Hydrogenics: Q4 and 2008 Results

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Hydrogenics Corporation, a leading developer and manufacturer of hydrogen generation and fuel cell products, reported fourth quarter and 2008 results. Results are reported in US dollars and are prepared in accordance with Canadian generally accepted accounting principles.

Financial Highlights

- Revenues, exclusive of our test systems business unit, were $8.9 million for the fourth quarter of 2008 and $36.9 million for the full year, an increase of 9% and 43%, respectively.

- Gross margin was 29% for the fourth quarter of 2008 and 20% for the full year, increases of 16 and 8 percentage points, respectively.

- EBITDA loss was $2.0 million for the fourth quarter of 2008 and $14.4 million for the full year, a reduction of $7.6 million or 79% and $16.9 million or 54%, respectively.

- Cash and cash equivalents, restricted cash and short-term investments were $22.7 million at December 31, 2008, a nominal $0.5 million sequential reduction from the third quarter of 2008.

- Ending backlog was $22.2 million, more than 90% of which is anticipated to be delivered and recognized as revenue in 2009.

"Hydrogenics' strong fourth quarter results were evidenced by higher revenues and gross margin, decreased operating expenses and a 74% reduction in annual cash consumption," said Daryl Wilson, President and Chief Executive Officer. "We made significant progress throughout 2008 to position the Corporation for sustainable growth, focusing our resources on product development and market engagement initiatives with leading OEMs, oil and gas companies and progressive electrical utilities throughout the world. We also made significant strides to advance our product readiness in terms of performance, cost, reliability and quality. We are mindful of the current economic situation and continue to take steps to conserve our cash to best capture compelling opportunities across a number of markets," added Wilson.

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

Revenues, exclusive of our test systems business unit, were $8.9 million in 2008, an increase of 9%, reflecting stronger OnSite Generation revenues across all markets.

Gross profit, expressed as a percentage of revenues, was 29% (13% in 2007) attributed to operational improvements, product cost reductions and a more favourable absorption of overhead.

Cash operating costs, a non-GAAP measure, defined as selling, general and administrative expenses, and research and product development expenses less stock-based compensation expense and compensation expenses indexed to our share price, were $4.4 million, a 49% decrease from $8.7 million in 2007 attributed to our ongoing streamlining initiatives.

Net loss was $2.0 million, a 79% decrease from $9.5 million in 2007.

Results for 2008 compared to 2007

Revenues, exclusive of our test systems business unit, were $36.9 million, an increase of 43%, driven by an $11.6 million or 59% growth in revenue in our OnSite Generation business unit.

Gross profit, expressed as a percentage of revenues, was 20% (12% in 2007) attributed to operational improvements in our OnSite Generation business achieved throughout the year.

Cash operating costs were $21.6 million, a 33% decrease from $32.1 million in 2007 resulting from our business streamlining initiatives, the decision to wind up our fuel cell test equipment business and the absence of $6.1 million in severance and related expenses.

Net loss was $14.3 million, a decrease of 49% from $28.1 million in 2007.

Liquidity

Cash and cash equivalents, restricted cash and short-term investments were $22.7 million as at December 31, 2008. This $0.5 million sequential quarterly decrease reflects minimal net cash inflows from operations, $0.6 million of capital expenditures, and $0.1 million of decreased deferred research and product development funding from third parties.

Order backlog

Order backlog as at December 31, 2008 was $22.2 million, as follows (in $ millions):



                          Sep. 30,       Orders        Orders    Dec. 31,
                              2008     Received     Delivered        2008
                           Backlog                                Backlog
-------------------------------------------------------------------------
-------------------------------------------------------------------------

OnSite Generation           $ 18.5        $ 4.2         $ 8.1      $ 14.6
Power Systems                  7.7          0.7           0.8         7.6
-------------------------------------------------------------------------
Total                       $ 26.2        $ 4.9         $ 8.9      $ 22.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------

We expect to deliver and recognize as revenue, more than 90% of our total order backlog in 2009.

Conference Call Details

Hydrogenics will hold a conference at 10:00 a.m. ET on March 25, 2009 to review the fourth quarter and 2008 results. The conference call number is (866) 540-8136. A live webcast of the call will also be available at www.hydrogenics.com. The webcast will be archived for one week by calling (416) 695-5800 and entering conference ID #3282932.

