GlobeNewswire Inc | Dec 7, 2021 06:00AM EST

December 07, 2021

THE WOODLANDS, Texas, Dec. 07, 2021 (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, 2021.

Retail sales momentum accelerated during the third quarter as same store sales increased 20.6% over the prior fiscal year period and were up 9.7% on a two-year basis. Strong retail sales reflect our success expanding our addressable market, as we serve customers across the spectrum of payment options, scale our digital platform and maintain in-stock inventory levels throughout our product categories, stated Chandra Holt, Conn's Chief Executive Officer.

I am pleased with our strong execution in this fluid business environment, and we are well positioned for the fourth quarter and holiday season. We are on track to deliver significant revenue growth and record earnings this fiscal year. I am excited by the direction we are headed and want to thank our team members for their continued hard work and dedication, concluded Ms. Holt.

Third Quarter Financial Highlights as Compared to the Prior Fiscal Year Period (Unless Otherwise Noted):

-- Same store sales increased 20.6% for the third quarter of fiscal year 2022 as compared to the third quarter of fiscal year 2021 and increased 9.7% on a two-year basis; -- Strong same store sales combined with the contribution of new stores drove a 28.8% increase in total retail sales for the third quarter of fiscal year 2022 as compared to the third quarter of fiscal year 2021; -- eCommerce sales increased 294.8% to a quarterly record of $19.2 million; -- Net earnings increased 140.0% to $0.60 per diluted share, compared to $0.25 per diluted share for the same period last fiscal year; -- Inventories increased 21.7% compared to total retail sales growth of 28.8%, with approximately 80% of SKUs available for next day delivery at October 31, 2021; -- Credit spread was 14.6%, the highest credit spread in over 10 years; -- At October 31, 2021, the carrying value of customer accounts receivable 60+ days past due declined 32.5% year-over-year, and the carrying value of re-aged accounts declined 42.9% year-over-year; -- Net debt as a percent of the portfolio balance at October 31, 2021, was approximately 37.7%, compared to 48.2% at October 31, 2020; and -- Completed $377.8 million ABS transaction in November 2021 at an all-in cost of funds of approximately 3.91%, representing a 110-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 October31, 2021 was $18.2 million, or $0.60 per diluted share, compared to net income for the three months ended October31, 2020 of $7.4 million, or $0.25 per diluted share.

Retail Segment Third Quarter Results

Retail revenues were $334.8 million for the three months ended October31, 2021 compared to $259.9 million for the three months ended October31, 2020, an increase of $74.9 million or 28.8%. The increase in retail revenue was primarily driven by an increase in same store sales of 20.6%, new store growth and an increase in RSA commissions. The increase in same store sales reflects an increase in demand across most of the Companys home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes, which were the result of the COVID-19 pandemic.

For the three months ended October31, 2021 and 2020, retail segment operating income was $22.5 million and $15.2 million, respectively. The increase in retail segment operating income for the three months ended October 31, 2021 was primarily due to an increase in revenue.

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

Three Months Ended October 31, Same Store(dollars in 2021 % of 2020 % of Change % Change % Changethousands) Total TotalFurnitureand $ 106,756 31.9 % $ 82,793 31.9 % $ 23,963 28.9 % 18.8 %mattressHome 128,385 38.3 99,872 38.4 28,513 28.5 21.9 applianceConsumer 46,751 14.0 35,517 13.7 11,234 31.6 28.2 electronicsHome office 17,373 5.2 16,711 6.4 662 4.0 (3.2 ) Other 9,036 2.7 4,264 1.6 4,772 111.9 76.7 Product 308,301 92.1 239,157 92.0 69,144 28.9 21.0 salesRepairserviceagreement 23,769 7.1 17,465 6.7 6,304 36.1 16.8 commissions^(1)Service 2,513 0.8 3,150 1.3 (637 ) (20.2 ) revenuesTotal net $ 334,583 100.0 % $ 259,772 100.0 % $ 74,811 28.8 % 20.6 %sales

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

Credit Segment Third Quarter Results

Credit revenues were $70.6 million for the three months ended October31, 2021 compared to $74.2 million for the three months ended October31, 2020, a decrease of $3.6 million or 4.9%. The decrease in credit revenue was primarily due to a 15.2% decrease in the average outstanding balance of the customer receivable portfolio. These decreases were partially offset by an increase in the yield rate from 21.1% for the three months ended October 31, 2020 to 22.6% for the three months ended October31, 2021 and an increase in insurance commissions.

Provision for bad debts was $26.5 million for the three months ended October31, 2021 compared to $27.4 million for the three months ended October31, 2020, a decrease of $0.9 million. The change was primarily driven by a year-over-year decrease in net charge-offs of $26.1 million, partially offset by an increase in the change in allowance for bad debts. The increase in the change in the allowance for bad debts was primarily driven by an increase in the customer accounts receivable portfolio balance during the third quarter of fiscal year 2022 versus a decrease during the third quarter of fiscal year 2021 and an increase in loss rates due to an increase in delinquency.

