Ugly Duckling Reports Second Quarter and Six Month Results
PHOENIX--July 25, 2001--Ugly Duckling CorporationSecond Quarter Highlights:
| -- | Total revenues were $140.8 million |
| -- | E-Commerce generated $15.2 million in revenues and 1,686 cars sold during the second quarter of 2001 as compared to $15.1 million in revenues and 1,725 cars sold during the first quarter of 2001 |
| -- | Loan portfolio principal balance reached $534.8 million, representing a 13% increase over the year-ago quarter |
| -- | New loan originations were $103.6 million, a 13% decrease from the year-ago quarter |
| -- | Closed 20th Securitization with loan principal balances of approximately $142.3 million and Class A bonds issued of $100.8 million |
| -- | The Company's Chairman of the Board and largest shareholder, Ernest C. Garcia II, made an offer to purchase all of the outstanding stock of the Company (announced April 16, 2001) |
Financial Highlights
(In 000's, except for per share numbers)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
--------------------- ---------------------
Total Revenues $140,819 $151,398 $304,849 $309,715
Operating income $ 4,591 $ 9,923 $ 10,770 $ 19,815
Net Earnings $ 1,364 $ 4,348 $ 3,186 $ 8,831
Diluted net earnings
per share $ 0.11 $ 0.31 $ 0.26 $ 0.60
Ugly Duckling Corporation , the largest used car sales company focused exclusively on the sub-prime market, today reported its second quarter and six month financial results for 2001.
Quarter over Quarter Results
For the three months ended June 30, 2001, the Company reported net earnings of $1,364,000, or $0.11 per diluted share, compared with net earnings for the same period of 2000 of $4,348,000, or $0.31 per diluted share. The decrease in earnings in 2001 is primarily attributable to an increase in the provision for loan losses charged to current earnings of 31% of originations in 2001 versus 27% in 2000.
Total revenues declined to $140,819,000 for the second quarter of 2001 from $151,398,000 for the second quarter of 2000, a decrease of approximately 7%. The decrease is due to a reduction in the number of cars sold from 14,369 in 2000 to 11,607 in 2001, primarily due to economic factors and the Company's focus on writing higher quality loans. This increased focus on underwriting is a direct result of the development of a risk management department during the latter half of 2000, which has made significant adjustments in underwriting policies, toward the ultimate goal of improving loan losses.
While the Company sold less cars during the second quarter of 2001 versus 2000, interest income rose 17% due to the growth of the on-balance sheet portfolio. The decline in sales has also impacted new loan originations, which declined from $118,778,000 during the second quarter of 2000 to $103,615,000 during the second quarter of 2001. The amount financed, however, has increased on a per car sold basis from $8,311 in 2000 to $8,965 in 2001, primarily due to an increase in the overall sales price of the cars sold. The sales price per car sold increased to $9,125 for the second quarter of 2001 versus $8,458 for the same period of the previous year due to the Company's decision to purchase a larger number of higher end vehicles than have been purchased in the past.
Although revenues have decreased, operating expenses for the second quarter of 2001 increased 2% to 25% of revenues, or $35,887,000 versus $34,849,000, or 23% of revenues, for the second quarter of 2000. The Company is in the process of implementing cost saving initiatives to ultimately return operating expenses to targeted levels.
During the second quarter of 2001, the Company repurchased $3,155,000 of its net exchange offer debt for approximately $2,584,000. The after tax impact of the transaction resulted in a gain from extinguishment of debt of approximately $344,000, or $0.03 per diluted share.
Year over Year Results
For the six months ended June 30, 2001, the Company reported net earnings of $3,186,000, or $0.26 per diluted share, compared with net earnings for the same period of 2000 of $8,831,000, or $0.60 per diluted share. The decrease in earnings in 2001 is primarily attributable to an increase in the provision for loan losses charged to current earnings of 31% of originations in 2001 versus 27% in 2000.
Total revenues declined to $304,849,000 for the six months of 2001 from $309,715,000 for the six months ended June 30, 2000, a decrease of approximately 2% due to a decline in the amount of cars sold. Interest income rose 24% to $68,744,000 in 2001 versus $55,402,000 in 2000, due to the growth of the on-balance sheet portfolio. The decrease in the number of cars sold from 30,171 in 2000 compared to 26,458 in 2001 is primarily due to economic factors and a greater focus on the loan quality of contracts originated.