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 and other statements concerning Hydrogenics' objectives and strategies and management's beliefs, plans, estimates and intentions 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 successfully execute our business plan which includes an increase in revenue and obtaining additional capital; our liquidity; our operating results; our revenue growth; our industry; our 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
Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                            2008      2007
ASSETS

Current assets
Cash and cash equivalents                               $ 21,601  $ 15,460
Restricted cash                                            1,130         -
Short-term investments                                         -    15,032
Accounts receivable                                        3,974    12,713
Grants receivable                                            505       850
Inventories                                               10,101    12,659
Prepaid expenses                                           1,161     1,077
                                                        --------- ---------
                                                          38,472    57,791

Property, plant and equipment                              4,082     4,847
Intangible assets                                              -       249
Goodwill                                                   5,025     5,025
Other non-current assets                                       -        28
                                                        --------- ---------
                                                        $ 47,579  $ 67,940
                                                        --------- ---------
                                                        --------- ---------

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities                $ 17,298  $ 18,166
Unearned revenue                                           4,785     9,042
                                                        --------- ---------
                                                          22,083    27,208

Long-term debt                                                 -        11
Deferred research and development grants                      13       337
                                                        --------- ---------
                                                          22,096    27,556
                                                        --------- ---------

Shareholders' Equity
Share capital                                            307,000   306,872
Contributed surplus                                       16,300    15,606
Deficit                                                 (291,420) (277,101)
Accumulated other comprehensive loss                      (6,397)   (4,993)
                                                        --------- ---------
Total deficit and accumulated other comprehensive loss  (297,817) (282,094)
                                                        --------- ---------
                                                          25,483    40,384
                                                        --------- ---------
                                                        $ 47,579  $ 67,940
                                                        --------- ---------
                                                        --------- ---------



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

                                Three months ended
                                           Dec. 31      Year ended Dec. 31
                                  2008        2007        2008        2007
                           ------------------------------------------------

Revenues                       $ 8,855    $ 11,051    $ 39,340    $ 37,990

Cost of revenues                 6,287       9,621      31,446      33,601
                           ------------------------------------------------
                                 2,568       1,430       7,894       4,389
                           ------------------------------------------------
Operating expenses
Selling, general and
 administrative                  2,831       6,915      15,022      24,006
Research and product
 development                     1,741       2,084       7,296       9,690
Windup of fuel cell test
 equipment business                  -       2,016           -       2,016
Amortization of property,
 plant and equipment               155         226         855         903
Amortization of intangible
 assets                             61          63         249         251
                           ------------------------------------------------
                                 4,788      11,304      23,422      36,866
                           ------------------------------------------------
Loss from operations            (2,220)     (9,874)    (15,528)    (32,477)
                           ------------------------------------------------

Other income (expenses)
Gain on sale of assets              44           -          44           -
Provincial capital tax               -         121         170        (127)
Loss on disposal of assets           -        (308)          -        (308)
Interest                           151         329         923       2,249
Foreign currency gains              71         244         188       2,617
                           ------------------------------------------------
                                   266         386       1,325       4,431
                           ------------------------------------------------

Loss before income taxes        (1,954)     (9,488)    (14,203)    (28,046)
Current income tax expense
 (recovery)                         (4)          9         116          22
                           ------------------------------------------------
Net loss for the period       $ (1,950)     (9,497)  $ (14,319)  $ (28,068)
                           ------------------------------------------------
                           ------------------------------------------------


Net loss per share
Basic and diluted              $ (0.02)    $ (0.10)    $ (0.16)    $ (0.31)


Weighted average number of
 common shares outstanding  92,405,666  91,765,691  92,080,656  91,797,911



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

                                  Three months ended
                                             Dec. 31    Year ended Dec. 31
                                      2008      2007       2008       2007
                                  -----------------------------------------

Cash and cash equivalents
 provided by (used in)
Operating activities
Net loss for the period           $ (1,950) $ (9,497) $ (14,319) $ (28,068)
Items not affecting cash
 Amortization of property, plant
  and equipment                        406       403      1,106      1,611
 Amortization of intangible
  assets                                61        63        249        251
 Loss on disposal of capital
  assets                                 -       308          -        308
 Unrealized foreign exchange
  losses (gains)                       594      (245)       695         29
 Stock-based compensation              127       287        694      1,553
 Gain on sale of assets                (44)        -        (44)         -
Net change in non-cash working
 capital                               882     1,560      4,817     (4,100)
                                  -----------------------------------------
                                        76    (7,121)    (6,802)   (28,416)
                                  -----------------------------------------

