Ugly Duckling Reports Record Q3 and Nine-Month Financial Results
27 October 1999
Ugly Duckling Reports Record Third Quarter and Nine-Month Financial Results
PHOENIX--Oct. 27, 1999--Company Announces Planned Entry into Virginia Market with Agreement to Acquire Five Dealerships and Finance Company Portfolio
Company Expects to Open Minimum of 20 New Dealerships in 2000
Third Quarter Highlights:
-- Earnings from continuing operations increased 174% to
$4.2 million, or $0.28 per diluted share, from $1.5 million, or
$0.08 per diluted share, in year-ago quarter
-- Total revenues increased 42% to $137.5 million from $96.7 million
in year-ago quarter
-- On-balance sheet loan portfolio principal balance reaches
$332.0 million, representing a 29% sequential increase over
second quarter and ten-fold rise over year-ago quarter
-- New loan originations reached $102.6 million, representing a 7%
sequential increase over second quarter and 44% gain over
year-ago quarter
-- Operating expenses as a percent of total revenue declined to 27%
from 35% in year-ago quarter
Financial Highlights
(In 000s, except for per share numbers)
Three Months Ended Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
Total revenues $137,478 $ 96,714 $393,327 $273,310
Operating income $ 13,504 $ 4,111 $ 26,168 $ 18,162
Income from
continuing operations $ 4,182 $ 1,527 $ 6,073 $ 8,198
Diluted earnings per share
- continuing operations $ 0.28 $ 0.08 $ 0.39 $ 0.44
Ugly Duckling Corporation (Nasdaq/NM:UGLY), the largest and fastest-growing used car sales company focused exclusively on the sub-prime market, today reported record third quarter and nine month financial results.
Substantial Gains in Third Quarter
For the three months ended September 30, 1999, Ugly Duckling achieved earnings from continuing operations of $4,182,000, or $0.28 per diluted share, compared with earnings from continuing operations for the three-month period ended September 30, 1998 of $1,527,000, or $0.08 per diluted share, an increase in diluted earnings per share of 250%.
Third quarter 1998 results included pre-tax earnings of $3,820,000 ($2,253,800 net of income taxes), or $0.12 per diluted share, from the gain on sale of loans. Beginning in the fourth quarter of 1998, the Company changed the way it structures transactions under its securitization program to eliminate gain on sale accounting.
Therefore, this quarter's results were achieved despite a lack of gain on sale transactions. Operating results from discontinued operations were breakeven for the three-month period ended September 30, 1999. Losses from discontinued operations for the three months ended September 30, 1998 totaled $3,628,000, or $0.19 loss per share.
The Company sold 12,219 cars in the third quarter of 1999, an increase of 34% over the year-ago quarter on 14 more dealerships. The increased number of cars sold, together with the growth in interest income, resulted in total revenues of $137,478,000 for the third quarter, an increase of over 42% from total revenues of $96,714,000 in the year-ago third quarter.
"Ugly Duckling's record results and substantial third quarter and nine month gains reflect the growing strength of our unique business model. We are beginning to realize increased operating efficiencies as we expand our nationwide chain of `buy here-pay here' used car dealerships," said Gregory Sullivan, President and Chief Executive Officer of Ugly Duckling Corporation.
"Our results also reflect a near 300% increase in interest income resulting from our rapidly growing on-balance sheet loan portfolio. Our new CLASS central computer system, which united the four separate computer systems we operated a year ago into one, also contributed substantially to our control over operations and our record earnings."
Interest income for the third quarter of 1999 increased sequentially to $27,200,000 from $20,186,000 in the second quarter of 1999, a gain of 35%, and from $7,187,000 in the year-ago period, an increase of over 278%. The increase is primarily attributable to the rapid growth of the Company's on-balance sheet portfolio resulting from the Company's change to on-balance sheet financing transactions.
New loan originations for the third quarter reached $102.6 million, representing a 7% sequential increase over the second quarter of 1999 and a 44% gain over the year-ago third quarter. The increase is a result of an increased number of dealerships as well as a higher number of average monthly sales per dealership, which increased to 61 from 56 in the year-ago third quarter.
