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SORL Auto Parts Reports Financial Results for the Second Quarter of 2019

/EIN News/ -- ZHEJIANG, China, Aug. 14, 2019 (GLOBE NEWSWIRE) -- SORL Auto Parts, Inc. (NASDAQ: SORL) ("SORL" or the "Company"), a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts in China, today announced its unaudited financial results for the second quarter of 2019 and the first six months ended June 30, 2019.

Second Quarter 2019 Financial Highlights

  · Net sales increased 8.5% to $139.4 million compared with $128.5 million in the second quarter last year;
  · Gross profit increased 5.3% and the gross margin was 26.0% in the second quarter of 2019 compared to a 26.8% gross margin in the same period of 2018;
  · Diluted earnings per share were $0.29 compared with $0.35 in the same quarter last year.

First Six Months of 2019 Financial Highlights

  · Net sales increased 16.7% to $275.6 million compared with $236.2 million in same period of last year;
  · Gross profit increased 12.6% to $72.8 million from $64.6 million in the same period in 2018;
  · Net income attributable to stockholders was$14.6 million or $0.76 per basic and diluted earnings per share, compared with $15.0 million, or $0.78 per basic and diluted share, in the same period of 2018.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, “Our second quarter results were positive considering the current state of Chinese economy as well as the commercial vehicles sector. We have maintained our market leadership in China with new advanced products.”

Second Quarter 2019 Financial Performance

For the second quarter of 2019, net sales increased by 8.5% to $139.4 million from $128.5 million for the second quarter of 2018. Revenues from the Company's domestic OEM customers increased by 10.6% to $69.2 million from $62.6 million in the second quarter of 2018. Commercial vehicle sales in China decreased in the second quarter of 2019, but SORL continued to expand its leading market share due to higher product quality and better service. Sales from China's domestic aftermarket increased 8.8% to $46.6 million in the second quarter of 2019 from $42.8 million in the same quarter of 2018. Higher aftermarket product sales were generated due to the growing number of OEM warranties that expired from prior new vehicle sales in China and the Company’s marketing campaign to enhance market share through its distribution campaign. Revenues from international markets increased 2.0% to $23.6 million from $23.1 million in the second quarter of 2018 primarily due to a larger customer base.

The gross profit for the second quarter of 2019 increased 5.3% to $36.3 million from $34.4 million for the second quarter of 2018. Gross margin for the second quarter of 2019 was 26.0%, compared with a gross margin of 26.8% in the same quarter of 2018. The decrease in gross margin was primarily due to increased sales promotion during the second quarter of 2019. Also, gross profit and gross margin decreased in the passenger vehicle auto parts operations. The focus for the remainder of 2019 is to increase production efficiency, improve product technology, and enhance SORL’s product portfolio, to help to maintain or increase gross profit margins.

Operating expenses increased 21.1% to $32.7 million from $27.0 million in the second quarter of 2018. Operating expenses rose due to higher research and development, selling and distribution, and general and administrative expenses in the second quarter of 2019. As a percentage of revenue, operating expenses were 23.4% in the second quarter of 2019, compared with 21.0% in the second quarter of 2018. 

  · Selling and distribution expenses increased 17.9% to $16.5 million, or 11.8% of quarterly revenues, compared with $14.0 million, or 10.9% in the same quarter of 2018. The increase in expenses was mainly due to higher packaging and repair expenses, increased warranty fees and higher labor costs.
  · General and administrative ("G&A") expenses in the second quarter of 2019 were $9.2 million, or 6.6% of revenue, compared with $7.7 million, or 6.0% in the second quarter of 2018 primarily due to higher labor expenses.
  · Research and development ("R&D") expenses were $7.0 million in the second quarter of 2019 compared with $5.3 million in the same quarter of 2018. As a percentage of revenue, R&D was 5.0% in the second quarter of 2019 and compared with 4.1% of revenue in the second quarter of 2018. The R&D program mainly focused on the development of new, higher-margin, electronically controlled products, products for new energy vehicles and upgrading legacy brake products to enhance the Company’s market leadership.

