Ugly Duckling Corporation Announces Second Quarter 1999 Results
28 July 1999
Ugly Duckling Corporation Announces Second Quarter 1999 Results and Appointment of Sullivan to CEO
PHOENIX--July 28, 1999--Ugly Duckling Corporation (Nasdaq NM: UGLY) today reported results from operations for the three and six months ended June 30, 1999.For the quarter, earnings from continuing operations totaled $1.5 million, or $0.10 per diluted share, compared with $2.9 million, or $0.16 per diluted share, for the second quarter of 1998. Second quarter 1998 results included $3.7 million in pre-tax earnings, or $0.12 per diluted share, from the gain on sale of loans; no such gain was recorded in the second quarter of 1999. Total revenues for the quarter increased 42% to $125.7 million over the $88.7 million reported for the same period a year ago.
For the six-month period ended June 30, 1999, earnings from continuing operations were $1.9 million, or $0.12 per diluted share, compared with $6.7 million, or $0.35 per diluted share, for the same six-month period of 1998. The six-month results for 1998 include $8.3 million in pre-tax earnings, or $0.26 per diluted share, from the gains on sales of loans. No gains on the sales of loans were recorded in the comparable period in 1999. Total revenues for the period increased 45% to $255.9 million over the $176.4 million for the same period a year ago.
Operating results from discontinued operations were break-even for both the three and six-month periods ended June 30, 1999 and the three-month period ended June 30, 1998. Losses from discontinued operations for the six months ended June 30, 1998 totaled $5.6 million, or ($.29) per diluted share.
Ugly Duckling also announced that Greg Sullivan, President and Chief Operating Officer of the Company since 1996, has been appointed Chief Executive Officer by the Board of Directors. Mr. Sullivan replaces Ernie Garcia, who will remain as Chairman of the Board and the Company's largest stockholder with over 32% of the Company's stock.
"Greg has done an excellent job running the operations of the Company the past few years," said Mr. Garcia. "We have made tremendous strides over this time and a lot of this is due to Greg's leadership and direction. I am very confident that the Company will continue to make progress with Greg as CEO."
Mr. Garcia went on to say, "Ugly Duckling remains my most significant investment. My stepping down is a reflection of my confidence in Greg and the Company. While I expect to continue to be very involved with Ugly Duckling as Chairman, I believe that Greg has proven his effectiveness in managing the day to day operations of the Company and with this responsibility should come the CEO position."
Mr. Sullivan said, "We have developed a very strong management team focused on operating and growing our Ugly Duckling Car Sales and Finance operations. As our second quarter results demonstrate, we are making good progress in our operational results. Our business is an excellent one. We are the largest of our kind in what is a very large industry. We are excited about our prospects and look forward to producing solid returns for our stockholders."
The Company also announced that it had completed Y2K software remediation and testing of its significant software based systems and believes they are Y2K compliant. It also announced that it has rolled out significant enhancements to its Internet web-site (www.uglyduckling.com) and has established an Internet based marketing capability. For the second quarter the Company received over 2,000 applications over the Internet leading to the sale of 180 units or approximately $1.5 million in additional revenues. The Company expects to more aggressively market the Internet capability and incorporate this capability in its future-marketing initiatives.
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 60 Ugly Duckling dealerships. Cygnet Dealer Finance provides operating lines of credit and other financing arrangements for non-affiliated used car dealers. The Company also services sub-prime auto loans for third parties.
