UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~October~~July 31, ~~2022~~2023


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

For the transition period from to .

Commission File Number 001-34956

CONN’S, INC.

(Exact name of registrant as specified in its charter)


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)

Registrant’s telephone number, including area code: (936) 230-5899

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~December 1, 2022:~~August 23, 2023:


Class						Outstanding
Common stock, $0.01 par value per share						~~23,945,095~~24,339,413

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE FISCAL QUARTER ENDED ~~OCTOBER~~JULY 31, ~~2022~~2023

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2.

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

2224

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3841

Item 4.

Controls and Procedures

3841

PART II.

OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3941

Item 3.

Defaults Upon Senior Securities

3941

Item 4.

Mine Safety Disclosure

Item 5.

Item 6.

This Quarterly Report on Form 10-Q includes our trademarks such as “Conn’s,” “Conn’s HomePlus,” “YE$ YOU’RE APPROVED,” “YES Money,” “YE$ Money,” “YES Lease,” “YE$ Lease,” “Dreamspot,” and our logos, which are protected under applicable intellectual property laws and are the property of Conn’s, Inc. This report also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.

References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its consolidated bankruptcy-remote variable-interest entities (“VIEs”), and its wholly-owned subsidiaries.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


		October 31, 2022		January 31, 2022			July 31, 2023		January 31, 2023
Assets	Assets	(unaudited)				Assets	(unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	8,433	$	7,707	Cash and cash equivalents	$	8,560	$	19,534
Restricted cash (includes VIE balances of $43,394 and $29,872, respectively)		45,503		31,930
Customer accounts receivable, net of allowances (includes VIE balances of $284,861 and $212,259, respectively)		423,827		455,787
Restricted cash (includes VIE balances of $26,910 and $38,727, respectively)						Restricted cash (includes VIE balances of $26,910 and $38,727, respectively)	29,020		40,837
Customer accounts receivable, net of allowances (includes VIE balances of $190,394 and $251,689, respectively)						Customer accounts receivable, net of allowances (includes VIE balances of $190,394 and $251,689, respectively)	426,223		421,683
Other accounts receivable	Other accounts receivable	59,142		63,055		Other accounts receivable	62,437		56,887
Inventories	Inventories	259,285		246,826		Inventories	234,478		240,783
Income taxes receivable	Income taxes receivable	13,599		6,745		Income taxes receivable	38,976		38,436
Prepaid expenses and other current assets	Prepaid expenses and other current assets	11,381		8,756		Prepaid expenses and other current assets	13,962		12,937
Total current assets	Total current assets	821,170		820,806		Total current assets	813,656		831,097
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $253,005 and $167,905, respectively)		391,933		432,431
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $80,561 and $181,575, respectively)						Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $80,561 and $181,575, respectively)	368,238		389,054
Property and equipment, net	Property and equipment, net	218,640		192,763		Property and equipment, net	221,881		218,956
Operating lease right-of-use assets	Operating lease right-of-use assets	255,202		256,267		Operating lease right-of-use assets	284,457		262,104
Other assets	Other assets	50,187		52,199		Other assets	13,971		15,004
Total assets	Total assets	$	1,737,132	$	1,754,466	Total assets	$	1,702,203	$	1,716,215
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current finance lease obligations		$	919	$	889
Short-term debt and current finance lease obligations						Short-term debt and current finance lease obligations	$	9,039	$	937
Accounts payable	Accounts payable	79,865		74,705		Accounts payable	72,451		71,685
Accrued compensation and related expenses	Accrued compensation and related expenses	19,393		36,677		Accrued compensation and related expenses	14,107		13,285
Accrued expenses	Accrued expenses	76,937		73,035		Accrued expenses	78,180		69,334
Operating lease liability - current	Operating lease liability - current	56,295		54,534		Operating lease liability - current	60,294		53,208
Income taxes payable	Income taxes payable	2,516		3,007		Income taxes payable	2,732		2,869
Deferred revenues and other credits	Deferred revenues and other credits	10,992		15,569		Deferred revenues and other credits	10,943		11,043
Total current liabilities	Total current liabilities	246,917		258,416		Total current liabilities	247,746		222,361
Operating lease liability - non current	Operating lease liability - non current	323,410		330,439		Operating lease liability - non current	349,654		331,109
Long-term debt and finance lease obligations (includes VIE balances of $473,156 and $367,925, respectively)		591,673		522,149
Long-term debt and finance lease obligations (includes VIE balances of $234,268 and $410,790, respectively)						Long-term debt and finance lease obligations (includes VIE balances of $234,268 and $410,790, respectively)	639,950		636,079
Deferred tax liability	Deferred tax liability	—		7,351		Deferred tax liability	1,952		2,041
Other long-term liabilities	Other long-term liabilities	32,026		21,292		Other long-term liabilities	23,579		22,215
Total liabilities	Total liabilities	1,194,026		1,139,647		Total liabilities	1,262,881		1,213,805
Commitments and contingencies (Note 6)	Commitments and contingencies (Note 6)					Commitments and contingencies (Note 6)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	—		—		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; 33,341,190 and 33,015,053 shares issued, respectively)		333		330
Treasury stock (at cost; 9,404,920 shares and 6,088,920 shares issued, respectively)		(193,370)		(125,145)
Common stock ($0.01 par value, 100,000,000 shares authorized; 33,692,863 and 33,378,998 shares issued, respectively)						Common stock ($0.01 par value, 100,000,000 shares authorized; 33,692,863 and 33,378,998 shares issued, respectively)	336		334
Treasury stock (at cost; 9,404,920 shares and 9,404,920 shares issued, respectively)						Treasury stock (at cost; 9,404,920 shares and 9,404,920 shares issued, respectively)	(193,370)		(193,370)
Additional paid-in capital	Additional paid-in capital	153,417		140,419		Additional paid-in capital	161,044		155,523
Retained earnings	Retained earnings	582,726		599,215		Retained earnings	471,312		539,923
Total stockholders’ equity	Total stockholders’ equity	543,106		614,819		Total stockholders’ equity	439,322		502,410
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,737,132	$	1,754,466	Total liabilities and stockholders’ equity	$	1,702,203	$	1,716,215

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and dollars in thousands, except per share amounts)


		Three Months Ended October 31,				Nine Months Ended October 31,					Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Product sales	Product sales	$	233,176	$	308,301	$	738,598	$	897,757	Product sales	$	222,614	$	255,449	$	426,098	$	505,422
Repair service agreement commissions	Repair service agreement commissions	18,804		23,769		60,256		66,600		Repair service agreement commissions	18,757		21,615		35,662		41,452
Service revenues	Service revenues	2,378		2,513		7,279		8,307		Service revenues	2,274		2,448		4,432		4,901
Total net sales	Total net sales	254,358		334,583		806,133		972,664		Total net sales	243,645		279,512		466,192		551,775
Finance charges and other revenues	Finance charges and other revenues	66,842		70,875		201,519		214,879		Finance charges and other revenues	63,261		67,120		125,284		134,677
Total revenues	Total revenues	321,200		405,458		1,007,652		1,187,543		Total revenues	306,906		346,632		591,476		686,452
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of goods sold	Cost of goods sold	169,842		211,298		530,942		612,219		Cost of goods sold	153,985		182,718		301,918		361,100
Selling, general and administrative expense	Selling, general and administrative expense	126,243		138,081		389,169		402,000		Selling, general and administrative expense	134,974		130,142		264,212		262,925
Provision for bad debts	Provision for bad debts	35,104		26,532		77,059		19,658		Provision for bad debts	33,302		27,226		62,211		41,956
Charges and credits		8,006		—		6,522		—
Charges and credits, net										Charges and credits, net	—		(1,484)		(807)		(1,484)
Total costs and expenses	Total costs and expenses	339,195		375,911		1,003,692		1,033,877		Total costs and expenses	322,261		338,602		627,534		664,497
Operating income (loss)		(17,995)		29,547		3,960		153,666
Operating (loss) income										Operating (loss) income	(15,355)		8,030		(36,058)		21,955
Interest expense	Interest expense	11,478		5,206		23,807		20,498		Interest expense	16,787		6,808		33,166		12,329
Loss on extinguishment of debt		—		—		—		1,218
Income (loss) before income taxes		(29,473)		24,341		(19,847)		131,950
(Loss) income before income taxes										(Loss) income before income taxes	(32,142)		1,222		(69,224)		9,626
Provision (benefit) for income taxes	Provision (benefit) for income taxes	(4,634)		6,102		(3,358)		31,309		Provision (benefit) for income taxes	1,375		(907)		(327)		1,276
Net income (loss)		$	(24,839)	$	18,239	$	(16,489)	$	100,641
Income (loss) per share:
Net (loss) income										Net (loss) income	$	(33,517)	$	2,129	$	(68,897)	$	8,350
(Loss) income per share:										(Loss) income per share:
Basic	Basic	$	(1.04)	$	0.62	$	(0.68)	$	3.42	Basic	$	(1.39)	$	0.09	$	(2.85)	$	0.34
Diluted	Diluted	$	(1.04)	$	0.60	$	(0.68)	$	3.34	Diluted	$	(1.39)	$	0.09	$	(2.85)	$	0.34
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	23,911,273		29,488,321		24,172,679		29,418,047		Basic	24,190,035		23,833,100		24,162,550		24,306,524
Diluted	Diluted	23,911,273		30,261,421		24,172,679		30,127,419		Diluted	24,190,035		23,916,269		24,162,550		24,461,836

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands, except for number of shares)


					Additional Paid-in Capital																						Additional Paid-in Capital
		Common Stock					Retained Earnings			Treasury Stock										Common Stock									Retained Earnings			Treasury Stock
		Shares	Amount					Shares			Amount			Total			Shares					Amount								Shares			Amount	Total
Balance January 31, 2022		33,015,053	$	330				$	140,419		$	599,215		(6,088,920)				$	(125,145)				$	614,819
Exercise of options and vesting of restricted stock, net of withholding tax		163,032	2				(2,029)			—			—			—					(2,027)
Issuance of common stock under Employee Stock Purchase Plan		14,192	—		194			—			—			—				194
Stock-based compensation		—	—		3,409			—			—			—				3,409
Common stock repurchase		—	—		—			—			(3,316,000)			(68,225)				(68,225)
Net income		—	—		—			6,221			—			—				6,221
Balance April 30, 2022		33,192,277	$	332	$	141,993		$	605,436		(9,404,920)			$	(193,370)			$	554,391
Exercise of options and vesting of restricted stock, net of withholding tax		49,931	—		(83)			—			—			—				(83)
Issuance of common stock under Employee Stock Purchase Plan		31,248	—		216			—			—			—				216
Stock-based compensation		—	—		3,224			—			—			—				3,224
Net income		—	—		—			2,129			—			—				2,129
Balance July 31, 2022		33,273,456	$	332	$	145,350		$	607,565		(9,404,920)			$	(193,370)			$	559,877
Balance January 31, 2023																					Balance January 31, 2023	33,378,998			$	334	$	155,523		$	539,923		(9,404,920)	$	(193,370)	$	502,410
Adoption of ASU 2022-02																					Adoption of ASU 2022-02	—			—		—			286			—	—		286
Exercise of options and vesting of restricted stock, net of withholding tax	Exercise of options and vesting of restricted stock, net of withholding tax	35,516	1		(242)			—			—			—				(241)			Exercise of options and vesting of restricted stock, net of withholding tax	166,571			2		(929)			—			—	—		(927)
Issuance of common stock under Employee Stock Purchase Plan	Issuance of common stock under Employee Stock Purchase Plan	32,218	—		201			—			—			—				201			Issuance of common stock under Employee Stock Purchase Plan	30,856			—		154			—			—	—		154
Stock-based compensation	Stock-based compensation	—	—		8,108			—			—			—				8,108			Stock-based compensation	—			—		2,964			—			—	—		2,964
Net loss	Net loss	—	—		—			(24,839)			—			—				(24,839)			Net loss	—			—		—			(35,380)			—	—		(35,380)
Balance October 31, 2022		33,341,190	$	333	$	153,417		$	582,726		(9,404,920)			$	(193,370)			$	543,106
Balance April 30, 2023																					Balance April 30, 2023	33,576,425			$	336	$	157,712		$	504,829		(9,404,920)	$	(193,370)	$	469,507
Exercise of options and vesting of restricted stock, net of withholding tax																					Exercise of options and vesting of restricted stock, net of withholding tax	62,760			—		(27)			—			—	—		(27)
Issuance of common stock under Employee Stock Purchase Plan																					Issuance of common stock under Employee Stock Purchase Plan	53,678			—		169			—			—	—		169
Stock-based compensation																					Stock-based compensation	—			—		3,190			—			—	—		3,190
Net loss																					Net loss	—			—		—			(33,517)			—	—		(33,517)
Balance July 31, 2023																					Balance July 31, 2023	33,692,863			$	336	$	161,044		$	471,312		(9,404,920)	$	(193,370)	$	439,322

~~Table of Contents~~


					Additional Paid-in Capital																								Additional Paid-in Capital
		Common Stock					Retained Earnings			Treasury Stock										Common Stock											Retained Earnings			Treasury Stock
		Shares	Amount					Shares			Amount			Total			Shares					Amount										Shares			Amount			Total
Balance January 31, 2021		32,711,623	$	327				$	132,108		$	491,010		(3,485,441)				$	(66,290)				$	557,155
Balance January 31, 2022																					Balance January 31, 2022	33,015,053				$	330		$	140,419		$	599,215		(6,088,920)			$	(125,145)		$	614,819
Exercise of options and vesting of restricted stock, net of withholding tax																					Exercise of options and vesting of restricted stock, net of withholding tax	163,032				2			(2,029)			—			—			—			(2,027)
Issuance of common stock under Employee Stock Purchase Plan																					Issuance of common stock under Employee Stock Purchase Plan	14,192				—			194			—			—			—			194
Stock-based compensation																					Stock-based compensation	—				—			3,409			—			—			—			3,409
Common stock repurchase																					Common stock repurchase	—				—			—			—			(3,316,000)			(68,225)			(68,225)
Net income																					Net income	—				—			—			6,221			—			—			6,221
Balance April 30, 2022																					Balance April 30, 2022	33,192,277				$	332		$	141,993		$	605,436		$	(9,404,920)		$	(193,370)		$	554,391
Exercise of options and vesting of restricted stock, net of withholding tax	Exercise of options and vesting of restricted stock, net of withholding tax	115,159	1				(999)			—			—			—					(998)		Exercise of options and vesting of restricted stock, net of withholding tax		49,931			—			(83)			—			—			—			(83)
Issuance of common stock under Employee Stock Purchase Plan	Issuance of common stock under Employee Stock Purchase Plan	18,240	—		180			—			—			—				180			Issuance of common stock under Employee Stock Purchase Plan	31,248				—			216			—			—			—			216
Stock-based compensation	Stock-based compensation	—	—		2,039			—			—			—				2,039			Stock-based compensation	—				—			3,224			—			—			—			3,224
Net income	Net income	—	—		—			45,398			—			—				45,398			Net income	—				$	—		$	—		$	2,129		—			$	—		$	2,129
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
Exercise of options and vesting of restricted stock, net of withholding tax		3,394	—		(25)			—			—			—				(25)
Issuance of common stock under Employee Stock Purchase Plan		11,047	1		220			—			—			—				221
Stock-based compensation		—	—		2,630			—			—			—				2,630
Net income		—	—		—			18,239			—			—				18,239
Balance October 31, 2021		32,982,249	$	330	$	137,824		$	591,651		(3,485,441)			$	(66,290)			$	663,515
Balance July 31, 2022																					Balance July 31, 2022	33,273,456				$	332		$	145,350		$	607,565		(9,404,920)			$	(193,370)		$	559,877

