Hydrogenics Corporation
TSX : HYG
NASDAQ : HYGS

Hydrogenics Corporation

August 11, 2008 07:00 ET

Hydrogenics Reports Second Quarter 2008 Results

Higher Revenues, Gross Margin and Profitable OnSite Generation Business

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 11, 2008) - Hydrogenics Corporation (TSX:HYG)(NASDAQ:HYGS) -

Highlights

- Revenues up 23% and 63% for the second quarter and year to date respectively, excluding Test Systems business unit.

- Further progress using Hydrogen for renewable energy storage was demonstrated with two significant orders.

- OnSite Generation business increases profitability in the second quarter of 2008.

- Improved year to date gross profit and lower cash operating costs produce a 36% reduction in year over year loss from operations.

- Cash and cash equivalents, restricted cash and short-term investments were $29.8 million as at June 30, 2008, a decrease of $0.7 million from December 31, 2007.

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

During the second quarter, we achieved a number of sales and operational milestones and laid the foundation for continued progress on renewable energy solutions. We secured $7.9 million of new orders including two important orders where hydrogen technology will increase the value of renewable energy systems for major utilities. We continued to refine our operations as demonstrated by our 22% gross profit for the quarter, an increase of five percent points over the previous quarter" said Daryl Wilson, President and Chief Executive Officer.

Results for the second quarter of 2008 compared to the second quarter of 2007

Revenues were $8.8 million for the second quarter of 2008, a 23% increase from the comparable period of 2007, exclusive of Test Systems revenues. This improvement represented increased revenues of $1.3 million and $0.4 million in our OnSite Generation and Power Systems business units, respectively.

Gross profit, expressed as a percentage of revenues, was 22% (10% in 2007) and primarily reflects increased gross profit generated by our OnSite Generation business unit resulting from operational improvements including standardizing products, enhancing manufacturing and quality processes and reducing product costs through design and supply chain improvements.

Cash operating costs, a non-GAAP measure, defined as selling, general and administrative, and research and product development expenses less stock-based compensation expense and compensation expenses indexed to our share price, were $5.9 million, a 3% decrease from $6.2 million in 2007 primarily attributed to streamlining efforts undertaken during 2007.
Net loss was $4.3 million for the second quarter of 2008, an increase of 14% from $3.8 million in 2007.

Results for the second quarter of 2008 compared to the first quarter of 2008

Revenues were $8.8 million for the second quarter of 2008, a 4% increase in revenues over the first quarter of 2008, exclusive of Test Systems revenues.

Gross profit, expressed as a percentage of revenues, was 22% compared to 17% due to increased gross profits generated by our OnSite Generation business unit resulting from operational improvements.

Cash operating costs were $5.9 million, an increase of 4% from $5.7 million in the first quarter of 2008. Net loss was $4.3 million for the second quarter of 2008, consistent with the first quarter of 2008.

Results for the six months ended June 30, 2008 compared to the six months ended June 30, 2007

Revenues were $19.5 million for the six months ended June 30, 2008, a 63% increase from revenues for the comparable period of 2007, exclusive of Test Systems revenues. This increase is primarily attributable to increased revenues of $6.8 million in our OnSite Generation business unit.

Gross profit, expressed as a percentage of revenues, was 20% (12% in 2007) and primarily reflects increased gross profits generated by our OnSite Generation business unit resulting from operational improvements as noted above.

Cash operating costs, were $11.6 million, a 25% decrease from $15.5 million in 2007 primarily attributed to the absence of a $2.1 million streamlining charge taken in the first quarter of 2007 and an overall reduced cost structure.

Net loss was $8.6 million for the six months ended June 30, 2008, a decrease of 29% from $12.1 million in 2007.

Liquidity

Cash and cash equivalents, restricted cash and short-term investments were $29.8 million as at June 30, 2008. The $3.3 million sequential quarterly decrease in cash and cash equivalents, restricted cash and short-term investments is attributable to: (i) $3.2 million of net cash outflows from operations; and (ii) a $0.1 million in decreased deferred research and product development grants.



Order backlog

Order backlog as at June 30, 2008 was $28.7 million, as follows
(in $ millions):

Mar. 31, Jun. 30,
2008 Orders Orders 2008
Backlog Received Delivered Backlog
-------------------------------------------------------------------
-------------------------------------------------------------------
OnSite Generation $ 21.0 $ 6.2 $ 6.6 $ 20.6
Power Systems 8.5 1.7 2.1 8.1
Test Systems 0.1 - 0.1 -
-------------------------------------------------------------------
Total $ 29.6 $ 7.9 $ 8.8 $ 28.7
-------------------------------------------------------------------
-------------------------------------------------------------------


In addition to revenues recognized in the six months ended June 30, 2008, we expect to deliver, and recognize as revenue in 2008 more than 70% of our total order backlog as at June 30, 2008.

