QC Holdings, Inc. Reports Third Quarter Results

OVERLAND PARK, Kan., Nov. 12, 2013 (GLOBE NEWSWIRE) -- QC Holdings, Inc. (Nasdaq:QCCO) reported income from continuing operations of $643,000 and revenues of $42.0 million for the quarter ended September 30, 2013. For the nine months ended September 30, 2013, income from continuing operations totaled $4.2 million and revenues were $117.2 million.

For the three months and nine months ended September 30, 2012, income from continuing operations totaled $1.8 million and $8.4 million, respectively, and revenues were $40.9 million and $115.2 million, respectively.

The three months and nine months ended September 30, 2013 and 2012 include discontinued operations relating to: i) the company's automotive segment and ii) branches that were closed during each period. Schedules reconciling adjusted EBITDA to income from continuing operations for the three months and nine months ended September 30, 2013 and 2012 are provided below.

** Third Quarter **

Revenues increased $1.1 million, or 2.7%, quarter-to-quarter, primarily due to higher fees and interest from the company's longer-term, higher-dollar installment products, which were introduced in early 2012, partially offset by reduced payday loan fees as a result of increased competition.

Branch operating costs, exclusive of loan losses, increased $349,000 (to $17.9 million) during the three months ended September 30, 2013 versus prior year's third quarter. This increase was primarily attributable to new marketing initiatives and higher bank-related charges.

Loan losses increased $4.1 million during the three months ended September 30, 2013, totaling $15.1 million versus $11.0 million in prior year's quarter. The loss ratio increased to 36.0% in third quarter 2013 versus 26.8% in third quarter 2012. The increase in the loss ratio is attributable to a higher rate of returned items in the current quarter versus prior year (54% in returned items as a percentage of revenues versus 41% in prior year's third quarter). This increase is related to the introduction of electronic collateralization of loans (in lieu of checks), the seasoning of the company's newer, higher-dollar installment products and the prolonged economic recovery.

Regional and corporate expenses totaled $6.7 million during the three months ended September 30, 2013, down $1.7 million from the $8.4 million in third quarter 2012. The improvement is largely attributable to reduced salaries and performance-based incentive compensation quarter-to-quarter.

In connection with the company's ongoing evaluation of its operating units and businesses, the company has decided to exit the automotive business. Pursuant to generally accepted accounting principles, the revenues, losses, expenses, assets and liabilities of this business segment are reflected as discontinued operations in the accompanying financial information.

** Nine Months Ended September 30 **

The company's revenues improved $2.0 million, or 1.7%, to $117.2 million during the nine months ended September 30, 2013 for the same reasons noted in the quarterly discussion above.

Branch operating costs, exclusive of loan losses, increased to $51.8 million during the nine months ended September 30, 2013 versus $51.0 million in prior year. As noted in the quarterly discussion above, this increase reflects a renewed marketing focus and higher bank-related charges.

During the first nine months of 2013, the company reported loan losses of $33.0 million compared to $23.9 million during the nine months ended September 30, 2012. The company's loss ratio increased to 28.1% versus 20.8% in first nine months of 2012 for the same reasons noted in the quarterly discussion above.

Regional and corporate expenses totaled $22.4 million during the nine months ended September 30, 2013 compared to $24.4 million in 2012. The nine months ended September 30, 2013 includes approximately $525,000 in severance and related costs in connection with a restructuring necessitated by declining loan volumes over the past few years as a result of shifting customer demand, the sluggish economy, regulatory changes and increasing competition in the short-term credit industry. The nine-month 2012 period includes a $739,000 gain resulting from the cash settlement of an expiring life insurance policy. Exclusive of the 2013 severance and related costs and the 2012 non-recurring gain, the decline in expenses period-to-period reflects reduced salaries and performance-based incentive compensation, as well as lower governmental affairs expenditures.

