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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

SORL Auto Parts Reports 26.5% Net Sales Increase in the First Quarter of 2019

May 15, 2019

ZHEJIANG, China, May 15, 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, announced today its financial results for the first quarter ended March 31, 2019.

First Quarter 2018 Financial Highlights

-- Net sales for the 2019 first quarter were $136.2 million, up 26.5% from $107.7 million in the first quarter of 2018; -- Revenues from the domestic OEM segment grew 44.6% year-over-year to $74.9 million; -- Revenues from international markets increased to $18.0 million; -- Gross margin was 26.8% compared with 28.0% in the first quarter of 2018; -- Net income attributable to stockholders increased to $9.0 million, or $0.46 per basic and diluted share, compared with $8.3 million, or $0.43 per basic and diluted share in the first quarter of 2018.

Mr. Xiaoping Zhang, SORL’s Chief Executive Officer and Chairman, stated, “We are taking a ‘winner-takes-all’ mentality to expand our market shares in a business environment filled with uncertainties and anxieties. On the OEM side, we continue to strengthen our relationships with the main truck and bus producers in China through our new products and service. For the aftermarket, we differentiate ourselves with better pricing and top quality to gain market share. In the international market, we continue to focus on key markets and key customers to bolster our foothold.”

Ms. Jinrui Yu, SORL’s Chief Operating Officer, added, “Our growing product portfolio of advanced products continues to generate substantial sales growth even in the current challenging economic environment in China. We continue to add resources to our research and development program while we also maintain one of the highest gross margins in the industry.”

First Quarter 2019 Financial Results

For the first quarter of 2019, net sales increased 26.5% year-over-year to $136.2 million compared to $107.7 million in the first quarter of 2018.

Revenues from the Company’s domestic OEM customers were $74.9 million, an increase of 44.6% from $51.8 million in the first quarter of 2018. The strong year-over-year sales growth was mainly due to increased truck sales in the first quarter and improved market share. Sales to China’s domestic aftermarket was $43.3 million compared with $38.0 million in the same quarter of 2018. The increase in aftermarket sales was mainly attributable to the expiration of warranties from higher sales of new vehicles over the past few years and the Company’s increased marketing campaigns to bolster its market share through its already well-established distribution network. Revenues from international markets were $18.0 million compared to $17.9 million in the same quarter of 2018.

The gross profit for the first quarter of 2019 increased 20.9% to $36.5 million from $30.2 million in the first quarter of 2018. Gross margin was 26.8% compared with 28.0% in the first quarter of 2018.

In the first quarter of 2019, operating expenses increased to $25.2 million from $18.4 million in the same quarter of 2018. As a percentage of total revenues, operating expenses were 18.5% in the first quarter of 2019 compared to 17.1% in the first quarter of 2018.

-- Selling and distribution expenses were $12.9 million, or 9.5% of quarterly revenues, compared with $10.0 million, or 9.3% in the first quarter of 2018. The higher selling and distribution expenses were primarily due to the higher freight and packaging costs and increased personnel costs. -- General and administrative (“G&A”) expenses in the first quarter of 2019 were $7.4 million compared with $4.8 million a year ago. G&A expenses as a percentage of revenue in the first quarter of 2019 were 5.4% compared with 4.4% in the first quarter of 2018. The higher G&A expenses were mainly due to an increase in allowance for doubtful accounts and labor costs during this quarter. -- Research and development (“R&D”) expenses were $5.0 million compared with $3.6 million in the first quarter of 2018. As a percentage of revenue, R&D expenses were 3.6% in the first quarter of 2019 compared with 3.3% of revenue in the first quarter of 2018.

Interest income was $1.7 million compared with $1.5 million in the first quarter of 2018. Financial expenses were $4.0 million compared with $3.4 million in the first quarter of 2018.

Income before income taxes was $11.8 million in the first quarter of 2019 compared with $10.8 million in the first quarter of 2018.

Income taxes were $1.9 million in the first quarter of 2019 compared with $1.6 million in the first quarter of 2018.

Net income attributable to stockholders for the first quarter of 2019 was $9.0 million, or $0.46 per basic and diluted share, compared with $8.3 million, or $0.43 per basic and diluted share a year ago.

Balance Sheet

As of March 31, 2019, the Company had cash and cash equivalents of $8.0 million compared to $73.6 million on December 31, 2018. Accounts receivable were $178.9 million compared to $150.0 million on December 31, 2018. Inventories were $187.4 million compared to $204.3 million on December 31, 2018. Short-term bank loans were $212.4 million compared to $217.9 million on December 31, 2018. Total equity was $219.7 million at March 31, 2019 compared with $205.5 million at December 31, 2018. On March 31, 2019, working capital was $44.6 million with a current ratio of 1.1 to 1. Net cash used by operating activities was $25.8 million compared with net cash flow provided by operating activities of $36.3 million in the first quarter of 2018. Acquisition of property, equipment, plant and land use rights was $13.3 million compared with $19.7 million in the first quarter of 2018.

