SORL Auto Parts Reports 40% Top Line Growth in the Second Quarter and Diluted Earnings Per Share of $0.78 for the First Six Months of 2018
ZHEJIANG, China, Aug. 14, 2018 /PRNewswire/ -- 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 2018 and the first six months ended June 30, 2018.
Second Quarter 2018 Financial Highlights
-- Net sales increased 40.1% to $128.5 million compared with $91.7 million
in the second quarter last year;
-- Gross profit increased 39.5% and the gross margin was 26.8% in the
second quarter of 2018 compared to 26.9% in the same period of 2017;
-- Diluted earnings per share were $0.35 compared with $0.31 in the same
quarter last year.
First Six Months of 2018 Financial Highlights
-- Net sales increased 41.9% to $236.2 million compared with $166.5 million
in same period of last year;
-- Operating income increased 29.4% to $23.8 million from $18.4 million in
the same period in 2017;
-- Net income attributable to stockholders increased 16.9% to $15.0 million
or $0.78 per basic and diluted, compared with $12.8 million, or $0.67
per basic and diluted share in the same period of 2017.
Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, "We continue to achieve strong growth in all three business lines with a 35.0% gain in the OEM market and a 70.5% increase in aftermarket sales. Our sales are outperforming the markets as we continue to increase our market share and profits. In addition, our cash flow is strengthening our financial resources even as we reduce our debt."
Second Quarter 2018 Financial Performance
For the second quarter of 2018, net sales increased by 40.1% to $128.5 million from $91.7 million for the second quarter of 2017. Revenues from the Company's domestic OEM customers increased by 35.0% to $62.6 million from $46.4 million in the second quarter of 2017. Commercial vehicle production and sales increased in the second quarter of 2018 and SORL continued to increase its leading market position. Sales from China's domestic aftermarket increased 70.5% to $42.8 million in the second quarter of 2018 from $25.1 million in the same quarter of 2017. Higher aftermarket product sales were generated due to the growing number of OEM warranties that expired from prior new vehicle sales in China. Also, the Chinese government's increased support for public transportation due to greater urbanization, expanded SORL's bus aftermarket sales. Revenues from international markets increased 13.9% to $23.1 million from $20.2 million in the second quarter of 2017 primarily due to a larger customer base.
The gross profit for the second quarter of 2018 increased 39.5% to $34.4 million from $24.7 million for the second quarter of 2017. Gross margin for the second quarter of 2018 was 26.8%, compared with a gross margin of 26.9% in the same quarter of 2017. The decrease in gross margin was primarily due to increased sales promotion during the second quarter of 2018.
Operating expenses increased 66.8% to $27.0 million from $16.2 million in the second quarter of 2017. Operating expenses rose due to higher research and development, and increased selling and distribution expenses and higher general and administrative expenses related to higher sales in the second quarter of 2018. As a percentage of revenue, operating expenses were 21.0% in the second quarter of 2018, compared with 17.6% in the second quarter of 2017.
-- Selling and distribution expenses were $14.0 million, or 10.9% of
quarterly revenues, compared with $9.0 million, or 9.8% in the same
quarter of 2017. The increase in expenses was mainly due to higher
packaging and repair expenses and increased warranty fees.
-- General and administrative ("G&A") expenses in the second quarter of
2018 were $7.7 million, or 6.0% of revenue, compared with $4.7 million,
or 5.1% in the second quarter of 2017.
-- Research and development ("R&D") expenses were $5.3 million in the
second quarter of 2018 compared with $2.5 million in the same quarter of
2017. As a percentage of revenue, R&D was 4.1% in the second quarter of
2018 and compared with 2.7% of revenue in the second quarter of 2017.
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 increased 11.9% to $9.8 million in the second quarter of 2018 compared with $8.8 million in the same quarter of 2017.
Interest income was $0.8 million in the second quarter of 2018, compared with $0.01 million in the same quarter in 2017.
Financial expenses were $3.5 million in the second quarter of 2018, compared with $0.5 million in the second quarter of 2017. The increase was due to a rise in interest rates and a higher amount of average loans outstanding.
