SORL Auto Parts Reports Second-Quarter Financial Results

Aug 14, 2015, 06:00 ET from SORL Auto Parts, Inc.

ZHEJIANG, China, Aug. 14, 2015 /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 2015 and the first six months ended June 30, 2015.

Second Quarter 2015 Financial Highlights

  • Sales were $59.3 million compared with $65.7 million in the second quarter last year;
  • Gross margin was 27.9% in the second quarter of 2015 compared to 28.2% in the same period of 2014;
  • Net Income attributable to stockholders was $2.3 million, or $0.12 per diluted share compared with $4.1 million, or $0.21 per diluted share, in the second quarter of 2014.
  • Cash, cash equivalents and short-term investments were $70.3 million with a current ratio of 3.31 to 1 at June 30, 2015;
  • Net cash flow from operating activities was approximately $16.1 million for the six months ended June 30, 2015;
  • Annual guidance was revised for sales of $240.0 million and net income of $14.0 million.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, "We experienced a solid quarter in a challenging second quarter due to an industrywide decline in commercial vehicle sales in China as well as in international markets. We outperformed key markets as the heavy-duty truck market declined more than 25% in the second quarter.

"We continue to invest in new products to position us in markets that will benefit from the Chinese government's policies and spending. We are targeting the bus and railway brake markets where our technology can be used to improve the performance and safety of public transportation vehicles. We look for additional growth opportunities in additional market segments as well."

"We are encouraged by the actions of the Chinese government to stimulate the economy through lower interest rates and increased investments in public housing and new railroad lines. These measures should increase demand for commercial vehicles and our braking systems."

Ms. Jinrui Yu, SORL's Chief Operating Officer, commented, "We have enhanced our research and development to provide a broad product portfolio of advanced products to enhance our market position.  New products provide more opportunities in the OEM, aftermarket and international markets. We have controlled our costs and reduced our inventory levels for the current environment. To strengthen our cost structure, we have invested in advanced production equipment to improve our per unit cost and make our products more competitive in a price sensitive environment."

Second Quarter 2015 Financial Performance

For the second quarter of 2015, net sales decreased by 9.7% to $59.3 million from $65.7 million for the second quarter of 2014. Revenues from the Company's domestic OEM customers decreased by 11.0% to $28.4 million from $31.9 million in the second quarter of 2014. Sales from China's domestic aftermarket decreased 9.1% to $14.0 million in the second quarter of 2015 from $15.4 million in the same quarter of 2014. Revenues from international markets decreased 8.2% to $16.9 million, compared to $18.4 million in the second quarter of 2014.

The gross profit for the second quarter of 2015 decreased 10.7% to $16.5 million from $18.5 million for the second quarter of 2014. Gross margin for the second quarter of 2015 was 27.9%, compared with a gross margin of 28.2% in the same quarter of 2014.  The decline in gross margin was due to temporary price promotions to capture market share and higher labor expenses.

Operating expenses increased to $14.4 million in the second quarter of 2015 from $13.4 million in the second quarter of 2014. The increase in operating expenses in the second quarter of 2015 primarily reflected higher general and administrative expenses.  As a percentage of revenue, operating expenses were 24.2% in the second quarter of 2015, compared with 20.4% in the second quarter of 2014.

  • Selling and distribution expenses were $5.1 million, or 8.6% of quarterly revenues, compared with $6.5 million, or 9.8% in the same quarter of 2014. The decrease was mainly due to lower freight expense.
  • General and administrative ("G&A") expenses in the second quarter of 2015 were $7.4 million, or 12.5% of revenue, compared with $4.7 million, or 7.2% in the second quarter of 2014. The increase in expenses was mainly due to an increase in allowance for doubtful accounts in the second quarter of 2015.  While accounts receivable has increased due to slower payments, many of SORL's customers are state-owned OEMs and it is expected that these doubtful accounts will be collected in the future.
  • Research and development ("R&D") expenses were $1.9 million in the second quarter of 2015 compared with $2.2 million in the same quarter of 2014. As a percentage of revenue, R&D was 3.1% in the second quarter of 2015 and compared with 3.3% of revenue in the second quarter of 2014. The R&D program continues to mainly focus on the development of new, higher-margin, electronically controlled mechatronic products and to upgrade the Company's traditional brake products.

Financial expenses were $0.2 million in the second quarter of 2015, similar to the second quarter of 2014.

Income before provision for income taxes was $3.3 million for the second quarter of 2015 compared to $5.2 million for the second quarter of 2014. The lower income reflected lower sales and gross profit with higher G&A expenses compared with the same quarter of 2014. The pretax income margin was 5.5% in the second quarter of 2015, compared with 8.0% in the second quarter of 2014.

The provision for income taxes was $0.8 million, or a 24.3% tax rate, in the second quarter of 2015, which is compared with $0.7 million, or a 12.4% tax rate, in the second quarter in 2014. The increase in tax rate was mainly due to the continuing reassessment of SORL being a High-Tech Enterprise in 2015.  Once the assessment is complete and the Company receives this designation, it is expected that the tax rate will be re-calculated to 15.0%.

