SOURCE: China Auto Logistics Inc.

China Auto Logistics Inc.

August 13, 2014 07:40 ET

China Auto Logistics Reports Net Loss on Higher Revenues in 2014 Second Quarter

Auto Sales Margins Continued to Stabilize but Reduced Income From Higher Margin Services Businesses and Higher Interest and Depreciation Costs Related to the Airport International Auto Mall Acquisition Impacted Results as Anticipated

Company Is Optimistic About Future Outlook Particularly Given the Growth Potential It Sees in Recently Announced Strategic Cooperation Agreement Aimed at Greatly Expanding Luxury Imported Auto Sales and Services Throughout China

China Auto Logistics 2014 Q2 Investor Conference Call Scheduled for Thursday, August 14th at 8:00am ET

TIANJIN, CHINA--(Marketwired - Aug 13, 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 minority participant in a used car sales joint venture, today announced that in its second quarter ended June 30, 2014, it saw revenues increase 3.11% year over year to nearly $114 million as imported auto sales grew 3.21% in the same time frame. However, anticipated increased depreciation and interest costs related to its acquisition of the Tianjin Airport International Auto Mall, and a decreased contribution to the bottom line from its higher margin services businesses, combined with stabilized but slightly lower gross margins in Auto Sales, produced a net loss attributable to shareholders in the quarter of approximately $1.85 million. This included a small operating loss of just over $300,000.

Mr. Tong Shiping, Chairman and CEO of the Company commented, "From an operating standpoint, during the quarter we continued our strategy of selling cars with reduced margins to maintain and expand our leadership in imported high end auto sales and were pleased that changes in the mix of our sales and our customers continued to result in stabilized bottom line results. Over time, we believe this situation will improve in our favor, particularly as we execute plans to greatly expand our e-commerce based sales and services anchored by new automalls we expect will be built or acquired throughout China in cooperation with our new strategic partner, Tianjin Binhai International Automall, Ltd."

He added, "With our 40% interest in Car King Tianjin, we also have exposure to China's used car market and are reviewing other opportunities we envision through our acquisition of the Airport International Auto Mall, such as retail auto sales. While we have had to fight a difficult economic environment and new competition to reach this point, I can say once again we truly are excited about where the Company is headed and are working diligently to finalize and implement our growth strategy."

Financial Highlights

  • Revenues in the second quarter increased to $113,686,767 from $110,256,310 in the same period last year. These results exclude revenues from the Company's 40% interest in Car King Tianjin, which is accounted for under the equity method of accounting. Sales of Automobiles accounted for 98.07% of all sales in the quarter. 

  • Gross profit margins on sales of automobiles in the second quarter decreased to negative 0.06% from 0.26% a year earlier. However, this year's result included a $308,444 reserve for a batch of slow moving vehicles purchased in late 2012 and 2013. Excluding the reserve, the gross profit margin for auto sales would have been 0.21%, slightly lower than the comparable figure a year ago, but higher than the gross profit margin in the first quarter of 2014.

  • The Company's gross profit margin of 1.33% in the second quarter was the same as in the first quarter of the year, but lower than in the same period last year. This year over year decline was largely a consequence of a reduction in margins in Financing Services to 39.04% in the second quarter of 2014 compared to 62.57% in the second quarter of 2013. While revenue in this business declined less than 1% year over year in the quarter, the fee income portion of revenue declined approximately 38%, as the Company decided to temporarily cease 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.

  • Income from the Company's Web-based Advertising Services and Value Added Auto Services declined in the quarter, while Airport Auto Mall Automotive Services made a small contribution to operating income. The Financial Services contribution in the second quarter of 2014 topped the operating income it generated in the same quarter last year.

  • Car King Tianjin, while still in a preliminary development stage, generated $604,766 in revenue in the second quarter from sales of used cars and agency commissions earned from selling automobiles owned by other Car King locations. However, it generated a loss in the quarter, of which the reported equity loss for the Company was $193,121, representing the Company's share of Car King Tianjin's losses.