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


		Nine Months Ended October 31,					Six Months Ended July 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	(16,489)	$	100,641
Adjustments to reconcile net income to net cash from operating activities:
Net (loss) income						Net (loss) income	$	(68,897)	$	8,350
Adjustments to reconcile net (loss) income to net cash from operating activities:						Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation	Depreciation	34,352		34,233		Depreciation	23,910		22,781
Impairment of long lived assets						Impairment of long lived assets	3,500		—
Change in right-of-use asset	Change in right-of-use asset	29,471		25,910		Change in right-of-use asset	28,865		19,409
Amortization of debt issuance costs	Amortization of debt issuance costs	5,308		4,098		Amortization of debt issuance costs	7,033		2,863
Provision for bad debts and uncollectible interest	Provision for bad debts and uncollectible interest	115,697		45,120		Provision for bad debts and uncollectible interest	80,740		61,521
Stock-based compensation expense	Stock-based compensation expense	9,004		6,382		Stock-based compensation expense	6,153		6,633
Charges, net of credits		6,522		—
Charges and credits, net						Charges and credits, net	(807)		(1,484)
Deferred income taxes	Deferred income taxes	2,299		18,141		Deferred income taxes	(173)		25
Loss on extinguishment of debt		—		1,218
Loss on disposal of property and equipment	Loss on disposal of property and equipment	562		514		Loss on disposal of property and equipment	2,820		441
Tenant improvement allowances received from landlords	Tenant improvement allowances received from landlords	8,959		11,537		Tenant improvement allowances received from landlords	10,918		8,048
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Customer accounts receivable	Customer accounts receivable	(42,390)		(22,468)		Customer accounts receivable	(63,838)		(5,666)
Other accounts receivables	Other accounts receivables	3,065		(13,291)		Other accounts receivables	(5,808)		6,902
Inventories	Inventories	(12,459)		(66,672)		Inventories	6,305		(16,126)
Other assets	Other assets	(1,796)		(132)		Other assets	681		(825)
Accounts payable	Accounts payable	5,160		21,717		Accounts payable	766		2,987
Accrued expenses	Accrued expenses	(22,745)		47,323		Accrued expenses	5,606		(22,373)
Operating leases	Operating leases	(41,149)		(39,704)		Operating leases	(34,755)		(28,288)
Income taxes	Income taxes	(6,588)		(6,574)		Income taxes	(1,136)		(166)
Deferred revenues and other credits	Deferred revenues and other credits	(4,252)		(317)		Deferred revenues and other credits	1,723		(2,206)
Net cash provided by operating activities	Net cash provided by operating activities	72,531		167,676		Net cash provided by operating activities	3,606		62,826
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(50,206)		(33,150)		Purchases of property and equipment	(30,031)		(35,146)
Net cash used in investing activities	Net cash used in investing activities	(50,206)		(33,150)		Net cash used in investing activities	(30,031)		(35,146)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	Proceeds from issuance of asset-backed notes	407,690		62,900		Proceeds from issuance of asset-backed notes	—		407,690
Payments on asset-backed notes	Payments on asset-backed notes	(300,953)		(329,464)		Payments on asset-backed notes	(183,667)		(174,437)
Borrowings under revolving credit facility	Borrowings under revolving credit facility	903,223		1,092,106		Borrowings under revolving credit facility	412,385		662,364
Payments on revolving credit facility	Payments on revolving credit facility	(938,223)		(837,106)		Payments on revolving credit facility	(228,385)		(811,364)
Payments of debt issuance costs and amendment fees	Payments of debt issuance costs and amendment fees	(5,651)		(4,350)		Payments of debt issuance costs and amendment fees	(3,874)		(5,634)
Proceeds from stock issued under employee benefit plans	Proceeds from stock issued under employee benefit plans	611		587		Proceeds from stock issued under employee benefit plans	325		410
Tax payments associated with equity-based compensation transactions	Tax payments associated with equity-based compensation transactions	(2,353)		(1,252)		Tax payments associated with equity-based compensation transactions	(953)		(2,110)
Payment from extinguishment of debt		—		(141,279)
Purchase of treasury stock	Purchase of treasury stock	(71,696)		—		Purchase of treasury stock	—		(71,696)
Other	Other	(674)		(803)		Other	7,802		(429)
Net cash used in financing activities		(8,026)		(158,661)
Net cash provided by financing activities						Net cash provided by financing activities	3,633		4,794
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	14,299		(24,135)		Net change in cash, cash equivalents and restricted cash	(22,792)		32,474
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	39,637		60,260		Cash, cash equivalents and restricted cash, beginning of period	60,371		39,637
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	53,936	$	36,125	Cash, cash equivalents and restricted cash, end of period	$	37,579	$	72,111
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities		$	1	$	1,160
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	40,416	$	34,896	Right-of-use assets obtained in exchange for new operating lease liabilities	$	49,469	$	21,729
Property and equipment purchases not yet paid	Property and equipment purchases not yet paid	$	19,643	$	5,545	Property and equipment purchases not yet paid	$	21,323	$	15,184
Accrual for purchase of treasury stock	Accrual for purchase of treasury stock	$	(3,471)	$	—	Accrual for purchase of treasury stock	$	—	$	(3,471)
Supplemental cash flow data:	Supplemental cash flow data:					Supplemental cash flow data:
Cash interest paid	Cash interest paid	$	16,513	$	14,756	Cash interest paid	$	11,741	$	8,340
Cash income taxes paid, net	Cash income taxes paid, net	$	931	$	19,733	Cash income taxes paid, net	$	1,185	$	1,418

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

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.

We operate two reportable segments: retail and credit. Our retail stores bear the “Conn’s HomePlus” name with all of our stores providing the same products and services to a common customer group. Our stores follow the same procedures and methods in managing their operations. Our retail business and credit business are operated independently from each other. The credit segment is dedicated to providing ~~short-~~short and medium-term financing to our retail customers. The retail segment is not involved in credit approval decisions or collection efforts. Our management evaluates performance and allocates resources based on the operating results of the retail and credit segments.

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, ~~2022~~2023 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, ~~2022~~2023 (the ~~“2022~~“2023 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on March 29, ~~2022.~~2023.

Reclassification of prior year presentation. Certain prior year amounts have been reclassified for consistency with the current year presentation.

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.~~Entities (VIE). 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.

We securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. We retain the servicing of the securitized portfolio and have a variable interest in each corresponding VIE by holding the residual equity. We have determined that we are the primary beneficiary of each respective VIE because (i) our servicing responsibilities for the securitized portfolio give us the power to direct the activities that most significantly impact the performance of the VIE and (ii) our variable interest in the VIE gives us the obligation to absorb losses and the right to receive residual returns that potentially could be significant. As a result, we consolidate the respective VIEs within our Condensed Consolidated Financial Statements.

Refer to Note 5, Debt and Financing Lease Obligations, and Note 7, 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.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents. As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, cash and cash equivalents included cash and credit card deposits in transit. Credit card deposits in transit included in cash and cash equivalents were ~~$4.6~~$4.4 million and $5.2 million as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, respectively.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Restricted Cash. The restricted cash balance as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022 includes $38.2~~2023 includes $21.7 million and ~~$25.7~~$33.6 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs ~~and~~and $5.2 million and ~~$4.2~~$5.2 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.

In an effort to mitigate losses on our accounts receivable, we may make loan modifications to a borrower experiencing financial difficulty. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to exercise legal remedies available to us. We may extend or “re-age” a portion of our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. To a much lesser extent, we may provide the customer the ability to refinance their account, which typically does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extend the term. We consider accounts that have been re-aged in excess of three months or refinanced as Troubled Debt Restructurings (“TDR” or “Restructured Accounts”).

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 ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, there was ~~$8.2~~ $7.9 million and ~~$8.6~~$8.1 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.

We offer a 12-month no-interest option program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived. Interest income is recognized based on estimated accrued interest earned to date on all no-interest option finance programs with an offsetting reserve for those customers expected to satisfy the requirements of the program based on our historical experience.

We recognize interest income on TDR accounts using the interest income method, which requires reporting interest income equal to the increase in the net carrying amount of the loan attributable to the passage of time. Cash proceeds and other adjustments are applied to the net carrying amount such that it equals the present value of expected future cash flows.

We place accounts in non-accrual status when legally required. Payments received on non-accrual loans are applied to principal and reduce the balance of the loan. At ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the carrying value of customer accounts receivable in non-accrual status ~~was $7.6~~was $8.2 million and ~~$5.9~~$7.9 million, respectively. At ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled ~~$92.4~~$78.3 million and ~~$84.1~~$92.2 million, respectively. At ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of ~~$7.1~~$7.5 million and ~~$5.5~~$7.1 million, respectively, were included within the customer receivables balance carried in non-accrual status.

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 that affect the ability of borrowers to service their debts or our ability to collect will impact the future performance of the portfolio.

We establish an allowance for credit losses, including estimated uncollectible interest, to cover expected credit losses on our customer accounts receivable resulting from the failure of customers to make contractual payments. Our customer accounts receivable portfolio balance consists of a large number of relatively small, homogeneous accounts. None of our accounts are large enough to warrant individual evaluation for impairment. The allowance for credit losses is measured on a collective (pool) basis where similar risk characteristics exist. The allowance for credit losses is determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

We use a risk-based, pool-level segmentation framework to calculate the expected loss rate. This framework is based on our historical gross charge-off history. In addition to adjusted historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance and repair service agreement (“RSA”) policies are also considered. We also consider forward-looking economic forecasts based on a statistical analysis of economic factors (specifically, forecast of unemployment rates over the reasonable and supportable forecasting period). To the extent that situations and trends arise which are not captured in our model, management will layer on additional qualitative adjustments.

Pursuant to ASC 326 requirements, the Company uses a 24-month reasonable and supportable forecast period for the customer accounts receivable portfolio. We estimate losses beyond the 24-month forecast period based on historic loss rates experienced

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

over the life of our historic loan portfolio by loan pool type. We revisit our measurement methodology and assumption annually, or more frequently if circumstances warrant.

As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the balance of allowance for doubtful accounts and uncollectible interest for ~~non-TDR~~non-restructured customer receivables was ~~$152.6~~$131.0 million and ~~$165.0~~$150.6 million, respectively. As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the amount included in the allowance for doubtful accounts associated with principal and interest on ~~TDR~~restructured accounts was ~~$35.1~~$32.8 million and ~~$44.0~~$33.6 million, respectively.

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 short and 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 5, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and ~~were $4.0~~were $6.1 millionand ~~$5.1~~$5.4 million as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, respectively.

~~Loss on Extinguishment.~~ During the nine months ended October 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 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 ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, we utilized the estimated annual effective tax rate based on our estimated fiscal year ~~2023~~2024 and ~~2022~~2023 pre-tax income, respectively, in determining income tax expense.

Provision for income taxes for interim periods is based on an estimated annual income tax rate, adjusted for discrete tax items. As a result, our interim effective tax rates may vary significantly from the statutory tax rate and the annual effective tax rate.

For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the effective tax rate was ~~16.9%~~0.5% and ~~23.7%~~13.3%, respectively. The primary factor affecting the decrease in our effective tax rate for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 was the impact of ~~state taxes and compensation expense.~~a valuation allowance.

Stock-based Compensation. During the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, the Company granted performance stock awards (“PSUs”) and restricted stock awards (“RSUs”). The awards had a combined aggregate grant date fair value of ~~$16.9~~$11.0 million. The PSUs will vest in fiscal year ~~2025,~~2027, 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 ~~2023.~~2024. The RSUs will vest ratably, over periods of three years from the date of grant.

Stock-based compensation expense is recorded, net of actual forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. For equity-classified share-based compensation awards, expense is recognized based on the grant-date fair value. For stock option grants, we use the Black-Scholes model to determine fair value. For grants of restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance. For grants of performance-based restricted stock units, the fair value is the market value of our stock at the date of issuance adjusted for the market condition using a Monte Carlo model.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table sets forth the RSUs and PSUs granted during the three and ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended October 31,				Nine Months Ended October 31,					Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021		2022		2021			2023		2022		2023		2022
RSUs (1)	RSUs (1)	154,614		204,376		631,200		586,107		RSUs (1)	436,763		82,206		1,183,175		476,586
PSUs (2)	PSUs (2)	—		115,688		176,509		268,037		PSUs (2)	—		—		174,290		176,509
Total stock awards granted	Total stock awards granted	154,614		320,064		807,709		854,144		Total stock awards granted	436,763		82,206		1,357,465		653,095
Aggregate grant date fair value (in thousands)	Aggregate grant date fair value (in thousands)	$	1,162	$	8,599	$	16,924	$	17,849	Aggregate grant date fair value (in thousands)	$	1,828	$	1,071	$	10,985	$	15,762

(1)The RSUs issued during the three and ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021~~2022 are scheduled to vest ratably over periods of three years to four years from the date of grant with the exception of RSU grants issued to the Board of Directors.

(2)The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the ~~nine~~six months ended ~~October~~July 31, 2023 included expected volatility of 73.0%, an expected term of 3 years and risk-free interest rate of 3.75%. No dividend yield was included in the weighted-average assumptions for the PSUs granted during the six months ended July 31, 2023. The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2022 included expected volatility of 78.0%-80.0%, an expected term of 3 years and risk-free interest rate of 1.39%-2.58%. No dividend yield was included in the weighted-average assumptions for the PSUs granted during the nine months ended October 31, 2022. The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the nine months ended October 31, 2021 included expected volatility of 83.0%-87.0%, an expected term of 3 years and risk-free interest rate of 0.17%-.0.67%. No dividend yield was included in the weighted average assumptions for the PSUs granted during the ~~nine~~six months ended ~~October~~July 31, ~~2021.~~2022.

For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, stock-based compensation expense was ~~$2.4~~$3.2 million and ~~$2.6~~$3.2 million, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, stock-based compensation expense was ~~$9.0~~$6.2 million and ~~$6.4~~$6.6 million, respectively.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings per Share. Basic earnings per share for a particular period is calculated by dividing net income 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 October 31,		Nine Months Ended October 31,			Three Months Ended July 31,		Six Months Ended July 31,
		2022	2021	2022	2021		2023	2022	2023	2022
Weighted-average common shares outstanding - Basic	Weighted-average common shares outstanding - Basic	23,911,273	29,488,321	24,172,679	29,418,047	Weighted-average common shares outstanding - Basic	24,190,035	23,833,100	24,162,550	24,306,524
Dilutive effect of stock options, PSUs and RSUs	Dilutive effect of stock options, PSUs and RSUs	—	773,100	—	709,372	Dilutive effect of stock options, PSUs and RSUs	—	83,169	—	155,312
Weighted-average common shares outstanding - Diluted	Weighted-average common shares outstanding - Diluted	23,911,273	30,261,421	24,172,679	30,127,419	Weighted-average common shares outstanding - Diluted	24,190,035	23,916,269	24,162,550	24,461,836

For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was ~~1,545,180~~2,226,807 and ~~715,051,~~1,548,376, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was ~~1,429,381~~2,176,844 and ~~734,407,~~1,234,872 respectively.

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).

In determining fair value, we use observable market data when available, or models that incorporate observable market data. When we are required to measure fair value and there is not a market-observable price for the asset or liability or for a similar asset or liability, we use the cost or income approach depending on the quality of information available to support

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows and discounts the expected cash flows using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, we believe assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in our business plans and investment decisions.

In arriving at fair-value estimates, we use relevant observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based on the lowest level of input that is significant to the fair-value measurement.

The fair value of cash and cash equivalents, restricted cash and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivable, determined using a Level 3 discounted cash flow analysis, approximates their carrying value, net of the allowance for doubtful accounts. The fair value of our Revolving Credit Facility and Term Loan approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At ~~October~~July 31, ~~2022,~~2023, the fair value of the asset backed notes was ~~$469.7~~$234.6 million as compared to the carrying value ~~of $477.5~~of $247.9 million ~~and~~and was determined using Level 2 inputs based on inactive trading activity.

Deferred Revenue. Deferred revenue related to contracts with customers consists of deferred customer deposits and deferred RSA administration fees. During the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, we recognized ~~$3.9~~$3.8 million of revenue for customer deposits deferred as of January 31, ~~2022.~~2023. During the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, we recognized ~~$2.6~~$1.5 million of revenue for RSA administrative fees deferred as of January 31, ~~2022.~~2023.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements Adopted.

~~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.

~~Recent Accounting Pronouncements Yet to Be Adopted.~~

~~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. 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.

