H2O INNOVATION INC.
TSX VENTURE : HEO

H2O INNOVATION INC.

November 09, 2010 18:30 ET

H2O Innovation Reports Fiscal 2011 First Quarter Results

All amounts in Canadian dollars unless otherwise stated.

QUEBEC CITY, QUEBEC--(Marketwire - Nov. 9, 2010) - H2O Innovation Inc. (TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO)

  • Sales of $6.3 million, down from $8.4 million for the same period in fiscal 2010.

  • Gross margin at 29.8%, compared to 29.8% for the same period in fiscal 2010.

  • Operating loss of ($528,211), compared to operating earnings of $48,320 for the same period in fiscal 2010.

  • EBITDA at ($256,485), compared to ($72,860) for the same period in fiscal 2010.

  • Adjusted EBITDA at ($109,090), compared to $489,200 for the same period in fiscal 2010.

  • Net loss of ($829,613), compared to ($642,688) for the same period in fiscal 2010 (including the effects of a mostly unrealized foreign exchange loss).

  • Operating activities used ($408,744) in cash, compared to ($244,788) of cash used for the same period in fiscal 2010.

H2O Innovation Inc. ("H2O Innovation" or the "Company") announces today its results for the first quarter of fiscal year 2011. The Company's results for the quarter ended September 30, 2010 mark a change compared to those of the previous quarters, with both sales and EBITDA increasing. During fiscal 2010, the Company reinforced its business model through the development of an aftermarket services and consumable products business line, the implementation of a cost reduction program, the expansion of its internal and external sales force, and the creation of a joint venture in India. These structuring actions put in place during fiscal 2010 made themselves felt during the quarter and helped minimize the lingering effect of the recession.

"Although not stellar, the results of the first quarter of fiscal 2011 mark a change compared to those of the previous quarters. Sales, gross margin and EBITDA are growing again, and our net loss is narrowing. The Company's efforts to diversify its revenues by developing a services and consumable product business line are directly linked to the quarter's results. Our equipment and systems sales business line also performed well during the quarter as we secured more new bookings than we recorded revenues of the same nature for a third consecutive quarter, a positive trend we will strive to prolong throughout fiscal 2011", stated Frédéric Dugré, President and CEO of H2O Innovation Inc.

CONSOLIDATED RESULTS
(Unaudited)
Three-month period
ended September 30
 
2010   2009  
  $CAD   $CAD  
Sales 6,339,866   8,406,610  
Gross margin 29.8 % 29.8 %
Gross margin 1,892,945   2,508,684  
Operating earnings (loss) (528,211 ) 48,320  
EBITDA (256,485 ) (72,860 )
Adjusted EBITDA (excluding unrealized foreign exchange gain (loss) and stock-based compensation) (109,090 ) 489,200  
Net earnings (loss) for the period and comprehensive results (829,613 ) (642,688 )
Basic and diluted net earnings (loss) per share (0.014 ) (0.012 )
Cash used by operating activities (408,744 ) (244,788 )

Sales for the quarter amounted to $6.3 M, compared to $8.4 M for the corresponding quarter of the previous fiscal year. In spite of this $2.1 M decrease, a relative stabilization of total sales can be noted over the last three quarters (FY2010 Q3 and Q4), marking a stop to successive reductions of total sales during the beginning of fiscal 2010. This change is partly due to the award of new contracts as well as to the level of sales of services and consumable products.

During this first quarter, revenues from sales of services and consumables amounted to $2.8 M, compared to $2.3 M during the same quarter last year. The steady increase quarter-over-quarter of the Company's sales of services and consumable products directly contributed to maintaining a high gross margin.

The Company's gross margin for the quarter was 29.8%, significantly higher than during the previous quarter (Q4 2010), when it was recorded at 22.4%. The Company's revenue composition constitutes a strategic factor that has a direct effect on gross margin, revenue volatility and corporate growth. The increasing proportion of sales of services and consumables helps minimize the effects of variations in sales of equipment and systems.

The nominal decrease of $615,739 of gross margin is explained by various factors, but most significantly by the nominal decrease in revenues from systems sales, in turn caused by an insufficient level of contracts for water treatment systems secured during the recession.

