China Automotive Systems, Inc., a leading power steering components and systems supplier in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2022.

Third Quarter 2022 Highlights

• Net sales increased by 26.8% to $137.2 million compared with $108.2 million in the third quarter of 2021;
• Electric power steering (“EPS”) product sales increased by 52.4% to $44.8 million;
• Gross profit increased 24.4% to $20.9 million and gross margin was 15.2% compared with 15.5% in the third quarter of 2021;
• Income from operations was $4.9 million compared with income from operations of $0.6 million in the third quarter of 2021;
• Net income attributable to parent company’s common shareholders was $7.5 million, or diluted income per share of $0.24, compared to a net loss attributable to parent company’s common shareholders of $0.3 million, or diluted loss per share of $0.01, in the third quarter of 2021.

  First Nine Months of 2022 Highlights

• Net sales rose by 11.6% to $400.8 million compared to $359.2 million in the first nine months of 2021;
• Gross profit increased 11.4% to $58.4 million and gross margin was 14.6% compared with 14.6% in the first nine months of 2021;
• Income from operations was $10.6 million compared with income from operations of $4.9 million in the first nine months of 2021;
• Net income attributable to parent company’s common shareholders was $16.8 million, or diluted income per share of $0.55, compared to net income attributable to parent company’s common shareholders of $6.1 million, or diluted income per share of $0.20 in the first nine months of 2021;
• Free cash flow increased to $19.8 million compared with negative $11.7 million in the first nine months of 2021;
• Cash and cash equivalents and pledged cash were $131.7 million as of September 30, 2022.

  Mr. Qizhou Wu, the Chief Executive Officer of CAAS, commented, “Overall vehicle sales in China rose by 29.4% in the third quarter of 2022 with passenger car sales up by 36.6% while commercial vehicles sales declined by 10.6%, according to data from the China Association of Automobile Manufacturers. U.S. auto sales declined slightly by 0.9% in the third quarter of 2022. Sales of both our traditional hydraulic and our EPS steering products grew during the third quarter of 2022. Overall, our sales in China remained strong as many of our customers experienced solid growth creating higher demand for our products.”

“We look forward to the remainder of 2022 as we believe the auto industry will continue to be buoyant as Chinese GDP grew at 3.9% in the third quarter of 2022 according to the Chinese National Bureau of Statistics, exceeding a consensus estimate of 3.4%. The auto industry growth in China is still being hampered by lockdowns, COVID restrictions and supply chain issues. However, we believe these issues will be resolved over time and the government has been implementing favorable policies to further revitalize the economy. We are maintaining our market positions for when the auto markets more fully recover.”

Mr. Jie Li, the Chief Financial Officer of CAAS, commented, “Our financial position remains robust as we have generated positive cash flow from operations and have cash and cash equivalents and pledged cash of $131.7 million at September 30, 2022. We are increasing our spending on new research and development projects and new machinery to add innovative products for future growth. We purchased 382,418 common shares in accordance with our share repurchase program in the third quarter of 2022.”

Third Quarter of 2022

In the third quarter of 2022, net sales increased by 26.8% to $137.2 million compared to $108.2 million in the same quarter of 2021. The increase in net product sales was due to a 17.3% gain in the Company’s sales of hydraulic products, and an increase of 52.4% in EPS net product sales. EPS net sales were $44.8 million, or 32.7% of net sales, compared with $29.4 million, or 27.2% of net sales, in the third quarter of 2021. Net product sales to North America decreased by 4.8% to $29.5 million, due primarily to changes in the product mix, compared with $31.0 million for the same quarter in 2021. Net product sales in Brazil rose by 51.9% to $11.5 million due to higher demand.

Gross profit was $20.9 million in the third quarter of 2022, compared to $16.8 million in the third quarter of 2021. Gross margin was 15.2% compared to 15.5% for the same period of 2021, mainly due to the change in product mix.

Selling expenses were $4.0 million in the third quarter of 2022, compared to $4.8 million in the third quarter of 2021. The lower selling expenses were mainly due to a decrease in transportation expenses. Selling expenses represented 2.9% of net sales in the third quarter of 2022, compared to 4.4% in the third quarter of 2021.

