Hydrogenics Corporation
TSX : HYG
NASDAQ : HYGS

Hydrogenics Corporation

May 15, 2006 07:00 ET

Hydrogenics Reports First Quarter 2006 Results

MISSISSAUGA, ONTARIO--(CCNMatthews - May 15, 2006) -

Revenues of $6.1 million in line with earlier communications

Hydrogenics Corporation (TSX:HYG)(NASDAQ:HYGS), a leading developer and manufacturer of hydrogen and fuel cell products, is reporting first quarter unaudited results. Results are reported in U.S. dollars and are prepared in accordance with Canadian generally accepted accounting principles.

"We are pleased to have secured $8.7 million of orders in the quarter in addition to finalizing preferred supply agreements with two of the world's leading merchant gas companies," said Pierre Rivard, President and Chief Executive Officer.

"We made considerable progress in addressing the operational issues in our OnSite Generation business unit as initially addressed in our March 28 update to shareholders," Rivard added. "While the Onsite Generation business unit headquartered in Oevel, Belgium remains unprofitable, we are satisfied with our progress to date and adhere to our earlier indication of having delivery fulfillment from our OnSite Generation unit back to historic levels, commencing in the latter half of this year."

Results for the first quarter of 2006 compared to the first quarter of 2005

- Revenues were $6.1 million for the first quarter of 2006, a 46% decrease from revenues of $11.3 million for the comparable period of 2005 due primarily to production delays in our OnSite Generation group.

- Gross profit, expressed as a percentage of revenues, was 17% (9% in 2005) and reflects the absence of a $1.3 million GAAP adjustment recognized on the acquisition of Stuart Energy in the first quarter of 2005 offset by lower overhead absorption as a result of lower revenues compared to the first quarter of 2005.

- Cash operating costs, a non-GAAP measure, defined as selling, general and administrative and research and product development expenses, excluding stock-based compensation were $7.4 million, a 22% decrease from $9.4 million in 2005 reflecting the streamlining of our operations, the implementation of our integration plan and more prudent spending throughout the organization.

- Net loss was $8.3 million for the first quarter of 2006, a decrease of 26% from $11.2 million in 2005.

Results for the first quarter of 2006 compared to the fourth quarter of 2005

- Revenues were $6.1 million for the first quarter of 2006, a 32% decrease in revenues over the fourth quarter of 2005 due primarily to production delays in our OnSite Generation group.

- Gross profit, expressed as a percentage of revenues, was 17%, an increase of 21% due to the absence of $1.1 million in charges incurred to repair or replace OnSite Generation units incurred during the fourth quarter of 2005 combined with increased gross margin in our Power Systems and Test Systems business units offset by lower overhead absorption as a result of lower revenues.

- Cash operating costs were $7.4 million, an increase of 10% from $6.7 million in the fourth quarter of 2005.

- Net loss was $8.3 million, a decrease of 9%, or $0.8 million, primarily as a result of higher gross margins.

Liquidity

We had $80.7 million in cash and cash equivalents and short-term investments as at March 31, 2006. The $5.1 million sequential quarterly decrease in cash and cash equivalents and short-term investments is attributable to: (i) $5.0 million net cash outflows from operations; (ii) $0.3 million of capital expenditures; and (iii) $0.2 million of net cash inflows received on exercise of stock options.

Order backlog

Our order backlog as at March 31, 2006 was $28.2 million as follows:



Q4 Orders Product/Service
Backlog Received Delivered Q1Backlog
--------------------------------------------------
OnSite Generation $ 11.0 $ 6.6 $ 2.4 $ 15.2
Power Systems 9.3 1.2 1.1 9.4
Test Systems 5.3 0.9 2.6 3.6
--------------------------------------------------
$ 25.6 $ 8.7 $ 6.1 $ 28.2
--------------------------------------------------
--------------------------------------------------


We expect to deliver, and recognize as revenue, the majority of this order backlog in 2006.

