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☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the transition period from to .

Delaware									06-1672840
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification Number)
2445 Technology Forest Blvd., Suite 800, The Woodlands, TX									77381
(Address of principal executive offices)									(Zip Code)

Title of Each Class			Trading Symbol			Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share			CONN			NASDAQ Global Select Market

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

Class						Outstanding
Common stock, $0.01 par value per share						29,483,140

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosure

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

Exhibit Index

37

Signature

38

PART I.    FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

			July 31, 2021						January 31, 2021
Assets
Current assets:
Cash and cash equivalents			$	8,736					$	9,703
Restricted cash (includes VIE balances of $28,911 and $48,622, respectively)			30,961						50,557
Customer accounts receivable, net of allowances (includes VIE balances of $159,338 and $259,811, respectively)			461,491						478,734
Other accounts receivable			55,260						61,716
Inventories			223,662						196,463
Income taxes receivable			32,223						38,059
Prepaid expenses and other current assets			20,725						8,831
Total current assets			833,058						844,063
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $70,927 and $184,304, respectively)			415,208						430,749
Property and equipment, net			186,072						190,962
Operating lease right-of-use assets			258,702						265,798
Deferred income taxes			—						9,448
Other assets			15,907						14,064
Total assets			$	1,708,947					$	1,755,084
Liabilities and Stockholders’ Equity
Current liabilities:
Current finance lease obligations			$	1,371					$	934
Accounts payable			89,001						69,367
Accrued compensation and related expenses			27,366						24,944
Accrued expenses			71,712						58,046
Operating lease liability - current			54,800						44,011
Income taxes payable			2,233						1,447
Deferred revenues and other credits			14,937						13,007
Total current liabilities			261,420						211,756
Operating lease liability - non current			338,289						354,598
Long-term debt and finance lease obligations (includes VIE balances of $214,562 and $411,551, respectively)			438,242						608,635
Deferred tax liability			7,803						—
Other long-term liabilities			20,743						22,940
Total liabilities			1,066,497						1,197,929
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)			—						—
Common stock ($0.01 par value, 100,000,000 shares authorized; 32,967,808 and 32,711,623 shares issued, respectively)			329						327
Treasury stock (at cost; 3,485,441 shares and 3,485,441 shares, respectively)			(66,290)						(66,290)
Additional paid-in capital			134,999						132,108
Retained earnings			573,412						491,010
Total stockholders’ equity			642,450						557,155
Total liabilities and stockholders’ equity			$	1,708,947					$	1,755,084

			Three Months Ended July 31,												Six Months Ended July 31,
			2021						2020						2021						2020
Revenues:
Product sales			$	320,245					$	256,142					$	589,456					$	463,340
Repair service agreement commissions			23,700						20,164						42,831						40,265
Service revenues			2,840						3,430						5,794						6,461
Total net sales			346,785						279,736						638,081						510,066
Finance charges and other revenues			71,598						87,180						144,004						174,010
Total revenues			418,383						366,916						782,085						684,076
Costs and expenses:
Cost of goods sold			216,042						176,623						400,921						323,637
Selling, general and administrative expense			137,870						115,278						263,919						228,285
Provision for bad debts			10,262						32,045						(6,874)						149,371
Charges and credits			—						1,534						—						3,589
Total costs and expenses			364,174						325,480						657,966						704,882
Operating income (loss)			54,209						41,436						124,119						(20,806)
Interest expense			6,088						13,222						15,292						28,215
Loss on extinguishment of debt			—						—						1,218						—
Income (loss) before income taxes			48,121						28,214						107,609						(49,021)
Provision (benefit) for income taxes			11,117						7,694						25,207						(13,339)
Net income (loss)			$	37,004					$	20,520					$	82,402					$	(35,682)
Income (loss) per share:
Basic			$	1.26					$	0.71					$	2.80					$	(1.23)
Diluted			$	1.22					$	0.70					$	2.74					$	(1.23)
Weighted average common shares outstanding:
Basic			29,438,605						29,070,607						29,382,162						28,948,216
Diluted			30,212,448						29,140,546						30,072,401						28,948,216

