H2O Innovation reports fiscal year 2013 year-end results - Record high net earnings and adjusted EBITDA

TSX-V: HEO
Alternext: MNEMO: ALHEO

• Revenues up at $36.1 million, compared to $35.9 million in fiscal year 2012.
• Gross profit up at 25.6%, compared to 23.0% in fiscal year 2012.
• Adjusted EBITDA at $1,584,252, compared to $12,172 in fiscal year 2012.
• Operating, selling and administrative expenses down by $1,017,000, at 21.4% of revenues, compared to 24.3% in fiscal year 2012.
• Net earnings up to $312,992 compared to a net loss of ($8,054,860) in fiscal year 2012.
• Operating activities generated $1,053,591 in net cash, compared to $815,699 in fiscal year 2012.

All amounts in Canadian dollars unless otherwise stated.

QUEBEC CITY, Sept. 25, 2013 /CNW Telbec/ - (TSXV: HEO) - H₂O Innovation Inc. ("H₂O Innovation" or the "Company") announces its results for the fourth quarter and 2013 fiscal year ended June 30, 2013. H₂O Innovation's fiscal year 2013 results showed revenues of $36.1 M up from $35.9 M for fiscal year 2012. The Company's gross profit improved over the year from 23.0% in fiscal year 2012 to 25.6% in fiscal year 2013. Net cash generated by the Company's operating activities amounted to $1,053,500 compared to $815,699 during the previous year.

''2013 was a great year marked by slight slowdown in the fourth quarter. All in all, we are extremely proud to show our investors that we can deliver positive results and we certainly look forward to maintain this momentum from many years to come. Some of the changes we have implemented at the beginning of the year clearly paid off and we can acknowledge that all measurements are showing signs of improvement. Revenues, net earnings, cash flows, EBITDA and SG&A expenses level are all moving in the right direction and this gives the company great hopes for the future'', stated Frédéric Dugré, President and Chief Executive Officer of H₂O Innovation.

In fiscal year 2013, revenues from water treatment projects stood at $22.9 M compared to $24.2 M in fiscal year 2012, while revenues from specialty chemicals and consumables reached $13.2 M in fiscal year 2013 compared to $11.7 M in fiscal year 2012. The resulting shift in the revenue mix, with an increased contribution from the more profitable consumable business, explains the improved combined gross margin. "This nearly 13% increase of revenues from specialty chemicals and consumables is the result of the strategic decision to build and reinforce long-term relationships with our customers and to expand our distribution network; thus bringing a continuous stream of revenues. The growth of this revenue line is strengthening the Company's foundation which will allow us to leverage our system business. These decisions contribute to create value for our shareholders", stated Frédéric Dugré, President and Chief Executive Officer of H₂O Innovation.

Management expected total revenues to increase more than they did during fiscal year 2013.They were impacted negatively by the termination, on June 27th 2013, of an agreement to provide a containerized water treatment system for a U.S. municipality due to a default of payment from the customer. The equipment was built and ready to be delivered when the agreement was terminated. The Company has instituted legal procedures against the general contractor to seek compensation for the damages it sustained. The Company has also initiated a mediation process through the American Arbitration Association to achieve a settlement.

Despite this project being cancelled in the fourth quarter, the Company recorded net earnings of $312,992 or $0.005 per share for fiscal year 2013 compared to net loss of ($8,054,860) or ($0.134 per share) for fiscal year 2012. This improvement is attributable to three main factors. First, the Company maintained a high level of revenues, which generated satisfying gross profit margin. Second, management closely monitored the SG&A and was diligent in finding additional savings. Finally, the Company did not suffer from goodwill impairment, impairment of intangible assets and changes in fair value of contingent considerations in fiscal year 2013 compared to fiscal year 2012.

The Company secured $19.2 M in new bookings for water treatment projects over fiscal year 2013, representing an 18% increase compared to the previous fiscal year. The Company's bookings over revenue ratio for projects and equipment stood at 0.78 for fiscal year 2013, compared to 0.67 for fiscal year 2012.The order backlog stood at $14.1 M as of June 30, 2013. The current pipeline is rich in opportunities which will allow the Company's sales backlog to maintain revenue growth. "We maintain strong bidding activities and management efforts are aimed at growing the Company's sales backlog", stated Frédéric Dugré. These efforts include the strategic hiring of David Faber as Director of Systems Sales USA, who has already taken the lead of the U.S. systems sales and the hiring of a sales manager based in British Columbia to develop this promising market where there are numerous opportunities for workers camps: a niche in which H₂O Innovation has a very unique offering.

The Company's ratio of selling, operating and administrative expenses ("SG&A") as a whole over revenues amounted to 21.4% for fiscal year 2013, down from 24.3% for the previous fiscal year. The improvement of this ratio is partly the result of the important reorganization initiated since June 30, 2012.

Adjusted EBITDA for fiscal year 2013 was $1,594,252 compared to $12,172, for fiscal year 2012. The adjusted EBITDA has significantly improved in fiscal year 2013 due to the important decrease of $1,017,000 of SG&A expenses and the increase of revenues derived from specialty chemicals and consumables. ''Controlling costs is key to be profitable in such a competitive environment. "This year, we surely felt strongly that everyone in the Company made extra efforts to reduce our expenses and it made a difference; we will strive to make this close attention to expenses as part of our ongoing company culture", stated Frédéric Dugré.

