GlobeNewswire Inc | Dec 8, 2020 06:00AM EST

December 08, 2020

THE WOODLANDS, Texas, Dec. 08, 2020 (GLOBE NEWSWIRE) -- Conns, Inc. (NASDAQ: CONN) (Conns 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 October31, 2020.

Our third quarter results highlight the resilience of our unique hybrid retail and credit business model and the ability to de-risk our credit business while still supporting retail demand through our diverse credit offerings. As a result, we experienced another quarter of robust year-over-year growth of cash and third-party retail sales, which increased 32.7% over the prior fiscal year period and reflect strong demand for home-related products. We are also quickly expanding our digital and omnichannel capabilities to meet surging online trends and e-commerce sales increased nearly 61% during the quarter, stated Norm Miller, Conns Chairman and Chief Executive Officer.

The performance of our credit segment throughout the COVID-19 crisis demonstrates the success of the adjustments we made earlier this year to mitigate the potential impacts on our business of high unemployment and economic uncertainty. While retail sales financed by our in-house credit offering declined 27.9% from the prior fiscal year, our credit segment is benefitting from newer, higher quality originations and the highest rate of cash collections in over ten fiscal years. In addition, the reduction in the portfolio balance, driven by strong cash collections and higher cash and third-party sales, has contributed to significant year-to-date and third quarter operating cash flow and strengthened our balance sheet.

Same store sales improved sequentially reflecting the progress we are making to capture retail sales opportunities while prudently managing credit risk. I am proud of our response to the unprecedented challenges we have faced throughout the COVID-19 pandemic and our continued commitment to protect the health and safety of our employees, customers, and communities. This is a testament to the experience of our senior leadership team, the dedication of our employees and the value our credit and retail products provide our communities. As we successfully navigate this difficult period, I remain confident in the direction we are headed, concluded Mr. Miller.

Third Quarter Results

Net income for the three months ended October31, 2020 was $7.4 million, or $0.25 per diluted share, compared to net income for the three months ended October31, 2019 of $11.5 million, or $0.39 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended October31, 2020 was $7.4 million, or $0.25 per diluted share. This compares to adjusted net income for the three months ended October31, 2019 of $14.4 million, or $0.49 per diluted share, which excludes facility closure costs and write-off of software costs.

Retail Segment Third Quarter Results

Retail revenues were $259.9 million for the three months ended October31, 2020 compared to $280.3 million for the three months ended October31, 2019, a decrease of $20.4 million or 7.3%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 10.9% and a decrease in repair service agreement commissions, partially offset by new store growth. The decrease in same store sales reflects proactive underwriting changes, combined with industry wide supply chain disruptions in certain product categories, each of which was the result of the COVID-19 pandemic.

For the three months ended October31, 2020 and 2019, retail segment operating income was $15.2 million and $19.6 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October31, 2020 was $15.2 million. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October31, 2019 was $22.2 million after excluding impairments from exiting certain leases upon the relocation of three distribution centers into one facility and a gain from the sale of a cross-dock.

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

Three Months Ended October 31, Same Store(dollars in 2020 % of 2019 % of Change % Change % Changethousands) Total TotalFurnitureand $ 82,793 31.9 % $ 89,070 31.8 % $ (6,277 ) (7.0 ) % (12.8 ) %mattressHome 99,872 38.4 90,343 32.3 9,529 10.5 6.1 applianceConsumer 35,517 13.7 48,113 17.2 (12,596 ) (26.2 ) (29.3 ) electronicsHome office 16,711 6.4 18,681 6.7 (1,970 ) (10.5 ) (13.9 ) Other 4,264 1.6 4,026 1.4 238 5.9 19.8 Product 239,157 92.0 250,233 89.4 (11,076 ) (4.4 ) (8.7 ) salesRepairserviceagreement 17,465 6.7 26,478 9.5 (9,013 ) (34.0 ) (27.9 ) commissions^(1)Service 3,150 1.3 3,411 1.1 (261 ) (7.7 ) revenuesTotal net $ 259,772 100.0 % $ 280,122 100.0 % $ (20,350 ) (7.3 ) % (10.9 ) %sales

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

Credit Segment Third Quarter Results

Credit revenues were $74.2 million for the three months ended October31, 2020 compared to $95.8 million for the three months ended October31, 2019, a decrease of $21.6 million or 22.5%. The decrease in credit revenue was primarily due to a decrease of 16.0% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decrease in insurance retrospective income. The decrease was also due to a decline in the yield rate to 21.1% during the three months ended October31, 2020, 60 basis points lower than the three months ended October31, 2019. The decline in yield rate was primarily due to an increase in delinquencies.