Operating expenses for the third quarter reached $36,886,000, or 27% of total revenues, compared with operating expenses of $33,542,000, or 35% of total revenues, for the year-ago quarter. The substantial decline in operating expenses, as a percentage of total revenues, is primarily the result of improved efficiencies from the Company's new computer system and the Company's growth.
The Company reported that delinquencies over 30 days rose to 10.2% from 7.3% in the second quarter of 1999 and from 6.9% in the year-ago third quarter. Mr. Sullivan said, "The increase in delinquencies was a direct result of a restructuring of the Company's collections department in Arizona in addition to a new repossession policy, first implemented in the second quarter.
"The increase in delinquencies in the third quarter is not expected to result in charge offs outside of our expected range and is not expected to impact Ugly Duckling's earnings. Further, we continue to be conservative in our policy of providing for credit losses and maintain reserves which we believe to be adequate.
"In fact, with the improvements already realized in our Arizona collections department, and other initiatives we have taken, we have targeted a delinquency rate of approximately 8.0% by the end of the first quarter of 2000 and fully expect to reach that goal," said Mr. Sullivan.
Strong Nine-Month Results
For the nine-month period ended September 30, 1999, the Company reported earnings from continuing operations of $6,073,000, or $0.39 per diluted share, compared with earnings from continuing operations for the nine-month period ended September 30, 1998 of $8,198,000, or $0.44 per diluted share.
Nine-month 1998 results included pre-tax earnings of $12,094,000 ($7,135,460 net of income taxes), or $0.39 per diluted share, from the gain on sale of loans. No gains on the sale of loans were recorded for the nine months ended September 30, 1999 as the Company restructured its financing transactions to eliminate gain on sale accounting treatment in the fourth quarter of 1998.
Operating results from discontinued operations were breakeven for the nine-month period ended September 30, 1999. Losses from discontinued operations for the nine months ended September 30, 1998 totaled $9,223,000, or $0.49 loss per share.
The Company sold 36,389 cars in the nine-month period, an increase of 34% over the year-ago period on 14 more dealerships. The increased number of cars sold, together with an increase in interest income, resulted in total revenues of $307,633,000 for the nine-month period, an increase of 43% from total revenues of $216,075,000 in the comparable period a year-ago.
New loan originations for the nine-month period reached $301.4 million, representing a 45% gain over the year-ago nine-month period.
Interest income for the nine-month period increased over 216% to $61,435,000 from $19,415,000 in the year-ago period, resulting from the rapid growth of the Company's on-balance sheet portfolio.
Operating expenses for the nine-month period reached $109,220,000, or 28% of total revenues, compared with operating expenses of $83,415,000, or 31% of total revenues, for the year-ago nine-month period.
Ugly Duckling Continues Expansion of Dealerships:
Enters into an agreement to enter Virginia Market with Planned
Acquisition of Five and Finance Company Portfolio
Continuing its pace of new dealership acquisitions, Ugly Duckling today announced it has entered into a definitive agreement to acquire certain assets of a Virginia-based sub-prime automobile sales and finance company. The assets include five used car dealerships operating in the greater Richmond market area, vehicle inventory and a loan portfolio of approximately $8.0 million.
The consummation of the transaction is subject to the Company obtaining financing but the Company expects the transaction to close in November and to commence operations as Ugly Duckling in December 1999. The acquisition represents Ugly Duckling's initial entry into the Virginia market while further geographically diversifying its presence across the nation.
During the quarter, the Company also announced that it has completed its acquisition of certain assets of a Florida-based sub-prime automobile sales and finance company. The assets included four used car dealerships operating in the greater Orlando market area, vehicle inventory and a loan portfolio of approximately $15.0 million.
Including the Florida and Virginia acquisitions, Ugly Duckling will have added 30 new dealerships over the past two years, bringing the total number of dealerships operated by the Company to 72.
