QC Holdings, Inc. (Nasdaq:QCCO) reported income from continuing
operations of $2.0 million and revenues of $48.8 million for the
quarter ended September 30, 2012. For the nine months ended
September 30, 2012, income from continuing operations totaled $9.2
million and revenues were $138.3 million. For the three months and
nine months ended September 30, 2011, income from continuing
operations totaled $2.5 million and $8.2 million, respectively, and
revenues were $46.9 million and $134.7 million, respectively.
The nine months ended September 30, 2012 include a $739,000 gain
resulting from the cash settlement of an expiring life insurance
policy. The nine months ended September 30, 2011 include a $2.0
million expense resulting from the settlement of an outstanding
legal matter. The three months and nine months ended September 30,
2012 and 2011 also include discontinued operations relating to
branches that were closed (or scheduled for closure) during each
period. Schedules reconciling adjusted EBITDA to income from
continuing operations for the three months and nine months ended
September 30, 2012 and 2011 are provided below.
** Third Quarter **
Revenues increased $1.9 million, or 4.1%, quarter-to-quarter.
This improvement is attributable to the inclusion of fees and
interest from the company's Canadian online lending subsidiary
(Direct Credit), which was acquired on September 30, 2011. The
revenue increase from Direct Credit was partially offset by lower
payday loan revenues in the company's US branches compared to the
three months ended September 30, 2011.
The bulk of the decline in US-based payday revenues is due to
lower volume in the state of Missouri compared to prior year, which
the company believes was attributable to customer uncertainty
regarding the ongoing availability of the payday product given the
failed effort by industry opponents to eliminate the product
through a ballot referendum.
Branch operating costs, exclusive of loan losses, increased $2.1
million to $22.9 million during the three months ended September
30, 2012 compared to prior year's $20.8 million. Higher current
year costs were largely a result of the inclusion of Direct Credit,
as well as an increase in collection-related banking costs.
Loan losses increased $1.9 million during the three months ended
September 30, 2012, totaling $13.0 million versus $11.1 million in
prior year's quarter. The loss ratio was 26.7% in third quarter
2012 versus 23.6% in third quarter 2011. The higher loss ratio is
primarily attributable to a lower collection rate in the current
quarter versus prior year.
QC's branch gross profit in third quarter 2012 was $12.8
million, down $2.2 million from $15.0 million in third quarter
2011. This decline is attributable to reduced margins in the
company's US branches, partially offset by the addition of Direct
Credit.
Regional and corporate expenses totaled $8.5 million during the
three months ended September 30, 2012 compared to $9.5 million in
third quarter 2011. Reduced overall regional and corporate expenses
were largely attributable to lower legal and other professional
expenses quarter-to-quarter.
The company's effective tax rate was 40.8% for third quarter
2012 compared to 39.9% in third quarter 2011. The higher rate
reflects the effect of current year permanent tax items on reduced
pretax earnings.
"Earnings declined during third quarter due to higher losses in
the majority of our states," noted QC President and Chief Executive
Officer Darrin Andersen. "Fortunately, our field personnel have
managed through challenging loss environments over the years and
are well-equipped to improve collection rates and reduce the number
of returned items.
"We continue to see nice growth in our longer-term installment
loan products," noted Andersen. "As we gain more experience with
these products, we will begin to actively market them, which
provides an exciting growth opportunity for QC."
** Nine Months Ended September 30 **
The company's revenues increased 2.7% to $138.3 million during
the nine months ended September 30, 2012 versus $134.7 million in
2011. This increase is attributable to the addition of Direct
Credit ($6.1 million through September 30, 2012), partially offset
by reduced payday loan volumes period-to-period. The decline in
payday revenues is attributable to lower demand in Missouri as
noted in the quarterly discussion above, as well as to customer
usage restrictions resulting from changes in the payday law in
Illinois that became effective in March 2011.
Branch operating costs, exclusive of loan losses, totaled $67.0
million during the nine months ended September 30, 2012, $4.2
million higher than the prior year period. This increase reflects
the inclusion of Direct Credit, higher healthcare-related and bank
collection costs, and typical annual rent increases.
