Highpower International Reports Unaudited First Quarter 2018 Financial Results

Highpower International Reports Unaudited First Quarter 2018 Financial Results

SAN DIEGO and SHENZHEN, China, May 11, 2018 /PRNewswire/ -- Highpower International, Inc. (NASDAQ: HPJ) ("Highpower" or the "Company"), a developer, manufacturer, and marketer of lithium ion and nickel-metal hydride (Ni-MH) rechargeable batteries, battery management systems, and a provider of battery recycling, today announced its financial results for the first quarter ended March 31, 2018.

First Quarter 2018 Highlights (all results compared to prior year period)

    --  Net sales for the first quarter of 2018 increased by 18.9% to $49.8
        million from $41.9 million. Excluding the impact of Ganzhou Highpower
        Technology Co., Ltd. ("GZ Highpower"), net sales increased 24.1% to
        $49.8 million from $40.1 million.
    --  Lithium business net sales increased 33.1% to $36.6 million from $27.5
        million.
    --  Gross margin decreased to 15.2% of net sales compared to 23.7%.
        Excluding GZ Highpower, gross margin was 15.2% compared to 23.3%.
    --  Net loss attributable to the Company was $1.1 million, or loss of $0.07
        per diluted share, compared to net income attributable to the Company of
        $2.5 million, or earnings of $0.17 per diluted share. Excluding GZ
        Highpower, net loss attributable to the Company was $1.1 million
        compared to net income attributable to the Company of $2.3 million.

Recent Event

    --  On February 28, 2018, the Company signed an investment agreement (the
        "Agreement") with an aggregate amount of RMB4.9 million (approximately
        $0.8 million) for 49% of the equity interest of Shenzhen V-power
        Innovative Technology Co., Ltd ("V-power"). Pursuant to the terms of the
        Agreement, the Company shall complete the capital injection to V-power
        no later than December 31, 2018. V-power focuses on the development of
        electronic vehicle battery management systems ("EV BMS"), in the future
        V-power will gradually extend the business to the design and production
        of EV power modules, energy storage systems ("ESS"), and related
        products.

Mr. George Pan, Chairman and CEO of Highpower International, commented, "Despite the ongoing industry challenge of high raw material prices, we are pleased to beat our top-line guidance for the first quarter, driven by continued strong growth in our lithium business. During the quarter, we continued to focus on our core lithium products, such as by attending the 2018 International Consumer Electronics Show (CES) in Las Vegas, where we showcased our advanced rechargeable battery products for notebooks, smart phones, wearable devices, smart house appliances, portable power stations, and other digital products. We also increased our R&D efforts in order to fine-tune and develop new technologies that improve product safety and reliability as well as to provide solutions that fulfill the innovations of our international customer base."

"While we continue to face industry cost headwinds, we are committed to improving our production efficiency and maintaining an efficient supply chain. As always, we remain focused on sustainable growth and on providing clean, safe, and efficient power solutions to meet society's needs," Mr. Pan concluded.

First Quarter 2018 Financial Results

Net Sales

Net sales for the first quarter of 2018 increased 18.9% to $49.8 million from $41.9 million in the prior year period. The increase was driven by sales of the Company's lithium business, which grew 33.1%, or $9.1 million, during the quarter. Excluding the impact of GZ Highpower, net sales increased 24.1% to $49.8 million from $40.1 million.

Gross Profit

Gross profit for the first quarter of 2018 decreased 23.8% to $7.6 million from $9.9 million in the prior year period due to high raw material prices. Gross margin for the first quarter of 2018 was 15.2% compared to 23.7% in the prior year period. Excluding GZ Highpower, gross margin was 15.2% compared to 23.3%.

