Maxwell Reports Fourth Quarter and Full Year 2017 Results

Maxwell Technologies Inc. reports financial results for the three months and full year ended December 31, 2017. Total revenues for the fourth quarter of 2017 were $30.8 million, compared with $35.8 million for the third quarter of 2017 and $26.4 million for the prior year quarter. Net loss for the fourth quarter of 2017 was $8.8 million, compared with a net loss of $13.9 million for the third quarter of 2017 and a net loss of $12.2 million for the prior year quarter. The company reported $(1.8) million of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the fourth quarter of 2017, compared with $(2.1) million for the third quarter of 2017 and $(3.9) million for the prior year quarter. Non-GAAP net loss for the fourth quarter of 2017 was $5.3 million, compared with a non-GAAP net loss of $4.9 million for the third quarter of 2017 and $7.5 million for the prior year quarter.

For the full year ended December 31, 2017, net revenues were $130.4 million, compared with $121.2 million for the year ended December 31, 2016. Net loss for 2017 was $43.1 million, compared to a net loss of $23.7 million for the prior year. Non-GAAP net loss for 2017 was $23.1 million, compared with a non-GAAP net loss of $21.5 million for the prior year. 

Full Year 2017 Highlights

• Successfully completed the acquisition of the core business and operating entities of Nesscap Energy Inc., creating the most comprehensive ultracapacitor product portfolio globally.
• Grew top-line revenue 8% year over year.
• Reduced annual non-GAAP operating expense 5% due to focus on expense management and organizational optimization, achieving the lowest operating expense in 6 years.
• Solidified the balance sheet by adding $43 million in cash from a convertible debt financing to facilitate investment in future growth areas.
• Successfully completed the dry battery electrode "proof of concept" technology program, achieving an energy density milestone of approximately 300 Wh/kg, as compared to an average of 250 Wh/kg for current batteries in the market.

"2017 was a year in which we delivered many significant accomplishments to further advance our business transformation and to better position us to capitalize on the coming inflection points and next phase of growth," says Dr. Franz Fink, Maxwell's President and Chief Executive Officer. "As I look at 2018, I am excited as we enter the year with the strongest opportunity pipeline and design win momentum ever and we are expecting year over year revenue growth. By capitalizing on this growth and improving gross margins as well as our continued attention to expense management, we expect improved financial performance, targeting breakeven adjusted EBITDA for the full year. Most importantly, we believe that 2018 will be the year that advancements with our revolutionary dry battery electrode position us for strategic partnerships to accelerate the commercialization of this technology."

Discussion of Financial Results for the Fourth Quarter

Revenue and Gross Margin

• Total revenue for the fourth quarter of 2017 was $30.8 million, compared with $35.8 million for the third quarter of 2017, driven by expected seasonal softness in ultracapacitor revenue in the wind market. Ultracapacitor revenue for the fourth quarter of 2017 was $20.8 million, compared with $27.6 million for the third quarter of 2017. High-voltage revenue was $9.9 million for the fourth quarter of 2017, compared with $8.3 million for the third quarter of 2017.
• Gross margin for the fourth quarter of 2017 was 24.0% compared with 20.6% in the third quarter of 2017, driven by increased high-voltage sales, which generally have higher gross margins than the corporate average, and lower losses related to inventory write downs and provisions for product warranties.
• Non-GAAP gross margin for the fourth quarter of 2017 was 25.6% compared with 22.5% in the third quarter of 2017 and excludes acquisition related intangibles amortization and inventory step-up expense as well as stock-based compensation expense.

Operating Expense, Interest Expense, Net Loss & Adjusted EBITDA

• Operating expense for the fourth quarter of 2017 was $14.3 million, compared with $20.7 million for the third quarter of 2017. In the third quarter, the Company incurred restructuring charges associated with the early execution of an organizational optimization following the Nesscap acquisition and costs related to certain legal matters, including an amended agreement with Viex Capital Advisors, LLC, a settlement with the SEC and previously capitalized fees associated with an investment agreement with SDIC that did not close. Additionally, expense was lower in the fourth quarter due to a continued focus on operational efficiencies and discipline, a benefit from the aforementioned restructuring and higher than expected vacation usage during the year-end holiday shutdown.
• Non-GAAP operating expense for the fourth quarter of 2017 was $11.8 million compared with $12.4 million for the third quarter of 2017 and excludes stock-based compensation, amortization of intangibles, acquisition related expenses, a small amount of restructuring charges and other non-recurring legal costs.
• Net interest expense for the fourth quarter of 2017 was $1.0 million compared to $0.2 million for the third quarter of 2017, including the convertible note coupon interest and non-cash interest for amortization of debt issuance costs and discounts. The increase was due to a full quarter of accrued interest in the fourth quarter.
• Non-GAAP interest expense for the fourth quarter of 2017 was $0.6 million compared to $0.1 million for the third quarter of 2017, which excludes the non-cash interest mentioned above.
• Net loss for the fourth quarter of 2017 was $8.8 million, or $(0.24) per share, compared with a net loss of $13.9 million, or $(0.37) per share, for the third quarter of 2017.
• Non-GAAP net loss for the fourth quarter of 2017 was $5.3 million compared with a non-GAAP net loss of $4.9 million for the third quarter of 2017.
• Adjusted EBITDA for the fourth quarter of 2017 was $(1.8) million, compared with $(2.1) million for the third quarter of 2017.

Capital Expenditures

• Capital expenditures during the fourth quarter of 2017 were $2.5 million, compared with $1.3 million for the third quarter of 2017. Capital expenditures in the fourth quarter were primarily related to investments in the Korea manufacturing facility, the Switzerland manufacturing facility and equipment upgrades and research and development activities.

First Quarter 2018 Business Outlook

• Total revenue is expected to be in the range of $31 million to $33 million.
• Gross margin is expected to be 25.4%, plus or minus 150 basis points.
• Non-GAAP gross margin is expected to be 26.5%, plus or minus 150 basis points.
• GAAP operating expense is expected to be in the range of $14.9 million to $15.3 million.
• Non-GAAP operating expense is expected to be in the range of $12.6 million to $13.0 million.

The company has reconciled expected GAAP and non-GAAP gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share at the midpoint of guidance. However, the company is not able to estimate additional potentially excluded and reconciling amounts due to the substantial uncertainties involved. The effect of these excluded items may be significant.