Highpower Intl (NASDAQ:HPJ)

First Quarter 2012 Results

• Breakeven EPS for the first quarter of 2012 vs loss of $0.03 in prior year period
• Sustained growth in lithium battery segment -- lithium battery net sales up 40% in the first quarter of 2012 over the first quarter of 2011; total lithium battery pieces sold increased 30%; and a 42% increase in volume per ampere hour
• Reaffirms 2012 guidance of year-over-year revenue growth of 15% to 25%

Management Commentary

"Lithium batteries continued to be a bright spot for us in the first quarter, with volumes up over 40% from last year's first quarter based on strong demand for our products in a number of end markets, particularly in e-bikes and scooters, which will remain a focus for the rest of the year," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "We are well positioned to meet this demand in these high growth markets and look forward to another year of solid growth in our lithium battery business."

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "We are pleased with the improvements we saw on the profitability front this quarter, ending the first quarter breakeven. Traditionally the first quarter has always been our slowest quarter due to the Chinese New Year. However, in addition to normal seasonality, one of our nickel metal hydride (Ni-MH) customers underwent an inventory readjustment during the first quarter, resulting in lower overall Ni-MH revenues. We also continued to shift our Materials business to a full-scale, more profitable e-waste and recycling model, which had a negative impact on our revenue."

"We are confident that our Ni-MH business will see a recovery in the second quarter. Moreover, our lithium business is well positioned to continue to show excellent growth and the investments we are making in our full-scale recycling program will be a strong contributor to our profitability in the future," concluded Mr. Sun.

Fourth Quarter 2011 Results

• Net sales for the fourth quarter ended December 31, 2011 totaled $26.4 million, a year-over-year decrease of 5% compared with $27.7 million for the fourth quarter ended December 31, 2010.
• Income from operations for the fourth quarter of 2011 was $96,000, as compared with income from operations of $1.6 million for the fourth quarter of 2010.
• Net loss for the fourth quarter of 2011 was $1.6 million, or ($0.12) per diluted share, based on 13.6 million weighted average shares outstanding. This compares with fourth quarter 2010 net income of $1.4 million, or $0.10 per diluted share, based on 13.6 million weighted average shares outstanding. Included in the fourth quarter 2011 results was a $1.5 million litigation settlement expense for a fire incident that occurred in 2006 and $39,000 of non-cash stock-based compensation.

"We continued to execute on our strategy to expand our business into new market segments," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Our lithium battery segment posted solid growth in 2011 as market demand shifted towards higher-performance and cleaner batteries. We also focused on strategic investments in R&D to further our position in this attractive market segment. However, our Ni-MH business faced a tough operating environment in 2011 due to weaker global demand, volatile commodity prices, and increased labor costs in China."

"In 2012, our emphasis will be on higher margin and growing business segments such as energy storage systems and transportation, including e-bikes and scooters for the Asian and European end-markets. In our Materials segment, we plan to shift to a more profitable, full-scale battery and electronic waste recycling business. Overall, we have made the right investments for our future growth and we should begin to see the positive results from these efforts in our sales and profitability in 2012," concluded Mr. Pan.

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "We believe we are well positioned to deliver improved results in 2012 because of our diversified geographic and end market mix. While we expect that our Ni-MH business will improve slightly from its lower levels in 2011, we expect to continue to see strong growth from our lithium business. Across all of our products, we will opportunistically look to raise prices where we can and we will continue our drive towards selling higher-value and therefore higher margin products."

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2012 and our continued shift toward higher-value energy storage systems and transportation products, we expect revenues to grow between 15% to 25% over 2011 revenue levels.

Third Quarter 2011 Results

• Net sales for the third quarter ended September 30, 2011 totaled $28.1 million, a year-over-year increase of 1% compared with $27.8 million for the third quarter ended September 30, 2010.
• Loss from operations for the third quarter of 2011 was $839,000, as compared with income from operations of $1.7 million for the third quarter of 2010.
• Net loss for the third quarter of 2011 was $665,000, or ($0.05) per diluted share, based on 13.6 million weighted average shares outstanding. This compares with third quarter 2010 GAAP net income of $1.4 million, or $0.11 per diluted share, based on 13.7 million weighted average shares outstanding.

"Although our lithium battery segment has strengthened, we have faced a tough global macro operating environment this year, which has certainly impacted our Ni-MH segment growth and profitability. Despite the lower sales volume and increasing raw material and labor costs, we remain committed to our mission of creating a world-class, international clean battery company. To that end, we are expanding our global sales team to pursue growth opportunities in both our Ni-MH and lithium segments. These investments today in our business, staffing, and infrastructure, will position us for growth, profitability, and increased shareholder returns in 2012," concluded Mr. Pan.

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "Through the first nine months, we have faced headwinds from uncertain global demand, raw material price swings and pricing pressure. We continue to work with our major customers on price increases to reflect our existing cost structure, as well as our supply chain to secure longer-term contracts and we expect much of this margin pressure to be alleviated in the next few quarters. In addition, we have focused on reorganizing our management structure and have dedicated more attention on employee training to enhance efficiency."

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2011, the outlook for our key raw material input prices and our planned increased investment in sales and marketing and research and development, we are updating our financial guidance for 2011. We expect net sales to be between $110 million and $120 million. We expect net income to be approximately break-even on a GAAP basis, which includes non-cash stock-based compensation expenses.