															Additional Paid-in Capital
			Common Stock																		Retained Earnings						Treasury Stock
			Shares						Amount																		Shares						Amount						Total
Balance January 31, 2021			32,711,623						$	327					$	132,108					$	491,010					(3,485,441)						$	(66,290)					$	557,155
Exercise of options and vesting of restricted stock, net of withholding tax			115,159						1						(999)						—						—						—						(998)
Issuance of common stock under Employee Stock Purchase Plan			18,240						—						180						—						—						—						180
Stock-based compensation			—						—						2,039						—						—						—						2,039
Net income			—						—						—						45,398						—						—						45,398
Balance April 30, 2021			32,845,022						$	328					$	133,328					$	536,408					(3,485,441)						$	(66,290)					$	603,774
Exercise of options and vesting of restricted stock, net of withholding tax			112,223						1						(229)						—						—						—						(228)
Issuance of common stock under Employee Stock Purchase Plan			10,563						—						187						—						—						—						187
Stock-based compensation			—						—						1,713						—						—						—						1,713
Net income			—						—						—						37,004						—						—						37,004
Balance July 31, 2021			32,967,808						$	329					$	134,999					$	573,412					(3,485,441)						$	(66,290)					$	642,450

															Additional Paid-in Capital
			Common Stock																		Retained Earnings						Treasury Stock
			Shares						Amount																		Shares						Amount						Total
Balance January 31, 2020			32,125,055						$	321					$	122,513					$	570,636					(3,485,441)						$	(66,290)					$	627,180
Adoption of ASU 2016-13			—						—						—						(76,490)						—						—						(76,490)
Exercise of options and vesting of restricted stock, net of withholding tax			321,468						3						(1,288)						—						—						—						(1,285)
Issuance of common stock under Employee Stock Purchase Plan			47,450						1						176						—						—						—						177
Stock-based compensation			—						—						2,430						—						—						—						2,430
Net loss			—						—						—						(56,202)						—						—						(56,202)
Balance April 30, 2020			32,493,973						$	325					$	123,831					$	437,944					(3,485,441)						$	(66,290)					$	495,810
Exercise of options and vesting of restricted stock, net of withholding tax			70,271						1						(159)						—						—						—						(158)
Issuance of common stock under Employee Stock Purchase Plan			51,643						—						160						—						—						—						160
Stock-based compensation			—						—						2,254						—						—						—						2,254
Net income			—						—						—						20,520						—						—						20,520
Balance July 31, 2020			32,615,887						$	326					$	126,086					$	458,464					(3,485,441)						$	(66,290)					$	518,586

			Six Months Ended July 31,
			2021						2020
Cash flows from operating activities:
Net income (loss)			$	82,402					$	(35,682)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation			22,836						19,929
Change in right-of-use asset			17,005						15,328
Amortization of debt issuance costs			3,254						4,237
Provision for bad debts and uncollectible interest			8,071						181,286
Stock-based compensation expense			3,752						4,683
Charges, net of credits			—						3,589
Deferred income taxes			17,251						(2,472)
Loss on extinguishment of debt			1,218						—
Loss on disposal of property and equipment			104						—
Tenant improvement allowances received from landlords			10,864						10,277
Change in operating assets and liabilities:
Customer accounts receivable			24,873						63,745
Other accounts receivables			6,296						13,068
Inventories			(27,199)						38,863
Other assets			(11,390)						690
Accounts payable			19,633						13,442
Accrued expenses			17,907						2,485
Operating leases			(26,293)						(20,086)
Income taxes			5,622						(9,578)
Deferred revenues and other credits			733						1,921
Net cash provided by operating activities			176,939						305,725
Cash flows from investing activities:
Purchases of property and equipment			(19,162)						(32,459)
Net cash used in investing activities			(19,162)						(32,459)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes			62,900						—
Payments on asset-backed notes			(261,356)						(315,225)
Borrowings under revolving credit facility			740,850						835,717
Payments on revolving credit facility			(573,850)						(800,917)
Payments of debt issuance costs and amendment fees			(4,231)						(2,055)
Proceeds from stock issued under employee benefit plans			367						338
Tax payments associated with equity-based compensation transactions			(1,227)						(1,444)
Payment for extinguishment of debt			(141,279)						—
Other			(514)						(314)
Net cash used in financing activities			(178,340)						(283,900)
Net change in cash, cash equivalents and restricted cash			(20,563)						(10,634)
Cash, cash equivalents and restricted cash, beginning of period			60,260						80,855
Cash, cash equivalents and restricted cash, end of period			$	39,697					$	70,221
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities			$	493					$	1,045
Right-of-use assets obtained in exchange for new operating lease liabilities			$	12,415					$	47,950
Property and equipment purchases not yet paid			$	5,962					$	11,662
Supplemental cash flow data:
Cash interest paid			$	10,931					$	23,976
Cash income taxes paid (refunded), net			$	2,334					$	(1,026)

