SOURCE: AutoChina International Ltd.

AutoChina International Ltd.

July 24, 2014 08:30 ET

AutoChina International Reports 2014 First Quarter Financial Results, Commercial Vehicle Revenues Increase 148%

Company Reports 44.5% Increase in New Leases During 2014 Second Quarter

SHIJIAZHUANG, CHINA--(Marketwired - Jul 24, 2014) - AutoChina International Limited ("AutoChina" or the "Company") (OTCBB: AUTCF), a leading provider of innovative financing solutions for China's transportation industry, today reported financial results for the first quarter ended March 31, 2014, and provided a business update for the second quarter ended June 30, 2014.

Q1 2014 Operational Highlights

  • 2,802 commercial vehicles leased in first quarter of 2014, a 124.0% increase from 1,251 in prior-year period
  • During the 2014 first quarter, the Company established four additional commercial vehicle financing and service centers and closed one of its centers.
  • Company has finalized its agreement with the Securities and Exchange Commission ("SEC") to settle the lawsuit filed in April 2012 against AutoChina and 11 investors and has paid the settlement moneys to the SEC

Q1 2014 Financial Highlights (comparisons are year over year)

  • Total revenues of $158.4 million, up 122.0% from $71.4 million, largely due to the increase in new commercial vehicle leases initiated during Q1 2014
  • Gross profit of $19.7 million, up 37.7% from $14.3 million
  • Net loss of $2.6 million, or $0.11 per diluted share, compared to net income of $0.4 million, or $0.02 per diluted share, primarily due to $4.35 million in one-time litigation expenses incurred to settle the SEC lawsuit
  • Adjusted EBITDA of $8.7 million, a 104.9% increase from $4.2 million

Operational and Market Review
Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, "We were pleased with AutoChina's strong start to 2014 as we grew the number of new commercial vehicles leased by 124.0% year over year to 2,802 in the first quarter, which tends to be a seasonally weaker period for us due to the Chinese New Year holiday. We believe market conditions in China's heavy truck sector have stabilized, and we continue working to better position the Company to capitalize on the industry's positive momentum with new service offerings for the transportation and logistics industries."

Mr. Li continued, "We recently settled the lawsuit the SEC filed against the Company and 11 investors in 2012. Primarily as a result of the $4.35 million in litigation expenses incurred to settle the lawsuit, the Company reported a net loss of $2.6 million during the quarter ended March 31, 2014. Without this one-time litigation expense, AutoChina would have reported net income growth for the period, a reflection, we believe, of the value of our service offerings and the improved market conditions. We are gratified to be able to move forward and focus all of our energies on growing the business and serving our customers. With the passing of AutoChina's 5th anniversary as a public company in the United States, we remain committed to being a responsive, stable and innovative leader in commercial vehicle financing and sales in China, and continue to grow our business profitably by being proactive in a changing global economic environment."

Heavy Truck Sales
The Company leased 2,802 commercial vehicles in the first quarter of 2014, an increase of 124.0% from 1,251 in the first quarter of 2013. At March 31, 2014, the Company had 15,924 leased vehicles under its sales-type leasing program.

During the quarter, the Company repossessed 67 vehicles whose lessees had defaulted on installment payments, sold 113 repossessed vehicles (repossessed in the quarter or in prior periods), and recorded seven vehicles as losses during the three months ended March 31, 2014. In comparison, there were 250 vehicles repossessed, 129 vehicles sold and 17 loss vehicles recorded in the quarter ended March 31, 2013. 

Expansion of Specialty Finance Store Network
During the 2014 first quarter, the Company established four additional commercial vehicle financing and service centers, one in Hunan province, one in Jiangxi province, and two in Guangdong province. The Company also closed one of its centers in Guangdong province. As of March 31, 2014, AutoChina operated 549 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

2014 First Quarter

Revenues

  • Total revenues for the first quarter ended March 31, 2014, were $158.4 million, a 122.0% increase from $71.4 million in the prior-year period.
                 
                 
(in thousands)   Three months ended
March 31, 2014
     Three months ended
March 31, 2013 
   
    Amount   % of Revenue     Amount   % of Revenue     YoY % Change  
Commercial vehicles   $ 141,531   89.3 %   $ 57,107   80.0 %   147.8 %
Finance     12,068   7.6 %     10,501   14.7 %   14.9 %
Insurance     4,390   2.8 %     3,747   5.3 %   17.2 %
Rent and property management     452   0.3 %     --   0.0 %   100.0 %
Total revenues   $ 158,441   100.0 %   $ 71,355   100.0 %   122.0 %
                               
                               
  • Commercial vehicle revenue increased 147.8% to $141.5 million from $57.1 million in the prior-year period, primarily as a result of the increase in new leases initiated during the 2014 first quarter. The increase in commercial vehicle revenues was also a result of an increase in average price per vehicle, from $45,600 per vehicle in the 2013 first quarter to $50,500 per vehicle in the 2014 first quarter.
  • Finance revenue increased 14.9% to $12.1 million, or 7.6% of total revenues, during the first quarter of 2014, from $10.5 million in the prior-year period, as a result of the increase in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect.
  • Insurance revenue increased 17.2% to $4.4 million during the period from $3.7 million in the prior-year period.
  • Rent and property management revenue from the Company's office-leasing business totaled $452,000. This business did not exist in the prior-year period.

