Forward-Looking Statements This report contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "predict," "will," "potential," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our Revolving Credit Facility, proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 pandemic; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 (the "2021 Form 10-K") and other reports filed with theSEC . If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. The Company makes available in the investor relations section of its website at ir.conns.com updated monthly reports to the holders of its asset-backed notes. This information reflects the performance of the securitized portfolio only, in contrast to the financial statements contained herein, which reflect the performance of all of the Company's outstanding receivables, including those originated subsequent to those included in the securitized portfolio. The website and the information contained on our website is not incorporated in this Quarterly Report on Form 10-Q or any other document filed with theSEC . Overview We continue to monitor the evolving nature of COVID-19 and respond to its impact on our business. We have experienced and continue to experience challenges related to the pandemic. These challenges increased the complexity of our business, including with respect to supply chain and sales, and, despite our strong performance during the second quarter of fiscal year 2022, will likely continue until the effects of COVID-19 diminish. The full impact of COVID-19 remains uncertain and will depend on future developments, including the duration and spread of the pandemic, and related actions taken by federal, state and local government officials to prevent and manage disease spread and mitigate its economic impact, all of which are uncertain and unpredictable. We encourage you to read this Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes. Our fiscal year ends onJanuary 31 . References to a fiscal year refer to the calendar year in which the fiscal year ends. Executive Summary Total revenues were$418.4 million for the three months endedJuly 31, 2021 compared to$366.9 million for the three months endedJuly 31, 2020 , an increase of$51.5 million or 14.0%. Retail revenues were$347.0 million for the three months endedJuly 31, 2021 compared to$279.9 million for the three months endedJuly 31, 2020 , an increase of$67.1 million or 24.0%. The increase in retail revenue was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Company's home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic. Credit revenues were$71.4 million for the three months endedJuly 31, 2021 compared to$87.0 million for the three months endedJuly 31, 2020 , a decrease of$15.6 million or 17.9%. The decrease 19 -------------------------------------------------------------------------------- Table of Contents in credit revenue was primarily due to a 22.7% decrease in the average outstanding balance of the customer receivable portfolio. These decreases were partially offset by an increase in the yield rate, from 23.2% for the three months endedJuly 31, 2020 to 23.3% for the three months endedJuly 31, 2021 and an increase in insurance commissions. Retail gross margin for the three months endedJuly 31, 2021 was 37.7%, an increase of 80 basis points from the 36.9% reported for the three months endedJuly 31, 2020 . The year-over-year increase in retail gross margin was primarily driven by a shift in sales from lower margin products to higher margin products, a decrease in third-party credit fees and the impact of fixed logistics costs on higher sales. The increase was partially offset by a slower rate of increase in repair service agreement commissions compared to product sales year-over-year. Selling, general and administrative expense ("SG&A") for the three months endedJuly 31, 2021 was$137.9 million compared to$115.3 million for the three months endedJuly 31, 2020 , an increase of$22.6 million or 19.6%. The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs, labor costs, advertising expense and general operating costs. The retail segment increase also reflects the impact of prior year precautionary cost saving measures enacted in response to the COVID-19 pandemic. The SG&A decrease in the credit segment was primarily due to a decrease in labor costs. Provision for bad debts was$10.3 million for the three months endedJuly 31, 2021 compared to$32.0 million for the three months endedJuly 31, 2020 , a decrease of$21.7 million . The change was primarily driven by a year-over-year decrease in net charge-offs of$43.8 million , partially offset by a smaller decrease in the allowance for bad debts during the three months endedJuly 31, 2021 compared to the three months endedJuly 31, 2020 . The smaller decrease was driven by a lower year-over-year decline in the customer accounts receivable portfolio balance, partially offset by a$5.0 million decrease in the economic adjustment that was driven by an improvement in the forecasted unemployment rate. Interest expense was$6.1 million for the three months endedJuly 31, 2021 and$13.2 million for the three months endedJuly 31, 2020 , a decrease of$7.1 million or 53.8%. The decrease was primarily driven by a lower average outstanding balance of debt and by a lower effective interest rate. Net income for the three months endedJuly 31, 2021 was$37.0 million , or$1.22 per diluted share, compared to net income of$20.5 million , or$0.70 per diluted share, for the three months endedJuly 31, 2020 . How We Evaluate Our Operations Senior management focuses on certain key indicators to monitor our performance including: •Same store sales - Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our performance because they reflect our attempts to leverage our SG&A costs, which include rent and other store expenses, and they have a direct impact on our total net sales, net income, cash and working capital. Same store sales is calculated by comparing the reported sales for all stores that were open during both comparative fiscal years, starting in the first period in which the store has been open for a full quarter. Sales from closed stores, if any, are removed from each period. Sales from relocated stores have been included in each period if each such store was relocated within the same general geographic market. Sales from expanded stores have also been included in each period. •Retail gross margin - Our management views retail gross margin as a key indicator of our performance because it reflects our pricing