SOURCE: AutoChina International Ltd.

AutoChina International Ltd.

December 13, 2013 18:15 ET

AutoChina International Reports 2013 Third Quarter and Nine Months Financial Results, Commercial Vehicle Revenues Increase of 204%

SHIJIAZHUANG, CHINA--(Marketwired - Dec 13, 2013) - AutoChina International Limited ("AutoChina" or the "Company") (OTCBB: AUTCF), China's largest commercial vehicle sales, servicing, leasing, and support network, today reported financial results for the third quarter and nine months ended September 30, 2013.

Operational Highlights

  • 3,166 commercial vehicles leased in third quarter of 2013, a 174.4% increase from 1,154 in prior-year period
  • During the 2013 third quarter, the Company established four additional commercial vehicle financing and service centers, and closed one of its centers in Jiangsu province. As of September 30, 2013, AutoChina operated 538 financing and service centers in 26 provinces.

Q3 2013 Financial Highlights (comparisons are year over year)

  • Total revenues of $176.4 million, up 140.6% from $73.3 million, largely due to the increase in new commercial vehicle leases initiated during Q3 2013
  • Gross profit of $18.6 million, compared to $21.8 million, primarily as a result of the significantly larger number of new trucks purchased for leases initiated during Q3 2013, which have a relatively low margin, while finance income, which is relatively high margin, contributed a greater percentage of revenues in Q3 2012
  • Net income of $3.3 million, or $0.14 per diluted share, compared to $4.5 million, or $0.19 per diluted share
  • Adjusted EBITDA of $8.3 million, compared to $11.9 million

Nine Months 2013 Financial Highlights (comparisons are year over year)

  • Total revenues of $419.8 million, up 49.3% from $281.2 million
  • Gross profit of $51.0 million, compared to $71.6 million
  • Net income of $8.0 million, compared to $21.0 million
  • Adjusted EBITDA of $22.5 million, compared to $43.5 million

Operational and Market Review
Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, "We continue to see steadily improving conditions in our marketplace. We had our second consecutive quarter of strong lease growth during the 2013 third quarter, and the increased revenues for the period will provide substantial earnings from finance margin over the coming quarters. We continued to keep our default rate stable during the decline in the market cycle and now intend to place our focus on expansion and growth. According to the China Association of Automobile Manufacturers, sales of commercial vehicles in China were up 7.38% to 3.36 million units during the first 10 months of 2013. We continue to operate in the largest global market according to a recent global market report by AlixPartners, as China produced 33% of all commercial trucks built worldwide last year (by comparison North American comprised 18%), and sales of commercial trucks are expected to improve by approximately 7% year-over-year to 995,000 units in 2013. We intend to leverage the infrastructure AutoChina invested in during the recent downward economic cycle in our industry and are optimistic about our prospects in the coming quarters."

Heavy Truck Sales
The Company announced that it recorded 3,166 new leases of commercial vehicles (primarily Class 8 heavy trucks) as part of the Company's sales-type leasing program in the third quarter of 2013, an increase of 174.4% compared to 1,154 in the third quarter of 2012.

At September 30, 2013, the Company had 13,311 leased vehicles under its sales-type leasing program. AutoChina believes that China's heavy truck industry has begun showing signs of recovery throughout the year, as both output and sales volume have begun to stabilize. Through the first nine months of 2013, the Company recorded 7,612 new leases, a 66.6% increase from 4,569 trucks leased in the prior-year period. An additional 43 trucks were leased under AutoChina's used commercial vehicle sale-leaseback program during the third quarter of 2013, compared to 201 in the prior-year period.

Since launching its commercial vehicle sales and leasing business in March 2008, the Company has leased over 45,000 trucks.

Expansion of Specialty Finance Store Network
During the 2013 third quarter, the Company established four additional commercial vehicle financing and service centers, one in Sichuan province, two in Yunnan province, and one in Fujian province. The Company also closed one of its centers in Jiangsu province. As of September 30, 2013, AutoChina operated 538 financing and service centers in 26 provinces. The Company operates commercial vehicle financing and service centers in the Anhui, Beijing, Chongqing, Fujian, Gansu, Guangdong, Guangxi, Guizhou, Hebei, Henan, Hubei, Hunan, Inner Mongolia, Jiangsu, Jiangxi, Jilin, Liaoning, Ningxia, Shaanxi, Shandong, Shanghai, Shanxi, Sichuan, Tianjin, Yunnan, and Zhejiang areas of China.