Business. Conn’s, Inc., a Delaware corporation, is a holding company with no independent assets or operations other than its investments in its subsidiaries. References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its subsidiaries. Conn’s is a leading specialty retailer that offers a broad selection of quality, branded durable consumer goods and related services in addition to proprietary credit solutions for its core credit-constrained consumers. We operate an integrated and scalable business through our retail stores and website. Our complementary 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 offering provides financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives.

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements of Conn’s, Inc. and its wholly-owned subsidiaries, including its Variable Interest Entities (“VIEs”), have been prepared by management in accordance with U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practice for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 31, 2021 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 (the “2021 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on March 31, 2021.

Fiscal Year. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Principles of Consolidation. The Condensed Consolidated Financial Statements include the accounts of Conn’s, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. 

Variable Interest Entities. VIEs are consolidated if the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has (i) the power to direct the activities that most significantly impact the performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

Refer to Note 4, Debt and Financing Lease Obligations, and Note 6, Variable Interest Entities, for additional information.

Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ, even significantly, from these estimates. Management evaluates its estimates and related assumptions regularly, including those related to the allowance for doubtful accounts and allowances for no-interest option credit programs, which are particularly sensitive given the size of our customer portfolio balance.

Cash and Cash Equivalents. As of July 31, 2021 and January 31, 2021, cash and cash equivalents included cash and credit card deposits in transit. Credit card deposits in transit included in cash and cash equivalents were $6.8 million and $7.9 million as of July 31, 2021 and January 31, 2021, respectively. 

Restricted Cash. The restricted cash balance as of July 31, 2021 and January 31, 2021 includes $24.1 million and $41.6 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $4.8 million and $7.0 million, respectively, of cash held by the VIEs as additional collateral for the asset-backed notes.

Customer Accounts Receivable. Customer accounts receivable reported in the Condensed Consolidated Balance Sheet includes total receivables managed, including both those transferred to the VIEs and those not transferred to the VIEs. Customer accounts receivable are recognized at the time the customer takes possession of the product. Expected lifetime losses on customer accounts receivable are recognized upon origination through an allowance for credit losses account that is deducted from the customer account receivable balance and presented net. Customer accounts receivable include the net of unamortized deferred fees charged to customers and origination costs. Customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Accounts that are delinquent more than 209 days as of the end of a month are charged-off against the allowance for doubtful accounts along with interest accrued subsequent to the last payment.

Interest Income on Customer Accounts Receivable. Interest income, which includes interest income and amortization of deferred fees and origination costs, is recorded using the interest method and is reflected in finance charges and other revenues. Typically, interest income is recorded until the customer account is paid off or charged-off and we provide an allowance for estimated uncollectible interest. We reserve for interest that is more than 60 days past due. Any contractual interest income received from customers in excess of the interest income calculated using the interest method is recorded as deferred revenue on our balance sheets. At July 31, 2021 and January 31, 2021, there was $8.4 million and $8.9 million, respectively, of deferred interest included in deferred revenues and other credits and other long-term liabilities. The deferred interest will ultimately be brought into income as the accounts pay off or charge-off.

Allowance for Doubtful Accounts. The determination of the amount of the allowance for credit losses is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level of the allowance for credit losses. General economic conditions, changes to state or federal regulations and a variety of other factors

Debt Issuance Costs. Costs that are direct and incremental to debt issuance are deferred and amortized to interest expense using the effective interest method over the expected life of the debt. All other costs related to debt issuance are expensed as incurred. We present debt issuance costs associated with long-term debt as a reduction of the carrying amount of the debt. Unamortized costs related to the Revolving Credit Facility, as defined in Note 4, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were $5.9 million and $3.5 million as of July 31, 2021 and January 31, 2021, respectively.