power relative to the prices we pay for our products. Retail gross margin is calculated by comparing retail total net sales to the cost of goods sold. •60+ Day Delinquencies - Our management views customer account delinquencies as a key indicator of our performance because it reflects the quality of our credit portfolio, drives future credit performance and credit offerings, and impacts the interest rates we pay on our asset-backed securitizations. Delinquencies are measured as the percentage of balances that are 60+ days past due. •Net yield - Our management considers yield to be a key performance metric because it drives future credit decisions and credit offerings and directly impacts our net income. Yield reflects the amount of interest we receive from our portfolio. Company Initiatives In the second quarter of fiscal year 2022, we delivered strong results driven by our store and eCommerce performance. We delivered the following financial and operational results in the second quarter of fiscal year 2022: •Net earnings increased to a second quarter record of$1.22 per diluted share, compared to$0.70 per diluted share for the same period last fiscal year; •Same store sales increased 16.4% for the second quarter of fiscal year 2022 as compared to the second quarter of fiscal year 2021 and increased 3.2% on a two-year basis; •Strong same store sales combined with the contribution of new showrooms drove a 24.0% increase in total retail sales for the second quarter; 20 -------------------------------------------------------------------------------- Table of Contents •eCommerce sales during the second quarter of fiscal year 2022 increased 210.9% to$17.3 million , as compared to the prior fiscal year period; •Lease-to-own sales during the second quarter of fiscal year 2022 increased 70.3% to$41.6 million , as compared to the prior fiscal year period; •During the second quarter of fiscal year 2022, the Company added three new showrooms, all within the state ofFlorida , bringing the total number of showrooms atJuly 31, 2021 to 155, compared to 141 atJuly 31, 2020 ; and •AtJuly 31, 2021 , the carrying value of customer accounts receivable 60+ days past due declined 42.1% year-over-year to the lowest level in eight fiscal years, and the carrying value of re-aged accounts declined 44.5% year-over-year to the lowest level in six fiscal years. We believe that we have laid the foundation to execute our long-term growth strategy and prudently manage financial and operational risk while maximizing shareholder value. We remain focused on the following strategic priorities for fiscal year 2022: •Increase net income by improving performance across our core operational and financial metrics: same store sales, retail margin, charge-offs and net yield; •Open 11 to 13 new stores in our current geographic footprint to leverage our existing infrastructure (inclusive of the nine new stores opened during the first half of fiscal year 2022); •Optimize our mix of quality, branded products and gain efficiencies in our warehouse, delivery and transportation operations to increase our retail gross margin; •Continue to grow our lease-to-own sales; •Continue to grow our eCommerce sales; •Maintain disciplined oversight of our SG&A; •Ensure that the Company has the leadership and human capital pipeline and capability to drive results and meet present and future business objectives as the Company continues to expand its retail store base; and •Leverage technology and shared services to drive efficient, effective and scalable processes. Outlook As noted in the "Overview" above, our business and industry continue to be impacted by the COVID-19 pandemic inthe United States . Going forward, the full extent to which the pandemic will impact our supply chain, future business and operating results is uncertain. Government support, including the American Rescue Plan Act of 2021, 2021 Child Tax Credit Payments andInfrastructure Investment and Jobs Act, has provided our customers with additional financial means which we expect has helped, and may continue to help, our business. We feel we are well positioned to continue serving our customers and supporting our employees as we continue to monitor and respond to the pandemic. The broad appeal of our value proposition to our geographically diverse core demographic and the unit economics of our business should provide the stability necessary to maintain and grow our business. We expect our brand recognition and long history in our core markets to give us the opportunity to further penetrate our existing footprint, particularly as we leverage existing marketing spend, logistics infrastructure, and service footprint. There are also many markets in theU.S. with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to improve our operating results by leveraging our existing infrastructure and seeking to continually optimize the efficiency of our marketing, merchandising, distribution and credit operations. As we expand in existing markets and penetrate new markets, we expect to increase our purchase volumes, achieve distribution efficiencies and strengthen our relationships with our key vendors. Over time, we also expect our increased store base and higher net sales to further leverage our existing corporate and regional infrastructure. 21 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables present certain financial and other information, on a condensed consolidated basis: Three Months Ended Six Months Ended Consolidated: July 31, July 31, (in thousands) 2021 2020 Change 2021 2020 Change Revenues: Total net sales$ 346,785 $ 279,736
