QC Holdings, Inc. Reports First Quarter Results

QC Holdings, Inc. (NASDAQ: QCCO) reported income from continuing operations of $5.2 million, or $0.29 per diluted share, and revenues of $46.2 million for first quarter 2011.

“We were pleased with our first quarter results,” said QC Chairman and Chief Executive Officer Don Early. “With respect to our short-term loan branches, we experienced earnings improvements in the majority of our states during first quarter 2011, largely due to improved losses, reduced operating expenses and stable revenues.

“Our revenue mix continues to evolve, with automotive sales and fees from installment and title loans representing nearly 30% of total revenues in first quarter 2011 compared to about 20% in prior year’s first quarter. This evolution reflects diversification within our short-term loan branch network, as well as external to it through our buy here, pay here business.”

For the three months ended March 31, 2010, income from continuing operations totaled $5.6 million, or $0.31 per diluted share, and revenues totaled $46.8 million.

The three months ended March 31, 2011 and 2010 include discontinued operations relating to branches that were closed or sold during each period. Schedules reconciling adjusted EBITDA to income from continuing operations for the three months ended March 31, 2011 and 2010 are provided below.

Revenues declined $589,000, or 1.3%, quarter-to-quarter. This decline is primarily due to reduced loan volumes in Arizona resulting from the expiration of the existing payday loan law on June 30, 2010, substantially offset by higher automotive revenues.

Branch operating costs, exclusive of loan losses, totaled $23.1 million during the three months ended March 31, 2011, a $1.8 million increase over the $21.3 million in the same 2010 period. The increase was primarily attributable to higher cost of sales in the automotive business.

During the three months ended March 31, 2011, the company reported a decline in loan losses to $4.9 million compared to $5.7 million in the same 2010 quarter. The loss ratio for the current quarter totaled 10.6%, down from the 12.2% in first quarter 2010. This improvement reflects fewer returned items and a better collection rate quarter-to-quarter. The company received cash of approximately $205,000 and $65,000 from selling older debt during first quarter 2011 and 2010, respectively.

QC’s branch gross profit in first quarter 2011 was $18.3 million, a $1.6 million decrease from prior year’s quarter. This decrease is attributable to the changes in the Arizona law as noted above, partially offset by improvements in the majority of the other states in which the company operates.

Regional and corporate expenses declined $931,000 to $8.4 million during the three months ended March 31, 2011 from $9.3 million in first quarter 2010, largely due to reduced occupancy costs associated with a renegotiated corporate lease, together with lower expenses in various other areas.

Interest expense decreased approximately $110,000 from last year’s first quarter due to lower average outstanding debt balances.

“Despite the significant decline in Arizona revenues and profitability, we were able to generate solid first quarter earnings,” noted QC President and Chief Operating Officer Darrin Andersen. “Our field personnel have done an outstanding job of communicating with our customers to resolve outstanding debts, while maintaining operating expenses at very reasonable levels. These efforts were key to maintaining the overall branch gross margin near 40% during first quarter 2011.

“Our automotive business reported impressive revenue growth during first quarter 2011. We continue to work on improving the efficiency of our service center, but still have opportunities to reduce the average reconditioning cost for each vehicle. Our existing Kansas City locations provide a great base from which to explore expansion in the automotive industry.”

-DIVIDEND DECLARATION -

QC's Board of Directors declared a regular quarterly dividend of $0.05 per common share, payable May 31, 2011 to stockholders of record as of May 17, 2011.

-BUSINESS OUTLOOK -

“After having endured a very challenging year in 2010 due to legislative and regulatory changes in a number of states, we entered 2011 looking to rebound to more historical revenue and earnings experience,” Early said. “Exclusive of the expected negative declines in Arizona during the first quarter of 2011, we were pleased to report improvement in gross profit quarter-to-quarter.

“Looking ahead into 2011, we anticipate pressure on our revenues and profits resulting from the new Illinois short-term loan law that became effective in March 2011. In addition, we continue to monitor the progress of our Washington, South Carolina and Arizona branches as they manage through difficult operating environments. There are still several branches in each state that have not returned to profitability, and if trends do not improve in the near future, it is likely we would consolidate or close these branches.

“As in prior years, the first few months of each year are very active from a legislative standpoint, with so-called consumer groups and other opponents pressuring legislators in various states to restrict or eliminate our short-term loan products. Throughout the years, we have worked to educate and inform elected officials, their staff and any interested parties about the overwhelming demand for our products and the importance of maintaining reasonable, competitive credit options for consumers. We are committed to providing short-term loan product alternatives to our customers in a quick, convenient and professional manner.

“We look forward to continuing the momentum generated during first quarter 2011 and to producing meaningful cash flow, earnings and value for our shareholders into the future.”

About QC Holdings, Inc.