Credit segment operating income was $7.0 million for the three months ended October31, 2021, compared to $8.9 million for the three months ended October31, 2020. The decrease was primarily due to a decrease in credit revenue, which was driven by the decline in the customer accounts receivable portfolio.

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, 2021, to be filed with the Securities and Exchange Commission on December7, 2021 (the Third Quarter Form 10-Q).

Store and Facilities Update

The Company opened two new Conns HomePlus stores during the third quarter of fiscal year 2022, bringing the total store count to 157 in 15 states. During fiscal year 2022, the Company plans to open a total of twelve new store (inclusive of the stores opened during the first three quarters of fiscal year 2022).

Liquidity and Capital Resources

As of October31, 2021, the Company had $320.5 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $10.6 million of unrestricted cash available for use.

On November 23, 2021, the Company completed an ABS transaction resulting in the issuance and sale of $377.8 million aggregate principal amount of Class A, Class B and Class C Notes secured by customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds of $375.2 million, and an all-in cost of funds of 3.91%.

Conference Call Information

The Company will host a conference call on December7, 2021, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended October 31, 2021. 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 2022 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through December 14, 2021 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13722603.

About Conns, Inc.

Conns is a specialty retailer currently operating 157 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, and 8K televisions, gaming products, next generation video game consoles 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 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, 2021 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, 2021 2020 2021 2020Revenues: Total net sales $ 334,583 $ 259,772 $ 972,664 $ 769,838 Finance charges and 70,875 74,386 214,879 248,396 other revenuesTotal revenues 405,458 334,158 1,187,543 1,018,234 Costs and expenses: Cost of goods sold 211,298 160,378 612,219 484,015 Selling, general and 138,081 122,158 402,000 350,443 administrative expenseProvision for bad 26,532 27,493 19,658 176,864 debtsCharges and credits ? ? ? 3,589 Total costs and 375,911 310,029 1,033,877 1,014,911 expensesOperating income 29,547 24,129 153,666 3,323 Interest expense 5,206 11,563 20,498 39,778 Loss on extinguishment ? ? 1,218 ? of debtIncome (loss) before 24,341 12,566 131,950 (36,455 ) income taxesProvision (benefit) 6,102 5,147 31,309 (8,192 ) for income taxesNet income (loss) $ 18,239 $ 7,419 $ 100,641 $ (28,263 ) Income (loss) per share:Basic $ 0.62 $ 0.25 $ 3.42 $ (0.97 ) Diluted $ 0.60 $ 0.25 $ 3.34 $ (0.97 ) Weighted averagecommon shares outstanding:Basic 29,488,321 29,142,843 29,418,047 29,013,759 Diluted 30,261,421 29,483,481 30,127,419 29,013,759

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

Three Months Ended Nine Months Ended October 31, October 31, 2021 2020 2021 2020Revenues: Product sales $ 308,301 $ 239,157 $ 897,757 $ 702,497 Repair service agreement 23,769 17,465 66,600 57,730 commissionsService revenues 2,513 3,150 8,307 9,611 Total net sales 334,583 259,772 972,664 769,838 Finance charges and other 262 168 695 599 Total revenues 334,845 259,940 973,359 770,437 Costs and expenses: Cost of goods sold 211,298 160,378 612,219 484,015 Selling, general and 100,969 84,245 294,019 241,003 administrative expenseProvision for bad debts 36 72 196 422 Charges and credits ? ? ? 1,355 Total costs and expenses 312,303 244,695 906,434 726,795 Operating income $ 22,542 $ 15,245 $ 66,925 $ 43,642 Retail gross margin 36.8 % 38.3 % 37.1 % 37.1 %Selling, general andadministrative expense as 30.2 % 32.4 % 30.2 % 31.3 %percent of revenuesOperating margin 6.7 % 5.9 % 6.9 % 5.7 %Store count: Beginning of period 155 141 146 137 Opened 2 2 11 6 End of period 157 143 157 143

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

Three Months Ended Nine Months Ended October 31, October 31, 2021 2020 2021 2020Revenues: Finance charges and $ 70,613 $ 74,218 $ 214,184 $ 247,797 other revenuesCosts and expenses: Selling, general and 37,112 37,913 107,981 109,440 administrative expenseProvision for bad debts 26,496 27,421 19,462 176,442 Charges and credits ? ? ? 2,234 Total costs and 63,608 65,334 127,443 288,116 expensesOperating income (loss) 7,005 8,884 86,741 (40,319 ) Interest expense 5,206 11,563 20,498 39,778 Loss on extinguishment ? ? 1,218 ? of debtIncome (loss) before $ 1,799 $ (2,679 ) $ 65,025 $ (80,097 ) income taxesSelling, general andadministrative expense 52.6 % 51.1 % 50.4 % 44.2 %as percent of revenuesSelling, general andadministrative expenseas percent of average 13.3 % 11.5 % 12.7 % 10.2 %outstanding customeraccounts receivablebalance (annualized)Operating margin 9.9 % 12.0 % 40.5 % (16.3 ) %

