EX-99 2 dfcfy061q.htm FISCAL 2006 Q1 EARNINGS RELEASE

 

NEWS RELEASE

Exhibit 99.1

 

 

Contact: Dollar Financial Corp.

 

 

Financial Dynamics

 

Mark McCall (212) 850-5641

 

FOR IMMEDIATE RELEASE

 

 

 

DOLLAR FINANCIAL CORP. ANNOUNCES 2006 FISCAL FIRST QUARTER RESULTS;

REVENUE GROWTH OF 12.6% DRIVES GROWTH IN NET INCOME

 

BERWYN, Pennsylvania, [October 27, 2005] – Dollar Financial Corp. (NASDAQ:DLLR - News), a leading international financial services company serving under-banked customers, today announced results for the fiscal first quarter ended September 30, 2005.

 

Highlights for the quarter ended September 30, 2005, as compared to the quarter ended September 30, 2004 include:

Total net revenue was $74.5 million, an increase of 12.6% or $8.3 million.

Total net revenue from the Company’s international operations increased by 23.0% or $9.2 million to $48.9 million.

Comparable store sales for the international business increased by 20.1% and total company comparable store sales increased by 8.4%.

Check cashing revenue increased by 13.1% or $4.0 million.

Net income increased by $2.4 million to $2.3 million for the quarter.

Fully diluted earnings per share were $0.12 as compared to a loss of $0.01 per share for the prior year period.

Net charge-offs on company funded consumer loans, as a percentage of total company funded consumer loan originations, were 2.1% for the first quarter, as compared to 2.7% for the same period in the prior year.

 

Commenting on the results, Jeff Weiss, the Company’s Chairman and Chief Executive Officer, stated, “We delivered significant revenue and income growth for the quarter, while successfully managing through the transition of the majority of the U.S. loan portfolio to the company funded loan model, as well as the extended business interruption associated with nine stores in Louisiana

 



 

affected by Hurricane’s Katrina and Rita. The quarter’s results underscore the strength and flexibility of the Company’s long-term strategy of balancing growth across multiple countries and product lines. As the most diversified company in our sector, both in terms of products and geographies, we continue to believe that this multinational, multi-product and multi-channel strategy allows us to effectively manage specific product line and regulatory risks while providing a broader foundation on which to deliver sustainable earnings growth and shareholder value.”

 

In early October, the Company completed the launch of a new installment loan product in California, Pennsylvania, Texas, Ohio, and Washington State. Collectively, these states represent 199 or 57.5% of the total U.S. company operated financial services store base. This new loan product will have a fee structure substantially similar to the core payday loan product, however the loan term is four months, with up to eight payments due on corresponding customer pay days. Loans are offered in principal amounts ranging from $300 to $1,500. Commenting on this new product introduction, Don Gayhardt, the Company’s President, stated, “We are excited about our customer’s response to the new installment loan product. Demand has been very strong but it will likely be several months before we can assess the credit performance of these loans compared to our core payday loan product.”

 

The Company’s international operations generated a $4.3 million or 31.5% increase in net consumer lending revenue, which was offset by a $4.7 million decrease in the U.S. consumer lending business. The lower consumer lending revenue in the U.S. was expected as a result of the transition of the majority of the U.S. consumer lending business from the bank agency model to a company funded loan model. The U.S. consumer lending business was also impacted by the planned downsizing of the direct-to-customer lending business. International check cashing revenue increased by $3.4 million or 17.1%, while U.S. check cashing revenue increased by $632,000 or 5.9%. The other revenue category increased by $4.2 million, which is primarily composed of $2.7 million of revenue from the recently acquired We The People legal document preparation services line of business, as well as additional franchise revenue from the Canadian business.

