SORL Auto Parts Announces Third Quarter Record High Sales in 2018
ZHEJIANG, China, Nov. 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, announced today its unaudited financial results for the third quarter and nine-month periods ended September 30, 2018.
Third Quarter 2018 Financial Highlights
-- Net sales increased by 7.2% to a third quarter record high of $108.6
million compared to $101.3 million in the third quarter of 2017;
-- Gross margin for the third quarter of 2018 was 24.3%;
-- Income from operations was $6.6 million;
-- 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 US 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, compared with net income
attributable to stockholders of $8.6 million, or $0.44 per basic and
diluted share, in the third quarter of 2017;
-- Cash and cash equivalents at September 30, 2018 were $17.6 million with
working capital of $88.6 million.
Mr. Xiaoping Zhang, SORL's Chairman and Chief Executive Officer, stated, "Our advanced products maintained our market share in a softer economic growth environment among OEMs in China. However, the growing pool of vehicles beyond their warranty periods and our marketing efforts have continued to create opportunities for increased sales and further market penetration. As the largest aftermarket brake components provider in China, we believe that our increased sales and marketing campaigns enable us to significantly gain market share in the aftermarket segment and increasingly widen the distance over our major competitors while many of our small competitors are encountering a credit crunch and facing possibly discontinuing operations. International sales have also risen due to greater acceptance of our advanced braking products and our expanded geographic marketing. We hope that the trade talk between the U.S. and China will come to an amicable resolution, as America is an important growth market for us. Our high-quality braking products are already being used in many vehicles in America and customer feedback has been positive."
Third Quarter 2018 Financial Performance
Net sales for the third quarter of 2018 were $108.6 million, the highest sales for any third quarter in the Company's history, compared with $101.3 million in the third quarter of 2017. Revenues from the Company's domestic OEM customers of $50.3 million were approximately even with net sales in the third quarter of 2017. Sales from China's domestic aftermarket increased 15.7% year-over-year to $36.4 million from $31.5 million in the third quarter of 2017. The expiration of OEM warranties from prior years' new vehicle sales in China drove the Company's aftermarket business. Revenues from international markets rose 13.1% to $21.8 million from $19.3 million in the third quarter of 2017, mainly due to the Company's growing global customer base.
SORL's commercial vehicle brake sales increased 4.4% year-over-year to $89.0 million and represented 82.0% of total sales in the third quarter of 2018. The sales of passenger vehicle brake systems increased by 22.5% year-over-year, to $19.6 million, which accounted for 18.0% of the total sales for the third quarter of 2018.
Gross profit for the third quarter of 2018 was $26.3 million compared with $27.3 million for the third quarter of 2017. Gross margin for the third quarter of 2018 was 24.3%, compared with a gross margin of 26.9% in the same quarter of 2017. The decrease in gross margin was primarily due to higher raw material costs and price promotions designed to increase market share during the third quarter of 2018.
Operating expenses increased by 41.9% to $22.7 million in the third quarter of 2018, from $16.0 million in the third quarter of 2017. As a percentage of revenue, operating expenses were 20.9% in the third quarter of 2018, compared with 15.8% in the third quarter of 2017. 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 $13.2 million from $8.3
million in the same quarter of 2017. As a percentage of revenue, selling
and distribution expenses were 12.1% compared with 8.2% of quarterly
revenues in the same quarter of 2017. The increase in selling and
distribution expenses was primarily the result of higher freight and
packaging expenses as unit volume rose during the third quarter of 2018.
-- General and administrative ("G&A") expenses for the third quarter of
2018 were $5.1 million, or 4.7% of revenue, compared with $4.8 million,
or 4.7% in the third quarter of 2017.
-- Research and development ("R&D") expenses were $4.5 million in the third
quarter of 2018 compared with $2.9 million in the third quarter of 2017.
As a percentage of revenue, R&D was 4.1% in the third quarter of 2018,
compared with 2.9% of revenue in the third quarter of 2017. 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 $3.3 million in the third quarter of 2018 compared to $0.8 million in the third quarter of 2017. Increased interest expenses were mainly due to a higher average interest rate and a higher average amount of loans outstanding during the third quarter of 2018.
