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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

SORL Auto Parts Announces Third Quarter Record High Sales in 2019

November 14, 2019 GMT

ZHEJIANG, China, Nov. 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, 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 TheissInvestor RelationsAwaken Advisors212-521-4050 kevin.theiss@awakenlab.com

-tables follow –

SORL Auto Parts, Inc. and SubsidiariesConsolidated Balance SheetsSeptember 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 158,188,600 150,047,797 parties as of September 30, 2019 and December 31, 2018, respectively 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 $3,670,573 to related party 16,258,454 7,776,591 at September 30, 2019 and December 31, 2018, respectively Restricted cash, current 13,780,187 19,307,003 Advances to related party 24,433,792 79,739,417 Deposits on loan agreements, current 4,948,465 - Other current assets, net 13,610,953 15,697,448 ----------- - ----------- - Total Current Assets 503,892,541 612,494,137 Property, plant and equipment, net 119,103,291 96,053,386 Land use rights, net 36,213,965 21,124,455 Intangible assets, net - 220,232 Deposits on loan agreements, non-current 6,362,312 10,199,324 Prepayments, non-current 15,253,670 31,575,238 Other assets, non-current 1,463,985 563,542 Restricted cash, non-current 16,683,397 18,067,374 Deferred tax assets 3,578,925 4,073,838 Total Non-current Assets 198,659,545 181,877,389 Total Assets US$ 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 $23,805,200 due to related parties at September 30, 2019 US$ 159,184,839 US$ 236,433,718 and December 31, 2018, respectively 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 4,630,198 14,429,404 costs 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 - $0.002 par value; 50,000,000 authorized,19,304,921 issued 38,609 38,609 and outstanding as of September 30, 2019 and December 31, 2018 Additional paid-in capital (28,582,654 ) (28,582,654 ) Reserves 21,902,103 20,007,007 Accumulated other comprehensive income 259,271 6,655,803 Retained earnings 195,433,836 178,535,378 ----------- - ----------- - Total SORL Auto Parts, Inc. Stockholders’ Equity 189,051,165 176,654,143 Noncontrolling Interest In Subsidiaries 30,209,829 28,814,893 ----------- - ----------- - Total Equity 219,260,994 205,469,036 Total Liabilities and Equity US$ 702,552,086 US$ 794,371,526 ----------- - ----------- -

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

Three months ended Nine months ended September 30, 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 468,322 613,086 2,105,662 2,281,633 subsidiaries Net income (loss) attributable to US$ 4,184,902 US$ (5,605,214 ) US$ 18,793,554 US$ 9,411,708 common stockholders ----------- - ----------- - ----------- - ----------- - 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 (6,586,436 ) (8,307,355 ) (7,107,258 ) (11,275,895 adjustments ----------- - ----------- - ----------- - ----------- - Comprehensive income (loss) (1,933,212 ) (13,299,483 ) 13,791,958 417,446 Comprehensive income (loss) attributable to noncontrolling (190,322 ) (217,650 ) 1,394,936 1,154,043 interest in subsidiaries ----------- - ----------- - ----------- - ----------- - Comprehensive income (loss) US$ (1,742,890 ) US$ (13,081,833 ) US$ 12,397,022 US$ (736,597 ) attributable to common stockholders ----------- - ----------- - ----------- - ----------- - Weighted average common share - basic 19,304,921 19,304,921 19,304,921 19,304,921 Weighted average common share - 19,304,921 19,304,921 19,304,921 19,304,921 diluted 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 SubsidiariesConsolidated Statements of Cash FlowsFor 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 US$ 1,274,693 US$ - and equipment ------------ - ------------ - Property, plant and equipment and land use rights transferred from US$ 19,995,442 US$ - prepayments ------------ - ------------ - 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 ------------ - ------------ -