Second Quarter Highlights

OnSite Generation

- Delivered nine hydrogen generation units for industrial and power station applications.

- Secured $6.2 million of new orders and exited the quarter with a $19.4 million order backlog. New orders include a hydrogen electrolyzer for a wind-hydrogen-diesel system in the community of Ramea, Newfoundland and Labrador, as well as a system to BC Hydro in the community of Bella Coola.

- Selected to provide a hydrogen electrolyzer and fuel cell for the new Renewable Hydrogen Research and Demonstration Centre at the Baglan Energy Park, UK.

- Commissioned an integrated hydrogen generation system to Shell Hydrogen LLC which, as part of California's Hydrogen Highway initiative, will generate hydrogen on site to service the increasing demands of hydrogen-powered consumer vehicles.

Power Systems

- Delivered 17 fuel cell power modules.

- Secured $1.7 million of new orders and exited the quarter with an $8.1 million order backlog. New orders include a contract with Concurrent Technologies Corporation to supply 20 fuel cell power packs to replace lead acid batteries currently being used in Crown Class 1 forklifts to be used by the U.S. Department of Defense.

Conference Call Details

Hydrogenics will hold a conference call to review results on August 11, 2008 at 10:30 a.m. (EDT). To participate in this conference call, please dial 416-340-8010 approximately ten minutes before the call. Alternatively, a live webcast of the conference call will be available on the Corporation's website at www.hydrogenics.com. Please visit the website at least ten minutes early to register and download any necessary software. Should you be unable to participate, a replay will be available on our website for two weeks.

ABOUT HYDROGENICS

Hydrogenics Corporation (www.hydrogenics.com) is a globally recognized developer and provider of hydrogen generation and fuel cell products and services, serving the growing industrial and clean energy markets of today and tomorrow. Based in Mississauga, Ontario, Canada, Hydrogenics has operations in North America and Europe.

This release contains forward-looking statements about our achievements, future results, goals, levels of activity, performance, and other future events. We believe the expectations reflected in our forward-looking statements are reasonable, although we cannot guarantee achievements, future results, levels of activity, performance, or other future events. These statements are based on management's current expectations and actual results may differ from these forward-looking statements due to numerous factors, including risks related to our ability to raise additional capital, liquidity, revenue growth, operating results, industry, technology and products. Readers should not place undue reliance on Hydrogenics' forward-looking statements. Readers 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, unless otherwise required by law. 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)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

June 30 December 31
2008 2007
--------------------------
Assets

Current assets
Cash and cash equivalents $ 23,763 $ 15,460
Restricted cash 5,994 -
Short-term investments - 15,032
Accounts receivable 6,087 12,713
Grants receivable 1,025 850
Inventories 12,864 12,659
Prepaid expenses 1,085 1,105
--------------------------
50,818 57,819

Property, plant and equipment 4,505 4,847
Intangible assets 124 249
Goodwill 5,025 5,025
--------------------------
$ 60,472 $ 67,940
--------------------------
--------------------------


Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 18,313 $ 18,166
Unearned revenue 9,109 9,042
--------------------------
27,422 27,208

Long-term debt - 11
Deferred research and development grants 150 337
--------------------------
27,572 27,556
--------------------------

Shareholders' Equity
Share capital 306,872 306,872
Contributed surplus 16,017 15,606
Deficit (285,742) (277,101)
Accumulated other comprehensive loss (4,247) (4,993)
--------------------------
Total deficit and accumulated other
comprehensive loss (289,989) (282,094)
--------------------------
32,900 40,384
--------------------------
$ 60,472 $ 67,940
--------------------------
--------------------------



Hydrogenics Corporation
Interim Consolidated Statement of Shareholders' Equity
(in thousands of U.S. dollars, except for share and per share amounts)
(unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumu-
lated
other
compre- Total
Common shares Contri- hensive share-
-------------------- buted income holders'
Number Amount surplus Deficit (loss) equity
Balance at
Dec. 31, 2006 91,916,466 $ 307,376 $ 13,718 $ (249,033) $ (5,304) $66,757

Net loss for
the period - - - (12,093) (12,093)

Foreign
currency
translation
adjustments - - - (86) (86)
--------

Comprehensive
loss (12,179)
--------

Shares issued:

