Consumer Portfolio Services Inc. (CPSS, Financial) filed Quarterly Report for the period ended 2011-03-31.
Consumer Portfolio Services Inc. has a market cap of $20.52 million; its shares were traded at around $1.06 with and P/S ratio of 0.13. Consumer Portfolio Services Inc. had an annual average earning growth of 35% over the past 10 years.
Since the fourth quarter of 2007 and through the end of 2009, we observed unprecedented adverse changes in the market for securitized pools of automobile contracts. These changes included reduced liquidity, and reduced demand for asset-backed securities, particularly for securities carrying a financial guaranty and for securities backed by sub-prime automobile receivables. Moreover, many of the firms that previously provided financial guarantees, which were an integral part of our securitizations, suspended offering such guarantees. The adverse changes that took place in the market from the fourth quarter of 2007 through the end of 2009 caused us to conserve liquidity by significantly reducing our purchases of automobile contracts. However, since October 2009, we have gradually increased our contract purchases by utilizing one $50 million credit facility that we established in September 2009 and another $50 million term funding facility that we established in March 2010. In September 2010 we took advantage of improvement in the market for asset-backed securities by re-securitizing the remaining underlying receivables from our unrated September 2008 securitization. By doing so we were able to pay off the bonds associated with the September 2008 transaction and issue rated bonds with a significantly lower weighted average coupon. The September 2010 transaction was our first rated term securitization since 1993 that did not utilize a financial guaranty. More recently, we increased our short-term funding capacity by $200 million with the establishment of a new $100 million credit facility in December 2010 and an additional $100 million credit facility in February 2011. In addition, as stated above, on April 27, 2011 we completed a securitization of $104.5 million of receivables purchased primarily in 2010 and 2011 and we expect to complete one or more additional term securitization transactions in 2011. In spite of the improvements we have seen in the capital markets, if the trend of improvement in the markets for asset-backed securities should reverse, or if we should be unable to obtain additional contract financing facilities or to complete a term securitization of our recently originated receivables, we may curtail or cease our purchases of new automobile contracts, which could lead to a material adverse effect on our operations.
Revenues. During the three months ended March 31, 2011, revenues were $32.4 million, a decrease of $12.2 million, or 27.3%, from the prior year revenue of $44.6 million. The primary reason for the decrease in revenues is a decrease in interest income. Interest income for the three months ended March 31, 2011 decreased $10.4 million, or 26.6%, to $28.6 million from $39.0 million in the prior year. The primary reason for the decrease in interest income is the decrease in finance receivables held by consolidated subsidiaries.
At March 31, 2011, we were generating income and fees on a managed portfolio with an outstanding principal balance of $679.7 million (this amount includes $71.6 million of automobile contracts on which we earn servicing fees and a residual interest and also includes another $61.8 million of automobile contracts on which we earn servicing fees and own a note collateralized by such contracts), compared to a managed portfolio with an outstanding principal balance of $1,044.1 million as of March 31, 2010. At March 31, 2011 and 2010, the managed portfolio composition was as follows:
Interest expense for the three months ended March 31, 2011 decreased $5.4 million, or 22.0%, to $19.1 million, compared to $24.5 million in the previous year. The decrease is primarily the result of the decline in our portfolio owned by consolidated subsidiaries and a decrease in the value of outstanding warrants. Interest on securitization trust debt decreased by $5.5 million in the three months ended March 31, 2011 compared to the prior year. Interest expense on senior secured and subordinated debt increased by $ 1.1 million. The increase is due primarily to our issuance in December 2010 of $27.8 million in new senior secured debt. Interest expense on residual interest financing decreased $353,000 in the three months ended March 31, 2011 compared to the prior year as a result of continued principal amortization. Interest expense on warehouse debt increased by $1.7 million for the three months ended March 31, 2011 compared to the prior year as a result of our increased contract purchases in 2010 and during the first quarter of 2011. As of March 31, 2011, we had outstanding warehouse debt balances of $81.0 million compared to $17.6 million at March 31, 2010. The interest expense related to the value of outstanding warrants resulted in a $2.3 million decrease to interest expense for the current period compared to the same period in the prior year.
Marketing expenses consist primarily of commission-based compensation paid to our employee marketing representatives. Our marketing representatives earn a salary plus commissions based on our volume of contract purchases and sales of training programs, lead sales, and direct mail products that we offer our dealers. Marketing expenses increased by $816,000, or 104.5%, to $1.6 million, compared to $779,000 in the previous year, and represented 4.4% of total operating expenses. As a result of our additional credit facilities compared to the prior year, we were able to purchase 3,296 contracts representing $50.0 million in principal balances in the current period compared to 1,186 contracts representing $17.4 in principal balances in the prior year.
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Consumer Portfolio Services Inc. has a market cap of $20.52 million; its shares were traded at around $1.06 with and P/S ratio of 0.13. Consumer Portfolio Services Inc. had an annual average earning growth of 35% over the past 10 years.