Operating Expenses

    --  Research and development (R&D) expenses for the first quarter of 2018
        were $2.6 million compared to $1.8 million in the prior year period. As
        a percentage of net sales, R&D expenses increased to 5.1% from 4.3% in
        the prior year period due to the Company's continued investments in R&D.
    --  Selling and distribution expenses for the first quarter of 2018 were
        $2.0 million compared to $1.6 million in the prior year period. As a
        percentage of net sales, selling and distribution expenses increased to
        4.0% from 3.9% in the prior year period, remaining relatively stable.
    --  General and administrative expenses for the first quarter of 2018 were
        $4.1 million compared to $3.1 million in the prior year period. As a
        percentage of net sales, general and administrative expenses increased
        to 8.3% from 7.3% in the prior year period. The increase was due to an
        increase of the provisions for the Company's incentive plan.

Net Income

Net loss attributable to the Company for the first quarter of 2018 was $1.1 million. During the prior year period, the Company achieved a net income attributable to the Company of $2.5 million. Net loss attributable to the Company per diluted share for the first quarter of 2018 was $0.07 compared to a net income attributable to the Company per diluted share of $0.17 in the prior year period. Excluding GZ Highpower, net loss attributable to the Company was $1.1 million compared to net income attributable to the Company of $2.3 million in the prior year period.

For the quarter ended March 31, 2018, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,509,658.

EBITDA

EBITDA for the first quarter of 2018 decreased 88.2% to $0.6 million from $5.0 million in the prior year period.

A table reconciling EBITDA to the appropriate GAAP measure is included with the Company's financial information below.


    Balance Sheet Highlights

    ($ in millions, except per share data)          March 31,         December 31,
    -------------------------------------

                                         2018 2017
                                         ---- ----

                                                   (Unaudited)

                                                                    $                  $

    Cash                                                        $18.9               $14.5

    Total Current Assets                                       $176.3              $156.0

    Total Assets                                               $244.5              $220.3


    Total Current Liabilities                                  $175.4              $152.3

    Total Liabilities                                          $175.4              $153.1

    Total Equity                                                $69.2               $67.2

    Total Liabilities and Equity                               $244.5              $220.3

    Book Value Per Share                                        $4.46               $4.33

Financial Outlook

For the second quarter of 2018, the Company expects net revenues to grow over 30% year over year. Factoring in the impact of expected, continued high raw material prices, gross margin is expected to be similar or slightly lower than first quarter of 2018. For the full year 2018, the Company expects net revenues to grow at least 20% compared to 2017 and gross margin levels to exceed that of the first quarter of 2018.

Conference Call Details

The Company will hold a conference call on Friday, May 11, 2018 at 10:00 am Eastern Time or 10:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:


    United States:                      877-407-3108

    International:                      201-493-6797

To listen to the live webcast, please go to www.highpowertech.com and click on the conference call link, or go to https://78449.themediaframe.com/dataconf/productusers/hpj/mediaframe/24661/indexl.html. This webcast will be archived and accessible through the Company's website for approximately 30 days following the call.

About Highpower International, Inc.

Highpower International was founded in 2001 and produces high-quality Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries used in a wide range of applications such as electric buses, bikes, energy storage systems, power tools, medical equipment, digital and electronic devices, personal care products, and lighting, etc. Highpower's target customers are Fortune 500 companies and top 20 companies in each vertical segment. With advanced manufacturing facilities located in Shenzhen, Huizhou, and Ganzhou of China, Highpower is committed to clean technology, not only in the products it makes, but also in the processes of production. The majority of Highpower International's products are distributed to worldwide markets mainly in the United States, Europe, China and Southeast Asia.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP (generally accepted accounting principles) financial information with non-GAAP measures. EBITDA was derived by taking earnings before interest expense (net), taxes, depreciation and amortization. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The Company believes this non-GAAP measure is useful to investors as it provides a basis for evaluating the Company's operating results in the ordinary course of its operations. This non-GAAP measure is not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with, and not in lieu of, the corresponding GAAP measures. EBITDA is reconciled in the accompanying table to the most directly comparable measure as reported in accordance with GAAP.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995 that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements involve known and unknown risks, uncertainties and other factors that could cause the Company's actual results to differ materially from the results expressed or implied by such statements, including, without limitation, fluctuations in the cost of raw materials; our dependence on, or inability to attract additional, major customers for a significant portion of our net sales; our ability to increase manufacturing capabilities to satisfy orders from new customers; our ability to maintain increased margins; our dependence on the growth in demand for smart wearable devices and energy storage systems, and other digital products and the success of manufacturers of the end applications that use our battery products; our responsiveness to competitive market conditions; our ability to successfully manufacture our products in the time frame and amounts expected; the market acceptance of our battery solutions, including our lithium ion batteries; and our ability to continue R&D development to keep up with technological changes. For a discussion of these and other risks and uncertainties see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's public filings with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.

