n's(CONN) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements provide a detailed financial snapshot for the quarter and nine months ended October 31, 2021 Condensed Consolidated Balance Sheets Total assets increased to $1,786.6 million, liabilities decreased, and stockholders' equity rose, primarily driven by retained earnings Condensed Consolidated Balance Sheets (in thousands) | Metric | Oct 31, 2021 (in thousands) | Jan 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $1,786,579 | $1,755,084 | | Total Liabilities | $1,123,064 | $1,197,929 | | Total Stockholders' Equity | $663,515 | $557,155 | | Inventories | $263,134 | $196,463 | | Long-term debt and finance lease obligations | $459,319 | $608,635 | Condensed Consolidated Statements of Operations Total revenues increased for both periods, with net income significantly improving to $100.6 million for the nine months ended October 31, 2021, from a prior-year loss Three Months Ended October 31 (in thousands) | Metric | 2021 | 2020 | Change | | :---------------- | :------- | :------- | :------- | | Total Revenues | $405,458 | $334,158 | +21.4% | | Net Income | $18,239 | $7,419 | +145.8% | | Basic EPS | $0.62 | $0.25 | +148.0% | | Diluted EPS | $0.60 | $0.25 | +140.0% | Nine Months Ended October 31 (in thousands) | Metric | 2021 | 2020 | Change | | :---------------- | :--------- | :--------- | :-------------------- | | Total Revenues | $1,187,543 | $1,018,234 | +16.6% | | Net Income (Loss) | $100,641 | $(28,263) | N/A (swing to profit) | | Basic EPS | $3.42 | $(0.97) | N/A (swing to profit) | | Diluted EPS | $3.34 | $(0.97) | N/A (swing to profit) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $557.2 million to $663.5 million, primarily driven by net income and stock-based compensation - Total Stockholders' Equity increased from $557,155 thousand at January 31, 2021, to $663,515 thousand at October 31, 2021[13] - Net income contributed $18,239 thousand in the three months ended October 31, 2021, and $45,398 thousand and $37,004 thousand in the preceding two quarters, respectively, to retained earnings[13] - Stock-based compensation added $2,039 thousand, $1,713 thousand, and $2,630 thousand across the three quarters of 2021[13] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased significantly to $167.7 million for the nine months ended October 31, 2021, mainly due to increased inventory and lower collections, while investing and financing cash flows also decreased Nine Months Ended October 31 (in thousands) | Metric | 2021 | 2020 | Change | | :---------------------------------------- | :------- | :------- | :-------------------------- | | Net cash provided by operating activities | $167,676 | $385,462 | -56.5% | | Net cash used in investing activities | $(33,150) | $(46,644) | +28.9% (less cash used) | | Net cash used in financing activities | $(158,661) | $(233,477) | +32.0% (less cash used) | | Net change in cash, cash equivalents and restricted cash | $(24,135) | $105,341 | N/A (swing to outflow) | - Operating cash flow decrease primarily due to an increase in inventory and lower collections compared to the prior year[121] - Financing cash flow decrease was influenced by asset-backed note issuances ($62.9 million in 2021 vs $240.1 million in 2020) and the retirement of Senior Notes ($141.2 million in 2021)[121] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, financial instruments, and specific line items within the condensed consolidated financial statements 1. Summary of Significant Accounting Policies Conn's, Inc. operates retail and credit segments, consolidates Variable Interest Entities, and adopted recent accounting pronouncements with no material impact - The Company operates two reportable segments: retail and credit, which are managed independently[22] - Variable Interest Entities (VIEs) are consolidated as the Company is the primary beneficiary, retaining servicing and residual equity[23] - The adoption of ASU 2019-12 (Income Taxes) had no material impact, and ASU 2020-04 and 2021-01 (Reference Rate Reform) are not expected to have a material impact[38][39] 2. Customer Accounts Receivable Customer accounts receivable, net of allowances, decreased to $887.0 million, with a significant reduction in the allowance for credit losses due to an improved macroeconomic outlook and tighter underwriting Customer Accounts Receivable (in thousands) | Metric | Oct 31, 2021 | Jan 31, 2021 | Change | | :---------------------------------------------------------------- | :----------- | :----------- | :------- | | Carrying value of customer accounts receivable, net of allowance for credit losses | $887,028 | $909,483 | -2.5% | | Allowance for credit losses | $(194,377) | $(276,610) | -29.7% | | Customer accounts receivable 60+ days past due | $95,534 | $146,820 | -35.0% | | Re-aged customer accounts receivable | $198,279 | $306,845 | -35.3% | - The decrease in the allowance for credit losses was primarily due to an improved macroeconomic forecast, specifically a decrease in unemployment rates[42] - As of October 31, 2021, 75.0% of the customer accounts receivable portfolio was current[45] 3. Finance Charges and Other Revenues Total finance charges and other revenues decreased by 4.7% for the three months and 13.5% for the nine months ended October 31, 2021, primarily due to a decline in the average outstanding customer accounts receivable portfolio balance, despite an increased yield rate Finance Charges and Other Revenues (in thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income and fees | $63,621 | $69,996 | $196,303 | $235,438 | | Insurance income | $6,992 | $4,222 | $17,881 | $12,359 | | Other revenues | $262 | $168 | $695 | $599 | | Total finance charges and other revenues | $70,875 | $74,386 | $214,879 | $248,396 | - The decrease in finance charges and other revenues was primarily due to a 15.2% (three months) and 20.9% (nine months) decrease in the average outstanding balance of the customer accounts receivable portfolio[96][105] - The yield rate increased from 21.1% to 22.6% for the three months and from 21.9% to 23.1% for the nine months ended October 31, 2021[96][106] [4. Debt and Financing Lease Obligations](index=16&type=