Hydrogenics Reports Q1 Results

Highlights

- First quarter revenues up 56% year over year.

- Orders received up 65% to $13.8 million year over year/$29.6 million order backlog.

- OnSite Generation business achieved profitability in the first quarter of 2008.

- Cash operating costs down 41% or $4.0 million year over year and 36% or $3.2 million on a sequential quarterly basis.

- Improved gross profit and lower cash operating costs produced a 54% reduction in year over year loss from operations.

- Cash and cash equivalents, restricted cash and short-term investments were $33.1 million as at March 31, 2008 an increase of $2.6 million from December 31, 2007.

Hydrogenics Corporation (Toronto:HYG.TO - News)(NasdaqGM:HYGS - News), a leading developer and manufacturer of hydrogen and fuel cell products, is reporting first quarter 2008 results. Results are reported in U.S. dollars and are prepared in accordance with Canadian generally accepted accounting principles.

"We have emerged from an important transition year where we focused on commercial markets and standard products, reduced headcount approximately 50% to 170 people and raised revenue per employee 300%. As a result of these actions we are pleased to share dramatically improved overall business results in the first quarter. We are now meeting our own challenging targets. Our strategic focus on renewable energy projects and standard commercial products is showing good promise for ongoing growth," said Daryl Wilson, President and Chief Executive Officer.

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

Revenues were $10.7 million for the first quarter of 2008, a 56% increase from revenues of $6.9 million for the comparable period of 2007. This increase is attributable to increased revenues of $5.5 million in our OnSite Generation business unit, partially offset by decreased revenues in our Power Systems and Test Systems business units due to a lower level of military revenues and the decision to wind up our test equipment business.

Gross profit, expressed as a percentage of revenues, was 17% (13% in 2007) and primarily reflects increased gross profits 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, were $5.8 million, a 41% decrease from $9.8 million in 2007 attributed to the absence of a $2.1 million streamlining charge taken in the first quarter of 2007, an overall reduced cost structure and more focused research and product development.

Net loss was $4.3 million for the first quarter of 2008, a decrease of 48% from $8.3 million in 2007.

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

Revenues were $10.7 million for the first quarter of 2008, a 3% decrease in revenues over the fourth quarter of 2007 primarily resulting from variations in order intake patterns in our OnSite Generation business unit.

Gross profit, expressed as a percentage of revenues, was 17% compared to 13% primarily due to increased gross profits generated by our OnSite Generation business unit resulting from operational improvements.

Cash operating costs were $5.8 million, a decrease of 36% from $9.0 million in the fourth quarter of 2007 reflecting the results of streamlining efforts undertaken during the fourth quarter of 2007.

Net loss was $4.3 million for the first quarter of 2008, a decrease of 54% from $9.5 million in 2007.

Liquidity

Cash and cash equivalents, restricted cash and short-term investments were $33.1 million as at March 31, 2008. The $2.6 million sequential quarterly increase in cash and cash equivalents, restricted cash and short-term investments is attributable to: (i) $3.1 million of net cash inflows from operations, offset by; (ii) $0.3 million of capital expenditures; and (iii) $0.2 million of decreases in deferred research and product development grants.

Order backlog

Order backlog as at March 31, 2008 was $29.6 million, as follows (in $ millions):



                     Dec. 31/07      Orders      Orders    Mar. 31/08
                        Backlog    Received   Delivered       Backlog
-----------------------------------------------------------------------
-----------------------------------------------------------------------

OnSite Generation        $ 15.8      $ 12.5       $ 7.3        $ 21.0
Power Systems               8.6         0.9         1.0           8.5
Test Systems                2.1         0.4         2.4           0.1
-----------------------------------------------------------------------
Total                    $ 26.5      $ 13.8      $ 10.7        $ 29.6
-----------------------------------------------------------------------
-----------------------------------------------------------------------

In addition to revenues recognized in the first quarter of 2008, we expect to deliver, and recognize as revenue in 2008 more than 80% of our total order backlog as at March 31, 2008.

First Quarter Highlights

Progress on markets:

OnSite Generation

- Delivered seven hydrogen generation units for industrial applications.

- Secured $12.5 million of new orders and exited the quarter with a $21.0 million order backlog. New orders include delivery of high purity hydrogen onsite units for metallurgical processing, microelectronics manufacturing and preparation of nuclear fuel for shipment to power generation reactors throughout Europe.

Power Systems

- Delivered 12 fuel cell power modules.

- Received power module orders from four new customers including four orders for forklift power packs.

- Secured $0.9 million of new orders and exited the quarter with an $8.5 million order backlog.

Test Systems

- Delivered two remaining test stations as we proceeded with the wind up of our test equipment business.

- Subsequent to quarter end, we signed an agreement to license technology to Greenlight Innovations Corporation, a newly formed business consisting of members of the former management team of Hydrogenics' Burnaby based test equipment business.

