Highpower International Reports Financial Results For the Third Quarter and Nine Months Ended September 30, 2016

SAN FRANCISCO, USA and SHENZHEN, China, Nov 10, 2016 /PRNewswire/ -- Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer, and marketer of lithium and nickel-metal hydride (Ni-MH) rechargeable batteries, battery management systems, and a provider of battery recycling, announced today its financial results for the third quarter and nine months ended September 30, 2016.

-- Highlighted by Higher Sales and Improved Profitability

-- Company to Hold Conference Call on November 10, 2016 at 10:00 a.m. Eastern Time / 7:00a.m. Pacific Time

The Company's recent notable events are as follows:

• On August 12, 2016, the Company announced that its wholly-owned subsidiary, Huizhou Highpower Technology Co., Ltd, entered into an agreement to acquire up to 50% equity interest in Huizhou Yipeng Energy Technology Co., Ltd., an electric vehicle power battery system solutions provider specializing in the plug-in hybrid electric vehicle (PHEV) and electric vehicle (EV) bus market in China. The Company also has the right to purchase in the future an additional 1% of the shares from Yipeng's founding shareholders at a price of approximately $0.4 million which would result in an aggregate ownership of 51% of Yipeng. As of September 30, 2016, the Company has invested an aggregate of $9.7 million in exchange for 35.4% of the equity interest of Yipeng.
• On August 30, 2016, Hong Kong Highpower Technology Co. Ltd. entered into a non-binding Cooperation Framework Agreement with Anshan Co-operation (Group) Co., Ltd. ("ACOC") under which ACOC proposed to purchase newly issued shares of SZ Highpower, SZ Springpower and ICON for RMB540 million (approximately $81.0 million), which would be paid directly to the subsidiaries. As a result of its purchase, ACOC would hold more than 50% in each PRC subsidiary. The Framework Agreement includes a 90 day exclusivity provision and supersedes the non-binding proposal from ACOC received by the Company on November 27, 2015. The special committee of the Board of Directors continues to review the proposed transaction.

2016 Third Quarter Financial Highlights (all results are compared to prior year period)

• Net sales were $54.1 million, an increase of 44.2% from $37.6 million, primarily due to an increase in net sales of lithium batteries.
• Gross margin was 25.2%, an increase from 19.2%, mainly due to an increase in sales volume of lithium batteries, a reduction in the cost of raw materials, and improvements in labor efficiency.
• EBITDA was $5.0 million compared to $4.0 million.
• Net income attributable to the Company was $2.7 million, or $0.18 per diluted share, compared to net income attributable to the Company of $1.9 million, or $0.13 per diluted share; non-GAAP net income attributable to the Company was $2.7 million, or $0.18 per diluted share, compared to non-GAAP net income attributable to the Company of $1.6 million, or $0.10 per diluted share.

Management Commentary

Mr. George Pan, Chairman and CEO of Highpower International, commented, "We are pleased to achieve improvements across each metric of our operating results during the third quarter of 2016, largely due to accelerating demand for lithium batteries in the second half of the year. Throughout the past year, Highpower has dedicated significant time and resources to expand our R&D efforts to ensure that our Company is at the forefront of providing state-of -art lithium battery technology to the market. Many of our customers are long-standing customers, and it is imperative that we can evolve to meet consumer demand."

Mr. Pan continued, "We were excited to announced Highpower's investment in Huizhou Yipeng during the quarter. This is a leading electric vehicle power battery system solutions provider, specializing in the plug-in PHEV and EV bus market in China. We believe that our investment in Yipeng will be wholly complementary to our existing growth strategies, and believe that our combined resources will allow Huizhou Highpower to expand more rapidly in the PHEV and EV power battery market in China."

2016 Third Quarter Financial Review

Net Sales

Net sales for the third quarter ended September 30, 2016 increased 44.2% to $54.1 million from $37.6 million in the same period in 2015. The increase was primarily due to a $17.6 million increase in net sales of lithium batteries.

Net sales for the nine months ended September 30, 2016 were $120.0 million, compared to $108.3 million for the same prior year period. This 10.7% increase was due to a $17.7 million increase in net sales of the lithium batteries compared to same period in 2015.

Gross Profit

For the third quarter ended September 30, 2016, the Company's gross profit was $13.7 million, compared to $7.2 million, for the same period in 2015. This increase was due to the increase in sales volume of our lithium batteries, the reduction in the cost of materials purchase cost for the lithium and Ni-MH batteries, and the improvements in labor efficiency.

For the nine months ended September 30, 2016, the Company's gross profit was $27.2 million, compared to $21.3 million for the same period in 2015. The increase is due to the same reasons described above.

Gross Margin

Gross margin was 25.2% for the third quarter ended September 30, 2016, increased from 19.2% for the same period in 2015.

