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SORL Auto Parts Announces Third Quarter Record High Sales in 2019

ZHEJIANG, China, Nov. 14, 2019 (GLOBE NEWSWIRE) -- SORL Auto Parts, Inc. (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, announced today its unaudited financial results for the third quarter and nine-month periods ended September 30, 2019.

Third Quarter 2019 Financial Highlights

  • Net sales increased by 3.4% to a third quarter record high of $112.2 million compared to $108.6 million in the third quarter of 2018;

  • Sales from China's domestic aftermarket increased 25.3% year-over-year to $45.6 million from $36.4 million in the third quarter of 2018;

  • Net income attributable to stockholders was $4.2 million and basic and diluted income per share were $0.22 in the third quarter of 2019; Due to the impact of US tax reform, net loss attributable to stockholders was $5.6 million and basic and diluted loss per share were $0.29 in the third quarter of 2018. Excluding the impact of the one-time accrued taxes related to U.S. tax reform, net income attributable to stockholders for the third quarter of 2018 would have been $5.4 million, or $0.28 per basic and diluted share.

Mr. Xiaoping Zhang, SORL's Chairman and Chief Executive Officer, stated, “2019 remains a challenging market environment for the Chinese automotive sector as the Chinese economy is experiencing deceleration along with the intensified trade war.  During the quarter, our strong product portfolio and balanced sales channels between OEM and aftermarket enabled us to weather the economic slowdown in China. While our domestic OEM business was affected by the slow commercial vehicle sales in the third quarter of 2019, the growing regionally tiered sales network continued to pace the market share expansion of our aftermarket business. We continued to maintain a high gross margin as our technology content remains strong.”  

Third Quarter 2019 Financial Performance

Net sales for the third quarter of 2019 were $112.2 million, the highest sales for any third quarter in the Company’s history, compared with $108.6 million in the third quarter of 2018. Revenues from the Company's domestic OEM customers were $48.6 million compared with $50.3 million in the third quarter of 2018. Sales from China's domestic aftermarket increased 25.3% year-over-year to $45.6 million from $36.4 million in the third quarter of 2018.  The continuing expiration of OEM warranties from prior years’ new vehicle sales in China drove the Company’s aftermarket business. Revenues from international markets were $18.1 million from $21.8 million in the third quarter of 2018. The softer demand for the commercial vehicles from many international markets negatively affected our international sales.  

SORL’s commercial vehicle brake sales increased 6.6% year-over-year to $94.9 million and represented 84.6% of total sales in the third quarter of 2019. The sales of passenger vehicle auto parts decreased by 11.6% year-over-year, to $17.3 million, which accounted for 15.4% of the total sales for the third quarter of 2019.

Gross profit for the third quarter of 2019 rose by 17.5% to $30.9 million from $26.3 million for the third quarter of 2018. Gross margin for the third quarter of 2019 was 27.6%, compared with a gross margin of 24.3% in the same quarter of 2018. The increase in gross margin was primarily due to higher sales of the high margin, electronically controlled products during the third quarter of 2019. 

Operating expenses increased by 19.3% to $27.1 million in the third quarter of 2019, from $22.7 million in the third quarter of 2018. As a percentage of revenue, operating expenses were 24.1% in the third quarter of 2019, compared with 20.9% in the third quarter of 2018. The increase in operating expenses was due to higher selling and distribution, general and administrative, and research and development expenses.

  • Selling and distribution expenses rose to $13.9 million from $13.2 million in the same quarter of 2018. As a percentage of revenue, selling and distribution expenses were 12.3% compared with 12.1% of quarterly revenues in the same quarter of 2018.

  • General and administrative ("G&A") expenses for the third quarter of 2019 were $8.2 million, or 7.3% of revenue, compared with $5.1 million, or 4.7% in the third quarter of 2018. The increase in G&A expenses was mainly due to an increase in employee salaries and professional fees.

  • Research and development ("R&D") expenses were $5.0 million in the third quarter of 2019 compared with $4.5 million in the third quarter of 2018. As a percentage of revenue, R&D was 4.5% in the third quarter of 2019, compared with 4.1% of revenue in the third quarter of 2018. The Company continues to develop new, higher-margin, electronically controlled products, and upgrade the performance and quality of the Company's traditional brake products, to capture greater market share.

Interest expenses were $3.0 million in the third quarter of 2019 compared to $3.3 million in the third quarter of 2018. Decreased interest expenses were mainly due to decreased rates on lower loans outstanding during the third quarter of 2019 compared to the third quarter of 2018.

