Fincera : Reports 2015 Second Quarter and Six Month Financial Results

SHIJIAZHUANG, CHINA--(Marketwired - Sep 30, 2015) - Fincera Inc. ("Fincera" or the "Company") (OTCQB: AUTCF), a leading provider of web-based financing and ecommerce services for China's transportation and automobile industries, today reported financial results for the second quarter and six months ended June 30, 2015.

Q2 2015 Operational Highlights

• The Company's legacy truck leasing business ceased initiating new leases in August 2015 as it is now focusing on developing its Internet-based business segment, which was launched in November 2014. The Company expects to continue servicing and collecting payments on existing commercial vehicle leases until all obligations related to the individual leases are met.
• The Company's electronic payments platform CeraPay was used to make payment transactions totaling over RMB741 million during the month of June 2015. The online marketplace lending platform CeraVest has originated over RMB1 billion in loans since its launch in November 2014 and had a loan portfolio of approximately RMB897 million at June 30, 2015.
  
  

Q2 2015 Financial Highlights (comparisons are year over year)

• Total revenues of $76.5 million, compared to $253.2 million, as a result of the decrease in commercial vehicle leases initiated during the period
• Gross profit of $21.4 million, or 28.0% of total revenues, compared to $24.7 million, or 9.7% of total revenues
• Net income of $3.0 million, or $0.12 per diluted share, compared to $4.4 million, or $0.18 per diluted share
• Adjusted EBITDA of $11.1 million, compared to $13.5 million
  
  

Six Months 2015 Financial Highlights (comparisons are year over year)

• Total revenues of $147.7 million, compared to $411.6 million, as a result of the decrease in commercial vehicle leases initiated during the period
• Gross profit of $40.8 million, or 27.6% of total revenues, compared to $44.4 million, or 10.8% of total revenues
• Net income of $5.7 million, or $0.23 per diluted share, a 215.4% increase from $1.8 million, or $0.08 per diluted share, primarily as a result of the one-time litigation expenses incurred to settle the SEC lawsuit in the first quarter of 2014
• Adjusted EBITDA of $21.1 million, compared to $22.2 million
  
  

Management Comments
Mr. Yong Hui Li, Chairman and CEO of Fincera, stated, "In recent years, China's economy has seen a dramatic shift from manufacturing and industrials to one that is increasingly reliant on spending by its emerging middle class. Fincera's roots were originally founded upon a growing commercial vehicle industry, and as China's economy has evolved, so too has our Company. Our management team has experience in successfully transitioning business models as evidenced by our Company's shift several years ago from an auto dealership business to the commercial vehicle leasing and support business. We continue to see a strong opportunity where we can leverage our experience in the transportation industry and our extensive store network in the development of our new Internet-based businesses. CeraPay and CeraVest, the financial products we launched in late 2014, have seen continuous growth since their launches. We believe these new businesses present a significant opportunity for our Company as we continue to explore other ways in which we can help to fulfill the financing needs of individuals and small businesses throughout China."

Mr. Li continued, "Though we have ceased initiating new commercial vehicle leases as of August 2015, we will continue to serve our customers with existing leases until the terms of the individual leases are satisfied. We are excited and optimistic about Fincera's future as we work to better serve our customers with new products like CeraPay and CeraVest. We aim to be a partner to our customers, helping them grow their businesses by increasing productivity and convenience. As we move forward, we will continue to explore ways in which we can improve on this goal with new and innovative initiatives."

Internet-based Business for the Transportation Industry
From its inception in November 2014 through June 30, 2015, the Company's small business lending platform CeraVest (https://www.qingyidai.com/) has originated over RMB1 billion in loans. CeraVest had a loan portfolio of approximately RMB897 million at June 30, 2015. Fincera created CeraVest as an online lending marketplace that provides short-term operating capital for small businesses in the transportation industry. CeraVest is also a platform through which Fincera can originate loans and then sell these loans to the public. Currently, individuals may invest on the CeraVest platform and earn an annual interest rate of approximately 8.6%. Fincera earns origination fees on CeraVest loans.

Also launched in November 2014, the Company's electronic payments platform CeraPay (https://www.dianfubao.com/) was used to make payment transactions totaling over RMB741 million during the month of June 2015. Fincera developed CeraPay as a convenient platform through which customers could make electronic payments and the Company could make credit advances to its customers, allowing customers to pay for their everyday truck-operating needs at participating merchants within the CeraPay network. Fincera earns transaction fees through its CeraPay platform. The CeraPay network had over 22,000 active users (individuals and merchants) during the month of June. The Company continues to actively market CeraPay to potential customers and merchants in the transportation industry in an effort to increase the user base.

Fincera's Internet-based business segment generated revenues of $7.9 million in the second quarter ended June 30, 2015, and $11.6 million in the six months ended June 30, 2015. This business did not exist in the prior-year periods.

