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Edited Transcript of CCFI earnings conference call or presentation 3-Jun-20 6:00pm GMT

Q1 2020 Community Choice Financial Inc Earnings Call

Dublin Jun 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Community Choice Financial Inc earnings conference call or presentation Wednesday, June 3, 2020 at 6:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Michael J. Durbin

CCF Holdings LLC - Executive VP, Chief Administrative Officer, CFO & Treasurer

* William E. Saunders

CCF Holdings LLC - Chairman of the Board of Managers & CEO




Operator [1]


Ladies and gentlemen, thank you for standing by. And welcome to the CCF Holdings Q1 2020 Earnings Call.


Michael J. Durbin, CCF Holdings LLC - Executive VP, Chief Administrative Officer, CFO & Treasurer [2]


Good afternoon. This is Michael Durbin, Chief Financial Officer of CCF Holdings LLC. Thank you for participating in today's call and for your continued support of Community Choice Financial.

I'd like to remind you that the following discussion contains certain statements that are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because forward-looking statements involve risks and uncertainties, they are not guarantees of future performance and actual results may differ materially from those expressed or implied by these forward-looking statements due to a variety of factors.

We assume no duty or responsibility to publicly update or revise any forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

As required by our registration rights agreement, we have submitted a resale shelf registration statement with the SEC. More information about our business and our results of operations can be found in the registration statement, subsequent amendments to that registration statement and the annual report on Form 10-K filed on March 12, 2020, and on the most recent Form 10-Q filed May 15, 2020.

And now I'd like to turn the call over to Ted Saunders, our Chairman and Chief Executive Officer.


William E. Saunders, CCF Holdings LLC - Chairman of the Board of Managers & CEO [3]


Thanks, Michael. And thanks to each of you for participating in our first quarter conference call. Today's call is going be a little brief. It's only been roughly 2 months since the fiscal year-end earnings call, and a pretty epic 2 months it's been. At that point, we're at the front end of the pandemic, discuss with you the impact, which COVID-19 was beginning to have on the business.

While the first quarter impact on our financial performance from the pandemic was minimal, from the end of the first quarter, until the issuance of the first quarter's 10-Q, the company continued to experience a reduction in consumer demand for the products and services we offer. So accordingly, in this quarterly report, we tried to provide more forward guidance than is normal to provide you some insight into the rapidly changing circumstances resulting from COVID-19.

Following Michael's walk-through of the first quarter's results, I'll expand a bit on the impact the pandemic is having on our operations and how we are responding at a manner to maximize value for you and all of our stakeholders. Michael, will you please provide the first quarter review?


Michael J. Durbin, CCF Holdings LLC - Executive VP, Chief Administrative Officer, CFO & Treasurer [4]


Certainly, Ted. Consistent with our comments regarding fourth quarter, the elimination of the CSO offering in Ohio and our installment product in California had a significant impact on our first quarter financials, particularly in comparison for the first quarter of 2019. On a consolidated basis for the quarter, revenue contracted 12.2% and net revenue contracted 13.7%.

For the quarter, credit service fees were reduced by 68.9% compared to Q1 2019 as a result of no longer offering the CSO product in our retail segment. We reported that the Ohio CSO portfolio was $2.6 million at the end of Q1 2020. This compares to a portfolio value of $31 million as of the end of Q1 2019. As a result, in our retail segment, CSO revenue declined from $14.9 million in Q1 2019 to $1.6 million in Q1 2020.

The CSO-related portfolio traded throughout last year and during the first quarter, causing a pronounced impact to revenue, which was further reduced by the cessation of our installment originations in California. The expected decreases in both credit service fee revenue and medium-term revenue resulted in an unfavorable 13.1% variance in total retail revenue when compared to the same period in 2019.

There was, however, significant upside in our money service businesses, resulting from a positive performance of the marketplace model in both Ohio and California. For the quarter, check cashing expanded 21.3% over the comparable period last year. And we reported a favorable variance of 113% versus the first quarter of 2019 in other income, which includes bill pay fees and money transmission. The favorable expansion of non-lending fees continues to illustrate the value of allowing third-party lenders to offer credit solutions through our stores, generating foot traffic, which we are then able to serve with our full menu of Money Service Business offerings.

