Ugly Duckling Corporation Reports First Quarter 1999 Results
21 April 1999
Ugly Duckling Corporation Reports First Quarter 1999 Results
PHOENIX--April 21, 1999--Ugly Duckling Corporation (Nasdaq NM: UGLY) today announced results of operations for the first quarter ended March 31, 1999.Net Earnings for the first quarter of 1999 totaled $420 thousand, or $0.03 per diluted share compared to a Net Loss for the first quarter of 1998 of $(1.9) million, or $(0.10) per diluted share. The Net Loss for the first quarter of 1998 included a net charge of $5.6 million, or $(0.30) per diluted share, which arose from the Company's decision in the first quarter of 1998 to discontinue operations and dispose of its branch network that purchased loans from third-party dealers.
For the first quarter of 1999, Earnings from Continuing Operations also totaled $420 thousand, or $0.03 per diluted share, compared to $3.7 million, or $0.20 per diluted share, for the first quarter of 1998. Earnings from Continuing Operations for the first quarter of 1998 included a pre-tax gain on sale of $4.6 million, or $0.15 per diluted share, on the securitization and sale of $86.9 million in loans. In November 1998, the company announced that it would structure its future securitizations as financings and hold its portfolio for investment and, accordingly, results of continuing operations for the first quarter of 1999 include no gain on sale of loans. Concurrent with the company's decision to structure its securitizations as financings, it also increased its provision for credit losses by charging current period operations with a provision for credit losses of approximately 27% of loan originations compared to approximately 21% of originations used in 1998. This increase in the provision resulted in additions to the allowances for credit losses of approximately $5.9 million in the first quarter of 1999 over that which would have been provided had the company continued with the policy employed in the first quarter of 1998.
Total revenues from continuing operations for the first three months of 1999 increased almost 50 percent to $130.7 million, compared with $87.8 million for the same period a year ago. The increase in revenues arose primarily from a 47 percent increase in used car sales to over $107.0 million for the first three months of 1999 compared to $73.0 million in the first quarter of 1998 and a 126 percent increase in interest income to $14.0 million for the first three months of 1999 compared to $6.2 million for the comparable period in 1998.
Commenting on the announcement, Gregory B. Sullivan, president and chief operating officer of Ugly Duckling, said, "We are extremely pleased with the progress our dealership operations continue to make. By the end of the first quarter of 1999, our number of dealership locations had grown to 58, compared with 46 locations at March 31, 1998. Also, with our decision late last year to no longer structure our securitization transactions as loan sales, we set the stage for the company to develop a significant loan portfolio on balance sheet and a growing source of interest income to complement income from our used car sales operations. We grew our on balance sheet loan portfolio over $88 million in the first three months of 1999, bringing our retained portfolio from dealership originations to $182 million at March 31, 1999 and look forward to continued growth in our loan portfolio and interest income."
The company also announced that during the quarter its dealership operations had successfully completed the consolidation of all data processing operations to one comprehensive accounting, dealership management and loan servicing system, a consolidation process that began in December 1997. Further, it also has successfully completed Year 2000 (Y2K) remediation of this major system and expects all systems to be substantially Y2K compliant by June 30, 1999. Expenditures included in operating expenses related to Y2K activities total approximately $600 thousand for the three-month period ended March 31, 1999. There were no Y2K related expenditures in the comparable three-month period in 1998.
The company announced that yesterday the Board of Directors had authorized a new common stock repurchase program to purchase, subject to certain conditions, up to 2.5 million shares of company stock on the open market. During the first quarter of 1999 the company completed its previously announced Common Stock Repurchase Program acquiring an additional 928,000 common shares at an average repurchase price of $5.64 per share. Common shares outstanding at March 31, 1999 totaled approximately 14.9 million.
Headquartered in Phoenix, Arizona, Ugly Duckling Corporation is a used car sales and finance company that operates the nation's largest chain of used car dealerships focused exclusively on the sub-prime market. The Company underwrites, finances and services sub-prime contracts generated at its 58 Ugly Duckling dealerships. Cygnet Finance provides operating lines of credit and other financing arrangements for non-affiliated used car dealers. The Company also acquires economic interests in and services sub-prime auto loan portfolios.
This press 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 entitled "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 Corporation's most recent reports on Form 10-K and Form 10-Q (including Exhibit 99 to any such Form 10-Q), and elsewhere in Ugly Duckling Corporation'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 press release.
