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Hydrogenics Reports Second Quarter 2017 Results

Backlog Breaks $150 Million as Company Bolsters Balance Sheet and Positions for Growth

MISSISSAUGA, Ontario, Aug. 02, 2017 (GLOBE NEWSWIRE) -- Hydrogenics Corporation (NASDAQ:HYGS) (TSX:HYG) ("Hydrogenics" or "the Company"), a leading developer and manufacturer of hydrogen generation and hydrogen-based power modules, today reported second quarter 2017 financial results. Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards (IFRS).

Recent Highlights

“This past quarter was one of the most memorable in our corporate history, as we saw major developments that clearly place Hydrogenics on the path to higher growth and profitability,” said Daryl Wilson, President and Chief Executive Officer. "In June, we booked our largest Chinese order to date.  One of our first Certified Integration Partners in China – Blue-G New Energy Science and Technology Corporation – signed a multi-year, $50 million agreement with Hydrogenics for delivery of 1,000 fuel cell modules along with ongoing engineering support. Our fuel cells will be used for zero-emission buses and other applications across the country, with shipments expected to begin later this year. At the same time, we won an order for fuel cells to power several Scania hydrogen trucks owned by ASKO, Norway’s largest grocery wholesaler. These wins, along with our existing Alstom commuter train and propulsion contracts, illustrate our recognition as the go-to technology choice for heavy-duty fuel cell power modules.

“While our second quarter results were impacted by certain shipments moving to the third quarter and by the re-estimation of costs on our major propulsion project, we are more optimistic than ever regarding 2017 and beyond.  Most notably, just before the end of the quarter, we concluded a $21 million private placement with the Hejili Equity Investment Limited Partnership, strengthening our balance sheet and paving the way for additional strategic development initiatives in China. We’re working with Hejili and their partners on several potential opportunities across the hydrogen spectrum – from energy storage to fuel cells to large scale power production. As strong believers in China’s commitment to clean energy, we are well positioned to assist the nation in meeting its long-term emission-reduction goals. Overall, Hydrogenics made huge steps during the quarter that will benefit our customers, partners, and investors alike for many years to come.”

Summary of Results for the Quarter June 30, 2017

  • The Company posted revenue of $7.5 million for the second quarter of 2017, a decrease of 19% year-over-year.  While China-related revenue increased in the quarter, overall sales declined primarily due to delays in delivery of several On-Site Generation projects until later in 2017. In addition, the pace of revenue recognition of the Company’s Power Systems propulsion project was impacted by unanticipated costs incurred in the quarter. The additional costs related to the development of the prototype under this contract reduced percentage of completion cumulative revenue in the quarter by $1.7 million.  However the Company expects this contract to return to the historical revenue and margin contribution in future quarters.

  • The Company has not changed its outlook for substantial revenue growth for the full year 2017 versus 2016. The Company ended the second quarter of 2017 with the highest backlog level in its history at $152.1 million, securing orders of $45.3 million for Power-to-Gas systems, fueling stations, industrial gas applications and mobility systems. Order backlog movement during the second quarter (in $ millions) was as follows:
           
           
  March 31, 
2017 backlog
Orders
Received
FX Orders
Delivered/
Revenue
Recognized
June 30, 
2017 backlog
OnSite Generation $   28.4 $  2.9 $   1.1 $   4.1 $   28.3
Power Systems   81.4   42.4   3.4   3.4   123.8
Total $   109.8 $   45.3 $   4.5 $   7.5 $   152.1
                     
  • Of the above backlog of $152.1 million, the Company expects to recognize approximately $65 million in the following 12 months as revenue. In addition, revenue for the year ending December 31, 2017 will also include orders both received and delivered during the balance of 2017, an increase of approximately $21 million from the $44 million in twelve month revenue as of March 31, 2017.

  • Gross profit decreased to $0.3 million in the current quarter vs versus $1.8 million in the prior-year period due to:

    -- Two challenging Africa-based projects in the On-Site Generation segment that met with unanticipated delays and overruns due to delayed construction and scope changes by the engineering firms responsible for construction of the facilities where Hydrogenics’ electrolyzers would be located; and

    -- The margin impact of the additional costs incurred on the Power Systems’ propulsion engineering services contract.

