investor presentation november 2010 -...
TRANSCRIPT
November 20102
Forward Looking Statement
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” or “heavy truck” industry
The Company’s ability to effectively manage its growth, including implementing effective controls and procedures and attracting andretaining key management and personnel
Changing interpretations of generally accepted accounting principles
Whether the transaction to sell the automobile dealership business is consummated
General economic conditions
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 theinformation contained in this presentation.
This presentation 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 causeactual 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:
November 2010
Company Overview
AutoChina International Limited (AUTC) is China’s largest one-stop commercial vehicle sales, service, leasing, and support network.
As of September 30, the Company had 218 branches, and expects to have at least 275 by the end of 2010.
The Company leased 7,564 commercial vehicles in 2009 and 9,485 commercial vehicles YTD (Sept. 30).
For the year ended December 31, 2009, revenues from commercial vehicle sales, service, leasing, and support (the continuing operation) were $325.5 million, and net income was $15.2 million.
For 2010, the Company believes revenue will be between $600 million and $650 million and net income will be between $42 million and $47 million, with between 12,000 and 13,000 total new vehicles being leased.
Source: Company data
3
Business Overview
Financial Summary
($ in millions, except per share data)
Closing Price as of 10/27/10 $24.70
Diluted Shares Outstanding* 20.1
Market Cap $496.5
Net Debt (06/30/2010) $240.1
Enterprise Value $736.6
2009(1)
2010
Revenue (Midpoint of Guidance) $839.4 $575.0
Net Income (Midpoint of Guidance) 25.0 44.5
EV / Revenue 0.9x 1.3x
PE Multiple 19.8x 11.2x
* Includes employee stock options diluted using treasury stock method.
(1) From Continuing and Discontinued Operations.
November 20104
Sales (continuing operations) of $36.3 million in 2008; $325 million in 2009; $600 million to $650 million projected in 2010
Net income (continuing operations) of $1.2 million in 2008, $15.2 million in 2009; up to $47 million projected in 2010
Mr. Li, the Chairman, CEO, and founder, owns 57% of AutoChina
Entrepreneur with numerous accomplishments
Experienced management team with a strong track record of growth and profitability
635,000 heavy trucks sold in China in 2009, over 1 million forecast for 2010(1)
– ~5x the size of the U.S. market and ~3x the size of the European market
383,000 heavy trucks sold in the first four months of 2010 (up 132% YoY)
Store expansion is the primary driver of new sales
The Company leased 7,564 commercial vehicles in 2009, and expects to lease between 12,000 and 13,000 vehicles in 2010.
Increased number of commercial vehicle sales and leasing branches to 218 since March 2008 launch. Store footprint covers 17 provinces/province-level regions.
Investment Highlights
(1) ACT Research
Attractive Market
High Growth Opportunity
Profitable Business Model
Experienced and Aligned
Leadership
November 2010
Management Team
5
Yong Hui Li - Founder, Chairman, and CEO Born in 1962 and graduated from Tianjin University
Highly accomplished entrepreneur—founder and Chairman of Kaiyuan Group (1994), the parent company consisting of Mr. Li’s holdings in real estate, transportation, and other industries. Founded the first lease-to-buy sales company in Chinese auto industry
Jason Wang - CFO
Possesses over 10 years of experience in finance, capital markets and working with growth companies
Received MBA from the UCLA Anderson School of Management and Bachelor’s degrees from both the Wharton School and the School of Engineering and Applied Science at the University of Pennsylvania
Prior to joining AUTC, served as Director of Research and Analytics at Private Equity Management Group, and also previously worked at QUALCOMM Inc. (NASDAQ: QCOM), where he worked in the venture capital group
Xing Wei - COO COO of AutoChina since September 2008
Former COO of Kaiyuan Real Estate Development Co. and has worked with Mr. Li since 1996
Received Bachelor’s degree in Engineering from Hebei Building Engineering University and Bachelor’s degree in Economics from Hebei University
November 20106
Announces share repurchase program.
The Transformation of AutoChina
March 2008
Commercial Vehicle Sales, Servicing, Leasing and
Support Business launched.
April 2009
Spring Creek
Acquisition Corp.
AutoChina becomes a public company by
merging with the Spring Creek SPAC.
October 2009
Company begins trading on NASDAQ.
June2009
Sale of Automotive Dealership Business
announced for $68.8M.
Partnership with CITIC begins.
