AutoChina International Reports 2011 Fourth Quarter and Year-end Financial Results

SHIJIAZHUANG, China--()--AutoChina International Limited (“AutoChina” or the “Company”) (OTC: AUTCF), China’s largest commercial vehicle sales, servicing, leasing, and support network, today reported financial results for its fourth quarter and year ended December 31, 2011.

Q4 2011 Financial Highlights (comparisons are year over year)

  • Total revenues of $107.4 million, compared to $155.9 million
  • Gross profit of $26.5 million, compared to $25.6 million
  • Net income of $6.9 million, compared to a net loss of $4.2 million
  • Adjusted net income of $6.9 million, compared to $10.9 million
  • Adjusted EBITDA of $16.2 million, compared to $18.2 million

Full-year 2011 Financial Highlights (comparisons are year over year)

  • Total revenues of $598.1 million, compared to $618.1 million
  • Gross profit of $107.5 million, compared to $88.0 million
  • Net income of $26.1 million, compared to a net loss of $62.9 million
  • Adjusted net income of $43.4 million, compared to $37.5 million
  • Adjusted EBITDA of $80.0 million, compared to $69.1 million

2011 Operational Highlights

  • 1,804 commercial vehicles leased in the fourth quarter of 2011
  • 10,935 commercial vehicles leased during the year ended December 31, 2011
  • Company focusing on growing its specialty finance business and service offerings, continuing its geographic expansion, sees continued margin expansion

Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, “Though AutoChina had to address a difficult set of challenges in 2011, we kept a firm focus on growing our business while remaining committed to providing our customers with quality service. We launched our used commercial vehicle sale-leaseback program in early 2011 and in the fourth quarter of 2011 established an insurance agency business whereby AutoChina intends to broker different insurance products from various carriers to existing and new customers. We also partnered with the Postal Savings Bank of China (“PSBC”), enabling qualified AutoChina customers to access credit cards through PSBC and also make payments to us directly from PSBC branches. Compared to the robust economic growth and heavy-truck demand of 2009 and 2010, 2011 was a year of normalization on both fronts. However, as AutoChina continues to increase its geographic presence across China, we believe that the country’s continuing economic development will remain the primary driver of demand for commercial vehicles in the long term. Further, we remain committed to leveraging the power of the store network we have created to offer a variety of specialty finance and insurance options to individuals throughout China, and continue to seek additional means of diversifying our revenues.”

Operational Review

Heavy Truck Sales

The Company leased 1,804 commercial vehicles in the fourth quarter of 2011, compared to 3,076 in the fourth quarter of 2010.

AutoChina’s commercial vehicle specialty finance business recorded 10,935 new leases during the year ended December 31, 2011, compared to 12,561 new leases in the prior year. The Company continues to maintain a low default rate, as AutoChina realized losses in lease-to-own loans on 169 vehicles, or 1.5%, for loss and accidents during the year ended December 31, 2011. There were 55, or 0.4%, such losses recognized in the previous year.

Value-Added Services

AutoChina also continues to make progress with its higher-margin value-added services (diesel, tires, and insurance) programs. Revenues from value-added services totaled $4.0 million for the year ended December 31, 2011, compared to $1.6 million in the prior-year period.

Used Vehicle Leasing

The Company officially launched its commercial vehicle sale-leaseback program in early 2011 and leased an additional 1,131 used vehicles under this program during the year ended December 31, 2011. Revenues generated from these secondhand commercial vehicle leasing arrangements during 2011 totaled $0.9 million.

Expansion of Specialty Finance Store Network

During the year ended December 31, 2011, the Company opened 206 additional financing and service centers. At December 31, 2011, AutoChina owned and operated 506 financing centers in 26 provinces or province-level regions across China, compared to 300 at December 31, 2010. Out of the 206 new locations, 94 were opened in provinces that did not have an AutoChina presence as of December 31, 2010. The Company now 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

2011 Fourth Quarter

  • The Company reported revenues for the fourth quarter ended December 31, 2011, of $107.4 million, compared to the $155.9 million reported in the fourth quarter of 2010. The decrease in revenues primarily resulted from lower demand for heavy trucks from the extraordinarily robust levels in 2010, which was partially offset by higher finance and insurance income during the period. The Company reported $83.4 million in commercial vehicle revenues, and $24.0 million, or 22.3% of revenues, related to finance and insurance.
  • The Company’s cost of sales during the period totaled $80.9 million, with an average cost per commercial vehicle of $44,800. Gross margin increased to 24.7% for the three months ended December 31, 2011, from 16.4% for the prior-year period. The increase in gross margin was due to a higher contribution to revenues from finance and insurance versus direct sales of commercial vehicles.
  • Net income in the three months ended December 31, 2011, was $6.9 million, or $0.29 earnings per share based on 23.5 million diluted weighted average shares outstanding, compared to a net loss of $4.2 million, or $0.22 earnings per share based on 19.6 million diluted weighted average shares outstanding, in the three months ended December 31, 2010. The year-over-year increase of net income from a net loss position primarily resulted from the decrease of loss on change in fair value of the Earn-out obligation.
  • Adjusted net income was $6.9 million, compared to $10.9 million for the fourth quarter of 2010.
  • Adjusted EBITDA for the quarter ended December 31, 2011, was $16.2 million, compared to $18.2 million in the prior-year quarter.