Highlight of Business Operations:
We were incorporated and began our operations in March 1991. From inception through March 31, 2011, we have purchased a total of approximately $8.8 billion of automobile contracts from dealers. In addition, we obtained a total of approximately $605.0 million of automobile contracts in mergers and acquisitions we made in 2002, 2003 and 2004. Since January 2008, our managed portfolio has been decreasing. From January 2008 through September 2009 our strategy was to reduce contract purchases to conserve our liquidity in response to adverse economic conditions as discussed further below. Since October 2009, we have been gradually increasing our new contract purchases with funding from four contract financing facilities established in September 2009, March 2010, December 2010 and February 2011 as further described below. Our total managed portfolio was approximately $679.7 million at March 31, 2011 compared to $1,044.1 million at March 31, 2010.Since the fourth quarter of 2007 and through the end of 2009, we observed unprecedented adverse changes in the market for securitized pools of automobile contracts. These changes included reduced liquidity, and reduced demand for asset-backed securities, particularly for securities carrying a financial guaranty and for securities backed by sub-prime automobile receivables. Moreover, many of the firms that previously provided financial guarantees, which were an integral part of our securitizations, suspended offering such guarantees. The adverse changes that took place in the market from the fourth quarter of 2007 through the end of 2009 caused us to conserve liquidity by significantly reducing our purchases of automobile contracts. However, since October 2009, we have gradually increased our contract purchases by utilizing one $50 million credit facility that we established in September 2009 and another $50 million term funding facility that we established in March 2010. In September 2010 we took advantage of improvement in the market for asset-backed securities by re-securitizing the remaining underlying receivables from our unrated September 2008 securitization. By doing so we were able to pay off the bonds associated with the September 2008 transaction and issue rated bonds with a significantly lower weighted average coupon. The September 2010 transaction was our first rated term securitization since 1993 that did not utilize a financial guaranty. More recently, we increased our short-term funding capacity by $200 million with the establishment of a new $100 million credit facility in December 2010 and an additional $100 million credit facility in February 2011. In addition, as stated above, on April 27, 2011 we completed a securitization of $104.5 million of receivables purchased primarily in 2010 and 2011 and we expect to complete one or more additional term securitization transactions in 2011. In spite of the improvements we have seen in the capital markets, if the trend of improvement in the markets for asset-backed securities should reverse, or if we should be unable to obtain additional contract financing facilities or to complete a term securitization of our recently originated receivables, we may curtail or cease our purchases of new automobile contracts, which could lead to a material adverse effect on our operations.
Revenues. During the three months ended March 31, 2011, revenues were $32.4 million, a decrease of $12.2 million, or 27.3%, from the prior year revenue of $44.6 million. The primary reason for the decrease in revenues is a decrease in interest income. Interest income for the three months ended March 31, 2011 decreased $10.4 million, or 26.6%, to $28.6 million from $39.0 million in the prior year. The primary reason for the decrease in interest income is the decrease in finance receivables held by consolidated subsidiaries.
At March 31, 2011, we were generating income and fees on a managed portfolio with an outstanding principal balance of $679.7 million (this amount includes $71.6 million of automobile contracts on which we earn servicing fees and a residual interest and also includes another $61.8 million of automobile contracts on which we earn servicing fees and own a note collateralized by such contracts), compared to a managed portfolio with an outstanding principal balance of $1,044.1 million as of March 31, 2010. At March 31, 2011 and 2010, the managed portfolio composition was as follows:
Interest expense for the three months ended March 31, 2011 decreased $5.4 million, or 22.0%, to $19.1 million, compared to $24.5 million in the previous year. The decrease is primarily the result of the decline in our portfolio owned by consolidated subsidiaries and a decrease in the value of outstanding warrants. Interest on securitization trust debt decreased by $5.5 million in the three months ended March 31, 2011 compared to the prior year. Interest expense on senior secured and subordinated debt increased by $ 1.1 million. The increase is due primarily to our issuance in December 2010 of $27.8 million in new senior secured debt. Interest expense on residual interest financing decreased $353,000 in the three months ended March 31, 2011 compared to the prior year as a result of continued principal amortization. Interest expense on warehouse debt increased by $1.7 million for the three months ended March 31, 2011 compared to the prior year as a result of our increased contract purchases in 2010 and during the first quarter of 2011. As of March 31, 2011, we had outstanding warehouse debt balances of $81.0 million compared to $17.6 million at March 31, 2010. The interest expense related to the value of outstanding warrants resulted in a $2.3 million decrease to interest expense for the current period compared to the same period in the prior year.
Marketing expenses consist primarily of commission-based compensation paid to our employee marketing representatives. Our marketing representatives earn a salary plus commissions based on our volume of contract purchases and sales of training programs, lead sales, and direct mail products that we offer our dealers. Marketing expenses increased by $816,000, or 104.5%, to $1.6 million, compared to $779,000 in the previous year, and represented 4.4% of total operating expenses. As a result of our additional credit facilities compared to the prior year, we were able to purchase 3,296 contracts representing $50.0 million in principal balances in the current period compared to 1,186 contracts representing $17.4 in principal balances in the prior year.
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