H2O Innovation Reports Fiscal 2012 Second Quarter Results-Revenues Increase 11%, Backlog Remains High

QUEBEC CITY, QUEBEC--(Marketwire - Feb. 14, 2012) - H₂O Innovation Inc. (TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO)

• Revenues of $7.1 million, up from $6.4 million for the same period in fiscal 2011.
• Gross profit at 22.6%, compared to 31.4% for the same period in fiscal 2011.
• Operating loss of ($756,280), compared to operating loss of ($310,639) for the same period in fiscal 2011.
• EBITDA at ($707,814), compared to ($23,624) for the same period in fiscal 2011.
• Adjusted EBITDA at ($671,487), compared to $7,951 for the same period in fiscal 2011.
• Net loss of ($1,214,510), compared to ($523,693) for the same period in fiscal 2011.
• Operating activities used ($1,414,810) in cash, compared to $128,652 of cash generated for the same period in fiscal 2011.

All amounts in Canadian dollars unless otherwise stated.

H₂O Innovation Inc. ("H₂O Innovation" or the "Company"), a complete water treatment solutions company providing integrated technological water treatment solutions to municipal, energy & mining end-users, announces its results for the second quarter of fiscal year 2012. These consolidated financial statements have been prepared under International Financial Reporting Standards ("IFRS"). During the quarter ended December 31, 2011, the Company's revenues increased by 11% to $7.1 M, up from $6.4 M in the comparable quarter of the previous fiscal year, and its backlog of sales of water treatment systems remained high at $30.0 M.

"Our results for the second quarter of fiscal 2012 show both progress and challenges. While total revenues are up 11% compared to the second quarter of fiscal 2011, they have remained stable compared to this year's first quarter and have failed to reach our projections. With our order backlog remaining high and above the $30 M mark throughout the first six months of the year, we continue to expect reaching record-high year-end revenues as project delivery schedules will require us to increase production levels, which in turn should have a positive impact on revenue", stated Frédéric Dugré, President and CEO of H₂O Innovation Inc.

CONSOLIDATED RESULTS (Unaudited)	Three-month period ended December 31				Six-month period ended December 31
	2011		2010		2011		2010
	$CAD		$CAD		$CAD		$CAD
Revenues	7,056,495		6,354,087		14,126,263		12,679,168
Gross profit	22.6	%	31.4	%	23.6	%	30.6	%
Gross profit	1,592,624		1,993,756		3,337,558		3,878,624
Operating loss	(756,280	)	(310,639	)	(795,877	)	(684,580	)
EBITDA(1)	(707,814	)	(23,624	)	(468,427	)	(111,487	)
Adjusted EBITDA (excluding stock-based compensation)	(671,487	)	7,951		(379,512	)	(815	)
Net loss for the period	(1,214,510	)	(523,693	)	(1,302,726	)	(1,153,303	)
Basic and diluted net loss per share	(0.020	)	(0.009	)	(0.022	)	(0.019	)

(1) Earnings before interests, taxes, depreciation and amortization (EBITDA) is a performance indicator that is not determined in accordance with International Financial Reporting Standards nor Canadian generally accepted accounting principles and is not intended as an alternative measure of net earnings. Because EBITDA may not be calculated identically by all companies, the Company's result may not be directly comparable to similarly titled measures of other companies.

Both of the Company's business sectors have recorded increased revenues compared to the second quarter of fiscal 2011. Revenues from water treatment systems stood at $4.1 M compared to $3.6 M in 2011, while revenues from specialty chemicals and consumables reached $3.0 M in this quarter compared to $2.8 M in 2011. However, these modest increases have not brought about a corresponding increase in gross margin, due to a combination of external and internal factors which have put pressure on the quarter's gross margin, bringing it at 22.6 % compared to the historical and unusually high level of 31.4 % recorded during the second quarter of fiscal 2011.

Three factors affected the Company's gross margin over the quarter, the first one being external and beyond the Company's control. First, some of the Company's clients have delayed the delivery or the commissioning of their systems. This has postponed to the second half of the fiscal year or beyond the revenue recognition on these projects. Second, the Company also struggled to maintain its margins on two U.S. projects that had been obtained with unusually low margins in the heart of the recession. These were two of the last significant low-margin projects that remained in the Company's order backlog. And at last, the reallocation of resources and associated charges completed during the first quarter of fiscal 2012 will have a permanent impact on gross margin levels throughout fiscal 2012, reducing them by approximately 2.0% compared to the margins recorded in fiscal 2011.

Loss from operations for the quarter was ($756,280), compared to ($310,639) for the same period of the previous fiscal year. Operating, selling and administrative expenses were collectively stable at $2.0 M during the quarter compared to the corresponding quarter of fiscal 2011. These expenses were down by 2.4 percentage points in proportion of total revenues - a result of the cost reduction program induced last year, of the reallocation of resources completed in the first quarter, and of the addition of resources to our equipment and consumables sales forces, also done during the first quarter.

EBITDA for the quarter was recorded at ($707,814), compared to ($23,624) for the same period ended December 31, 2010. Adjusted EBITDA (excluding stock-based compensation) was for its part recorded at ($671,487), compared to $7,951 in last year's second quarter. On a trailing twelve-months basis, comparing the January 1 to December 31 periods ended in 2010 and 2011, EBITDA progressed from ($1,876,936) to ($206,895), an improvement of $1,670,041 bringing the Company's trailing twelve-months EBITDA level closer to the break-even point.

The Company's cash flows for the quarter were affected by project execution and delivery delays, as several large projects were initiated. The renewal and extension of the Company's revolving credit facilities concluded shortly after the end of the quarter will provide it with enhanced flexibility and increase its capabilities to cover the working capital that will be required by the execution of its order backlog. H₂O Innovation's revolving credit line has been extended by $1M to $4M, usable both in Canadian and U.S. currencies. This renewal under favourable commercial terms and with a reduction in financing and related costs is also a demonstration of confidence and support from the Company's long-time financing partners.

During the quarter, the Company recorded a net loss of ($1,214,510) or ($0.020 per share), compared to ($523,693) or ($0.009 per share) for the second quarter of fiscal 2011.

"In fiscal 2011, our challenge was to grow our order backlog and we succeeded. With a high order backlog, steady success securing new bookings and gradually increasing sales of specialty chemicals and consumables, we have the foundations required to successfully generate higher revenues during the last six months of fiscal 2012 and finish the year with record-high revenues and healthy margins, ensuring the sound growth of our Company for all stakeholders", concluded Frédéric Dugré.

Conference call & webcast

H₂O Innovation will also hold a conference call today at 10 a.m. (Eastern Time) to review the results. The call will begin with a presentation by the management. A question-and-answer period will follow.

A slide presentation intended for simultaneous viewing during the call will be available before the call 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 North American toll-free number to dial for access is 1-866-322-2356. International participants are invited to dial +1 416-640-3405. The participant passcode is 6546864.

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

The second quarter financial report is available on 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 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 28, 2011 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 11 years of experience, H₂O Innovation designs, manufactures, and integrates state-of-the-art custom-built water treatment systems for the production of drinking water and industrial process water, the reclamation and reuse of water, and the treatment of wastewater in the municipal, commercial, institutional, industrial, oil & gas, mining, and energy markets. The Company also offers operating and maintenance solutions for membrane filtration and reverse osmosis systems. H₂O Innovation has over 100 employees, seven 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) and on the NYSE Euronext Alternext Exchange (MNEMO:ALHEO). For more, visit www.h2oinnovation.com.