Ugly Duckling Reports First Quarter 2001 Results
PHOENIX--April 25, 2001--First Quarter Highlights:
| -- | Total revenues were $164.0 million |
| -- | E-Commerce generated $15.1 million in revenues and 1,725 cars sold during the first quarter of 2001 as compared to $13.7 million in revenues and 1,553 cars sold during the fourth quarter of 2000 |
| -- | Loan portfolio principal balance reached $535.0 million, representing a 28% increase over the year-ago quarter |
| -- | New loan originations were $126.0 million, consistent with the year-ago quarter |
| -- | Entered into a $35 million Senior Secured Loan facility to replace its previous $38 million Senior Secured facility |
| -- | Entered into a $75-$100 million warehouse receivables line of credit with Greenwich Capital Financial Products, Inc. (announced April 16, 2001) |
| -- | Secured an option to extend until December 31, 2001, the Company's existing $25 million inventory line of credit (announced April 16, 2001) |
| -- | Closed 19th Securitization with loan principal balances of approximately $117.7 million and Class A bonds issued of $83.6 million (announced April 16, 2001) |
| -- | Incurred $368,000 after tax charge to earnings in connection with the closing of Florida and Texas collection and loan administration centers |
| -- | The Company's Chairman of the Board and largest shareholder, Ernest C. Garcia II, made an offer to purchase all outstanding stock of the Company (announced April 16, 2001) |
Financial Highlights
(In 000's, except for per share numbers)
Three Months Ended
March 31,
-------------------------
2001 2000
-------- --------
Total Revenues $ 164,030 $158,317
Operating Income $ 6,179 $ 9,892
Net Earnings $ 1,822 $ 4,483
Diluted Net Earnings per Share $ 0.15 $ 0.30
Ugly Duckling Corporation , the largest used car sales company focused exclusively on the sub-prime market, today reported its first quarter financial results for 2001.
Quarter over Quarter Results
For the three months ended March 31, 2001, the Company reported net earnings of $1,822,000, or $0.15 per diluted share, compared with net earnings for the same period of 2000 of $4,483,000, or $0.30 per diluted share. The decrease in earnings in 2001 is attributable to an increase in the provision for loan losses charged to current earnings of 31% of originations in 2001 versus 27% in 2000. In addition, during the first quarter of 2001, the Company incurred an after tax charge of approximately $368,000 or $0.03 per diluted share to earnings in connection with the closing of its collections and loan administration operations in Florida and Texas as described below.
In the fourth quarter of 2000, the Company incurred an after tax charge of $5.9 million which increased the effective provision rate for fiscal year 2000 to approximately 30% of originations. Had a pro rata portion of this provision been reflected in the first quarter of 2000, earnings for the three months ended March 31, 2000 would have decreased by $2.3 million or $0.15 per diluted share.
During the first quarter of 2001, the Company initiated a plan to close its collections and loan administration operations in Clearwater, Florida, Plano, Texas and Dallas, Texas and move them to the Company stores or to its Gilbert, Arizona collection facility. As a result of these closings, the Company took an after tax charge of approximately $368,000 to cover payroll, severance and certain property related expenses. The Company also expects to take an additional restructuring charge in the second quarter related to costs of abandoned assets still in use with a carrying value of approximately $500,000. The estimated impact resulting from the shut down of these operations, including the impact of future charges, is estimated to be break even over the remainder of 2001 and to increase operating results by $1.5 million annually beginning in 2002.
Total revenues remained relatively constant at $164,030,000 for the first quarter of 2001 as compared to $158,317,000 for the first quarter of 2000, an increase of approximately 4%. While the Company sold less cars during the first three months of 2001 versus 2000, interest income rose 33% due to the growth of the on-balance sheet portfolio. The decrease in the number of cars sold from 15,802 in 2000 compared to 14,851 in 2001 is primarily due to a greater focus on the loan quality of the contracts originated. As a result of the development of a risk management function during the latter half of 2000, the Company has made significant adjustments in its underwriting policies toward the ultimate goal of improving loan losses.