Conference Call Details

Hydrogenics will hold a conference call to review results on May 6, 2007 at 9:00 a.m. (EDT). To participate in this conference call, please dial 416-641-6111 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)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

                                                  March 31     December 31
                                                      2008            2007
                                                ---------------------------

Assets

Current assets
Cash and cash equivalents                         $ 27,027        $ 15,460
Restricted cash                                      6,066               -
Short-term investments                                   -          15,032
Accounts receivable                                  7,625          12,713
Grants receivable                                      932             850
Inventories                                         11,655          12,659
Prepaid expenses                                     1,071           1,105
                                                ---------------------------
                                                    54,376          57,819

Property, plant and equipment                        4,891           4,847
Intangible assets                                      186             249
Goodwill                                             5,025           5,025
                                                ---------------------------
                                                  $ 64,478        $ 67,940
                                                ---------------------------
                                                ---------------------------

Liabilities

Current liabilities
Accounts payable and accrued liabilities          $ 16,720        $ 18,166
Unearned revenue                                    10,601           9,042
                                                ---------------------------
                                                    27,321          27,208

Long-term debt                                           1              11
Deferred research and development grants               167             337
                                                ---------------------------
                                                    27,489          27,556
                                                ---------------------------

Shareholders' Equity
Share capital                                      306,872         306,872
Contributed surplus                                 15,842          15,606
Deficit                                           (281,423)       (277,101)
Accumulated other comprehensive loss                (4,302)         (4,993)
                                                ---------------------------
Total deficit and accumulated other
 comprehensive income (loss)                      (285,725)       (282,094)
                                                ---------------------------
                                                    36,989          40,384
                                                ---------------------------
                                                  $ 64,478        $ 67,940
                                                ---------------------------
                                                ---------------------------



Hydrogenics Corporation
Interim Consolidated Statements of Shareholders' Equity
(in thousands of U.S. dollars, except for share and per share amounts)
(unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                     Accum-
                                                     ulated
                                                      other
                   Common shares Contri-            compre-          Total
                  --------------   buted            hensive  shareholders'
               Number     Amount surplus    Deficit  income         equity
                                                      (loss)

Balance
 at
 Dec.
 31, 2006  91,916,466  $ 307,376 $13,718 $ (249,033)$(5,304)      $ 66,757
Net
 loss
 for
 the
 period             -          -       -    (28,068)      -        (28,068)
Foreign
 currency
 transla-
 tion
 adjust-
 ments              -           -      -          -     311            311
                                                             --------------
Compre-
 hensive
 loss               -           -      -          -       -        (27,757)
                                                             --------------

Shares
 issued:

Shares
 returned
 to
 treasury    (150,775)       (504)   335          -       -           (169)
Stock-
 based
 compen-
 sation
 expense            -           -  1,553          -       -          1,553
          -----------------------------------------------------------------
Balance
 at
 Dec.
 31, 2007  91,765,691     306,872 15,606   (277,101) (4,993)        40,384

Net loss
 for
 the
 period             -          -       -     (4,322)      -         (4,322)
Foreign
 currency
trans-
 lation
 adjust-
 ments              -          -       -          -     691            691
                                                             --------------
Compre-
 hensive
 loss                                                               (3,631)
                                                             --------------
Shares
 issued:

Adjustment
 for
 partial
 shares            (5)         -       -          -       -              -
Stock-
 based
 compen-
 sation
 expense            -          -     236                  -            236
          ---------------------------------------------------------------
Balance
 at
 Mar.
 31, 2008  91,765,686  $ 306,872 $15,842 $ (281,423)$(4,302)      $ 36,989
          -----------------------------------------------------------------
          -----------------------------------------------------------------

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 ended March 31
                                                      2008            2007
                                                ---------------------------

Revenues                                          $ 10,711         $ 6,850

Cost of revenues                                     8,846           5,936
                                                ---------------------------
                                                     1,865             914
                                                ---------------------------

Operating expenses
Selling, general and administrative                  4,061           6,947
Research and product development                     1,712           2,862
Amortization of property, plant and
 equipment                                             271             224
Amortization of intangible assets                       63              63
                                                ---------------------------
                                                     6,107          10,096

Loss from operations                                (4,242)         (9,182)
                                                ---------------------------

Other income (expenses)
Provincial capital tax                                 (38)            (18)
Interest                                               228             867
Foreign currency gains (losses)                       (270)             30
                                                ---------------------------
                                                       (80)            879
                                                ---------------------------

Loss before income taxes                            (4,322)         (8,303)
Current income tax expense                               -               3
                                                ---------------------------
Net loss for the period                           $ (4,322)       $ (8,306)
                                                ---------------------------
                                                ---------------------------

Net loss per share
Basic and diluted                                  $ (0.05)        $ (0.09)
Shares used in calculating
 basic and diluted net loss per share           91,765,689      91,896,363



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

                                               Three months ended March 31
                                                      2008            2007
                                                ---------------------------

Cash and cash equivalents provided by (used in)
Operating activities
Net loss for the period                           $ (4,322)       $ (8,306)
Items not affecting cash
 Amortization of property, plant and equipment         271             426
 Amortization of intangible assets                      63              63
 Unrealized foreign exchange (gains) losses           (152)           (108)
 Stock-based compensation                              236             490
Net change in non-cash working capital               7,000          (1,937)
                                                ---------------------------
                                                     3,096          (9,372)
                                                ---------------------------

Investing activities
Decrease in short-term investments                  15,032          54,350
Increase in restricted cash                         (6,066)              -
Purchase of property, plant and equipment             (315)           (211)
                                                ---------------------------
                                                     8,651          54,139
                                                ---------------------------

Financing activities
Repayment of long-term debt                            (10)            (37)
Deferred research and development grant               (170)            473
Shares returned to treasury                              -            (169)
                                                ---------------------------
                                                      (180)            267
                                                ---------------------------

Increase in cash and cash equivalents during
 the period                                         11,567          45,034
Cash and cash equivalents
 - Beginning of period                              15,460           5,937
                                                ---------------------------
Cash and cash equivalents
 - End of period                                  $ 27,027        $ 50,971
                                                ---------------------------
                                                ---------------------------


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