Exhibit 99.1
QC Holdings, Inc. Reports Strong Fourth Quarter Earnings of $3.9 Million
Revenue Growth and Reduced Losses Drive Earnings Improvement in 2006
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Feb. 8, 2007--Higher revenue
and flat branch-level operating expenses drove a 62% increase in gross
profit during the fourth quarter of 2006, according to QC Holdings,
Inc. (NASDAQ: QCCO). QC reported net income of $3.9 million, or $0.19
per diluted share, during fourth quarter 2006 compared to income from
continuing operations of $1.6 million, or $0.07 per diluted share, in
prior year's fourth quarter. The company's comparable branches
generated gross profit growth of 34.6%, revenue growth of 8.0% and net
revenue (revenues less the provision for losses) growth of 7.4% over
prior year's fourth quarter.
QC reported net income of $9.2 million, or $0.45 per diluted
share, for the year ended December 31, 2006 compared to income from
continuing operations of $6.3 million, or $0.29 per diluted share, in
the prior year. As previously reported, QC closed its 19 branches in
North Carolina during fourth quarter 2005 and those operations are
reported as discontinued for 2005. Revenues during the year ended
December 31, 2006 totaled $172.3 million versus $152.9 million in
2005. Net revenues increased 21.3%, or $23.8 million, during the year
ended December 31, 2006 compared to prior year.
"Our fourth quarter results continue momentum built during the
third quarter," said QC Chairman and Chief Executive Officer Don
Early. "Our comparable branches posted solid revenue growth within a
reasonable loss range, producing strong gross profit during the
quarter. Our field personnel responded to our challenge to generate
increases in loan volume without sacrificing the quality of
high-standard customer service."
"Beginning in November 2006, our 2005 group of branches crossed
over to monthly profitability, continuing the trend of incremental
improvement with each month. This positive trend, together with the
improvements in our seasoned branches, provides the foundation for
meaningful earnings as we move into 2007," Early said. "Our area,
regional and corporate management teams are prepared and committed to
realizing the opportunities available to QC."
- Fourth Quarter -
Revenues during fourth quarter 2006 totaled $48.7 million compared
to $41.9 million in prior year's fourth quarter. The 16.2% improvement
in revenues resulted from higher payday loan volumes and $1.5 million
in installment loan revenues from QC's Illinois branches. The increase
in payday loan volumes was attributable to increases in the number of
branches and the number of customer transactions, as well as the
inclusion of revenues from the 51 South Carolina branches QC acquired
on December 1, 2006. QC originated approximately $290.9 million of
payday loans during fourth quarter 2006, which was a 7% increase over
the $271.1 million during fourth quarter 2005.
Average fees per loan declined slightly from $54.01 in fourth
quarter 2005 to $52.92 in the current quarter. This decline is due to
legislative and regulatory changes affecting rates and to a lower
overall fee rate as the company expands in states that have lower fee
structures. These declines were partially offset by a higher average
loan principal.
Revenues for comparable branches (those branches that were open
for all of the two periods being compared, which means the 15 months
since September 30, 2005) increased to $44.3 million during the three
months ended December 31, 2006 compared to $41.0 million in prior
year's fourth quarter. This 8.0% increase was attributable to growth
across the majority of the states in which QC operates. Fourth quarter
2006 revenues also include $1.4 million from branches added during the
last three months of 2005. The 46 de novo and 51 acquired branches
added during 2006 generated revenues of approximately $3.0 million.
Branch operating expenses (i.e., non-loss costs) totaled $22.6
million and were unchanged from prior year's fourth quarter.
Branch-level salaries and benefits were $11.5 million during the three
months ended December 31, 2005 and 2006. Occupancy, other branch
expenses and depreciation remained consistent with prior year,
indicative of QC's focus on improving operating efficiency. An
increase of approximately $706,000 in advertising costs
quarter-to-quarter was essentially offset by reduced insurance costs
based on improved experience.
During the three months ended December 31, 2006, the company's
loan losses increased to $11.2 million compared to $10.1 million in
the same 2005 period. The loss ratio during fourth quarter 2006 was
23.0% versus 24.1% in last year's quarter. This improvement in loss
experience reflects reduced charge-offs as a result of the ongoing
benefits of QC's loan origination-based verification procedures, as
well as improved collections, partially due to the sale of older debt
for approximately $900,000.
QC's branch gross profit in fourth quarter 2006 was $14.9 million,
a 62.0% increase over $9.2 million during fourth quarter 2005. Gross
profit for comparable branches during fourth quarter 2006 increased
$3.7 million to $14.4 million from $10.7 million in prior year. This
increase is due to improvements in every state in which QC operates,
except Illinois. The branches added during the last three months of
2005 generated a net loss of $263,000. Net losses associated with
branches opened and acquired during 2006, unopened branches and closed
branches totaled approximately $402,000. QC's corporate collection
department and other avenues generated approximately $1.2 million in
net profit during fourth quarter 2006.
