Highpower International, Inc. Reports Third Quarter 2013 Financial Results

Highpower International, Inc. Reports Third Quarter 2013 Financial Results 
Strongest Revenue Quarter in Company History; Reaffirms Full Year
Guidance 
SAN FRANCISCO, CA and SHENZHEN, CHINA -- (Marketwired) -- 11/13/13 --
  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 third quarter ended September 30, 2013. 
Third Quarter 2013 Highlights 


 
--  Net sales increased 21.9% year-over-year to $38.9 million
--  Sustained growth in lithium battery segment -- lithium battery net
    sales up 31.8% in the third quarter of 2013 over the third quarter of
    2012; total lithium battery pieces sold increased 22.5%; and a 39.0%
    increase in volume per ampere hour
--  Gross margin of 18.6%
--  Net income of $0.7 million, or $0.05 per diluted share

  
Management Commentary 
"We are extremely pleased with the record revenue levels we saw
during the quarter for both our major battery business lines," said
Mr. George Pan, Chairman and Chief Executive Officer of Highpower
International. "Furthermore, we were able to gain market share in
Europe for Ni-MH batteries during the quarter. While our Ni-MH
battery business is in a maturing industry, we believe we are very
well positioned to continue to be in an advantageous position to
capitalize on trends of consolidation in this space. 
"Highpower's lithium battery business continues to deliver dramatic
growth and we are very excited about the new automated facility in
Huizhou. This new factory will be focused on producing lithium
batteries for smart phones, tablets, energy storage and electrical
vehicles, which we believe are areas with high growth potential in
the coming years. The new facility will allow us to triple our
existing lithium production capacity in the years to come and service
some of the lithium business we are currently unable to address out
of our existing lithium battery facilities. We have started small
batch production and expect to see material volumes out of the new
facility in the first quarter of 2014," concluded Mr. Pan. 
"We are delighted with our current business trajectory. Despite our
continued investments to grow our lithium capacity, we are on track
to deliver solid revenue growth and remain profitable in 2013," said
Mr. Henry Sun, Chief Financial Officer of Highpower International.
"While we are unlikely to see much additional growth in the Ni-MH
battery sector, we do think we can be a strong consolidation leader
and deliver sound margins because of our industry reputation, product
quality, and global customer base. Moreover, we believe our lithium
battery business will continue to be our primary growth driver and
allow for gross margin expansion over the next few years. At the same
time, we remain focused on cost control measures and the prudent use
of capital." 
Third Quarter 2013 Financial Results 
Net sales for the third quarter ended September 30, 2013 totaled
$38.9 million, a year-over-year increase of 21.9% compared with $31.9
million for the third quarter ended September 30, 2012. The increase
in sales for the third quarter was due to a $3.6 million increase in
net sales of our lithium batteries and a $3.4 million increase in net
sales of our Ni-MH batteries. The increase in the number of Ni-MH
battery units sold in the three months ended September 30, 2013 was
primarily attributable to increased orders from our new customers and
the increase in the volume of lithium batteries sold in the three
months ended September 30, 2013 was primarily attributable to growth
in global demand.  
Third quarter 2013 gross profit decreased to $7.2 million, as
compared with $7.6 million for the third quarter of 2012. Gross
profit margin was 18.6% for the third quarter of 2013, as compared
with 23.9% for the third quarter of 2012. The year-over-year decrease
in gross profit margin for the third quarter of 2013 was primarily
attributable to decreases in the average selling price of batteries
sold for the comparable period and an increase in labor costs.  
R&D spending was $1.5 million for the third quarter of 2013, as
compared with $1.1 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 $1.6 million for the third
quarter of 2013, as compared with $1.4 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 $3.0 million for the third
quarter of 2013, as compared with $4.0 million for the third quarter
of 2012. The decrease was due to decreased bad debt expenses for the
three months ended September 30, 2013. 
Net income attributable to the company for the third quarter of 2013
was $742,228, or $0.05 per diluted share, based on 13.7 million
weighted average shares outstanding. This compares with third quarter
2012 net income attributable to the company of $644,362 or $0.05 per
diluted share, based on 13.6 million weighted average shares
outstanding.  
Balance Sheet 
As of September 30, 2013, Highpower International had cash, cash
equivalents and restricted cash totaling $37.1 million, total assets
of $143.2 million, and stockholders' equity of $33.0 million. Bank
credit facilities totaled $83.7 million at September 30, 2013, of
which $47.1 million was utilized and $36.6 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 4650086. 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         Nine months ended    
                               September 30,             September 30,      
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
                         (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
                              $            $            $            $      
                                                                            
Net sales                 38,852,978   31,868,046   94,429,966   81,848,511 
Cost of sales            (31,609,991) (24,258,038) (76,689,340) (64,557,820)
                         -----------  -----------  -----------  ----------- 
Gross profit               7,242,987    7,610,008   17,740,626   17,290,691 
                         -----------  -----------  -----------  ----------- 
                                                                            
