H2O INNOVATION INC.
TSX VENTURE : HEO
ALTERNEX : ALHEO

H2O INNOVATION INC.

May 13, 2009 08:00 ET

H2O Innovation Reports 2009 Third Quarter Results: Sales of $8,797,872 and Net Income of $684,423

QUEBEC CITY, QUEBEC--(Marketwire - May 13, 2009) - H2O Innovation Inc. (TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO)

- Sales of $8,797,872, up from $2,807,212 in 2008.

- Gross margin up to 26.4%, from 22.3% in 2008.

- EBITDA increases to $1,180,650 compared to ($315,101) in 2008.

- Net income of $684,423, compared to a net loss of $454,959 in 2008.

- Operating activities generated $654,773 in cash for the period compared to a $189,072 use of cash in 2008.

H2O Innovation Inc. ("H2O Innovation" or the "Company") announces its third quarter results for fiscal year 2009. H2O Innovation's sales continued their growth during this period, and both a gross margin topping 25% and a net income were recorded for a second consecutive quarter.



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CONSOLIDATED RESULTS Three-month period Nine-month period
(Unaudited) ending March 31 ending March 31
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2009 2008 2009 2008
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$CAD $CAD $CAD $CAD
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Sales 8,797,872 2,807,212 23,893,338 7,139,589
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Gross margin 2,321,069 625,131 6,115,663 1,548,804
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Gross margin 26.4% 22.3% 25.6% 21.7%
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EBITDA 1,180,650 (315,101) 2,417,343 (1,797,567)
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Net income (loss) for
the period and
comprehensive results 684,423 (454,959) 1,002,300 (2,181,634)
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Basic and diluted net
income (loss) per share 0.014 (0.012) 0.021 (0.060)
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Cash generated from
operating activities 654,773 (189,072) 1,435,584 (1,484,748)
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For the three-month period ended March 31, 2009, sales increased significantly to reach $8,797,872 compared to $2,807,212 for the same three-month period ended March 31, 2008. 57.4% of this increase comes from organic growth; the remaining 42.6% is related to acquisitions. Gross margin amounted to 26.4%, compared to a gross margin of 22.3% for the corresponding quarter of the previous fiscal year, which represents an 18.4% increase. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the quarter was $1,180,650, compared to ($315,101) for the same period ended March 31, 2008. During the quarter, H2O Innovation recorded a net income of $684,423 ($0.014 per share), compared to a net loss of $454,959 ($0.012 per share) for the corresponding quarter of 2008. This is the second consecutive quarter in which H2O Innovation records net income. The sales backlog stood at $22.9 M as at March 31, 2009.

Before the change in operating working capital, operating activities generated $654,773 in cash for the period ended March 31, 2009 compared to a $189,072 use of cash for the comparable period ended March 31, 2008.

"We are very satisfied with H2O Innovation's financial results for the third quarter of fiscal 2009. These results continued the trend begun at the start of fiscal 2009 and build on the performance of the first and second quarters. Sales continued at healthy levels, and our appreciable sales backlog-despite the current economic situation-is the result of the healthy diversification of markets, applications, and regions in which the Company is active. Additional gains in operational efficiency in the project execution process helped us maintain a gross margin of over 25% for the second consecutive quarter." stated Frederic Dugre, President and CEO.

For the nine-month period ended March 31, 2009, sales reached $23,893,338 compared to $7,139,589 for the comparable nine-month period ended March 31, 2008. Gross margin has also noticeably increased to 25.6% for the first nine months of 2009, up from 21.7% for the corresponding nine months of 2008, representing an 18.0% increase. EBITDA for the nine-month period ended March 31, 2008 was $2,417,343, compared to a $1,797,567 loss before interest, taxes, depreciation and amortization for the same period ended March 31, 2008. The Company recorded a net income of $1,002,300 ($0.021 per share) for the first nine months of 2009, compared to a net loss of $2,181,634 ($0.060 per share) for the same nine-month period of 2008.

Before the change in operating working capital, operating activities generated $1,435,584 in cash for the nine-month period ended March 31, 2009 compared to a $1,484,748 use of cash for the comparable period ended March 31, 2008.

RECENT HIGHLIGHTS

Sales of services and consumable products remain strong

During the quarter, sales of services and consumable products (replacement parts, membranes, cartridges, conditioners, cleaning products and services) continued at a sustained level, making a positive contribution to quarterly results. Sales of services and consumable products, which totaled $1,639,774 in the third quarter, helped lift overall sales of services and consumable products to over $4 M in the first nine months of 2009. The company-wide efforts made in the first three quarters of the fiscal year will be sustained to better ensure that sales of services and consumable products represent a growing share of the Company's overall sales.

New contracts signed in municipal and industrial markets

On March 17, 2009, H2O Innovation announced it has been awarded four new drinking water treatment and wastewater treatment systems contracts in the United States and Canada totalling $5.1 M. Subsequently to the end of the quarter, the Company has also announced-on April 27, 2009-that it had signed several contracts totaling $5 M to design, manufacture and deliver reverse osmosis industrial process water treatment systems to companies in the energy, power generation and consumer staples sectors in the United States and in Egypt.

"H2O Innovation once again demonstrated its position as a key player in the water treatment industry with its membrane and membrane bioreactor filtration systems-processes with promising growth potential according to a number of independent studies published recently. H2O Innovation is well placed to continue increasing its sales in municipal and industrial markets in Canada, the United States, and elsewhere in order to meet its growth and profitability targets for fiscal 2009 and set the stage for promising future opportunities" concluded Frederic Dugre.

The third 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 Wednesday May 13, 2009 at 10:30 A.M. EDT to review the financial results for the third quarter. The call will begin by a presentation by Management which will be followed by a question-and-answer period. Shareholders, analysts and institutional investors are invited to participate. The numbers to dial for access are 514-392-9193 in the Montreal area or the toll-free number 1-866-226-1792 in North America. Overseas callers dial 001-514-392-9193 for access. Media representatives and other interested parties may participate in listen only mode or may listen to the live webcast of the call 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 26, 2008 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 water treatment systems for the production of drinking water, the treatment of wastewater and industrial processed water in the municipal, commercial, pharmaceutical, industrial, mining, and energy markets. H2O Innovation has approximately 100 employees and eight offices including two 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 Alternext Exchange (MNEMO:ALHEO).

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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