QC Holdings, Inc. (Nasdaq:QCCO) reported a loss from continuing
operations of $1.3 million and revenues of $47.2 million for the
quarter ended December 31, 2012. For the year ended December 31,
2012, income from continuing operations totaled $7.9 million and
revenues were $180.6 million.
The quarter and year ended December 31, 2012 include a $2.6
million loss ($1.6 million after income taxes) resulting from the
company's sale of the majority of its automobile loans receivable,
as well as approximately $2.3 million in goodwill and intangible
impairment charges related to the company's Canadian online
subsidiary and South Carolina branches, respectively.
For the three months and year ended December 31, 2011, income
from continuing operations totaled $3.5 million and $11.9 million,
respectively, and revenues were $46.7 million and $176.6 million,
respectively.
The three months and year ended December 31, 2012 and 2011
include discontinued operations relating to branches that were
closed during each period. Schedules reconciling adjusted EBITDA to
income from continuing operations for the three months and year
ended December 31, 2012 and 2011 are provided below.
** Fourth Quarter **
Revenues improved $493,000, or 1.1%, quarter-to-quarter,
primarily due to the inclusion of fees and interest from the
company's longer-term, higher-dollar installment products, which
were introduced in early 2012.
Branch operating costs, exclusive of loan losses, increased $1.0
million (to $20.9 million) during the three months ended December
31, 2012 versus prior year's fourth quarter. This increase was
primarily a result of higher compensation attributable to growth in
the company's new installment products, as well as higher
collection-related bank costs.
Loan losses increased $1.5 million during the three months ended
December 31, 2012, totaling $12.8 million versus $11.3 million in
prior year's quarter. The loss ratio increased to 27.2% in fourth
quarter 2012 versus 24.1% in fourth quarter 2011. The higher loss
ratio is primarily attributable to a lower collection rate in the
current quarter versus prior year. For the quarter, collections on
returned items declined to 36% from 40%.
QC's branch gross profit in fourth quarter 2012 decreased $2.1
million to $13.4 million versus $15.5 million in fourth quarter
2011, largely due to higher losses as noted above.
Regional and corporate expenses totaled $8.6 million during the
three months ended December 31, 2012, down slightly from the $8.7
million in fourth quarter 2011.
Fourth quarter 2012 includes a $2.6 million loss resulting from
the sale of the majority of the company's automobile loans
receivable. In addition, the company recorded a $2.3 million
goodwill and intangible impairment charge related to the company's
Canadian online subsidiary and South Carolina branches,
respectively.
The company's income taxes during fourth quarter 2012 reflect
the non-deductible nature of the impairment charges. With respect
to prior year's fourth quarter, the lower-than-normal effective
rate reflects provision-to-return adjustments, largely related to
state and employment tax credits.
"Our 2012 results did not meet our expectations," commented QC
President and Chief Executive Officer Darrin Andersen. "While we
experienced an increase in revenues over 2011, our losses and
operating expenses increased, resulting in a decline to core
earnings. This decline highlights, among other things, the effects
associated with managing through legislative, regulatory and ballot
referendum challenges, including customer confusion and fatigue,
employee distraction and higher costs.
"We are pleased with the customer demand for our longer-term
installment products, which grew to over $6 million in receivables
by the end of the year despite being offered in less than half of
our branches. The tremendous growth opportunity in these products
prompted our mid-December automobile loans receivable sale to
generate capital for the 2013 nationwide rollout."
** Year Ended December 31 **
The company's revenues increased $4.0 million to $180.6 million
during the year ended December 31, 2012 versus $176.6 million in
2011. This increase is attributable to the inclusion of Direct
Credit for a full year and growth in the new installment product,
partially offset by reduced payday loan volumes year-to-year.
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. In addition, customer usage
restrictions resulting from changes in the payday law in Illinois
that became effective in March 2011 negatively affected 2012
revenues.
Branch operating costs, exclusive of loan losses, increased $5.2
million to $84.1 million during the year ended December 31, 2012
versus $78.9 million in prior year. Higher current year costs were
largely a result of the inclusion of Direct Credit, as well as an
increase in healthcare and collection-related banking costs.
During the year ended December 31, 2012, the company reported
loan losses of $40.7 million compared to $35.8 million during the
year ended December 31, 2011. The company's loss ratio increased to
22.5% during 2012 versus 20.3% in 2011, primarily due to losses at
Direct Credit and a lower collection rate of returned items.