(Financial Tables Follow)
Financial Highlights
For Three Months Ended March 31, 1999 and 1998
Consolidated Operating Information
(in thousands, except per share data)
Three Months Ended
------------------------------------
1999 1998
---- ----
Units Sold 12,754 9,339
====== =====
Total revenues $ 130,701 $ 87,776
========= =========
Used car sales $ 107,026 $ 72,973
Cost of used cars sold (60,680) (41,165)
Provision for credit losses (28,561) (15,362)
Interest income 14,003 6,205
Gain on sale of loans -- 4,614
Servicing and other income 9,672 3,984
Operating expenses (37,104) (23,518)
--------- ---------
Operating income 4,356 7,731
--------- ---------
Interest expense (3,656) (1,502)
--------- ---------
Income before income taxes 700 6,229
Income taxes (280) (2,501)
--------- ---------
Net earnings from continuing
operations 420 3,728
Net loss from discontinued
operations - (5,595)
--------- ---------
Net income (loss) $ 420 $ (1,867)
========= =========
Earnings (loss) per share
- basic:
Continuing operations $ 0.03 $ 0.20
========= =========
Discontinued operations $ 0.00 $ (0.30)
========= =========
Earnings (loss) per share -
diluted:
Continued operations $ 0.03 $ 0.20
========= =========
Discontinued operations $ 0.00 $ (0.30)
========= =========
Shares used:
Basic computation 15,650 18,557
========= =========
Diluted computation 15,785 19,093
========= =========
For the Three Months Ending March 31, 1999 and 1998
Consolidated Operating Expenses:
(In Thousands) Quarter Ending March 31,
1999 1998
Dealership Operations: ------ ------
----------------------
Dealerships - retail operations
Retail operations - selling
and marketing $ 6,378 $ 5,486
Retail operations - general
and administrative 11,102 8,535
Retail operations - depreciation
and amortization 791 613
------- -------
Dealerships - retail operations 18,271 14,634
Loan Servicing - general and
administrative 4,589 4,555
Loan servicing - depreciation
and amortization 283 338
Corporate and Other - general
and administrative 5,332 2,620
Corporate and Other -
depreciation and amortization 522 201
28,997 22,348
------- -------
Non Dealership Operations:
--------------------------
Cygnet Dealer Program 1,076 580
Cygnet Loan Servicing 6,146 -
Corporate and Other 885 590
------- -------
8,107 1,170
------- -------
Total Operating Expenses $37,104 $23,518
======= =======
For the Three Months Ending March 31, 1999
Segment Information - Operating Income:
(In Thousands)
Dealership Operations
--------------------------------------
Company Dealership Corporate
Dealerships Receivables and Other
----------- ------------ ---------
Used car sales $ 107,026 -- --
Cost of used cars sold (60,680) -- --
Provision for
credit losses (21,893) (5,871) --
Interest income -- 10,312 62
Servicing and
other income -- 2,888 46
Operating expenses (18,272) (4,872) (5,854)
----------- ---------- ---------
Operating income $ 6,181 2,457 (5,746)
========= ========= ========
Division totals $ 2,892
========
Total operating
income
Non Dealership Operations
--------------------------------------
Cygnet Loan Corporate
Dealer Servicing and Other
------ --------- ---------
Used car sales -- -- --
Cost of used cars sold -- -- --
Provision for
credit losses (797) -- --
Interest income 3,317 313 --
Servicing and
other income 47 6,691 --
Operating expenses (1,076) (6,146) (885)
--------- --------- --------
Operating income 1,491 858 (885)
========= ========= =========
Division totals $ 1,464
=========
Total operating
income $ 4,356
=========
Consolidated Balance Sheet Information
(In Thousands) March 31, December 31,
1999 1998
Assets: --------- ------------
-------
Cash $ 4,387 $ 2,751
Finance receivables, net 239,443 163,209
Note receivable 21,720 28,257
Used car inventory 39,891 44,167
Property & equipment, net 34,299 32,970
Intangible assets, net 15,256 15,530
Other assets 17,272 20,575
Discontinued operations, net 30,305 38,516
-------- --------
$402,573 $345,975
======== ========
Total Liabilities and
Stockholders' Equity:
----------------------
Accounts payable &
accrued expenses 31,965 22,173
Notes payable 171,904 117,294
Subordinated debt 40,815 43,741
-------- --------
Total liabilities 244,684 183,208
-------- --------
Total stockholders' equity 157,889 162,767
-------- --------
$402,573 $345,975
======== ========
Selected Balance Sheet Information
Finance receivables, net
(In Thousands) March 31, December 31,
1999 1998
--------- ------------
Company Dealership Originated:
------------------------------
Principal balances $182,150 $ 93,936
Accrued interest 1,799 877
Loan origination costs 3,583 2,237
-------- --------
Principal balances, net 187,532 97,050
Residuals in finance receivables sold 28,480 33,331
Investments held in trust 24,245 20,564
-------- --------
Finance receivables 240,257 150,945
Allowance for credit losses (48,628) (24,777)
-------- --------
Finance receivables, net - dealerships 191,629 126,168
-------- --------
Cygnet Finance Programs:
------------------------
Principal balances 69,053 51,282
Residuals in finance receivables sold 2,625 2,625
Accrued interest 764 473
-------- --------
Finance receivables 72,442 54,380
-------- --------
Discount and allowance on acquired loans (24,628) (17,339)
-------- --------
Finance receivables, net - Cygnet 47,814 37,041
-------- --------
Finance receivables, net $239,443 $163,209
======== ========
Finance Receivables and Allowance for Credit Losses Information
Company Dealerships Originations
(In Thousands)
Delinquencies: Retained Securitized Managed
-------------- -------- ----------- -------
March 31, 1999, Over 60 Days 1.1% 2.8% 1.9%
March 31, 1999, 31 - 60 Days 2.3% 4.9% 3.5%
Over 30 Days 3.4% 7.7% 5.4%
December 31, 1998, Over 60 Days 0.5% 2.2% 1.9%
December 31, 1998, 31 - 60 Days 2.3% 5.2% 4.6%
Over 30 Days 2.8% 7.4% 6.5%
Principal Balances Attributable Retained Securitized(a) Managed
------------------------------- -------- ------------- -------
Portfolio - March 1999 $182,150 158,891 341,041
Portfolio - December 1998 $ 96,936 198,747 292,683
Portfolio - March 1998 $ 33,260 185,240 218,500
Allowance as % of Remaining
Principal Retained Securitized(a) Managed
--------------------------- -------- -------------- -------
Portfolio - March 1999 26.7% 18.6% 22.9%
Portfolio - December 1998 26.4% 20.6% 22.5%
Portfolio - March 1998 18.5% 22.2% 21.6%
(a) Originated by Company dealerships, securitized and sold with
servicing retained