Provision for bad debts was $27.4 million for the three months ended October31, 2020 compared to $45.4 million for the three months ended October31, 2019, a decrease of $18.0 million. The decrease was driven by a greater decrease in the allowance for bad debts during the three months ended October31, 2020 compared to the three months ended October31, 2019. The decrease in the allowance for bad debts was primarily driven by the year-over-year decrease in the customer accounts receivable portfolio.

Credit segment operating income was $8.9 million for the three months ended October31, 2020, compared to $10.7 million for the three months ended October31, 2019. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October31, 2020 was $8.9 million. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October31, 2019 was $11.9 million after excluding impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 in connection with the implementation of a new loan management system.

Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Companys Form 10-Q for the quarter ended October31, 2020, to be filed with the Securities and Exchange Commission on December8, 2020 (the Third Quarter Form 10-Q).

Showroom and Facilities Update

The Company opened two new Conns HomePlus showrooms during the third quarter of fiscal year 2021 and has opened one new Conns HomePlus showrooms, its first in Florida, during the fourth quarter of fiscal year 2021, bringing the total showroom count to 144 in 15 states. During the remainder of fiscal year 2021, the Company plans to open two new showrooms, bringing the total for fiscal year 2021 to nine new showrooms.

Liquidity and Capital Resources

As of October31, 2020, the Company had $276.9 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, prior to giving effect to a minimum liquidity requirement of $125.0million pursuant to the third amendment to our revolving credit facility. The Company also had $107.8 million of unrestricted cash available for use.

Operating cash flow increased 316.6% year-over-year to $385.5 million for the nine months ended October 31, 2020 driven by growth of cash and third-party sales, strong cash payment rates on our customer receivables portfolio and a decline in Conns in-house credit originations. The increase in operating cash flow contributed to a reduction in net debt.

On October 16, 2020, the Company completed an ABS transaction resulting in the issuance and sale of $240.1 million aggregate principal amount of Class A and Class B Notes secured by customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds of $238.5 million, and an all-in cost of funds of 4.84%. Class C notes in aggregate principal amount of $62.9 million were also issued in the ABS transaction and were retained by the Company.

Conference Call Information

The Company will host a conference call on December8, 2020, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended October 31, 2020. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and third quarter fiscal year 2021 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through December 15, 2020 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13712704.

About Conns, Inc.

Conns is a specialty retailer currently operating 144 retail locations in Alabama, Arizona, Colorado, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Companys primary product categories include:

-- Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses; -- Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges; -- Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, 8K and smart televisions, gaming products and home theater and portable audio equipment; and -- Home office, including computers, printers and accessories.

Additionally, Conns offers a variety of products on a seasonal basis. Unlike many of its competitors, Conns 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 effects of epidemics or pandemics, including the COVID-19 outbreak; the impact of our previous restatement and correction of the Companys previously issued financial statements; the previously identified material weakness in the Companys internal control over financial reporting and the Companys ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the prior restatement and corrections; the adverse effects on the Companys business, results of operations, financial condition and stock price as a result of the previous restatement and correction process; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 and other reports filed with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

CONN-G

S.M. Berger & Company

Andrew Berger (216) 464-6400

CONNS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(dollars in thousands, except per share amounts)

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Revenues: Total net sales $ 259,772 $ 280,122 $ 769,838 $ 848,163 Finance charges and 74,386 96,005 248,396 282,535 other revenuesTotal revenues 334,158 376,127 1,018,234 1,130,698 Costs and expenses: Cost of goods sold 160,378 170,453 484,015 509,746 Selling, general and 122,158 125,608 350,443 371,006 administrative expenseProvision for bad debts 27,493 45,925 176,864 135,707 Charges and credits ? 3,837 3,589 3,142 Total costs and expenses 310,029 345,823 1,014,911 1,019,601 Operating income 24,129 30,304 3,323 111,097 Interest expense 11,563 15,051 39,778 43,944 Income (loss) before 12,566 15,253 (36,455 ) 67,153 income taxesProvision (benefit) for 5,147 3,784 (8,192 ) 16,201 income taxesNet income (loss) $ 7,419 $ 11,469 $ (28,263 ) $ 50,952 Income (loss) per share: Basic $ 0.25 $ 0.39 $ (0.97 ) $ 1.65 Diluted $ 0.25 $ 0.39 $ (0.97 ) $ 1.62 Weighted average common shares outstanding:Basic 29,142,843 29,094,062 29,013,759 30,796,114 Diluted 29,483,481 29,710,740 29,013,759 31,353,834