Minimum of 20 New Dealerships Expected in 2000
"We expect to accelerate the pace of new dealership openings through an aggressive, yet controlled acquisition and de novo opening strategy," continued Mr. Sullivan. "We are actively investigating suitable sites for development and possible appropriate dealer groups that we can acquire in markets either within or contiguous to our current markets. We are operating in a huge and unconsolidated industry and are seeking to capitalize on the outstanding expansion opportunities before us.
"However, our expansion must be controlled to fit within strict criteria that enable both revenue growth and profitability. Within these criteria, we expect to add a minimum of 20 dealerships, both newly developed and through acquisitions, in the year 2000. Moreover, we could exceed this minimum target depending primarily on the size and number of acquisition targets that fit within our business model," said Mr. Sullivan.
Company Begins to Realize Initial Contributions from Website
Mr. Sullivan noted that Ugly Duckling's Website, located at http://www.uglyduckling.com/, is generating a growing stream of new sales leads. The site provides potential customers with instant credit applications as well as maps to the Company's dealerships nationwide. For the three months ended September 30, 1999, the Company received over 6,200 credit applications through its Website.
From these customers initially applying through its Website the Company generated revenues of over $2.6 million with 316 cars being sold. The Company is seeking to expand its presence on the Internet and generate additional traffic on its site by developing links to related sites as well as major search engines.
Bright Growth Outlook
"Ugly Duckling's outstanding operational and financial performance in the third quarter enhances the company's position as the largest and fastest growing `buy-here-pay-here' used car dealership chain in the United States," concluded Mr. Sullivan.
"We expect to expand on this position as we continue to open new dealerships in key markets across the country. We believe that the expansion of our stores, supplemented by our rapidly growing portfolio and increasing operating efficiencies, will enable us to achieve significant financial gains in both our top and bottom line through the remainder of 1999 and 2000."
Ugly Duckling will be holding an investor conference call to discuss the Company's financial and operational results at 11:00 a.m. ET on October 27, 1999. Investors will have the opportunity to listen to the conference call over the Internet through Vcall at http://www.vcall.com.
To listen to the live call, go to the Website at least 15 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 at http://www.vcall.com and on the Company's Website at http://www.uglyduckling.com.
Headquartered in Phoenix, Ugly Duckling Corporation is the largest and fastest-growing operator of used car dealerships focused exclusively on the sub-prime market. The Company underwrites, finances and services sub-prime contracts generated at its 67 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 news release includes statements that constitute forward- looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the words "believes," "estimates," "projects," "expects" or similar expressions. Forward-looking statements in this release relate, among other matters, to: anticipated financial results, such as continuing growth in financial performance and improvements in delinquencies; growth in the Company's dealerships through acquisitions and de novo dealership openings; and the anticipated completion of an acquisition under contract for dealerships located in the Richmond, Va. area. Factors that could cause or contribute to differences from these forward-looking statements include, but are not limited to: any decline in consumer acceptance of the Company's car sales strategies or marketing campaigns; any inability of the Company to finance its operations in light of a tight credit market for the sub-prime industry; any deterioration in the used car finance industry or increased competition in the used car sales and finance industry; any inability of the Company to monitor and improve its underwriting and collection processes; any changes in estimates and assumptions in, and the ongoing adequacy of, the Company's reserve for credit losses; any inability of the Company to continue to reduce operating expenses as a percentage of sales; any new or revised accounting, tax or legal guidance that adversely affect used car sales or financing; and, with respect to the pending Virginia acquisition, any failure to satisfy closing conditions, including the need for the Company to secure financing. Other factors are detailed in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk 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 news release. References to Ugly Duckling Corporation as the largest and fastest-growing operator of used car dealerships focused exclusively on the sub-prime market is management's belief based upon its knowledge of the industry and not on any current independent third party study.
