Ugly Duckling Reports Financial Results for 1999
16 February 2000
Ugly Duckling Reports Financial Results for 1999; Company Exits All Cygnet Operations to Focus on Dealership Operations; Announces Common Stock Exchange Offer at $11 Per Share
PHOENIX--Feb. 16, 2000--Ugly Duckling :
Fourth-Quarter Highlights:
-- Net earnings totaled $3.2 million, or $0.21 per diluted share
-- Earnings per diluted share from continuing operations totaled
$0.17
-- Revenues from continuing operations increased 41% to
$106.4 million from $75.6 million in year-ago quarter
-- On-balance sheet loan portfolio principal balance reached
$358.8 million, representing an 8% sequential increase over third
quarter and a near four-fold rise over year-ago quarter
-- New loan originations reached $80.9 million, a 16% increase over
year-ago quarter
-- Acquired five dealerships in the Richmond, Va., market, ending
year with 72 dealerships
Financial Highlights
(In 000s, except for per share numbers)
Three Months Ended Year Ended
12/31/99 12/31/98 12/31/99 12/31/98
Total revenues $106,447 $ 75,637 $467,275 $332,553
Operating income (loss) $ 4,643 $ (8,405) $ 14,911 $ 5,944
Earnings (loss)
- continuing operations $ 2,619 $ (5,064) $ 8,687 $ 3,455
Diluted earnings per share
- continuing operations $ 0.17 $ (0.30) $ 0.57 $ 0.19
Ugly Duckling Corp. , the largest and fastest-growing used car sales company focused exclusively on the sub-prime market, today reported significant improvement in its fourth-quarter and full-year 1999 financial results.
Strong Quarter-Over-Quarter Results
For the three months ended Dec. 31, 1999, Ugly Duckling achieved earnings from continuing operations of $2,619,000, or $0.17 per diluted share, compared with a loss from continuing operations for the three months ended Dec. 31, 1998, of $5,064,000, or a loss of $0.30 per diluted share.
The company sold 9,731 cars in the fourth quarter of 1999, an increase of 11% over the 8,766 cars sold in the year-ago quarter. The increased number of cars sold, together with growth in interest income, resulted in total revenues of $106,447,000 for the fourth quarter of 1999, an increase of over 41% from total revenues of $75,637,000 in the fourth quarter of 1998.
Interest income for the fourth quarter of 1999 increased sequentially to $22,670,000 from $19,775,000 in the third quarter of 1999, a gain of 15%, and from $5,256,000 in the year-ago period, an increase of more than 430%. The increase in both periods is primarily attributable to rapid growth of the company's on-balance sheet portfolio, resulting from Ugly Duckling's change to on-balance sheet financing transactions.
New loan originations for the fourth quarter of 1999 reached $80,900,000, representing a 21% sequential decrease from the $102,600,000 reported in the third quarter of 1999, and a 16% increase over the $69,500,000 reported in the fourth quarter of 1998. The quarter-over-quarter increase is primarily the result of an increased number of Ugly Duckling dealerships.
The company's dealerships increased in number to 72 in the fourth quarter of 1999 from 56 in the year-ago fourth quarter. The decrease in new loan originations in the fourth quarter of 1999 vs. the third quarter of 1999 is a function of seasonality, as the fourth quarter is historically the company's weakest sales quarter of the year.
Operating expenses for the fourth quarter of 1999 reached $27,909,000, or 26% of total revenues, compared with operating expenses of $25,941,000, or 34% of total revenues, for the year-ago quarter.
The stability in operating expense expenditures and 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 dealership growth in existing markets requiring little additional indirect support services.
Loan Servicing
The company made good progress in lowering delinquencies during the fourth quarter of 1999.
"The fourth quarter is traditionally the toughest in terms of servicing sub-prime loans," said Gregory B. Sullivan, president and chief executive officer of Ugly Duckling Corp. "Nonetheless, we made significant progress in lowering delinquencies from 10.3% at the end of the third quarter of 1999 to 9.0% at the end of the fourth quarter.
"Net charge-offs were higher than we would have liked but about where we would have thought based on the third-quarter delinquencies. We successfully addressed the servicing issue that led to the higher delinquencies and feel that those challenges have been overcome. As evidence of this, at the end of the third quarter I expressed confidence that we would have delinquencies down to 8.0% by the end of the first quarter of 2000. I'm pleased to report that we ended January with delinquencies at 7.6%."