In the retail segment, if we were to exclude the impact of the regulatory changes in Ohio and California, the balance of the retail segment revenue was in line with Q1 2019. In the quarter, operating expenses illustrated a favorable variance as compared to the same quarter of 2019. This was positively impacted by the decrease in provision for loan losses, offset by a higher average location count at 479 stores in the first quarter of 2020 as compared to 471 stores during the first quarter of 2019.

Depreciation fell 44.2% or $3.6 million year-over-year, as a result, a large portion of our property leasehold improvements and equipment becoming fully depreciated by December 31, 2019. Other operating expenses increased by 5.3% in the quarter as compared to 2019, impacted by the higher number of stores and money transmission-related expenses while total compensation costs fell 1.3% on a year-over-year basis.

Turning to the Internet segment. Internet revenue represented a negative variance of 5.1% as compared to Q1 2019. The negative variance was the result of a reduction in our medium-term lending revenue. As discussed previously, effective January 1, 2020, due to the passage of AB-539 in California, our prior installment lending product in that market was no longer permissible. In anticipation of this change, we halted originations last year, negatively impacting revenue.

During the quarter, we continued to take advantage of efficiencies in our new customer acquisition channels, and as a result, increased new customer accounts in our short-term and CSO offerings. This created heightened provisioning, but at an efficient marketing spend as compared to the first quarter of 2019.

Returning to our consolidated financial report. For the period, consolidated short-term revenue was down 4.8% compared to last year, primarily due to the contraction of this portfolio in the retail segment, which began to see lower originations in the last 2 weeks of the quarter. Consolidated medium-term revenue was down 17.2% versus the prior year, mainly due to the contraction of the installment business in California.

Provision for loan losses decreased 7.3% year-over-year and is primarily attributed to decreases in the provision for medium-term and CSO loans, partially offset by recording a liability for purchasing defaulted third-party lender loans. We reported core corporate expense increase of 6.5% compared to Q1 2019, which was a result of higher year-over-year insurance costs. For the first quarter, we recorded $13.2 million in net interest expense of which $8.3 million is related to PIK note interest for the period. Recall from an accounting standpoint, we expect the full burden of the PIK interest, which is added to the indenture obligation upon payment dates. That obligation is then fair valued, with any change in value flowing through other comprehensive income.

As of March 31, 2020, the PIK notes had an outstanding principal balance of $307.9 million with a fair value of $36.7 million. This compared with a fair market value of $74.2 million as of fiscal year-end 2019, with the decline in value reflecting the impact of the pandemic. As highlighted in Footnote 4 in our financial statements, based on the impact which the COVID-19 pandemic has had on our near-term outlook, we did take the full impairment of goodwill associated with the retail segment.

Finally, we ended the quarter with $65 million in cash on our balance sheet versus $75 million reported at Q1 2019 and $55.1 million as of fiscal year-end 2019.

And with that, I'll turn the call back to Ted Saunders.


William E. Saunders, CCF Holdings LLC - Chairman of the Board of Managers & CEO [5]


Thank you, Michael. Last quarter, I reported that the enterprise itself is performing quite well at those things that were within its control but that we obviously cannot control the beginning pandemic and its economic impact. The impact from the pandemic has been pronounced. Our portfolio has declined meaningfully through April as consumers were impacted by stay-at-home orders, unemployment and the closure of much of the consumer economy. We responded by adjusting our store hours, focusing on underwriting, implementing remote servicing capabilities for our customers, seeking concessions from vendors and heightening our focus on expense and liquidity management. Importantly, we've worked hard to stay close to our customers.

Our call center employees now work from home and the customer [out read] metrics have actually improved. We've offered customers deferrals and settlements in response to how the pandemic has impacted their lives. We've kept our stores open and continually reached out to our customers, letting them know we're there to serve them. We're doing what we can to ensure we remain relevant and a loyal financial service partner to our customers as their lives return to normal.

I am happy to report that we've seen some resumption in consumer demand during May, with the state economies beginning to slowly open up. But life is still far from normal for us or our consumers. But I'm hopeful for everyone that the reopening of the economy will be safe and successful and that we can rededicate ourselves to the business of serving our customers.

We do note in our quarterly report that we expect to seek additional flexibility from our lenders as we, like many of our retail peers, recover from the impact of COVID-19. Fortunately, we have long-standing financial partners who understand our industry and in the past, have demonstrated their confidence in our company and this management team.

We're doing everything we can to maximize value for all of our stakeholders while keeping our employees and our customers safe.

I appreciate your interest and support and look forward to our next quarterly call. Thank you.


Operator [6]


Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.