Financial Review

2013 Third Quarter

Revenues

  • Total revenues for the third quarter ended September 30, 2013, were $176.4 million, a 140.6% increase from $73.3 million in the prior-year period.
                   
(in thousands)   Three months ended
September 30, 2013
    Three months ended
September 30, 2012
       
    Amount   % of Revenue     Amount   % of Revenue     YoY % Change  
Commercial vehicles   $ 159,542   90.5 %   52,485   71.6 %   204.0 %
Finance     10,576   6.0 %   16,381   22.3 %   (35.4 )%
Insurance     6,029   3.4 %   4,448   6.1 %   35.5 %
Rent and property management     242   0.1 %   --   0.0 %   100.0 %
Total revenues   $ 176,389   100.0 %   73,314   100.0 %   140.6 %
                             
                             
  • Commercial vehicle revenues increased 204.0% to $159.5 million from $52.5 million in the prior-year period, primarily as a result of the increase in new leases initiated during the period. The increase in commercial vehicle revenues was also a result of an increase in average price per vehicle, from $45,500 per vehicle in the 2012 third quarter to $50,400 per vehicle in the 2013 third quarter.
  • The Company reported finance revenue of $10.6 million, or 6.0% of total revenues, during the third quarter of 2013, compared to $16.4 million in the prior-year period, as a result of the decrease in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect and a decrease in the effective interest rate on leases during the three months ended September 30, 2013, compared to the third quarter of 2012.
  • Once a lease term ends, a customer can elect to continue to participate in AutoChina's service and support network, and the Company will charge service and support fees on a monthly basis when the services are rendered. As of September 30, 2013, owners of 1,501 vehicles continued to pay for services after the termination of the direct financing and sales-type lease, representing a retention rate of approximately 5.0%.
  • The Company launched its own insurance agency business in December 2011 and has signed agreements with seven major insurance carriers in China. All of AutoChina's branch locations are each licensed to sell insurance from these carrier partners. The Company's insurance related revenue increased 35.5% to $6.0 million during the period from $4.4 million in the prior-year period.
  • Rent and property management revenue from the Company's newly commenced office leasing business totaled $242,000. The office leasing business did not exist in the prior-year period.

Gross Profit/Margin

  • Cost of sales during the period totaled $157.8 million, compared to $51.5 million in the prior-year period, as a result of the increased number of leases initiated.
  • Gross profit was $18.6 million in the three months ended September 30, 2013, compared to $21.8 million in the prior-year period.
  • Gross margin decreased to 10.6% for the three months ended September 30, 2013, from 29.7% in the prior-year period, primarily due to the significantly higher number of new leases established during the period, which increased the revenue contributions from the lower-margin initial establishment of new leases relative to the higher-margin monthly amortized finance income.
  • AutoChina expects margins to improve as these new leases generate finance income over the next two years, increasing the percentage of revenues from finance and insurance income.

Net Income

  • Net income in the three months ended September 30, 2013, was $3.3 million, or $0.14 per diluted share based on 23.6 million diluted weighted average shares outstanding, compared to $4.5 million, or $0.19 per share based on 23.5 million diluted weighted average shares outstanding, in the three months ended September 30, 2012.

Adjusted EBITDA

  • Adjusted EBITDA, which is EBITDA excluding stock-based compensation and accretion of stock repurchase obligation, was $8.3 million for the quarter ended September 30, 2013, compared to $11.9 million in the prior-year quarter.

See "Non-GAAP Financial Measures" below for a description of Adjusted EBITDA.

Nine Months 2013

  • Revenues for the nine months ended September 30, 2013, were $419.8 million, a 49.3% increase from $281.2 million in the prior-year period. The Company reported $373.2 million in commercial vehicle revenues, and $46.6 million in revenues related to finance, insurance, and real estate.