    In both cases, the Company believes that the impact of the lower than anticipated margins will be limited to the second quarter, with a return to improved margin levels in the third quarter and onward.
  • Cash operating costs1 decreased 6%, from $4.3 million to $4.1 million, primarily as a result of certain streamlining initiatives and lower overhead expenses.

  • The Company’s Adjusted EBITDA2 loss increased $1.3 million to $3.7 million for the three months ended June 30, 2017, versus $2.4 million for the same period last year. This was due to the decrease in gross profit previously mentioned, partially offset by lower selling, general and administrative expenses.

  • Net loss increased from $3.1 million, or $(0.25) per share, to $5.7 million, or $(0.45) per share, in the current period, primarily due to the decrease in gross profit. The recent increase in the company’s share price also contributed to the higher net loss, due to certain non-cash compensation expenses being marked to market and outstanding warrants adjusted to their fair value.

Notes    

  1. Cash operating costs are defined as the sum of SG&A and R&D, less amortization and depreciation, and stock-based compensation expense inclusive of compensation costs indexed to the Company’s share price. This is a non-IFRS measure and may not be comparable to similar measures used by other companies. Management uses this measure as a rough estimate of the amount of fixed costs to operate the Corporation and believes this is a useful measure for investors for the same purpose.

  1. Adjusted EBITDA is defined as net loss excluding stock based compensation (both cash settled long term compensation indexed to share price and share based compensation), other finance income and expenses, depreciation and amortization. These items are considered by management to be outside of Hydrogenics’ ongoing operational results.  Adjusted EBITDA is a non-IFRS measure and may not be comparable to similar measures used by other companies.

Conference Call Details
Hydrogenics will hold a conference call at 10:00 a.m. EDT on August 2, 2017 to review the second quarter results. The telephone number for the conference call is (877) 307-1373 or, for international callers, (678) 224-7873.  A live webcast of the call will also be available on the company's website, www.hydrogenics.com.

An archived copy of the conference call and webcast will be available on the company's website, www.hydrogenics.com, approximately six hours following the call. 

About Hydrogenics
Hydrogenics Corporation is a world leader in engineering and building the technologies required to enable the acceleration of a global power shift. Headquartered in Mississauga, Ontario, Hydrogenics provides hydrogen generation, energy storage and hydrogen power modules to its customers and partners around the world. Hydrogenics has manufacturing sites in Germany, Belgium and Canada and service centers in Russia, Europe, the US and Canada.

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 Act of 1995, and under applicable Canadian securities law. These statements are based on management’s current expectations and actual results may differ from these forward-looking statements due to numerous factors, including: our inability to increase our revenues or raise additional funding to continue operations, execute our business plan, or to grow our business; inability to address a slow return to economic growth, and its impact on our business, results of operations and consolidated financial condition; our limited operating history; inability to implement our business strategy;  fluctuations in our quarterly results; failure to maintain our customer base that generates the majority of our revenues; currency fluctuations; failure to maintain sufficient insurance coverage; changes in value of our  goodwill; failure of a significant market to develop for our products; failure of hydrogen being readily available on a cost-effective basis; changes in government policies and regulations; failure of uniform codes and standards for hydrogen fueled vehicles and related infrastructure to develop; liability for environmental damages resulting from our research, development or manufacturing operations; failure to compete with other developers and manufacturers of products in our industry; failure to compete with developers and manufacturers of traditional and alternative technologies; failure to develop partnerships with original equipment manufacturers, governments, systems integrators and other third parties; inability to obtain sufficient materials and components for our products from suppliers; failure to manage expansion of our operations; failure to manage foreign sales and operations; failure to recruit, train and retain key management personnel; inability to integrate acquisitions; failure to develop adequate manufacturing processes and capabilities; failure to complete the development of commercially viable products; failure to produce cost-competitive products; failure or delay in field testing of our products; failure to produce products free of defects or errors; inability to adapt to technological advances or new codes and standards; failure to protect our intellectual property; our involvement in intellectual property litigation; exposure to product liability claims;  failure to meet rules regarding passive foreign investment companies; actions of our significant and principal shareholders; dilution as a result of significant issuances of our common shares and preferred shares; inability of US investors to enforce US civil liability judgments against us; volatility of our common share price; and dilution as a result of the exercise of options. 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 US 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.

