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

ZHEJIANG, China, Aug. 14, 2017/PRNewswire/ -- SORL Auto Parts, Inc. (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 millioncompared with $73.5 millionin 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 millionfrom $7.7 millionin the same quarter last year.

First Six Months of 2017 Financial Highlights

• Net sales increased 28.8% to $164.1 millioncompared with $127.4 millionin same period of last year;
• Operating income increased 109.7% to $18.4 millionfrom $8.8 millionin the same period in 2016;
• Net income attributable to stockholders increased 66.2% to $12.8 million, or $0.67per basic and diluted share, compared with $7.7 million, or $0.40in 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 Chinadomestic 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 millionfrom $73.5 millionfor the second quarter of 2016. Revenues from the Company's domestic OEM customers increased by 28.9% to $47.3 millionfrom $36.7 millionin 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'sdomestic aftermarket increased 20.1% to $22.7 millionin the second quarter of 2017 from $18.9 millionin 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 millionfrom $17.9 millionin 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 millionfrom $20.6 millionfor 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 millionfrom $14.4 millionin 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 millionin the second quarter of 2017 compared with $2.4 millionin 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 millionin the second quarter of 2017 compared with $7.7 millionin the same quarter of 2016.

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

Financial expenses were $0.5 millionin the second quarter of 2017 compared with $0.1 millionin 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 millionfor the second quarter of 2017 compared to $9.3 millionfor 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 millionin 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 $0.31per basic and diluted share, compared with $7.2 million, or $0.37on 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 millionfrom $127.4 millionfor the first six months of 2016. Net sales from the Company's China OEM market increased 37.3% to $89.1 millionfrom $64.8 millionin the same period in 2016. Revenues from China'sdomestic aftermarket increased 27.1% to $40.8 millionfrom $32.1 millionin the first six months of 2016. Revenues from international markets increased 12.5% to $34.2 millionfrom $30.4 millionin the first six months of 2016.

Gross profit for the first six months of 2017 increased 26.3% to $44.3 millionfrom $35.0 millionin 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.