 

Company funded loan originations were $244.5 million for the first quarter ended September 30, 2005 representing an increase of 45.2% or $76.1 million over the same period in the prior year. The increase was primarily a result of the Company transitioning the majority of its domestic loan portfolio from a bank agency model to a company funded loan model. The resulting transition

 



 

caused the U.S. company funded loan originations to increase by 264.4% or $49.1 million. Loan originations in the U.K. market grew by 11.8% or $5.0 million, while loan originations in Canada grew by 20.5% or $22.0 million. Net charge-offs on company funded consumer loans, as a percentage of total company funded consumer loan originations, were 2.1% for the first quarter, as compared to 2.7% for the same period in the prior year. As a percentage of consumer lending revenue, total company loan losses were 24.7% for the current quarter compared to 25.4% for the previous year.

 

Comparable store sales increased by 8.4% for the quarter and on a constant currency basis increased by 5.5%. On a local currency basis, U.K. comparable store sales increased by 24.2%, Canadian same store sales increased by 9.3%, while U.S. comparable store sales decreased by 16.0%. The decrease in U.S. comparable store sales is a direct result of the consumer loan transition.

 

For the 2006 fiscal first quarter, the face amount of the average check cashed increased 8.7% to $439 compared to $404 for the prior year. The average fee per check cashed increased 9.5% to $16.45 for the quarter, as compared to $15.02 for the same period in the prior year.

 

For the three months ended September 30, 2005, the Company realized a store and regional margin of $24.5 million or 32.8% of total revenues as compared to $22.5 million or 34.0% of total revenues for the same period in the prior year. The decrease in the store and regional margin percentage is primarily attributable to the decrease in domestic consumer loan revenue, as well as additional store development costs associated with the recently acquired We The People stores.

 

Corporate expenses for the three months ended September 30, 2005 increased by $941,000 over the previous year to $9.2 million or 12.3% of total revenues. The increase of $941,000 was primarily due to higher insurance and other public company costs, as well as an increase in compensation costs to support the expansion of the global store network and new product offerings.

 

Interest expense for the three months ended September 30, 2005 decreased to $7.2 million, which represents a reduction of 25.1% or $2.4 million from the previous year. Funds generated from the January 27, 2005 IPO were used to retire the entire balance of two issues of senior notes and senior subordinated notes, which including the accrued interest, totaled $92.7 million.

 

 



 

 

Income before income taxes was $6.8 million for the quarter, an increase of $3.6 million over the prior year. The Company realized net income of $2.3 million or $0.12 per fully diluted share for the quarter, as compared to a net loss of $91,000 or a loss of $0.01 per fully diluted share for the previous year.

 

The Company’s income tax provision for the fiscal 2006 first quarter was $4.5 million, which reflects an effective income tax rate of 66.4%. Included in the income tax provision is a valuation allowance against the tax benefit of the Company’s U.S. income tax operating losses, which represents 29.4% of income before income taxes. This valuation allowance is recorded pursuant to U.S. generally accepted accounting principles, and will continue until such time as the Company can demonstrate that the benefit from such tax operating losses can be realized. If the Company was able to demonstrate that the benefit from the U.S. income tax operating loss for the quarter could be realized, and thereby could recognize the benefit thereof under U.S. generally accepted accounting principles, the pro-forma effective income tax rate for the quarter would have been approximately 37.0%.

 

In the first quarter of fiscal 2006, the Company opened three company operated financial services stores in each of the U.S. and U.K. markets and also completed the repurchase of twenty-six We The People franchise stores primarily located in New York City. The Company also closed four non-performing company operated financial services stores in the U.S. market.

 

The Company added five franchise financial services locations in Canada and two in the U.K., as well as one We The People franchise location in the U.S. market. The Company also terminated its relationship with twenty-nine franchise locations in the U.K. due to their lack of performance. The Company continues to assess its U.K. franchise relationships in connection with furthering its goal of developing more profitable company operated stores. As of September 30, 2005, the global store network included 1,316 locations.

Update on Hurricane Katrina and Hurricane Rita

The Company announced in a press release on September 16, 2005, that it operates five financial services stores in New Orleans that were directly impacted by Hurricane Katrina. Four of these stores are currently closed due to extensive damage, while one store suffered only minor damage and was reopened at the end of September. The Company anticipates refurbishing and reopening

 



 

the remaining four stores by the end of the third quarter of the current fiscal year. The total financial impact in the first quarter, as a result of the disruption of operations from Hurricane Katrina, was a reduction of approximately $300,000 of revenue and $500,000 of income before income taxes. The first quarter impact is consistent with the 2006 full year estimate of a reduction of between $700,000 and $1.0 million of income before income taxes.

