Highpower International Inc (HPJ)

HPJ 
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Highpower International, Inc. (HPJ)

Q2 2013 Earnings Conference Call

August 13, 2013 10:00 am ET

Executives

Tricia Ross – Investor Relations-Financial Profiles, Inc.

Henry Sun – Corporate Secretary and Chief Financial Officer

Presentation

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Highpower International Q2 2013 Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, August 13, 2013.

I’d now like to turn the conference over to Tricia Ross of Financial Profiles. Please go ahead.

Tricia Ross

Thank you and good morning. This is Tricia Ross, Investor Relations for Highpower International. By now you should have all received a copy of the press release we putout earlier this morning. If you still need one, please feel free to contact my office at 310-478-2700.

Before we begin, I would like to remind you that comments on today’s call contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are identified through the use of words expect, project, target, continue, believe, and other words of similar meaning. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of Highpower International to differ materially from the results expressed or implied by such statements.

For a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see Risk Factors and Management's Discussion and Analysis of financial condition and results of operations in the Company’s annual report on Form 10-K and other reports the Company filed under the Securities and Exchange Act of 1934.

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 discussed during today’s call. With us today on the call from management is Henry Sun, Chief Financial Officer.

With that, I would now like to turn the call over to Henry.

Henry Sun

Thank you, Tricia, and thank you all for joining us today. Welcome to Highpower International’s second quarter 2013 earnings conference call. As always, I will begin with an overview of our second quarter financial results, which we reported in our press release issued before the market opened. Then, as we are now halfway through the fiscal year, I will provide some brief commentary on our initiatives and the business drivers. Finally, I will review our outlook for our fiscal year 2013 before opening up the call to your questions.

Let me start by stating we achieved a significant sales milestone in our lithium business this quarter, which delivered the strongest quarter for that business in our Company’s history. Lithium volume continues to help our overall business growth and represents the primary growth driver for Highpower going forward.

We are very pleased with the excellent results that we are seeing from this business line. Though our nickel-metal hydride battery sales, which is our other major business lines declined slightly during the second quarter. We are very much better than some of our competitors who are being impacted by competition and pricing pressures. All things considered, our Nickel-Metal Hydride battery segment remains an important and a sustainable business line for us with strong and valuable relationships.

Net sales for the second quarter of 2013 were $31.2 million, a year-over-year increase of 6.1% compared with $29.4 million for the second quarter of 2012. The increase in sales for the second quarter was driven by increased demand for our lithium batteries from new and existing customers. However, it was partially offset by a decrease in sales from our Nickel-Metal Hydride battery segment.

Lithium battery net sales were up 33% in the second quarter over the same period in 2012. Sales were also up 33% sequentially from the first quarter of 2013. Total pieces were up 29% year-over-year and our total lithium battery volume per ampere hour increased by 32% year-over-year and up over 53% year-to-date over the same period last year.

Nickel-Metal Hydride net sales were down approximately 9% in the second quarter of 2013 over the second quarter of 2012. Despite the intense competition in this business line, we have still been able to maintain our pricing.

Second quarter 2013 gross profit decreased to $5.7 million, as compared with $6.0 million for the second quarter of 2012. Gross profit margin was 18.4% for the second quarter of 2013, as compared with 20.5% for the second quarter of 2012. The year-over-year decrease in gross profit margin for the second quarter of 2013 was primarily attributable to increases in labor costs.

R&D spending was $1.4 million for the second quarter of 2013, as compared with $1.2 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 $1.4 million for the second quarter of 2013, as compared with $1.3 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.

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