87,180 (15,582) 144,004 174,010 (30,006) Total revenues 418,383 366,916 51,467 782,085 684,076 98,009 Costs and expenses: Cost of goods sold 216,042 176,623 39,419 400,921 323,637 77,284 Selling, general and administrative expense 137,870 115,278 22,592 263,919 228,285 35,634 Provision for bad debts 10,262 32,045 (21,783) (6,874) 149,371 (156,245) Charges and credits - 1,534 (1,534) - 3,589 (3,589) Total costs and expenses 364,174 325,480 38,694 657,966 704,882 (46,916) Operating income (loss) 54,209 41,436 12,773 124,119 (20,806) 144,925 Interest expense 6,088 13,222 (7,134) 15,292 28,215 (12,923) Loss on extinguishment of debt - - - 1,218 - 1,218 Income (loss) before income taxes 48,121 28,214 19,907 107,609 (49,021) 156,630 Provision (benefit) for income taxes 11,117 7,694 3,423 25,207 (13,339) 38,546 Net income (loss)$ 37,004 $ 20,520 $ 16,484 $ 82,402 $ (35,682) $ 118,084 Supplementary Operating Segment Information Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website and its product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our Condensed Consolidated Financial Statements. We evaluate a segment's performance based upon operating income (loss). SG&A includes the direct expenses of the retail and credit operations, allocated corporate overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% multiplied by the average outstanding portfolio balance for each applicable period. 22 -------------------------------------------------------------------------------- Table of Contents The following table represents total revenues, costs and expenses, operating income (loss) and income (loss) before taxes attributable to these operating segments for the periods indicated: Three Months Ended Six Months Ended Retail Segment: July 31, July 31, (dollars in thousands) 2021 2020 Change 2021 2020 Change Revenues: Product sales$ 320,245 $ 256,142
20,164 3,536 42,831 40,265 2,566 Service revenues 2,840 3,430 (590) 5,794 6,461 (667) Total net sales 346,785 279,736 67,049 638,081 510,066 128,015 Finance charges and other 224 196 28 433 431 2 Total revenues 347,009 279,932 67,077 638,514 510,497 128,017 Costs and expenses: Cost of goods sold 216,042 176,623 39,419 400,921 323,637 77,284 Selling, general and administrative expense (1) 102,157 78,584 23,573 193,050 156,758 36,292 Provision for bad debts 142 182 (40) 160 350 (190) Charges and credits - 1,355 (1,355) - 1,355 (1,355) Total costs and expenses 318,341 256,744 61,597 594,131 482,100 112,031 Operating income$ 28,668 $ 23,188 $ 5,480 $ 44,383 $ 28,397 $ 15,986 Number of stores: Beginning of period 152 139 146 137 Opened 3 2 9 4 End of period 155 141 155 141 Three Months Ended Six Months Ended Credit Segment: July 31, July 31, (in thousands) 2021 2020 Change 2021 2020 Change Revenues: Finance charges and other revenues$ 71,374 $ 86,984 $ (15,610) $ 143,571 $ 173,579 $ (30,008) Costs and expenses: Selling, general and administrative expense (1) 35,713 36,694 (981) 70,869 71,527 (658) Provision for bad debts 10,120 31,863 (21,743) (7,034) 149,021 (156,055) Charges and credits - 179 (179) - 2,234 (2,234) Total costs and expenses 45,833 68,736 (22,903) 63,835 222,782 (158,947) Operating income (loss) 25,541 18,248 7,293 79,736 (49,203) 128,939 Interest expense 6,088 13,222 (7,134) 15,292 28,215 (12,923) Loss on extinguishment of debt - - - 1,218 - 1,218
Income (loss) before income taxes
14,427
(1)For the three months endedJuly 31, 2021 and 2020, the amount of overhead allocated to each segment reflected in SG&A was$9.8 million and$8.5 million , respectively. For the three months endedJuly 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was$6.9 million and$8.9 million , respectively. For the six months endedJuly 31, 2021 and 2020, the amount of corporate overhead allocated to each segment reflected in SG&A was$18.8 million and$15.7 million , respectively. For the six months endedJuly 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was$14.2 million and$18.7 million , respectively. 23 -------------------------------------------------------------------------------- Table of Contents Three months endedJuly 31, 2021 compared to three months endedJuly 31, 2020 Revenues. The following table provides an analysis of retail net sales by product category in each period, including repair service agreement ("RSA") commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales: Three Months Ended July 31, % Same Store (dollars in thousands) 2021 % of Total 2020 % of Total Change Change % Change Furniture and mattress$ 109,259 31.5 %$ 80,984 29.0 %$ 28,275 34.9 % 22.0 % Home appliance 135,444 39.1 107,682 38.5 27,762 25.8 17.8 Consumer electronics 48,413 14.0 47,384 16.9 1,029 2.2 0.1 Home office 17,986 5.2 14,979 5.4 3,007 20.1 10.4 Other 9,143 2.6 5,113 1.8 4,030 78.8 71.3 Product sales 320,245 92.4 256,142 91.6 64,103 25.0 16.7 Repair service agreement commissions (1) 23,700 6.8 20,164 7.2 3,536 17.5 13.6 Service revenues 2,840 0.8 3,430 1.2 (590) (17.2) Total net sales$ 346,785 100.0 %$ 279,736 100.0 %$ 67,049 24.0 % 16.4 % (1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales. The increase in product sales for the three months endedJuly 31, 2021 was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Company's home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic. The following table provides the change of the components of finance charges and other revenues: Three Months Ended July 31, (in thousands) 2021 2020 Change Interest income and fees$ 65,003 $ 83,599 $ (18,596) Insurance income 6,371 3,385 2,986 Other revenues 224 196 28
Finance charges and other revenues
The decrease in finance charges and other revenues was primarily due to a decrease of 22.7% in the average outstanding balance of the customer accounts receivable portfolio. The decrease was offset by an increase in the yield rate, from 23.2% for the three months endedJuly 31, 2020 to 23.3% during the three months endedJuly 31, 2021 and an increase in insurance commissions. The following table provides key portfolio performance information: Three Months Ended July 31, (dollars in thousands) 2021 2020 Change Interest income and fees$ 65,003 $ 83,599 $ (18,596) Net charge-offs (31,184) (75,118) 43,934 Interest expense (6,088) (13,222) 7,134 Net portfolio income$ 27,731 $ (4,741) $ 32,472 Average outstanding portfolio balance$ 1,105,936 $ 1,429,991 $ (324,055) Interest income and fee yield (annualized) 23.3 % 23.2 % Net charge-off % (annualized) 11.3 % 21.0 % 24
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Table of Contents Retail Gross Margin Three Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail total net sales$ 346,785 $ 279,736 $ 67,049 Cost of goods sold 216,042 176,623 39,419 Retail gross margin$ 130,743 $ 103,113 $ 27,630
Retail gross margin percentage 37.7 % 36.9 %
The year-over-year increase in retail gross margin was primarily driven by a shift in sales from lower margin products to higher margin products, a decrease in third-party credit fees and the impact of fixed logistics costs on higher sales. The increase was partially offset by a slower rate of increase in repair service agreement commissions compared to product sales year-over-year. Selling, General and Administrative Expense Three Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail segment$ 102,157 $ 78,584 $ 23,573 Credit segment 35,713 36,694 (981) Selling, general and administrative expense - Consolidated$ 137,870
33.0 %
31.4 %
