SAN DIEGO and SHENZHEN, China, March 28, 2019 /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 fourth quarter and year ended December 31, 2018.

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

• Net sales for the fourth quarter of 2018 increased 12.0% to $88.7 million from $79.2 million. Excluding the impact of the deconsolidation of Ganzhou Highpower Technology Co., Ltd. ("GZ Highpower"), net sales increased 40.7% to $88.7 million from $63.0 million.
• Lithium business net sales increased 38.5% to $66.3 million from $47.9 million.
• Gross margin increased to 23.1% of net sales compared to 14.9%.
• Net income attributable to the Company for the fourth quarter of 2018 was $5.4 million, or $0.35 per diluted share, compared to $4.8 million, or $0.31 per diluted share. Excluding the impact of the deconsolidation of GZ Highpower, net income attributable to the Company increased 20.9% to $5.4 million from $4.5 million.

Full Year 2018 Highlights (all results compared to prior year period)

• Net sales increased 20.4% to $293.9 million from $244.2 million. Excluding the impact of the deconsolidation of GZ Highpower, net sales increased 36.1% to $293.9 million from $215.9 million.
• Lithium business net sales increased 36.1% to $220.0 million from $161.7 million.
• Gross margin was 19.3% compared to 19.4%.
• Net income attributable to the Company decreased 21.6% to $13.2 million, or $0.84 per diluted share, compared to $16.8 million, or $1.09 per diluted share. Excluding the impact of the deconsolidation of GZ Highpower, net income decreased 16.4% to $13.2 million compared to $15.7 million.

Mr. George Pan, Chairman and CEO of Highpower International, commented, "We are pleased to report that our top-line performance beat our guidance for both the fourth quarter and full year 2018, thanks to growing demand for high quality and high safety rechargeable batteries and total solutions from the high-end consumer product, industrial application, artificial intelligence and wearable product industries. Our strategy of focusing on target applications and customers started to yield results, with net sales growing more than 20% year over year in 2018." 

Mr. Pan continued, "Looking forward to 2019, we expect continued challenges and opportunities from changes in the macro environment and in the industry supply chain. We will stay true to our mission of producing high quality and safe battery products and services and our strategy of focusing on applications and customers where we can best add value with our core strengths. At the same time, we will manage our operations and customer expectations to minimize the impact."

Fourth Quarter and Full Year 2018 Financial Results

Net Sales

Net sales for the fourth quarter of 2018 increased 12.0% to $88.7 million from $79.2 million in the prior year period, primarily attributable to growth in revenues from both the Lithium segment and the Ni-MH batteries and accessories segment. The year-over-year increase of net sales was primarily driven by the optimization of the Company's sales structure, partially offset by the impact of the deconsolidation of GZ Highpower. Excluding the impact of the deconsolidation of GZ Highpower, net sales increased 40.7% to $88.7 million from $63.0 million.

Net sales increased 20.4% to $293.9 million for the year ended December 31, 2018, compared to $244.2 million in 2017. Excluding the impact of the deconsolidation of GZ Highpower, net sales increased 36.1% to $293.9 million from $215.9 million.

Gross Profit

Gross profit for the fourth quarter of 2018 increased 73.5% to $20.5 million from $11.8 million in the prior year period. Gross margin for the fourth quarter of 2018 increased to 23.1% from 14.9% in the prior year. Excluding the impact of the deconsolidation of GZ Highpower, gross margin was 23.1% compared to 17.0%.

Gross profit for the year increased 20.1% to $56.9 million from $47.4 million in the prior year period. Gross margin was 19.3% and 19.4% for full year 2018 and 2017, respectively. Excluding the impact of the deconsolidation of GZ Highpower, gross profit for 2018 increased 29.2% to $56.9 million from $44.0 million. Gross margin was 19.3% compared to 20.4%.

Operating Expenses

• Research and development (R&D) expenses for the fourth quarter of 2018 were $3.8 million compared to $3.1 million in the prior year period. As a percentage of net sales, R&D expenses increased to 4.3% from 3.9% in the prior year period. Research and development expenses were $13.5 million, or 4.6% of net sales, for 2018 compared to $9.5 million, or 3.9% of net sales, in 2017. The increase in R&D expenses were primarily driven by continued hiring for key positions and new graduates.

• Selling and distribution expenses for the fourth quarter of 2018 were $3.4 million compared to $2.3 million in 2017. As a percentage of net sales, selling and distribution expenses increased to 3.8% from 2.9% in the prior year period. Selling and distribution expenses were $10.1 million, or 3.4% of net sales, in 2018 compared to $7.5 million, or 3.1% of net sales, in 2017. The increase was mainly driven by expanded business scale, including marketing expenses for more brand customers.

• General and administrative expenses for the fourth quarter of 2018 were $5.5 million compared to $5.4 million in the prior year period. As a percentage of net sales, general and administrative expenses decreased to 6.2% from 6.8% in the prior year period. General and administrative expenses were $19.3 million, or 6.6% of net sales, in 2018 compared to $15.4 million, or 6.3% of net sales, in the prior year. The increase was mainly due to the increase of payroll expenses and amortization of share-based compensation.

Net Income

Net income attributable to the Company for the fourth quarter of 2018 increased to $5.4 million from $4.8 million in the prior year period. Net income attributable to the Company per diluted share for the fourth quarter of 2018 increased to $0.35 from $0.31 in the prior year period. Excluding the impact of the deconsolidation of GZ Highpower, net income attributable to the Company increased 20.9% to $5.4 million from $4.5 million in the prior year period.

For the quarters ended December 31, 2018 and 2017, the Company's weighted average diluted shares outstanding used in computing diluted shares were 15,573,840 and 15,648,888, respectively.

Net income attributable to the Company for full year 2018 decreased to $13.2 million from $16.8 million in the prior year period. Net income attributable to the Company per diluted share for the full year decreased to $0.84 from $1.09 in the prior year period. Excluding the impact of the deconsolidation of GZ Highpower, net income for the full year 2018 and 2017 was $13.2 million and $15.7 million, respectively.

For the years ended December 31, 2018 and 2017, the Company's weighted average diluted shares outstanding used in computing diluted share were 15,606,177 and 15,435,371, respectively.

EBITDA

EBITDA for the fourth quarter of 2018 decreased 3.4% to $8.6 million from $9.0 million in the prior year period. EBITDA for the full year of 2018 decreased 16.4% to $23.2 million from $27.8 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.