SEC Filing | Conn's, Inc.

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conn-20220731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-34956

CONN’S, INC.

(Exact name of registrant as specified in its charter)


Delaware						06-1672840
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

2445 Technology Forest Blvd., Suite 800, The Woodlands, TX						77381
(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)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	CONN	NASDAQ Global Select Market

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 22, 2022:


Class						Outstanding
Common stock, $0.01 par value per share						23,902,888

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE FISCAL QUARTER ENDED JULY 31, 2022

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosure

Item 5.

Item 6.

This Quarterly Report on Form 10-Q includes our trademarks such as “Conn’s,” “Conn’s HomePlus,” “YE$ YOU’RE APPROVED,” “YES Money,” “YE$ Money,” “YES Lease,” “YE$ Lease,” and our logos, which are protected under applicable intellectual property laws and are the property of Conn’s, Inc. This report also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.

References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its consolidated bankruptcy-remote variable-interest entities (“VIEs”), and its wholly-owned subsidiaries.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	July 31, 2022		January 31, 2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	24,256	$	7,707
Restricted cash (includes VIE balances of $45,773 and $29,872, respectively)	47,855		31,930
Customer accounts receivable, net of allowances (includes VIE balances of $311,745 and $212,259, respectively)	434,824		455,787
Other accounts receivable	55,565		63,055
Inventories	262,952		246,826
Income taxes receivable	6,813		6,745
Prepaid expenses and other current assets	10,101		8,756
Total current assets	842,366		820,806
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $335,710 and $167,905, respectively)	398,127		432,431
Property and equipment, net	210,814		192,763
Operating lease right-of-use assets	252,653		256,267
Other assets	50,849		52,199
Total assets	$	1,754,809	$	1,754,466
Liabilities and Stockholders’ Equity
Current liabilities:
Current finance lease obligations	$	909	$	889
Accounts payable	77,691		74,705
Accrued compensation and related expenses	13,083		36,677
Accrued expenses	76,851		73,035
Operating lease liability - current	57,940		54,534
Income taxes payable	2,315		3,007
Deferred revenues and other credits	13,202		15,569
Total current liabilities	241,991		258,416
Operating lease liability - non current	321,104		330,439
Long-term debt and finance lease obligations (includes VIE balances of $597,655 and $367,925, respectively)	602,412		522,149
Deferred tax liability	—		7,351
Other long-term liabilities	29,425		21,292
Total liabilities	1,194,932		1,139,647
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	—		—
Common stock ($0.01 par value, 100,000,000 shares authorized; 33,273,456 and 33,015,053 shares issued, respectively)	332		330
Treasury stock (at cost; 9,404,920 shares and 6,088,920 shares issued, respectively)	(193,370)		(125,145)
Additional paid-in capital	145,350		140,419
Retained earnings	607,565		599,215
Total stockholders’ equity	559,877		614,819
Total liabilities and stockholders’ equity	$	1,754,809	$	1,754,466

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and dollars in thousands, except per share amounts)


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Revenues:
Product sales	$	255,449	$	320,245	$	505,422	$	589,456
Repair service agreement commissions	21,615		23,700		41,452		42,831
Service revenues	2,448		2,840		4,901		5,794
Total net sales	279,512		346,785		551,775		638,081
Finance charges and other revenues	67,120		71,598		134,677		144,004
Total revenues	346,632		418,383		686,452		782,085
Costs and expenses:
Cost of goods sold	182,718		216,042		361,100		400,921
Selling, general and administrative expense	130,142		137,870		262,925		263,919
Provision (benefit) for bad debts	27,226		10,262		41,956		(6,874)
Charges and credits	(1,484)		—		(1,484)		—
Total costs and expenses	338,602		364,174		664,497		657,966
Operating income	8,030		54,209		21,955		124,119
Interest expense	6,808		6,088		12,329		15,292
Loss on extinguishment of debt	—		—		—		1,218
Income before income taxes	1,222		48,121		9,626		107,609
Provision (benefit) for income taxes	(907)		11,117		1,276		25,207
Net income	$	2,129	$	37,004	$	8,350	$	82,402
Income per share:
Basic	$	0.09	$	1.26	$	0.34	$	2.80
Diluted	$	0.09	$	1.22	$	0.34	$	2.74
Weighted average common shares outstanding:
Basic	23,833,100		29,438,605		24,306,524		29,382,162
Diluted	23,916,269		30,212,448		24,461,836		30,072,401

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands, except for number of shares)


				Additional Paid-in Capital
	Common Stock					Retained Earnings		Treasury Stock
	Shares	Amount						Shares	Amount		Total
Balance January 31, 2022	33,015,053	$	330	$	140,419	$	599,215	(6,088,920)	$	(125,145)	$	614,819
Exercise of options and vesting of restricted stock, net of withholding tax	163,032	2		(2,029)		—		—	—		(2,027)
Issuance of common stock under Employee Stock Purchase Plan	14,192	—		194		—		—	—		194
Stock-based compensation	—	—		3,409		—		—	—		3,409
Common stock repurchase	—	—		—		—		(3,316,000)	(68,225)		(68,225)
Net income	—	—		—		6,221		—	—		6,221
Balance April 30, 2022	33,192,277	$	332	$	141,993	$	605,436	(9,404,920)	$	(193,370)	$	554,391
Exercise of options and vesting of restricted stock, net of withholding tax	49,931	—		(83)		—		—	—		(83)
Issuance of common stock under Employee Stock Purchase Plan	31,248	—		216		—		—	—		216
Stock-based compensation	—	—		3,224		—		—	—		3,224
Net income	—	—		—		2,129		—	—		2,129
Balance July 31, 2022	33,273,456	$	332	$	145,350	$	607,565	(9,404,920)	$	(193,370)	$	559,877


				Additional Paid-in Capital
	Common Stock					Retained Earnings		Treasury Stock
	Shares	Amount						Shares	Amount		Total
Balance January 31, 2021	32,711,623	$	327	$	132,108	$	491,010	(3,485,441)	$	(66,290)	$	557,155
Exercise of options and vesting of restricted stock, net of withholding tax	115,159	1		(999)		—		—	—		(998)
Issuance of common stock under Employee Stock Purchase Plan	18,240	—		180		—		—	—		180
Stock-based compensation	—	—		2,039		—		—	—		2,039
Net income	—	—		—		45,398		—	—		45,398
Balance April 30, 2021	32,845,022	$	328	$	133,328	$	536,408	(3,485,441)	$	(66,290)	$	603,774
Exercise of options and vesting of restricted stock, net of withholding tax	112,223	1		(229)		—		—	—		(228)
Issuance of common stock under Employee Stock Purchase Plan	10,563	—		187		—		—	—		187
Stock-based compensation	—	—		1,713		—		—	—		1,713
Net income	—	—		—		37,004		—	—		37,004
Balance July 31, 2021	32,967,808	$	329	$	134,999	$	573,412	(3,485,441)	$	(66,290)	$	642,450

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Six Months Ended July 31,
	2022		2021
Cash flows from operating activities:
Net income	$	8,350	$	82,402
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	22,781		22,836
Change in right-of-use asset	19,409		17,005
Amortization of debt issuance costs	2,863		3,254
Provision (benefit) for bad debts and uncollectible interest	61,521		8,071
Stock-based compensation expense	6,633		3,752
Charges, net of credits	(1,484)		—
Deferred income taxes	25		17,251
Loss on extinguishment of debt	—		1,218
Loss on disposal of property and equipment	441		104
Tenant improvement allowances received from landlords	8,048		10,864
Change in operating assets and liabilities:
Customer accounts receivable	(5,666)		24,873
Other accounts receivables	6,902		6,296
Inventories	(16,126)		(27,199)
Other assets	(825)		(11,390)
Accounts payable	2,987		19,633
Accrued expenses	(22,373)		17,907
Operating leases	(28,288)		(26,293)
Income taxes	(166)		5,622
Deferred revenues and other credits	(2,206)		733
Net cash provided by operating activities	62,826		176,939
Cash flows from investing activities:
Purchases of property and equipment	(35,146)		(19,162)
Net cash used in investing activities	(35,146)		(19,162)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	407,690		62,900
Payments on asset-backed notes	(174,437)		(261,356)
Borrowings under revolving credit facility	662,364		740,850
Payments on revolving credit facility	(811,364)		(573,850)
Payments of debt issuance costs and amendment fees	(5,634)		(4,231)
Proceeds from stock issued under employee benefit plans	410		367
Tax payments associated with equity-based compensation transactions	(2,110)		(1,227)
Payment from extinguishment of debt	—		(141,279)
Purchase of treasury stock	(71,696)		—
Other	(429)		(514)
Net cash (provided by) used in financing activities	4,794		(178,340)
Net change in cash, cash equivalents and restricted cash	32,474		(20,563)
Cash, cash equivalents and restricted cash, beginning of period	39,637		60,260
Cash, cash equivalents and restricted cash, end of period	$	72,111	$	39,697
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities	$	1	$	493
Right-of-use assets obtained in exchange for new operating lease liabilities	$	21,728	$	12,415
Property and equipment purchases not yet paid	$	15,184	$	5,962
Accrual for purchase of treasury stock	$	(3,471)	$	—
Supplemental cash flow data:
Cash interest paid	$	8,340	$	10,931
Cash income taxes paid, net	$	1,418	$	2,334

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business. Conn’s, Inc., a Delaware corporation, is a holding company with no independent assets or operations other than its investments in its subsidiaries. References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its subsidiaries. Conn’s is a leading specialty retailer that offers a broad selection of quality, branded durable consumer goods and related services in addition to proprietary credit solutions for its core credit-constrained consumers. We operate an integrated and scalable business through our retail stores and website. Our complementary product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit offering provides financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives.

We operate two reportable segments: retail and credit. Our retail stores bear the “Conn’s HomePlus” name with all of our stores providing the same products and services to a common customer group. Our stores follow the same procedures and methods in managing their operations. Our retail business and credit business are operated independently from each other. The credit segment is dedicated to providing short- and medium-term financing to our retail customers. The retail segment is not involved in credit approval decisions or collection efforts. Our management evaluates performance and allocates resources based on the operating results of the retail and credit segments.

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements of Conn’s, Inc. and its wholly-owned subsidiaries, including its Variable Interest Entities (“VIEs”), have been prepared by management in accordance with U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practice for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 31, 2022 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022 (the “2022 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on March 29, 2022.

Fiscal Year. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Principles of Consolidation. The Condensed Consolidated Financial Statements include the accounts of Conn’s, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Variable Interest Entities. VIEs are consolidated if the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has (i) the power to direct the activities that most significantly impact the performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

We securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. We retain the servicing of the securitized portfolio and have a variable interest in each corresponding VIE by holding the residual equity. We have determined that we are the primary beneficiary of each respective VIE because (i) our servicing responsibilities for the securitized portfolio give us the power to direct the activities that most significantly impact the performance of the VIE and (ii) our variable interest in the VIE gives us the obligation to absorb losses and the right to receive residual returns that potentially could be significant. As a result, we consolidate the respective VIEs within our Condensed Consolidated Financial Statements.

Refer to Note 5, Debt and Financing Lease Obligations, and Note 7, Variable Interest Entities, for additional information.

Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ, even significantly, from these estimates. Management evaluates its estimates and related assumptions regularly, including those related to the allowance for doubtful accounts and allowances for no-interest option credit programs, which are particularly sensitive given the size of our customer portfolio balance.

Cash and Cash Equivalents. As of July 31, 2022 and January 31, 2022, cash and cash equivalents included cash and credit card deposits in transit. Credit card deposits in transit included in cash and cash equivalents were $7.8 million and $5.2 million as of July 31, 2022 and January 31, 2022, respectively.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash. The restricted cash balance as of July 31, 2022 and January 31, 2022 includes $40.6 million and $25.7 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $5.2 million and $4.2 million, respectively, of cash held by the VIEs as additional collateral for the asset-backed notes.

Customer Accounts Receivable. Customer accounts receivable reported in the Condensed Consolidated Balance Sheet includes total receivables managed, including both those transferred to the VIEs and those not transferred to the VIEs. Customer accounts receivable are recognized at the time the customer takes possession of the product. Expected lifetime losses on customer accounts receivable are recognized upon origination through an allowance for credit losses account that is deducted from the customer account receivable balance and presented net. Customer accounts receivable include the net of unamortized deferred fees charged to customers and origination costs. Customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Accounts that are delinquent more than 209 days as of the end of a month are charged-off against the allowance for doubtful accounts along with interest accrued subsequent to the last payment.

In an effort to mitigate losses on our accounts receivable, we may make loan modifications to a borrower experiencing financial difficulty. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to exercise legal remedies available to us. We may extend or “re-age” a portion of our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. To a much lesser extent, we may provide the customer the ability to refinance their account, which typically does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extend the term. We consider accounts that have been re-aged in excess of three months or refinanced as Troubled Debt Restructurings (“TDR” or “Restructured Accounts”).

Interest Income on Customer Accounts Receivable. Interest income, which includes interest income and amortization of deferred fees and origination costs, is recorded using the interest method and is reflected in finance charges and other revenues. Typically, interest income is recorded until the customer account is paid off or charged-off and we provide an allowance for estimated uncollectible interest. We reserve for interest that is more than 60 days past due. Any contractual interest income received from customers in excess of the interest income calculated using the interest method is recorded as deferred revenue on our balance sheets. At July 31, 2022 and January 31, 2022, there was $8.3 million and $8.6 million, respectively, of deferred interest included in deferred revenues and other credits and other long-term liabilities. The deferred interest will ultimately be brought into income as the accounts pay off or charge-off.

We offer a 12-month no-interest option program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived. Interest income is recognized based on estimated accrued interest earned to date on all no-interest option finance programs with an offsetting reserve for those customers expected to satisfy the requirements of the program based on our historical experience.

We recognize interest income on TDR accounts using the interest income method, which requires reporting interest income equal to the increase in the net carrying amount of the loan attributable to the passage of time. Cash proceeds and other adjustments are applied to the net carrying amount such that it equals the present value of expected future cash flows.

We place accounts in non-accrual status when legally required. Payments received on non-accrual loans are applied to principal and reduce the balance of the loan. At July 31, 2022 and January 31, 2022, the carrying value of customer accounts receivable in non-accrual status was $7.0 million and $5.9 million, respectively. At July 31, 2022 and January 31, 2022, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled $82.1 million and $84.1 million, respectively. At July 31, 2022 and January 31, 2022, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of $6.5 million and $5.5 million, respectively, were included within the customer receivables balance carried in non-accrual status.

Allowance for Doubtful Accounts. The determination of the amount of the allowance for credit losses is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level of the allowance for credit losses. General economic conditions, changes to state or federal regulations and a variety of other factors that affect the ability of borrowers to service their debts or our ability to collect will impact the future performance of the portfolio.

We establish an allowance for credit losses, including estimated uncollectible interest, to cover expected credit losses on our customer accounts receivable resulting from the failure of customers to make contractual payments. Our customer accounts receivable portfolio balance consists of a large number of relatively small, homogeneous accounts. None of our accounts are large enough to warrant individual evaluation for impairment. The allowance for credit losses is measured on a collective (pool) basis where similar risk characteristics exist. The allowance for credit losses is determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We use a risk-based, pool-level segmentation framework to calculate the expected loss rate. This framework is based on our historical gross charge-off history. In addition to adjusted historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance and repair service agreement (“RSA”) policies are also considered. We also consider forward-looking economic forecasts based on a statistical analysis of economic factors (specifically, forecast of unemployment rates over the reasonable and supportable forecasting period). To the extent that situations and trends arise which are not captured in our model, management will layer on additional qualitative adjustments.

Pursuant to ASC 326 requirements, the Company uses a 24-month reasonable and supportable forecast period for the customer accounts receivable portfolio. We estimate losses beyond the 24-month forecast period based on historic loss rates experienced over the life of our historic loan portfolio by loan pool type. We revisit our measurement methodology and assumption annually, or more frequently if circumstances warrant.

As of July 31, 2022 and January 31, 2022, the balance of allowance for doubtful accounts and uncollectible interest for non-TDR customer receivables was $144.2 million and $165.0 million, respectively. As of July 31, 2022 and January 31, 2022, the amount included in the allowance for doubtful accounts associated with principal and interest on TDR accounts was $35.6 million and $44.0 million, respectively.

Debt Issuance Costs. Costs that are direct and incremental to debt issuance are deferred and amortized to interest expense using the effective interest method over the expected life of the debt. All other costs related to debt issuance are expensed as incurred. We present debt issuance costs associated with long-term debt as a reduction of the carrying amount of the debt. Unamortized costs related to the Revolving Credit Facility, as defined in Note 5, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were $4.3 million and $5.1 million as of July 31, 2022 and January 31, 2022, respectively.

Loss on Extinguishment. During the six months ended July 31, 2021, we incurred a loss of $1.0 million related to the retirement of the remaining $141.2 million aggregate principal amount of our 7.25% Senior Notes due 2022 and a loss of $0.2 million related to the amendment of our Fifth Amended and Restated Loan and Security Agreement.

Income Taxes. For the six months ended July 31, 2022 and 2021, we utilized the estimated annual effective tax rate based on our estimated fiscal year 2023 and 2022 pre-tax income, respectively, in determining income tax expense.

Provision for income taxes for interim periods is based on an estimated annual income tax rate, adjusted for discrete tax items. As a result, our interim effective tax rates may vary significantly from the statutory tax rate and the annual effective tax rate.

For the six months ended July 31, 2022 and 2021, the effective tax rate was 13.3% and 23.4%, respectively. The primary factor affecting the decrease in our effective tax rate for the six months ended July 31, 2022 was the impact of state taxes and compensation expense.

Stock-based Compensation. During the six months ended July 31, 2022, the Company granted performance stock awards (“PSUs”) and restricted stock awards (“RSUs”). The awards had a combined aggregate grant date fair value of $15.8 million. The PSUs will vest in fiscal year 2025, if at all, upon certification by the Compensation Committee of the Board of Directors of satisfaction of certain total stockholder return performance conditions over the three fiscal years commencing with fiscal year 2023. The RSUs will vest ratably, over periods of three years from the date of grant.

Stock-based compensation expense is recorded, net of actual forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. For equity-classified share-based compensation awards, expense is recognized based on the grant-date fair value. For stock option grants, we use the Black-Scholes model to determine fair value. For grants of restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance. For grants of performance-based restricted stock units, the fair value is the market value of our stock at the date of issuance adjusted for the market condition using a Monte Carlo model.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the RSUs and PSUs granted during the three and six months ended July 31, 2022 and 2021:


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
RSUs (1)	82,206		41,087		476,586		381,731
PSUs (2)	—		—		176,509		152,349
Total stock awards granted	82,206		41,087		653,095		534,080
Aggregate grant date fair value (in thousands)	$	1,071	$	960	$	15,762	$	9,250

(1)The RSUs issued during the three and six months ended July 31, 2022 and 2021 are scheduled to vest ratably over periods of three years to four years from the date of grant with the exception of RSU grants issued to the Board of Directors.

(2)The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2022 included expected volatility of 78.0%-80.0%, an expected term of 3 years and risk-free interest rate of 1.39%-2.58%. No dividend yield was included in the weighted-average assumptions for the PSUs granted during the six months ended July 31, 2022. The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2021 included expected volatility of 83.0%, an expected term of 3 years and risk-free interest rate of 0.17%. No dividend yield was included in the weighted average assumptions for the PSUs granted during the six months ended July 31, 2021.

For the three months ended July 31, 2022 and 2021, stock-based compensation expense was $3.2 million and $1.7 million, respectively. For the six months ended July 31, 2022 and 2021, stock-based compensation expense was $6.6 million and $3.8 million, respectively.

Earnings per Share. Basic earnings per share for a particular period is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effects of any stock options, RSUs and PSUs, which are calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations:


	Three Months Ended July 31,		Six Months Ended July 31,
	2022	2021	2022	2021
Weighted-average common shares outstanding - Basic	23,833,100	29,438,605	24,306,524	29,382,162
Dilutive effect of stock options, PSUs and RSUs	83,169	773,843	155,312	690,239
Weighted-average common shares outstanding - Diluted	23,916,269	30,212,448	24,461,836	30,072,401

For the three months ended July 31, 2022 and 2021, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was 1,548,376 and 656,987, respectively. For the six months ended July 31, 2022 and 2021, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was 1,234,872 and 731,647, respectively.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to subjectivity associated with the inputs to fair value measurements as follows:

•Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

•Level 3 – Inputs that are not observable from objective sources such as our internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in our internally developed present value of future cash flows model that underlies the fair-value measurement).

In determining fair value, we use observable market data when available, or models that incorporate observable market data. When we are required to measure fair value and there is not a market-observable price for the asset or liability or for a similar asset or liability, we use the cost or income approach depending on the quality of information available to support

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows and discounts the expected cash flows using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, we believe assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in our business plans and investment decisions.

In arriving at fair-value estimates, we use relevant observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based on the lowest level of input that is significant to the fair-value measurement.

The fair value of cash and cash equivalents, restricted cash and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivable, determined using a Level 3 discounted cash flow analysis, approximates their carrying value, net of the allowance for doubtful accounts. The fair value of our Revolving Credit Facility approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At July 31, 2022, the fair value of the asset backed notes was $595.1 million as compared to the carrying value of $604.0 million and was determined using Level 2 inputs based on inactive trading activity.

Deferred Revenue. Deferred revenue related to contracts with customers consists of deferred customer deposits and deferred RSA administration fees. During the six months ended July 31, 2022, we recognized $5.0 million of revenue for customer deposits deferred as of January 31, 2022. During the six months ended July 31, 2022, we recognized $1.8 million of revenue for RSA administrative fees deferred as of January 31, 2022.

Recent Accounting Pronouncements Adopted.

Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This accounting standards update became effective for us in the first quarter of fiscal year 2022. The adoption did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Yet to Be Adopted.

Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope, to clarify the scope of the guidance and reduce potential diversity in practice. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We expect to adopt ASC 2020-04 and ASC 2021-01 upon transition from LIBOR, prior to December 31, 2022. We do not expect the adoption to have a material impact on our consolidated financial statements.