Financial Instruments - Troubled Debt Restructurings and Vintage Disclosures. In March 2022, the FASB issued Accounting Standards Update ("ASU") 2022-02 ("ASU ~~2022-02,~~ 2022-02"), Financial Instruments -– Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,, an update that eliminates the accounting guidance for troubled debt restructurings ~~(TDRs)~~("TDR") by creditors in Accounting Standard Codification 310 - Receivables ("ASC ~~310-40~~310-40") while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ~~Specifically, rather than applying~~Under ASU 2022-02, the use of a discounted cash flow method is no longer required when measuring expected credit losses on modified loans. The ASU also refines existing credit-related disclosures by requiring disclosure of current-period gross charge-offs of receivables by year of origination. The amendments in the ASU are to be applied prospectively to modifications and disclosures of gross charge-offs, and, as such, there will be no comparative disclosures to prior periods until such time as both periods disclosed are subject to the new guidelines. However, adoption on a modified retrospective basis is permitted for the effect on the allowance for credit losses related to the elimination of the TDR recognition and measurement ~~guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan.~~guidance. The ~~amendments are~~ASU became effective for ~~fiscal years~~the Company on February 1, 2023. Upon adoption, the Company recorded an adjustment to reduce the beginning ~~after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively,~~balance of its allowance for credit losses by $0.4 million to reflect the elimination of the measurement guidance related to TDRs with an ~~option~~offsetting increase, net of tax, to apply a modified retrospective transition approach for the recognition and measurement of TDRs. We expect to adopt ASU 2022-02 during the first quarter of fiscal year 2024. We are currently assessing the impact this ASU will have on our consolidated financial statements.beginning retained earnings.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2. Customer Accounts Receivable

Customer accounts receivable consisted of the following:

(in thousands) October 31,
2022 January 31,
2022
Customer accounts receivable (1)
$ 1,032,800 $ 1,130,395
Deferred fees and origination costs, net (11,753) (13,503)
Allowance for no-interest option credit programs (17,609) (19,654)
Allowance for uncollectible interest and fees (23,049) (15,124)
Carrying value of customer accounts receivable 980,389 1,082,114
Allowance for credit losses (2)
(164,629) (193,896)
Carrying value of customer accounts receivable, net of allowance for credit losses 815,760 888,218
Short-term portion of customer accounts receivable, net (423,827) (455,787)
Long-term customer accounts receivable, net $ 391,933 $ 432,431

Carrying Value
(in thousands) October 31,
2022 January 31,
2022
Customer accounts receivable 60+ days past due (3)
$ 119,223 $ 112,858
Re-aged customer accounts receivable (4)
161,429 181,996
Restructured customer accounts receivable (5)
76,163 99,557


(in thousands)	July 31, 2023		January 31, 2023
Customer accounts receivable (1)(2)	$	987,102	$	1,025,364
Deferred fees and origination costs, net	(11,342)		(11,699)
Allowance for no-interest option credit programs	(17,624)		(18,753)
Allowance for uncollectible interest and fees	(16,251)		(20,007)
Carrying value of customer accounts receivable	941,885		974,905
Allowance for credit losses (3)	(147,424)		(164,168)
Carrying value of customer accounts receivable, net of allowance for credit losses	794,461		810,737
Short-term portion of customer accounts receivable, net	(426,223)		(421,683)
Long-term customer accounts receivable, net	$	368,238	$	389,054

(1)As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the customer accounts receivable balance included ~~$33.0~~$21.9 million ~~and $22.3~~and $27.5 million, respectively, in interest receivable. ~~Net~~Interest receivable outstanding, net of the allowance for uncollectible interest, ~~interest receivable outstanding~~ as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022 was $9.9~~2023 was $7.7 million and ~~$7.2~~$7.5 million, respectively.

(2)~~Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as~~As of ~~October~~July 31, ~~2022~~2023 and January 31, 2022, which incorporated the continued estimated impact of the global COVID-19 outbreak and other factors on the U.S. economy. Our forecast utilized economic projections from a major rating service reflecting an increase in unemployment rates.

~~(3)As of October 31, 2022 and January 31, 2022,~~2023, the carrying value of customer accounts receivable past due one day or greater was ~~$297.1~~$269.0 million and ~~$299.0~~$290.4 million, respectively. ~~These amounts include~~Further, the ~~60+ days past due balances shown above.~~

~~(4)The re-aged~~ carrying value of customer accounts receivable which received a re-age at least once during the lifetime of the loan was $150.0 millionand $160.9 million as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022 includes $46.1 million and $48.6 million, respectively, in carrying value that are both 60+ days past due and re-aged.~~2023, respectively.

~~(5)~~(3)~~The restructured carrying value as~~As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022 includes $21.2~~2023, the allowance for credit losses is presented net of recovery receivables of $48.7 million and ~~$29.0~~$47.4 million, ~~respectively, in carrying value that are both 60+ days past due and restructured.~~respectively.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The allowance for credit losses included in the current and long-term portion of customer accounts receivable, net as shown in the Condensed Consolidated Balance Sheet were as follows:


(in thousands)	(in thousands)	October 31, 2022		January 31, 2022		(in thousands)	July 31, 2023		January 31, 2023
Customer accounts receivable - current	Customer accounts receivable - current	$	521,440	$	564,825	Customer accounts receivable - current	$	511,210	$	517,611
Allowance for credit losses for customer accounts receivable - current	Allowance for credit losses for customer accounts receivable - current	(97,613)		(109,038)		Allowance for credit losses for customer accounts receivable - current	(84,987)		(95,928)
Customer accounts receivable, net of allowances	Customer accounts receivable, net of allowances	423,827		455,787		Customer accounts receivable, net of allowances	426,223		421,683
Customer accounts receivable - non current	Customer accounts receivable - non current	481,998		532,413		Customer accounts receivable - non current	446,986		477,301
Allowance for credit losses for customer accounts receivable - non current	Allowance for credit losses for customer accounts receivable - non current	(90,065)		(99,982)		Allowance for credit losses for customer accounts receivable - non current	(78,748)		(88,247)
Long-term portion of customer accounts receivable, net of allowances	Long-term portion of customer accounts receivable, net of allowances	391,933		432,431		Long-term portion of customer accounts receivable, net of allowances	368,238		389,054
Total customer accounts receivable, net	Total customer accounts receivable, net	$	815,760	$	888,218	Total customer accounts receivable, net	$	794,461	$	810,737

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following presents the activity in our allowance for credit losses and uncollectible interest for customer receivables:


		Nine Months Ended October 31, 2022						Nine Months Ended October 31, 2021							Six Months Ended July 31, 2023						Six Months Ended July 31, 2022
(in thousands)	(in thousands)	Customer Accounts Receivable		Restructured Accounts		Total		Customer Accounts Receivable		Restructured Accounts		Total		(in thousands)	Customer Accounts Receivable		Restructured Accounts		Total		Customer Accounts Receivable		Restructured Accounts		Total
Allowance at beginning of period	Allowance at beginning of period	$	165,044	$	43,976	$	209,020	$	219,740	$	78,297	$	298,037	Allowance at beginning of period	$	150,579	$	33,595	$	184,174	$	165,044	$	43,976	$	209,020
ASU 2022-02 Adjustment														ASU 2022-02 Adjustment	—		(372)		(372)		—		—		—
Adjusted allowance at beginning of period														Adjusted allowance at beginning of period	150,579		33,223		183,802		165,044		43,976		209,020
Provision for credit loss expense (1)	Provision for credit loss expense (1)	89,078		25,771		114,849		21,845		23,079		44,924		Provision for credit loss expense (1)	61,346		19,133		80,479		45,326		15,607		60,933
Principal charge-offs (2)	Principal charge-offs (2)	(100,214)		(34,222)		(134,436)		(81,710)		(50,691)		(132,401)		Principal charge-offs (2)	(77,703)		(18,783)		(96,486)		(65,919)		(23,882)		(89,801)
Interest charge-offs	Interest charge-offs	(24,016)		(8,201)		(32,217)		(22,432)		(13,917)		(36,349)		Interest charge-offs	(18,448)		(4,459)		(22,907)		(15,887)		(5,756)		(21,643)
Recoveries (2)	Recoveries (2)	22,708		7,754		30,462		20,947		12,996		33,943		Recoveries (2)	15,220		3,679		18,899		15,610		5,656		21,266
Allowance at end of period	Allowance at end of period	$	152,600	$	35,078	$	187,678	$	158,390	$	49,764	$	208,154	Allowance at end of period	$	130,994	$	32,793	$	163,787	$	144,174	$	35,601	$	179,775
Average total customer portfolio balance	Average total customer portfolio balance	$	972,943	$	89,042	$	1,061,985	$	985,634	$	149,745	$	1,135,379	Average total customer portfolio balance	$	911,367	$	82,839	$	994,206	$	982,639	$	92,262	$	1,074,901

(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.

We manage our customer accounts receivable portfolio using delinquency as a key credit quality indicator. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by calendar year of origination. The information is presented as of ~~October~~July 31, ~~2022:~~2023:


(in thousands)	(in thousands)															(in thousands)
Delinquency Bucket	Delinquency Bucket	2022		2021		2020		2019		Prior		Total		% of Total		Delinquency Bucket	2023		2022		2021		2020		Prior		Total		% of Total
Current	Current	$	384,401	$	227,174	$	61,119	$	9,016	$	1,572	$	683,282	69.7	%	Current	$	299,374	$	258,009	$	101,561	$	11,766	$	2,138	$	672,848	71.4	%
1-30	1-30	50,477		56,730		18,562		5,799		1,386		132,954		13.6	%	1-30	33,704		52,923		29,585		5,416		1,567		123,195		13.1	%
31-60	31-60	15,554		19,555		6,539		2,656		625		44,929		4.6	%	31-60	10,858		17,252		10,266		2,271		830		41,477		4.4	%
61-90	61-90	8,613		12,072		3,781		1,664		332		26,462		2.7	%	61-90	6,152		10,861		6,556		1,464		549		25,582		2.7	%
91+	91+	22,434		46,784		15,170		6,948		1,426		92,762		9.4	%	91+	8,835		39,312		23,249		5,416		1,971		78,783		8.4	%
Total	Total	$	481,479	$	362,315	$	105,171	$	26,083	$	5,341	$	980,389	100.0	%	Total	$	358,923	$	378,357	$	171,217	$	26,333	$	7,055	$	941,885	100.0	%
Gross Charge-offs for the six months ended July 31, 2023																Gross Charge-offs for the six months ended July 31, 2023	$	390	$	41,067	$	39,320	$	10,220	$	5,489	$	96,486

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

In an effort to mitigate losses on our accounts receivable, we may modify a loan to a borrower experiencing financial difficulty. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to exercise legal remedies available to us. We may extend or “re-age” a portion of our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. We may provide concessions in the form of balance forgiveness to customers experiencing financial difficulty. Balance forgiveness is primarily comprised of reductions in the principal balance of the loan but may also include reductions in uncollected fees or interest balances. We may also provide the customer the ability to refinance their account, which includes reducing the interest rate and extending the term of the loan, and generally includes waiving certain uncollected fees. We consider accounts that have been re-aged in excess of three months (“significantly re-aged”), refinanced, or with significant concessions as “restructured accounts”.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables show the amortized cost basis of loans modified during the three and six months ended July 31, 2023 (since the adoption of ASU 2022-02) to borrowers experiencing financial difficulty disaggregated by modification type:


(in thousands)	Three Months Ended July 31, 2023
Modification Type	Carrying Value		% of Carrying Value of Customer Accounts Receivable
Significantly re-aged	$	13,098	1.3	%
Balance forgiveness	104		—	%
Refinance	190		—	%
Combination - significantly re-aged & balance forgiveness	75		—	%
Total modifications	$	13,467	1.3	%


(in thousands)	Six Months Ended July 31, 2023
Modification Type	Carrying Value		% of Carrying Value of Customer Accounts Receivable
Significantly re-aged	$	27,250	2.8	%
Balance forgiveness	180		—	%
Refinance	364		—	%
Combination - significantly re-aged & balance forgiveness	265		—	%
Total modifications	$	28,059	2.8	%

Loan receivables that have been modified are subject to the same requirements for the accrual of expected credit losses over their expected remaining lives as are unmodified loan receivables. The allowance for credit losses incorporates modeling of historical loss data and thereby captures the higher risk associated with modified loans to borrowers experiencing financial difficulty based on their account attributes.

The Company monitors the performance of modified loans to borrowers experiencing financial difficulty. The following tables depict the delinquency distribution of loans that were modified on or after February 1, 2023, the date we adopted ASU 2022-02:


(in thousands)	Three Months Ended July 31, 2023
	Current		1 - 30		31 - 60		61 - 90		91+		Total
Significantly re-aged	$	8,970	$	2,997	$	1,012	$	43	$	76	$	13,098
Balance forgiveness	22		7		15		10		50		104
Refinance	123		38		22		7		—		190
Combination - significantly re-aged & balance forgiveness	49		23		3		—		—		75
Total	$	9,164	$	3,065	$	1,052	$	60	$	126	$	13,467


(in thousands)	Six Months Ended July 31, 2023
	Current		1 - 30		31 - 60		61 - 90		91+		Total
Significantly re-aged	$	14,689	$	5,985	$	2,942	$	1,618	$	2,016	$	27,250
Balance forgiveness	34		18		30		11		87		180
Refinance	185		83		44		26		26		364
Combination - significantly re-aged & balance forgiveness	101		51		38		37		38		265
Total	$	15,009	$	6,137	$	3,054	$	1,692	$	2,167	$	28,059

During the three and six months ended July 31, 2023, the Company charged off $1.2 million and $1.3 million, respectively, of balances on loans that were significantly re-aged or received balance forgiveness.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables describe the financial effect of the modifications made to customers experiencing financial difficulty:


	Three Months ended July 31, 2023
Significantly re-aged
Payment delay duration (in months)	4 to 8
Balance forgiveness
Balance forgiven (in thousands)	$	12
Refinance
Weighted-average interest rate reduction	7.22		%
Term extension duration (in months)	27
Balance forgiven (in thousands)	$	14
Combination - significantly re-aged & balance forgiveness
Payment delay duration (in months)	4 to 8
Balance forgiven (in thousands)	$	7


	Six Months ended July 31, 2023
Significantly re-aged
Payment delay duration (in months)	4 to 8
Balance forgiveness
Balance forgiven (in thousands)	$	37
Refinance
Weighted-average interest rate reduction	6.32		%
Term extension duration (in months)	27
Balance forgiven (in thousands)	$	24
Combination - significantly re-aged & balance forgiveness
Payment delay duration (in months)	4 to 8
Balance forgiven (in thousands)	$	34

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

Prior to the adoption of ASU 2022-022, loans were classified as TDRs based on modifications made over the lifetime of the loan. The amortized cost basis of loans categorized as TDRs as of January 31, 2023 was $76.8 million. Conversely, ASU 2022-02 only requires disclosures of loans modified during the most recent 12 months and the subsequent performance of such loans, which the Company is applying on a prospective basis.

Further, the Company previously utilized the discounted cash flow method when measuring the expected credit losses of certain refinanced accounts as prescribed under ASC 310: Receivables. Through the adoption of ASU 2022-02, this recognition and measurement guidance was eliminated, and the measurement is now performed in accordance with ASC 326: Financial Instruments - Credit Losses. Upon adoption of ASU 2022-02, the allowance for credit losses was reduced by $0.4 million due to the change in guidance.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Charges and Credits, net

Charges and credits consisted of the following:


		Three Months Ended October 31,				Nine Months Ended October 31,					Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Employee severance		$	8,006	$	—	$	8,006	$	—
Lease termination	Lease termination	—		—		(1,484)		—		Lease termination	$	—	$	(1,484)	$	—	$	(1,484)
Total charges and credits		$	8,006	$	—	$	6,522	$	—
Store closure										Store closure	—		—		2,340		—
Asset sale										Asset sale	—		—		(3,147)		—
Total charges and credits, net										Total charges and credits, net	$	—	$	(1,484)	$	(807)	$	(1,484)

During the ~~three~~six months ended ~~October~~July 31, ~~2022,~~2023, we recognized ~~$8.0~~a $3.1 million gain related to the sale of a single store location net of asset disposal costs. Furthermore, we recognized $2.3 million in ~~severance~~store closure costs related to ~~a change in~~ the ~~executive management team.~~impairment of assets associated with the decision to end the store-within-a-store test with Belk, Inc. During the ~~nine~~three and six months ended ~~October~~July 31, 2022, we recognized a $1.5 million gain related to the termination of a lease for a single store location. ~~In addition, we recognized $8.0 million in severance costs related to a change in the executive management team.~~

4. Finance Charges and Other Revenues

Finance charges and other revenues consisted of the following:


		Three Months Ended October 31,				Nine Months Ended October 31,					Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Interest income and fees	Interest income and fees	$	61,395	$	63,621	$	185,869	$	196,303	Interest income and fees	$	57,056	$	61,760	$	114,245	$	124,474
Insurance income	Insurance income	5,176		6,992		14,835		17,881		Insurance income	5,367		5,087		9,807		9,659
Other revenues	Other revenues	271		262		815		695		Other revenues	838		273		1,232		544
Total finance charges and other revenues	Total finance charges and other revenues	$	66,842	$	70,875	$	201,519	$	214,879	Total finance charges and other revenues	$	63,261	$	67,120	$	125,284	$	134,677

Interest income and fees and insurance income are derived from the credit segment operations, whereas other revenues are derived from the retail segment operations. Insurance income is comprised of sales commissions from third-party insurance companies that are recognized when coverage is sold and retrospective income paid by the insurance carrier if insurance claims are less than earned premiums.

