The Auto Channel
The Largest Independent Automotive Research Resource
The Largest Independent Automotive Research Resource
Official Website of the New Car Buyer

AutoChina International Reports Unaudited 2010 Fourth Quarter and Year-end Financial Results


china

SHIJIAZHUANG, China--March 24, 2011: AutoChina International Limited (AutoChina), China's largest commercial vehicle sales, servicing, leasing, and support network, today reported unaudited financial results for its fourth quarter and full year ended December 31, 2010.

“We were very pleased to announce this pioneering securitization program that provides us with an additional source of financing. We believe innovative financing ideas like the CITIC lease securitization program will reinforce our capital position and enable us to continue purchasing trucks on behalf of our customers.”

Q4 2010 Financial Highlights

  • Total revenues of $155.8 million, compared to $150.1 million in the prior-year period
  • Net income of $10.9 million, or $0.54 per diluted share, compared to net income of $23.8 million, or $1.77 per diluted share, in the prior-year period, which included $15.5 million of income, or $1.15 per diluted share, from discontinued operations (net income from continuing operations was $8.3 million, or $0.62 per diluted share, in the prior-year period)
  • Adjusted EBITDA of $18.0 million, an increase of 36.8% year over year

Full-year 2010 Financial Highlights

  • Total revenues of $622.1 million, up 91.1% from $325.5 million in the prior year
  • Net income of $37.5 million, or $1.90 per diluted share, compared to net income of $36.3 million, or $3.12 per diluted share in the prior year, which included $21.1 million of income, or $1.81 per diluted share, from discontinued operations (net income from continuing operations was $15.2 million, or $1.31 per diluted share, in the prior-year period)
  • Adjusted EBITDA of $68.3 million, an increase of 100.0% year over year

Operational Highlights

  • Total number of commercial vehicle sales and leasing branches increased from 157 at December 31, 2009, to 300 at December 31, 2010, and 310 at February 28, 2011
  • 12,561 commercial vehicles were financed in 2010, compared to 7,564 in 2009
  • 3,076 commercial vehicles were financed in the fourth quarter of 2010, compared to 3,275 in the prior-year period and 2,849 in the third quarter of 2010

Earn-out Cancellation After 2011

  • In February 2011, the Company announced the cancellation of earn-out for fiscal years after 2011, and modification to the remaining two years (2010 and 2011)
  • The earn-out was originally set to be effective through the year ended December 31, 2013, and could potentially have caused a maximum of 20% dilution in 2012 and in 2013 if EBITDA grew by 90% or more in each of those years

Guidance for 2011

  • Company expects to lease approximately 20,000 vehicles in 2011 and operate at least 500 stores by the end of 2011
  • Company believes revenue will be between $900 million and $950 million and net income between $52 million and $57 million for the year ending December 31, 2011
  • Company expects continued improvement in gross margin as finance and insurance revenues increase as a percentage of total revenues in each quarter

Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, "We were pleased with the steady growth throughout our operations in the fourth quarter, in addition to a number of exciting developments that we announced during the period. We continued to expand in southern China, opening 82 stores and leasing 3,076 vehicles during the fourth quarter. We also announced the establishment of a new financial leasing company and the conversion of our existing wholly foreign-owned enterprise into a financial leasing company. These two financial leasing companies will allow us to lease commercial vehicles directly to our customers and represent the first steps in the transition away from our VIE holding structure."

Operational Review

AutoChina's commercial vehicle sales, servicing, leasing and support business recorded 3,076 leases in the three months ended December 31, 2010, compared to 3,275 for the three months ended December 31, 2009. The Company had a total of 19,629 leases outstanding as of December 31, 2010. During the quarter, 28 vehicles experienced default or were lost due to accidents. Since inception and through December 31, 2010, a total of 60 vehicles have experienced defaults or were lost due to accidents out of over 21,000 total vehicles leased.

During the fourth quarter, AutoChina continued to make progress with its value-added services (diesel, tire, and insurance financing) programs, which were launched in early 2010. As of December 31, 2010, over 200 tire outlets and over 60 fueling stations were participating in the program. Revenues from value-added services totaled $763,000 during the quarter. The Company is continuing to explore the potential of additional service offerings that would further enhance the growth of its customers' business operations.