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. Specifically, the statements in the press release relating to the Company's expectations regarding Y2K compliance are forward looking in nature and involve risks and uncertainties. Factors that could cause or contribute to material differences, include, but are not limited to: (1) the Company may find in actual operation that its significant software based systems are wholly or partially noncompliant, or that its remediation efforts created yet unknown problems with these systems; (2) there is no assurance that the Company's significant suppliers, vendors and business partners will be Y2K compliant on time which, if it happened, could have a material adverse effect on the Company; and (3) the ultimate cost to identify and implement solutions to Y2K problems may exceed the Company's estimates. Other 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 Highlights
For Quarter and Six Month Periods Ended June 30, 1999 and 1998
Consolidated Results of Operations
(In thousands, except used cars sold and per share data)
Six Months ended Three Months ended
June 30, June 30,
--------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- --------
Used cars sold 24,170 18,138 11,416 8,699
Total revenues $ 255,850 176,441 $ 125,732 88,737
Used car sales $ 204,319 142,496 $ 97,876 69,523
Cost of used cars
sold (115,656) (78,968) (55,559) (39,237)
Provision for
credit losses (55,196) (30,350) (26,635) (14,988)
--------- --------- --------- ---------
Net revenue from
dealerships 33,467 33,178 15,682 15,298
--------- --------- --------- ---------
Interest earnings 32,327 12,229 18,323 6,024
Gain on sale of
loans -- 8,273 -- 3,659
Servicing and
other earnings 19,204 13,443 9,533 9,531
Total operating
expenses (72,334) (53,073) (35,232) (28,193)
--------- --------- --------- ---------
Operating income 12,664 14,050 8,306 6,319
Interest expense (9,473) (2,871) (5,818) (1,369)
--------- --------- --------- ---------
Earnings before
income taxes 3,191 11,179 2,488 4,950
Income taxes (1,301) (4,507) (1,020) (2,007)
--------- --------- --------- ---------
Earnings (loss):
Continuing
operations 1,890 6,672 1,468 2,943
Discontinued
operations - net -- (5,595) -- --
--------- --------- --------- ---------
Net earnings $ 1,890 1,077 $ 1,468 2,943
========= ========= ========= =========
Earnings per
share - basic:
Continuing operations $ 0.12 $ 0.36 $ 0.10 $ 0.16
========= ========= ========= =========
Net earnings $ 0.12 $ 0.06 $ 0.10 $ 0.16
========= ========= ========= =========
Earnings per
share - diluted:
Continued operations $ 0.12 $ 0.35 $ 0.10 $ 0.16
========= ========= ========= =========
Net earnings $ 0.12 $ 0.06 $ 0.10 $ 0.16
========= ========= ========= =========
Shares used in:
Basic computation 15,292 18,570 14,940 18,590
========= ========= ========= =========
Diluted computation 15,495 18,930 15,210 18,980
========= ========= ========= =========
For the Quarter and Six Months Ended June 30, 1999 and 1998
Consolidated Operating Expenses
(In Thousands)
Six Months ended Three Months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
Dealership Operations:
Dealerships -
retail operations
Selling and
marketing $11,935 9,096 5,571 4,218
General and
administrative 22,508 19,835 11,394 9,329
Depreciation
and amortization 1,653 1,228 862 615
------- ------- ------- -------
Dealerships -
retail operations 36,096 30,159 17,827 14,162
------- ------- ------- -------
Loan Servicing -
general and admin 9,150 8,834 4,566 4,279
Loan Servicing -
depr. and amort 562 648 280 311
Corporate and Other -
general and admin 9,959 6,075 4,621 3,456
Corporate and Other -
depr. and amort 1,058 450 537 249
------- ------- ------- -------
56,825 46,166 27,831 22,457
------- ------- ------- -------
Non Dealership Operations:
Cygnet Dealer Program 2,181 1,240 1,104 660
Cygnet Loan Servicing 11,502 4,369 5,356 4,369
Corporate and Other 1,826 1,298 941 707
------- ------- ------- -------
15,509 6,907 7,401 5,736
======= ======= ======= =======
Total Operating Expenses $72,334 53,073 35,232 28,193
======= ======= ======= =======
For the Quarter and Six Months Ended June 30, 1999 and 1998
Segment Information - Operating Income
(In Thousands)
For the six months ended June 30, 1999
------------------------------------------
Dealership Operations
------------------------------------------
Company Dealership Corporate
Dealerships Receivables and Other
------------------------------------------
Used car sales $ 204,319 -- --
Cost of used cars sold (115,656) -- --
Provision for credit losses (42,024) (11,529) --
Interest earnings -- 25,959 170
