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 Conn’s, Inc. Reports Third Quarter Fiscal Year 2020 Financial Results
   Tuesday, December 10, 2019 6:00:00 AM ET

Highest Quarterly Credit Spread in Six Years of 1,070 Basis Points Produces Positive Credit Segment Income

GAAP Earnings Increased 13.3% to $0.51 Per Diluted Share

Same Store Sales Impacted by Underwriting Adjustments and Market Challenges in Consumer Electronics Category

New Stores Contributed over 7% Growth to Retail Sales

THE WOODLANDS, Texas, Dec. 10, 2019 (GLOBE NEWSWIRE) -- Conn’s, Inc. (NASDAQ: CONN) (“Conn’s” or the “Company”), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended October 31, 2019.

“For the first time in five and a half years, Conn’s produced positive credit segment income before taxes, primarily as a result of a third quarter credit spread of 1,070 basis points. This is a significant milestone for the company and validates our 1,000-basis point credit spread operating strategy. Our credit model is the foundation of our overall business and enables our unmatched value proposition for our core customer, while providing us the flexibility to support our retail growth strategy,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.

“We are disappointed by our third quarter same store sales performance of negative 8.4%, which reflects the impact of underwriting adjustments we consider prudent and unprecedented market dynamics within our consumer electronics category. During the third quarter, we began to see deteriorating performance of certain segments of the portfolio, primarily driven by new customers and sales from online applicants. We made the necessary adjustments to maintain our credit spread of approximately 1,000 basis points, which negatively impacted same store sales by approximately 4% to 5%. Compounding the impact to third quarter retail sales was a combination of significant price deflation for premium large screen televisions, which negatively affected average selling prices, and an increase in production of large screen televisions by second- and third-tier manufacturers, which made cash purchases of large screen televisions more accessible to our core customer and negatively impacted units. These factors in the consumer electronics category further impacted same store sales by approximately 3% to 4% during the quarter.”

“We are committed to making the necessary adjustments to our credit segment as we transition to our growth-focused strategy. In addition, we have implemented several near-term initiatives to help offset the current market environment for consumer electronics, which include expanding our product and service offerings, while maintaining a disciplined credit strategy. Our credit strategy and strong capital position provide us with flexibility to navigate near-term retail challenges, while investing in our long-term unit growth plan. We remain confident in our ability to produce annual retail revenue growth of 8-10% as new stores contributed over 7% growth to retail sales during the third quarter,” concluded Mr. Miller.

Third quarter of fiscal year 2020 highlights include:

• GAAP earnings of $0.51 per diluted share, an increase of 13.3% over the prior fiscal year period
• Adjusted earnings of $0.61 per diluted share, an increase of 3.4% over the prior fiscal year period
• Net income of $15.1 million, compared to $14.6 million during the prior fiscal year period
• Adjusted EBITDA of $51.8 million, or 13.7% of total revenues
• Credit spread of 1,070 basis points, the best quarterly credit spread in six years
• Credit segment revenues of $97.4 million, an increase of 8.5% over the prior fiscal year period
• New store contribution to retail sales growth of over 7%
• 1.3 million shares of common stock repurchased, for a total of 3.1 million shares of common stock repurchased under current share repurchase program through October 31, 2019 at an average weighted cost of $18.82 per share for an aggregate amount of $59.1 million
• Completed $486.0 million ABS transaction in November 2019 at an all-in cost of funds of approximately 4.46%, representing an 80-basis point reduction from the most recent transaction, and the lowest all-in cost of funds since the company re-entered the ABS market in September 2015

Third Quarter Results

Net income for the three months ended October 31, 2019 was $15.1 million, or $0.51 per diluted share, compared to net income for the three months ended October 31, 2018 of $14.6 million, or $0.45 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended October 31, 2019 was $18.1 million, or $0.61 per diluted share, which excludes facility closure costs and write-off of software costs. This compares to adjusted net income for the three months ended October 31, 2018 of $18.9 million, or $0.59 per diluted share, which excludes employee severance and legal judgment costs.

