Highpower International Reports 2014 Second Quarter and Six Months Financial Results

Company to Hold Conference Call on August 13, 2014, at 10:00 AM ET / 7:00 AM PT

SAN FRANCISCO and SHENZHEN, China, August 13, 2014 /PRNewswire/ — Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer, and marketer of lithium and nickel-metal hydride (Ni-MH) rechargeable batteries, and a battery management systems and battery recycling provider, today announced its financial results for the second quarter and six months ended June 30, 2014.

2014 Second Quarter Operating and Financial Highlights (all results are compared to prior year period)

  • Net sales increased 22.3% to $38.1 million, driven by sales increases across all of Highpower’s product lines
  • Lithium battery net sales increased 42.0% with total lithium battery pieces sold increasing by 28.8%
  • Gross margin improved to 20.3% from 18.4%
  • EBITDA increased 124.6% to $2.4 million from $1.1 million, adjusted EBITDA increased 161.5% to $2.9 million from $1.1 million
  • Net income attributable to the Company increased 643.4% to $0.8 million, or $0.05 per share, from $0.1 million, or $0.01 per share
  • Non-GAAP net income attributable to the Company increased 756.9% to $1.3 million, or $0.09 per share, from $0.2 million, or $0.01 per share

Outlook for 2014

  • The Company reiterates its 2014 guidance of revenues of between $150 million to $170 million
  • Net income attributable to the Company of between $1.5 million to $3.0 million
  • Non-GAAP net income attributable to the Company of between $2.5 million to $4.0 million

Management Commentary

Mr. George Pan, Chairman and CEO of the Company, commented, “We are pleased to report improved sales and gross margin in the second quarter of 2014, which was the result from increased volume sold of both lithium batteries and Ni-MH batteries. We have expanded our customer base through growing global demand for our lithium battery products in many areas including mobile, portable, wearable, industrial, solar, and electrical vehicle markets, and new sales channels for our Ni-MH products.”

2014 Second Quarter and Six Month Financial Review

Net Sales

Net sales for the second quarter ended June 30, 2014 increased 22.3% to $38.1 million compared with $31.2 million for the same period in 2013. The increase in net sales was mainly due to a $5.2 million increase in net sales of lithium batteries. For the six months ended June 30, 2014, the Company’s net sales increased to $67.3 million compared with $55.6 million in the first half of 2013.

Gross Profit

Gross profit for the second quarter ended June 30, 2014 increased to $7.7 million, as compared with $5.7 million for the same period in 2013. The increase was due to increase in the average selling price of lithium batteries. Gross profit for the six months ended June 30, 2014 increased to $13.7 million, as compared with $10.5 million for the same period in 2013.

Gross Margin

Gross margin was 20.3% for the second quarter ended June 30, 2014, as compared with 18.4% for the same period in 2013. The increase in gross margin was largely due to higher selling prices in the Company’s lithium battery segment. For the six months ended June 30, 2014, gross margin was 20.3%, as compared with 18.9% for the same period in 2013.

Net sales, cost of sales, and gross profit by segments is set out as follows:

Three months ended June 30,

Six months ended June 30,

2014

2013

2014

2013

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

Change in %

$

$

Change in %

Net sales

Ni-MH Batteries

19,153,435

17,866,800

7.2%

34,640,938

32,916,770

5.2%

Lithium Batteries

17,511,963

12,328,277

42.0%

30,902,207

21,580,499

43.2%

New Materials

1,469,238

982,539

49.5%

1,751,805

1,079,719

62.2%

Total

38,134,636

31,177,616

22.3%

67,294,950

55,576,988

21.1%

Cost of Sales

Ni-MH Batteries

15,224,391

14,174,402

7.4%

27,514,189

26,271,502

4.7%

Lithium Batteries

13,877,599

10,363,888

33.9%

24,580,425

17,805,800

38.0%

New Materials

1,303,155

904,867

44.0%

1,539,900

1,002,047

53.7%

Total

30,405,145

25,443,157

19.5%

53,634,514

45,079,349

19.0%

Gross Profit

Ni-MH Batteries

3,929,044

3,692,398

6.4%

7,126,749

6,645,268

7.2%

Lithium Batteries

3,634,364

1,964,389

85.0%

6,321,782

3,774,699

67.5%

New Materials

166,083

77,672

113.8%

211,905

77,672

172.8%

Total

7,729,491

5,734,459

34.8%

13,660,436

10,497,639

30.1%

Research and Development (R&D)

R&D spending was $2.0 million, or 5.2% of total revenue, for the second quarter ended June 30, 2014, compared to $1.4 million, or 4.3% of total revenue, for the same period in 2013.The increase was primarily a result of the expansion of our workforce to expand new product development for the electrical vehicles and energy storage sectors. R&D spending was $3.8 million for the six months ended June 30, 2014, compared to $2.5 million for the same period in 2013.