UGLY DUCKLING CORPORATION
Consolidated Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Cars Sold 12,219 9,128 36,389 27,198
Total Revenues $137,478 $96,714 $393,327 $273,310
Sales of Used Cars $103,315 $73,580 $307,633 $216,075
Less:
Cost of Used
Cars Sold 57,773 42,763 173,429 125,085
Provision for
Credit Losses 29,315 16,298 84,510 46,648
16,227 14,519 49,694 44,342
Other Income:
Interest Income 27,200 7,187 61,435 19,415
Gain on Sale of
Finance Receivables -- 3,820 -- 12,094
Servicing and
Other Income 6,963 12,127 24,259 25,726
34,163 23,134 85,694 57,235
Income before
Operating Expenses 50,390 37,653 135,388 101,577
Operating Expenses:
Selling and Marketing 6,160 5,316 18,655 15,754
General and
Administrative 28,268 26,781 83,648 63,691
Depreciation and
Amortization 2,458 1,445 6,917 3,970
36,886 33,542 109,220 83,415
Operating Income 13,504 4,111 26,168 18,162
Interest Expense 6,422 1,482 15,895 4,355
Earnings before
Income Taxes 7,082 2,629 10,273 13,807
Income Taxes 2,900 1,102 4,200 5,609
Income from Continuing
Operations 4,182 1,527 6,073 8,198
Discontinued Operations:
Loss from Discontinued
Operations, net -- (3,628) -- (9,223)
Net Earnings (Loss) $4,182 $(2,101) $6,073 $(1,025)
Earnings per Common
Share from Continuing
Operations:
Basic $0.28 $0.08 $0.40 $0.44
Diluted $0.28 $0.08 $0.39 $0.44
Net Earnings (Loss)
per Common Share:
Basic $0.28 $(0.11) $0.40 $(0.06)
Diluted $0.28 $(0.11) $0.39 $(0.05)
Shares Used in
Computation:
Basic 14,903 18,560 15,161 18,600
Diluted 15,167 18,800 15,384 18,800
UGLY DUCKLING CORPORATION
Consolidated Operating Expenses and Related Information
(Unaudited)
(In thousands)
Three Months ended Nine Months ended
September 30, September 30,
Dealership Operations: 1999 1998 1999 1998
Dealerships - retail
operations
Selling and marketing $6,144 $5,241 $18,577 $15,545
General and admin. 11,111 8,133 33,120 23,559
Depreciation and amort. 919 628 2,572 1,856
Dealerships - retail
operations 18,174 14,002 54,269 40,960
Loan Servicing -
general and admin. 4,794 4,380 13,944 13,215
Loan Servicing -
dep. and amort. 279 323 842 972
Loan Servicing 5,073 4,703 14,786 14,187
Corporate and Other
- general and admin. 4,390 4,336 14,348 10,412
Corporate and Other
- dep. and amort. 565 256 1,623 705
Corporate and Other 4,955 4,592 15,971 11,117
Operating Exp. - Dealership
Operations $28,202 $23,297 $85,026 $66,264
Non Dealership Operations:
Cygnet Dealer Program 3,339 658 5,520 1,898
Cygnet Loan Servicing 4,436 6,775 15,939 11,143
Corporate and Other 909 2,812 2,735 4,110
Operating Exp. -
Non Dealership Operations 8,684 10,245 24,194 17,151
Total Operating Expenses $36,886 $33,542 $109,220 $83,415
Total Operating Exp. -
% of Total Revenues 26.8% 34.7% 27.8% 30.5%
Dealership Operations:
Dealerships open -
End of period 67 51 67 51
Used cars sold 12,219 9,128 36,389 27,198
Dealership Operating Expenses
- Per Car Sold:
Selling and marketing $503 $574 $511 $572
General and admin. 909 891 910 866
Depreciation and amort. 75 69 71 68
Dealerships - retail
operations $1,487 $1,534 $1,491 $1,506
Loan Servicing Expenses
- % of Portfolio Managed:
Managed Principal Balances:
Dealership Originations $421,205 $276,823 $421,205 $276,823
Serviced for Others 19,315 61,100 19,315 61,100
$440,520 $337,923 $440,520 $337,923
Net Loan Servicing
(Annualized) as % of
Managed Principal Balances 4.6% 5.6% 4.5% 5.6%
