Maxwell Reports First Quarter 2018 Results

Maxwell Technologies Inc. has reported financial results for the three months ended March 31, 2018. Total revenues for the first quarter of 2018 were $28.4 million, compared with $30.8 million for the fourth quarter of 2017 and $26.7 million for the prior year quarter. Net loss for the first quarter of 2018 was $9.2 million, compared with a net loss of $8.8 million for the fourth quarter of 2017 and a net loss of $10.4 million for the prior year quarter. Non-GAAP net loss for the first quarter of 2018 was $5.8 million, compared with a non-GAAP net loss of $5.3 million for the fourth quarter of 2017 and $7.4 million for the prior year quarter. The company reported $(6.9) million of earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of 2018, compared with $(4.7) million for the fourth quarter of 2017 and $(7.0) million for the prior year quarter. The company reported $(4.2) million of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the first quarter of 2018, compared with $(1.8) million for the fourth quarter of 2017 and $(3.9) million for the prior year quarter.

Strategic Business Highlights

• Maxwell announced on May 8 a technology partnership with Zhejiang Geely Holding Group (Geely), the parent company of leading brands such as Volvo and Geely Auto. The collaboration kicks off with the inclusion of Maxwell's ultracapacitor-based peak power subsystem in five mild-hybrid and plug-in hybrid vehicles which will initially be available in North America and Europe. The production ramp for these vehicles is slated to begin in late 2019 and marks the most significant milestone in Maxwell's automotive market history.
• Also on May 8, Maxwell renewed a $25 million revolving credit facility with its banking partner, East West Bank, for a 3-year term, providing Maxwell with further financial flexibility to operate its business and execute on strategic investments.

"While our energy storage product revenue exceeded expectations for the quarter, our first quarter revenue results reflect a shortfall in orders related to our high voltage capacitor products. We expect a recovery in the high voltage product line in the second half of 2018 and overall we are anticipating revenue growth in Q2," says Dr. Franz Fink, Maxwell's President and Chief Executive Officer. "We continue to make progress each quarter on our strategic objectives and to build momentum in the business. Today's announcement of the Geely design win and partnership represents a significant accomplishment for the team at Maxwell and validates that ultracapacitors are ideally suited to solve many of the challenges faced by the automotive industry as it readies for the coming global megatrend of the electrification of combustion engine vehicles."

Discussion of Financial Results for the First Quarter

Revenue and Gross Margin

• Total revenue for the first quarter of 2018 was $28.4 million, compared with $30.8 million for the fourth quarter of 2017, driven by a decrease in high voltage revenue partially offset by higher energy storage revenue. Energy storage revenue for the first quarter of 2018 was $23.0 million, compared with $20.8 million for the fourth quarter of 2017, related to higher revenue in the grid, non-China bus and rail markets, offset by lower revenue in the seasonally soft wind market. High-voltage capacitor revenue was $5.4 million for the first quarter of 2018, compared with $9.9 million for the fourth quarter of 2017; the shortfall is attributable to delays in the processing of Chinese tenders for infrastructure projects as well as delays in infrastructure investment by utilities caused by uncertainty from revisions to taxes and incentives introduced by U.S. tax reform and from potential increased tariffs on steel.
• Gross margin for the first quarter of 2018 was 20.0% compared with 23.8% in the fourth quarter of 2017, driven primarily by decreased high-voltage capacitor product sales, which generally have higher gross margins than the corporate average.
• Non-GAAP gross margin for the first quarter of 2018 was 21.5% compared with 25.4% in the fourth quarter of 2017 and excludes acquisition related intangibles amortization and stock-based compensation expense.

Operating Expense, Interest Expense, Net Loss & Adjusted EBITDA

• Operating expense for the first quarter of 2018 was $15.0 million, compared with $14.4 million for the fourth quarter of 2017. The quarter-over-quarter increase was driven primarily by higher payroll related expense, including the annual FICA tax reset, annual merit increases and higher vacation accrual, as well as lower expense reimbursement from funded R&D programs.
• Non-GAAP operating expense for the first quarter of 2018 was $12.5 million compared with $11.9 million for the fourth quarter of 2017 and excludes stock-based compensation, amortization of intangibles and other non-recurring legal costs, offset by a credit for restructuring charges due to a change in estimate.
• Net interest expense was approximately $1.0 million for both the first quarter of 2018 and the fourth quarter of 2017, which includes coupon interest and non-cash interest from amortization of debt issuance costs and discounts on convertible notes issued in 2017.
• Non-GAAP interest expense was approximately $0.6 million for both the first quarter of 2018 and the fourth quarter of 2017, and excludes the non-cash interest mentioned above.
• Net loss for the first quarter of 2018 was $9.2 million, or $(0.25) per share, compared with a net loss of $8.8 million, or $(0.24) per share, for the fourth quarter of 2017.
• Non-GAAP net loss for the first quarter of 2018 was $5.8 million compared with a non-GAAP net loss of $5.3 million for the fourth quarter of 2017.
• Adjusted EBITDA for the first quarter of 2018 was $(4.2) million, compared with $(1.8) million for the fourth quarter of 2017.

Capital Expenditures

• Capital expenditures during the first quarter of 2018 were $3.9 million, compared with $2.5 million for the fourth quarter of 2017. Capital expenditures in the first quarter were primarily related to the Switzerland manufacturing facility expansion and equipment upgrades, the Korea manufacturing facility expansion, ultracapacitor and lithium-ion capacitor production equipment and IT infrastructure upgrades.

Second Quarter 2018 Business Outlook

• Total revenue is expected to be in the range of $28 million to $33 million.
• Gross margin is expected to be 20.1%, plus or minus 150 basis points.
• Non-GAAP gross margin is expected to be 21.5%, plus or minus 150 basis points.
• GAAP operating expense is expected to be in the range of $15.1 million to $15.5 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.