March2010
Completed $70M registered direct
offering.
Engaged PWCas independent
Auditors.
July2010
Store expansionreaches Southern China.
Added to RussellGlobal Index.
AutoChina founded with 6 automotive dealerships
primarily located in Northern China’s Hebei province.
Business eventually reaches27 dealerships in size.
2005August2010
Closes on $78M in new bank loans.
November 2010
High Growth Trajectory (Revenue and Net Income)
Source: Company data. 2010 based on the midpoint of issued guidance.
7
Revenue 2008-2010(F) Net Income 2008-2010(F)
(midpoint ofguidance)
(midpoint ofguidance)
$ in 000s $ in 000s
November 2010
$36,298$73,874
$325,454
$322,277
$625,000
$63,036
$201,545
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
2008 6 Mos. 2009 2009 6 Mos. 2010 2010F Q2 2009 Q2 2010
Source: Company data. 2010 based on the midpoint of issued guidance.
8
(midpoint of
guidance)
Revenue 2008-2010(F)$ in 000s
Revenue Breakdown
November 20109
Finance and Insurance Revenues Growing
Q2 2010 Revenue and YoY Comparison
$63,036
$201,545
$0
$50,000
$100,000
$150,000
$200,000
$250,000
US
D in
000s
Finance and insurance
Commercial vehicle
revenue
220% YoY Growth
Q2 2009 Q2 2010 YoY Growth
$1,902 $14,092 640.9%
61,134 187,453 206.6%
Q1-Q2 2010 Revenue and YoY
Comparison
$73,874
$322,277
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
US
D in
000s
Finance and insurance
Commercial vehicle
revenue
336% YoY Growth
Q1-Q2 2009 Q1-Q2 2010 YoY Growth
$2,916 $23,589 709.0%
70,958 298,688 320.9%
November 2010
$1,172$5,493
$15,220
$17,177
$44,500
$3,792
$10,931
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
2008 6 Mos 2009 2009 6 mos. 2010 2010F Q2 2009* Q2 2010Source: Company data. 2010 based on the midpoint of issued guidance.
* Net income for the second and six months of 2009 included income from the Company’s consumer automotive dealership business, which is now classified as a discontinued operation.
10
(midpoint of
guidance)
Net Income 2008-2010(F)$ in 000s
AutoChina Expects Profitability to Accelerate as
Finance and Insurance Revenues Grow
Net Income Breakdown
November 201011
Operational Highlights
18,003 Trucks Sold Since Inception
9,485 commercial vehicles financed YTD, compared to 4,289 in the prior-year period.
105 150 157 180 193 218251
1,507
2,531
3,275
2,506
4,130
2,849
109
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010
Stores Trucks Sold
November 201013
U.S. Commercial Truck Classifications
Gross Vehicle Weight Rating(GVWR) Example
Class 8 - The Vehicles AutoChina
Leases
33,001 lbs. <
(15 tonnes <)
Class 7 26,001 – 33,000 lbs.
(11.8 – 15 tonnes)
Class 6 19,501 – 26,000 lbs.
(8.8 – 11.8 tonnes)
Class 5 16,001 – 19,500 lbs.
(7.3 – 8.8 tonnes)
Class 4 14,001 – 16,000 lbs.
(6.4 – 7.3 tonnes)
Class 3 10,001 – 14,000 lbs.
(4.5 – 6.4 tonnes)
Class 2 6,001 – 10,000 lbs.
(2.7 – 4.5 tonnes)
Class 1 0 – 6000 lbs.(0 – 2.7 tonnes)
November 201014
Heavy Trucks: AutoChina’s Current Target Market Segment
635,000 heavy trucks sold in China in 2009
383,000 heavy trucks sold in the first four months of 2010 (up 132% YoY)
Heavy trucks = cargo transporting vehicles / semi- and full-trailer trucks
Short replacement cycle: useful life of heavy trucks in China approx. 3-4 years.