During the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, interest income and fees reflected provisions for uncollectible interest of ~~$19.1~~$10.0 million and ~~$10.5 million, respectively. The amounts included in interest income and fees related to TDR accounts for the three months ended October 31, 2022 and 2021 were $3.6 million and $5.8~~$10.3 million, respectively. During the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, interest income and fees reflected provisions for uncollectible interest ~~and fees~~ of ~~$38.6~~$18.8 million and ~~$25.5~~$19.6 million, respectively. ~~The amounts included in interest income and fees related to TDR accounts for the nine months ended October 31, 2022 and 2021 were $11.5 million and $20.0 million, respectively.~~

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Debt and Financing Lease Obligations

Debt and financing lease obligations consisted of the following:


(in thousands)	(in thousands)	October 31, 2022		January 31, 2022		(in thousands)	July 31, 2023		January 31, 2023
Revolving Credit Facility		$	114,000	$	149,000
2020-A VIE Asset-backed Class A Notes		—		9,184
2020-A VIE Asset-backed Class B Notes		—		18,342
2020-A VIE Asset-backed Class C Notes		—		17,695
2021-A VIE Asset-backed Class A Notes		24,287		195,595
Revolving credit facility						Revolving credit facility	$	308,000	$	221,000
Term Loan						Term Loan	100,000		—
Delayed Draw Term Loan						Delayed Draw Term Loan	—		—
2021-A VIE Asset-backed Class B Notes	2021-A VIE Asset-backed Class B Notes	66,090		66,090		2021-A VIE Asset-backed Class B Notes	—		54,597
2021-A VIE Asset-backed Class C Notes	2021-A VIE Asset-backed Class C Notes	63,890		63,890		2021-A VIE Asset-backed Class C Notes	56,452		63,890
2022-A VIE Asset-backed Class A Notes	2022-A VIE Asset-backed Class A Notes	191,174		—		2022-A VIE Asset-backed Class A Notes	—		117,935
2022-A VIE Asset-backed Class B Notes	2022-A VIE Asset-backed Class B Notes	132,090		—		2022-A VIE Asset-backed Class B Notes	128,392		132,090
Financing lease obligations		5,436		6,115
2022-A VIE Asset-backed Class C Notes						2022-A VIE Asset-backed Class C Notes	63,090		63,090
Financing lease obligations and other short-term debt						Financing lease obligations and other short-term debt	12,939		5,226
Total debt and financing lease obligations	Total debt and financing lease obligations	596,967		525,911		Total debt and financing lease obligations	668,873		657,828
Less:	Less:					Less:
Deferred debt issuance costs	Deferred debt issuance costs	(4,375)		(2,873)		Deferred debt issuance costs	(19,884)		(20,812)
Current maturities of long-term debt and financing lease obligations	Current maturities of long-term debt and financing lease obligations	(919)		(889)		Current maturities of long-term debt and financing lease obligations	(9,039)		(937)
Long-term debt and financing lease obligations	Long-term debt and financing lease obligations	$	591,673	$	522,149	Long-term debt and financing lease obligations	$	639,950	$	636,079

Asset-backed ~~Notes.~~notes. From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs issue asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by the VIEs.

Under the terms of the securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of issued notes, and then to us as the holder of non-issued notes, if any, and residual equity. We retain the servicing of the securitized portfolios and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables. In addition, we, rather than the VIEs, retain all credit insurance income together with certain recoveries related to credit insurance and RSAs on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.

The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act of 1933. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.

The asset-backed notes outstanding as of ~~October~~July 31, ~~2022~~2023 consisted of the following:

(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)
2021-A Class A Notes $ 247,830 $ 246,152 $ 24,287 11/23/2021 5/15/2026 1.05% 3.13%
2021-A Class B Notes 66,090 65,635 66,090 11/23/2021 5/15/2026 2.87% 3.54%
2021-A Class C Notes 63,890 63,450 63,890 11/23/2021 5/15/2026 4.59% 5.08%
2022-A Class A Notes 275,600 273,731 191,174 7/21/2022 12/15/2026 5.87% 8.38%
2022-A Class B Notes 132,090 129,050 132,090 7/21/2022 12/15/2026 9.52% 10.27%
Total $ 785,500 $ 778,018 $ 477,531


(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)
2021-A Class C	$	63,890	$	63,450	$	56,452	11/23/2021	5/15/2026	4.59%	5.15%
2022-A Class B	132,090		129,050		128,392		7/21/2022	12/15/2026	9.52%	10.64%
2022-A Class C	63,090		43,737		63,090		11/30/2022	12/15/2026	—%	21.40%
Total	$	259,070	$	236,237	$	247,934

(1)After giving effect to debt issuance costs.

(2)Effective interest rate is inclusive of the impact of changes in timing of actual and expected cash flows, calculated on an annualized basis.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(2)For the nine months ended October 31, 2022, and inclusive of the impact of changes in timing of actual and expected cash flows.~~

On July 21, 2022, the Company completed the issuance and sale of approximately $407.7 million in aggregate principal amount of asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of approximately $402.8 million, net of debt issuance costs. Net proceeds from the offering were used to repay indebtedness under the Company’s Revolving Credit Facility, as defined below, and for other general corporate purposes. The asset-backed notes mature on December 15, 2026 and consist of $275.6 million of 5.87% Asset Backed Fixed Rate Notes, Class A, Series 2022-A (the "Class A Notes"), approximately $132.1 million of 9.52% Asset Backed Fixed Rate Notes, Class B, Series 2022-A (the "Class B Notes"). Additionally, the Company issued approximately $63.1 million in aggregate principal amount of zero coupon Asset Backed Fixed Rate Notes, Class C, Series 2022-A (the "Class C Notes") which mature on December 15, 2026. The Class C Notes were retained by the Company upon issuance. On November 30, 2022, the Company sold the Class C Notes. See ~~Note 10, Subsequent Events, for details.~~

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~~$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.

The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of $40 million to $100 million, solely at the discretion of the lenders for such amounts in excess of ~~$40 million.~~$40 million. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of ~~October~~July 31, ~~2022,~~2023, under our Revolving Credit Facility, we had immediately available borrowing capacity of ~~$155.4~~$181.1 million, net of standby letters of credit issued of ~~$22.3~~$25.2 million, and an additional ~~$358.3~~$135.7 million that may become available if the balance of eligible customer receivables and total eligible inventory balances increases.

~~Loans~~On November 21, 2022, we entered into Amendment No. 1 (the "Amendment") to the Fifth Amended and Restated Loan Agreement. Under the Amendment, loans under the Revolving Credit Facility bear interest, at our option, at a rate of ~~LIBOR~~Secured Overnight Financing Rate ("SOFR") plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or ~~LIBOR~~SOFR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the Revolving Credit Facility in the immediately preceding quarter. The Amendment also waived testing of the interest coverage covenants beginning with the third quarter of fiscal year 2023 and continuing until the date on which the Company delivers financial statements and a compliance certificate for the fiscal quarter ending April 30, 2024 (unless earlier terminated pursuant to the terms of the Amendment). After giving effect to the foregoing amendment, as of July 31, 2023, we were in compliance with the covenants in our Revolving Credit Facility.

On February 21, 2023, the Company, the Borrowers, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the required lenders party thereto entered into the second amendment (the “Second Amendment”) to the Fifth Amended and Restated Loan Agreement. The Second Amendment, among other things, permits the Company and the Borrowers to enter into the Term Loan (as defined below) and made certain changes conforming to the Term Loan.The weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was ~~4.3%~~8.4% for the ~~nine~~six months ended ~~October~~July 31, ~~2022.~~2023.

The Revolving Credit Facility places restrictions on our ability to incur additional indebtedness, grant liens on assets, make distributions on equity interests, dispose of assets, make loans, pay other indebtedness, engage in mergers, borrow from immediately available borrowing capacity above certain limits and without maintaining minimum liquidity, and other matters. The Revolving Credit Facility restricts our ability to make dividends and distributions unless no event of default exists and a liquidity test is satisfied. Subsidiaries of the Company may pay dividends and make distributions to the Company and other obligors under the Revolving Credit Facility without restriction. We are restricted from making distributions as a result of the Revolving Credit Facility distribution and payment restrictions. The Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the Revolving Credit Facility.

Term Loan and Security Agreement. On February 21, 2023, Conn’s, Inc., as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers (the “Borrowers”), entered into a second-lien term loan and security agreement (the “Term Loan,” and together with the Fifth Amended and Restated Loan Agreement, the “Senior Loan Agreements”) with Pathlight Capital LP, as administrative agent and collateral agent, and the financial institutions party thereto, as lenders (the “Lenders”). The Term Loan provides for an aggregate commitment of $100.0 million to the Borrowers pursuant to a three-year secured term loan credit facility, which was fully drawn on February 21, 2023. Outstanding loans under the Term Loan will bear interest at an aggregate rate per annum equal to the Term SOFR Rate (as defined in the Term Loan), subject to a 4.80% floor, plus a margin of 7.50%. The obligations of the Borrowers under the Term Loan are guaranteed by the Company and certain of the Borrowers’ subsidiaries. The Borrowers are required to make quarterly scheduled amortization payments of the Term Loan prior to the maturity thereof in an amount equal to $1.25 million. The Term Loan is secured by liens (subject, in the case of priority, to the liens under the Fifth Amendment and Restated Loan Agreement) on substantially all of the assets of the Borrowers and their subsidiaries, subject to customary exceptions.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Debt Covenants.~~ ~~On November 21, 2022, we entered into Amendment No. 1 (the "Amendment")~~amount by which the outstanding loans under the Term Loan are in excess of the sum of the (i) revolving borrowing base and (ii) term loan push-down reserve (if any) then maintained against the revolving borrowing base. Voluntary and mandatory prepayments will be applied to the remaining scheduled installments of principal due in respect of the Term Loan in the inverse order of maturity.

The Term Loan contains customary covenants regarding the Borrowers and their subsidiaries that are generally based upon and are comparable to those contained in the Fifth Amended and Restated Loan ~~and Security~~ Agreement ~~dated~~including, without limitation: financial covenants, such as the maintenance of ~~March 29, 2021, which waived testing of the~~a minimum interest coverage ~~covenants beginning with the third quarter of fiscal year 2023 and continuing until the date on which the Company delivers financial statements and compliance certificate for~~ratio, subject to a covenant relief period through the fiscal quarter ending April 30, 2024, ~~(unless earlier terminated pursuant~~and a maximum leverage ratio; and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Term Loan also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, and change of control.

Delayed Draw Term Loan and Security Agreement. On July 31, 2023, Conn’s, Inc., as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers (the “Borrowers”), entered into a delayed draw term loan and security agreement (the “Delayed Draw Term Loan”) with Stephens Investments Holdings LLC (“Stephens Investments”) and Stephens Group, LLC and the other lenders party thereto from time to time (the “Lenders”), and Stephens Investments, as administrative agent. The Delayed Draw Term Loan provides for an aggregate commitment of $50.0 million, of which the total commitment is available to be funded in one or a series of borrowings until February 20, 2026, with the Delayed Draw Term Loan to mature on May 22, 2026.

Outstanding loans under the Delayed Draw Term Loan will bear interest at an aggregate rate per annum equal to the ~~terms~~Term SOFR Rate (as defined in the Delayed Draw Term Loan), subject to a 5.00% floor, plus a margin of 10.00%, which shall be payable monthly in arrears in cash except to the extent such payment in cash would result in a default or event of default under any of the ~~Amendment). See Note 10,~~ ~~Subsequent Events, for further details. After giving effect~~Senior Loan Agreements, in which case such portion may be paid-in-kind and added to the ~~foregoing amendment,~~outstanding principal amount of the term loans. Amounts under the Delayed Draw Term Loan that remain undrawn are subject to a commitment fee payable monthly based on the undrawn portion of the Delayed Draw Term Loan at a rate of 5.00% per annum. Furthermore, in connection with the funding of each delayed draw term loan under the Delayed Draw Term Loan and on the terms and subject to the conditions of the Delayed Draw Term Loan, including the Share Cap (which equals 19.99% of the shares of common stock in the Company issued and outstanding as of ~~October 31, 2022, we were~~the date of the Delayed Draw Term Loan), the Company will issue to or as directed by the Lenders warrants to purchase a number of shares of common stock of the Company equal to 20% of the aggregate principal amount of such delayed draw term loan funded by a such Lender divided by the exercise price (as defined by the loan agreement). The obligations of the Borrowers under the Delayed Draw Term Loan are guaranteed by the Company and certain of the Borrowers’ subsidiaries. The Borrowers are not required to make any amortization or other payments (whether voluntary or mandatory) of principal under the Delayed Draw Term Loan until the maturity date. The Delayed Draw Term Loan is secured by liens (subject, in the case of priority, to the liens under the Fifth Amendment and Restated Loan) on substantially all of the assets of the Borrowers and their subsidiaries, subject to customary exceptions.

Proceeds from borrowings made under the Delayed Draw Term Loan may be used by the Borrowers for working capital and other lawful corporate purposes. The Borrowers may elect to prepay all or any portion of the amounts owed under the Delayed Draw Term Loan, without a premium or penalty, subject to certain conditions, including pro forma compliance with a fixed charge coverage ratio test and reduction of the outstanding principal amount under the Second-Lien Loan Agreement to an amount equal to $40.0 million.

The Delayed Draw Term Loan contains customary covenants regarding the Borrowers and their subsidiaries that are generally based upon and are comparable to those contained in ~~our Revolving~~the Senior Loan Agreements including, without limitation: financial covenants, such as a maximum leverage ratio; and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions and, where applicable, cushions to the Senior Loan Agreements. The Delayed Draw Term Loan also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-acceleration to the Senior Loan Agreements, cross-defaults to the warrants and certain other agreements (other than the Senior Loan Agreements as defined in the indenture), and change of control.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company’s Board of Directors, is a Senior Executive Vice President of Stephens Inc., an affiliate of Stephens Investments Holdings LLC, one of the Lenders under the Delayed Draw Term Loan.

Supplier Credit Facility.On June 22, 2023, Conn's, Inc. entered into a Supplier Credit Facility agreement with Zenith Group Holdings, LLC. The Supplier Credit Facility agreement provides a credit line up to $7.0 million with a potential for additional capacity up to $25.0 million at the discretion of Zenith Group. Amounts outstanding under the Supplier Credit Facility are subject to SOFR plus spread per annum (as defined in the agreement), charged in 30 day increments, which will be charged only on utilized capital (no unused fees). The amount outstanding under our Supplier Credit Facility is included in Short term debt and current finance lease obligations withinthe Balance Sheet.

Debt Covenants. A summary of the significant financial covenants that govern our Revolving Credit Facility compared to our actual compliance status at ~~October~~July 31, ~~2022~~2023 is presented below:


	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	~~Not Tested~~Test Waived	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	~~Not Tested~~Test Waived	1.50:1.00
Leverage Ratio must not exceed maximum	~~1.64:~~2.17:1.00	4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum	~~0.84:~~1.67:1.00	2.50:1.00
Capital Expenditures, net, must not exceed maximum	$~~50.4~~53.4 million	$100.0 million

All capitalized terms in the above table are defined in the Revolving Credit Facility and may or may not match directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

6. Contingencies

~~Derivative Litigation~~. On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a shareholder derivative lawsuit in federal court against us and certain of our current and former directors and former executive officers captioned Robert Hack, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn’s, Inc., Case No. 4:14-cv-03442 (S.D. Tex.) (the “Hack Litigation”). The complaint asserts claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading based on substantially similar factual allegations as those asserted in the securities action (In re Conn's Inc. Sec. Litig., Cause No. 14-CV-00548 (S.D. Tex.)), which was settled in October 2018. The plaintiff seeks unspecified damages against these persons and does not request any damages from Conn’s. On February 25, 2015, an additional federal derivative action, captioned 95250 Canada LTEE, derivatively on Behalf of Conn’s, Inc. v. Wright et al., Cause No. 4:15-cv-00521 (S.D. Tex.), was filed, asserting substantially similar claims against the same defendants. It was consolidated with the Hack Litigation (collectively, the “Federal Derivative Actions”).

The parties have reached a settlement in principle to fully resolve the Federal Derivative Actions. Judge Ellison approved the settlement and entered a Final Order and Judgement dismissing the derivative action with prejudice on March 15, 2022 (the “Final Order”). Neither the Company nor any individual defendant admits any wrongdoing through the settlement agreement.

In addition to the Federal Derivative Actions, a derivative action was filed in Texas state court by alleged shareholder Richard A. Dohn (“Dohn”) on January 27, 2015, captioned Dohn v. Wright, et al., Cause No. 2015-04405, in the 281st Judicial District Court, Harris County, Texas (the “Dohn State Court Action”). This action makes substantially similar allegations to the Federal Derivative Actions against the same defendants. The parties agreed to stay this case during the Securities Litigation and Federal Derivative Actions. Counsel for Dohn attended the February 17, 2022 and March 15, 2022 settlement hearings in the Federal Derivative Actions and objected to the proposed settlement. Dohn has filed an appeal of the Final Order with the Fifth Circuit Court of Appeals, and on May 17, 2022, the court entered an agreed order staying the case pending the outcome of that appeal.