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

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Revenues: Product sales $ 239,157 $ 250,233 $ 702,497 $ 759,256 Repair service agreement 17,465 26,478 57,730 78,149 commissionsService revenues 3,150 3,411 9,611 10,758 Total net sales 259,772 280,122 769,838 848,163 Finance charges and other 168 197 599 602 Total revenues 259,940 280,319 770,437 848,765 Costs and expenses: Cost of goods sold 160,378 170,453 484,015 509,746 Selling, general and 84,245 87,105 241,003 254,874 administrative expenseProvision for bad debts 72 535 422 645 Charges and credits ? 2,628 1,355 1,933 Total costs and expenses 244,695 260,721 726,795 767,198 Operating income $ 15,245 $ 19,598 $ 43,642 $ 81,567 Retail gross margin 38.3 % 39.2 % 37.1 % 39.9 %Selling, general andadministrative expense as 32.4 % 31.1 % 31.3 % 30.0 %percent of revenuesOperating margin 5.9 % 7.0 % 5.7 % 9.6 %Store count: Beginning of period 141 131 137 123 Opened 2 6 6 14 End of period 143 137 143 137

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

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Revenues: Finance charges and $ 74,218 $ 95,808 $ 247,797 $ 281,933 other revenuesCosts and expenses: Selling, generaland administrative 37,913 38,503 109,440 116,132 expenseProvision for bad 27,421 45,390 176,442 135,062 debtsCharges and credits ? 1,209 2,234 1,209 Total costs and 65,334 85,102 288,116 252,403 expensesOperating income 8,884 10,706 (40,319 ) 29,530 (loss)Interest expense 11,563 15,051 39,778 43,944 Loss before income $ (2,679 ) $ (4,345 ) $ (80,097 ) $ (14,414 ) taxesSelling, generaland administrative 51.1 % 40.2 % 44.2 % 41.2 %expense as percentof revenuesSelling, generaland administrativeexpense as percentof average 11.5 % 9.8 % 10.2 % 9.9 %outstandingcustomer accountsreceivable balance(annualized)Operating margin 12.0 % 11.2 % (16.3 ) % 10.5 %

CONNS, INC. AND SUBSIDIARIES CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS(unaudited)

As of October 31, 2020 2019Weighted average credit score of outstanding 599 592 balances ^(1)Average outstanding customer balance $ 2,515 $ 2,735 Balances 60+ days past due as a percentage of 11.5 % 10.1 %total customer portfolio carrying value ^(2)(3)Balances 60+ days past due (in thousands) ^(2) $ 141,441 $ 152,825 Re-aged balance as a percentage of total customer 28.2 % 27.8 %portfolio carrying value ^(2)(3)Re-aged balance (in thousands) ^(2) $ 347,113 $ 422,771 Carrying value of account balances re-aged more $ 98,307 $ 110,016 than six months (in thousands) ^(3)Allowance for bad debts and uncollectible interestas a percentage of total customer accounts 24.9 % 13.6 %receivable portfolio balance ^(4)Percent of total customer accounts receivableportfolio balance represented by no-interest 18.0 % 21.8 %option receivables

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Total applications 285,569 305,525 908,078 875,374 processedWeighted averageorigination credit 618 608 615 608 score of salesfinanced ^(1)Percent of totalapplications approved 22.7 % 25.6 % 21.6 % 27.1 %and utilizedAverage income ofcredit customer at $ 46,900 $ 46,100 $ 46,500 $ 45,700 originationPercent of retail sales paid for by:In-house financing,including down 51.5 % 66.7 % 52.6 % 67.9 %payments receivedThird-party financing 20.3 % 18.5 % 20.6 % 17.5 %Third-party 7.2 % 7.0 % 8.0 % 7.2 %lease-to-own option 79.0 % 92.2 % 81.2 % 92.6 %

(1) Credit scores exclude non-scored accounts.