Retail Segment Third Quarter Results

Retail revenues were $280.3 million for the three months ended October 31, 2019 compared to $284.1 million for the three months ended October 31, 2018, a decrease of $3.7 million or 1.3%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 8.4%, partially offset by new store growth. The decrease in same store sales was driven by a decrease of 12.8% in markets impacted by Hurricane Harvey, and by a decrease of 6.7% in markets not impacted by Hurricane Harvey. We believe the decrease in markets impacted by Hurricane Harvey was attributable to rebuilding efforts during the three months ended October 31, 2018. Same store sales include e-commerce sales. The decrease in same store sales reflects underwriting adjustments made during the three months ended October 31, 2019, which negatively impacted same store sales. In addition, a combination of significant price deflation for premium large screen televisions and an increase in production by second- and third-tier manufacturers, which has made cash purchases of large screen televisions more accessible to our core customer, negatively impacted same store sales during the quarter.

For the three months ended October 31, 2019 and 2018, retail segment operating income was $19.6 million and $35.3 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2019 was $22.2 million after excluding impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility and a gain from the sale of a cross-dock. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2018 was $36.0 million after excluding costs related to a change in the executive management team.

The following table presents net sales and changes in net sales by category:

 Three Months Ended October 31,     Same Store
(dollars in thousands)2019 % of Total 2018 % of Total Change % Change % Change
Furniture and mattress$89,070  31.8% $91,342  32.2% $(2,272) (2.5)% (7.7)%
Home appliance90,343  32.3  79,542  28.0  10,801  13.6  5.5 
Consumer electronics48,113  17.2  60,008  21.1  (11,895) (19.8) (25.6)
Home office18,681  6.7  22,661  8.0  (3,980) (17.6) (20.8)
Other4,026  1.4  3,178  1.1  848  26.7  10.7 
Product sales250,233  89.4  256,731  90.4  (6,498) (2.5) (8.6)
Repair service agreement commissions (1)26,478  9.5  23,579  8.3  2,899  12.3  (6.2)
Service revenues3,411  1.1  3,564  1.3  (153) (4.3)  
Total net sales$280,122  100.0% $283,874  100.0% $(3,752) (1.3)% (8.4)%

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


Credit Segment Third Quarter Results

Credit revenues were $97.4 million for the three months ended October 31, 2019 compared to $89.8 million for the three months ended October 31, 2018, an increase of $7.6 million or 8.5%. The increase in credit revenue resulted from the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to 22.1% from 21.7% for the comparative period in fiscal year 2019, and from a 3.2% increase in the average outstanding balance of the customer accounts receivable portfolio. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the three months ended October 31, 2019. The total customer accounts receivable portfolio balance was $1.57 billion at October 31, 2019 compared to $1.53 billion at October 31, 2018, an increase of 2.7%.

Provision for bad debts decreased to $42.1 million for the three months ended October 31, 2019 compared to $47.3 million for the three months ended October 31, 2018, a decrease of $5.2 million. The decrease was driven by lower net charge-offs of $2.3 million for the three months ended October 31, 2019 compared to the three months ended October 31, 2018 and a decrease in the allowance for bad debts for the three months ended October 31, 2019. The decrease in the allowance for bad debts was primarily driven by a year-over-year decrease in the incurred loss rate and an increase in the customer recovery rate, partially offset by an increase in first payment default and delinquency rates and a greater increase in the year-over-year change in carrying value of the customer accounts receivable portfolio balance.

Credit segment operating income was $15.6 million for the three months ended October 31, 2019, compared to $0.2 million for the three months ended October 31, 2018. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2019 was $16.8 million after excluding impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2018 was $5.0 million after excluding costs related to the judgment (the “TFL Judgment”) in favor of TF LoanCo (“TFL”). See Part II, Item 8., in Note 12, Contingencies, of the 2019 Form 10-K for the year ended January 31, 2019 for additional details of the TFL Judgment.

Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Company’s Form 10-Q for the quarter ended October 31, 2019, to be filed with the Securities and Exchange Commission on December 10, 2019.

Share Repurchase Program

On May 30, 2019 our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $75.0 million of our outstanding common stock. During the three months ended October 31, 2019, we repurchased 1,261,819 shares of our common stock at an average weighted cost per share of $19.58 for an aggregate amount of $24.7 million. During the nine months ended October 31, 2019, we repurchased 3,136,665 shares of our common stock at an average weighted cost per share of $18.82 for an aggregate amount of $59.1 million.

Showroom and Facilities Update

The Company opened six new Conn’s HomePlus® showrooms during the third quarter of fiscal year 2020, bringing the total showroom count to 137 in 14 states. During fiscal year 2020, the Company opened a total of 14 new showrooms in existing states to leverage current infrastructure. The Company plans to enter the Florida market next fiscal year, with the first store expected to open in the second half of fiscal year 2021.