Selling & Distribution

Selling and distribution expenses were $1.6 million, or 4.2% of total revenue, for the second quarter ended June 30, 2014, as compared with $1.4 million, or 4.5% of total revenue, for the same period in 2013. The increase was due to the expansion of Highpower’s sales force and increased marketing activities. Selling and distribution expenses were $3.1 million for the six months ended June 30, 2014, as compared with $2.8 million for the same period in 2013.

General & Administrative

General and administrative expenses were $3.3 million, or 8.7% of total revenue, for the second quarter ended June 30, 2014, as compared with $2.6 million, or 8.4% of total revenue, for the second quarter of 2013. The increase was due to the expansion of workforce at the Company’s Huizhou facility, included in this amount was non-cash share-based compensation expense of $0.5 million, up from $45,671 in the second quarter of 2013. General and administrative expenses were $6.9 million for the six months ended June 30, 2014, as compared with $5.4 million for the same period in 2013. The primary reason for the increase was due to the expansion of our workforce at our Huizhou facility, included in this amount was non-cash share-based compensation expense of $0.9 million, up from $94,710 in the first half of 2013.

Net Income

Net income attributable to the Company for the second quarter ended June 30, 2014 was $812,498, or $0.05 per diluted share based on 15.3 million weighted average diluted shares outstanding, compared to net income of $109,289, or $0.01 per diluted share based on 13.6 million weighted average diluted shares outstanding.

Net loss attributable to the Company for the six months ended June 30, 2014 was $122,651, or $0.01 per diluted share based on 14.4 million weighted average diluted shares outstanding, compared to net loss of $499,591, or $0.04 per diluted share based on 13.6 million weighted average diluted shares outstanding.

EBITDA

EBITDA for the second quarter ended June 30, 2014 increased 124.6% to $2.4 million from $1.1 million in the prior year period. For the six month period, EBITDA increased 112.0% to $2.7 million from $1.3 million in the first half of 2013. A table reconciling EBITDA, a non-GAAP (Generally Accepted Accounting Principles) 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)

6/30/2014

(Unaudited)

12/31/2013

(Audited)

Cash and Cash Equivalents

$12.8

$8.0

Total Current Assets

$96.6

$97.3

Total Assets

$151.6

$151.8

Total Current Liabilities

$109.2

$113.2

Total Liabilities

$113.2

$117.1

Shareholders’ Equity

$38.4

$34.7

Total Liabilities and Shareholders’ Equity

$151.6

$151.8

Book Value Per Share

$2.66

$2.55

Outlook for 2014

Based on current expectations for global demand in the rechargeable battery market in 2014 and our continued shift toward mobile power sources, higher-value energy storage systems and transportation products, the Company reiterates the 2014 guidance of revenues of between $150 million to $170 million. The Company also clarified its 2014 net income guidance to include non-GAAP net income of between $2.5 million to $4.0 million, and net income of between $1.5 million to $3.0 million. This clarification is largely due to additional anticipated stock based compensation expense as a result of the Company’s capital offering in April 2014.

Chairman Pan continued, “We are beginning to see considerable traction across both our lithium and Ni-MH markets, which began to accelerate during the second quarter. As a result, we are confident in achieving our previously announced sales guidance for the year. We are also continuing to re-invest in our business, as evidenced by increases in our research and development through the first six months, which we believe will continue to both position Highpower for short and long-term growth by continually providing an opportunity to re-engage our loyal customer base with the latest in battery technology. The Company is in a strong financial position as a result of our recent capital offering, and is utilizing those resources to expand our global sales platform and enter new markets. There are numerous applications that a nimble company with operational leverage like Highpower can take advantage of, and we look forward to keeping investors updated on our progress.”

Conference Call Details

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

The dial-in numbers are:

Live Participant Dial In (Toll Free): 877-407-3108
Live Participant Dial In (International): 201-493-6797

To listen to the live webcast, please go to at www.highpowertech.com and click on the conference call link, or go to: http://highpowertech.equisolvewebcast.com/q2-2014. This webcast will be archived and accessible through the Company’s website for approximately 30 days following the call. The Company will also have an accompanying slide presentation available in PDF format on its homepage prior to the conference 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 10 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. Adjusted EBITDA and Non-GAAP net income exclude stock-based compensation expense. Adjusted EBITDA, as defined above, may not be similar to Adjusted EBITDA measures used by other companies. 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 these non-GAAP measures are useful to investors as they provide a basis for evaluating the Company’s operating results in the ordinary course of its operations.