Income before provision for income taxes was $5.0 million for the third quarter of 2019 as compared with $7.1 million for the third quarter of 2018. The decrease in income before taxes was primarily due to lower government grants and higher operating expenses. Pretax income margin was 4.5% in the third quarter of 2019, compared with 6.6% in the third quarter of 2018. 

The provision for income taxes was $0.4 million in the third quarter of 2019 compared with $12.1 million in the third quarter of 2018. The significantly lower taxes in the third quarter of 2019 compared with the third quarter in 2018, were mainly due to one-time accrued taxes of $11.0 million in the third quarter of 2018 associated with the U.S. tax reform related to the planned dividend distribution from China (PRC) subsidiaries in order to fulfill the payment of one-time accrued taxes.

Net income attributable to stockholders for the third quarter of 2019 was $4.2 million, or $0.22 per basic and diluted share, compared with net loss attributable to stockholders of $5.6 million, or $0.29 per basic and diluted share, in the third quarter of 2018.

Excluding the impact of the one-time accrued taxes related to U.S. tax reform, net income attributable to stockholders for the third quarter of 2018 would have been $5.4 million, or $0.28 per basic and diluted share.

Nine-Month 2018 Financial Performance

Net sales for the first nine months of 2019 increased 12.5% year-over-year to $387.8 million from $344.8 million for the first nine months of 2018. Revenues from the Company's China OEM customers increased by 17.0% to $192.7 million from $164.7 million in the same period in 2018.  Revenues from China's domestic aftermarket increased 15.5% to $135.5 million from $117.3 million in the first nine months of 2018. Revenues from international markets decreased 4.8% to $59.7 million from $62.7 million in the first nine months of 2018.

SORL’s commercial vehicle brake sales increased 6.6% year-over-year to $319.6 million and represented 82.4% of total sales in the first nine months of 2019. The sales of passenger vehicle auto parts were $68.3 million, similar to last year’s same period, and accounted for 17.6% of the total sales for the first nine months of 2019.

Gross profit for the first nine months of 2019 increased 14.0% to $103.7 million from $91.0 million in the same period in 2018. Gross margin for the first nine months of 2019 increased to 26.7% from 26.4% for the first nine months of 2018. The Company’s gross margin increased due to higher sales. 

Income from operations for the first nine months of 2019 was $26.6 million with an operating margin of 6.9%.  

Net income attributable to stockholders for the first nine months of 2019 was $18.8 million, or $0.97 per basic and diluted share, compared with $9.4 million, or $0.49 per basic and diluted share, in the same period in 2018.

Excluding the impact of U.S. tax reform, net income attributable to stockholders for the first nine months of 2018 would have been $20.4 million, or $1.06 per basic and diluted share.

Balance Sheet

As of September 30, 2019, the Company’s cash and cash equivalents were $16.5 million. Total stockholders' equity was $189.1 million at September 30, 2019.  The Company had working capital of $34.2 million on September 30, 2019. During the third quarter of 2019, the Company received over $36 million in repayments of advances to related parties.

Business Outlook

Management has reiterated its fiscal year 2019 guidance for net sales of approximately $515 million and net income attributable to common stockholders of approximately $22 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 Thursday, November 15, 2019, at 7:00 P.M. EST/ 8:00 A.M. Beijing Time on November 15, 2019 to discuss its 2019 third quarter 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.

A replay of the call will be available shortly after the conference call through 7:00 P.M. EST on December 14, 2019 or 8:00 A.M. Beijing Time on December 15, 2019. 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 “56753” 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.theiss@awakenlab.com

-tables follow –


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

Assets        
Current Assets        
Cash and cash equivalents US$  16,485,401   US$  73,588,229  
Accounts receivable, net, including $310,143 and $261,889 from related parties as of September 30, 2019 and December 31, 2018, respectively    158,188,600      150,047,797  
Bank acceptance notes from customers    65,007,965      62,052,225  
Inventories, net    191,178,724      204,285,427  
Prepayments, current, including $3,283,579 and $3,670,573 to related party at September 30, 2019 and December 31, 2018, respectively   16,258,454      7,776,591  
Restricted cash, current    13,780,187      19,307,003  
Advances to related party    24,433,792      79,739,417  
Deposits on loan agreements, current    4,948,465      -   
Other current assets, net    13,610,953      15,697,448  
Total Current Assets   503,892,541      612,494,137  
         
