UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 8, 2020
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
| (Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (936 ) 230-5899
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Item 2.02. Results of Operations and Financial Condition.
On December 08, 2020, Conn’s, Inc. issued a press release reporting its third quarter fiscal year 2021 financial results. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
None of the information contained in Item 2.02 or Exhibit 99.1 of this Form 8-K shall be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and none of it shall be incorporated by reference in any filing under the Securities Act of 1933, as amended. Furthermore, this report will not be deemed an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | ||||||||||||||||
| 99.1* | |||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) | ||||||||||||||||
* Furnished herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CONN’S, INC. | |||||||||||
| Date: | December 8, 2020 | By: | /s/ George L. Bchara | ||||||||
| Name: | George L. Bchara | ||||||||||
| Title: | Executive Vice President and Chief Financial Officer | ||||||||||
Exhibit 99.1
Conn’s, Inc. Reports Third Quarter Fiscal Year 2021 Financial Results
THE WOODLANDS, Texas, December 8, 2020 - Conn’s, Inc. (NASDAQ: CONN) (“Conn’s” or the “Company”), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended October 31, 2020.
“Our third quarter results highlight the resilience of our unique hybrid retail and credit business model and the ability to de-risk our credit business while still supporting retail demand through our diverse credit offerings. As a result, we experienced another quarter of robust year-over-year growth of cash and third-party retail sales, which increased 32.7% over the prior fiscal year period and reflect strong demand for home-related products. We are also quickly expanding our digital and omnichannel capabilities to meet surging online trends and e-commerce sales increased nearly 61% during the quarter,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.
“The performance of our credit segment throughout the COVID-19 crisis demonstrates the success of the adjustments we made earlier this year to mitigate the potential impacts on our business of high unemployment and economic uncertainty. While retail sales financed by our in-house credit offering declined 27.9% from the prior fiscal year, our credit segment is benefitting from newer, higher quality originations and the highest rate of cash collections in over ten fiscal years. In addition, the reduction in the portfolio balance, driven by strong cash collections and higher cash and third-party sales, has contributed to significant year-to-date and third quarter operating cash flow and strengthened our balance sheet.”
“Same store sales improved sequentially reflecting the progress we are making to capture retail sales opportunities while prudently managing credit risk. I am proud of our response to the unprecedented challenges we have faced throughout the COVID-19 pandemic and our continued commitment to protect the health and safety of our employees, customers, and communities. This is a testament to the experience of our senior leadership team, the dedication of our employees and the value our credit and retail products provide our communities. As we successfully navigate this difficult period, I remain confident in the direction we are headed,” concluded Mr. Miller.
1
Third Quarter Results
Net income for the three months ended October 31, 2020 was $7.4 million, or $0.25 per diluted share, compared to net income for the three months ended October 31, 2019 of $11.5 million, or $0.39 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended October 31, 2020 was $7.4 million, or $0.25 per diluted share. This compares to adjusted net income for the three months ended October 31, 2019 of $14.4 million, or $0.49 per diluted share, which excludes facility closure costs and write-off of software costs.
Retail Segment Third Quarter Results
Retail revenues were $259.9 million for the three months ended October 31, 2020 compared to $280.3 million for the three months ended October 31, 2019, a decrease of $20.4 million or 7.3%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 10.9% and a decrease in repair service agreement commissions, partially offset by new store growth. The decrease in same store sales reflects proactive underwriting changes, combined with industry wide supply chain disruptions in certain product categories, each of which was the result of the COVID-19 pandemic.
For the three months ended October 31, 2020 and 2019, retail segment operating income was $15.2 million and $19.6 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2020 was $15.2 million. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2019 was $22.2 million after excluding impairments from exiting certain leases upon the relocation of three distribution centers into one facility and a gain from the sale of a cross-dock.
