SOURCE: China Auto Logistics Inc.

China Auto Logistics Inc.

May 15, 2014 07:40 ET

China Auto Logistics Reports 2014 First Quarter Results

Net Loss Recorded in the Quarter With Auto Mall and Used Auto Joint Venture Not Expected to Be on Stream Until the Second Half of the Year

Auto Sales Margins Stabilize With Improved High End Sales Mix

China Auto Logistics 2014 First Quarter Investor Conference Call Scheduled for Monday, May 19th at 8:00am ET

TIANJIN, CHINA--(Marketwired - May 15, 2014) - China Auto Logistics Inc. (the "Company" or "CALI") (NASDAQ: CALI), a top seller in China of luxury imported automobiles, a leading provider of auto-related services and a soon to be entrant in used car sales in China, today reported that revenues in its first quarter ended March 31, 2014, were down slightly compared with last year's first quarter to approximately $107 million. Higher interest and non-cash depreciation expense coupled with reduced Financial Services income, with no offsetting revenues of any magnitude or income as yet from the new used car joint venture, Car King Tianjin, or the recently acquired Airport International Auto Mall, led to an approximately $1.35 million loss in the first quarter. On a positive note, the Company saw gross margins in its Auto Sales business, which contributed almost 98% of revenues in the first quarter, improve slightly for the first time in several quarters and believes they have stabilized.

Mr. Tong Shiping, Chairman and CEO of the Company commented, "While maintaining our leadership position in the highly competitive imported luxury auto sales business, we also were able to stabilize margins with an improved mix of sales that greatly increased our average price per vehicle. While this business is likely to remain highly competitive, we remain optimistic about its long-term future. At the same time, we were able to move ahead with major steps in our diversification strategy with the acquisition we made, and the used car joint venture we concluded near the end of 2013. Both should begin to come on stream in the second half of the year." He added, "It will be somewhat painful to absorb the additional expense as we finalize our strategy. However, we believe it will be very worthwhile, given the size and growth of the used car market in China, and the excellent location of the new mall in what we hope will become another Free Trade Zone before year end."

Financial Highlights

  • Revenues in the first quarter of 2014 were $106,975,050, down 0.60% from $107,625,066 a year earlier. The 2014 figure does not include revenues from Car King Tianjin, which are accounted for under the equity method of accounting as the Company's equity interest is less than half at 40%. Sales of Automobiles accounted for 97.90% of revenues in the quarter, up from 97.41% a year earlier.
  • Gross profit margins for sales of automobiles stabilized at 0.17% in the quarter, up from 0.04% a year earlier. Nevertheless, the overall gross profit margin in the quarter was 1.33% compared with 2.07% in the first quarter last year, as gross profits declined to $1,423,797 from $2,227,719 year over year. A key factor in this result was a decline in the gross margins of Financing Services to 36.45% in the quarter from 69.7% a year earlier, as the Company temporarily ceased providing certain Financing Services due to a reutilization of available funds to finance the Zhonghe acquisition and to provide a working capital loan to Car King Tianjin.
  • The aforementioned reduction in Financing Services offerings, one fewer month of Auto Mall Management Services revenue due to the expiration of the Auto Mall Management Services contract in February, and a decline in revenues from Value Added Auto Services and Web Based Advertising Services all contributed to a loss in income from operations in the quarter of $7,562, compared with operating income of $1,464,322 a year earlier.
  • Car King Tianjin had a net loss in the quarter of $738,160, which resulted in a reported loss to the Company of $295,264 from its 40% equity investment. 
  • There were also significant acquisition related interest, depreciation and amortization costs in the quarter. In particular, interest expense in the quarter increased to $1,322,583 from $76,636 a year earlier, and depreciation on the Airport International Auto Mall property increased this expense to $644,889 from $28,153 a year earlier.
  • Reflecting in particular the reduced income from operations (particularly from Financing Services) and the increased interest and depreciation costs, a loss attributable to shareholders was incurred in the quarter of $1,346,167, or ($0.33) per share, as compared with year earlier net income of $1,007,335, or $0.27 per share.

Operational Highlights

Sales of Automobiles in the quarter continued to be affected by the slower economy and steep competition in the luxury imported auto space. Revenue in the quarter was down 0.1% year over year. While the Company sold 981 automobiles in the quarter, down 22% from a year earlier volume of 1,256 automobiles, the average unit selling price increased to $106,000 compared with $84,000 a year earlier. This increase came largely from the sale of higher end vehicles and resulted in a small increase in gross margin.

Financing Services revenues in the quarter declined 18.76% year over year to $1,543,169, as the decision was made to discontinue the fee service of providing customers with credit beyond the financing terms provided by banks. The Company determined that the working capital needed to provide this service would be better utilized in financing the Zhonghe acquisition and provide working capital to Car King Tianjin. The contribution from financing fees to operating income also therefore declined to $570,531 although interest income increased to $972,638. In future periods, it is anticipated that the revenue lost from discontinuing this product will be replaced by restoring the product or by other new products.

