AutoChina International Limited Investor Presentation (NASDAQ: AUTC)
Forward Looking Statement 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 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 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 the information contained in this presentation. 2
Company Overview Business 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 $47 million, with between 12,000 and 13,000 total new vehicles being leased. 3 Financial Summary ($ 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. Source: Company data
Investment Highlights Attractive Market 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) (1) ACT Research High Growth Opportunity 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. Profitable Business Model 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 Experienced and Aligned Leadership 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 4
Management Team 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 5
The Transformation of AutoChina Added to Russell Global Index. Commercial Vehicle Sales, Servicing, Leasing and Support Business launched. Sale of Automotive Dealership Business announced for $68.8M. Company begins trading on NASDAQ. Engaged PWC as independent Auditors. Closes on $78M in new bank loans. 2005 March 2008 April 2009 June 2009 October 2009 March 2010 July 2010 August 2010 AutoChina founded with 6 automotive dealerships primarily located in Northern China s Hebei province. Business eventually reaches 27 dealerships in size. Spring Creek Acquisition Corp. AutoChina becomes a public company by merging with the Spring Creek SPAC. Partnership with CITIC begins. Completed $70M registered direct offering. Store expansion reaches Southern China. Announces share repurchase program. 6
High Growth Trajectory (Revenue and Net Income) Revenue 2008-2010(F) Net Income 2008-2010(F) (midpoint of guidance) (midpoint of guidance) $ in 000s $ in 000s Source: Company data. 2010 based on the midpoint of issued guidance. 7
Revenue Breakdown $ in 000s Revenue 2008-2010(F) $700,000 $600,000 (midpoint of guidance) $625,000 $500,000 $400,000 $300,000 $325,454 $322,277 $200,000 $201,545 $100,000 $0 $36,298 $73,874 $63,036 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
USD in 000s USD in 000s Finance and Insurance Revenues Growing Q2 2010 Revenue and YoY Comparison $250,000 220% YoY Grow th $201,545 $200,000 $150,000 Q1-Q2 2010 Revenue and YoY Comparison $350,000 $300,000 $250,000 $200,000 336% YoY Grow th $322,277 $100,000 $50,000 $63,036 $150,000 $100,000 $50,000 $73,874 $0 Q2 2009 Q2 2010 YoY Growth $0 Q1-Q2 2009 Q1-Q2 2010 YoY Growth Finance and insurance Commercial vehicle revenue $1,902 $14,092 640.9% 61,134 187,453 206.6% Finance and insurance Commercial vehicle revenue $2,916 $23,589 709.0% 70,958 298,688 320.9% 9
Net Income Breakdown $ in 000s Net Income 2008-2010(F) $50,000 $45,000 $40,000 $35,000 $30,000 AutoChina Expects Profitability to Accelerate as Finance and Insurance Revenues Grow (midpoint of guidance) $44,500 $25,000 $20,000 $15,000 $17,177 $10,000 $15,220 $10,931 $5,000 $0 $1,172 $5,493 $3,792 2008 6 Mos 2009 2009 6 mos. 2010 2010F Q2 2009* Q2 2010 Source: 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
Operational Highlights 9,485 commercial vehicles financed YTD, compared to 4,289 in the prior-year period. 4,500 4,000 Stores Trucks Sold 4,130 3,500 3,275 3,000 2,500 2,531 2,506 2,849 2,000 1,500 1,507 1,000 500 0 251 105 150 157 180 193 218 109 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2010 18,003 Trucks Sold Since Inception 11
The Opportunity
U.S. Commercial Truck Classifications Gross Vehicle Weight Rating (GVWR) Example Class 8 - The Vehicles AutoChina Leases Class 7 Class 6 Class 5 Class 4 Class 3 Class 2 Class 1 33,001 lbs. < (15 tonnes <) 26,001 33,000 lbs. (11.8 15 tonnes) 19,501 26,000 lbs. (8.8 11.8 tonnes) 16,001 19,500 lbs. (7.3 8.8 tonnes) 14,001 16,000 lbs. (6.4 7.3 tonnes) 10,001 14,000 lbs. (4.5 6.4 tonnes) 6,001 10,000 lbs. (2.7 4.5 tonnes) 0 6000 lbs. (0 2.7 tonnes) 13
Heavy Trucks: AutoChina s Current Target Market Segment Heavy Truck Sales in China > 1,000,000 370,795 236,600 307,296 487,500 540,448 635,000 2004 2005 2006 2007 2008 2009 2010E Source: ACT Research, China Automotive Review, CICC 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 as a market leader Customer base predominantly entrepreneurs that carry wide variety of goods Freight, agricultural products, raw materials 14
