SOURCE: AutoChina International Ltd.

AutoChina International Ltd.

September 24, 2014 08:30 ET

AutoChina International Reports 2014 Second Quarter and Six Month Financial Results, a 48% Increase in Commercial Vehicle Revenues in Second Quarter 2014

SHIJIAZHUANG, CHINA--(Marketwired - Sep 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 second quarter and six months ended June 30, 2014.

Q2 2014 Operational Highlights

  • 4,617 commercial vehicles leased in second quarter of 2014, a 44.5% increase from 3,195 in prior-year period
  • During the second quarter of 2014, the Company established five additional commercial vehicle sales, servicing, leasing and support centers, bringing the total number of locations to 554 as of June 30, 2014.

Q2 2014 Financial Highlights (comparisons are year over year)

  • Total revenues of $253.2 million, up 47.1% from $172.1 million, largely due to the increase in new commercial vehicle leases
  • Gross profit of $24.7 million, up 36.8% from $18.0 million
  • Net income of $4.4 million, or $0.18 per diluted share, was flat compared to net income of $4.4 million, or $0.18 per diluted share
  • Adjusted EBITDA of $13.5 million, an increase of 34.8% from $10.0 million

Six Months 2014 Financial Highlights (comparisons are year over year)

  • Total revenues of $411.6 million, up 69.0% from $243.5 million, largely due to the increase in new commercial vehicle leases initiated during the first half of 2014
  • Gross profit of $44.4 million, up 37.2% from $32.4 million
  • Net income of $1.8 million, or $0.08 per diluted share, compared to $4.8 million, or $0.20 per diluted share, primarily as a result of the one-time litigation expenses incurred to settle the SEC lawsuit in first quarter 2014
  • Adjusted EBITDA of $22.2 million, an increase of 55.7% from $14.2 million

Management Comments
Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, "We have seen continued positive trends in all of our markets throughout the first half of 2014 and into the summer. AutoChina is benefitting from both a reinvigorated commercial trucking market in China and the effects of the expansion of our network during the last few years. We believe that the Company is properly positioned to be able to take advantage of industry-leading shifts, such as higher emission standards on the heavy-truck segment in which we focus. In addition, we are continuing to leverage our nationwide business platform to offer additional services and financing options to our growing customer base. For example, during the quarter we launched our peer stores business, in which we work together with other commercial vehicle financing companies in order to expand our customer base. We hope to drive increased shareholder value with new initiatives such as this."

Operations - Heavy Truck Sales
The Company leased 4,617 commercial vehicles in the second quarter of 2014, compared to 3,195 in the prior-year period. At June 30, 2014, the Company had 18,834 leased vehicles under its sales-type leasing program.

During the quarter, the Company repossessed 139 vehicles whose lessees had defaulted on installment payments, sold 152 of these repossessed vehicles (repossessed in the quarter or in prior periods), and recorded six vehicles as losses during the three months ended June 30, 2014. In comparison, there were 165 vehicles repossessed, 226 vehicles sold and two loss vehicles recorded in the quarter ended June 30, 2013. 

Details of the vehicles leased are as follows:

       
    Number of
Vehicles
Leased
 
       
Balance at January 1, 2013   15,078  
New leases recorded in the year ended December 31, 2013   11,902  
Vehicles repossessed or loss to accident in 2013   (782 )
Vehicles transferred to customers at the end of lease term in 2013   (11,203 )
Balance at December 31, 2013   14,995  
New leases recorded in the six months ended June 30, 2014   7,419  
Vehicles repossessed or loss due to accident in the first six months of 2014   (287 )
Vehicles returned to lessee upon settling the outstanding installment   71  
Vehicles transferred to customers at the end of lease term in first six months of 2014   (3,364 )
Balance at June 30, 2014   18,834  
       
       

Operations - Expansion of Specialty Finance Store Network
During the second quarter of 2014, the Company established five additional commercial vehicle sales, servicing, leasing and support centers in the provinces of Guangdong, Gansu, Guizhou, and Jiangxi. As of June 30, 2014, AutoChina operated 554 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.

Launch of Peer Stores Business
During the second quarter of 2014, AutoChina began working with third-party commercial vehicle financing stores ("peer stores") to provide financing to their customers. The first two products to be offered are financing for new commercial vehicle purchases and financing for the insurance and taxes related to the purchase of a new commercial vehicle, which were launched in April 2014 and May 2014, respectively. The Company believes that by working with peer stores it can gain a much larger addressable customer base. For example, there are currently over 2,400 peer stores participating in the program, which significantly expands AutoChina's reach beyond its own existing store network.