The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs, labor costs, advertising expense and general operating costs. The retail segment increase also reflects the impact of prior year precautionary cost saving measures enacted in response to the COVID-19 pandemic. The SG&A decrease in the credit segment was primarily due to a decrease in labor costs. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was 12.9% for the three months endedJuly 31, 2021 as compared to 10.3% for the three months endedJuly 31, 2020 . Provision for Bad Debts Three Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail segment$ 142 $ 182 $ (40) Credit segment 10,120 31,863 (21,743) Provision for bad debts - Consolidated$ 10,262 $
32,045
8.9 %
The provision for bad debts was$10.3 million for the three months endedJuly 31, 2021 compared to$32.0 million for the three months endedJuly 31, 2020 , a decrease of$21.7 million . The change was primarily driven by a year-over-year decrease in net charge-offs of$43.8 million , partially offset by a smaller decrease in the allowance for bad debts during the three months endedJuly 31, 2021 compared to the three months endedJuly 31, 2020 . The smaller decrease was driven by a lower year-over-year decline in the customer accounts receivable portfolio balance, partially offset by a$5.0 million decrease in the economic adjustment that was driven by an improvement in the forecasted unemployment rate. Charges and Credits During the three months endedJuly 31, 2020 , we recognized$1.5 million in professional fees associated with non-recurring expenses. Interest Expense Interest expense was$6.1 million for the three months endedJuly 31, 2021 and$13.2 million for the three months endedJuly 31, 2020 , a decrease of$7.1 million or 53.8%. The decrease was driven by a lower average outstanding balance of debt and by a lower effective interest rate. 25 --------------------------------------------------------------------------------
Table of Contents Provision for Income Taxes Three Months Ended July 31, (dollars in thousands) 2021 2020 Change Provision for income taxes$ 11,117 $ 7,694 $ 3,423 Effective tax rate 23.1 % 27.3 % The increase in income tax expense for the three months endedJuly 31, 2021 compared to the three months endedJuly 31, 2020 was driven by a$19.9 million increase in pre-tax earnings at the statutory rate of 21%. Six months endedJuly 31, 2021 compared to six months endedJuly 31, 2020 Revenues. The following table provides an analysis of retail net sales by product category in each period, including RSA commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales: Six Months Ended July 31, % Same Store (dollars in thousands) 2021 % of Total 2020 % of Total Change Change % Change Furniture and mattress$ 203,750 31.9 %$ 149,877 29.4 %$ 53,873 35.9 % 24.3 % Home appliance 248,705 39.0 188,967 37.0 59,738 31.6 23.9 Consumer electronics 86,451 13.5 83,160 16.3 3,291 4.0 1.7 Home office 32,507 5.1 32,345 6.3 162 0.5 (5.5) Other 18,043 2.8 8,991 1.8 9,052 100.7 90.9 Product sales 589,456 92.3 463,340 90.8 126,116 27.2 19.4 Repair service agreement commissions (1) 42,831 6.7 40,265 7.9 2,566 6.4 3.1 Service revenues 5,794 1.0 6,461 1.3 (667) (10.3) Total net sales$ 638,081 100.0 %$ 510,066 100.0 %$ 128,015 25.1 % 17.8 % (1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales. The increase in total net sales for the six months endedJuly 31, 2021 was primarily driven by an increase in same store sales of 17.8% and new store growth. The increase in same store sales reflects an increase in demand across most of the Company's home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes, industry wide supply chain disruptions, reductions in store hours and state mandated stay-at-home orders, each of which was the result of the COVID-19 pandemic. The following table provides the change of the components of finance charges and other revenues: Six Months Ended July 31, (in thousands) 2021 2020 Change Interest income and fees$ 132,682 $ 165,442 $ (32,760) Insurance income 10,889 8,137 2,752 Other revenues 433 431 2
Finance charges and other revenues
The decrease in finance charges and other revenues was primarily due to a decrease of 23.5% in the average outstanding balance of the customer accounts receivable portfolio. The decrease was offset by an increase in the yield rate, from 22.2% for the six months endedJuly 31, 2020 to 23.4% for the six months endedJuly 31, 2021 and an increase in insurance commissions. 26 -------------------------------------------------------------------------------- Table of Contents The following table provides key portfolio performance information: Six Months Ended July 31, (dollars in thousands) 2021 2020 Change Interest income and fees$ 132,682 $ 165,442 $ (32,760) Net charge-offs (76,123) (134,006) 57,883 Interest expense (15,292) (28,215) 12,923 Net portfolio income$ 41,267 $ 3,221 $ 38,046 Average outstanding portfolio balance$ 1,142,080 $ 1,493,250 $ (351,170) Interest income and fee yield (annualized) 23.4 % 22.2 % Net charge-off % (annualized) 13.3 % 17.9 % Retail Gross Margin Six Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail total net sales$ 638,081 $ 510,066 $ 128,015 Cost of goods sold 400,921 323,637 77,284 Retail gross margin$ 237,160 $ 186,429 $ 50,731
Retail gross margin percentage 37.2 % 36.5 %
The year-over-year increase in retail gross margin was primarily driven by a shift in sales from lower margin products to higher margin products, a decrease in third-party credit fees and the impact of fixed logistics costs on higher sales. The increase was partially offset by a slower rate of increase in repair service agreement commissions compared to product sales year-over-year. Selling, General and Administrative Expense Six Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail segment$ 193,050 $ 156,758 $ 36,292 Credit segment 70,869 71,527 (658) Selling, general and administrative expense - Consolidated$ 263,919
33.7 %
33.4 %
The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs, labor costs, advertising expense and general operating costs. The retail segment increase also reflects the impact of prior year precautionary cost saving measures enacted in response to the COVID-19 pandemic. The SG&A decrease in the credit segment was primarily due to a decrease in labor costs. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was 12.4% for the six months endedJuly 31, 2021 , as compared to 9.6% for the six months endedJuly 31, 2020 . The increase was driven by a year-over-year decrease in the portfolio balance. Provision for Bad Debts Six Months Ended July 31, (dollars in thousands) 2021 2020 Change Retail segment$ 160 $ 350 $ (190) Credit segment (7,034) 149,021 (156,055) Provision for bad debts - Consolidated$ (6,874) $
