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Highpower International Reports Unaudited Third Quarter, First Nine Months 2017 Financial Results

SAN DIEGO and SHENZHEN, China, Nov. 14, 2017 /PRNewswire/ -- Highpower International, Inc. (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 third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

  • Net sales for the third quarter of 2017 increased by 31.9% to $71.4 million from $54.1 million in the prior year period.
  • Gross profit for the third quarter of 2017 decreased by 0.8% to $13.6 million from $13.7 million in the prior year period.  
  • EBITDA for the third quarter of 2017 increased by 46.5% to $7.3 million from $5.0 million in the prior year period.
  • Net income attributable to the Company for the third quarter of 2017 was $5.0 million, or $0.32 per diluted share, as compared to $2.7 million, or $0.18 per diluted share, in the prior year period.  Net income for the quarter included a $1.7 million gain related to the sale of a long-term investment.

Mr. George Pan, Chairman and CEO of Highpower International, commented, "We are pleased to deliver strong top-line results in a challenging third quarter of 2017. Our lithium ion battery business revenue increased 42.8% year over year, driven by continued high demand for power storage systems and consumer devices including smart wearables, smart phones, and notebooks.  

"We expect that raw material prices will continue to rise and impact our gross margins in the fourth quarter and the foreseeable future. However, we are actively improving our production capacity and efficiency, maintaining a strong and cost competitive supply chain, and shifting to a higher-margin product mix, which will aid our growth in the coming year. To further strengthen our technology and product offerings in anticipation of future customer demand, Highpower will increase investment in R&D focused on strategic hiring and partnerships with leading universities and institutes. We also remain committed to exploring more strategic business partnerships to further grow our business and create lasting shareholder value," Mr. Pan concluded.

Third Quarter and First Nine Months of 2017 Financial Results

Net Sales

Net sales for the third quarter of 2017 increased by 31.9% to $71.4 million from $54.1 million in the prior year period, primarily attributable to growth in revenue from the Lithium segment. This was driven by increased demand in consumer products including portable power stations, smart wearable devices, smart phones, and notebooks.

Net sales increased 37.5% to $165.0 million in the first nine months ended September 30, 2017 as compared to $120.0 million in the same period 2016. The increase was also driven by growth in the Lithium segment due to increased demand in consumer products including portable power stations, smart wearable devices, smart phones, and notebooks.

Gross Profit

Gross profit for the third quarter of 2017 decreased by 0.8% to $13.6 million from $13.7 million in the prior year period. This decrease was mainly due to the product mix and the high raw material price. Gross margin for the third quarter of 2017 decreased to 19.0% from 25.2% in the prior year period.

Gross profit for the first nine months of 2017 increased 30.8% to $35.6 million from $27.2 million in prior year period. Gross margin was 21.6% and 22.7% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in margin was also due to the product mix and the high raw material price.

Operating Expenses

  • Research and development (R&D) expenses for the third quarter of 2017 were $2.4 million as compared to $3.0 million in the prior year period. As a percentage of net sales, R&D expenses declined to 3.4% from 5.6% in the prior year period. The decrease was due to the high R&D consulting fee in the same period of 2016.

    Research and development expenses were $6.4 million, or 3.9% of net sales, for the first nine months of 2017 as compared to $6.7 million, or 5.6% of net sales, for the prior year period.
  • Selling and distribution expenses for the third quarter of 2017 remained stable at $1.9 million as compared to the prior year period. As a percentage of net sales, selling and distribution expenses decreased to 2.6% from 3.5% in the prior year period, primarily attributable to the Company's customer base optimization efforts.

    Selling and distribution expenses were $5.2 million, or 3.2% of net sales, as compared with $5.0 million, or 4.1% of net sales, for the nine months ended September 30, 2016.
  • General and administrative expenses for the third quarter of 2017 were $4.0 million as compared to $5.9 million in the prior year period. As a percentage of net sales, general and administrative expenses decreased to 5.5% from 11.0% in the prior year period.

    General and administrative expenses were $10.0 million, or 6.1% of net sales, as compared with $12.3 million, or 10.2% of net sales, for the nine months ended September 30, 2016.

Net Income

Net income attributable to the Company for the third quarter of 2017 increased to $5.0 million from $2.7 million in the prior year period. Net income attributable to the Company per diluted share for the third quarter of 2017 increased to $0.32 from $0.18 in the prior year period. The net income result for the third quarter of 2017 includes a $1.7 million gain related to the sale of a long-term investment.

For the quarter ended September 30, 2017 and 2016, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,518,764 and 15,115,409, respectively.

Net income attributable to the Company for the first nine months of 2017 increased to $11.9 million from $4.4 million in the prior year period. Net income attributable to the Company per diluted share for the first nine months of 2017 increased to $0.77 from $0.29 in the prior year period.

For the nine months ended September 30, 2017 and 2016, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,563,012 and 15,104,914, respectively.

EBITDA

EBITDA for the third quarter of 2017 increased by 46.5% to $7.3 million from $5.0 million in the prior year period. EBITDA for the first nine months of 2017 increased by 86.1% to $18.8 million from $10.1 million in the prior year period.