First Quarter Highlights

Progress on markets:

OnSite Generation

- We delivered four hydrogen generation units, including two to Romanian companies for industrial applications including one 120 Nm3 outdoor system for power plant cooling and one 30 Nm3 indoor system for glass manufacturing.

- We secured $6.6 million of orders including a $3.3 million dollar contract for a hydrogen plant to be supplied to a major refinery project, for sulphur reduction in diesel fuel, one of our largest orders in history.

Power Systems

- We delivered 15 HyPM® fuel cell power modules.

- Deliveries included two DC backup power units, each currently under test with a world-leading telecom company, with one unit incorporating proprietary fuel cell/ultracapacitor technology.

- Market specific certification goals for new fuel cell products remain on track.

- Our Power Systems business unit has increased staffing by approximately 10% with new hires predominantly focused on product and market development.

Test Systems

- We delivered 12 test stations, approximately half of which were to a leading Japanese auto manufacturer and the balance primarily to auto manufacturers in other regions.

- We secured $0.9 million in orders including 77% from existing customers as repeat orders and 23% from new non-PEM customers.

Progress on products and technology:

- We continue development of our S-4000 IMET technology positioning us to offer products for integration with large scale renewable energy installations such as solar and wind farms.

- We initiated design of next generation fuel cell products, specifically low cost AC/DC backup power generators and fuel cell power packs for material handling markets.

- We continue R&D efforts to develop advanced test station software tools.

CONFERENCE CALL DETAILS

We will hold a conference call to review our results on May 15, 2006 at 10:30 a.m. (EDT). To participate in this conference call, please dial 416-695-9753 approximately ten minutes before the call. Alternatively, a live webcast of our conference call will be available on our website at www.hydrogenics.com. Please visit our website at least ten minutes early to register and download any necessary software. Should you be unable to participate, a replay as well as a podcast link will also be available on our website.

ABOUT HYDROGENICS

Hydrogenics Corporation (www.hydrogenics.com) is a leading global developer of clean energy solutions, advancing the Hydrogen Economy by commercializing hydrogen and fuel cell products. The company has a portfolio of products and capabilities serving the hydrogen and energy markets of today and tomorrow. Hydrogenics, based in Mississauga, Ontario, Canada, has operations in North America, Europe and Asia.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Law of 1995. These statements are based on management's current expectations and actual results may differ from these forward-looking statements due to numerous factors, including changes in the competitive environment adversely affecting the products, markets, revenues or margins of Hydrogenics' business. Readers should not place undue reliance on Hydrogenics' forward-looking statements. Investors are encouraged to review the section captioned "Risk Factors" in Hydrogenics' regulatory filings with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission for a more complete discussion of factors that could affect Hydrogenics' future performance. Furthermore, the forward-looking statements contained herein are made as of the date of this release, and Hydrogenics undertakes no obligations to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release. The forward-looking statements contained in this release are expressly qualified by this cautionary statement.



Hydrogenics Corporation
Interim Consolidated Balance Sheets
(in thousands of U.S. dollars)
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------


March 31 December 31
2006 2005
-----------------------------
Assets

Current assets
Cash and cash equivalents $ 63,339 $ 5,394
Short-term investments 17,388 80,396
Accounts receivable 6,270 7,733
Grants receivable 2,630 1,909
Inventories 10,659 8,685
Prepaid expenses 1,492 2,353
-----------------------------
101,778 106,470

Property, plant and equipment 5,497 5,682
Intangible assets 31,858 33,972
Goodwill 68,450 68,505
Other non-current assets 38 28
-----------------------------
$ 207,621 $ 214,657
-----------------------------
-----------------------------

Liabilities

Current liabilities

Accounts payable and accrued liabilities $ 14,207 $ 14,918
Unearned revenue 4,956 3,772
-----------------------------
19,163 18,690

Long-term debt 281 325

Deferred research and development grants 163 135
-----------------------------
19,607 19,150
-----------------------------
Shareholders' Equity
Share capital and other equity 319,548 318,804
Deficit (126,606) (118,274)
Accumulated other comprehensive loss (4,928) (5,023)
-----------------------------
188,014 195,507
-----------------------------
$ 207,621 $ 214,657
-----------------------------
-----------------------------