 

The Company was also impacted by Hurricane Rita, which resulted in the temporary closure of four stores in Lake Charles, Louisiana. These four stores all suffered minor damage and were reopened by mid-October.

 

Investors Conference Call

Dollar Financial Corp. will be holding an investor’s conference call scheduled for Thursday, October 27, 2005 at 5:00 p.m. ET to discuss the Company’s results for the fiscal first quarter ended September 30, 2005 and the reconfirmation of guidance for fiscal year 2006. Investors can participate in the conference by dialing 888-896-0863 (U.S. and Canada) or 973-935-8507 (International); use the confirmation code “Dollar”. Hosting the call will be Jeff Weiss, Chairman and CEO, Don Gayhardt, President, and Randy Underwood, Executive Vice President and CFO. For your convenience, the conference call can be replayed in its entirety beginning at 7:00 p.m. Eastern Time on October 27, 2005 through November 3, 2005. If you wish to listen to the replay of this conference call, please dial 973-341-3080 and enter passcode “6574455”.

 

The conference call will also be broadcast live through a link on the Investor Relations page on the Dollar Financial web site at http://www.dfg.com. Please go to the Web site at least 15 minutes prior to the call to register, download and install any necessary audio software.

 

About Dollar Financial Corp.

Dollar Financial Corp. is a leading international financial services company serving under-banked consumers. Our customers are typically lower- and middle-income working-class individuals who require basic financial services but, for reasons of convenience and accessibility, purchase some or all of their financial services from us rather than from banks and other financial institutions. To meet the needs of these customers, we provide a range of consumer financial products and services primarily consisting of check cashing, short-term consumer loans, Western Union money order and money transfer products, reloadable VISA® branded debit cards, electronic tax filing, bill payment services, and legal document preparation services.

 

 



 

 

At September 30, 2005, the Company operated a network of 1,316 stores, including 176 We the People legal document preparation locations, and 715 company-operated financial services stores in 36 states, the District of Columbia, Canada and the United Kingdom. The store network is the largest network of its kind in each of Canada and the United Kingdom and the second-largest network of its kind in the United States. The Company’s customers, many of whom receive income on an irregular basis or from multiple employers, are drawn to our convenient neighborhood locations, extended operating hours and high-quality customer service. Our products and services, principally our check cashing and short-term consumer loan program, provide immediate access to cash for living expenses or other needs. For more information, please visit the Company's website at www.dfg.com.

 

Forward Looking Statement

This news release contains forward looking statements, including statements regarding the Company’s future results, growth and operating strategy, the impact of hurricanes and of the FDIC guidance on payday lending. These forward looking statements involve risks and uncertainties, including risks related to the regulatory environment, the integration of acquired stores, the new installment loan product and new product lines, as well as the impact of the FDIC guidance on the Company’s business, results of operations, financial condition and prospects. There can be no assurance that the Company will be able to meet its expected results, successfully integrate any of its acquisitions, or that the FDIC guidance or other Federal, state or foreign legislative or regulatory activities affecting the Company or the banks with which the Company does business will not negatively impact the Company’s operations. A more complete description of these and other risks, uncertainties and assumptions is included in our filings with the Securities and Exchange Commission, including those described under the heading “Risk Factors” in our recent final prospectus from the Company’s initial public offering filed with the SEC on January 31, 2005. You should not place any undue reliance on any forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

 



 

 

 

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

 

 

 

 

 

 

 

June 30, 2005

 

September 30, 2005

 

 


 


Assets:

 

 

 

 

Cash and cash equivalents

 

$                         92,504

 

$                         99,735

Loans receivable:

 

 

 

 

Loans receivable

 

41,353

 

51,781

Less: Allowance for loan losses

 

(2,707)

 

(4,041)

 

 


 


Loans receivable, net

 