Exchange differences were $1.1 million in the second quarter of 2018, compared with negative $0.4 million in the same quarter in 2017.
Income before income taxes was $8.7 million for the second quarter of 2018, compared to $7.9 million for the second quarter of 2017. The pretax income margin was 6.8% in the second quarter of 2018, compared with 9.6% in the second quarter of 2017.
The provision for income taxes was $1.2 million in the second quarter of 2018, compared with $1.3 million in the second quarter of 2017.
Net income attributable to stockholders for the second quarter of 2018 increased to $6.7 million, or $0.35 per basic and diluted share, compared with $5.9 million, or $0.31 on per basic and diluted share, in the second quarter of 2017.
First Six Months 2018 Financial Performance
Net sales for the first six months of 2018 increased 41.9% to $236.2 million from $166.5 million for the first six months of 2017. Net sales from the Company's China OEM market increased 34.4% to $114.4 million from $85.2 million in the same period in 2017. Revenues from China's domestic aftermarket increased 71.1% to $80.9 million from $47.1 million in the first six months of 2017. Revenues from international markets increased 19.5% to $40.9 million from $34.2 million in the first six months of 2017.
Gross profit for the first six months of 2018 increased 41.4% to $64.6 million from $45.7 million in the same period in 2017. Gross margin for the six months ended June 30, 2018, was 27.4% compared to 27.5% for the first six months of 2017.
Operating income for the first six months of 2018 increased 29.4% to $23.8 million from $18.4 million in the same period in 2017. Operating margin was 10.1% versus 11.1% in first six months of 2017.
Net income attributable to stockholders for the first six months of 2018 was $15.0 million, or $0.78 per basic and diluted share, compared with $12.8 million, or $0.67 per basic and diluted share, in the same period in 2017.
Balance Sheet
As of June 30, 2018, the Company had cash and cash equivalents of $24.5 million up from $22.7 million at March 31, 2018 and $4.2 million at December 31, 2017. Cash and cash equivalents plus restricted cash was $76.4 million on June 30, 2018, up from $69.3 million at March 31, 2018 and up from $4.6 million at December 31, 2017. Inventories increased to $136.9 million at June 30, 2018 from $114.3 million at December 31, 2017. Bank acceptance notes from customers increased to $129.7 million on June 30, 2018 from $116.0 million, and accounts receivables were $183.1 million compared with $134.4 million on December 31, 2017. Short-term bank loans declined to $162.2 million from $239.6 million at March 31, 2018, and was $125.4 million at December 31, 2017. Total equity was $214.0 million at June 30, 2018. On June 30, 2018, working capital was $87.4 million.
Business Outlook
For the fiscal year 2018, management has reiterated its expectation for annual net sales to be approximately $450 million and net income to be approximately $28.0 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 Tuesday, August 14, 2018 at 8:00 P.M. EDT which is also 8:00 A.M. Beijing Time on Wednesday, August 15, 2018 to discuss its 2018 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.