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

As of October 31, 2021 2020Weighted average credit score of outstanding 607 599 balances ^(1)Average outstanding customer balance $ 2,449 $ 2,515 Balances 60+ days past due as a percentage of total 8.8 % 11.5 %customer portfolio carrying value ^(2)(3)(4)Re-aged balance as a percentage of total customer 18.3 % 28.2 %portfolio carrying value ^(2)(3)(5)Carrying value of account balances re-aged more than $ 61,807 $ 98,307 six months (in thousands) ^(3)Allowance for bad debts and uncollectible interestas a percentage of total customer accounts 18.5 % 24.9 %receivable portfolio balancePercent of total customer accounts receivableportfolio balance represented by no-interest option 32.0 % 18.0 %receivables

Three Months Ended Nine Months Ended October 31, October 31, 2021 2020 2021 2020Total applications 337,112 285,569 971,456 908,078 processedWeighted averageorigination credit 616 618 615 615 score of salesfinanced ^(1)Percent of totalapplications approved 21.5 % 22.7 % 21.9 % 21.6 %and utilizedAverage income ofcredit customer at $ 49,100 $ 46,900 $ 48,400 $ 46,500 originationPercent of retail sales paid for by:In-house financing,including down 52.9 % 51.5 % 50.9 % 52.6 %payments receivedThird-party financing 17.9 % 20.3 % 17.5 % 20.6 %Third-party 9.2 % 7.2 % 11.0 % 8.0 %lease-to-own option 80.0 % 79.0 % 79.4 % 81.2 %

(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. Carrying value reflects the total customer accounts receivable portfolio(3) balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.(4) Decrease was primarily due to an increase in cash collections and the tightening of underwriting standards that occurred in fiscal year 2021. Decrease was primarily due to an increase in cash collections, the change(5) 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.

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

October 31, January 31, 2021 2021Assets Current Assets: Cash and cash equivalents $ 10,597 $ 9,703 Restricted cash 25,528 50,557 Customer accounts receivable, net of allowances 460,808 478,734 Other accounts receivable 74,811 61,716 Inventories 263,134 196,463 Income taxes receivable 8,787 38,059 Prepaid expenses and other current assets 9,745 8,831 Total current assets 853,410 844,063 Long-term portion of customer accounts 426,220 430,749 receivable, net of allowancesProperty and equipment, net 188,502 190,962 Operating lease right-of-use assets 265,592 265,798 Deferred income taxes ? 9,448 Other assets 52,855 14,064 Total assets $ 1,786,579 $ 1,755,084 Liabilities and Stockholders? Equity Current liabilities: Current finance lease obligations $ 942 $ 934 Accounts payable 91,084 69,367 Accrued expenses 128,054 82,990 Operating lease liability - current 50,390 44,011 Other current liabilities 16,402 14,454 Total current liabilities 286,872 211,756 Operating lease liability - non current 345,756 354,598 Long-term debt and finance lease obligations 459,319 608,635 Deferred tax liability 8,693 ? Other long-term liabilities 22,424 22,940 Total liabilities 1,123,064 1,197,929 Stockholders? equity 663,515 557,155 Total liabilities and stockholders? equity $ 1,786,579 $ 1,755,084

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 net income (loss), adjusted net income (loss) per diluted share and net debt as a percentage of the portfolio balance. 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.

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

Three Months Ended Nine Months Ended October 31, October 31, 2021 2020 2021 2020Net income(loss), as $ 18,239 $ 7,419 $ 100,641 $ (28,263 ) reportedAdjustments: Loss onextinguishment of ? ? 1,218 ? debt ^(1)Professional fees ? ? ? 3,589 ^(2)Tax impact of ? ? (274 ) (803 ) adjustmentsNet income(loss), as $ 18,239 $ 7,419 $ 101,585 $ (25,477 ) adjustedWeighted averagecommon shares 30,261,421 29,483,481 30,127,419 29,013,759 outstanding -DilutedEarnings (loss) per share:As reported $ 0.60 $ 0.25 $ 3.34 $ (0.97 ) As adjusted $ 0.60 $ 0.25 $ 3.37 $ (0.88 )

Represents a loss of $1.0 million from retirement of $141.2million(1) aggregate principal amount of our 7.25% senior notesdue 2022 (?Senior Notes?) and a loss of $0.2million related to the amendment of our Fifth Amended and Restated Loan andSecurity Agreement.(2) Represents professional fees associated with non-recurring expenses.

NET DEBT

(dollars in thousands)

October 31, 2021 2020Debt, as reported Current finance lease obligations $ 942 $ 769 Long-term debt and finance lease obligations 459,319 800,586 Total debt $ 460,261 $ 801,355 Cash, as reported Cash and cash equivalents 10,597 107,822 Restricted Cash 25,528 78,374 Total cash $ 36,125 $ 186,196 Net debt $ 424,136 $ 615,159 Ending portfolio balance, as reported $ 1,124,872 $ 1,276,100 Net debt as a percentage of the portfolio 37.7 % 48.2 %balance