/EIN News/ -- Reconciliation of Cash Operating Costs to Operating Costs and Adjusted EBITDA to Net Loss
(in thousands of US dollars)
(unaudited)

Cash operating costs

    Three months ended
June 30,
    Six months ended
June 30,
 
    2017     2016     2017     2016  
Selling, general and administrative expenses $ 3,333   $ 3,106   $ 6,334   $ 5,354  
Research and product development expenses   1,492     1,445     2,497     2,568  
Total operating costs $ 4,825   $ 4,551   $ 8,831   $ 7,922  
Less: Amortization and depreciation   (107 )   (121 )   (213 )   (200 )
Less: DSUs recovery (expense)   (459 )   76     (724 )   106  
Less: Stock-based compensation expense (including PSUs & RSUs)   (188 )   (161 )   (340 )   (290 )
Less: Loss on disposal of assets   (3 )       (114 )    
Cash operating costs $ 4,068   $ 4,345   $ 7,440   $ 7,538  
                         

Adjusted EBITDA                

    Three months ended
June 30
    Six months ended
June 30,
 
    2017     2016     2017     2016  
Net loss $ (5,742 ) $ (3,092 ) $ (8,008 ) $ (5,454 )
Finance loss (income)   1,167     360     2,107     562  
Amortization and depreciation   202     184     401     356  
DSUs expense (recovery)   459     (76 )   724     (106 )
Stock-based compensation expense (including PSUs & RSUs)   188     161     340     290  
Adjusted EBITDA $ (3,726 ) $ (2,463 ) $ (4,436 ) $ (4,352 )


Hydrogenics Corporation

Condensed Interim Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)

    June 30,
2017
  December 31,
2016
         
Assets        
Current assets        
Cash and cash equivalents $ 27,161   $ 10,338  
Restricted cash   1,359     405  
Trade and other receivables   15,019     9,802  
Inventories   17,819     17,208  
Prepaid expenses   1,090     918  
    62,448     38,671  
Non-current assets        
Restricted cash   704     535  
Investment in joint ventures   2,822     1,750  
Property, plant and equipment   3,684     4,095  
Intangible assets   184     203  
Goodwill   4,346     4,019  
    11,740     10,602  
Total assets $ 74,188   $ 49,273  
         
Liabilities        
Current liabilities        
Operating borrowings $ 2,283   $ 2,111  
Trade and other payables   12,152     7,235  
Financial liabilities   6,177     3,939  
Warranty provisions   1,437     1,221  
Deferred revenue   16,400     10,788  
    38,449     25,294  
Non-current liabilities        
Other non-current liabilities     8,887     9,262  
Non-current warranty provisions     561     841  
Non-current deferred revenue     2,859     3,494  
      12,307     13,597  
Total liabilities     50,756     38,891  
Equity        
Share capital     385,793     365,923  
Contributed surplus     19,495     19,255  
Accumulated other comprehensive loss     (2,675 )   (3,623 )
Deficit     (379,181 )   (371,173 )
Total equity     23,432     10,382  
Total equity and liabilities $   74,188   $ 49,273  
             

Hydrogenics Corporation
Consolidated Interim Statements of Operations and Comprehensive Loss
(in thousands of US dollars, except share and per share amounts)
(unaudited)

  Three months ended Six months ended
  June 30, June 30,
      2017     2016       2017     2016  
Revenues $ 7,487   $ 9,198   $ 16,324   $ 13,527  
Cost of sales   7,237     7,379     13,394     10,497  
Gross profit   250     1,819     2,930     3,030  
                 
Operating expenses                
Selling, general and administrative expenses   3,333     3,106     6,334     5,354  
Research and product development expenses   1,492     1,445     2,497     2,568  
    4,825     4,551     8,831     7,922  
                 
Loss from operations   (4,575 )   (2,732 )   (5,901 )   (4,892 )
                 