See “Non-GAAP Financial Measures” below for a description of adjusted net income and adjusted EBITDA.

Full-year 2011

  • For the year ended December 31, 2011, the Company reported revenues of $598.1 million, compared to $618.1 million for 2010. The decrease in revenues was primarily due to lower demand for heavy trucks compared to the high demand levels of 2010. The Company reported $505.6 million in sales of its commercial vehicles, and $92.5 million, or 15.5% of sales, related to finance and insurance. The increase in finance and insurance revenue is due to an increase in the total leasing customer base compared to the prior period.
  • The Company’s gross profit was $107.5 million for the year ended December 31, 2011, representing a gross margin of 18.0%, an increase from gross margin of 14.2% in 2010, which is primarily due to the increased number of outstanding leasing contracts signed that increased the contribution to monthly finance and insurance income.
  • Net income for the year ended December 31, 2011, was $26.1 million, or $1.11 earnings per share based on 23.6 million diluted weighted average shares outstanding, compared to a net loss of $62.9 million, or $3.42 per share based on 18.4 million diluted weighted average shares outstanding, for the year ended December 31, 2010. This year-over-year increase was primarily due to the decrease of loss on change in fair value of the Earn-out obligation, significant increase in profits generated from the finance and insurance revenue, and improved gross profit margin.
  • Adjusted net income was $43.4 million, a 15.8% increase from adjusted net income of $37.5 million in 2010.
  • Adjusted EBITDA for full-year 2011 increased to $80.0 million, from $69.1 million in the prior-year period.

Balance Sheet Highlights

At December 31, 2011, AutoChina’s cash and cash equivalents (not including restricted cash) were $43.0 million, working capital was $170.7 million, total debt was $230.1 million (including due to affiliates and accounts payable, related parties), and stockholders’ equity was $290.3 million, compared to $30.9 million, $127.4 million, $326.6 million (includes $73.1 million in Earn-out obligation), and $156.8 million, respectively, at December 31, 2010.

Mr. Li concluded, “The Company believes itself to be a partner to individuals and small business owners. By providing access to affordable commercial vehicle ownership, we enable them to transport their high-demand goods all over the vast and rapidly developing Chinese countryside and grow their businesses, which, in turn, enable them to support their families. We remain committed to this vision and will continue to work toward our goal of becoming a vertically integrated specialty finance provider in China.”

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 December 31, 2011, the Company owned and operated 506 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 STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands except share and per share data)

             
Three months ended

December 31,

Year ended

December 31,

2011     2010 2011     2010
Revenues
Commercial vehicles $ 83,422 $ 136,539 $ 505,618 $ 558,004
Finance and insurance 23,998 19,118 92,476 59,405
Agency service, related parties       222         664  
Total revenues   107,420     155,879     598,094     618,073  
 
Cost of sales
Commercial vehicles 638 49,565 86,055 419,383
Commercial vehicles, related parties   80,242     80,749     404,572     110,728  
Total cost of sales   80,880     130,314     490,627     530,111  
 
Gross profit   26,540     25,565     107,467     87,962  
 
Operating expenses (income)
Selling and marketing 2,353 2,485 8,055 6,260
General and administrative 10,049 5,915 27,198 17,590
Interest expense 4,157 3,269 15,920 10,512
Interest expense, related parties 1,049 1,576 3,020 6,945
Other expenses (income), net   (596 )   147     (3,415 )   (789 )
Total operating expenses   17,012     13,392     50,778     40,518  
 
Income from operations   9,528     12,173     56,689     47,444  
 
Other income (expense)
Loss on change in fair value of earn-out obligation (15,100 ) (17,300 ) (100,400 )
Interest income   65         160     433  
Other income (expense), net 65 (15,100 ) (17,140 ) (99,967 )
 
Income (loss) before income taxes 9,593 (2,927 ) 39,549 (52,523 )
 
Income tax provision   (2,726 )   (1,305 )   (13,419 )   (10,369 )
 