During the nine months ended September 30, 2012, the company
reported loan losses of $29.0 million compared to $25.8 million
during the nine months ended September 30, 2011. The company's loss
ratio was 20.9% through September 2012 versus 19.1% in the same
2011 period. The higher ratio period-to-period reflects losses at
Direct Credit and a lower collection rate of returned items.
Branch gross profit decreased to $42.3 million for the nine
months ended September 30, 2012 from $46.1 million during the nine
months ended September 30, 2011.
Regional and corporate expenses decreased $4.1 million during
2012 (totaling $24.8 million versus $28.9 million during the same
2011 period). The nine months ended September 30, 2012 include a
$739,000 gain resulting from the cash settlement of an expiring
life insurance policy. The nine months ended September 30, 2011
include a $2.0 million expense resulting from the settlement of an
outstanding legal matter. The remainder of the improvement
period-to-period is primarily attributable to lower legal and other
professional expenses.
Net interest expense increased approximately $1.2 million during
the nine months ended September 30, 2012 compared to the prior year
as a result of higher average blended rates and debt balances, as
well as amortization of debt issue costs.
The company reported $1.4 million of other income for the nine
months ended September 30, 2012 compared to other expense of
$482,000 in prior year. This change is largely due to the reversal
of the liability that was recorded to estimate the fair value of
the contingent supplemental earn-out payment in connection with the
Company's acquisition of Direct Credit in September 2011. Pursuant
to generally accepted accounting principles, any changes to the
fair value of the contingent consideration liability are recorded
through the income statement.
The company's effective tax rate was 37.9% through September 30,
2012 compared to 39.7% in 2011. The reduced rate is due to the
favorable tax treatment associated with the gain realized in
connection with the cash settlement of the expiring life
insurance.
-DIVIDEND DECLARATION-
QC's Board of Directors declared a regular quarterly dividend of
$0.05 per common share, payable December 6, 2012 to stockholders of
record as of November 22, 2012.
-BUSINESS OUTLOOK-
"As the broader economy continues to languish, we are fortunate
that our well-tenured field management group has experienced the
volatility that comes with various business cycles," commented QC
Chairman Don Early. "This experience is key to maintaining our
focus on providing superb customer service when originating,
managing and collecting an increasingly diverse group of loan
products.
"We were pleased with the Missouri Secretary of State's decision
to invalidate the efforts of industry opponents as they attempted
to eliminate the short-term consumer lending product in Missouri.
The decision helps to preserve a customer's right to access
competitive credit alternatives that provide solutions for
immediate financial needs.
"We believe there is significant potential in the consumer
financial services credit industry. We are energized about our
business and growth opportunities, and believe we are positioned to
deliver long-term value to our shareholders."
About QC Holdings, Inc.
Headquartered in Overland Park, Kansas, QC Holdings, Inc. is a
leading provider of short-term loans in the United States and
Canada. In the United States, QC offers various products, including
payday, installment and title loans, check cashing, debit cards and
money transfer services, through 466 branches in 23 states at
September 30, 2012. In Canada, the company, through its subsidiary
Direct Credit Holdings Inc., is engaged in short-term, consumer
Internet lending in various provinces. In addition, the company
operates five buy here, pay here automotive dealerships in the
Kansas City metropolitan area. During fiscal 2011, the company
advanced nearly $1.0 billion to customers and reported total
revenues of $187.5 million.
Forward Looking Statement Disclaimer: This press release
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on the company's current
expectations and are subject to a number of risks and
uncertainties, which could cause actual results to differ
materially from those forward-looking statements. These risks
include (1) changes in laws or regulations or governmental
interpretations of existing laws and regulations governing consumer
protection or payday lending practices, including particularly
changes in Washington, South Carolina, Virginia, Illinois and
Arizona, (2) uncertainties relating to the interpretation,
application and promulgation of regulations under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, including the
impact of future regulations proposed or adopted by the Bureau of
Consumer Financial Protection, which is created by that Act, (3)
ballot referendum initiatives by industry opponents to cap the
rates and fees that can be charged to customers, (4) litigation or
regulatory action directed towards us or the payday loan industry,
(5) volatility in our earnings, primarily as a result of
fluctuations in loan loss experience and closures of branches, (6)
risks associated with the leverage of the company, (7) negative
media reports and public perception of the payday loan industry and
the impact on federal and state legislatures and federal and state
regulators, (8) changes in our key management personnel, (9)
integration risks and costs associated with acquisitions, including
our recent Canadian acquisition, (10) risks associated with owning
and managing non-U.S. businesses and (11) the other risks detailed
under Item 1A. "Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2011 filed with the Securities and
Exchange Commission. QC will not update any forward-looking
statements made in this press release to reflect future events or
developments.