On April 7, 2022, State Court Plaintiff and Objector Dohn, filed an appeal of the Final Order with the Fifth Circuit Court of Appeals (Hack v. Wright, No. 22-20177 (5th Cir.)). Dohn’s opening brief was filed on July 5, 2022. Plaintiffs’ and Defendants’ filed their respective response briefs on August 24, 2022. Dohn filed his reply brief on September 14, 2022.

Plaintiffs in the Federal Derivative Actions filed a motion for appeal bond in May 2022, which was heard by Judge Ellison on November 3, 2022. At the hearing, Judge Ellison ordered Dohn to supply the court with a record of continuous stock ownership to establish his standing to bring suit prior to the continuation of the appeal bond hearing set for November 10, 2022. Prior to the November 10, 2022 hearing, Dohn’s counsel advised Judge Ellison that Dohn's appeal was being withdrawn/dismissed from the Fifth Circuit and Judge Ellison canceled the November 10, 2022 appeal bond hearing.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

On November 14, 2022, Dohn filed a motion for voluntary dismissal of the appeal with the Fifth Circuit. On November 16, 2022, the Company and the individual Defendants-Appellants filed a response to Dohn's voluntary dismissal motion regarding the dismissal being “without prejudice.”

~~On November 18, 2022, Dohn filed an unopposed motion to dismiss the Dohn State Court Action with prejudice.~~

Prior to the filing of the Dohn State Court Action, another alleged shareholder, Robert J. Casey II (“Casey”), submitted a demand under Delaware law, which our Board of Directors refused. On May 19, 2016, Casey, purportedly on behalf of the Company, filed a second state court lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned Casey, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Michael J. Poppe (former executive officer), Brian Taylor (former executive officer), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn’s, Inc., Case No. 2016-33135. The complaint asserts claims for breach of fiduciary duties and unjust enrichment based on substantially similar factual allegations as those asserted in the Federal Derivative Actions. The complaint does not specify the amount of damages sought. Since April 2018, this case has been abated pending the resolution of related cases. In July 2021, the parties requested that the court extend the abatement pending further developments in the Federal Derivative Actions. On November 16, 2022, Casey filed an unopposed motion to dismiss this action with prejudice.

Other than Casey, none of the plaintiffs in the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the two state court derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any unsettled litigation, and we cannot reasonably estimate the possible loss or range of possible loss from such claims.

We are involved in ~~other~~ routine litigation and claims, incidental to our business from time to time which, individually or in the aggregate, are not expected to have a material adverse effect on us. As required, we accrue estimates of the probable costs for the resolution of these matters. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact our estimate of reserves for litigation. The Company believes that any probable and reasonably estimable loss associated with the foregoing has been adequately reflected in the accompanying financial statements.

7. Variable Interest Entities

From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. Under the terms of the respective securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of the asset-backed notes, and then to the residual equity holder. We retain the servicing of the securitized portfolio and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables, and we currently hold all of the residual equity. In addition, we, rather than the VIEs, will retain certain credit insurance income together with certain recoveries related toto credit insurance and RSAs on charge-offs of the securitized receivables, which will continue to be reflected as a reduction of net charge-offs on a consolidated basis for as long as we consolidate the VIEs.

We consolidate VIEs when we determine that we are the primary beneficiary of these VIEs, we have the power to direct the activities that most significantly impact the performance of the VIEs and our obligation to absorb losses and the right to receive residual returns are significant.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the assets and liabilities held by the VIEs (for legal purposes, the assets and liabilities of the VIEs will remain distinct from Conn’s, Inc.):


(in thousands)	(in thousands)	October 31, 2022		January 31, 2022		(in thousands)	July 31, 2023		January 31, 2023
Assets:	Assets:					Assets:
Restricted cash	Restricted cash	$	43,394	$	29,872	Restricted cash	$	26,910	$	38,727
Due from Conn’s, Inc., net	Due from Conn’s, Inc., net	964		—		Due from Conn’s, Inc., net	1,343		—
Customer accounts receivable:	Customer accounts receivable:					Customer accounts receivable:
Customer accounts receivable	Customer accounts receivable	652,778		463,411		Customer accounts receivable	268,098		506,811
Restructured accounts	Restructured accounts	37,270		29,621		Restructured accounts	57,703		46,626
Allowance for uncollectible accounts	Allowance for uncollectible accounts	(131,724)		(97,560)		Allowance for uncollectible accounts	(52,656)		(105,982)
Allowance for no-interest option credit programs	Allowance for no-interest option credit programs	(13,670)		(10,275)		Allowance for no-interest option credit programs	(3)		(9,340)
Deferred fees and origination costs	Deferred fees and origination costs	(6,788)		(5,033)		Deferred fees and origination costs	(2,187)		(4,851)
Total customer accounts receivable, net	Total customer accounts receivable, net	537,866		380,164		Total customer accounts receivable, net	270,955		433,264
Total assets	Total assets	$	582,224	$	410,036	Total assets	$	299,208	$	471,991
Liabilities:	Liabilities:					Liabilities:
Accrued expenses	Accrued expenses	$	4,194	$	2,638	Accrued expenses	$	2,151	$	3,475
Other liabilities	Other liabilities	5,754		3,930		Other liabilities	5,498		4,578
Due to Conn’s, Inc., net	Due to Conn’s, Inc., net	—		12,755		Due to Conn’s, Inc., net	—		2,249

Long-term debt:	Long-term debt:					Long-term debt:
2020-A Class A Notes		—		9,184
2020-A Class B Notes		—		18,342
2020-A Class C Notes		—		17,695
2021-A Class A Notes		24,287		195,595
2021-A Class B Notes	2021-A Class B Notes	66,090		66,090		2021-A Class B Notes	—		54,597
2021-A Class C Notes	2021-A Class C Notes	63,890		63,890		2021-A Class C Notes	56,452		63,890
2022-A Class A Notes	2022-A Class A Notes	191,174		—		2022-A Class A Notes	—		117,935
2022-A Class B Notes	2022-A Class B Notes	132,090		—		2022-A Class B Notes	128,392		132,090
2022-A Class C Notes						2022-A Class C Notes	63,090		63,090
		477,531		370,796			247,934		431,602
Less: deferred debt issuance costs	Less: deferred debt issuance costs	(4,375)		(2,871)		Less: deferred debt issuance costs	(13,666)		(20,812)
Total debt	Total debt	473,156		367,925		Total debt	234,268		410,790
Total liabilities	Total liabilities	$	483,104	$	387,248	Total liabilities	$	241,917	$	421,092

The assets of the VIEs serve as collateral for the obligations of the VIEs. The holders of asset-backed notes have no recourse to assets outside of the respective VIEs.

8. Segment Information

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. The operating segments follow the same accounting policies used in our Condensed Consolidated Financial Statements.

~~CONN’S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses (“SG&A”) includes the direct expenses of the retail and credit operations, allocated overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

direct costs of the retail segment, which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% times the average outstanding portfolio balance for each applicable period.

As of ~~October~~July 31, ~~2022,~~2023, we operated retail stores in 15 states with no operations outside of the United States. No single customer accounts for more than 10% of our total revenues.

Financial information by segment is presented in the following tables:

Three Months Ended October 31, 2022 Three Months Ended October 31, 2021
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 79,927 $ — $ 79,927 $ 106,756 $ — $ 106,756
Home appliance 102,884 — 102,884 128,385 — 128,385
Consumer electronics 31,911 — 31,911 46,751 — 46,751
Home office 8,630 — 8,630 17,373 — 17,373
Other 9,824 — 9,824 9,036 — 9,036
Product sales 233,176 — 233,176 308,301 — 308,301
Repair service agreement commissions 18,804 — 18,804 23,769 — 23,769
Service revenues 2,378 — 2,378 2,513 — 2,513
Total net sales 254,358 — 254,358 334,583 — 334,583
Finance charges and other revenues 270 66,572 66,842 262 70,613 70,875
Total revenues 254,628 66,572 321,200 334,845 70,613 405,458
Costs and expenses:
Cost of goods sold 169,842 — 169,842 211,298 — 211,298
Selling, general and administrative expense (1)
94,240 32,003 126,243 100,969 37,112 138,081
Provision for bad debts 261 34,843 35,104 36 26,496 26,532
Charges and credits 8,006 — 8,006 — — —
Total costs and expenses 272,349 66,846 339,195 312,303 63,608 375,911
Operating income (loss) (17,721) (274) (17,995) 22,542 7,005 29,547
Interest expense — 11,478 11,478 — 5,206 5,206
Income (loss) before income taxes $ (17,721) $ (11,752) $ (29,473) $ 22,542 $ 1,799 $ 24,341


	Three Months Ended July 31, 2023
(in thousands)	Retail		Credit		Eliminations		Total
Revenues:
Furniture and mattress	$	81,267	$	—	$	(624)	$	80,643
Home appliance	90,584		—		(735)		89,849
Consumer electronics	26,941		—		(509)		26,432
Home office	8,982		—		(284)		8,698
Other	17,034		—		(42)		16,992
Product sales	224,808		—		(2,194)		222,614
Repair service agreement commissions	18,757		—		—		18,757
Service revenues	2,274		—		—		2,274
Total net sales	245,839		—		(2,194)		243,645
Finance charges and other revenues	497		63,091		(327)		63,261
Total revenues	246,336		63,091		(2,521)		306,906
Costs and expenses:
Cost of goods sold	155,242		579		(1,836)		153,985
Selling, general and administrative expense (1)	101,420		33,804		(250)		134,974
Provision for bad debts	93		33,209		—		33,302
Charges and credits	—		—		—		—
Total costs and expenses	256,755		67,592		(2,086)		322,261
Operating (loss)	(10,419)		(4,501)		(435)		(15,355)
Interest expense	107		16,680		—		16,787
(Loss) before income taxes	$	(10,526)	$	(21,181)	$	(435)	$	(32,142)

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Nine Months Ended October 31, 2022						Nine Months Ended October 31, 2021							Three Months Ended July 31, 2022
(in thousands)	(in thousands)	Retail		Credit		Total		Retail		Credit		Total		(in thousands)	Retail		Credit		Eliminations		Total
Revenues:	Revenues:													Revenues:
Furniture and mattress	Furniture and mattress	$	254,341	$	—	$	254,341	$	310,505	$	—	$	310,505	Furniture and mattress	$	86,320	$	—	$	—	$	86,320
Home appliance	Home appliance	333,359		—		333,359		377,090		—		377,090		Home appliance	120,748		—		—		$	120,748
Consumer electronics	Consumer electronics	97,375		—		97,375		133,202		—		133,202		Consumer electronics	31,860		—		—		$	31,860
Home office	Home office	27,676		—		27,676		49,881		—		49,881		Home office	8,857		—		—		$	8,857
Other	Other	25,847		—		25,847		27,079		—		27,079		Other	7,664		—		—		7,664
Product sales	Product sales	738,598		—		738,598		897,757		—		897,757		Product sales	255,449		—		—		255,449
Repair service agreement commissions	Repair service agreement commissions	60,256		—		60,256		66,600		—		66,600		Repair service agreement commissions	21,615		—		—		$	21,615
Service revenues	Service revenues	7,279		—		7,279		8,307		—		8,307		Service revenues	2,448		—		—		2,448
Total net sales	Total net sales	806,133		—		806,133		972,664		—		972,664		Total net sales	279,512		—		—		279,512
Finance charges and other revenues	Finance charges and other revenues	815		200,704		201,519		695		214,184		214,879		Finance charges and other revenues	273		66,847				67,120
Total revenues	Total revenues	806,948		200,704		1,007,652		973,359		214,184		1,187,543		Total revenues	279,785		66,847		—		346,632
Costs and expenses:	Costs and expenses:													Costs and expenses:
Cost of goods sold	Cost of goods sold	530,942		—		530,942		612,219		—		612,219		Cost of goods sold	182,718		—		—		$	182,718
Selling, general and administrative expense (1)	Selling, general and administrative expense (1)	288,306		100,863		389,169		294,019		107,981		402,000		Selling, general and administrative expense (1)	98,035		32,107		—		$	130,142
Provision (benefit) for bad debts		848		76,211		77,059		196		19,462		19,658
Provision for bad debts														Provision for bad debts	409		26,817		—		$	27,226
Charges and credits	Charges and credits	6,522		—		6,522		—		—		—		Charges and credits	(1,484)		—		—		(1,484)
Total costs and expenses	Total costs and expenses	826,618		177,074		1,003,692		906,434		127,443		1,033,877		Total costs and expenses	279,678		58,924		—		338,602
Operating income (loss)		(19,670)		23,630		3,960		66,925		86,741		153,666
Operating income														Operating income	107		7,923		—		8,030
Interest expense	Interest expense	—		23,807		23,807		—		20,498		20,498		Interest expense	—		6,808		—		6,808
Loss on extinguishment of debt		—		—		—		—		1,218		1,218
Income (loss) before income taxes		$	(19,670)	$	(177)	$	(19,847)	$	66,925	$	65,025	$	131,950
Income before income taxes														Income before income taxes	$	107	$	1,115	$	—	$	1,222
		October 31, 2022						October 31, 2021
(in thousands)		Retail		Credit		Total		Retail		Credit		Total
Total assets		$	594,302	$	1,142,830	$	1,737,132	$	707,402	$	1,079,177	$	1,786,579

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended July 31, 2023
(in thousands)	Retail		Credit		Eliminations		Total
Revenues:
Furniture and mattress	$	157,635	$	—	$	(866)	$	156,769
Home appliance	172,850		—		(1,047)		$	171,803
Consumer electronics	52,590		—		(757)		$	51,833
Home office	16,608		—		(404)		$	16,204
Other	29,548		—		(59)		$	29,489
Product sales	429,231		—		(3,133)		426,098
Repair service agreement commissions	35,662		—		—		$	35,662
Service revenues	4,432		—		—		$	4,432
Total net sales	469,325		—		(3,133)		466,192
Finance charges and other revenues	1,015		124,878		(609)		125,284
Total revenues	470,340		124,878		(3,742)		591,476
Costs and expenses:
Cost of goods sold	303,804		694		(2,580)		$	301,918
Selling, general and administrative expense (1)	197,245		67,467		(500)		$	264,212
Provision for bad debts	199		62,012		—		$	62,211
Charges and credits	(1,184)		—		377		$	(807)
Total costs and expenses	500,064		130,173		(2,703)		627,534
Operating (loss)	(29,724)		(5,295)		(1,039)		(36,058)
Interest expense	107		33,059		—		$	33,166
(Loss) before income taxes	$	(29,831)	$	(38,354)	$	(1,039)	$	(69,224)

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended July 31, 2022
(in thousands)	Retail		Credit		Eliminations		Total
Revenues:
Furniture and mattress	$	174,414	$	—	$	—	$	174,414
Home appliance	230,476		—		—		230,476
Consumer electronics	65,464		—		—		65,464
Home office	19,046		—		—		19,046
Other	16,022		—		—		16,022
Product sales	505,422		—		—		505,422
Repair service agreement commissions	41,452		—		—		41,452
Service revenues	4,901		—		—		4,901
Total net sales	551,775		—		—		551,775
Finance charges and other revenues	544		134,133		—		134,677
Total revenues	552,319		134,133		—		686,452
Costs and expenses:
Cost of goods sold	361,100		—		—		361,100
Selling, general and administrative expense (1)	194,065		68,860		—		262,925
Provision for bad debts	588		41,368		—		41,956
Charges and credits	(1,484)		—		—		(1,484)
Total costs and expenses	554,269		110,228		—		664,497
Operating (loss) income	(1,950)		23,905		—		21,955
Interest expense	—		12,329		—		12,329
(Loss) income before income taxes	$	(1,950)	$	11,576	$	—	$	9,626


	July 31, 2023						July 31, 2022
(in thousands)	Retail		Credit		Total		Retail		Credit		Total
Total assets	$	621,451	$	1,080,752	$	1,702,203	$	676,303	$	1,078,506	$	1,754,809

(1)For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of corporate overhead allocated to each segment reflected in SG&A expense was ~~$7.4~~$8.8 million and ~~$11.1~~$6.6 million, respectively. For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of reimbursement made to the retail segment by the credit segment was ~~$6.5~~$6.2 million and ~~$7.0~~$6.6 million, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of corporate overhead allocated to each segment reflected in SG&A was ~~$23.6~~$17.6 million and ~~$30.0~~$16.2 million, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of reimbursement made to the retail segment by the credit segment was ~~$19.9~~$12.4 million and ~~$21.2~~$13.4 million, respectively.

~~9. Stock Repurchases~~

On December 15, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150.0 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022. During the three months ended October 31, 2022, we did not repurchase any shares of our common stock. During the nine months ended October 31, 2022, we repurchased 3,316,000 shares of our common stock at an average weighted cost per share of $20.57 for an aggregate amount of $68.2 million.