Net (loss) income $ 6,867 $ (4,232 ) $ 26,130 $ (62,892 )
Foreign currency translation adjustment   2,806     3,539     14,072     6,894  
 
Comprehensive income (loss) $ 9,673   $ (693 ) $ 40,202   $ (55,998 )
 
Earnings (loss) per share
Basic $ 0.29   $ (0.22 ) $ 1.11   $ (3.42 )
Diluted $ 0.29   $ (0.22 ) $ 1.11   $ (3.42 )
Weighted average shares outstanding
Basic   23,538,919     19,619,876     23,538,919     18,415,305  
Diluted   23,538,919     19,619,876     23,612,398     18,415,305  
       
 

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

     
December 31,
2011         2010
 
ASSETS
Current assets
Cash and cash equivalents $ 43,019 $ 30,931
Restricted cash 159
Accounts receivable, net of provision for doubtful accounts of $4,830 and $1,464, respectively 25,357 22,101
Inventories 2,529 1,412
Deposits for inventories 105 1,004
Deposits for inventories, related party 14,539
Prepaid expenses and other current assets 12,096 8,113
Prepaid interest expenses, related parties 604
Due from an affiliate 9,000

Current maturities of net investment in direct financing and sales-type leases, net of provision
 for doubtful accounts of $714 and $281, respectively

  329,111   282,108
Total current assets 426,915 355,273
 
Property, equipment and leasehold improvements, net 3,356 2,669
Deferred income tax assets 1,811 259
Net investment in direct financing and sales-type leases, net of current maturities   114,447   142,005
 
Total assets $ 546,529 $ 500,206
       
 

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – Continued

(in thousands except share and per share data)

     
December 31,
2011         2010
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings (including short-term borrowings of the consolidated VIEs without recourse to AutoChina of $111,095 and $106,864 as of December 31, 2011 and 2010, respectively) $ 149,979 $ 117,485
Long-term borrowings, current (including long-term borrowings, current of the consolidated VIEs without recourse to AutoChina of $44,438 and nil as of December 31, 2011 and 2010, respectively) 44,438
Accounts payable (including accounts payable of the consolidated VIEs without recourse to AutoChina of $112 and $408 as of December 31, 2011 and 2010, respectively) 404 911
Accounts payable, related parties (including accounts payable, related parties of the consolidated VIEs without recourse to AutoChina of nil and $16,202 as of December 31, 2011 and 2010, respectively) 16,202
Other payables and accrued liabilities (including other payables and accrued liabilities of the consolidated VIEs without recourse to AutoChina of $4,415 and $5,626 as of December 31, 2011 and 2010, respectively) 13,652 7,425
Due to affiliates (including due to affiliates of the consolidated VIEs without recourse to AutoChina of $3,244 and nil as of December 31, 2011 and 2010, respectively) 35,661 77,295
Customer deposits (including customer deposits of the consolidated VIEs without recourse to AutoChina of $508 and $1,014 as of December 31, 2011 and 2010, respectively) 1,152 1,198
Income tax payable (including income tax payable of the consolidated VIEs without recourse to AutoChina of $1,548 and $7,012 as of December 31, 2011 and 2010, respectively) 2,799 7,147
Deferred income tax liabilities (including deferred income tax liabilities of the consolidated VIEs without recourse to AutoChina of $4,764 and $192 as of December 31, 2011 and 2010, respectively)   8,162     192  
Total current liabilities 256,247 227,855
 
Noncurrent liabilities
Long-term borrowings (including long-term borrowings of the consolidated VIEs without recourse to AutoChina of nil and $42,485 as of December 31, 2011 and 2010, respectively) 42,485
Earn-out obligation       73,100  
Total liabilities   256,247     343,440  
 
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 - 50,000,000 shares; issued and outstanding – 23,538,919 shares and 19,615,766 shares at December 31, 2011 and 2010, respectively 24 20
Additional paid-in capital 379,952 286,642
Statutory reserves 13,016 6,272
Accumulated losses (124,349 ) (143,735 )
Accumulated other comprehensive income   21,639     7,567  
Total shareholders’ equity   290,282     156,766  
 
Total liabilities and shareholders’ equity $ 546,529   $ 500,206  
 
 

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

       
December 31,
2011       2010
 
Cash flow from operating activities:
 
Net income (loss) $ 26,130 $ (62,892 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss on change in fair value of earn-out obligation 17,300 100,400
Depreciation and amortization 1,420 952
Provision for bad debts 4,271 1,447
Deferred income taxes 6,261 (959 )
Stock-based compensation expenses 2,914 3,281
 