Income from operations was $6.1 million in the second quarter of 2019 compared with $9.8 million in the same quarter of 2018.

Interest income was $1.5 million in the second quarter of 2019, compared with $0.8 million in the same quarter in 2018.

Financial expenses were $3.2 million in the second quarter of 2019, compared with $3.5 million in the second quarter of 2018. The decrease was due mainly to lower long-term loans outstanding.

Exchange differences were $0.5 million in the second quarter of 2019, compared with $1.1 million in the same quarter in 2018.

Income before income taxes was $6.6 million for the second quarter of 2019, compared to $8.7 million for the second quarter of 2018. The pretax income margin was 4.7% in the second quarter of 2019, compared with 6.8% in the second quarter of 2018.

The provision for income taxes was $0.3 million in the second quarter of 2019, compared with $1.2 million in the second quarter of 2018.

Net income attributable to stockholders for the second quarter of 2019 was $5.6 million, or $0.29 per basic and diluted share, compared with $6.7 million, or $0.35 on per basic and diluted share, in the second quarter of 2018.

First Six Months 2019 Financial Performance

Net sales for the first six months of 2019 increased 16.7% to $275.6 million from $236.2 million for the first six months of 2018. Net sales from the Company's China OEM market increased 26.0% to $144.1 million from $114.4 million in the same period in 2018. Revenues from China's domestic aftermarket increased 11.1% to $89.9 million from $80.9 million in the first six months of 2018. Revenues from international markets increased 1.6% to $41.6 million from $40.9 million in the first six months of 2018.

Gross profit for the first six months of 2019 increased 12.6% to $72.8 million from $64.6 million in the same period in 2018. Gross margin for the six months ended June 30, 2019, was 26.4% compared to 27.4% for the first six months of 2018.

Operating income for the first six months of 2019 decreased 16.6% to $19.9 million from $23.8 million in the same period in 2018. Operating margin was 7.2% versus 10.1% in first six months of 2018.

Net income attributable to stockholders for the first six months of 2019 was $14.6 million, or $0.76 per basic and diluted share, compared with $15.0 million, or $0.78 per basic and diluted share, in the same period in 2018.

Balance Sheet

As of June 30, 2019, the Company had cash and cash equivalents of $10.3 million up from $8.0 million at March 31, 2019 and compared with $73.6 million at December 31, 2018. Cash and cash equivalents plus restricted cash was $24.9 million on June 30, 2019 compared with $92.9 million at December 31, 2018. Inventories decreased to $183.5 million at June 30, 2019 from $204.3 million at December 31, 2018. Bank acceptance notes from customers increased to $73.7 million on June 30, 2019 from $62.1 million on December 31, 2018. Short-term bank loans increased to $224.4 million on June 30, 2019 from $217.9 million at December 31, 2018. Total equity was $221.2 million at June 30, 2019. On June 30, 2019, working capital was $35.7 million.

Business Outlook

For the fiscal year 2019, management has reiterated its expectation for annual net sales to be approximately $515 million and net income to be approximately $22.0 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

Conference Call

Management will host a conference call on Wednesday, August 14, 2019 at 8:00 P.M. EDT and at 8:00 A.M. Beijing Time on Thursday, August 15, 2019 on to discuss its 2019 second quarter and six months results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778 and +1-201-689-8565 for international callers, and Mainland China toll free +86-400-120-2840. A live web cast of the conference call will also be available at http://www.sorl.cn or at https://www.investornetwork.com/event/presentation/52973.

A replay of the call will be available shortly after the conference call through 8:00 P.M. EDT on September 14, 2018, or 8:00 A.M. Beijing Time on September 15, 2018. The replay dial-in numbers are: U.S. toll free number +1-877-481-4010 or the international number +1-919-882-2331; using Conference ID " 52973 " to access the replay.

