Highpower International Reports Unaudited Second Quarter and First Half 2018 Financial Results

SAN DIEGO and SHENZHEN, China, Aug. 13, 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 financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights (all results compared to prior year period)

• Net sales for the second quarter of 2018 increased by 25.6% to $64.9 million from $51.7 million. Excluding the impact of Ganzhou Highpower Technology Co., Ltd. ("GZ Highpower"), net sales increased 32.8% to $64.9 million from $48.9 million.
• Lithium business net sales increased 31.1% to $48.5 million from $37.0 million.
• Gross margin decreased to 17.4% of net sales compared to 23.3%. Excluding GZ Highpower, gross margin was 17.4% compared to 23.2%.
• Net income attributable to the Company decreased 37.9% to net income of $2.7 million, or $0.17 per diluted share, compared to net income attributable to the Company of $4.4 million, or $0.28 per diluted share. Excluding GZ Highpower, net income attributable to the Company was $2.7 million compared to net income attributable to the Company of $4.2 million.

Mr. George Pan, Chairman and CEO of Highpower International, commented, "We are pleased to exceed our top-line guidance for the quarter, driven by growth in both our lithium and Ni-MH businesses. New and existing customers in the high-end consumer product, industrial application, and artificial intelligence product industries in particular grew our lithium business. In addition, our Ni-MH business benefited from increased demand generated by the trend of consumer electronics providers switching from one-time-use batteries to re-chargeable batteries.

"We will continue to drive our business forward in the second half of the year by producing higher quality and safer battery products and services to grow Top-line sales. At the same time, we will manage our prices, operations, and customer expectations to maintain a balance between growth and margins. We remain optimistic about the growth of our industry and our ability to be a leading provider of clean, safe, and efficient power solutions to meet society's needs," Mr. Pan concluded.

Second Quarter and First Half 2018 Financial Results

Net Sales

Net sales for the second quarter of 2018 increased 25.6% to $64.9 million from $51.7 million in the prior year period. The increase was driven by sales of the Company's lithium business, which grew 31.1%, or $11.5 million, during the quarter. In addition, sales in the Ni-MH business grew 39.3%, or $4.6 million, year over year. Excluding the impact of GZ Highpower, net sales increased 32.8% to $64.9 million from $48.9 million.

Net sales increased 22.6% to $114.7 million in the first half of 2018 compared to $93.6 million in the first half of 2017. Excluding the impact of GZ Highpower, net sales increased 28.9% to $114.7 million in the first half of 2018.

Gross Profit

Gross profit for the second quarter of 2018 decreased 6.3% to $11.3 million from $12.1 million in the prior year period due to high raw material prices. Gross margin for the second quarter of 2018 was 17.4% compared to 23.3% in the prior year period. Excluding GZ Highpower, gross margin was 17.4% compared to 23.2%.

Gross profit for the first half of 2018 decreased 14.2% to $18.9 million from $22.0 million in the prior year period. Gross margin was 16.5% and 23.5% for first half of 2018 and 2017, respectively. Excluding GZ Highpower, gross margin for the first half of 2018 was 16.5% compared to 23.2% in the prior year period.

Operating Expenses

• Research and development (R&D) expenses for the second quarter of 2018 were $3.6 million compared to $2.1 million in the prior year period. As a percentage of net sales, R&D expenses increased to 5.5% from 4.1% in the prior year period due to the Company's continued investments in R&D.

Research and development expenses were $6.2 million, or 5.4% of net sales, for the first half of 2018 compared to $4.0 million, or 4.2% of net sales, for the first half of 2017.

• Selling and distribution expenses for the second quarter of 2018 were $2.1 million compared to $1.7 million in the prior year period. As a percentage of net sales, selling and distribution expenses remained at 3.3% compared to the prior year period.

Selling and distribution expenses were $4.1 million, or 3.6% of net sales, for the first half of 2018 compared to $3.4 million, or 3.6% of net sales, for the first half of 2017.

• General and administrative expenses for the second quarter of 2018 were $3.9 million compared to $3.0 million in the prior year period. As a percentage of net sales, general and administrative expenses increased to 6.0% from 5.8% in the prior year period.

General and administrative expenses were $8.0 million, or 7.0% of net sales, for the first half of 2018 compared to $6.1 million, or 6.5% of net sales, for the first half of 2017. The increase was due to the increase of payroll related and amortization of share-based compensation.

Net Income

Net income attributable to the Company for the second quarter of 2018 was $2.7 million compared to $4.4 million in the prior period. Net income attributable to the Company per diluted share for the second quarter of 2018 was $0.17 compared to $0.28 in the prior year period. Excluding GZ Highpower, net income attributable to the Company was $2.7 million compared to $4.2 million in the prior year period.

For the second quarter of 2018, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,629,413.

Net income attributable to the Company for the first half of 2018 decreased to $1.6 million from $7.0 million in the prior year period. Net income attributable to the Company per diluted share for the first half of 2018 decreased to $0.10 from $0.45 in the prior year period. Excluding GZ Highpower, net income attributable to the Company for the first half of 2018 was $1.6 million compared to $6.5 million in the prior year period.

For the first half of 2018 and 2017, the Company's weighted average diluted shares outstanding used in computing diluted share was 15,619,771 and 15,304,773, respectively.

EBITDA

EBITDA for the second quarter of 2018 decreased 23.7% to $5.0 million from $6.5 million in the prior year period. EBITDA for the first half of 2018 decreased by 51.7% to $5.6 million from $11.5 million in the prior year period.

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

Financial Outlook

For the third quarter of 2018, the Company expects net revenues to grow around 30% year over year. Gross margin is expected to be similar or better than that of the second quarter of 2018.

Conference Call Details

The Company will hold a conference call on August 13, 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:

United States: 877-407-3108
International: 201-493-6797

To listen to the live webcast, please go to www.highpowertech.com and click on the conference call link, or go to https://78449.themediaframe.com/dataconf/productusers/hpj/mediaframe/26046/indexl.html. 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. 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 is reconciled in the accompanying table 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. 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, 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; 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 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
Chief Financial Officer
Tel: +86-755-8968-6521
Email: ir@highpowertech.com

Yuanmei Ma
Investor Relations Manager
Tel: +1-909-214-2482
Email: yuanmei@highpowertech.com

ICR, Inc.
Rose Zu
Tel: +1-646-931-0303
Email: ir@highpowertech.com

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