The more restrictive underwriting guidelines have also impacted new loan originations, which have declined from $128,123,000 during the first quarter of 2000 to $126,015,000 during the first quarter of 2001. The amount financed, however, has increased on a per car sold basis from $8,150 in 2000 to $8,528 in 2001, primarily due to an increase in the overall sales price of the cars sold.
Operating expenses for the first quarter of 2001 remained constant at 23% of revenues, or $37,471,000 and $35,881,000 for the first quarters of 2001 and 2000, respectively, but is a decrease from the 25% of revenues experienced during the fourth quarter of 2000.
Loan Portfolio
Primarily as a result of the Company's in store collectors, its current accounts, those accounts not one day delinquent, have continued to improve both over the same quarter of 2000 as well as over the third and fourth quarters of 2000. Current accounts as of March 31, 2001 were 78.6% versus 74.8% at March 31, 2000. Current accounts at the end of the third and fourth quarters of 2000 were 72.4% and 66.1%, respectively. As a result of the apparent success of the in store collectors, the Company is in the process of adding in store collectors to service the 31-60 day delinquent accounts at the dealerships in addition to the 1-30 days delinquent accounts currently serviced. The 31+ day accounts have remained relatively constant at 5.7% at the end of the first quarter of 2001, as compared to 5.3% at the end of the same quarter of 2000.
Based upon its continued review of the adequacy of the Allowance for Credit Losses, the Company recorded a provision for loan losses for the three months ended March 31, 2001 at 31% of originations. The 31% provision is 100 basis points higher than the effective 30% provision for 2000, as losses on its existing portfolio continue to emerge at higher than expected levels. With the provision recorded during the quarter, the Company believes the Allowance balance as of March 31, 2001 remains at a level that it estimates to be adequate to cover net charge offs for the next 12 to 15 months, the Company's targeted coverage range for the Allowance.
Uglyduckling.com Provides Continued Growth
Ugly Duckling's website, located at http://www.uglyduckling.com/, remains a consistent source of new leads and sales. The site provides potential customers with instant credit applications as well as maps to the Company's dealerships nationwide. From customers initially applying for credit through its website, 12,135 applications were received in the first quarter of 2001 generating $15.1 million in revenue from 1,725 car sales. In the fourth quarter of 2000, the Company's Internet applications generated revenues of over $13.7 million from 1,553 cars sold.
Senior Secured Loan Facility and Subordinated Loan
As previously reported, during January 2001, the Company entered into a $35 million senior secured loan facility as a renewal for its $38 million senior loan facility originated in May 1999. The loan proceeds provide additional working capital and funds to pay down existing debt. Concurrently, the Company also entered into a $7 million subordinated loan with Verde Investments, Inc., an affiliate of the Company's Chairman and largest shareholder, Mr. Ernest C. Garcia II. The Verde loan was a condition for the new senior secured loan facility and the Verde loan proceeds were placed in escrow as additional collateral for the $35 million senior secured loan. Among other conditions, the Verde loan is subordinate to the new senior secured loan.
Warehouse Lender
As previously reported, the Company entered into a $75 to $100 million warehouse receivables line of credit with Greenwich Capital Financial Products, Inc. The line of credit replaces the Company's existing warehouse receivables facility. The new facility is capped at $75 million for seven months of the year and increases to $100 million for the five months of the Company's peak loan origination season. Interest is payable at LIBOR plus 2.8%.
Inventory Line of Credit
Also as previously announced, the Company secured an option to extend its current inventory line of $25 million until December 31, 2001, subject to certain fees and interest rate adjustments. The Company continues to pursue a replacement for this facility.
Closing of 19th Securitization
The Company announced the completion of its 19th securitization, consisting of approximately $117.7 million in principal balances and the issuance of approximately $83.6 million in Class A bonds. The coupon rate on the Class A bonds is 5.09%, the initial deposit into the reserve account was 3% and the reserve account maximum is 8%, all substantial improvements over the Company's most recent securitizations.
