Attached files
file | filename |
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EX-32.2 - EX-32.2 - Community Choice Financial Inc. | ccfi-20180331ex3224ad94a.htm |
EX-32.1 - EX-32.1 - Community Choice Financial Inc. | ccfi-20180331ex32156f8e4.htm |
EX-31.2 - EX-31.2 - Community Choice Financial Inc. | ccfi-20180331ex312bac83f.htm |
EX-31.1 - EX-31.1 - Community Choice Financial Inc. | ccfi-20180331ex31150843c.htm |
EX-10.44 - EX-10.44 - Community Choice Financial Inc. | ccfi-20180331ex1044ce9d3.htm |
EX-10.43 - EX-10.43 - Community Choice Financial Inc. | ccfi-20180331ex10431e649.htm |
EX-10.42 - EX-10.42 - Community Choice Financial Inc. | ccfi-20180331ex104254723.htm |
EX-10.41 - EX-10.41 - Community Choice Financial Inc. | ccfi-20180331ex104140c89.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q
(Mark One) |
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2018 |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to to |
Commission File Number: 001‑35537
COMMUNITY CHOICE FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Ohio (State or other jurisdiction of incorporation or organization) |
45‑1536453 (IRS Employer Identification No.) |
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6785 Bobcat Way, Suite 200, Dublin, Ohio (Address of principal executive offices) |
43016 (Zip Code) |
(888) 513‑9395
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ◻ |
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Non-accelerated filer ☒ |
Smaller reporting company ◻ |
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(Do not check if a smaller reporting company) |
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12‑b‑2 of the Act.) Yes ☐ No ☒
There is no market for the registrant’s equity. As of March 31, 2018, there were 7,990,020 shares outstanding.
Community Choice Financial Inc. and Subsidiaries
Form 10-Q for the Quarterly Period Ended March 31, 2018
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Page |
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Financial Information |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 |
3 |
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4 |
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5 |
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6 |
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7-26 |
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Management’s Discussion and Analysis of Financial Condition and Result of Operations |
27-39 |
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39 |
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39 |
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41 | ||
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41 |
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41 | ||
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41 |
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42 |
2
Community Choice Financial Inc. and Subsidiaries
March 31, 2018 and December 31, 2017
(In thousands, except per share data)
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March 31, |
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December 31, |
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2018 |
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2017 |
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(unaudited) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
85,274 |
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$ |
66,627 |
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Restricted cash |
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4,420 |
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4,585 |
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Finance receivables, net of allowance for loan losses of $12,293 and $13,517 |
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68,286 |
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89,707 |
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Card related pre-funding and receivables |
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841 |
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1,062 |
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Other current assets |
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13,522 |
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15,271 |
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Total current assets |
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172,343 |
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177,252 |
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Noncurrent Assets |
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Finance receivables, net of allowance for loan losses of $2,510 and $2,810 |
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3,626 |
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4,632 |
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Property, leasehold improvements and equipment, net |
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24,816 |
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26,848 |
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Other intangible assets |
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802 |
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924 |
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Security deposits |
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2,429 |
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2,750 |
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Total assets |
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$ |
204,016 |
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$ |
212,406 |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ |
31,803 |
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$ |
39,566 |
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Money orders payable |
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8,024 |
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7,169 |
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Accrued interest |
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11,942 |
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5,145 |
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Current portion of capital lease obligation |
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160 |
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371 |
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Current portion of subsidiary notes payable, net of deferred issuance costs of $1 and $1 |
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120 |
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118 |
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Deferred revenue |
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2,535 |
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2,535 |
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Total current liabilities |
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54,584 |
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54,904 |
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Noncurrent Liabilities |
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Lease termination payable |
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569 |
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818 |
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Line of credit, net of deferred issuance costs of $4,201 and $1,871 |
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42,799 |
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45,129 |
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Subsidiary notes payable, net of deferred issuance costs of $2,207 and $762 |
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59,600 |
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61,077 |
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Senior secured notes, net of deferred issuance costs of $1,365 and $1,664 |
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248,425 |
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248,126 |
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Deferred revenue |
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6,887 |
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7,520 |
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Total liabilities |
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412,864 |
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417,574 |
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Commitments and Contingencies |
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Stockholders' Equity |
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Preferred stock, par value $.01 per share, 3,000 shares authorized, no shares issued and outstanding |
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— |
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— |
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Common stock, par value $.01 per share, 300,000 authorized shares and 7,990 outstanding shares at March 31, 2018 and December 31, 2017 |
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90 |
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90 |
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Additional paid-in capital |
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129,683 |
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129,675 |
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Retained deficit |
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(338,571) |
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(334,883) |
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Treasury stock |
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(50) |
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(50) |
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Total stockholders' deficit |
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(208,848) |
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(205,168) |
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Total liabilities and stockholders' equity |
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$ |
204,016 |
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$ |
212,406 |
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See Notes to Unaudited Consolidated Financial Statements.
3
Community Choice Financial Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 2018 and 2017
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2018 |
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2017 |
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Revenues: |
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Finance receivable fees |
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$ |
50,932 |
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$ |
49,051 |
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Credit service fees |
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19,196 |
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18,139 |
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Check cashing fees |
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11,692 |
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12,126 |
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Card fees |
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1,948 |
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2,007 |
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Other |
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3,883 |
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4,029 |
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Total revenues |
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87,651 |
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85,352 |
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Operating expenses: |
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Salaries |
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17,132 |
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17,273 |
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Provision for loan losses |
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22,635 |
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19,540 |
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Occupancy |
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6,343 |
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6,629 |
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Advertising and marketing |
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1,011 |
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814 |
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Lease termination |
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97 |
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47 |
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Depreciation and amortization |
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2,223 |
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2,538 |
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Other |
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11,025 |
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11,915 |
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Total operating expenses |
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60,466 |
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58,756 |
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Operating gross profit |
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27,185 |
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26,596 |
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Corporate and other expenses: |
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Corporate expenses |
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17,602 |
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20,186 |
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Lease termination |
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— |
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1,762 |
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Depreciation and amortization |
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1,093 |
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1,309 |
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Interest expense, net |
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12,178 |
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11,371 |
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Total corporate and other expenses |
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30,873 |
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34,628 |
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Loss from continuing operations, before tax |
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(3,688) |
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(8,032) |
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Provision for income taxes |
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— |
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333 |
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Net loss |
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$ |
(3,688) |
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$ |
(8,365) |
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See Notes to Unaudited Consolidated Financial Statements.
4
Community Choice Financial Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, 2018
(Dollars in thousands)
(Unaudited)
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Additional |
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Common Stock |
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Treasury |
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Paid-In |
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Retained |
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Shares |
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Amount |
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Stock |
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Capital |
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Deficit |
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Total |
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Balance, December 31, 2017 |
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7,990,020 |
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$ |
90 |
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$ |
(50) |
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$ |
129,675 |
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$ |
(334,883) |
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$ |
(205,168) |
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Stock-based compensation expense |
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— |
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— |
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— |
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8 |
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— |
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8 |
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Net loss |
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— |
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— |
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— |
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— |
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(3,688) |
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(3,688) |
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Balance, March 31, 2018 |
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7,990,020 |
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$ |
90 |
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$ |
(50) |
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$ |
129,683 |
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$ |
(338,571) |
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$ |
(208,848) |
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See Notes to Unaudited Consolidated Financial Statements.
5
Community Choice Financial Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2018 and 2017
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2018 |
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2017 |
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Cash flows from operating activities |
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Net loss |
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$ |
(3,688) |
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$ |
(8,365) |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Provision for loan losses |
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22,635 |
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19,540 |
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Loss on disposal of assets |
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113 |
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1,042 |
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Depreciation |
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3,193 |
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3,723 |
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Amortization of note discount and deferred debt issuance costs |
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908 |
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728 |
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Amortization of intangibles |
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123 |
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124 |
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Deferred income taxes |
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— |
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211 |
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Stock-based compensation |
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8 |
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32 |
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Changes in assets and liabilities: |
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Short-term investments |
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— |
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500 |
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Card related pre-funding and receivables |
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221 |
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(184) |
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Other assets |
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2,069 |
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6,590 |
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Deferred revenue |
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(633) |
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(475) |
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Accrued interest |
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6,797 |
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6,793 |
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Money orders payable |
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855 |
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(378) |
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Lease termination payable |
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(249) |
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1,048 |
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Accounts payable and accrued expenses |
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(7,763) |
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(8,729) |
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Net cash provided by operating activities |
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24,589 |
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22,200 |
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Cash flows from investing activities |
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Net receivables originated |
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(208) |
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(2,721) |
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Purchase of leasehold improvements and equipment |
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(1,274) |
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(1,001) |
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Net cash used in investing activities |
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(1,482) |
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(3,722) |
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Cash flows from financing activities |
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Payments on subsidiary note |
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(30) |
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(29) |
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Payments on capital lease obligations |
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(211) |
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(248) |
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Net payments on lines of credit |
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— |
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(2,250) |
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Debt issuance costs |
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(4,384) |
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— |
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Net cash used in financing activities |
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(4,625) |
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(2,527) |
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Net increase in cash and cash equivalents and restricted cash |
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18,482 |
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15,951 |
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Cash and cash equivalents and restricted cash: |
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Beginning |
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71,212 |
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109,348 |
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Ending |
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$ |
89,694 |
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$ |
125,299 |
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The following table reconciles cash and cash equivalents and restricted cash from the |
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Consolidated Balance Sheets to the above statements: |
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December 31, |
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2017 |
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2016 |
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Cash and cash equivalents |
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$ |
66,627 |
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$ |
106,333 |
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Restricted Cash |
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4,585 |
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3,015 |
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Total cash and cash equivalents and restricted cash |
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$ |
71,212 |
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$ |
109,348 |
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March 31, |
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2018 |
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2017 |
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Cash and cash equivalents |
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$ |
85,274 |
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$ |
121,784 |
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Restricted Cash |
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4,420 |
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3,515 |
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Total cash and cash equivalents and restricted cash |
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$ |
89,694 |
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$ |
125,299 |
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See Notes to Unaudited Consolidated Financial Statements.
6
Community Choice Financial Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 1. Ownership, Nature of Business, and Significant Accounting Policies
Nature of business: Community Choice Financial Inc. (together with its consolidated subsidiaries, “CCFI” or “the Company”) owned and operated 484 retail locations in 12 states and was licensed to deliver similar financial services over the internet in 30 states as of March 31, 2018. Through its network of retail locations and over the internet, the Company provides customers a variety of financial products and services, including secured and unsecured, short and medium‑term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of its individual customers.
A summary of the Company’s significant accounting policies follows:
Basis of presentation: The accompanying interim unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10‑Q and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. They do not include all information and footnotes required by GAAP for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10‑K filed with the Securities & Exchange Commission on April 2, 2018. All adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial condition, have been included. The results for any interim period are not necessarily indicative of results to be expected for the year ending December 31, 2018.
Basis of consolidation: The accompanying consolidated financial statements include the accounts of CCFI. All significant intercompany accounts and transactions have been eliminated in consolidation.
Business segments: FASB Accounting Standards Codification (“ASC”) Topic 280 Segment Reporting requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way operating segments were determined and other items. The Company reports operating segments in accordance with FASB ASC Topic 280. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in determining how to allocate resources and assess performance. The Company operates in two segments: Retail financial services and Internet financial services.
Equity method investments: Entities and investments over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation are accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or loss of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Equity in losses of equity method investments is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.
On September 30, 2017, the Company entered into a joint venture with a third party to offer insurance products through select retail locations in a certain market. The joint venture will be managed by the third party.
Revenue recognition: Transactions include loans, credit service fees, check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services. The full amount of the check cashing fee is recognized as revenue at the time of the transaction. Fees and direct costs incurred for the origination of loans are deferred and amortized over the loan period using the interest method. The Company acts in an agency capacity regarding bill payment services, money transfers, card products, and money orders offered and sold at its retail locations.
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The Company records the net amount retained as revenue because the supplier is the primary obligor in the arrangement, the amount earned by the Company is fixed, and the supplier is determined to have the ultimate credit risk. Revenue on loans determined to be troubled debt restructurings are recognized at the impaired loans’ original interest rates until the impaired loans are charged off or paid by the customer. Credit service organization (“CSO”) fees are recognized over the arranged credit service period.
Finance receivables: Finance receivables consist of short term and medium‑term consumer loans.
Short-term consumer loans can be unsecured or secured with a maturity up to ninety days. Unsecured short-term loan products typically range in principal from $100 to $1,000, with a maturity between fourteen and thirty days, and include a written agreement to defer the presentment of the customer’s personal check or preauthorized debit for the aggregate amount of the advance plus fees. This form of lending is based on applicable laws and regulations, which vary by state. State statutes vary from charging fees of 15% to 20%, to charging interest at 25% per annum plus origination fees. The customers repay the cash advance by making cash payments or allowing a check or preauthorized debit to be presented. Secured consumer loans with a maturity of ninety days or less are included in this category and represented 14.0% and 14.5% of short-term consumer loans at March 31, 2018 and December 31, 2017, respectively.
Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days and up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000, and are evidenced by a promissory note with a maturity between three and thirty-six months. These consumer loans vary in structure depending upon the applicable laws and regulations where they are offered. The medium-term consumer loans are payable in installments or provide for a line of credit with periodic payments. Secured consumer loans with a maturity greater than ninety days are included in this category and represented 14.0% and 12.6% of medium-term consumer loans at March 31, 2018, and December 31, 2017, respectively.
Allowance for loan losses: Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses and an adequate accrual for losses related to guaranteed loans processed for third-party lenders under the CSO programs. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans made by third-party lenders and the resulting provision for loan losses include an evaluation by product, by market based on historical loan loss experience, and delinquency of certain medium-term consumer loans. The Company evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, by using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.
For short term unsecured consumer loans, the Company’s policy is to charge off loans when they become past due. The Company’s policy dictates that, where a customer has provided a check or ACH authorization for presentment upon the maturity of a loan, if the customer has not paid off the loan by the due date, the Company will deposit the customer’s check or draft the customer’s bank account for the amount due. If the check or draft is returned as unpaid, all accrued fees and outstanding principal are charged-off as uncollectible. For short term secured loans, the Company’s policy requires that balances be charged off when accounts are either thirty or sixty days past due depending on the product.