Regional and corporate expenses increased $1.5 million during the
three months ended December 31, 2006, to $8.0 million from $6.5
million in fourth quarter 2005. This expense increase is attributable
to approximately $750,000 in advertising and public awareness
expenditures during the three months ended December 31, 2006, as well
as to higher salaries associated with a 12% increase in home office
and regional personnel and equity award compensation (which the
company began to expense on January 1, 2006 in connection with the
required adoption of Statement of Financial Accounting Standards No.
123R, Share-Based Payments).
The effective income tax rate during fourth quarter 2006 increased
to 39.2% versus 35.1% in prior year due to tax benefits in 2005
resulting from the changing mix of states in which the company is
required to file income tax returns. QC reported a net loss of
$542,000 from discontinued operations during fourth quarter 2005 from
its now-closed North Carolina branches.
"Customer demand for short-term loans continues to be very strong
as demonstrated by the 8% revenue growth in our comparable branches
during fourth quarter," noted QC President and Chief Operating Officer
Darrin Andersen. "During 2006, our field management team succeeded in
refocusing our seasoned branches on generating greater profit through
quality loan originations and efficient branch management.
"With respect to newer branches, our 2004 and 2005 vintages are
beginning to hit stride, providing tremendous opportunity to fuel
earnings growth. Similarly, the addition of the 51 South Carolina
branches is immediately accretive to our earnings and presents growth
potential as we integrate and implement our operating approach."
- Year Ended December 31 -
The company's revenues grew $19.4 million, or 12.7%, during the
year ended December 31, 2006 versus 2005 as a result of increases in
the number of branches, the number of customer transactions and
average loan size. QC's net revenue increased $23.8 million, or 21.3%,
year-to-year.
Revenues for comparable branches (those branches that were open
for all of the two periods being compared, which means the 24 months
since December 31, 2004) decreased 2.6%, or $3.6 million, to $136.1
million during the year ended December 31, 2006. This decline is
primarily attributable to the $4.8 million revenue decrease
experienced in Illinois comparable branches due to legislation that
reduced the fee and placed restrictions on the customer's ability to
borrow. QC's California branches also contributed to the decline in
comparable branch revenues year-to-year due to increased competition,
management's focus on reducing losses and changes to QC's statewide
lending practices. Partially offsetting these declines was the
positive effect during the first half of 2006 resulting from changes
to legislation in Kansas beginning in July 1, 2005 that increased the
fees earned on loans greater than $100.00.
During the year ended December 31, 2006, revenues also included
approximately $30.2 million from branches added during 2005 and $4.5
million from branches added during 2006. Revenues from closed branches
contributed approximately $1.5 million during the year.
Branch operating expenses increased to $87.1 million from $74.5
million in prior year, primarily due to new branches and to a $1.4
million increase in advertising costs during 2006 compared to 2005,
the benefits of which will largely be realized in 2007. Each
comparable branch averaged approximately $13,900 per month in
operating expenses during 2006, which was a 1% decline from 2005.
Operating expenses for branches opened during 2005 averaged
approximately $11,000 per month during the year ended December 31,
2006.
During 2006, the company reported a 10.6% reduction in loan
losses, from $41.4 million in prior year to $37.0 million in the
current year. The company's loss ratio was 21.5% during the year ended
December 31, 2006 versus 27.1% during 2005. Comparable branches
totaled $27.4 million in loan losses during 2006 compared to $36.3
million in 2005. QC's charge-offs as a percentage of revenue declined
to 44.4% during 2006 from 48.6% during 2005 and the recovery rate
improved to 52.9% compared to 44.7% in prior year.
Branch gross profit increased $11.3 million during 2006 from $36.9
million to $48.2 million in the current year. Gross profit for
comparable branches during 2006 increased by $6.0 million, or 12.8%,
to $52.9 million from $46.9 million in prior year. The branches added
during 2005 and 2006 reported a gross loss of $4.8 million. Branches
that are not yet opened and those that were closed during 2006
produced a gross loss of $1.3 million for the year ended December 31,
2006. QC's corporate collection department and other avenues generated
approximately $1.4 million in net profit during 2006.
Regional and corporate expenses increased to $31.4 million during
the year ended December 31, 2006 compared to $25.6 million in 2005 for
the same reasons identified in the quarterly discussion above, as well
as due to higher rent expense in 2006 (from the company's move to a
new corporate office in April 2005). In addition, QC's second quarter
2006 results included approximately $600,000 in professional fees and
other costs associated with the company's evaluation of a potential
acquisition.