Financial Instruments - Troubled Debt Restructurings and Vintage Disclosures. In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, an update that eliminate the accounting guidance for troubled debt restructurings (TDRs) by creditors in ASC 310-40 while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively, with an option to apply a modified retrospective transition approach for the recognition and measurement of TDRs. We expect to adopt ASU 2022-02 during the first quarter of fiscal year 2024. We are currently assessing the impact this ASU will have on our consolidated financial statements.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Customer Accounts Receivable

Customer accounts receivable consisted of the following:


(in thousands)	July 31, 2022		January 31, 2022
Customer accounts receivable (1)	$	1,042,777	$	1,130,395
Deferred fees and origination costs, net	(12,347)		(13,503)
Allowance for no-interest option credit programs	(17,704)		(19,654)
Allowance for uncollectible interest	(14,184)		(15,124)
Carrying value of customer accounts receivable	998,542		1,082,114
Allowance for credit losses (2)	(165,591)		(193,896)
Carrying value of customer accounts receivable, net of allowance for credit losses	832,951		888,218
Short-term portion of customer accounts receivable, net	(434,824)		(455,787)
Long-term customer accounts receivable, net	$	398,127	$	432,431


	Carrying Value
(in thousands)	July 31, 2022		January 31, 2022
Customer accounts receivable 60+ days past due (3)	$	109,928	$	112,858
Re-aged customer accounts receivable (4)	160,552		181,996
Restructured customer accounts receivable (5)	78,600		99,557

(1)As of July 31, 2022 and January 31, 2022, the customer accounts receivable balance included $21.2 million and $22.3 million, respectively, in interest receivable. Net of the allowance for uncollectible interest, interest receivable outstanding as of July 31, 2022 and January 31, 2022 was $7.0 million and $7.2 million, respectively.

(2)Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of July 31, 2022 and January 31, 2022, which incorporated the continued estimated impact of the global COVID-19 outbreak on the U.S. economy. Our forecast utilized economic projections from a major rating service reflecting an increase in unemployment rates.

(3)As of July 31, 2022 and January 31, 2022, the carrying value of customer accounts receivable past due one day or greater was $298.2 million and $299.0 million, respectively. These amounts include the 60+ days past due balances shown above.

(4)The re-aged carrying value as of July 31, 2022 and January 31, 2022 includes $44.8 million and $48.6 million, respectively, in carrying value that are both 60+ days past due and re-aged.

(5)The restructured carrying value as of July 31, 2022 and January 31, 2022 includes $22.0 million and $29.0 million, respectively, in carrying value that are both 60+ days past due and restructured.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The allowance for credit losses included in the current and long-term portion of customer accounts receivable, net as shown in the Condensed Consolidated Balance Sheet were as follows:


(in thousands)	July 31, 2022		January 31, 2022
Customer accounts receivable - current	$	528,420	$	564,825
Allowance for credit losses for customer accounts receivable - current	(93,596)		(109,038)
Customer accounts receivable, net of allowances	434,824		455,787
Customer accounts receivable - non current	484,306		532,413
Allowance for credit losses for customer accounts receivable - non current	(86,179)		(99,982)
Long-term portion of customer accounts receivable, net of allowances	398,127		432,431
Total customer accounts receivable, net	$	832,951	$	888,218

The following presents the activity in our allowance for credit losses and uncollectible interest for customer receivables:


	Six Months Ended July 31, 2022						Six Months Ended July 31, 2021
(in thousands)	Customer Accounts Receivable		Restructured Accounts		Total		Customer Accounts Receivable		Restructured Accounts		Total
Allowance at beginning of period	$	165,044	$	43,976	$	209,020	$	219,740	$	78,297	$	298,037
Provision (benefit) for credit loss expense (1)	45,326		15,607		60,933		(5,422)		13,333		7,911
Principal charge-offs (2)	(65,919)		(23,882)		(89,801)		(61,323)		(38,709)		(100,032)
Interest charge-offs	(15,887)		(5,756)		(21,643)		(16,997)		(10,729)		(27,726)
Recoveries (2)	15,610		5,656		21,266		14,657		9,252		23,909
Allowance at end of period	$	144,174	$	35,601	$	179,775	$	150,655	$	51,444	$	202,099
Average total customer portfolio balance	$	982,639	$	92,262	$	1,074,901	$	982,186	$	159,894	$	1,142,080

(1)Includes provision for uncollectible interest, which is included in finance charges and other revenues, and changes in expected future recoveries.

(2)Charge-offs include the principal amount of losses (excluding accrued and unpaid interest). Recoveries include the principal amount collected during the period for previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.

We manage our customer accounts receivable portfolio using delinquency as a key credit quality indicator. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by year of origination. The information is presented as of July 31, 2022:


(in thousands)
Delinquency Bucket	2022		2021		2020		2019		Prior		Total		% of Total
Current	$	298,380	$	292,662	$	87,626	$	18,858	$	2,767	$	700,293	70.1	%
1-30	35,983		69,396		25,441		9,927		2,145		142,892		14.3	%
31-60	9,571		22,902		8,234		3,913		809		45,429		4.6	%
61-90	5,130		13,958		5,220		2,650		629		27,587		2.8	%
91+	7,644		45,783		17,569		9,126		2,219		82,341		8.2	%
Total	$	356,708	$	444,701	$	144,090	$	44,474	$	8,569	$	998,542	100.0	%

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Charges and Credits

Charges and credits consisted of the following:


	Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	2022		2021		2022		2021
Lease termination	$	(1,484)	$	—	$	(1,484)	$	—
Total charges and credits	$	(1,484)	$	—	$	(1,484)	$	—

During the three months ended July 31, 2022, we recognized a $1.5 million gain related to the termination of a lease for a single store location.

4. Finance Charges and Other Revenues

Finance charges and other revenues consisted of the following:


	Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	2022		2021		2022		2021
Interest income and fees	$	61,760	$	65,003	$	124,474	$	132,682
Insurance income	5,087		6,371		9,659		10,889
Other revenues	273		224		544		433
Total finance charges and other revenues	$	67,120	$	71,598	$	134,677	$	144,004

Interest income and fees and insurance income are derived from the credit segment operations, whereas other revenues are derived from the retail segment operations. Insurance income is comprised of sales commissions from third-party insurance companies that are recognized when coverage is sold and retrospective income paid by the insurance carrier if insurance claims are less than earned premiums.

During the three months ended July 31, 2022 and 2021, interest income and fees reflected provisions for uncollectible interest of $10.3 million and $7.4 million, respectively. The amounts included in interest income and fees related to TDR accounts for the three months ended July 31, 2022 and 2021 were $3.8 million and $6.7 million, respectively. During the six months ended July 31, 2022 and 2021, interest income and fees reflected provisions for uncollectible interest of $19.6 million and $14.9 million, respectively. The amounts included in interest income and fees related to TDR accounts for the six months ended July 31, 2022 and 2021 were $7.9 million and $14.2 million, respectively.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Debt and Financing Lease Obligations

Debt and financing lease obligations consisted of the following:


(in thousands)	July 31, 2022		January 31, 2022
Revolving Credit Facility	$	—	$	149,000
2020-A VIE Asset-backed Class A Notes	—		9,184
2020-A VIE Asset-backed Class B Notes	—		18,342
2020-A VIE Asset-backed Class C Notes	—		17,695
2021-A VIE Asset-backed Class A Notes	66,378		195,595
2021-A VIE Asset-backed Class B Notes	66,090		66,090
2021-A VIE Asset-backed Class C Notes	63,890		63,890
2022-A VIE Asset-backed Class A Notes	275,600		—
2022-A VIE Asset-backed Class B Notes	132,090		—
Financing lease obligations	5,666		6,115
Total debt and financing lease obligations	609,714		525,911
Less:
Deferred debt issuance costs	(6,393)		(2,873)
Current maturities of long-term debt and financing lease obligations	(909)		(889)
Long-term debt and financing lease obligations	$	602,412	$	522,149

Asset-backed Notes. From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs issue asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by the VIEs.

Under the terms of the securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of issued notes, and then to us as the holder of non-issued notes, if any, and residual equity. We retain the servicing of the securitized portfolios and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables. In addition, we, rather than the VIEs, retain all credit insurance income together with certain recoveries related to credit insurance and RSAs on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.

The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act of 1933. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.

The asset-backed notes outstanding as of July 31, 2022 consisted of the following:


(dollars in thousands)
Asset-Backed Notes	Original Principal Amount		Original Net Proceeds (1)		Current Principal Amount		Issuance Date	Maturity Date	Contractual Interest Rate	Effective Interest Rate (2)
2021-A Class A Notes	$	247,830	$	246,152	$	66,378	11/23/2021	5/15/2026	1.05%	3.15%
2021-A Class B Notes	66,090		65,635		66,090		11/23/2021	5/15/2026	2.87%	3.53%
2021-A Class C Notes	63,890		63,450		63,890		11/23/2021	5/15/2026	4.59%	5.21%
2022-A Class A Notes	275,600		273,731		275,600		7/21/2022	12/15/2026	5.87%	8.57%
2022-A Class B Notes	132,090		129,050		132,090		7/21/2022	12/15/2026	9.52%	10.40%
Total	$	785,500	$	778,018	$	604,048

(1)After giving effect to debt issuance costs.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2)For the six months ended July 31, 2022, and inclusive of the impact of changes in timing of actual and expected cash flows.

On July 21, 2022, the Company completed the issuance and sale of approximately $407.7 million in aggregate principal amount of asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of approximately $402.8 million, net of debt issuance costs. Net proceeds from the offering were used to repay indebtedness under the Company’s Revolving Credit Facility, as defined below, and for other general corporate purposes. The asset-backed notes mature on December 15, 2026 and consist of $275.6 million of 5.87% Asset Backed Fixed Rate Notes, Class A, Series 2022-A (the "Class A Notes"), approximately $132.1 million of 9.52% Asset Backed Fixed Rate Notes, Class B, Series 2022-A (the "Class B Notes"). Additionally, the Company issued approximately $63.1 million in aggregate principal amount of zero coupon Asset Backed Fixed Rate Notes, Class C, Series 2022-A (the "Class C Notes") which mature on December 15, 2026. The Class C Notes are currently being retained by the Company.

Revolving Credit Facility. On March 29, 2021, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into the Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amended and Restated Loan Agreement”), with certain lenders, which provides for a $650.0 million asset-based revolving credit facility (as amended, the “Revolving Credit Facility”) under which credit availability is subject to a borrowing base and a maturity date of March 29, 2025.

The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of $40 million to $100 million, solely at the discretion of the lenders for such amounts in excess of $40 million. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2022, under our Revolving Credit Facility, we had immediately available borrowing capacity of $186.8 million, net of standby letters of credit issued of $22.3 million, and an additional $441.0 million that may become available if the balance of eligible customer receivables and total eligible inventory balances increases.

Loans under the Revolving Credit Facility bear interest, at our option, at a rate of LIBOR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the Revolving Credit Facility in the immediately preceding quarter. The weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was 3.8% for the six months ended July 31, 2022.