For medium term secured and unsecured consumer loans that have a term of one year or less, the Company’s policy requires that balances be charged off when accounts are sixty days past due. For medium term secured and unsecured consumer loans that have an initial maturity of greater than one year, the Company’s policy requires that balances be charged off when accounts are ninety-one days past due.
In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. These reduced interest rates and changed payment terms were limited to loans that the Company believed the customer had the ability to pay in the foreseeable future. These loans were accounted for as troubled debt restructurings and represent the only loans considered impaired due to the nature of the Company’s charge-off policy.
8
Recoveries of amounts previously charged off are recorded to the allowance for loan losses or the accrual for third‑party losses in the period in which they are received.
Lease termination payable: The Company records a liability in the consolidated balance sheets for the remaining lease obligations with the corresponding lease termination expense for closed retail locations disclosed in the operating expenses section, and closed corporate locations disclosed in the corporate and other expenses section, of the consolidated statements of operations, respectively.
Fair value of financial instruments: Financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
· |
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
· |
Level 2—Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less attractive. |
· |
Level 3—Unobservable inputs for assets and liabilities reflecting the reporting entity’s own assumptions. |
The Company follows the provisions of ASC 820‑10, Fair Value Measurements and Disclosures, which applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820‑10 requires a disclosure that establishes a framework for measuring fair value within GAAP and expands the disclosure about fair value measurements. This standard enables a reader of consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The standard requires that assets and liabilities carried at fair value be classified and disclosed in one of the three categories.
In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company’s financial instruments consist primarily of cash and cash equivalents, finance receivables, restricted cash, and lines of credit. For all such instruments, other than senior secured notes and notes payable at March 31, 2018, and December 31, 2017, the carrying amounts in the consolidated financial statements approximate their fair values. Finance receivables are short term in nature and are originated at prevailing market rates and lines of credit bear interest at current market rates. The fair value of finance receivables at March 31, 2018 and December 31, 2017 approximates carrying value and is measured using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.
9
The fair value of the Company’s 10.75% senior secured notes due 2019 (the “2019 notes”) and the 12.75% senior secured notes due 2020 (the “2020 notes”) were determined based on market yield on trades of the 2019 notes at the end of the recent reporting period.
|
|
March 31, 2018 |
|
||||||
|
|
Carrying |
|
|
|
|
|
||
|
|
Amount |
|
Fair Value |
|
Level |
|
||
Financial assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
85,274 |
|
$ |
85,274 |
|
1 |
|
Restricted cash |
|
|
4,420 |
|
|
4,420 |
|
1 |
|
Finance receivables |
|
|
71,912 |
|
|
71,912 |
|
3 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
10.75% Senior secured notes |
|
|
237,290 |
|
|
222,103 |
|
1 |
|
12.75% Senior secured notes |
|
|
12,500 |
|
|
11,479 |
|
2 |
|
Subsidiary Note payable |
|
|
61,928 |
|
|
61,928 |
|
2 |
|
Line of Credit |
|
|
47,000 |
|
|
47,000 |
|
2 |
|
|
|
December 31, 2017 |
|
||||||
|
|
Carrying |
|
|
|
|
|
||
|
|
Amount |
|
Fair Value |
|
Level |
|
||
Financial assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
66,627 |
|
$ |
66,627 |
|
1 |
|
Restricted cash |
|
|
4,585 |
|
|
4,585 |
|
1 |
|
Finance receivables |
|
|
94,339 |
|
|
94,339 |
|
3 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
10.75% Senior secured notes |
|
|
237,290 |
|
|
212,636 |
|
1 |
|
12.75% Senior secured notes |
|
|
12,500 |
|
|
10,841 |
|
2 |
|
Subsidiary Note payable |
|
|
61,958 |
|
|
61,958 |
|
2 |
|
Line of Credit |
|
|
47,000 |
|
|
47,000 |
|
2 |
|
Treasury Stock: Treasury stock is reported at cost and consists of one million common shares at March 31, 2018 and December 31, 2017.
Recent Accounting Pronouncements: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method. The adoption of ASC 606 did not impact the Company’s revenue recognition for consumer loan fees as these revenue streams are outside of the scope of ASC 606. Further, the Company has not identified any impacts to its consolidated financial statements that were material as a result of the adoption of ASC 606 for its CSO fees. The Company has not changed the presentation of its consolidated financial statements for assets, liabilities, or revenues from contracts with customers, nor has the Company recognized any cumulative effect adjustment as a result of the adoption of ASC 606.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash”. GAAP currently does not include specific guidance to address how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash
10
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. For public business entities the amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the new standard effective in 2018. As a result, the Company no longer reports the changes in restricted cash as an operating activity. Instead, restricted cash is included in the beginning and ending cash and cash equivalents balances on the consolidated statements of cash flows.
Subsequent events: The Company has evaluated its subsequent events (events occurring after March 31, 2018) through the issuance date of May 14, 2018.
Note 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses
Finance receivables representing amounts due from customers for advances at March 31, 2018, and December 31, 2017, consisted of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2018 |
|
2017 |
|
||
Short-term consumer loans |
|
$ |
52,115 |
|
$ |
66,465 |
|
Medium-term consumer loans |
|
|
36,860 |
|
|
46,903 |
|
Gross receivables |
|
$ |
88,975 |
|
$ |
113,368 |
|
Unearned advance fees, net of deferred loan origination costs |
|
|
(2,260) |
|
|
(2,702) |
|
Finance receivables before allowance for loan losses |
|
|
86,715 |
|
|
110,666 |
|
Allowance for loan losses |
|
|
(14,803) |
|
|
(16,327) |
|
Finance receivables, net |
|
$ |
71,912 |
|
$ |
94,339 |
|
|
|
|
|
|
|
|
|
Finance receivables, net |
|
|
|
|
|
|
|
Current portion |
|
$ |
68,286 |
|
$ |
89,707 |
|
Non-current portion |
|
|
3,626 |
|
|
4,632 |
|
Total finance receivables, net |
|
$ |
71,912 |
|
$ |
94,339 |
|
Changes in the allowance for loan losses by product type for the three months ended March 31, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as |
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Receivables |
|
a percentage |
|
|||
|
|
1/1/2018 |
|
Provision |
|
Charge-Offs |
|
Recoveries |
|
3/31/2018 |
|
3/31/2018 |
|
of receivables |
|
||||||
Short-term consumer loans |
|
$ |
2,697 |
|
$ |
8,159 |
|
$ |
(18,424) |
|
$ |
9,886 |
|
$ |
2,318 |
|
$ |
52,115 |
|
4.45 |
% |
Medium-term consumer loans |
|
|
13,630 |
|
|
8,397 |
|
|
(11,067) |
|
|
1,525 |
|
|
12,485 |
|
|
36,860 |
|
33.87 |
% |
|
|
$ |
16,327 |
|
$ |
16,556 |
|
$ |
(29,491) |
|
$ |
11,411 |
|
$ |
14,803 |
|
$ |
88,975 |
|
16.64 |
% |
The provision for loan losses for the three months ended March 31, 2018, also includes losses from returned items from check cashing of $1,062.
The provision for short-term consumer loans of $8,159 is net of debt sales of $412 for the three months ended March 31, 2018.
The provision for medium-term consumer loans of $8,397 is net of debt sales of $562 for the three months ended March 31, 2018.
The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for individually evaluating medium-term loans that have been modified and classified as troubled debt restructurings. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $20 and is included in the provision for medium-term consumer loans for the three months ended
11
March 31, 2018. For these loans evaluated for impairment, there were $54 of payment defaults during the three months ended March 31, 2018. The troubled debt restructurings during the three months ended March 31, 2018 are subject to an allowance of $6 with a net carrying value of $14 at March 31, 2018.
Changes in the allowance for loan losses by product type for the three months ended March 31, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as |
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Receivables |
|
a percentage |
|
|||
|
|
1/1/2017 |
|
Provision |
|
Charge-Offs |
|
Recoveries |
|
3/31/2017 |
|
3/31/2017 |
|
of receivables |
|
||||||
Short-term consumer loans |
|
$ |
2,223 |
|
$ |
6,433 |
|
$ |
(19,134) |
|
$ |
12,324 |
|
$ |
1,846 |
|
$ |
51,325 |
|
3.60 |
% |
Medium-term consumer loans |
|
|
13,996 |
|
|
7,221 |
|
|
(11,979) |
|
|
1,925 |
|
|
11,163 |
|
|
41,185 |
|
27.10 |
% |
|
|
$ |
16,219 |
|
$ |
13,654 |
|
$ |
(31,113) |
|
$ |
14,249 |
|
$ |
13,009 |
|
$ |
92,510 |
|
14.06 |
% |
The provision for loan losses for the three months ended March 31, 2017, also includes losses from returned items from check cashing of $1,399.
The provision for short-term consumer loans of $6,433 is net of debt sales of $89 for the three months ended March 31, 2017.
The provision for medium-term consumer loans of $7,221 is net of debt sales of $375 for the three months ended March 31, 2017.
The provision and subsequent charge off related to troubled debt restructurings totaled $13 and is included in the provision for medium-term consumer loans for the three months ended March 31, 2017. For these loans evaluated for impairment, there were no payment defaults during the three months ended March 31, 2017. The troubled debt restructurings during the three months ended March 31, 2017 are subject to an allowance of $5 with a net carrying value of $15 at March 31, 2017.
The Company has subsidiaries that facilitate third-party lender loans. Changes in the accrual for third-party lender losses for the three months ended March 31, 2018, and 2017 were as follows:
|
|
Three Months Ended March 31, |
|
|
||||
|
|
2018 |
|
2017 |
|
|
||
|
|
|
|
|
|
|
|
|
Short-term balance, beginning of period |
|
$ |
4,570 |
|
$ |
2,907 |
|
|
Provision for loan losses |
|
|
4,938 |
|
|
4,428 |
|
|
Charge-offs, net |
|
|
(5,928) |
|
|
(4,764) |
|
|
Short-term balance, end of period |
|
$ |
3,580 |
|
$ |
2,571 |
|
|
|
|
|
|
|
|
|
|
|
Medium-term balance, beginning of period |
|
$ |
248 |
|
$ |
192 |
|
|
Provision for loan losses |
|
|
79 |
|
|
59 |
|
|
Charge-offs, net |
|
|
(139) |
|
|
(131) |
|
|
Medium-term balance, end of period |
|
$ |
188 |
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
Total balance, beginning of period |
|
$ |
4,818 |
|
$ |
3,099 |
|
|
Provision for loan losses |
|
|
5,017 |
|
|
4,487 |
|
|
Charge-offs, net |
|
|
(6,067) |
|
|
(4,895) |
|
|
Total balance, end of period |
|
$ |
3,768 |
|
$ |
2,691 |
|
|
Total gross finance receivables for which the Company has recorded an accrual for third‑party lender losses totaled $29,575 and $36,967 at March 31, 2018, and December 31, 2017, respectively, and the corresponding guaranteed consumer loans are disclosed as an off‑balance sheet arrangement. The total gross finance receivables consist of $28,646 and $35,801 in short-term and $929 and $1,166 in medium-term loans at March 31, 2018 and December 31,2017, respectively. The provision for third party lender losses of $5,017 for the three months ending March 31, 2018 is net of
12
debt sales of $210. The provision for third party lender losses of $4,487 for the three months ending March 31, 2017 is net of debt sales of $181, respectively.
The Company was required to purchase $16,840 and $11,568 of short-term loans and $199 and $204 of medium-term loans as part of the CSO Program during the three months ended March 31, 2018 and 2017, respectively. As these loans were in default when purchased, they met the Company’s policy and were fully charged-off at acquisition. The Company recognized recoveries of $11,279 and $7,146 of short-term and $59 and $73 of medium-term collections on these loans during the three months ended March 31, 2018 and 2017, respectively.
The Company considers the near term repayment performance of finance receivables as its primary credit quality indicator. The Company performs credit checks through consumer reporting agencies on certain borrowers. If a third-party lender provides the advance, the applicable third‑party lender decides whether to approve the loan and establishes all of the underwriting criteria and terms, conditions, and features of the customer’s loan agreement.
The aging of receivables at March 31, 2018, and December 31, 2017, were as follows:
|
|
March 31, 2018 |
|
December 31, 2017 |
|
||||||
Current finance receivables |
|
$ |
81,847 |
|
92.0 |
% |
$ |
101,102 |
|
89.2 |
% |
Past due finance receivables (1 - 30 days) |
|
|
|
|
|
|
|
|
|
|
|
Short-term consumer loans |
|
|
1,280 |
|
1.4 |
% |
|
2,046 |
|
1.8 |
% |
Medium-term consumer loans |
|
|
2,575 |
|
2.9 |
% |
|
6,502 |
|
5.7 |
% |
Total past due finance receivables (1 - 30 days) |
|
|
3,855 |
|
4.3 |
% |
|
8,548 |
|
7.5 |
% |
Past due finance receivables (31 - 60 days) |
|
|
|
|
|
|
|
|
|
|
|
Medium-term consumer loans |
|
|
2,588 |
|
2.9 |
% |
|
3,130 |
|
2.8 |
% |
Total past due finance receivables (31 - 60 days) |
|
|
2,588 |
|
2.9 |
% |
|
3,130 |
|
2.8 |
% |
Past due finance receivables (61 - 90 days) |
|
|
|
|
|
|
|
|
|
|
|
Medium-term consumer loans |
|
|
685 |
|
0.8 |
% |
|
588 |
|
0.5 |
% |
Total past due finance receivables (61 - 90 days) |
|
|
685 |
|
0.8 |
% |
|
588 |
|
0.5 |
% |
Total delinquent |
|
|
7,128 |
|
8.0 |
% |
|
12,266 |
|
10.8 |
% |
|
|
$ |
88,975 |
|
100.0 |
% |
$ |
113,368 |
|
100.0 |
% |
Note 3. Related Party Transactions and Balances
There were no new significant related party transactions, or material changes to existing related party transactions, during the three months ended March 31, 2018.
Note 4. Other Intangible Assets
Intangible amortization expense for the three months ended March 31, 2018, and 2017 was $123 and $124, respectively. There were no additional significant changes to other intangible assets during the three months ended March 31, 2018.