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 "36631" 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
646-726-6511
kevin.theiss@awakenlab.com
-tables follow -
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2018 and December 31, 2017
June 30, December 31,
2018 2017
---- ----
(Unaudited)
Assets
Current Assets
Cash and cash equivalents US $24,525,413 US $4,221,940
Accounts receivable, net, including $1,503,376 and $1,297,734 183,072,448 134,384,961
from related party at June 30, 2018 and December 31, 2017,
respectively
Bank acceptance notes from customers 129,662,579 116,040,688
Inventories 136,914,131 114,300,564
Prepayments, current, including $3,440,141 and $999,527 26,885,985 8,826,004
to related party at June 30, 2018 and December 31, 2017,
respectively
Restricted cash 51,858,438 376,236
Advances to related parties 31,997,128 72,318,224
Other current assets, net 9,608,654 5,555,568
--------- ---------
Total Current Assets 594,524,776 456,024,185
Property, plant and equipment, net 84,281,312 79,828,006
Land use rights, net 22,266,453 14,912,134
Intangible assets, net - 3,341
Deposits on loan agreements 10,579,452 10,712,865
Prepayments, non-current 31,050,766 16,594,987
Deferred tax assets 3,566,820 4,240,424
--------- ---------
Total Non-current Assets 151,744,803 126,291,757
----------- -----------
Total Assets US $746,269,579 US $582,315,942
=== ===
Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to
vendors, including $7,397,162 and $15,896,804
due to related parties at June 30, 2018 and
December 31, 2017, respectively US $222,438,493 US $118,051,633
Deposits received from customers 62,481,147 43,087,473
Short term bank loans 162,173,062 125,380,899
Current portion of long term loans 23,938,329 24,266,031
Income tax payable 1,348,557 3,249,727
Accrued expenses 19,007,341 25,154,658
Due to related party 11,536,621 1,572,963
Deferred income 755,675 1,020,273
Other current liabilities 3,403,573 2,857,130
--------- ---------
Total Current Liabilities 507,082,798 344,640,787
Long term loans, less current portion and net of unamortized
debt issuance costs 25,177,921 37,383,224
---------- ----------
Total Non-current Liabilities 25,177,921 37,383,224
---------- ----------
Total Liabilities 532,260,719 382,024,011
Equity
Preferred stock -no par value; 1,000,000 authorized; none
issued and outstanding as of June 30, 2018 and December 31,
2017 - -
Common stock -$0.002 par value; 50,000,000 authorized,
19,304,921 issued and outstanding as of June 30, 2018 and
December 31, 2017 38,609 38,609
Additional paid-in capital (28,582,654) (28,582,654)
Reserves 19,064,049 17,562,357
Accumulated other comprehensive income 13,231,502 15,903,188
Retained earnings 181,759,559 168,244,329
----------- -----------
Total SORL Auto Parts, Inc. Stockholders' Equity 185,511,065 173,165,829
Noncontrolling Interest In Subsidiaries 28,497,795 27,126,102
---------- ----------
Total Equity 214,008,860 200,291,931
----------- -----------
Total Liabilities and Equity US $746,269,579 US $582,315,942
=== ===
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
Sales US $128,504,952 US $91,729,568 US $236,231,634 US $166,475,962
Include: sales to related parties 5,962,527 2,702,573 13,663,581 6,322,970
Cost of sales 94,074,682 67,056,897 171,601,878 120,757,355
---------- ---------- ----------- -----------
Gross profit 34,430,270 24,672,671 64,629,756 45,718,607
Expenses:
Selling and distribution expenses 13,956,009 8,985,562 23,993,870 14,594,185
General and administrative expenses 7,694,411 4,710,522 12,468,189 8,755,435
Research and development expenses 5,331,956 2,481,563 8,922,358 4,536,659
--------- --------- --------- ---------
Total operating expenses 26,982,376 16,177,647 45,384,417 27,886,279
Other operating income, net 2,379,227 288,472 4,576,551 578,709
--------- ------- --------- -------
Income from operations 9,827,121 8,783,496 23,821,890 18,411,037
Interest income 811,580 11,475 2,299,844 22,025
Government grants 609,592 84,395 743,525 113,304
Other income 175,627 50 202,693 714
Interest expenses (3,529,416) (542,176) (6,883,127) (1,023,336)
Exchange differences 1,091,208 (417,118) 489,922 (509,850)
Other expenses (254,271) (25,490) (1,145,085) (140,289)
-------- ------- ---------- --------