The following table presents net sales and changes in net sales by category:
| Three Months Ended October 31, | Same Store | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2020 | % of Total | 2019 | % of Total | Change | % Change | % Change | ||||||||||||||||||||||||||||||||||
| Furniture and mattress | $ | 82,793 | 31.9 | % | $ | 89,070 | 31.8 | % | $ | (6,277) | (7.0) | % | (12.8) | % | |||||||||||||||||||||||||||
| Home appliance | 99,872 | 38.4 | 90,343 | 32.3 | 9,529 | 10.5 | 6.1 | ||||||||||||||||||||||||||||||||||
| Consumer electronics | 35,517 | 13.7 | 48,113 | 17.2 | (12,596) | (26.2) | (29.3) | ||||||||||||||||||||||||||||||||||
| Home office | 16,711 | 6.4 | 18,681 | 6.7 | (1,970) | (10.5) | (13.9) | ||||||||||||||||||||||||||||||||||
| Other | 4,264 | 1.6 | 4,026 | 1.4 | 238 | 5.9 | 19.8 | ||||||||||||||||||||||||||||||||||
| Product sales | 239,157 | 92.0 | 250,233 | 89.4 | (11,076) | (4.4) | (8.7) | ||||||||||||||||||||||||||||||||||
Repair service agreement commissions (1) | 17,465 | 6.7 | 26,478 | 9.5 | (9,013) | (34.0) | (27.9) | ||||||||||||||||||||||||||||||||||
| Service revenues | 3,150 | 1.3 | 3,411 | 1.1 | (261) | (7.7) | |||||||||||||||||||||||||||||||||||
| Total net sales | $ | 259,772 | 100.0 | % | $ | 280,122 | 100.0 | % | $ | (20,350) | (7.3) | % | (10.9) | % | |||||||||||||||||||||||||||
(1) The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.
Credit Segment Third Quarter Results
Credit revenues were $74.2 million for the three months ended October 31, 2020 compared to $95.8 million for the three months ended October 31, 2019, a decrease of $21.6 million or 22.5%. The decrease in credit revenue was primarily due to a decrease of 16.0% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decrease in insurance retrospective income. The decrease was also due to a decline in the yield rate to 21.1% during the three months ended October 31, 2020, 60 basis points lower than the three months ended October 31, 2019. The decline in yield rate was primarily due to an increase in delinquencies.
Provision for bad debts was $27.4 million for the three months ended October 31, 2020 compared to $45.4 million for the three months ended October 31, 2019, a decrease of $18.0 million. The decrease was driven by a greater decrease in the allowance for bad debts during the three months ended October 31, 2020 compared to the three months ended October 31, 2019. The decrease in the allowance for bad debts was primarily driven by the year-over-year decrease in the customer accounts receivable portfolio.
Credit segment operating income was $8.9 million for the three months ended October 31, 2020, compared to $10.7 million for the three months ended October 31, 2019. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2020 was $8.9 million. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2019 was $11.9 million after excluding impairments of software costs for a loan management
2
system that was abandoned during the third quarter of fiscal year 2020 in connection with the implementation of a new loan management system.
Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Company’s Form 10-Q for the quarter ended October 31, 2020, to be filed with the Securities and Exchange Commission on December 8, 2020 (the “Third Quarter Form 10-Q”).
Showroom and Facilities Update
The Company opened two new Conn’s HomePlus® showrooms during the third quarter of fiscal year 2021 and has opened one new Conn’s HomePlus® showrooms, its first in Florida, during the fourth quarter of fiscal year 2021, bringing the total showroom count to 144 in 15 states. During the remainder of fiscal year 2021, the Company plans to open two new showrooms, bringing the total for fiscal year 2021 to nine new showrooms.
Liquidity and Capital Resources
As of October 31, 2020, the Company had $276.9 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, prior to giving effect to a minimum liquidity requirement of $125.0 million pursuant to the third amendment to our revolving credit facility. The Company also had $107.8 million of unrestricted cash available for use.
Operating cash flow increased 316.6% year-over-year to $385.5 million for the nine months ended October 31, 2020 driven by growth of cash and third-party sales, strong cash payment rates on our customer receivables portfolio and a decline in Conn’s in-house credit originations. The increase in operating cash flow contributed to a reduction in net debt.
On October 16, 2020, the Company completed an ABS transaction resulting in the issuance and sale of $240.1 million aggregate principal amount of Class A and Class B Notes secured by customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds of $238.5 million, and an all-in cost of funds of 4.84%. Class C notes in aggregate principal amount of $62.9 million were also issued in the ABS transaction and were retained by the Company.
Conference Call Information
The Company will host a conference call on December 8, 2020, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended October 31, 2020. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and third quarter fiscal year 2021 conference call presentation will be available at ir.conns.com.
Replay of the telephonic call can be accessed through December 15, 2020 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13712704.
About Conn’s, Inc.
Conn’s is a specialty retailer currently operating 144 retail locations in Alabama, Arizona, Colorado, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Company’s primary product categories include:
•Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
•Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
•Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, 8K and smart televisions, gaming products and home theater and portable audio equipment; and
•Home office, including computers, printers and accessories.
Additionally, Conn’s offers a variety of products on a seasonal basis. Unlike many of its competitors, Conn’s provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.
