EX-99.1 2 exhibit1.htm EX-99.1 EX-99.1

EX 99.1

NEWS RELEASE

Contact: Dollar Financial Corp

Financial Dynamics

Julie Prozeller

(212) 850-5600

FOR IMMEDIATE RELEASE

DOLLAR FINANCIAL CORP ANNOUNCES FIRST QUARTER RESULTS
REVENUE INCREASED 19.7% TO A RECORD $174.2 MILLION; ADJUSTED EBITDA INCREASED 19.7% TO $49.0 MILLION

BERWYN, Pennsylvania, October 28, 2010 – Dollar Financial Corp (NASDAQ:DLLR — News), a leading international diversified financial services company serving primarily unbanked and under-banked consumers for over 30 years, today announced its results for the fiscal first quarter ended September 30, 2010.

Fiscal 2011 First Quarter Highlights

    Consolidated total revenue grew to a record $174.2 million for the quarter, an increase of $28.7 million or 19.7% compared to the prior year period. On a constant currency basis, total consolidated revenue increased by $28.4 million or 19.5%.

    The consolidated loan loss provision, expressed as a percentage of gross consumer lending revenue, was 15.2% for the quarter compared to 15.1% for the first quarter of the previous fiscal year.

    Consolidated operating margin increased by $12.4 million or 22.2% for the quarter compared to the prior year period, driven by expanded advertising programs, strong organic revenue growth, and contributions from recent acquisitions.

    Consolidated adjusted EBITDA was $49.0 million for the three months ended September 30, 2010, representing an increase of $8.1 million or 19.7% compared to the prior year’s quarter, while also increasing by $7.3 million or 17.9% on a constant currency basis for the same period.

    Fully-diluted operating earnings per share, net of the increased costs related to the Company’s December 2009 refinancing, was $0.47 for the quarter compared to $0.60 for the previous year’s quarter. The fully-diluted earnings per share on a GAAP basis, including $3.4 million of net one-time gains, was $0.49 compared to $0.22 for the three months ended September 30, 2009.

Discussion on Presentation of Information

During the three months ended September 30, 2010, the average value of the Canadian Dollar increased approximately 6%, while the average value of the British Pound Sterling decreased by about 5%, relative to the U.S. currency when compared to the first quarter of the previous fiscal year. Consequently, fluctuations in currency rates had a slight effect on year-over-year comparisons of the Company’s financial results; accordingly the Company is providing some comparisons on a constant currency basis.

Fiscal 2011 First Quarter Overview
Commenting on the first quarter, Jeff Weiss, the Company’s Chairman and Chief Executive Officer, stated, “We are very pleased with our results for the quarter. In total, consolidated revenue for the three months ended September 30, 2010 was a record $174.2 million, representing growth of $28.7 million or 19.7% over the prior year’s quarter, while total adjusted EBITDA, which includes the costs of additional infrastructure investments we have made during the quarter, increased by $8.1 million or 19.7%. We also made a number of investments in our core and recently acquired businesses during the quarter, which we expect will drive revenue growth as we move through fiscal 2011 and beyond. During the quarter, we opened 14 new stores in the United Kingdom and also launched a nation-wide television advertising campaign in Canada. Furthermore, we expanded our internet media and local area marketing programs in our Merchant Cash Express business in the United Kingdom, (which provides cash advances to small businesses), and in our Dealer’s Financial Services business, (which provides military lending services in the United States), in order to increase customer reach and generate additional revenue in the future. We also expanded our Polish lending business into two new geographic provinces, which we expect will begin to contribute incremental revenue in the coming quarters.”

Jeff Weiss continued, “A key component of our long-term strategy is to continue to diversify our business geographically. As previously announced in August 2010, we entered into an agreement to acquire Folkia Group AS, a leading internet lending business based in Stockholm, Sweden. The company, which was founded in 2006, currently originates loans through both internet and SMS text cell phone technology in four countries including: Sweden; Finland; Denmark; and Estonia. This acquisition, which is pending local regulatory approvals, provides us with an internet and cell phone based lending platform that was designed to handle the specific requirements for expansion within Northern Europe and Scandinavia, while also providing the added benefit of a portable credit and finance license for future expansion into additional countries in the European Union. We anticipate this acquisition will be finalized in the near future.