13
Note 5. Pledged Assets and Debt
Lines of credit at March 31, 2018 and December 31, 2017, consisted of the following:
|
|
March 31, 2018 |
|
December 31, 2017 |
|
||||||||||||||
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
Deferred |
|
|
|
|
||
|
|
|
|
|
Issuance |
|
Net |
|
|
|
|
Issuance |
|
Net |
|
||||
|
|
Principal |
|
Costs |
|
Principal |
|
Principal |
|
Costs |
|
Principal |
|
||||||
$47,000 Revolving credit, secured, interest rate as defined below, due April 2019, collateralized by all Guarantor Company assets |
|
$ |
47,000 |
|
$ |
4,201 |
|
$ |
42,799 |
|
$ |
47,000 |
|
$ |
1,871 |
|
$ |
45,129 |
|
|
|
|
47,000 |
|
|
4,201 |
|
|
42,799 |
|
|
47,000 |
|
|
1,871 |
|
|
45,129 |
|
Less current maturities |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Long-term portion |
|
$ |
47,000 |
|
$ |
4,201 |
|
$ |
42,799 |
|
$ |
47,000 |
|
$ |
1,871 |
|
$ |
45,129 |
|
The interest rate is set at three-month LIBOR plus 11%, and there is an exit fee for early termination of the facility. The 3-month LIBOR was 2.31% and 1.69% at March 31, 2018 and December 31, 2017, respectively, and the prime rate was 4.75% and 4.50% at March 31, 2018 and December 31, 2017, respectively.
On March 30, 2018, the Company amended its revolving credit facility with Victory Park Management, LLC, as administrative agent, and certain of its affiliates as lenders, which we refer to collectively as VPC, to extend the maturity date to April 4, 2019. The amendment also waived certain events of default, eliminated the obligation to satisfy a quarterly fixed charge coverage test and added covenants addressing daily minimum liquidity and asset coverage tests, weekly operational reporting requirements and monthly EBITDA and borrowing base coverage tests. Additionally, the Company is required to use commercially reasonable efforts to obtain reasonably satisfactory modification of the 2019 and 2020 Notes.
Senior secured notes payable at March 31, 2018, and December 31, 2017, consisted of the following:
|
|
March 31, 2018 |
|
December 31, 2017 |
|
||||||||||||||
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
Deferred |
|
|
|
|
||
|
|
|
|
|
Issuance |
|
Net |
|
|
|
|
Issuance |
|
Net |
|
||||
|
|
Principal |
|
Costs |
|
Principal |
|
Principal |
|
Costs |
|
Principal |
|
||||||
$395,000 Senior Note payable, 10.75 %, collateralized by all Guarantor Company assets, semi-annual interest payments with principal due May 2019 |
|
$ |
237,290 |
|
$ |
1,222 |
|
$ |
236,068 |
|
$ |
237,290 |
|
$ |
1,504 |
|
$ |
235,786 |
|
$25,000 Senior Note payable, 12.75 %, collateralized by all Guarantor Company assets, semi-annual interest payments with principal due May 2020 |
|
|
12,500 |
|
|
143 |
|
|
12,357 |
|
|
12,500 |
|
|
160 |
|
|
12,340 |
|
|
|
|
249,790 |
|
|
1,365 |
|
|
248,425 |
|
|
249,790 |
|
|
1,664 |
|
|
248,126 |
|
Less current maturities |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Long-term portion |
|
$ |
249,790 |
|
$ |
1,365 |
|
$ |
248,425 |
|
$ |
249,790 |
|
$ |
1,664 |
|
$ |
248,126 |
|
14
Subsidiary notes payable at March 31, 2018, and December 31, 2017, consisted of the following:
|
|
March 31, 2018 |
|
December 31, 2017 |
|
||||||||||||||
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
Deferred |
|
|
|
|
||
|
|
|
|
|
Issuance |
|
Net |
|
|
|
|
Issuance |
|
Net |
|
||||
|
|
Principal |
|
Costs |
|
Principal |
|
Principal |
|
Costs |
|
Principal |
|
||||||
$60,000 Note, secured, 16.75%, collateralized by acquired loans, due April 2019 |
|
$ |
60,000 |
|
$ |
2,191 |
|
$ |
57,809 |
|
$ |
60,000 |
|
$ |
744 |
|
$ |
59,256 |
|
$1,425 Term note, secured, 4.25%, collateralized by financed asset, due July 2019 |
|
|
867 |
|
|
4 |
|
|
863 |
|
|
882 |
|
|
5 |
|
|
877 |
|
$1,165 Term note, secured, 4.50%, collateralized by financed asset, due May 2021 |
|
|
1,061 |
|
|
13 |
|
|
1,048 |
|
|
1,076 |
|
|
14 |
|
|
1,062 |
|
|
|
|
61,928 |
|
|
2,208 |
|
|
59,720 |
|
|
61,958 |
|
|
763 |
|
|
61,195 |
|
Less current maturities |
|
|
121 |
|
|
1 |
|
|
120 |
|
|
119 |
|
|
1 |
|
|
118 |
|
Long-term portion |
|
$ |
61,807 |
|
$ |
2,207 |
|
$ |
59,600 |
|
$ |
61,839 |
|
$ |
762 |
|
$ |
61,077 |
|
On March 30, 2018, the $60,000 Note was further amended to extend the maturity date to April 4, 2019. The amendment increases the administrative fee to 0.95% and permits an additional extension of the facility maturity date to April 2021 if certain conditions are met. The amendment allows for additional short term loans within the borrowing base and includes additional covenants addressing daily minimum cash and asset coverage tests, dividend limits, weekly operational reporting requirements, borrowing base reporting and a monthly consolidated EBITDA test.
Liquidity and Need for Additional Capital
The Company’s cash balance of $89,694 as of March 31, 2018, plus cash from operating activities, is expected to be sufficient to fund the Company’s operations through the first quarter of 2019. However, $237,290 of senior notes, $47,000 of revolving credit facility debt, and $60,000 in subsidiary notes are due in the second quarter of 2019. The Company’s expected cash position will not be sufficient to repay this indebtedness as it becomes due and the Company will need to restructure or refinance this indebtedness and there can be no assurances as to the ability of the Company to conclude such a restructuring or refinancing. These factors raise substantial doubt regarding the Company’s ability to meet its obligations and continue as a going concern for the period which extends one-year from the issuance of these financial statements.
While the Company is currently engaged in negotiations with its largest bondholders, the success of such negotiations cannot be assured. Any inability to reach an agreement with existing debt holders, secure sufficient refinancing sources for our pending debt maturities and/or our inability to continue as a going concern could have a significant and material adverse effect on the Company, its operations and its investors and, in particular, could significantly impair recoveries by our investors under our existing indebtedness. It is unlikely that the Company’s assets, in any event, would be sufficient to satisfy its current debt obligations. See Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 for more information on how these contingences could negatively impact the Company and its debt holders.
15
Note 6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at March 31, 2018, and December 31, 2017, consisted of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2018 |
|
2017 |
|
||
Accounts payable |
|
$ |
3,477 |
|
$ |
5,465 |
|
Accrued payroll and compensated absences |
|
|
6,316 |
|
|
7,718 |
|
Wire transfers payable |
|
|
1,502 |
|
|
2,238 |
|
Accrual for third-party losses |
|
|
3,768 |
|
|
4,818 |
|
Unearned CSO Fees |
|
|
6,620 |
|
|
8,029 |
|
Deferred rent |
|
|
791 |
|
|
867 |
|
Bill payment service liability |
|
|
2,036 |
|
|
2,604 |
|
Lease termination |
|
|
1,727 |
|
|
1,978 |
|
Other |
|
|
5,566 |
|
|
5,849 |
|
|
|
$ |
31,803 |
|
$ |
39,566 |
|
Note 7. Operating and Capital Lease Commitments and Total Rental Expense
Rental expense, including common area maintenance and real estate tax expense, totaled $6,660 and $7,034 for the three months ended March 31, 2018, and 2017, respectively.
The Company closed its Utah facility during the three months ended March 31, 2017, resulting in lease termination expense of $1,762 which is disclosed on the consolidated statement of operations
There were no additional significant changes to operating and capital lease commitments during the three months ended March 31, 2018.
Note 8. Concentrations of Credit Risks
The Company’s portfolio of finance receivables is comprised of loan agreements with customers living in thirty three states and consequently such customers’ ability to honor their contracts may be affected by economic conditions in those states. Additionally, the Company is subject to regulation by federal and state governments that affect the products and services provided by the Company. To the extent that laws and regulations are passed that affect the Company’s ability to offer loans or similar products in any of the states in which it operates, the Company’s financial position could be adversely affected.
The following table summarizes the allocation of the portfolio balance by state at March 31, 2018, and December 31, 2017:
|
|
March 31, 2018 |
|
December 31, 2017 |
|
||||||
|
|
Balance |
|
Percentage of |
|
Balance |
|
Percentage of |
|
||
State |
|
Outstanding |
|
Total Outstanding |
|
Outstanding |
|
Total Outstanding |
|
||
Alabama |
|
$ |
10,001 |
|
11.2 |
% |
$ |
12,808 |
|
11.3 |
% |
Arizona |
|
|
9,935 |
|
11.2 |
|
|
11,994 |
|
10.6 |
|
California |
|
|
31,290 |
|
35.2 |
|
|
39,835 |
|
35.1 |
|
Mississippi |
|
|
5,864 |
|
6.6 |
|
|
7,409 |
|
6.5 |
|
Virginia |
|
|
10,152 |
|
11.4 |
|
|
12,018 |
|
10.6 |
|
Other retail segment states |
|
|
14,685 |
|
16.5 |
|
|
19,696 |
|
17.4 |
|
Other internet segment states |
|
|
7,048 |
|
7.9 |
|
|
9,608 |
|
8.5 |
|
Total |
|
$ |
88,975 |
|
100.0 |
% |
$ |
113,368 |
|
100.0 |
% |
The other retail segment states are: Florida, Indiana, Kentucky, Michigan, Ohio, Oregon, and Tennessee.
16
The other internet segment states are: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
The Company offers a CSO product in Ohio and Texas to assist consumers in obtaining credit with unaffiliated third-party lenders. Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $29,575 and $36,967 at March 31, 2018, and December 31, 2017, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement. The total gross finance receivables consist of $28,646 and $35,801 in short-term and $929 and $1,166 in medium-term loans at March 31, 2018, and December 31, 2017, respectively.
Note 9. Contingencies
From time‑to‑time the Company is a defendant in various lawsuits and administrative proceedings wherein certain amounts are claimed or violations of law or regulations are asserted. In the opinion of the Company’s management, these claims are without substantial merit and should not result in judgments which in the aggregate would have a material adverse effect on the Company’s financial statements.
Note 10. Stock Based Compensation
During the three months ended March 31, 2018, the Company issued 76,559 options with a per share exercise price of $1.00 with the options vesting on specific dates defined in the award agreements.
The following weighted average assumptions were used by the Company for awards granted during the three months ended March 31, 2018:
|
|
|
|
2018 |
|
|
Risk‑free interest rate |
|
|
|
|
1.76% |
|
Dividend yield |
|
|
|
|
0.00% |
|
Expected volatility |
|
|
|
|
150.00% |
|
Expected term (years) |
|
|
|
|
1.00 |
|
Weighted average fair value of options granted |
|
|
|
$ |
— |
|
Stock-based compensation costs for the three months ended March 31, 2018, and 2017 were $8 and $32, respectively. As of March 31, 2018, and December 31, 2017, unrecognized stock-based compensation costs to be recognized over future periods approximated $58 and $66, respectively. At March 31, 2018, the remaining unrecognized compensation expense was $58 for certain awards that vest over the requisite service period. The remaining compensation expense of $58 is expected to be recognized over a weighted-average period of 1.8 years. The total income tax benefit recognized in the income statement for the stock-based compensation arrangements was $2 and $9 for the three months ended March 31, 2018, and 2017, respectively.
17
Stock option activity for the three months ended March 31, 2018, is as follows (these amounts have not been rounded in thousands):
|
|
|
|
Weighted-Average |
|
|
|
|
Aggregate |
|
||
|
|
|
|
Exercise Price |
|
Weighted-Average |
|
Intrinsic |
|
|||
|
|
|
|
(actual per |
|
Remaining |
|
Value |
|
|||
|
|
Shares |
|
share price) |
|
Contractual Term |
|
(thousands) |
|
|||
Outstanding at December 31, 2017 |
|
1,332,632 |
|
$ |
2.25 |
|
|
8.5 |
|
|
N/A |
|
Granted |
|
76,559 |
|
|
1.00 |
|
|
8.3 |
|
|
N/A |
|
Exercised |
|
— |
|
|
— |
|
|
— |
|
|
N/A |
|
Forfeited or expired |
|
— |
|
|
— |
|
|
— |
|
|
N/A |
|
Outstanding at March 31, 2018 |
|
1,409,191 |
|
$ |
2.18 |
|
|
8.3 |
|
|
N/A |
|
Exercisable at March 31, 2018 |
|
1,277,737 |
|
$ |
2.25 |
|
|
8.2 |
|
$ |
— |
|
Vested or expected to vest at March 31, 2018 |
|
1,409,191 |
|
$ |
2.18 |
|
|
8.3 |
|
$ |
— |
|
Note 11. Business Segments
The Company has elected to organize and report on its operations as two operating segments: Retail financial services and Internet financial services.
