SOURCE: Highpower International

Highpower International

November 13, 2012 07:00 ET

Highpower International, Inc. Reports Third Quarter 2012 Financial Results

Record Lithium and Ni-MH Battery Sales; Increasing Profitability and Gross Margin Improvement

NEW YORK, NY and SHENZHEN, CHINA--(Marketwire - Nov 13, 2012) - Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer and marketer of nickel-metal hydride (Ni-MH) and lithium-based rechargeable batteries and battery solutions, today announced financial results for the third quarter ended September 30, 2012.

Third Quarter 2012 Highlights

  • Grew net sales by 13.4% year-over-year and 8.5% sequentially for the third quarter of 2012 to $31.9 million
  • Set record sales levels in both major battery segments -- Lithium battery net sales up 87.7% over the third quarter of 2011 and 22.4% sequentially; Ni-MH battery net sales up 9.1% over the third quarter of 2011 and 0.9% sequentially
  • Strong gross margin expansion to 23.9% in the third quarter of 2012 from 13.8% in the third quarter 2011
  • Continued profitability; EPS attributable to Highpower International of $0.05 for third quarter of 2012

Management Commentary

"Highpower experienced another healthy quarter of growth, marked by increasing momentum in sales and profitability," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Our lithium battery business achieved record levels of sales and production, which was driven by increasing demand for portable power devices and our higher-end battery product offerings. Additionally, our Ni-MH business turned in a solid performance with strong volumes and improved margins."

"Looking ahead, we are well positioned to continue to gain market share through increased demand for our higher capacity battery products, industry consolidation, and our diversified international customer base. We see no signs of lithium battery demand subsiding, given the expanding worldwide appetite for portable devices such as smart phones, tablets, and energy storage applications. We are also actively pursuing opportunities in the electric transportation market, which we believe will provide another avenue of growth for us in the years ahead," concluded Mr. Pan.

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "We are pleased to have delivered our second straight quarter of profitability driven by robust margin improvement. We are benefiting from our shift towards higher-end products and a favorable commodity cost environment, as well as a shift away from our lower margin New Materials Business. We expect to continue to benefit from favorable commodity costs in the fourth quarter and that our European business will stabilize. Moreover, we look forward to launching a profitable battery and e-waste recycling business in 2013."

Third Quarter 2012 Financial Results

Net sales for the third quarter ended September 30, 2012 totaled $31.9 million, a year-over-year increase of 13.4% compared with $28.1 million for the third quarter ended September 30, 2011 and a sequential increase of 8.5% from the second quarter 2012. The year-over-year increase in sales for the third quarter was primarily due to strong year-over-year sales increases in both lithium and Ni-MH battery segments, which was offset by a decline in revenues in the New Materials segment as this business shifts to a full recycling platform in 2013.

Third quarter 2012 gross profit increased to $7.6 million, as compared with $3.9 million for the third quarter of 2011. Gross profit margin was 23.9% for the third quarter of 2012, as compared with 13.8% for the third quarter of 2011, or a 1,010 basis point improvement. The year-over-year increase in gross profit margin for the third quarter of 2012 was primarily due to higher sales volumes, lower commodity costs, a greater percentage of higher-end battery products, and a shift in our revenue mix away from the low margin New Materials business.

R&D spending was $1.1 million for the third quarter of 2012, as compared with $0.8 million for the comparable period in 2011, due to expansion of our workforce to expand research and development and management functions.

Selling and distribution costs were $1.4 million for third quarter of 2012 as compared with $1.5 million for the comparable period in 2011.

General and administrative expenses, including non-cash stock-based compensation, were $4.0 million for the third quarter of 2012, as compared with $2.2 million for the third quarter of 2011, with the increase resulting from our expanded infrastructure required to support our growth as well as a $0.8 million increase in bad debt expense.

Income from operations for the third quarter of 2012 was $1.0 million as compared with a loss from operations of ($0.8) million for the third quarter of 2011.

Net income attributable to Highpower International (exclusive of loss attributable to non-controlling interest) for the third quarter of 2012 was $0.6 million, or $0.05 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with a third quarter 2011 net loss attributable to Highpower International (exclusive of loss attributable to non-controlling interest) of ($0.6) million, or ($0.05) per diluted share, based on 13.6 million weighted average shares outstanding.

Balance Sheet

At September 30, 2012, Highpower International had cash, cash equivalents and restricted cash totaling $27.8 million, total assets of $111.3 million, and stockholders' equity of $30.2 million. Total debt was $47.9 million at September 30, 2012. Bank credit facilities totaled $53.9 million, of which $19.9 million was available at the end of the quarter.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2012 and our continued shift toward higher-end products, we expect revenues from our battery business to grow at least 15% over 2011 revenue levels. The revenue growth in our Ni-MH and lithium businesses will be offset by the shift away from our traditional New Materials business to a full scale materials recycling business that will ramp up in 2013. We expect to remain profitable for the fourth quarter of fiscal 2012.