Property, plant and equipment, net    119,103,291      96,053,386  
Land use rights, net    36,213,965      21,124,455  
Intangible assets, net    -       220,232  
Deposits on loan agreements, non-current    6,362,312      10,199,324  
Prepayments, non-current    15,253,670      31,575,238  
Other assets, non-current    1,463,985      563,542  
Restricted cash, non-current    16,683,397      18,067,374  
Deferred tax assets    3,578,925      4,073,838  
Total Non-current Assets   198,659,545      181,877,389  
Total Assets US$  702,552,086   US$  794,371,526  
         
Liabilities and Equity        
Current Liabilities        
Accounts payable and bank acceptance notes to vendors, including $16,438,264 and $23,805,200 due to related parties at September 30, 2019 and December 31, 2018, respectively US$ 159,184,839   US$ 236,433,718  
Deposits received from customers    47,433,293      51,529,795  
Short term bank loans    201,749,179      217,940,471  
Current portion of long term loans, net of unamortized debt issuance costs    22,199,252      21,141,029  
Income tax payable, current    3,132,430      3,421,486  
Accrued expenses    23,085,329      24,045,902  
Due to related party    8,083,574      5,959,752  
Deferred income    745,200      1,453,282  
Other current liabilities    4,041,457      3,288,344  
Total Current Liabilities    469,654,553      565,213,779  
         
Long term loans, less current portion and net of unamortized debt issuance costs    4,630,198      14,429,404  
Operating lease liabilities, non-current    628,873      -   
Income tax payable, non-current    8,377,468      9,259,307  
Total Non-current Liabilities    13,636,539      23,688,711  
Total Liabilities    483,291,092      588,902,490  
         
Equity        
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of September 30, 2019 and December 31, 2018            
Common stock - $0.002 par value; 50,000,000 authorized,19,304,921 issued and outstanding as of September 30, 2019 and December 31, 2018    38,609      38,609  
Additional paid-in capital    (28,582,654 )    (28,582,654 )
Reserves    21,902,103      20,007,007  
Accumulated other comprehensive income    259,271      6,655,803  
Retained earnings    195,433,836      178,535,378  
  Total SORL Auto Parts, Inc. Stockholders' Equity    189,051,165      176,654,143  
  Noncontrolling Interest In Subsidiaries    30,209,829      28,814,893  
  Total Equity    219,260,994      205,469,036  
  Total Liabilities and Equity US$ 702,552,086   US$  794,371,526  
             



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

    Three months ended
September 30,
  Nine months ended
September 30,
    2019     2018     2019     2018  
                 
Sales US$  112,227,452   US$  108,584,331   US$  387,820,858   US$  344,815,965  
Include: sales to related parties   6,859,689      9,333,959      25,478,367      22,997,540  
Cost of sales    81,294,783      82,249,456      284,098,257     253,851,334  
Gross profit    30,932,669      26,334,875      103,722,601      90,964,631  
Expenses:                
Selling and distribution expenses    13,850,387      13,160,875      43,198,784      37,154,745  
General and administrative expenses    8,207,550      5,051,684      24,803,869      17,519,873  
Research and development expenses    5,001,354      4,478,298      16,934,141      13,400,656  
Total operating expenses    27,059,291      22,690,857      84,936,794      68,075,274  
Other operating income, net    2,840,617      2,959,269      7,798,787      7,535,820  
Income from operations    6,713,995      6,603,287      26,584,594      30,425,177  
Interest income    966,855      547,455      4,183,471      2,847,299  
Government grants    70,785      2,239,250      3,570,630      2,982,775  
Other income    35,884      229,520      130,913      432,213  
Interest expenses    (3,010,304 )    (3,331,554 )   (10,155,849 )   (10,214,68 )
Exchange differences    773,420      906,538      250,290      1,396,460  
Other expenses    (508,302 )    (55,835 )    (1,076,993 )    (1,200,920 )
Income before income taxes provision    5,042,333      7,138,661      23,487,056      26,668,323  
Provision for income taxes    389,109      12,130,789      2,587,840      14,974,982  
Net income (loss) US$  4,653,224   US$  (4,992,128 ) US$  20,899,216   US$  11,693,341  
                 