  • The Company saw an increase in interest, depreciation and amortization costs relating to the Zhonghe acquisition. Interest expense in the second quarter was $1,719,897 related to the bank loans for working capital use and payables related to the Zhonghe acquisition. Depreciation and amortization expense in the quarter was $666,674.

  • The net loss attributable to shareholders in the second quarter was $1,846,254, or a $0.46 loss per share, compared with net income of $800,484, or $0.22 in earnings per share in the same period last year.

  • For the first six months of 2014, revenues increased to $220,661,817 from $217,881,376 a year earlier. The net loss attributable to shareholders was $3,192,422, or a $0.79 loss per share, compared with net income of $1,807,819, or $0.49 in earnings per share in the first six months of 2013.

  • Diluted weighted average common shares outstanding were 4,034,494 for the second quarter of 2014, compared with 3,694,394 for the same period of 2013.

Operational Highlights

Steep competition and a slower economy were the key factors affecting results in the second quarter. However, an improved sales mix contributed to the growth reported in revenues in the period. While sales volume decreased approximately 15% from 1,240 automobiles sold in the second quarter last year, to 1,048 automobiles in the second quarter of 2014, the average selling price per automobile increased to $106,000 from $87,000 year over year. Of further note, during the second quarter, the Company's top three customers, all car dealers, accounted for 19% of sales, as compared with 30% of sales a year earlier. The Company continues to seek to enlarge its customer base while maintaining strong relationships with its top customers.

While, as described above, Financing Services revenue was down only slightly year over year, the key contribution to this result was interest income generated rather than fees for services. Nevertheless, Financing Services continued to be the top contributor to operating income.

A small amount of revenue was generated during the second quarter by leasing space in the recently acquired Airport International Automall to Car King Tianjin. As previously announced, the Company is aiming to determine how to best utilize this facility in the second half of 2014 and hopes that it may begin contributing to the Company's financial results. 

After the end of the quarter, on August 6, 2014, the Company made a major announcement of a new strategic cooperation agreement with a leading auto dealer leasing and development company, Tianjin Binhai International Automall. It is anticipated this new cooperation will greatly expand the Company's high end imported auto business with a new e-commerce platform anchored by the purchase and construction of new automalls throughout China. One of the key drivers of this new arrangement was a recent revision of governmental rules on imported cars, which the Company believes will provide it with a much higher degree of flexibility in operating this business.

Outlook

As noted earlier, the Company's optimism with respect to its long term growth has increased measurably in recent weeks as it has pursued the diversification it has been seeking with the acquisition of the Airport International Auto Mall, and with the significant potential for expansion it envisions as a consequence of the strategic cooperation agreement it has entered into.

Recently, the Company also has encountered a major challenge in the form of a notice from the Depository Trust Company of plans to impose a "global lock" on the Company's common shares. The Company is responding vigorously to this challenge which it views as unfairly harming shareholders even though the Company itself has not been charged with any wrongdoing. It has hired special counsel to handle the matter and is determined to do everything possible to protect shareholders, and will continue to update shareholders whenever new information on the matter becomes available. 

Conference Call Invitation

The Company will discuss 2014 Second Quarter results during a live conference call and webcast on Thursday, August 14, 2014 at 8:00 am Eastern Time. This will follow distribution of a news release with the Company's 2014 second quarter results on Wednesday, August 13, 2014.

To participate in the call, interested participants should call 1-888-438-5524 when calling within the United States or 1-719-457-2627 when calling internationally. Please ask for the China Auto Logistics 2014 Second Quarter Earnings Conference Call, Conference ID: 3136573. There will be a playback available until August 21, 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: 3136573.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=110599 or at ViaVid's website at http://viavid.com.

SEE ATTACHED TABLES

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 Auto Mall in Tianjin for $91.4 million, with plans to develop the auto mall, among other things, as the flagship site for a joint venture with Car King (China) Used Car Trading Co., Ltd. Most recently, in August, 2014, the Company entered into a strategic cooperation agreement with a leading auto dealer leasing and development company, through which the Company hopes it may substantially expand e-commerce sales of high end luxury imported automobiles.