Headquartered in Overland Park, Kansas, QC Holdings, Inc. is a leading provider of short-term loans in the United States, operating 501 branches in 23 states at March 31, 2011 (note, however, that the company has 3 branches scheduled to close during the second quarter of 2011). With more than 25 years of operating experience in the retail consumer finance industry, the company entered the short-term loan market in 1992 and, since 1998, has grown from 48 branches to 501 branches through a combination of de novo branches and acquisitions. In addition, the company operates five buy here, pay here automotive dealerships in the Kansas City metropolitan area. During fiscal 2010, the company advanced approximately $1.0 billion to customers and reported total revenues of $188.1 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) litigation or regulatory action directed towards us or the payday loan industry, (4) volatility in our earnings, primarily as a result of fluctuations in loan loss experience and closures of branches, (5) risks associated with the leverage of the company, (6) negative media reports and public perception of the payday loan industry and the impact on federal and state legislatures and federal and state regulators, (7) changes in our key management personnel, (8) integration risks and costs associated with future acquisitions, and (9) the other risks detailed under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 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 EndedMarch 31,

2010
         

2011
Revenues
Payday loan fees $ 33,211 $ 29,095
Automotive sales, interest and fees 4,826 6,975
Other 8,801 10,179
Total revenues 46,838 46,249
Branch expenses
Salaries and benefits 9,911 10,269
Provision for losses 5,701 4,921
Occupancy 5,331 5,238
Cost of sales - automotive 2,162 3,807
Depreciation and amortization 846 723
Other 3,028 3,019
Total branch expenses 26,979 27,977
Branch gross profit 19,859 18,272
 
Regional expenses 3,830 3,308
Corporate expenses 5,462 5,053
Depreciation and amortization 694 703
Interest expense 704 594
Other expense, net 13 4

Income from continuing operations   before income taxes
9,156 8,610
Provision for income taxes 3,534 3,412
Income from continuing operations 5,622 5,198

Gain (loss) from discontinued operations, net    of income tax
(445) 92
Net income $ 5,177 $ 5,290
 
Earnings (loss) per share:
Basic
Continuing operations $ 0.31 $ 0.29
Discontinued operations (0.03) -
Net income $ 0.28 $ 0.29
 
Diluted
Continuing operations $ 0.31 $ 0.29
Discontinued operations (0.03) -
Net income $ 0.28 $ 0.29

Weighted average number of common   shares outstanding:
Basic 17,483 17,056
Diluted 17,580 17,077
 

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. 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

March 31,

2010
         

2011
 
Income from continuing operations $ 5,622 $ 5,198
Provision for income taxes 3,534 3,412
Depreciation and amortization 1,540 1,426
Interest expense 704 594

Non-cash losses on property  dispositions
13 4

Stock option and restricted stock  expense
  714   672
Adjusted EBITDA $ 12,127 $ 11,306
 

         

QC Holdings, Inc.

Consolidated Balance Sheets

(in thousands)
 

 

December 31,2010

March 31,2011
ASSETS

(Unaudited)
Current assets
Cash and cash equivalents $ 16,288 $ 14,181

Loans receivable, less allowance for losses of $5,300 at  December 31, 2010 and $3,970 at March 31, 2011
64,319 52,685
Prepaid expenses and other current assets   13,419   9,977
Total current assets 94,026 76,843

Non-current automotive loans receivable, less allowance for losses  of $1,850 at December 31, 2010 and $1,720 at March 31, 2011
5,740 7,069
Property and equipment, net 14,110 13,527
Goodwill 16,491 16,356
Other assets, net   7,675   7,593
Total assets $ 138,042 $ 121,388
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 467 $ 384
Accrued expenses and other liabilities 11,806 8,237
Deferred revenue 4,356 2,682
Income taxes payable 823
Revolving credit facility 17,250 7,750
Current portion of long-term debt   10,863   10,300
Total current liabilities 44,742 30,176
 
Non-current liabilities 4,872 5,038
 
Long-term debt   16,881   10,391
Total liabilities 66,495 45,605
 
Commitments and contingencies
Stockholders’ equity   71,547   75,783
Total liabilities and stockholders’ equity $ 138,042 $ 121,388
 

 

QC Holdings, Inc.

Selected Statistical and Operating Data

(in thousands, except Branch Data, Average Loan, Average Term and Average Fee)
 
 

 
   

Three Months EndedMarch 31,

2010
   

2011

 

Unaudited
Unaudited
Short-term Lending Branch Data:
Number of branches, beginning of period 556 523
De novo branches opened 1
Branches scheduled to close (3 )
Branches closed/sold   (4 )   (22 )
Number of branches, end of period   553     498  
 
                 
Short-term Lending Branch Data:
Average revenue per branch $ 84,192 $ 78,705
Percentage change (6.5 %)
 
                 
Operating Data – Short-term Loans:
Loan volume $ 218,773 $ 191,252
Average loan (principal plus fee) 375.23 377.37
Average fee 56.03 57.04
 
                 
Operating Data – Installment Loans:
Loan volume $ 4,897 $ 7,970
Average loan (principal) 489.77 530.08
Average term (days) 170 265
                 
Operating Data – Automotive Loans:
Loan volume $ 3,876 $ 5,552
Average loan (principal) 8,850 9,827
Average term (months) 31 34
Locations, end of period 5 5
 

           

QC Holdings, Inc.

Selected Statistical and Operating Data

(in thousands)
 

 

Three Months EndedMarch 31,

2010

2011

 

Unaudited
Unaudited
Other Revenues:
Installment loan interest and fees $ 3,995 $ 4,639
Credit service fees 1,731 1,936
Title loan fees 908 1,567
Other   2,167     2,037  
Total $ 8,801   $ 10,179  
 
 
 
Loss Data:
 

Provision for losses, continuing   operations:
Charged-off to expense $ 17,672 $ 16,007
Recoveries (9,905 ) (9,641 )

Adjustment to provision for losses   based on evaluation of   outstanding receivables
  (2,066 )   (1,445 )
Total provision for losses $ 5,701   $ 4,921  
 

Provision for losses as a  percentage of revenues
12.2 % 10.6 %

Provision for losses as a  percentage of loan volume (all products)
2.3 % 2.2 %

Copyright Business Wire 2010

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