The Revolving Credit Facility places restrictions on our ability to incur additional indebtedness, grant liens on assets, make distributions on equity interests, dispose of assets, make loans, pay other indebtedness, engage in mergers, and other matters. The Revolving Credit Facility restricts our ability to make dividends and distributions unless no event of default exists and a liquidity test is satisfied. Subsidiaries of the Company may pay dividends and make distributions to the Company and other obligors under the Revolving Credit Facility without restriction. As of July 31, 2022, we were restricted from making distributions in excess of $151.5 million as a result of the Revolving Credit Facility distribution and payment restrictions. The Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the Revolving Credit Facility.

Debt Covenants. We were in compliance with our debt covenants at July 31, 2022. A summary of the significant financial covenants that govern our Revolving Credit Facility compared to our actual compliance status at July 31, 2022 is presented below:


	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	4.04:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	5.38:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	1.57:1.00	4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum	0.57:1.00	2.50:1.00
Capital Expenditures, net, must not exceed maximum	$49.5 million	$100.0 million

All capitalized terms in the above table are defined in the Revolving Credit Facility and may or may not match directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Contingencies

Derivative Litigation. On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a shareholder derivative lawsuit in federal court against us and certain of our current and former directors and former executive officers captioned Robert Hack, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn’s, Inc., Case No. 4:14-cv-03442 (S.D. Tex.) (the "Hack Litigation"). The complaint asserts claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading based on substantially similar factual allegations as those asserted in the securities action (In re Conn's Inc. Sec. Litig., Cause No. 14-CV-00548 (S.D. Tex.)), which was settled in October 2018. The plaintiff seeks unspecified damages against these persons and does not request any damages from Conn’s. On February 25, 2015, an additional federal derivative action, captioned 95250 Canada LTEE, derivatively on Behalf of Conn’s, Inc. v. Wright et al., Cause No. 4:15-cv-00521 (S.D. Tex.), was filed, asserting substantially similar claims against the same defendants. It was consolidated with the Hack Litigation (collectively, the "Federal Derivative Actions").

The parties have reached a settlement in principle to fully resolve the Federal Derivative Actions. Judge Ellison approved the settlement and entered a Final Order and Judgement dismissing the derivative action with prejudice on March 15, 2022 (the "Final Order"). Neither the Company nor any individual defendant admits any wrongdoing through the settlement agreement.

In addition to the Federal Derivative Actions, a derivative action was filed in Texas state court on January 27, 2015, captioned Richard A. Dohn v. Wright, et al., Cause No. 2015-04405, in the 281st Judicial District Court, Harris County, Texas. This action makes substantially similar allegations to the Federal Derivative Actions against the same defendants. The parties agreed to stay this case during the Securities Litigation and Federal Derivative Actions. Counsel for Dohn attended the February 17, 2022 and March 15, 2022 settlement hearings in the Federal Derivative Actions and objected to the proposed settlement. Dohn has filed an appeal of the Final Order with the Fifth Circuit Court of Appeals, and on May 17, 2022, the court entered an agreed order staying the case pending the outcome of that appeal.

On April 7, 2022, State Court Plaintiff and Objector Richard Dohn, filed an appeal of the Final Order with the Fifth Circuit Court of Appeals (Hack v. Wright, No. 22-20177 (5th Cir.)). Dohn's opening brief was filed on July 5, 2022. Plaintiffs' and Defendants' respective response briefs are due August 24, 2022.

Prior to filing his lawsuit, another alleged shareholder, Robert J. Casey II (“Casey”), submitted a demand under Delaware law, which our Board of Directors refused. On May 19, 2016, Casey, purportedly on behalf of the Company, filed a second state court lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned Casey, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Michael J. Poppe (former executive officer), Brian Taylor (former executive officer), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn’s, Inc., Cause No. 2016-33135. The complaint asserts claims for breach of fiduciary duties and unjust enrichment based on substantially similar factual allegations as those asserted in the Federal Derivative Actions. The complaint does not specify the amount of damages sought. Since April 2018, this case has been abated pending the resolution of related cases. In July 2021, the parties requested that the court extend the abatement pending further developments in the Federal Derivative Actions. The case currently remains abated.

Other than Casey, none of the plaintiffs in the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the two state court derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any unsettled litigation, and we cannot reasonably estimate the possible loss or range of possible loss from such claims.

We are involved in other routine litigation and claims, incidental to our business from time to time which, individually or in the aggregate, are not expected to have a material adverse effect on us. As required, we accrue estimates of the probable costs for the resolution of these matters. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact our estimate of reserves for litigation. The Company believes that any probable and reasonably estimable loss associated with the foregoing has been adequately reflected in the accompanying financial statements.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Variable Interest Entities

From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. Under the terms of the respective securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of the asset-backed notes, and then to the residual equity holder. We retain the servicing of the securitized portfolio and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables, and we currently hold all of the residual equity. In addition, we, rather than the VIEs, will retain certain credit insurance income together with certain recoveries related to credit insurance and RSAs on charge-offs of the securitized receivables, which will continue to be reflected as a reduction of net charge-offs on a consolidated basis for as long as we consolidate the VIEs.

We consolidate VIEs when we determine that we are the primary beneficiary of these VIEs, we have the power to direct the activities that most significantly impact the performance of the VIEs and our obligation to absorb losses and the right to receive residual returns are significant.

The following table presents the assets and liabilities held by the VIEs (for legal purposes, the assets and liabilities of the VIEs will remain distinct from Conn’s, Inc.):


(in thousands)	July 31, 2022		January 31, 2022
Assets:
Restricted cash	$	45,773	$	29,872
Due from Conn’s, Inc., net	3,784		—
Customer accounts receivable:
Customer accounts receivable	788,671		463,411
Restructured accounts	27,552		29,621
Allowance for uncollectible accounts	(143,252)		(97,560)
Allowance for no-interest option credit programs	(16,495)		(10,275)
Deferred fees and origination costs	(9,021)		(5,033)
Total customer accounts receivable, net	647,455		380,164
Total assets	$	697,012	$	410,036
Liabilities:
Accrued expenses	$	4,459	$	2,638
Other liabilities	6,909		3,930
Due to Conn’s, Inc., net	—		12,755

Long-term debt:
2020-A Class A Notes	—		9,184
2020-A Class B Notes	—		18,342
2020-A Class C Notes	—		17,695
2021-A Class A Notes	66,378		195,595
2021-A Class B Notes	66,090		66,090
2021-A Class C Notes	63,890		63,890
2022-A Class A Notes	275,600		—
2022-A Class B Notes	132,090		—
	604,048		370,796
Less: deferred debt issuance costs	(6,393)		(2,871)
Total debt	597,655		367,925
Total liabilities	$	609,023	$	387,248

The assets of the VIEs serve as collateral for the obligations of the VIEs. The holders of asset-backed notes have no recourse to assets outside of the respective VIEs.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Segment Information

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. The operating segments follow the same accounting policies used in our Condensed Consolidated Financial Statements.

We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses (“SG&A”) includes the direct expenses of the retail and credit operations, allocated overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment, which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% times the average outstanding portfolio balance for each applicable period.

As of July 31, 2022, we operated retail stores in 15 states with no operations outside of the United States. No single customer accounts for more than 10% of our total revenues.

Financial information by segment is presented in the following tables:


	Three Months Ended July 31, 2022						Three Months Ended July 31, 2021
(in thousands)	Retail		Credit		Total		Retail		Credit		Total
Revenues:
Furniture and mattress	$	86,320	$	—	$	86,320	$	109,259	$	—	$	109,259
Home appliance	120,748		—		120,748		135,444		—		135,444
Consumer electronics	31,860		—		31,860		48,413		—		48,413
Home office	8,857		—		8,857		17,986		—		17,986
Other	7,664		—		7,664		9,143		—		9,143
Product sales	255,449		—		255,449		320,245		—		320,245
Repair service agreement commissions	21,615		—		21,615		23,700		—		23,700
Service revenues	2,448		—		2,448		2,840		—		2,840
Total net sales	279,512		—		279,512		346,785		—		346,785
Finance charges and other revenues	273		66,847		67,120		224		71,374		71,598
Total revenues	279,785		66,847		346,632		347,009		71,374		418,383
Costs and expenses:
Cost of goods sold	182,718		—		182,718		216,042		—		216,042
Selling, general and administrative expense (1)	98,035		32,107		130,142		102,157		35,713		137,870
Provision for bad debts	409		26,817		27,226		142		10,120		10,262
Charges and credits	(1,484)		—		(1,484)		—		—		—
Total costs and expenses	279,678		58,924		338,602		318,341		45,833		364,174
Operating income	107		7,923		8,030		28,668		25,541		54,209
Interest expense	—		6,808		6,808		—		6,088		6,088
Income before income taxes	$	107	$	1,115	$	1,222	$	28,668	$	19,453	$	48,121

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended July 31, 2022						Six Months Ended July 31, 2021
(in thousands)	Retail		Credit		Total		Retail		Credit		Total
Revenues:
Furniture and mattress	$	174,414	$	—	$	174,414	$	203,750	$	—	$	203,750
Home appliance	230,476		—		230,476		248,705		—		248,705
Consumer electronics	65,464		—		65,464		86,451		—		86,451
Home office	19,046		—		19,046		32,507		—		32,507
Other	16,022		—		16,022		18,043		—		18,043
Product sales	505,422		—		505,422		589,456		—		589,456
Repair service agreement commissions	41,452		—		41,452		42,831		—		42,831
Service revenues	4,901		—		4,901		5,794		—		5,794
Total net sales	551,775		—		551,775		638,081		—		638,081
Finance charges and other revenues	544		134,133		134,677		433		143,571		144,004
Total revenues	552,319		134,133		686,452		638,514		143,571		782,085
Costs and expenses:
Cost of goods sold	361,100		—		361,100		400,921		—		400,921
Selling, general and administrative expense (1)	194,065		68,860		262,925		193,050		70,869		263,919
Provision (benefit) for bad debts	588		41,368		41,956		160		(7,034)		(6,874)
Charges and credits	(1,484)		—		(1,484)		—		—		—
Total costs and expenses	554,269		110,228		664,497		594,131		63,835		657,966
Operating income (loss)	(1,950)		23,905		21,955		44,383		79,736		124,119
Interest expense	—		12,329		12,329		—		15,292		15,292
Loss on extinguishment of debt	—		—		—		—		1,218		1,218
Income (loss) before income taxes	$	(1,950)	$	11,576	$	9,626	$	44,383	$	63,226	$	107,609
	July 31, 2022						July 31, 2021
(in thousands)	Retail		Credit		Total		Retail		Credit		Total
Total assets	$	676,303	$	1,078,506	$	1,754,809	$	672,944	$	1,036,003	$	1,708,947

(1)For the three months ended July 31, 2022 and 2021, the amount of corporate overhead allocated to each segment reflected in SG&A expense was $6.6 million and $9.8 million, respectively. For the three months ended July 31, 2022 and 2021, the amount of reimbursement made to the retail segment by the credit segment was $6.6 million and $6.9 million, respectively. For the six months ended July 31, 2022 and 2021, the amount of corporate overhead allocated to each segment reflected in SG&A was $16.2 million and $18.8 million, respectively. For the six months ended July 31, 2022 and 2021, the amount of reimbursement made to the retail segment by the credit segment was $13.4 million and $14.2 million, respectively.