New loan originations have declined from $246,901,000 during the first half of 2000 to $229,630,000 during the first six months of 2001, also a result of the decrease in cars sold. The amount financed, however, has increased on a per car sold basis from $8,227 in 2000 to $8,720 in 2001, primarily due to an increase in the overall sales price of the cars sold.
Operating expenses for the six months ended June 30, 2001 increased slightly to 24% of revenues, or $73,358,000 versus $70,730,000, or 23%, for the six months ended June 30, 2000. As previously mentioned, the Company is implementing cost savings initiatives to stabilize or reduce expenses in certain areas.
Loan Portfolio
Primarily due to seasonality and consistent with prior years, delinquencies rose during the second quarter of 2001 versus the first quarter of this year. However, all categories, current, 1-30, 31-60 and 61+, however, have improved over the same quarter of the prior year. The current accounts, those not one day late, have improved to 76.4% as compared to 71.9% for the second quarter of 2000. Current accounts as of March 31, 2001 were 78.6% and were 72.4% and 66.1% at the end of the third and fourth quarters of 2000, respectively. This improvement is attributable to the success of the Company's in store collectors which service the 1-30 day accounts. During the second quarter of 2001, the Company also inserted 31-60 day collectors into the majority of the dealerships in order to replicate the 1-30 day model.
Charge offs, net of recoveries, for the three months ended June 30, 2001 and 2000 were $32,573,000 and $20,160,000, respectively. As a percentage of average principal balances, net charge offs for the same periods were 6.1% and 4.1%, respectively. For the six-month periods ended June 30, 2001 and 2000, net charge offs were $69,335,000 and $43,402,000, respectively. Net charge offs as a percentage of average principal balances for the same periods were 13.0% and 9.3%, respectively.
Based upon its continued review of the adequacy of the Allowance for Credit Losses, the Company continues to record a provision for loan losses for the three months ended June 30, 2001 at approximately 31% of originations. The 31% provision is 100 basis points higher than the effective 30% provision for 2000, and 400 basis points higher than that recorded during the second quarter of 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 June 30, 2001 remains at a level that it estimates to be adequate to cover net charge offs for the next 12 months.
Uglyduckling.com Remains Steady Source of Revenue
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, 14,142 applications were received in the second quarter of 2001 generating $15.2 million in revenue from 1,686 car sales. In the first quarter of 2001, the Company's Internet applications generated revenues consistent with the second quarter totaling over $15.1 million from 1,725 cars sold.
Closing of 20th Securitization
The Company announced the completion of its 20th securitization, consisting of approximately $142.3 million in principal balances and the issuance of approximately $100.8 million in Class A bonds, including a pre-funded amount of approximately $25,203,000. The Company subsequently provided an additional $35,496,000 in receivables as collateral for the pre-funded amount. The coupon rate on the Class A bonds is 4.74%, the initial deposit into the reserve account was 3% and the reserve account maximum is 8%, all substantial improvements over the Company's securitizations closed during 2000.
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.
Conference Call Time
Ugly Duckling will be holding an investor conference call to discuss the Company's financial and operational results at 11:30 am eastern (8:30 am Phoenix) on July 25, 2001. Investors will have the opportunity to listen to the conference call over the Internet through Ugly Duckling's website at http://www.uglyduckling.com/ and click on investor information (or go directly to http://www.uglyduckling.com/investor/index.asp) and then click on "2nd Quarter Earnings Call." To listen to the live call, please go to the website at least fifteen minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call on the Company's website at http://www.uglyduckling.com. The replay will be available for 30 days.
