SORL Auto Parts Reports Financial Results for the Second Quarter of 2019

ZHEJIANG, China, Aug. 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, today announced its unaudited financial results for the second quarter of 2019 and the first six months ended June 30, 2019.

Second Quarter 2019 Financial Highlights

	·	Net sales increased 8.5% to $139.4 million compared with $128.5 million in the second quarter last year;
	·	Gross profit increased 5.3% and the gross margin was 26.0% in the second quarter of 2019 compared to a 26.8% gross margin in the same period of 2018;
	·	Diluted earnings per share were $0.29 compared with $0.35 in the same quarter last year.

First Six Months of 2019 Financial Highlights

	·	Net sales increased 16.7% to $275.6 million compared with $236.2 million in same period of last year;
	·	Gross profit increased 12.6% to $72.8 million from $64.6 million in the same period in 2018;
	·	Net income attributable to stockholders was$14.6 million or $0.76 per basic and diluted earnings per share, compared with $15.0 million, or $0.78 per basic and diluted share, in the same period of 2018.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, “Our second quarter results were positive considering the current state of Chinese economy as well as the commercial vehicles sector. We have maintained our market leadership in China with new advanced products.”

Second Quarter 2019 Financial Performance

For the second quarter of 2019, net sales increased by 8.5% to $139.4 million from $128.5 million for the second quarter of 2018. Revenues from the Company's domestic OEM customers increased by 10.6% to $69.2 million from $62.6 million in the second quarter of 2018. Commercial vehicle sales in China decreased in the second quarter of 2019, but SORL continued to expand its leading market share due to higher product quality and better service. Sales from China's domestic aftermarket increased 8.8% to $46.6 million in the second quarter of 2019 from $42.8 million in the same quarter of 2018. Higher aftermarket product sales were generated due to the growing number of OEM warranties that expired from prior new vehicle sales in China and the Company’s marketing campaign to enhance market share through its distribution campaign. Revenues from international markets increased 2.0% to $23.6 million from $23.1 million in the second quarter of 2018 primarily due to a larger customer base.

The gross profit for the second quarter of 2019 increased 5.3% to $36.3 million from $34.4 million for the second quarter of 2018. Gross margin for the second quarter of 2019 was 26.0%, compared with a gross margin of 26.8% in the same quarter of 2018. The decrease in gross margin was primarily due to increased sales promotion during the second quarter of 2019. Also, gross profit and gross margin decreased in the passenger vehicle auto parts operations. The focus for the remainder of 2019 is to increase production efficiency, improve product technology, and enhance SORL’s product portfolio, to help to maintain or increase gross profit margins.

Operating expenses increased 21.1% to $32.7 million from $27.0 million in the second quarter of 2018. Operating expenses rose due to higher research and development, selling and distribution, and general and administrative expenses in the second quarter of 2019. As a percentage of revenue, operating expenses were 23.4% in the second quarter of 2019, compared with 21.0% in the second quarter of 2018. 

	·	Selling and distribution expenses increased 17.9% to $16.5 million, or 11.8% of quarterly revenues, compared with $14.0 million, or 10.9% in the same quarter of 2018. The increase in expenses was mainly due to higher packaging and repair expenses, increased warranty fees and higher labor costs.
	·	General and administrative ("G&A") expenses in the second quarter of 2019 were $9.2 million, or 6.6% of revenue, compared with $7.7 million, or 6.0% in the second quarter of 2018 primarily due to higher labor expenses.
	·	Research and development ("R&D") expenses were $7.0 million in the second quarter of 2019 compared with $5.3 million in the same quarter of 2018. As a percentage of revenue, R&D was 5.0% in the second quarter of 2019 and compared with 4.1% of revenue in the second quarter of 2018. 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 was $6.1 million in the second quarter of 2019 compared with $9.8 million in the same quarter of 2018.

Interest income was $1.5 million in the second quarter of 2019, compared with $0.8 million in the same quarter in 2018.

Financial expenses were $3.2 million in the second quarter of 2019, compared with $3.5 million in the second quarter of 2018. The decrease was due mainly to lower long-term loans outstanding.