Net income attributable to noncontrolling interest in subsidiaries    468,322      613,086      2,105,662      2,281,633  
Net income (loss) attributable to common stockholders US$  4,184,902   US$  (5,605,214 ) US$  18,793,554   US$  9,411,708  
Comprehensive income (loss):                
Net income (loss) US$  4,653,224   US$  (4,992,128 ) US$  20,899,216   US$  11,693,341  
Foreign currency translation adjustments    (6,586,436 )    (8,307,355 )    (7,107,258 )   (11,275,895  
Comprehensive income (loss)    (1,933,212 )    (13,299,483 )    13,791,958      417,446  
Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries    (190,322 )    (217,650 )    1,394,936      1,154,043  
Comprehensive income (loss) attributable to common stockholders US$  (1,742,890 ) US$  (13,081,833 ) US$  12,397,022   US$  (736,597 )
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$  0.22   US$  (0.29 ) US$  0.97   US$  0.49  
EPS - diluted US$  0.22   US$  (0.29 ) US$  0.97   US$  0.49  
                         



SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 2019 and 2018 (Unaudited)
  

       Nine months ended September 30,
      2019     2018  
Cash Flows From Operating Activities          
Net income   US$  20,899,216   US$  11,693,341  
Adjustments to reconcile net income to net cash provided
by (used in) operation activities:
         
Allowance for doubtful accounts      2,365,714      179,744  
Depreciation and amortization      10,528,373      8,926,695  
Deferred income tax      368,700      966,547  
Gain on disposal of property and equipment      (30,562 )    (73,809 )
Amortization of debt issuance costs      441,236      520,741  
Changes in assets and liabilities:          
Accounts receivable      (15,844,424 )    (38,780,246 )
Bank acceptance notes from customers     1,258,843      68,016,837  
Inventories, net     7,669,607      (9,983,968 )
Prepayments      (9,348,404 )    (52,611,953 )
Other current assets, net      (699,009 )    (19,823,567 )
Accounts payable and bank acceptance notes to vendors      (72,638,392 )    86,724,938  
Deposits received from customers      (2,393,750 )    7,432,808  
Income tax payable      (1,125,335 )    24,058,536  
Deferred income      (683,529 )    (382,627 )
Other current liabilities and accrued expenses      301,057      (5,671,820 )
Net Cash Flows Provided By (Used in) Operating Activities      (58,930,659 )    81,192,197  
           
Cash Flows From Investing Activities          
Acquisition of property, equipment, plant and land use rights      (36,495,784 )    (40,142,267 )
Acquisition of intangible assets     -      (367,931 )
Advances to related parties     -     (214,800,362 )
Repayment of advances to related parties     57,010,144      222,337,244  
Proceeds from disposal of property and equipment     42,451      -   
Net Cash Flows Provided By (Used In) Investing Activities     20,556,811      (32,973,316 )
           
Cash Flows From Financing Activities          
Proceeds from short term bank  loans      238,649,409      353,441,949  
Repayment of short term bank loans     (248,358,539 )    (325,651,416 )
Proceeds from related parties      1,843,951      311,692,664  
Repayments to related parties     -      (328,624,110 )
Repayments of long term loans      (16,998,572 )    (18,957,775 )
Payment of debt issuance costs     (108,222 )   -  
Net Cash Flows Used In Financing Activities      (24,971,973 )    (8,098,688 )
Effects on changes in foreign exchange rate      (667,800 )    (4,557,219 )
Net change in cash, cash equivalents and restricted cash      (64,013,621 )    35,562,974  
Cash, cash equivalents, and restricted cash - beginning of the period      110,962,606      4,598,176  
Cash, cash equivalents, and restricted cash - end of the period   US$  46,948,985   US$  40,161,150  
Supplemental Cash Flow Disclosures:          
Interest paid   US$ 8,655,097   US$  7,849,753  
Income taxes paid   US$  3,339,144   US$  5,157,755  
Non-cash Investing and Financing Transactions          
Loans from related party in the form of bank acceptance notes   US$ -   US$  5,846,083  
Repayments to related party in the form of bank acceptance notes   US$ -   US$  33,721,267  
Repayments from related party in the form of bank acceptance notes   US$ -   US$  26,771,056  
Liabilities assumed in connection with acquisition of property, plant and equipment   US$ 1,274,693   US$ -  
Property, plant and equipment and land use rights transferred from prepayments   US$ 19,995,442   US$ -  
Proceeds from long term loans in the form of bank acceptance notes   US$ 7,169,692   US$ -  
Deposits on loan agreements deducted from proceeds from long term loans   US$ 1,433,938   US$ -  
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets          
Cash and cash equivalents   US$  16,485,401   US$  17,609,594  
Restricted cash, current      13,780,187      19,062,778  
Restricted cash, non-current      16,683,397      3,488,778  
Total cash, cash equivalents, and restricted cash   US$  46,948,985   US$  40,161,150