Net cash generated by operating activities amounted to $1,053,500 in fiscal year 2013 compared to $815,699 of net cash generated by operating activities during the previous fiscal year. This improvement is attributable to the significant improvement in net earnings in fiscal year 2013 compared to fiscal year 2012. This significant improvement is also attributable to the following factors:

• Lower volume of activities toward year-end reflected in a decrease of the level of accounts receivable as of June 30, 2013 compared to June 30, 2012;
• This lower volume of activities has also decreased the level of accounts payable and accrued liabilities in fiscal year 2013 compared to fiscal year 2012;
• A tighter follow-up of accounts receivable accelerated payments from customers;
• A timing difference between the projects execution phases and the invoicing milestones reached affecting costs incurred in excess of billings and billings in excess of costs incurred; and
• The project termination, for which the equipment has been recorded as finished goods, has increased the inventory level in fiscal year 2013 compared to fiscal year 2012.
  
  

Financial results for the fourth quarter of fiscal year 2013
Revenues for the fourth quarter were down to $6.8 M from $11.5 M for the same quarter of the previous fiscal year. The decrease is explained by the fact that a significant project was delivered at the end of fiscal year 2012 generating record-high revenues for that comparable quarter of the previous fiscal year. In addition, the 2013 fourth quarter was negatively impacted by the cancellation of a project with a U.S. customer.

For the quarter ended June 30, 2013 the gross profit was impacted negatively by the decrease in the volume of projects executed but this impact was minimized by the increase of $500,000 in revenues from specialty chemicals and consumables for which gross margin is higher than for revenues from water treatment projects.

The fourth quarter SG&A expenses were somewhat stable and similar to the first three quarters of fiscal year 2013. They stand at $1.9 M in this current quarter compared to $2.7 M in the fourth quarter of fiscal year 2012. Last year's fourth quarter was impacted by items that did not occur this year such as termination costs related to the elimination of top management positions along with the re-organisation, by an allowance for doubtful accounts for a distributor of maple syrup production products within the consumables operations and by additional professional fees related to the impairment tests.

The fourth quarter net loss is caused by the lack of volume in revenues of the Company: notably due to the termination of a project in the USA for which the equipment already manufactured has been accounted for as finished goods in the statement of financial position.

Strategic outlook for fiscal year 2014
For fiscal year 2014, we aim at increasing our footprint through the addition of new specialty chemical distributors and enhanced support to our existing ones, helping them increase their market shares. In June 2013, we hired a new sales regional manager for specialty chemicals whose primary responsibilities at Professional Water Technology ("PWT") include identifying new commercial opportunities and providing technical support for PWT's client base in the Southeast USA. In addition, we held our second annual international distributor summit in July 2013. During the summit, our distributors were given technical and commercial training on new chemical products.

Our revenues from specialty chemicals and consumables include sales of products related to maple syrup production. These revenues increased by more than 11% in fiscal year 2013 compared to fiscal year 2012. During the year, we have hired a director of sales in the United States who was able to expand our distribution network in that territory where there is no production quota for maple farmers; this clearly helped to increase our revenues from this division. We intend to accelerate this growth by expanding our distribution network in the U.S. territory and other Canadian provinces, a young market rapidly expanding.

In the system business, management is convinced that developing long-term relationships is key to generate recurring revenues. Initiatives such as providing first fill of chemicals, offering preventive maintenance and performance monitoring contracts clearly differentiate H₂O Innovation from its competitors in the market place; it is a way to secure early on the recurring revenues for years to come. Also, by providing our proprietary specialty chemicals together with the delivery of custom-designed membrane systems, we are proposing a "single point of responsibility" for the reliability and performance of the systems. This strategy shows how the system sales and downstream associated recurring revenues are intimately linked.

To strengthen system sales and increase differentiating factors, the Company has also announced this year the introduction of two innovations. The first one is the introduction of its new FiberFlexTM MF/UF membrane module rack design. This skid is physically designed to accommodate several types of microfiltration and ultrafiltration modules. This innovation will allow the Company to enhance its offer and reinforce its leading position in the water treatment industry. Engineers and customers will greatly benefit from this added flexibility in design and operation that provides procurement leverage to the end-user for the membrane replacement. The Company also launched another innovative platform with a second generation containerized and dual train Membrane Bioreactor dedicated to wastewater effluent. This will be by far the most compact and versatile containerized wastewater treatment package on the market to offer treatment redundancy usually found only in much larger plants. The product will be presented to key customers at the largest wastewater focused conference in North America, WEFTE, held in Chicago the second week of October 2013.

The annual financial report is available on www.h2oinnovation.com and on NYSE Euronext Alternext's site. 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, performance and achievements and the estimate of amounts that cannot yet be determined. Forward-looking statements include the use of words such as "anticipate", "if", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "potential", "predict", "project", "should" or "will", and other similar expressions, 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, based on the current expectations of management, involve a number of risks and uncertainties, known and unknown, which may result in actual and future results, performance and achievements 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 25, 2012 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 
H₂O Innovation designs and provides state-of-the-art, custom-built, and integrated water treatment solutions based on membrane filtration technology to municipal, energy & natural resources end-users. H₂O Innovation also provides a complete line of specialty chemicals and consumables for membrane filtration and reverse osmosis systems. 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.

SOURCE H2O Innovation Inc.