Liquidity and Capital Resources

As of October 31, 2019, the Company had $349.2 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $4.7 million of unrestricted cash available for use.

Outlook and Guidance

The following are the Company’s expectations for the business for the fourth quarter of fiscal year 2020:

• Change in total retail sales between negative 9% and negative 5%;

• Change in same store sales between negative 16% and negative 12%;

• Retail gross margin between 39.25% and 39.75% of total net retail sales;

• Selling, general and administrative expenses between 32.25% and 33.25% of total revenues;

• Provision for bad debts between $55.0 million and $59.0 million;

• Finance charges and other revenues between $97.0 million and $101.0 million;

• Interest expense between $15.5 million and $16.5 million; and

• Effective tax rate between 25% and 27% of pre-tax income.

The Company’s fourth quarter same store sales guidance reflects the continuation of the same factors that impacted same stores sales in the third quarter of fiscal year 2020.

Conference Call Information

The Company will host a conference call on December 10, 2019, at 10 a.m. CT / 11 a.m. ET, to discuss its three months ended October 31, 2019 financial results. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and third quarter fiscal year 2020 conference call presentation will be available at ir.conns.com .

Replay of the telephonic call can be accessed through December 17, 2019 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13696710.

About Conn’s, Inc.

Conn’s is a specialty retailer currently operating 137 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Company’s primary product categories include:

• Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses; 

• Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;

• Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and smart televisions, gaming products and home theater and portable audio equipment; and

• Home office, including computers, printers and accessories.

Additionally, Conn’s offers a variety of products on a seasonal basis. Unlike many of its competitors, Conn’s provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.

This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements, including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; the expected timing and amount of our share repurchases; 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, 2019 and other reports filed with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.



CONN-G

S.M. Berger & Company
Andrew Berger (216) 464-6400


CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share amounts)

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Revenues:       
Total net sales$280,122  $283,874  $848,163  $855,943 
Finance charges and other revenues97,586  89,950  284,116  260,888 
Total revenues377,708  373,824  1,132,279  1,116,831 
Costs and expenses:       
Cost of goods sold170,453  166,886  509,746  507,102 
Selling, general and administrative expense125,608  118,380  371,006  353,948 
Provision for bad debts42,586  47,548  132,368  142,455 
Charges and credits3,837  5,537  3,142  5,837 
Total costs and expenses342,484  338,351  1,016,262  1,009,342 
Operating income35,224  35,473  116,017  107,489 
Interest expense15,051  15,098  43,944  47,484 
Loss on extinguishment of debt      1,773 
Income before income taxes20,173  20,375  72,073  58,232 
Provision for income taxes5,030  5,745  17,447  13,859 
Net income$15,143  $14,630  $54,626  $44,373 
Income per share:       
Basic$0.52  $0.46  $1.77  $1.40 
Diluted$0.51  $0.45  $1.74  $1.38 
Weighted average common shares outstanding:       
Basic29,094,062  31,712,862  30,796,114  31,636,270 
Diluted29,710,740  32,321,874  31,353,834  32,251,952 


CONN’S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Revenues:       
Product sales$250,233  $256,731  $759,256  $773,224 
Repair service agreement commissions26,478  23,579  78,149  72,104 
Service revenues3,411  3,564  10,758  10,615 
Total net sales280,122  283,874  848,163  855,943 
Other revenues197  179  602  291 
Total revenues280,319  284,053  848,765  856,234 
Costs and expenses:       
Cost of goods sold170,453  166,886  509,746  507,102 
Selling, general and administrative expense87,105  80,894  254,874  241,649 
Provision for bad debts535  286  645  789 
Charges and credits2,628  737  1,933  1,037 
Total costs and expenses260,721  248,803  767,198  750,577 
Operating income$19,598  $35,250  $81,567  $105,657 
Retail gross margin39.2% 41.2% 39.9% 40.8%
Selling, general and administrative expense as percent of revenues31.1% 28.5% 30.0% 28.2%
Operating margin7.0% 12.4% 9.6% 12.3%
Store count:       
Beginning of period131  118  123  116 
Opened6  3  14  5 
End of period137  121  137  121 