The company reported $597,000 of other expense during the nine months ended September 30, 2013 compared to other income of $1.4 million in the same prior year period. This change reflects the current year losses emanating from the recourse provision included in the fourth quarter 2012 agreement to sell the majority of the company's automobile loans receivable. The nine months ended September 30, 2012 included 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.

In connection with the November 12, 2013 amendment to the company's credit agreement, the company is prohibited from paying any dividends through September 30, 2014, the maturity of the facility. As a result, the company's board of directors suspended the regular quarterly dividend of $0.05 per share.

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 432 branches in 23 states at September 30, 2013. In Canada, the company, through its subsidiary Direct Credit Holdings Inc., is engaged in short-term, consumer Internet lending in various provinces. 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 (CFPB), 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) uncertainties related to the examination process by the CFPB and the potential for indirect rulemaking through the examination process, (5) litigation or regulatory action directed towards us or the payday loan industry, (6) volatility in our earnings, primarily as a result of fluctuations in loan loss experience and closures of branches, (7) risks associated with the leverage of the company, (8) negative media reports and public perception of the payday loan industry and the impact on federal and state legislatures and federal and state regulators, (9) changes in our key management personnel, (10) integration risks and costs associated with acquisitions, (11) risks associated with owning and managing non-U.S. businesses, and (12) the other risks detailed under Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012 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 Nine Months Ended
  September 30, September 30,
  2012 2013 2012 2013
Revenues        
Payday loan fees  $ 30,914  $ 29,221  $ 88,463  $ 83,245
Installment interest and fees  5,771  8,831  14,403  22,707
Other   4,254   3,901   12,302   11,234
Total revenues   40,939   41,953   115,168   117,186
Operating expenses        
Salaries and benefits  9,120  9,130  26,775  26,790
Provision for losses  10,970  15,115  23,907  32,973
Occupancy  4,713  4,673  13,781  13,831
Depreciation and amortization  524  500  1,604  1,586
Other   3,243   3,646   8,823   9,594
Total operating expenses   28,570   33,064   74,890   84,774
Gross profit  12,369  8,889  40,278  32,412
         
Regional expenses  3,036  2,195  8,986  7,461
Corporate expenses  5,373  4,499  15,380  14,933
Depreciation and amortization  441  443  1,427  1,329
Interest expense  599  332  2,112  980
Other expense (income), net   (254)   211   (1,428)   597
Income from continuing operations before income taxes  3,174  1,209  13,801  7,112
Provision for income taxes   1,325   566   5,438   2,937
Income from continuing operations  1,849  643  8,363  4,175
Loss from discontinued operations, net of income tax   192   1,673   49   2,851
Net income (loss)  $ 1,657  $ (1,030)  $ 8,314  $ 1,324
         
Earnings (loss) per share:        
Basic        
Continuing operations  $ 0.10  $ 0.04  $ 0.47  $ 0.24
Discontinued operations   (0.01)   (0.10)    --   (0.16)
Net income (loss)  $ 0.09  $ (0.06)  $ 0.47  $ 0.08
         
Diluted        
Continuing operations  $ 0.10  $ 0.04  $ 0.47  $ 0.24
Discontinued operations   (0.01)   (0.10)    --   (0.16)
Net income (loss)  $ 0.09  $ (0.06)  $ 0.47  $ 0.08
Weighted average number of common shares outstanding:        
Basic  17,170  17,383  17,165  17,374
Diluted  17,271  17,434  17,203  17,374
         
         

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 three months and nine months ended September 30, 2013 include additional adjustments to EBITDA related to severance and related costs in connection with a first quarter 2013 restructuring plan that the company undertook due to a decline in loan volumes over the past few years as a result of shifting customer demand, the sluggish economy, regulatory changes and increasing competition in the short-term credit industry. For the nine months ended September 30, 2012, adjusted EBITDA excludes a non-cash gain due to the reduction in the liability that was recorded to estimate the fair value of the contingent supplemental earn-out payment in connection with the company's third quarter 2011 acquisition of Direct Credit Holdings Inc. In addition, the nine months ended September 30, 2012 include an adjustment to EBITDA in connection with the cash settlement of an expiring life insurance policy.  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 Nine Months Ended
  September 30, September 30,
  2012 2013 2012 2013
         
