China Automotive Systems(US:CAAS)2022-11-13 16:00Part I — Financial Information This part presents the company's unaudited financial statements, management's analysis, and market risk disclosures Financial Statements Unaudited condensed consolidated financial statements show significant net income growth driven by higher sales and favorable foreign exchange movements Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income The company reported a significant turnaround in Q3 2022 net income, driven by a 26.8% increase in net product sales Key Operating Results (Three Months Ended Sep 30) | Financial Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net product sales | $137,207 | $108,231 | | Gross profit | $20,918 | $16,792 | | Income from operations | $4,887 | $591 | | Net income/(loss) attributable to parent | $7,470 | $(317) | | Diluted EPS | $0.24 | $(0.01) | Key Operating Results (Nine Months Ended Sep 30) | Financial Metric | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net product sales | $400,764 | $359,176 | | Gross profit | $58,363 | $52,369 | | Income from operations | $10,549 | $4,870 | | Net income attributable to parent | $16,839 | $6,089 | | Diluted EPS | $0.55 | $0.20 | Condensed Unaudited Consolidated Balance Sheets Total assets and liabilities decreased as of September 30, 2022, compared to the end of the previous fiscal year Key Balance Sheet Items (in thousands) | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $100,712 | $131,695 | | Total current assets | $488,180 | $501,380 | | Total assets | $674,893 | $716,762 | | Liabilities & Equity | | | | Total current liabilities | $334,775 | $351,816 | | Total liabilities | $357,252 | $379,321 | | Total stockholders' equity | $317,066 | $336,888 | Condensed Unaudited Consolidated Statements of Cash Flows Net cash from operating activities improved significantly, while investing activities saw increased cash usage for the nine-month period Summary of Cash Flows (in thousands) | Cash Flow Activity (Nine Months Ended) | Sep 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $31,677 | $(5,867) | | Net cash used in investing activities | $(42,662) | $(2,188) | | Net cash used in financing activities | $(546) | $(6,020) | | Net decrease in cash, cash equivalents and pledged cash | $(27,754) | $(13,060) | Notes to Condensed Unaudited Consolidated Financial Statements Notes detail customer concentration, a significant long-term investment in Sentient AB, and segment sales performance - In Q3 2022, the company's five largest customers accounted for 41.9% of consolidated net product sales, with one single customer representing 17.8% of sales41 - The company completed a transaction in March 2022 to purchase 40% of Sentient AB's share capital for approximately $24.5 million, with $21.62 million paid as of September 30, 202248 Net Product Sales by Segment (Q3, in thousands) | Segment | Net Product Sales (Q3 2022) | Net Product Sales (Q3 2021) | | :--- | :--- | :--- | | Henglong | $62,590 | $39,937 | | Jiulong | $16,986 | $17,127 | | Hubei Henglong | $29,525 | $31,023 | | Henglong KYB | $36,995 | $19,095 | | Brazil Henglong | $11,510 | $7,576 | | Total | $137,207 | $108,231 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong performance to increased electric power steering (EPS) product sales and favorable foreign exchange gains Results of Operations - Three Months Ended September 30, 2022 and 2021 Q3 2022 net sales rose 26.8% driven by EPS products, while net income was boosted by significant foreign exchange gains - Net product sales increased by $29.0 million (26.8%) YoY in Q3 2022, primarily due to increased sales of electric power steering (EPS)125 - Sales of EPS products grew by $15.4 million (52.4%) and accounted for 32.6% of net sales in Q3 2022, up from 27.2% in Q3 2021125 - Research and development expenses increased by $3.8 million (65.4%) due to increased R&D activities for new projects143 - Net financial income was $4.8 million, compared to a net expense of $0.8 million in the prior year, primarily due to foreign exchange gains146 Results of Operations - Nine Months Ended September 30, 2022 and 2021 Net sales grew 11.6% over nine months, with net income increasing 176.5% due to EPS sales and foreign exchange gains - Net product sales for the nine-month period increased by $41.6 million (11.6%) YoY, with EPS sales growing by $40.8 million (52.8%)151 - Gross margin for the nine-month period was stable at 14.6%, consistent with the same period in 2021167 - Net income attributable to parent company's common shareholders increased by 176.5% to $16.8 million for the nine months ended September 30, 2022172 Liquidity and Capital Resources The company maintained solid liquidity with increased working capital and significantly improved operating cash flow - As of September 30, 2022, the company had working capital of $153.5 million, an increase of 2.6% from December 31, 2021173 - The company has comprehensive credit facilities totaling $143.7 million, with $64.7 million used as of September 30, 2022179180 - Net cash provided by operating activities was $31.7 million for the first nine months of 2022, a significant improvement from a $5.9 million use of cash in the prior-year period194 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported since the last annual report - No material changes to market risk disclosures were reported for the period197 Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of September 30, 2022 - The company's management concluded that disclosure controls and procedures were effective as of September 30, 2022198 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2022199 Part II — Other Information This part details legal proceedings, risk factors, share repurchases, and filed exhibits Legal Proceedings The company is not currently a party to any pending or threatened legal proceedings - The company is not involved in any pending or threatened legal proceedings200 Risk Factors Key risks include Chinese government oversight, potential new overseas listing regulations, and evolving data security requirements - The business is subject to significant oversight and discretion from the Chinese government, which may intervene in operations at any time201 - The company may be subject to new filing requirements with the China Securities Regulatory Commission (CSRC) for future overseas offerings206207 - New cybersecurity and data transfer regulations from the Cyberspace Administration of China (CAC) could impose additional compliance burdens216220 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 382,418 shares in Q3 2022 under its approved share repurchase program - On March 29, 2022, the Board approved a share repurchase program for up to $5.0 million of common stock through March 30, 2023227 Share Repurchase Activity (Q3 2022) | Period (2022) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July | 85,633 | $2.8705 | | August | 128,525 | $3.4589 | | September | 168,260 | $4.0479 | | Total Q3 | 382,418 | $3.5863 | Exhibits This section indexes the exhibits filed with the Form 10-Q, including CEO and CFO certifications