CONN’S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Revenues:       
Finance charges and other revenues$97,389  $89,771  $283,514  $260,597 
Costs and expenses:       
Selling, general and administrative expense38,503  37,486  116,132  112,299 
Provision for bad debts42,051  47,262  131,723  141,666 
Charges and credits1,209  4,800  1,209  4,800 
Total costs and expenses81,763  89,548  249,064  258,765 
Operating income15,626  223  34,450  1,832 
Interest expense15,051  15,098  43,944  47,484 
Loss on extinguishment of debt      1,773 
Income (loss) before income taxes$575  $(14,875) $(9,494) $(47,425)
Selling, general and administrative expense as percent of revenues39.5% 41.8% 41.0% 43.1%
Selling, general and administrative expense as percent of average outstanding customer accounts receivable balance (annualized)9.8% 9.9% 9.9% 9.9%
Operating margin16.0% 0.2% 12.2% 0.7%


CONN’S, INC. AND SUBSIDIARIES
CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS
(unaudited)

 As of October 31,
 2019 2018
Weighted average credit score of outstanding balances (1)592  593 
Average outstanding customer balance$2,735  $2,578 
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)10.1% 9.3%
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(4)(5)27.8% 26.1%
Carrying value of account balances re-aged more than six months (in thousands) (3)$110,016  $86,807 
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance13.3% 13.6%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables21.8% 21.7%


 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Total applications processed (6)305,525  283,274  875,374  862,324 
Weighted average origination credit score of sales financed (1)608  610  608  609 
Percent of total applications approved and utilized25.6% 28.5% 27.1% 30.1%
Average income of credit customer at origination$46,100  $45,400  $45,700  $44,200 
Percent of retail sales paid for by:       
In-house financing, including down payment received66.7% 69.7% 67.9% 70.1%
Third-party financing18.5% 15.6% 17.5% 15.7%
Third-party lease-to-own option7.0% 8.0% 7.2% 7.3%
 92.2% 93.3% 92.6% 93.1%

(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) First time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas included in the re-aged balance as of October 31, 2019 and October 31, 2018 were 0.8% and 2.2%, respectively, of the total customer portfolio carrying value.

(5) First time re-ages related to customers affected by Tropical Storm Imelda within FEMA-designated disaster areas included in the re-aged balance as of October 31, 2019 were 0.5% of the total customer portfolio carrying value.

(6) The total applications processed during the three and nine months ended October 31, 2018, we believe, reflect the impact of the rebuilding efforts following Hurricane Harvey.


CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)

 October 31,
2019
 January 31,
2019
Assets   
Current Assets:   
Cash and cash equivalents$4,672  $5,912 
Restricted cash49,247  59,025 
Customer accounts receivable, net of allowances666,922  652,769 
Other accounts receivable66,748  67,078 
Inventories247,614  220,034 
Income taxes receivable1,688  407 
Prepaid expenses and other current assets10,861  9,169 
Total current assets1,047,752  1,014,394 
Long-term portion of customer accounts receivable, net of allowances660,521  686,344 
Property and equipment, net172,341  148,983 
Operating lease right-of-use assets240,879   
Deferred income taxes22,908  27,535 
Other assets12,424  7,651 
Total assets$2,156,825  $1,884,907 
Liabilities and Stockholders’ Equity   
Current liabilities:   
Current maturities of debt and finance lease obligations$607  $54,109 
Accounts payable85,908  71,118 
Accrued expenses74,593  81,433 
Operating lease liability - current38,541   
Other current liabilities13,182  30,908 
Total current liabilities212,831  237,568 
Deferred rent  93,127 
Operating lease liability - non current322,248   
Long-term debt and finance lease obligations965,063  901,222 
Other long-term liabilities26,306  33,015 
Total liabilities1,526,448  1,264,932 
Stockholders’ equity630,377  619,975 
Total liabilities and stockholders’ equity$2,156,825  $1,884,907 


CONN’S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)

Basis for presentation of non-GAAP disclosures:

To supplement the Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides the following non-GAAP financial measures: adjusted retail segment operating income, adjusted retail segment operating margin, adjusted credit segment operating income, adjusted credit segment operating margin, adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP. They are intended to provide additional insight into our operations and the factors and trends affecting the business. Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making, (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results and (3) in the case of adjusted EBITDA, it is used for management incentive programs.