Income before provision for income taxes was $7.1 million for the third quarter of 2018 as compared with $11.2 million for the third quarter of 2017. The decrease in income before taxes was primarily due to lower gross profit and higher operating expenses. Pretax income margin was 6.5% in the third quarter of 2018, compared with 11.1% in the third quarter of 2017.
The provision for income taxes was $12.1 million in the third quarter of 2018 compared with $1.6 million, in the third quarter of 2017. The significantly higher taxes in the third quarter of 2018 compared with the third quarter in 2017, were mainly due to one-time accrued taxes of $11.0 million 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 loss attributable to stockholders for the third quarter of 2018 was $5.6 million, or $0.29 per basic and diluted share, compared with net income attributable to stockholders $8.6 million, or $0.44 per basic and diluted share, in the third quarter of 2017.
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, compared with net income attributable to stockholders of $8.6 million or $0.44 per basic and diluted share in the third quarter of 2017.
Nine-Month 2018 Financial Performance
Net sales for the first nine months of 2018 increased 28.8% year-over-year to $344.8 million from $267.6 million for the first nine months of 2017. Revenues from the Company's China OEM customers increased by 16.2% to $164.7 million from $141.8 million in the same period in 2017. Revenues from China's domestic aftermarket increased 62.3% to $117.3 million from $72.3 million in the first nine months of 2017. Revenues from international markets increased 17.2% to $62.7 million from $53.5 million in the first nine months of 2017.
SORL's commercial vehicle brake sales increased 23.5% year-over-year to $276.6 million and represented 80.2% of total sales in the first nine months of 2018. The sales of passenger vehicle brake systems increased by 56.3% year-over-year, to $68.2 million, which accounted for 19.8% of the total sales for the first nine months of 2018.
Gross profit for the first nine months of 2018 increased 24.8% to $91.0 million from $72.9 million in the same period in 2017. Gross margin for the first nine months of 2018 decreased to 26.4% from 27.2% for the first nine months of 2017. The Company's gross margin declined due to higher raw material costs and increased sales promotions to increase its market share in both OEM and aftermarket segments.
Operating income for the first nine months of 2018 was $30.4 million with an operating margin of 8.8%.
Net income attributable to stockholders for the first nine months of 2018 was $9.4 million, or $0.49 per basic and diluted share, compared with $21.4 million, or $1.11 per basic and diluted share, in the same period in 2017.
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, compared with net income attributable to stockholders of $21.4 million or $1.11 per basic and diluted share in the same period in 2017.
Balance Sheet
As of September 30, 2018, the Company's cash and cash equivalents increased to $17.6 million from $4.2 million at December 31, 2017. Total stockholders' equity was $172.4 million at September 30, 2018. The Company had working capital of $85.0 million at September 30, 2018 with the current ratio of 1.2:1.
Cash-flow provided by operating activities for the first nine months of 2018 was $81.2 million.