Business Outlook

For the fiscal year 2019, management reiterated its expectation that net sales will be approximately $515 million and net income attributable to stockholders to be approximately $22 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, May 15, 2019, at 8:00 P.M. EDT/ 8:00 A.M. Beijing Time on May 16, 2019, to discuss its unaudited financial results for the 2019 first quarter ended March 31, 2019. 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 P.M. EDT on June 15, 2019 or 8:00 A.M. Beijing Time on June 16, 2019 . 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 “49126” 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

Phyllis Huang+86-151-6770-5972+86-577-6581-7721 phyllis@sorl.com.cn Kevin Theiss Awaken Advisors 212-521-4050 kevin.theiss@awakenlab.com

-Tables Follow –

SORL Auto Parts, Inc. and SubsidiariesConsolidated Balance SheetsMarch 31, 2019 and December 31, 2018

March 31, December 31, 2019 2018 --------------- --------------- Assets (Unaudited) Current Assets Cash and cash equivalents US$ 8,024,006 US$ 73,588,229 Accounts receivable, net, including $341,110 and $261,889 from related 178,871,527 150,047,797 parties as of March 31, 2019 and December 31, 2018, respectively Bank acceptance notes from customers 73,404,114 62,052,225 Inventories, net 187,384,139 204,285,427 Prepayments, current, including $5,129,110 and $3,670,573 to related 17,350,867 7,776,591 party at March 31, 2019 and December 31, 2018, respectively Restricted cash, current 16,804,852 19,307,003 Advances to related parties 98,136,035 79,739,417 Deposits on loan agreements, current 5,197,891 - Other current assets, net 11,566,191 15,697,448 --- ----------- --- ----------- Total Current Assets 596,739,622 612,494,137 Property, plant and equipment, net 107,063,204 96,053,386 Land use rights, net 21,355,991 21,124,455 Intangible assets, net 132,294 220,232 Deposits on loan agreements, non-current 5,197,891 10,199,324 Prepayments, non-current 33,069,906 31,575,238 Other assets, non-current 574,397 563,542 Restricted cash, non-current 18,415,386 18,067,374 Operating lease right of use assets 1,222,064 - Deferred tax assets 3,566,545 4,073,838 --- ----------- --- ----------- Total Non-current Assets 190,597,678 181,877,389 --- ----------- --- ----------- Total Assets US$ 787,337,300 US$ 794,371,526 --- ----------- --- ----------- Liabilities and Equity Current Liabilities Accounts payable and bank acceptance notes to vendors, including $30,167,916 and $23,805,200 US$ 226,765,213 US$ 236,433,718 due to related parties as of March 31, 2019 and December 31, 2018, respectively Deposits received from customers 53,150,261 51,529,795 Short term bank loans 212,363,818 217,940,471 Current portion of long term loans, net of unamortized debt issuance 25,086,705 21,141,029 costs Income tax payable, current 3,229,510 3,421,486 Accrued expenses 19,499,647 24,045,902 Due to related party 6,820,963 5,959,752 Deferred income 1,259,842 1,453,282 Operating lease liabilities, current 492,494 - Other current liabilities 3,452,129 3,288,344 --- ----------- --- ----------- Total Current Liabilities 552,120,582 565,213,779 Long term loans, less current portion and net of unamortized debt 5,426,193 14,429,404 issuance costs Operating lease liabilities, non-current 797,107 - Income tax payable, non-current 9,259,307 9,259,307 --- ----------- --- ----------- Total Non-current Liabilities 15,482,607 23,688,711 --- ----------- --- ----------- Total Liabilities 567,603,189 588,902,490 Equity Preferred stock - no par value; 1,000,000 authorized; none issued and - - outstanding as of March 31, 2019 and December 31, 2018 Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 38,609 38,609 issued and outstanding as of March 31, 2019 and December 31, 2018 Additional paid-in capital (28,582,654 ) (28,582,654 ) Reserves 20,911,801 20,007,007 Accumulated other comprehensive income 10,516,102 6,655,803 Retained earnings 186,601,111 178,535,378 --- ----------- --- ----------- Total SORL Auto Parts, Inc. Stockholders’ Equity 189,484,969 176,654,143 Noncontrolling Interest In Subsidiaries 30,249,142 28,814,893 --- ----------- --- ----------- Total Equity 219,734,111 205,469,036 --- ----------- --- ----------- Total Liabilities and Equity US$ 787,337,300 US$ 794,371,526 --- ----------- --- -----------

SORL Auto Parts, Inc. and SubsidiariesConsolidated Statements of Income and Comprehensive IncomeFor The Quarters Ended March 31, 2019 and 2018 (Unaudited)

