,728   10,091,943
Gross profit margin              31.8%        32.1%        29.9%        27.3%
Operating expenses             356,160      281,771    1,009,026      715,074
Selling expenses             1,679,681    1,293,880    4,648,798    3,269,523
Administrative expenses      1,289,659    1,347,761    3,521,379    3,461,590
Research and development
expenses -- net                 24,126       78,344      144,300      167,768
Net earnings                   646,422      150,490      872,972      550,601
Basic and diluted
earnings per share               0.031        0.007        0.042        0.026
Adjusted EBITDA              1,245,324      897,846    2,717,600    2,498,648
Adjusted EBITDA over
revenues                          8.8%         7.4%         6.9%         6.7%

The corporation secured $5.5-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 and the significant weakening of the Canadian dollar compared with the U.S. dollar, have brought up the backlog at $42.1-million as at March 31, 2016, compared with $40.4-million as at March 31, 2015. This level of order backlog gives the corporation a fairly good perspective over the coming quarters in terms of volume of revenues. The company's team has demonstrated that it can manage the execution challenge that comes with such large order backlog, and the company has structured the organization in order to achieve even more.

The corporation's ratio of selling, operating and administrative expenses as a whole over revenues amounted to 23.4 per cent for this quarter, down from 24.1 per cent for the corresponding quarter of the previous fiscal year. This decrease is mostly attributable to the bad debt written off in fiscal year 2015. Considering the improvement of the gross profit margin in the last quarters derived from the growth of the specialty products and services business line, management considers that the selling, operating and administrative ratio is adequate. Over the last quarters, selling, operating and administrative investment have paid off since the company has been able to generate constant growth.

Adjusted EBITDA for the quarter was recorded at $1,245,324, compared with $897,846 for the same period ended March 31, 2015, representing a ratio of 8.8 per cent of adjusted EBITDA over revenues for this quarter compared with a ratio of 7.4 per cent for the same quarter of the previous fiscal year. This 38.7-per-cent increase in adjusted EBITDA demonstrates the company's operational efficiency and the improvement and scalability of the company's business model over the last year. Indeed, once the corporation's fixed costs are covered, the gross profit will directly impact the adjusted EBITDA. During the third quarter of fiscal year 2016, the adjusted EBITDA increased twice as fast as revenues: 38.7-per-cent increase of adjusted EBITDA compared with fiscal year 2015 third quarter, while revenues increased by 17.1 per cent. On a last-12-months basis, this increase is even more significant. Adjusted EBITDA increase is more than three times than revenues increase: 45.7-per-cent increase for adjusted EBITDA compared with a 14.2-per-cent increase for revenues on a last-12-months basis. Therefore, volume of revenues matters, as well as a sound cost management.

The net earnings amounted to $646,422, or 3.1 cents per share, for the third quarter of fiscal year 2016, compared with $150,490, or 0.7 cent per share, for the third quarter of fiscal year 2015. The increase in net earnings is the result of a growth of revenues and an improved level of gross profit before depreciation and amortization.

Operating activities used $318,078 in cash for the three-month period ended March 31, 2016, compared with $1,392,269 of cash generated during the corresponding period ended March 31, 2015. The variation is mainly attributable to the change in working capital items and the unrealized exchange loss on the long-term debt contracted during the period, subdued by the increased of earnings before income taxes for the period.

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

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