AutoChina International Limited (“AutoChina” or the “Company”)
(NASDAQ: AUTC), 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.
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, http://www.autochinaintl.com, or click the
below conference call link:
http://www.investorcalendar.com/IC/CEPage.asp?ID=163211. 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.
Company to File Annual Report on Form 20-F
As a foreign private issuer, AutoChina is required to file its
Annual Report with the Securities and Exchange Commission within
six months of the end of its fiscal year. Additional information
with respect to the Company, including more detailed information
with respect to the Company’s December 31, 2010, financial
statements, will be available in its Annual Report on Form 20-F,
which the Company anticipates filing before June 30, 2011 and, once
filed, will be available without charge at http://www.sec.gov. The
Company’s Annual Report on Form 20-F for the year ended December
31, 2009 is available on the same website.
About AutoChina International Limited
AutoChina International Limited is China’s largest one-stop
commercial vehicle sales, servicing, leasing and support network.
AutoChina’s operating subsidiary was founded in 2005 by Chairman
and CEO, Yong Hui Li, a nationally recognized entrepreneur in
China. The Company owns and operates 310 commercial vehicle
financing centers in China; and primarily provides sales-type
leasing 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” or
“heavy truck” 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 INCOME
(in thousands except share and per share
data)
Three months ended December 31, Year ended
December 31, 2010 2009
2010 2009 (Unaudited) (Audited)
(Unaudited) (Audited) Revenues Commercial
vehicles $ 136,096 $ 140,147 $ 558,004 $ 307,460 Finance and
insurance 19,118 9,612 59,405 16,654 Agency services, related
parties 602 321 4,663 1,340 Total revenues
155,816 150,080 622,072 325,454
Cost
of sales Commercial vehicles 130,956 133,685
534,963 292,673
Gross profit 24,860
16,395 87,109 32,781 Operating expenses
Selling and marketing 2,485 1,409 6,260 2,946 General and
administrative 5,915 2,895 17,590 6,800 Interest expense 3,268 746
10,512 1,032 Interest expense, related parties 1,314 1,701 6,092
2,776 Other expenses (income), net (295) (509)
(789) (602) Total operating expenses 12,687 6,242
39,665 12,952
Income from operations
12,173 10,153 47,444 19,829 Other income
(expense) Interest income — 24 433 49 Accretion of share repurchase
obligations — (4) — (535) Acquisition-related costs —
— — (295) Other income (expense), net — 20
433 (781) Income from continuing operations
before income taxes
12,173 10,173 47,877 19,048 Income tax provision
(1,305) (1,861) (10,369) (3,828) Income from
continuing operations 10,868 8,312 37,508 15,220 Income from
discontinued operations, net of taxes of nil, $3,904 and $2,824,
respectively — 4,118 — 9,695 Gain on disposal of discontinued
operations, net of taxes — 5,675 — 5,675 Realization of foreign
currency translation gain relating to discontinued operation
— 5,717 — 5,717 Income from discontinued operations
— 15,510 — 21,087
Net income $
10,868 $ 23,822 $ 37,508 $ 36,307
AUTOCHINA
INTERNATIONAL LIMITED AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME – Continued
(in thousands except share and per share
data)
Three months ended December 31, Year
ended December 31, 2010
(Unaudited)
2009
(Audited)
2010
(Unaudited)
2009
(Audited)
Earnings per share Basic Continuing
operations $ 0.55 $ 0.84 $ 2.04 $ 1.71 Discontinued operations
— 1.56 — 2.36 $ 0.55 $ 2.40 $ 2.04 $
4.07 Diluted Continuing operations $ 0.54 $ 0.62 $ 1.90 $ 1.31
Discontinued operations — 1.15 — 1.81 $
0.54 $ 1.77 $ 1.90 $ 3.12 Weighted average shares
outstanding Basic 19,619,876 9,949,887
18,415,305 8,919,403 Diluted 20,060,074
13,450,505 19,787,213 11,645,211 Amounts
attributable to shareholders Income from continuing operations, net
of taxes $ 10,868 $ 8,312 $ 37,508 $ 15,220 Discontinued
operations, net of taxes — 15,510 —
21,087 Net income $ 10,868 $ 23,822 $ 37,508 $ 36,307
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share
data)
December 31, 2010 2009
(Unaudited) (Audited) ASSETS Current assets
Cash and cash equivalents $ 30,931 $ 36,768 Restricted cash —
12,450 Notes receivable — 220 Accounts receivable, net of provision
for doubtful debts of $1,745 and $298, respectively 21,820 2,382
Inventories 1,412 118 Deposits for inventories 1,003 17,388 Prepaid
expenses and other current assets 17,113 6,011 Prepaid interest
expenses, related party 604 1,289 Current maturities of net
investment in sales-type leases 282,389 123,413 Deferred income tax
assets 618 838 Total current assets 355,890 200,877
Property, equipment and leasehold improvements, net 2,669
2,103 Deferred income tax assets 64 — Net investment in sales-type
leases, net of current maturities 142,005 93,164
Total assets $ 500,628 $ 296,144
LIABILITIES AND EQUITY Current liabilities Short-term
borrowings 117,485 $ 8,788 Trade notes payable — 12,450 Accounts
payable 911 3,610 Accounts payable, related parties 16,202 117,725
Other payables and accrued liabilities 7,425 2,968 Due to
affiliates 77,295 38,246 Customer deposits 1,198 1,336 Income tax
payable 7,147 2,023 Total current liabilities 227,663
187,146 Noncurrent liabilities Long-term borrowings 42,485 —
Deferred income tax liabilities 614 1,723 Total
liabilities 270,762 188,869 Commitments and
contingencies 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 – 19,615,766 shares
and 13,017,283 shares at December 31, 2010 and 2009, respectively;
outstanding –19,615,766 shares and 11,857,658 shares at December