Hydrogenics Corporation
Interim Consolidated Statement of Shareholders' Equity
(in thousands of U.S. dollars, except for share and
per share amounts)
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------


Common shares
-------------- Contributed
Number Amount surplus

Balance at Dec. 31, 2005 91,679,670 $ 306,957 $ 11,847

Comprehensive loss :

Net loss - - -
Foreign currency translation
adjustments - - -
Comprehensive loss

Shares issued:

Issuance of common shares
on exercise of options 68,996 223 -
Stock-based consulting
expense - - 19
Stock-based compensation
expenses - - 502
-------------------------------------------
Balance at March 31, 2006 91,748,666 $ 307,180 $ 12,368
-------------------------------------------
-------------------------------------------


Accumulate
other Total
comprehensive Shareholders'
Deficit income (loss) equity

Balance at Dec. 31, 2005 $ (118,274) $ (5,023) $ 195,507

Comprehensive loss :

Net loss (8,332) - (8,332)
Foreign currency
translation adjustments - 95 95
--------------
Comprehensive loss (8,237)
--------------

Shares issued:
Issuance of common shares
on exercise of options - - 223
Stock-based consulting
expense - - 19
Stock-based compensation
expenses - - 502
-------------------------------------------
Balance at March 31, 2006 $ (126,606) $ (4,928) $ 188,014
-------------------------------------------
-------------------------------------------



Hydrogenics Corporation
Interim Consolidated Statements of Operations
(in thousands of U.S. dollars, except for share and
per share amounts)
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------

Three months ended March 31
2006 2005
----------------------------

Revenues $ 6,136 $ 11,304

Cost of revenues 5,083 10,282
----------------------------
1,053 1,022
----------------------------
Operating expenses
Selling, general and administrative 6,638 6,677
Research and product development 1,215 3,253
Amortization of property, plant and
equipment 264 374
Amortization of intangible assets 2,118 2,138
Integration costs - 724
----------------------------
10,235 13,166
----------------------------
Loss from operations (9,182) (12,144)
----------------------------

Other income (expenses)
Provincial capital tax (26) (46)
Interest 946 670
Foreign currency gains (losses) (65) 335
----------------------------
855 959
----------------------------

Loss before income taxes (8,327) (11,185)
Current income tax expense 5 37
----------------------------
Net loss for the period $ (8,332) $ (11,222)
----------------------------
----------------------------

Net loss per share
Basic and diluted $ (0.09) $ (0.13)

Shares used in calculating basic and
diluted net loss per share 91,705,236 89,848,368




Hydrogenics Corporation
Interim Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------

Three months ended March 31
2006 2005
----------------------------

Cash and cash equivalents provided
by (used in)
Operating activities
Net loss for the period $ (8,332) $ (11,222)
Items not affecting cash
Amortization of property, plant
and equipment 446 596
Amortization of intangible assets 2,118 2,138
Unrealized foreign exchange (gains)
losses (27) 130
Imputed interest on long-term debt 1 8
Non-cash consulting fees 19 19
Stock-based compensation 502 496
Net change in non-cash working capital 287 (1,492)
----------------------------
(4,986) (9,327)
----------------------------

Investing activities
Decrease (increase) in short-term
investments 63,008 (3,312)
Purchase of property, plant and
equipment (265) (239)
Business acquisitions, net of
cash acquired - (343)
----------------------------
62,743 (3,894)
----------------------------

Financing activities
Repayment of long-term debt (63) (27)
Deferred research and development grant 28 (8)
Common shares issued, net of
issuance costs 223 135
----------------------------
188 100
----------------------------

Increase (decrease) in cash and cash
equivalents during the period 57,945 (13,121)

Cash and cash equivalents - Beginning
of period 5,394 26,209
----------------------------
Cash and cash equivalents - End
of period $ 63,339 $ 13,088
----------------------------
----------------------------

Supplemental disclosure
Interest paid $ 1 $ 6
Income taxes paid 5 56


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