Warrantech Reports Second Quarter Fiscal 2005 Results
BEDFORD, Texas--Nov. 1, 20047, 2004--Warrantech Corporation (OTC:WTEC), a leading independent provider of service contracts and after-market warranties, today announced that it has filed its Form 10-Q for the second quarter ended Sept. 30, 2004 of fiscal year 2005.For the first six months of fiscal 2005, the company reported a net loss of ($2.4) million or ($0.15) per diluted share compared to net income of $53,151 or $0.00 per diluted share for the comparable six month period in fiscal 2004.
"Focus brings growth," said Joel San Antonio, Warrantech chairman and chief executive officer. "Between complex accounting requirements and a tough operating environment, the past few years have been challenging for Warrantech. Nevertheless, we have survived the worst and with that behind us we have a committed management team that is working hard to improve existing programs, while developing new ones. We believe that with most of our distractions behind us, our dedication and determination will reap positive rewards for shareholders and customers alike."
Gross Revenues
Gross revenues for the second quarter of fiscal 2005 ended Sept. 30, 2004, were $23.6 million, down $17.8 million or 43 percent compared to $41.4 million in the second quarter of fiscal 2004. Gross revenues in the Consumer Products segment rose 6 percent due to increased sales by several major customers and new business during the second quarter 2005 to $10.0 million, up $0.5 million from $9.5 million in the comparable 2004 quarter. The International segment reported gross revenues of $1.9 million during the second quarter fiscal 2005, down 29 percent or $0.8 million from $2.6 million in the same quarter the previous year resulting from the discontinuance of auto warranty sales in Puerto Rico. The Automotive segment had gross revenues of $12.0 million during the second quarter fiscal 2005, down $17.7 million or 60 percent from $29.7 million in the same quarter in fiscal 2004 due to the downturn in sales of new cars and a reduction in volume arising from premium rate increases.
Gross revenues for the first six months of fiscal 2005 ended Sept. 30, 2004, were $56.6 million, down 30 percent or $24.0 million compared to $80.6 million in the same period in fiscal 2004. Gross revenues in the Consumer Products segment rose 4 percent during the first six months of fiscal 2005 to $19.4 million, up $0.8 million from $18.6 million in the comparable 2004 period due to increased sales by several major customers and new business. The International segment reported gross revenues of $3.9 million during the first six months of fiscal 2005, down 12 percent or $0.5 million from $4.5 million in the same period the previous year resulting from the discontinuance of auto warranty sales in Puerto Rico. The Automotive segment had gross revenues of $33.8 million during the first six months of fiscal 2005, down $24.2 million or 42 percent from $58.0 million in the same period in fiscal 2004 due to the downturn in sales of new cars and a reduction in volume arising from premium rate increases..
Gross Profit
Gross profit for the second quarter fiscal 2005 was $5.7 million, down $3.3 million or 37 percent compared to $9.0 million in the same quarter in fiscal 2004. The Automotive segment gross profit was $2.1 million, down $0.5 million or 20 percent during the second quarter fiscal 2005 compared to $2.6 million in the same quarter in fiscal 2004. The Consumer Products segment gross profit was $3.8 million, down $0.3 million or 7 percent during the second quarter fiscal 2005 compared to $4.1 million in the same quarter in fiscal 2004. International segment gross profit (loss) was ($0.2) million, down $2.1 million or 111 percent during the second quarter fiscal 2005 compared to $1.9 million the same quarter in fiscal 2004.
Gross profit for the first six months of fiscal 2005 was $12.1 million, down $4.2 million or 26 percent compared to $16.3 million in the same period in fiscal 2004. The Automotive segment gross profit was $3.9 million, down $0.2 million or 6 percent during the first six months of fiscal 2005 compared to $4.1 million in the same period in fiscal 2004. The Consumer Products segment gross profit was $7.1 million, down $0.8 million or 10 percent during the first six months of fiscal 2005 compared to $7.9 million in the same period in fiscal 2004. International segment gross profit was $1.0 million, down $2.0 million or 67 percent during the first six months of fiscal 2005 compared to $3.0 million the same period in fiscal 2004.
Service, Selling, General and Administrative (SG&A)
SG&A expenses for the second quarter of fiscal 2005 were $6.7 million, down $1.1 million or 14 percent from $7.8 million in the second quarter fiscal of 2004. For the first six months of fiscal 2005, SG&A expenses were $13.6 million, down $1.5 million or 10 percent compared to $15.1 million in the same period in fiscal 2004. Lower employee costs were the primary reason for lower SG&A expenses during the second quarter and six month periods in fiscal 2005. Employee salary costs were lower at $4.0 million in the second quarter fiscal 2005, down $ .2 million or 4 percent compared to $4.6 million in the same quarter in fiscal 2004. For the first six months of fiscal 2005, employee costs were $ 8.3 million, down $ .7 million or 8 percent compared to $9.0 million in the same period in fiscal 2004.
Income from Operations
For the second quarter fiscal 2005, Warrantech had a loss from operations of $1.8 million compared to an operating income of $0.2 million in the same period last year. For the first six months of fiscal 2005, the company has a loss from operations of $3.2 million compared to an operating loss of $0.9 million for the same period in fiscal 2004. The change in income from operations was primarily due the lower volumes in the Automotive segment and to higher levels of revenue, which must be deferred to future periods.