Shares
returned to
treasury (150,775) (504) 335 - - (169)

Stock-based
compensation
expense - - 896 - - 896
------------------------------------------------------------
Balance at
Jun. 30, 2007 91,765,691 $ 306,872 $ 14,949 $ (261,126) $ (5,390) $55,305

Net loss for
the period - - - (15,975) (15,975)

Foreign
currency
translation
adjustments - - - - 397 397
--------

Comprehensive
loss - - - - - (15,578)
--------

Shares issued:

Stock-based
compensation
expense - - 657 - - 657
------------------------------------------------------------
Balance at
Dec. 31, 2007 91,765,691 306,872 15,606 (277,101) (4,993) 40,384


Net loss for
the period - - - (8,641) - (8,641)

Foreign
currency
translation
adjustments - - - - 746 746
--------

Comprehensive
loss (7,895)
--------

Shares issued:

Adjustment for
partial shares (5) - - - - -

Stock-based
compensation
expense - - 411 - 411
------------------------------------------------------------
Balance at
Jun. 30, 2008 91,765,686 $ 306,872 $ 16,017 $ (285,742) $ (4,247) $32,900
------------------------------------------------------------
------------------------------------------------------------

The authorized capital stock of the Corporation consists of an unlimited
number of common shares and an unlimited number of preferred shares issuable
in series.



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

Three months Six months
ended June 30 ended June 30
2008 2007 2008 2007
-----------------------------------------

Revenues $ 8,790 $ 9,465 $ 19,501 $ 16,315

Cost of revenues 6,817 8,500 15,663 14,436
-----------------------------------------
1,973 965 3,838 1,879
-----------------------------------------
Operating expenses
Selling, general and
administrative 5,311 4,947 9,372 11,894
Research and product
development 1,728 1,690 3,440 4,552
Amortization of property,
plant and equipment 250 223 521 447
Amortization of intangible
assets 62 62 125 125
-----------------------------------------
7,351 6,922 13,458 17,018
-----------------------------------------
Loss from operations (5,378) (5,957) (9,620) (15,139)
-----------------------------------------

Other income (expenses)
Provincial capital tax 208 (56) 170 (74)
Interest 386 591 614 1,458
Foreign currency gains 464 1,639 194 1,669
-----------------------------------------
1,058 2,174 978 3,053
-----------------------------------------

Loss before income taxes (4,320) (3,783) (8,642) (12,086)
Current income tax expense
(recovery) (1) 4 (1) 7
-----------------------------------------
Net loss for the period $ (4,319) $ (3,787) $ (8,641) $ (12,093)
-----------------------------------------
-----------------------------------------

Net loss per share
Basic and diluted $ (0.05) $ (0.04) $ (0.09) $ (0.13)

Weighted average number of
common shares outstanding 91,765,686 91,765,691 91,765,688 91,830,666



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

Three months Six months ended
ended June 30 June 30
2008 2007 2008 2007
-------------------------------------------

Cash and cash equivalents
provided by (used in)
Operating activities
Net loss for the period $ (4,319) $ (3,787) $ (8,641) $ (12,093)
Items not affecting cash
Amortization of property,
plant and equipment 250 375 521 801
Amortization of intangible
assets 62 62 125 125
Unrealized foreign exchange
(gains) losses 468 189 316 81
Stock-based compensation 175 406 411 896
Net change in non-cash working
capital 163 (3,543) 7,163 (5,480)
-------------------------------------------
(3,201) (6,298) (105) (15,670)
-------------------------------------------

Investing activities
Decrease in short-term
investments - - 15,032 54,350
Decrease (increase) in
restricted cash 72 - (5,994) -
Purchase of property, plant
and equipment (10) (296) (325) (507)
-------------------------------------------
62 (296) 8,713 53,843
-------------------------------------------

Financing activities
Repayment of long-term debt (1) (57) (11) (94)
Deferred research and
development grant (124) (463) (294) 10
Common shares issued
(purchased and cancelled),
net of issuance costs - - - (169)
-------------------------------------------
(125) (520) (305) (253)
-------------------------------------------

Increase (decrease) in cash
and cash equivalents during
the period (3,264) (7,114) 8,303 37,920

Cash and cash equivalents -
Beginning of period 27,027 50,971 15,460 5,937
-------------------------------------------
Cash and cash equivalents -
End of period $ 23,763 $ 43,857 $ 23,763 $ 43,857
-------------------------------------------
-------------------------------------------


Supplemental disclosure
Interest paid $ 12 $ 2 $ 2 $ 8
Income taxes paid (65) 3 (48) 6


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