Consistent with the Folkia acquisition, we expect to continue to invest in new technologies and sales channel strategies, through both our ongoing internal development initiatives as well as the acquisition of new businesses, which will allow us to deliver our many products and services through the most convenient means our consumers are most accustomed to in each market. This collectively may include a “bricks and mortar” store based model, a global internet platform, the in-home loan servicing model widely used throughout Poland and Eastern Europe, or other new technologies and platforms that we are either in the process of developing internally or are looking to acquire.”

Jeff Weiss concluded, “We believe we have strong core businesses and significant opportunities in the new businesses we recently added to our global enterprise, which we expect will be realized over time. Furthermore, we have a very active pipeline of global acquisition candidates that we are currently evaluating and pursuing, coupled with approximately $200.0 million of available funds to invest in these opportunities, and look forward to updating you on some of these activities.”

First Quarter Business Update
Consumer lending revenue in Canada increased by C$4.4 million or 11.5% for the quarter reflecting operations under the new post-regulatory platform and the early benefit of the Company’s renewed television advertising campaigns in that market. In concert with the mass media advertising campaign in Canada, the Company anticipates leveraging its multi-product store platform and its position as the largest and lowest cost provider in the sector by generally offering products and services at prices below its competitors. The Company believes this will facilitate growth in revenue and further enhance the Company’s “Money Mart” brand and its leading share of the Canadian market. Furthermore, the Company’s gold purchase product in Canada contributed C$3.5 million of total revenue during the quarter, while also serving to bring new customers into the stores. In addition, the Company is piloting an internet lending product in the provinces of Ontario and Alberta, which it expects to eventually expand into additional territories.

In the United Kingdom, the Company continued to widen its market leading store footprint during the quarter with the opening of 14 additional de novo stores in that market. The United Kingdom has significantly fewer retail financial services stores in relation to the under-banked population when compared to the United States and Canada, which the Company believes should provide ample opportunity to continue to expand and grow its store network for a number of years to come. In addition, due in part to the underpenetrated nature of the U.K. market sector and the Company’s belief that there is significant unfulfilled demand for its products and services, the Company’s newly opened de novo stores have typically achieved break-even EBITDA in their first year of operation. Total revenue in the United Kingdom increased by £11.0 million or 38.3% for the quarter compared to the three months ended September 30, 2009. Consumer lending revenue grew by £7.1 million or 50.7% for the quarter compared to the first quarter of the prior fiscal year, reflecting strong performance from the internet lending business and also the continued robust performance of the bricks and mortar store based business. The U.K. pawn lending business and gold purchase product together contributed £8.7 million of total revenue for the quarter, representing growth of 59.4% over the prior year’s quarter.

The Company’s focus in Poland has been to develop and invest in the technology and enhanced management infrastructure necessary to position the Polish business for further geographic expansion, as the Company’s Polish business historically primarily operates only in the northern provinces of the country. Recently, the Company expanded into two additional provinces including the towns of Walbrzych and Zielona Gora. The Company also recently opened its first gold buying store in Gdansk, which also offers pawn lending, foreign exchange and money transfer services. The Company expects to open additional company-operated stores in Poland pending the successful test of this pilot store.

Through targeted advertising campaigns in trade journals and internet channels, the Company is also focused on increasing the volume of loans through the U.K. Merchant Cash Express business (or MCE), which it acquired in October 2009. The Company sees a significant opportunity to expand the size of this business, which provides access to working capital for small retail businesses by providing cash advances against a percentage of future credit card sales, as it currently operates in a market with limited competition. The MCE business contributed approximately £0.7 million of incremental revenue during the quarter.

The Company also further enhanced its internet and local media advertising campaign programs during the quarter, with respect to the Dealers Financial Services business (or DFS), which provides fee-based auto lending and insurance services to enlisted military personnel in the United States, to increase product awareness amongst the enlisted personnel at the military bases it serves. The Company believes it has an opportunity to increase the penetration rate of the core DFS customer segment, based in large part on its strong relationships with active and retired senior military personnel.

