November 10, 2009 08:00 ET

H2O Innovation Reports 2010 First Quarter Results-Sales Increasing at $8.4 Million, Consumable Products Representing a Growing Proportion of Total Sales

All amounts in Canadian dollars unless otherwise stated.

QUEBEC CITY, QUEBEC--(Marketwire - Nov. 10, 2009) - H2O Innovation Inc. (TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO)

- Sales increase 51.5% to $8.4 million, up from $5.5 million in fiscal 2009.

- Gross margin up at 29.8%, from 24.4% in fiscal 2009.

- Operating earnings of $48,320, compared to operating loss of ($390,005) in fiscal 2009.

- EBITDA slightly down at ($72,860) compared to $29,927 in fiscal 2009 (including the effects of a mostly unrealized foreign exchange loss).

- Net loss of ($642,688), compared to ($409,271) in fiscal 2009 (including the effects of a mostly unrealized foreign exchange loss).

- Operating activities used $245,232 in cash for the period compared to $49,640 in cash generated in fiscal 2009.

H2O Innovation Inc. ("H2O Innovation" or the "Company")(TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO), a complete water treatment solutions company providing custom designed water treatment systems along with operating and maintenance solutions, announces today its results for the first quarter of fiscal year 2010. During the quarter, H2O Innovation registered solid sales while seeing EBITDA decrease very slightly at ($72,860) (increase at $437,404 when excluding the effect of a mostly unrealized foreign exchange loss).

CONSOLIDATED RESULTS Three-month period ending
(Unaudited) September 30
2009 2008
Sales 8,406,610 5,549,457
Gross margin 29.8% 24.4%
Operating earnings (loss) 48,320 (390,005)
EBITDA (72,860) 29,927
EBITDA excluding unrealized
foreign exchange loss 437,404 120,041
Net loss for the period and
comprehensive results (642,688) (409,271)
Basic and diluted net loss per share (0.012) (0.009)
Cash generated (used) from (by)
operating activities (245,232) 49,640

For the three-month period ended September 30, 2009, sales increased 51.5% to reach $8,406,610 compared to $5,549,457 for the same three-month period ended September 30, 2008. 69% of this increase comes from organic growth; the remaining 31% is related to the acquisition of Professional Water Technologies ("PWT") concluded in June of the previous fiscal year. Including the effect of a non-recurring event realized during the quarter, gross margin amounted to 29.8%, compared to a gross margin of 24.4% for the corresponding quarter of the previous fiscal year. Operating earnings for the quarter were $48,320, compared to an operating loss of ($390,005) for the same period of the previous fiscal year. EBITDA for the quarter was ($72,860), compared to $29,927 for the same period ended September 30, 2008. Excluding unrealized foreign exchange loss, EBITDA for the quarter was $437,404. During the quarter, H2O Innovation recorded a net loss of ($642,688) ($0.012 per share), compared to a net loss of ($409,271) ($0.009 per share) for the corresponding quarter of the previous fiscal year. The sales backlog stood at $22.8 M as at September 30, 2009. The Company's sales backlog is uniquely comprised of systems and equipment sales and does not include sales of services or consumable products.

Before the change in operating working capital, operating activities used $245,232 in cash for the period ended September 30, 2009 compared to $49,640 in cash generated for the comparable period ended September 30, 2008.

"Although the results of the first quarter of fiscal 2010 are somewhat below our expectations due to the economic climate that both slowed down our system sales and increased the U.S. dollar's volatility, the Company has remained solidly committed to following its long term development strategy. As in the previous quarters of this recession, Management has remained focused on long-term growth and has taken actions to maximize the Company's results and generate sustained value for shareholders. One of these actions has been to accelerate the efforts initiated in fiscal 2009 to increase the proportion of revenues derived by the sale of services and consumable products. This proactive and strategic action has been taken to reduce the business risk of over-reliance on the sale of equipments and systems-which are somewhat less predictable in nature-and to maintain a healthy gross margin" stated Frederic Dugre, President and CEO of H2O Innovation Inc.