Income from continuing operations  $ 1,849  $ 643  $ 8,363  $ 4,175
Provision for income taxes  1,325  566  5,438   2,937
Depreciation and amortization  965  943  3,031  2,915
Interest expense  599  332  2,112  980
Non-cash (gains) losses on property dispositions  (254)  211  (1,428)  597
Stock option and restricted stock expense  386  236  1,369  956
Gain on settlement of expiring life insurance policy      (739)  
Severance and related costs      8      557
Adjusted EBITDA  $ 4,870  $ 2,939  $ 18,146  $ 13,117

 
QC Holdings, Inc. Consolidated Balance Sheets (in thousands)
     
  December 31, September 30,
  2012 2013
ASSETS   (Unaudited)
Current assets    
Cash and cash equivalents  $ 14,124  $ 14,135
Restricted cash  1,076  1,076
Loans receivable, less allowance for losses of $6,608 at December 31, 2012 and $5,873 at September 30, 2013  60,462  54,134
Current assets of discontinued operations  2,540  5,257
Prepaid expenses and other current assets   8,703   6,122
Total current assets  86,905  80,724
Non-current loans receivable, less allowance for losses of $437 at December 31, 2012 and $1,589 at September 30, 2013  1,677  4,392
Non-current assets of discontinued operations  1,643  3,445
Property and equipment, net  11,210  10,494
Goodwill  21,791  21,567
Intangible assets, net  3,627  2,670
Other assets, net   4,847   5,069
Total assets  $ 131,700  $ 128,361
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities    
Accounts payable  $ 2,023  $ 1,244
Accrued expenses and other liabilities  8,169  8,625
Deferred revenue  3,993  3,349
Current liabilities of discontinued operations  1,268  519
Revolving credit facility   25,000   24,800
Total current liabilities  40,453  38,537
     
Non-current liabilities  5,747  5,401
     
Long-term debt   3,154   3,249
Total liabilities  49,354  47,187
     
Commitments and contingencies    
Stockholders' equity   82,346   81,174
Total liabilities and stockholders' equity  $ 131,700  $ 128,361
     

 
QC Holdings, Inc. Selected Statistical and Operating Data (in thousands, except Average Loan, Average Term and Average Fee)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2012 2013 2012 2013
  Unaudited Unaudited
         
Operating Data – Short-term Loans:        
Loan volume $ 208,519 $ 199,068 $ 598,203 $ 560,498
Average loan (principal plus fee)   380.38  385.61  379.86  384.66
Average fee   57.37   59.07  57.53  59.15
         
Operating Data – Installment Loans:        
Loan volume $ 11,360 $ 16,349  $ 27,834  $ 38,759
Average loan (principal)  642.83  753.12  600.50  693.54
Average term (days)  203  249  192   234
         
         
Other Revenues:        
Credit service fees  $  1,811 $ 1,690 $ 5,166 $ 4,759
Check cashing fees   744   671   2,480  2,175
Open-end credit fees  330  739  662  1,742
Title loan fees   764   129   2,133   676
Other    605   672   1,861  1,882
Total $  4,254 $  3,901 $ 12,302 $  11,234
         
Loss Data:        
         
Provision for losses, continuing operations:        
Charged-off to expense $ 16,771 $ 22,765 $ 44,483 $ 56,544
Recoveries  (7,072)  (9,369)  (21,556)  (25,504)
Adjustment to provision for losses based on evaluation of outstanding receivables   1,271   1,719   980  1,933
Total provision for losses $ 10,970 $ 15,115 $ 23,907 $ 32,973
         
Provision for losses as a percentage of revenues  26.8%  36.0%  20.8%  28.1%
Provision for losses as a percentage of loan volume (all products)  4.6%  6.7%  3.5%  5.2%
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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