Highpower International, Inc. Reports Second Quarter 2013 Financial Results

Strongest Lithium Quarter in Company History; Reaffirms Full Year Guidance

Marketwired

SAN FRANCISCO, CA and SHENZHEN, CHINA--(Marketwired - Aug 13, 2013) - Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer and marketer of nickel-metal hydride (Ni-MH) and lithium rechargeable batteries and battery solutions, today announced financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 Highlights

  • Net sales increased 6.1% year-over-year to $31.2 million
  • Sustained growth in lithium battery segment -- lithium battery net sales up 32.9% in the second quarter of 2013 over the second quarter of 2012; total lithium battery pieces sold increased 29.0%; and a 32.2% increase in volume per ampere hour
  • Gross margin of 18.4%
  • Net income of $0.1 million attributable to Highpower International, or $0.01 per diluted share

Management Commentary
"Our lithium battery business continues to deliver excellent results. This was the strongest quarter ever for our lithium battery business," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Though our Ni-MH battery sales declined slightly for the quarter, we believe we are faring much better than some of our competitors. That said, our Ni-MH battery segment remains a sustainable business line with strong and valuable relationships.

"We are very excited about our new automated facility in Huizhou coming online later this year. It will help us address the increased demand for our lithium batteries, as we are currently operating at full capacity for this product line. With the addition of this automated facility, we believe that we are well positioned to attract larger customers and capitalize on the growing global demand for rechargeable batteries."

"We continue to make up-front investments that are required to prepare us for accelerated growth in our lithium battery business," said Mr. Henry Sun, Chief Financial Officer of Highpower International. "Our investments in manufacturing, research and development, sales, and marketing have all increased in anticipation of growth and have impacted our current profitability. However, we remain focused on continued profitability in the second half of 2013."

Second Quarter 2013 Financial Results

Net sales for the second quarter ended June 30, 2013 totaled $31.2 million, a year-over-year increase of 6.1% compared with $29.4 million for the second quarter ended June 30, 2012. The increase in sales for the second quarter was driven by increased demand for our lithium batteries from new and existing customers. Our sales total were, however, partially offset by a decrease in sales from our Ni-MH battery segment.

Second quarter 2013 gross profit decreased to $5.7 million, as compared with $6.0 million for the second quarter of 2012. Gross profit margin was 18.4% for the second quarter of 2013, as compared with 20.5% for the second quarter of 2012. The year-over-year decrease in gross profit margin for the second quarter of 2013 was primarily attributable to increases in labor costs, primarily for our lithium battery segment, as we serviced the increased volume from our existing facilities, which are operating at full capacity.

R&D spending was $1.4 million for the second quarter of 2013, as compared with $1.2 million for the comparable period in 2012, reflecting the expansion of our workforce to expand our research and development and management functions.

Selling and distribution expenses were $1.4 million for the second quarter of 2013, as compared with $1.3 million for the comparable period in 2012. The year-over-year increase in selling and distribution expenses was due to the expansion of our sales force and marketing activities, participation in industry trade shows, and international travel to promote and sell our products globally.

General and administrative expenses were $2.6 million for the second quarter of 2013, as compared with $2.3 million for the second quarter of 2012. The increase was mainly due to the expansion of our workforce in various functions to support our growth.

Net income attributable to the company for the second quarter of 2013 was $109,289, or $0.01 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with second quarter 2012 net income attributable to the company of $503,714 or $0.04 per diluted share, based on 13.6 million weighted average shares outstanding.

Balance Sheet

As of June 30, 2013, Highpower International had cash, cash equivalents and restricted cash totaling $27.3 million, total assets of $121.2 million, and stockholders' equity of $31.8 million. Bank credit facilities totaled $69.0 million at June 30, 2013, of which $36.2 million was utilized and $32.8 million was available as unused credit.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2013 and our continued shift toward mobile power sources, higher-value energy storage systems and transportation products, we are reaffirming our full-year 2013 revenue guidance to be 15% to 20% higher than our 2012 revenue levels. We also reaffirm our expectation that we will be profitable for the full year in 2013.

Conference Call and Webcast

The Company will host a conference call today at 7:00 a.m. Pacific time/10:00 a.m. Eastern time to discuss these results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 877-941-9205 from the U.S. or 480-629-9771 from outside the U.S. and referencing the reservation code 4635068. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at www.highpowertech.com or www.InvestorCalendar.com.

