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SORL Auto Parts Reports 14.6% Increase in Income From Operations in the 2017 Second Quarter

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ZHEJIANG, China, Aug. 14, 2017 /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 2017 and the first six months ended June 30, 2017.

Second Quarter 2017 Financial Highlights

  • Net sales increased 22.7% to $90.2 million compared with $73.5 million in the second quarter last year;
  • Gross margin was 26.3% in the second quarter of 2017 compared to 28.0% in the same period of 2016;
  • Income from operations increased 14.6% to $8.8 million from $7.7 million in the same quarter last year.

First Six Months of 2017 Financial Highlights

  • Net sales increased 28.8% to $164.1 million compared with $127.4 million in same period of last year;
  • Operating income increased 109.7% to $18.4 million from $8.8 million in the same period in 2016;
  • Net income attributable to stockholders increased 66.2% to $12.8 million, or $0.67 per basic and diluted share, compared with $7.7 million, or $0.40 in the same period of 2016.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated," We achieved solid growth in all three business lines led by a 28.8% increase in the segment of our China domestic OEM market. We continued to gain market share as our growth outperformed the overall commercial OEM vehicle market."

Second Quarter 2017 Financial Performance

For the second quarter of 2017, net sales increased by 22.7% to $90.2 million from $73.5 million for the second quarter of 2016. Revenues from the Company's domestic OEM customers increased by 28.9% to $47.3 million from $36.7 million in the second quarter of 2016. Commercial vehicle production and sales increased in the second quarter of 2017 and SORL continued to increase its leading market position. Sales from China's domestic aftermarket increased 20.1% to $22.7 million in the second quarter of 2017 from $18.9 million in the same quarter of 2016. Higher product sales due to the expiration of OEM warranties from prior new vehicle sales drove the Company's aftermarket business 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 12.8% to $20.2 million from $17.9 million in the second quarter of 2016 primarily due to a larger customer base.

The gross profit for the second quarter of 2017 increased 15.5% to $23.7 million from $20.6 million for the second quarter of 2016. Gross margin for the second quarter of 2017 was 26.3%, compared with a gross margin of 28.0% in the same quarter of 2016. The decrease in gross margin was primarily due to increased sales promotions during the period and higher raw material costs.

Operating expenses increased 12.2% to $16.2 million from $14.4 million in the second quarter of 2016. Operating expenses rose due to higher research and development and selling and distribution expenses with flat general and administrative expenses in the second quarter of 2017. As a percentage of revenue, operating expenses were 18.9% in the second quarter of 2017, compared with 19.6% in the second quarter of 2016.

  • Selling and distribution expenses were $9.0 million, or 10.0% of quarterly revenues, compared with $7.1 million, or 9.7% in the same quarter of 2016. The increase in expenses was mainly due to higher packaging and transportation costs as unit sales rose.
  • General and administrative ("G&A") expenses in the second quarter of 2017 were $4.7 million, or 5.2% of revenue, compared with $4.9 million, or 6.7% in the second quarter of 2016.
  • Research and development ("R&D") expenses were $2.5 million in the second quarter of 2017 compared with $2.4 million in the same quarter of 2016. As a percentage of revenue, R&D was 2.8% in the second quarter of 2017 and compared with 3.2% of revenue in the second quarter of 2016. The R&D program mainly focused on the development of new, higher-margin, electronically controlled mechatronic products and to upgrade the Company's legacy brake products to build market leadership.

Income from operations increased 14.6% to $8.8 million in the second quarter of 2017 compared with $7.7 million in the same quarter of 2016.

Other income was only $50 in the second quarter of 2017 compared to $0.85 million in the same quarter of 2016.

Financial expenses were $0.5 million in the second quarter of 2017 compared with $0.1 million in the second quarter of 2016. The increase was due to a rise in interest rates and a higher amount of average loans outstanding.

Income before income taxes was $7.9 million for the second quarter of 2017 compared to $9.3 million for the second quarter of 2016. The pretax income margin was 8.8% in the second quarter of 2017, compared with 12.7% in the second quarter of 2016.

The provision for income taxes was $1.3 million in both the second quarters of 2017 and 2016.

Net income attributable to stockholders for the second quarter of 2017 decreased to $5.9 million, or $0.31 per basic and diluted share, compared with $7.2 million, or $0.37 on per basic and diluted share, in the second quarter of 2016.

First Six Months 2017 Financial Performance

Net sales for the first six months of 2017 increased 28.8% to $164.1 million from $127.4 million for the first six months of 2016. Net sales from the Company's China OEM market increased 37.3% to $89.1 million from $64.8 million in the same period in 2016. Revenues from China's domestic aftermarket increased 27.1% to $40.8 million from $32.1 million in the first six months of 2016. Revenues from international markets increased 12.5% to $34.2 million from $30.4 million in the first six months of 2016.