The following tables present summarized financial information for the Company’s segments:
|
|
As of and for the three months ended March 31, 2018 |
|
||||||||||||||||
|
|
Retail |
|
|
|
Internet |
|
|
|
Unallocated |
|
|
|
|
|
||||
|
|
Financial |
|
% of |
|
Financial |
|
% of |
|
(Income) |
|
|
|
% of |
|
||||
|
|
Services |
|
Revenue |
|
Services |
|
Revenue |
|
Expenses |
|
Consolidated |
|
Revenue |
|
||||
Total Assets |
|
$ |
166,505 |
|
|
|
$ |
37,511 |
|
|
|
|
|
|
$ |
204,016 |
|
|
|
Other Intangible Assets |
|
|
336 |
|
|
|
|
466 |
|
|
|
|
|
|
|
802 |
|
|
|
Total Revenues |
|
$ |
72,797 |
|
100.0 |
% |
$ |
14,854 |
|
100.0 |
% |
|
|
|
$ |
87,651 |
|
100.0 |
% |
Provision for Loan Losses |
|
|
15,620 |
|
21.4 |
% |
|
7,015 |
|
47.2 |
% |
|
|
|
|
22,635 |
|
25.8 |
% |
Other Operating Expenses |
|
|
36,291 |
|
49.9 |
% |
|
1,540 |
|
10.4 |
% |
|
|
|
|
37,831 |
|
43.2 |
% |
Operating Gross Profit |
|
|
20,886 |
|
28.7 |
% |
|
6,299 |
|
42.4 |
% |
|
|
|
|
27,185 |
|
31.0 |
% |
Interest Expense, net |
|
|
9,479 |
|
13.0 |
% |
|
2,699 |
|
18.2 |
% |
|
|
|
|
12,178 |
|
13.9 |
% |
Depreciation and Amortization |
|
|
1,000 |
|
1.4 |
% |
|
93 |
|
0.6 |
% |
|
|
|
|
1,093 |
|
1.3 |
% |
Other Corporate Expenses (a) |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
17,602 |
|
|
17,602 |
|
20.1 |
% |
Income (Loss) from Continuing Operations, before tax |
|
|
10,407 |
|
14.3 |
% |
|
3,507 |
|
23.6 |
% |
|
(17,602) |
|
|
(3,688) |
|
(4.2) |
% |
(a) |
Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose other corporate expenses as unallocated. |
18
|
|
As of and for the three months ended March 31, 2017 |
|
||||||||||||||||
|
|
Retail |
|
|
|
Internet |
|
|
|
Unallocated |
|
|
|
|
|
||||
|
|
Financial |
|
% of |
|
Financial |
|
% of |
|
(Income) |
|
|
|
% of |
|
||||
|
|
Services |
|
Revenue |
|
Services |
|
Revenue |
|
Expenses |
|
Consolidated |
|
Revenue |
|
||||
Total Assets |
|
$ |
309,595 |
|
|
|
$ |
57,106 |
|
|
|
|
|
|
$ |
366,701 |
|
|
|
Goodwill |
|
|
113,256 |
|
|
|
|
— |
|
|
|
|
|
|
|
113,256 |
|
|
|
Other Intangible Assets |
|
|
488 |
|
|
|
|
800 |
|
|
|
|
|
|
|
1,288 |
|
|
|
Total Revenues |
|
$ |
68,691 |
|
100.0 |
% |
$ |
16,661 |
|
100.0 |
% |
|
|
|
$ |
85,352 |
|
100.0 |
% |
Provision for Loan Losses |
|
|
12,058 |
|
17.6 |
% |
|
7,482 |
|
44.9 |
% |
|
|
|
|
19,540 |
|
22.9 |
% |
Other Operating Expenses |
|
|
38,207 |
|
55.6 |
% |
|
1,009 |
|
6.1 |
% |
|
|
|
|
39,216 |
|
45.9 |
% |
Operating Gross Profit |
|
|
18,426 |
|
26.8 |
% |
|
8,170 |
|
49.0 |
% |
|
|
|
|
26,596 |
|
31.2 |
% |
Interest Expense, net |
|
|
7,366 |
|
10.7 |
% |
|
4,005 |
|
24.0 |
% |
|
|
|
|
11,371 |
|
13.3 |
% |
Depreciation and Amortization |
|
|
1,129 |
|
1.6 |
% |
|
180 |
|
1.1 |
% |
|
|
|
|
1,309 |
|
1.5 |
% |
Lease termination Expenses |
|
|
— |
|
— |
% |
|
1,762 |
|
10.6 |
% |
|
|
|
|
1,762 |
|
2.1 |
% |
Other Corporate Expenses (a) |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
20,186 |
|
|
20,186 |
|
23.7 |
% |
Income (loss) from Continuing Operations, before tax |
|
|
9,931 |
|
14.5 |
% |
|
2,223 |
|
13.3 |
% |
|
(20,186) |
|
|
(8,032) |
|
(9.4) |
% |
(a)Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose other corporate expenses as unallocated.
Note 12. Income Taxes
The Company files a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as permitted by the individual states in which it operates. The differences between our effective rate and the U.S. statutory rate is primarily due to non-deductible expenses, state taxes, and changes in valuation allowance. The Company had no liability recorded for unrecognized tax benefits at March 31, 2018, and December 31, 2017.
At March 31, 2018, the Company had gross deferred tax assets of $72,877 and a valuation allowance of $72,877. At December 31, 2017, the Company had gross deferred tax assets of $71,896 and a valuation allowance of $71,896. The Company maintains a full valuation allowance against its deferred tax assets as it is more likely than not that the deferred tax assets will not be realized. In evaluating whether a valuation allowance is needed for the deferred tax assets, the Company considered the ability to carry net operating losses back to prior periods, reversing taxable temporary differences, and estimates of future taxable income. There have been no credits or net operating losses that have expired. The projections were evaluated in light of past operating results and considered the risks associated with generating future taxable income due to macroeconomic conditions in the markets in which the Company operates, regulatory developments and cost containment. The Company will continue to evaluate the need for a valuation allowance against deferred tax assets in future periods and will adjust the allowance as necessary if it determines that it is more likely than not that some or all of the deferred tax assets will be realized.
Note 13. Transactions with Variable Interest Entities
The Company has limited agency agreements with unaffiliated third-party lenders. The agreements govern the terms by which the Company refers customers to that lender, on a non-exclusive basis, for a possible extension of credit, processes loan applications, and commits to reimburse the lender for any loans or related fees that were not collected from such customers. As of March 31, 2018, and December 31, 2017, the outstanding amount of active consumer loans guaranteed by the Company, which represents the Company’s maximum exposure, was $29,575 and $36,967, respectively. The outstanding amount of consumer loans with unaffiliated third-party lenders consist of $28,646 and $35,801 in short-term and $929 and $1,166 in installment loans at March 31, 2018, and December 31, 2017, respectively. The accrual for third party lender losses related to these obligations totaled $3,768 and $4,818 as of March 31, 2018, and December 31, 2017, respectively. This obligation is recorded as a current liability on the Company’s consolidated balance sheet. The Company has determined that the lenders are Variable Interest Entities (“VIEs”) but that the Company is not the primary beneficiary of the VIEs. Therefore, the Company has not consolidated either lender.
19
Note 14. Supplemental Guarantor Information
The 2019 notes and the 2020 notes contain various covenants that, subject to certain exceptions defined in the indentures governing the notes (the “Indentures”), limit the Company’s ability to, among other things, engage in certain transactions with affiliates, pay dividends or distributions, redeem or repurchase capital stock, incur or assume liens or additional debt, and consolidate or merge with or into another entity or sell substantially all of its assets. The Company has optional redemption features on the 2019 notes and the 2020 notes prior to their maturity which, depending on the date of the redemption, would require premiums to be paid in addition to all principal and interest due.
The 2019 notes and 2020 notes are guaranteed by all of the Company’s guarantor subsidiaries existing as of April 29, 2011 (the date the Company issued the 2019 notes) and any subsequent guarantor subsidiaries that guarantee the Company’s indebtedness or the indebtedness of any other subsidiary guarantor (the “Subsidiary Guarantors”), in accordance with the Indentures. The Company is a holding company and has no independent assets or operations of its own. The guarantees under the 2019 notes and 2020 notes are full, unconditional, and joint and several. There are no restrictions on the ability of the Company or any of the Subsidiary Guarantors to obtain funds from its restricted subsidiaries by dividend or loan, except for net worth requirements of certain states in which the Company operates. Certain Subsidiary Guarantors are required to maintain net worth ranging from $10 to $2,000. The total net worth requirements of these Subsidiary Guarantors is $4,610. The Indentures contain certain affirmative and negative covenants applicable to the Company and its Subsidiary Guarantors, including restrictions on their ability to incur additional indebtedness, consummate certain asset sales, make investments in certain entities that create liens on their assets, enter into certain affiliate transactions and make certain restricted payments, including restrictions on the Company’s ability to pay dividends on, or repurchase, its common stock.
Note 15. Supplemental Condensed Consolidating Guarantor and Non‑Guarantor Financial Information
The following presents the condensed consolidating guarantor financial information as of March 31, 2018, and December 31, 2017, and for the three months ended March 31, 2018, and 2017, for the subsidiaries of the Company that serve as guarantors of the 2019 notes and the 2020 notes, and for the subsidiaries that do not serve as a guarantor. As of March 31, 2018, the non-guarantor subsidiaries are CCFI Funding LLC and CCFI Funding II LLC. During or prior to the first quarter of 2017, the following non-guarantor subsidiaries were dissolved; Direct Financial Solutions of UK Limited and its subsidiary Cash Central UK Limited, Direct Financial Solutions of Canada, Inc and its subsidiaries DFS-CC Financial Services LLC, DFS-CC Financial Services (Calgary) LLC and DFS-CC Financial Services (Toronto) LLC,
and Direct Financial Solutions of Australia Pty Ltd and its subsidiary Cash Central of Australia Pty Ltd. The UK,
Canada, and Australia entities, and their subsidiaries. The Florida II non-guarantor subsidiary was sold on February 1,
2016. Each of the Company’s guarantor subsidiaries are 100% owned by the Company or its subsidiaries, and all guarantees are full, unconditional, and joint and several.
Of the entities under “Non-Guarantor Subsidiaries” in the tables below, Florida II, CCFI Funding, and CCFI Funding II are “Unrestricted Subsidiaries” as defined in the Indentures. Buckeye Check Cashing of Florida II, LLC was acquired on July 31, 2012, and was sold on February 1, 2016, CCFI Funding was created on December 20, 2013, and CCFI Funding II was established on September 19, 2014. Refer to the “Non-Guarantor Subsidiaries” columns in the following condensed consolidating schedules. The remainder of the entities included under “Non-Guarantor Subsidiaries” in the tables below are “Restricted Subsidiaries” as defined in the Indentures governing the 2019 notes and the 2020 notes and, for the periods specified, did not have material assets, liabilities, revenue or expenses.
20
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheets (unaudited)
March 31, 2018
|
|
Community |
|
Guarantor |
|
|
Non‑Guarantor |
|
|
|
|
|
|||||
|
|
Choice Financial |
|
Subsidiaries |
|
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
$ |
63,751 |
|
|
$ |
21,523 |
|
$ |
— |
|
$ |
85,274 |
|
Restricted cash |
|
|
— |
|
|
4,420 |
|
|
|
— |
|
|
— |
|
|
4,420 |
|
Finance receivables, net |
|
|
— |
|
|
20,859 |
|
|
|
47,427 |
|
|
— |
|
|
68,286 |
|
Card related pre-funding and receivables |
|
|
— |
|
|
841 |
|
|
|
— |
|
|
— |
|
|
841 |
|
Other current assets |
|
|
— |
|
|
22,161 |
|
|
|
9,655 |
|
|
(18,294) |
|
|
13,522 |
|
Total current assets |
|
|
— |
|
|
112,032 |
|
|
|
78,605 |
|
|
(18,294) |
|
|
172,343 |
|
Noncurrent Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Subsidiaries |
|
|
365,365 |
|
|
— |
|
|
|
— |
|
|
(365,365) |
|
|
— |
|
Finance receivables, net |
|
|
— |
|
|
3,626 |
|
|
|
— |
|
|
— |
|
|
3,626 |
|
Property, leasehold improvements and equipment, net |
|
|
— |
|
|
24,816 |
|
|
|
— |
|
|
— |
|
|
24,816 |
|
Other intangible assets |
|
|
— |
|
|
802 |
|
|
|
— |
|
|
— |
|
|
802 |
|
Security deposits |
|
|
— |
|
|
2,429 |
|
|
|
— |
|
|
— |
|
|
2,429 |
|
Total assets |
|
$ |
365,365 |
|
$ |
143,705 |
|
|
$ |
78,605 |
|
$ |
(383,659) |
|
$ |
204,016 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
25,761 |
|
|
$ |
14,251 |
|
$ |
(8,209) |
|
$ |
31,803 |
|
Money orders payable |
|
|
— |
|
|
8,024 |
|
|
|
— |
|
|
— |
|
|
8,024 |
|
Accrued interest |
|
|
11,937 |
|
|
5 |
|
|
|
4,232 |
|
|
(4,232) |
|
|
11,942 |
|
Current portion of capital lease obligation |
|
|
— |
|
|
160 |
|
|
|
— |
|
|
— |
|
|
160 |
|
Current portion of subsidiary note payable |
|
|
— |
|
|
120 |
|
|
|
— |
|
|
— |
|
|
120 |
|
CCFI Funding notes |
|
|
— |
|
|
— |
|
|
|
5,853 |
|
|
(5,853) |
|
|
— |
|