Legacy Truck Leasing Business
The Company leased 1,227 commercial vehicles in the second quarter of 2015, compared to 4,617 in the prior-year period. The year-over-year decrease in commercial vehicle leases initiated was largely due to the Company's shift in business focus to its Internet-based businesses. Of the 1,227 vehicles leased, 347 trucks were leased through Fincera's store network, and 880 were leased through peer stores. At June 30, 2015, the Company had 19,500 leased vehicles under its sales-type leasing program.

The Company repossessed 193 vehicles whose lessees had defaulted on installment payments, sold 131 repossessed vehicles (repossessed in the quarter or in prior periods), and recognized 5 lost vehicles during the quarter ended June 30, 2015. In comparison, there were 100 vehicles repossessed, 77 vehicles sold and 20 lost vehicles recorded in the quarter ended June 30, 2014. 

Asset Securitization
During the 2015 second quarter, the Company completed a landmark securitization of approximately $101.8 million of its legacy truck leases pursuant to the China Securities Regulatory Commission 2014 announcement No. 49 regarding asset securitizations. The securitization, for which BDO China provided an opinion letter, resulted in the creation of bonds with credit ratings of AA to AAA, bearing interest at rates ranging from 6.8% to 7.9% per annum with approximately a 30-month term. The bonds are tradable on the Shanghai Stock Exchange Integrated Electronic Platform for Fixed-income Securities. The securitization resulted in a cost-effective method of financing for the Company and demonstrates strong investor confidence in the Company's legacy truck-leasing receivables.

Specialty Finance Store Network
As of June 30, 2015, the number of Fincera's commercial vehicle financing and service centers remained unchanged at 555 centers in 26 provinces, municipalities, and autonomous regions in China. The Company 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. In recent months, the focus of these locations has shifted to promoting the Company's Internet-based financing businesses. The Company expects these service centers to be crucial to the development of its Internet-based businesses as the majority of new user acquisitions are expected to originate from the rural areas where Fincera has its service centers.

Financial Review

2015 Second Quarter

Revenues

• Total revenues for the second quarter ended June 30, 2015, were $76.5 million, compared to $253.2 million in the prior-year period.
  
  

• Commercial vehicle revenue decreased to $55.4 million, compared to $232.1 million in the prior-year period, primarily as a result of a decrease in new commercial vehicle leases initiated during the period. The revenue decrease was also impacted by a decrease in average price per vehicle, from $50,300 per vehicle in the 2014 second quarter to $45,100 per vehicle in the 2015 second quarter. The decrease in average price per vehicle is a result of a higher proportion of leases originated through the Company's peer stores business, whose trucks typically are leased without a trailer as opposed to trucks leased directly through Fincera's own store network, which are usually leased with a trailer.
• Finance revenue decreased to $8.0 million, or 10.4% of total revenues, during the second quarter of 2015, from $14.6 million in the prior-year period, as a result of the decrease in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect. This was partially offset by an increase in finance revenue from CeraVest as this business did not exist in the prior-year period.
• Insurance and service revenue increased 95.1% to $10.8 million, from $5.5 million in the prior-year period, primarily as a result of an increase in CeraPay revenues, which was partially offset by a decrease in insurance commissions due to a decrease in the number of trucks leased directly from Fincera's stores during the period as compared to those leased through peer stores for which it does not sell the truck insurance.
• Property lease and management revenue from the Company's office-leasing business totaled $2.4 million, compared to $950,000 in the prior-year period. This business commenced in April 2013.
  
  

Gross Profit/Margin

• Gross profit was $21.4 million in the three months ended June 30, 2015, compared to $24.7 million in the prior-year period.
• Gross margin increased to 28.0% for the three months ended June 30, 2015, from 9.7% in the prior-year period, primarily due to the higher number of leases outstanding and lower number of new leases initiated during the period, which resulted in a higher proportion of monthly amortized finance income. In addition, income from CeraVest and CeraPay and increased property lease and management revenue contributed to the increase in gross margin.
  
  

Net Income

• Net income was $3.0 million, or $0.12 per diluted share based on 24.3 million diluted weighted average shares outstanding, in the three months ended June 30, 2015, compared to $4.4 million, or $0.18 per share based on 24.0 million diluted weighted average shares outstanding, in the three months ended June 30, 2014.
  
  

Adjusted EBITDA

• Adjusted EBITDA, which is EBITDA excluding stock-based compensation and the previously mentioned one-time litigation expense, was $11.1 million for the quarter ended June 30, 2015, compared to $13.5 million in the prior-year quarter.
  
  

Six Months 2015

Revenues

• Total revenues for the six months ended June 30, 2015, were $147.7 million, compared to $411.6 million in the prior-year period.
  