At $14.3 M as at September 30, 2010, H2O Innovation's sales backlog is higher than it was a year ago, when it stood at $13.4 M. The sales backlog is entirely composed of systems and equipment sales and does not include sales of services or consumables, nor does it include the backlog of H2O Innovation India. For the quarter ended September 30, 2010, the Company's bookings over billings ratio for sales of equipment and systems was three times higher than it was for the comparable period of the previous fiscal year. During the quarter, the Company secured $3.7 M in new orders for equipment and systems and recorded $3.5 M in revenues of this nature, compared to new orders of $2.7 M and revenues from equipment and systems sales of $6.1 M in the first quarter of the previous fiscal year. It is the third consecutive quarter during which the Company secured more new orders for equipment and systems than it recorded revenues of the same nature.

Loss from operations for the quarter was ($528,211), compared to $48,320 in earnings from operations for the same period of the previous fiscal year. After three quarters of successive increases, selling, general and administrative expenses for the quarter decreased compared to the previous quarter and remained at the same level as they were during the first quarter of fiscal 2010.

EBITDA for the quarter was ($256,485), compared to ($72,860) for the same period ended September 30, 2009. Adjusted EBITDA (excluding unrealized foreign exchange loss of ($121,631) and a ($25,764) stock-based compensation expense) for the quarter was ($109,090).

During the quarter, the Company recorded a net loss of ($829,613) or ($0.014 per share), compared to ($642,688) or ($0.012) per share for the first quarter of fiscal 2010.

"As we move forward in fiscal 2011 and beyond, we will continue to pay close attention to project execution and cost control. At the same time, we will keep growing our activities in both of our business lines, equipment and systems and consumable products, in North America and abroad, by capitalizing on the scalability of our business model and the complimentarity between our business lines to generate growth and profitability", concluded Frédéric Dugré.

Mr. Martin Boulet, accountant and analyst in the Company's Finance Department, acted as acting Director of Finance for the preparation of the financial statements of the quarter and the reporting on the design and effectiveness of disclosure controls and procedures and the design and effectiveness of internal controls over financial reporting.

Annual General Meeting of Shareholders

H2O Innovation will hold its Annual General Meeting of Shareholders tomorrow Wednesday, November 10, 2010, at 10 a.m. (Eastern time) at the Café-spectacles of the Palais Montcalm, 995 Place-d'Youville, Quebec City (Quebec), Canada.

Philippe Gervais, Chairman of the Board, and Frédéric Dugré, President and Chief Executive Officer, are pleased to invite shareholders and other interested parties to attend the meeting, during which they will review the results of fiscal 2010, comment the results of the first quarter of fiscal 2011 and provide an update on the Company's long term growth strategy.

Webcast

For those unable to attend in person, a live webcast of the meeting and management presentation (audio and slides) will be available through the Company's website at www.h2oinnovation.com. The webcast will remain available for replay on the Company's website in the Investors section.

Conference call

Immediately following the Annual General Meeting of Shareholders, H2O Innovation will also hold a conference call at 11:15 a.m. (Eastern time) to review the results for the first quarter of fiscal 2011. The call will be held as a question-and-answer period led by the Management.

Shareholders, analysts and institutional investors are invited to participate. The numbers to dial for access are 514-392-9193 (Montreal area) or the North American toll-free number 1-866-542-4146. International participants are invited to dial +1 514-392-9193.

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 also remain available for replay on the Company's website.

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

Prospective disclosures

Certain statements set forth in this press release regarding the operations and the activities of H2O Innovation as well as other communications by the Company to the public that describe more generally management objectives, projections, estimates, expectations or forecasts may constitute forward-looking statements within the meaning of securities legislation. Forward-looking statements concern analysis and other information based on forecast future results and the estimate of amounts that cannot yet be yet determined. Forward-looking statements include the use of the words "expect", "believe", "estimate" and other similar terms as well as those usually used in the future and the conditional, notably regarding certain assumptions as to the success of a venture. Those forward-looking statements involve a number of risks and uncertainties which may result in actual and future results of the Company to be materially different than those indicated. Information about the risk factors to which the Company is exposed is provided in the Annual Information Form dated September 21, 2010 available on SEDAR (www.sedar.com). Unless required to do so pursuant to applicable securities legislation, H2O Innovation assumes no obligation to update or revise forward-looking statements contained in this press release or in other communications as a result of new information, future events and other changes.

About H2O Innovation 

Building on 10 years of experience, H2O Innovation designs, manufactures, 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, oil & gas, 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 plants in Canada and the United States and is a founding partner of H2O Innovation India, a joint venture based in Mumbai, India. 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, visit 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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