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 mobile devices, computer tablets, electric bikes, energy storage systems, power tools, medical equipment, digital and electronic devices, personal care products, and lighting, etc. With over 3,000 employees and advanced manufacturing facilities located in Shenzhen and Huizhou 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

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, and include discussions of strategy, and statements about industry trends and the Company's future performance, operations and products. 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 and involve risks and uncertainties, including, without limitation, the current economic downturn and uncertainty in the European economy adversely affecting demand for our products; 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; changes in the laws of the PRC that affect our operations; our ability to complete construction of and to begin manufacturing operations at our new manufacturing facilities on time; our ability to control operating expenses and costs related to the construction of our new manufacturing facilities; the devaluation of the U.S. Dollar relative to the Renminbi; our dependence on the growth in demand for portable electronic devices 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 products, including our lithium products; our ability to successfully develop products for and penetrate the electric transportation market; our ability to continue R&D development to keep up with technological changes; our exposure to product liability, safety, and defect claims; rising labor costs, volatile metal prices, and inflation; changes in foreign, political, social, business and economic conditions that affect our production capabilities or demand for our products; and various other matters, many of which are beyond our control. 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.

- financial tables to follow -

 
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Stated in US Dollars except Number of Shares)
             
    Three months ended
June 30,
    Six months ended
June 30,
 
    2013     2012     2013     2012  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
    $     $     $     $  
                         
Net sales   31,177,616     29,377,682     55,576,988     49,980,465  
Cost of sales   (25,443,157 )   (23,369,258 )   (45,079,349 )   (40,299,782 )
Gross profit   5,734,459     6,008,424     10,497,639     9,680,683  
                         
Research and development expenses   (1,350,997 )   (1,233,585 )   (2,453,465 )   (2,117,931 )
Selling and distribution expenses   (1,392,576 )   (1,282,499 )   (2,787,978 )   (2,481,399 )
General and administrative expenses, including stock-based compensation   (2,612,855 )   (2,263,983 )   (5,418,246 )   (4,278,468 )
Income (loss) on exchange rate difference   (180,010 )   153,360     (219,957 )   122,030  
Gain (loss) of derivative instruments   112,335     (304,147 )   222,283     32,956  
Total operation expenses   (5,424,103 )   (4,930,854 )   (10,657,363 )   (8,722,812 )
                         
Income (loss) from operations   310,356     1,077,570     (159,724 )   957,871  
                         
Other income   281,236     61,185     497,385     228,218  
Interest expenses   (365,146 )   (301,123 )   (701,412 )   (313,441 )
Income (loss) before taxes   226,446     837,632     (363,751 )   872,648  
                         
Income taxes expenses   (159,110 )   (362,941 )   (207,329 )   (416,266 )
Net income (loss)   67,336     474,691     (571,080 )   456,382  
                         
Less: net loss attributable to non-controlling interest   (41,953 )   (29,023 )   (71,489 )   (50,517 )
Net income (loss) attributable to the Company   109,289     503,714     (499,591 )   506,899  
                         
Comprehensive income (loss)                        
Net income (loss)   67,336     474,691     (571,080 )   456,382  
Foreign currency translation gain (loss)   526,996     (300,800 )   298,942     (155,895 )
Comprehensive income (loss)   594,332     173,891     (272,138 )   300,487  
                         
Less: comprehensive loss attributable to non-controlling interest   (31,257 )   (46,997 )   (65,475 )   (68,449 )
Comprehensive income (loss) attributable to the Company   625,589     220,888     (206,663 )   368,936  
                         
Earnings (loss) per share of common stock attributable to the Company                        
  - Basic and diluted   0.01     0.04     (0.04 )   0.04  
                         
Weighted average number of common stock outstanding                        
  - Basic and diluted   13,582,106     13,582,106     13,582,106     13,582,106  
                           
                           
 
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars except Number of Shares)
         
    June 30,   December 31,
    2013   2012
    (Unaudited)    
    $   $
ASSETS        
  Current Assets:        
  Cash and cash equivalents   2,666,806   6,627,334
  Restricted cash   24,594,567   27,695,569
  Accounts receivable, net   25,556,158   25,323,899
  Notes receivable   564,427   392,242
  Prepayments   4,633,723   3,223,795
  Other receivables   800,984   802,907
  Inventories   18,797,421   16,719,807
  Total Current Assets   77,614,086   80,785,553
           