149,371
20.0 % 27
-------------------------------------------------------------------------------- Table of Contents The provision for bad debts was$(6.9) million for the six months endedJuly 31, 2021 compared to$149.4 million for the six months endedJuly 31, 2020 , a decrease of$156.3 million . The year-over-year decrease was primarily driven by a decrease in the allowance for bad debts during the six months endedJuly 31, 2021 , compared to an increase during the six months endedJuly 31, 2020 , and by a year-over-year decrease in net charge-offs of$57.9 million . The decrease in the allowance for bad debts for the six months endedJuly 31, 2021 was primarily driven by an improvement in the forecasted unemployment rate that drove a$25.0 million decrease in the economic adjustment and a decline in the estimated loss rates driven by a decline in delinquencies. During the six months endedJuly 31, 2020 , the increase in the allowance for bad debts was primarily due to a$65.5 million increase in the economic adjustment driven by an increase in forecasted unemployment rates stemming from the COVID-19 pandemic. Charges and Credits During the six months endedJuly 31, 2020 , we recognized$3.6 million in professional fees associated with non-recurring expenses. Interest Expense Interest expense was$15.3 million for the six months endedJuly 31, 2021 and$28.2 million for the six months endedJuly 31, 2020 , a decrease of$12.9 million or 45.7%. The decrease was driven by a lower average outstanding balance of debt, partially offset and by a higher effective interest rate. Provision for Income Taxes Six Months Ended July 31, (dollars in thousands) 2021 2020 Change
Provision (benefit) for income taxes
23.4 % 27.2 %
The increase in income tax expense for the six months ended
Customer Accounts Receivable Portfolio We provide in-house financing to individual consumers on a short- and medium-term basis (contractual terms generally range from 12 to 36 months) for the purchase of durable products for the home. A significant portion of our customer credit portfolio is due from customers that are considered higher-risk, subprime borrowers. Our financing is executed using contracts that require fixed monthly payments over fixed terms. We maintain a secured interest in the product financed. If a payment is delayed, missed or paid only in part, the account becomes delinquent. Our collection personnel attempt to contact a customer once their account becomes delinquent. Our loan contracts generally reflect an interest rate of between 18% and 36%. We have implemented our direct consumer loan program across allTexas ,Louisiana ,Tennessee andOklahoma locations. The states ofTexas ,Louisiana ,Tennessee andOklahoma represented approximately 71% of our originations during the six months endedJuly 31, 2021 , with maximum equivalent interest rates of up to 27% inOklahoma , up to 30% inTexas andTennessee , and up to 36% inLouisiana . In states where regulations do not generally limit the interest rate charged, our loan contracts generally reflect an interest rate between 29.99% and 35.99%. These states represented 16% of our originations during the six months endedJuly 31, 2021 . We offer qualified customers a 12-month no-interest option finance program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived. We regularly extend or "re-age" a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment. Generally, extensions are granted to customers who have experienced a financial difficulty (such as the temporary loss of employment), which is subsequently resolved, and when the customer indicates a willingness and ability to resume making monthly payments. These re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay the account balance. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. We may also charge the customer an extension fee, which approximates the interest owed for the time period the contract was past due. Our re-age programs consist of extensions and two payment updates, which include unilateral extensions to customers who make two full payments in three calendar months in certain states. Re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation 28 -------------------------------------------------------------------------------- Table of Contents or have reached our limits for account re-aging. To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which typically does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extends the term. Under these options, as with extensions, the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments. OnMarch 27, 2020 the Coronavirus Aid, Relief Economic Security Act ("CARES Act") was signed into law to address the economic impact of the COVID-19 pandemic. Under the CARES Act, modifications deemed to be COVID-19 related are not considered a TDR if the loan was current (not more than 30 days past due as ofMarch 31, 2020 ) and the deferral was executed betweenApril 1, 2020 and the earlier of 60 days after the termination of the COVID-19 national emergency orDecember 31, 2020 . In response to the CARES Act, the Company implemented short-term deferral programs for our customers. The carrying value of the customer receivables on accounts which were current prior to receiving a COVID-19 related deferment was$33.5 million as ofJuly 31, 2021 . All COVID-19 specific deferral programs ended during the third quarter of fiscal year 2021. The following tables present, for comparison purposes, information about our managed portfolio (information reflects on a combined basis the securitized receivables transferred to the VIEs and receivables not transferred to the VIEs): As of July 31, 2021 2020 Weighted average credit score of outstanding balances (1) 608 596 Average outstanding customer balance $
2,414
7.2 % 10.0 %
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(5)
20.4 % 29.9 %
Carrying value of account balances re-aged more than six months (in thousands) (3)
$
70,058
18.3 % 24.8 %
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables
29.8 % 18.3 % Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020 Total applications processed 336,438 326,958 634,344 622,509 Weighted average origination credit score of sales financed (1) 614 617 615 613 Percent of total applications approved and utilized 22.5 % 20.0 % 22.2 % 21.1 % Average income of credit customer at origination$ 47,700 $ 46,300 $ 48,100 $ 46,300 Percent of retail sales paid for by: In-house financing, including down payments received 50.9 % 48.5 % 49.9 % 55.1 % Third-party financing 17.5 % 23.9 % 17.2 % 20.8 % Third-party lease-to-own option 11.5 % 8.4 % 11.9 % 8.4 % 79.9 % 80.8 % 79.0 % 84.3 % (1)Credit scores exclude non-scored accounts. (2)Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts. (3)Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest. (4)Decrease was primarily due to an increase in cash collections and the tightening of underwriting standards that occurred in fiscal year 2021. (5)Decrease was primarily due to an increase in cash collections, the change in the unilateral re-age policy that occurred in the second quarter of fiscal year 2021 and the tightening of underwriting standards that occurred in fiscal year 2021. Our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts. Customer accounts receivable include all accounts for which the payment term has not 29 -------------------------------------------------------------------------------- Table of Contents been cumulatively extended over three months or refinanced. Restructured accounts include all accounts for which payment term has been re-aged in excess of three months or refinanced. For customer accounts receivable (excluding restructured accounts), the allowance for uncollectible accounts as a percentage of the total customer accounts receivable portfolio balance decreased to 15.5% as ofJuly 31, 2021 from 22.5% as ofJuly 31, 2020 . The decrease in our allowance for uncollectible accounts was primarily related to a decline in the non-TDR re-age balance, improvements in 60+ day delinquencies and a decrease in the economic adjustment due to an improved macroeconomic outlook. The percentage of the carrying value of non-restructured accounts greater than 60 days past due decreased 310 basis points over the prior year period to 5.3% as ofJuly 31, 2021 from 8.4% as ofJuly 31, 2020 . The decrease was primarily due to higher payment rates, continued focus on cash collections and the tightening of underwriting standards that occurred in fiscal year 2021. For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was 37.8% as ofJuly 31, 2021 as compared to 37.5% as ofJuly 31, 2020 . The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance was 11.3% for the three months endedJuly 31, 2021 compared to 21.0% for the three months endedJuly 31, 2020 . The decrease in bad debt charge-offs, net of recoveries, was primarily due to an increase in existing customer mix and the tightening of underwriting standards that occurred in fiscal year 2021. As ofJuly 31, 2021 and 2020, balances under no-interest programs included within customer receivables were$329.6 million and$248.2 million , respectively. Liquidity and Capital Resources We require liquidity and capital resources to finance our operations and future growth as we add new stores to our operations, which in turn requires additional working capital for increased customer receivables and inventory. We generally finance our operations through a combination of cash flow generated from operations, the use of our Revolving Credit Facility, and through periodic securitizations of originated customer receivables. We plan to execute periodic securitizations of future originated customer receivables. We believe, based on our current projections, that we have sufficient sources of liquidity to fund our operations, store expansion and renovation activities, and capital expenditures for at least the next 12 months. Operating cash flows. For the six months endedJuly 31, 2021 , net cash provided by operating activities was$176.9 million compared to$305.7 million for the six months endedJuly 31, 2020 . The decrease in net cash provided by operating activities was primarily driven by an increase in inventory in comparison to the prior year period when we were preserving liquidity in the midst of the COVID-19 pandemic. The decrease was also driven by higher prior year collections due to a higher customer accounts receivable balance compared to the current year period. Investing cash flows. For the six months endedJuly 31, 2021 , net cash used in investing activities was$19.2 million compared to$32.5 million for the six months endedJuly 31, 2020 . The cash used during the six months endedJuly 31, 2021 was primarily for investments in new and existing stores and technology investments. The cash used during the six months endedJuly 31, 2020 was primarily for capital expenditures related to our two new distribution centers to support long-term growth. Financing cash flows. For the six months endedJuly 31, 2021 , net cash used in financing activities was$178.3 million compared to net cash used in financing activities of$283.9 million for the six months endedJuly 31, 2020 . During the six months endedJuly 31, 2021 , we issued 2020-A ClassC VIE asset backed notes resulting in net proceeds to us of approximately$62.5 million , net of transaction costs. The proceeds from the 2020-A VIE asset-backed notes were used to partially pay down the balance of the Company's Revolving Credit Facility. Cash collections from the securitized receivables were used to make payments on asset-backed notes of approximately$261.4 million during the six months endedJuly 31, 2021 compared to approximately$315.2 million in the comparable prior year period. During the period endedJuly 31, 2021 , net borrowings under our Revolving Credit Facility were$167.0 million as compared to net borrowings of$34.8 million during the period endedJuly 31, 2020 . The net borrowings during the six months endedJuly 31, 2020 included$275.0 million borrowed to preserve financial flexibility in the midst of the COVID-19 pandemic. During the six months endedJuly 31, 2021 , we retired the remaining$141.2 million aggregate principal amount of our Senior Notes outstanding. Senior Notes. OnJuly 1, 2014 , we issued an aggregate principal amount of$250.0 million in unsecured 7.25% Senior Notes due 2022, (the "Senior Notes") pursuant to an indenture datedJuly 1, 2014 (as amended, the "Indenture"), amongConn's, Inc. , its subsidiary guarantors (the "Guarantors") andU.S. Bank National Association , as trustee. OnApril 15, 2021 we completed the redemption of all of our outstanding Senior Notes in an aggregate principal amount of$141.2 million . 