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 877-941-8609 from the U.S. or 480-629-9835 from outside the U.S. and referencing the reservation code 4573488. 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 Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries used in electric bikes, energy storage systems, power tools, medical equipment, digital and electronic devices, personal care products, and lighting. With over 3,000 employees and advanced manufacturing facilities located in Shenzhen and Huizhou of China, Highpower serves its customers around the world through continuous research and development as well as its commitment to quality products. As a company, Highpower International is committed to clean technology, not only in the products it makes, but also in the processes adopted to produce them. The majority of Highpower International's products are distributed worldwide to markets 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. Such risks and uncertainties include, without limitation, the current economic downturn and uncertainty in the European economy adversely affecting demand for the Company's products; fluctuations in the cost of raw materials; the Company's dependence on, or inability to attract additional, major customers for a significant portion of its net sales; the Company's ability to increase manufacturing capabilities to satisfy orders from new customers; the Company's ability to maintain increased margins; changes in the laws of the People's Republic of China that affect the Company's operations; the devaluation of the U.S. Dollar relative to the Renminbi; the Company's dependence on the growth in demand for portable electronic devices and the success of manufacturers of the end applications that use the Company's battery products; the Company's responsiveness to competitive market conditions; the Company's ability to successfully manufacture its battery products in the time frame and amounts expected; the market acceptance of the Company's lithium products; the Company's ability to successfully develop products for and penetrate the electric transportation market; the Company's ability to continue R&D development to keep up with technological changes; the Company's ability to successfully transition its New Materials business into a full scale materials recycling business; changes in foreign, political, social, business and economic conditions that affect the Company's production capabilities or demand for our products; and various other matters, many of which are beyond the Company's control. For a more detailed 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 including the Company's Form 10-K for the fiscal year ended December 31, 2011, its Form 10-Q reports for the quarters ended March 31, 2012 and June 30, 2012 filed with the SEC and its Form 10-Q report for the quarter ended September 30, 2012 to be filed 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. Any forward-looking statement made by us in this press release is based only on information currently available to the Company and speaks only as of the date on which it is made. 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)  
   
    Three months ended
September 30,
    Nine months ended
September 30,
 
    2012     2011     2012     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
    $     $     $     $  
Net sales   31,868,046     28,091,330     81,848,511     84,750,150  
Cost of sales   (24,258,038 )   (24,212,746 )   (64,557,820 )   (72,105,177 )
Gross profit   7,610,008     3,878,584     17,290,691     12,644,973  
                         
Research and development expenses   (1,147,359 )   (823,735 )   (3,265,290 )   (2,302,163 )
Selling and distribution expenses   (1,423,372 )   (1,498,955 )   (3,904,771 )   (3,654,303 )
General and administrative expenses, including                        
stock-based compensation   (4,035,269 )   (2,200,960 )   (8,313,737 )   (6,406,295 )
Loss on exchange rate difference   (200,488 )   (186,879 )   (78,458 )   (657,581 )
Gain (loss) on derivative instruments   207,576     97,411     240,532     (136,786 )
Equity loss in an associate   -     (104,375 )   -     (108,346 )
Total operation expenses   (6,598,912 )   (4,717,493 )   (15,321,724 )   (13,265,474 )
                         
Income (loss) from operations   1,011,096     (838,909 )   1,968,967     (620,501 )
                         
Other income   176,265     239,831     404,483     458,086  
Interest expenses   (63,935 )   (105,115 )   (377,376 )   (365,257 )
Income (loss) before taxes   1,123,426     (704,193 )   1,996,074     (527,672 )
                         
Income taxes (expense) benefit   (526,947 )   73,683     (943,213 )   (69,095 )
Net income (loss)   596,479     (630,510 )   1,052,861     (596,767 )
                         
Less: net loss attributable to non-controlling interest   (47,883 )   -     (98,400 )   -  
Net income (loss) attributable to the Company   644,362     (630,510 )   1,151,261     (596,767 )
                         
Comprehensive income                        
Net income (loss)   596,479     (630,510 )   1,052,861     (596,767 )
Foreign currency translation gain   381,765     61,799     225,870     1,220,385  
Comprehensive income (loss)   978,244     (568,711 )   1,278,731     623,618  
                         
Less: comprehensive loss attributable to                        
non-controlling interest   (38,561 )   -     (107,010 )   -  
Comprehensive income (loss) attributable to                        
the Company   1,016,805     (568,711 )   1,385,740     623,618  
                         
Earnings (loss) per share of common stock attributable to the Company                        
- Basic and diluted   0.05     (0.05 )   0.08     (0.04 )
                         
Weighted average common shares 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)
 