Loss on Extinguishment. During the six months ended July 31, 2021, we incurred a loss of $1.0 million related to the retirement of the remaining $141.2 million aggregate principal amount of our 7.25% Senior Notes due 2022 (“Senior Notes”) and a loss of $0.2 million related to the amendment of our Fifth Amended and Restated Loan and Security Agreement.

Income Taxes. For the six months ended July 31, 2021 and 2020, we utilized the estimated annual effective tax rate based on our estimated fiscal year 2022 and 2021 pre-tax income, respectively, in determining income tax expense.

Stock-based Compensation. During the six months ended July 31, 2021, the Company granted performance stock awards (“PSUs”) and restricted stock awards (“RSUs”). The awards had a combined aggregate grant date fair value of $9.3 million. The PSUs will vest in fiscal year 2025, if at all, upon certification by the Compensation Committee of the Board of Directors of satisfaction of certain total stockholder return performance conditions over the three fiscal years commencing with fiscal year 2022. The RSUs will vest ratably, over periods of three years to four years from the date of grant.

			Three Months Ended July 31,												Six Months Ended July 31,
			2021						2020						2021						2020
RSUs (1)			41,087						101,774						381,731						622,195
PSUs (2)			—						—						152,349						270,828
Total stock awards granted			41,087						101,774						534,080						893,023
Aggregate grant date fair value (in thousands)			$	960					$	750					$	9,250					$	7,957

(1)The RSUs issued during the six months ended July 31, 2021 and 2020 are scheduled to vest ratably over periods of three years to four years from the date of grant.

(2)The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2021 included expected volatility of 83.0%, an expected term of 3 years and risk-free interest rate of 0.17%.  No dividend yield was included in the weighted-average assumptions for the PSUs granted during the six months ended July 31, 2021. The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2020 included expected volatility of 60.0%, an expected term of 3 years and risk-free interest rate of 1.42%. No dividend yield was included in the weighted average assumptions for the PSUs granted during the six months ended July 31, 2020.

Earnings (loss) per Share. Basic earnings (loss) per share for a particular period is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effects of any stock options, RSUs and PSUs, which are calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations: 

			Three Months Ended July 31,												Six Months Ended July 31,
			2021						2020						2021						2020
Weighted-average common shares outstanding - Basic			29,438,605						29,070,607						29,382,162						28,948,216
Dilutive effect of stock options, PSUs and RSUs			773,843						69,939						690,239						—
Weighted-average common shares outstanding - Diluted			30,212,448						29,140,546						30,072,401						28,948,216

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to subjectivity associated with the inputs to fair value measurements as follows:  

•Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

•Level 3 – Inputs that are not observable from objective sources such as our internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in our internally developed present value of future cash flows model that underlies the fair-value measurement).

Deferred Revenue. Deferred revenue related to contracts with customers consists of deferred customer deposits and deferred RSA administration fees. During the six months ended July 31, 2021, we recognized $4.7 million of revenue for customer deposits deferred as of January 31, 2021. During the six months ended July 31, 2021, we recognized $1.9 million of revenue for RSA administrative fees deferred as of January 31, 2021.

Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This accounting standards update became effective for us in the first quarter of fiscal year 2022. The adoption did not have a material impact on our consolidated financial statements.

Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope, to clarify the scope of the guidance and reduce potential diversity in practice. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These accounting standard updates were effective upon issuance, with adoption permitted through December 31, 2022. We expect to adopt ASC 2020-04 and ASC 2021-01 upon transition from LIBOR, prior to December 31, 2022. We do not expect the adoption to have a material impact on our consolidated financial statements.

(in thousands)			July 31, 2021						January 31, 2021
Customer accounts receivable (1)			$	1,105,713					$	1,233,717
Deferred fees and origination costs, net			(13,265)						(14,212)
Allowance for no-interest option credit programs			(13,650)						(11,985)
Allowance for uncollectible interest			(11,868)						(21,427)
Carrying value of customer accounts receivable			1,066,930						1,186,093
Allowance for credit losses (2)			(190,231)						(276,610)
Carrying value of customer accounts receivable, net of allowance for credit losses			876,699						909,483
Short-term portion of customer accounts receivable, net			(461,491)						(478,734)
Long-term customer accounts receivable, net			$	415,208					$	430,749

			Carrying Value
(in thousands)			July 31, 2021						January 31, 2021
Customer accounts receivable 60+ days past due (3)			$	76,293					$	146,820
Re-aged customer accounts receivable (4)			218,086						306,845
Restructured customer accounts receivable (5)			130,725						178,374

(1)As of July 31, 2021 and January 31, 2021, the customer accounts receivable balance included $20.1 million and $31.1 million, respectively, in interest receivable. Net of the allowance for uncollectible interest, interest receivable outstanding as of July 31, 2021 and January 31, 2021 was $8.2 million and $9.7 million, respectively.