Sales of services and consumable products represent a growing proportion of total sales

For the quarter, sales of services and consumable products (water additives, membrane cleaners, replacement parts, membranes, cartridges) amounted to $2,3 M, representing 27% of H2O Innovation's total sales for the quarter, compared to 18% at 2009 fiscal year end. Management has stated its mid-term objective to see sales of services and consumable products represent 30% of the Company's total revenue and actions were undertaken during the quarter-as in the previous ones-to reach this goal.

Integration of PWT progressing as planned

The first quarter of the 2010 fiscal year was also marked by the beginning of the integration of PWT, acquired in June 2009. Management finds the integration to be going along as planned and to have started to show the first signs of its potential. Already, PWT's strong brand name and long standing customer relationships, coupled with H2O Innovation's client base and organizational support, have helped secure new customers and repeat orders while cementing existing client relationships. More noticeably during the period, PWT made promising forays in additional industrial sectors in Mexico-where it has been active for numerous years-by signing new customers. It also signed its first contract to supply water additives for membrane filtration systems in Ecuador, a first in this market for PWT.

Increasing market presence

The combined presence of H2O Innovation and PWT has made itself felt more significantly in the global water treatment industry. H2O Innovation has collected numerous mentions in leading trade publications during the quarter and, shortly following the quarter's end, has participated in two of the premiere trade shows of the industry, WEFTEC.09 in Orlando, Florida and IDA World Congress 2009 on Desalination and Water Reuse in Dubai, UAE.

"H2O Innovation is committed to progressively increase its international activities by seeking additional overseas sales of systems while penetrating new countries with consumable products. With the addition of PWT's sales-which are mostly international-H2O Innovation is now recording close to 10% of its sales outside North America, significantly more than the one percent level recorded in fiscal 2009. We also remain on the look-out for potential acquisitions or strategic partnerships" concluded Frederic Dugre.

The first quarter financial report is available on the Company's Website (www.h2oinnovation.com) and on Alternext's site (www.alternext.fr). Additional information on the Company is also available on SEDAR (www.sedar.com).

Conference call and webcast

H2O Innovation will hold a conference call today Tuesday November 10, 2009 at 10 A.M. (Eastern time) to review the financial results for the first quarter. The call will begin with a presentation by Frederic Dugre, President and Chief Executive Officer of H2O Innovation, and Annie Lemieux, Chief Financial Officer of H2O Innovation. A question-and-answer period will follow. A slide presentation intended for simultaneous viewing during the call will be available this morning on the Financial Reports and Webcasts page of the Investors section of the Company's website.

Shareholders, analysts and institutional investors are invited to participate. The numbers to dial for access are 514-392-1478 (Montreal area) or the North American toll-free number 1-866-225-6564. International participants are invited to dial +1 514-392-1478.

Media representatives and other interested parties may participate in listen only mode or may listen to the live webcast of the conference call (audio and slides) accessible through H2O Innovation's website at www.h2oinnovation.com. The webcast will remain available for replay on the Company's website for 90 days in the Investors section.

Prospective disclosures

This press release may contain prospective disclosures representing current expectations of H2O Innovation and are subject to certain risks and uncertainties. For details of these risks and uncertainties please refer to the Company's Annual Information Form dated September 28, 2009 available on SEDAR (www.sedar.com). H2O Innovation rejects any obligation to revise or update the prospective disclosures contained in this press release.

About H2O Innovation

Exclusively dedicated to water treatment, H2O Innovation is establishing itself as a key player in sustainable development and the field of clean technologies. H2O Innovation designs, develops, produces, and integrates state-of-the-art custom-built water treatment systems for the production of drinking water, the reclamation of water, the treatment of wastewater and industrial process water in the municipal, commercial, industrial, mining, and energy markets. Additionally, the Company offers complete operating and maintenance solutions for membrane filtration and reverse osmosis systems. H2O Innovation has approximately 100 employees and eight offices including three manufacturing and assembly plants in Canada and the United States. Shares of H2O Innovation are listed on the TSX Venture Exchange (HEO) as well as on the NYSE Euronext Alternext Exchange (MNEMO:ALHEO). For more information about H2O Innovation, visit the Company's website at www.h2oinnovation.com

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) nor the Alternext Exchange accepts responsibility for the adequacy or accuracy of this release.

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