Servicing and other income 13 5,178 178
Operating expenses (36,096) (9,712) (11,017)
--------- --------- ---------
Operating income (loss) $ 10,556 9,896 (10,669)
========= ========= =========
Division Totals $ 9,783
=========
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 (1,643) -- --
Interest earnings 5,569 627 2
Servicing and other income 1,909 11,926 --
Operating expenses (2,181) (11,502) (1,826)
--------- --------- ---------
Operating income (loss) 3,654 1,051 (1,824)
========= ========= =========
Division Totals $ 2,881
=========
Total Operating Income $ 12,664
=========
For the Quarter and Six Months Ended June 30, 1999 and 1998
Segment Information - Operating Income
(In Thousands)
For the quarter ended June 30, 1999
---------------------------------------
Dealership Operations
---------------------------------------
Company Dealership Corporate
Dealerships Receivables and Other
---------------------------------------
Used car sales $ 97,876 -- --
Cost of used cars sold (55,559) -- --
Provision for credit losses (20,131) (5,658) --
Interest earnings -- 15,647 109
Servicing and other income 7 2,296 133
Operating expenses (17,827) (4,846) (5,158)
-------- -------- --------
Operating income (loss) $ 4,366 7,439 (4,916)
======== ======== ========
Division Totals $ 6,889
========
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 (846) -- --
Interest earnings 2,251 315 1
Servicing and other income 1,862 5,235 --
Operating expenses (1,104) (5,356) (941)
-------- -------- --------
Operating income (loss) 2,163 194 (940)
======== ======== ========
Division Totals $ 1,417
========
Total Operating Income $ 8,306
========
Consolidated Balance Sheet Information
(In Thousands)
June 30, Dec. 31,
------------------- ----------
Assets: 1999 1998 1998
------- -------- -------- --------
Cash $ 1,302 1,651 2,751
Finance receivables, net 329,160 124,731 191,466
Used car inventory 37,810 34,742 44,167
Property & equipment, net 34,750 28,424 32,970
Intangible assets, net 14,985 15,852 15,530
Other assets 22,353 15,128 20,575
Discontinued operations, net 24,817 61,116 38,516
-------- -------- --------
$465,177 281,644 345,975
======== ======== ========
Total Liabilities and
Stockholders' Equity:
---------------------
Accounts payable &
accrued expenses $ 35,884 24,664 22,173
Notes payable 232,952 48,190 117,294
Subordinated debt 36,943 25,000 43,741
-------- -------- --------
Total liabilities 305,779 97,854 183,208
-------- -------- --------
Total stockholders' equity 159,398 183,790 162,767
-------- -------- --------
$465,177 281,644 345,975
======== ======== ========
Selected Balance Sheet Information
Finance receivables, net
(In Thousands)
June 30, Dec. 31,
--------------------- ------------
Company Dealership Originated: 1999 1998 1998
------------------------------ ---- ---- ----
Principal balances $ 256,645 32,156 93,936
Accrued interest 2,755 393 877
Loan origination costs 4,450 711 2,237
--------- --------- ---------
Principal balances,
net 263,850 33,260 97,050
Residuals in finance
receivables sold 22,559 28,418 33,331
Investments held in trust 36,581 17,894 20,564
--------- --------- ---------
Finance receivables 322,990 79,572 150,945
--------- --------- ---------
Allowance for credit losses (66,905) (5,950) (24,777)
--------- --------- ---------
Finance receivables,
net - dealerships 256,085 73,622 126,168
--------- --------- ---------
Cygnet Finance Programs:
Principal balances 77,366 44,650 51,282
Accrued interest 868 241 473
--------- --------- ---------
Principal balances, net 78,234 44,891 51,755
Residuals in finance
receivables sold 2,625 -- 2,625
Discount and allowance
on acquired loans (28,413) (11,917) (17,339)
--------- --------- ---------
Finance receivables,
net - Cygnet 52,446 32,974 37,041
Notes Receivable - Cygnet 20,629 18,135 28,257
--------- --------- ---------
Finance receivables, net $ 329,160 124,731 191,466
========= ========= =========
Finance Receivables and Allowance Credit Losses Information
Company Dealership Originations
(In Thousands)
Principal Balances
Attributable to: Retained Securitized Managed
-------------------- -------- ----------- -------
June 1999 $256,645 $126,945 $383,590
December 1998 $ 93,936 $198,747 $292,683
Delinquencies, as
Percent of Principal: Retained Securitized Managed
June 30, 1999, Over 60 Days 2.2% 3.3% 2.6%
June 30, 1999, 31 - 60 Days 3.9% 6.4% 4.7%
Over 30 Days 6.1% 9.7% 7.3%
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%
Allowance as % of
Remaining Principal Retained Securitized Managed
Dealership Portfolio - June 1999 26.1% 17.7% 23.3%
Dealership Portfolio - Dec. 1998 26.4% 20.6% 23.4%