Ugly Duckling Reports Third Quarter and Nine Month Results
25 October 2000
Ugly Duckling Reports Third Quarter and Nine Month Results
PHOENIX--Oct. 25, 2000--Third Quarter Highlights:
-- Earnings from continuing operations totaled $2.7 million, or
$0.21 per diluted share, compared with earnings from continuing
operations of $3.7 million, or $0.24 per share in the year-ago
quarter
-- Total revenues from continuing operations increased 27% to
$158.4 million from $124.9 million in the year-ago quarter
-- E-Commerce provided $12.0 million in revenue and 1,417 cars
sold during the third quarter of 2000 compared with $6.5
million in revenue and 763 cars sold during the second quarter
of 2000
-- On-balance sheet loan portfolio principal balances reached
$512.8 million, representing a 9% sequential increase over the
second quarter of 2000 and a 55% rise over the year-ago quarter
-- Provision for loan losses increased 2% to 29% of amount
financed (announced September 8, 2000)
-- New loan originations reached $124.4 million, a 21% increase
over the year-ago quarter
-- Chairman of the Board and the Company's largest shareholder,
Ernest C. Garcia, II, extends offer to purchase all
outstanding shares of Company stock (announced October 5, 2000)
Financial Highlights
(In 000's, except for per share numbers)
Three Months Ended Nine Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
Total revenues $ 158,380 $ 124,883 $ 469,488 $360,525
Operating income 6,907 7,436 26,722 12,004
Earnings --
continuing
operations 2,683 3,657 11,514 6,068
Diluted earnings
per share --
continuing
operations $ 0.21 $ 0.24 $ 0.82 $ 0.39
Ugly Duckling Corporation , the largest used car sales Company focused exclusively on the sub-prime market, today reported third quarter and nine month 2000 financial results.
Quarter over Quarter Results
For the three months ended Sept. 30, 2000, Ugly Duckling recorded earnings from continuing operations of $2,683,000, or $0.21 per diluted share, compared with earnings from continuing operations of $3,657,000, or $0.24 per share, for the year-ago quarter. The reason for the dollar decline is primarily due to a 2% increase in the provision for credit losses as further discussed below.
The Company sold 14,825 cars in the third quarter of 2000, an increase of 21% over the 12,219 cars sold in the year-ago quarter. Interest income for the third quarter of 2000 increased sequentially to $31,436,000 from $29,871,000 in the second quarter of 2000, a 5% gain, and from $19,775,000 in the year-ago period, an increase of approximately 59%.
The increase in both periods is primarily attributable to the rapid growth of the Company's on-balance sheet portfolio, resulting from Ugly Duckling's change to on-balance sheet financing transactions in late 1998. The increased number of cars sold and the growth in interest income, resulted in total revenues of $158,380,000 for the third quarter of 2000, an increase of approximately 27% from total revenues of $124,883,000 in the third quarter of 1999.
Operating expenses for the third quarter of 2000 were $37,303,000, or 24% of total revenues, compared with operating expenses of $28,080,000, or 23% of total revenues, for the year-ago quarter. The stability in operating expense is primarily the result of improved efficiencies from the Company's new computer system and dealership growth offset by additional costs associated with the continued deployment of collection staff to Company dealerships.
New loan originations for the third quarter of 2000 reached $124,367,000, representing a 5% sequential increase from the $118,778,000 reported in the second quarter of 2000, and a 21% increase over the $102,599,000 reported in the third quarter of 1999.
The Company's increase over the year ago quarter is primarily the result of an increased number of Ugly Duckling dealerships. The Company's dealerships increased in number to 77 in the third quarter of 2000 from 67 in the year-ago third quarter.
"We are very pleased with the third quarter results. We had strong sales, particularly in September," said Greg Sullivan, president and CEO of Ugly Duckling.
"We also achieved better margins this quarter than the third quarter last year and the second quarter of this year. Operating expenses were stable as a percentage of revenues with last year, which is good considering the higher level of resources we have been devoting to our collection efforts this year, particularly with the roll-out of collectors to our dealership locations. Overall we were very pleased with our bottom line."