CONTACT:

Highpower International, Inc.
Sunny Pan
Chief Financial Officer
Tel: +86-755-8968-6521
Email: ir@highpowertech.com

Yuanmei Ma
Investor Relations Manager
Tel: +1-909-214-2482
Email: yuanmei@highpowertech.com

ICR, Inc.
Rose Zu
Tel: +1-646-931-0303
Email: ir@highpowertech.com


                                                             HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

                                                                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                         (Stated in US Dollars)


                                                                                                               March 31,           December 31,
                                                                                                               ---------           ------------

                                                                                                                            2018                  2017
                                                                                                                            ----                  ----

                                                                                                           (Unaudited)

                                                                                                                               $                    $

    ASSETS

                      Current Assets:

                      Cash                                                                                              18,859,355            14,502,171

                      Restricted cash                                                                                   32,639,148            25,953,946

                      Accounts receivable, net                                                                          56,240,961            58,252,999

                      Amount due from a related party                                                                      921,862             1,165,838

                      Notes receivable                                                                                      67,612             2,606,517

                      Advances to suppliers                                                                              6,511,584             6,050,531

                      Prepayments and other receivables                                                                  5,029,550             4,268,527

                      Foreign exchange derivatives                                                                         661,111               236,436

                      Inventories                                                                                       55,347,466            42,946,644
                                                                                                                      ----------


                      Total Current Assets                                                                             176,278,649           155,983,609
                                                                                                                     -----------


                      Property, plant and equipment, net                                                                48,189,218            46,520,776

                      Long-term prepayments                                                                              4,243,891             3,715,445

                      Land use rights, net                                                                               2,719,885             2,639,631

                      Other assets                                                                                         746,938               748,431

                      Deferred tax assets, net                                                                           1,135,550               750,267

                      Long-term investments                                                                             11,209,442             9,906,379


    TOTAL ASSETS                                                                                                     244,523,573           220,264,538
                                                                                                                     ===========           ===========


    LIABILITIES AND EQUITY


    LIABILITIES

                      Current Liabilities:

                      Accounts payable                                                                                  61,149,301            60,368,012

                      Deferred government grant                                                                            799,040               309,638

                      Short-term loans                                                                                  24,760,223            10,128,646

                      Non-financial institution borrowings                                                              11,152,890            10,756,158

                      Notes payable                                                                                     58,833,089            54,859,478

                      Amount due to a related party                                                                        780,702                     -

                      Other payables and accrued liabilities                                                            13,339,920            12,243,345

                      Income taxes payable                                                                               4,537,182             3,609,391


                      Total Current Liabilities                                                                        175,352,347           152,274,668
                                                                                                                     -----------


                      Income taxes payable, noncurrent                                                                           -              777,685


                      TOTAL LIABILITIES                                                                                175,352,347           153,052,353
                      ------------


    COMMITMENTS AND CONTINGENCIES                                                                                              -                    -


                                                                                             HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

                                                                                                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                         (Stated in US Dollars)


                                                                                                                                                March 31,           December 31,
                                                                                                                                                ---------           ------------

                                                                                                                                                             2018                     2017
                                                                                                                                                             ----                     ----

                                                                                                                                            (Unaudited)

                                                                                                                                                                $                       $

    EQUITY

               Stockholders' equity

               Preferred stock

               (Par value: $0.0001, Authorized: 10,000,000 shares, Issued and outstanding:                                                                        -                       -
               none)

               Common stock

               (Par value: $0.0001, Authorized: 100,000,000 shares, 15,509,658 shares issued                                                                  1,551                    1,551
               and outstanding at March 31, 2018 and at December 31, 2017, respectively)