Substantial Gains in 1999
For the year ended Dec. 31, 1999, the company reported earnings from continuing operations of $8,687,000, or $0.57 per diluted share, compared with earnings from continuing operations of $3,455,000, or $0.19 per diluted share, for the year ended Dec. 31, 1998.
Results for 1998 included pre-tax earnings of $12,093,000 ($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 in 1999 as the company restructured its financing transactions which eliminated gain-on-sale accounting treatment beginning in the fourth quarter of 1998.
Used car sales totaled $389,908,000 in 1999, an increase of 36% over sales of $287,618,000 in 1998. The company sold 46,120 cars in 1999, an increase of 28% over the 35,964 sold in 1998. The increased number of cars sold, together with an increase in interest income, resulted in total revenues of $467,275,000 for the year, an increase of 41% from total revenues of $332,553,000 in 1998. New loan originations for 1999 reached $381,500,000, representing a 38% gain over the $277,300,000 originated in 1998.
Interest income for 1999 increased four-fold to $68,574,000 from $17,287,000 in 1998, resulting from rapid growth of Ugly Duckling's on-balance sheet portfolio from a change in securitization structure. Operating expenses for the year reached $112,936,000, or 24% of total revenues, compared with operating expenses of $92,174,000, or 28% of total revenues, for the prior year.
"Ugly Duckling's record results and substantial gains in 1999 reflect the growing strength of our unique business model. We are beginning to realize additional increased operating efficiencies as we expand our nationwide chain of `buy-here-pay-here' used car dealerships," said Sullivan.
"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," said Sullivan.
Ugly Duckling Continues Expansion of Dealerships
Continuing its pace to add new dealerships, Ugly Duckling closed the acquisition of certain assets of a Virginia-based sub-prime automobile sales and finance company in the fourth quarter of 1999. The assets included five used car dealerships operating in the greater Richmond market area.
These locations commenced operations as Ugly Duckling in December 1999. The acquisition represented Ugly Duckling's initial entry into the Virginia market while further geographically diversifying its presence across the nation.
Including acquisitions the company made in Florida in the third quarter of 1999 and the fourth-quarter 1999 Virginia acquisitions, Ugly Duckling has added 31 new dealerships over the past two years, bringing the total number of dealerships operated by the company at Dec. 31, 1999, to 72.
"We plan to continue with our aggressive, yet controlled acquisition and de novo opening strategy. To that end, we have opened two dealerships this year, and four more are currently under development. We are operating in a huge and unconsolidated industry. With more than 58,000 independent dealers in operation, our opportunities for expansion via acquisition or development are extensive," said Sullivan.
Company Web Site-Based Applications and Sales Accelerate
Ugly Duckling's Web site, located at http://www.uglyduckling.com, is continuing to generate a growing stream of new leads and sales. The site provides potential customers with instant credit applications as well as maps to the company's dealerships nationwide.
From customers initially applying for credit through its Web site, 4,900 applications were received in the fourth quarter of 1999 generating $3.9 million in revenue with 415 used car sales. In the third quarter of 1999, the company's Internet activity generated revenues of more than $2.6 million with 316 cars being sold.
Common Stock Exchange Offer
Ugly Duckling today also announced that it expects to commence an exchange offer beginning Feb. 22, 2000. The company plans to acquire up to 2.5 million shares of its common stock in exchange for up to $27.5 million principal amount of its 11% Subordinated Debentures due 2007. Under the exchange offer, Ugly Duckling shareholders could exchange shares of common stock for $11 principal amount of debentures.
The debentures would bear interest at 11% per year, payable semi-annually each April 15 and Oct. 15 starting on April 15, 2000. The principal amount of the debentures would be due on the seventh anniversary of their issuance date, subject to prepayment at the company's option without penalty or premium. Issuance of the exchange offer is subject to certain conditions, including formal approval from company lenders.
All investors are advised to carefully read the tender offer statement when it becomes available because of the important information it contains. Effective Feb. 22, 2000, the tender offer statement and other filed reports, proxy and information statements may be obtained for free by accessing over the Internet the Securities and Exchange Commission's site on the World Wide Web at http://www.sec.gov.