Branch gross profit decreased to $55.8 million for the year
ended December 31, 2012 from $61.9 million during the year ended
December 31, 2011.
Regional and corporate expenses totaled $33.3 million during the
year ended December 31, 2012 compared to $37.6 million in 2011.
Full year 2012 includes a $739,000 gain resulting from the cash
settlement of an expiring life insurance policy. The year ended
December 31, 2011 includes a $2.0 million expense resulting from
the settlement of an outstanding legal matter. The remainder of the
improvement year-to-year is primarily attributable to lower legal
and other professional expenses.
The company reported $3.5 million of other expense for full year
2012 compared to $480,000 in prior year. This change reflects the
loss on the sale of automobile loans receivable and the impairment
charges as noted in the quarterly discussion above, partially
offset by 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 income tax rate was 41.5% during 2012
compared to 37.6% in the prior year. The higher tax rate is
attributable to the non-deductible nature of the impairment
charges.
-DIVIDEND DECLARATION -
QC's Board of Directors declared a regular quarterly dividend of
$0.05 per common share, payable March 14, 2013 to stockholders of
record as of February 28, 2013.
-BUSINESS OUTLOOK -
"Despite a difficult year from an earnings perspective, we were
able to accomplish several key objectives, one of which was
defeating an attack on our industry in Missouri by misguided
industry opponents," commented QC Chairman Don Early. "In addition,
our field personnel continued to impress with their professionalism
and commitment to delivering excellent service to our customers in
such a challenging environment.
"As we enter 2013, we expect to capitalize on the opportunities
available in our various business segments. From a branch
perspective, we will foster the momentum generated by the rollout
of our longer-term, higher-dollar installment loans. We managed
through the post-acquisition transition process with our Canadian
online lending subsidiary and look forward to realizing the growth
potential inherent in the online platform. After the sale of the
majority of the automobile loans receivable, we have reset the
automotive group with a sole focus on increasing sales.
"With these various growth initiatives, stabilizing revenue and
profit expectations for our core branch network and a strong,
flexible balance sheet, QC is positioned to generate improvements
in cash flow and shareholder value."
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
December 31, 2012 (note, however, that the company has 38 branches
scheduled to close in the first half of 2013). 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 2012, the company advanced nearly $1.0 billion to
customers and reported total revenues of $180.6 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, (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 Follows)
QC Holdings,
Inc. Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited) |
|
|
Three Months
Ended December 31, |
Year
ended December 31, |
|
2011 |
2012 |
2011 |
2012 |
Revenues |
|
|
|
|
Payday loan fees |
$ 32,415 |
$ 30,660 |
$ 117,706 |
$ 119,122 |
Automotive sales, interest and fees |
5,414 |
5,490 |
23,645 |
23,718 |
Installment interest and fees |
3,935 |
6,872 |
16,413 |
21,275 |
Other |
4,913 |
4,148 |
18,804 |
16,450 |
Total revenues |
46,677 |
47,170 |
176,568 |
180,565 |
Operating expenses |
|
|
|
|
Salaries and benefits |
8,951 |
9,511 |
35,038 |
38,002 |
Provision for losses |
11,252 |
12,814 |