Financial Review

2014 Second Quarter

Revenues

  • Total revenues for the second quarter ended June 30, 2014, were $253.2 million, a 47.1% increase from $172.1 million in the prior-year period.
                 
(in thousands)   Three months ended
June 30, 2014
    Three months ended
June 30, 2013
       
    Amount   % of Revenue     Amount   % of Revenue     YoY % Change  
Commercial vehicles   $ 232,104   91.7 %   $ 156,567   91.0 %   48.2 %
Finance     14,594   5.8 %     10,279   6.0 %   42.0 %
Insurance     5,549   2.2 %     5,258   3.0 %   5.5 %
Property lease and management     950   0.4 %     --   0.0 %   100.0 %
Total revenues   $ 253,197   100.0 %   $ 172,104   100.0 %   47.1 %
                               
                               
  • Commercial vehicle revenue increased 48.2% to $232.1 million from $156.6 million in the prior-year period, primarily as a result of the increase in new leases initiated during the 2014 second quarter. The increase in commercial vehicle revenues was also a result of an increase in average price per vehicle, from $49,000 per vehicle in the 2013 second quarter to $50,300 per vehicle in the 2014 second quarter.
  • Finance revenue increased 42.0% to $14.6 million, or 5.8% of total revenues, during the second quarter of 2014, from $10.3 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 5.5% to $5.5 million during the 2014 second quarter from $5.3 million in the prior-year period.
  • Property lease and management revenue from the Company's office-leasing business totaled $950,000. This business did not exist in the prior-year period.

Gross Profit/Margin

  • Gross profit increased 36.8% to $24.7 million in the three months ended June 30, 2014, from $18.0 million in the prior-year period.
  • Gross margin decreased to 9.7% for the three months ended June 30, 2014, from 10.5% 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

  • Net income remained flat at $4.4 million, or $0.18 per diluted share based on 24.0 million diluted weighted average shares outstanding, in the three months ended June 30, 2014, compared to $4.4 million, or $0.18 per share based on 23.7 million diluted weighted average shares outstanding, in the three months ended June 30, 2013.

Adjusted EBITDA

  • Adjusted EBITDA, which is EBITDA excluding stock-based compensation and the previously mentioned one-time litigation expense, increased 34.8% to $13.5 million for the quarter ended June 30, 2014, compared to $10.0 million in the prior-year quarter.

Six Months 2014

Revenues

  • Total revenues for the six months ended June 30, 2014, were $411.6 million, a 69.1% increase from $243.5 million in the prior year.
                 
(in thousands)   Six months ended
June 30, 2014
    Six months ended
June 30, 2014
       
    Amount   % of Revenue     Amount   % of Revenue     YoY % Change  
Commercial vehicles   $ 373,635   90.8 %   $ 213,674   87.8 %   74.9 %
Finance     26,662   6.5 %     20,780   8.5 %   28.3 %
Insurance     9,939   2.4 %     9,005   3.7 %   10.4 %
Property lease and management     1,402   0.3 %     --   0.0 %   100.0 %
Total revenues   $ 411,638   100.0 %   $ 243,459   100.0 %   69.1 %
                               
                               
  • Commercial vehicle revenues increased 74.9% to $373.6 million from $213.7 million in the prior year, primarily as a result of the increase in new leases initiated during the first half of 2014. An increase in average price per vehicle, from $48,100 per vehicle in the first half of 2013 to $50,400 per vehicle in the first half of 2014, also contributed to the growth in commercial vehicle revenues.
  • Finance revenues increased 28.3% to $26.7 million, or 6.5% of total revenues, during the six months ended June 30, 2014, compared to $20.8 million in the prior-year period, as a result of an increase in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect.
  • The Company's insurance-related revenue increased 10.4% to $9.9 million during the first half of 2014 from $9.0 million in the first half of 2013.
  • Property lease and management revenue from the Company's office-leasing business totaled $1.4 million during the period. This business did not exist during the prior-year period.

Gross Profit/Margin

  • Gross profit for the six months ended June 30, 2014, was $44.4 million, representing gross margin of 10.8%, a decrease from gross margin of 13.3% in 2012, which is primarily due to reasons stated in the 2014 second quarter financial review.