9. Stock Repurchases

On December 15, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150.0 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022. During the three months ended July 31, 2022 we did not repurchase any share of our common stock. During the six months ended July 31, 2022, we repurchased 3,316,000 shares of our common stock at an average weighted cost per share of $20.57 for an aggregate amount of $68.2 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report 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 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; expansion of our e-commerce business; 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, proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 pandemic; 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, 2022 (the “2022 Form 10-K”) and other reports filed with the SEC. 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 report. 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.

The Company makes available in the investor relations section of its website at ir.conns.com updated monthly reports to the holders of its asset-backed notes. This information reflects the performance of the securitized portfolio only, in contrast to the financial statements contained herein, which reflect the performance of all of the Company’s outstanding receivables, including those originated subsequent to those included in the securitized portfolio. The website and the information contained on our website is not incorporated in this Quarterly Report on Form 10-Q or any other document filed with the SEC.

Overview

We encourage you to read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Executive Summary

Total revenues were $346.6 million for the three months ended July 31, 2022 compared to $418.4 million for the three months ended July 31, 2021, a decrease of $71.8 million or 17.1%. Retail revenues were $279.8 million for the three months ended July 31, 2022 compared to $347.0 million for the three months ended July 31, 2021, a decrease of $67.2 million or 19.4%. The decrease in total retail revenue for the three months ended July 31, 2022 was primarily driven by a decrease in same store sales of 22.0%. The decrease in same store sales was primarily driven by a tightening of underwriting standards from our lease-to-own partners, the effect the benefits stimulus had on sales in the prior period and lower consumer demand in the current period.The decrease in same store sales was partially offset by new store growth. Credit revenues were $66.8 million for the three months ended July 31, 2022 compared to $71.4 million for the three months ended July 31, 2021, a decrease of $4.6 million or 6.4%. The decrease in credit revenue was primarily due to a 4.9% decrease in the average outstanding balance of the customer accounts receivable portfolio as well as a decline in insurance commissions.

Retail gross margin for the three months ended July 31, 2022 was 34.6%, decrease of 310 basis points from the 37.7% reported for the three months ended July 31, 2021. The year-over-year decrease in retail gross margin was primarily driven by increased product costs as a result of higher freight, higher fuel costs and the deleveraging of fixed distribution costs. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.

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Selling, general and administrative expense (“SG&A”) for the three months ended July 31, 2022 was $130.1 million compared to $137.9 million for the three months ended July 31, 2021, a decrease of $7.7 million or 5.6%. The SG&A decrease in the retail segment was primarily due to a decline in variable costs and declines in advertising and labor costs as a result of cost saving initiatives. These decreases were partially offset by an increase in occupancy costs due to higher utility costs and new store growth. The SG&A decrease in the credit segment was primarily due to a decrease in general operating costs, including legal and professional service fees.

Provision for bad debts increased to $27.2 million for the three months ended July 31, 2022 from $10.3 million for the three months ended July 31, 2021, an overall change of $16.9 million. The year-over-year increase was primarily driven by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2022 compared to the decrease for the three months ended July 31, 2021 and a year-over-year increase in net charge-offs of $4.9 million. The decrease in the allowance for bad debts during the three months ended July 31, 2022 was primarily driven by a decrease in the customer account receivable portfolio balance and an improvement in historical loss rates. During the three months ended July 31, 2021, the decrease was primarily driven by a decrease in the rate of delinquencies and re-ages, a decrease in the customer account receivable portfolio balance and an improvement in the forecasted unemployment rate that drove a $5.0 million decrease in the economic adjustment.

Interest expense was $6.8 million for the three months ended July 31, 2022 and $6.1 million for the three months ended July 31, 2021, an increase of $0.7 million or 11.8%. The increase was driven by a higher average balance of debt offset by a lower effective interest rate.

Net income for the three months ended July 31, 2022 was $2.1 million or $0.09 per diluted share, compared to net income of $37.0 million, or $1.22 per diluted share, for the three months ended July 31, 2021.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance including:

•Same store sales - Our management considers same store sales, which consists of both brick and mortar and e-commerce sales, to be an important indicator of our performance because they reflect our attempts to leverage our SG&A costs, which include rent and other store expenses, and they have a direct impact on our total net sales, net income, cash and working capital. Same store sales is calculated by comparing the reported sales for all stores that were open during both comparative fiscal years, starting in the first period in which the store has been open for a full quarter. Sales from closed stores, if any, are removed from each period. Sales from relocated stores have been included in each period if each such store was relocated within the same general geographic market. Sales from expanded stores have also been included in each period.

•Retail gross margin - Our management views retail gross margin as a key indicator of our performance because it reflects our pricing power relative to the prices we pay for our products. Retail gross margin is calculated by comparing retail total net sales to the cost of goods sold.

•60+ Day Delinquencies - Our management views customer account delinquencies as a key indicator of our performance because it reflects the quality of our credit portfolio, drives future credit performance and credit offerings, and impacts the interest rates we pay on our asset-backed securitizations. Delinquencies are measured as the percentage of balances that are 60+ days past due.

•Net yield - Our management considers yield to be a key performance metric because it drives future credit decisions and credit offerings and directly impacts our net income. Yield reflects the amount of interest we receive from our portfolio.

Company Initiatives

We delivered the following financial and operational results in the second quarter of fiscal year 2023 as compared to the prior fiscal year period (unless otherwise noted):

•Total consolidated revenue declined 17.1% to $346.6 million, due to a 19.4% decline in total net sales, and a 6.3% reduction in finance charges and other revenues;

•Same store sales decreased 22.0%;

•eCommerce sales increased 11.5% to a second quarter record of $19.3 million;

•Credit spread was 960 basis points, and fiscal year-to-date the credit spread was 1,060 basis points;

•Net earnings were $0.09 per diluted share, compared to net earnings of $1.22 per diluted share for the same period last fiscal year;

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•Added two new standalone stores bringing the total number of stores at July 31, 2022 to 163 and added four store-within-a store locations with Belk, Inc.; and

•The Company completed an ABS transaction demonstrating the Company’s ability to access the capital markets even during turbulent market conditions resulting in the issuance and sale of $407.7 million aggregate principal amount of Class A and Class B Notes, and issued and retained the Class C Notes in aggregate principal amount of $63.1 million.

Strategic Update

In response to challenging macroeconomic pressures, the Company has updated its near-term strategic priorities which include:

•Reducing operating costs. The Company is conducting an extensive review and prioritization of its cost structure. The Company expects current initiatives, combined with prior actions, to generate cost savings of approximately $12.0 - $16.0 million in the back half of this fiscal year.

•Lowering capital expenditures. The Company is delaying or eliminating several planned capital investments, including adjusting planned new store openings and distribution center expansions. As a result, Conn’s expects to reduce investments in capital expenditures for fiscal year 2023 by approximately $20.0 million compared to its prior expectation.

•Maintaining conservative credit underwriting. The Company is focused on maintaining conservative credit underwriting and remaining disciplined in its approach to credit collections. At July 31, 2022, the weighted average credit score of outstanding balances was 611, 60+ days past due balances as a percentage of the total customer portfolio carrying value was 11.0%, and re-aged balances as percentages of the total customer portfolio carrying value were 16.1%.

Outlook

The broad appeal of our value proposition to our geographically diverse core demographic and the unit economics of our business should provide the stability necessary to maintain and grow our business. We expect our brand recognition and long history in our core markets to give us the opportunity to further penetrate our existing footprint, particularly as we leverage existing marketing spend, logistics infrastructure, and service footprint. There are also many markets in the U.S. with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to improve our operating results by leveraging our existing infrastructure and seeking to continually optimize the efficiency of our marketing, merchandising, distribution and credit operations. As we expand in existing markets and penetrate new markets, we expect to increase our purchase volumes, achieve distribution efficiencies and strengthen our relationships with our key vendors. Over time, we also expect our increased store base and the resulting higher net sales to further leverage our existing corporate and regional infrastructure.

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Results of Operations

The following tables present certain financial and other information, on a condensed consolidated basis:


Consolidated:	Three Months Ended July 31,						Six Months Ended July 31,
(in thousands)	2022		2021		Change		2022		2021		Change
Revenues:
Total net sales	$	279,512	$	346,785	$	(67,273)	$	551,775	$	638,081	$	(86,306)
Finance charges and other revenues	67,120		71,598		(4,478)		134,677		144,004		(9,327)
Total revenues	346,632		418,383		(71,751)		686,452		782,085		(95,633)
Costs and expenses:
Cost of goods sold	182,718		216,042		(33,324)		361,100		400,921		(39,821)
Selling, general and administrative expense	130,142		137,870		(7,728)		262,925		263,919		(994)
Provision (benefit) for bad debts	27,226		10,262		16,964		41,956		(6,874)		48,830
Charges and credits	(1,484)		—		(1,484)		(1,484)		—		(1,484)
Total costs and expenses	338,602		364,174		(25,572)		664,497		657,966		6,531
Operating income	8,030		54,209		(46,179)		21,955		124,119		(102,164)
Interest expense	6,808		6,088		720		12,329		15,292		(2,963)
Loss on extinguishment of debt	—		—		—		—		1,218		(1,218)
Income before income taxes	1,222		48,121		(46,899)		9,626		107,609		(97,983)
Provision (benefit) for income taxes	(907)		11,117		(12,024)		1,276		25,207		(23,931)
Net income	$	2,129	$	37,004	$	(34,875)	$	8,350	$	82,402	$	(74,052)

Supplementary Operating Segment Information

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website and its product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our Condensed Consolidated Financial Statements.

We evaluate a segment’s performance based upon operating income (loss). SG&A includes the direct expenses of the retail and credit operations, allocated corporate overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% multiplied by the average outstanding portfolio balance for each applicable period.

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The following table represents total revenues, costs and expenses, operating income (loss) and income (loss) before taxes attributable to these operating segments for the periods indicated:


Retail Segment:	Three Months Ended July 31,						Six Months Ended July 31,
(dollars in thousands)	2022		2021		Change		2022		2021		Change
Revenues:
Product sales	$	255,449	$	320,245	$	(64,796)	$	505,422	$	589,456	$	(84,034)
Repair service agreement commissions	21,615		23,700		(2,085)		41,452		42,831		(1,379)
Service revenues	2,448		2,840		(392)		4,901		5,794		(893)
Total net sales	279,512		346,785		(67,273)		551,775		638,081		(86,306)
Finance charges and other	273		224		49		544		433		111
Total revenues	279,785		347,009		(67,224)		552,319		638,514		(86,195)
Costs and expenses:
Cost of goods sold	182,718		216,042		(33,324)		361,100		400,921		(39,821)
Selling, general and administrative expense (1)	98,035		102,157		(4,122)		194,065		193,050		1,015
Provision for bad debts	409		142		267		588		160		428
Charges and credits	(1,484)		—		(1,484)		(1,484)		—		(1,484)
Total costs and expenses	279,678		318,341		(38,663)		554,269		594,131		(39,862)
Operating (loss) income	$	107	$	28,668	$	(28,561)	$	(1,950)	$	44,383	$	(46,333)
Number of stores:
Beginning of period	161		152				158		146
Opened	2		3				5		9
End of period (2)	163		155				163		155


Credit Segment:	Three Months Ended July 31,						Six Months Ended July 31,
(in thousands)	2022		2021		Change		2022		2021		Change
Revenues:
Finance charges and other revenues	$	66,847	$	71,374	$	(4,527)	$	134,133	$	143,571	$	(9,438)
Costs and expenses:
Selling, general and administrative expense (1)	32,107		35,713		(3,606)		68,860		70,869		(2,009)
Provision for bad debts	26,817		10,120		16,697		41,368		(7,034)		48,402
Total costs and expenses	58,924		45,833		13,091		110,228		63,835		46,393
Operating income	7,923		25,541		(17,618)		23,905		79,736		(55,831)
Interest expense	6,808		6,088		720		12,329		15,292		(2,963)
Loss on extinguishment of debt	—		—		—		—		1,218		(1,218)
Income before income taxes	$	1,115	$	19,453	$	(18,338)	$	11,576	$	63,226	$	(51,650)

(1)For the three months ended July 31, 2022 and 2021, the amount of overhead allocated to each segment reflected in SG&A was $6.6 million and $9.8 million, respectively. For the three months ended July 31, 2022 and 2021, the amount of reimbursement made to the retail segment by the credit segment was $6.6 million and $6.9 million, respectively. For the six months ended July 31, 2022 and 2021, the amount of corporate overhead allocated to each segment reflected in SG&A was $16.2 million and $18.8 million, respectively. For the six months ended July 31, 2022 and 2021, the amount of reimbursement made to the retail segment by the credit segment was $13.4 million and $14.2 million, respectively.