First Quarter Financial Results

For the three months ended September 30, 2010, the Company incurred $3.4 million of net one-time gains, principally related to a $5.1 million net unrealized, non-cash mark-to-market valuation gain on the Company’s debt and cross-currency interest rate swap agreements. Including these net one-time gains, income before income taxes on a GAAP basis was $18.2 million for the quarter compared to $13.3 million for the first quarter of the previous fiscal year. Also reflecting the net one-time gains for the fiscal 2011 first quarter, the effective income tax rate for the three months ended September 30, 2010 was 33.6%, resulting in reported net income of $12.2 million compared to $5.3 million for the first quarter of the prior fiscal year. Fully-diluted earnings per share on a GAAP basis was $0.49 for the quarter compared to $0.22 for the first quarter of the previous fiscal year.

The financial results for the quarter, as compared to the prior year’s quarter, include additional interest expense associated with the $600.0 million senior note offering in December 2009, with a portion of the approximately $110.0 million of net proceeds contributing to the Company’s approximately $200.0 million of available funds for investment. The Company intends to follow its historical practices and deploy these funds principally in accretive acquisitions, including the recently announced Folkia acquisition, which it expects will progressively mitigate, in future periods, the current earnings dilution of the incremental interest costs.

Excluding the net non-recurring gain, the non-cash interest expense resulting from the adoption of ASC 470-20, and the non-cash amortization associated with the legacy cross-currency interest rate swap agreements, pro forma income before income taxes was $18.5 million for the quarter, compared to $25.7 million for the three months ended September 30, 2009. Pro forma net income, assuming a pro forma effective income tax rate from operations of 37.0% for the fiscal 2011 quarter, was $11.6 million compared to $14.7 million for the prior year period. Similarly, fully-diluted operating earnings per share was $0.47 for the three months ended September 30, 2010 compared to $0.60 for the first quarter of the previous fiscal year. A table reconciling pro forma income before income taxes to the GAAP basis income before income taxes is included on page 10 of this News Release.

Company Liquidity

As of September 30, 2010, the Company’s debt structure consisted of a $44.8 million tranche of U.S. senior convertible notes due 2027 and a $120.0 million tranche of U.S. senior convertible notes due 2028. In addition, the Company has $600.0 million of senior unsecured notes which are not due until December 2016. Thus, the Company has no mandatory debt principal repayment obligations between now and the first potential put date of December 2012 for the $44.8 million tranche of U.S. senior convertible notes.

In addition to having no mandatory debt repayment obligations until potentially December 2012, the Company has approximately $200.0 million of available funds for investment and will also continue to benefit from its ongoing strong cash flow from operations. The Company expects that this will be collectively deployed in accretive opportunities that it believes will enhance future earnings as well as further expand and grow the business on a global basis.

Fiscal 2011 Outlook

The Company is reaffirming its previously issued earnings guidance for the fiscal year ending June 30, 2011 (fiscal 2011) of adjusted EBITDA between $205.0 million and $215.0 million and operating fully-diluted earnings per share, which excludes any one-time charges or gains that may occur, the non-cash impact of adopting ASC-470-20, and the non-cash amortization associated with the legacy cross-currency interest rate swap agreements, of between $2.05 and $2.30 per fully diluted share. As previously disclosed, this guidance range reflects an expected effective income tax rate from operations of 37%. The Company’s fiscal 2011 guidance does not include the potential earnings contribution of the Folkia acquisition, which is pending local regulatory approval.

Investors Conference Call

Dollar Financial Corp will be holding an investor’s conference call on October 28, 2010 at 5:00 pm ET to discuss the Company’s results for the fiscal first quarter ended September 30, 2010. Investors can participate in the conference call by dialing (888) 200 — 2794 (U.S. and Canada) or (973) 935 — 8766 (International); use the confirmation code “Dollar.” Hosting the call will be Jeffrey A. Weiss, Chairman and CEO, and Randy Underwood, Executive Vice President and CFO. For your convenience, the conference call can be replayed in its entirety beginning from two hours after the end of the call through November 7, 2010. If you wish to listen to the replay of this conference call, please dial (800) 642-1687 (U.S. and Canada) or (706) 645-9291 (International) and enter passcode “17065491.”