Second Quarter 2011 Financial Results

• Net sales for the second quarter ended June 30, 2011 totaled $29.7 million, a year-over-year increase of 2.5% compared with $29.0 million for the second quarter ended June 30, 2010, and up sequentially 10% from $27.0 million in the first quarter of 2011. The increase in sales for the second quarter was primarily driven by increased demand for our Li-ion batteries.
• Net income for the second quarter of 2011 was $0.1 million, or $0.01 per diluted share, based on 13.8 million weighted average shares outstanding. This compares with second quarter 2010 net income of $1.6 million, or $0.12 per diluted share, based on 13.7 million weighted average shares outstanding. As previously mentioned, the 2011 second quarter's results were negatively impacted mainly by commodity prices and the timing of pricing increases to customers.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2011, the outlook for our key raw material input prices and our planned increased investment in sales and marketing and research and development, we are updating our financial guidance for 2011. We expect net sales to be between $120 million and $125 million. We expect net income to be in the range of $2 million to $3 million.

First Quarter Results:

• Net sales for the first quarter ended March 31, 2011 totaled $27.0 million, a year-over-year increase of 33.3% compared with $20.2 million for the first quarter ended March 31, 2010
• Net loss for the first quarter of 2011 was $0.5 million, or $(0.03) per diluted share, based on 13.8 million weighted average shares outstanding. This compares with first quarter 2010 net income of $1.6 million, or $0.12 per diluted share, based on 13.6 million weighted average shares outstanding.

GeoTeam® Note: First Quarter 2011 vs. 2010 Adjusted EPS was $0.02 vs. $0.12.

Based on our current expectations for global demand for the rechargeable battery market in 2011, the outlook for our key raw material input prices and our planned increased investment in sales and marketing and research and development, we are updating the following financial guidance for 2011. We are reaffirming that we expect net sales to be between $125 million and $135 million. However, due to volatile commodity prices, we are updating our guidance for net income, which we expect will now range between $3.0 million and $4.0 million for the year ended December 31, 2011.

"During the first quarter, our margins were negatively affected by substantial increases in raw material prices, including nickel and rare earth materials," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Despite these headwinds, we still experienced strong end market demand and significant growth for both our Ni-MH and Lithium-ion batteries. We grew Li-ion sales by 51% year-over-year and Ni-MH sales by almost 10%."

For the fourth quarter of 2010, the Company expects

• revenue to be in the range of $27.5 to $28.0 million
• net income to be in the range of $1.3 to $1.5 million.

At the midpoint of the range, this represents a 23% increase in revenue and a 119% increase in net income as compared to the fourth quarter of 2009.

For the fiscal year ended December 31, 2010, the Company expects

• revenue to be in the range of $104.5 to $105.0 million
• net income to be in the range of $5.9 to $6.1 million.

 At the midpoint of the range, this represents a 49% increase in revenue and a 35% increase in net income as compared to the fiscal year ended December 31, 2009.

"We are proud of the strong results that we achieved in the fourth quarter and fiscal year of 2010," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "We are benefiting from increasing global demand for rechargeable batteries and our success in selling our batteries into an increasing number of next generation consumer electronics products. We remain focused on expanding our sales and marketing efforts worldwide and advancing our position as a leading provider of clean energy solutions for consumer products and alternative energy applications."

Third Quarter 2010 Financial Results

• Net sales for the third quarter ended September 30, 2010 totaled $27.8 million, a year-over-year increase of 32% compared with $21.1 million for the third quarter ended September 30, 2009.

• Third quarter 2010 gross profit increased 13% to $5.9 million, compared with $5.2 million for the third quarter 2009. Gross margin was 21.1% for the third quarter 2010, compared with 24.8% for the third quarter 2009.

• Net income for the third quarter of 2010 was $1.4 million or $0.11 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with a particularly strong third quarter 2009 net income of $2.4 million, or $0.18 per diluted share, based on 13.6 million weighted average shares outstanding.

"The third quarter proved to be another strong quarter of year-over-year revenue growth," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "We also accomplished an important corporate branding milestone this quarter by changing our name to Highpower International. Our new name helps position us for further worldwide growth in the years ahead. Highpower International better reflects our global initiatives to continue to expand our sales and marketing efforts worldwide and advance our position as a leading, profitable, eco-friendly focused solution provider of green energy."

Mr. Henry Ngan, Chief Financial Officer of Highpower International, added, "We are pleased with the continued revenue strength we saw in the third quarter. We remain optimistic that these revenue trends will continue throughout the end of the year. Despite our net income being down year-over-year in the third quarter, will still anticipate that our overall profitability in FY 2010 will exceed the record profitability levels we saw in 2009, which remains consistent with our commentary from earlier this year."

Financial and Business Highlights:

• Recorded $28.9 million in net sales for second quarter 2010, a 88% increase year-over-year, and 43% increase sequentially;
• Achieved gross profit of $5.4 million for second quarter 2010, compared to $3.1 million in second quarter 2009;
• Earned net income of $0.12 per diluted share for second quarter 2010, a 71% increase over the second quarter of 2009;
• Debt-to-capital ratio remained healthy consistent with prior quarter;
• Formed Springpower International, a research & development unit for advanced high performance battery materials and clean energy materials.

"Our business trends in the second quarter clearly indicate that the overall level of demand for our battery products remains healthy," said Mr. George Pan, Chairman and Chief Executive Officer of Hong Kong Highpower Technology. "Our ability to deliver strong second quarter results in the face of a slow and gradual macro economic recovery signifies that we are taking the right steps and executing well on our strategy to be a leading, profitable, eco-friendly focused, world battery player."

Mr. Henry Ngan, Chief Financial Officer of Hong Kong Highpower Technology, added, "We produced another solid quarter of results. We are now six months through FY 2010, and our sales and profitability are tracking well ahead of 2009 levels. Therefore, we remain optimistic that we can achieve greater levels of sales and profitability in FY 2010 in comparison to last year's full year results."