Airport Auto Mall Services - A small amount of revenue was generated in the quarter by leasing space in the Airport International Auto Mall to Car King Tianjin. The Company continues to finalize its plans for both the facility and the used car business, and expects that they will begin to come to fruition in the second half of this year.

Outlook

"As we indicated last quarter," Mr. Tong said, "We anticipate having to work very hard to try to overcome the continuing obstacles in the luxury auto sales space, including the slow economy, the government's concerns with auto pollution and fierce competition. However, we believe stability on the auto sales bottom line will continue as we focus on the best possible approach to optimizing our entry into the used car arena, and determining the best possible uses of our new auto mall. Our optimism for the longer term is well founded, we believe, given our size and stature in the auto industry, and the growth still being forecasted for both luxury autos and used cars, as well for auto related services such as dealer financing."

Commenting on the recent publicity surrounding the SEC complaint filed against several individuals for alleged improprieties with respect to CALI shares, Mr. Tong stated, "We spend a lot of time and effort to comply with SEC requirements and operate our business with the best interests of our shareholders in mind. As such, we strongly endorse the SEC's actions whenever they take steps to protect shareholders and try to maintain an even playing field for all investors." 

Conference Call Invitation

The Company will discuss 2014 first quarter results during a live conference call and webcast on Monday, May 19, 2014 at 8:00 am Eastern Time. 

To participate in the call, interested participants should call 1-877-941-8416 when calling within the United States or 1-480-629-9808 when calling internationally. Please ask for the China Auto Logistics 2014 First Quarter Earnings Conference Call, Conference ID: 4683974. There will be a playback available until May 26, 2014. To listen to the playback, please call 1-877-870-5176 when calling within the United States or 1-858-384-5517 when calling internationally. Use the Replay Pin Number: 4683974.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http: http://public.viavid.com/index.php?id=109326 or at ViaVid's website at http://viavid.com

About China Auto Logistics Inc.

China Auto Logistics Inc. is one of China's top sellers of imported luxury vehicles. It also provides a growing variety of "one stop" automobile related services such as short term dealer financing. Additionally, in November, 2013, it acquired the owner and operator of the 26,000 square meter Airport International Automall in Tianjin for $91.4 million, with plans to develop it, among other things, as the flagship site for a used car business, with Car King (China) Used Car Trading Co., Ltd.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission.

 
 
CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    March 31,
2014
(Unaudited)
 
December 31,
2013
ASSETS            
Current assets            
  Cash and cash equivalents   $ 10,364,520   $ 15,041,505
  Restricted cash     38,116,578     29,665,536
  Accounts receivable - trade, Car King Tianjin     324,575     -
  Receivable related to auto mall management fees     -     255,712
  Receivables related to financing services     104,290,689     68,568,562
  Inventories     17,903,606     15,343,671
  Advances to suppliers     42,189,218     38,074,096
  Prepaid expenses     45,436     12,311
  Value added tax refundable     714,859     283,478
  Deferred tax assets     12,657     48,345
    Total current assets     213,962,138     167,293,216
             
Property and equipment, net     71,722,521     72,977,985
Ownership interest in Car King Tianjin     280,028     577,904
Due from Car King Tianjin     1,298,301     -
Goodwill     19,990,877     20,159,365
Intangible assets, net     514,993     547,155
    Total Assets   $ 307,768,858   $ 261,555,625
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Bank overdraft   $ 2,415,942   $ 2,439,429
  Lines of credit related to financing services     94,060,031     66,173,312
  Short term borrowings     34,612,971     6,259,598
  Accounts payable     189,517     -
  Notes payable to suppliers     11,360,132     21,275,203
  Accrued expenses     398,536     236,599
  Customer deposits     36,569,643     35,205,567
  Deferred revenue     179,793     202,428
  Payable related to acquisition of Zhonghe - current portion, net     15,883,504     15,706,581
  Due to shareholders     2,204,875     2,223,458
  Due to director     504,380     597,393
  Income tax payable     230,470     174,540
  Deferred tax liability     718,202     786,413
    Total current liabilities     199,327,996     151,280,521
             
Payable related to acquisition of Zhonghe, excluding current portion, net     35,685,728     35,306,223
Deferred tax liability     11,902,184     12,239,842
      Total liabilities     246,915,908     198,826,586
Equity            
China Auto Logistics Inc. shareholders' equity            
  Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding           -
  Common stock, $0.001 par value, 95,000,000 shares authorized, 4,034,394 shares issued and outstanding as of March 31, 2014 and December 31, 2013     4,034     4,034
  Additional paid-in capital     22,979,734     22,979,734
  Accumulated other comprehensive income     7,114,641     7,642,886
  Retained earnings     30,184,501     31,530,669
    Total China Auto Logistics Inc. shareholders' equity     60,282,910     62,157,323
Noncontrolling interests     570,040     571,716
    Total equity     60,852,950     62,729,039
             