38,646

 

47,740

Other consumer lending receivables

 

7,996

 

2,568

Prepaid expenses and other receivables

 

12,310

 

16,290

Deferred tax asset, net

 

71

 

140

Property and equipment, net

 

35,611

 

36,951

Goodwill and other intangibles, net

 

186,190

 

192,727

Debt issuance costs, net

 

10,558

 

10,785

Other

 

3,970

 

2,343

 

 


 


Total Assets

 

$                         387,856

 

$                         409,279

 

 


 


 

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable

 

$                              23,807

 

$                              25,655

Foreign income taxes payable

 

4,648

 

4,441

Accrued expenses and other liabilities

 

22,358

 

16,190

Accrued interest payable

 

3,291

 

9,874

Deferred tax liability

 

2,352

 

2,779

Revolving credit facilities

 

-

 

11,900

9.75% Senior Notes due 2011

 

271,764

 

271,695

Shareholders' (deficit) equity:

 

 

 

 

Common stock

 

18

 

18

Additional paid-in capital

 

160,997

 

161,169

Accumulated deficit

 

(121,885)

 

(119,586)

Accumulated other comprehensive income

 

20,506

 

25,144

 

 


 


Total shareholders' equity

 

59,636

 

66,745

 

 


 


 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$                              387,856

 

$                              409,279

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

DOLLAR FINANCIAL CORP.

 

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In thousands except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30,

 

 


 

 

2004

 

2005

 

 


 


Revenues:

 

 

 

 

Check cashing

$              30,362

 

$                34,347

 

Consumer lending:

 

 

 

 

Fees from consumer lending

37,207

 

36,487

 

Provision for loan losses and adjustment

 

 

 

 

to servicing revenue

(9,437)

 

(9,022)

 

 


 


 

Consumer lending, net

27,770

 

27,465

 

Money transfer fees

3,508

 

3,958

 

Other

4,493

 

8,695

Total revenues

66,133

 

74,465

 


 


 

 

 

 

 

Store and regional expenses:

 

 

 

 

Salaries and benefits

20,887

 

25,191

 

Occupancy

5,394

 

6,718

 

Depreciation

1,754

 

1,832

 

Returned checks, net and cash shortages

2,484

 

3,259

 

Telephone and telecommunication

1,473

 

1,421

 

Advertising

2,832

 

2,189

 

Bank charges

936

 

1,109

 

Armored carrier services

824

 

986

 

Other

7,092

 

7,309

 

 


 


Total store and regional expenses

43,676

 

50,014

 


 


Store and regional margin

22,457

 

24,451

 


 


 

 

 

 

 

Corporate and other expenses:

 

 

 

 

Corporate expenses

8,231

 

9,172

 

Management fee

277

 

-

 

Other depreciation and amortization

931

 

925

 

Interest expense, net

9,669

 

7,241

 

Other

86

 

276

 

 


 


Income before income taxes

3,263

 

6,837

Income tax provision

3,354

 

4,538

 


 


Net (loss) income

($91)

 

$                  2,299

 


 


 

 

 

 

 

Net (loss) income per share:

 

 

 

 

Basic

($0.01)

 

$                    0.13

 

Diluted

($0.01)

 

$                    0.12

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

Basic

10,965,778

 

18,089,141

 

Diluted

10,965,778

 

18,423,529

 

 

 

 

 



 

 

EBITDA Reconciliation

EBITDA is not an item prepared in accordance with GAAP. EBITDA is earnings before interest expense, income tax provision, depreciation, amortization and other items described below. Dollar presents EBITDA as an indication of operating performance and its ability to service its debt and capital expenditure requirements. EBITDA does not indicate whether Dollar’s cash flow will be sufficient to fund all of its cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other measures of operating performance or liquidity determined in accordance with GAAP. Dollar believes that EBITDA amounts should be reviewed by prospective investors because Dollar uses them as one means of analyzing its ability to service its debt and capital expenditure requirements, and Dollar understands that they are used by some investors as one measure of a Company's historical ability to service its debt and capital expenditure requirements. Not all companies calculate EBITDA in the same fashion, and therefore these amounts as presented may not be comparable to other similarly titled measures of other companies. The table below reconciles income before income taxes as reported on Dollar’s Interim Unaudited Consolidated Statements of Operations to Adjusted EBITDA (dollars in thousands):