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. We do not undertake any obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

 
CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    June 30,
2014
(Unaudited)
  December 31,
 2013
ASSETS            
Current assets            
  Cash and cash equivalents   $ 1,823,512   $ 15,041,505
  Restricted cash     46,515,415     29,665,536
  Accounts receivable - trade, Car King Tianjin     649,857     -
  Receivable related to auto mall management fees     -     255,712
  Receivables related to financing services     101,530,958     68,568,562
  Inventories     14,708,838     15,343,671
  Advances to suppliers     58,261,106     38,074,096
  Prepaid expenses     26,742     12,311
  Value added tax refundable     185,054     283,478
  Deferred tax assets     12,671     48,345
    Total current assets     223,714,153     167,293,216
             
Property and equipment, net     71,167,042     72,977,985
Ownership interest in Car King Tianjin     86,952     577,904
Due from Car King Tianjin     1,380,946     -
Goodwill     20,012,637     20,159,365
Intangible assets, net     487,934     547,155
    Total Assets   $ 316,849,664   $ 261,555,625
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Bank overdraft   $ 2,418,079   $ 2,439,429
  Lines of credit related to financing services     88,192,066     66,173,312
  Short term borrowings     53,446,006     6,259,598
  Accounts payable     1,118,103     -
  Notes payable to suppliers     8,935,534     21,275,203
  Accrued expenses     632,969     236,599
  Customer deposits     34,838,101     35,205,567
  Deferred revenue     160,897     202,428
  Rental deposits     81,232     -
  Payable related to acquisition of Zhonghe - current portion, net     16,213,975     15,706,581
  Due to former shareholder     2,207,275     2,223,458
  Due to director     499,459     597,393
  Income tax payable     296,155     174,540
  Deferred tax liability     656,347     786,413
    Total current liabilities     209,696,198     151,280,521
             
Payable related to acquisition of Zhonghe, excluding current portion, net     36,410,075     35,306,223
Deferred tax liability     11,677,488     12,239,842
    Total liabilities     257,783,761     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 June 30, 2014 and December 31, 2013     4,034     4,034
  Additional paid-in capital     22,979,734     22,979,734
  Accumulated other comprehensive income     7,180,105     7,642,886
  Retained earnings     28,338,247     31,530,669
    Total China Auto Logistics Inc. shareholders' equity     58,502,120     62,157,323
Noncontrolling interests     563,783     571,716
    Total equity     59,065,903     62,729,039
             
    Total liabilities and shareholders' equity   $ 316,849,664   $ 261,555,625
             
   
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)  
   
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2014     2013     2014     2013  
                                 
Net revenue   $ 113,686,767     $ 110,256,310     $ 220,661,817     $ 217,881,376  
Cost of revenue     112,665,784       108,441,227       218,217,037       213,838,574  
    Gross profit     1,020,983       1,815,083       2,444,780       4,042,802  
                                 
Operating expenses:                                
  Selling and marketing     199,272       192,808       385,799       362,842  
  General and administrative     1,122,147       359,336       2,366,979       952,699  
    Total operating expenses     1,321,419       552,144       2,752,778       1,315,541  
                                 
(Loss) income from operations     (300,436 )     1,262,939       (307,998       2,727,261  
                                 
Other income (expenses)                                
  Interest income     198,010       20,358       258,909       242,646  
  Interest expense     (1,719,897 )     (142,439 )     (3,042,480 )     (219,075 )
  Gain on disposal of property and equipment     246       -       11,940       -  
  Equity loss - share of investee company loss     (193,121 )     -       (488,385 )     -  
  Foreign exchange loss     (72,318 )     (20,219 )     (72,414 )     (186,370 )
    Total other expenses     (1,787,080 )     (142,300 )     (3,332,430 )     (162,799 )
                                 
(Loss) income before income taxes     (2,087,516 )     1,120,639       (3,640,428 )     2,564,462  
                                 