2022

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Subsequent Event

~~10. Subsequent Events~~

~~Revolving Credit Facility Amendment.~~Asset-backed Note. On ~~November 21, 2022,~~August 7, 2023, Conn’s, Inc. ~~(the “Company”) entered into an Amendment No. 1 (the “Amendment”) to the Fifth Amended and Restated Loan and Security Agreement, dated as of March 29, 2021,~~, Conn’s Receivables Funding 2023-A, LLC, a newly formed special purpose entity that is indirectly owned by ~~and among~~ the Company ~~as parent~~(the “Issuer”), Conn Appliances Receivables Funding, LLC, an indirect wholly owned subsidiary of the Company (the “Depositor”), and ~~guarantor,~~ Conn Appliances, Inc., a direct and wholly owned subsidiary of the Company (“Conn ~~Credit I, LP and Conn Credit Corporation,~~Appliances”), entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., ~~as borrowers, certain banks~~MUFG Securities Americas Inc., Citizens JMP Securities, LLC and ~~financial institutions named therein, as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent for~~Regions Securities LLC (collectively, the Lenders (the “Agreement”). The Amendment, among other things, (a) replaces the interest rate benchmark under the Agreement from LIBOR to Term SOFR; (b) provides for a covenant relief period, which removes testing of the interest coverage covenant for the fiscal quarter ended October 31, 2022 and each fiscal quarter ended thereafter during the Covenant Relief Period (but before April 30, 2024), commencing on November 21, 2022 through the earlier of (i) the date on which the Company delivers financial statements and a compliance certificate for the fiscal quarter ending April 30, 2024 (demonstrating compliance with the then applicable interest coverage and leverage covenants) and (ii) the date that is 10 business days after the Administrative Agent receives (1) written notice electing to terminate the covenant relief period (such notice not to be delivered prior to November 1, 2023) and (2) projections demonstrating future compliance with the interest coverage and leverage covenants for the fiscal quarters ending on or prior to January 31, 2025 (the “Covenant Relief Period”“Initial Purchasers”), (which projections will be prepared by Borrower Agent in good faith, it being recognized that projections are subject to uncertainties); (c) adds a minimum liquidity covenant, which requires at all times during the Covenant Relief Period that the Company and certain of its subsidiaries maintain minimum liquidity of (i) $125.0 million through October 31, 2023 (ii) on and after November 1, 2023, $112.5 million provided that from and after such date until the end of the Covenant Relief Period, the revolving credit facility amount outstanding is limited to $325.0 million; (d) adds an anti-cash hoarding covenant, which requires at all times during the Covenant Relief Period mandatory prepayments of the revolver loans with the amount of any cash on the Company’s balance sheet in excess of $100.0 million to the extent any revolving loans are then outstanding; (e) adds a minimum availability covenant, which requires at all times during the Covenant Relief Period availability under the revolver of no less than the greater of (i) 25% of the borrowing base and (ii) $75.0 million; (f) provides for increased reporting requirements during the Covenant Relief Period and (g) restricts the ability to make permitted acquisitions and certain non-ordinary course investments, restricted payments and restricted debt payments during the Covenant Relief Period.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, which is filed as Exhibit 10.2 to this quarterly report on Form 10-Q.

~~Sale of Asset Backed Notes.~~ ~~On November 30, 2022, the Company completed~~ the sale of ~~$63.1~~the Issuer’s 8.01% $160.7 million ~~in aggregate principal amount of zero coupon~~Asset Backed Fixed Rate Notes, Class A, Series 2023-A (the “Class A Notes”), 10.00% $82.4 million Asset Backed Fixed Rate Notes, Class B, Series 2023-A (the “Class B Notes”) and 11.00% $30.6 million Asset Backed Fixed Rate Notes, Class C, Series ~~2022-A~~2023-A (the ~~"Class~~“Class C ~~Notes"~~Notes” and, together with the Class A Notes and the Class B Notes, the “Purchased Notes”). The Issuer will also issue the Asset Backed Notes, Class R, Series 2023-A (the “Class R Notes” and, collectively with the Purchased Notes, the “Series 2023-A Notes”) ~~which were previously issued and held~~The Class R Notes will be retained by the ~~Company.~~Depositor on the Closing Date. The ~~asset-backed notes are secured by~~Class R Notes do not have a principal amount or interest rate and were transferred to the ~~transferred customer accounts receivables~~Depositor on August 17, 2023 to satisfy the risk retention obligations of Conn Appliances. The Series 2023-A Notes were issued on August 17, 2023 (the “Closing Date”). The Series 2023-A Notes have not been and ~~restricted cash held by a consolidated VIE, which resulted~~will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any jurisdiction. The Purchased Series 2023-A Notes were sold initially to the Initial Purchasers and then reoffered and resold only (i) to “Qualified Institutional Buyers” as defined in ~~net proceeds~~Rule 144A under the Securities Act (“Rule 144A”) in transactions meeting the requirements of Rule 144A or (2) solely with respect to ~~us of $43.7 million, net of debt issuance costs. Net proceeds from~~ the ~~sale were used for general corporate purposes.~~Class A Notes, outside the United States to non-U.S. Persons in transactions in compliance with Regulation S under the Securities Act.

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

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; expansion of our e-commerce business; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our Revolving Credit Facility or our Delayed Draw Term Loan, and proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 pandemic; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2022~~2023 (the ~~“2022~~“2023 Form 10-K”) and other reports filed with the SEC. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

The Company makes available in the investor relations section of its website at ir.conns.com updated monthly reports to the holders of its asset-backed notes. This information reflects the performance of the securitized portfolio only, in contrast to the financial statements contained herein, which reflect the performance of all of the Company’s outstanding receivables, including those originated subsequent to those included in the securitized portfolio. The website and the information contained on our website is not incorporated in this Quarterly Report on Form 10-Q or any other document filed with the SEC.

Overview

We encourage you to read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Executive Summary

Total revenues were ~~$321.2~~$306.9 million for the three months ended ~~October~~July 31, ~~2022~~2023 compared to ~~$405.5~~$346.6 million for the three months ended ~~October~~July 31, ~~2021,~~2022, a decrease of ~~$84.3~~$39.7 million or ~~20.8%~~11.5%. Retail revenues were ~~$254.6~~$246.3 million for the three months ended ~~October~~July 31, ~~2022~~2023 compared to ~~$334.8~~$279.8 million for the three months ended ~~October~~July 31, ~~2021,~~2022, a decrease of ~~$80.2~~$33.4 million or ~~24.0%~~12.0%. The decrease in total retail revenue for the three months ended ~~October~~July 31, ~~2022~~2023 was primarily driven by a decrease in same store sales of ~~27.0%~~15.4%. The decrease in same store sales was primarily driven by lower discretionary spending for home-related products ~~lower lease-to-own sales and comparatively higher same store sales~~following several periods of excess consumer liquidity resulting in the ~~prior year due to the impact~~acceleration of ~~stimulus benefits.~~sales. The decrease in same store sales was partially offset by new store growth. Credit revenues were ~~$66.6~~$63.1 million for the three months ended ~~October~~July 31, ~~2022~~2023 compared to ~~$70.6~~$66.8 million for the three months ended ~~October~~July 31, ~~2021,~~2022, a decrease of ~~$4.0~~$3.7 million or ~~5.7%~~5.5%. The decrease in credit revenue was primarily due to a ~~7.3%~~6.4% decrease in the average outstanding balance of the customer accounts receivable ~~portfolio as well as a decline in insurance commissions. The decrease was partially offset by an increase in late fee revenues.~~portfolio.

Retail gross margin for the three months ended ~~October~~July 31, ~~2022~~2023 was ~~33.2%~~36.9%, ~~decrease~~an increase of ~~360~~230 basis points from the ~~36.8%~~34.6% reported for the three months ended ~~October~~July 31, ~~2021.~~2022. The year-over-year ~~decrease~~increase in retail gross margin was primarily driven by pricing and assortment changes, a more profitable product mix and normalizing freight costs. The increase was partially offset by the deleveraging of fixed distribution ~~costs, higher freight, higher fuel costs and higher financing fees. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.~~costs.

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Table of Contents

Selling, general and administrative expense (“SG&A”) for the three months ended ~~October~~July 31, ~~2022~~2023 was ~~$126.2~~$135.0 million compared to ~~$138.1~~$130.1 million for the three months ended ~~October~~July 31, ~~2021, a decrease~~2022, an increase of ~~$11.8~~$4.8 million or ~~8.6%~~3.7%. The SG&A ~~decrease~~increase in the retail segment was primarily due to an increase in occupancy which was offset by a decline in variable costs as well as a decline in labor costs ~~including bonus expense, and advertising costs as a result of~~resulting from cost savings initiatives. ~~These decreases were partially offset by an increase in occupancy and operational costs due primarily to new store growth.~~ The SG&A ~~decrease~~increase in the credit segment was primarily due to ~~a decrease~~an increase in ~~labor costs and~~ general operating costs.

Provision for bad debts increased to ~~$35.1~~$33.3 million for the three months ended ~~October~~July 31, ~~2022~~2023 from ~~$26.5~~$27.2 million for the three months ended ~~October~~July 31, ~~2021,~~2022, an overall change of ~~$8.6~~$6.1 million. The year-over-year increase was primarily driven by ana year-over-year increase in net charge-offs of ~~$13.1~~$2.7 million during the three months ended ~~October~~July 31, ~~2022~~2023 compared to the three months ended ~~October~~July 31, ~~2021. The increase in net charge-offs~~2022. For the three months ended July 31, 2023, the allowance for bad debts was ~~partially offset~~reduced by $5.6 million compared to a ~~decline~~reduction in the allowance for bad debts ~~during~~of $9.3 million for the three months ended ~~October~~July 31, ~~2022 compared to~~2022. This resulted in an increase ~~during~~to the ~~three months ended October 31, 2021. The decrease in the allowance~~provision for bad debts ~~during the three months ended October 31, 2022~~of $3.7 million and was due primarily ~~driven by~~to a ~~decrease~~smaller decline in the customer account receivable portfolio ~~balance, which was partially offset with an increase in historical loss rates. During the three months ended October 31, 2021, the increase~~balances in the ~~allowance for bad debts was primarily driven by an increase in loss rates partially offset by an improvement in the forecasted unemployment rate that drove a decrease in the economic adjustment.~~current period.

Interest expense was ~~$11.5~~$16.8 million for the three months ended ~~October~~July 31, ~~2022~~2023 and ~~$5.2~~$6.8 million for the three months ended ~~October~~July 31, ~~2021,~~2022, an increase of ~~$6.3~~$10.0 million or ~~120.5%~~146.6%. The increase was driven by a higher average balance of debt and a higher effective interest rate.

Net loss for the three months ended ~~October~~July 31, ~~2022~~2023 was ~~$24.8~~$33.5 million or ~~$1.04~~$1.39 per diluted share, compared to net income of ~~$18.2~~$2.1 million, or ~~$0.60~~$0.09 per diluted share, for the three months ended ~~October~~July 31, ~~2021.~~2022.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance including:

•Same store sales - Our management considers same store sales, which consists of both brick and mortar and e-commerce sales, to be an important indicator of our performance because they reflect our attempts to leverage our SG&A costs, which include rent and other store expenses, and they have a direct impact on our total net sales, net income, cash and working capital. Same store sales is calculated by comparing the reported sales for all stores that were open during both comparative fiscal years, starting in the first period in which the store has been open for a full quarter. Sales from closed stores, if any, are removed from each period. Sales from relocated stores have been included in each period if each such store was relocated within the same general geographic market. Sales from expanded stores have also been included in each period.

•Retail gross margin - Our management views retail gross margin as a key indicator of our performance because it reflects our pricing power relative to the prices we pay for our products. Retail gross margin is calculated by comparing retail total net sales to the cost of goods sold.

•60+ Day Delinquencies - Our management views customer account delinquencies as a key indicator of our performance because it reflects the quality of our credit portfolio, drives future credit performance and credit offerings, and impacts the interest rates we pay on our asset-backed securitizations. Delinquencies are measured as the percentage of balances that are 60+ days past due.

•Net yield - Our management considers yield to be a key performance metric because it drives future credit decisions and credit offerings and directly impacts our net income. Yield reflects the amount of interest we receive from our portfolio.

Company Initiatives

We delivered the following financial and operational results in the ~~third~~second quarter of fiscal year ~~2023~~2024 as compared to the prior fiscal year period (unless otherwise noted):

•Total consolidated revenue declined ~~20.8%~~11.5% to ~~$321.2~~$306.9 million, due to a ~~24.0%~~12.8% decline in total net sales, and a ~~5.7%~~5.5% reduction in finance charges and other revenues;

•Same store sales decreased ~~27.0%~~15.4%;

•eCommerce sales increased 41.5% to a second quarter record of $27.2 million;

•Retail gross margin increased to 36.9% from 34.6% in the prior year;

•Credit ~~spread was 980 basis points,~~applications increased by 30.6% year-over-year, which resulted in the first quarter of positive sales financed through Conn’s in-house credit offering in six quarters; and ~~fiscal year-to-date the credit spread was 1,030 basis points;~~

•~~Carrying value of account balances re-aged more than six months~~The Company improved its capital position and access to ~~$31.5~~liquidity by closing a $50 million ~~from $61.8 million;~~Delayed Draw Term Loan and closing a $273.7 million ABS transaction on August 17, 2023 demonstrating the Company’s ability to access the capital markets even during volatile market conditions.

•~~Reported a net loss of $1.04 per diluted share, compared to net earnings of $0.60 per diluted share for the same period last fiscal year; and~~

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•Added two new standalone stores bringing the total number of stores at October 31, 2022 to 165 and added 15 store-within-a store locations with Belk bringing the total number of Belk store-within-a-store locations to 19.

Strategic Update

In response to challenging macroeconomic pressures, the Company ~~has~~continues to focus on its updated ~~its~~ near-term strategic ~~priorities which include:~~priorities:

•~~Reducing operating costs~~Refocus on core customer. The Company is ~~conducting an extensive review~~refocusing efforts on serving core credit-constrained customers as Conn's continues to face the impacts of macroeconomic headwinds and ~~prioritization of its cost structure.~~changes in consumer behavior. Providing multiple financing options is Conn's key differentiator. The Company ~~expects current initiatives, combined with prior actions,~~is pursuing profitable growth strategies aimed at enhancing the payment options we provide to ~~generate cost savings of approximately $12.0 to $16.0 million in the back half of this fiscal year.~~our large and established customer base.

•~~Lowering capital expenditures~~Expansion of in-house lease-to-own program. The Company ~~is delaying or eliminating several planned capital investments, including adjusting planned new store openings~~recently began originating its first in-house lease-to-own transactions and ~~distribution center expansions. As a result, Conn’s~~ expects to ~~reduce investments in capital expenditures for~~expand this program throughout fiscal year ~~2023 by approximately $20.0 million compared~~2024. Conn's believes that the in-house lease-to-own program will be a transformative opportunity for the Company that has the potential to ~~its previously disclosed expectation.~~significantly benefit sales and earnings in the coming years.

•~~Maintaining conservative credit underwriting~~eCommerce enhancement. The Company ~~is focused on maintaining conservative credit underwriting~~completed the final phase of the eCommerce platform conversion, which further enhanced its digital capabilities and ~~remaining disciplined in its approach to credit collections. At October 31, 2022, the weighted average credit score of outstanding balances was 613.~~produced record second quarter eCommerce sales.

Outlook

The broad appeal of our value proposition to our geographically diverse core demographic and the unit economics of our business should provide the stability necessary to maintain and grow our business. We expect our brand recognition and long history in our core markets to give us the opportunity to further penetrate our existing footprint, particularly as we leverage existing marketing spend, logistics infrastructure, and service footprint. There are also many markets in the U.S. with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to improve our operating results by leveraging our existing infrastructure and seeking to continually optimize the efficiency of our marketing, merchandising, distribution and credit operations. As we expand in existing markets and penetrate new markets, we expect to increase our purchase volumes, achieve distribution efficiencies and strengthen our relationships with our key vendors. Over time, we also expect our increased store base and the resulting higher net sales to further leverage our existing corporate and regional infrastructure.

