China Automotive Systems(CAAS) - 2023 Q2 - Quarterly Report

Part I Unaudited Financial Statements The unaudited financial statements for the period ended June 30, 2023, show a year-over-year increase in net product sales and net income for both the three and six-month periods, with a slight decrease in total assets primarily due to reduced cash and cash equivalents Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income For Q2 2023, net product sales increased by 8.1% to $137.4 million, and net income attributable to shareholders rose by 11.0% to $10.5 million, while H1 2023 saw net sales grow by 6.1% to $279.7 million and net income increase by 84.5% to $17.3 million Q2 2023 vs Q2 2022 Performance (Three Months Ended June 30) | Metric | Q2 2023 (in thousands USD) | Q2 2022 (in thousands USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Product Sales | 137,410 | 127,161 | +8.1% | | Gross Profit | 22,718 | 22,711 | +0.03% | | Income from Operations | 7,789 | 7,200 | +8.2% | | Net Income Attributable to Parent | 10,466 | 9,428 | +11.0% | | Diluted EPS | $0.35 | $0.31 | +12.9% | H1 2023 vs H1 2022 Performance (Six Months Ended June 30) | Metric | H1 2023 (in thousands USD) | H1 2022 (in thousands USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Product Sales | 279,653 | 263,557 | +6.1% | | Gross Profit | 44,336 | 37,445 | +18.4% | | Income from Operations | 15,533 | 5,662 | +174.3% | | Net Income Attributable to Parent | 17,286 | 9,369 | +84.5% | | Diluted EPS | $0.57 | $0.30 | +90.0% | Condensed Unaudited Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $684.6 million from $714.4 million at year-end 2022, primarily due to reductions in cash and inventories, while total liabilities also decreased to $350.1 million from $386.9 million Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | 487,906 | 520,718 | | Cash and cash equivalents | 95,620 | 121,216 | | Total Assets | 684,577 | 714,352 | | Total Current Liabilities | 334,600 | 364,195 | | Short-term loans | 38,457 | 45,671 | | Total Liabilities | 350,142 | 386,937 | | Total Stockholders' Equity | 333,837 | 326,833 | Condensed Unaudited Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash used in operating activities was $0.05 million, a significant shift from the $14.5 million provided in the prior year, while net cash used in investing activities remained stable and financing activities increased cash usage due to higher loan repayments Cash Flow Summary (Six Months Ended June 30, in thousands USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | (52) | 14,484 | | Net cash used in investing activities | (24,046) | (24,443) | | Net cash (used in)/provided by financing activities | (5,556) | 1,610 | | Net decrease in cash, cash equivalents and pledged cash | (33,410) | (15,676) | Notes to Condensed Unaudited Consolidated Financial Statements The notes detail the company's organizational structure, including a new subsidiary, Hubei Zhirong, established in June 2023, and cover significant accounting policies, customer concentration, segment performance, and related party transactions - In June 2023, the company established a new wholly-owned subsidiary, Hubei Zhirong Automobile Technology Co., Ltd., which engages in the inspection and testing of automotive products[28][114] - For the six months ended June 30, 2023, the company's five largest customers accounted for 41.7% of consolidated net product sales, with one single customer representing 20.0% of sales[38] - The company operates through 16 product sectors, with six main segments (Henglong, Jiulong, Wuhu, Henglong KYB, Hubei Henglong, and Brazil Henglong) being the principal profit makers[101] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 6.1% year-over-year revenue growth for the first six months of 2023 to a 21.8% increase in electric power steering (EPS) systems sales, which now constitute 32.0% of total net sales, with improved gross margin and reduced operating expenses contributing to higher operating and net income Results of Operations - Q2 2023 vs Q2 2022 In Q2 2023, net product sales increased by 8.1% to $137.4 million, driven by a 28.4% surge in electric power steering (EPS) sales, which now represent 30.3% of total sales, while gross margin slightly decreased to 16.5% and net income attributable to shareholders grew by 11.0% to $10.5 million - Net sales of electric power steering (EPS) systems increased by 28.4% to $41.6 million in Q2 2023, accounting for 30.3% of total net sales, up from 25.5% in Q2 2022[123] - Gross margin decreased by 1.4 percentage points to 16.5% in Q2 2023, mainly due to a change in product mix[131] - Operating expenses decreased, with selling expenses down 6.7%, G&A down 6.9%, and R&D expenses down 16.2% year-over-year[132] Results of Operations - H1 2023 vs H1 2022 For the first half of 2023, net sales grew 6.1% to $279.7 million, propelled by a 21.8% increase in EPS sales, with gross margin improving significantly to 15.9% due to a better product mix, and net income attributable to shareholders rising sharply by 84.5% to $17.3 million - Net sales of EPS systems increased by 21.8% to $89.4 million in H1 2023, making up 32.0% of total net sales, compared to 27.8% in H1 2022[141] - Gross margin increased by 1.7 percentage points to 15.9% in H1 2023, primarily due to a change in product mix[150] - R&D expenses decreased by 18.9% to $13.0 million, mainly due to decreased R&D activities for new projects[150] Liquidity and Capital Resources As of June 30, 2023, the company had working capital of $153.3 million and cash and short-term investments of $111.1 million, with primary capital sources being bank loans and acceptance facilities totaling $140.2 million in available credit, of which $68.3 million was utilized Working Capital and Cash Position (in millions USD) | Metric | June 30, 2023 (in millions USD) | December 31, 2022 (in millions USD) | | :--- | :--- | :--- | | Working Capital | 153.3 | 156.5 | | Cash, Cash Equivalents & Short-term Investments | 111.1 | 134.1 | Credit Facilities as of June 30, 2023 (in thousands USD) | Facility Type | Amount Available | Amount Used | | :--- | :--- | :--- | | Comprehensive credit facilities | 140,193 | 68,291 | - Net cash used in operating activities was $0.1 million for H1 2023, compared to net cash provided of $14.5 million in H1 2022, a decrease of $14.6 million primarily due to unfavorable movements in working capital[171] Quantitative and Qualitative Disclosures About Market Risk The company reports that there have been no material changes to its market risk disclosures since its Annual Report on Form 10-K for the year ended December 31, 2022 - There were no material changes to the market risk disclosures from the Company's 2022 Annual Report on Form 10-K[177] Controls and Procedures The company's management, including the CEO and CFO, evaluated the disclosure controls and procedures and concluded they were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[178] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[179] Part II — Other Information Legal Proceedings The company is not a party to any pending or threatened legal proceedings, and no director, officer, affiliate, or major security holder is involved in litigation adverse to the company - The Company is not a party to any pending or threatened legal proceedings[181] Risk Factors There have been no material changes from the risk factors that were previously disclosed in Item 1A of the company's 2022 Annual Report on Form 10-K - No material changes have occurred regarding the risk factors previously disclosed in the 2022 Annual Report on Form 10-K[182] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[182] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[183] Mine Safety Disclosures This item is not applicable to the company - Not applicable[183] Other Information The company reported no other information for this item - None[183] Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications (Rule 13a-14(a) and Section 1350) and XBRL interactive data files - Exhibits filed include Rule 13a-14(a) Certifications, Section 1350 Certifications, and various XBRL documents[185]