Business Outlook
Management has reiterated its fiscal year 2018 guidance for net sales of approximately $450 million and revised net income attributable to common stockholders to approximately $16 million. Excluding the impact of U.S. tax reform, the net income attributable to common stockholders would have been expected to reach approximately $27 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, November 14, 2018, at 7:00 P.M. EST/ 8:00 A.M. Beijing Time on November 15, 2018 to discuss its 2018 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 A.M. EST on December 14, 2018, or 8:00 A.M. Beijing Time on December 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 "40905" 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, 2018 and December 31, 2017
September 30, 2018 December 31, 2017
---
(Unaudited)
Assets
Current Assets
Cash and cash equivalents
US $
17,609,594
US $
4,221,940
Accounts receivable, net, including $1,506,254 and $1,297,734
from related party at September 30, 2018 and December 31,
2017, respectively 163,749,395 134,384,961
Bank acceptance notes from customers 101,136,391 116,040,688
Inventories 159,123,470 114,300,564
Prepayments, current, including $3,094,333 and $999,527 to
related parties at September 30, 2018 and December 31, 2017,
respectively 31,442,128 8,826,004
Restricted cash, current 19,062,778 376,236
Advances to related parties 49,372,965 72,318,224
Other current assets, net 14,455,642 5,555,568
Total Current Assets 555,952,363 456,024,185
Property, plant and equipment, net 86,949,053 79,828,006
Land use rights, net 21,245,899 14,912,134
Intangible assets, net 309,947 3,341
Deposits on loan agreements 10,175,602 10,712,865
Prepayments, non-current 18,474,842 16,594,987
Restricted cash, non-current 3,488,778
Deferred tax assets 3,549,947 4,240,424
Total Non-current Assets 144,194,068 126,291,757
Total Assets US $
700,146,431 US $
582,315,942
===
Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to
vendors, including $22,782,059 and $15,896,804
due to related parties at September 30, 2018
and December 31, 2017, respectively
US $
211,456,843
US $
118,051,633
Deposits received from customers 63,615,939 43,087,473
Short term bank loans 143,991,909 125,380,899
Current portion of long term loans 22,147,109 24,266,031
Income tax payable, current 3,250,996 3,249,727
Accrued expenses 18,604,139 25,154,658
Due to related party 4,481,484 1,572,963
Deferred income 605,691 1,020,273
Other current liabilities 2,705,103 2,857,130
Total Current Liabilities 470,859,213 344,640,787
Long term loans, less current portion and net of unamortized
debt issuance costs 19,318,534 37,383,224
Income tax payable - noncurrent 9,259,307
Total Non-current Liabilities 28,577,841 37,383,224
Total Liabilities 499,437,054 382,024,011
Equity
Preferred stock -no par value; 1,000,000 authorized; none
issued and outstanding as of September 30, 2018 and December
31, 2017
Common stock -$0.002 par value; 50,000,000 authorized,
19,304,921 issued and outstanding as of September 30, 2018
and December 31, 2017 38,609 38,609
Additional paid-in capital (28,582,654) (28,582,654)
Reserves 19,615,826 17,562,357
Accumulated other comprehensive income 5,754,883 15,903,188
Retained earnings 175,602,568 168,244,329
Total SORL Auto Parts, Inc. Stockholders' Equity 172,429,232 173,165,829
Noncontrolling Interest In Subsidiaries 28,280,145 27,126,102
Total Equity 200,709,377 200,291,931
Total Liabilities and Equity US $
700,146,431 US $
582,315,942
===
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
---
2018 2017 2018 2017
---
Sales
US $
108,584,331
US $
101,329,628
US $
344,815,965
US $
267,589,953
Include: sales to related parties 9,333,959 7,401,464 22,997,540 13,479,162
Cost of sales 82,249,456 74,027,933 253,851,334 194,703,290
Gross profit 26,334,875 27,301,695 90,964,631 72,886,663
Expenses:
Selling and distribution expenses 13,160,875 8,283,704 37,154,745 22,877,889
General and administrative expenses 5,051,684 4,761,787 17,519,873 13,517,222
Research and development expenses 4,478,298 2,941,243 13,400,656 7,477,902
Total operating expenses 22,690,857 15,986,734 68,075,274 43,873,013
Other operating income, net 2,959,269 473,610 7,535,820 1,185,958
Income from operations 6,603,287 11,788,571 30,425,177 30,199,608
Interest income 547,455 16,150 2,847,299 38,175
Government grants 2,239,250 1,006,033 2,982,775 1,119,337