This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements, including, but not limited to: general economic conditions impacting our customers or
3
potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 outbreak; the impact of our previous restatement and correction of the Company’s previously issued financial statements; the previously identified material weakness in the Company’s internal control over financial reporting and the Company’s ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the prior restatement and corrections; the adverse effects on the Company’s business, results of operations, financial condition and stock price as a result of the previous restatement and correction process; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 and other reports filed with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
CONN-G
S.M. Berger & Company
Andrew Berger (216) 464-6400
4
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share amounts)
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Total net sales | $ | 259,772 | $ | 280,122 | $ | 769,838 | $ | 848,163 | |||||||||||||||
| Finance charges and other revenues | 74,386 | 96,005 | 248,396 | 282,535 | |||||||||||||||||||
| Total revenues | 334,158 | 376,127 | 1,018,234 | 1,130,698 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of goods sold | 160,378 | 170,453 | 484,015 | 509,746 | |||||||||||||||||||
| Selling, general and administrative expense | 122,158 | 125,608 | 350,443 | 371,006 | |||||||||||||||||||
| Provision for bad debts | 27,493 | 45,925 | 176,864 | 135,707 | |||||||||||||||||||
| Charges and credits | — | 3,837 | 3,589 | 3,142 | |||||||||||||||||||
| Total costs and expenses | 310,029 | 345,823 | 1,014,911 | 1,019,601 | |||||||||||||||||||
| Operating income | 24,129 | 30,304 | 3,323 | 111,097 | |||||||||||||||||||
| Interest expense | 11,563 | 15,051 | 39,778 | 43,944 | |||||||||||||||||||
| Income (loss) before income taxes | 12,566 | 15,253 | (36,455) | 67,153 | |||||||||||||||||||
| Provision (benefit) for income taxes | 5,147 | 3,784 | (8,192) | 16,201 | |||||||||||||||||||
| Net income (loss) | $ | 7,419 | $ | 11,469 | $ | (28,263) | $ | 50,952 | |||||||||||||||
| Income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | 0.25 | $ | 0.39 | $ | (0.97) | $ | 1.65 | |||||||||||||||
| Diluted | $ | 0.25 | $ | 0.39 | $ | (0.97) | $ | 1.62 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 29,142,843 | 29,094,062 | 29,013,759 | 30,796,114 | |||||||||||||||||||
| Diluted | 29,483,481 | 29,710,740 | 29,013,759 | 31,353,834 | |||||||||||||||||||
5
CONN’S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Product sales | $ | 239,157 | $ | 250,233 | $ | 702,497 | $ | 759,256 | |||||||||||||||
| Repair service agreement commissions | 17,465 | 26,478 | 57,730 | 78,149 | |||||||||||||||||||
| Service revenues | 3,150 | 3,411 | 9,611 | 10,758 | |||||||||||||||||||
| Total net sales | 259,772 | 280,122 | 769,838 | 848,163 | |||||||||||||||||||
| Finance charges and other | 168 | 197 | 599 | 602 | |||||||||||||||||||
| Total revenues | 259,940 | 280,319 | 770,437 | 848,765 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
Cost of goods sold | 160,378 | 170,453 | 484,015 | 509,746 | |||||||||||||||||||
| Selling, general and administrative expense | 84,245 | 87,105 | 241,003 | 254,874 | |||||||||||||||||||
| Provision for bad debts | 72 | 535 | 422 | 645 | |||||||||||||||||||
| Charges and credits | — | 2,628 | 1,355 | 1,933 | |||||||||||||||||||
| Total costs and expenses | 244,695 | 260,721 | 726,795 | 767,198 | |||||||||||||||||||
| Operating income | $ | 15,245 | $ | 19,598 | $ | 43,642 | $ | 81,567 | |||||||||||||||
| Retail gross margin | 38.3 | % | 39.2 | % | 37.1 | % | 39.9 | % | |||||||||||||||
Selling, general and administrative expense as percent of revenues | 32.4 | % | 31.1 | % | 31.3 | % | 30.0 | % | |||||||||||||||