Exchange differences were $0.5 million in the second quarter of 2019, compared with $1.1 million in the same quarter in 2018.

Income before income taxes was $6.6 million for the second quarter of 2019, compared to $8.7 million for the second quarter of 2018. The pretax income margin was 4.7% in the second quarter of 2019, compared with 6.8% in the second quarter of 2018.

The provision for income taxes was $0.3 million in the second quarter of 2019, compared with $1.2 million in the second quarter of 2018.

Net income attributable to stockholders for the second quarter of 2019 was $5.6 million, or $0.29 per basic and diluted share, compared with $6.7 million, or $0.35 on per basic and diluted share, in the second quarter of 2018.

First Six Months 2019 Financial Performance

Net sales for the first six months of 2019 increased 16.7% to $275.6 million from $236.2 million for the first six months of 2018. Net sales from the Company's China OEM market increased 26.0% to $144.1 million from $114.4 million in the same period in 2018. Revenues from China's domestic aftermarket increased 11.1% to $89.9 million from $80.9 million in the first six months of 2018. Revenues from international markets increased 1.6% to $41.6 million from $40.9 million in the first six months of 2018.

Gross profit for the first six months of 2019 increased 12.6% to $72.8 million from $64.6 million in the same period in 2018. Gross margin for the six months ended June 30, 2019, was 26.4% compared to 27.4% for the first six months of 2018.

Operating income for the first six months of 2019 decreased 16.6% to $19.9 million from $23.8 million in the same period in 2018. Operating margin was 7.2% versus 10.1% in first six months of 2018.

Net income attributable to stockholders for the first six months of 2019 was $14.6 million, or $0.76 per basic and diluted share, compared with $15.0 million, or $0.78 per basic and diluted share, in the same period in 2018.

Balance Sheet

As of June 30, 2019, the Company had cash and cash equivalents of $10.3 million up from $8.0 million at March 31, 2019 and compared with $73.6 million at December 31, 2018. Cash and cash equivalents plus restricted cash was $24.9 million on June 30, 2019 compared with $92.9 million at December 31, 2018. Inventories decreased to $183.5 million at June 30, 2019 from $204.3 million at December 31, 2018. Bank acceptance notes from customers increased to $73.7 million on June 30, 2019 from $62.1 million on December 31, 2018. Short-term bank loans increased to $224.4 million on June 30, 2019 from $217.9 million at December 31, 2018. Total equity was $221.2 million at June 30, 2019. On June 30, 2019, working capital was $35.7 million.

Business Outlook

For the fiscal year 2019, management has reiterated its expectation for annual net sales to be approximately $515 million and net income to be approximately $22.0 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 Wednesday, August 14, 2019 at 8:00 P.M. EDT and at 8:00 A.M. Beijing Time on Thursday, August 15, 2019 on to discuss its 2019 second quarter and six months results. Listeners may access the call by dialing U.S. toll free number [phone] and [phone] for international callers, and Mainland China toll free [phone]. A live web cast of the conference call will also be available at http://www.sorl.cn or at https://www.investornetwork.com/event/presentation/52973.

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 [phone] or the international number [phone]; using Conference ID " 52973 " 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
[phone]
[phone]
[e-mail]

Kevin Theiss
Investor Relations
Awaken Advisors
212-521-4050
[e-mail]