During 2010, the Company established a total of 143 additional commercial vehicle sales, servicing, leasing and support centers in Hebei, Shanxi, Shaanxi, Shandong, Henan, Hubei, Hunan, Liaoning, Sichuan, Jiangxi, Anhui and Jiangsu provinces, as well as Beijing, Chongqing, Shanghai and the Inner Mongolia Autonomous Region, bringing the total number of locations to 300 as of December 31, 2010. Ninety-six of these new stores were opened in provinces (Hubei, Hunan, Liaoning, Sichuan, Jiangxi, Anhui and Jiangsu, Chongqing and Shanghai) in which the company did not previously have operations. As of February 28, 2011, the Company operated 310 store locations and expects to operate at least 500 locations by the end of 2011.

2010 Fourth Quarter Financial Review

  • The Company reported revenues for the 2010 fourth quarter of $155.8 million, compared to $150.1 million in the fourth quarter of 2009. The Company reported $136.1 million in commercial vehicle revenues; $19.1 million, or 12.3% of revenues, in finance and insurance revenues; and $602,000, or 0.4% of revenues, in agency services rendered to related parties.
  • Gross margin increased to 16.0% for the three months ended December 31, 2010, from 10.9% for the prior-year period. The increase was largely due to a higher number of outstanding leases, which, in turn, increased the contribution from finance and insurance income throughout the term of the loans provided to AutoChina's customers. As a result, finance and insurance revenues have increased as a percentage of revenues each quarter. The Company's additional financing services, specifically the higher-margin tire and diesel financing services, also contributed to the increased margin.
  • The Company reported net income for the fourth quarter of 2010 of $10.9 million, or $0.54 per diluted share based on 20.1 million weighted average diluted shares outstanding, compared to net income of $23.8 million, or $1.77 per diluted share based on 13.5 million diluted shares outstanding, in the prior-year period. Net income for the fourth quarter of 2009 included $15.5 million, or $1.15 per diluted share, in income from the sale of the Company's consumer automotive dealership business.
  • Adjusted EBITDA for the quarter ended December 31, 2010, increased to $18.0 million from $13.2 million in the prior-year period. A table reconciling Adjusted EBITDA to net income can be found at the end of this press release.

2010 Full-year Financial Review

  • For the year ended December 31, 2010, the Company reported revenues of $622.1 million, an increase of 91.1% compared to $325.5 million in the prior-year period. The Company reported $558.0 million in sales of its commercial vehicles and $59.4 million, or 9.5% of revenues, in finance and insurance revenues, compared to $16.7 million, or 5.1% of revenues, in finance and insurance revenues in 2009. It also reported $4.7 million, or 0.7% of revenues, in agency services rendered to related parties, compared to $1.3 million, or 0.4% of revenues, in 2009.
  • Gross margin increased to 14.0% in full-year 2010, up from 10.1% in full-year 2009, as a result of the reasons outlined in the fourth quarter financial review.
  • The Company reported net income for the year ended December 31, 2010, of $37.5 million, or $1.90 per diluted share based on 19.8 million weighted average diluted shares outstanding, compared to net income of $36.3 million, or $3.12 per diluted share based on 11.6 million diluted shares outstanding, in the prior-year period. Net income for full-year 2009 included $21.1 million, or $1.81 per diluted share, in income from the sale of the Company’s consumer automotive dealership business. Net income from continuing operations for full-year 2009 was $15.2 million, or $1.31 per diluted share.
  • Adjusted EBITDA for full-year 2010 doubled to $68.3 million, from $34.1 million in the prior-year period. A table reconciling Adjusted EBITDA to net income can be found at the end of this press release.

Balance Sheet Highlights

At December 31, 2010, AutoChina's cash and cash equivalents (not including restricted cash) were $30.9 million, working capital was $128.2 million, total debt was $253.5 million (including due to affiliates) and stockholders' equity was $229.9 million, compared to $36.8 million, $13.7 million, $177.2 million and $107.3 million, respectively, at December 31, 2009.