Deferred revenue |
|
|
— |
|
|
2,535 |
|
|
|
— |
|
|
— |
|
|
2,535 |
|
Total current liabilities |
|
|
11,937 |
|
|
36,605 |
|
|
|
24,336 |
|
|
(18,294) |
|
|
54,584 |
|
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination payable |
|
|
— |
|
|
569 |
|
|
|
— |
|
|
— |
|
|
569 |
|
Lines of credit |
|
|
42,799 |
|
|
— |
|
|
|
— |
|
|
— |
|
|
42,799 |
|
Subsidiary note payable |
|
|
— |
|
|
1,791 |
|
|
|
57,809 |
|
|
— |
|
|
59,600 |
|
Senior secured notes |
|
|
248,425 |
|
|
— |
|
|
|
— |
|
|
— |
|
|
248,425 |
|
Deferred revenue |
|
|
— |
|
|
6,887 |
|
|
|
— |
|
|
— |
|
|
6,887 |
|
Total liabilities |
|
|
303,161 |
|
|
45,852 |
|
|
|
82,145 |
|
|
(18,294) |
|
|
412,864 |
|
Stockholders' Equity (Deficit) |
|
|
62,204 |
|
|
97,853 |
|
|
|
(3,540) |
|
|
(365,365) |
|
|
(208,848) |
|
Total liabilities and stockholders' equity |
|
$ |
365,365 |
|
$ |
143,705 |
|
|
$ |
78,605 |
|
$ |
(383,659) |
|
$ |
204,016 |
|
21
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
December 31, 2017
|
|
Community |
|
Guarantor |
|
Non‑Guarantor |
|
|
|
|
|
|||||
|
|
Choice Financial |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
$ |
57,526 |
|
$ |
9,101 |
|
$ |
— |
|
$ |
66,627 |
|
Restricted cash |
|
|
— |
|
|
4,585 |
|
|
— |
|
|
— |
|
|
4,585 |
|
Finance receivables, net |
|
|
— |
|
|
47,221 |
|
|
42,486 |
|
|
— |
|
|
89,707 |
|
Card related pre-funding and receivables |
|
|
— |
|
|
1,062 |
|
|
— |
|
|
— |
|
|
1,062 |
|
Other current assets |
|
|
— |
|
|
39,604 |
|
|
17,951 |
|
|
(42,284) |
|
|
15,271 |
|
Total current assets |
|
|
— |
|
|
149,998 |
|
|
69,538 |
|
|
(42,284) |
|
|
177,252 |
|
Noncurrent Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Subsidiaries |
|
|
360,599 |
|
|
— |
|
|
— |
|
|
(360,599) |
|
|
— |
|
Finance receivables, net |
|
|
— |
|
|
4,632 |
|
|
— |
|
|
— |
|
|
4,632 |
|
Property, leasehold improvements and equipment, net |
|
|
— |
|
|
26,848 |
|
|
— |
|
|
— |
|
|
26,848 |
|
Other intangible assets |
|
|
— |
|
|
924 |
|
|
— |
|
|
— |
|
|
924 |
|
Security deposits |
|
|
— |
|
|
2,750 |
|
|
— |
|
|
— |
|
|
2,750 |
|
Total assets |
|
$ |
360,599 |
|
$ |
185,152 |
|
$ |
69,538 |
|
$ |
(402,883) |
|
$ |
212,406 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
57,696 |
|
$ |
14,364 |
|
$ |
(32,494) |
|
$ |
39,566 |
|
Money orders payable |
|
|
— |
|
|
7,169 |
|
|
— |
|
|
— |
|
|
7,169 |
|
Accrued interest |
|
|
5,140 |
|
|
5 |
|
|
3,937 |
|
|
(3,937) |
|
|
5,145 |
|
Current portion of capital lease obligation |
|
|
— |
|
|
371 |
|
|
— |
|
|
— |
|
|
371 |
|
Current portion of subsidiary note payable |
|
|
— |
|
|
118 |
|
|
— |
|
|
— |
|
|
118 |
|
CCFI Funding notes |
|
|
— |
|
|
— |
|
|
5,853 |
|
|
(5,853) |
|
|
— |
|
Deferred revenue |
|
|
— |
|
|
2,535 |
|
|
— |
|
|
— |
|
|
2,535 |
|
Total current liabilities |
|
|
5,140 |
|
|
67,894 |
|
|
24,154 |
|
|
(42,284) |
|
|
54,904 |
|
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination payable |
|
|
— |
|
|
818 |
|
|
— |
|
|
— |
|
|
818 |
|
Lines of credit |
|
|
45,129 |
|
|
— |
|
|
— |
|
|
— |
|
|
45,129 |
|
Subsidiary note payable |
|
|
— |
|
|
1,821 |
|
|
59,256 |
|
|
— |
|
|
61,077 |
|
Senior secured notes |
|
|
248,126 |
|
|
— |
|
|
— |
|
|
— |
|
|
248,126 |
|
Deferred Revenue |
|
|
— |
|
|
7,520 |
|
|
— |
|
|
— |
|
|
7,520 |
|
Total liabilities |
|
|
298,395 |
|
|
78,053 |
|
|
83,410 |
|
|
(42,284) |
|
|
417,574 |
|
Stockholders' Equity (Deficit) |
|
|
62,204 |
|
|
107,099 |
|
|
(13,872) |
|
|
(360,599) |
|
|
(205,168) |
|
Total liabilities and stockholders' equity |
|
$ |
360,599 |
|
$ |
185,152 |
|
$ |
69,538 |
|
$ |
(402,883) |
|
$ |
212,406 |
|
22
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statements of Income (unaudited)
Three Months Ended March 31, 2018
|
|
Community |
|
Guarantor |
|
Non‑Guarantor |
|
|
|
|
|
|||||
|
|
Choice Financial |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivable fees |
|
$ |
— |
|
$ |
22,863 |
|
$ |
28,069 |
|
$ |
— |
|
$ |
50,932 |
|
Credit service fees |
|
|
— |
|
|
19,196 |
|
|
— |
|
|
— |
|
|
19,196 |
|
Check cashing fees |
|
|
— |
|
|
11,692 |
|
|
— |
|
|
— |
|
|
11,692 |
|
Card fees |
|
|
— |
|
|
1,948 |
|
|
— |
|
|
— |
|
|
1,948 |
|
Other |
|
|
— |
|
|
3,885 |
|
|
293 |
|
|
(295) |
|
|
3,883 |
|
Total revenues |
|
|
— |
|
|
59,584 |
|
|
28,362 |
|
|
(295) |
|
|
87,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
— |
|
|
17,132 |
|
|
— |
|
|
— |
|
|
17,132 |
|
Provision for loan losses |
|
|
— |
|
|
9,205 |
|
|
13,430 |
|
|
— |
|
|
22,635 |
|
Occupancy |
|
|
— |
|
|
6,343 |
|
|
— |
|
|
— |
|
|
6,343 |
|
Advertising and marketing |
|
|
— |
|
|
1,011 |
|
|
— |
|
|
— |
|
|
1,011 |
|
Lease termination costs |
|
|
— |
|
|
97 |
|
|
— |
|
|
— |
|
|
97 |
|
Depreciation and amortization |
|
|
— |
|
|
2,223 |
|
|
— |
|
|
— |
|
|
2,223 |
|
Other |
|
|
— |
|
|
11,025 |
|
|
— |
|
|
— |
|
|
11,025 |
|
Total operating expenses |
|
|
— |
|
|
47,036 |
|
|
13,430 |
|
|
— |
|
|
60,466 |
|
Operating gross profit |
|
|
— |
|
|
12,548 |
|
|
14,932 |
|
|
(295) |
|
|
27,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
|
— |
|
|
17,490 |
|
|
112 |
|
|
— |
|
|
17,602 |
|
Intercompany management fee |
|
|
— |
|
|
(1,385) |
|
|
1,385 |
|
|
— |
|
|
— |
|
Depreciation and amortization |
|
|
— |
|
|
1,093 |
|
|
— |
|
|
— |
|
|
1,093 |
|
Interest expense, net |
|
|
9,367 |
|
|
124 |
|
|
2,982 |
|
|
(295) |
|
|
12,178 |
|
Interest expense allocation |
|
|
(9,367) |
|
|
9,367 |
|
|
— |
|
|
— |
|
|
— |
|
Total corporate and other expenses |
|
|
— |
|
|
26,689 |
|
|
4,479 |
|
|
(295) |
|
|
30,873 |
|
Income (loss) before income taxes |
|
|
— |
|
|
(14,141) |
|
|
10,453 |
|
|
— |
|
|
(3,688) |
|
Provision for income taxes |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net income (loss) |
|
$ |
— |
|
$ |
(14,141) |
|
$ |
10,453 |
|
$ |
— |
|
$ |
(3,688) |
|
23
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statements of Income (unaudited)
Three Months Ended March 31, 2017
|
|
Community |
|
Guarantor |
|
Non‑Guarantor |
|
|
|
|
|
|||||
|
|
Choice Financial |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivable fees |
|
$ |
— |
|
$ |
39,830 |
|
$ |
9,221 |
|
$ |
— |
|
$ |
49,051 |
|
Credit service fees |
|
|
— |
|
|
18,139 |
|
|
— |
|
|
— |
|
|
18,139 |
|
Check cashing fees |
|
|
— |
|
|
12,126 |
|
|
— |
|
|
— |
|
|
12,126 |
|
Card fees |
|
|
— |
|
|
2,007 |
|
|
— |
|
|
— |
|
|
2,007 |
|
Dividend |
|
|
— |
|
|
3,000 |
|
|
— |
|
|
(3,000) |
|
|
— |
|
Other |
|
|
— |
|
|
4,275 |
|
|
49 |
|
|
(295) |
|
|
4,029 |
|
Total revenues |
|
|
— |
|
|
79,377 |
|
|
9,270 |
|
|
(3,295) |
|
|
85,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
— |
|
|
17,273 |
|
|
— |
|
|
— |
|
|
17,273 |
|
Provision for loan losses |
|
|
— |
|
|
16,458 |
|
|
3,082 |
|
|
— |
|
|
19,540 |
|
Occupancy |
|
|
— |
|
|
6,629 |
|
|
— |
|
|
— |
|
|
6,629 |
|
Advertising and marketing |
|
|
— |
|
|
814 |
|
|
— |
|
|
— |
|
|
814 |
|
Lease termination costs |
|
|
— |
|
|
47 |
|
|
— |
|
|
— |
|
|
47 |
|
Depreciation and amortization |
|
|
— |
|
|
2,538 |
|
|
— |
|
|
— |
|
|
2,538 |
|
Other |
|
|
— |
|
|
11,914 |
|
|
1 |
|
|
— |
|
|
11,915 |
|
Total operating expenses |
|
|
— |
|
|
55,673 |
|
|
3,083 |
|
|
— |
|
|
58,756 |
|
Operating gross profit |
|
|
— |
|
|
23,704 |
|
|
6,187 |
|
|
(3,295) |
|
|
26,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
|
— |
|
|
20,095 |
|
|
91 |
|
|
— |
|
|
20,186 |
|
Intercompany management fee |
|
|
— |
|
|
(427) |
|
|
427 |
|
|
— |
|
|
— |
|
Lease termination |
|
|
— |
|
|
1,762 |
|
|
— |
|
|
— |
|
|
1,762 |
|
Depreciation and amortization |
|
|
— |
|
|
1,309 |
|
|
— |
|
|
— |
|
|
1,309 |
|
Interest expense, net |
|
|
9,023 |
|
|
195 |
|
|
2,448 |
|
|
(295) |
|
|
11,371 |
|
Interest expense allocation |
|
|
(9,023) |
|
|
9,023 |
|
|
— |
|
|
— |
|
|
— |
|
Total corporate and other expenses |
|
|
— |
|
|
31,957 |
|
|
2,966 |
|
|
(295) |
|
|
34,628 |
|
Income (loss) before income taxes |
|
|
— |
|
|
(8,253) |
|
|
3,221 |
|
|
(3,000) |
|
|
(8,032) |
|
Provision for (benefit from) income taxes |
|
|
— |
|
|
342 |
|
|
(134) |
|
|
125 |
|
|
333 |
|
Net income (loss) |
|
$ |
— |
|
$ |
(8,595) |
|
$ |
3,355 |
|
$ |
(3,125) |
|
$ |
(8,365) |
|
24
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows (unaudited)
Three Months Ended March 31, 2018
|
|
Community |
|
Guarantor |
|
Non‑Guarantor |
|
|
|
||||
|
|
Choice Financial |
|
Subsidiaries |
|
Subsidiaries |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
2,762 |
|
$ |
(10,588) |
|
$ |
32,415 |
|
$ |
24,589 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables repaid (originated) |
|
|
— |
|
|
18,163 |
|
|
(18,371) |
|
|
(208) |
|
Purchase of leasehold improvements and equipment |
|
|
— |
|
|
(1,274) |
|
|
— |
|
|
(1,274) |
|
Net cash provided by (used in) investing activities |
|
|
— |
|
|
16,889 |
|
|
(18,371) |
|
|
(1,482) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on subsidiary note |
|
|
— |
|
|
(30) |
|
|
— |
|
|
(30) |
|
Payments on capital lease obligations |
|
|
— |
|
|
(211) |
|
|
— |
|
|
(211) |
|
Debt issuance costs |
|
|
(2,762) |
|
|
— |
|
|
(1,622) |
|
|
(4,384) |
|
Net cash used in financing activities |
|
|
(2,762) |
|
|
(241) |
|
|
(1,622) |
|
|
(4,625) |
|
Net increase in cash and cash equivalents and restricted cash |
|
|
— |
|
|
6,060 |
|
|
12,422 |
|
|
18,482 |
|
Cash and cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
— |
|
|
62,111 |
|
|
9,101 |
|
|
71,212 |
|
Ending |
|
$ |
— |
|
$ |
68,171 |
|
$ |
21,523 |
|
$ |
89,694 |
|
25
Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows (unaudited)
Three Months Ended March 31, 2017
|
|
Community |
|
Guarantor |
|
Non‑Guarantor |
|
|
|
||||
|
|
Choice Financial |
|
Subsidiaries |
|
Subsidiaries |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
— |
|
$ |
16,121 |
|
$ |
6,079 |
|
$ |
22,200 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables repaid (originated) |
|
|
— |
|
|
(5,830) |
|
|
3,109 |
|
|
(2,721) |
|
Purchase of leasehold improvements and equipment |
|
|
— |
|
|
(1,001) |
|
|
— |
|
|
(1,001) |
|
Net cash provided by (used in) investing activities |
|
|
— |
|
|
(6,831) |
|
|
3,109 |
|
|
(3,722) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on subsidiary note |
|
|
— |
|
|
(29) |
|
|
— |
|
|
(29) |
|
Payments on capital lease obligations, net |
|
|
— |
|
|
(248) |
|
|
— |
|
|
(248) |
|
Payments on lines of credit |
|
|
— |
|
|
(2,250) |
|
|
— |
|
|
(2,250) |
|
Net cash used in financing activities |
|
|
— |
|
|
(2,527) |
|
|
— |
|
|
(2,527) |
|
Net increase in cash and cash equivalents and restricted cash |
|
|
— |
|
|
6,763 |
|
|
9,188 |
|
|
15,951 |
|
Cash and cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
— |
|
|
74,792 |
|
|
34,556 |
|
|
109,348 |
|
Ending |
|
$ |
— |
|
$ |
81,555 |
|
$ |
43,744 |
|
$ |
125,299 |
|
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of Community Choice Financial Inc’s financial condition and results of operations. References to “CCFI,” “the company,” “us,” “we,” “our,” and ours” refer to Community Choice Financial Inc, together with its subsidiaries. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (“Act”) provides a safe harbor for forward-looking statements. Certain statements in this report are forward-looking statements within the meaning of the Act, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words “anticipate,” “estimate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” “target,” “forecast,” “guidance,” “outlook,” and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected revenues, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management’s then current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.
Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, the ongoing impact of the economic and credit crisis, leveling demand for our products, our inability to successfully execute strategic initiatives, our ability to recognize the expected benefits from recently undertaken strategic initiatives, including those described under “Factors Affecting Our Results of Operations— Strategic Initiatives,” integration of acquired businesses, competitive pressures, economic pressures on our customers and us, regulatory and legislative changes, the impact of legislation, the risks discussed under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and other factors discussed from time to time. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise.
Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements, releases, and reports.
Overview
We are a leading provider of alternative financial services to unbanked and under-banked consumers. We provide our customers a variety of financial products and services, including short-term and medium-term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of our customers. Through our retail focused business model, we provide our customers immediate access to high quality financial services at competitive rates through the channel most convenient for them. As of March 31, 2018, we operated 484 retail locations across 12 states and were licensed to deliver similar financial services over the internet in 30 states.
Our retail business model provides a broad array of financial products and services whether through a retail location or over the internet, whichever distribution channel satisfies the target customer’s needs or desires. We want to achieve a superior level of customer satisfaction, resulting in increased market penetration and value creation. An
27
important part of our retail model is investing in and creating a premier brand presence, supported by a well-trained and motivated workforce with the aim of enhancing the customer’s experience, generating increased traffic and introducing our customers to our diversified set of products.
Factors Affecting Our Results of Operations
Closure of Utah Facility
In February 2017, the Company closed the Utah office that was acquired in 2012 when we purchased Direct Financial Solutions, our internet business. All call center operations were fully integrated into the Company’s primary headquarters in Dublin, Ohio at that time. During the three months ended March 31, 2017, the Company incurred $2.6 million in closure costs consisting of $1.8 million in lease termination expenses and $0.8 million in loss on disposal of assets associated with this consolidation.
Retail Platform
During the three months ended March 31, 2018, the Company closed five retail locations.
The chart below sets forth certain information regarding our retail presence and number of states served via the internet as of and for the year ended December 31, 2017, and the three months ended March 31, 2018.
|
|
|
|
Three Months |
|
|
|
Year Ended |
|
Ended |
|
|
|
December 31, |
|
March 31, |
|
|
|
2017 |
|
2018 |
|
# of Locations |
|
|
|
|
|
Beginning of Period |
|
518 |
|
489 |
|
Opened (a) |
|
47 |
|
— |
|
Closed |
|
76 |
|
5 |
|
End of Period |
|
489 |
|
484 |
|
|
|
|
|
|
|
Number of states licensed for our internet operations |
|
30 |
|
30 |
|
|
|
|
|
|
|
(a) Includes leases assumed from an unrelated Mississippi entity that terminated its business operations in June 2017. |
|
The following table provides the geographic composition of our physical locations as of December 31, 2017, and March 31, 2018:
|
|
December 31, |
|
March 31, |
|
|
|
2017 |
|
2018 |
|
Alabama |
|
39 |
|
39 |
|
Arizona |
|
31 |
|
31 |
|
California |
|
160 |
|
157 |
|
Florida |
|
15 |
|
15 |
|
Indiana |
|
21 |
|
21 |
|
Kentucky |
|
15 |
|
15 |
|
Michigan |
|
14 |
|
14 |
|
Mississippi |
|
51 |
|
50 |
|
Ohio |
|
91 |
|
91 |
|
Oregon |
|
2 |
|
2 |
|
Tennessee |
|
24 |
|
23 |
|
Virginia |
|
26 |
|
26 |
|
|
|
489 |
|
484 |
|
28
In addition, the Company is licensed to provide internet financial services in the following states: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
Changes in Legislation & Regulation
As previously disclosed in the Company’s Annual Report on Form 10-K, the CFPB Rule remains subject to potential override by congressional disapproval pursuant to the Congressional Review Act and a resolution to override the CFPB Rule was filed in the United States Senate on March 23, 2018, and remains pending. Further, the CFPB Rule is being challenged in a lawsuit filed by the Community Financial Services Association of America and Consumer Service Alliance of Texas on April 9, 2018, filed in the U.S. District Court for the Western District of Texas, Austin Division. It is possible that the CFPB Rule will also be subject to legal challenge by other trade groups or other private parties.
On April 18, 2018, Ohio House Bill 123 (“HB 123”), passed out of the House of Representative’s Government Accountability and Oversight Committee. It has not yet, however, come before the full house for a vote. HB 123 amends the General Loan Law and Small Loan Law, under which one of the Company’s Ohio’s subsidiaries is licensed, to prohibit loans with a term of fewer than 180-days. HB 123 also prohibits credit services organizations, such as the Company’s CSO subsidiary currently operating in Ohio, from brokering an extension of credit if that credit is in a principal amount of less than $5,000.00, with a term fewer than 180-days, and that has an annual percentage rate greater than 28%. Whether HB 123 will ultimately pass both the House of Representatives and the Senate is unknown.
Product Characteristics and Mix
As the Company expands its product offerings to meet customers’ needs, the characteristics of our overall loan portfolio shift to reflect the terms of these new products. Our various lending products have different terms. Our prepaid debit card direct deposit offering may reduce our check cashing fees, however, the availability of direct deposit to the Insight prepaid card as an alternative to check cashing may extend the customer relationship.
Expenses
Our operating expenses relate primarily to the operation of our retail locations and internet presence, including salaries and benefits, retail location occupancy costs, call center costs, advertising, loan loss provisions, and depreciation of assets. We also incur corporate and other expenses on a company-wide basis, including interest expense and other financing costs related to our indebtedness, insurance, salaries, benefits, occupancy costs, professional expenses and management fees paid to our majority stockholders.
We view our compliance, collections and operations groups as core competencies. We have invested in each of these areas and believe we will benefit from increased economies of scale and satisfy the increased regulatory scrutiny of the CFPB.
Critical Accounting Policies
Consistent with accounting principles generally accepted in the United States of America, our management makes certain estimates and assumptions to determine the reported amounts of assets, liabilities, revenue and expenses in the process of preparing our financial statements. These estimates and assumptions are based on the best information available to management at the time the estimates or assumptions are made. The most significant estimates made by our management include allowance for loan losses, stock based compensation, and our determination for recording the amount of deferred income tax assets and liabilities, because these estimates and assumptions could change materially as a result of conditions both within and beyond management’s control.
29
Management believes that among our significant accounting policies, the following involve a higher degree of judgment:
Finance Receivables, Net
Finance receivables consist of short-term and medium-term consumer loans.
Short-term consumer loans can be unsecured or secured with a maturity up to ninety days. Unsecured short-term products typically range in size from $100 to $1,000, with a maturity between fourteen and thirty days, and an agreement to defer the presentment of the customer’s personal check or preauthorized debit for the aggregate amount of the advance plus fees. This form of lending is based on applicable laws and regulations which vary by state. Statutes vary from state-to-state permitting charging fees of 15% to 20%, to charging interest at 25% per annum plus origination fees. The customers repay the cash advances by making cash payments or allowing the check or preauthorized debit to be presented. Secured short-term products typically range from $750 to $5,000, and are asset-based consumer loans whereby the customer obtains cash and grants a security interest in the collateral that may become a lien against that collateral. Secured consumer loans represented 14.5% and 14.0% of short-term consumer loans at December 31, 2017, and March 31, 2018, respectively.
Medium-term consumer loans can be unsecured or secured with a maturity of three months up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000. These consumer loans vary in structure depending upon the regulatory environment where they are offered. The consumer loans are due in installments or provide for a line of credit with periodic monthly payments. Secured medium-term products typically range from $750 to $5,000, and are asset-based consumer loans whereby the customer obtains cash and grants a security interest in the collateral that may become a lien against that collateral. Secured consumer loans represented 12.6% and 14.0% of medium-term consumer loans at December 31, 2017, and March 31, 2018, respectively.
In some instances, the Company maintains debt-purchasing arrangements with third-party lenders. The Company accrues for these obligations through management’s estimation of anticipated purchases based on expected losses in the third-party lender’s portfolio. This obligation is recorded as a current liability on our balance sheet.
Total finance receivables, net of unearned advance fees and allowance for loan losses on the consolidated balance sheet as of December 31, 2017, and March 31, 2018, were $94.3 million and $71.9 million, respectively. The allowance for loan losses as of December 31, 2017, and March 31, 2018, were $16.3 million and $14.8 million, respectively. At December 31, 2017, and March 31, 2018, the allowance for loan losses was 14.8% and 17.1%, respectively, of total finance receivables, net of unearned advance fees.
Finance receivables, net as of December 31, 2017, and March 31, 2018, are as follows (in thousands):
|
|
December 31, |
|
March 31, |
|
||
|
|
2017 |
|
2018 |
|
||
Finance Receivables, net of unearned advance fees |
|
$ |
110,666 |
|
$ |
86,715 |
|
Less: Allowance for loan losses |
|
|
16,327 |
|
|
14,803 |
|
Finance Receivables, Net |
|
$ |
94,339 |
|
$ |
71,912 |
|
30
The total changes to the allowance for loan losses for the three months ended March 31, 2017 and 2018, were as follows (in thousands):
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2017 |
|
2018 |
|
||
Allowance for loan losses |
|
|
|
|
|
|
|
Beginning of Period |
|
$ |
16,219 |
|
$ |
16,327 |
|
Provisions for loan losses |
|
|
13,654 |
|
|
16,556 |
|
Charge-offs, net |
|
|
(16,864) |
|
|
(18,080) |
|
End of Period |
|
$ |
13,009 |
|
$ |
14,803 |
|
Allowance as a percentage of finance receivables, net of unearned advance fees |
|
|
14.4% |
|
|
17.1% |
|
The provision for loan losses for the three months ended March 31, 2017, and 2018 includes losses from returned items from check cashing of $1.4 million and $1.1 million, respectively, and third party lender losses of $4.5 million and $5.0 million, respectively.
In some instances the Company guarantees loans with third-party lenders. As of December 31, 2017, and March 31, 2018, the outstanding amount of active consumer loans were $37.0 million and $29.6 million, respectively, consisting of $35.8 million and $28.6 million in short-term, and $1.2 million and $1.0 million in installment loans, respectively. The Company accrues for these obligations through management’s estimation of anticipated purchases based on expected losses in the third-party lender’s portfolio. This obligation is recorded as a current liability on our balance sheet and was $4.8 million and $3.8 million as of December 31, 2017, and March 31, 2018, respectively.
Income Taxes
We record income taxes as applicable under generally accepted accounting standards. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded to reduce the deferred tax asset if it is more likely than not that some portion of the asset will not be realized.
As of December 31, 2017, the Company had a valuation allowance on its deferred tax assets as it was more likely than not that approximately $71.9 million of net deferred tax assets would not be realized in the foreseeable future. Based on a pre-tax loss of $3.7 million for the three months ended March 31, 2018, and the projected reversal of temporary items, the Company continues to maintain a full valuation allowance against its deferred tax assets.
Non-Guarantor Subsidiaries and Unrestricted Subsidiaries
As described in more detail under Note 15 to the consolidated financial statements, we had two non-guarantor subsidiaries as of March 31, 2018. Certain information with respect to our Non-guarantor Subsidiaries is set out in the table below.
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2017 |
|
2018 |
|
||
Statement of Operations Data: |
|
|
|
|
|
|
|
Total revenues |
|
$ |
9,270 |
|
$ |
28,362 |
|
Total operating expenses |
|
|
3,083 |
|
|
13,430 |
|
Income before income taxes |
|
|
3,221 |
|
|
10,453 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
Total assets |
|
$ |
56,029 |
|
$ |
78,605 |
|
Total liabilities |
|
|
55,897 |
|
|
82,145 |
|
31
As of March 31, 2018, of the entities classified as “Non-Guarantor Subsidiaries,” CCFI Funding, and CCFI Funding II are “Unrestricted Subsidiaries” as defined in the indentures governing our senior notes. CCFI Funding was created on December 20, 2013, and CCFI Funding II was established on September 19, 2014. The remainder of the entities included under “Non-Guarantor Subsidiaries” are “Restricted Subsidiaries” as defined in the indentures governing our senior secured notes and do not have material assets, liabilities, revenue or expenses.