Net income attributable to stockholders for the second quarter of 2015 was $2.3 million, or $0.12 per basic and diluted share, compared with $4.1 million, or $0.21 on per basic and diluted share, in the second quarter of 2014.

First Six Months 2015 Financial Performance

Net sales for the first six months of 2015 decreased 3.6% to $111.5 million from $115.7 million for the first six months of 2014. Sales from the Company's China OEM customers decreased 10.2% to $54.3 million from $60.5 million in the same period in 2014. Revenues from China's domestic aftermarket increased 1.9% to $26.4 million from $25.9 million in the first six months of 2014. Revenues from international markets increased 5.1% to $30.8 million from $29.3 million in the first six months of 2014.

Gross profit for the first six months of 2015 decreased 10.7% to $30.3 million from $33.9 million in the same period in 2014. Gross margin for the six months ended June 30, 2015, decreased to 27.1% from 29.3% for the first six months of 2014.

Operating income for the first six months of 2015 decreased to $7.2 million from $9.9 million in the same period in 2014. Operating margin was 6.4% versus 8.6% in first six months of 2014.

Net income attributable to stockholders for the first six months of 2015 was $5.3 million, or $0.28 per basic and diluted share, compared with $6.9 million, or $0.36 per basic and diluted share, in the same period in 2014.

Balance Sheet

As of June 30, 2015, the Company had cash, cash equivalents and short-term investments of $70.3 million. Total equity increased to $226.0 million at June 30, 2015 compared with $220.2 million at December 31, 2014. On June 30, 2015, working capital was $169.6 million with a current ratio of 3.31 to 1. Net cash flow from operating activities was approximately $16.1 million for the six months ended June 30, 2015. 

Business Outlook

For the fiscal year 2015, management has revised its expectation for sales to be approximately $240.0 million and net income to be approximately $14.0 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 Friday, August 14, 2015 at 8:00 a.m. EDT / 8:00 p.m. Beijing Time to discuss its 2015 second quarter and six month financial results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778, +1-201-689-8565 for international callers, and China toll free 864 001 202 840. 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 11:59 p.m. EDT on September 15, 2015, or 11:59 a.m. Beijing Time on September 16, 2015. The replay dial-in numbers are:  U.S. toll free number +1-877-660-6853, or the international number is +1-201-612-7415; using Conference ID "13617378" 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. 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

Raymond Lin +86.139.6777.6556 +86.577.6581.7721  ljf@sorl.com.cn

Phyllis Huang +86.151.6770.5972 +86.577.6581.7721 phyllis@sorl.com.cn

Kevin Theiss Grayling +1.646.284.9409 kevin.theiss@grayling.com

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

June 30, 2015

December 31, 2014

(Unaudited)

Assets

Current Assets

Cash and cash equivalents

US$

11,624,065

US$

14,009,597

Accounts receivable, net

76,562,017

68,171,387

Bank acceptance notes from customers

13,675,163

17,626,704

Short term investments

58,690,792

34,838,757

Inventories

73,357,006

84,186,766

Prepayments, including $267,746 and $83,206 due from related parties at June 30, 2015 and December 31, 2014, respectively.

4,712,578

4,663,002

Current portion of prepaid capital lease interest

190,898

282,280

Other current assets

1,021,339

1,282,182

Deferred tax assets

3,036,623

1,868,371

Total Current Assets

242,870,481

226,929,046

Property, plant and equipment, net

42,153,811

43,550,927

Land use rights, net

14,244,540

14,421,729

Intangible assets, net

31,515

37,661

Security deposits on lease agreement

1,869,368

1,867,719

Non-current portion of prepaid capital lease interest

26,726

99,180

Total Non-Current Assets

58,325,960

59,977,216

Total Assets

US$

301,196,441

US$

286,906,262

Liabilities and Equity

Current Liabilities

Accounts payable and bank acceptance notes to vendors, including $422,321 and $136,609 due to related parties at June 30, 2015 and December 31, 2014, respectively.

US$

9,411,489

US$

13,867,316

Deposit received from customers

25,124,561

19,045,172

Short term bank loans

18,135,575

9,539,476

Income tax payable

1,699,942

1,101,103

Accrued expenses

12,738,311

13,561,163

Current portion of capital lease obligations

3,738,737

3,735,438

Other current liabilities, including $22,973 and $17,681 due to related parties at June 30, 2015 and December 31, 2014, respectively.