Net Income

  • Net income for six months ended June 30, 2014, was $1.8 million, or $0.08 per share based on 23.8 million diluted weighted average shares outstanding, compared to $4.8 million, or $0.20 per share based on 23.8 million diluted weighted average shares outstanding, in the prior-year period. The decrease in net income was primarily due to a one-time $4.35 million litigation expense incurred to settle the SEC lawsuit in the 2014 first quarter.

Adjusted EBITDA

  • Adjusted EBITDA, which is EBITDA excluding stock-based compensation and the previously mentioned one-time litigation expense, for the six months ended June 30, 2014, was $22.2 million, a 55.7% increase from $14.2 million in the prior-year period.

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

Balance Sheet Highlights
At June 30, 2014, AutoChina's cash and cash equivalents (not including restricted cash) were $43.2 million, working capital was $60.4 million, total debt was $383.2 million (including due to affiliates and accounts payable, related parties), and stockholders' equity was $252.8 million, compared to $31.4 million, $47.9 million, $295.0 million, and $252.8 million, respectively, at December 31, 2013. 

The increase in total debt is largely due to increased financing to support the Company's increase in total number of sales-type leases. The Company also reported a 30.9% increase in current maturities of net investment in direct financing and sales-type leases during the period.

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 (LOSS) (Unaudited)  
(in thousands except share and per share data)  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2014     2013     2014     2013  
                                 
Revenues                                
  Commercial vehicles   $ 232,104     $ 156,567     $ 373,635     $ 213,674  
  Finance     14,594       10,279       26,662       20,780  
  Insurance     5,549       5,258       9,939       9,005  
  Property lease and management     950       --       1,402       --  
    Total revenues     253,197       172,104       411,638       243,459  
                                 
Cost of sales                                
  Commercial vehicles     16,801       2,966       18,086       4,457  
  Commercial vehicles, related parties     210,493       150,239       346,636       204,956  
                                   
  Insurance     631       871       1,269       1,678  
  Property lease and management     613       --       1,245       --  
    Total cost of sales     228,538       154,076       367,236       211,091  
                                 
Gross profit     24,659       18,028       44,402       32,368  
                                 
Operating (income) expenses                                
  Selling and marketing     2,982       2,618       5,427       4,821  
  General and administrative     12,592       11,468       24,606       23,244  
  Litigation expense     --       --       4,350       --  
  Interest expense     3,102       1,789       5,796       3,449  
  Interest expense, related parties     2,814       196       4,649       377  
  Other income, net     (2,958 )     (4,227 )     (4,947 )     (6,640 )
    Total operating expenses     18,532       11,844       39,881       25,251  
                                 
Income from operations     6,127       6,184       4,521       7,117  
                                 
Other income                                
  Interest income     39       135       72       227  
    Other income     39       135       72       227  
                                 
Income before income taxes     6,166       6,319       4,593       7,344  
                                 
Income tax provision     1,767       1,959       2,793       2,571  
                                 
Net income     4,399       4,360       1,800       4,773  
                                 
Foreign currency translation adjustment     (117 )     4,182       (2,670 )     5,010  
                                 
Comprehensive income (loss)   $ 4,282     $ 8,542     $ (870 )   $ 9,783  
                                 
Basic   $ 0.19     $ 0.19     $ 0.08     $ 0.20  
Diluted   $ 0.18     $ 0.18     $ 0.08     $ 0.20  
                                 
Weighted average shares outstanding                                
    Basic     23,549,503       23,538,919       23,548,571       23,538,919  
    Diluted     23,984,487       23,687,491       23,819,428       23,777,275  
                                 
                                 
 
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
 
    June 30,   December 31,
    2014   2013
    (unaudited)    
ASSETS            
Current assets            
Cash and cash equivalents   $ 43,150   $ 31,370
Restricted cash     1,225     1,244
Accounts receivable, net of provision for doubtful debts of $24,904 and $20,891 as of June 30, 2014 and December 31, 2013, respectively     26,955     27,931
Inventories     4,095     5,319
Prepaid expenses and other current assets     5,431     5,261
Other financing receivables     9,147     --
Current maturities of net investment in direct financing and sales-type leases, net of provision for doubtful debts of $146 and $389 as of June 30, 2014 and December 31, 2013, respectively     342,503     261,684
Deferred income tax assets     7,164     5,515
Total current assets     439,670     338,324
             
Noncurrent assets            
Property, equipment and leasehold improvements, net     80,158     82,254
Deferred income tax assets     5,175     4,126
Net investment in direct financing and sales-type leases, net of current maturities     118,882     128,415
             