Gross Profit/Margin

  • Cost of sales during the period totaled $138.7 million, compared to $57.0 million in the prior-year period, as a result of the increased number of leases initiated.
  • Gross profit increased 37.7% to $19.7 million in the three months ended March 31, 2014, from $14.3 million in the prior-year period.
  • Gross margin decreased to 12.5% for the three months ended March 31, 2014, from 20.1% 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.
  • As these new leases generate finance income over the next two years, they will have a positive impact on margins.

Net Income/Loss

  • As a result of a one-time $4.35 million litigation expense incurred to settle the SEC lawsuit, the Company reported a net loss of $2.6 million, or $0.11 per diluted share based on 23.5 million diluted weighted average shares outstanding, in the three months ended March 31, 2014, compared to net income of $0.4 million, or $0.02 per share based on 23.9 million diluted weighted average shares outstanding, in the three months ended March 31, 2013.

Adjusted EBITDA

  • Adjusted EBITDA, which is EBITDA excluding stock-based compensation and the previously mentioned one-time litigation expense, increased 104.9% to $8.7 million for the quarter ended March 31, 2014, compared to $4.2 million in the prior-year quarter.

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

Balance Sheet Highlights
At March 31, 2014, AutoChina's cash and cash equivalents (not including restricted cash) were $38.3 million, working capital was $51.8 million, total debt was $324.4 million (including due to affiliates and accounts payable, related parties), and stockholders' equity was $248.1 million, compared to $31.4 million, $47.9 million, $295.0 million, and $252.8 million, respectively, at December 31, 2013.

Second Quarter 2014 Business Update
The Company also announced today that it recorded 4,617 new leases of commercial vehicles (primarily class 8 heavy trucks) as part of its sales-type leasing program in the second quarter of 2014, an increase of 44.5% from 3,195 vehicles leased in the second quarter of 2013. Since launching its commercial vehicle sales and leasing business in March 2008, the Company has leased over 56,000 trucks.

During the 2014 second quarter, the Company established five additional commercial vehicle financing and service centers, one in Jiangxi province, one in Guangdong province, two in Guizhou province, and one in Gansu province. As of June 30, 2014, AutoChina operated 554 financing and service centers in 26 provinces.

About AutoChina International Limited
AutoChina International Limited focuses on providing innovative financing solutions for China's transportation industry. Founded in 2005, we are China's largest commercial vehicle sales, servicing, leasing, and support network. As of June 30, 2014, the Company owned and operated 554 commercial vehicle financing centers in 26 provinces 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  
(in thousands except share and per share data)  
   
    Three months ended March 31,  
    2014     2013  
    (unaudited)     (unaudited)  
Revenues                
  Commercial vehicles   $ 141,531     $ 57,107  
  Finance     12,068       10,501  
  Insurance     4,390       3,747  
  Property lease and management     452       --  
    Total revenues     158,441       71,355  
                 
Cost of sales                
  Commercial vehicles     1,285       1,491  
  Commercial vehicles, related parties     136,143       54,717  
  Insurance     638       807  
  Property lease and management     632       --  
    Total cost of sales     138,698       57,015  
                 
Gross profit     19,743       14,340  
                 
Operating (income) expenses                
  Selling and marketing     2,445       2,203  
  General and administrative     12,014       11,776  
  Litigation expense     4,350       --  
  Interest expense     2,694       1,660  
  Interest expense, related parties     1,835       181  
  Other income, net     (1,989 )     (2,413 )
    Total operating expenses     21,349       13,407  
                 
Income (loss) from operations     (1,606 )     933  
                 
Other income                
  Interest income     33       92  
    Other income     33       92  
                 
Income (loss) before income taxes     (1,573 )     1,025  
                 
Income tax provision     (1,026 )     (612 )
                 
Net (loss)/income     (2,599 )     413  
                 
Foreign currency translation adjustment     (2,553 )     828  
                 
Comprehensive (loss)/income   $ (5,152 )   $ 1,241  
                 
Earnings per share                
  Basic   $ (0.11 )   $ 0.02  
  Diluted   $ (0.11 )   $ 0.02  
                 
Weighted average shares outstanding                
  Basic     23,547,628       23,538,919  
  Diluted     23,547,628       23,876,548  
                 
                 
                 
                 
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(in thousands except share and per share data)  
   
    March 31,     December 31,  
    2014     2013  
    (unaudited)        
ASSETS                
Current assets                
  Cash and cash equivalents   $ 38,263     $ 31,370  
  Restricted cash     1,224       1,244  
  Accounts receivable, net of provision for doubtful debts of $23,393 and $20,891 respectively    
 27,630
      27,931  
  Inventories     4,523       5,319  
  Prepaid expenses and other current assets     5,686       5,261  
  Current maturities of net investment in direct financing and sales-type leases, net of provision for doubtful debts of $205 and $389, respectively     288,753       261,684  
  Deferred income tax assets     6,535       5,515  
    Total current assets     372,614       338,324  
                 
