Ugly Duckling Corp. Announces Q3 1998 Results
21 October 1998
Ugly Duckling Corp. Announces Third-Quarter 1998 Results
PHOENIX--Oct. 21, 1998--Ugly Duckling Corp. (Nasdaq NM:UGLY) Wednesday reported results from continuing dealership and discontinued nondealership operations for its third quarter and nine months ended Sept. 30, 1998.For the quarter, earnings from continuing dealership operations totaled $2.2 million, or 12 cents per diluted share, compared with earnings from continuing dealership operations of $1.4 million, or 8 cents per diluted share, for the third quarter of 1997. Total revenues for the period increased 101 percent to $86.1 million over the $42.8 million reported for the same period a year ago.
Earnings for the third quarter of 1998 (excluding special charges) from discontinued, nondealership operations of Cygnet Financial Corp., a wholly owned subsidiary, totaled $543,000 or 3 cents per diluted share. Cygnet net earnings for the third quarter of 1997 totaled $758,000 or 4 cent per diluted share.
For the nine-month period ended Sept. 30, 1998, earnings from continuing operations rose to $8.6 million, or 46 cents per diluted share, compared with $4.3 million, or 24 cents per diluted share, for the same nine-month period of 1997. Total revenues for the period increased to $252.5 million over the $101.3 million for the year-ago period.
Earnings (exclusive of special charges) for the nine months ended Sept. 30, 1998, from discontinued, nondealership Cygnet operations totaled $902,000, or 5 cents per diluted share, compared with $173,000, or 1 cent per diluted share, for the nine months ended Sept. 30, 1997.
The company also reconfirmed that it took two special charges to discontinued operations in the third quarter totaling $4.8 million (net of income taxes) or 26 cents per diluted share. As previously reported, $3.6 million of the charge is attributable to higher-than-estimated costs associated with the company's discontinued third-party dealer branch office network and $1.2 million is attributable to costs incurred for Cygnet's recently terminated rights offering.
On a consolidated basis, the net loss for the third quarter of 1998, including discontinued operations and special charges, was $2.1 million, or 11 cents per diluted share, compared with a net loss of $1.8 million, or 10 cents per diluted share, for the year-ago quarter. The net loss for the first nine months of 1998 totaled $1.0 million, or 5 cents per share, versus net earnings of $5.7 million, or 32 cents per diluted share, for the first nine months of 1997.
"Although disappointed with the special charges, we are pleased that dealership operations have remained consistently profitable and have continued to expand, while we have also maintained adequate reserves. Our Ugly Duckling Car Sales dealerships have also increased from 35 to 51 on a year-to-year basis as of the end of the third quarter," stated Ernest C. Garcia II, chairman and chief executive officer of Ugly Duckling.
"As we previously reported, we also believe our recently completed internal process of separating our dealership and nondealership operations should enhance each segment's ability to focus on its operations and improve financial performance," Garcia added.
The company also announced that based upon market conditions, it is evaluating a potential change in the way it structures transactions under its securitization program. The company currently structures these transactions to record a gain on sale for accounting purposes and is considering whether to instead structure them for accounting purposes to recognize the income over the life of the contracts. The company expects to make a decision on this potential change during the fourth quarter of 1998.
With headquarters in Phoenix, Ugly Duckling is a used-car sales and finance company that operates the nation's largest chain of used-car dealerships focused exclusively on the subprime market. The company underwrites, finances and services subprime contracts generated at its 50-plus Ugly Duckling Car Sales dealerships.
Cygnet Financial, a wholly owned subsidiary of Ugly Duckling, provides various financial services primarily to the subprime segment of the automobile financing industry.
This news release may include statements that constitute forward-looking statements, usually containing the words "believe," "estimate," "project," "expects" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include factors detailed in the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risks Factors," "Factors That May Affect Future Results and Financial Condition" and "Factors That May Affect Future Stock Performance" in Ugly Duckling's most recent reports on Form 10-K and Form 10-Q (including Exhibit 99 to any such Form 10-Q), factors detailed in the section "Risk Factors" in Ugly Duckling's definitive proxy statement dated August 4, 1998, and elsewhere in Ugly Duckling's Securities and Exchange Commission filings. By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this news release.