31, 2010 and 2009, respectively 20 13 Additional paid-in capital
169,842 91,660 Retained earnings 52,437 14,929 Accumulated other
comprehensive income 7,567 673 Total equity
229,866 107,275 Total liabilities and equity $
500,628 $ 296,144
AUTOCHINA INTERNATIONAL LIMITED
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
December 31, 2010 2009
(Unaudited) (Audited) Cash flow from continuing
operating activities: Net income $ 37,508 $ 36,307
Adjustments to reconcile net income to net cash used in
operating activities: Net income from discontinued operations —
(9,695 ) Gain on disposal of discontinued operations — (5,675 )
Realization of foreign currency translation gain relating to
discontinued operation — (5,717 ) Depreciation and amortization 952
674 Provision for bad debts 1,447 298 Deferred income taxes (959 )
1,153 Stock-based compensation expenses 3,281 517 Accretion of
share repurchase obligations 535 Changes in operating assets
and liabilities, net of acquisitions and divestitures: Accounts
receivable (20,271 ) (1,550 ) Note receivable 222 (220 ) Net
investment in sales-type leases (194,482 ) (193,218 ) Inventories
(1,255 ) 1,115 Deposits for inventories 16,567 (16,960 ) Prepaid
expense and other current assets (2,102 ) (5,397 ) Trade notes
payable (12,561 ) 12,450 Accounts payable (2,756 ) 3,514 Other
payable and accrued liabilities 4,229 1,622 Customers deposits (182
) 1,309 Customers deposits, related party — (16,095 ) Income tax
payable 4,912 1,828
Net cash used in
continuing operating activities (165,450 )
(193,205 )
Cash flow from continuing investing
activities: Purchase of property, equipment and
leasehold improvements (1,427 ) (953 ) Decrease (increase) in
restricted cash 12,561 (12,450 ) Increase in security deposits
(8,482 ) — Proceeds from sale of consumer automotive dealership
business — 67,308 Cash relinquished upon sales of discontinued
operations — (19,424 ) Proceeds from the sale of property,
equipment and leasehold improvements — —
Net cash provided by (used in) continuing investing
activities 2,652 34,481
AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued
(in thousands)
December 31, 2010 2009
(Unaudited) (Audited) Cash flow from continuing
financing activities: Proceeds from borrowings 189,348
8,788 Repayments of borrowings (42,589 ) (429 ) Proceeds from
affiliates 52,434 37,173 Repayment to affiliates (15,824 ) (5,280 )
Increase in accounts payable, related parties 90,323 116,824
Repayment to accounts payable, related parties (192,618 ) (1,371 )
Issue of shares on exercise of warrants 10,296 10,108 Issue of
shares for cash, net of offering costs of $3,758 66,242 — Shares
repurchase (1,630 ) — Cash acquired in reverse merger — 1,697
Release of restricted cash held in escrow — 4,987 Repurchase of
warrants subsequent to closing of reverse merger — (449 ) Capital
contributions — —
Net cash provided by
continuing financing activities 155,982 172,048
Net cash (used in) provided by continuing operating,
financing and investing activities (6,816 )
13,324
Cash flow of discontinued operations:
Cash (used in) provided by operating activities — (1,286 ) Cash
used in investing activities — (4,197 ) Cash provided by financing
activities — 11,246
Net cash flow provided
by (used in) discontinued operations — 5,763
Effect of foreign currency translation on cash
979 275
Net (decrease) increase in cash and cash
equivalents (5,837 ) 19,362
Cash and cash
equivalents, beginning of the year 36,768 17,406
Cash and cash equivalents, end of the year 30,931
36,768
Analysis of balances of cash and cash
equivalents Included in cash and cash equivalents per
consolidated balance sheet 30,931 36,768 Included in assets of
discontinued operations — — $ 30,931 $ 36,768
Supplemental disclosure of cash flow information:
Continuing Operations Interest paid $ 15,619 $ 3,633 Income
taxes paid $ 6,189 $ 3,828
Discontinued Operations
Interest paid $ — $ 2,207 Income taxes paid $ — $ 3,904
Supplemental disclosure on non-cash continuing financing
activities Settlement of share repurchase obligations $ — $
8,443
A reconciliation of Adjusted EBITDA to net income is provided
below:
Three months ended Year ended December 31, December
31, 2010 2009 2010 2009
(Table in 000s) Net
income $ 10,868
$ 23,822
$ 37,508
$
36,307 Income from discontinued operations - (15,510 ) - (21,087 )
Interest expenses 4,582 2,447 16,604 3,808 Interest income - (24 )
(433 ) (49 ) Income tax provision 1,305 1,861 10,369 3,828
Stock-based compensation 967 405 3,281 517 Acquisition-related
costs - - - 295 Accretion of stock repurchase obligations - 4 - 535
Depreciation and amortization 262 145 952 674 Reclassified EBITDA
for consumer automobile segment in the three months and year ended
December 31, 2009
-
-
-
9,310
Adjusted EBITDA
$
17,984
$
13,150
$
68,281
$
34,138
USE OF NON-GAAP MEASURES
AutoChina defines Adjusted EBITDA as net income before interest
expense, income taxes, depreciation and amortization, as well as
certain other adjustments, including stock-based compensation,
acquisition-related costs, accretion of stock repurchase
obligations, income from discontinued operations and the EBITDA of
the discontinued operations from January 1 to December 31, 2009.
Adjusted EBITDA excludes 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 EBITDA, and the material limitations of
Adjusted EBITDA, such as: 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 this non-GAAP
financial measure 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 EBITDA also facilitates
management's internal comparisons to AutoChina's historical
performance and liquidity. AutoChina computes 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.
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