(Financial and Statistical
Information Follow)
QC Holdings,
Inc. |
Consolidated
Statements of Income |
(in thousands,
except per share amounts) |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended September 30, |
Nine Months Ended
September 30, |
|
2011 |
2012 |
2011 |
2012 |
Revenues |
|
|
|
|
Payday loan fees |
$ 31,415 |
$ 32,151 |
$ 88,465 |
$ 91,929 |
Automotive sales, interest and
fees |
5,646 |
6,069 |
18,231 |
18,229 |
Installment interest and
fees |
4,834 |
6,152 |
13,499 |
15,500 |
Other |
4,987 |
4,396 |
14,477 |
12,663 |
Total revenues |
46,882 |
48,768 |
134,672 |
138,321 |
Branch expenses |
|
|
|
|
Salaries and benefits |
9,465 |
10,316 |
28,035 |
30,521 |
Provision for losses |
11,065 |
13,005 |
25,765 |
28,968 |
Occupancy |
5,100 |
5,242 |
14,753 |
15,340 |
Cost of sales - automotive |
2,884 |
2,983 |
9,622 |
8,921 |
Depreciation and
amortization |
625 |
566 |
1,946 |
1,744 |
Other |
2,754 |
3,813 |
8,459 |
10,522 |
Total branch expenses |
31,893 |
35,925 |
88,580 |
96,016 |
Branch gross profit |
14,989 |
12,843 |
46,092 |
42,305 |
|
|
|
|
|
Regional expenses |
3,131 |
3,156 |
9,899 |
9,388 |
Corporate expenses |
6,333 |
5,376 |
18,977 |
15,388 |
Depreciation and amortization |
466 |
452 |
1,641 |
1,483 |
Interest expense |
470 |
801 |
1,530 |
2,717 |
Other expense (income), net |
461 |
(254) |
482 |
(1,428) |
Income from continuing
operations before income taxes |
4,128 |
3,312 |
13,563 |
14,757 |
Provision for income taxes |
1,647 |
1,352 |
5,389 |
5,586 |
Income from continuing
operations |
2,481 |
1,960 |
8,174 |
9,171 |
Loss from discontinued operations, net of
income tax |
699 |
303 |
1,075 |
857 |
Net
income |
$ 1,782 |
$ 1,657 |
$ 7,099 |
$ 8,314 |
|
|
|
|
|
Earnings (loss) per
share: |
|
|
|
|
Basic |
|
|
|
|
Continuing
operations |
$ 0.14 |
$ 0.11 |
$ 0.46 |
$ 0.52 |
Discontinued
operations |
(0.04) |
(0.02) |
(0.06) |
(0.05) |
Net income |
$ 0.10 |
$ 0.09 |
$ 0.40 |
$ 0.47 |
|
|
|
|
|
Diluted |
|
|
|
|
Continuing
operations |
$ 0.14 |
$ 0.11 |
$ 0.46 |
$ 0.52 |
Discontinued
operations |
(0.04) |
(0.02) |
(0.06) |
(0.05) |
Net income |
$ 0.10 |
$ 0.09 |
$ 0.40 |
$ 0.47 |
Weighted average number of common
shares outstanding: |
|
|
|
|
Basic |
17,014 |
17,170 |
17,036 |
17,165 |
Diluted |
17,135 |
17,271 |
17,111 |
17,203 |
Non-GAAP Reconciliations
Adjusted EBITDA (in thousands)
(Unaudited)
QC reports adjusted EBITDA (income from continuing operations
before interest, taxes, depreciation, amortization, charges related
to stock options and restricted stock awards, and non-cash gains or
losses associated with property disposition) as a financial
performance measure that is not defined by U.S. generally accepted
accounting principles ("GAAP"). QC believes that adjusted EBITDA is
a useful performance metric for our investors and is a measure of
operating and financial performance that is commonly reported and
widely used by financial and industry analysts, investors and other
interested parties because it eliminates significant non-cash
charges to earnings. The nine months ended September 30, 2012
include an additional adjustment to EBITDA for the cash settlement
of an expiring life insurance policy. The nine months ended
September 30, 2011 include an additional adjustment to EBITDA for
the expense associated with the settlement of the Missouri
arbitration proceedings. It is important to note that non-GAAP
measures, such as adjusted EBITDA, should not be considered as
alternative indicators of financial performance compared to net
income or other financial statement data presented in the company's
consolidated financial statements prepared pursuant to GAAP.