| Operating margin | 5.9 | % | 7.0 | % | 5.7 | % | 9.6 | % | |||||||||||||||
| Store count: | |||||||||||||||||||||||
| Beginning of period | 141 | 131 | 137 | 123 | |||||||||||||||||||
| Opened | 2 | 6 | 6 | 14 | |||||||||||||||||||
| End of period | 143 | 137 | 143 | 137 | |||||||||||||||||||
6
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Finance charges and other revenues | $ | 74,218 | $ | 95,808 | $ | 247,797 | $ | 281,933 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Selling, general and administrative expense | 37,913 | 38,503 | 109,440 | 116,132 | |||||||||||||||||||
| Provision for bad debts | 27,421 | 45,390 | 176,442 | 135,062 | |||||||||||||||||||
| Charges and credits | — | 1,209 | 2,234 | 1,209 | |||||||||||||||||||
| Total costs and expenses | 65,334 | 85,102 | 288,116 | 252,403 | |||||||||||||||||||
| Operating income (loss) | 8,884 | 10,706 | (40,319) | 29,530 | |||||||||||||||||||
| Interest expense | 11,563 | 15,051 | 39,778 | 43,944 | |||||||||||||||||||
| Loss before income taxes | $ | (2,679) | $ | (4,345) | $ | (80,097) | $ | (14,414) | |||||||||||||||
Selling, general and administrative expense as percent of revenues | 51.1 | % | 40.2 | % | 44.2 | % | 41.2 | % | |||||||||||||||
Selling, general and administrative expense as percent of average outstanding customer accounts receivable balance (annualized) | 11.5 | % | 9.8 | % | 10.2 | % | 9.9 | % | |||||||||||||||
| Operating margin | 12.0 | % | 11.2 | % | (16.3) | % | 10.5 | % | |||||||||||||||
7
CONN’S, INC. AND SUBSIDIARIES
CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS
(unaudited)
| As of October 31, | |||||||||||
| 2020 | 2019 | ||||||||||
Weighted average credit score of outstanding balances (1) | 599 | 592 | |||||||||
| Average outstanding customer balance | $ | 2,515 | $ | 2,735 | |||||||
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3) | 11.5 | % | 10.1 | % | |||||||
Balances 60+ days past due (in thousands) (2) | $ | 141,441 | $ | 152,825 | |||||||
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3) | 28.2 | % | 27.8 | % | |||||||
Re-aged balance (in thousands) (2) | $ | 347,113 | $ | 422,771 | |||||||
Carrying value of account balances re-aged more than six months (in thousands) (3) | $ | 98,307 | $ | 110,016 | |||||||
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance (4) | 24.9 | % | 13.6 | % | |||||||
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables | 18.0 | % | 21.8 | % | |||||||
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Total applications processed | 285,569 | 305,525 | 908,078 | 875,374 | |||||||||||||||||||
Weighted average origination credit score of sales financed (1) | 618 | 608 | 615 | 608 | |||||||||||||||||||
| Percent of total applications approved and utilized | 22.7 | % | 25.6 | % | 21.6 | % | 27.1 | % | |||||||||||||||
| Average income of credit customer at origination | $ | 46,900 | $ | 46,100 | $ | 46,500 | $ | 45,700 | |||||||||||||||
| Percent of retail sales paid for by: | |||||||||||||||||||||||
| In-house financing, including down payments received | 51.5 | % | 66.7 | % | 52.6 | % | 67.9 | % | |||||||||||||||
| Third-party financing | 20.3 | % | 18.5 | % | 20.6 | % | 17.5 | % | |||||||||||||||
| Third-party lease-to-own option | 7.2 | % | 7.0 | % | 8.0 | % | 7.2 | % | |||||||||||||||
| 79.0 | % | 92.2 | % | 81.2 | % | 92.6 | % | ||||||||||||||||
(1)Credit scores exclude non-scored accounts.
(2)Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.
(3)Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.
(4)For the period ended October 31, 2020, the allowance for bad debts and uncollectible interest is based on the current expected credit loss methodology required under ASC 326. For the period ended October 31, 2019, the allowance for bad debts and uncollectible interest is based on the incurred loss methodology.