Huge downstream demand, increasing domestic consumption
Heavy truck financing is a highly fragmented market—opportunity for AutoChina to establish itself asa market leader
Customer base predominantly entrepreneurs that carry wide variety of goods– Freight, agricultural products, raw materials
Heavy Truck Sales in China
370,795
236,600307,296
487,500540,448
635,000
> 1,000,000
2004 2005 2006 2007 2008 2009 2010ESource: ACT Research, China Automotive Review, CICC
November 2010
Heavy Trucks: Key Growth Drivers
China’s continued economic advancement
New “charge-by-weight” laws that severely penalize overloaded vehicles will apply to over 90% of highways and provincial roads by the end of 2010
Increase in diesel fuel taxes commenced January 2009
Harmonization of Chinese truck emission rules with those of the U.S. and Europe being introduced in stages between 2010 and 2012
15
November 201016
Increased Interest in China’s Commercial Vehicle Industry
$450,000,000
October 2010
(Joint Venture)
$789,000,000
July 2009
(Minority Stake)
$293,000,000
October 2009
(Joint Venture)
$293,000,000
October 2009
(Joint Venture)
$929,000,000
January 2009
(Joint Venture)
$385,000,000
October 2006
(Joint Venture)
$163,000,000
July 2006
(Joint Venture)
November 2010
AutoChina’s Business Model: Commercial Vehicle Sales & Leasing Opportunity
Address a Need:
Make commercial vehicle ownership affordable and accessible for owners and
owner-operators
Control Risk:
There are no defined credit rating systems in China
to rely on
Make it Scalable:
Need to be able to dominate a very fragmented market in
order to drive growth
Make it Profitable:
Profitably accomplish all business objectives
18
November 2010
Centralized headquarters
– Planning and analysis
– Control and monitoring
– Checks and balances
Store network– Standardization
– Wide reach, local presence
– Customer support network
Customer Focus– Our customers’ success is
the key to our success
AutoChina Business ModelAutoChina HQ
Growing Network of 218 Stores
ER
P
Sys
tem
Dir
ec
t
Cu
sto
me
r
Inte
rac
tio
n
19
November 2010
20
Long-haul truck owner / owner-operator
Individual entrepreneur(s)
Located in rural China
May operate vehicle in shifts
Typical Goods Transported
Agricultural Goods Building MaterialsRaw Materials
AutoChina Customer Profile
AutoChina empowers these individuals to “be their own boss” by offering affordable financing and support options.
20
November 2010
One-Stop Provider for Truck Owners and Owner-Operators
Our goal is to enable our customers to be successful and profitable.
Registration Licensing Permitting Insurance
Administrative ServicesStore Support Network
GPS Based Location Tracking
Tire Financing Diesel FinancingFuture Value Added Services
Insurance Financing
Financing Services
+ Optional Value-Added Services
Vehicle Financing
21
November 2010
22
Store Network
AutoChina store presence
Map Legend:
Headquarters
218 stores covering 17 provinces and province-level regions
9 new provinces and province-level regions added in Q2 2010
Goal: Cover China by end of 2013
22
November 201023
Franchise-like Market Penetration Strategy
Company-owned, virtually identical, and inexpensive
Employees trained, low skill-set required, extensive SOPs
Effectively target local customer demographic
Highly scalable, located in rural areas
– Costs less than $10,000 USD to open a new store
– Stores hold no inventory
November 201024
Attractive Lease-to-Own Structure that Manages Risk
Local store responsible for initial screening of new customers
– If this screening is successful, formal application is made
Corporate HQ must give final approval for all new customer
– Approximately 50% of these formal applicants are rejected
Minimum initial payment from first-time customers is 25%
(historical overall avg. > 30%)
– Customer has a significant vested interest
Holds no inventory—trucks purchased only after deposits made
26-month lease-to-own structure
CITIC acts as middleman
Customers generally realize over 20% profit margin per vehicle
Value-added services are bundled
AutoChina is the legal owner of the vehicle during the lease. At the end of the lease, title transfers freely to the customer
Should any problems arise, AutoChina owns the vehicle, so it can easily be taken back and sold
AutoChina Retains Ownership of Vehicle
Affordable Lease Payments
Down Payment
Approval and Screening Process
November 201025
Utilize Sophisticated Technology