Investors may also contact Ugly Duckling's Information Agent, Corporate Investor Communications Inc., at 201/896-1900 to obtain free copies of the Offering Circular and related documents to be utilized in the exchange offer.
Discontinued Operations
In the fourth quarter of 1999, the company had three separate events which are reported as discontinued operations.
In December 1999, the company announced that it had sold its Cygnet Dealer subsidiary to an affiliated entity. Cygnet Dealer results from discontinued operations are a $449,000 net operating loss for the fourth quarter of 1999 and net operating earnings of $415,950 for the year. The company recorded a $175,000 net gain on sale.
Effective Dec. 31, 1999, the company adopted a formal plan to abandon any effort for Cygnet Servicing to acquire loans or servicing rights to additional portfolios. Accordingly, the company's Cygnet Servicing and the associated Cygnet Corporate segment also are reported as components of Discontinued Operations. The company plans to service to completion the portfolios currently serviced.
For 1999, the Cygnet Servicing and Cygnet Corporate segments incurred net earnings of $2.3 million and $1.5 million for the fourth quarter and year ended December 1999, respectively. No loss has been recorded on the disposal of this segment as the company anticipates that over the run-off period, expected to be approximately 30 months, it will ultimately realize a net gain.
In February 1998, the company discontinued its Champion Financial Services operations. Loan losses and related servicing expenses have exceeded amounts provided for such activities and, in the fourth quarter of 1999, the company recorded an additional charge of $1.5 million net of tax for the additional costs and loan losses associated with its remaining portfolio servicing activities.
Bright Growth Outlook
"Ugly Duckling's outstanding operational and financial performance in 1999 enhances the company's position as the largest and fastest growing `buy-here-pay-here' used car dealership chain in the United States," said Sullivan. "For the first time since 1994, the company is focused exclusively on its core business of the sale and financing of used cars to sub-prime credit customers. We are excited about our position in this $60 - $100 billion industry. We are already the largest dealer in the country focused exclusively on this market.
"We have established a firm foundation based on our technological systems, business practices and procedures, and most importantly, our people. We have established that we can make money in this market, that we can grow in this market and that we can make money as we grow.
"Our profitability for 1999 far exceeded our expectations going into the year. Now that the company is 100% focused on this business, we look forward more than ever to growing and making improvements that strengthen our business and further improve our operating results."
Ugly Duckling will be holding an investor conference call to discuss the company's financial and operational results at 10:30 a.m. Eastern (8:30 a.m. Phoenix) on Feb. 16, 2000. 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 Web site 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 Web site at http://www.uglyduckling.com.
With headquarters in Phoenix, Ugly Duckling Corp. 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 74 Ugly Duckling dealerships, located in 11 metropolitan areas in eight states.
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; and growth in the company's dealerships through acquisitions and de novo dealership openings. 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 allowance for credit losses; any inability of the company to continue to reduce operating expenses as a percentage of sales; and any new or revised accounting, tax or legal guidance that adversely affect used car sales or financing. Other factors are detailed in the sections titled "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 Corp.'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 Corp.'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 Corp. 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.
For more information on Ugly Duckling, dial
800/PRO-INFO and enter company ticker symbol "UGLY."
UGLY DUCKLING CORP.