30 -------------------------------------------------------------------------------- Table of Contents Asset-backed Notes. From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs issue asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by the VIEs. Under the terms of the securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of issued notes, and then to us as the holder of non-issued notes, if any, and residual equity. We retain the servicing of the securitized portfolios and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables. In addition, we, rather than the VIEs, retain all credit insurance income together with certain recoveries related to credit insurance and RSAs on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis. The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act of 1933. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events. The asset-backed notes outstanding as ofJuly 31, 2021 consisted of the following: (dollars in thousands) Original Current Principal Original Net Principal Effective Asset-Backed Notes Amount Proceeds (1) Amount Issuance Date Maturity Date Contractual Interest Rate Interest Rate (2) 2019-B Class B Notes$ 85,540 $ 84,916 $ 19,078 11/26/2019 6/17/2024 3.62% 4.58% 2019-B Class C Notes 83,270 82,456 83,270 11/26/2019 6/17/2024 4.60% 5.19% 2020-A Class A Notes 174,900 173,716 22,986 10/16/2020 6/16/2025 1.71% 4.56% 2020-A Class B Notes 65,200 64,754 45,909 10/16/2020 6/16/2025 4.27% 5.54% 2020-A Class C Notes 62,900 62,535 44,290 2/24/2021 6/16/2025 4.20% 5.75% Total$ 471,810 $ 468,377 $ 215,533 (1)After giving effect to debt issuance costs. (2)For the six months endedJuly 31, 2021 , and inclusive of the impact of changes in timing of actual and expected cash flows. OnFebruary 24, 2021 , the Company completed the sale of$62.9 million aggregate principal amount of 4.20% Asset Backed Notes, Class C, Series 2020-A, which were previously issued and held by the Company. The asset-backed notes are secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of$62.5 million , net of debt issuance costs. Net proceeds from the sale were used to repay amounts outstanding under the Company's Revolving Credit Facility. OnMay 12, 2021 , the Company completed the redemption of the 2019-A Asset Backed Notes at an aggregate redemption price of$41.1 million (which was equal to the entire outstanding principal balance plus accrued interest). We funded the redemption with cash on hand and borrowings under our Revolving Credit Facility. Revolving Credit Facility. OnMarch 29, 2021 ,Conn's, Inc. and certain of its subsidiaries (the "Borrowers") entered into the Fifth Amended and Restated Loan and Security Agreement (the "Fifth Amended and Restated Loan Agreement"), with certain lenders, which provides for a$650.0 million asset-based revolving credit facility (as amended, the "Revolving Credit Facility") under which credit availability is subject to a borrowing base and a maturity date ofMarch 29, 2025 . The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of$40 million to$100 million , solely at the discretion of the lenders for such amounts in excess of$40 million . The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As ofJuly 31, 2021 , we had immediately available borrowing capacity of$362.9 million under our Revolving Credit Facility, net of standby letters of credit issued of$22.5 million . We also had$45.6 million that may become available under our Revolving Credit Facility were we to grow the balance of eligible customer receivables and total eligible inventory balances. Loans under the Revolving Credit Facility bear interest, at our option, at a rate of LIBOR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin 31 -------------------------------------------------------------------------------- Table of Contents ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). We also pay an unused fee on the portion of the commitments that is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the Revolving Credit Facility in the immediately preceding quarter. The weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was 4.9% for the six months endedJuly 31, 2021 . The Revolving Credit Facility places restrictions on our ability to incur additional indebtedness, grant liens on assets, make distributions on equity interests, dispose of assets, make loans, pay other indebtedness, engage in mergers, and other matters. The Revolving Credit Facility restricts our ability to make dividends and distributions unless no event of default exists and a liquidity test is satisfied. Subsidiaries of the Company may pay dividends and make distributions to the Company and other obligors under the Revolving Credit Facility without restriction. As ofJuly 31, 2021 , we were restricted from making distributions in excess of$217.6 million as a result of the Revolving Credit Facility distribution and payment restrictions. The Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the Revolving Credit Facility. Debt Covenants. We were in compliance with our debt covenants atJuly 31, 2021 . A summary of the significant financial covenants that govern our Revolving Credit Facility compared to our actual compliance status atJuly 31, 2021 is presented below: Required Minimum/ Actual Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum 14.37:1.00
1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum
12.77:1.00 1.50:1.00 Leverage Ratio must not exceed maximum 1.20:1.00 4.50:1.00 ABS Excluded Leverage Ratio must not exceed maximum 0.91:1.00 2.50:1.00 Capital Expenditures, net, must not exceed maximum$20.8 million $100.0 million All capitalized terms in the above table are defined by the Revolving Credit Facility and may or may not match directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter. Capital Expenditures. We lease the majority of our stores under operating leases and our plans for future store locations anticipate operating leases, but do not exclude store ownership. Our capital expenditures for future new store projects should primarily be for our tenant improvements to the property leased (including any new distribution centers and cross-dock facilities), the cost of which is estimated to be between$1.7 million and$2.5 million per store (before tenant improvement allowances), and for our existing store remodels, estimated to range between$0.3 million and$0.9 million per store remodel (before tenant improvement allowances), depending on store size. In the event we purchase existing properties, our capital expenditures will depend on the particular property and whether it is improved