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Results of Operations

The following tables present certain financial and other information, on a condensed consolidated basis:


Consolidated:	Consolidated:	Three Months Ended October 31,						Nine Months Ended October 31,						Consolidated:	Three Months Ended July 31,						Six Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		Change		2022		2021		Change		(in thousands)	2023		2022		Change		2023		2022		Change
Revenues:	Revenues:													Revenues:
Total net sales	Total net sales	$	254,358	$	334,583	$	(80,225)	$	806,133	$	972,664	$	(166,531)	Total net sales	$	243,645	$	279,512	$	(35,867)	$	466,192	$	551,775	$	(85,583)
Finance charges and other revenues	Finance charges and other revenues	66,842		70,875		(4,033)		201,519		214,879		(13,360)		Finance charges and other revenues	63,261		67,120		(3,859)		125,284		134,677		(9,393)
Total revenues	Total revenues	321,200		405,458		(84,258)		1,007,652		1,187,543		(179,891)		Total revenues	306,906		346,632		(39,726)		591,476		686,452		(94,976)
Costs and expenses:	Costs and expenses:													Costs and expenses:
Cost of goods sold	Cost of goods sold	169,842		211,298		(41,456)		530,942		612,219		(81,277)		Cost of goods sold	153,985		182,718		(28,733)		301,918		361,100		(59,182)
Selling, general and administrative expense	Selling, general and administrative expense	126,243		138,081		(11,838)		389,169		402,000		(12,831)		Selling, general and administrative expense	134,974		130,142		4,832		264,212		262,925		1,287
Provision for bad debts	Provision for bad debts	35,104		26,532		8,572		77,059		19,658		57,401		Provision for bad debts	33,302		27,226		6,076		62,211		41,956		20,255
Charges and credits		8,006		—		8,006		6,522		—		6,522
Charges and credits, net														Charges and credits, net	—		(1,484)		1,484		(807)		(1,484)		677
Total costs and expenses	Total costs and expenses	339,195		375,911		(36,716)		1,003,692		1,033,877		(30,185)		Total costs and expenses	322,261		338,602		(16,341)		627,534		664,497		(36,963)
Operating income (loss)		(17,995)		29,547		(47,542)		3,960		153,666		(149,706)
Operating (loss) income														Operating (loss) income	(15,355)		8,030		(23,385)		(36,058)		21,955		(58,013)
Interest expense	Interest expense	11,478		5,206		6,272		23,807		20,498		3,309		Interest expense	16,787		6,808		9,979		33,166		12,329		20,837
Loss on extinguishment of debt		—		—		—		—		1,218		(1,218)
Income (loss) before income taxes		(29,473)		24,341		(53,814)		(19,847)		131,950		(151,797)
(Loss) income before income taxes														(Loss) income before income taxes	(32,142)		1,222		(33,364)		(69,224)		9,626		(78,850)
Provision (benefit) for income taxes	Provision (benefit) for income taxes	(4,634)		6,102		(10,736)		(3,358)		31,309		(34,667)		Provision (benefit) for income taxes	1,375		(907)		2,282		(327)		1,276		(1,603)
Net income (loss)		$	(24,839)	$	18,239	$	(43,078)	$	(16,489)	$	100,641	$	(117,130)
Net (loss) income														Net (loss) income	$	(33,517)	$	2,129	$	(35,646)	$	(68,897)	$	8,350	$	(77,247)

Supplementary Operating Segment Information

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website and its product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our Condensed Consolidated Financial Statements.

We evaluate a segment’s performance based upon operating income (loss). SG&A includes the direct expenses of the retail and credit operations, allocated corporate overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% multiplied by the average outstanding portfolio balance for each applicable period.

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The following table represents total revenues, costs and expenses, operating (loss) income and (loss) ~~and~~ income ~~(loss)~~ before taxes attributable to these operating segments for the periods indicated:


Retail Segment:	Retail Segment:	Three Months Ended October 31,						Nine Months Ended October 31,						Retail Segment:	Three Months Ended July 31,						Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022		2021		Change		2022		2021		Change		(dollars in thousands)	2023		2022		Change		2023		2022		Change
Revenues:	Revenues:													Revenues:
Product sales	Product sales	$	233,176	$	308,301	$	(75,125)	$	738,598	$	897,757	$	(159,159)	Product sales	$	224,808	$	255,449	$	(30,641)	$	429,231	$	505,422	$	(76,191)
Repair service agreement commissions	Repair service agreement commissions	18,804		23,769		(4,965)		60,256		66,600		(6,344)		Repair service agreement commissions	18,757		21,615		(2,858)		35,662		41,452		(5,790)
Service revenues	Service revenues	2,378		2,513		(135)		7,279		8,307		(1,028)		Service revenues	2,274		2,448		(174)		4,432		4,901		(469)
Total net sales	Total net sales	254,358		334,583		(80,225)		806,133		972,664		(166,531)		Total net sales	245,839		279,512		(33,673)		469,325		551,775		(82,450)
Finance charges and other	Finance charges and other	270		262		8		815		695		120		Finance charges and other	497		273		224		1,015		544		471
Total revenues	Total revenues	254,628		334,845		(80,217)		806,948		973,359		(166,411)		Total revenues	246,336		279,785		(33,449)		470,340		552,319		(81,979)
Costs and expenses:	Costs and expenses:													Costs and expenses:
Cost of goods sold	Cost of goods sold	169,842		211,298		(41,456)		530,942		612,219		(81,277)		Cost of goods sold	155,242		182,718		(27,476)		303,804		361,100		(57,296)
Selling, general and administrative expense (1)	Selling, general and administrative expense (1)	94,240		100,969		(6,729)		288,306		294,019		(5,713)		Selling, general and administrative expense (1)	101,420		98,035		3,385		197,245		194,065		3,180
Provision for bad debts	Provision for bad debts	261		36		225		848		196		652		Provision for bad debts	93		409		(316)		199		588		(389)
Charges and credits		8,006		—		8,006		6,522		—		6,522
Charges and credits, net														Charges and credits, net	—		(1,484)		1,484		(1,184)		(1,484)		300
Total costs and expenses	Total costs and expenses	272,349		312,303		(39,954)		826,618		906,434		(79,816)		Total costs and expenses	256,755		279,678		(22,923)		500,064		554,269		(54,205)
Operating income (loss)		$	(17,721)	$	22,542	$	(40,263)	$	(19,670)	$	66,925	$	(86,595)
Operating (loss) income														Operating (loss) income	$	(10,419)	$	107	$	(10,526)	$	(29,724)	$	(1,950)	$	(27,774)
Number of stores:	Number of stores:													Number of stores:
Beginning of period	Beginning of period	163		155				158		146				Beginning of period	171		161				168		158
Opened	Opened	2		2				7		11				Opened	4		2				7		5
End of period ~~(2)~~	End of period ~~(2)~~	165		157				165		157				End of period ~~(2)~~	175		163				175		163


Credit Segment:	Credit Segment:	Three Months Ended October 31,						Nine Months Ended October 31,						Credit Segment:	Three Months Ended July 31,						Six Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		Change		2022		2021		Change		(in thousands)	2023		2022		Change		2023		2022		Change
Revenues:	Revenues:													Revenues:
Finance charges and other revenues	Finance charges and other revenues	$	66,572	$	70,613	$	(4,041)	$	200,704	$	214,184	$	(13,480)	Finance charges and other revenues	$	63,091	$	66,847	$	(3,756)	$	124,878	$	134,133	$	(9,255)
Costs and expenses:	Costs and expenses:													Costs and expenses:
Cost of goods sold														Cost of goods sold	579		—		579		694		—		694
Selling, general and administrative expense (1)	Selling, general and administrative expense (1)	32,003		37,112		(5,109)		100,863		107,981		(7,118)		Selling, general and administrative expense (1)	33,804		32,107		1,697		67,467		68,860		(1,393)
Provision for bad debts	Provision for bad debts	34,843		26,496		8,347		76,211		19,462		56,749		Provision for bad debts	33,209		26,817		6,392		62,012		41,368		20,644
Total costs and expenses	Total costs and expenses	66,846		63,608		3,238		177,074		127,443		49,631		Total costs and expenses	67,592		58,924		8,668		130,173		110,228		19,945
Operating income (loss)		(274)		7,005		(7,279)		23,630		86,741		(63,111)
Operating (loss) income														Operating (loss) income	(4,501)		7,923		(12,424)		(5,295)		23,905		(29,200)
Interest expense	Interest expense	11,478		5,206		6,272		23,807		20,498		3,309		Interest expense	16,680		6,808		9,872		33,059		12,329		20,730
Loss on extinguishment of debt		—		—		—		—		1,218		(1,218)
Income (loss) before income taxes		$	(11,752)	$	1,799	$	(13,551)	$	(177)	$	65,025	$	(65,202)
(Loss) income before income taxes														(Loss) income before income taxes	$	(21,181)	$	1,115	$	(22,296)	$	(38,354)	$	11,576	$	(49,930)

(1)For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of overhead allocated to each segment reflected in SG&A was ~~$7.4~~$8.8 million and ~~$11.1~~$6.6 million, respectively. For the three months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of reimbursement made to the retail segment by the credit segment was ~~$6.5~~$6.2 million and ~~$7.0~~$6.6 million, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of corporate overhead allocated to each segment reflected in SG&A was ~~$23.6~~$17.6 million and ~~$30.0~~$16.2 million, respectively. For the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, the amount of reimbursement made to the retail segment by the credit segment was ~~$19.9~~$12.4 million and ~~$21.2~~$13.4 million, respectively.

~~(2)Does not include 15 and 19 store-within-a-store locations with Belk, Inc. opened during the three and nine months ended October 31, 2022, respectively.~~

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Three months ended ~~October~~July 31, ~~2022~~2023 compared to three months ended ~~October~~July 31, ~~2021~~2022

Revenues. The following table provides an analysis of retail net sales by product category in each period, including repair service agreement (“RSA”) commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales:


		Three Months Ended October 31,										%		Same Store			Three Months Ended July 31,										%		Same Store
(dollars in thousands)	(dollars in thousands)	2022		% of Total		2021		% of Total		Change		Change		% Change		(dollars in thousands)	2023		% of Total		2022		% of Total		Change		Change		% Change
Furniture and mattress	Furniture and mattress	$	79,927	31.4	%	$	106,756	31.9	%	$	(26,829)	(25.1)	%	(28.3)	%	Furniture and mattress	$	81,267	33.1	%	$	86,320	30.9	%	$	(5,053)	(5.9)	%	(10.2)	%
Home appliance	Home appliance	102,884		40.4		128,385		38.3		(25,501)		(19.9)		(22.5)		Home appliance	90,584		36.8		120,748		43.2		(30,164)		(25.0)		(27.2)
Consumer electronics	Consumer electronics	31,911		12.5		46,751		14.0		(14,840)		(31.7)		(33.9)		Consumer electronics	26,941		11.0		31,860		11.4		(4,919)		(15.4)		(17.7)
Home office	Home office	8,630		3.4		17,373		5.2		(8,743)		(50.3)		(51.0)		Home office	8,982		3.7		8,857		3.2		125		1.4		(1.1)
Other	Other	9,824		4.0		9,036		2.7		788		8.7		(14.5)		Other	17,034		6.9		7,664		2.7		9,370		122.3		100.6
Product sales	Product sales	233,176		91.7		308,301		92.1		(75,125)		(24.4)		(27.6)		Product sales	224,808		91.5		255,449		91.4		(30,641)		(12.0)		(15.5)
Repair service agreement commissions (1)	Repair service agreement commissions (1)	18,804		7.4		23,769		7.1		(4,965)		(20.9)		(20.8)		Repair service agreement commissions (1)	18,757		7.6		21,615		7.7		(2,858)		(13.2)		(14.3)
Service revenues	Service revenues	2,378		0.9		2,513		0.8		(135)		(5.4)				Service revenues	2,274		0.9		2,448		0.9		(174)		(7.1)
Total net sales	Total net sales	$	254,358	100.0	%	$	334,583	100.0	%	$	(80,225)	(24.0)	%	(27.0)	%	Total net sales	$	245,839	100.0	%	$	279,512	100.0	%	$	(33,673)	(12.0)	%	(15.4)	%

(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in total net sales for the three months ended ~~October~~July 31, ~~2022~~2023 was primarily driven by a decrease in same store sales of ~~27.0%~~15.4%. The decrease in same store sales was primarily driven by lower discretionary spending for home-related products ~~lower lease-to-own sales and comparatively higher same store sales~~following several periods of excess consumer liquidity resulting in the ~~prior year due to the impact~~acceleration of ~~stimulus benefits.~~sales. The decrease in same store sales was partially offset by new store growth.

The following table provides the change of the components of finance charges and other revenues:


		Three Months Ended October 31,							Three Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2023		2022		Change
Interest income and fees	Interest income and fees	$	61,395	$	63,621	$	(2,226)	Interest income and fees	$	57,056	$	61,760	$	(4,704)
Insurance income	Insurance income	5,176		6,992		(1,816)		Insurance income	5,367		5,087		280
Other revenues	Other revenues	271		262		9		Other revenues	838		273		565
Finance charges and other revenues	Finance charges and other revenues	$	66,842	$	70,875	$	(4,033)	Finance charges and other revenues	$	63,261	$	67,120	$	(3,859)

The decrease in finance charges and other revenues was primarily due to a ~~7.3%~~6.4% decrease in the average outstanding balance of the customer accounts receivable ~~portfolio as well as a decline in insurance commissions.~~portfolio. The decrease was partially offset by an increase in insurance commissions and late fee revenues.

The following table provides key portfolio performance information:


		Three Months Ended October 31,									Three Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Interest income and fees	Interest income and fees	$	61,395		$	63,621		$	(2,226)	Interest income and fees	$	57,056		$	61,760		$	(4,704)
Net charge-offs	Net charge-offs	(35,439)			(22,336)			(13,103)		Net charge-offs	(38,819)			(36,074)			(2,745)
Interest expense	Interest expense	(11,478)			(5,206)			(6,272)		Interest expense	(16,787)			(6,808)			(9,979)
Net portfolio income	Net portfolio income	$	14,478		$	36,079		$	(21,601)	Net portfolio income	$	1,450		$	18,878		$	(17,428)
Average outstanding portfolio balance	Average outstanding portfolio balance	$	1,034,579		$	1,116,234		$	(81,655)	Average outstanding portfolio balance	$	984,427		$	1,051,952		$	(67,525)
Interest income and fee yield (annualized)	Interest income and fee yield (annualized)	23.5		%	22.6		%			Interest income and fee yield (annualized)	23.0		%	23.3		%
Net charge-off % (annualized)	Net charge-off % (annualized)	13.7		%	8.0		%			Net charge-off % (annualized)	15.8		%	13.7		%

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Retail Gross Margin


		Three Months Ended October 31,									Three Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Retail total net sales	Retail total net sales	$	254,358		$	334,583		$	(80,225)	Retail total net sales	$	245,839		$	279,512		$	(33,673)
Cost of goods sold	Cost of goods sold	169,842			211,298			(41,456)		Cost of goods sold	155,242			182,718			(27,476)
Retail gross margin	Retail gross margin	$	84,516		$	123,285		$	(38,769)	Retail gross margin	$	90,597		$	96,794		$	(6,197)
Retail gross margin percentage	Retail gross margin percentage	33.2		%	36.8		%			Retail gross margin percentage	36.9		%	34.6		%

The ~~decrease~~increase in retail gross margin was primarily driven by pricing and assortment changes, a more profitable product mix and normalizing freight costs. The increase was partially offset by the deleveraging of fixed distribution ~~costs, higher freight, higher fuel costs and higher financing fees. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.~~costs.

Selling, General and Administrative Expense


		Three Months Ended October 31,									Three Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Retail segment	Retail segment	$	94,240		$	100,969		$	(6,729)	Retail segment	$	101,420		$	98,035		$	3,385
Credit segment	Credit segment	32,003			37,112			(5,109)		Credit segment	33,804			32,107			1,697
Eliminations										Eliminations	$	(250)		—			(250)
Selling, general and administrative expense - Consolidated	Selling, general and administrative expense - Consolidated	$	126,243		$	138,081		$	(11,838)	Selling, general and administrative expense - Consolidated	$	134,974		$	130,142		$	4,832
Selling, general and administrative expense as a percent of total revenues	Selling, general and administrative expense as a percent of total revenues	39.3		%	34.1		%			Selling, general and administrative expense as a percent of total revenues	44.0		%	37.5		%

The SG&A ~~decrease~~increase in the retail segment was primarily due to an increase in occupancy from new stores, partially offset by a decline in variable costs and a decline in labor costs ~~including bonus expense, and advertising as a result of~~resulting from cost savings initiatives. ~~These decreases were partially offset by an increase in occupancy and operational costs due primarily to new store growth.~~

As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was ~~12.4%~~13.7% for the three months ended ~~October~~July 31, ~~2022~~2023 as compared to ~~13.3%~~12.2% for the three months ended ~~October~~July 31, ~~2021.~~2022. The SG&A ~~decrease~~increase in the credit segment was primarily due to an increase in other operating and occupancy costs which were partially offset by a decrease in ~~labor costs~~delivery and ~~general operating costs.~~transportation fess.