Total assets   $ 643,885   $ 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 $154,401 and $124,654 as of June 30, 2014 and December 31, 2013, respectively)   $ 206,410   $ 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 June 30, 2014 and December 31, 2013, respectively)     1,460     1,436
Accounts payable (including accounts payable of the consolidated VIEs without recourse to AutoChina of $1,054 and $93 as of June 30, 2014 and December 31, 2013, respectively)     5,431     10,130
Accounts payable, related parties (including accounts payable of the consolidated VIEs without recourse to AutoChina of $119,888 and $44,044 as of June 30, 2014 and December 31, 2013, respectively)     121,955     57,586
Other payables and accrued liabilities (including other payables and accrued liabilities of the consolidated VIEs without recourse to AutoChina of $13,125 and $10,323 as of June 30, 2014 and December 31, 2013, respectively)     22,023     17,146
Due to affiliates (including due to affiliates of the consolidated VIEs without recourse to AutoChina of $589 and $86 as of June 30, 2014 and December 31, 2013, respectively)     14,089     38,143
Customer deposits (including customer deposits of the consolidated VIEs without recourse to AutoChina of $353 and $319 as of June 30, 2014 and December 31, 2013, respectively)     3,834     1,680
Income tax payable (including income tax payable of the consolidated VIEs without recourse to AutoChina of $2,104 and $2,761 as of June 30, 2014 and December 31, 2013, respectively)     4,046     3,599
Total current liabilities     379,248     290,457
             
             
   
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued  
(in thousands except share and per share data)  
   
    June 30,     December 31,  
    2014     2013  
    (unaudited)        
                 
Total current liabilities     379,248       290,457  
                 
Noncurrent liabilities                
Long-term payables (including long-term payables of the consolidated VIEs without recourse to AutoChina of $11,672 and $8,955 as of June 30, 2014 and December 31, 2013, respectively)     11,831       9,857  
                 
Total liabilities     391,079       300,314  
                 
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 - 23,549,644 shares at June 30, 2014; 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     328,502       327,631  
  Statutory reserves     22,947       22,947  
  Accumulated losses     (127,809 )     (129,609 )
  Accumulated other comprehensive income     29,142       31,812  
  Total shareholders' equity     252,806       252,805  
                 
    Total liabilities and shareholders' equity   $ 643,885     $ 553,119  
                 
                 
   
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
(in thousands)  
   
    Six Months Ended
June 30,
 
    2014     2013  
                 
Net cash used in operating activities   $ (70,542 )   $ (14,977 )
                 
Cash flow from investing activities:                
  Purchase of property, equipment and leasehold improvements     (4,897 )     (1,095 )
                 
Net cash used in investing activities     (4,897 )     (1,095 )
                 
Cash flow from financing activities:                
  Proceeds from borrowings     103,645       57,363  
  Repayments of borrowings     (57,017 )     (43,877 )
  Proceeds from affiliates for debt     9,937       7,651  
  Repayment to affiliates     (33,700 )     (19,843 )
  Increase in accounts payable, related parties     346,636       204,956  
  Repayment to accounts payable, related parties     (281,595 )     (201,207 )
                 
Net cash provided by financing activities     87,906       5,043  
                 
Net cash provided by (used in) operating, investing and financing activities     12,467       (11,029 )
                 
Effect of foreign currency translation on cash and cash equivalents     (687 )     608  
                 
Net increase (decrease) in cash and cash equivalents     11,780       (10,421 )
                 
Cash and cash equivalents, beginning of the period     31,370       75,777  
                 
Cash and cash equivalents, end of the period   $ 43,150     $ 65,356  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 7,695     $ 3,589  
  Income taxes paid   $ 5,044     $ 5,855  
                 
                 
 
Non-GAAP Financial Measures ($ in thousands)
 

A reconciliation of Adjusted EBITDA to net income is provided below:

             
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2014     2013     2014     2013  
Net income attributable to shareholders   $ 4,399     $ 4,360     $ 1,800     $ 4,773  
                                 
Interest expenses     5,916       1,985       10,445       3,826  
                                 
Interest income     (39 )     (135 )     (72 )     (227 )
                                 
Income tax provision     1,767       1,959       2,793       2,571  
                                 
Stock-based compensation     434       943       871       1,941  
                                 
Depreciation & Amortization     978       869       1,966       1,342  
                                 
Litigation expense     -       -       4,350       -  
                                 
Adjusted EBITDA   $ 13,455     $ 9,981     $ 22,153     $ 14,226  
                                 
                                 

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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