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

Balance Sheet Highlights

($ in millions, except per share data)


September 30,


December 31,

2017


2016



(Unaudited)





$


$

Cash


$11.9


$9.3

Total Current Assets


$147.3


$104.5

Total Assets


$204.4


$163.3






Total Current Liabilities


$143.4


$118.0

Total Liabilities


$143.4


$118.0

Total Equity


$61.0


$45.3

Total Liabilities and Equity


$204.4


$163.3

Book Value Per Share


$3.94


$3.00

Financial Outlook

For the fourth quarter of 2017, the Company expects net revenues to grow 12.0% year-over-year.  Factoring in the impact of higher expected raw material prices, gross margin is expected to be between 16.0% and 17.0% in the fourth quarter of 2017. For full year 2018, the Company expects net revenues to grow at least 20.0% compared to 2017 and gross margin levels to exceed that of the fourth quarter of 2017.

Conference Call Details

The Company will hold a conference call on Tuesday, Nov 14, 2017 at 10:00 am Eastern Time or 11:00 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 http://highpowertech.equisolvewebcast.com/q3-2017. 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 table below 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.  Such forward-looking statements include the proposed transaction regarding Ganzhou Highpower, approval by Highpower's board and Highpower's resulting equity ownership, Highpower's cash position and growth, production capacity, research and development efforts, strategic partnerships and business and financial expectations. 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, the occurrence of any event, change or other circumstances that could give rise to the terms of the proposed Ganzhou Highpower not hereafter being approved by Highpower's board or memorialized in a definitive agreement; inability to successfully expand our production capacity; 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; lower than expected sales of batteries to producers of smart vacuum 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: ir@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)



September 30,

2017


December 31, 2016


(Unaudited)




$


$

ASSETS





Current Assets:





Cash

11,904,511


9,324,393


Restricted cash

20,905,411


11,213,640


Accounts receivable, net

56,313,941


46,280,769


Amount due from Yipeng

-


7,517,250


Notes receivable

6,805,932


1,093,730


Prepayments and other receivables

16,175,372


6,899,872


Inventories

35,216,303


22,207,333







Total Current Assets

147,321,470


104,536,987







Property, plant and equipment, net

49,789,095


43,504,991


Land use right, net

3,718,804


3,622,435


Other assets

462,500


500,000


Deferred tax assets

1,386,829


1,477,761


Long-term investment

1,765,499


9,689,576





TOTAL ASSETS

204,444,197


163,331,750





LIABILITIES AND EQUITY








LIABILITIES





Current Liabilities:





Accounts payable

59,937,145


49,463,901


Deferred income

807,792


761,491


Short-term loans

10,609,112


18,776,080


Non-financial institution borrowings

10,527,424


3,741,115


Notes payable

46,124,404


30,658,000


Foreign currency derivatives liabilities

169,958


-


Amount due to Yipeng

-


1,522,313


Other payables and accrued liabilities

13,061,886


11,148,556


Income taxes payable

2,212,145


1,963,298







Total Current Liabilities

143,449,866


118,034,754







Warrant Liability

-


259







TOTAL LIABILITIES

143,449,866


118,035,013





COMMITMENTS AND CONTINGENCIES

-


-







 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)



September 30 2017


December 31, 2016


(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, 15,476,000 shares issued and
outstanding at September 30, 2017 and 15,114,991 shares issued and outstanding at
December 31, 2016)

1,547


1,511


Additional paid-in capital

12,307,206


11,580,934


Statutory and other reserves

4,992,463


4,992,463


Retained earnings

41,197,146


29,266,068


Accumulated other comprehensive income (loss)

1,848,819


(873,582)







Total equity attributable to the stockholders of Highpower International Inc.

60,347,181


44,967,394







Non-controlling interest

647,150


329,343







TOTAL EQUITY

60,994,331


45,296,737







TOTAL LIABILITIES AND EQUITY

204,444,197


163,331,750







 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)



Three months ended

September 30,


Nine months ended

September 30,


2017


2016


2017


2016


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


$


$


$


$

Net sales

71,405,560


54,142,916


164,972,338


119,972,281

Cost of sales

(57,845,224)


(40,475,820)


(129,405,402)


(92,784,475)

Gross profit

13,560,336


13,667,096


35,566,936


27,187,806









Research and development expenses

(2,433,928)


(3,029,628)


(6,385,144)


(6,688,397)

Selling and distribution expenses

(1,859,762)


(1,881,277)


(5,220,985)


(4,955,708)

General and administrative expenses

(3,959,731)


(5,935,907)


(10,034,694)


(12,254,520)

Foreign currency transaction (loss) gain

(816,593)


126,732


(1,645,095)


636,609

Loss on derivative instruments

(146,481)


-


(146,481)


-

Total operating expenses

(9,216,495)


(10,720,080)


(23,432,399)


(23,262,016)









Income from operations

4,343,841


2,947,016


12,134,537


3,925,790









Changes in fair value of warrant liability

-


(11,150)