Loan Servicing
Due to the seasonality of our business, at the end of the third quarter of 2000 31+ day delinquencies rose to 8.3% from 7.2% at the end of the second quarter of 2000, but are improved from the 10.3% reported at the end of the third quarter of 1999.
"Although delinquencies were slightly higher than we would have liked, they are much improved from the year ago quarter," said Sullivan.
"As of last week, we have completed the roll-out of collectors to all 77 of our dealerships. We think this improves our relationships with our customers and leads to better loan performance. As an indication, our current accounts, that is accounts not one day delinquent, improved to 72.4% of our portfolio, almost 11% better than the 61.5% reported as of the year ago quarter."
As previously announced, after extensive review of delinquency trends, current and historical loan losses and projected charge offs, the Company increased its provision for credit losses. Beginning in the third quarter of 2000, the additional provision equates to approximately 2% of loan originations, which raised the provision to 29% from 27% of the amount financed.
The increase provides an allowance for credit loss at quarter end within the targeted coverage range which is estimated to be adequate to cover net charge offs for the next 12 to 15 months.
"Net charge-offs on our managed portfolio were $34.8 million this quarter, which is about what we expected when we announced our increase in the provision last month. Our Allowance for Loan Losses as of the end of the quarter was over $100 million or 19.5% of principal balances, with which we are comfortable. We expect that the measures we have put in place on the collections front as well as enhancements we are planning in loan originations are, on a percentage basis, going to lead to lower losses over future periods."
Substantial Increases in First Nine Months of 2000
For the nine months ended Sept. 30, 2000, the Company reported earnings from continuing operations of $11,514,000, or $0.82 per diluted share, compared with earnings from continuing operations of $6,068,000, or $0.39 per diluted share, for the nine months ended Sept. 30, 1999.
Used car sales totaled $380,949,000 in the first nine months of 2000, an increase of 24% over sales of $307,633,000 in the comparable year-ago period. The Company sold 44,996 cars for the first nine months of 2000, an increase of 24% over the 36,389 sold in the comparable 1999 period.
Interest income for the first nine months of 2000 increased 89% to $86,838,000 from $45,904,000 in 1999, resulting from rapid growth of Ugly Duckling's on-balance sheet portfolio from a change in securitization structure. The increased number of cars sold, and the increase in interest income, resulted in total revenues of $469,488,000 for the first nine months, an increase of 30% from total revenues of $360,525,000 in the comparable year-ago period.
Operating expenses for the first nine months of 2000 were $109,426,000, or 23% of total revenues, compared with operating expenses of $84,758,000, or 24% of total revenues, for the prior year.
New loan originations for the first nine months of 2000 reached $371,268,000, representing a 23% gain over the $301,430,000 originated in the comparable year-ago period.
Uglyduckling.com Continues to Demonstrate Substantial Growth
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, 15,841 applications were received in the third quarter of 2000 generating $12.0 million in sales with 1,417 used cars sold. In the second quarter of 2000, the Company's Internet activity generated sales revenues of over $6.5 million with 763 cars being sold.
Purchase offer from Company Chairman
On Oct. 5, 2000, the Company confirmed receipt of an offer from the Company's chairman and largest shareholder, Ernest C. Garcia, II, to purchase all of the outstanding shares of common stock of the Company for $8.50 per share, $2.50 in cash and $6.00 in subordinated indebtedness of the acquiring company. Other terms of the offer include an option for the Company's CEO and president, Greg Sullivan, to purchase a 20% interest in the acquiring company. The Company's board of directors has established a special transaction committee to evaluate and make a recommendation to the full board on the proposal.
Stock Buyback Program
In July 2000 the Company acquired with cash, 1,523,100 shares of its stock as part of its previously announced stock buyback program. These purchases are in addition to 1,085,415 shares of its stock purchased in the 2nd quarter of 2000 via an Exchange Offer. The Company has suspended stock repurchases during the period in which Garcia's offer is outstanding.
Ugly Duckling will be holding an investor conference call to discuss the Company's financial and operational results at 11:30 a.m. eastern (8:30 a.m. Phoenix) on Oct. 25, 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 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 after the call at http://www.vcall.com and on the Company's Web site at http://www.uglyduckling.com.