Consolidated Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
Cars Sold 9,731 8,766 46,120 35,964
Total Revenues $106,447 $ 75,637 $467,275 $332,553
Sales of Used Cars $ 82,275 $ 71,542 $389,908 $287,618
Less:
Cost of Used Cars Sold 45,642 41,906 219,071 167,014
Provision for Credit Losses 21,842 20,264 102,955 65,318
14,791 9,372 67,882 55,286
Other Income (Expense):
Interest Income 22,670 5,256 68,574 17,287
Interest Expense (6,412) (1,187) (17,402) (2,883)
Gain on Sale of
Finance Receivables -- -- -- 12,093
Servicing and Other Income 1,503 4,095 8,793 16,335
17,761 8,164 59,965 42,832
Income before
Operating Expenses 32,552 17,536 127,847 98,118
Operating Expenses:
Selling and Marketing 5,175 4,728 23,752 20,285
General and Administrative 20,823 19,835 82,236 66,977
Depreciation and Amortization 1,911 1,378 6,948 4,912
27,909 25,941 112,936 92,174
Operating Income 4,643 (8,405) 14,911 5,944
Interest Expense 224 138 224 138
Earnings before Income Taxes 4,419 (8,543) 14,687 5,806
Income Taxes (Benefit) 1,800 (3,479) 6,000 2,351
Earnings (Loss) from
Continuing Operations 2,619 (5,064) 8,687 3,455
Earnings (Loss) - Discontinued
Operations, net 575 386 580 (9,158)
Net Earnings (Loss) $ 3,194 $ (4,678) $ 9,267 $ (5,703)
Earnings (Loss) per
Common Share from
Continuing Operations:
Basic $ 0.18 $ (0.30) $ 0.58 $ 0.19
Diluted $ 0.17 $ (0.30) $ 0.57 $ 0.19
Net Earnings (Loss)
per Common Share:
Basic $ 0.21 $ (0.28) $ 0.61 $ (0.32)
Diluted $ 0.21 $ (0.28) $ 0.60 $ (0.31)
Shares Used in Computation:
Basic 14,889 16,633 15,093 18,082
Diluted 15,167 16,633 15,329 18,405
UGLY DUCKLING CORP.
Consolidated Operating Expenses and Related Information
(Unaudited)
(In thousands)
Three Months ended Year ended
December 31, December 31,
1999 1998 1999 1998
Dealerships - Retail Operations
Selling and Marketing $ 5,175 $ 4,728 $ 23,752 $ 20,285
General and Administrative 11,170 8,867 44,289 32,383
Depreciation and Amortization 1,015 726 3,587 2,581
Dealerships -
Retail Operations 17,360 14,321 71,628 55,249
Loan Servicing -
General and Admin. 6,707 5,275 20,653 18,491
Loan Servicing -
Dep. and Amort. 300 361 1,141 1,333
Loan Servicing 7,007 5,636 21,794 19,824
Corporate and Other -
General and Admin. 2,946 5,693 17,295 16,103
Corporate and Other -
Dep. and Amort. 596 291 2,219 998
Corporate and Other 3,542 5,984 19,514 17,101
Operating Expense $ 27,909 $ 25,941 $112,936 $ 92,174
Total Operating Exp. -
% of Total Revenues 26.2% 34.3% 24.2% 27.7%
Other Information:
Dealerships Open -
End of period 72 56 72 56
Used Cars Sold 9,731 8,766 46,120 35,964
Dealership Operating Expenses -
Per Car Sold:
Selling and Marketing $ 532 $ 539 $ 515 $ 564
General and Administrative 1,148 1,012 960 900
Depreciation and
Amortization 104 83 78 72
Dealerships -
Retail Operations $ 1,784 $ 1,634 $ 1,553 $ 1,536
Loan Servicing Expenses -
% of Portfolio Managed:
Managed Principal Balances:
Dealership Originations $424,480 $292,683 $424,480 $292,683
Serviced for Others 12,983 47,947 12,983 47,947
$437,463 $324,669 $433,285 $324,669
Net Loan Servicing (Annualized)
as % of Managed
Principal Balances 6.5% 6.6% 5.0% 5.9%
Corporate and Other Expenses:
Per Car Sold $ 364 $ 683 $ 423 $ 475
As % of Total Revenues -
Dealership Operations 3.3% 7.9% 4.2% 5.1%
UGLY DUCKLING CORP.
