CBAK Energy Technology, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited, U.S. GAAP, U.S. dollars. The company manufactures lithium and sodium batteries and, through Hitrans, battery materials. It reports battery and Hitrans segments.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $58.8 million | $42.4 million | +39% |
| Gross profit / margin | $18.8 million / 31.9% | $2.9 million / 6.9% | Margin expanded 25.0 percentage points |
| Operating income (loss) | $10.3 million | $(2.9) million | Turned profitable |
| Net income (loss) | $9.6 million | $(2.2) million | Turned profitable |
| Net income (loss) attributable to CBAK shareholders | $9.8 million | $(1.4) million | Improved $11.2 million |
| Diluted earnings (loss) per share | $0.11 | $(0.02) | Turned positive |
| Cash from operating activities | $7.4 million | $9.5 million | Down $2.1 million |
Gross-margin improvement was attributed mainly to cost control in the battery segment. Battery-segment operating income was $12.5 million; Hitrans had an operating loss of $1.1 million, and unallocated corporate expenses were $1.1 million.
Liquidity, debt and cash flows
- At March 31, current assets were $130.2 million and current liabilities were $156.1 million, a working-capital deficit of approximately $25.9 million and a current ratio of approximately 0.83.
- Balance-sheet cash and cash equivalents were $3.0 million. Pledged deposits were $33.2 million and short-term deposits were $20.8 million. The cash-flow statement’s $36.3 million ending balance combines cash and restricted cash; it should not be read as unrestricted cash.
- Short-term bank borrowings were $36.1 million; other short-term loans were $0.3 million. Trade and bills payable totaled $79.0 million, with bills payable generally maturing within one year. The filing cites substantial short-term obligations and only $1.3 million of unused committed bank facilities.
- Investing activities used $12.8 million, including $7.9 million for property, plant and equipment/construction and $4.9 million deposited toward an investment. Financing activities used $16.4 million, including $20.9 million placed in time deposits, despite net bank borrowing proceeds.
- Cash, cash equivalents and restricted cash declined $22.6 million during the quarter. Operating cash flow was supported by earnings and lower inventory, partly offset by an $8.2 million increase in receivables.
Material changes and business developments
- Revenue growth was driven by residential energy supply and uninterruptible power supply battery sales, up 66% to $42.8 million. Electric-vehicle battery sales fell 74% to $0.5 million, and light-electric-vehicle sales declined 23% to $1.5 million. Battery-material revenue increased 9% to $14.0 million.
- Europe accounted for $32.9 million of revenue, versus $17.3 million a year earlier; mainland China revenue was $23.7 million, versus $24.5 million. One customer represented 51.2% of Q1 2024 revenue.
- Sales and marketing expense rose 139% to $1.7 million, principally due to promotion and overseas marketing. General and administrative expense rose 65% to $4.1 million, including $1.0 million in business consultancy and legal fees, versus $0.1 million a year earlier.
- On March 26, 2024, an internal equity transfer made CBAK New Energy the controlling shareholder of Hitrans, with 67.33% of registered equity interests. The company also paid additional deposits under an agreement to acquire a 5% interest in Shenzhen BAK Power Battery; $11.9 million was recorded as a deposit at quarter-end.
Outlook, risks and unusual items
- Going concern: Management states that accumulated losses and significant debt due within one year raise substantial doubt about the company’s ability to continue as a going concern. Its plans include improving profitability and obtaining additional debt or equity financing; success is not assured.
- Investment and expansion: Management estimates 2024 capital expenditures of approximately $30 million for plants, product lines and battery-module packing lines. The filing reports $291.2 million of contracted capital commitments, including $259.1 million of capital injections. Nanjing Phase II is anticipated to begin operations in 2025; the company projects 20 GWh total capacity when the facilities are fully operational.
- Market and funding risks: Management describes intense price competition in EV and domestic light-EV batteries and has reduced marketing in those areas. Expansion depends on financing; the company warns that additional financing may not be available on acceptable terms. COVID-19-related future impacts remain uncertain.
- Contingencies: A supplier dispute agreement required purchases of at least $2.4 million of equipment by December 31, 2023 or a payment based on the shortfall. The equipment had not been received as of March 31, 2024; $2.2 million remains included in capital commitments. The filing also reports $1.21 million of accrued liquidated damages relating to historical registration-rights matters.
- Controls: Management concluded disclosure controls and procedures were ineffective at March 31, 2024, citing previously identified material weaknesses in accounting policies for key agreements and insufficient technically skilled U.S. GAAP accounting personnel.
- No formal revenue or earnings guidance is provided. The company reported no material changes to the risk factors in its 2023 Form 10-K.
Key facts investors should verify
- How much cash and bank deposits are freely available, given pledged/restricted balances and the mismatch between balance-sheet cash and the cash-flow statement’s combined cash-and-restricted-cash figure.
- Near-term debt, bills payable maturities, renewal prospects and the company’s plan to address the working-capital deficit and going-concern uncertainty.
- Whether the sharp gross-margin improvement is sustainable, including product-level profitability and the contribution of the battery segment versus Hitrans.
- Customer concentration, collection of large receivables, and related-party sales, purchases and balances; one customer generated 51.2% of quarterly revenue.
- Terms, funding requirements and completion status for the $291.2 million of capital commitments, the BAK SZ investment, and the supplier equipment commitment/dispute.
- Progress in remediating the disclosed material weaknesses and the reliability of financial reporting controls.