Non-GAAP measures should be evaluated in conjunction with, and are
not a substitute for, GAAP financial measures. The following table
provides a reconciliation of income from continuing operations to
adjusted EBITDA:
|
Three Months
Ended September 30, |
Nine Months Ended
September 30, |
|
2011 |
2012 |
2011 |
2012 |
|
|
|
|
|
Income from continuing
operations |
$ 2,481 |
$ 1,960 |
$ 8,174 |
$ 9,171 |
Provision for income taxes |
1,647 |
1,352 |
5,389 |
5,586 |
Depreciation and
amortization |
1,091 |
1,018 |
3,587 |
3,227 |
Interest expense |
470 |
801 |
1,530 |
2,717 |
Non-cash (gains) losses |
461 |
(254) |
482 |
(1,428) |
Stock option and restricted
stock expense |
501 |
386 |
1,675 |
1,369 |
Gain on settlement of expiring
life insurance policy (a) |
|
|
|
(739) |
Accrued costs for settlement of
legal matter (b) |
-- |
-- |
2,000 |
-- |
Adjusted EBITDA |
$ 6,651 |
$ 5,263 |
$ 22,837 |
$ 19,903 |
|
|
|
|
|
(a) For the nine months
ended September 30, 2012, adjusted EBITDA excludes the gain on the
cash settlement of an expiring life insurance policy. |
(b) For the nine months
ended September 30, 2011, adjusted EBITDA excludes the expense
recorded in connection with the settlement of an outstanding legal
matter. |
|
QC Holdings,
Inc. |
Consolidated Balance
Sheets |
(in
thousands) |
|
|
|
|
December 31,
2011 |
September 30,
2012 |
ASSETS |
|
(Unaudited) |
Current assets |
|
|
Cash and cash equivalents |
$ 17,738 |
$ 15,952 |
Restricted cash |
2,175 |
1,075 |
Loans receivable, less
allowance for losses of $6,008 at December 31, 2011 and $6,079 at
September 30, 2012 |
67,357 |
65,537 |
Prepaid expenses and other
current assets |
12,854 |
10,536 |
Total current assets |
100,124 |
93,100 |
Non-current loans receivable, less allowance
for losses of $2,100 at December 31, 2011 and $2,533 at September
30, 2012 |
6,939 |
8,388 |
Property and equipment, net |
11,761 |
11,442 |
Goodwill |
23,958 |
24,262 |
Intangible assets, net |
5,535 |
4,512 |
Other assets, net |
4,912 |
5,336 |
Total assets |
$ 153,229 |
$ 147,040 |
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
Current liabilities |
|
|
Accounts payable |
$ 224 |
$ 768 |
Accrued expenses and other
liabilities |
14,087 |
9,808 |
Deferred revenue |
4,953 |
4,074 |
Revolving credit facility |
14,500 |
22,900 |
Current portion of long-term
debt |
20,490 |
14,772 |
Total current liabilities |
54,254 |
52,322 |
|
|
|
Non-current liabilities |
5,519 |
5,819 |
|
|
|
Long-term debt |
14,224 |
3,122 |
Total liabilities |
73,997 |
61,263 |
|
|
|
Commitments and contingencies |
|
|
Stockholders' equity |
79,232 |
85,777 |
Total liabilities and
stockholders' equity |
$ 153,229 |
$ 147,040 |
|
QC Holdings,
Inc. |
Selected Statistical
and Operating Data |