The location of each vehicle is tracked using an advanced GPS tracking system
– AutoChina customers log on average 90,000 miles per year
Since AutoChina is the legally registered owner of the vehicle during the lease, vehicles can easily be found and repossessed if there is a problem
Since inception through Q2 2010 (over 15,000 leases), just 23 defaults
BeijingShijiazhuang
Map Detail Area
CHINA
November 2010
Sample Lease Economics
A $40,000 truck may cost AutoChina $38,000 to procure (5% gross margin)
Total dollar return of $48,000 in 26 months or 26% total return
Opportunity to earn more as value added services are added to the mix (Example: Tires, Diesel, Insurance financing)
26
COGS $38,000
Initial Payment
$11,400
Lease
Payments
$34,600
GPS $1,000
Insurance
$1,000
Investment Return
TOTAL
$48,000
or
126% Other Value-Added Svcs
Example:
November 2010
Sample Lease Economics
We essentially only finance the amount net of the initial payment ($26,600 in this example)
Total dollar return of $36,600 in 26 months or 38% total return (~19% per year)
Actual IRR is higher due to front-loaded payment schedule
Opportunity to earn more as value added services are added to the mix (Example: Tires, Diesel, Insurance financing)
27
COGS $26,600
Lease
Payments
$34,600
GPS $1,000
Insurance
$1,000
Investment Return
TOTAL
$36,600
or
138% Other Value-Added Svcs
Example (Net of Initial Payment):
November 201028
Summary Financial Results – Second Quarter
2010 Q2 Results
Q2 2010(unaudited)
Q2 2009(unaudited)
Total Revenues $201,545 $63,036
Gross Profit 23,098 4,795
Income (loss) from Operations 18,050 3,296
Net Income $10,931 $3,792
Net Income per diluted share $0.54 $0.38
Adjusted EBITDA $19,015 $8,658
(in USD thousands, except EPS)
November 201029
Summary Balance Sheet
Balance Sheet Highlights
6/30/2010(unaudited)
12/31/2009
Total Cash (including restricted) $51,110 $49,218
Working Capital 55,193 13,731
Total Debt 291,190 164,759
Net Debt (debt – cash) 240,080 115,541
Book Value 203,501 107,275
(in USD thousands, except share numbers and EPS)
Company recently closed bank facilities totaling $78.0 million
November 201030
AutoChina’s Commercial Vehicle Sales and Leasing segment is well positioned to be the dominant player in a fragmented market
– Company expects to lease between 12,000 and 13,000 vehicles in 2010
– Operate at least 275 stores by the end of 2010
Capital-efficient business model with rapid expansion possibilities
Business transformation leading to increased profitability
Accomplished and motivated management team
30
Investment Highlights
A Unique Opportunity to Invest in the Growing Chinese Auto Market
November 2010
Earnout Summary
• 2009 EBITDA = $34.1 Million– 2010 90% EBITDA Growth Target = $64.9 Million
32
% of AutoChina Issued and Outstanding Ordinary Shares to be Issued
FY ending 12/31 G > 30% G > 40% G > 50% G > 60% G > 70% G > 80% G > 90%
2009 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%
2010 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%
2011 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%
2012 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%
2013 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%
G = EBITDA Growth
November 2010
AutoChina Ownership Summary
33
Type Common Stock Held %
Insiders 13,258,338 67.4%
Secondary Offering 2,000,000 10.2%
Other Float 4,421,528 22.5%
Total 19,679,866 100.0%
Holder Common Stock Held % of Shares OutstandingYong, Hui Li 11,209,706 57.0%Sha, Cheng-Jee 1,295,157 6.6%Liu, Chia-Huei 418,126 2.1%Yu, Tsu-Cheng 258,750 1.3%
Top Holders
Ownership Summary
November 201034
Manufacturer China FAW Group Corporation
Beiqi Foton Motor Co., Ltd.(Auman Brand)
Shaanxi Automobile Group Co., Ltd.
China National Heavy Duty Truck Group Corp.
DongFeng Motor Corporation
Approximate Retail Price $38,000 $37,000 $37,000 $54,000 $37,000
Engine •6 cylinder in-line turbodiesel
•310hp
•58mph top speed
• 6 cylinder in-line turbodiesel
• 296hp
• 53mph top speed
• 6 cylinder in-line turbodiesel
• 290hp
• 62mph
• 6 cylinder in-line turbodiesel
• 335hp
• 62mph
• 6 cylinder in-line turbodiesel
• 310hp
• 60mph
Curb Weight 19,800 lbs. 18,750 lbs. 17,650 lbs. 33,000 lbs. 18,100 lbs.
GVWR(Gross Vehicle Weight Rating)
103,700 lbs.
(Class 8)
102,600 lbs.
(Class 8)
101,500 lbs.
(Class 8)
68,400 lbs.
(Class 8)
97,000 lbs.
(Class 8)
Model Number CA4252P21K2T1A BJ4253SNFJB-S SX4255TR279 ZZ3317N3867C1 DFL4240A2
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