General and administrative expenses (“G&A expenses”) were $4.9 million in the third quarter of 2022, compared to $6.2 million in the same quarter of 2021. The decrease was primarily due to a decline in the provision for credit losses provided for accounts receivable. G&A expenses represented 3.6% of net sales in the third quarter of 2022 compared with 5.7% of net sales in the third quarter of 2021.

Research and development expenses (“R&D expenses”) increased by 66.7% to $9.5 million in the third quarter of 2022, compared to $5.7 million in the third quarter of 2021. R&D expenses represented 6.9% of net sales in the third quarter of 2022 compared with 5.3% of net sales in the third quarter of 2021. Higher R&D expenditures were primarily due to increased investment for new projects.

Income from operations was $4.9 million in the third quarter of 2022, compared to income from operations of $0.6 million in the same quarter of 2021. Higher income from operations was mainly due to increased gross profit, a higher gain on other sales and greater cost controls in the third quarter of 2022.

Other income was $0.7 million in the third quarter of 2022 compared with $2.4 million in the third quarter of 2021 primarily due to lower government subsidies received in the third quarter of 2022.

Net financial income was $4.8 million compared with net financial expense of $0.8 million in the third quarter of 2021 mainly due to the foreign exchange volatility of the US dollar against the RMB and the Brazilian Real.

Income before income tax expenses and equity in earnings of affiliated companies was $10.0 million in the third quarter of 2022, compared to income before income tax expenses and equity in earnings of affiliated companies of $1.9 million in the third quarter of 2021. The higher income before income tax expenses and equity in earnings of affiliated companies was mainly due to increased income from operations compared with the third quarter of 2021.

Income tax expense was $0.9 million in the third quarter of 2022, compared to an income tax expense of $2.4 million for the third quarter of 2021, which was mainly due to the valuation allowance recognized in the third quarter of 2021.

Net income attributable to parent company’s common shareholders was $7.5 million in the third quarter of 2022, compared to net loss attributable to parent company’s common shareholders of $0.3 million in the third quarter of 2021. Diluted income per share was $0.24 in the third quarter of 2022, compared with diluted loss per share of $0.01 in the third quarter of 2021.

The weighted average number of diluted common shares outstanding was 30,640,260 in the third quarter of 2022, compared to 30,851,776 in the third quarter of 2021.

First Nine Months of 2022

Net sales for the first nine months of 2022 increased by 11.6% to $400.8 compared with $359.2 million in the first nine months of 2021. Gross profit for the first nine months of 2022 increased by 11.4% to $58.4 million, compared to $52.4 million in the corresponding period last year. Gross margin for the first nine months of 2022 was 14.6%, compared to 14.6% for the corresponding period in 2021. For the nine months ended September 30, 2022, gain on other sales amounted to $5.3 million, compared to $2.5 million for the corresponding period in 2021. Income from operations was $10.5 million compared to income from operations of $4.9 million in the first nine months of 2021.

Net income attributable to parent company’s common shareholders was $16.8 million compared with net income attributable to parent company’s common shareholders of $6.1 million in the corresponding period last year. Diluted income per share was $0.55 in the first nine months of 2022, compared to diluted income per share of $0.20 for the corresponding period in 2021.

As of September 30, 2022, total cash and cash equivalents and pledged cash deposits were $131.7 million. Total accounts receivable including notes receivable were $208.6 million. Accounts payable including notes payable were $210.2 million. Total parent company stockholders’ equity was $302.2 million as of September 30, 2022, compared to $321.0 million as of December 31, 2021.

Net cash provided by operating activities was $31.7 million in the first nine months of 2022 compared with net cash used in operating activities of $5.9 million in the first nine months of 2021. Payments to acquire property, plant and equipment were $11.8 million compared with $5.3 million in the first nine months of 2021.

Business Outlook

Management increases its revenue guidance to $540 million for the full year 2022. This target is based on the Company’s current views on operating and market conditions, which are subject to change.