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable (5,997 ) (20,263 )
Notes receivable 222
Net investment in direct financing and sales-type leases 2,175 (194,490 )
Inventories (1,024 ) (1,255 )
Deposits for inventories 923 16,567
Deposits for inventories, related party (14,177 )
Prepaid expense and other current assets (3,511 ) (1,828 )
Trade notes payable (12,561 )
Accounts payable (536 ) (2,756 )
Accounts payable, related parties 16,104
Other payable and accrued liabilities 5,730 4,229
Customers deposits (100 ) (182 )
Income tax payable   (4,568 )   4,912  
 
Net cash provided by (used in) operating activities   37,211     (149,072 )
 
Cash flow from investing activities:
 
Purchase of property, equipment and leasehold improvements (1,967 ) (1,427 )
(Increase) decrease) in restricted cash (155 ) 12,561
Decrease (increase) in due from an affiliate   9,000     (9,000 )
 
Net cash provided by investing activities   6,878     2,134  
   
 

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued

(in thousands)

       
December 31,
2011       2010
 
Cash flow from financing activities:
 
Proceeds from borrowings 189,850 220,028
Repayments of borrowings (163,567 ) (73,269 )
Proceeds from affiliates 320,641 283,311
Repayment to affiliates (364,175 ) (245,988 )
Increase in accounts payable, related parties 404,492 451,525
Repayment to accounts payable, related parties (421,036 ) (570,637 )
Issue of shares on exercise of warrants 10,296
Issue of shares for cash, net of offering costs of $3,758 66,242
Shares repurchase       (1,630 )
 
Net cash (used in) provided by financing activities   (33,795 )   139,878  
 
Net cash provided by (used in) operating, financing and investing activities   10,294     (7,060 )
 
Effect of exchange rate fluctuation on cash and cash equivalents   1,794     1,223  
 
Net increase (decrease) in cash and cash equivalents 12,088 (5,837 )
 
Cash and cash equivalents, beginning of the year   30,931     36,768  
 
Cash and cash equivalents, end of the year $ 43,019   $ 30,931  
 
 
 

Non-GAAP Financial Measures ($ in 000s)

 

A reconciliation of Adjusted Net Income to net income (loss) is provided below:

               
Three Months Ended

December 31,

Year Ended

December 31,

           
2011 2010 2011 2010
Net income (loss) $ 6,867 $ (4,232 ) $ 26,130 $ (62,892 )
Loss (gain) on change in fair value of earn-out obligation           15,100           17,300         100,400  
Adjusted Net Income $ 6,867   $ 10,868   $ 43,430   $ 37,508  
 
 

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

 
Three Months Ended

December 31,

Year Ended

December 31,

 
2011 2010 2011 2010
Net income (loss) $ 6,867 $ (4,232 ) $ 26,130 $ (62,892 )
Interest expenses 5,206 4,845 18,940 17,457
Interest income (65 ) (160 ) (433 )
Income tax provision 2,726 1,305 13,419 10,369
Loss (gain) on change in fair value of earn-out obligation 15,100 17,300 100,400
Stock-based compensation 936 967 2,914 3,281
Depreciation & Amortization   539         262           1,420         952  
Adjusted EBITDA $ 16,209   $ 18,247   $ 79,963   $ 69,134  
 

USE OF NON-GAAP MEASURES

AutoChina defines Adjusted Net Income as net income (loss) before gain (loss) on change in fair value of earn-out obligation and Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, as well as certain other adjustments, including Loss (gain) on change in fair value of earn-out obligation, stock-based compensation and accretion of stock repurchase obligations. Adjusted Net Income and Adjusted EBITDA exclude 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 Net Income and Adjusted EBITDA, and the material limitations of therein. 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 Net Income and Adjusted EBITDA also facilitates management's internal comparisons to AutoChina's historical performance and liquidity. AutoChina computes Adjusted Net Income and Adjusted EBITDA using the same consistent method from quarter to quarter. The accompanying table has more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.

Contacts

AutoChina International Ltd.
Jason Wang, 858-997-0680
Chief Financial Officer
jcwang@autochinaintl.com
or
Investor Relations
The Equity Group Inc.
Carolyne Yu, 212-836-9610
Account Executive
cyu@equityny.com
or
Adam Prior, 212-836-9606
Vice President
aprior@equityny.com

Contacts

AutoChina International Ltd.
Jason Wang, 858-997-0680
Chief Financial Officer
jcwang@autochinaintl.com
or
Investor Relations
The Equity Group Inc.
Carolyne Yu, 212-836-9610
Account Executive
cyu@equityny.com
or
Adam Prior, 212-836-9606
Vice President
aprior@equityny.com