Receipt of Offer to Purchase Outstanding Company Stock
As previously announced, the Company confirmed the receipt of an offer from Mr. Ernest C. Garcia II, the Company's Chairman of the Board and largest shareholder, to the Board of Directors to purchase all of the outstanding shares of the Company common stock. Under the terms of the offer, shareholders would receive $7.00 per share, $2.00 in cash and $5.00 in subordinated debentures from the acquiring company. The subordinated debentures would bear interest at 10%. The offer also states that Greg Sullivan, the Company's Chief Executive Officer and President, would receive an option to purchase a 20% interest in the acquiring company. The Company's Board of Directors has established a special transaction committee of the board to evaluate the proposal and make a recommendation to the full board on the proposal.
UGLY DUCKLING CORPORATION
Consolidated Operating Results
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
-------------------
2001 2000
--------- ----------
Cars Sold 14,851 15,802
========= =========
Total Revenues $ 164,030 $ 158,317
========= =========
Sales of Used Cars $ 130,186 $ 132,786
Less:
Cost of Used Cars Sold 72,841 72,942
Provision for Credit Losses 39,020 34,573
--------- ---------
18,325 25,271
Other Income (Expense):
Interest Income 33,844 25,531
Portfolio Interest Expense (8,519) (5,029)
--------- ---------
Net Interest Income 25,325 20,502
--------- ---------
Income before Operating Expenses 43,650 45,773
Operating Expenses:
Selling and Marketing 7,626 8,135
General and Administrative 27,438 25,538
Depreciation and Amortization 2,407 2,208
--------- ---------
Operating Expenses 37,471 35,881
Operating Income 6,179 9,892
Other Interest Expense 3,091 2,292
--------- ---------
Earnings before Income Taxes 3,088 7,600
Income Taxes 1,266 3,117
--------- ---------
Net Earnings $ 1,822 $ 4,483
========= ==========
Net Earnings per Common Share:
Basic $ 0.15 $ 0.30
========= ==========
Diluted $ 0.15 $ 0.30
========= ==========
Shares Used in Computation:
Basic Weighted Average Shares
Outstanding 12,292 14,905
========= ==========
Diluted Weighted Average Shares
Outstanding 12,325 15,153
========= ==========
UGLY DUCKLING CORPORATION
Consolidated Operating Expenses and Related Information
(Unaudited)
(Dollars in thousands, except per car amounts)
Three Months Ended
March 31,
-------------------
2001 2000
--------- ----------
Segment Information:
--------------------
Retail Operations:
Selling and Marketing $ 7,626 $ 8,135
General and Administrative 14,658 14,190
Depreciation and Amortization 1,326 1,071
-------- --------
Operating Expenses - Retail 23,610 23,396
-------- --------
Portfolio Expense:
General and Administrative 8,008 6,077
Depreciation and Amortization 264 300
-------- --------
Operating Expenses - Portfolio 8,272 6,377
-------- --------
Corporate Expense:
General and Administrative 4,772 5,271
Depreciation and Amortization 817 837
-------- --------
Operating Expenses - Corporate 5,589 6,108
-------- --------
Total Operating Expense $ 37,471 $ 35,881
========= =========
Total Operating Exp. - % of Revenues 22.8% 22.7%
===== =====
Other Information:
------------------
Dealerships Open - End of period 77 75
========= =========
Used Cars Sold 14,851 15,802
========= =========
Principal Balances Originated $ 126,015 $128,123
========= =========
Provision as % of Originations 31.0% 27.0%
===== =====
Retail Operating Expenses - Per Car Sold:
-----------------------------------------
Selling and Marketing $ 514 $ 515
General and Administrative 987 898
Depreciation and Amortization 89 68
-------- ---------
Total Retail Operations -
Per Car Sold $ 1,590 $ 1,481
========= =========
Corporate Expenses:
-------------------
Per Car Sold $ 376 $ 387
======== ========