-tables follow –

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2019 and December 31, 2018

		June 30, 2019				December 31, 2018
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents		US$	10,294,982			US$	73,588,229
Accounts receivable, net, including $333,881 and $261,889 from related parties as of June 30, 2019 and December 31, 2018, respectively			184,101,294				150,047,797
Bank acceptance notes from customers			73,736,320				62,052,225
Inventories, net			183,519,272				204,285,427
Prepayments, current, including $4,421,841 and $3,670,573 to related party at June 30, 2019 and December 31, 2018, respectively			16,228,104				7,776,591
Restricted cash, current			14,572,162				19,307,003
Advances to related parties			76,586,592				79,739,417
Deposits on loan agreements, current			5,091,131				-
Other current assets, net			11,432,369				15,697,448
Total Current Assets			575,562,226				612,494,137
Property, plant and equipment, net			112,336,122				96,053,386
Land use rights, net			20,745,600				21,124,455
Intangible assets, net			39,291				220,232
Deposits on loan agreements, non-current			5,091,131				10,199,324
Prepayments, non-current			35,977,118				31,575,238
Other assets, non-current			1,633,292				563,542
Restricted cash, non-current			17,164,385				18,067,374
Deferred tax assets			4,523,866				4,073,838
Total Non-current Assets			197,510,805				181,877,389
Total Assets		US$	773,073,031			US$	794,371,526
Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to vendors, including $18,956,493 and $23,805,200 due to related parties at June 30, 2019 and December 31, 2018, respectively		US$	193,279,964			US$	236,433,718
Deposits received from customers			60,023,972				51,529,795
Short term bank loans			224,366,412				217,940,471
Current portion of long term loans, net of unamortized debt issuance costs			21,976,961				21,141,029
Income tax payable, current			4,481,767				3,421,486
Accrued expenses			22,858,419				24,045,902
Due to related party			7,774,184				5,959,752
Deferred income			1,088,856				1,453,282
Other current liabilities			4,040,963				3,288,344
Total Current Liabilities			539,891,498				565,213,779
Long term loans, less current portion and net of unamortized debt issuance costs			2,895,552				14,429,404
Operating lease liabilities, non-current			714,307				-
Income tax payable, non-current			8,377,468				9,259,307
Total Non-current Liabilities			11,987,327				23,688,711
Total Liabilities			551,878,825				588,902,490
Equity
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018			-				-
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of June 30, 2019 and December 31, 2018			38,609				38,609
Additional paid-in capital			(28,582,654	)			(28,582,654	)
Reserves			21,480,613				20,007,007
Accumulated other comprehensive income			6,187,063				6,655,803
Retained earnings			191,670,424				178,535,378
Total SORL Auto Parts, Inc. Stockholders’ Equity			190,794,055				176,654,143
Noncontrolling Interest In Subsidiaries			30,400,151				28,814,893
Total Equity			221,194,206				205,469,036
Total Liabilities and Equity		US$	773,073,031			US$	794,371,526

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
Sales		US$	139,373,482			US$	128,504,952			US$	275,593,406			US$	236,231,634
Include: sales to related parties			7,971,932				5,962,527				18,618,678				13,663,581
Cost of sales			103,104,120				94,074,682				202,803,474				171,601,878
Gross profit			36,269,362				34,430,270				72,789,932				64,629,756
Expenses:
Selling and distribution expenses			16,463,830				13,956,009				29,348,397				23,993,870
General and administrative expenses			9,221,426				7,694,411				16,596,319				12,468,189
Research and development expenses			6,981,251				5,331,956				11,932,787				8,922,358
Total operating expenses			32,666,507				26,982,376				57,877,503				45,384,417
Other operating income, net			2,495,568				2,379,227				4,958,170				4,576,551
Income from operations			6,098,423				9,827,121				19,870,599				23,821,890
Interest income			1,479,841				811,580				3,216,616				2,299,844
Government grants			1,707,433				609,592				3,499,845				743,525
Other income			40,349				175,627				95,029				202,693
Interest expenses			(3,173,047	)			(3,529,416	)			(7,145,545	)			(6,883,127	)
Exchange differences			537,875				1,091,208				(523,130	)			489,922
Other expenses			(90,772	)			(254,271	)			(568,691	)			(1,145,085	)
Income before income taxes provision			6,600,102				8,731,441				18,444,723				19,529,662
Provision for income taxes			329,964				1,238,752				2,198,731				2,844,193
Net income		US$	6,270,138			US$	7,492,689			US$	16,245,992			US$	16,685,469
Net income attributable to noncontrolling interest in subsidiaries			632,013				749,269				1,637,340				1,668,547
Net income attributable to common stockholders		US$	5,638,125			US$	6,743,420			US$	14,608,652			US$	15,016,922
Comprehensive income:
Net income		US$	6,270,138			US$	7,492,689			US$	16,245,992			US$	16,685,469
Foreign currency translation adjustments			(4,810,043	)			(11,013,074	)			(520,822	)			(2,968,540	)
Comprehensive income (loss)			1,460,095				(3,520,385	)			15,725,170				13,716,929
Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries			151,009				(352,038	)			1,585,258				1,371,693
Comprehensive income (loss) attributable to common stockholders		US$	1,309,086			US$	(3,168,347	)		US$	14,139,912			US$	12,345,236
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$	0.35			US$	0.76			US$	0.78
EPS - diluted		US$	0.29			US$	0.35			US$	0.76			US$	0.78