Income taxes (benefits) expense     (234,537 )     321,148       (440,410 )     756,648  
                                 
Net (loss) income     (1,852,979 )     799,491       (3,200,018 )     1,807,814  
                                 
Less: Net loss attributable to noncontrolling interests    
(6,725
)    
(993
)    
(7,596
)    
(5
)
                                 
Net (loss) income attributable to shareholders of China Auto Logistics Inc.   $
(1,846,254
)   $
800,484
    $
(3,192,422
)   $
1,807,819
 
                                 
(Loss) earnings per share attributable to shareholders of China Auto Logistics Inc. - basic and diluted   $

(0.46
)   $

0.22
    $

(0.79
)   $

0.49
 
                                 
Weighted average number of common shares Outstanding - basic and diluted     4,034,494       3,694,394       4,034,494       3,694,394  
                                 
   
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  
   
    Six Months Ended June 30,  
    2014     2013  
Cash flows from operating activities                
Net (loss) income   $ (3,200,018 )   $ 1,807,814  
                 
Adjustments to reconcile net (loss) income to net cash provided by(used in) operating activities                
Depreciation on property and equipment     1,283,899       56,661  
Amortization on intangible assets     55,380       -  
Gain on disposal of property and equipment     (11,940 )     -  
Equity loss - share of investee company loss     488,385       -  
Change of Inventory reserve     166,241       -  
Change of deferred tax assets     35,551       -  
Change of deferred tax liabilities     (189,768 )     -  
                 
Changes in operating assets and liabilities:                
Restricted cash     15,794,841       (19,633,033 )
Accounts receivable - trade, Car King Tianjin     (651,524 )     -  
Receivable related to auto mall management fees     255,494       -  
Receivables related to financing services     (33,700,611 )     (4,444,767 )
Notes receivable     -       1,631,363  
Inventories     335,161       12,896,225  
Advances to suppliers     (20,471,286 )     (22,846,983 )
Prepaid expenses, other current assets and other assets     (14,761 )     72,991  
Value added tax receivable     92,836       145,902  
Accounts payable     1,117,510       624,299  
Line of credit related to financing services     22,692,784       22,862,005  
Notes payable to suppliers     (12,244,657 )     -  
Accrued expenses     398,833       (43,416 )
Accrued interest     1,578,200       -  
Value added tax payable     -       (1,572 )
Customer deposits     (98,091 )     15,626,790  
Deferred revenue     (40,168 )     (40,399 )
Rental deposits     81,123       -  
Income tax payable     123,169       (12,445 )
Net cash (used in) provided by operating activities     (26,123,417 )     8,701,435  
                 
Cash flows from investing activities                
Proceeds from disposal of property and equipment     17,954       -  
Purchase of property and equipment     (6,802 )     (10,873 )
Advances to Car King Tianjin     (1,389,253 )     -  
Acquisition deposit for Zhonghe     -       (16,122,531 )
Net cash used in investing activities     (1,378,101 )     (16,133,404 )
                 
Cash flows from financing activities                
Bank overdraft     (3,615 )     2,409,457  
Proceeds from short-term borrowings     59,796,676       22,152,978  
Repayments of short-term borrowings     (12,405,885 )     (19,944,736 )
(Increase) decrease in restricted cash related to short-term borrowings     (32,905,773 )     (2,866,586 )
Proceeds from director     405,942       402,203  
Repayments to director     (513,820 )     (396,537 )
Net cash provided by financing activities     14,373,525       1,756,779  
                 
Effect of exchange rate change on cash     (90,000 )     76,647  
                 
Net decrease in cash and cash equivalents     (13,217,993 )     (5,598,543 )
                 
Cash and cash equivalents at the beginning of period     15,041,505       8,888,749  
Cash and cash equivalents at the end of period   $ 1,823,512     $ 3,290,206  
                 
Supplemental disclosure of cash flow information                
Interest paid   $ 3,298,777     $ 1,538,774  
Income taxes paid   $ -     $ 744,203  
                 

Contact Information