35,782 |
40,674 |
Occupancy |
4,723 |
4,691 |
18,392 |
18,877 |
Cost of sales - automotive |
2,631 |
2,678 |
12,253 |
11,599 |
Depreciation and amortization |
610 |
542 |
2,433 |
2,195 |
Other |
3,016 |
3,526 |
10,810 |
13,398 |
Total operating expenses |
31,183 |
33,762 |
114,708 |
124,745 |
Gross profit |
15,494 |
13,408 |
61,860 |
55,820 |
|
|
|
|
|
Regional expenses |
3,514 |
3,127 |
13,413 |
12,516 |
Corporate expenses |
5,174 |
5,427 |
24,151 |
20,814 |
Depreciation and amortization |
552 |
461 |
2,192 |
1,944 |
Interest expense |
1,037 |
846 |
2,566 |
3,560 |
Other expense (income), net |
(1) |
4,926 |
481 |
3,498 |
Income (loss) from continuing operations
before income taxes |
5,218 |
(1,379) |
19,057 |
13,488 |
Provision (benefit) for income taxes |
1,674 |
(32) |
7,169 |
5,597 |
Income (loss) from continuing
operations |
3,544 |
(1,347) |
11,888 |
7,891 |
Loss from discontinued operations, net of
income tax |
(475) |
(1,594) |
(1,720) |
(2,518) |
Net income (loss) |
$ 3,069 |
$ (2,941) |
$ 10,168 |
$ 5,373 |
|
|
|
|
|
Earnings (loss) per
share: |
|
|
|
|
Basic |
|
|
|
|
Continuing operations |
$ 0.20 |
$ (0.08) |
$ 0.67 |
$ 0.44 |
Discontinued operations |
(0.03) |
(0.09) |
(0.10) |
(0.14) |
Net income |
$ 0.17 |
$ (0.17) |
$ 0.57 |
$ 0.30 |
|
|
|
|
|
Diluted |
|
|
|
|
Continuing operations |
$ 0.20 |
$ (0.08) |
$ 0.67 |
$ 0.44 |
Discontinued operations |
(0.03) |
(0.09) |
(0.10) |
(0.14) |
Net income |
$ 0.17 |
$ (0.17) |
$ 0.57 |
$ 0.30 |
Weighted average number of common
shares outstanding: |
|
|
|
|
Basic |
16,999 |
17,182 |
17,027 |
17,169 |
Diluted |
17,178 |
17,182 |
17,110 |
17,226 |
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 quarter and year ended December 31, 2012
include an additional adjustment to EBITDA for the loss resulting
from the sale of the company's automobile loans receivable, as well
as for goodwill and intangible impairment charges associated with
company subsidiaries. Full year 2012 includes an additional
adjustment to EBITDA for the cash settlement of an expiring life
insurance policy. The year ended December 31, 2011 includes 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
(loss) from continuing operations to adjusted EBITDA:
|
Three Months
Ended |
Year
Ended |
|
December
31, |
December
31, |
|
2011 |
2012 |
2011 |
2012 |
|
|
|
|
|
Income (loss) from continuing
operations |
$ 3,544 |
$ (1,347) |
$ 11,888 |
$ 7,891 |
Provision (benefit) for income taxes |
1,674 |
(32) |
7,169 |
5,597 |
Depreciation and amortization |
1,162 |
1,003 |
4,625 |
4,139 |
Interest expense |
1,037 |
846 |
2,566 |
3,560 |
Non-cash (gains) losses on property
dispositions |
(1) |
42 |
481 |
(1,386) |
Non-cash goodwill and intangible
impairment charges (a) |
|
2,330 |
|
2,330 |
Loss on sale of automobile
loans receivable (b) |
|
2,554 |
|
2,554 |
Stock option and restricted stock
expense |
503 |
380 |
2,178 |
1,749 |
Gain on settlement of expiring life
insurance policy (c) |
|
|
|
(739) |
Accrued costs for settlement of legal
matter (d) |
|
|
2,000 |
|
Adjusted EBITDA |
$ 7,919 |
$ 5,776 |
$ 30,907 |
$ 25,695 |
(a) For the quarter and year ended December 31, 2012,
adjusted EBITDA excludes the non-cash goodwill and intangible
impairment charges associated with the company's Canadian online
subsidiary and South Carolina branches, respectively.
(b) For the quarter and year ended December 31, 2012,
adjusted EBITDA excludes the loss on the sale of the majority of
the company's automobile loans receivable.
(c) Adjusted EBITDA for full year 2012 excludes the gain
on the cash settlement of an expiring life insurance policy.