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 diversified financial services company primarily serving unbanked and under-banked consumers for over 30 years. Through its retail storefront locations as well as by other means, such as via the Internet, the Company provides a range of consumer financial products and services in five countries (Canada, the United Kingdom, the United States, the Republic of Ireland and Poland) to consumers who, for reasons of convenience and accessibility, purchase some or all of their financial services from the Company rather than from banks and other financial institutions. The Company’s products, principally its short-term consumer loans, check cashing services, secured pawn loans and gold buying services, provide customers with immediate access to cash for living expenses or other episodic needs. The Company also offers high-value ancillary services, including Western Union money order and money transfer products, electronic tax filing, reloadable VISA® and MasterCard® debit cards, foreign currency exchange, and other services. In addition, through its branded Military Installment Loan and Education Services, or MILES® program, the Company provides fee based services to enlisted military personnel applying for loans to purchase new and used vehicles that are funded and serviced under an exclusive agreement with a major third-party national bank.

At September 30, 2010, the Company’s global retail operations consisted of 1,193 locations, including 1,067 company-operated financial services stores and 126 franchised and agent locations, conducting business primarily under the names Money Mart®, Money Shop®, Loan Mart®, Money Corner®, Insta-Cheques® and The Check Cashing Store® in Canada, the United Kingdom, the United States, the Republic of Ireland, and Poland. For more information, please visit the Company’s website at www.dfg.com.

Forward Looking Statement

This news release contains forward looking statements, including, among other things, statements regarding the following: recent acquisitions; the Company’s future results, growth, guidance and operating strategy; the global economy; the effects of currency exchange rates on reported operating results; the developing regulatory environment in Canada, the U.K., the United States, and other countries; the impact of future development strategy, new stores and acquisitions; litigation matters; and the performance of new products and services. These forward looking statements involve risks and uncertainties, including risks related to: the regulatory environments; current and potential future litigation; the identification of acquisition targets; the integration and performance of acquired stores and businesses; the performance of new stores; the impact of debt financing transactions; the results of certain ongoing income tax appeals; and the effects of new products and services on the Company’s business, results of operations, financial condition, prospects and guidance; and uncertainties related to the effects of changes in the value of the U.S. Dollar compared to foreign currencies. There can be no assurance that the Company will attain its expected results, successfully integrate any of its acquisitions, or attain its published guidance metrics, or that ongoing and potential future litigation or the various FDIC, Federal, state, Canadian 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 the Company’s filings with the Securities and Exchange Commission, the Company’s annual reports and Forms 10-Q and 10-K. You should not place any undue reliance on any forward-looking statements. The Company disclaims 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.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the Company’s results, the Company has also disclosed in this press release the following information which management believes provides useful information to investors:

    Local currency results (the reported results for each country in their respective native currencies).

    Constant currency results (the Company calculates constant currency operating results by comparing current period operating results with prior period operating results, with both periods converted at the currency exchange rates for the prior period).

    Pro forma operating results excluding non-recurring and non-cash charges and adjusted for pro forma effective income tax rates.

1

DOLLAR FINANCIAL CORP
UNAUDITED CONSOLATED BALANCE SHEETS

(In thousands)

                 
    June 30,   September 30,
    2010    2010 
Assets:
 
 
Cash and cash equivalents
  $ 291,294      $ 283,103   
Loans receivable, net:
 
 
Loans receivable
    156,480        171,951   
Less: Allowance for loan losses
    (18,168 )     (20,876 )
 
               
Loans receivable, net
    138,312        151,075   
Loans in default, net
    7,260        8,510   
Prepaid expenses and other current assets
    43,029        52,127   
Deferred tax assets, net
    23,563        23,588   
Property and equipment, net
    67,537        73,706   
Goodwill and other intangibles, net
    608,986        619,582   
Debt issuance costs, net and other assets
    34,640        36,233   
 