  

• Commercial vehicle revenues decreased to $107.5 million from $373.6 million in the prior year, primarily as a result of the decrease in new leases initiated during the first half of 2015. Fincera's commercial vehicle sales, servicing, leasing and support business recorded 2,407 new leases in the six months ended June 30, 2015, compared to 7,419 new leases in the six months ended June 30, 2014. A decrease in average price per vehicle, from $50,400 per vehicle in the first half of 2014 to $44,700 per vehicle in the first half of 2015, also contributed to the decrease in commercial vehicle revenues.
• Finance revenues decreased to $22.7 million, or 15.4% of total revenues, during the six months ended June 30, 2015, compared to $26.7 million in the prior-year period, as a result of the decrease in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect.
• The Company's insurance and service revenue increased 30.7% to $13.0 million during the first half of 2015 from $9.9 million in the first half of 2014.
• Property lease and management revenue from the Company's office-leasing business totaled $4.5 million during the period. This business did not exist during the prior-year period.
  
  

Gross Profit/Margin

• Gross profit for the six months ended June 30, 2015, was $40.8 million, representing gross margin of 27.6%, an increase from gross margin of 10.8% in the first half of 2014, which is primarily due to reasons stated in the 2015 second quarter financial review.
  
  

Net Income

• Net income for six months ended June 30, 2015, increased 215.4% to $5.7 million, or $0.23 per share based on 24.3 million diluted weighted average shares outstanding, from $1.8 million, or $0.08 per share based on 23.8 million diluted weighted average shares outstanding, in the prior-year period. The increase in net income was primarily due to a one-time $4.35 million litigation expense incurred to settle the SEC lawsuit in the 2014 first quarter.
  
  

Adjusted EBITDA

• Adjusted EBITDA, which is EBITDA excluding stock-based compensation and the previously mentioned one-time litigation expense, for the six months ended June 30, 2015, was $21.1 million, compared to $22.2 million in the prior-year period.
  
  

See "Non-GAAP Financial Measures" below for a description of Adjusted EBITDA.

Balance Sheet Highlights
At June 30, 2015, Fincera's cash and cash equivalents (not including restricted cash) were $43.7 million, working capital was $285.0 million, total debt was $285.1 million (including due to affiliates and accounts payable, related parties), and stockholders' equity was $269.1 million, compared to $26.0 million, $141.5 million, $327.5 million, and $263.1 million, respectively, at December 31, 2014. 

In June 2015, the Company securitized approximately $101.8 million of its legacy truck-leasing assets, which were sold to qualified investors. The bonds bear interest at rates from 6.8% to 7.9% per annum, have a maturity of approximately 2.5 years and bear credit ratings of AA to AAA. The bonds trade on the Shanghai Stock Exchange Integrated Electronic Platform for Fixed-income Securities.

About Fincera Inc.
Founded in 2005, Fincera Inc. (OTCQB: AUTCF) provides innovative web-based financing and ecommerce services for China's transportation and automobile industries. The Company also operates over 550 finance and service centers in 26 provinces, municipalities, and autonomous regions across China. Fincera's current service offerings include a B2B payment network and a web-based small business lending platform. The Company's website is http://www.fincera.net. Fincera trades on the OTCQB venture stage marketplace for early stage and developing U.S. and international companies. OTCQB companies are current in their reporting and undergo an annual verification and management certification process.

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:

• Changing principles of generally accepted accounting principles;
• Continued compliance with government regulations;
• Legislation or regulatory environments, requirements or changes adversely affecting the transportation or financial services industry in China;
• Fluctuations in consumer demand in the transportation industry;
• Management of rapid growth;
• General economic conditions;
• Changes in government policy;
• China's overall economic conditions and local market economic conditions;
• The Company's ability to expand through strategic acquisitions;
• The Company's business strategy and plans, including whether its new financial services products are accepted by consumers;
• The results of future financing efforts; and
• Geopolitical events.
  
  

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.

Non-GAAP Financial Measures ($ in thousands)

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

USE OF NON-GAAP MEASURES
Fincera defines Adjusted EBITDA as net income before interest expense (income), income taxes, depreciation and amortization, as well as the exclusion of stock-based compensation and one-time litigation expenses. 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 associated therewith. For example, Adjusted EBITDA does not include net interest expense, but because Fincera has borrowed money to finance its operations, interest expense is a necessary and ongoing part of its costs and has assisted Fincera in generating revenue; Adjusted EBITDA does not include taxes, although payment of taxes is a necessary and ongoing part of Fincera's operations; and Adjusted EBITDA does not include depreciation and amortization expense, but because Fincera 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. 

Fincera 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 EBITDA also facilitates management's internal comparisons to Fincera's historical performance and liquidity. Fincera computes Adjusted EBITDA using the same consistent method from quarter to quarter. The table above has more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.