These non-GAAP measures are 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. These non-GAAP financial measures are reconciled in the accompanying tables to the most directly comparable measures 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, 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, 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 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. 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.
Henry Sun
CFO
+86-755-8968-6521
ir@highpowertech.com

INVESTOR RELATIONS:

The Equity Group Inc.

In China
Katherine Yao, Associate
86 10 6587 6435
kyao@equityny.com

In U.S.
Adam Prior, Senior Vice President
(212) 836-9606
aprior@equityny.com

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,

2014

2013

2014

2013

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net sales

38,134,636

31,177,616

67,294,950

55,576,988

Cost of sales

(30,405,145)

(25,443,157)

(53,634,514)

(45,079,349)

Gross profit

7,729,491

5,734,459

13,660,436

10,497,639

Research and development expenses

(1,976,965)

(1,350,997)

(3,788,917)

(2,453,465)

Selling and distribution expenses

(1,587,726)

(1,392,576)

(3,124,886)

(2,787,978)

General and administrative expenses, including stock-based compensation

(3,312,296)

(2,612,855)

(6,883,576)

(5,418,246)

Foreign currency transaction gain (loss)

247,102

(180,010)

349,695

(219,957)

Gain (loss) on derivative instruments

21,147

112,335

(116,134)

222,283

Total operating expenses

(6,608,738)

(5,424,103)

(13,563,818)

(10,657,363)

Income (loss) from operations

1,120,753

310,356

96,618

(159,724)

Gain on change of fair value of warrant liability

74,548

74,548

Other income

361,954

281,236

903,374

497,385

Interest expenses

(474,162)

(365,146)

(1,069,543)

(701,412)

Income (loss) before taxes

1,083,093

226,446

4,997

(363,751)

Income taxes expenses

(281,364)

(159,110)

(189,213)

(207,329)

Net income (loss)

801,729

67,336

(184,216)

(571,080)

Less: net loss attributable to non-controlling interest

(10,769)

(41,953)

(61,565)

(71,489)

Net income (loss) attributable to the Company

812,498

109,289

(122,651)

(499,591)

Comprehensive income (loss)

Net income (loss)

801,729

67,336

(184,216)

(571,080)

Foreign currency translation gain (loss)

(19,936)

526,996

(361,122)

298,942

Comprehensive income (loss)

781,793

594,332

(545,338)

(272,138)

Less: comprehensive loss attributable to non-controlling interest

(11,294)

(31,257)

(72,727)

(65,475)

Comprehensive income (loss) attributable to the Company

793,087

625,589

(472,611)

(206,663)

Earnings (loss) per share of common stock attributable to the Company

– Basic

0.05

0.01

(0.01)

(0.04)

– Diluted

0.05

0.01

(0.01)

(0.04)

Weighted average number of common stock outstanding

– Basic

14,853,219

13,582,106

14,415,662

13,582,106

– Diluted

15,277,743

13,582,106

14,415,662

13,582,106

HIGHPOWER INTERNATIONAL, INC.AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars except Number of Shares)

June 30,

December 31,

2014

2013

(Unaudited)

$

$

ASSETS

Current Assets:

Cash and cash equivalents

12,820,421

7,973,459

Restricted cash

20,053,350

28,586,121

Accounts receivable, net

33,544,964

33,961,014

Notes receivable

2,564,585

1,014,891

Prepayments

6,127,204

4,969,743

Other receivables

800,986

1,063,656

Inventories

20,654,074

19,739,360

Total Current Assets

96,565,584

97,308,244

Property, plant and equipment, net

48,699,905

48,548,203

Land use right, net

4,334,591

4,421,415

Intangible asset, net

625,000

650,000

Deferred tax assets

1,343,954

802,225

Foreign currency derivatives assets

63,289

TOTAL ASSETS

151,569,034

151,793,376

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities:

Foreign currency derivatives liabilities

68,007

Accounts payable

46,370,345

40,026,698

Deferred income

1,007,753

675,521

Short-term loan

31,216,964

36,142,105

Notes payable

21,616,432

25,271,256

Other payables and accrued liabilities

5,564,376

7,801,431

Income taxes payable

1,357,123

1,279,658

Current portion of long-term loan

1,950,490

1,967,536

Total Current Liabilities

109,151,490

113,164,205

Warrant liability

1,099,404

Long-term loan

2,925,735

3,935,071

TOTAL LIABILITIES

113,176,629

117,099,276

COMMITMENTS AND CONTINGENCIES

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, 15,052,158 shares issued and
outstanding at June 30, 2014 and 13,978,106 shares issued and outstanding at
December 31, 2013)