 

 

 

Three Months Ended

 

 

September 30,

 

 


 

 

2004

 

2005

 

 


 


Income before income taxes

 

$             3,263

 

$             6,837

Add:

 

 

 

 

Depreciation and amortization

 

2,685

 

2,757

Interest expense

 

9,669

 

7,241

Management fees

 

277

 

-

Foreign currency (gain) loss

 

126

 

404

Loss on store closings & other

 

86

 

276

 

 


 


Adjusted EBITDA

 

$             16,106

 

$             17,515

 

 


 


 

 

 

 

 

 

 



 

 

 

Dollar Financial Corp.

Unaudited Store Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2004

 

2005

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

Consolidated Store Count

 

 

 

 

 

 

Beginning

 

1,110

 

1,335

 

 

 

 

Opened

 

11

 

6

 

 

 

 

Acquired

 

1

 

26

 

 

 

 

Closed or Sold

 

0

 

(4)

 

 

 

 

Franchise, net change

 

0

 

(47)

 

 

 

 

 

 


 


 

 

 

 

Ending

 

1,122

 

1,316

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company-Operated Store Count

 

 

 

 

 

Beginning

 

638

 

716

 

 

 

 

Opened

 

11

 

6

 

 

 

 

Acquired

 

1

 

26

 

 

 

 

Closed or Sold

 

0

 

(4)

 

 

 

 

 

 


 


 

 

 

 

Ending

 

650

 

744

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise Store Count

 

 

 

 

 

 

Beginning

 

472

 

619

 

 

 

 

Financial Services, net change

 

0

 

(22)

 

 

 

 

We The People, net change

 

0

 

(25)

 

 

 

 

 

 


 


 

 

 

 

Ending

 

472

 

572

 

 

 

 

 

 


 


 

 

 



 

 

 

 

Three Months Ended

 

September 30,

 


 

2004

2005

 



 

 

 

Check Cashing Data (Consolidated)

 

 

Face amount of checks cashed (in millions)

$816

$917

Number of checks cashed (in thousands)

2,022

2,088

Face amount of average check

$404

$439

Average fee per check cashed

$15.02

$16.45

Net write-offs of returned checks (in thousands)

$2,227

$2,969

Net write offs as a percentage of check cashing revenue

7.3%

8.6%

 

 

 

Consumer Loan Data - Originations

 

 

U.S. company funded consumer loan originations (1)

$18,562

$67,636

Canadian company funded consumer loan originations (2)

107,141

129,092

U.K. company funded consumer loan originations (2)

42,698

47,738

 



Total company funded consumer loan originations

$168,401

$244,466

 



 

 

 

Consumer Loan Data - Net Revenues

 

 

Servicing revenues, net (3)

$12,150

$1,408

U.S. company funded consumer loan revenues (3)

2,774

10,245

Canadian company funded consumer loan revenues

11,480

14,856

U.K. company funded consumer loan revenues

6,036

7,389

Provision for loan losses on company funded loans

(4,670)

(6,433)

 



Total consumer lending revenues, net

$27,770

$27,465

 



 

 

 

Consumer Loan Net Charge-offs

 

 

Gross charge-offs of company funded consumer loans (3)

$16,078

$24,645

Recoveries of company funded consumer loans (3)

(11,468)

(19,526)

 



Net charge-offs on company funded consumer loans

$4,610

$5,119

 



 

 

 

Gross charge-offs of company funded consumer loans

 

 

as a percentage of total company funded consumer loan

 

 

originations

9.5%

10.1%

Recoveries of company funded consumer loans as a

 

 

percentage of total company funded consumer loan

 

 

originations

6.8%

8.0%

Net charge-offs on company funded consumer loans

 

 

as a percentage of total company funded consumer loan

 

 

originations

2.7%

2.1%