Corporate and Other
Expenses:
Per Car Sold $406 $503 $439 $409
As % of Total Revenues
- Dealership Operations 4.0% 5.3% 4.4% 4.4%
Total Revenues
- Dealership Operations $125,011 $86,117 $360,827 $252,473
UGLY DUCKLING CORPORATION
Segment Information - Operating Income
(Unaudited)
(In thousands)
Three Months Ended September 30, 1999
Dealership Operations
Dealership Corporate
Dealerships Receivables and Other
Sales of Used Cars $103,315 $ -- $ --
Cost of Used Cars Sold (57,773) -- --
Provision for
Credit Losses (21,527) (6,033) --
24,015 (6,033) --
Other Income:
Interest Income -- 19,597 178
Servicing and Other 72 1,793 56
Income before
Operating Expenses 24,087 15,357 234
Operating Expenses:
Selling and Marketing (6,144) -- --
General and Admin. (11,111) (4,794) (4,390)
Depreciation and Amort. (919) (279) (565)
(18,174) (5,073) (4,955)
Operating Income $5,913 $10,284 $(4,721)
$11,476
Non Dealership (Cygnet) Operations
Cygnet Loan Corporate
Dealer Servicing and Other
Sales of Used Cars $ -- $ -- $ --
Cost of Used Cars Sold -- -- --
Provision for
Credit Losses (1,755) -- --
(1,755) -- --
Other Income:
Interest Income 6,079 1,344 2
Servicing and Other -- 5,042 --
Income before
Operating Expenses 4,324 6,386 2
Operating Expenses:
Selling and Marketing (16) -- --
General and Admin. (3,211) (4,063) (699)
Depreciation and Amort. (112) (373) (210)
(3,339) (4,436) (909)
Operating Income $985 $1,950 $(907)
$2,028
$13,504
Nine Months Ended September 30, 1999
Dealership Operations
Dealership Corporate
Dealerships Receivables and Other
Sales of Used Cars $307,633 $ -- $ --
Cost of Used Cars Sold (173,429) -- --
Provision for Credit Losses (63,551) (17,562) --
70,653 (17,562) --
Other Income:
Interest Income -- 45,556 348
Servicing and Other 84 6,972 234
Income before Operating Expenses 70,737 34,966 582
Operating Expenses:
Selling and Marketing (18,577) -- --
General and Admin. (33,120) (13,944) (14,348)
Depreciation and Amort. (2,572) (842) (1,623)
(54,269) (14,786) (15,971)
Operating Income $16,468 $20,180 $(15,389)
$21,259
Non Dealership (Cygnet) Operations
Cygnet Loan Corporate
Dealer Servicing and Other
Sales of Used Cars $ -- $ -- $ --
Cost of Used Cars Sold -- -- --
Provision for Credit Losses (3,397) -- --
(3,397) -- --
Other Income:
Interest Income 13,556 1,971 4
Servicing and Other -- 16,969 --
Income before Operating Expenses 10,159 18,940 4
Operating Expenses:
Selling and Marketing (75) (3) --
General and Admin. (5,148) (14,872) (2,216)
Depreciation and Amort. (297) (1,064) (519)
(5,520) (15,939) (2,735)
Operating Income $4,639 $3,001 $(2,731)
$4,909
$26,168
UGLY DUCKLING CORPORATION
Consolidated Balance Sheet Information
(In thousands)
September 30, December 31,
1999 1998 1998
(Unaudited)
ASSETS
Cash and Cash Equivalents $4,165 $1,406 $2,751
Finance Receivables, net 356,370 111,275 163,209
Notes Receivable, Net 21,347 26,471 28,257
Inventory 46,322 36,205 44,167
Property and Equipment, net 34,881 29,431 32,970
Intangible Assets, Net 15,327 15,688 15,530
Other Assets 23,279 21,808 20,575
Net Assets of Discontinued
Operations 20,939 45,851 38,516
$522,630 $288,135 $345,975
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Accounts Payable $3,795 $2,199 $2,479
Accrued Expenses and
Other Liabilities 38,710 25,679 19,694
Notes Payable 280,571 48,839 117,294