(2)Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of July 31, 2021 and January 31, 2021, which incorporated the continued estimated impact of the global COVID-19 outbreak on the U.S. economy. Our forecast utilized economic projections from a major rating service reflecting a decrease in unemployment rates.

(3)As of July 31, 2021 and January 31, 2021, the carrying value of customer accounts receivable past due one day or greater was $234.6 million and $340.8 million, respectively. These amounts include the 60+ days past due balances shown above.

(4)The re-aged carrying value as of July 31, 2021 and January 31, 2021 includes $42.4 million and $88.0 million, respectively, in carrying value that are both 60+ days past due and re-aged.

(5)The restructured carrying value as of July 31, 2021 and January 31, 2021 includes $26.7 million and $57.1 million, respectively, in carrying value that are both 60+ days past due and restructured.

(in thousands)			July 31, 2021						January 31, 2021
Customer accounts receivable - current			$	575,231					$	643,903
Allowance for credit losses for customer accounts receivable - current			(113,740)						(165,169)
Customer accounts receivable, net of allowances			461,491						478,734
Customer accounts receivable - non current			503,567						563,617
Allowance for credit losses for customer accounts receivable - non current			(88,359)						(132,868)
Long-term portion of customer accounts receivable, net of allowances			415,208						430,749
Total customer accounts receivable, net			$	876,699					$	909,483

			Six Months Ended July 31, 2021																		Six Months Ended July 31, 2020
(in thousands)			Customer Accounts Receivable						Restructured Accounts						Total						Customer Accounts Receivable						Restructured Accounts						Total
Allowance at beginning of period, prior to adoption of ASC 326			$	219,740					$	78,297					$	298,037					$	145,680					$	88,123					$	233,803
Impact of adoption ASC 326			—						—						—						95,136						3,526						98,662
Provision for (benefit from) credit losses (1)			(5,422)						13,333						7,911						138,395						42,541						180,936
Principal charge-offs (2)			(61,323)						(38,709)						(100,032)						(101,746)						(47,301)						(149,047)
Interest charge-offs			(16,997)						(10,729)						(27,726)						(29,135)						(13,545)						(42,680)
Recoveries (3)			14,657						9,252						23,909						10,269						4,773						15,042
Allowance at end of period			$	150,655					$	51,444					$	202,099					$	258,599					$	78,117					$	336,716
Average total customer portfolio balance			$	982,186					$	159,894					$	1,142,080					$	1,271,225					$	222,025					$	1,493,250

(1)Includes provision for uncollectible interest, which is included in finance charges and other revenues, and changes in expected future recoveries.

(2)Charge-offs include the principal amount of losses (excluding accrued and unpaid interest). Recoveries include the principal amount collected during the period for previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.

(3)Recoveries include the principal amount collected during the period for previously charged-off balances.

(in thousands)
Delinquency Bucket			2021			2020			2019			2018			Prior			Total			% of Total
Current			$	358,052		$	291,693		$	150,885		$	27,872		$	3,813		$	832,315		78.0		%
1-30			27,833			44,758			36,874			11,070			1,755			122,290			11.5		%
31-60			7,311			12,236			11,779			4,034			672			36,032			3.4		%
61-90			3,700			7,390			6,720			2,438			478			20,726			1.9		%
91+			5,077			21,727			19,429			7,503			1,831			55,567			5.2		%
Total			$	401,973		$	377,804		$	225,687		$	52,917		$	8,549		$	1,066,930		100.0		%

			Three Months Ended July 31,												Six Months Ended July 31,
(in thousands)			2021						2020						2021						2020
Interest income and fees			$	65,003					$	83,599					$	132,682					$	165,442
Insurance income			6,371						3,385						10,889						8,137
Other revenues			224						196						433						431
Total finance charges and other revenues			$	71,598					$	87,180					$	144,004					$	174,010