Noncurrent assets                
  Property, equipment and leasehold improvements, net     80,843       82,254  
  Deferred income tax assets     4,437       4,126  
  Net investment in direct financing and sales-type leases, net of current maturities     122,289       128,415  
                   
      Total assets   $ 580,183     $ 553,119  
                 
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 $126,786 and $124,654 as of March 31, 2014 and December 31, 2013, respectively)   $ 162,546     $ 160,737  
  Long-term payables, current portion (including long-term payables, current of the consolidated VIEs without recourse to AutoChina of nil and nil as of March 31, 2014 and December 31, 2013, respectively)     1,452       1,436  
  Accounts payable (including accounts payable of the consolidated VIEs without recourse to AutoChina of $349 and $93 as of March 31, 2014 and December 31, 2013, respectively)     6,371       10,130  
  Accounts payable, related parties (including accounts payable of the consolidated VIEs without recourse to AutoChina of 65,836 and $44,044 as of March 31, 2014 and December 31, 2013, respectively)     72,423       57,586  
  Other payables and accrued liabilities (including other payables and accrued liabilities of the consolidated VIEs without recourse to AutoChina of $10,527 and $10,323 as of March 31, 2014 and December 31, 2013, respectively)     21,763       17,146  
  Due to affiliates (including due to affiliates of the consolidated VIEs without recourse to AutoChina of $490 and $86 as of March 31, 2014 and December 31, 2013, respectively)     48,593       38,143  
  Customer deposits (including customer deposits of the consolidated VIEs without recourse to AutoChina of $324 and $319 as of March 31, 2014 and December 31, 2013, respectively)     3,774       1,680  
  Income tax payable (including income tax payable of the consolidated VIEs without recourse to AutoChina of $1,791 and $2,761 as of March 31, 2014 and December 31, 2013, respectively)     3,921       3,599  
Total current liabilities     320,843       290,457  
                 
Noncurrent liabilities                
Long-term payables (including long-term payables of the consolidated VIEs without recourse to AutoChina of $10,730 and $8,955 as of March 31, 2014 and December 31, 2013, respectively)     11,250       9,857  
                 
Total liabilities     332,093       300,314  
                 
                 
                 
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
(in thousands except share and per share data)
 
    March 31,     December 31,  
    2014     2013  
    (unaudited)        
             
Commitments 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 - 23,549,356 shares at March 31, 2014, respectively; and $0.001 par value authorized - 100,000,000 shares; issued and outstanding - 23,545,939 shares at December 31, 2013, respectively     24       24  
  Additional paid-in capital     328,068       327,631  
  Statutory reserves     22,947       22,947  
  Accumulated losses     (132,208 )     (129,609 )
  Accumulated other comprehensive income     29,259       31,812  
  Total shareholders' equity     248,090       252,805  
                 
    Total liabilities and shareholders' equity   $ 580,183     $ 553,119  
                     
                     
 
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
    Three Months Ended March 31,  
    2014     2013  
    (unaudited)        
             
Net cash (used in) provided by operating activities   $ (18,351 )   $ 22,807  
                 
Cash flow from investing activities:                
  Capital expenditure on construction in progress     --       (601 )
  Purchase of property, equipment and leasehold improvements     (3,419 )     (303 )
  Decrease (increase) in restricted cash     --       (1,273 )
                 
Net cash used in investing activities     (3,419 )     (2,177 )
                 
Cash flow from financing activities:                
  Proceeds from borrowings     60,223       23,882  
  Repayments of borrowings     (57,218 )     (43,626 )
  Proceeds from affiliates for debt     10,852       5  
  Increase in accounts payable, related parties     136,144       54,717  
  Repayment to accounts payable, related parties     (120,706 )     (50,222 )
                 
Net cash provided by (used in) financing activities     28,415       (15,244 )
                 
Net cash provided by operating, investing and financing activities     6,645       5,386  
                 
Effect of foreign currency translation on cash and cash equivalents     (632 )     207  
                 
Net increase in cash and cash equivalents     6,893       5,593  
                 
Cash and cash equivalents, beginning of the period     31,370       75,777  
                 
Cash and cash equivalents, end of the period   $ 38,263     $ 81,370  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 3,732     $ 2,185  
  Income taxes paid   $ 2,035     $ 2,904  
                   
                   
 
Non-GAAP Financial Measures ($ in thousands)
 
A reconciliation of Adjusted EBITDA to net income is provided below:
       
       
    Three Months Ended
March 31,
 
    2014     2013  
Net income (loss) attributable to shareholders   $ (2,599 )   $ 413  
Interest expenses     4,529       1,841  
Interest income     (33 )     (92 )
Income tax provision     1,026       612  
Stock-based compensation     437       998  
Depreciation & Amortization     988       473  
Litigation expense     4,350       -  
Adjusted EBITDA   $ 8,698     $ 4,245  
                 
                 

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 one-time litigation expenses. 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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