(2)Does not include four store-within-a-store locations with Belk, Inc. opened during the three and six months ended July 31, 2022.

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Three months ended July 31, 2022 compared to three months ended July 31, 2021

Revenues. The following table provides an analysis of retail net sales by product category in each period, including repair service agreement (“RSA”) commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales:


	Three Months Ended July 31,										%		Same Store
(dollars in thousands)	2022		% of Total		2021		% of Total		Change		Change		% Change
Furniture and mattress	$	86,320	30.9	%	$	109,259	31.5	%	$	(22,939)	(21.0)	%	(24.6)	%
Home appliance	120,748		43.2		135,444		39.1		(14,696)		(10.9)		(13.1)
Consumer electronics	31,860		11.4		48,413		14.0		(16,553)		(34.2)		(36.2)
Home office	8,857		3.2		17,986		5.2		(9,129)		(50.8)		(50.1)
Other	7,664		2.7		9,143		2.6		(1,479)		(16.2)		(16.9)
Product sales	255,449		91.4		320,245		92.4		(64,796)		(20.2)		(22.7)
Repair service agreement commissions (1)	21,615		7.7		23,700		6.8		(2,085)		(8.8)		(15.3)
Service revenues	2,448		0.9		2,840		0.8		(392)		(13.8)
Total net sales	$	279,512	100.0	%	$	346,785	100.0	%	$	(67,273)	(19.4)	%	(22.0)	%

(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in total net sales for the three months ended July 31, 2022 was primarily driven by a decrease in same store sales of 22.0%. The decrease in same store sales was primarily driven by a tightening of underwriting standards from our lease-to-own partners, the effect the benefits stimulus had on sales in the prior period and lower demand in the current period. The decrease in same store sales was partially offset by new store growth.

The following table provides the change of the components of finance charges and other revenues:


	Three Months Ended July 31,
(in thousands)	2022		2021		Change
Interest income and fees	$	61,760	$	65,003	$	(3,243)
Insurance income	5,087		6,371		(1,284)
Other revenues	273		224		49
Finance charges and other revenues	$	67,120	$	71,598	$	(4,478)

The decrease in finance charges and other revenues was primarily due to a 4.9% decrease in the average outstanding balance of the customer accounts receivable portfolio as well as a decline in insurance commissions.

The following table provides key portfolio performance information:


	Three Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Interest income and fees	$	61,760		$	65,003		$	(3,243)
Net charge-offs	(36,074)			(31,184)			(4,890)
Interest expense	(6,808)			(6,088)			(720)
Net portfolio income	$	18,878		$	27,731		$	(8,853)
Average outstanding portfolio balance	$	1,051,952		$	1,105,936		$	(53,984)
Interest income and fee yield (annualized)	23.3		%	23.3		%
Net charge-off % (annualized)	13.7		%	11.3		%

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Retail Gross Margin


	Three Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail total net sales	$	279,512		$	346,785		$	(67,273)
Cost of goods sold	182,718			216,042			(33,324)
Retail gross margin	$	96,794		$	130,743		$	(33,949)
Retail gross margin percentage	34.6		%	37.7		%

The decrease in retail gross margin was primarily driven by increased product costs as a result of higher freight, higher fuel costs and the deleveraging of fixed distribution costs. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.

Selling, General and Administrative Expense


	Three Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail segment	$	98,035		$	102,157		$	(4,122)
Credit segment	32,107			35,713			(3,606)
Selling, general and administrative expense - Consolidated	$	130,142		$	137,870		$	(7,728)
Selling, general and administrative expense as a percent of total revenues	37.5		%	33.0		%

The SG&A decrease in the retail segment was primarily due to a decline in variable costs and declines in advertising and labor costs as a result of cost saving initiatives. These decreases were partially offset by an increase in occupancy costs due to higher utilities costs and new store growth.

As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was 12.2% for the three months ended July 31, 2022 as compared to 12.9% for the three months ended July 31, 2021. The SG&A decrease in the credit segment was primarily due to a decrease in general operating costs, including legal and professional service fees.

Provision for Bad Debts


	Three Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail segment	$	409		$	142		$	267
Credit segment	26,817			10,120			16,697
Provision for bad debts - Consolidated	$	27,226		$	10,262		$	16,964
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	10.2		%	3.7		%

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The provision for bad debts increased to $27.2 million for the three months ended July 31, 2022 from $10.3 million for the three months ended July 31, 2021, an overall change of $16.9 million. The year-over-year increase was primarily driven by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2022 compared to the three months ended July 31, 2021 and a year-over-year increase in net charge-offs of $4.9 million. The decrease in the allowance for bad debts during the three months ended July 31, 2022 was primarily driven by a decrease in the customer account receivable portfolio balance and an improvement in historical loss rates. During the three months ended July 31, 2021, the decrease was primarily driven by a decrease in the rate of delinquencies and re-ages, a decrease in the customer account receivable portfolio and an improvement in the forecasted unemployment rate that drove a $5.0 million decrease in the economic adjustment.

Charges and Credits

During the three months ended July 31, 2022, we recognized a $1.5 million gain related to the termination of a lease.

Interest Expense

Provision for Income Taxes


	Three Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Provision (benefit) for income taxes	$	(907)		$	11,117		$	(12,024)
Effective tax rate	(74.2)		%	23.1		%

The decrease in income tax expense for the three months ended July 31, 2022 compared to the three months ended July 31, 2021 was driven by a $46.9 million decrease in pre-tax earnings at the statutory rate of 21%.

Six months ended July 31, 2022 compared to six months ended July 31, 2021


	Six Months Ended July 31,										%		Same Store
(dollars in thousands)	2022		% of Total		2021		% of Total		Change		Change		% Change
Furniture and mattress	$	174,414	31.6	%	$	203,750	31.9	%	$	(29,336)	(14.4)	%	(25.5)	%
Home appliance	230,476		41.7		248,705		39.0		(18,229)		(7.3)		(9.7)
Consumer electronics	65,464		11.9		86,451		13.5		(20,987)		(24.3)		(26.3)
Home office	19,046		3.5		32,507		5.1		(13,461)		(41.4)		(41.5)
Other	16,022		2.9		18,043		2.8		(2,021)		(11.2)		(12.5)
Product sales	505,422		91.6		589,456		92.3		(84,034)		(14.3)		(16.9)
Repair service agreement commissions (1)	41,452		7.5		42,831		6.7		(1,379)		(3.2)		(11.3)
Service revenues	4,901		0.9		5,794		1.0		(893)		(15.4)
Total net sales	$	551,775	100.0	%	$	638,081	100.0	%	$	(86,306)	(13.5)	%	(16.4)	%

(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in total net sales for the six months ended July 31, 2022 was primarily driven by a decrease in same store sales of 16.4%. The decrease in same store sales was primarily driven by a tightening of underwriting standards from our lease-to-own partners, the effect the benefits stimulus had on sales in the prior period and lower demand in the current period.

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The following table provides the change of the components of finance charges and other revenues:


	Six Months Ended July 31,
(in thousands)	2022		2021		Change
Interest income and fees	$	124,474	$	132,682	$	(8,208)
Insurance income	9,659		10,889		(1,230)
Other revenues	544		433		111
Finance charges and other revenues	$	134,677	$	144,004	$	(9,327)

The decrease in finance charges and other revenues was primarily due to a 5.9% decrease in the average outstanding balance of the customer accounts receivable portfolio and a decline in insurance commissions.

The following table provides key portfolio performance information:


	Six Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Interest income and fees	$	124,474		$	132,682		$	(8,208)
Net charge-offs	(68,535)			(76,123)			7,588
Interest expense	(12,329)			(15,292)			2,963
Net portfolio income	$	43,610		$	41,267		$	2,343
Average outstanding portfolio balance	$	1,074,901		$	1,142,080		$	(67,179)
Interest income and fee yield (annualized)	23.4		%	23.4		%
Net charge-off % (annualized)	12.8		%	13.3		%

Retail Gross Margin


	Six Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail total net sales	$	551,775		$	638,081		$	(86,306)
Cost of goods sold	361,100			400,921			(39,821)
Retail gross margin	$	190,675		$	237,160		$	(46,485)
Retail gross margin percentage	34.6		%	37.2		%

Selling, General and Administrative Expense


	Six Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail segment	$	194,065		$	193,050		$	1,015
Credit segment	68,860			70,869			(2,009)
Selling, general and administrative expense - Consolidated	$	262,925		$	263,919		$	(994)
Selling, general and administrative expense as a percent of total revenues	38.3		%	33.7		%

The SG&A increase in the retail segment was primarily due to higher occupancy costs associated with new store growth and higher general operating costs. The increase was partially offset by declines in advertising and labor costs.

As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was 12.8% for the six months ended July 31, 2022 as compared to 12.4% for the six months ended July 31, 2021. The SG&A decrease in the credit segment was primarily due to a decline in labor costs. The increase in the SG&A as a percent of the average customer portfolio balance was due to a year-over-year decline in the portfolio balance.

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Provision for Bad Debts


	Six Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Retail segment	$	588		$	160		$	428
Credit segment	41,368			(7,034)			48,402
Provision for bad debts - Consolidated	$	41,956		$	(6,874)		$	48,830
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	7.7		%	(1.2)		%

The provision for bad debts increased to $42.0 million for the six months ended July 31, 2022 from $6.9 million benefit for the six months ended July 31, 2021, an overall change of $48.9 million. The year-over-year increase was primarily driven by a smaller decrease in the allowance for bad debts during the six months ended July 31, 2022 compared to the decrease for the six months ended July 31, 2021. This is partially offset by a year-over-year decrease in net charge-offs of $7.6 million. The decrease in the allowance for bad debts during the six months ended July 31, 2022 was primarily driven by a decrease in the customer accounts receivable portfolio balance and a decrease in loss rates. During the six months ended July 31, 2021, the decrease was primarily driven by a decrease in the customer accounts receivable portfolio balance, an improvement in the forecasted unemployment rate that drove a $25.0 million decrease in the economic adjustment and a decline in the estimated loss rates driven by a decline in delinquencies.

