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NF

NICHOLAS FINANCIAL INC (NICK)·Q1 2024 Earnings Summary

Executive Summary

  • Returned to profitability: Q1 FY2024 net income of $1.556M ($0.21 EPS) vs. $(1.777)M ($(0.24) EPS) in Q1 FY2023; pre-tax yield improved to 5.64% as restructuring drove a 55.3% YoY decline in operating expenses .
  • Top-line pressure persisted as portfolio runoff and a strategic pullback reduced interest and fee income to $7.083M (−41.3% YoY) .
  • Credit costs normalized vs. last year under CECL adoption (provision $0.645M, −82.3% YoY), but net charge-offs remained elevated at 9.58% and delinquencies were high (Contracts 19.80%; Direct Loans 23.00%) .
  • Balance sheet de-leveraging continued: line of credit fell to $15.109M; shareholders’ equity rose to $81.181M; book value per share increased to $11.13 .

What Went Well and What Went Wrong

  • What Went Well

    • Profitability returned with $1.556M net income and 5.64% pre-tax yield, reflecting restructuring benefits and lower provisioning vs. prior year .
    • Operating expenses down 55.3% YoY; management emphasized the strategy to “reduce operating expenses and free up capital” and “allocate excess capital to increase shareholder returns” .
    • Deleveraging and liquidity traction: during the quarter, debt decreased by $13.9M and cash increased by $0.2M .

  • What Went Wrong

    • Revenue declined 41.3% YoY to $7.083M as portfolio runoff and origination pullback reduced interest and fee income .
    • Credit remains a headwind: net charge-off percentage at 9.58% (vs. 6.48% a year ago) and elevated delinquency totals across contracts and direct loans .
    • Portfolio contracted further: finance receivables, net fell to $93.854M from $106.919M at March 31, 2023; originations remained minimal (indirect $2.720M; direct loans $0) .

Financial Results

MetricQ3 FY2023 (Dec 31, 2022)Q4 FY2023 (Mar 31, 2023)Q1 FY2024 (Jun 30, 2023)
Revenue ($USD Millions)$11.268 $8.690 $7.083
Net Income (Loss) ($USD Millions)$(13.373) $(15.796) $1.556
Diluted EPS ($USD)$(1.85) $(2.18) $0.21
Operating expenses ($USD Millions)$9.672 $5.958 $4.237
Provision for credit losses ($USD Millions)$10.730 $17.378 $0.645
Interest expense ($USD Millions)$1.239 $1.149 $0.500
Portfolio yield (%)27.19% 24.59% 23.46%
Pre-tax yield (%)(25.03%) (44.69%) 5.64%
Net charge-off %16.57% 30.93% 9.58%

Segment/KPI detail – Originations and Purchases

MetricQ3 FY2023Q4 FY2023Q1 FY2024
Contracts Purchases ($USD Millions)$4.511 $1.579 $2.720
Number of Contracts Purchased383 127 219
Avg Amount Financed – Contracts ($)$11,778 $12,433 $12,420
Avg APR – Contracts (%)22.4% 22.2% 22.0%
Avg Term – Contracts (months)48 49 50
Direct Loans Originations ($USD Millions)$1.080 $0.000 $0.000
Direct Loans – Avg APR (%)29.6% 0.0% 0.0%
Direct Loans – Avg Term (months)27 – –

Credit Quality and Reserves

MetricQ3 FY2023Q4 FY2023Q1 FY2024
Contracts – Delinquency Total (%)21.06% 15.67% 19.80%
Direct Loans – Delinquency Total (%)19.46% 17.03% 23.00%
Allowance Percentage (%)7.06% 13.57% 13.68%
Total Reserves Percentage (%)10.64% 16.98% 16.84%

Balance Sheet Highlights

MetricQ3 FY2023Q4 FY2023Q1 FY2024
Finance Receivables, net ($USD Millions)$139.719 $106.919 $93.854
Line of Credit ($USD Millions)$44.624 $28.936 $15.109
Shareholders’ Equity ($USD Millions)$95.580 $79.809 $81.181
Book Value per Share ($USD)$13.11 $10.95 $11.13

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal financial guidanceFY2024——The Q1 FY2024 8-K press release did not include quantitative guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2023 and Q4 FY2023)Current Period (Q1 FY2024)Trend
Restructuring/ServicingOutsourced servicing to Westlake; branch closures; restructuring costs; focus on reducing expenses and maximizing equity “Substantially completed our restructuring plan”; building relationship with Westlake; returned to profitability Improving execution
Credit performanceSignificant rise in delinquencies/charge-offs drove losses Net charge-offs 9.58%; delinquencies elevated (Contracts 19.80%; Direct Loans 23.00%) Better than Q4, still elevated YoY
Origination strategyDiscontinued direct loans; sharply reduced contracts purchased $2.7M indirect purchases; direct loans $0 Subdued originations
Capital structure/liquidityNew credit facility (Jan 2023); deleveraging path Debt down $13.9M; cash up $0.2M in quarter Improving leverage
Capital allocationBoard exploring uses of excess capital to increase shareholder returns Management reiterates goal to allocate excess capital to increase shareholder returns Ongoing focus
Leadership—CEO employment agreement extended to Feb 29, 2024 Stability

Management Commentary

  • “We substantially completed our restructuring plan and returned to profitability, recognizing $1.7 million in pre-tax income for the three months ended June 30, 2023.”
  • “Over the past twelve months the Company has significantly changed its operating strategy. The focus has been to reduce operating expenses and free up capital permitting the Company to allocate excess capital to increase shareholder returns.”
  • “Turning the Company in the right direction is an ongoing process… while continuing to reduce operating expenses throughout the Company.”
  • Q4 context: “The net losses… were driven by a significant rise in delinquencies and charge offs, which substantially increased our provision for credit losses.”

Q&A Highlights

  • No earnings call transcript was furnished alongside the Q1 FY2024 results; the filing provided the press release and financial tables (Exhibit 99.1) .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY2024 revenue and EPS was unavailable in our system for NICK at the time of analysis; therefore, we cannot provide a comparison to consensus.

Key Takeaways for Investors

  • The quarter marks a credible inflection: profitability returned on materially lower opex and normalized provisioning vs. the prior year; watch sustainability of the 5.64% pre-tax yield as the portfolio continues to shrink .
  • Top-line will likely remain pressured absent a pickup in quality originations; Q1 interest and fee income fell 41.3% YoY to $7.083M amid strategic pullback .
  • Credit is the swing factor: delinquencies remain elevated and net charge-offs at 9.58%; further normalization is key to sustaining earnings improvement .
  • Deleveraging is a positive catalyst for equity value: line of credit down to $15.109M and book value per share rose to $11.13; continued runoff plus reduced borrowings lowers risk .
  • Execution on the Westlake servicing model and expense control underpin the margin story; management reiterated the focus on cost reduction and capital returns over time .
  • With no formal guidance, the narrative hinges on: (1) credit stabilization, (2) originations discipline/quality, and (3) capital allocation path as cash is freed from the shrinking book .

Additional primary documents reviewed for context:

  • Q4 FY2023 8-K press release (losses driven by credit deterioration; transition progress) .
  • Q3 FY2023 8-K press release (outsourcing servicing; restructuring; origination pullback) .
  • CEO employment agreement extension press release (leadership continuity) .