RETAIL SEGMENT ADJUSTED OPERATING INCOME AND
RETAIL SEGMENT ADJUSTED OPERATING MARGIN

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Retail segment operating income, as reported$19,598  $35,250  $81,567  $105,657 
Adjustments:       
Facility closure costs (1)2,628    1,933   
Securities related matter and other legal fees (2)      300 
Employee severance (3)  737    737 
Retail segment operating income, as adjusted$22,226  $35,987  $83,500  $106,694 
Retail segment total revenues$280,319  $284,053  $848,765  $856,234 
Retail segment operating margin:       
As reported7.0% 12.4% 9.6% 12.3%
As adjusted7.9% 12.7% 9.8% 12.5%

(1) Represents impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility and the gain from the sale of a cross-dock during the three and nine months ended October 31, 2019. Includes an additional gain from increased sublease income related to the consolidation of our corporate headquarters during the nine months ended October 31, 2019.

(2) Represents costs associated with a contingency reserve related to a regulatory matter.

(3) Represents severance costs related to a change in the executive management team.


CREDIT SEGMENT ADJUSTED OPERATING INCOME AND
CREDIT SEGMENT ADJUSTED OPERATING MARGIN

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Credit segment operating income, as reported$15,626  $223  $34,450  $1,832 
Adjustments:       
Write-off of software costs (1)1,209    1,209   
Legal judgment (2)  4,800    4,800 
Credit segment operating income, as adjusted$16,835  $5,023  $35,659  $6,632 
Credit segment total revenues$97,389  $89,771  $283,514  $260,597 
Credit segment operating margin:       
As reported16.0% 0.2% 12.2% 0.7%
As adjusted17.3% 5.6% 12.6% 2.5%

(1) Represents impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.

(2) Represents costs related to the TFL Judgment.


ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER DILUTED SHARE

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Net income, as reported$15,143  $14,630  $54,626  $44,373 
Adjustments:       
Facility closure costs (1)2,628    1,933   
Employee severance (2)  737    737 
Securities related matter and other legal fees (3)      300 
Loss on extinguishment of debt (4)      1,773 
Legal judgment (5)  4,800    4,800 
Write-off of software cost (6)1,209    1,209   
Tax impact of adjustments(861) (1,240) (705) (1,811)
Net income, as adjusted$18,119  $18,927  $57,063  $50,172 
Weighted average common shares outstanding - Diluted29,710,740  32,321,874  31,353,834  32,251,952 
Diluted earnings per share:       
As reported$0.51  $0.45  $1.74  $1.38 
As adjusted$0.61  $0.59  $1.82  $1.56 

(1) Represents impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility and the gain from the sale of a cross-dock during the three and nine months ended October 31, 2019. Includes an additional gain from increased sublease income related to the consolidation of our corporate headquarters during the nine months ended October 31, 2019.

(2) Represents severance costs related to a change in the executive management team.

(3) Represents costs associated with a contingency reserve related to a regulatory matter.

(4) Represents costs incurred for the early retirement of our debt.

(5) Represents costs related to the TFL Judgment.

(6) Represents impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.


ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

 Three Months Ended
October 31,
 Nine Months Ended
October 31,
 2019 2018 2019 2018
Net income$15,143  $14,630  $54,626  $44,373 
Adjustments:       
Depreciation expense9,489  7,828  27,171  23,262 
Interest expense15,051  15,098  43,944  47,484 
Provision for income taxes5,030  5,745  17,447  13,859 
Facility closure costs (1)2,628    1,933   
Employee severance (2)  737    737 
Securities-related regulatory matter and other legal fees (3)      300 
Loss on extinguishment of debt (4)      1,773 
Legal judgment (5)  4,800    4,800 
Write-off of software cost (6)1,209    1,209   
Stock-based compensation expense3,216  2,952  9,852  8,514 
Adjusted EBITDA$51,766  $51,790  $156,182  $145,102 
Total revenues$377,708  $373,824  $1,132,279  $1,116,831 
        
Operating Margin9.3% 9.5% 10.2% 9.6%
Adjusted EBITDA Margin13.7% 13.9% 13.8% 13.0%

(1) Represents impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility and the gain from the sale of a cross-dock during the three and nine months ended October 31, 2019. Includes an additional gain from increased sublease income related to the consolidation of our corporate headquarters during the nine months ended October 31, 2019.

(2) Represents severance costs related to a change in the executive management team.

(3) Represents costs associated with a contingency reserve related to a regulatory matter.

(4) Represents costs incurred for the early retirement of our debt.

(5) Represents costs related to the TFL Judgment.

(6) Represents impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.

ConnsHomePlus_PMS485_Red.png

Source: Conn's, Inc.


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