As % of Total Revenues 3.4% 3.9%
==== ====
Loan Servicing Expenses -
% of Portfolio Managed:
---------------------------
Managed Principal Balances:
Dealership Originations $ 535,039 $ 461,824
Serviced for Others 527 7,851
-------- ---------
$ 535,566 $ 469,675
======== =========
Loan Servicing Expenses (Annualized) as
% of Managed Principal Balances 6.3% 6.2%
==== ====
UGLY DUCKLING CORPORATION
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
March 31, December 31,
------------------- ---------------
2001 2000 2000
------------------- ---------------
ASSETS
Cash and Cash
Equivalents $ 8,579 $ 6,330 $ 8,805
Finance Receivables,
Net 522,893 407,267 500,469
Note Receivable from
Related Party 12,000 12,000 12,000
Inventory 43,434 49,058 63,742
Property and Equipment,
Net 39,215 32,141 38,679
Intangible Assets, Net 12,288 14,359 12,527
Other Assets 17,779 12,636 11,724
Net Assets of
Discontinued Operations 3,282 14,162 4,175
------ ------- ------
$ 659,470 $ 547,953 $ 652,121
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 1,782 $ 2,928 $ 2,239
Accrued Expenses and
Other Liabilities 29,600 29,289 36,830
Notes Payable -
Portfolio 390,615 282,865 406,551
Other Notes Payable 39,444 33,418 16,579
Subordinated Notes
Payable 40,807 28,900 34,522
-------- -------- --------
Total Liabilities 502,248 377,400 496,721
-------- -------- --------
Stockholders' Equity:
Preferred Stock -- -- --
Common Stock 19 19 19
Additional Paid-in
Capital 173,723 173,663 173,723
Retained Earnings 23,594 17,192 21,772
Treasury Stock,
at cost (40,114) (20,321) (40,114)
-------- -------- --------
Total Stockholders'
Equity 157,222 170,553 155,400
-------- -------- --------
$ 659,470 $ 547,953 $ 652,121
========= ========= =========
UGLY DUCKLING CORPORATION
Finance Receivables and Allowance for Credit Losses Information
(Unaudited)
(Dollars in thousands)
March 31,
------------------------------
2001 2000
------------- -------------
Contractually Scheduled Payments $ 726,515 $ 574,664
Unearned Interest Income (191,476) (155,751)
---------- ----------
Principal Balances, net 535,039 418,913
Accrued Interest 5,213 4,101
Loan Origination Costs 7,601 6,094
---------- ----------
Principal Balances, net 547,853 429,108
Investments Held in Trust 77,040 12,693
Residuals in Finance
Receivables Sold -- 53,051
---------- ----------
Finance Receivables 624,893 494,852
Allowance for Credit Losses (102,000) (87,585)
---------- ----------
Finance Receivables, net $ 522,893 $ 407,267
========== ==========
Allowance as % of Ending
Principal Balances, Net 19.1% 20.9%
===== =====
Three Months Ended
March 31,
-----------------------------
Allowance Activity: 2001 2000
----------- -----------
Balance, Beginning of Period $ 99,700 $ 76,150
Provision for Credit Losses 39,062 34,573
Other Allowance Activity -- 104
Net Charge Offs (36,762) (23,242)
---------- ----------
Balance, End of Period $ 102,000 $ 87,585
========== ==========
Charge off Activity:
Principal Balances $(47,156) $ (31,166)
Recoveries, Net 10,394 7,924
---------- ----------
Net Charge Offs $(36,762) $ (23,242)
========== ==========
Managed Loans Outstanding
--------------------------------------------
Principal Balances # of Loans
---------------------- ------------------
March 31: 2001 2000 2001 2000
------------------------ ------------------
Principal - Managed $ 535,039 $ 461,824 87,033 75,496
Less: Principal -
Securitized and Sold -- 42,911 -- 13,037
----------- --------- -------- --------
Principal - Retained
on Balance Sheet $ 535,039 $ 418,913 87,033 62,459
============ ========= ======== ========
March 31,
------------------------------
Days Delinquent: 2001 2000
------------- ------------
Current 78.6% 74.8%
1-30 Days 15.7% 19.9%
31-60 Days 3.3% 3.4%
61-90 Days 2.4% 1.9%
----- -----
Total Portfolio 100.0% 100.0%