    September 30,   December 31,
    2012   2011
    (Unaudited)    
    $   $
ASSETS        
  Current Assets:        
  Cash and cash equivalents   5,500,805   5,175,623
  Restricted cash   22,319,701   12,708,999
  Accounts receivable, net   23,961,421   21,129,418
  Notes receivable   1,243,819   515,107
  Prepayments   3,628,248   4,251,723
  Other receivables   811,909   1,041,614
  Inventories   16,964,816   13,512,942
Total Current Assets   74,430,719   58,335,426
         
  Property, plant and equipment, net   30,955,446   25,462,656
  Land use rights, net   4,408,740   3,132,965
  Intangible asset, net   712,500   750,000
  Deferred tax assets   632,101   857,209
  Foreign currency derivatives assets   113,402   15,653
         
TOTAL ASSETS   111,252,908   88,553,909
         
LIABILITIES AND EQUITY        
         
LIABILITIES        
  Current Liabilities:        
  Accounts payable   25,371,520   22,153,822
  Deferred revenue   655,446   -
  Short-term loan   15,671,794   9,545,383
  Notes payable   24,286,540   17,909,843
  Letter of credit   -   2,880,000
  Other payables and accrued liabilities   5,349,133   6,941,063
  Income taxes payable   875,054   411,536
  Current portion of long-term loan   1,749,976   -
           
  Total Current Liabilities   73,959,463   59,841,647
           
  Long-term loan   6,204,461   -
         
TOTAL LIABILITIES   80,163,924   59,841,647
         
COMMITMENTS AND CONTINGENCIES        
         
         
HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Stated in US Dollars)
 
    September 30,   December 31,
    2012   2011
    (Unaudited)    
    $   $
EQUITY        
  Stockholder's 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 September 30,2012 and December 31, 2011)   1,358   1,358
  Additional paid-in capital   5,976,696   5,831,237
  Statutory and other reserves   2,726,390   2,726,390
  Retained earnings   16,789,917   15,638,656
  Accumulated other comprehensive income   4,749,100   4,514,621
         
  Total equity for the Company's stockholders   30,243,461   28,712,262
         
  Non-controlling interest   845,523   -
         
TOTAL EQUITY   31,088,984   28,712,262
         
TOTAL LIABILITIES AND EQUITY   111,252,908   88,553,909
         
         
   
HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Stated in US Dollars)  
   
    Nine months ended
 September 30,
 
    2012     2011  
    (Unaudited)     (Unaudited)  
    $     $  
Cash flows from operating activities            
Net income (loss)   1,052,861     (596,767 )
Adjustments to reconcile net loss to net cash provided by operating activities:            
  Depreciation and amortization   1,668,979     1,349,240  
  Allowance for doubtful accounts   1,156,434     146,393  
  Loss (gain) on disposal of property, plant and equipment   55,000     (7,462 )
  Equity loss in an associate   -     108,346  
  Income on derivative instruments   (97,029 )   (211,898 )
  Deferred income tax   225,862     (159,157 )
  Share based payment   145,459     612,057  
Changes in operating assets and liabilities:            
  Accounts receivable   (3,904,228 )   (1,839,396 )
  Notes receivable   (722,104 )   (141,131 )
  Prepayments   629,689     (4,688,226 )
  Other receivable   231,388     212,606  
  Inventories   (3,385,965 )   1,518,693  
  Accounts payable   5,412,400     3,510,379  
  Deferred revenue   650,951     -  
  Other payables and accrued liabilities   (1,602,391 )   151,627  
  Income taxes payable   459,052     (1,041,362 )
Net cash flows provided by (used in) operating activities   1,976,358     (1,076,058 )
             
Cash flows from investing activities            
  Acquisition of plant and equipment   (9,626,668 )   (4,986,349 )
  Acquisition of land use right   (1,323,559 )   -  
Net cash flows used in investing activities   (10,950,227 )   (4,986,349 )
             
Cash flows from financing activities            
  Proceeds from short-term bank loans   9,866,422     12,708,732  
  Repayment of short-term bank loans   (3,772,049 )   (7,305,110 )
  Proceeds from long-term bank loans   7,899,893     -  
  Proceeds from notes payable   33,555,477     24,638,742  
  Repayment of notes payable   (27,278,534 )   (16,766,610 )
  Proceeds from letter of credit   -     2,995,868  
  Repayment of letter of credit   (2,880,000 )   (1,379,051 )
  Proceeds from non-controlling interest   947,987     -  
  Increase in restricted cash   (9,495,213 )   (9,231,878 )
Net cash flows provided by financing activities   8,843,983     5,660,693  
Effect of foreign currency translation on cash and cash equivalents   455,068     96,274  
Net increase (decrease) in cash and cash equivalents   325,182     (305,440 )
Cash and cash equivalents - beginning of period   5,175,623     8,490,629  
Cash and cash equivalents - end of period   5,500,805     8,185,189  
             
Supplemental disclosures for cash flow information:            
Cash paid for:            
  Income taxes   258,300     1,271,794  
  Interest expenses   917,662     607,203  
Non-cash transactions            
  Accounts payable for construction in progress   2,285,517     -  

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