(in thousands)			July 31, 2021						January 31, 2021
Revolving Credit Facility			$	219,000					$	52,000
Senior Notes			—						141,172
2019-A VIE Asset-backed Class A Notes			—						19,521
2019-A VIE Asset-backed Class B Notes			—						25,069
2019-A VIE Asset-backed Class C Notes			—						24,202
2019-B VIE Asset-backed Class A Notes			—						17,860
2019-B VIE Asset-backed Class B Notes			19,078						85,540
2019-B VIE Asset-backed Class C Notes			83,270						83,270
2020-A VIE Asset-backed Class A Notes			22,986						93,326
2020-A VIE Asset-backed Class B Notes			45,909						65,200
2020-A VIE Asset-backed Class C Notes			44,290						—
Financing lease obligations			6,051						6,072
Total debt and financing lease obligations			440,584						613,232
Less:
Discount on debt			—						(524)
Deferred debt issuance costs			(971)						(3,139)
Current maturities of long-term debt and financing lease obligations			(1,371)						(934)
Long-term debt and financing lease obligations			$	438,242					$	608,635

Senior Notes. On July 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 dated July 1, 2014 (as amended, the “Indenture”), among Conn’s, Inc., its subsidiary guarantors (the “Guarantors”) and U.S. Bank National Association, as trustee. On April 15, 2021 we completed the redemption of all of our outstanding Senior Notes in an aggregate principal amount of $141.2 million.

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.

(dollars in thousands)
Asset-Backed Notes						Original Principal Amount						Original Net Proceeds (1)						Current Principal Amount						Issuance Date						Maturity Date						Contractual Interest Rate						Effective 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 ended July 31, 2021, and inclusive of the impact of changes in timing of actual and expected cash flows.

Revolving Credit Facility. On March 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 of March 29, 2025.

Debt Covenants. We were in compliance with our debt covenants at July 31, 2021. A summary of the significant financial covenants that govern our Revolving Credit Facility compared to our actual compliance status at July 31, 2021 is presented below: 

			Actual						Required Minimum/ 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

Securities Litigation. On May 15, 2020, a putative securities class action lawsuit was filed against us and two of our executive officers in the United States District Court for the Southern District of Texas, captioned Uddin v. Conn’s, Inc., et al., No. 4:20-1705 (“Uddin Action”). On November 16, 2020, the lead plaintiff voluntarily dismissed the action without prejudice. The court entered an order recognizing the dismissal on November 17, 2020.

(in thousands)			July 31, 2021						January 31, 2021
Assets:
Restricted cash			$	28,911					$	48,622
Due from Conn’s, Inc., net			(10,367)						(5,661)
Customer accounts receivable:
Customer accounts receivable			225,602						509,574
Restructured accounts			81,179						105,395
Allowance for uncollectible accounts			(73,655)						(159,849)
Allowance for no-interest option credit programs			(475)						(5,502)
Deferred fees and origination costs			(2,386)						(5,503)
Total customer accounts receivable, net			230,265						444,115
Total assets			$	248,809					$	487,076
Liabilities:
Accrued expenses			$	1,871					$	3,707
Other liabilities			2,279						4,459
Long-term debt:
2019-A Class A Notes			—						19,521
2019-A Class B Notes			—						25,069
2019-A Class C Notes			—						24,202
2019-B Class A Notes			—						17,860
2019-B Class B Notes			19,078						85,540
2019-B Class C Notes			83,270						83,270
2020-A Class A Notes			22,986						93,326
2020-A Class B Notes			45,909						65,200
2020-A Class C Notes			44,290						—
			215,533						413,988
Less: deferred debt issuance costs			(971)						(2,437)
Total debt			$	214,562					$	411,551
Total liabilities			$	218,712					$	419,717

