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Hydrogenics Reports Second Quarter 2019 Results Outlook Improving; Acquisition by Cummins announced

By August 12, 2019 6   min read  (966 words)

August 12, 2019 |

Hydrogenics Financials

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 second quarter 2019 financial results. Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards (IFRS).

Recent Highlights

“Quarterly revenue rose to $10.4 million in the quarter – up 37% year-over-year – and we continue to work towards cementing our first commercial rail production order with Alstom for fuel cell systems that will serve the Hydrail Commuter Trains in Germany,” said Daryl Wilson, President and Chief Executive Officer. “We’re very proud that our innovative heavy-duty mobility applications are setting the standard for trains and buses alike and, with partners like Alstom, the Company will be able to accelerate adoption in Asia, Europe, and the Americas faster than could be achieved on our own. In so doing, we’re helping drive the hydrogen economy of tomorrow.”

On June 28, we announced that we had entered into an arrangement agreement with Cummins Inc. (“Cummins”) and Atlantis AcquisitionCo Canada Corporation (the “Purchaser”), a subsidiary of Cummins, pursuant to which the Purchaser has agreed to acquire all of the outstanding common shares of the Company (the “Shares”), other than Shares owned by The Hydrogen Company, a wholly owned subsidiary of L’Air Liquide S.A., for US$15.00 in cash per Share (the “Transaction”). The Hydrogen Company has agreed to exchange its Shares for shares of the Purchaser pursuant to the Transaction. The consideration per Share to be received by the Company’s shareholders (the “Shareholders”) (other than The Hydrogen Company and its affiliates and any dissenting Shareholder) in connection with the Transaction represents a premium of 21.6% over the 30-day volume-weighted average price (“VWAP”) of the Shares on the NASDAQ and 38.8% over the 90-day VWAP on the NASDAQ for the period ending June 27, 2019.

There will be a special meeting of Shareholders on August 29, 2019, at which Shareholders of record as of July 15, 2019, will vote on a special resolution to approve the Transaction. Subject to the outcome of this meeting and the satisfaction or waiver of all other conditions precedent, the Company expects the Transaction to close in September 2019.

Summary of Results for the Quarter Ended June 30, 2019 (compared to the Quarter Ended June 30, 2018 unless otherwise noted)

  • The Company posted revenue of $10.4 million for the second quarter of 2019, a 37% increase over the same period in 2018.
  • Gross margin decreased to 12.9% in the second quarter of 2019 from 27.6% last year, primarily reflecting product mix as well as additional costs for warranty provisions and inventory obsolescence. In the prior-year period, Hydrogenics delivered equipment for several large projects with higher margins, and warranty provisions (no longer required) were extinguished in the period.
  • Cash operating costs1 increased $0.1 million, to $4.7 million, in the 2019 second quarter compared to $4.6 million in 2018. Selling, General and Administrative (“SG&A”) expenses rose by $1.5 million year-over-year, primarily reflecting $0.8 million of one-time transaction and professional costs associated with the Arrangement Agreement announced June 28, 2019, whereby the Company will be acquired by Cummins, Inc. (“Cummins”). This increase was partially offset by reduction in net Research and Development (“R&D”) expenses, primarily related to the completion of non-recurring development projects.
  • The Company’s Adjusted EBITDA2 loss increased $0.8 million, to $3.3 million, in the second quarter of 2019 from $2.5 million in the prior-year period. This variance reflects $0.8 million in one-time expenses associated with the aforementioned Arrangement Agreement.
  • Net loss was $4.8 million, or $(0.25) per share, for the 2019 second quarter versus a similar net loss of $4.8 million, or $(0.31) per share, in the same period last year.
  • The Company ended the second quarter of 2019 with a backlog at $144.1 million, securing orders of $4.4 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,  
2019 backlog
Orders Received FX Orders Delivered/ Revenue Recognized June 30,  
2019 backlog
OnSite Generation $   40.0 $   3.5 $    0.1 $   7.6 $   36.0
Power Systems 110.0 0.9 2.8 108.1
Total $   150.0 $   4.4 $   0.1 $   10.4 $   144.1
  • Of the above backlog of $144.1 million, the Company expects to recognize $59.9 million in the following 12 months as revenue. In addition, revenue for the year ending December 31, 2019 will also include orders both received and delivered during the balance of 2019.

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 12, 2019 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.

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