Three months ended March 31, ---------------------------------- 2019 2018 --------------- --------------- Sales US$ 136,219,924 US$ 107,726,682 Include: sales to related parties 10,646,746 7,701,054 Cost of sales 99,699,354 77,527,196 --- ----------- --- ----------- Gross profit 36,520,570 30,199,486 Expenses: Selling and distribution expenses 12,884,567 10,037,861 General and administrative expenses 7,374,893 4,773,778 Research and development expenses 4,951,536 3,590,402 --- ----------- --- ----------- Total operating expenses 25,210,996 18,402,041 Other operating income, net 2,462,602 2,197,324 Income from operations 13,772,176 13,994,769 Interest income 1,736,775 1,488,264 Government grants 1,792,412 133,933 Other income 54,680 27,066 Interest expenses (3,972,498 ) (3,353,711 ) Exchange differences (1,061,005 ) (601,286 ) Other expenses (477,919 ) (890,814 ) --- ----------- --- ----------- Income before income taxes provision 11,844,621 10,798,221 Provision for income taxes 1,868,767 1,605,441 --- ----------- --- ----------- Net income US$ 9,975,854 US$ 9,192,780 Net income attributable to noncontrolling interest in subsidiaries 1,005,327 919,278 Net income attributable to common stockholders US$ 8,970,527 US$ 8,273,502 --- ----------- --- ----------- Comprehensive income: Net income US$ 9,975,854 US$ 9,192,780 Foreign currency translation adjustments 4,289,221 8,044,534 --- ----------- --- ----------- Comprehensive income 14,265,075 17,237,314 Comprehensive income attributable to noncontrolling interest in 1,434,249 1,723,731 subsidiaries --- ----------- --- ----------- Comprehensive income attributable to common stockholders US$ 12,830,826 US$ 15,513,583 --- ----------- --- ----------- Weighted average common share - basic 19,304,921 19,304,921 Weighted average common share - diluted 19,304,921 19,304,921 EPS - basic US$ 0.46 US$ 0.43 EPS - diluted US$ 0.46 US$ 0.43

SORL Auto Parts, Inc. and SubsidiariesConsolidated Statements of Cash FlowsFor The Three Months Ended March 31, 2019 and 2018 (Unaudited)

Three Months Ended March 31, ------------------------------------ 2019 2018 ---------------- ---------------- Cash Flows From Operating Activities Net income US$ 9,975,854 US$ 9,192,780 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Allowance for doubtful accounts (79,426 ) 278,397 Depreciation and amortization 3,382,629 2,847,303 Deferred income tax 580,171 900,839 Gain on disposal of property and equipment (29,768 ) - Amortization of debt issuance costs 181,333 372,025 Changes in assets and liabilities: Accounts receivable (25,606,528 ) (32,888,322 ) Bank acceptance notes from customers (10,059,686 ) 12,354,888 Inventories, net 20,637,304 996,280 Prepayments (9,630,754 ) (14,987,105 ) Other currents assets, net 3,162,436 (1,890,438 ) Operating lease right of use assets 125,799 - Accounts payable and bank acceptance notes to vendors (13,728,060 ) 63,073,488 Deposits received from customers 621,908 5,123,039 Income tax payable (207,909 ) (1,635,670 ) Deferred income (219,320 ) (129,981 ) Operating lease liabilities (326,476 ) - Other current liabilities and accrued expenses (4,598,818 ) (7,302,268 ) --- ------------ --- ------------ Net Cash Flows Provided By (Used In) Operating Activities (25,819,311 ) 36,305,255 Cash Flows From Investing Activities Acquisition of property, equipment, plant and land use rights (13,252,877 ) (19,682,775 ) Advances to related parties (15,305,460 ) (67,694,035 ) Repayment of advances to related parties - 5,821,183 --- ------------ --- ------------ Net Cash Flows Used In Investing Activities (28,558,337 ) (81,555,627 ) Cash Flows From Financing Activities Proceeds from short term bank loans 113,629,530 222,636,613 Repayment of short term bank loans (123,310,819 ) (115,398,302 ) Proceeds from related parties 739,289 264,565,400 Repayments to related parties - (256,883,171 ) Repayment of long term loans (5,869,199 ) (6,401,331 ) --- ------------ --- ------------ Net Cash Flows Provided By (Used In) Financing Activities (14,811,199 ) 108,519,209 Effects on changes in foreign exchange rate 1,470,485 1,418,555 Net change in cash, cash equivalents and restricted cash (67,718,362 ) 64,687,392 Cash, cash equivalents, and restricted cash - beginning of the period 110,962,606 4,598,176 --- ------------ --- ------------ Cash, cash equivalents, and restricted cash - end of the period US$ 43,244,244 US$ 69,285,568 --- ------------ --- ------------ Supplemental Cash Flow Disclosures: Interest paid US$ 2,903,589 US$ 2,278,298 --- ------------ --- ------------ Income taxes paid US$ 1,471,174 US$ 2,340,272 --- ------------ --- ------------ Non-cash Investing and Financing Transactions Loans from related party in the form of bank acceptance notes US$ - US$ 32,791,380 --- ------------ --- ------------ Repayments to related party in the form of bank acceptance notes US$ - US$ 5,846,083 --- ------------ --- ------------ Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets Cash and cash equivalents US$ 8,024,006 US$ 22,682,734 Restricted cash, current 16,804,852 46,602,834 Restricted cash, non-current 18,415,386 - --- ------------ --- ------------ Total cash, cash equivalents, and restricted cash at end of the period US$ 43,244,244 US$ 69,285,568 --- ------------ --- ------------