    Total liabilities and shareholders' equity   $ 307,768,858   $ 261,555,625
                 
                 
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)  
   
    Three Months Ended March 31,  
    2014     2013  
             
Net revenue   $ 106,975,050     $ 107,625,066  
Cost of revenue     105,551,253       105,397,347  
      Gross profit     1,423,797       2,227,719  
                 
Operating expenses:                
  Selling and marketing     186,527       170,034  
  General and administrative     1,244,832       593,363  
    Total operating expenses     1,431,359       763,397  
                 
(Loss) income from operations     (7,562 )     1,464,322  
                 
Other income (expenses)                
  Interest income     60,900       222,288  
  Interest expense     (1,322,583 )     (76,636 )
  Gain on disposal of property and equipment     11,694       -  
  Equity loss - share of investee company loss     (295,264 )     -  
  Foreign exchange loss     (96 )     (166,151 )
    Total other expenses     (1,545,349 )     (20,499 )
                 
(Loss) income before income taxes     (1,552,911 )     1,443,823  
                 
Income tax (benefit) expense     (205,873 )     435,500  
                 
Net (loss) income     (1,347,038 )     1,008,323  
                 
Less: Net (loss) income attributable to noncontrolling interests     (871 )     988  
                 
Net (loss) income attributable to shareholders of China Auto Logistics Inc.   $ (1,346,167 )   $ 1,007,335  
                 
(Loss) earnings per share attributable to shareholders of China Auto Logistics Inc.- basic and diluted   $ (0.33 )   $ 0.27  
                 
Weighted average number of common share Outstanding - basic and diluted     4,034,494       3,694,394  
                 
                 
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  
   
    Three Months Ended March 31,  
    2014     2013  
Cash flows from operating activities                
Net (loss) income   $ (1,347,038 )   $ 1,008,323  
                 
Adjustments to reconcile net (loss) income to net cash provided by(used in) operating activities                
Depreciation on property and equipment     672,605       28,153  
Gain on disposal of property and equipment     (11,694 )     -  
Equity loss - share of investee company loss     295,264       -  
Change of Inventory reserve     (142,203 )     -  
Change of deferred tax assets     35,551       -  
Change of deferred tax liabilities     (101,202 )     -  
                 
Changes in operating assets and liabilities:                
Restricted cash     10,270,967       1,082,394  
Accounts receivable - trade, Car King Tianjin     (327,033 )     (3,353,088 )
Receivable related to auto mall management fees     255,494       -  
Receivables related to financing services     (36,569,995 )     (14,271,668 )
Notes receivable     -       (1,593,143 )
Inventories     (2,566,324 )     14,086,651  
Advances to suppliers     (4,466,903 )     (32,207,433 )
Prepaid expenses, other current assets and other assets     (33,479 )     16,308  
Value added tax receivable     (437,033 )     339,818  
Accounts payable     190,380       262,260  
Line of credit related to financing services     28,655,094       28,162,474  
Notes payable to suppliers     (9,810,975 )     -  
Accrued expenses     164,962       (36,527 )
Accrued interest     792,178       -  
Value added tax payable     -       130,975  
Customer deposits     1,670,872       12,388,325  
Deferred revenue     (21,101 )     (9,227 )
Income tax payable     57,823       108,500  
Net cash (used in) provided by operating activities     (12,773,790 )     6,143,095  
                 
Cash flows from investing activities                
Proceeds from disposal of property and equipment     17,954       -  
Purchase of property and equipment     (652 )     (1,864 )
Advances to Car King Tianjin     (1,308,130 )     -  
Net cash used in investing activities     (1,290,828 )     (1,864 )
                 
Cash flows from financing activities                
Bank overdraft     (3,122 )     -  
Proceeds from short-term borrowings     31,875,389       5,842,297  
Repayments of short-term borrowings     (3,254,646 )     (18,582,569 )
Decrease in restricted cash related to short-term borrowings     (19,035,807 )     -  
Proceeds from director     205,942       202,203  
Repayments to director     (310,728 )     (198,263 )
Net cash provided by (used in) financing activities     9,477,028       (12,736,332 )
                 
Effect of exchange rate change on cash     (89,395 )     37,884  
                 
Net decrease in cash and cash equivalents     (4,676,985 )     (6,557,217 )
                 
Cash and cash equivalents at the beginning of period     15,041,505       8,888,749  
Cash and cash equivalents at the end of period   $ 10,364,520     $ 2,331,532  
                 
Supplemental disclosure of cash flow information                
Interest paid   $ 1,590,426     $ 788,038  
Income taxes paid   $ -     $ 544,000  
                 
                 

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