The effective income tax rate during the year ended December 31,
2006 increased to approximately 39.8% from 38.2% in prior year. QC
reported a loss of $944,000 from discontinued operations during 2005
from its now-closed North Carolina branches.
- BUSINESS OUTLOOK -
"Our customers have clearly communicated that they desire a
short-term alternative to products and services provided by
traditional financial institutions," Early said. "We believe our
commitment to customer service, convenience and quality resonate with
our customers as they intelligently evaluate the various choices for
satisfying their credit needs.
"Our 2006 results indicate progress toward achieving our long-term
objective of generating consistent, meaningful earnings and cash flow.
To that end, we have completed our initial assessment of lower
performing branches. We expect to close approximately 35 branches
during first quarter 2007 that cost the company approximately $2.4
million in gross losses during 2006. The cash costs to close these
branches are estimated to be $1.2 million and the financial statement
expense is estimated to total $3.3 million, including property
write-offs and bad debt. The majority of the closings are in states
where a regulatory change affected the long-term profitability of the
branch.
"With respect to growth in 2007, we expect to open from 20 to 30
new branches as we target states where we can gain market share. This
modest de novo growth objective, together with a disciplined,
opportunistic acquisition strategy, enables our management team to
continue its focus on developing and improving existing branches.
"We believe there is significant potential in the retail financial
services credit industry. We are energized about our business
strategies and objectives, and believe we are positioned to deliver
long-term value to our shareholders."
QC will present its financial results for the three months and
year ended December 31, 2006 in a conference call on February 8, 2007,
at 2:00 p.m. EST. Stockholders and other interested parties are
invited to listen online at www.qcholdings.com or dial 866-825-1692,
passcode 85605171. The accompanying slides to the presentation will be
available on the QC Web site prior to the conference call. A replay of
the audio portion of the presentation will be available online until
the close of business on March 8, 2007. The replay can also be
accessed by telephone until February 15, 2007, at 888-286-8010, code
97778928.
About QC Holdings, Inc.
Headquartered in Overland Park, Kansas, QC Holdings, Inc. is a
leading provider of payday loans in the United States, operating 613
branches in 25 states at December 31, 2006. With more than 22 years of
operating experience in the retail consumer finance industry, the
company entered the payday loan market in 1992 and, since 1998, has
grown from 48 branches to 613 branches through a combination of de
novo branches and acquisitions. During fiscal 2006, the company
advanced approximately $1.1 billion to customers through payday loans
and reported total revenues of $172.3 million.
Forward-Looking Statement Disclaimer: This press release and the
conference call referenced above contain 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 (1) changes
in laws or regulations or governmental interpretations of existing
laws and regulations governing consumer protection or payday lending
practices, (2) litigation or regulatory action directed towards us or
the payday loan industry, (3) volatility in our earnings, primarily as
a result of fluctuations in loan loss experience and the rate of
revenue growth in branches, (4) negative media reports and public
perception of the payday loan industry and the impact on state
legislatures and federal and state regulators, (5) changes in our key
management personnel, (6) integration risks and costs associated with
contemplated and completed acquisitions, and (7) the other risks
detailed under Item 1A. "Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2005 filed with the Securities
and Exchange Commission. QC will not update any forward-looking
statements made in this press release or the conference call
referenced above to reflect future events or developments.