Other income 229,520 47,262 432,213 47,976
Interest expenses (3,331,554) (804,499) (10,214,681) (1,827,835)
Exchange differences 906,538 (684,047) 1,396,460 (1,193,897)
Other expenses (55,835) (202,735) (1,200,920) (343,024)
Income before income taxes provision 7,138,661 11,166,735 26,668,323 28,040,340
Provision for income taxes 12,130,789 1,627,721 14,974,982 4,225,404
Net income (loss)
US $
(4,992,128)
US $
9,539,014
US $
11,693,341
US $
23,814,936
Net income attributable to noncontrolling interest in subsidiaries 613,086 953,901 2,281,633 2,381,493
Net income (loss) attributable to common stockholders
US $
(5,605,214)
US $
8,585,113
US $
9,411,708
US $
21,433,443
===
Comprehensive income (loss):
Net income (loss)
US $
(4,992,128)
US $
9,539,014
US $
11,693,341
US $
23,814,936
Foreign currency translation adjustments (8,307,355) 3,856,038 (11,275,895) 7,990,990
Comprehensive income (loss) (13,299,483) 13,395,052 417,446 31,805,926
Comprehensive income (loss) attributable to noncontrolling interest
in subsidiaries (217,650) 1,339,505 1,154,043 3,180,592
Comprehensive income (loss) attributable to common
stockholders
US $
(13,081,833)
US $
12,055,547
US $
(736,597)
US $
28,625,334
===
Weighted average common share - basic 19,304,921 19,304,921 19,304,921 19,304,921
Weighted average common share - diluted 19,304,921 19,304,921 19,304,921 19,304,921
EPS - basic
US $
(0.29)
US $
0.44
US $
0.49
US $
1.11
EPS - diluted
US $
(0.29)
US $
0.44
US $
0.49
US $
1.11
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
Nine Months Ended September 30,
2018 2017
---
Cash Flows From Operating Activities
Net income
US $
11,693,341
US $
23,814,936
Adjustments to reconcile net income to
net cash provided by operating
activities:
Allowance for doubtful accounts 179,744 759,854
Depreciation and amortization 8,926,695 6,623,082
Amortization of debt issuance costs 966,547 42,583
Gain on disposal of fixed assets (73,809)
Deferred income tax 520,741
Changes in assets and liabilities:
Account receivable (38,780,246) (19,276,498)
Bank acceptance notes from customers 68,016,837 2,056,320
Other currents assets (9,983,968) (2,317,124)
Inventories (52,611,953) (13,792,530)
Prepayments (19,823,567) (1,312,081)
Accounts payable and bank acceptance
notes to vendors 86,724,938 1,347,005
Income tax payable 7,432,808 909,912
Deposits received from customers 24,058,536 16,516,529
Deferred income (382,627)
Other current liabilities and accrued
expenses (5,671,820) (371,575)
Net Cash Flows Provided By Operating
Activities 81,192,197 15,000,413
Cash Flows From Investing Activities
Acquisition of property, equipment,
and land use rights (40,142,267) (36,882,570)
Deposit for acquisition of land use
rights (2,982,537)
Acquisition of intangible assets (367,931)
Advances to related parties (214,800,362) (8,919,241)
Repayments of advances to related
parties 222,337,244
Net Cash Flows Used In Investing
Activities (32,973,316) (48,784,348)
Cash Flows From Financing Activities
Proceeds from short term bank loans 353,441,949 84,149,040
Repayments of short term bank loans (325,651,416) (36,149,680)
Proceeds from related parties 311,692,664 93,191,843
Repayments to related parties (328,624,110) (113,071,629)
Repayments of long term loans (18,957,775)
Net Cash Flows Provided By (Used In)
Financing Activities (8,098,688) 28,119,574
Effects on changes in foreign exchange
rate (4,557,219) 484,733
Net change in cash, cash equivalents,
and restricted cash 35,562,974 (5,179,628)
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 $
40,161,150 US $
8,354,148
===
Supplemental Cash Flow Disclosures:
Interest paid US $
7,849,753 US $
1,255,540
===
Income taxes paid US $
5,157,755 US $
3,272,909
===
Non-cash Investing and Financing
Transactions
Repayments to related
party in the form of
bank acceptance notes US $
5,846,083 US$
===
Loans from related
parties in the form
of bank acceptance
notes US $
33,721,267 US $
23,515,527
===
Repayments from
related party in the
form of bank
acceptance notes US $
26,771,056 US$
===
Reconciliation of cash, cash
equivalents, and restricted cash to
the consolidated balance sheets
Cash and cash
equivalents US $
17,609,594 US $
7,653,174
Restricted cash, current 19,062,778 700,974
Restricted cash, non-current 3,488,778
Total cash, cash
equivalents, and
restricted cash US $
40,161,150 US $
8,354,148
===
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SOURCE SORL Auto Parts, Inc.