(d) Adjusted EBITDA for full year 2011 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 |
December 31,
2012 |
ASSETS |
|
(Unaudited) |
Current assets |
|
|
Cash and cash equivalents |
$ 17,738 |
$ 14,124 |
Restricted cash |
2,175 |
1,076 |
Loans receivable, less allowance for
losses of $6,008 at December 31, 2011 and $7,237 at December
31, 2012 |
67,357 |
61,219 |
Prepaid expenses and other current
assets |
12,854 |
10,486 |
Total current assets |
100,124 |
86,905 |
Non-current automotive loans receivable, less
allowance for losses of $2,100 at December 31, 2011 and $1,027
at December 31, 2012 |
6,939 |
2,392 |
Property and equipment, net |
11,761 |
11,406 |
Goodwill |
23,958 |
22,463 |
Intangible assets, net |
5,535 |
3,656 |
Other assets, net |
4,912 |
4,878 |
Total assets |
$ 153,229 |
$ 131,700 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Current liabilities |
|
|
Accounts payable |
$ 224 |
$ 2,055 |
Accrued expenses and other
liabilities |
14,087 |
9,379 |
Deferred revenue |
4,953 |
4,019 |
Revolving credit facility |
14,500 |
25,000 |
Current portion of long-term debt |
20,490 |
-- |
Total current liabilities |
54,254 |
40,453 |
|
|
|
Non-current liabilities |
5,519 |
5,747 |
|
|
|
Long-term debt |
14,224 |
3,154 |
Total liabilities |
73,997 |
49,354 |
|
|
|
Commitments and contingencies |
|
|
Stockholders' equity |
79,232 |
82,346 |
Total liabilities and stockholders'
equity |
$ 153,229 |
$ 131,700 |
|
|
|
QC Holdings,
Inc. Selected Statistical and Operating
Data (in thousands, except Branch Data, Average
Loan, Average Term and Average Fee) |
|
|
Three Months
Ended December 31, |
Year Ended
December 31, |
|
2011 |
2012 |
2011 |
2012 |
|
Unaudited |
Unaudited |
Short-term Lending Branch
Data: |
|
|
|
|
Number of branches, beginning of
period |
484 |
466 |
523 |
482 |
De novo branches opened |
|
2 |
2 |
8 |
Branches scheduled to close |
|
(38) |
|
(38) |
Branches closed |
(2) |
(2) |
(43) |
(24) |
Number of branches, end of period |
482 |
428 |
482 |
428 |
|
Short-term Lending Branch
Data: |
|
|
|
|
Branch revenue |
$ 39,044 |
$ 39,302 |
$ 149,362 |
$ 147,039 |
Percentage change |
|
0.7% |
|
(1.6%) |
Branch net revenues |
$ 30,178 |
$ 29,902 |
$ 119,342 |
$ 115,191 |
Percentage change |
|
(0.9%) |
|
(3.5%) |
|
Operating Data – Short-term
Loans: |
|
|
|
|
Loan volume |
$ 220,417 |
$ 209,665 |
$ 799,872 |
$ 807,869 |
Average loan (principal plus fee) |
377.36 |
382.79 |
374.30 |
380.62 |
Average fee |
56.78 |
58.43 |
56.80 |
57.76 |
|
Operating Data – Installment
Loans: |
|
|
|
|
Loan volume |
$ 7,317 |
$ 13,589 |
$ 27,035 |
$ 41,423 |
Average loan (principal) |
529.31 |
679.61 |
517.79 |
624.34 |
Average term (days) |
179 |
217 |
199 |
199 |
|
Operating Data – Automotive
Loans: |
|
|
|
|
Loan volume |
$ 4,152 |
$ 3,686 |
$ 18,412 |
$ 17,508 |
Average loan (principal) |
9,933 |
10,072 |
9,899 |
10,245 |
Average term (months) |
33 |
32 |
33 |
33 |
Locations, end of period |
5 |
5 |
5 |
5 |
|
|
|
|
|
QC Holdings,
Inc. Selected Statistical and Operating
Data (in thousands) |
|
|
Three Months
Ended December 31, |
Year
Ended December
31, |
|
2011 |
2012 |
2011 |
2012 |
|
Unaudited |
Unaudited |
Other Revenues: |
|
|
|
|
Credit services fees |
$ 2,030 |
$ 1,836 |
$ 7,512 |
$ 7,003 |
Check cashing fees |
809 |
713 |
3,698 |
3,193 |
Title loan fees |
1,459 |
560 |
5,214 |
2,693 |
Other |
615 |
1,039 |
2,380 |
3,561 |
Total |
$
4,913 |
$ 4,148 |
$ 18,804 |
$ 16,450 |
|
|
|
|
|
|
|
|
|
|
Loss Data: |
|
|
|
|
Provision for losses, continuing
operations: |
|
|
|
|
Charged-off to expense |
$ 17,390 |
$ 19,282 |
$ 64,539 |
$ 67,718 |
Recoveries |
(6,987) |
(7,031) |
(29,451) |
(28,588) |
Adjustment to provision for losses
based on evaluation of outstanding receivables |
849 |
563 |
694 |
1,544 |
Total provision for losses |
$ 11,252 |
$ 12,814 |
$ 35,782 |
$ 40,674 |
|
|
|
|
|
Provision for losses as
a percentage of revenues |
24.1% |
27.2% |
20.3% |
22.5% |
Provision for losses as
a percentage of loan volume (all products) |
4.4% |
5.2% |
3.9% |
4.3% |
CONTACT: Investor Relations Contact:
Douglas E. Nickerson (913-234-5154)
Chief Financial Officer
Media Contact:
Tom Linafelt (913-234-5237)
Director - Corporate Communications
QC (PK) (USOTC:QCCO)
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