  • Gross profit for the nine months ended September 30, 2013, was $51.0 million, representing gross margin of 12.1%, a decrease from gross margin of 25.5% for the same period in 2012, which is primarily due to reasons stated in the 2013 third quarter financial review.

  • Net income for the nine months ended September 30, 2013, was $8.0 million, or $0.34 per share based on 23.7 million diluted weighted average shares outstanding, compared to $21.0 million, or $0.89 per share based on 23.7 million diluted weighted average shares outstanding, in the prior-year period.

  • Adjusted EBITDA for the nine months ended September 30, 2013, was $22.5 million, compared to $43.5 million in the prior-year period.

Balance Sheet Highlights
At September 30, 2013, AutoChina's cash and cash equivalents (not including restricted cash) were $9.5 million, working capital was $66.9 million, total debt was $155.2 million (including due to affiliates and accounts payable, related parties), and stockholders' equity was $245.4 million, compared to $75.8 million, $105.4 million, $170.3 million, and $228.4 million, respectively, at December 31, 2012.

About AutoChina International Limited
AutoChina International Limited is China's largest commercial vehicle sales, servicing, leasing, and support network. AutoChina's operating subsidiary was founded in 2005 by nationally recognized Chairman and CEO, Yong Hui Li. As of September 30, 2013, the Company owned and operated 538 commercial vehicle financing centers across China, and primarily provides sales-type leasing and support services for local customers. The Company's website is http://www.autochinaintl.com.

Safe Harbor Statement
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about the Company. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of the Company's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to meaningfully differ from those set forth in the forward-looking statements:

  • Continued compliance with government regulations;
  • Changing legislation or regulatory environments;
  • Requirements or changes affecting the businesses in which the Company is engaged;
  • Industry trends, including factors affecting supply and demand;
  • Labor and personnel relations;
  • Credit risks affecting the Company's revenue and profitability;
  • Changes in the commercial vehicle industry;
  • The Company's ability to effectively manage its growth, including implementing effective controls and procedures and attracting and retaining key management and personnel;
  • Changing interpretations of generally accepted accounting principles;
  • General economic conditions; and
  • Other relevant risks detailed in the Company's filings with the Securities and Exchange Commission.

The information set forth herein should be read in light of such risks. The Company does not assume any obligation to update the information contained in this press release.

   
   
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited)  
(in thousands except share and per share data)  
   
    Three months ended September 30,     Nine months ended September 30,  
    2013     2012     2013     2012  
                         
Revenues                                
  Commercial vehicles   $ 159,542     $ 52,485     $ 373,216     $ 214,221  
  Finance     10,576       16,381       31,356       56,659  
  Insurance     6,029       4,448       15,034       10,323  
  Property lease and management     242       --       242       --  
    Total revenues     176,389       73,314       419,848       281,203  
                                 
Cost of sales                                
  Commercial vehicles     2,797       1,508       7,254       6,082  
  Commercial vehicles, related parties     153,190       49,233       358,146       202,212  
  Insurance     985       794       2,663       1,265  
  Property lease and management     806       --       806       --  
    Total cost of sales     157,778       51,535       368,869       209,559  
                                 
Gross profit     18,611       21,779       50,979       71,644  
                                 
Operating (income) expenses                                
  Selling and marketing     2,559       2,660       7,380       7,511  
  General and administrative     12,453       13,689       35,697       30,634  
  Interest expense     1,771       2,011       5,220       8,782  
  Interest expense, related parties     614       174       991       685  
  Other income, net     (3,294 )     (4,044 )     (9,934 )     (4,934 )
    Total operating expenses     14,103       14,490       39,354       42,678  
                                 
Income from operations     4,508       7,289       11,625       28,966  
                                 
Other income                                
  Interest income     148       74       375       226  
    Other income     148       74       375       226  
                                 
Income before income taxes     4,656       7,363       12,000       29,192  
                                 
Income tax provision     (1,392 )     (2,837 )     (3,963 )     (8,240 )
                                 
Net income     3,264       4,526       8,037       20,952  
Foreign currency translation adjustment     1,400       (1,651 )     6,410       (2,082 )
                                 