(in thousands, except
Branch Data, Average Loan, Average Term and Average
Fee) |
|
|
|
|
|
|
Three Months
Ended September 30, |
Nine Months Ended
September 30, |
|
2011 |
2012 |
2011 |
2012 |
|
Unaudited |
Unaudited |
Short-term Lending Branch
Data: |
|
|
|
|
Number of branches, beginning
of period |
499 |
466 |
523 |
482 |
De novo branches opened |
|
2 |
2 |
6 |
Branches closed |
(15) |
(2) |
(41) |
(22) |
Number of branches, end of
period |
484 |
466 |
484 |
466 |
|
|
|
|
|
Short-term Lending Branch
Data: |
|
|
|
|
Branch revenue |
$ 41,113 |
$ 40,147 |
$ 115,623 |
$ 113,179 |
Percentage change |
|
(2.4%) |
|
(2.1%) |
Branch net revenues |
$ 31,324 |
$ 29,145 |
$ 93,125 |
$ 89,427 |
Percentage change |
|
(7.0%) |
|
(4.0%) |
|
|
|
|
|
Operating Data – Short-term
Loans: |
|
|
|
|
Loan volume |
$ 219,591 |
$ 218,752 |
$ 602,526 |
$ 625,853 |
Average loan (principal plus
fee) |
376.35 |
383.87 |
375.94 |
382.85 |
Average fee |
56.71 |
57.49 |
56.85 |
57.58 |
|
|
|
|
|
Operating Data – Installment
Loans: |
|
|
|
|
Loan volume |
$ 8,036 |
$ 12,689 |
$ 23,327 |
$ 31,546 |
Average loan (principal) |
512.60 |
628.32 |
512.50 |
588.56 |
Average term (days) |
182 |
203 |
206 |
192 |
|
|
|
|
|
Operating Data – Automotive
Loans: |
|
|
|
|
Loan volume |
$ 4,395 |
$ 4,379 |
$ 14,260 |
$ 13,813 |
Average loan (principal) |
10,057 |
10,501 |
9,889 |
10,293 |
Average term (months) |
33 |
32 |
34 |
33 |
Locations, end of period |
5 |
5 |
5 |
5 |
|
QC Holdings,
Inc. |
Selected Statistical
and Operating Data |
(in
thousands) |
|
|
|
|
|
|
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|
2011 |
2012 |
2011 |
2012 |
|
Unaudited |
Unaudited |
Other Revenues: |
|
|
|
|
Credit services fees |
1,982 |
1,811 |
5,481 |
5,166 |
Check cashing fees |
900 |
798 |
3,105 |
2,669 |
Title loan fees |
1,490 |
764 |
4,018 |
2,133 |
Other |
615 |
1,023 |
1,873 |
2,695 |
Total |
$ 4,987 |
$ 4,396 |
$ 14,477 |
$ 12,663 |
|
|
|
|
|
Loss Data: |
|
|
|
|
Provision for losses,
continuing operations: |
|
|
|
|
Charged-off to expense |
$ 19,409 |
$ 19,460 |
$ 50,274 |
$ 51,313 |
Recoveries |
(8,047) |
(7,625) |
(24,299) |
(23,279) |
Adjustment to provision for
losses based on evaluation of outstanding receivables |
(297) |
1,170 |
(210) |
934 |
Total provision for losses |
$ 11,065 |
$ 13,005 |
$ 25,765 |
$ 28,968 |
|
|
|
|
|
Provision for losses as a
percentage of revenues |
23.6% |
26.7% |
19.1% |
20.9% |
Provision for losses as a
percentage of loan volume (all products) |
4.3% |
5.1% |
3.7% |
4.0% |
CONTACT: Investor Relations Contact:
Douglas E. Nickerson (913-234-5154)
Chief Financial Officer
Media Contact:
Tom Linafelt (913-234-5237)
Director - Corporate Communications
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