Subordinated Notes Payable 37,077 30,000 43,741
Total Liabilities: 360,153 106,717 183,208
Stockholders’ Equity
Common Stock 19 19 19
Additional Paid in Capital 173,257 173,266 173,809
Retained Earnings 9,522 8,133 3,449
Treasury Stock (20,321) -- (14,510)
Total Stockholders' Equity 162,477 181,418 162,767
$522,630 $288,135 $345,975
Net Assets of Discontinued Operations
(In Thousands)
September 30, December 31,
1999 1998 1998
(Unaudited)
Finance Receivables, net $17,042 $36,374 $30,649
Residuals in Finance
Receivables Sold 2,956 9,581 7,875
Investments Held in Trust 2,135 4,640 3,665
Other Assets, net of
Accounts Payable and
Accrued Liabilities (1,194) (4,744) (3,673)
Net Assets of Discontinued
Operations $20,939 $45,851 $38,516
UGLY DUCKLING CORPORATION
Finance Receivables, net
(In thousands)
September 30, December 31,
1999 1998 1998
(Unaudited)
Company Dealerships:
Gross Installment Sales Contracts $464,775 $42,125 $131,510
Unearned Finance Charges (a) (132,793) (12,036) (37,574)
Principal Balances 331,982 $30,089 $93,936
Accrued Interest 3,689 372 877
Loan Origination Costs 5,053 636 2,237
Principal Balances, net 340,724 31,097 97,050
Residuals in Finance Receivables 19,576 35,159 33,331
Investments held in trust 42,137 18,774 20,564
Finance Receivables 402,437 85,030 150,945
Allowance for credit losses (80,698) (5,572) (24,777)
Finance receivables,
net - dealerships 321,739 79,458 126,168
Cygnet Finance Programs:
Principal Balances 53,066 44,042 51,282
Accrued Interest 650 -- 473
Principal Balances, net 53,716 44,042 51,755
Residuals in Finance Receivables 2,625 358 2,625
Discount and Allowance
on Acquired Loans (21,710) (12,583) (17,339)
Finance receivables, net – Cygnet 34,631 31,817 37,041
Total Finance Receivables, net $356,370 $111,275 $163,209
Managed Principal Balances:
Retained on Balance Sheet $331,982 $30,089 $93,936
Securitized(b) $89,223 $246,734 $198,747
Managed Principal Balances $421,205 $276,823 $292,683
(a) Unearned Finance Charges (UFC) for September 30, 1999 are
computed from the Company's loan servicing system. Amounts for
other period are computed amounts using the current ratio of UFC
to current principal
(b) Securitized – Means loans sold under transactions structures as
to recognize "Gain on Sale".
UGLY DUCKLING CORPORATION
Finance Receivables and Allowance for Credit Losses Information
(In thousands)
Company Dealership Originations
(In Thousands)
Principal Balances(a): Retained Securitized Managed
September 1999 (Unaudited) $331,982 $89,223 $421,205
December 1998 $93,936 $198,747 $292,683
September 1998 (Unaudited) $30,089 $246,734 $276,823
Allowance as % of
Remaining Principal Retained Securitized Managed
September 1999 (Unaudited) 24.3% 17.2% 22.6%
December 1998 26.4% 20.6% 23.4%
September 1998 (Unaudited) 18.5% 24.3% 23.7%
Delinquencies, as
Percent of Principal: 30 to 60 Days Over 60 Days Over 30 Days
September 30, 1999
(Unaudited) 6.7% 3.5% 10.2%
December 31, 1999 4.6% 1.9% 6.5%
September 30, 1998
(Unaudited) 4.5% 2.4% 6.9%
(a) -- Retained - Means loans included on the Company's balance sheet,
includes securitized loan accounted for as collaterized
borrowings and non-securitized loans
-- Securitized - Means loans sold under transactions structured as
to recognize "gain on sale"
-- Managed - Means total of retained and securitized, excluding
loans serviced for others