UGLY DUCKLING CORPORATION
Consolidated Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Cars Sold 14,825 12,219 44,996 36,389
Total Revenues $ 158,380 $ 124,883 $ 469,488 $ 360,525
Sales of Used
Cars $ 126,636 $ 103,314 $ 380,949 $ 307,633
Less:
Cost of Used
Cars Sold 70,760 57,764 212,119 173,395
Provision
for Credit
Losses 36,092 27,561 102,877 81,113
19,784 17,989 65,953 53,125
Other Income
(Expense):
Interest Income 31,436 19,775 86,838 45,904
Portfolio
Interest Expense (7,318) (4,042) (18,344) (9,255)
Servicing and
Other Income 308 1,794 1,701 6,988
24,426 17,527 70,195 43,637
Income before
Operating
Expenses 44,210 35,516 136,148 96,762
Operating
Expenses:
Selling and
Marketing 7,187 6,023 22,748 17,959
General and
Administrative 27,831 20,294 79,954 61,763
Depreciation and
Amortization 2,285 1,763 6,724 5,036
37,303 28,080 109,426 84,758
Operating Income 6,907 7,436 26,722 12,004
Interest Expense,
Other 2,360 877 7,237 1,736
Earnings before
Income Taxes 4,547 6,559 19,485 10,268
Income Taxes 1,864 2,902 7,971 4,200
Earnings from
Continuing
Operations 2,683 3,657 11,514 6,068
Loss from
Discontinued
Operations, Net -- 525 -- 5
Net Earnings $ 2,683 $ 4,182 $ 11,514 $ 6,073
Earnings per
Common Share
from
Continuing
Operations:
Basic $ 0.21 $ 0.24 $ 0.83 $ 0.40
Diluted $ 0.21 $ 0.24 $ 0.82 $ 0.39
Net Earnings
per Common Share:
Basic $ 0.21 $ 0.28 $ 0.83 $ 0.40
Diluted $ 0.21 $ 0.28 $ 0.82 $ 0.39
Shares Used
in Computation:
Basic 12,597 14,903 13,847 15,161
Diluted 12,747 15,167 14,044 15,384
UGLY DUCKLING CORPORATION
Consolidated Operating Expenses and Related Information
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Segment Information:
Retail Operations
Selling and
Marketing $ 7,187 $ 6,023 $ 22,748 $ 17,959
General and
Administrative 14,570 11,187 43,353 33,685
Depreciation and
Amortization 1,201 920 3,405 2,572
Retail
Operations 22,958 18,130 69,506 54,216
Portfolio Expense:
Portfolio --
General and
Administrative 7,719 4,796 20,605 13,963
Portfolio --
Depreciation and
Amortization 278 278 858 841
Portfolio
Expense 7,997 5,074 21,463 14,804
Corporate Expense:
Corporate --
General and
Administrative 5,542 4,311 15,996 14,115
Corporate --
Depreciation and
Amortization 806 565 2,461 1,623
Corporate
Expense 6,348 4,876 18,457 15,738
Operating
Expense $ 37,303 $ 28,080 $ 109,426 $ 84,758
Total Operating
Exp. -- % of
Total Revenues 23.5% 22.5% 23.3% 23.5%
Other Information:
Dealerships Open
-- End of period 77 67 77 67
Used Cars Sold 14,825 12,219 44,996 36,389
Retail Operating
Expenses --
Per Car Sold:
Selling and
Marketing $ 485 $ 493 $ 506 $ 494
General and
Administrative 983 916 963 926
Depreciation and
Amortization 81 75 76 71
Total Retail
Operations --
Per Car Sold $ 1,549 $ 1,484 $ 1,545 $ 1,490
Corporate Expenses:
Per Car Sold $ 428 $ 399 $ 410 $ 432
As % of
Total Revenues 4.0% 3.9% 3.9% 4.4%
Portfolio Expenses
-- % of Principal
Balances Serviced:
Principal Balances
Serviced:
Dealership
Originations $ 525,498 $ 427,439 $ 525,498 $ 427,439
Serviced for
Others 2,463 19,315 2,463 19,315
Total Principal
Balances
