QC Holdings, Inc. (QCCO)

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QC Holdings, Inc. (QCCO)

Q2 2008 Earnings Call

August 7, 2008 2:00 pm ET


Don Early - Chairman, Chief Executive Officer

Darrin J. Andersen - President, Chief Operating Officer

Douglas E. Nickerson - Chief Financial Officer


Dennis Telzrow - Stephens, Inc.

Daniel O’Sullivan - Utendahl Capital Partners LP



Welcome to the QC Holdings second quarter 2008 earnings conference call. (Operator Instructions)

The company has asked me to read the following forward-looking statement disclaimer. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the company’s current expectations and are subject to a number of risks and uncertainties which could cause actual results to differ materially from those forward-looking statements. These risks include among others changes in laws or regulations governing consumer protection of payday leading practices, litigations or regulatory actions directed forward, volatility in our earnings, the increased leverage of the company as the result of the $48.5 million in special cash dividends in 2007, and the other risks detailed under the Item 1A “Risk Factors” in our 2007 Form 10K. 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 along with the slide presentation, please access the QC Holdings website at www.qcholdings.com, then click on the microphone webcast icon on the home page which will direct you to the slides.

Now I would like to turn the presentation over to your host for today’s call, Don Early, Chairman and CEO.

Don Early

I’m joined on today’s call by our President, Darrin Andersen, and our Chief Financial Officer, Doug Nickerson.

We are pleased with our second quarter performance of our core operations during challenging economic times. Demand for short-term credit was negatively impacted by the $100 billion worth of stimulus checks distributed by the federal government. We were also impacted by higher energy and food costs.

Still, our comparable branches performed well evidenced by growth in revenue and gross profit. Given the lagging economy, these results serve as a testament to the strength of our business and the excellent job our field managers have done in balancing revenue growth and loan losses. We are well positioned to continue delivering value to shareholders, customers and employees.

Signaling our optimist outlook for the second half of 2008 our Board of Directors is pleased to increase the dividend to shareholders to $0.10 per share. Thanks again for your interest in QC.

And now I’d like to turn the call over to our President, Darrin Andersen.

Darrin J. Andersen

I’m pleased to report our second quarter 2008 results. Today I will review our financial highlights for the quarter, provide an update on our regulatory environment and thoughts about the second half of the year.

As Don indicated, we are generally pleased with the performance of our core operations in a challenging economic environment. Our revenue increased 5.1% to $53.4 million compared to $50.8 million in the second quarter of 2007. Importantly, revenue from our core operations or comparable branches which now account for 560 of our 584 branches was up 4% or $2 million to $51.4 million and gross profit at our comparable branches grew 8.5% to $15.3 million. While our core business showed good growth, our bottom line was impacted by additional interest expense and regulatory costs including store closures and increased government relations spending. Income from continuing operations was $2.2 million or $0.12 per diluted share.

On Slide 5, a few notable facts about our second quarter operations. We originated $316.4 million of payday loans in the second quarter, a quarter-to-quarter increase of 6.2% over 2007. Both our average loan size and average fee were up slightly to $369.75 and $53.31 respectively. Our adjusted EBITDA was $7.1 million. Finally, as Don announced, our Board of Directors as a result of its optimism about the second half of 2008 increased the dividend to shareholders to $0.10 per share.

Loan losses are a key indicator of how we manage our business especially during economic downturn. Our loan losses quarter-to-quarter were slightly better than last year exclusive of net sales. This year we sold $243,000 worth of debt compared to $850,000 worth in the second quarter of 2007. Our loss experience was within typical second quarter seasonal range and expectations and consistent with prior year experience.

Even in a challenging environment, our collections process has proven itself as an effective blend of field and central collection efforts. We are pleased with the growth and performance of our central collections group as it supports our overall collection strategy.

Regarding regulatory activity, several new laws will impact the industry but not consumer demand for short-term credit.

In Virginia a new law will go into effect in January of 09 that reduces rates and limits customer usage. Virginia currently accounts for about 4% to 5% of QC’s revenue. While we are early in the development phase, we are excited about a new alternative product that will provide increased flexibility for Virginia consumers and therefore growth potential for QC.

In Ohio, the group Ohioans for Financial Freedom is mounting an effort to repeal House Bill 545 which would serve as a prohibition bill by instilling a 28% rate cap on short-term lending. The effort is currently in its signature gathering phase and is also working legally to ensure that the state’s constitutionally protected 90-day window to petition is afforded to the campaign.

Read the rest of this transcript for free on seekingalpha.com