Financial Highlights
For Quarter and Nine-Month Periods Ended Sept. 30, 1998 and 1997
Consolidated Operating Information
(In thousands, except used cars sold and per share data)
Nine Months Ended Three Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
Used cars sold - Units 27,143 10,801 9,128 4,523
Total revenues $ 252,473 101,287 86,116 42,844
Used car sales $ 216,111 79,543 73,620 33,530
Cost of used cars sold 123,976 45,902 42,763 20,012
Provision for credit
losses 45,053 14,193 15,746 6,084
Net revenue from
dealerships 47,082 19,448 15,111 7,434
Interest earnings 12,031 8,511 4,592 3,820
Gain on sale of loans 12,093 6,155 3,820 2,012
Servicing and
other income 12,238 7,078 4,084 3,482
Operating expenses:
Dealerships 42,023 18,496 13,958 7,890
Servicing 13,879 8,348 4,703 3,317
Administrative 11,667 6,368 4,846 2,893
Total operating expenses 67,569 33,212 23,507 14,100
Operating earnings 15,875 7,980 4,100 2,648
Interest expense 1,526 678 362 238
Earnings before
income taxes 14,349 7,302 3,738 2,410
Income taxes 5,777 2,966 1,503 979
Earnings (loss):
Continuing operations 8,572 4,336 2,235 1,431
Discontinued
operations - net (9,591) 1,409 (4,337) (3,259)
Net earnings (loss) $ (1,019) 5,745 (2,102) (1,828)
Earnings (loss)
per share basic:
Continuing operations $ 0.46 0.25 0.12 0.08
Net earnings (loss) $ (0.05) 0.33 (0.11) (0.10)
Earnings (loss)
per share diluted:
Continued operations $ 0.46 0.24 0.12 0.08
Net earnings (loss) $ (0.05) 0.32 (0.11) (0.10)
Shares used in:
Basic computation 18,600 17,620 18,560 18,460
Diluted computation 18,800 18,200 18,800 19,000
Consolidated Balance Sheet Information
(in thousands)
Sept. 30, Dec. 31,
1998 1997 1997
Assets:
Cash $ 955 4,401 3,537
Finance receivables, net 25,526 13,897 47,501
Residual in finance receivables sold 36,308 16,022 13,277
Investments held in trust 20,076 10,421 11,637
Used car inventory 36,184 19,467 32,372
Property & equipment, net 26,225 35,833 39,182
Intangible assets, net 14,571 15,983 16,366
Other assets 13,929 15,394 9,350
Discontinued operations, net 105,014 86,576 102,411
$278,788 217,994 275,633
Total Liabilities and
Stockholders' Equity:
Accounts payable & accrued expenses $ 23,503 19,349 16,688
Notes payable 48,867 9,250 65,171
Subordinated debt 25,000 12,000 12,000
Total liabilities 97,370 40,599 93,859
Total stockholders' equity 181,418 177,395 181,774
$278,788 217,994 275,633
Discontinued Operations Assets, net
(In thousands)
Sept. 30, June 30, Dec. 31,
1998 1998 1997
Champion Portfolio Retained $ 42,105 53,626 42,879
Investments held in trust 4,640 5,500 7,277
Assets arising from
FMAC transactions 19,105 18,135 25,686
Cygnet Finance Portfolio 37,629 32,974 19,438
Other, net 1,535 4,532 7,131
$105,014 114,767 102,411
Finance Receivables and Allowance for Credit Losses Information
(In thousands)
Principal Balances Attributable
Continuing Operations: Retained Securitized Managed
Dealership Portfolio Sept. 1998 $ 30,089 246,734 276,823
Dealership Portfolio Dec. 1997 $ 55,965 127,356 183,321
Dealership Portfolio Sept. 1997 $ 16,545 155,407 171,952
Delinquencies
Continuing Operations: Retained Securitized Managed
Sept. 30, 1998, Over 60 Days 2.5% 2.4% 2.4%
Sept. 30, 1998, 30 - 60 Days 0.8% 5.0% 4.5%
Sept. 30, 1998, Over 30 Days 3.3% 7.4% 6.9%
Dec. 31, 1997, Over 60 Days 0.6% 2.2% 1.5%
Dec. 31, 1997, 31 - 60 Days 2.2% 4.5% 3.6%
Dec. 31, 1997, Over 30 Days 2.8% 6.7% 5.1%
Sept. 30, 1997, Over 60 Days 2.8% 1.4% 1.6%
Sept. 30, 1997, 30 - 60 Days 1.5% 3.9% 3.6%
Sept. 30, 1997, Over 30 Days 4.3% 5.3% 5.2%
Allowance as % of Remaining Principal
Continuing Operations: Retained Securitized Managed
Dealership Portfolio Sept. 1998 18.5% 24.3% 23.7%
Dealership Portfolio Dec. 1997 18.5% 18.4% 18.4%
Dealership Portfolio Sept. 1997 23.6% 16.9% 19.5%