Comprehensive income   $ 4,664     $ 2,875     $ 14,447     $ 18,870  
Earnings per share                        
  Basic   $ 0.14   $ 0.19   $ 0.34   $ 0.89
  Diluted   $ 0.14   $ 0.19   $ 0.34   $ 0.89
                         
                         
Dividend declared per share   $ --   $ --   $ --   $ 0.25
Weighted average shares outstanding                        
  Basic     23,542,468     23,538,919     23,540,106     23,538,919
  Diluted     23,560,402     23,538,919     23,740,298     23,658,660
                           
                           
 
 
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
 
    September 30,   December 31,
    2013   2012
    (unaudited)    
ASSETS            
Current assets            
  Cash and cash equivalents   $ 9,529   $ 75,777
  Restricted cash     979     160
  Accounts receivable, net of provision for doubtful debts of $18,739 and $12,041 respectively     33,580     32,956
  Inventories     5,482     6,728
  Deposits for inventories     64     20
  Prepaid expenses and other current assets     5,804     4,512
  Current maturities of net investment in direct financing and sales-type leases, net of provision for doubtful debts of $448 and $296, respectively     201,901     196,213
  Deferred income tax assets     4,100     --
    Total current assets     261,439     316,366
             
Construction in progress     --     76,669
Property, equipment and leasehold improvements, net     82,328     4,985
Deferred income tax assets     4,304     2,547
Net investment in direct financing and sales-type leases, net of current maturities     93,163     38,739
             
    Total assets   $ 441,234   $ 439,306
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Short-term borrowings (including short-term borrowings of the consolidated variable interest entities ("VIEs") without recourse to AutoChina of $76,448 and $75,412 as of September 30, 2013 and December 31, 2012, respectively)   $ 112,232   $ 102,458
  Long-term payables, current portion (including long-term payables, current of the consolidated VIEs without recourse to AutoChina of nil and nil as of September 30, 2013 and December 31, 2012, respectively)     1,388     --
  Accounts payable (including accounts payable of the consolidated VIEs without recourse to AutoChina of $5,450 and $68 as of September 30, 2013 and December 31, 2012, respectively)     10,342     16,392
  Accounts payable, related parties (including accounts payable of the consolidated VIEs without recourse to AutoChina of nil and $706 as of September 30, 2013 and December 31, 2012, respectively)     367     2,228
  Other payables and accrued liabilities (including other payables and accrued liabilities of the consolidated VIEs without recourse to AutoChina of $10,362 and $4,857 as of September 30, 2013 and December 31, 2012, respectively)     20,622     15,049
  Due to affiliates (including due to affiliates of the consolidated VIEs without recourse to AutoChina of nil and $86 as of September 30, 2013 and December 31, 2012, respectively)     41,171     65,595
  Customer deposits (including customer deposits of the consolidated VIEs without recourse to AutoChina of $414 and $161 as of September 30, 2013 and December 31, 2012, respectively)     2,664     1,956
  Income tax payable (including income tax payable of the consolidated VIEs without recourse to AutoChina of $3,894 and $1,931 as of September 30, 2013 and December 31, 2012, respectively)     5,754     2,551
 
 
   
   
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued  
(in thousands except share and per share data)  
   
    September 30,     December 31,  
    2013     2012  
    (unaudited)        
                 
Deferred income tax liabilities (including deferred income tax liabilities of the consolidated VIEs without recourse to AutoChina of nil and nil as of September 30, 2013 and December 31, 2012, respectively)     --       4,717  
Total current liabilities     194,540       210,946  
                 
Noncurrent liabilities                
Long-term payables (including long-term payables of the consolidated VIEs without recourse to AutoChina of nil and nil as of September 30, 2013 and December 31, 2012, respectively)     1,250       --  
                 
Total liabilities     195,790       210,946  
                 
Commitment and Contingencies                
                 
Shareholders' equity                
  Preferred shares, $0.001 par value authorized - 1,000,000 shares; issued - none     --       --  
  Ordinary shares - $0.001 par value authorized - 100,000,000 shares; issued and outstanding - 23,545,939 shares at September 30, 2013 and December 31, 2012, respectively     24       24  
  Additional paid-in capital     326,493       323,856  
  Statutory reserves     16,997       16,997  
  Accumulated losses     (127,450     (135,487
  Accumulated other comprehensive income     29,380       22,970  
  Total shareholders' equity     245,444       228,360  
                   