259


115,396

Other income

94,775


505,928


949,233


1,717,803

Equity in earnings of investee

1,087


218,903


106,412


218,903

Gain on dilution in equity method investee

5,071


-


496,396


-

Gain on sales of long-term investment

1,664,377


-


1,664,377


-

Interest income (expenses)

57,663


(341,520)


(926,185)


(1,051,914)

Income before taxes

6,166,814


3,319,177


14,425,029


4,925,978









Income taxes expenses

(1,013,919)


(769,065)


(2,197,392)


(978,882)

Net income

5,152,895


2,550,112


12,227,637


3,947,096









Less: net income (loss) attributable to non-controlling
interest

128,702


(101,194)


296,558


(413,384)

Net income attributable to the Company

5,024,193


2,651,306


11,931,079


4,360,480









Comprehensive income








Net income

5,152,895


2,550,112


12,227,637


3,947,096

Foreign currency translation gain (loss)

1,258,937


171,574


2,743,650


(1,542,704)

Comprehensive income

6,411,832


2,721,686


14,971,287


2,404,392









Less: comprehensive income (loss) attributable to non-
controlling interest

139,461


(103,831)


317,807


(429,713)

Comprehensive income attributable to the Company

6,272,371


2,825,517


14,653,480


2,834,105









Earnings per share of common stock attributable to the
Company








- Basic

0.33


0.18


0.78


0.29

- Diluted

0.32


0.18


0.77


0.29









Weighted average number of common stock outstanding








- Basic

15,369,674


15,103,007


15,270,898


15,102,121

- Diluted

15,518,764


15,115,409


15,563,012


15,104,914

 

 

Reconciliation of Net Income to EBITDA



Three months ended

September 30,


Nine months ended

September 30,


2017


2016


2017


2016


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


$


$


$


$

Net income attributable to the Company

5,024,193


2,651,306


11,931,079


4,360,480









Interest (income) expense

(57,663)


341,520


926,185


1,051,914

Income taxes expenses

1,013,919


769,065


2,197,392


978,882

Depreciation and Amortization

1,362,196


1,249,157


3,792,178


3,735,353









EBITDA

7,342,645


5,011,048


18,846,834


10,126,629

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)



Nine Months Ended September 30,


2017


2016


(Unaudited)


(Unaudited)


$


$

Cash flows from operating activities




Net income

12,227,637


3,947,096

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




Depreciation and amortization

3,792,178


3,735,353

Allowance for doubtful accounts

48,866


1,661,968

Loss on disposal of property, plant and equipment

57,277


197,848

Deferred income tax

153,625


(63,934)

Loss on derivative instruments

166,387


-

Equity in earnings of investee

(106,412)


(218,903)

Gain on dilution in equity method investee

(496,396)


-

Gain on sales of long-term investment

(1,664,377)


-

Share based compensation

86,921


244,142

Changes in fair value of warrant liability

(259)


(115,396)

Changes in operating assets and liabilities:




Accounts receivable

(8,517,071)


(13,619,029)

Notes receivable

(5,543,798)


(59,905)

Prepayments and other receivables

(8,775,985)


(230,595)

Amount due from Yipeng

7,691,900


(3,004,025)

Amount due to Yipeng

(1,557,682)


1,560,360

Inventories

(11,753,127)


(2,457,733)

Accounts payable

7,049,819


11,817,867

Deferred income

11,637


(82,697)

Other payables and accrued liabilities

1,394,691


3,745,023

Income taxes payable

156,744


119,859

Net cash flows (used in) provided by operating activities

(5,577,425)


7,177,299





Cash flows from investing activities




Acquisitions of property, plant and equipment

(7,297,901)


(8,474,440)

Acquisition of investment

-


(3,039,006)

Proceeds from sale of long-term investment

10,453,475


-

Net cash flows provided by (used in) investing activities

3,155,574


(11,513,446)





Cash flows from financing activities




Proceeds from short-term loans

8,797,727


18,158,059

Repayments of short-term loans

(17,594,229)


(10,650,400)

Repayments of long-term loans

-


(1,823,403)

Proceeds from non-financial institution borrowings

10,306,243


4,558,509

Repayments of non-financial institution borrowings

(3,828,033)


-

Proceeds from notes payable

62,193,463


41,908,812

Repayments of notes payable

(48,408,417)


(39,518,955)

Proceeds from exercise of employee options

635,484


19,304

Change in restricted cash

(8,992,019)


601,759

Net cash flows provided by financing activities

3,110,219


13,253,685

Effect of foreign currency translation on cash

1,891,750


(1,290,306)

Net increase in cash

2,580,118


7,627,232

Cash - beginning of period

9,324,393


5,849,967

Cash - end of period

11,904,511


13,477,199





Supplemental disclosures for cash flow information:




Cash paid for:




Income taxes

1,464,592


922,957

Interest expenses

1,402,447


1,051,914

Non-cash investing and financing activity




Offset of deferred income related to government grant and property, plant and equipment

171,403


33,019

 

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