Income before income taxes provision 8,731,441 7,894,632 19,529,662 16,873,605
Provision for income taxes 1,238,752 1,311,509 2,844,193 2,597,683
--------- --------- --------- ---------
Net income US $7,492,689 US $6,583,123 US $16,685,469 US $14,275,922
Net income attributable to
noncontrolling interest in
subsidiaries 749,269 658,312 1,668,547 1,427,592
------- ------- --------- ---------
Net income
attributable to
common stockholders US $6,743,420 US $5,924,811 US $15,016,922 US $12,848,330
=== === === ===
Comprehensive income:
Net income US $7,492,689 US $6,583,123 US $16,685,469 US $14,275,922
Foreign currency translation
adjustments (11,013,074) 3,223,520 (2,968,540) 4,134,952
----------- --------- ---------- ---------
Comprehensive income (loss) (3,520,385) 9,806,643 13,716,929 18,410,874
Comprehensive income (loss)
attributable to noncontrolling
interest in subsidiaries (352,038) 980,664 1,371,693 1,841,087
-------- ------- --------- ---------
Comprehensive income
(loss) attributable
to common
stockholders US $(3,168,347) US $8,825,979 US $12,345,236 US $16,569,787
=== === === ===
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 $0.35 US $0.31 US $0.78 US $0.67
EPS - diluted US $0.35 US $0.31 US $0.78 US $0.67
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2018 and 2017 (Unaudited)
Six Months Ended June 30,
-------------------------
2018 2017
---- ----
Cash Flows From Operating Activities
Net income US $16,685,469 US $14,275,922
Adjustments to reconcile net income to
net cash
provided by (used in) operating
activities:
Allowance for doubtful accounts 1,445,353 381,715
Depreciation and amortization 5,832,558 4,187,811
Amortization of debt issuance costs 697,633 4,566
Gain on disposal of fixed assets (73,809) -
Deferred income tax 642,345 -
Changes in assets and liabilities:
Account receivable (52,930,675) (16,819,493)
Bank acceptance notes from customers 36,822,604 3,181,918
Other currents assets (5,158,214) (3,197,226)
Inventories (24,642,342) (16,436,720)
Prepayments, current (25,749,865) 4,815,945
Accounts payable and bank acceptance
notes to vendors 99,655,568 (395,358)
Income tax payable (1,918,494) 438,458
Deposits received from customers 20,470,159 8,402,222
Deferred income (259,132) -
Other current liabilities and accrued
expenses (5,426,422) (2,087,738)
---------- ----------
Net Cash Flows Provided By (Used In)
Operating Activities 66,092,736 (3,247,978)
Cash Flows From Investing Activities
Acquisition of property, equipment and
land use rights (33,712,960) (29,561,593)
Advances to related parties (190,438,634) -
Repayments of advances to related
parties 222,337,244 -
----------- ---
Net Cash Flows Used In Investing
Activities (1,814,350) (29,561,593)
Cash Flows From Financing Activities
Proceeds from short term bank loans 296,959,191 41,540,998
Repayments of short term bank loans (256,944,835) (23,035,449)
Proceeds from related parties 311,026,410 62,786,671
Repayments to related parties (328,443,191) (54,076,148)
Repayments of long term loans (12,800,786) -
----------- ---
Net Cash Flows Provided By Financing
Activities 9,796,789 27,216,072
Effects on changes in foreign exchange
rate (2,289,500) 314,449
Net change in cash, cash equivalents,
and restricted cash 71,785,675 (5,279,050)
Cash, cash equivalents, and restricted
cash -beginning of the period 4,598,176 13,533,776
Cash, cash equivalents,
and restricted cash -
end of the period US $76,383,851 US $8,254,726
=== ===
Supplemental Cash Flow Disclosures:
Interest paid US $5,521,273 US $785,502
=== ===
Income taxes paid US $4,120,342 US $2,154,659
=== ===
Non-cash Investing and Financing
Transactions
Loans from related
parties in the form of
bank acceptance notes US $33,721,267 US $14,375,855
=== ===
Repayments to related
party in the form of
bank acceptance notes US $5,846,083 US$ -
=== ===
Repayments from related
party in the form of
bank acceptance notes US $19,612,146 US$ -
=== ===
Reconciliation of cash, cash
equivalents, and restricted cash to
the consolidated balance sheets
Cash and cash
equivalents US $24,525,413 US $7,892,336
Restricted cash 51,858,438 362,390
---------- -------
Total cash, cash
equivalents, and
restricted cash US $76,383,851 US $8,254,726
=== ===
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