Investing activities
Decrease (increase) in
 short-term investments                  -      (203)    15,032     39,318
Decrease (increase) in
 restricted cash                     4,233         -     (1,130)         -
Proceeds from sale of assets            44         -         44          -
Purchase of property, plant and
 equipment                            (555)     (446)      (885)    (1,331)
                                  -----------------------------------------
                                     3,722      (649)    13,061     37,987
                                  -----------------------------------------

Financing activities
Increase is (repayment) of
 long-term debt                          -        11        (11)       (83)
Deferred research and
 development grant                     (96)      134       (235)       204
Common shares issued (purchased
 and cancelled), net of
 issuance costs                          -         -        128       (169)
                                  -----------------------------------------
                                       (96)      145       (118)       (48)
                                  -----------------------------------------

Increase (decrease) in cash
 and cash equivalents
 during the period                   3,702    (7,625)     6,141      9,523

Cash and cash equivalents -
 Beginning of period                17,899    23,085     15,460      5,937
                                  -----------------------------------------
Cash and cash equivalents -
 End of period                    $ 21,601  $ 15,460   $ 21,601   $ 15,460
                                  -----------------------------------------
                                  -----------------------------------------



Hydrogenics Corporation
Consolidated Statements of Shareholders' Equity
(in thousands of US dollars, except for share and per share amounts)
(unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                           Accum-
                                                           ulated
                                                            other
                                                            comp-     Total
                  Common shares      Contri-               rehen-    share-
             ---------------------     buted                 sive  holders'
                 Number    Amount    surplus    Deficit      loss    equity
Balance at
 Dec. 31,
 2005        91,679,670  $306,957   $ 11,847  $(118,274)  $(5,023) $195,507
Comprehensive
 loss:
Net loss
 for the
 year                 -         -          -   (130,759)        -  (130,759)
Foreign
 currency
 translation
 adjustments          -         -          -          -      (281)     (281)
                                                                   ---------
Comprehensive
 loss                                                              (131,040)
                                                                   ---------
Issuance
 of common
 shares on
 exercise
 of options     236,796       419                                       419
Stock-based
 consulting
 expense              -         -         39          -         -        39
Employee
 stock-based
 compensation
 expense              -         -      1,832          -         -     1,832
             ---------------------------------------------------------------
Balance at
 Dec. 31,
 2006        91,916,466   307,376     13,718   (249,033)   (5,304)   66,757
             ---------------------------------------------------------------
Comprehensive
 loss:
Net loss
 for the
 year                 -         -          -    (28,068)        -   (28,068)
Foreign
 currency
 translation
 adjustments          -         -          -          -       311       311
                                                                   ---------
Comprehensive
 loss                                                               (27,757)
                                                                   ---------
Shares
 returned
 to treasury   (150,775)     (504)       335          -         -      (169)
Employee
 stock-based
 compensation
 expense              -         -      1,553          -         -     1,553
             ---------------------------------------------------------------
Balance at
 Dec. 31,
 2007        91,765,691   306,872     15,606   (277,101)   (4,993)   40,384
             ---------------------------------------------------------------
Comprehensive
 loss:
Net loss
 for the
 year                 -         -          -    (14,319)        -   (14,319)
Foreign
 currency
 translation
 adjustments          -         -          -          -    (1,404)   (1,404)
                                                                   ---------
Comprehensive
 loss                                                               (15,723)
                                                                   ---------
Issuance
 of common
 shares on
 exercise
 of options     639,980       128          -          -         -       128
Adjustment
 for partial
 shares              (5)        -          -          -         -         -
Employee
 stock-based
 compensation
 expense              -         -        694          -         -       694
             ---------------------------------------------------------------
Balance at
 Dec. 31,
 2008        92,405,666  $307,000   $ 16,300 $ (291,420)  $(6,397)  $25,483
             ---------------------------------------------------------------
             ---------------------------------------------------------------

Contact:

     Hydrogenics Corporation
     Lawrence Davis, Chief Financial Officer
     (905) 361-3633
     [email protected]
     http://www.hydrogenics.com

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