               
Total Assets
  $ 1,214,621      $ 1,247,924   
 
               
Liabilities:
 
 
Accounts and income taxes payable
  $ 51,077      $ 38,179   
Accrued expenses and other liabilities
    144,887        138,977   
Fair value of derivatives
    47,381        58,357   
Deferred tax liability
    24,341        26,302   
Revolving credit facilities and other short-term debt
    3,283        17,952   
Total long-term debt
    725,309        727,412   
 
               
Total Liabilities
    996,278        1,007,179   
 
               
Stockholders’ Equity:
 
 
Common stock
    24        24   
Additional paid-in capital
    331,090        332,510   
Accumulated deficit
    (115,480 )     (103,256 )
Accumulated other comprehensive income
    2,686        11,601   
 
               
Total Dollar Financial Corp. Stockholders’ Equity
    218,320        240,879   
Non-controlling interest
    23        (134 )
 
               
Total Stockholders’ Equity
    218,343        240,745   
 
               
Total Liabilities and Stockholders’ Equity
  $ 1,214,621      $ 1,247,924   
 
               

2

DOLLAR FINANCIAL CORP
UNAUDITED CONSOLATED STATEMENTS OF OPERATIONS

(In thousands except share and per share amounts)

                     
        Three Months Ended
        September 30,
        2009    2010 
Revenues:  

 
 
   
Check cashing
  $ 37,802      $ 35,264   
   
Fees from consumer lending
    77,442        91,997   
   
Money transfer fees
    6,823        7,246   
   
Pawn service fees and sales
    3,833        6,262   
   
Purchased gold sales
    5,776        11,115   
   
Other
    13,853        22,332   
   
 
               
Total revenues  
 
    145,529        174,216   
   
 
               
Operating expenses:  

 
 
   
Salaries and benefits
    36,736        40,650   
   
Provision for loan losses
    11,696        13,967   
   
Occupancy costs
    10,847        11,567   
   
Advertising
    3,447        5,768   
   
Depreciation
    3,374        3,601   
   
Bank charges and armored carrier services
    3,466        3,788   
   
Maintenance and repairs
    2,814        3,270   
   
Returned checks, net and cash shortages
    2,264        1,937   
   
COGS — purchased gold
    4,163        7,697   
   
Other
    10,826        13,646   
   
 
               
Total operating expenses  
 
    89,633        105,891   
   
 
               
Operating margin  
 
    55,896        68,325   
   
 
               
Corporate and other expenses:                
   
Corporate expenses
    20,351        25,426   
   
Interest expense, net
    11,624        21,574   
   
Other depreciation and amortization
    1,052        2,699   
   
Unrealized foreign exchange (gain) loss
    7,827        (14,612 )
   
(Gain) loss on derivatives not designated as hedges
    (9 )     13,821   
   
Reserve for litigation settlements
    1,267        197   
   
Loss on store closings
    318        170   
   
Other (income) expense, net
    169        878   
   
 
               
Income before income taxes  
 
    13,297        18,172   
Income tax provision  
 
    7,966        6,105   
   
 
               
Net income  
 
  $ 5,331      $ 12,067   
Gain (loss) attributable to non-controlling interest   $ 58      $ (157 )
   
 
               
Net income attributable to Dollar Financial Corp.   $ 5,273      $ 12,224   
   
 
               
Net income per share  

 
 
   
Basic
  $ 0.22      $ 0.50   
   
Diluted
  $ 0.22      $ 0.49   
Weighted average shares outstanding                
   
Basic
    23,998,357        24,266,967   
   
Diluted
    24,480,544        24,853,047   

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Pro forma Net Income Reconciliation

Pro forma net income is not an item prepared in accordance with GAAP. Pro forma net income is net income adjusted to exclude one-time and non-cash charges and credits as described below. The Company presents pro forma net income as an indication of its financial performance excluding one-time and other net non-cash charges and to show comparative results of its operations. Not all companies calculate pro forma net income 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 Unaudited Consolidated Statements of Operations to pro forma net income (dollars in thousands):

