Highpower International Reports Unaudited Fourth Quarter and Full Year 2017 Financial Results
SAN DIEGO and SHENZHEN, China, April 2, 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 unaudited financial results for the fourth quarter and year ended December 31, 2017.
Fourth Quarter 2017 Highlights (all results compared to prior year period)
- Net sales for the fourth quarter of 2017 increased by 47.0% to $79.2 million from $53.9 million.
- Gross profit for the fourth quarter of 2017 increased by 8.4% to $11.8 million from $10.9 million.
- EBITDA for the fourth quarter of 2017 increased by 136.5% to $9.0 million from $3.8 million.
- Net income attributable to the Company for the fourth quarter of 2017 was $4.8 million, or $0.31 per diluted share, as compared to $1.8 million, or $0.12 per diluted share.
Full Year 2017 Highlights (all results compared to prior year period)
- Net sales increased 40.4% to $244.2 million from $173.9 million. Excluding the impact of Ganzhou Highpower Technology Co., Ltd. ("GZ Highpower"), net sales increased 27.2% to $215.9 million from $169.7 million.
- Lithium Business net sales increased 44.2% to $161.7 million from $112.1 million.
- Gross margin was 19.4% compared to 21.9%. Excluding GZ Highpower, gross margin was 20.4% compared to 22.7%.
- EBITDA was $27.8 million, a 99.8% increase from $13.9 million. Excluding GZ Highpower, EBITDA was $25.8 million compared to $15.0 million.
- Net income attributable to the Company increased 174.2% to $16.8 million, or $1.09 per diluted share, compared to $6.1 million, or $0.40 per diluted share. Excluding GZ Highpower, net income increased 116.8% to $15.7 million compared to $7.3 million.
- On December 15, 2017, the Company announced the investment of $14.3 million in its majority-owned subsidiary GZ Highpower from Xiamen Tungsten Co., Ltd. ("Xiamen Tungsten") and Mr. Ou, the General Manager of GZ Highpower, for a total of $12.1 million and $2.2 million, respectively. This transaction closed on December 21, 2017, and the Company's ownership of GZ Highpower decreased to 31.3%. Due to the loss of controlling power in GZ Highpower, the Company deconsolidated GZ Highpower accordingly. Key financial items excluding GZ Highpower are presented on an annual basis for comparison purposes.
Mr. George Pan, Chairman and CEO of Highpower International, commented, "We are pleased to report top-line performance that beat our guidance for both the fourth quarter and full year 2017. In addition, our bottom line, including EBITDA, grew significantly for both the fourth quarter and full year, thanks to continued progress in our efforts to strengthen our product offering, improve our production capacity and efficiency, and maintain an efficient supply chain."
Mr. Pan continued, "We are living in a digital age where power is central to the functioning of our homes and jobs. We have seen an unprecedented expansion in the number of electrical products available to customers in recent years, not only among public consumers, but also among companies and governments worldwide, resulting in a surge in global energy demand and solutions. Due to this high demand, we expect continued high prices for raw materials such as cobalt in 2018, and we will endeavor to combat its effect on margins by improving production efficiency, maintaining proper inventory buildup, and hedging. We will continue to invest more on R&D, further improve the product safety and reliability, which are essential and critical to end users, especially in the age of artificial intelligence. With such improvement, we will further strengthen our core competitiveness which will partially offset the negative impact from raw material price increasing."
"To drive our growth in the year ahead, we will continue to focus on our core lithium ion battery products. We are setting up a new production workshop in our Huizhou facility, which is expected to reach a target daily production volume of 100,000 pieces by the second quarter of 2018. In addition, a new building in Huizhou facility will be completed by May 2019 to further expand our production capacity to fulfill increasing international brand customer demand."
"With our top-tier customer base and strong branding, we are optimistic about our growth in 2018 and beyond. At Highpower, we remain committed to providing clean, safe, and efficient power solutions to meet society's needs," Mr. Pan concluded.
Fourth Quarter and Full Year 2017 Financial Results
Net sales for the fourth quarter of 2017 increased by 47.0% to $79.2 million from $53.9 million in the prior year period, primarily attributable to growth in revenue from the Lithium segment. This was driven by continued increasing demand for consumer electronics, including portable power stations, smart wearable devices, smart phones, and notebooks.
