• Net Sales: Increased by 19.4% year-over-year to $164.2 million in Q3 2024.
• Traditional Steering Products Sales: Grew by 7.4% year-over-year to $98.6 million in Q3 2024.
• EPS Products Sales: Rose 43.5% year-over-year to $65.6 million in Q3 2024.
• Gross Profit: Increased by 6.5% year-over-year to $26.4 million in Q3 2024.
• Gross Margin: 16% in Q3 2024, down from 18% in Q3 2023.
• Operating Income: $11.1 million in Q3 2024, a nearly 10% increase from Q3 2023.
• Net Income: $5.5 million in Q3 2024, compared to $9.5 million in Q3 2023.
• Diluted Earnings Per Share: $0.18 in Q3 2024, down from $0.31 in Q3 2023.
• Net Cash Provided by Operating Activities: Increased by 54.2% to $16.5 million for the first nine months of 2024.
• Cash and Equivalents: $138.8 million as of September 30, 2024.
• Revenue Guidance for Full Year 2024: Raised to $630 million from $605 million.

• Warning! GuruFocus has detected 4 Warning Signs with BOM:533293.

Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Net sales of steering products increased by 19.4% year-over-year in the third quarter of 2024.
• Sales of electric power steering (EPS) products surged by 43.5% year-over-year.
• Operating income improved by nearly 9% compared to the third quarter of 2023.
• Net cash provided by operating activities increased by 54.2% for the first nine months of 2024.
• Management raised the revenue guidance for the full year 2024 to $630 million from $605 million.

Negative Points

• Gross margin decreased to 16% in the third quarter of 2024 from 18% in the third quarter of 2023.
• International sales to North America declined by $8.9 million year-over-year.
• Diluted net income per share decreased to $0.18 in the third quarter of 2024 from $0.31 in the third quarter of 2023.
• Income tax expense increased significantly due to a onetime income tax expense settlement and GILTI tax expenses.
• Foreign exchange volatility led to an increase in net financial expense compared to the previous year.

Q & A Highlights

Q: Can you describe the one-time income tax expense settlement for the subsidiaries in China? A: Jie Li, Chief Financial Officer, explained that the one-time tax in China was related to a special dividend of $0.80 declared in the third quarter of 2024. This dividend, distributed from CAAS's China subsidiary to the parent company and then to shareholders, triggered a one-time withholding tax of $1.4 million payable to the Chinese government.

Q: Why did the GILTI taxes increase in the third quarter of 2024? A: Jie Li, Chief Financial Officer, stated that the GILTI tax, enacted in 2017, applies to profits earned by foreign subsidiaries of U.S. companies. The increase in GILTI tax for 2024, amounting to $1.7 million per quarter, was due to a significant rise in pretax income from $23 million in 2022 to $48 million in 2023, which serves as the base for the 2024 calculation.

Q: What is the company doing to reduce the impact of foreign exchange volatility on quarterly profits? A: Jie Li, Chief Financial Officer, mentioned that the company has a global footprint, dealing with multiple currencies. They have experimented with financial tools to mitigate forex impact but found the results unsatisfactory. They are now in discussions with large financial institutions to find better solutions for managing forex risk.

Q: What business segments are expected to contribute to the increase in sales guidance to $630 million for 2024? A: Jie Li, Chief Financial Officer, noted that the increase in sales guidance is due to healthy growth across all business areas. The company adopted a proactive pricing strategy to increase market share, resulting in a 19% year-over-year growth in domestic China sales. Growth was also seen in traditional hydraulic products, electric power steering products, and market share with key customers like BYD.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.