UGLY DUCKLING CORPORATION
Consolidated Operating Results
(In thousands, except per share and cars sold amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
2001 2000 2001 2000
----------------------------------------------
Cars Sold 11,607 14,369 26,458 30,171
========= ========= ========= =========
Total Revenues $ 140,819 $ 151,398 $ 304,849 $ 309,715
========= ========= ========= =========
Sales of Used Cars $ 105,919 $ 121,527 $ 236,105 $ 254,313
Less: Cost of Used
Cars Sold 60,639 68,417 133,480 141,359
Provision for
Credit Losses 32,210 32,212 71,230 66,785
--------- --------- --------- ---------
13,070 20,898 31,395 46,169
--------- --------- --------- ---------
Portfolio Income
(Expense):
Interest Income 34,900 29,871 68,744 55,402
Portfolio Interest
Expense (7,492) (5,997) (16,011) (11,026)
--------- --------- --------- ---------
Net Interest Income 27,408 23,874 52,733 44,376
--------- --------- --------- ---------
Income before Operating
Expenses 40,478 44,772 84,128 90,545
Operating Expenses:
Selling and
Marketing 6,235 7,426 13,861 15,561
General and
Administrative 27,217 25,192 54,655 50,730
Depreciation and
Amortization 2,435 2,231 4,842 4,439
--------- --------- --------- ---------
Operating Expenses 35,887 34,849 73,358 70,730
--------- --------- --------- ---------
Operating Income 4,591 9,923 10,770 19,815
Other Interest
Expense 2,862 2,585 5,953 4,877
--------- --------- --------- ---------
Earnings before
Income Taxes 1,729 7,338 4,817 14,938
Income Taxes 709 2,990 1,975 6,107
--------- --------- --------- ---------
Earnings before
Extraordinary Item 1,020 4,348 2,842 8,831
Extraordinary Item -
Gain on Early
Extinguishment
of Debt, net 344 -- 344 --
--------- --------- --------- ---------
Net Earnings $ 1,364 $ 4,348 $ 3,186 $ 8,831
========= ========= ========= =========
Earnings per Common
Share before
Extraordinary Item:
Basic $ 0.08 $ 0.31 $ 0.23 $ 0.61
========= ========= ========= =========
Diluted $ 0.08 $ 0.31 $ 0.23 $ 0.60
========= ========= ========= =========
Net Earnings per
Common Share:
Basic $ 0.11 $ 0.31 $ 0.26 $ 0.61
========= ========= ========= =========
Diluted $ 0.11 $ 0.31 $ 0.26 $ 0.60
========= ========= ========= =========
Shares Used in
Computation:
Basic Weighted
Average
Shares
Outstanding 12,299 14,052 12,296 14,479
========= ========= ========= =========
Diluted Weighted
Average
Shares
Outstanding 12,330 14,248 12,328 14,700
========= ========= ========= =========
UGLY DUCKLING CORPORATION
Consolidated Operating Expenses and Related Information
(In thousands, except cars sold and per car amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
2001 2000 2001 2000
----------------------------------------------
Segment Information:
Retail Operations
Selling and
Marketing $ 6,235 $ 7,426 $ 13,861 $ 15,561
General and
Administrative 14,855 14,593 29,513 28,783
Depreciation and
Amortization 1,363 1,133 2,689 2,204
--------- --------- --------- ---------
Retail Operations 22,453 23,152 46,063 46,548
--------- --------- --------- ---------
Portfolio Expense:
Portfolio - General
and Administrative 7,359 5,416 15,367 11,493
Portfolio -
Depreciation
and Amortization 232 280 496 580
--------- --------- --------- ---------
Portfolio Expense 7,591 5,696 15,863 12,073
--------- --------- --------- ---------
Corporate Expense:
Corporate -
General and
Administrative 5,003 5,183 9,775 10,454
Corporate -
Depreciation
and Amortization 840 818 1,657 1,655
--------- --------- --------- ---------
Corporate
Expense 5,843 6,001 11,432 12,109
--------- --------- --------- ---------
Operating Expense $ 35,887 $ 34,849 $ 73,358 $ 70,730
========= ========= ========= =========
Total Operating Exp. -
% of Total Revenues 25.5% 23.0% 24.1% 22.8%
Other Information:
Dealerships Open -
End of period 77 77 77 77
========= ========= ========= =========
Used Cars Sold 11,607 14,369 26,458 30,171
========= ========= ========= =========
Principal Balances
Originated $103,615 $118,778 $229,630 $246,901
========= ========= ========= =========
Provision as %
of Originations 31.1% 27.1% 31.0% 27.0%
========= ========= ========= =========
Retail Operating
Expenses -
Per Car Sold:
Selling and
Marketing $ 537 $ 517 $ 524 $ 516
General and
Administrative 1,280 1,016 1,115 970
Depreciation and
