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SORL Auto Parts Reports 26.5% Net Sales Increase in the First Quarter of 2019

ZHEJIANG, China, May 15, 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 financial results for the first quarter ended March 31, 2019.

First Quarter 2018 Financial Highlights

  • Net sales for the 2019 first quarter were $136.2 million, up 26.5% from $107.7 million in the first quarter of 2018;
  • Revenues from the domestic OEM segment grew 44.6% year-over-year to $74.9 million;
  • Revenues from international markets increased to $18.0 million;
  • Gross margin was 26.8% compared with 28.0% in the first quarter of 2018;
  • Net income attributable to stockholders increased to $9.0 million, or $0.46 per basic and diluted share, compared with $8.3 million, or $0.43 per basic and diluted share in the first quarter of 2018.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, “We are taking a ‘winner-takes-all’ mentality to expand our market shares in a business environment filled with uncertainties and anxieties.  On the OEM side, we continue to strengthen our relationships with the main truck and bus producers in China through our new products and service.  For the aftermarket, we differentiate ourselves with better pricing and top quality to gain market share. In the international market, we continue to focus on key markets and key customers to bolster our foothold.”

Ms. Jinrui Yu, SORL’s Chief Operating Officer, added, “Our growing product portfolio of advanced products continues to generate substantial sales growth even in the current challenging economic environment in China.  We continue to add resources to our research and development program while we also maintain one of the highest gross margins in the industry.”

First Quarter 2019 Financial Results

For the first quarter of 2019, net sales increased 26.5% year-over-year to $136.2 million compared to $107.7 million in the first quarter of 2018. 

Revenues from the Company’s domestic OEM customers were $74.9 million, an increase of 44.6% from $51.8 million in the first quarter of 2018.  The strong year-over-year sales growth was mainly due to increased truck sales in the first quarter and improved market share.  Sales to China's domestic aftermarket was $43.3 million compared with $38.0 million in the same quarter of 2018. The increase in aftermarket sales was mainly attributable to the expiration of warranties from higher sales of new vehicles over the past few years and the Company’s increased marketing campaigns to bolster its market share through its already well-established distribution network.  Revenues from international markets were $18.0 million compared to $17.9 million in the same quarter of 2018.

The gross profit for the first quarter of 2019 increased 20.9% to $36.5 million from $30.2 million in the first quarter of 2018.  Gross margin was 26.8% compared with 28.0% in the first quarter of 2018.

In the first quarter of 2019, operating expenses increased to $25.2 million from $18.4 million in the same quarter of 2018.  As a percentage of total revenues, operating expenses were 18.5% in the first quarter of 2019 compared to 17.1% in the first quarter of 2018.

  • Selling and distribution expenses were $12.9 million, or 9.5% of quarterly revenues, compared with $10.0 million, or 9.3% in the first quarter of 2018.  The higher selling and distribution expenses were primarily due to the higher freight and packaging costs and increased personnel costs. 

  • General and administrative ("G&A") expenses in the first quarter of 2019 were $7.4 million compared with $4.8 million a year ago. G&A expenses as a percentage of revenue in the first quarter of 2019 were 5.4% compared with 4.4% in the first quarter of 2018. The higher G&A expenses were mainly due to an increase in allowance for doubtful accounts and labor costs during this quarter.

  • Research and development ("R&D") expenses were $5.0 million compared with $3.6 million in the first quarter of 2018.  As a percentage of revenue, R&D expenses were 3.6% in the first quarter of 2019 compared with 3.3% of revenue in the first quarter of 2018.

Interest income was $1.7 million compared with $1.5 million in the first quarter of 2018.  Financial expenses were $4.0 million compared with $3.4 million in the first quarter of 2018.

Income before income taxes was $11.8 million in the first quarter of 2019 compared with $10.8 million in the first quarter of 2018. 

Income taxes were $1.9 million in the first quarter of 2019 compared with $1.6 million in the first quarter of 2018.   

Net income attributable to stockholders for the first quarter of 2019 was $9.0 million, or $0.46 per basic and diluted share, compared with $8.3 million, or $0.43 per basic and diluted share a year ago.

Balance Sheet

As of March 31, 2019, the Company had cash and cash equivalents of $8.0 million compared to $73.6 million on December 31, 2018.  Accounts receivable were $178.9 million compared to $150.0 million on December 31, 2018.  Inventories were $187.4 million compared to $204.3 million on December 31, 2018.  Short-term bank loans were $212.4 million compared to $217.9 million on December 31, 2018.  Total equity was $219.7 million at March 31, 2019 compared with $205.5 million at December 31, 2018.  On March 31, 2019, working capital was $44.6 million with a current ratio of 1.1 to 1.  Net cash used by operating activities was $25.8 million compared with net cash flow provided by operating activities of $36.3 million in the first quarter of 2018. Acquisition of property, equipment, plant and land use rights was $13.3 million compared with $19.7 million in the first quarter of 2018.