Net sales increased 40.4% to $244.2 million for the year ended December 31, 2017 as compared to $173.9 million in 2016. The increase was driven by growth in the Lithium segment as well as growth in the GZ Highpower business. Excluding GZ Highpower, net sales increased 27.2% to $215.9 million from $169.7 million.
Gross profit for the fourth quarter of 2017 increased by 8.4% to $11.8 million from $10.9 million in the prior year period. Gross margin for the fourth quarter of 2017 decreased to 14.9% from 20.2% in the prior year period due to continued high raw material prices and the expiration during the third quarter of some actions taken to offset the price fluctuations. There was also a substantial increase in the new materials business segment, which has a lower gross profit margin.
Gross profit for the year increased 24.4% to $47.4 million from $38.1 million in prior year period. Gross margin was 19.4% and 21.9% for full-year 2017 and 2016, respectively. The decrease in margin was primarily due to high raw material prices. Excluding GZ Highpower, gross profit for 2017 increased 14.5% to $44.0 million from $38.5 million and gross margin was 20.4% compared to 22.7%.
- Research and development (R&D) expenses for the fourth quarter of 2017 were $3.1 million as compared to $2.6 million in the prior year period. As a percentage of net sales, R&D expenses declined to 3.9% from 4.7% in the prior year period. The Company will continue to invest in R&D activities in the future.
Research and development expenses were $9.5 million, or 3.9% of net sales, for 2017 as compared to $9.2 million, or 5.3% of net sales, in 2016.
- Selling and distribution expenses for the fourth quarter of 2017 were $2.3 million compared to $1.9 million in 2016. As a percentage of net sales, selling and distribution expenses decreased to 2.9% from 3.6% in the prior year period, primarily attributable to the Company's customer base optimization efforts.
Selling and distribution expenses were $7.5 million, or 3.1% of net sales, for 2017 as compared with $6.9 million, or 4.0% of net sales, in 2016.
- General and administrative expenses for the fourth quarter of 2017 were $5.4 million as compared to $5.9 million in the prior year period. As a percentage of net sales, general and administrative expenses decreased to 6.8% from 11.0% in the prior year period.
General and administrative expenses were $15.4 million, or 6.3% of net sales, in 2017 as compared with $18.2 million, or 10.4% of net sales, in the prior year.
Net income attributable to the Company for the fourth quarter of 2017 increased to $4.8 million from $1.8 million in the prior year period. Net income attributable to the Company per diluted share for the fourth quarter of 2017 increased to $0.31 from $0.12 in the prior year period.
For the quarters ended December 31, 2017 and 2016, the Company's weighted average diluted shares outstanding used in computing diluted shares was and 15,648,888 and 15,159,563, respectively.
Net income attributable to the Company for the full year 2017 increased to $16.8 million from $6.1 million in the prior year period. Net income attributable to the Company per diluted share for the full year increased to $1.09 from $0.40 in the prior year period. Excluding GZ Highpower, net income for the full year of 2017 and 2016 was $15.7 million and $7.3 million, respectively.
For the years ended December 31, 2017 and 2016, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,435,371 and 15,113,914, respectively.
EBITDA for the fourth quarter of 2017 increased by 136.5% to $9.0 million from $3.8 million in the prior year period. EBITDA for the full year of 2017 increased by 99.8% to $27.8 million from $13.9 million in the prior year period. Excluding GZ Highpower, EBITDA was $25.8 million for the full year compared to $15.0 million in 2016.
A table reconciling EBITDA, a non-GAAP financial measure, to the appropriate GAAP measure is included with the Company's financial information below.
Revenue Breakdown by Geography:
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For the first quarter of 2018, the Company expects net revenues to grow over 10% year over year excluding Ganzhou Highpower impact. Factoring in the impact of expected, continued high raw material prices, gross margin is expected to be between 15% and 17% due to lower volume in first quarter by seasonality impact. 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 fourth quarter of 2017 excluding Ganzhou Highpower impact.
Conference Call Details
The Company will hold a conference call on Monday, April 2, 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:
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/q4-2017. 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 2002 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 are reconciled in the tables 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 outlook on net revenues and gross margins, hedging, , production capacity, research and development efforts, strategic partnerships, and business and financial expectations and anticipated growth during 2018. 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,; inability to successfully expand our production capacity and improve production efficiency; 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; our ability to successfully manage hedging; 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 Annual Report for the year ended December 31, 2017 on Form 10-K and other 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.
Highpower International, Inc.
Chief Financial Officer
Investor Relations Manager
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