               Additional paid-in capital                                                                                                                12,951,177               12,709,756

               Statutory and other reserves                                                                                                               6,549,815                6,549,815

               Retained earnings                                                                                                                         43,362,632               44,481,568

               Accumulated other comprehensive income                                                                                                     6,306,051                3,469,495


    TOTAL EQUITY                                                                                                                                       69,171,226               67,212,185
                                                                                                                                                       ----------               ----------


    TOTAL LIABILITIES AND EQUITY                                                                                                                      244,523,573              220,264,538
                                                                                                                                                      ===========              ===========


                                                                     HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

                                                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

                                                                                 (Stated in US Dollars)


                                                                                                                                     Three months ended March 31,
                                                                                                                                     ----------------------------

                                                                                                                                             2018                        2017
                                                                                                                                             ----                        ----

                                                                                                                                     (Unaudited)                (Unaudited)

                                                                                                                                                $                          $

    Net sales                                                                                                                          49,783,453                  41,866,848

    Cost of sales                                                                                                                    (42,217,126)                (31,932,014)
                                                                                                                                      -----------                 -----------

    Gross profit                                                                                                                        7,566,327                   9,934,834
                                                                                                                                        ---------                   ---------


    Research and development expenses                                                                                                 (2,561,837)                (1,813,930)

    Selling and distribution expenses                                                                                                 (1,975,096)                (1,638,313)

    General and administrative expenses                                                                                               (4,114,810)                (3,058,562)

    Foreign currency transaction loss                                                                                                 (1,014,693)                  (313,878)

    Total operating expenses                                                                                                          (9,666,436)                (6,824,683)
                                                                                                                                       ----------                  ----------


    (Loss) income from operations                                                                                                     (2,100,109)                  3,110,151
                                                                                                                                       ----------                   ---------


    Changes in fair value of warrant liability                                                                                                  -                   (31,552)

    Changes in fair value of foreign exchange derivatives                                                                                 703,715                           -

    Government grants                                                                                                                     329,820                     349,515

    Other income                                                                                                                           23,561                     228,578

    Equity in earnings of investee                                                                                                        156,250                     146,932

    Interest expenses                                                                                                                   (241,852)                  (603,317)

    (Loss) income before taxes                                                                                                        (1,128,615)                  3,200,307


    Income taxes benefit (expense)                                                                                                          9,679                   (587,765)
                                                                                                                                            -----                    --------

    Net (loss) income                                                                                                                 (1,118,936)                  2,612,542


    Less: net income attributable to non-controlling interest                                                                                   -                     76,893
                                                                                                                                              ---                     ------

    Net (loss) income attributable to the Company                                                                                     (1,118,936)                  2,535,649
                                                                                                                                       ==========                   =========


    Comprehensive income

    Net (loss) income                                                                                                                 (1,118,936)                  2,612,542

    Foreign currency translation gain (loss)                                                                                            2,836,556                    (24,001)
                                                                                                                                        ---------                     -------

    Comprehensive income                                                                                                                1,717,620                   2,588,541


    Less: comprehensive income attributable to non-controlling interest                                                                         -                     79,551
                                                                                                                                              ---                     ------

    Comprehensive income attributable to the Company                                                                                    1,717,620                   2,508,990
                                                                                                                                        =========                   =========


    (Loss) earnings per share of common stock attributable to the Company

    - Basic                                                                                                                                (0.07)                       0.17
                                                                                                                                            =====                        ====

    - Diluted                                                                                                                              (0.07)                       0.17
                                                                                                                                            =====                        ====


    Weighted average number of common stock outstanding

    - Basic                                                                                                                            15,509,658                  15,119,693
                                                                                                                                       ==========                  ==========

    - Diluted                                                                                                                          15,509,658                  15,299,029
                                                                                                                                       ==========                  ==========


                                                                  HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

                                                                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                              (Stated in US Dollars)


                                                                                                                  Three Months Ended March 31,
                                                                                                                  ----------------------------

                                                                                                                          2018                        2017
                                                                                                                          ----                        ----

                                                                                                                  (Unaudited)                (Unaudited)