Research and development                                                    
 expenses                 (1,531,477)  (1,147,359)  (3,984,942)  (3,265,290)
Selling and distribution                                                    
 expenses                 (1,598,397)  (1,423,372)  (4,386,375)  (3,904,771)
General and                                                                 
 administrative                                                             
 expenses, including                                                        
 share-based                                                                
 compensation             (2,957,467)  (4,035,269)  (8,375,713)  (8,313,737)
Loss on exchange rate                                                       
 difference                 (154,453)    (200,488)    (374,410)     (78,458)
Gain on derivative                                                          
 instruments                  45,033      207,576      267,316      240,532 
                         -----------  -----------  -----------  ----------- 
Total operating expenses  (6,196,761)  (6,598,912) (16,854,124) (15,321,724)
                         -----------  -----------  -----------  ----------- 
                                                                            
Income from operations     1,046,226    1,011,096      886,502    1,968,967 
                                                                            
Other income                 479,288      176,265      976,673      404,483 
Interest expenses           (444,706)     (63,935)  (1,146,118)    (377,376)
                         -----------  -----------  -----------  ----------- 
Income before taxes        1,080,808    1,123,426      717,057    1,996,074 
                         -----------  -----------  -----------  ----------- 
                                                                            
Income taxes expenses       (372,023)    (526,947)    (579,352)    (943,213)
                         -----------  -----------  -----------  ----------- 
Net income                   708,785      596,479      137,705    1,052,861 
                         -----------  -----------  -----------  ----------- 
                                                                            
Less: net loss                                                              
 attributable to non-                                                       
 controlling interest        (33,443)     (47,883)    (104,932)     (98,400)
Net income attributable                                                     
 to the Company              742,228      644,362      242,637    1,151,261 
                         -----------  -----------  -----------  ----------- 
                                                                            
Comprehensive income                                                        
Net income                   708,785      596,479      137,705    1,052,861 
Foreign currency                                                            
 translation gain            232,201      381,765      531,143      225,870 
                         -----------  -----------  -----------  ----------- 
Comprehensive income         940,986      978,244      668,848    1,278,731 
                         ===========  ===========  ===========  =========== 
                                                                            
Less: comprehensive loss                                                    
 attributable to non-                                                       
 controlling interest        (25,145)     (38,561)     (90,620)    (107,010)
Comprehensive income                                                        
 attributable to the                                                        
 Company                     966,131    1,016,805      759,468    1,385,741 
                         ===========  ===========  ===========  =========== 
                                                                            
Earnings per share of                                                       
 common stock                                                               
 attributable to the                                                        
 Company - Basic and                                                        
 diluted                        0.05         0.05         0.02         0.08 
                         ===========  ===========  ===========  =========== 
                                                                            
Weighted average number                                                     
 of common shares                                                           
 outstanding - Basic and                                                    
 diluted                  13,657,930   13,582,106   13,607,474   13,582,106 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
                                                                            
                                                                            
               HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES               
                         CONSOLIDATED BALANCE SHEETS                        
               (Stated in US Dollars except Number of Shares)               
                                                                            
                                                                            
                                              September 30,    December 31, 
                                                   2013            2012     
                                             --------------- ---------------
                                               (Unaudited)                  
                                                    $               $       
ASSETS                                                                      
  Current Assets:                                                           
  Cash and cash equivalents                        6,434,581       6,627,334
  Restricted cash                                 30,626,456      27,695,569
  Accounts receivable, net                        33,661,422      25,323,899
  Notes receivable                                 1,457,766         392,242
  Prepayments                                      5,638,324       3,223,795
  Other receivables                                  824,268         802,907
  Inventories                                     17,155,004      16,719,807
                                             --------------- ---------------
  Total Current Assets                            95,797,821      80,785,553
                                             --------------- ---------------
                                                                            
  Property, plant and equipment, net              41,368,522      33,462,369
  Land use right, net                              4,415,120       4,423,348
  Intangible asset, net                              662,500         700,000
  Deferred tax assets                                851,011         762,954
  Foreign currency derivatives assets                139,966         255,508
                                             --------------- ---------------
                                                                            
TOTAL ASSETS                                     143,234,940     120,389,732
                                             =============== ===============
                                                                            
LIABILITIES AND EQUITY                                                      
                                                                            
LIABILITIES                                                                 
  Current Liabilities:                                                      
  Accounts payable                                32,832,593      27,509,195
  Deferred revenue                                   670,846         661,178
  Short-term loan                                 35,369,536      20,478,604
  Notes payable                                   26,996,368      26,397,200
  Other payables and accrued liabilities           6,823,875       4,485,918
  Income taxes payable                             1,235,975       1,180,469
  Current portion of long-term loan                1,953,920       1,925,762
                                             --------------- ---------------
                                                                            
  Total Current Liabilities                      105,883,113      82,638,326
                                             --------------- ---------------
                                                                            
  Long-term loan                                   4,396,320       5,777,286
                                             --------------- ---------------
                                                                            