About SORL Auto Parts, Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry, SORL Auto Parts, Inc. is the market leader for commercial vehicles brake systems, such as trucks and buses in China. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 65 categories with over 2000 specifications in brake systems and others. The Company has four authorized international sales centers in UAE, India, the United States and Europe. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn.

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking terminology such as "expects," "anticipates," "believes," "targets," "goals," "projects," "intends," "plans," "seeks," "estimates," "may," "will," "should" or similar expressions. For example, when the Company describes the evaluation of the preliminary non-binding proposal letter, it is using forward-looking statements. These forward-looking statements may also include statements about the Company's proposed discussions related to its business or growth strategy, which are subject to change. Such information is based upon expectations of the Company's management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company's control and upon assumptions with respect to future business decisions, which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. These risks and uncertainties may include, but are not limited to general political, economic and business conditions which may impact the demand for commercial vehicles or passenger vehicles in China and the other significant markets where the Company's products are sold, uncertainty regarding such political, economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible recessions, natural disasters, the political stability of China and the impact of any of those events on demand for commercial or passenger vehicles, changes in consumer confidence, new product development and introduction, competitive products and pricing, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier's inability to fulfill the Company's orders, cost of labor and raw materials, the loss of or curtailed sales to significant customers, the Company's dependence on key employees and officers, the ability to secure and protect trademarks, patents and other intellectual property rights, potential effects of competition in the Company's business, the dependency of the Company upon the normal operation of its sole manufacturing facility, potential effect of the economic and currency instability in China and countries to which the Company sold its products, the ability of the Company to successfully manage its expenses on a continuing basis, the continued availability to the Company of financing and credit on favorable terms, business disruptions, disease, general risks associated with doing business in China or other countries including, without limitation, foreign trade policies, import duties, tariffs, quotas, political and economic stability, and the other factors discussed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. For additional information regarding known material factors that could cause the Company's results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Contact Information

Phyllis Huang
+86-151-6770-5972
+86-577-6581-7721
phyllis@sorl.com.cn

Kevin Theiss
Investor Relations
Awaken Advisors
212-521-4050
kevin@awakenlab.com

-tables follow –

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2019 and December 31, 2018

    June 30,
2019
    December 31,
2018
 
    (Unaudited)        
Assets                
Current Assets                
Cash and cash equivalents   US$ 10,294,982     US$ 73,588,229  
Accounts receivable, net, including $333,881 and $261,889 from related parties as of June 30, 2019 and December 31, 2018, respectively     184,101,294       150,047,797  
Bank acceptance notes from customers     73,736,320       62,052,225  
Inventories, net     183,519,272       204,285,427  
Prepayments, current, including $4,421,841 and $3,670,573 to related party at June 30, 2019 and December 31, 2018, respectively     16,228,104       7,776,591  
Restricted cash, current     14,572,162       19,307,003  
Advances to related parties     76,586,592       79,739,417  
Deposits on loan agreements, current     5,091,131       -  
Other current assets, net     11,432,369       15,697,448  
Total Current Assets     575,562,226       612,494,137  
                 
Property, plant and equipment, net     112,336,122       96,053,386  
Land use rights, net     20,745,600       21,124,455  
Intangible assets, net     39,291       220,232  
Deposits on loan agreements, non-current     5,091,131       10,199,324  
Prepayments, non-current     35,977,118       31,575,238  
Other assets, non-current     1,633,292       563,542  
Restricted cash, non-current     17,164,385       18,067,374  
Deferred tax assets     4,523,866       4,073,838  
Total Non-current Assets     197,510,805       181,877,389  
Total Assets   US$ 773,073,031     US$ 794,371,526  
                 