Gross margin for the nine months ended September 30, 2016 was 22.7%, increased from 19.7% for the same period in 2015.

Research and Development (R&D)

R&D expenses were $3.0 million, or 5.6% of net sales, for the third quarter ended September 30, 2016, compared to $2.0 million, 5.2% of net sales for the same period in 2015. For the nine months ended September 30, 2016, R&D expenses were $6.7 million, or 5.6% of net sales, compared to $5.6 million, or 5.2% of net sales, for the same period in 2015. The increase during each period was primarily due to the increase of technology input on lithium batteries.

Selling & Distribution

Selling and distribution expenses were $1.9 million, or 3.5% of net sales, for the third quarter ended September 30, 2016, compared to $1.7 million, or 4.6% of net sales, for the same period in 2015.

For the nine months ended September 30, 2016, selling and distribution expenses were $5.0 million, or 4.1% of the net sales, compared to $5.1 million, or 4.7% of net sales, for the same period in 2015.

General & Administrative

General and administrative expenses were $5.9 million, or 11.0% of net sales, for the third quarter ended September 30, 2016, compared to $3.3 million, or 8.8% of net sales, for the same period in 2015. For the nine months ended September 30, 2016, general and administrative expenses were $12.3 million, or 10.2% of net sales, compared to $9.7 million, or 9.0% of net sales, for the same period in 2015. The increase for each period was primarily due to a one-time expense of $1.7 from the allowance for doubtful accounts.

Net Income

For the third quarter of 2016, net income attributable to the Company was $2.7 million, or $0.18 per diluted share based on 15.1 million weighted average diluted shares outstanding, compared to net income of $1.9 million, or $0.13 per diluted share based on 15.1 million weighted average diluted shares outstanding. Non-GAAP net income attributable to the Company was $2.7 million, or $0.18 per diluted share, compared to a non-GAAP net income attributable to the Company of $1.6 million, or $0.10 per diluted share, in the prior year period.

For the nine months ended September 30, 2016, net income attributable to the Company was $4.4 million, or $0.29 per diluted share based on 15.1 million weighted average diluted shares outstanding, compared to net income of $3.7 million, or $0.24 per diluted share based on 15.4 million weighted average diluted shares outstanding. Non-GAAP net income attributable to the Company was $4.5 million, or $0.3 per diluted share, compared to a non-GAAP net income attributable to the Company of $3.3 million, or $0.21 per diluted share, in the prior year period.

A table reconciling non-GAAP net income attributable to the Company, a non-GAAP (Generally Accepted Accounting Principles) financial measure, to the appropriate GAAP measure is included with the Company's financial information below.

EBITDA

EBITDA for the third quarter ended September 30, 2016 was $5.0 million, compared to $4.0 million in the prior year period.

For the nine months ended September 30, 2016, EBITDA was $10.1 million, compared to $8.7 million, in the prior year period.

A table reconciling EBITDA, a non-GAAP financial measure, to the appropriate GAAP measure is included with the Company's financial information below.

Balance Sheet Highlights

Conference Call Details

The Company announced that it will discuss financial results in a conference call on November 10, 2016 at 10:00 a.m. Eastern Time / 7:00 a.m. Pacific Time.

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/q3-2016. 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 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 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. Adjusted EBITDA and Non-GAAP net income attributable to the Company exclude stock-based compensation expense and change of fair value of warrant liability. Adjusted EBITDA 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.

Currency Translations

Currency amounts in the Yipeng transaction documents are denominated in Renminbi, the currency of the PRC and the country in which all of the parties are located. This communication contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, any translations from Renminbi to U.S. dollars in this press release were made at the current exchange rate at the balance sheet dates. Such translations should not be construed as representations that RMB amounts could be converted into U.S. dollars at that rate or any other rate, or to be the amounts that would be reported under U.S. 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, economic downturn and uncertainty in Asia and Europe 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; the devaluation of the U.S. Dollar relative to the Renminbi; our dependence on the growth in demand for portable electronic devices and energy storage systems and transportation 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 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; satisfactory completion of due diligence, compliance with applicable laws and definitive documentation with respect to the proposed transaction with ACOC; Yipeng's ability to be approved for listing in the catalogue of Industrial Standards of Automobile Power Battery Cell; 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.

CONTACT:
Highpower International, Inc.
Sunny Pan
Interim Chief Financial Officer
+86-755-8968-6521
ir@highpowertech.com

INVESTOR RELATIONS:
The Equity Group Inc.
In China
Katherine Yao, Senior Associate
+86-10-6587-6435
kyao@equityny.com

In U.S.
Adam Prior, Senior Vice President
+1 (212) 836-9606
aprior@equityny.com

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