Results of Operations
Three Months Ended March 31, 2018, Compared to the Three Months Ended March 31, 2017
The following table sets forth key operating data for the three months ended March 31, 2017, and 2018 (dollars in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||||||||
|
|
2017 |
|
2018 |
|
Increase (Decrease) |
|
|
2017 |
|
2018 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
(Percent) |
|
|
(Percent of Revenue) |
|
|||
Total Revenues |
|
$ |
85,352 |
|
$ |
87,651 |
|
$ |
2,299 |
|
|
2.7% |
|
|
100.0% |
|
100.0% |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
17,273 |
|
|
17,132 |
|
|
(141) |
|
|
(0.8%) |
|
|
20.1% |
|
19.5% |
|
Provision for losses |
|
|
19,540 |
|
|
22,635 |
|
|
3,095 |
|
|
15.8% |
|
|
22.9% |
|
25.8% |
|
Occupancy |
|
|
6,629 |
|
|
6,343 |
|
|
(286) |
|
|
(4.3%) |
|
|
7.7% |
|
7.2% |
|
Advertising and marketing |
|
|
814 |
|
|
1,011 |
|
|
197 |
|
|
24.2% |
|
|
1.0% |
|
1.2% |
|
Lease termination |
|
|
47 |
|
|
97 |
|
|
50 |
|
|
106.4% |
|
|
0.1% |
|
0.1% |
|
Depreciation and amortization |
|
|
2,538 |
|
|
2,223 |
|
|
(315) |
|
|
(12.4%) |
|
|
3.0% |
|
2.5% |
|
Other operating expenses |
|
|
11,915 |
|
|
11,025 |
|
|
(890) |
|
|
(7.5%) |
|
|
14.0% |
|
12.6% |
|
Total Operating Expenses |
|
|
58,756 |
|
|
60,466 |
|
|
1,710 |
|
|
2.9% |
|
|
68.8% |
|
69.0% |
|
Income from Operations |
|
|
26,596 |
|
|
27,185 |
|
|
589 |
|
|
2.2% |
|
|
31.2% |
|
31.0% |
|
Corporate and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
|
20,024 |
|
|
17,452 |
|
|
(2,572) |
|
|
(12.8%) |
|
|
23.5% |
|
19.9% |
|
Lease termination |
|
|
1,762 |
|
|
— |
|
|
(1,762) |
|
|
(100.0%) |
|
|
2.1% |
|
— |
|
Depreciation and amortization |
|
|
1,309 |
|
|
1,093 |
|
|
(216) |
|
|
(16.5%) |
|
|
1.6% |
|
1.1% |
|
Interest expense, net |
|
|
11,371 |
|
|
12,178 |
|
|
807 |
|
|
7.1% |
|
|
13.3% |
|
13.9% |
|
Income tax expense |
|
|
333 |
|
|
— |
|
|
(333) |
|
|
(100.0%) |
|
|
0.3% |
|
0.0% |
|
Total corporate and other expenses |
|
|
34,799 |
|
|
30,723 |
|
|
(4,076) |
|
|
(11.7%) |
|
|
40.8% |
|
35.1% |
|
Net loss before advisory fee |
|
|
(8,203) |
|
|
(3,538) |
|
|
4,665 |
|
|
(56.9%) |
|
|
(9.6%) |
|
(4.0%) |
|
Sponsor advisory fee |
|
|
162 |
|
|
150 |
|
|
(12) |
|
|
(7.4%) |
|
|
0.2% |
|
0.2% |
|
Net loss |
|
$ |
(8,365) |
|
$ |
(3,688) |
|
$ |
4,677 |
|
|
(55.9%) |
|
|
(9.8%) |
|
(4.2%) |
|
32
Operating Metrics
The following tables set forth key loan and check cashing operating data as of and for the three months ended March 31, 2017, and 2018:
|
|
Three Months Ended March 31, |
|
||||
|
|
2017 |
|
2018 |
|
||
Short-term Loan Operating Data (unaudited): |
|
|
|
|
|
|
|
Loan volume (originations and refinancing) (in thousands) |
|
$ |
235,263 |
|
$ |
258,217 |
|
Number of loan transactions (in thousands) |
|
|
632 |
|
|
707 |
|
Average new loan size |
|
$ |
372 |
|
$ |
365 |
|
Average fee per new loan |
|
$ |
49.16 |
|
$ |
48.49 |
|
Loan loss provision |
|
$ |
6,433 |
|
$ |
8,159 |
|
Loan loss provision as a percentage of loan volume |
|
|
2.7% |
|
|
3.2% |
|
Secured loans as percentage of total at March 31st |
|
|
17.4% |
|
|
14.0% |
|
Medium-term Loan Operating Data (unaudited): |
|
|
|
|
|
|
|
Balance outstanding (in thousands) |
|
$ |
41,185 |
|
$ |
36,860 |
|
Number of loans outstanding |
|
|
36,819 |
|
|
34,486 |
|
Average balance outstanding |
|
$ |
1,119 |
|
$ |
1,069 |
|
Weighted average monthly percentage rate |
|
|
16.5% |
|
|
16.6% |
|
Allowance as a percentage of finance receivables |
|
|
27.1% |
|
|
33.9% |
|
Loan loss provision |
|
$ |
7,221 |
|
$ |
8,397 |
|
Secured loans as percentage of total at March 31st |
|
|
10.1% |
|
|
14.0% |
|
Check Cashing Data (unaudited): |
|
|
|
|
|
|
|
Face amount of checks cashed (in thousands) |
|
$ |
465,856 |
|
$ |
454,573 |
|
Number of checks cashed (in thousands) |
|
|
815 |
|
|
750 |
|
Face amount of average check |
|
$ |
572 |
|
$ |
606 |
|
Average fee per check |
|
$ |
14.88 |
|
$ |
15.59 |
|
Returned check expense |
|
$ |
1,399 |
|
$ |
1,062 |
|
Returned check expense as a percent of face amount of checks cashed |
|
|
0.3% |
|
|
0.2% |
|
Revenue
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2017 |
|
2018 |
|
Decrease |
|
2017 |
|
2018 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
(Percent) |
|
(Percent of Revenue) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Consumer Loan Fees and Interest |
|
$ |
31,058 |
|
$ |
34,265 |
|
$ |
3,207 |
|
10.3% |
|
36.4% |
|
39.1% |
|
Medium-term Consumer Loan Fees and Interest |
|
|
17,993 |
|
|
16,667 |
|
|
(1,326) |
|
(7.4%) |
|
21.1% |
|
19.0% |
|
Credit Service Fees |
|
|
18,139 |
|
|
19,196 |
|
|
1,057 |
|
5.8% |
|
21.3% |
|
21.9% |
|
Check Cashing Fees |
|
|
12,126 |
|
|
11,692 |
|
|
(434) |
|
(3.6%) |
|
14.2% |
|
13.3% |
|
Prepaid Debit Card Services |
|
|
2,007 |
|
|
1,948 |
|
|
(59) |
|
(2.9%) |
|
2.4% |
|
2.2% |
|
Other Income |
|
|
4,029 |
|
|
3,883 |
|
|
(146) |
|
(3.6%) |
|
4.6% |
|
4.5% |
|
Total Revenue |
|
$ |
85,352 |
|
$ |
87,651 |
|
$ |
2,299 |
|
2.7% |
|
100.0% |
|
100.0% |
|
Total revenue for the three months ended March 31, 2018, increased $2.3 million, or 2.7%, as compared to the same period in the prior year. The increases in short-term consumer loan fees and credit service fees are in-line with the Company’s continuing strategy of growing its portfolios and increasing revenue.
Revenue from short-term consumer loan fees and interest for the three months ended March 31, 2018, increased $3.2 million, or 10.3%, and increased as a percentage of total revenue from 36.4% to 39.1% compared to the same period in 2017. The increase in short-term consumer loan revenue is primarily due to the Company’s focus on growing its short-term consumer loan portfolios.
33
Revenue from medium-term consumer loans for the three months ended March 31, 2018, decreased $1.3 million, or 7.4%, compared to the same period in 2017. However, medium-term consumer loan revenue for the Retail financial services segment increased by $1.3 million, or 15.1%, for the three months ended March 31, 2018 as compared to the prior year period.
Revenue from credit service fees for the three months ended March 31, 2018, increased $1.1 million, or 5.8%, compared to the same period in 2017, primarily the result of the Company growing its CSO portfolios in certain markets.
Operating Expenses
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2017 |
|
2018 |
|
Increase (Decrease) |
|
2017 |
|
2018 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
(Percent) |
|
(Percent of Revenue) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
$ |
17,273 |
|
$ |
17,132 |
|
$ |
(141) |
|
(0.8%) |
|
20.1% |
|
19.5% |
|
Provision for Loan Losses |
|
|
19,540 |
|
|
22,635 |
|
|
3,095 |
|
15.8% |
|
22.9% |
|
25.8% |
|
Occupancy |
|
|
6,629 |
|
|
6,343 |
|
|
(286) |
|
(4.3%) |
|
7.7% |
|
7.2% |
|
Depreciation & Amortization |
|
|
2,538 |
|
|
2,223 |
|
|
(315) |
|
(12.4%) |
|
3.0% |
|
2.5% |
|
Lease Termination Costs |
|
|
47 |
|
|
97 |
|
|
50 |
|
106.4% |
|
0.1% |
|
0.1% |
|
Advertising & Marketing |
|
|
814 |
|
|
1,011 |
|
|
197 |
|
24.2% |
|
1.0% |
|
1.2% |
|
Bank Charges |
|
|
1,863 |
|
|
1,847 |
|
|
(16) |
|
(0.9%) |
|
2.2% |
|
2.1% |
|
Store Supplies |
|
|
483 |
|
|
394 |
|
|
(89) |
|
(18.4%) |
|
0.6% |
|
0.4% |
|
Collection Expenses |
|
|
509 |
|
|
633 |
|
|
124 |
|
24.4% |
|
0.6% |
|
0.7% |
|
Telecommunications |
|
|
2,251 |
|
|
1,384 |
|
|
(867) |
|
(38.5%) |
|
2.6% |
|
1.6% |
|
Security |
|
|
436 |
|
|
645 |
|
|
209 |
|
47.9% |
|
0.5% |
|
0.7% |
|
License & Other Taxes |
|
|
361 |
|
|
360 |
|
|
(1) |
|
(0.3%) |
|
0.4% |
|
0.4% |
|
Loss on Asset Disposal |
|
|
113 |
|
|
111 |
|
|
(2) |
|
(1.8%) |
|
0.1% |
|
0.1% |
|
Verification Processes |
|
|
567 |
|
|
965 |
|
|
398 |
|
70.2% |
|
0.7% |
|
1.1% |
|
Other Operating Expenses |
|
|
5,332 |
|
|
4,686 |
|
|
(646) |
|
(12.1%) |
|
6.2% |
|
5.3% |
|
Total Operating Expenses |
|
|
58,756 |
|
|
60,466 |
|
|
1,710 |
|
2.9% |
|
68.8% |
|
69.0% |
|
Income from Operations |
|
$ |
26,596 |
|
$ |
27,185 |
|
$ |
589 |
|
2.2% |
|
31.2% |
|
31.0% |
|
Total operating expenses increased $1.7 million, or 2.9%, for the three months ended March 31, 2018, as compared to the same period in the prior year, primarily due to the increased provision related to growing loan portfolios, partially offset by the decrease in telecommunications and other operating expenses.
Salaries and occupancy expenses both decreased for the three months ended March 31, 2018, as compared to the prior period, primarily due to the consolidation of underperforming retail locations.
The provision for loan losses increased $3.1 million, or 15.8%, for the three months ended March 31, 2018, as compared to the same period in the prior year primarily related to growing loan portfolios in the Retail financial services segment. On the other hand, the provision for loan losses as a percentage of revenue for the current quarter was less than the comparable percentages for each of the preceding two fiscal quarters, for both short-term and medium-term consumer loans.
Telecommunications costs decreased by $0.9 million, or 38.5%, for the three months ended March 31, 2018, as compared to the prior period, primarily by implementing less expensive service providers.
Other operating expenses decreased by $0.6 million, or 12.1%, for the three months ended March 31, 2018, as compared to the prior period, primarily as a result of our cost containment initiatives.
34
Corporate and Other Expenses
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2017 |
|
2018 |
|
Increase (Decrease) |
|
2017 |
|
2018 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
(Percent) |
|
(Percent of Revenue) |
|
||
Corporate Expenses |
|
$ |
20,024 |
|
$ |
17,452 |
|
$ |
(2,572) |
|
(12.8%) |
|
23.5% |
|
19.9% |
|
Depreciation & Amortization |
|
|
1,309 |
|
|
1,093 |
|
|
(216) |
|
(16.5%) |
|
1.6% |
|
1.2% |
|
Sponsor Advisory Fee |
|
|
162 |
|
|
150 |
|
|
(12) |
|
(7.4%) |
|
0.2% |
|
0.2% |
|
Interest expense, net |
|
|
11,371 |
|
|
12,178 |
|
|
807 |
|
7.1% |
|
13.3% |
|
13.9% |
|
Lease termination |
|
|
1,762 |
|
|
— |
|
|
(1,762) |
|
(100.0%) |
|
2.1% |
|
— |
|
Income tax expense (benefit) |
|
|
333 |
|
|
— |
|
|
(333) |
|
(100.0%) |
|
0.3% |
|
— |
|
Total Corporate and Other Expenses |
|
$ |
34,961 |
|
$ |
30,873 |
|
$ |
(4,088) |
|
(11.7%) |
|
41.0% |
|
35.2% |
|
The decrease in corporate expenses from $20.0 million to $17.5 million, for the three months ended March 31, 2018, as compared to the prior year’s period, or a decrease of 12.8%, is primarily the result of compensation and headcount reductions.
Lease termination in the prior period is the result of closing the Company’s Utah facility.
There is no income tax expense in the current period due to the current net loss and the full impairment of goodwill taken in the fourth quarter of 2017.
Business Segment Results of Operations for the Three Months Ended March 31, 2018, and March 31, 2017
The following tables present summarized financial information for our segments:
|
|
As of and for the three months ended March 31, 2018 |
|
||||||||||||||||
|
|
Retail |
|
|
|
Internet |
|
|
|
Unallocated |
|
|
|
|
|
||||
|
|
Financial |
|
% of |
|
Financial |
|
% of |
|
(Income) |
|
|
|
% of |
|
||||
|
|
Services |
|
Revenue |
|
Services |
|
Revenue |
|
Expenses |
|
Consolidated |
|
Revenue |
|
||||
Total Assets |
|
$ |
166,505 |
|
|
|
$ |
37,511 |
|
|
|
|
|
|
$ |
204,016 |
|
|
|
Other Intangible Assets |
|
|
336 |
|
|
|
|
466 |
|
|
|
|
|
|
|
802 |
|
|
|
Total Revenues |
|
$ |
72,797 |
|
100.0 |
% |
$ |
14,854 |
|
100.0 |
% |
|
|
|
$ |
87,651 |
|
100.0 |
% |
Provision for Loan Losses |
|
|
15,620 |
|
21.4 |
% |
|
7,015 |
|
47.2 |
% |
|
|
|
|
22,635 |
|
25.8 |
% |
Other Operating Expenses |
|
|
36,291 |
|
49.9 |
% |
|
1,540 |
|
10.4 |
% |
|
|
|
|
37,831 |
|
43.2 |
% |
Operating Gross Profit |
|
|
20,886 |
|
28.7 |
% |
|
6,299 |
|
42.4 |
% |
|
|
|
|
27,185 |
|
31.0 |
% |
Interest Expense, net |
|
|
9,479 |
|
13.0 |
% |
|
2,699 |
|
18.2 |
% |
|
|
|
|
12,178 |
|
13.9 |
% |
Depreciation and Amortization |
|
|
1,000 |
|
1.4 |
% |
|
93 |
|
0.6 |
% |
|
|
|
|
1,093 |
|
1.3 |
% |
Other Corporate Expenses (a) |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
17,602 |
|
|
17,602 |
|
20.1 |
% |
Income (Loss) from Continuing Operations, before tax |
|
|
10,407 |
|
14.3 |
% |
|
3,507 |
|
23.6 |
% |
|
(17,602) |
|
|
(3,688) |
|
(4.2) |
% |
(a) |
Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose other corporate expenses as unallocated. |
35
|
|
As of and for the three months ended March 31, 2017 |
|
||||||||||||||||
|
|
Retail |
|
|
|
Internet |
|
|
|
Unallocated |
|
|
|
|
|
||||
|
|
Financial |
|
% of |
|
Financial |
|
% of |
|
(Income) |
|
|
|
% of |
|
||||
|
|
Services |
|
Revenue |
|
Services |
|
Revenue |
|
Expenses |
|
Consolidated |
|
Revenue |
|
||||
Total Assets |
|
$ |
309,595 |
|
|
|
$ |
57,106 |
|
|
|
|
|
|
$ |
366,701 |
|
|
|
Goodwill |
|
|
113,256 |
|
|
|
|
— |
|
|
|
|
|
|
|
113,256 |
|
|
|
Other Intangible Assets |
|
|
488 |
|
|
|
|
800 |
|
|
|
|
|
|
|
1,288 |
|
|
|
Total Revenues |
|
$ |
68,691 |
|
100.0 |
% |
$ |
16,661 |
|
100.0 |
% |
|
|
|
$ |
85,352 |
|
100.0 |
% |
Provision for Loan Losses |
|
|
12,058 |
|
17.6 |
% |
|
7,482 |
|
44.9 |
% |
|
|
|
|
19,540 |
|
22.9 |
% |
Other Operating Expenses |
|
|
38,207 |
|
55.6 |
% |
|
1,009 |
|
6.1 |
% |
|
|
|
|
39,216 |
|
45.9 |
% |
Operating Gross Profit |
|
|
18,426 |
|
26.8 |
% |
|
8,170 |
|
49.0 |
% |
|
|
|
|
26,596 |
|
31.2 |
% |
Interest Expense, net |
|
|
7,366 |
|
10.7 |
% |
|
4,005 |
|
24.0 |
% |
|
|
|
|
11,371 |
|
13.3 |
% |
Depreciation and Amortization |
|
|
1,129 |
|
1.6 |
% |
|
180 |
|
1.1 |
% |
|
|
|
|
1,309 |
|
1.5 |
% |
Lease termination Expenses |
|
|
— |
|
— |
% |
|
1,762 |
|
10.6 |
% |
|
|
|
|
1,762 |
|
2.1 |
% |
Other Corporate Expenses (a) |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
20,186 |
|
|
20,186 |
|
23.7 |
% |
Income (loss) from Continuing Operations, before tax |
|
|
9,931 |
|
14.5 |
% |
|
2,223 |
|
13.3 |
% |
|
(20,186) |
|
|
(8,032) |
|
(9.4) |
% |
(a) |
Represents expenses not associated directly with operations that are not allocated between reportable segments. Therefore, the Company has elected to disclose all other corporate expenses as unallocated. |
Retail Financial Services
Retail financial services represented 83.1%, or $72.8 million, of consolidated revenues for the three months ended March 31, 2018, which was an increase of $4.1 million, or 6.0%, over the prior period. Retail financial services operating gross profit as a percentage of revenue increased to 28.7% from 26.8% for the three months ended March 31, 2018 as compared to the prior period.