Liabilities and Equity                
Current Liabilities                
Accounts payable and bank acceptance notes to vendors, including $18,956,493 and $23,805,200 due to related parties at June 30, 2019 and December 31, 2018, respectively   US$ 193,279,964     US$ 236,433,718  
Deposits received from customers     60,023,972       51,529,795  
Short term bank loans     224,366,412       217,940,471  
Current portion of long term loans, net of unamortized debt issuance costs     21,976,961       21,141,029  
Income tax payable, current     4,481,767       3,421,486  
Accrued expenses     22,858,419       24,045,902  
Due to related party     7,774,184       5,959,752  
Deferred income     1,088,856       1,453,282  
Other current liabilities     4,040,963       3,288,344  
Total Current Liabilities     539,891,498       565,213,779  
                 
Long term loans, less current portion and net of unamortized debt issuance costs     2,895,552       14,429,404  
Operating lease liabilities, non-current     714,307       -  
Income tax payable, non-current     8,377,468       9,259,307  
Total Non-current Liabilities     11,987,327       23,688,711  
Total Liabilities     551,878,825       588,902,490  
                 
Equity                
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018     -       -  
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of June 30, 2019 and December 31, 2018     38,609       38,609  
Additional paid-in capital     (28,582,654 )     (28,582,654 )
Reserves     21,480,613       20,007,007  
Accumulated other comprehensive income     6,187,063       6,655,803  
Retained earnings     191,670,424       178,535,378  
Total SORL Auto Parts, Inc. Stockholders’ Equity     190,794,055       176,654,143  
Noncontrolling Interest In Subsidiaries     30,400,151       28,814,893  
Total Equity     221,194,206       205,469,036  
Total Liabilities and Equity   US$ 773,073,031     US$ 794,371,526  

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

    Three months ended
June 30,
    Six months ended
June 30,
 
    2019     2018     2019     2018  
                         
Sales   US$ 139,373,482     US$ 128,504,952     US$ 275,593,406     US$ 236,231,634  
Include: sales to related parties     7,971,932       5,962,527       18,618,678       13,663,581  
Cost of sales     103,104,120       94,074,682       202,803,474       171,601,878  
Gross profit     36,269,362       34,430,270       72,789,932       64,629,756  
                                 
Expenses:                                
Selling and distribution expenses     16,463,830       13,956,009       29,348,397       23,993,870  
General and administrative expenses     9,221,426       7,694,411       16,596,319       12,468,189  
Research and development expenses     6,981,251       5,331,956       11,932,787       8,922,358  
Total operating expenses     32,666,507       26,982,376       57,877,503       45,384,417  
                                 
Other operating income, net     2,495,568       2,379,227       4,958,170       4,576,551  
                                 
Income from operations     6,098,423       9,827,121       19,870,599       23,821,890  
                                 
Interest income     1,479,841       811,580       3,216,616       2,299,844  
Government grants     1,707,433       609,592       3,499,845       743,525  
Other income     40,349       175,627       95,029       202,693  
Interest expenses     (3,173,047 )     (3,529,416 )     (7,145,545 )     (6,883,127 )
Exchange differences     537,875       1,091,208       (523,130 )     489,922  
Other expenses     (90,772 )     (254,271 )     (568,691 )     (1,145,085 )
                                 
Income before income taxes provision     6,600,102       8,731,441       18,444,723       19,529,662  
                                 
Provision for income taxes     329,964       1,238,752       2,198,731       2,844,193  
                                 
Net income   US$ 6,270,138     US$ 7,492,689     US$ 16,245,992     US$ 16,685,469  
                                 
Net income attributable to noncontrolling interest in subsidiaries     632,013       749,269       1,637,340       1,668,547  
                                 
Net income attributable to common stockholders   US$ 5,638,125     US$ 6,743,420     US$ 14,608,652     US$ 15,016,922  
                                 
Comprehensive income:                                
                                 
Net income   US$ 6,270,138     US$ 7,492,689     US$ 16,245,992     US$ 16,685,469  
Foreign currency translation adjustments     (4,810,043 )     (11,013,074 )     (520,822 )     (2,968,540 )
Comprehensive income (loss)     1,460,095       (3,520,385 )     15,725,170       13,716,929  
Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries     151,009       (352,038 )     1,585,258       1,371,693  
Comprehensive income (loss) attributable to common stockholders   US$ 1,309,086     US$ (3,168,347 )   US$ 14,139,912     US$ 12,345,236  
                                 
