QC Holdings Inc (QCCO)

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QC Holdings Inc. (QCCO)

Q4 2007 Earnings Call

February 7, 2008 2:00 pm ET


Don Early - Chairman and Chief Executive Officer

Darrin J. Andersen - President and Chief Operating Officer

Douglas E. Nickerson - Chief Financial Officer


Dennis - Stephens & Company

John - JMP Securities

Henry Coffey - Ferris Baker Watts

Bruce Wilcox - Cumberland Associates



Good day ladies and gentlemen. This presentation contains forward-looking statements within the meaning of the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the Company's current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from these forward-looking statements. These risks include among others change in laws or regulatory regulations governing consumer protection or payday lending practices, litigation or regulatory action directed towards, volatility in our earnings, and the other risks detailed under Item 1A Risk Factors in our 2006 Form 10-K.

QC will not update any forward-looking statements made in this presentation or on the conference call accompanying this presentation. Also if you would like to follow any of with the slide presentation, please access the new and improve QC Holdings website at qcholdings.com, then click on the microphone webcast icon on the home page which will direct you to the slides.

I'll like to turn the call over to Mr. Don Early, Chairman and CEO. Please proceed.

Don Early - Chairman and Chief Executive Officer

Good morning and welcome to our fourth quarter earnings release. Let me begin by saying that we are pleased with our fourth quarter results and proud of the progress we have made in 2007 in a challenging macroeconomic environment. We are particularly proud of our ability to return nearly $100 million of value to our shareholders through dividends and stock repurchases over the last two and half years. As we enter 2008, with nearly 73 million in loan receivables, we are well positioned to capitalize on our 2007 momentum.

With that I'd like to turn the call over to Darrin Andersen for a discussion of our quarterly and year end results. Darrin?

Darrin J. Andersen - President and Chief Operating Officer

Welcome again to everyone on the call and thanks for your interest in QC Holdings. Today I'll review our fourth quarter and end of year financial highlights and provide an update on our operational highlights, before turning the call over to Doug for more detailed review of our financial results. Then we'll open up the call for questions.

We're pleased to report increased fourth quarter revenue by 17.7% quarter to quarter to $57.3 million, record quarterly branch gross profit of 16.1 million, and solid earnings of $0.19 per share. We are especially pleased to have generated these results in a challenging fourth quarter economic environment that included softening retail sales, declining consumer confidence, and increasing turmoil in the credit and debt markets. But the fourth quarter downturn wasn't enough to spoil our best year ever.

Our revenue increased 24% to $213.6 million. Revenue comparable branches increased 15.1%. Net income increased 59% to $14.6 million. Diluted earnings per share reached $0.75 versus $0.45 in 2006. Adjust EBITDA was $38 million and operating expenses increased only slightly, an important accomplishment given that we spent considerable effort integrating the 50 South Carolina branches we acquired in December 2006.

Operationally our key indicators of success remained strong underscoring the strong consumer demand for term loans of vintage branches continue to produce strong results as they strike the optimal balance between revenue growth and losses. Our newer branches, those that we have opened since January 2005, continue to mature and deliver results in the form of increasing revenue and profits.

Marketing efforts have become more intense and more sophisticated as we improve our processes and the quality of our marketing materials. We are doing a better job of identifying potential customers and reaching them with relevant messaging and we are doing a better job of ensuring our existing customers returned to us rather than affect to our competition.

We are currently testing television advertising with the view toward driving new customers into our branches, while establishing brand equity that will differentiate us from our competition in the long run. Finally we are encouraged that our new installment loan products have been embraced as viable solutions for our customers in Illinois and New Mexico.

This longer term larger dollar loans are enabling us to respond to regulatory issues in those states who are continuing to serve our customers. Overall we anticipate about a 6-10% increase in total revenue in 2008.

In context around our last experience, a loss ratio was up to 25.5% from 21.5% in 2006 which pushed us at the high end of our fiscal range. Please keep in mind that in addition to declining economy that brought financial hardship for many of our customer, we are also coming off record low losses in 2006 and we delivered, we clamp down our losses generated by a rapid 2005 expansion.

Moving forward, we would expect our loss ratio to be between these levels. We are focusing on collections, as a way to counter these increase losses and to help us thrive in the less than ideal economy.

Nearly all our field employees have completed a tactical collections workshop and we have improved our collection system and debt management and reporting processes. In addition, we are implementing a regional collection strategy that concentrates collections expertise at market level hubs. Regarding regulatory issues, the number of states within (Libun) legislation has remained consistent as regulatory activity each year routinely heightened in the limited number of states.

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