Air Liquide Investment and Recent Wins Position Company for Growth in 2019 and Beyond
MISSISSAUGA, Ontario — 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 fourth quarter and full year 2018 financial results. Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards (IFRS).
“Having worked hard throughout 2018, I’m pleased to note the many recent accomplishments that have strengthened our outlook for the quarters to come,” said Daryl Wilson, President and Chief Executive Officer. “While fourth quarter revenue was down from 2017’s record level, it reflected sequential growth from earlier in 2018 and the impact from higher shipments to China as well as increased electrolyzer orders. In addition, we announced a strategic agreement with Air Liquide during the period, including an investment of $20.5 million into the Company. This significant development not only bolstered our balance sheet – providing capital for growth – but aligned Hydrogenics with one of the world’s leading hydrogen production organizations. The agreement was done at a premium to then-current market prices, reflecting a great deal of confidence in our technology, growth outlook, and position within the industry. We’ve since announced a contract to supply Air Liquide with electrolyzers for a 20-megawatt hydrogen generation facility – the world’s largest – and are actively discussing other joint activities across the globe. At the same time, we continue to work hand-in-hand with Alstom on a number of potential rail applications and are upbeat about the expected demand for mobility fuel cells this year. We are actively engaged in negotiations that should result in many new contract awards and across multiple product lines. We anticipate top-line growth in 2019, even if China-related trade issues persist. Our advanced PEM technology, breadth of applications, and strong global relationships position us for improving performance going forward.”
Summary of Results for the Quarter Ended December 31, 2018 (compared to the Quarter Ended December 31, 2017 unless otherwise noted)
- Company revenue was $10.5 million for the fourth quarter of 2018, a decrease of 47.0%, or $9.3 million, from the $19.7 million reported in the prior-year period. This decline reflects higher shipments of electrolyzers for certain projects during the fourth quarter of 2017, along with the negative impact in 2018 from delayed customer orders against the Company’s existing fuel cell backlog for the Chinese market.
- Hydrogenics secured $11.5 million of orders for renewable energy storage, industrial gas and power system applications during the quarter, resulting in an order backlog of $132.7 million as of December 31, 2018. Order backlog movement during the fourth quarter (in $ millions) was as follows:
|September 30, 2018
|December 31, 2018
- Of the above backlog of $132.7 million, Hydrogenics expects to recognize approximately $49.0 million as revenue in the following twelve months, not including orders both received and delivered in 2019.
- Gross profit was $1.9 million (18.3% of revenue) in 2018 compared to $5.7 million (28.7% of revenue) in the fourth quarter of 2017. The decrease in gross profit and gross margin was principally due to lower orders delivered and, within OnSite Generation, one-time charges for inventory obsolescence and project warranty accruals on prior-year projects.
- Cash operating costs1 decreased $0.7 million, to $4.7 million, for the current quarter compared to $5.4 million for the prior-year period reflecting a decrease in SG&A expense of $1.2 million, partially offset by an increase of $0.5 million in net R&D expense.
- Adjusted EBITDA2 decreased $3.0 million, to a loss of $2.8 million, for the fourth quarter of 2018 compared to a $0.2 million in the prior-year period. This change reflects the lower revenue level and decrease in gross margin as noted above.
- The net loss for the quarter was $3.1 million, or $(0.20) per share, versus $1.0 million, or $(0.06) per share, in the prior-year period.
Summary of Results for the Year Ended December 31, 2018 (compared to the Year Ended December 31, 2017 unless otherwise noted)
- Revenue decreased by $14.2 million, or 30%, to $33.9 million for the year ended December 31, 2018 compared to $48.1 million in the prior year. The Power Systems business segment declined by 32% primarily due to delayed customer orders against the Company’s existing backlog for the Chinese market, as previously noted. OnSite Generation declined by 28% due to reduced demand for industrial hydrogen applications.
- Gross margin increased to 25.7% of revenue from 24.3% in 2017, primarily due to product mix within the Power Systems segment, which saw an increase in gross margin to 39.0% from 35.1% last year. The OnSite Generation segment gross margin was 14.5% in 2018 versus 14.1% in 2017.
- Selling, general and administrative (“SG&A”) expense for 2018 of $11.6 million was lower by $2.0 million, or 14.8%, compared to $13.6 million for the year ended December 31, 2017. The decrease was attributable to non-cash gains realized on the revaluation of DSUs in 2018 due to changes in Hydrogenics’ stock price. Net of these non-cash gains, SG&A for the year decreased by $0.4 million, or 3.3%, as compared to last year.
- Net research and product development (“R&D”) expense was $7.5 million for the year ended December 31, 2018 compared to $6.4 million in 2017, an increase of $1.1 million, or 17.4%, primarily reflecting greater investment in fuel cell product development.
- Loss from operations increased by $2.1 million for the year ended December 31, 2018 to $10.4 million as compared to $8.3 million in 2017. The increase was attributable to lower revenue and higher net R&D expense, partially offset by lower SG&A for the year, as noted above.
- Net loss for the year ended December 31, 2018 was $13.3 million, or $(0.86) per share, compared to a net loss of $10.8 million, or $(0.77) per share, for the prior year. The increase in net loss in the current year was a result of lower revenue, the increase in loss from joint ventures and higher net R&D, partially offset by decreases in SG&A expense and net finance loss. The lower net finance loss was primarily due to non-cash gains in the fair value of outstanding warrants.
- Cash operating costs increased by $0.6 million for the year ended December 31, 2018 compared to last year, reflecting an increase in net R&D of $1.1 million, partially offset by a $0.4 million decrease in SG&A expense.
- Adjusted EBITDA loss increased by $3.4 million to $9.4 million for the year ended December 31, 2018 from $6.0 million for the prior year. The increase was primarily attributable to lower gross profit of $3.0 million and higher cash operating costs of $0.6 million.
- 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.
- 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 March 15, 2019 to review the fourth 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.
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.