Business Outlook

For the fiscal year 2019, management reiterated its expectation that net sales will be approximately $515 million and net income attributable to stockholders to be 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 Wednesday, May 15, 2019, at 8:00 P.M. EDT/ 8:00 A.M. Beijing Time on May 16, 2019, to discuss its unaudited financial results for the 2019 first quarter ended March 31, 2019. 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 8:00 P.M. EDT on June 15, 2019 or 8:00 A.M. Beijing Time on June 16, 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 “49126” 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.  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
Awaken Advisors
212-521-4050
kevin.theiss@awakenlab.com

-Tables Follow –

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

    March 31,
2019
    December 31,
2018
 
Assets    (Unaudited)        
Current Assets            
Cash and cash equivalents   US$ 8,024,006     US$ 73,588,229  
Accounts receivable, net, including $341,110 and $261,889 from related parties as of March 31, 2019 and December 31, 2018, respectively     178,871,527       150,047,797  
Bank acceptance notes from customers     73,404,114       62,052,225  
Inventories, net     187,384,139       204,285,427  
Prepayments, current, including $5,129,110 and $3,670,573 to related party at March 31, 2019 and December 31, 2018, respectively     17,350,867       7,776,591  
Restricted cash, current     16,804,852       19,307,003  
Advances to related parties     98,136,035       79,739,417  
Deposits on loan agreements, current     5,197,891       -  
Other current assets, net     11,566,191       15,697,448  
Total Current Assets     596,739,622       612,494,137  
                 
Property, plant and equipment, net     107,063,204       96,053,386  
Land use rights, net     21,355,991       21,124,455  
Intangible assets, net     132,294       220,232  
Deposits on loan agreements, non-current     5,197,891       10,199,324  
Prepayments, non-current     33,069,906       31,575,238  
Other assets, non-current     574,397       563,542  
Restricted cash, non-current     18,415,386       18,067,374  
Operating lease right of use assets     1,222,064       -  
Deferred tax assets     3,566,545       4,073,838  
Total Non-current Assets     190,597,678       181,877,389  
Total Assets   US$ 787,337,300     US$ 794,371,526  
                 
Liabilities and Equity                
Current Liabilities                
Accounts payable and bank acceptance notes to vendors, including $30,167,916 and $23,805,200
 due to related parties as of March 31, 2019 and December 31, 2018, respectively
  US$ 226,765,213     US$ 236,433,718  
Deposits received from customers     53,150,261       51,529,795  
Short term bank loans     212,363,818       217,940,471  
Current portion of long term loans, net of unamortized debt issuance costs     25,086,705       21,141,029  
Income tax payable, current     3,229,510       3,421,486  
Accrued expenses     19,499,647       24,045,902  
Due to related party     6,820,963       5,959,752  
Deferred income     1,259,842       1,453,282  
Operating lease liabilities, current     492,494       -  
Other current liabilities     3,452,129       3,288,344  
Total Current Liabilities     552,120,582       565,213,779  
                 
Long term loans, less current portion and net of unamortized debt issuance costs     5,426,193       14,429,404  
Operating lease liabilities, non-current     797,107       -  
Income tax payable, non-current     9,259,307       9,259,307  
Total Non-current Liabilities     15,482,607       23,688,711  
Total Liabilities     567,603,189       588,902,490  
                 
Equity                
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of March 31, 2019 and December 31, 2018     -       -  
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of March 31, 2019 and December 31, 2018     38,609       38,609  
Additional paid-in capital     (28,582,654 )     (28,582,654 )
Reserves     20,911,801       20,007,007  
Accumulated other comprehensive income     10,516,102       6,655,803  
Retained earnings     186,601,111       178,535,378  
Total SORL Auto Parts, Inc. Stockholders’ Equity     189,484,969       176,654,143  
Noncontrolling Interest In Subsidiaries     30,249,142       28,814,893  
Total Equity     219,734,111       205,469,036  
Total Liabilities and Equity   US$ 787,337,300     US$ 794,371,526  


SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
For The Quarters Ended March 31, 2019 and 2018 (Unaudited)

    Three months ended
March 31,
 
    2019     2018  
Sales   US$ 136,219,924     US$ 107,726,682  
Include: sales to related parties     10,646,746       7,701,054  
Cost of sales     99,699,354       77,527,196  
Gross profit     36,520,570       30,199,486  
                 
Expenses:                
Selling and distribution expenses     12,884,567       10,037,861  
General and administrative expenses     7,374,893       4,773,778  
Research and development expenses     4,951,536       3,590,402  
Total operating expenses     25,210,996       18,402,041  
                 