QC Holdings, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
--------------------------------------
2005 2006 2005 2006
--------- -------- --------- ---------
Revenues
Payday loan fees $38,378 $42,822 $139,103 $152,354
Other 3,518 5,915 13,775 19,928
--------- -------- --------- ---------
Total revenues 41,896 48,737 152,878 172,282
--------- -------- --------- ---------
Branch expenses
Salaries and benefits 11,473 11,490 38,073 44,027
Provision for losses 10,102 11,211 41,417 37,027
Occupancy 5,666 5,882 19,062 22,686
Depreciation and amortization 1,581 1,218 3,890 4,918
Other 3,911 4,035 13,521 15,470
--------- -------- --------- ---------
Total branch expenses 32,733 33,836 115,963 124,128
--------- -------- --------- ---------
Branch gross profit 9,163 14,901 36,915 48,154
Regional expenses 2,479 2,962 9,364 11,941
Corporate expenses 4,006 5,001 16,221 19,514
Depreciation and amortization 259 401 856 1,379
Interest income, net (38) (2) (476) (317)
Other expense, net 4 139 715 338
--------- -------- --------- ---------
Income from continuing
operations before
income taxes 2,453 6,400 10,235 15,299
Provision for income taxes 861 2,511 3,912 6,090
--------- -------- --------- ---------
Income from continuing
operations 1,592 3,889 6,323 9,209
Loss from discontinued
operations, net of income tax (542) (944)
--------- -------- --------- ---------
Net income $1,050 $3,889 $5,379 $9,209
========= ======== ========= =========
Earnings (loss) per share:
Basic
Continuing operations $0.08 $0.20 $0.31 $0.46
Discontinued operations (0.03) (0.05)
--------- -------- --------- ---------
Net income $0.05 $0.20 $0.26 $0.46
========= ======== ========= =========
Diluted
Continuing operations $0.07 $0.19 $0.29 $0.45
Discontinued operations (0.02) (0.04)
--------- -------- --------- ---------
Net income $0.05 $0.19 $0.25 $0.45
========= ======== ========= =========
Weighted average number of
common shares outstanding:
Basic 20,466 19,429 20,508 19,981
Diluted 21,376 20,090 21,448 20,627
QC Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2005 2006
------------ ------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $31,640 $23,446
Loans receivable, less allowance for
losses of $1,705 at December 31, 2005 and
$2,982 at December 31, 2006 52,778 66,018
Prepaid expenses and other current assets 2,945 3,028
------------ ------------
Total current assets 87,363 92,492
Property and equipment, net 32,147 31,311
Goodwill 7,265 14,492
Other assets, net 1,364 4,652
------------ ------------
Total assets $128,139 $142,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $644 $909
Accrued expenses and other liabilities 6,270 9,432
Deferred revenue 4,121 4,558
Borrowings under credit facility 16,300
Deferred income taxes 2,384 1,742
------------ ------------
Total current liabilities 13,419 32,941
Non-current liabilities 737 598
Deferred income taxes 3,167 2,645
------------ ------------
Total liabilities 17,323 36,184
Commitments and contingencies
Stockholders' equity 110,816 106,763
------------ ------------
Total liabilities and stockholders'
equity $128,139 $142,947
============ ============
QC Holdings, Inc.
Selected Statistical and Operating Data
(in thousands, except Branch Data, Average Loan and Average Fee)
Three Months Ended Year Ended
December 31, December 31,
------------------- ---------------------
2005 2006 2005 2006
--------- --------- --------- -----------
Unaudited Unaudited
Branch Data:
Number of branches,
beginning of period 512 564 371 532
De novo branches opened 38 6 174 46
Acquired branches 1 51 10 51
Branches closed (19) (8) (23) (16)
--------- --------- --------- -----------
Number of branches, end
of period 532 613 532 613
========= ========= ========= ===========
- ----------------------------------------------------------------------
Comparable Branch Data:
Total number of comparable
branches 478 478 335 335
Comparable branch revenue $40,971 $44,325 $139,702 $136,136
Percentage change 8.0% (2.6)%
Comparable branch net
revenues $31,104 $33,353 $103,411 $108,717
Percentage change 7.4% 5.1%
- ----------------------------------------------------------------------
Operating Data (Payday
Loans):
Loan volume $271,118 $290,853 $985,219 $1,051,961
Average loan (principal
plus fee) 365.77 366.17 361.79 363.42
Average fee 54.01 52.92 53.83 53.08
- ----------------------------------------------------------------------
Loss Data:
Allowance for loan losses:
Balance, beginning of
period $2,530 $1,627 $1,520 $1,705
Adjustment to provision
for losses based on
evaluation of
outstanding receivables
(a) (825) 1,355 185 1,277
--------- --------- --------- -----------
Balance, period end $1,705 $2,982 $1,705 $2,982
========= ========= ========= ===========
Provision for losses:
Charged-off to expense $17,320 $20,773 $74,237 $76,449
Recoveries (6,815) (10,759) (33,195) (40,472)
Adjustment to provision
for losses based on
evaluation of
outstanding receivables
(a) (403) 1,197 375 1,050
--------- --------- --------- -----------
Total provision for
losses $10,102 $11,211 $41,417 $37,027
========= ========= ========= ===========
Provision for losses as a
percentage of revenues 24.1% 23.0% 27.1% 21.5%
Provision for losses as a
percentage of loan volume
(all products) 3.7% 3.8% 4.1% 3.4%
(a) Amounts differ due to the exclusion of the North Carolina
operations in the provision for losses table in 2005 and due to the
inclusion of changes in the credit services organization liability in
the provision for losses table in 2005 and 2006.
CONTACT: QC Holdings, Inc.
Investor Relations Contact:
Douglas E. Nickerson, 913-234-5154
Chief Financial Officer
or
Media Contact:
Tom Linafelt, 913-234-5237
Director - Corporate Communications