Amortization 117 79 102 73
--------- --------- --------- ---------
Total Retail
Operations -
Per Car Sold $ 1,934 $ 1,611 $ 1,741 $ 1,560
========= ========= ========= =========
Corporate Expenses:
Per Car Sold $ 503 $ 418 $ 432 $ 401
========= ========= ========= =========
As % of Total
Revenues 4.1% 4.0% 3.8% 3.9%
========= ========= ========= =========
Loan Servicing Expenses -
% of Portfolio Managed:
Managed Principal
Balances:
Dealership
Originations $ 534,766 $ 500,032 $ 534,766 $ 500,032
Serviced for
Others 141 4,747 141 4,747
--------- --------- --------- ---------
$ 534,907 $ 504,779 $ 534,907 $ 504,779
========= ========= ========= =========
Loan Servicing
Expenses
(Annualized) as
% of Managed
Principal Balances 5.8% 5.0% 6.0% 5.3%
UGLY DUCKLING CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands)
June 30, December 31,
2001 2000
------------------------
ASSETS
Cash and Cash Equivalents $ 7,059 $ 8,805
Finance Receivables, Net 544,585 500,469
Note Receivable from Related Party 12,000 12,000
Inventory 40,772 63,742
Property and Equipment, Net 40,278 38,679
Intangible Assets, Net 12,048 12,527
Other Assets 18,474 11,724
Net Assets of Discontinued Operations 3,734 4,175
-------- --------
$ 678,950 $ 652,121
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 1,498 $ 2,239
Accrued Expenses and Other Liabilities 25,525 36,830
Notes Payable - Portfolio 415,877 406,551
Other Notes Payable 42,495 16,579
Subordinated Notes Payable 34,951 34,522
-------- --------
Total Liabilities 520,346 496,721
-------- --------
Stockholders' Equity:
Preferred Stock $.001
par value, 10,000 shares authorized
none issued and outstanding -- --
Common Stock $.001 par value,
100,000 shares authorized, 18,764
issued and 12,302 and 12,292
outstanding, respectively 19 19
Additional Paid-in Capital 173,741 173,723
Retained Earnings 24,958 21,772
Treasury Stock, at cost (40,114) (40,114)
-------- --------
Total Stockholders' Equity 158,604 155,400
Commitments and Contingencies -- --
-------- --------
$ 678,950 $ 652,121
======== ========
UGLY DUCKLING CORPORATION
Finance Receivables and Allowance for Credit Losses Information
(Dollars in thousands)
June 30, 2001 June 30, 2000 December 31, 2000
----------------- ----------------- -----------------
Contractually
Scheduled
Payments $ 723,882 $ 645,485 $ 696,220
Unearned
Finance
Charges (189,116) (173,174) (181,274)
---------- ---------- ----------
Principal
Balances 534,766 472,311 514,946
Accrued
Interest 5,463 4,952 5,655
Loan
Origination
Costs 7,411 6,925 7,293
---------- ---------- ----------
Principal
Balances,
net 547,640 484,188 527,894
Investments
Held in Trust 98,534 57,639 71,139
Residuals in
Finance
Receivables
Sold -- 7,944 1,136
---------- ---------- ----------
Finance
Receivables 646,174 549,771 600,169
Allowance for
Credit Losses (101,589) (98,533) (99,700)
---------- ---------- ----------
Finance
Receivables,
net $ 544,585 $ 451,238 $ 500,469
========== ========== ==========
Allowance as a
% of Ending
Principal
Balances 19.0% 20.9% 19.4%
========== ========== ==========
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2001 2000 2001 2000
-----------------------------------------------
Allowance Activity:
Balance,
Beginning
of Period $ 102,000 $ 87,585 $ 99,700 $ 76,150
Provision for
Credit Losses 32,210 32,212 71,230 66,785
Other Allowance Activity (48) (1,104) (6) (1,000)
Net Charge Offs (32,573) (20,160) (69,335) (43,402)
-------- -------- -------- --------
Balance, End of Period $ 101,589 $ 98,533 $ 101,589 $ 98,533
======== ======== ======== ========
Allowance as % Ending
Principal Balances 19.0% 20.9% 19.0% 20.9%
======== ======== ======== ========
Charge off Activity:
Principal Balances $ (41,605)$ (25,976) $ (88,761) $ (57,142)
Recoveries, Net 9,032 5,816 19,426 13,740
-------- -------- -------- --------
Net Charge Offs $ (32,573)$ (20,160) $ (69,335) $ (43,402)
======== ======== ======== ========
June 30, 2001 June 30, 2000 December 31, 2000
--------------- --------------- ---------------
Days Delinquent:
Current 76.4% 71.9% 66.1%
1-30 Days 16.8% 20.9% 26.1%
31-60 Days 4.1% 4.5% 4.7%
61-90 Days 2.7% 2.7% 3.1%
--------------- --------------- ---------------
Total Portfolio 100.0% 100.0% 100.0%
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