when purchased. We are continuously reviewing new relationships and funding sources and alternatives for new stores, which may include "sale-leaseback" or direct "purchase-lease" programs, as well as other funding sources for our purchase and construction of those projects. If we do not purchase the real property for new stores, our direct cash needs should include only our capital expenditures for tenant improvements to leased properties and our remodel programs for existing stores. We opened nine new stores during the six months endedJuly 31, 2021 and currently plan to open a total of 11 to 13 new stores during fiscal year 2022. Our anticipated capital expenditures for the remainder of fiscal year 2021 are between$25.0 million and$35.0 million , which includes expenditures for new stores we plan to open in fiscal year 2022. Cash Flow We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short- and long-term liquidity requirements, including payment of operating expenses, funding of capital expenditures and repayment of debt, we rely primarily on cash from operations. As ofJuly 31, 2021 , beyond cash generated from operations, we had (i) immediately available borrowing capacity of$362.9 million under our Revolving Credit Facility and (ii)$8.7 million of cash on hand. However, we have, in the past, sought to raise additional capital. We expect that, for the next 12 months, cash generated from operations, proceeds from potential accounts receivable securitizations and our Revolving Credit Facility will be sufficient to provide us the ability to fund our operations, provide the increased working capital necessary to support our strategy and fund planned capital expenditures discussed above in Capital Expenditures. 32 -------------------------------------------------------------------------------- Table of Contents We may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, the Company's cash position, compliance with debt covenants and restrictions and other considerations. Off-Balance Sheet Liabilities and Other Contractual Obligations We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K. The following table presents a summary of our minimum contractual commitments and obligations as ofJuly 31, 2021 : Payments due by period Less Than 1 1-3 3-5 More Than (in thousands) Total Year Years Years 5 Years Debt, including estimated interest payments (1): Revolving Credit Facility (1)$ 240,059 $ 5,749 $ 11,498 $ 222,812 $ - 2019-B Class B Notes (2) 21,068 691 20,377 - - 2019-B Class C Notes (2) 94,310 3,830 90,480 - - 2020-A Class A Notes (2) 24,511 393 786 23,332 - 2020-A Class B Notes (2) 53,514 1,960 3,921 47,633 - 2020-A Class C Notes (2) 51,505 1,860 3,720 45,925 - Financing lease obligations 7,890 1,208 2,189 1,426 3,067 Operating leases: Real estate 519,682 84,539 161,508 119,783 153,852 Equipment 222 169 37 16 - Contractual commitments (3) 131,957 122,445 9,236 276 - Total$ 1,144,718 $ 222,844 $ 303,752 $ 461,203 $ 156,919 (1)Estimated interest payments are based on the outstanding balance as ofJuly 31, 2021 and the interest rate in effect at that time. (2)The payments due by period for the asset-backed notes were based on their respective maturity dates at their respective fixed annual interest rate. Actual principal and interest payments on the asset-backed notes will reflect actual proceeds from the securitized customer accounts receivables. (3)Contractual commitments primarily include commitments to purchase inventory of$105.3 million . 33
-------------------------------------------------------------------------------- Table of Contents Issuer and Guarantor Subsidiary Summarized Financial InformationConn's, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. As ofJuly 31, 2021 andJanuary 31, 2020 , the direct or indirect subsidiaries ofConn's, Inc. that were not Guarantors (the "Non-Guarantor Subsidiaries") were the VIEs and minor subsidiaries. The following tables present on a combined basis for the Issuer and the Guarantor Subsidiaries, a summarized Balance Sheet as ofJuly 31, 2021 andJanuary 31, 2021 , and a summarized Statement of Operations on a consolidated basis for the six months endedJuly 31, 2021 . The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Amounts provided do not represent our total consolidated amounts, as ofJuly 31, 2021 andJanuary 31, 2021 , and for the six months endedJuly 31, 2021 : July 31, January 31, (in thousands) 2021 2021 Assets Cash, cash equivalents and restricted cash$ 10,786 $ 11,638 Customer accounts receivable 302,153 218,923 Inventories 223,662 196,463 Net due from non-guarantor subsidiary 11,766 8,571 Other current assets 108,208 108,606 Total current assets 656,575 544,201 Long-term portion of customer accounts receivable 344,281 246,445 Property and equipment, net 186,072 190,962 Right of use assets, net 258,702 265,798 Other assets 15,907 23,512 Total assets$ 1,461,537 $ 1,270,918 Liabilities Current portion of debt$ 1,371 $ 934 Lease liability operating - current 54,800 44,011 Other liabilities 203,388 163,429 Total current liabilities 259,559 208,374 Lease liability operating - non current 338,289 354,598 Long-term debt 223,680 197,084 Other long-term liabilities 27,656 21,068 Total liabilities$ 849,184 $ 781,124 Six Months Ended (in thousands) July 31, 2021
Revenues:
Net sales and finances charges $
728,102
Servicing fee revenue from non-guarantor subsidiary
10,457
Total revenues
738,559
Total costs and expenses 694,280 Net income $ 44,279 34
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Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with GAAP requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Certain accounting policies are considered "critical accounting policies" because they are particularly dependent on estimates made by us about matters that are inherently uncertain and could have a material impact to our Condensed Consolidated Financial Statements. We base our estimates on historical experience and on other assumptions that we believe are reasonable. As a result, actual results could differ because of the use of estimates. Other than with respect to the additional policy below, the description of critical accounting policies is included in our 2021 Form 10-K, filed with theSEC onMarch 31, 2021 . Recent Accounting Pronouncements The information related to recent accounting pronouncements as set forth in Note 1, Summary of Significant Accounting Policies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.
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