Serviced $ 527,961 $ 446,754 $ 527,961 $ 446,754
Portfolio
Expenses
(Annualized)
as % of Total
Principal
Balances
Serviced 6.1% 4.5% 5.4% 4.4%
UGLY DUCKLING CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
September 30, September 30, December 31,
2000 1999 1999
ASSETS
Cash and Cash Equivalents $ 6,555 $ 2,293 $ 3,683
Finance Receivables, net 491,880 321,739 365,586
Notes Receivable from
Related Party 12,000 650 12,000
Inventory 43,739 45,768 62,865
Property and
Equipment, net 35,604 30,840 31,752
Intangible Assets, Net 12,767 14,290 14,618
Other Assets 11,727 13,817 12,327
Net Assets of
Discontinued Operations 4,211 87,116 33,880
$ 618,483 $ 516,513 $ 536,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 2,813 $ 3,727 $ 3,185
Accrued Expenses and
Other Liabilities 40,815 32,869 26,905
Notes Payable -- Portfolio 362,255 244,363 275,774
Other Notes Payable 17,930 36,000 36,556
Subordinated Notes Payable 36,148 37,077 28,611
Total Liabilities: 459,961 354,036 371,031
Stockholders' Equity
Common Stock 19 19 19
Additional Paid-in Capital 173,721 173,257 173,273
Retained Earnings 24,223 9,522 12,709
Treasury Stock (39,441) (20,321) (20,321)
Total Stockholders' Equity 158,522 162,477 165,680
$ 618,483 $ 516,513 $ 536,711
UGLY DUCKLING CORPORATION
Finance Receivables and Allowance for Credit Losses Information
(Unaudited)
(In thousands, except per share data)
September 30, September 30, December 31,
2000 1999 1999
Contractually Scheduled
Payments $ 697,527 $ 464,775 $ 492,937
Unearned Finance Charges (184,764) (132,793) (134,119)
Principal Balances, net 512,763 331,982 358,818
Accrued Interest 5,272 3,689 3,741
Loan Origination Costs 7,466 5,053 5,079
Principal Balances, net 525,501 340,724 367,638
Investments Held in Trust 62,790 42,137 56,716
Residuals in Finance
Receivables Sold 3,632 19,576 17,382
Finance Receivables 591,923 402,437 441,736
Allowance for
Credit Losses (100,043) (80,698) (76,150)
Finance Receivables, net $ 491,880 $ 321,739 $ 365,586
Allowance as % of Ending
Principal Balances 19.5% 24.3% 21.2%
Three Months Ended Nine Months Ended
September 30, September 30,
Allowance Activity: 2000 1999 2000 1999
Balance,
Beginning
of Period $ 98,533 $ 66,905 $ 76,150 $ 24,777
Provision for
Credit Losses 36,092 27,561 102,877 81,113
Other Allowance
Activity (1,250) 3,834 (2,250) 3,835
Net Charge Offs (33,332) (17,602) (76,734) (29,027)
Balance, End
of Period $ 100,043 $ 80,698 $ 100,043 $ 80,698
Charge off Activity:
Principal Balances $ (41,934) $(22,030) $ (99,076) $ (36,610)
Recoveries, Net 8,602 4,428 22,342 7,583
Net Charge Offs $ (33,332) $(17,602) $ (76,734) $ (29,027)
September 30, September 30, December 31,
2000 1999 1999
Principal -- Managed $ 525,498 $ 427,439 $ 424,480
Less: Principal --
Securitized and Sold 12,735 95,457 65,662
Principal --
Retained on
Balance Sheet $ 512,763 $ 331,982 $ 358,818
September 30, September 30, December 31,
Days Delinquent: 2000 1999 1999
Current 72.4% 61.5% 63.2%
1-30 Days 19.3% 28.2% 27.8%
31-60 Days 4.9% 6.8% 5.9%
61-90 Days 3.4% 3.5% 3.1%
Total Portfolio 100.0% 100.0% 100.0%