Charges and Credits

During the six months ended July 31, 2022, we recognized a $1.5 million gain related to the termination of a lease.

Interest Expense

Interest expense was $12.3 million for the six months ended July 31, 2022 and $15.3 million for the six months ended July 31, 2021, a decrease of $3.0 million or 19.6%. The decrease was driven by a lower effective interest rate offset by a higher average balance of debt during the current period.

Provision for Income Taxes


	Six Months Ended July 31,
(dollars in thousands)	2022			2021			Change
Provision (benefit) for income taxes	$	1,276		$	25,207		$	(23,931)
Effective tax rate	13.3		%	23.4		%

The decrease in income tax expense for the six months ended July 31, 2022 compared to the six months ended July 31, 2021 was driven by a $98.0 million decrease in pre-tax earnings at the statutory rate of 21%.

Customer Accounts Receivable Portfolio

We provide in-house financing to individual consumers on a short- and medium-term basis (contractual terms generally range from 12 to 36 months) for the purchase of durable products for the home. A significant portion of our customer credit portfolio is due from customers that are considered higher-risk, subprime borrowers. Our financing is executed using contracts that require fixed monthly payments over fixed terms. We maintain a secured interest in the product financed. If a payment is delayed, missed or paid only in part, the account becomes delinquent. Our collection personnel attempt to contact a customer once their account becomes delinquent. Our loan contracts generally reflect an interest rate of between 18% and 36%. We have implemented our direct consumer loan program across all Texas, Louisiana, Tennessee and Oklahoma locations. The states of Texas, Louisiana, Tennessee and Oklahoma represented approximately 69% of our originations during the six months ended July 31, 2022, with maximum equivalent interest rates of up to 32% in Oklahoma, up to 30% in Texas and Tennessee, and up to 36% in Louisiana. In states where regulations do not generally limit the interest rate charged, our loan contracts generally reflect an interest rate between 29.99% and 35.99%. These states represented 14% of our originations during the six months ended July 31, 2022.

We offer qualified customers a 12-month no-interest option finance program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived.

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We regularly extend or “re-age” a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment. Generally, extensions are granted to customers who have experienced a financial difficulty (such as the temporary loss of employment), which is subsequently resolved, and when the customer indicates a willingness and ability to resume making monthly payments. These re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay the account balance. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. We may also charge the customer an extension fee, which approximates the interest owed for the time period the contract was past due. Our re-age programs consist of extensions and two payment updates, which include unilateral extensions to customers who make two full payments in three calendar months in certain states. Re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation or have reached our limits for account re-aging. To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which typically does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extends the term. Under these options, as with extensions, the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments.

The following tables present, for comparison purposes, information about our managed portfolio (information reflects on a combined basis the securitized receivables transferred to the VIEs and receivables not transferred to the VIEs):


	As of July 31,
	2022			2021
Weighted average credit score of outstanding balances (1)	611			608
Average outstanding customer balance	$	2,508		$	2,414
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)(4)	11.0		%	7.2		%
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(5)	16.1		%	20.4		%
Carrying value of account balances re-aged more than six months (in thousands) (3)	$	35,808		$	70,058
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	17.2		%	18.3		%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	34.0		%	29.8		%


	Three Months Ended July 31,						Six Months Ended July 31,
	2022			2021			2022			2021
Total applications processed	257,381			336,438			525,085			634,344
Weighted average origination credit score of sales financed (1)	620			614			620			615
Percent of total applications approved and utilized	23.5		%	22.5		%	21.8		%	22.2		%
Average income of credit customer at origination	$	50,800		$	47,700		$	50,500		$	48,100
Percent of retail sales paid for by:
In-house financing, including down payments received	52.1		%	50.9		%	51.0		%	49.9		%
Third-party financing	18.9		%	17.5		%	18.4		%	17.2		%
Third-party lease-to-own option	6.8		%	11.5		%	7.1		%	11.9		%
	77.8		%	79.9		%	76.5		%	79.0		%

(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)Increase was primarily due to a decrease in cash collections driven by the impact of stimulus benefits in prior year.

(5)Decrease was primarily due to the change in the unilateral re-age policy that occurred in the second quarter of fiscal year 2021 and the tightening of underwriting standards that occurred in fiscal year 2021 and fiscal year 2022.

Our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts. Customer accounts receivable include all accounts for which the payment term has not

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been cumulatively extended over three months or refinanced. Restructured accounts include all accounts for which payment term has been re-aged in excess of three months or refinanced.

For customer accounts receivable (excluding restructured accounts), the allowance for uncollectible accounts as a percentage of the total customer accounts receivable portfolio balance decreased to 15.0% as of July 31, 2022 from 15.5% as of July 31, 2021. The decrease was primarily related to a decrease in loss rates.

The percentage of the carrying value of non-restructured accounts greater than 60 days past due increased 430 basis points over the prior year period to 9.6% as of July 31, 2022 from 5.3% as of July 31, 2021. The increase was primarily due to lower payment rates and the impact of stimulus benefits in the prior period.

For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was 43.0% as of July 31, 2022 as compared to 37.8% as of July 31, 2021. This increase reflects higher delinquency rates and loss rates on restructured accounts.

The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance was 13.7% for the three months ended July 31, 2022 compared to 11.3% for the three months ended July 31, 2021. This increase is primarily related to the impact of stimulus benefits in the prior period.

As of July 31, 2022 and 2021, balances under no-interest programs included within customer receivables were $354.1 million and $329.6 million, respectively. This increase is due to a shift in the underwriting strategy that occurred in the first quarter of fiscal year 2022.

Liquidity and Capital Resources

We require liquidity and capital resources to finance our operations and future growth as we add new stores to our operations, which in turn requires additional working capital for increased customer receivables and inventory. We generally finance our operations through a combination of cash flow generated from operations, the use of our Revolving Credit Facility, and through periodic securitizations of originated customer receivables. We plan to execute periodic securitizations of future originated customer receivables.

We believe, based on our current projections, that we have sufficient sources of liquidity to fund our operations, store expansion and renovation activities, and capital expenditures for at least the next 12 months.

Operating cash flows. For the six months ended July 31, 2022, net cash provided by operating activities was $62.8 million compared to $176.9 million for the six months ended July 31, 2021. The decrease in net cash provided by operating activities was primarily driven by lower cash collections compared to prior year due to lower payment rates, normal fluctuation in accrued expenses and a decrease in net income when adjusted for non-cash activity in comparison to the prior year period.

Investing cash flows. For the six months ended July 31, 2022, net cash used in investing activities was $35.1 million compared to $19.2 million for the six months ended July 31, 2021. The cash used during the six months ended July 31, 2022 was primarily for investments in new stores and technology investments, including the acquisition of a lease-to-own technology platform. The cash used during the six months ended July 31, 2021 was primarily for investments in new stores.

Financing cash flows. For the six months ended July 31, 2022, net cash provided by financing activities was $4.8 million compared to net cash used in financing activities of $178.3 million for the six months ended July 31, 2021. During the period ended July 31, 2022, we issued the 2022-A Class A and Class B VIE asset backed notes resulting in net proceeds to us of approximately $273.7 million and $129.1 million, net of transaction costs, respectively. The proceeds were used to pay down the balance of the Company's Revolving Credit Facility and for other general corporate purposes. During the period ended July 31, 2021, we issued 2020-A Class C VIE asset backed notes resulting in net proceeds to us of approximately $62.5 million, net of transaction costs. The proceeds from the 2020-A VIE asset-backed notes were used to partially pay down the balance of the Company's Revolving Credit Facility. Cash collections from the securitized receivables were used to make payments on asset-backed notes of approximately $174.4 million during the six months ended July 31, 2022 compared to approximately $261.4 million in the comparable prior year period. During the period ended July 31, 2022, net payments under the Revolving Credit Facility were $149.0 million compared to net borrowings of $167.0 million during the comparable prior year period. During the six months ended July 31, 2021, we retired the remaining $141.2 million aggregate principal amount of our Senior Notes outstanding.

Stock Repurchase Program. On December 14, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022. No shares were repurchased for the three months ended July 31, 2022. For the six months ended July 31, 2022, we settled the repurchase of 3,462,848 shares of our common stock at an average weighted cost per share of $20.70 for an aggregate amount of $71.7 million.

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The asset-backed notes outstanding as of July 31, 2022 consisted of the following:


(dollars in thousands)
Asset-Backed Notes	Original Principal Amount		Original Net Proceeds (1)		Current Principal Amount		Issuance Date	Maturity Date	Contractual Interest Rate	Effective Interest Rate (2)
2021-A Class A Notes	$	247,830	$	246,152	$	66,378	11/23/2021	5/15/2026	1.05%	3.15%
2021-A Class B Notes	66,090		65,635		66,090		11/23/2021	5/15/2026	2.87%	3.53%
2021-A Class C Notes	63,890		63,450		63,890		11/23/2021	5/15/2026	4.59%	5.21%
2022-A Class A Notes	275,600		273,731		275,600		7/21/2022	12/15/2026	5.87%	8.57%
2022-A Class B Notes	132,090		129,050		132,090		7/21/2022	12/15/2026	9.52%	10.40%
Total	$	785,500	$	778,018	$	604,048

(1)After giving effect to debt issuance costs.

(2)For the six months ended July 31, 2022, and inclusive of the impact of changes in timing of actual and expected cash flows.

On July 21, 2022, the Company completed the issuance and sale of approximately $407.7 million in aggregate principal amount of asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of approximately 402.8 million, net of debt issuance costs. Net proceeds from the offering were used to repay indebtedness under the Company’s Revolving Credit Facility, as defined below, and for other general corporate purposes. The asset-backed notes mature on December 15, 2026 and consist of $275.6 million of 5.87% Asset Backed Fixed Rate Notes, Class A, Series 2022-A, approximately $132.1 million of 9.52% Asset Backed Fixed Rate Notes, Class B, Series 2022-A. Additionally, the Company issued approximately $63.1 million in aggregate principal amount of zero coupon Asset Backed Fixed Rate Notes, Class C, Series 2022-A (the "Class C Notes") which mature on December 15, 2026. The Class C Notes are currently being retained by the Company.

The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of $40 million to $100 million, solely at the discretion of the lenders for such amounts in excess of $40 million. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2022, under our Revolving Credit Facility, we had immediately available borrowing capacity of $186.8 million, net of standby letters of credit issued of $22.3 million and an additional $441.0 million that may become available if the balance of eligible customer receivables and total eligible inventory balances increases.

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ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the Revolving Credit Facility in the immediately preceding quarter. The weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was 3.8% for the six months ended July 31, 2022.