                                                                                                                             $                          $

    Cash flows from operating activities

    Net (loss) income                                                                                              (1,118,936)                  2,612,542

    Adjustments to reconcile net income to net cash (used in) provided by
    operating activities:

    Depreciation and amortization                                                                                    1,475,228                   1,274,334

    Allowance for doubtful accounts                                                                                     18,524                       5,015

    Loss on disposal of property, plant and equipment                                                                   21,805                       3,262

    Deferred tax                                                                                                     (356,616)                    124,548

    Changes in fair value of foreign exchange derivatives                                                            (414,042)                          -

    Equity in earnings of investee                                                                                   (156,250)                  (146,932)

    Share based compensation                                                                                           241,421                      24,401

    Changes in fair value of warrant liability                                                                               -                     31,552

    Changes in operating assets and liabilities:

    Accounts receivable                                                                                              3,713,692                   7,314,824

    Notes receivable                                                                                                 2,622,925                     235,222

    Advances to suppliers                                                                                            (236,789)                          -

    Prepayments and other receivables                                                                                (601,315)                  (485,520)

    Amount due from related parties                                                                                    285,657                     161,693

    Amount due to a related party                                                                                            -                    193,240

    Inventories                                                                                                   (10,779,233)                 (3,623,242)

    Accounts payable                                                                                               (1,377,447)                (5,111,874)

    Deferred income                                                                                                    475,783                     116,359

    Other payables and accrued liabilities                                                                             665,379                 (1,977,117)

    Income taxes payable                                                                                                19,371                     330,735
                                                                                                                        ------                     -------

    Net cash flows (used in) provided by operating activities                                                      (5,500,843)                  1,083,042
                                                                                                                    ----------                   ---------


    Cash flows from investing activities

    Acquisitions of property, plant and equipment                                                                  (1,553,979)                (2,873,489)

    Prepayment for long-term investment                                                                              (317,188)                          -

    Net cash flows used in investing activities                                                                    (1,871,167)                (2,873,489)
                                                                                                                    ----------                  ----------


    Cash flows from financing activities

    Proceeds from short-term loans                                                                                  14,427,164                   2,910,418

    Repayments of short-term loans                                                                                           -                (1,381,758)

    Proceeds from non-financial institution borrowings                                                                       -                  8,726,892

    Repayments of non-financial institution borrowings                                                                       -                (2,327,171)

    Proceeds from notes payable                                                                                     28,429,600                  20,467,907

    Repayments of notes payable                                                                                   (26,488,407)                (13,081,781)

    Proceeds from exercise of employee options                                                                               -                     68,519

    Net cash flows provided by financing activities                                                                 16,368,357                  15,383,026
                                                                                                                    ----------                  ----------

    Effect of foreign currency translation on cash and restricted cash                                               2,046,039                    (72,952)
                                                                                                                     ---------                     -------

    Net increase in cash and restricted cash                                                                        11,042,386                  13,519,627

    Cash and restricted cash - beginning of period                                                                  40,456,117                  20,538,033

    Cash and restricted cash - end of period                                                                        51,498,503                  34,057,660
                                                                                                                    ==========                  ==========


    Supplemental disclosures for cash flow information:

    Cash paid for:

    Income taxes                                                                                                       327,565                     132,481

    Interest expenses                                                                                                  114,588                     583,720


                                               Reconciliation of Net Income to EBITDA
                                               --------------------------------------


                                                                                          Three months ended

                                                                                              March 31,
                                                                                              ---------

                                                                                              2018                    2017
                                                                                              ----                    ----

                                                                                      (Unaudited)            (Unaudited)

                                                                                                 $                      $

    Net (loss) income attributable to the Company                                      (1,118,936)              2,535,649
                                                                                        ==========               =========


    Interest expense                                                                       241,852                 603,317

    Income taxes (benefit) expenses                                                        (9,679)                587,765

    Depreciation and amortization                                                        1,475,228               1,274,334


    EBITDA                                                                                 588,465               5,001,065
                                                                                           =======               =========

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SOURCE Highpower International, Inc.