Executive Summary

Nicholas Financial reported Q2 FY2024 net loss of $10.5M and diluted EPS of $(1.44), driven by elevated net charge-offs and shrinking receivables amid the strategic shift to sell substantially all assets to Westlake Financial .
Interest and fee income fell 48.3% year-over-year to $6.3M, while operating expenses declined 41.6% year-over-year to $4.3M, reflecting restructuring and servicing outsourcing benefits .
Management executed a Master Asset Purchase Agreement with Westlake (approx. $65.6M purchase price), ceased new originations, and continued third-party servicing by WPM; the company emphasized freeing capital and maximizing net operating losses for shareholder returns .
No earnings call transcript or Wall Street consensus estimates were available; the absence of coverage reduces near-term estimate-based trading catalysts .
Subsequent quarter updates showed continued cost reductions and fair-value adjustments as the portfolio was reclassified as held-for-sale, supporting the transition plan; later, Q4 FY2024 EPS improved to $(0.19) and operating expenses fell to $3.0M .

What Went Well and What Went Wrong

What Went Well

Operating expenses dropped 41.6% year-over-year to $4.3M in Q2, with payroll and branch/admin costs down materially under the restructuring plan and servicing outsourcing .
Strategic execution advanced: signed the Westlake asset sale, halted originations, and maintained WPM servicing, aligning with capital redeployment objectives to enhance shareholder returns .
Earlier Q1 momentum showed profitability ($1.6M net income; $0.21 EPS) and strong pre-tax yield improvement versus prior year, indicating initial benefits from cost actions before CECL and sale-related shifts .

What Went Wrong

Net charge-offs surged to 58.2% in Q2, sharply above the prior year (12.4%), materially pressuring earnings and necessitating higher loss absorption .
Interest and fee income contracted to $6.3M (-48.3% YoY), reflecting reduced originations and portfolio runoff ahead of the planned sale .
The transition to held-for-sale and fair value accounting later led to significant valuation adjustments (e.g., $19.5M in Q3 and $17.3M in Q4), underscoring portfolio stress and market-driven markdowns .

Financial Results

Metric	Q1 FY2024 (Jun 30, 2023)	Q2 FY2024 (Sep 30, 2023)	Q3 FY2024 (Dec 31, 2023)	Q4 FY2024 (Mar 31, 2024)
Interest and fee income ($USD Millions)	$7.083	$6.330	$4.954	$3.870
Basic EPS ($USD)	$0.21	$(1.44)	$(1.60)	$(0.19)
Net Income (Loss) ($USD Millions)	$1.556	$(10.485)	$(11.661)	$(1.349)
Operating Expenses ($USD Millions)	$4.237	$4.295	~$4.0	$3.038
Portfolio Yield (%)	23.46%	25.40%	28.23%	26.18%
Net Charge-off Percentage (%)	9.58%	58.20%	34.83%	23.89%
Book Value per Share ($USD)	$11.13	$9.70	$8.10	$8.07

Segment and portfolio composition

Metric	Q1 FY2024	Q2 FY2024	Q3 FY2024	Q4 FY2024
Contracts Outstanding ($USD Millions)	$96.325	$76.490	$62.664	$50.832
Direct Loans Outstanding ($USD Millions)	$15.254	$10.781	$8.319	$6.083
Active Contracts (Contracts)	12,769	10,550	9,088	7,720
Active Contracts (Direct Loans)	4,558	3,205	2,485	1,866

Quarterly origination/purchase KPIs

KPI	Q1 FY2024	Q2 FY2024	Q3 FY2024	Q4 FY2024
Contracts Purchases ($USD Thousands)	$2,720	$2,543	$252	$0
Number of Contracts Purchased	219	209	20	0
Average APR (Contracts)	22.0%	22.3%	21.9%	0.0%
Average Discount (Contracts)	6.0%	6.3%	6.6%	N/A
Average Amount Financed (Contracts) ($USD)	$12,420	$12,167	$12,600	$0
Direct Loans Originations ($USD Thousands)	$0	$0	$0	$0

Actuals vs Estimates (Q2 FY2024)

Metric	Actual	Consensus Estimate
EPS ($USD)	$(1.44)	Unavailable via S&P Global (no CIQ mapping)
Interest and fee income ($USD Millions)	$6.330	Unavailable via S&P Global (no CIQ mapping)

Note: S&P Global Wall Street consensus estimates were unavailable for NICK due to missing CIQ mapping; likely limited sell-side coverage .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Loan Portfolio Sale to Westlake	Q2 FY2024	Not previously announced	Announced Master Asset Purchase Agreement (~$65.6M purchase price) and cessation of new originations	Initiated
Originations Policy	Q2 FY2024	Originating modest contracts in Q1	Ceased new originations; portfolio serviced by WPM	Lowered (to zero)
Servicing Arrangement	Q2 FY2024	Outsourced servicing to WPM since Dec 2022	Continued WPM servicing until transaction closing	Maintained
Accounting Treatment of Receivables	Q3–Q4 FY2024	CECL adopted Apr 1, 2023	Reclassified receivables to held-for-sale; fair value valuation allowances ($19.5M in Q3; $17.3M in Q4)	Updated methodology
Capital Allocation Strategy	Q2–Q4 FY2024	Reduce opex, free up capital	Explore acquisitions/investments; acquired 51% of Amplex Electric for ~$11.56M plus $3.0M share purchase	Expanded
Dividends	Q2–Q4 FY2024	Not discussed	Not discussed	No formal guidance

Earnings Call Themes & Trends

Note: No earnings call transcript was available for Q2 FY2024; themes below reflect management’s press releases across quarters .