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

		Six months ended June 30,
		2019				2018
Cash Flows From Operating Activities
Net income		US$	16,245,992			US$	16,685,469
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Allowance for doubtful accounts			1,633,832				1,445,353
Depreciation and amortization			6,927,367				5,832,558
Deferred income tax			(461,097	)			642,345
Gain on disposal of property and equipment			(38,330	)			(73,809	)
Amortization of debt issuance costs			325,413				697,633
Changes in assets and liabilities:
Accounts receivable			(36,315,794	)			(52,930,675	)
Bank acceptance notes from customers			(11,918,635	)			36,822,604
Inventories, net			20,653,641				(24,642,342	)
Prepayments			(8,856,410	)			(25,749,865	)
Other currents assets, net			2,048,887				(5,158,214	)
Accounts payable and bank acceptance notes to vendors			(43,192,905	)			99,655,568
Deposits received from customers			8,669,926				20,470,159
Income tax payable			189,523				(1,918,494	)
Deferred income			(365,935	)			(259,132	)
Other current liabilities and accrued expenses			(757,093	)			(5,426,422	)
Net Cash Flows Provided By (Used in) Operating Activities			(45,211,618	)			66,092,736
Cash Flows From Investing Activities
Acquisition of property, equipment, plant and land use rights			(27,478,369	)			(33,712,960	)
Advances to related parties			(15,305,460	)			(190,438,634	)
Repayment of advances to related parties			20,849,370				222,337,244
Proceeds from disposal of property and equipment			528				-
Net Cash Flows Used In Investing Activities			(21,933,931	)			(1,814,350	)
Cash Flows From Financing Activities
Proceeds from short term bank loans			213,297,377				296,959,191
Repayment of short term bank loans			(206,444,518	)			(256,944,835	)
Proceeds from related parties			1,843,951				311,026,410
Repayments to related parties			-				(328,443,191	)
Repayment of long term loans			(11,078,979	)			(12,800,786	)
Net Cash Flows Provided By (Used In) Financing Activities			(2,382,169	)			9,796,789
Effects on changes in foreign exchange rate			596,641				(2,289,500	)
Net change in cash, cash equivalents and restricted cash			(68,931,077	)			71,785,675
Cash, cash equivalents, and restricted cash - beginning of the year			110,962,606				4,598,176
Cash, cash equivalents, and restricted cash - end of the year		US$	42,031,529			US$	76,383,851
Supplemental Cash Flow Disclosures:
Interest paid		US$	5,697,269			US$	5,521,273
Income taxes paid		US$	2,464,974			US$	4,120,342
Non-cash Investing and Financing Transactions
Loans from related party in the form of bank acceptance notes		US$	-			US$	33,721,267
Repayments to related party in the form of bank acceptance notes		US$	-			US$	5,846,083
Repayments from related party in the form of bank acceptance notes		US$	-			US$	19,612,146
Liabilities assumed in connection with acquisition of property, plant and equipment		US$	338,025			US$	-
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents		US$	10,294,982			US$	24,525,413
Restricted cash, current			14,572,162				51,858,438
Restricted cash, non-current			17,164,385				-
Total cash, cash equivalents, and restricted cash		US$	42,031,529			US$	76,383,851



# # #