2,433,690

2,131,527

Total Current Liabilities

73,282,305

62,981,195

Non-Current Liabilities

Non-current portion of capital lease obligations

1,869,369

3,735,437

Total Non-Current Liabilities

1,869,369

3,735,437

Total Liabilities

75,151,674

66,716,632

Equity

Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of June 30, 2015 and December 31, 2014

-

-

Common stock - $0.002 par value; 50,000,000 authorized,19,304,921 issued and outstanding as of June 30, 2015 and December 31, 2014

38,609

38,609

Additional paid-in capital

42,199,014

42,199,014

Reserves

12,564,853

12,019,532

Accumulated other comprehensive income

27,695,092

27,516,206

Retained earnings

121,702,088

116,935,053

Total SORL Auto Parts, Inc. Stockholders' Equity

204,199,656

198,708,414

Noncontrolling Interest In Subsidiaries

21,845,111

21,481,216

Total Equity

226,044,767

220,189,630

Total Liabilities and Equity

US$

301,196,441

US$

286,906,262

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Sales

US$

59,274,878

US$

65,723,746

US$

111,472,844

US$

115,717,035

Include: sales to related parties

1,057,724

1,345,506

2,069,648

1,635,583

Cost of sales

42,746,432

47,209,861

81,213,324

81,816,214

Gross profit

16,528,446

18,513,885

30,259,520

33,900,821

Expenses:

Selling and distribution expenses

5,086,089

6,473,111

10,437,087

12,178,605

General and administrative expenses

7,430,223

4,710,874

10,149,595

9,027,028

Research and development expenses

1,857,470

2,200,558

3,570,091

3,691,757

Total operating expenses

14,373,782

13,384,543

24,156,773

24,897,390

Other operating income

483,091

549,130

1,068,808

925,262

Income from operations

2,637,755

5,678,472

7,171,555

9,928,693

Interest income

409,836

48,835

520,791

60,635

Other income

620,547

213,292

713,938

251,596

Interest expenses

(242,544)

(236,974)

(409,200)

(722,730)

Other expenses

(160,420)

(472,320)

(531,108)

(710,154)

Income before provision for income taxes

3,265,174

5,231,305

7,465,976

8,808,040

Provision for income taxes

794,144

651,210

1,792,422

1,164,445

Net income

US$

2,471,030

US$

4,580,095

US$

5,673,554

US$

7,643,595

Net income attributable to noncontrolling interest in subsidiaries

208,955

447,621

361,198

740,818

Net income attributable to common stockholders

US$

2,262,075

US$

4,132,474

US$

5,312,356

US$

6,902,777

Comprehensive income:

Net income

US$

2,471,030

US$

4,580,095

US$

5,673,554

US$

7,643,595

Foreign currency translation adjustments

994,826

(25,135)

181,583

4,332,856

Comprehensive income

3,465,856

4,554,960

5,855,137

11,976,451

Comprehensive income attributable to noncontrolling interest in subsidiaries

275,327

445,057

363,895

1,143,053

Comprehensive income attributable to common stockholders

US$

3,190,529

US$

4,109,903

US$

5,491,242

US$

10,833,398

Weighted average common share - Basic

Weighted average common share - Diluted

EPS - Basic

US$

0.12

US$

0.21

US$

0.28

US$

0.36

EPS - Diluted

US$

0.12

US$

0.21

US$

0.28

US$

0.36

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2015 and 2014 (Unaudited)

Six Months Ended June 30,

2015

2014

Cash Flows From Operating Activities

Net income

US$

5,673,554

US$

7,643,595

Adjustments to reconcile net income to net cash

from operating activities:

Allowance for doubtful accounts

3,910,282

1,194,754

Depreciation and amortization

3,911,272

3,732,381

Deferred income tax

(1,163,808)

(307,429)

(Gain) or loss on disposal of property and equipment

(48,940)

28,075

Changes in assets and liabilities:

Accounts receivable

(12,214,909)

(11,133,975)

Bank acceptance notes from customers

3,957,535

(3,098,660)

Other currents assets

261,966

325,030

Inventories

10,876,719

(4,449,536)

Prepayments

(678,866)

(743,265)

Prepaid capital lease interest

163,751

252,772

Accounts payable and bank acceptance notes to vendors

(4,685,074)

(254,762)

Income tax payable

596,297

296,017

Deposits received from customers

6,047,663

(488,943)

Other current liabilities and accrued expenses

(532,514)

2,624,773

Net Cash Flows Provided By (Used In) Operating Activities

16,074,928

(4,379,173)

Cash Flows From Investing Activities

Change in short term investments

(23,761,197)

-

Acquisition of property and equipment

(1,420,785)

(2,061,662)

Proceeds of disposal of property and equipment

48,956

53,437

Net Cash Flows Used In Investing Activities

(25,133,026)

(2,008,225)

Cash Flows From Financing Activities

Proceeds from bank loans

24,913,667

22,292,424

Repayment of bank loans

(16,309,191)

(15,904,045)

Repayment of capital lease

(1,864,595)

(1,847,655)

Net Cash Flows Provided By Financing Activities

6,739,881

4,540,724

Effects on changes in foreign exchange rate

(67,315)

624,776

Net change in cash and cash equivalents

(2,385,532)

(1,221,898)

Cash and cash equivalents - beginning of the period

14,009,597

28,241,983

Cash and cash equivalents - end of the period

US$

11,624,065

US$

27,020,085

Supplemental Cash Flow Disclosures:

Interest paid

US$

465,309

US$

722,728

Income taxes paid

US$

2,359,836

US$

1,171,310

SOURCE SORL Auto Parts, Inc.



RELATED LINKS

http://www.sorl.cn