CBAK Energy Technology, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; amounts are U.S. dollars unless noted. The company manufactures lithium-ion batteries and, through Hitrans, battery precursor and cathode materials.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $63.4 million | $57.7 million | $148.3 million | $194.3 million |
| Gross profit / margin | $12.2 million / 19.3% | $3.5 million / 6.0% | $19.0 million / 12.8% | $14.3 million / 7.4% |
| Operating income (loss) | $5.3 million | $(1.5) million | $(1.4) million | $(2.7) million |
| Consolidated net income (loss) | $5.8 million | $(0.8) million | $0.6 million | $0.8 million |
| Net income attributable to CBAK | $6.3 million | Approximately break-even | $2.3 million | $1.2 million |
| Operating cash flow | — | — | $20.7 million | $16.7 million |
Q3 revenue grew 10% year over year, while nine-month revenue fell 24%. For the nine-month comparison, battery revenue increased 44% to $96.2 million, led by UPS applications; materials revenue declined 59% to $52.1 million. Management attributed material-sales pressure in part to falling raw-material prices. The quarter’s net income attributable to CBAK exceeded consolidated net income because of losses attributable to non-controlling interests.
Financial position, liquidity and investment
- At September 30, 2023, cash and cash equivalents were $3.2 million; pledged deposits were $42.5 million. Together, cash and restricted cash were $45.7 million.
- Current assets were $136.3 million and current liabilities $161.3 million, a $25.0 million working-capital deficit. Current ratio was approximately 0.84.
- Short-term bank borrowings were $33.2 million; other short-term loans were $0.3 million. Trade and bills payable totaled $88.2 million. Significant short-term obligations and recurring prior-year losses led management to disclose substantial doubt about the company’s ability to continue as a going concern.
- Nine-month investing cash outflow was $28.7 million, including $24.9 million for property, plant and equipment and construction, and $3.8 million in investment deposits. Financing cash inflow was $18.5 million, including $36.4 million of bank borrowing proceeds and $16.6 million of repayments.
- Management estimated 2023 capital expenditures of approximately $80 million for new plants, product lines and battery-module packing lines. The company reported $8.2 million of unused committed banking facilities.
- Contracted capital commitments totaled approximately $540.0 million, including $257.4 million for equipment, $234.8 million for capital injections and $42.6 million for long-term investments. The filing’s commitment schedule is a key item to review for timing, conditions and funding requirements.
Management outlook, risks and unusual items
- Management plans to pursue profitability and additional bank borrowing, shareholder/director loans or equity financing as needed. It cautioned that financing may not be available on acceptable terms; equity issuance could dilute shareholders, and debt could constrain operations. No specific revenue or earnings guidance was provided.
- Expansion is underway in Dalian, Nanjing and Zhejiang. A September 2023 agreement provides for Nanjing CBAK to acquire a 5% interest in former subsidiary BAK SZ for RMB260 million (approximately $35.7 million), payable in installments. The filing reports RMB22.4 million paid by the report date. Hitrans also agreed to acquire an initial 26% of Zhejiang Shengyang for approximately $3.9 million; the filing says the transfer registration was completed November 6, 2023, after quarter-end, and describes a potential additional 44% acquisition.
- Revenue and customer concentration are notable: in Q3, two customers represented 29.5% and 15.8% of revenue. Zhengzhou BAK, a related party, accounted for 14.5% of nine-month revenue and 37.7% of trade receivables at September 30.
- Management reported ineffective disclosure controls as of September 30, 2023, citing material weaknesses involving review of agreements and insufficient U.S. GAAP/SEC-reporting expertise. Remediation includes hiring a CFO and staff training; the filing provides no assurance remediation will be completed.
- Inventory write-downs were $2.1 million for the first nine months, versus $1.2 million a year earlier. Nine-month foreign-currency translation losses were $6.4 million. The company also disclosed unresolved litigation and a contractor equipment-purchase arrangement requiring at least $2.4 million of purchases by December 31, 2023 or potential payment under the agreement.
- Management cited possible continuing effects from COVID-19 or other disruptions, changes in raw-material prices and exchange rates, customer and supplier concentration, and the need for external funding. It stated that risk factors were not materially changed from its 2022 Form 10-K.
Investor verification priorities
- Assess the going-concern warning, near-term maturities, pledged deposits and the company’s ability to fund operations and its expansion.
- Reconcile the approximately $540 million of capital commitments with available cash, facilities, expected payment dates and any contingencies.
- Review the economics, financing and related-party aspects of the BAK SZ transaction, plus Hitrans’s Zhejiang Shengyang investment and proposed follow-on acquisition.
- Evaluate whether Q3 margin improvement is sustainable given the product mix shift toward batteries, lower materials sales and inventory write-downs.
- Monitor customer concentration, collection of receivables from related parties, and the status of the disclosed litigation and contractor agreement.
- Track remediation of ineffective disclosure controls and confirm that future filings resolve material weaknesses.