Internet Financial Services
For the three months ended March 31, 2018, total revenues contributed by our Internet financial services segment was $14.9 million, a decrease of $1.8 million, or 10.8%, over the prior year comparable period due to medium-term portfolios decreasing throughout the prior year.
Liquidity and Need for Additional Capital
We have historically funded our liquidity needs through cash flow from operations and borrowings under our revolving credit facilities and subsidiary notes. The Company’s cash balance of $89.7 million as of March 31, 2018, plus cash from operating activities, is expected to be sufficient to fund the Company’s operations through the first quarter of 2019. However, $237.3 million of senior notes, $47.0 million of revolving credit facility debt, and $60.0 million in subsidiary notes are due in the second quarter of 2019. The Company’s expected cash position will not be sufficient to repay this indebtedness as it becomes due and the Company will need to restructure or refinance this indebtedness and there can be no assurances as to the ability of the Company to conclude such a restructuring or refinancing. These factors raise substantial doubt regarding the Company’s ability to meet its obligations and continue as a going concern for the period which extends one-year from the issuance of these financial statements. Beyond that twelve-month period, funding capital expenditures, working capital and debt requirements will depend on our future financial performance, which is subject to many economic, commercial, regulatory, financial and other factors that are beyond our control.
While the Company is currently engaged in negotiations with its largest bondholders, the success of such negotiations cannot be assured. Any inability to reach an agreement with existing debt holders, secure sufficient refinancing sources for our pending debt maturities and/or our inability to continue as a going concern could have a significant and material adverse effect on the Company, its operations and its investors and, in particular, could significantly impair recoveries by our investors under our existing indebtedness. It is unlikely that the Company’s assets, in any event, would be sufficient to satisfy its current debt obligations. See Item 1A “Risk Factors” in our Annual
36
Report on Form 10-K for the year ended December 31, 2017 for more information on how these contingences could negatively impact the Company and its debt holders.
Three Month Cash Flow Analysis
The table below summarizes our cash flows for the three months ended March 31, 2017, and 2018.
|
|
Three Months Ending March 31, |
|
||||
(in thousands) |
|
2017 |
|
2018 |
|
||
Net Cash Provided by Operating Activities |
|
$ |
22,200 |
|
$ |
24,589 |
|
Net Cash Used in Investing Activities |
|
|
(3,722) |
|
|
(1,482) |
|
Net Cash Used in Financing Activities |
|
|
(2,527) |
|
|
(4,625) |
|
Net Increase in Cash and Cash Equivalents and Restricted Cash |
|
$ |
15,951 |
|
$ |
18,482 |
|
Cash Flows from Operating Activities. Net cash provided by operating activities for the three months ended March 31, 2018 and 2017, were $24.6 million and $22.2 million, respectively. Net income, net of the non-cash impact of the provision for loan losses was $18.9 million and $11.2 million for the three months ended March 31, 2018 and 2017, respectively.
Cash Flows from Investing Activities. Net cash used in investing activities during 2018 was $1.5 million. The primary use of cash was $1.3 million in purchases of leasehold improvements and equipment. Net cash used in investing activities during 2017 was $3.7 million. The primary uses of cash were $2.7 million in loan originations and $1.0 million in purchases of leasehold improvements and equipment.
Cash Flows from Financing Activities. Net cash used in financing activities during 2018 was $4.6 million. The primary use of cash was $4.4 million in debt issuance costs. Net cash used in financing activities during 2017 was $2.5 million. The primary use of cash was $2.3 million in payments on a line of credit.
Financing Instruments
The Indentures governing our senior secured notes contain certain covenants and events of default that are customary with respect to non-investment grade debt securities, including limitations on our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens, and sell certain assets, or merge with or into other companies. The agreement governing our $47.0 million revolving credit facility contains restrictive covenants that limit our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens, and sell certain assets, or merge with or into other companies, in each case to the same extent as the indentures governing our notes. We were in compliance with these covenants as of March 31, 2018.
On March 30, 2018, the Company amended its revolving credit facility with Victory Park Management, LLC, as administrative agent, and certain of its affiliates as lenders, which we refer to collectively as VPC, to extend the maturity date to April 4, 2019. The amendment added covenants addressing daily minimum liquidity and asset coverage tests, weekly operational reporting requirements and monthly EBITDA and borrowing base coverage tests. Additionally, the Company is required to use commercially reasonable efforts to obtain reasonably satisfactory modification of the 2019 and 2020 Notes.
The non-guarantor and unrestricted subsidiaries, created to acquire loans from the retail and internet portfolios, amended its $60.0 million note on March 30, 2018 to extend the maturity date to April 4, 2019. The amendment increases the administrative fee to 0.95% and permits an additional extension of the facility maturity date to April 2021 if certain conditions are met. The amendment allows for additional short term loans within the borrowing base and includes additional covenants addressing daily minimum cash and asset coverage tests, dividend limits, weekly operational reporting requirements, borrowing base reporting, and a monthly consolidated EBITDA test.
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Capital Expenditures
During the three months ended March 31, 2018, the Company spent $1.3 million on capital expenditures and $1.0 million during the comparable period in the prior year. The increase is primarily in our Mississippi market due to new stores added during the prior year.
Seasonality
Our business is seasonal based on the liquidity and cash flow needs of our customers. Customers cash tax refund checks primarily in the first calendar quarter of each year which is traditionally our strongest check cashing quarter. We typically see our loan portfolio decline in the first quarter as a result of the consumer liquidity created through income tax refunds. Following the first quarter, we typically see our loan portfolio expand through the remainder of the year with the third and fourth quarters showing the strongest loan demand due to the holiday season.
Contractual Obligations and Commitments
On December 20, 2013, and June 19, 2014, the Company created non-guarantor subsidiaries in order to acquire loans from the retail and internet portfolios. The non-guarantor subsidiaries funding were the proceeds from $40.0 million and $7.3 million installment notes, which were used to acquire loans from guarantor subsidiaries. On April 25, 2017, the Company’s non-guarantor and unrestricted subsidiary, CCFI Funding II, LLC and Ivy Funding Nine, LLC, amended and restated its existing $40.0 million note to increase the borrowing capacity up to $60.0 million. The $60.0 million note has a maturity date of January 2019 and an interest rate of 16.75% and a monthly administrative fee of 0.75% on the outstanding principal balance of the note. The note also has a cross-default to the Company’s revolving credit facility, dividend restrictions, borrowing base testing, and a cash flow coverage test. In addition, the note contains make-whole provisions in the event of a prepayment. The proceeds from the amended note were used to acquire loans from guarantor subsidiaries. In connection with the amendment, the other non-guarantor and unrestricted subsidiary’s $7.3 million note was satisfied in full.
On March 30, 2018, the April 25, 2017, note was further amended to extend the maturity date to April 4, 2019. The amendment increased the administrative fee to 0.95% and permits an additional extension of the facility maturity date to April 2021 if certain conditions are met. The amendment allows for additional short-term loans within the borrowing base and includes additional covenants addressing daily minimum cash and asset coverage tests, dividend limits, weekly operational reporting requirements, borrowing base reporting, and a monthly consolidated EBITDA test.
On July 19, 2014, a guarantor subsidiary of the Company entered in to a $1.4 million term note with a nonrelated entity for the acquisition of a share of an airplane. We recorded our $1.1 million share of the joint note, but both parties are joint and severally liable. The joint note had an outstanding balance of $1.2 million at March 31, 2018 and our share of the note was $0.9 million.
On May 24, 2016, a guarantor subsidiary of the Company entered into a $1.2 million term note for a fractional share of an airplane.
Impact of Inflation
Our results of operations are not materially impacted by fluctuations in inflation.
Balance Sheet Variations
Cash and cash equivalents, accounts payable, accrued liabilities, money orders payable and revolving advances vary because of seasonal and day-to-day requirements resulting primarily from maintaining cash for cashing checks and making loans, and the receipt and remittance of cash from the sale of prepaid debit cards, wire transfers, money orders and the processing of bill payments.
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Loan Portfolio
As of March 31, 2018, we were licensed to offer loans in 33 states. We have established a loan loss allowance in respect of our loans receivable at a level that our management believes to be adequate to absorb known or probable losses from loans made by us and accruals for losses in respect of loans made by third parties that we guarantee. Our policy for determining the loan loss allowance is based on historical experience, as well as our management’s review and analysis of the payment and collection of the loans within prior periods. All loans and services, regardless of type, are made in accordance with state regulations, and, therefore, the terms of the loans and services may vary from state-to-state. Loan fees and interest are earned on loans. Products which allow for an upfront fee are recognized over the loan term. Other products’ interest is earned over the term of the loan.
As of March 31, 2018, and December 31, 2017, our total finance receivables net of unearned advance fees were approximately $86.7 million and $110.1 million, respectively.
Off-Balance Sheet Arrangements
In certain markets, we arrange for consumers to obtain consumer loan products from one of several independent third-party lenders whereby we act as a facilitator. For consumer loan products originated by third-party lenders under these programs, each lender is responsible for providing the criteria by which the consumer’s application is underwritten and, if approved, determining the amount of the consumer loan. The Company in turn is responsible for assessing whether or not the Company will guarantee such loans. When a consumer executes an agreement with the Company under these programs, the Company agrees, for a fee payable to the Company by the consumer, to provide certain services to the consumer, one of which is to guarantee the consumer’s obligation to repay the loan received by the consumer from the third-party lender if the consumer fails to do so. The guarantee represents an obligation to purchase specific loans that go into default. As of March 31, 2018, and December 31, 2017, the outstanding amount of active consumer loans guaranteed by the Company was $29.6 million and $37.0 million, respectively. The accrual for third party loan losses, which represents the estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company, was $3.8 million and $4.8 million as of March 31, 2018, and December 31, 2017, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 31, 2018, we have no material market risk sensitive instruments entered into for trading or other purposes, as defined by GAAP.
Interest rate risk
The cash and cash equivalents reflected on our balance sheet represent largely uninvested cash in our branches and cash-in-transit. The amount of interest income we earn on these funds will decline with a decline in interest rates. However, due to the short-term nature of short-term investment grade securities and money market accounts, an immediate decline in interest rates would not have a material impact on our financial position, results of operations or cash flows.
As of March 31, 2018, we had $358.9 million of indebtedness, of which, $47.0 million outstanding under our revolving credit facilities is subject to variable interest rates based on Prime and LIBOR rates.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
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including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.
Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting, as defined in Rule 15d-15(f) under the Exchange Act, during the quarter ended March 31, 2018, that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
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We and our subsidiaries are party to a variety of legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. While the results of these proceedings, claims and inquiries cannot be predicted with certainty, we believe that the final outcome of the foregoing will not have a material adverse effect on our financial condition, results of operations or cash flows. Further, legal proceedings have and may in the future be instituted against us that purport to be class actions or multiparty litigation. In most of these instances, we believe that these actions are subject to arbitration agreements and that the plaintiffs are compelled to arbitrate with us on an individual basis. In the event that a lawsuit purporting to be a class action is certified as such, the amount of damages for which we might be responsible is uncertain. In addition, any such amount would depend upon proof of the allegations and on the number of persons who constitute the class of affected persons.
There has been no material changes with respect to the risk factors disclosed under the “Item 1A Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.
The following exhibits are filed or furnished as part of this report:
Exhibit No. |
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Description of Exhibit |
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10.41 |
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10.42 |
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10.43 |
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10.44 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101 |
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Interactive Data File: (i) Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017; (ii) Consolidated Statements of Operations for the Three Months Ended March 31, 2018 (unaudited) and March 31, 2017 (unaudited); (iii) Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2018 (unaudited); (iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 (unaudited) and March 31, 2017 (unaudited); and (v) Notes to Consolidated Financial Statements (unaudited)—submitted herewith pursuant to Rule 406T |
* |
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Indicates a management contract or compensation plan or arrangement |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 2018
Community Choice Financial Inc. and Subsidiaries |
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/s/ MICHAEL DURBIN |
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Michael Durbin |
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Chief Financial Officer |
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Principal Financial and |
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Principal Accounting Officer |
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