Segment Information -- Operating Income
(Unaudited)
(In thousands)
Three Months Ended December 31, 1999
Dealership Operations
Dealership Corporate
Dealerships Receivables and Other
Sales of Used Cars $ 82,275 $ -- $ --
Cost of Used Cars Sold (45,642) -- --
Provision for Credit Losses (17,077) (4,765) --
19,556 (4,765) --
Other Income:
Interest Income -- 22,562 108
Interest Expense -- (3,863) (2,549)
Servicing and Other 89 1,345 69
Income before
Operating Expenses 19,645 15,279 (2,372)
Operating Expenses:
Selling and Marketing (5,175) -- --
General and Administration (11,170) (6,707) (2,946)
Depreciation and Amortization (1,015) (300) (596)
(17,360) (7,007) (3,542)
Operating Income $ 2,285 $ 8,271 $ (5,914)
Total Operating Income $ 4,643
Year Ended December 31, 1999
Dealership Operations
Dealership Corporate
Dealerships Receivables and Other
Sales of Used Cars $ 389,908 $ -- $ --
Cost of Used Cars Sold (219,071) -- --
Provision for Credit Losses (80,627) (22,327) --
90,210 (22,327) --
Other Income:
Interest Income -- 68,118 456
Interest Expense -- (9,250) (8,152)
Servicing and Other 173 8,317 303
Income before
Operating Expenses 90,383 44,858 (7,393)
Operating Expenses:
Selling and Marketing (23,752) -- --
General and Administration (44,289) (20,653) (17,295)
Depreciation and Amortization (3,587) (1,141) (2,219)
(71,628) (21,794) (19,514)
Operating Income $ 18,755 $ 23,063 $ (26,907)
Total Operating Income $ 14,911
UGLY DUCKLING CORP.
Consolidated Balance Sheet Information
(In thousands)
December 31,
1999 1998
(Unaudited)
ASSETS
Cash and Cash Equivalents $ 3,683 $ 2,544
Finance Receivables, Net 365,586 126,168
Notes Receivable, Net 12,013 763
Inventory 63,150 44,145
Property and Equipment, Net 31,467 28,631
Intangible Assets, Net 14,741 14,433
Other Assets 13,774 14,625
Net Assets of Discontinued Operations 33,536 106,997
$ 537,950 $ 338,306
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 3,185 $ 2,137
Accrued Expenses and Other Liabilities 27,930 16,766
Notes Payable 311,932 117,895
Subordinated Notes Payable 29,217 38,741
Total Liabilities 372,264 175,539
Stockholders' Equity
Common Stock 19 19
Additional Paid in Capital 173,273 173,809
Retained Earnings 12,715 3,449
Treasury Stock (20,321) (14,510)
Total Stockholders' Equity 165,686 162,767
$ 537,950 $ 338,306
Net Assets of Discontinued Operations
(In Thousands)
December 31,
1999 1998
(Unaudited)
Finance Receivables, net $ 14,837 $ 65,065
Residuals in Finance Receivables Sold 3,742 10,500
Investments Held in Trust 1,545 3,665
Notes Receivable 6,697 27,495
FMAC Receivable 6,125 --
Other Assets, net of Accounts
Payable and Accrued Liabilities 590 272
Net Assets of Discontinued Operations $ 33,536 $ 106,997
UGLY DUCKLING CORP.
Finance Receivables and Allowance for Credit Losses Information
(In thousands)
December 31,
1999 1998
(Unaudited)
Company Dealerships:
Gross Installment Sales Contracts $ 492,937 $ 131,510
Unearned Finance Charges (a) (134,119) (37,574)
Principal Balances $ 358,818 $ 93,936
Accrued Interest 3,741 877
Loan Origination Costs 5,079 2,237
Principal Balances, net 367,638 97,050
Residuals in Finance Receivables 16,687 33,331
Investments Held In Trust 56,716 20,564
Finance Receivables 441,041 150,945
Allowance for Credit Losses (75,455) (24,777)
Finance Receivables, net $ 365,586 $ 126,168
Principal Balances: (b) Retained Securitized (c) Managed
December 1999 (Unaudited) $ 358,818 $ 65,662 $ 424,480
December 1998 $ 93,936 $ 198,747 $ 292,683
Allowance as % of
Remaining Principal Retained Securitized Managed
December 1999 (Unaudited) 21.0% 10.3% 19.5%
December 1998 26.4% 20.6% 23.4%
Delinquencies, as
Percent of Principal: 30 to 60 Days Over 60 Days Over 30 Days
December 31, 1999 (Unaudited) 5.9% 3.1% 9.0%
December 31, 1998 4.6% 1.9% 6.5%
(a) Unearned Finance Charges (UFC) for Dec. 31, 1999, are computed
from the company's loan servicing system. Amounts for other
periods are computed amounts using the current ratio of UFC to
current principal.
(b) 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.
(c) Securitized - Means loans sold under transactions structures as to
recognize "gain on sale."