(2) Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.

(3) Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.

(4) For the period ended October 31, 2020, the allowance for bad debts and uncollectible interest is based on the current expected credit loss methodology required under ASC 326. For the period ended October 31, 2019, the allowance for bad debts and uncollectible interest is based on the incurred loss methodology.

CONNS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)(in thousands)

October 31, January 31, 2020 2020 Assets Current Assets: Cash and cash equivalents $ 107,822 $ 5,485 Restricted cash 78,374 75,370 Customer accounts receivable, net of allowances 489,841 673,742 Other accounts receivable 56,414 68,753 Inventories 216,161 219,756 Income taxes receivable 10,631 4,315 Prepaid expenses and other current assets 9,944 11,445 Total current assets 969,187 1,058,866 Long-term portion of customer accounts receivable, 444,352 663,761 net of allowancesProperty and equipment, net 191,079 173,031 Operating lease right-of-use assets 269,770 242,457 Deferred income taxes 44,725 18,599 Other assets 14,343 12,055 Total assets $ 1,933,456 $ 2,168,769 Liabilities and Stockholders? Equity Current liabilities: Current finance lease obligations $ 769 $ 605 Accounts payable 74,338 48,554 Accrued expenses 90,191 63,090 Operating lease liability - current 37,663 35,390 Other current liabilities 13,801 14,631 Total current liabilities 216,762 162,270 Operating lease liability - non current 362,035 329,081 Long-term debt and finance lease obligations 800,586 1,025,535 Other long-term liabilities 25,602 24,703 Total liabilities 1,404,985 1,541,589 Stockholders? equity 528,471 627,180 Total liabilities and stockholders? equity $ 1,933,456 $ 2,168,769

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

Basis for presentation of non-GAAP disclosures:

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

RETAIL SEGMENT ADJUSTED OPERATING INCOME AND RETAIL SEGMENT ADJUSTED OPERATING MARGIN

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Retail segment operating $ 15,245 $ 19,598 $ 43,642 $ 81,567 income, as reportedAdjustments: Professional fees ^(1) ? ? 1,355 ? Facility relocation costs ? 2,628 ? 1,933 ^(2)Retail segment operating $ 15,245 $ 22,226 $ 44,997 $ 83,500 income, as adjustedRetail segment total $ 259,940 $ 280,319 $ 770,437 $ 848,765 revenues

(1) Represents professional fees associated with non-recurring expenses.

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

CREDIT SEGMENT ADJUSTED OPERATING INCOME (LOSS) AND CREDIT SEGMENT ADJUSTED OPERATING MARGIN

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Credit segment operating $ 8,884 $ 10,706 $ (40,319 ) $ 29,530 income (loss), as reportedAdjustments: Professional fees ^(1) ? ? 2,234 ? Write-off of software costs ? 1,209 ? 1,209 ^(2)Credit segment operating $ 8,884 $ 11,915 $ (38,085 ) $ 30,739 income (loss), as adjustedCredit segment total $ 74,218 $ 95,808 $ 247,797 $ 281,933 revenues

(1) Represents professional fees associated with non-recurring expenses.

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

ADJUSTED NET INCOME (LOSS) AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE

Three Months Ended Nine Months Ended October 31, October 31, 2020 2019 2020 2019Net income (loss), as $ 7,419 $ 11,469 $ (28,263 ) $ 50,952 reportedAdjustments: Professional fees ^ ? ? 3,589 ? (1)Facility relocation ? 2,628 ? 1,933 costs ^(2)Write-off of software ? 1,209 ? 1,209 cost ^(3)Tax impact of ? (861 ) (804 ) (705 )adjustmentsNet income (loss), as $ 7,419 $ 14,445 $ (25,478 ) $ 53,389 adjustedWeighted averagecommon shares 29,483,481 29,710,740 29,013,759 31,353,834 outstanding - DilutedEarnings (loss) per share:As reported $ 0.25 $ 0.39 $ (0.97 ) $ 1.62 As adjusted $ 0.25 $ 0.49 $ (0.88 ) $ 1.70

(1) Represents professional fees associated with non-recurring expenses.

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

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