8
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
| October 31, 2020 | January 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 107,822 | $ | 5,485 | |||||||
| Restricted cash | 78,374 | 75,370 | |||||||||
| Customer accounts receivable, net of allowances | 489,841 | 673,742 | |||||||||
| Other accounts receivable | 56,414 | 68,753 | |||||||||
| Inventories | 216,161 | 219,756 | |||||||||
| Income taxes receivable | 10,631 | 4,315 | |||||||||
| Prepaid expenses and other current assets | 9,944 | 11,445 | |||||||||
| Total current assets | 969,187 | 1,058,866 | |||||||||
| Long-term portion of customer accounts receivable, net of allowances | 444,352 | 663,761 | |||||||||
| Property and equipment, net | 191,079 | 173,031 | |||||||||
| Operating lease right-of-use assets | 269,770 | 242,457 | |||||||||
| Deferred income taxes | 44,725 | 18,599 | |||||||||
| Other assets | 14,343 | 12,055 | |||||||||
| Total assets | $ | 1,933,456 | $ | 2,168,769 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current finance lease obligations | $ | 769 | $ | 605 | |||||||
| Accounts payable | 74,338 | 48,554 | |||||||||
| Accrued expenses | 90,191 | 63,090 | |||||||||
| Operating lease liability - current | 37,663 | 35,390 | |||||||||
| Other current liabilities | 13,801 | 14,631 | |||||||||
| Total current liabilities | 216,762 | 162,270 | |||||||||
| Operating lease liability - non current | 362,035 | 329,081 | |||||||||
| Long-term debt and finance lease obligations | 800,586 | 1,025,535 | |||||||||
| Other long-term liabilities | 25,602 | 24,703 | |||||||||
| Total liabilities | 1,404,985 | 1,541,589 | |||||||||
| Stockholders’ equity | 528,471 | 627,180 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,933,456 | $ | 2,168,769 | |||||||
9
CONN’S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)
Basis for presentation of non-GAAP disclosures:
To supplement the Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides the following non-GAAP financial measures: adjusted retail segment operating income, adjusted credit segment operating income (loss), adjusted net income (loss) and adjusted net income (loss) per diluted share. These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP. They are intended to provide additional insight into our operations and the factors and trends affecting the business. Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.
RETAIL SEGMENT ADJUSTED OPERATING INCOME AND
RETAIL SEGMENT ADJUSTED OPERATING MARGIN
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Retail segment operating income, as reported | $ | 15,245 | $ | 19,598 | $ | 43,642 | $ | 81,567 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Professional fees (1) | — | — | 1,355 | — | |||||||||||||||||||
Facility relocation costs (2) | — | 2,628 | — | 1,933 | |||||||||||||||||||
| Retail segment operating income, as adjusted | $ | 15,245 | $ | 22,226 | $ | 44,997 | $ | 83,500 | |||||||||||||||
| Retail segment total revenues | $ | 259,940 | $ | 280,319 | $ | 770,437 | $ | 848,765 | |||||||||||||||
(1)Represents professional fees associated with non-recurring expenses.
(2)Represents impairments from exiting certain leases upon the relocation of three distribution centers into one facility and the gain from the sale of a cross-dock during the three and nine months ended October 31, 2019. Includes an additional gain from increased sublease income related to the consolidation of our corporate headquarters during the nine months ended October 31, 2019.
10
CREDIT SEGMENT ADJUSTED OPERATING INCOME (LOSS) AND
CREDIT SEGMENT ADJUSTED OPERATING MARGIN
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Credit segment operating income (loss), as reported | $ | 8,884 | $ | 10,706 | $ | (40,319) | $ | 29,530 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Professional fees (1) | — | — | 2,234 | — | |||||||||||||||||||
Write-off of software costs (2) | — | 1,209 | — | 1,209 | |||||||||||||||||||
| Credit segment operating income (loss), as adjusted | $ | 8,884 | $ | 11,915 | $ | (38,085) | $ | 30,739 | |||||||||||||||
| Credit segment total revenues | $ | 74,218 | $ | 95,808 | $ | 247,797 | $ | 281,933 | |||||||||||||||
(1)Represents professional fees associated with non-recurring expenses.
(2)Represents impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.
ADJUSTED NET INCOME (LOSS) AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE
| Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income (loss), as reported | $ | 7,419 | $ | 11,469 | $ | (28,263) | $ | 50,952 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Professional fees (1) | — | — | 3,589 | — | |||||||||||||||||||
Facility relocation costs (2) | — | 2,628 | — | 1,933 | |||||||||||||||||||
Write-off of software cost (3) | — | 1,209 | — | 1,209 | |||||||||||||||||||
| Tax impact of adjustments | — | (861) | (804) | (705) | |||||||||||||||||||
| Net income (loss), as adjusted | $ | 7,419 | $ | 14,445 | $ | (25,478) | $ | 53,389 | |||||||||||||||
| Weighted average common shares outstanding - Diluted | 29,483,481 | 29,710,740 | 29,013,759 | 31,353,834 | |||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| As reported | $ | 0.25 | $ | 0.39 | $ | (0.97) | $ | 1.62 | |||||||||||||||
| As adjusted | $ | 0.25 | $ | 0.49 | $ | (0.88) | $ | 1.70 | |||||||||||||||
(1)Represents professional fees associated with non-recurring expenses.
(2)Represents impairments from exiting certain leases upon the relocation of three distribution centers into one facility and the gain from the sale of a cross-dock during the three and nine months ended October 31, 2019. Includes an additional gain from increased sublease income related to the consolidation of our corporate headquarters during the nine months ended October 31, 2019.
(3)Represents impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.
11