Lease Securitization Program and Bank Financing

Since November 2010, AutoChina has begun securitizing a portion of its commercial vehicle leases through a partnership with CITIC Trust Co. Ltd. Under this lease securitization program, up to RMB60 million, or $9.1 million, of AutoChina's commercial truck leases will be securitized and sold to investors each month through CITIC Trust. The Company is hopeful that the maximum amount can be increased over time. The resulting investment products will have a one-year maturity and pay interest at rates that are higher than standard savings account rates currently available in China. AutoChina will incur a cost of approximately 9% per annum under this program. In addition, AutoChina will continue to own the vehicles that are the subject of such transactions and will be responsible for servicing the existing retail leases of such vehicles. These products will be rated by CCXI, China's first nationwide domestic credit rating agency created with the approval of the People's Bank of China.

Mr. Li stated, "We were very pleased to announce this pioneering securitization program that provides us with an additional source of financing. We believe innovative financing ideas like the CITIC lease securitization program will reinforce our capital position and enable us to continue purchasing trucks on behalf of our customers.�??

The Company also announced today that it continues to obtain additional bank financing and has closed on a RMB150 million (approximately $22.8 million) bank facility from an existing lender, CITIC Bank, a wholly-owned subsidiary of China International Trust and Investment Corporation (CITIC). The facility has a one-year term at an initial annual interest rate of 6.7%.

The Company is continuing to pursue various means of financing its growth while maximizing shareholder value.

Update on Earn-out Provision

Pursuant to the earn-out provision of the share exchange agreement entered into in connection with the Company's initial business combination, AutoChina expects to issue the original founding shareholder of the Company, Honest Best, 3,923,153 shares following the filing of the Company's audited financial statements with the Securities and Exchange Commission. This earn-out issuance will be a result of the Company's achieving at least 90% EBITDA growth from 2009 to 2010. As a result of this share issuance, AutoChina will have 23,538,919 common shares outstanding.

Earn-out Cancellation After 2011

The Company announced in February 2011 the cancellation of the aforementioned earn-out share provision for fiscal years after 2011. The earn-out was originally set to be effective through the year ended December 31, 2013, and could potentially have caused a maximum of 20% dilution in 2012 and in 2013 if EBITDA grew 90% or more in each of those years. The Company has entered into a letter agreement with Honest Best to eliminate this provision after the conclusion of its fiscal year ending December 31, 2011, and also modified the provision for the years ending December 31, 2010, and December 31, 2011, such that the Company must achieve a threshold of over 70% in EBITDA growth in either respective year in order for Honest Best to receive any earn-out compensation.

Update on Stock Repurchase Plan

On August 3, 2010, AutoChina announced that its Board of Directors had authorized the establishment of a stock repurchase program for the Company to purchase up to 2 million shares of its common stock on the open market at prices below $35 per share. During the three months ended December 31, 2010, the Company repurchased 64,100 ordinary shares for a total of $1.6 million. The program expired on February 2, 2011.

Outlook for 2011

For 2011, AutoChina believes revenue from its commercial vehicle sales, servicing, leasing and support business will be between $900 million and $950 million and net income between $52 million and $57 million.

Estimated Financial Results

(unaudited) ($ in millions)

For the year ended

 

For the year ended

 

December 31, 2011

December 31, 2010

Percent Gain

Total Revenue $900 - $950 $622.1 44.7% - 52.7%
Net Income $52 - $57 $37.5 38.7% - 52.0%
 

Conference Call Information

AutoChina's CFO, Jason Wang, will discuss these results in a conference call (with accompanying presentation) later this morning (March 24, 2011) at 10:00 a.m. Eastern Time. The dial-in numbers are:

        (888) 787-0460 (U.S.)
(706) 679-3200 (International)

The call will also be simultaneously broadcast over the Internet. To listen to the live webcast, please go to the Company's investor relations site, AutoChina International, or click the below conference call link: Investor Calendar . The Company will also have an accompanying slide presentation available in PDF format 30 minutes prior to the conference call at the Investor Relations' section of the AutoChina website.