  Property, plant and equipment, net   37,466,258   33,462,369
  Land use right, net   4,411,408   4,423,348
  Intangible asset, net   675,000   700,000
  Deferred tax assets   907,594   762,954
  Foreign currency derivatives assets   133,225   255,508
         
TOTAL ASSETS   121,207,571   120,389,732
         
LIABILITIES AND EQUITY        
         
LIABILITIES        
  Current Liabilities:        
  Accounts payable   27,012,982   27,509,195
  Deferred revenue   666,613   661,178
  Short-term loan   27,636,005   20,478,604
  Notes payable   20,079,201   26,397,200
  Other payables and accrued liabilities   6,260,815   4,485,918
  Income taxes payable   959,696   1,180,469
  Current portion of long-term loan   1,941,590   1,925,762
           
  Total Current Liabilities   84,556,902   82,638,326
           
  Long-term loan   4,853,977   5,777,286
         
TOTAL LIABILITIES   89,410,879   88,415,612
         
COMMITMENTS AND CONTINGENCIES   -   -
         
         
 
HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
 (Stated in US Dollars except Number of Shares)
 
         
    June 30,   December 31,
    2013   2012
    (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, 13,582,106        
  shares issued and outstanding at June 30,2013 and December 31, 2012)   1,358   1,358
  Additional paid-in capital   5,547,463   6,035,230
  Statutory and other reserves   2,790,484   2,790,484
  Retained earnings   16,791,993   17,291,584
  Accumulated other comprehensive income   5,342,792   5,049,864
           
  Total equity for the Company's stockholders   30,474,090   31,168,520
           
  Non-controlling interest   1,322,602   805,600
         
TOTAL EQUITY   31,796,692   31,974,120
         
TOTAL LIABILITIES AND EQUITY   121,207,571   120,389,732
         
         
 
HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
       
    Six months ended June 30,  
    2013     2012  
    (Unaudited)     (Unaudited)  
    $     $  
Cash flows from operating activities            
Net income (loss)   (571,080 )   456,382  
Adjustments to reconcile net loss to net cash provided by operating activities            
  Depreciation and amortization   1,182,314     999,544  
  Allowance for doubtful accounts   (3,965 )   282,127  
  Loss on disposal of property, plant and equipment   102,926     56,703  
  Income on derivative instruments   123,333     31,278  
  Deferred income tax   (137,726 )   106,644  
  Share based payment   94,710     93,164  
Changes in operating assets and liabilities            
  Accounts receivable   (41,371 )   (4,971,615 )
  Notes receivable   (167,535 )   (1,227,504 )
  Prepayments   (1,372,932 )   591,874  
  Other receivable   8,451     240,454  
  Inventories   (1,924,454 )   (2,907,198 )
  Accounts payable   1,414,867     5,680,116  
  Deferred revenue   -     652,157  
  Other payables and accrued liabilities   1,725,062     1,481,165  
  Income taxes payable   (228,533 )   69,855  
Net cash flows provided by operating activities   204,067     1,635,146  
             
Cash flows from investing activities            
  Acquisition of plant and equipment   (7,335,376 )   (8,484,171 )
  Acquisition of land use right   -     (1,326,010 )
Net cash flows used in investing activities   (7,335,376 )   (9,810,181 )
             
Cash flows from financing activities            
  Proceeds from short-term bank loans   15,581,691     5,871,646  
  Repayment of short-term bank loans   (8,515,280 )   (1,196,676 )
  Proceeds from long-term bank loans   -     7,914,523  
  Repayment of long-term bank loans   (962,603 )   -  
  Proceeds from notes payable   20,038,103     19,682,410  
  Repayment of notes payable   (26,517,924 )   (16,633,527 )
  Repayment of letter of credit   -     (2,880,000 )
  Proceeds from non-controlling interest   -     949,743  
  Increase (decrease) in restricted cash   3,280,806     (5,387,117 )
Net cash flows provided by financing activities   2,904,793     8,321,002  
Effect of foreign currency translation on cash and cash equivalents   265,988     (201,599 )
Net decrease in cash and cash equivalents   (3,960,528 )   (55,632 )
Cash and cash equivalents - beginning of period   6,627,334     5,175,623  
Cash and cash equivalents - end of period   2,666,806     5,119,991  
             
Supplemental disclosures for cash flow information :            
Cash paid for :            
  Income taxes   573,588     239,767  
  Interest expenses   701,412     590,399  
Non-cash transactions            
  Accounts payable for construction in progress   1,649,807     1,501,464  
               
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