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Maxwell Announces Financial Results and Global Restructuring

February 28, 2017 by Jeff Shepard

Maxwell Technologies, Inc. reported operational and financial results for the three months ended December 31, 2016. Total revenues for the fourth quarter of 2016 were $26.4 million, compared with $25.5 million for the third quarter of 2016 and $49.8 million for the prior year quarter. Net loss for the fourth quarter of 2016 was $12.2 million, compared with a net loss of $6.9 million for the third quarter of 2016 and a net loss of $2.2 million for the prior year quarter.

"Q4 revenue came in at the high end of guidance with gross margins at lower than historical levels due to low utilization of our factory and one time charges. To counteract near-term challenges, we have implemented new, conservative planning and business models which discount China bus revenue and we have been working diligently on three key measures addressing business diversification, scale, and cost structure," said Dr. Franz Fink, Maxwell's President and Chief Executive Officer.

"Today we announced a world-wide organizational restructuring and our intention to acquire substantially all of the assets and business of Nesscap Energy. The restructuring, combined with the Nesscap acquisition, accelerates business diversification, creates economies of scale and drives revenue growth and gross margin expansion in the near term, and as a result, allows us to approach break even adjusted EBITDA by the 4th quarter of this year. As a third key measure, we announced on January 31st that we will localize the manufacturing of ultracapacitor based modules in China with our strategic partner CRRC-SRI. This represents a critical milestone with respect to resuming our China bus business and, based on our new business model, provides potential future revenue upside opportunities,” concluded Fink.

Maxwell strategic and operational highlights in the current period include: 1) Maxwell will purchase the operating entities of Nesscap Energy, Inc., a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets, for an aggregate purchase price of $23.175 million, payable in common shares that are subject to a 10% collar adjustment at close. Maxwell expects to capitalize on synergies between the two companies that will accelerate revenue and earnings growth, increase the pace of innovation, and create an expanded and strengthened product portfolio.

With a strengthened sales channel, increased R&D capabilities and improved manufacturing and efficiencies, Maxwell will be able to deliver more products faster into target markets thereby benefiting customers. From a financial perspective, the transaction is expected to be immediately accretive to non-GAAP earnings per share following close, which is anticipated to occur in Q2 of 2017, and Maxwell expects the Nesscap business to deliver positive Adjusted EBITDA in 2017.

2) Launched a global restructuring plan which includes a reduction-in-force, significant cost containment actions, as well as a manufacturing and supply chain consolidation to further optimize cost structure and position the Company to better withstand near term headwinds. Maxwell expects to achieve approximately $6 million in annualized savings through these initiatives that, coupled with the acquisition of Nesscap's business, will accelerate the expected time to profitability.

3) Expanded Maxwell's partnership with CRRC Qingdao Sifang Rolling Stock Research Institute Co. Ltd. (CRRC-SRI) by entering into a definitive agreement in January 2017 to localize manufacturing of ultracapacitor-based modules for use in the China bus market. The production of bus modules extends Maxwell's strategic partnership with CRRC-SRI and will enable Maxwell to compete more effectively in the China bus market moving forward.

Financial results included total revenue for the fourth quarter of 2016 was $26.4 million, compared with $25.5 million for the third quarter of 2016, primarily due to an increase in high voltage revenue. Ultracapacitor revenue for the fourth quarter of 2016 was $12.7 million, compared with $14.0 million for the third quarter of 2016, driven primarily by a seasonal decline in wind turbine deployments in China, partially offset by higher auto and bus revenue. High-voltage revenue was $13.7 million for the fourth quarter of 2016, compared with $11.5 million for the third quarter of 2016, driven by higher demand. The microelectronics product line was sold in the second quarter of 2016 and therefore has no revenue in the third or fourth quarter of 2016.

Gross margin for the fourth quarter of 2016 was 21.6% compared with 29.9% in the third quarter of 2016; the decrease was driven by product mix, low factory utilization and higher costs associated with new products.

Net loss for the fourth quarter of 2016 was $12.2 million, or $(0.38) per share, compared with a net loss of $6.9 million, or $(0.21) per share, for the third quarter of 2016. The quarter over quarter increase was a result of lower gross margin in the fourth quarter.

Business outlook for the first quarter of FY 2017 includes: Total revenue for the first quarter of 2017 is expected to be in the range of $25 million to $27 million. Gross margin for the first quarter of 2017 is expected to be in the range of 19% to 23%. GAAP operating expense for the first quarter of 2017 is expected to be in the range of $15.3 million to $15.7 million.