	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	4.04:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	5.38:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	1.57:1.00	4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum	0.57:1.00	2.50:1.00
Capital Expenditures, net, must not exceed maximum	$49.5 million	$100.0 million

All capitalized terms in the above table are defined by the Revolving Credit Facility and may or may not match directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

Capital Expenditures. We lease the majority of our stores under operating leases and our plans for future store locations anticipate operating leases, but do not exclude store ownership. Our capital expenditures for future new store projects should primarily be for our tenant improvements to the property leased (including any new distribution centers and cross-dock facilities), the cost of which is estimated to be between $1.5 million and $2.5 million per store (before tenant improvement allowances). In the event we purchase existing properties, our capital expenditures will depend on the particular property and whether it is improved when purchased. We are continuously reviewing new relationships and funding sources and alternatives for new stores, which may include “sale-leaseback” or direct “purchase-lease” programs, as well as other funding sources for our purchase and construction of those projects. If we do not purchase the real property for new stores, our direct cash needs should include only our capital expenditures for tenant improvements to leased properties and our remodel programs for existing stores. We opened two new standalone stores and four new store-within-a-store locations with Belk, Inc. during the six months ended July 31, 2022 and currently plan to open a total of 10 to 12 standalone locations and 15 to 20 store-within-a-store locations. Our anticipated capital expenditures for the remainder of fiscal year 2023 are between $37.5 million and $47.5 million, which includes expenditures for new stores we plan to open in fiscal year 2023.

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short- and long-term liquidity requirements, including payment of operating expenses, funding of capital expenditures and repayment of debt, we rely primarily on cash from operations. As of July 31, 2022, beyond cash generated from operations, we had (i) immediately available borrowing capacity of $186.8 million under our Revolving Credit Facility and (ii) $24.3 million of cash on hand. However, we have, in the past, sought to raise additional capital.

We expect that, for the next 12 months, cash generated from operations, proceeds from potential accounts receivable securitizations and our Revolving Credit Facility will be sufficient to provide us the ability to fund our operations, provide the increased working capital necessary to support our strategy and fund planned capital expenditures discussed above in Capital Expenditures.

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We may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, the Company’s cash position, compliance with debt covenants and restrictions and other considerations.

Off-Balance Sheet Liabilities and Other Contractual Obligations

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K. The following table presents a summary of our minimum contractual commitments and obligations as of July 31, 2022:


			Payments due by period
(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt, including estimated interest payments (1):
Revolving Credit Facility (1)	$	—	$	—	$	—	$	—	$	—
2021-A Class A Notes (2)	69,021		697		1,394		66,930		—
2021-A Class B Notes (2)	73,283		1,897		3,794		67,592		—
2021-A Class C Notes (2)	75,010		2,933		5,865		66,212		—
2022-A Class A Notes (2)	346,427		16,178		32,355		297,894		—
2022-A Class B Notes (2)	187,144		12,575		25,150		149,419		—
Financing lease obligations	7,278		1,198		2,120		1,161		2,799
Operating leases:
Real estate	618,180		90,350		179,956		138,500		209,374
Equipment	52		23		28		1		—
Contractual commitments (3)	99,579		95,917		3,629		33		—
Total	$	1,475,974	$	221,768	$	254,291	$	787,742	$	212,173

(1)Estimated interest payments are based on the outstanding balance as of July 31, 2022 and the interest rate in effect at that time.

(2)The payments due by period for the asset-backed notes were based on their respective maturity dates at their respective fixed annual interest rate. Actual principal and interest payments on the asset-backed notes will reflect actual proceeds from the securitized customer accounts receivables.

(3)Contractual commitments primarily include commitments to purchase inventory of $78.4 million.

Issuer and Guarantor Subsidiary Summarized Financial Information

Conn’s, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. As of July 31, 2022 and January 31, 2022, the direct or indirect subsidiaries of Conn’s, Inc. that were not Guarantors (the “Non-Guarantor Subsidiaries”) were the VIEs and minor subsidiaries. There are no restrictions under the indenture that governs the asset-backed notes on the ability of any of the Guarantors to transfer funds to Conn’s, Inc. in the form of dividends or distributions.

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The following tables present on a combined basis for the Issuer and the Guarantor Subsidiaries, a summarized Balance Sheet as of July 31, 2022 and January 31, 2022, and a summarized Statement of Operations on a consolidated basis for the six months ended July 31, 2022. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Amounts provided do not represent our total consolidated amounts, as of July 31, 2022 and January 31, 2022, and for the six months ended July 31, 2022:


(in thousands)	July 31, 2022		January 31, 2022
Assets
Cash, cash equivalents and restricted cash	$	26,339	$	9,765
Customer accounts receivable	123,078		243,527
Inventories	262,952		246,826
Net due from non-guarantor subsidiary	—		14,903
Other current assets	72,479		78,556
Total current assets	484,848		593,577
Long-term portion of customer accounts receivable	62,418		264,527
Property and equipment, net	210,814		192,763
Right of use assets, net	252,653		256,267
Other assets	50,849		52,199
Total assets	$	1,061,582	$	1,359,333

Liabilities
Current portion of debt	$	909	$	889
Lease liability operating - current	57,940		54,534
Net due to non-guarantor subsidiary	347		—
Other liabilities	178,793		200,326
Total current liabilities	237,989		255,749
Lease liability operating - non current	321,104		330,439
Long-term debt	4,757		154,224
Other long-term liabilities	25,841		26,889
Total liabilities	$	589,691	$	767,301


	Six Months Ended July 31,
Net sales and finances charges	$	646,313
Servicing fee revenue from non-guarantor subsidiary	21,332
Total revenues	667,645
Total costs and expenses	656,236
Net income	$	11,409

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Certain accounting policies are considered “critical accounting policies” because they are particularly dependent on estimates made by us about matters that are inherently uncertain and could have a material impact to our Condensed Consolidated Financial Statements. We base our estimates on historical experience and on other assumptions that we believe are reasonable. As a result, actual results could differ because of the use of estimates. Other than with respect to the additional policy below, the description of critical accounting policies is included in our 2022 Form 10-K, filed with the SEC on March 29, 2022.

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Recent Accounting Pronouncements

The information related to recent accounting pronouncements as set forth in Note 1, Summary of Significant Accounting Policies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates. We have not been materially impacted by fluctuations in foreign currency exchange rates, as substantially all of our business is transacted in, and is expected to continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. Our asset-backed notes bear interest at a fixed rate and would not be affected by interest rate changes.

During the six months ended July 31, 2022, loans under the Revolving Credit Facility bore interest, at our option, at a rate equal to LIBOR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowing or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit on the Revolving Credit Facility in the immediately preceding quarter. Accordingly, changes in our quarterly total leverage ratio and LIBOR or the alternate base rate will affect the interest rate on, and therefore our costs under, the Revolving Credit Facility. As of July 31, 2022, there was no outstanding balance under our Revolving Credit Facility. A 100 basis point increase in interest rates on the Revolving Credit Facility would not change our borrowing costs over a 12-month period, based on the outstanding balance at July 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Based on management’s evaluation (with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

For the quarter ended July 31, 2022, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 6, Contingencies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

As of the date of the filing, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our 2022 Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to purchases of Conn's common stock by Conn's or its affiliates during the three months ended July 31, 2022.


Period	Total Number of Shares Purchased (in thousands) (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Program (in thousands) (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) (1)
May 1 - 31	—	$	—	—	$	23.0
June 1 -30	—	$	—	—	$	23.0
July 1 -31	—	$	—	—	$	23.0
Total	—			—

(1) On December 15, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022.

(2) Average price paid per share excludes costs associated with the repurchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing):


Exhibit Number						Description of Document

3.1						Certificate of Incorporation of Conn’s, Inc. (incorporated herein by reference to Exhibit 3.1 to Conn’s, Inc. registration statement on Form S-1 (File No. 333-109046) as filed with the Securities and Exchange Commission on September 23, 2003)
3.1.1						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated June 3, 2004 (incorporated herein by reference to Exhibit 3.1.1 to Form 10-Q for the quarterly period ended April 30, 2004 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 7, 2004)
3.1.2						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated May 30, 2012 (incorporated herein by reference to Exhibit 3.1.2 to Form 10-Q for the quarterly period ended April 30, 2012 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 5, 2012)
3.1.3						Certificate of Correction to the Certificate of Amendment to Conn’s, Inc. Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1.3 to Form 10-K for the annual period ended January 31, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on March 27, 2014)
3.1.4						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. as filed on May 29, 2014 (incorporated herein by reference to Exhibit 3.1.4 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 2, 2014)
3.2						Third Amended and Restated Bylaws of Conn’s, Inc. effective as of December 7, 2020 (incorporated herein by reference to exhibit 3.2 to Form 10-Q for the quarterly period ended October 31, 2020 (File No. 001-34956) as filed with the Securities and Exchange Commission on December 4, 2020)
4.1						Base Indenture, dated as of July 21, 2022, by and between the Issuer and the Trustee (incorporated by herein reference to Exhibit 4.1 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
4.2						Series 2022-A Supplement to the Base Indenture, dated as of July 21, 2022, by and between the Issuer and the Trustee (incorporated by herein reference to Exhibit 4.2 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
10.1						First Receivables Purchase Agreement, dated July 21, 2022, by and between the Seller and the Depositor (incorporated by herein reference to Exhibit 10.1 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
10.2						S econd Receivables Purchase Agreement, dated July 21, 2022, by and between the Depositor and the Receivables Trust (incorporated by herein reference to Exhibit 10.2 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
10.3						Purchase and Sale Agreement, dated July 21, 2022, by and between the Depositor and the Issuer (incorporated by herein reference to Exhibit 10.3 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
10.4						Servicing Agreement dated as of July 21, 2022, by and among the Issuer, the Receivables Trust, the Servicer and the Trustee (incorporated by herein reference to Exhibit 10.4 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 9, 2022)
31.1						Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) (filed herewith)
31.2						Rule 13a-14(d)/15d-14(d) Certification (Chief Financial Officer) (filed herewith)
32.1						Section 1350 Certification (Chief Executive Officer and Chief Financial Officer) (furnished herewith)
101*						The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal year 2023, filed with the SEC on August 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets at July 31, 2022 and January 31, 2022, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2022 and 2021, (iii) the Condensed Consolidated Statements of Shareholders Equity for the periods ended July 31, 2022 and 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2022 and 2021 and (v) the notes to the Condensed Consolidated Financial Statements.
104*						Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)

*Filed 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 thereunto duly authorized.


			CONN’S, INC.

			Date:			August 30, 2022

			By:			/s/ George L. Bchara
						George L. Bchara
						Executive Vice President and Chief Financial Officer
						(Principal Financial Officer and duly authorized to sign this report on behalf of the registrant)

Document

EXHIBIT 31.1

CERTIFICATION

I, Chandra R. Holt, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Conn’s, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


			/s/ Chandra R. Holt
			Chandra R. Holt
			Chief Executive Officer and President

Date: August 30, 2022

Document

EXHIBIT 31.2

CERTIFICATION

I, George L. Bchara, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Conn’s, Inc.;

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


			/s/ George L. Bchara
			George L. Bchara
			Executive Vice President and Chief Financial Officer

Date: August 30, 2022

Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Conn’s, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Chandra R. Holt, Chief Executive Officer and President of the Company, and George L. Bchara, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


			/s/ Chandra R. Holt
			Chandra R. Holt
			Chief Executive Officer and President


			/s/ George L. Bchara
			George L. Bchara
			Executive Vice President and Chief Financial Officer

Date: August 30, 2022

A signed original of this written statement required by Section 906 has been provided to Conn’s, Inc. and will be retained by Conn’s, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.