TOTAL LIABILITIES                                110,279,433      88,415,612
                                             =============== ===============
                                                                            
COMMITMENTS AND CONTINGENCIES                              -               -
                                                                            
                                                                            
                                                                            
                                                                            
                HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES               
                   CONSOLIDATED BALANCE SHEETS (CONTINUED)                  
               (Stated in US Dollars except Number of Shares)               
                                                                            
                                                                            
                                              September 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, 13,732,106 shares                                    
   issued and outstanding at September 30,                                  
   2013 and 13,582,106 shares issued and                                    
   outstanding at December 31, 2012)                   1,373           1,358
  Additional paid-in capital                       5,765,277       6,035,230
  Statutory and other reserves                     2,790,484       2,790,484
  Retained earnings                               17,534,221      17,291,584
  Accumulated other comprehensive income           5,566,695       5,049,864
                                             --------------- ---------------
                                                                            
  Total equity for the Company's                                            
   stockholders                                   31,658,050      31,168,520
                                             --------------- ---------------
                                                                            
  Non-controlling interest                         1,297,457         805,600
                                             --------------- ---------------
                                                                            
TOTAL EQUITY                                      32,955,507      31,974,120
                                             --------------- ---------------
                                                                            
TOTAL LIABILITIES AND EQUITY                     143,234,940     120,389,732
                                             =============== ===============
                                                                            
                                                                            
                                                                            
               HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES                
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                           (Stated in US Dollars)                           
                                                                            
                                            Nine months ended September 30, 
                                                 2013             2012      
                                           ---------------  --------------- 
                                             (Unaudited)      (Unaudited)   
                                                  $                $        
Cash flows from operating activities                                        
Net income                                         137,705        1,052,861 
Adjustments to reconcile net income to net                                  
 cash provided by operating activities                                      
  Depreciation and amortization                  1,832,596        1,668,979 
  Allowance for doubtful accounts                   (3,643)       1,156,434 
  Loss on disposal of property, plant and                                   
   equipment                                       108,652           55,000 
  Loss (income) on derivative instruments          117,966          (97,029)
  Deferred income tax                              (76,813)         225,862 
  Share based payment                              159,352          145,459 
Changes in operating assets and                                             
 liabilities                                                                
  Accounts receivable                           (7,918,758)      (3,904,228)
  Notes receivable                              (1,048,133)        (722,104)
  Prepayments                                   (2,191,905)         629,689 
  Other receivable                                  (9,515)         231,388 
  Inventories                                     (188,974)      (3,385,965)
  Accounts payable                               7,255,970        5,412,400 
  Deferred revenue                                       -          650,951 
  Other payables and accrued liabilities         2,251,556       (1,602,391)
  Income taxes payable                              37,821          459,052 
                                           ---------------  --------------- 
Net cash flows provided by operating                                        
 activities                                        463,877        1,976,358 
                                           ---------------  --------------- 
                                                                            
Cash flows from investing activities                                        
  Acquisition of plant and equipment           (11,905,424)      (9,626,668)
  Acquisition of land use right                          -       (1,323,559)
                                           ---------------  --------------- 
Net cash flows used in investing                                            
 activities                                    (11,905,424)     (10,950,227)
                                           ---------------  --------------- 
                                                                            
Cash flows from financing activities                                        
  Proceeds from short-term bank loans           30,408,328        9,866,422 
  Repayment of short-term bank loans           (15,748,524)      (3,772,049)
  Proceeds from long-term bank loans                     -        7,899,893 
  Repayment of long-term bank loans             (1,449,322)               - 
  Proceeds from notes payable                   32,308,322       33,555,477 
  Repayment of notes payable                   (32,097,470)     (27,278,534)
  Repayment of letter of credit                          -       (2,880,000)
  Capital contribution from non-                                            
   controlling interest                                  -          947,987 
  Increase in restricted cash                   (2,540,084)      (9,495,213)
                                           ---------------  --------------- 
Net cash flows provided by financing                                        
 activities                                     10,881,250        8,843,983 
                                           ---------------  --------------- 
Effect of foreign currency translation on                                   
 cash and cash equivalents                         367,544          455,068 
                                           ---------------  --------------- 
Net increase (decrease) in cash and cash                                    
 equivalents                                      (192,753)         325,182 
Cash and cash equivalents - beginning of                                    
 period                                          6,627,334        5,175,623 
                                           ---------------  --------------- 
Cash and cash equivalents - end of period        6,434,581        5,500,805 
                                           ===============  =============== 
                                                                            
Supplemental disclosures for cash flow                                      
 information :                                                              
Cash paid for :                                                             
  Income taxes                                     618,344          258,300 
                                           ===============  =============== 
  Interest expenses                              1,146,118          917,662 
                                           ===============  =============== 
Non-cash transactions                                                       
  Accounts payable for construction in                                      
   progress                                      1,408,336        2,285,517 
                                           ===============  =============== 

  
Financial Profiles, Inc.
Tricia Ross 
+1-916-939-7285
HPJ@finprofiles.com 
 
 
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