Other operating income, net     2,462,602       2,197,324  
                 
Income from operations     13,772,176       13,994,769  
                 
Interest income     1,736,775       1,488,264  
Government grants     1,792,412       133,933  
Other income     54,680       27,066  
Interest expenses     (3,972,498 )     (3,353,711 )
Exchange differences     (1,061,005 )     (601,286 )
Other expenses     (477,919 )     (890,814 )
                 
Income before income taxes provision     11,844,621       10,798,221  
                 
Provision for income taxes     1,868,767       1,605,441  
                 
Net income   US$ 9,975,854     US$ 9,192,780  
                 
Net income attributable to noncontrolling interest in subsidiaries     1,005,327       919,278  
                 
Net income attributable to common stockholders   US$ 8,970,527     US$ 8,273,502  
                 
Comprehensive income:                
                 
Net income   US$ 9,975,854     US$ 9,192,780  
Foreign currency translation adjustments     4,289,221       8,044,534  
Comprehensive income     14,265,075       17,237,314  
Comprehensive income attributable to noncontrolling interest in subsidiaries     1,434,249       1,723,731  
Comprehensive income attributable to common stockholders   US$ 12,830,826     US$ 15,513,583  
Weighted average common share - basic     19,304,921       19,304,921  
                 
Weighted average common share - diluted     19,304,921       19,304,921  
                 
EPS - basic   US$ 0.46     US$ 0.43  
                 
EPS - diluted   US$ 0.46     US$ 0.43  


SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2019 and 2018 (Unaudited)

    Three Months Ended
March 31,
 
    2019     2018  
Cash Flows From Operating Activities            
Net income   US$ 9,975,854     US$ 9,192,780  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
Allowance for doubtful accounts     (79,426 )     278,397  
Depreciation and amortization     3,382,629       2,847,303  
Deferred income tax     580,171       900,839  
Gain on disposal of property and equipment     (29,768 )     -  
Amortization of debt issuance costs     181,333       372,025  
Changes in assets and liabilities:                
Accounts receivable     (25,606,528 )     (32,888,322 )
Bank acceptance notes from customers     (10,059,686 )     12,354,888  
Inventories, net     20,637,304       996,280  
Prepayments     (9,630,754 )     (14,987,105 )
Other currents assets, net     3,162,436       (1,890,438 )
Operating lease right of use assets     125,799       -  
Accounts payable and bank acceptance notes to vendors     (13,728,060 )     63,073,488  
Deposits received from customers     621,908       5,123,039  
Income tax payable     (207,909 )     (1,635,670 )
Deferred income     (219,320 )     (129,981 )
Operating lease liabilities     (326,476 )     -  
Other current liabilities and accrued expenses     (4,598,818 )     (7,302,268 )
Net Cash Flows Provided By (Used In) Operating Activities     (25,819,311 )     36,305,255  
                 
Cash Flows From Investing Activities                
Acquisition of property, equipment, plant and land use rights     (13,252,877 )     (19,682,775 )
Advances to related parties     (15,305,460 )     (67,694,035 )
Repayment of advances to related parties     -       5,821,183  
Net Cash Flows Used In Investing Activities     (28,558,337 )     (81,555,627 )
                 
Cash Flows From Financing Activities                
Proceeds from short term bank loans     113,629,530       222,636,613  
Repayment of short term bank loans     (123,310,819 )     (115,398,302 )
Proceeds from related parties     739,289       264,565,400  
Repayments to related parties     -       (256,883,171 )
Repayment of long term loans     (5,869,199 )     (6,401,331 )
Net Cash Flows Provided By (Used In) Financing Activities     (14,811,199 )     108,519,209  
                 
Effects on changes in foreign exchange rate     1,470,485       1,418,555  
Net change in cash, cash equivalents and restricted cash     (67,718,362 )     64,687,392  
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$ 43,244,244     US$ 69,285,568  
                 
Supplemental Cash Flow Disclosures:                
Interest paid   US$ 2,903,589     US$ 2,278,298  
Income taxes paid   US$ 1,471,174     US$ 2,340,272  
                 
Non-cash Investing and Financing Transactions                
Loans from related party in the form of bank acceptance notes   US$ -     US$ 32,791,380  
Repayments to related party in the form of bank acceptance notes   US$ -     US$ 5,846,083  
                 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets                
Cash and cash equivalents   US$ 8,024,006     US$ 22,682,734  
Restricted cash, current     16,804,852       46,602,834  
Restricted cash, non-current     18,415,386       -  
Total cash, cash equivalents, and restricted cash at end of the period   US$ 43,244,244     US$ 69,285,568