    Total liabilities and shareholders' equity   $ 441,234     $ 439,306  
                     
                     
   
   
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
(in thousands)  
   
    Nine Months Ended September 30,  
    2013     2012  
                 
                 
Net cash (used in) provided by operating activities   $ (41,994 )   $ 200,048  
                 
Cash flow from investing activities:                
  Capital expenditure on construction in progress     --       (75,838 )
  Purchase of property, equipment and leasehold improvements     (8,755 )     (2,275 )
  Repayment (borrowing) of due from an affiliate     --       7,886  
                 
Net cash used in investing activities     (8,755 )     (70,227 )
                 
Cash flow from financing activities:                
  Proceeds from borrowings     121,546       86,933  
  Repayments of borrowings     (111,572 )     (186,065 )
  Proceeds from affiliates for debt     7,682       128,145  
  Repayment to affiliates     (32,620 )     (130,314 )
  Increase in accounts payable, related parties     358,146       202,124  
  Repayment to accounts payable, related parties     (360,035 )     (196,981 )
  Dividend paid     --       (5,885 )
  Capital distribution     --       (29,285 )
                 
Net cash provided by used in financing activities     (16,853 )     (131,328 )
                 
Net cash used in operating, investing and financing activities     (67,602 )     (1,507 )
                 
Effect of foreign currency translation on cash and cash equivalents     1,354       263  
                 
Net decrease in cash and cash equivalents     (66,248 )     (1,244 )
                 
Cash and cash equivalents, beginning of the period     75,777       43,048  
                 
Cash and cash equivalents, end of the period   $ 9,529     $ 41,804  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 6,399     $ 13,346  
  Income taxes paid   $ 11,332     $ 8,215  
                   
                   
   
   
Non-GAAP Financial Measures ($ in thousands)  
   
A reconciliation of Adjusted EBITDA to net income is provided below:  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
             
    2013     2012     2013     2012  
                         
Net income attributable to shareholders   $ 3,264     $ 4,526     $ 8,037     $ 20,952  
                                 
Interest expenses     2,385       2,185       6,211       9,467  
                                 
Interest income     (148 )     (74 )     (375 )     (226 )
                                 
Income tax provision     1,392       2,837       3,963       8,240  
                                 
Stock-based compensation     -       1,979       1,941       3,627  
                                 
Depreciation & Amortization     1,385       492       2,727       1,411  
                                 
Adjusted EBITDA   $ 8,278     $ 11,945     $ 22,504     $ 43,471  
                                 
                                 

USE OF NON-GAAP MEASURES
AutoChina defines Adjusted EBITDA as net income before interest expense (income), income taxes, depreciation and amortization, as well as the exclusion of stock-based compensation and accretion of stock repurchase obligations. Adjusted EBITDA excludes certain financial information that would be included in net income (loss), the most directly comparable GAAP financial measure. Users of this financial information should consider the type of material events and transactions that are excluded from Adjusted EBITDA, and the material limitations of therein. For example, Adjusted EBITDA does not include net interest expense, but because AutoChina has borrowed money to finance its operations, interest expense is a necessary and ongoing part of its costs and has assisted AutoChina in generating revenue; Adjusted EBITDA does not include taxes, although payment of taxes is a necessary and ongoing part of AutoChina's operations; and Adjusted EBITDA does not include depreciation and amortization expense, but because AutoChina uses capital assets to generate revenue, depreciation and amortization expense is a necessary element of its cost structure. Therefore, Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, as determined in accordance with GAAP, since it omits the impact of these expenses incurred by AutoChina.

AutoChina believes that the presentation of these non-GAAP financial measures is warranted and useful to its shareholders because it provides an additional analytical tool for understanding the Company's financial performance by excluding certain items that may obscure trends in the core operating performance of the Company's business. Using Adjusted EBITDA also facilitates management's internal comparisons to AutoChina's historical performance and liquidity. AutoChina computes Adjusted EBITDA using the same consistent method from quarter to quarter. The table above has more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.

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