1,505

1,398

Additional paid-in capital

10,254,841

6,011,305

Statutory and other reserves

3,142,411

3,142,411

Retained earnings

18,268,224

18,390,875

Accumulated other comprehensive income

5,498,899

5,848,859

Total equity for the Company’s stockholders

37,165,880

33,394,848

Non-controlling interest

1,226,525

1,299,252

TOTAL EQUITY

38,392,405

34,694,100

TOTAL LIABILITIES AND EQUITY

151,569,034

151,793,376

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

Six months ended June 30,

2014

2013

(Unaudited)

(Unaudited)

$

$

Cash flows from operating activities

Net income

(184,216)

(571,080)

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

2,053,486

1,182,314

Allowance for doubtful accounts

266

(3,965)

Loss on disposal of property, plant and equipment

151,237

102,926

Loss on derivative instruments

130,948

123,333

Deferred income tax

(549,140)

(137,726)

Share based payment

916,244

94,710

Gain on change of fair value of warrant liability

(74,548)

Accounts receivable

159,094

(41,371)

Notes receivable

(1,560,871)

(167,535)

Prepayments

(1,200,028)

(1,372,932)

Other receivable

253,843

8,451

Inventories

(1,086,899)

(1,924,454)

Accounts payable

6,887,622

1,414,867

Deferred income

1,009,295

Other payables and accrued liabilities

(2,175,844)

1,725,062

Income taxes payable

88,688

(228,533)

Net cash flows provided by operating activities

4,819,177

204,067

Cash flows from investing activities

Acquisition of plant and equipment

(3,503,027)

(7,335,376)

Net cash flows used in investing activities

(3,503,027)

(7,335,376)

Cash flows from financing activities

Proceeds from short-term bank loans

9,611,198

15,581,691

Repayment of short-term bank loans

(14,367,008)

(8,515,280)

Repayment of long-term bank loans

(976,737)

(962,603)

Proceeds from notes payable

21,753,902

20,038,103

Repayment of notes payable

(25,195,047)

(26,517,924)

Proceeds from issuance of capital stock, net

4,633,164

Change in restricted cash

8,316,169

3,280,806

Net cash flows provided by financing activities

3,775,641

2,904,793

Effect of foreign currency translation on cash and cash equivalents

(244,829)

265,988

Net increase (decrease) in cash and cash equivalents

4,846,962

(3,960,528)

Cash and cash equivalents – beginning of period

7,973,459

6,627,334

Cash and cash equivalents – end of period

12,820,421

2,666,806

Supplemental disclosures for cash flow information:

Cash paid for:

Income taxes

649,665

573,588

Interest expenses

1,061,904

701,412

Non-cash transactions

Accounts payable for construction in progress

794,356

1,649,807

Offset of deferred income and property, plant and equipment

669,668

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)

(Stated in US Dollars)

Reconciliation of Net Income to EBITDA

Three Months Ended

Six Months Ended

June 30

June 30

June 30

June 30

2014

2013

2014

2013

$

$

$

$

Net Income (Loss) attributable to the Company

812,498

109,289

(122,651)

(499,591)

Non-GAAP Net Income (Loss)(1)

1,327,796

154,960

793,593

(404,881)

Interest expenses, net

270,351

189,379

592,500

389,504

Income tax expenses

281,364

159,110

189,213

207,329

Depreciation and Amortization

1,041,685

613,595

2,053,486

1,182,314

EBITDA

2,405,898

1,071,373

2,712,548

1,279,556

Non-GAAP EBITDA(2)

2,921,196

1,117,044

3,628,792

1,374,266

(1) See table below for reconciliation of net income attributable to the Company to Non-GAAP net income attributable to the Company.

(2) Excludes share-based compensation expense as set forth in the following table.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)

(Stated in US Dollars)

Reconciliation of Net Income Attributable to the Company to Non-GAAP Net Income Attributable to the Company

Three months ended

June 30,

Six months ended

June 30,

2014

2013

2014

2013

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net income (loss) attributable to the Company

812,498

109,289

(122,651)

(499,591)

Stock-based compensation expense

515,298

45,671

916,244

94,710

Non-GAAP net income (loss) attributable to the Company

1,327,796

154,960

793,593

(404,881)

Basic net income (loss) per share of common stock
attributable to the Company

0.05

0.01

(0.01)

(0.04)

Stock-based compensation expense

0.04

0.07

0.01

Non-GAAP income (loss) per share of common stock attributable to the Company

0.09

0.01

0.06

(0.03)

Diluted net income (loss) per share of common stock attributable to the Company

0.05

0.01

(0.01)

(0.04)

Stock-based compensation expense

0.04

0.07

0.01

Non-GAAP income (loss) per share of common stock
attributable to the Company

0.09

0.01

0.06

(0.03)

Weighted average number of common shares outstanding

– Basic

14,853,219

13,582,106

14,415,662

13,582,106

– Diluted

15,277,743

13,582,106

14,415,662

13,582,106