About Warrantech:
Warrantech Corporation administers and markets service contracts and after-market warranties on automobiles, automotive components, recreational vehicles, appliances, jewelry, musical instruments, consumer electronics, homes, computer and computer peripherals for retailers, distributors and manufacturers. The company continues to expand its domestic and global penetration, and now provides its services in the United States, Canada, Puerto Rico and Latin America. For additional information on Warrantech, access http://www.warrantech.com/.
WARRANTECH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended For the Six Months Ended September 30, September 30, 2004 2003(a) 2004 2003(a) Gross revenues $23,567,267 $41,416,828 $56,652,203 $80,586,985 Revenues deferred to future periods (22,788,173) (2,961,567) (53,830,872) (12,582,153) Deferred revenues earned 24,037,996 (5,480,038) 45,947,250 (4,635,787) Net (increase) decrease in deferred revenues 1,249,823 (8,441,605) (7,883,622) (17,217,940) Net revenues 24,817,090 32,975,223 48,678,581 63,369,045 Direct costs 19,138,847 23,973,097 36,538,921 47,071,625 Gross Profit 5,678,243 9,002,126 12,139,660 16,297,420 Operating expenses Service, selling, and general and administrative 6,671,319 7,752,032 13,636,526 15,102,799 Provision for bad debt expense 111,278 165,000 242,557 260,000 Depreciation and amortization 722,187 892,893 1,450,676 1,820,973 Total costs and expenses 7,504,784 8,809,925 15,329,759 17,183,772 Income (loss) from operations (1,826,541) 192,201 (3,190,099) (866,352) Other income 328,589 515,663 507,230 719,985 Income (loss) before provision for income taxes (1,497,952) 707,864 (2,682,869) (166,367) Provision (benefit) for income taxes 96,086 179,722 (329,292) (219,518) Net income (loss) ($1,594,038) $528,142 ($2,353,577) $53,151 ============ ============ ============ ============ Earnings (loss) per share: Basic ($0.10) $0.03 ($0.15) $0.00 ============ ============ ============ ============ Diluted ($0.10) $0.03 ($0.15) $0.00 ============ ============ ============ ============ Weighted average number of shares outstanding: Basic 15,389,412 15,352,718 15,394,020 15,319,117 ============ ============ ============ ============ Diluted 15,389,412 16,178,600 15,394,020 16,153,599 ============ ============ ============ ============ (a) Restated for comparability WARRANTECH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, March 31, 2004 2004 --------------- ------------- A S S E T S ----------- Current assets: Cash and cash equivalents $3,175,175 $5,229,773 Investments in marketable securities 1,086,937 1,370,731 Accounts receivable, (net of allowances of $437,696 and $233,667, respectively) 15,680,453 23,369,612 Other receivables - net 8,623,970 7,322,289 Deferred income taxes 3,478,250 3,478,250 Employee receivables 41,822 70,908 Prepaid expenses and other current assets 558,759 728,265 ----------------- ------------- Total current assets 32,645,366 41,569,828 ----------------- ------------- Property and equipment, net 4,845,105 5,746,851 ----------------- ------------- Other assets: Excess of cost over fair value of assets acquired (net of accumulated amortization of $5,825,405) 1,637,290 1,637,290 Deferred income taxes 19,576,871 18,879,171 Deferred direct costs 196,031,302 186,513,417 Investments in marketable securities 1,145,808 1,083,400 Restricted cash 800,000 825,000 Split dollar life insurance policies 900,145 900,145 Other assets 37,060 29,448 ----------------- ------------- Total other assets 220,128,476 209,867,871 ----------------- ------------- Total Assets $257,618,947 $257,184,550 ================= ============= WARRANTECH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, March 31, 2004 2004 --------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) ----------------------------------------- Current liabilities: Current maturities of long-term debt and capital lease obligations $573,520 $664,406 Insurance premiums payable 30,115,922 31,613,047 Income taxes payable 31,154 48,099 Accounts and commissions payable 5,903,469 7,083,459 Claims liability - Reliance 3,419,587 5,608,893 Accrued expenses and other current liabilities 4,602,556 3,776,199 --------------- ------------- Total current liabilities 44,646,208 48,794,103 --------------- ------------- Deferred revenues 236,725,838 228,955,971 Claims liability - Reliance 3,224,620 3,882,685 Long-term debt and capital lease obligations 938,699 980,903 Deferred rent payable 433,075 369,839 --------------- ------------- Total liabilities 285,968,440 282,983,501 --------------- ------------- Commitments and contingencies -- -- Stockholders' equity (Capital Deficiency): Preferred stock - $.0007 par value authorized - 15,000,000 Shares issued - none at September 30, 2004 and March 31, 2004 -- -- Common stock - $.007 par value authorized - 30,000,000 Shares issued - 16,586,283 shares at September 30, 2004 and March 31,2004 116,106 116,106 Additional paid-in capital 23,800,228 23,800,228 Loans to directors and officers (10,890,157) (10,747,470) Accumulated other comprehensive income, net of taxes 96,855 150,801 Retained earnings (deficit) (37,284,636) (34,931,059) --------------- ------------- (24,161,604) (21,611,394) Treasury stock - at cost, 1,187,606 shares at September 30, 2004 and March 31, 2004 (4,187,889) (4,187,557) --------------- ------------- Total Stockholders' Equity (Capital Deficiency) (28,349,493) (25,798,951) --------------- ------------- --------------- ------------- Total Liabilities and Stockholders' Equity (Capital Deficiency) $257,618,947 $257,184,550 =============== =============