7.     Segment Information 

			Three Months Ended July 31, 2021																		Three Months Ended July 31, 2020
(in thousands)			Retail						Credit						Total						Retail						Credit						Total
Revenues:
Furniture and mattress			$	109,259					$	—					$	109,259					$	80,984					$	—					$	80,984
Home appliance			135,444						—						135,444						107,682						—						107,682
Consumer electronics			48,413						—						48,413						47,384						—						47,384
Home office			17,986						—						17,986						14,979						—						14,979
Other			9,143						—						9,143						5,113						—						5,113
Product sales			320,245						—						320,245						256,142						—						256,142
Repair service agreement commissions			23,700						—						23,700						20,164						—						20,164
Service revenues			2,840						—						2,840						3,430						—						3,430
Total net sales			346,785						—						346,785						279,736						—						279,736
Finance charges and other revenues			224						71,374						71,598						196						86,984						87,180
Total revenues			347,009						71,374						418,383						279,932						86,984						366,916
Costs and expenses:
Cost of goods sold			216,042						—						216,042						176,623						—						176,623
Selling, general and administrative expense (1)			102,157						35,713						137,870						78,584						36,694						115,278
Provision for bad debts			142						10,120						10,262						182						31,863						32,045
Charges and credits			—						—						—						1,355						179						1,534
Total costs and expenses			318,341						45,833						364,174						256,744						68,736						325,480
Operating income			28,668						25,541						54,209						23,188						18,248						41,436
Interest expense			—						6,088						6,088						—						13,222						13,222
Income before income taxes			$	28,668					$	19,453					$	48,121					$	23,188					$	5,026					$	28,214

			Six Months Ended July 31, 2021																		Six Months Ended July 31, 2020
(in thousands)			Retail						Credit						Total						Retail						Credit						Total
Revenues:
Furniture and mattress			$	203,750					$	—					$	203,750					$	149,877					$	—					$	149,877
Home appliance			248,705						—						248,705						188,967						—						188,967
Consumer electronics			86,451						—						86,451						83,160						—						83,160
Home office			32,507						—						32,507						32,345						—						32,345
Other			18,043						—						18,043						8,991						—						8,991
Product sales			589,456						—						589,456						463,340						—						463,340
Repair service agreement commissions			42,831						—						42,831						40,265						—						40,265
Service revenues			5,794						—						5,794						6,461						—						6,461
Total net sales			638,081						—						638,081						510,066						—						510,066
Finance charges and other revenues			433						143,571						144,004						431						173,579						174,010
Total revenues			638,514						143,571						782,085						510,497						173,579						684,076
Costs and expenses:
Cost of goods sold			400,921						—						400,921						323,637						—						323,637
Selling, general and administrative expense (1)			193,050						70,869						263,919						156,758						71,527						228,285
Provision for bad debts			160						(7,034)						(6,874)						350						149,021						149,371
Charges and credits			—						—						—						1,355						2,234						3,589
Total costs and expenses			594,131						63,835						657,966						482,100						222,782						704,882
Operating income (loss)			44,383						79,736						124,119						28,397						(49,203)						(20,806)
Interest expense			—						15,292						15,292						—						28,215						28,215
Loss on extinguishment of debt			—						1,218						1,218						—						—						—
Income (loss) before income taxes			$	44,383					$	63,226					$	107,609					$	28,397					$	(77,418)					$	(49,021)
			July 31, 2021																		July 31, 2020
(in thousands)			Retail						Credit						Total						Retail						Credit						Total
Total assets			$	672,944					$	1,036,003					$	1,708,947					$	726,304					$	1,115,396					$	1,841,700

(1)For the three months ended July 31, 2021 and 2020, the amount of corporate overhead allocated to each segment reflected in SG&A was $9.8 million and $8.5 million, respectively. For the three months ended July 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 ended July 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 ended July 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.

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

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 the SEC.

Retail gross margin for the three months ended July 31, 2021 was 37.7%, an increase of 80 basis points from the 36.9% reported for the three months ended July 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 ended July 31, 2021 was $137.9 million compared to $115.3 million for the three months ended July 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 ended July 31, 2021 compared to $32.0 million for the three months ended July 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 ended July 31, 2021 compared to the three months ended July 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.

•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. 

•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;

•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 of Florida, bringing the total number of showrooms at July 31, 2021 to 155, compared to 141 at July 31, 2020; and

•At July 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.

•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.

Consolidated:			Three Months Ended July 31,																		Six Months Ended July 31,
(in thousands)			2021						2020						Change						2021						2020						Change
Revenues:
Total net sales			$	346,785					$	279,736					$	67,049					$	638,081					$	510,066					$	128,015
Finance charges and other revenues			71,598						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