Topic	Previous Mentions (Q1 & Q3)	Current Period (Q2)	Trend
Restructuring/Operating Strategy	Q1: Returned to profitability via opex cuts; outsourcing servicing . Q3: Continued opex reduction; discontinued originations .	Announced sale to Westlake; ceased new originations; affirmed WPM servicing .	Accelerating transition
Credit Loss Modeling	Q1: CECL adoption with reduced provision . Q3: Reclassified to held-for-sale; reversed ACL, fair value adjustments .	Elevated net charge-offs (58.2%); provisioning still heavy pre-sale .	Deteriorating credit metrics pre-sale; accounting shift pending
Asset Sale to Westlake	Q3: S-4 effective; pursuing shareholder approval .	Executed Purchase Agreement; outlined rationale and capital redeployment goals .	Executed agreement; progressing to close
Originations/Servicing	Q1: Modest contract origination; WPM servicing . Q3: Discontinued originations; WPM servicing .	Ceased originations; WPM to continue .	Lower originations; stable servicing
Capital Deployment	Q3: Free capital and maximize NOLs post-sale .	Explore acquisitions/investments to increase returns .	Strategy articulated; Q4 executed Amplex acquisition
Portfolio Performance	Q1: Pre-tax yield 5.64%; net charge-offs 9.58% . Q3: Net charge-offs 34.83%; portfolio yield 28.23% .	Net charge-offs 58.2%; portfolio yield 25.40% .	Mixed yield; rising losses
Liquidity/Debt	Q3: Paid off $29.1M credit facility; cash up $7.4M .	—	Continued deleveraging and cash build in FY2024

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 … Our operating expenses decreased 55.3% for the first fiscal quarter, compared to the same period year over year” — CEO Mike Rost (Q1 FY2024) .
“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.” — CEO Mike Rost (Q1 FY2024) .
“The Company has agreed to sell substantially all of the Company’s assets to Westlake … the Company intends to explore strategic alternatives for the use of the net proceeds … and seek to maximize the value of deferred tax assets” (Q2 press release) .
“Following management’s decision to pursue the Loan Portfolio Sale, the Company discontinued loan originations and further reduced its personnel, while its loan portfolio was serviced by a third-party provider.” (Q3 press release) .
“On June 15, 2024, the Company closed the Share Purchase Agreement to acquire Amplex Electric, Inc. … preliminary purchase consideration of $11,562,802 … plus $3,000,000 for additional shares.” (Q4 press release) .

Q&A Highlights

No Q2 FY2024 earnings call transcript was available; management communications were via 8-K press releases and exhibits .

Estimates Context

S&P Global Wall Street consensus estimates were unavailable for NICK due to missing CIQ mapping; the company appears to have limited active sell-side coverage, preventing a comparison to consensus for Q2 FY2024 and adjacent quarters .
In absence of consensus, investor focus should center on actuals and structural changes (asset sale progression, fair value adjustments, and opex trajectory) as primary narrative drivers .

Key Takeaways for Investors

Q2 FY2024 results reflect transition stress: net loss $(10.5)M and EPS $(1.44), with net charge-offs at 58.2% and interest/fee income $6.3M, while opex benefits partially offset headwinds .
Strategic pivot is clear: executed sale agreement with Westlake, ceased originations, maintained WPM servicing—de-risking operations and positioning for capital redeployment .
Accounting reclassification to held-for-sale led to sizable fair-value adjustments later (Q3: $19.5M; Q4: $17.3M), compressing equity/book value and signaling conservative valuation of receivables .
Cost discipline is working: operating expenses fell materially through FY2024, from $4.3M in Q2 to $3.0M in Q4, supporting EPS improvement to $(0.19) by Q4 .
Balance sheet reshaping: credit facility fully repaid during FY2024 and cash increased, enhancing optionality for acquisitions/investments post-sale .
New vector: acquisition of Amplex Electric (51% stake; ~$14.56M cash outlay including additional shares) indicates intent to deploy capital outside the legacy auto finance business .
Trading implications: near-term moves hinge on transaction closing status, additional fair-value marks, and proof of capital deployment ROI; lack of sell-side estimates reduces consensus beat/miss volatility, shifting focus to strategic execution milestones .

NICHOLAS FINANCIAL INC (NICK)·Q2 2024 Earnings Summary