Weighted average common share - basic     19,304,921       19,304,921       19,304,921       19,304,921  
                                 
Weighted average common share - diluted     19,304,921       19,304,921       19,304,921       19,304,921  
                                 
EPS - basic   US$ 0.29     US$ 0.35     US$ 0.76     US$ 0.78  
                                 
EPS - diluted   US$ 0.29     US$ 0.35     US$ 0.76     US$ 0.78  

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

    Six months ended
June 30,
 
    2019     2018  
Cash Flows From Operating Activities                
Net income   US$ 16,245,992     US$ 16,685,469  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
Allowance for doubtful accounts     1,633,832       1,445,353  
Depreciation and amortization     6,927,367       5,832,558  
Deferred income tax     (461,097 )     642,345  
Gain on disposal of property and equipment     (38,330 )     (73,809 )
Amortization of debt issuance costs     325,413       697,633  
Changes in assets and liabilities:                
Accounts receivable     (36,315,794 )     (52,930,675 )
Bank acceptance notes from customers     (11,918,635 )     36,822,604  
Inventories, net     20,653,641       (24,642,342 )
Prepayments     (8,856,410 )     (25,749,865 )
Other currents assets, net     2,048,887       (5,158,214 )
Accounts payable and bank acceptance notes to vendors     (43,192,905 )     99,655,568  
Deposits received from customers     8,669,926       20,470,159  
Income tax payable     189,523       (1,918,494 )
Deferred income     (365,935 )     (259,132 )
Other current liabilities and accrued expenses     (757,093 )     (5,426,422 )
Net Cash Flows Provided By (Used in) Operating Activities     (45,211,618 )     66,092,736  
                 
Cash Flows From Investing Activities                
Acquisition of property, equipment, plant and land use rights     (27,478,369 )     (33,712,960 )
Advances to related parties     (15,305,460 )     (190,438,634 )
Repayment of advances to related parties     20,849,370       222,337,244  
Proceeds from disposal of property and equipment     528       -  
Net Cash Flows Used In Investing Activities     (21,933,931 )     (1,814,350 )
                 
Cash Flows From Financing Activities                
Proceeds from short term bank loans     213,297,377       296,959,191  
Repayment of short term bank loans     (206,444,518 )     (256,944,835 )
Proceeds from related parties     1,843,951       311,026,410  
Repayments to related parties     -       (328,443,191 )
Repayment of long term loans     (11,078,979 )     (12,800,786 )
Net Cash Flows Provided By (Used In) Financing Activities     (2,382,169 )     9,796,789  
                 
Effects on changes in foreign exchange rate     596,641       (2,289,500 )
Net change in cash, cash equivalents and restricted cash     (68,931,077 )     71,785,675  
Cash, cash equivalents, and restricted cash - beginning of the year     110,962,606       4,598,176  
Cash, cash equivalents, and restricted cash - end of the year   US$ 42,031,529     US$ 76,383,851  
Supplemental Cash Flow Disclosures:                
Interest paid   US$ 5,697,269     US$ 5,521,273  
Income taxes paid   US$ 2,464,974     US$ 4,120,342  
                 
Non-cash Investing and Financing Transactions                
Loans from related party in the form of bank acceptance notes   US$ -     US$ 33,721,267  
Repayments to related party in the form of bank acceptance notes   US$ -     US$ 5,846,083  
Repayments from related party in the form of bank acceptance notes   US$ -     US$ 19,612,146  
Liabilities assumed in connection with acquisition of property, plant and equipment   US$ 338,025     US$ -  
                 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets                
Cash and cash equivalents   US$ 10,294,982     US$ 24,525,413  
Restricted cash, current     14,572,162       51,858,438  
Restricted cash, non-current     17,164,385       -  
Total cash, cash equivalents, and restricted cash   US$ 42,031,529     US$ 76,383,851  



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