Finance income (loss)                
Interest expense, net   (454 )   (438 )   (923 )   (871 )
Foreign currency gains (losses), net(1)   394     (142 )   455     (178 )
Gain (Loss) from joint ventures   (101 )   (4 )   (171 )   52  
Other finance gains (losses), net   (1,006 )   224     (1,468 )   435  
Finance income (loss), net   (1,167 )   (360 )   (2,107 )   (562 )
                 
Loss before income taxes   (5,742 )   (3,092 )   (8,008 )   (5,454 )
Income tax expense   -     -     -     -  
Net loss for the period   (5,742 )   (3,092 )   (8,008 )   (5,454 )
                 
Items that may be reclassified subsequently to net loss                
Exchange differences on translating foreign  operations   677     (189 )   948     197  
Comprehensive loss for the period $ (5,065 ) $ (3,281 ) $ (7,060 ) $ (5,257 )
                 
Net loss per share                
Basic and diluted $ (0.45 ) $ (0.25 ) $ (0.64 ) $ (0.43 )
                 

Hydrogenics Corporation
Consolidated Interim Statements of Cash Flows
 (in thousands of US dollars) (unaudited)

     
  Three months ended
Six months ended
  June 30,
June 30,
      2017     2016       2017     2016  
Cash and cash equivalents provided by
   (used in):
               
Operating activities                
Net loss for the period $   (5,742 ) $ (3,092 ) $   (8,008 ) $ (5,454 )
Decrease (increase) in restricted cash     (912 )   (223 )     (1,002 )   7  
Items not affecting cash                
Loss on disposal of assets     3     -       114     -  
Amortization and depreciation     202     184       401     356  
Unrealized other losses on hedging     -     69       -     -  
Other finance losses (gains), net     826     (285 )     1,246     (416 )
Unrealized foreign exchange losses (gains)     (147 )   (17 )     (133 )   186  
Unrealized loss (gain) on joint ventures     101     4       171     (52 )
Accreted non-cash and unpaid interest and amortization of deferred financing fees     318     233       531     598  
Stock-based compensation     188     161       340     290  
Stock-based compensation - DSU’s     459     (76 )     724     (106 )
Net change in non-cash operating assets and liabilities     1,865     (2,900 )     2,148     (5,401 )
Cash used in operating activities     (2,839 )   (5,942 )     (3,468 )   (9,992 )
                 
Investing activities                
Investment in joint venture     -     -       (93 )   -  
Proceeds from disposals of property, plant and equipment     -     -       1,035     -  
Purchase of property, plant and equipment     (519 )   (276 )     (2,075 )   (904 )
Receipt of IDF government funding     1,492     30       1,851     215  
Purchase of intangible assets     (1 )   (5 )     (1 )   (47 )
Cash provided by (used in) investing activities     972     (251 )     717     (736 )
                 
Financing activities                
Common shares issued and stock options exercised, net of issuance costs     19,770     -       19,770     -  
Repayment of repayable government contributions     (56 )   (55 )     (112 )   (109 )
Principal repayment of long-term debt     (244 )   -       (678 )   -  
Proceeds of operating borrowings     -     -       190     -  
Repayment of operating borrowings     (1,449 )   -       -     (1,076 )
Cash provided by (used in) financing activities     18,021     (55 )     19,170     (1,185 )
                 
Increase (decrease) in cash and cash equivalents during the period     16,154     (6,248 )     16,419     (11,913 )
Cash and cash equivalents - Beginning of period     10,608     17,770       10,338     23,398  
Effect of exchange rate fluctuations on cash and cash equivalents held     399     57       405     94  
Cash and cash equivalents - End of period $   27,161   $ 11,579   $   27,161   $ 11,579  
                 
Supplemental disclosure                
Interest paid $   317   $ 204   $   615   $ 204  
                         


Hydrogenics Contacts:

Bob Motz, Chief Financial Officer
Hydrogenics Corporation
(905) 361-3660
investors@hydrogenics.com

Chris Witty
Hydrogenics Investor Relations
(646) 438-9385
cwitty@darrowir.com

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