DOLLAR FINANCIAL CORP
PRO FORMA NET INCOME
(EXCLUDING ONE-TIME CHARGES AND CREDITS & EFFECTS OF ASC 470-20)

(In thousands except share and per share amounts)

                 
    Three Months Ended
    September 30,
    2009    2010 
Income before income taxes (incl. non-controlling
interest)
 
$13,239 
 
$18,329 
Pro forma adjustments:
 
 
Non-cash interest on convertible debt (ASC 470-20)
    2,394        2,005   
Unrealized foreign exchange (gain) loss
    7,827        (14,612 )
Non-cash impact of hedge ineffectiveness
    (9 )     9,521   
Cross-currency swap amortization
    364        1,568   
Reserve for litigation settlements
    1,267        197   
Loss on store closings
    318        170   
Acquisition costs expensed
    338        1,062   
Other
          229   
 
               
Pro forma income before income taxes
    25,739        18,469   
Pro forma income taxes
    11,068        6,834   
 
               
Pro forma net income
  $ 14,671      $ 11,635   
 
               
Pro forma effective income tax rate
    43.0 %     37.0 %
Weighted average fully-diluted shares outstanding
    24,480,544        24,853,047   
 
               
Fully-diluted operating earnings per share
  $ 0.60      $ 0.47   
 
               
GAAP fully-diluted earnings per share
  $ 0.22      $ 0.49   
 
               

4

Adjusted EBITDA Reconciliation

Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA includes earnings before interest expense, income tax provision, depreciation and amortization, charges related to non-qualified stock options and restricted shares, reserves for loss on store closings, litigation settlements, and other items described below. The Company presents Adjusted EBITDA as an indication of operating performance, as well as its ability to service its future debt and capital expenditure requirements. Adjusted EBITDA does not indicate whether Dollar’s cash flow will be sufficient to fund all of its cash needs. Adjusted 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. Not all companies calculate Adjusted 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 Unaudited Consolidated Statements of Operations to Adjusted EBITDA (dollars in thousands):

                     
        Three Months Ended
        September 30,
        2009    2010 
Income before income taxes (incl. non-controlling interest)
      $ 13,239      $ 18,329   
Add:
 
 
 
Depreciation and amortization
        4,426        6,300   
Interest expense, net
        11,624        21,574   
Stock based compensation expense
        1,912        2,038   
Unrealized foreign exchange (gain) loss
        7,827        (14,612 )
(Gain) loss on derivatives not designated as hedges
        (9 )     13,821   
Reserve for litigation settlements
        1,267        197   
Loss on store closings
        318        170   
Acquisition costs expensed
        338        1,062   
Other
              141   
 
                   
Adjusted EBITDA
      $ 40,950      $ 49,020   
 
                   

5

DOLLAR FINANCIAL CORP
PRO FORMA NET INCOME
(EXCLUDING ONE-TIME CHARGES AND CREDITS & EFFECTS OF ASC 470-20)

(In thousands except share and per share amounts)

         
    Three Months Ended
    September 30,
    2009    2010 
Beginning Company-Operated Stores        
U.S.
  358    325 
Canada
  399    403 
U.K.
  274    330 
Total Beginning Company-Operated Stores
  1,031    1,058 
 
       
De novo Store Builds
 
 
Canada
   
U.K.
    14 
Poland
   
 
       
Total
    15 
 
       
Acquired Stores
 
 
Closed Stores
 
 
U.S.
   
Canada
   
U.K.
   
Total
   
 
       
Ending Company-Operated Stores
 
 
U.S.
  352    321 
Canada
  399    403 
U.K.
  281    342 
Poland
   
 
       
Total Ending Company-Operated Stores
  1,032    1,067 
 
       
Ending Franchise/Agent Stores
 
 
U.S.
  39   
Canada
  62    62 
U.K.
  55    58 
 
       
Total Ending Franchise/Agent Stores
  156    126 
 
       
Total Ending Store Count
  1,188    1,193 
 
       

6