Gross profit for the first six months of 2017 increased 26.3% to $44.3 million from $35.0 million in the same period in 2016. Gross margin for the six months ended June 30, 2017, was 27.0% compared to 27.5% for the first six months of 2016.

Operating income for the first six months of 2017 increased 109.7% to $18.4 million from $8.8 million in the same period in 2016. Operating margin was 11.2% versus 6.9% in first six months of 2016.

Net income attributable to stockholders for the first six months of 2017 was $12.8 million, or $0.67 per basic and diluted share, compared with $7.7 million, or $0.40 per basic and diluted share, in the same period in 2016.

Balance Sheet

As of June 30, 2017, the Company had cash and cash equivalents of $7.9 million. Inventories increased to $84.0 million at June 30, 2017 from $65.8 million at December 31, 2016. Bank acceptance notes from customers increased to $55.1 million on June 30, 2017 from $42.7 million, and accounts receivables were $121.2 million compared with $102.1 million on December 31, 2016. Total equity was $180.8 million at June 30, 2017. On June 30, 2017, working capital was $91.0 million with a current ratio of 1.5 to 1.

Business Outlook

For the fiscal year 2017, management has reiterated its expectation for annual net sales to be approximately $315 million and net income to be approximately $27.5 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 Monday, August 14, 2017 at 8:00 A.M. EDT/ 8:00 P.M. Beijing Time to discuss its 2017 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 A.M. EDT on September 14, 2017, or 8:00 P.M. Beijing Time on September 15, 2017. 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 "19821" 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

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2017 and December 31, 2016




June 30, 2017


December 31, 2016



(Unaudited)



Assets





Current Assets





Cash and cash equivalents

US$

7,892,336

US$

8,057,155

Accounts receivable, net, including $0 and
$5,025,509 from related parties at June 30, 2017
and December 31, 2016, respectively


121,195,863


102,129,294

Bank acceptance notes receivable


55,051,719


42,697,276

Inventories


84,010,792


65,776,517

Prepayments, current


5,505,494


10,797,601

Restricted cash


362,390


5,476,621

Other current assets


4,402,609


1,124,608

Deferred tax assets


3,282,926


3,210,575

Total Current Assets


281,704,129


239,269,647






Property, plant and equipment, net


64,897,237


53,737,706

Land use rights, net


8,364,804


8,309,333

Intangible assets, net


7,279


11,438

Prepayments, non-current


16,530,890


-

Total Non-current Assets


89,800,210


62,058,477

Total Assets

US$

371,504,339

US$

301,328,124






Liabilities and Equity





Current Liabilities





Accounts payable and bank acceptance notes to
vendors, including $4,063,994 and $1,953,707
due to related parties at June 30, 2017 and
December 31, 2016, respectively

 

 

 

US$

 

 

 

66,616,160

 

 

 

US$

 

 

 

65,672,626

Deposit received from customers


31,797,486


22,733,742

Short term bank loans


47,005,701


27,416,376

Income tax payable


1,466,131


996,522

Accrued expenses


17,999,096


20,103,392

Due to related party


23,299,371


-

Other current liabilities


2,517,997


2,013,943

Total Current Liabilities


190,701,942


138,936,601






Total Liabilities


190,701,942


138,936,601






Equity





Preferred stock - no par value; 1,000,000
authorized; none issued and outstanding as of
June 30, 2017 and December 31, 2016


-


-

Common stock - $0.002 par value; 50,000,000
authorized, 19,304,921 issued and outstanding as
of June 30, 2017 and December 31, 2016


38,609


38,609

Additional paid-in capital


(28,582,654)


(28,582,654)

Reserves


16,414,768


15,129,935

Accumulated other comprehensive income


9,838,499


6,117,042

Retained earnings


157,916,027


146,352,530

Total SORL Auto Parts, Inc. Stockholders' Equity


155,625,249


139,055,462

Noncontrolling Interest In Subsidiaries


25,177,148


23,336,061

Total Equity


180,802,397


162,391,523

Total Liabilities and Equity

US$

371,504,339

US$

301,328,124

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)




Three Months Ended June 30,


Six Months Ended June 30,



2017


2016


2017


2016










Sales

US$

90,214,630

US$

73,535,732

US$

164,110,411

US$

127,372,460

Include: sales to related parties


900,859


3,968,105


3,927,783


6,548,951


Cost of sales


66,507,343


52,941,316


119,855,419


92,338,965

Gross profit


23,707,287


20,594,416


44,254,992


35,033,495










Expenses:









Selling and distribution expenses


8,985,562


7,125,085


14,594,185


12,687,517

General and administrative expenses


4,710,522


4,909,129


8,755,435


11,838,987

Research and development expenses


2,481,563


2,379,962


4,536,659


4,123,649

Total operating expenses


16,177,647


14,414,176


27,886,279


28,650,153










Other operating income, net


1,253,856


1,484,939


2,042,324


2,399,144










Income from operations


8,783,496


7,665,179


18,411,037


8,782,486










Interest income


11,475


925,586


22,025


1,013,688

Government grants


84,395


140,255


113,304


145,012

Other income


50


845,165


714


890,754

Interest expenses


(542,176)


(126,113)


(1,023,336)


(300,573)

Other expenses


(442,608)


(129,663)


(650,139)


(767,292)










Income before income taxes provision


7,894,632


9,320,409


16,873,605


9,764,075










Income taxes provision


1,311,509


1,277,277


2,597,683


1,242,453










Net income

US$

6,583,123

US$

8,043,132

US$

14,275,922

US$

8,521,622










Net income attributable to noncontrolling
interest in subsidiaries


658,312


804,313


1,427,592


852,162










Net income attributable to common
stockholders

US$

5,924,811

US$

7,238,819

US$

12,848,330

US$

7,669,460










Comprehensive income:


















Net income

US$

6,583,123

US$

8,043,132

US$

14,275,922

US$

8,521,622

Foreign currency translation adjustments


3,223,520


(4,596,167)


4,134,952


(3,489,527)

Comprehensive income


9,806,643


3,446,965


18,410,874


5,032,095

Comprehensive income attributable to
noncontrolling interest in subsidiaries


980,664


344,696


1,841,087


503,209

Comprehensive income attributable to
common stockholders

US$

8,825,979

US$

3,102,269

US$

16,569,787

US$

4,528,886










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$

0.31

US$

0.37

US$

0.67

US$

0.40










EPS - diluted

US$

0.31

US$

0.37

US$

0.67

US$

0.40

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2017 and 2016 (Unaudited)




Six Months Ended June 30,



2017


2016






Cash Flows From Operating Activities





Net income

US$

14,275,922

US$

8,521,622

Adjustments to reconcile net income to net cash





used in operating activities:





Allowance for doubtful accounts


381,715


5,399,425

Depreciation and amortization


4,187,811


3,436,677

Deferred income tax


4,566


(950,451)






Changes in assets and liabilities:





Accounts receivable


(16,819,493)


(19,302,545)

Bank acceptance notes receivable


3,181,918


(14,353,761)

Other currents assets


(3,197,226)


566,936

Inventories


(16,436,720)


14,139,460

Prepayments, current


4,815,945


(7,284,955)

Prepaid capital lease interest  


-


69,239






Accounts payable and bank acceptance notes to vendors


(395,358)


1,817,414

Income tax payable


438,458


1,466,704

Deposits received from customers


8,402,222


3,782,517

Other current liabilities and accrued expenses


(2,087,738)


535,090

Net Cash Flows Used In Operating Activities


(3,247,978)


(2,156,628)






Cash Flows From Investing Activities





Change in short term investments


-


57,261,374

Acquisition of property, plant, and equipment and land use right


(29,561,593)


(7,315,047)

Advance to related party


-


(18,247,384)

Repayment of advance to related party


-


18,247,384

Change in restricted cash


5,198,792


377,608

Net Cash Flows Provided By (Used In) Investing Activities


(24,362,801)


50,323,935






Cash Flows From Financing Activities





Proceeds from bank loans


41,540,998


31,796,224

Repayment of bank loans  


(23,035,449)


(29,597,070)

Distribution to controlling shareholder in connection with plant and
land use rights exchange with entity under common control


 

 

-


(70,781,668)

Repayment of capital lease


-


(1,779,040)

Proceeds from related party


62,786,671


-

Repayment to related party


(54,076,148)


-






Net Cash Flows Provided By (Used In) Financing Activities


27,216,072


(70,361,554)






Effects on changes in foreign exchange rate


229,888


271,744






Net change in cash and cash equivalents


(164,819)


(21,922,503)






Cash and cash equivalents - beginning of the period


8,057,155


30,230,828






Cash and cash equivalents - end of the period

US$

7,892,336

US$

8,308,325











Supplemental Cash Flow Disclosures:





Interest paid

US$

785,502

US$

450,677

Income taxes paid

US$

2,154,659

US$

1,288,659






Non-cash Investing and Financing Transactions:





Transfer of plant and land use right to entity under common control

US$

-

US$

17,342,372

Liabilities assumed in connection with the plant and land use right
exchange

US$

-

US$

5,351,196

Loan from related party in form of bank acceptance notes

US$

14,375,855

US$

-

 

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SOURCE SORL Auto Parts, Inc.

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