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
Increased Interest in China s Commercial Vehicle Industry $450,000,000 October 2010 (Joint Venture) $293,000,000 October 2009 (Joint Venture) $293,000,000 October 2009 (Joint Venture) $789,000,000 July 2009 (Minority Stake) $929,000,000 January 2009 (Joint Venture) $385,000,000 October 2006 (Joint Venture) $163,000,000 July 2006 (Joint Venture) 16
The AutoChina Business Model
AutoChina s Business Model: Commercial Vehicle Sales & Leasing Opportunity Address a Need: Make commercial vehicle ownership affordable and accessible for owners and owner-operators Make it Scalable: Need to be able to dominate a very fragmented market in order to drive growth Control Risk: There are no defined credit rating systems in China to rely on Make it Profitable: Profitably accomplish all business objectives 18
Direct Customer Interaction ERP System AutoChina Business Model Centralized headquarters Planning and analysis Control and monitoring Checks and balances AutoChina HQ Store network Standardization Wide reach, local presence Customer support network Growing Network of 218 Stores Customer Focus Our customers success is the key to our success 19
AutoChina Customer Profile Long-haul truck owner / owner-operator Individual entrepreneur(s) Located in rural China May operate vehicle in shifts Typical Goods Transported Agricultural Goods Raw Materials Building Materials AutoChina empowers these individuals to be their own boss by offering affordable financing and support options. 20 20
One-Stop Provider for Truck Owners and Owner-Operators Financing Services Administrative Services Store Support Network Vehicle Financing + Optional Value-Added Services Registration Licensing Permitting Insurance GPS Based Location Tracking Tire Financing Insurance Financing Diesel Financing Future Value Added Services Our goal is to enable our customers to be successful and profitable. 21
Store Network 218 stores covering 17 provinces and provincelevel regions 9 new provinces and province-level regions added in Q2 2010 Goal: Cover China by end of 2013 Map Legend: AutoChina store presence Headquarters 22 22
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 23
Attractive Lease-to-Own Structure that Manages Risk Approval and Screening Process Down Payment Affordable Lease Payments AutoChina Retains Ownership of Vehicle 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 24
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 Shijiazhuang Beijing CHINA Map Detail Area 25
Sample Lease Economics Example: TOTAL $48,000 or 126% Other Value-Added Svcs Insurance $1,000 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 COGS $38,000 GPS $1,000 Lease Payments $34,600 Opportunity to earn more as value added services are added to the mix (Example: Tires, Diesel, Insurance financing) Initial Payment $11,400 Investment Return 26
Sample Lease Economics Example (Net of Initial Payment): We essentially only finance the amount net of the initial payment ($26,600 in this example) COGS $26,600 TOTAL $36,600 or 138% Other Value-Added Svcs Insurance $1,000 GPS $1,000 Total dollar return of $36,600 in 26 months or 38% total return (~19% per year) Actual IRR is higher due to frontloaded payment schedule Lease Payments $34,600 Opportunity to earn more as value added services are added to the mix (Example: Tires, Diesel, Insurance financing) Investment Return 27
Summary Financial Results Second Quarter (in USD thousands, except EPS) 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 28
Summary Balance Sheet (in USD thousands, except share numbers and EPS) 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 Company recently closed bank facilities totaling $78.0 million 29
Investment Highlights A Unique Opportunity to Invest in the Growing Chinese Auto Market 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 30
Appendix
Earnout Summary 2009 EBITDA = $34.1 Million 2010 90% EBITDA Growth Target = $64.9 Million % 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% G = EBITDA Growth 2013 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 32
AutoChina Ownership Summary Ownership Summary 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% Top Holders Holder Common Stock Held % of Shares Outstanding Yong, 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% 33
Popular Models Financed and Sold by AutoChina 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 34