Provision for Bad Debts

Three Months Ended
October 31,
(dollars in thousands) 2022 2021 Change
Retail segment $ 261 $ 36 $ 225
Credit segment 34,843 26,496 8,347
Provision for bad debts - Consolidated $ 35,104 $ 26,532 $ 8,572
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized) 13.5 % 9.5 %

~~Table of Contents~~


	Three Months Ended July 31,
(dollars in thousands)	2023			2022			Change
Retail segment	$	93		$	409		$	(316)
Credit segment	33,209			26,817			6,392
Provision for bad debts - Consolidated	$	33,302		$	27,226		$	6,076
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	13.5		%	10.2		%

The provision for bad debts increased to ~~$35.1~~$33.3 million for the three months ended ~~October~~July 31, ~~2022~~2023 from ~~$26.5~~$27.2 million for the three months ended ~~October~~July 31, ~~2021,~~2022, an overall change of ~~$8.6~~$6.1 million. The year-over-year increase was primarily driven by ana year-over-year increase in net charge-offs of ~~$13.1~~$2.7 million during the three months ended ~~October~~July 31, ~~2022~~2023 compared to the three months ended ~~October~~July 31, ~~2021. The increase in net charge-offs~~2022. For the three months ended July 31, 2023, the allowance for bad debts was ~~partially offset~~reduced by $5.6 million compared to a ~~decline~~reduction in the allowance for bad debts ~~during~~of $9.3 million for the three months ~~ended October~~ending July 31, ~~2022 compared to~~2022. This resulted in an increase ~~during~~to the ~~three months ended October 31, 2021. The decrease in the allowance~~provision for bad debts ~~during the three months ended October 31, 2022~~of $3.7 million and was due primarily ~~driven by~~to a ~~decrease~~smaller decline in the customer ~~account~~accounts receivable portfolio balance ~~which was partially offset with an increase in historical loss rates. During the three months ended October 31, 2021, the increase~~ in the ~~allowance for bad debts was primarily driven by an increase in loss rates partially offset by an improvement in the forecasted unemployment rate that drove a decrease in the economic adjustment.~~

~~Charges and Credits~~

~~During the three months ended October 31, 2022, we recognized $8.0 million in severance costs related to a change in the executive management team.~~current period.

Interest Expense

Table of Contents

Provision for Income Taxes


		Three Months Ended October 31,									Three Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Provision (benefit) for income taxes	Provision (benefit) for income taxes	$	(4,634)		$	6,102		$	(10,736)	Provision (benefit) for income taxes	$	1,375		$	(907)		$	2,282
Effective tax rate	Effective tax rate	15.7		%	25.1		%			Effective tax rate	(4.3)		%	(74.2)		%

The ~~decrease~~increase in income tax expense for the three months ended ~~October~~July 31, ~~2022~~2023 compared to the three months ended ~~October~~July 31, ~~2021~~2022 was ~~primarily~~ driven by a ~~$53.8~~$33.4 million decrease in pre-tax earnings at the statutory rate of 21%. offset by a $7.5 million valuation allowance and state taxes in the current quarter.

~~Nine~~Six months ended ~~October~~July 31, ~~2022~~2023 compared to ~~nine~~six months ended ~~October~~July 31, ~~2021~~2022


		Nine Months Ended October 31,										%		Same Store			Six Months Ended July 31,										%		Same Store
(dollars in thousands)	(dollars in thousands)	2022		% of Total		2021		% of Total		Change		Change		% Change		(dollars in thousands)	2023		% of Total		2022		% of Total		Change		Change		% Change
Furniture and mattress	Furniture and mattress	$	254,341	31.6	%	$	310,505	31.9	%	$	(56,164)	(18.1)	%	(21.6)	%	Furniture and mattress	$	157,635	33.6	%	$	174,414	31.6	%	$	(16,779)	(9.6)	%	(13.7)	%
Home appliance	Home appliance	333,359		41.3		377,090		38.8		(43,731)		(11.6)		(14.1)		Home appliance	172,850		36.9		230,476		41.7		(57,626)		(25.0)		(27.0)
Consumer electronics	Consumer electronics	97,375		12.1		133,202		13.7		(35,827)		(26.9)		(29.0)		Consumer electronics	52,590		11.2		65,464		11.9		(12,874)		(19.7)		(21.8)
Home office	Home office	27,676		3.4		49,881		5.1		(22,205)		(44.5)		(44.8)		Home office	16,608		3.5		19,046		3.5		(2,438)		(12.8)		(14.7)
Other	Other	25,847		3.2		27,079		2.8		(1,232)		(4.5)		(13.1)		Other	29,548		6.3		16,022		2.9		13,526		84.4		74.3
Product sales	Product sales	738,598		91.6		897,757		92.3		(159,159)		(17.7)		(20.6)		Product sales	429,231		91.5		505,422		91.6		(76,191)		(15.1)		(18.1)
Repair service agreement commissions (1)	Repair service agreement commissions (1)	60,256		7.5		66,600		6.8		(6,344)		(9.5)		(14.6)		Repair service agreement commissions (1)	35,662		7.6		41,452		7.5		(5,790)		(14.0)		(14.1)
Service revenues	Service revenues	7,279		0.9		8,307		0.9		(1,028)		(12.4)				Service revenues	4,432		0.9		4,901		0.9		(469)		(9.6)
Total net sales	Total net sales	$	806,133	100.0	%	$	972,664	100.0	%	$	(166,531)	(17.1)	%	(20.0)	%	Total net sales	$	469,325	100.0	%	$	551,775	100.0	%	$	(82,450)	(14.9)	%	(17.7)	%

(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in total net sales for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 was primarily driven by a decrease in same store sales of ~~20.0%~~17.7%. The decrease in same store sales was primarily driven by lower discretionary spending for home-related products ~~lower lease-to-own sales, and comparatively higher same store sales~~following several periods of excess consumer liquidity resulting in the ~~prior year due to the impact~~acceleration of ~~stimulus benefits.~~sales. The decrease in same store sales was partially offset by new store growth.

~~Table of Contents~~

The following table provides the change of the components of finance charges and other revenues:


		Nine Months Ended October 31,							Six Months Ended July 31,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2023		2022		Change
Interest income and fees	Interest income and fees	$	185,869	$	196,303	$	(10,434)	Interest income and fees	$	114,245	$	124,474	$	(10,229)
Insurance income	Insurance income	14,835		17,881		(3,046)		Insurance income	9,807		9,659		148
Other revenues	Other revenues	815		695		120		Other revenues	1,232		544		688
Finance charges and other revenues	Finance charges and other revenues	$	201,519	$	214,879	$	(13,360)	Finance charges and other revenues	$	125,284	$	134,677	$	(9,393)

The decrease in finance charges and other revenues was primarily due to a ~~6.5%~~7.5% decrease in the average outstanding balance of the customer accounts receivable portfolio ~~and a decline in insurance commissions. The decrease was~~ partially offset by an increase in insurance commissions and late fee revenues.

Table of Contents

The following table provides key portfolio performance information:


		Nine Months Ended October 31,									Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Interest income and fees	Interest income and fees	$	185,869		$	196,303		$	(10,434)	Interest income and fees	$	114,245		$	124,474		$	(10,229)
Net charge-offs	Net charge-offs	(103,974)			(98,458)			(5,516)		Net charge-offs	(77,587)			(68,535)			(9,052)
Interest expense	Interest expense	(23,807)			(20,498)			(3,309)		Interest expense	(33,166)			(12,329)			(20,837)
Net portfolio income	Net portfolio income	$	58,088		$	77,347		$	(19,259)	Net portfolio income	$	3,492		$	43,610		$	(40,118)
Average outstanding portfolio balance	Average outstanding portfolio balance	$	1,061,985		$	1,135,379		$	(73,394)	Average outstanding portfolio balance	$	994,206		$	1,074,901		$	(80,695)
Interest income and fee yield (annualized)	Interest income and fee yield (annualized)	23.4		%	23.1		%			Interest income and fee yield (annualized)	23.2		%	23.4		%
Net charge-off % (annualized)	Net charge-off % (annualized)	13.1		%	11.6		%			Net charge-off % (annualized)	15.6		%	12.8		%

Retail Gross Margin


		Nine Months Ended October 31,									Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Retail total net sales	Retail total net sales	$	806,133		$	972,664		$	(166,531)	Retail total net sales	$	469,325		$	551,775		$	(82,450)
Cost of goods sold	Cost of goods sold	530,942			612,219			(81,277)		Cost of goods sold	303,804			361,100			(57,296)
Retail gross margin	Retail gross margin	$	275,191		$	360,445		$	(85,254)	Retail gross margin	$	165,521		$	190,675		$	(25,154)
Retail gross margin percentage	Retail gross margin percentage	34.1		%	37.1		%			Retail gross margin percentage	35.3		%	34.6		%

The ~~decrease~~increase in retail gross margin was primarily driven by ~~increased~~pricing and assortment changes, a more profitable product ~~costs as a result of~~mix and normalizing freight costs. The increase was partially offset by the deleveraging of fixed distribution ~~costs, higher freight, higher fuel costs and higher financing fees. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.~~costs.

Selling, General and Administrative Expense


		Nine Months Ended October 31,									Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Retail segment	Retail segment	$	288,306		$	294,019		$	(5,713)	Retail segment	$	197,245		$	194,065		$	3,180
Credit segment	Credit segment	100,863			107,981			(7,118)		Credit segment	67,467			68,860			(1,393)
Eliminations										Eliminations	(500)			—			(500)
Selling, general and administrative expense - Consolidated	Selling, general and administrative expense - Consolidated	$	389,169		$	402,000		$	(12,831)	Selling, general and administrative expense - Consolidated	$	264,212		$	262,925		$	1,287
Selling, general and administrative expense as a percent of total revenues	Selling, general and administrative expense as a percent of total revenues	38.6		%	33.9		%			Selling, general and administrative expense as a percent of total revenues	44.7		%	38.3		%

The SG&A ~~decrease~~increase in the retail segment was primarily due to an increase in occupancy from new stores, partially offset by a decline in variable costs and a decline in labor costs ~~including bonus expense, and advertising costs as a result of~~resulting from cost savings initiatives. ~~These decreases were partially offset by an increase in occupancy and operational costs associated with new store growth.~~

~~Table of Contents~~

As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment was ~~12.7%~~13.6% for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 as compared to ~~12.7%~~12.8% for the ~~nine~~six months ended ~~October~~July 31, ~~2021.~~2022. The SG&A decrease in the credit segment was primarily due to a decline in general operating costs, delivery and transportation costs, and labor costs.

Provision for Bad Debts


		Nine Months Ended October 31,									Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Retail segment	Retail segment	$	848		$	196		$	652	Retail segment	$	199		$	588		$	(389)
Credit segment	Credit segment	76,211			19,462			56,749		Credit segment	62,012			41,368			20,644
Provision for bad debts - Consolidated	Provision for bad debts - Consolidated	$	77,059		$	19,658		$	57,401	Provision for bad debts - Consolidated	$	62,211		$	41,956		$	20,255
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	9.6		%	2.3		%			Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	12.5		%	7.7		%

Table of Contents

The provision for bad debts increased to ~~$77.1~~$62.2 million for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 from ~~$19.7~~$42.0 million for the ~~nine~~six months ended ~~October~~July 31, ~~2021,~~2022, an overall change of ~~$57.4~~$20.2 million. The year-over-year increase was primarily driven by an increase in net charge-offs of $9.1 million during the six months ended July 31, 2023 compared to the three months ended July 31, 2022. For the six months ended July 31, 2023, the allowance for bad debts was reduced by $15.6 million compared to a ~~smaller decrease~~reduction in the allowance for bad debts ~~during~~of $27.2 million for the ~~nine~~six months ~~ended October~~ending July 31, ~~2022 compared~~2022. This resulted in an increase to the ~~decrease for the nine months ended October 31, 2021. Additionally, there was a year-over-year increase in net charge-offs of $5.5 million. The decrease in the allowance~~provision for bad debts ~~during the nine months ended October 31, 2022~~of $11.6 million and was due primarily ~~driven by~~to a ~~decrease~~smaller decline in the customer accounts receivable portfolio balance ~~and a decrease in loss rates. During the nine months ended October 31, 2021, the decrease~~ in the allowance for bad debts was primarily driven by a decrease in the customer accounts receivable portfolio balance and an improvement in the forecasted unemployment rate that drove a $28.0 million decrease in the economic adjustment.current period.

Charges and Credits, net

~~We recognized $6.5 million in charges and credits during~~During the ~~nine~~six months ended ~~October~~July 31, ~~2022, which includes $8.0 million in severance costs related to a change in the executive management team. In addition,~~2023, we recognized a ~~$1.5~~$3.1 million gain related to the ~~termination~~sale of a ~~lease.~~single store location net of asset disposal costs. Furthermore, we recognized $2.3 million in store closure costs related to the impairment of assets associated with the decision to end the store-within-a-store test with Belk, Inc.

Interest Expense

Interest expense was ~~$23.8~~$33.2 million for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~$20.5~~$12.3 million for the ~~nine~~six months ended ~~October~~July 31, ~~2021,~~2022, an increase of ~~$3.3~~$20.8 million or ~~16.1%~~169.1%. The increase was driven by a higher ~~effective interest rate~~average debt balances and a higher ~~average balance of debt during the current period.~~effective interest rate.

Provision for Income Taxes


		Nine Months Ended October 31,									Six Months Ended July 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			Change		(dollars in thousands)	2023			2022			Change
Provision (benefit) for income taxes	Provision (benefit) for income taxes	$	(3,358)		$	31,309		$	(34,667)	Provision (benefit) for income taxes	$	(327)		$	1,276		$	(1,603)
Effective tax rate	Effective tax rate	16.9		%	23.7		%			Effective tax rate	0.5		%	13.3		%

The decrease in income tax expense for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 compared to the ~~nine~~six months ended ~~October~~July 31, ~~2021~~2022 was driven by a ~~$151.8~~$78.9 million decrease in pre-tax earnings at the statutory rate of 21%. offset by a $12.9 million valuation allowance and state taxes in the current period.

Customer Accounts Receivable Portfolio

We provide in-house financing to individual consumers on a ~~short-~~short and medium-term basis (contractual terms generally range from 12 to 36 months) for the purchase of durable products for the home. A significant portion of our customer credit portfolio is due from customers that are considered higher-risk, subprime borrowers. Our financing is executed using contracts that require fixed monthly payments over fixed terms. We maintain a secured interest in the product financed. If a payment is delayed, missed or paid only in part, the account becomes delinquent. Our collection personnel attempt to contact a customer once their account becomes delinquent. Our loan contracts generally reflect an interest rate of between 18% and 36%. We have implemented our direct consumer loan program across all Texas, Louisiana, Tennessee and Oklahoma locations. The states of Texas, Louisiana, Tennessee and Oklahoma represented approximately ~~69%~~67% of our originations during the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, with maximum equivalent interest rates of up to 32% in Oklahoma, up to 30% in Texas and Tennessee, and up to 36% in Louisiana. In states where regulations do not generally limit the interest rate charged, our loan

~~Table of Contents~~

contracts generally reflect an interest rate between 29.99% and 35.99%. These states represented ~~14%~~15% of our originations during the ~~nine~~six months ended ~~October~~July 31, ~~2022.~~2023.

We offer qualified customers a 12-month no-interest option finance program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived.

We regularly extend or “re-age” a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment. Generally, extensions are granted to customers who have experienced a financial difficulty (such as the temporary loss of employment), which is subsequently resolved, and when the customer indicates a willingness and ability to resume making monthly payments. These re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay the account balance. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. We may also charge the customer an extension fee, which approximates the interest owed for the time period the contract was past due. Our re-age programs consist of extensions and two payment updates, which include unilateral extensions to customers who make two full payments in three calendar months in certain states. Re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation or have reached our limits for account re-aging. ~~To a much lesser extent, we~~We may provide the customer the ability to ~~re-age~~refinance their ~~obligation by refinancing the~~ account, which ~~typically does not change~~

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includes reducing the interest rate and extending the term of the loan, and generally includes waiving certain uncollected fees. We may also provide concessions in the form of balance forgiveness to customers experiencing financial difficulty. Balance forgiveness is primarily comprised of reductions in the principal balance of the loan but may also include reductions in uncollected fees or ~~the total principal amount due from the customer but does reduce the monthly contractual payments and extends the term.~~interest balances. Under these options, as with extensions, the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments.

The following tables present, for comparison purposes, information about our managed portfolio (information reflects on a combined basis the securitized receivables transferred to the VIEs and receivables not transferred to the VIEs):


		As of October 31,							As of July 31,
		2022			2021				2023			2022
Weighted average credit score of outstanding balances (1)	Weighted average credit score of outstanding balances (1)	613			607			Weighted average credit score of outstanding balances (1)	615			611
Average outstanding customer balance	Average outstanding customer balance	$	2,541		$	2,449		Average outstanding customer balance	$	2,645		$	2,508
Balances 60+ days past due as a percentage of total customer portfolio carrying value ~~(4)~~(3)	Balances 60+ days past due as a percentage of total customer portfolio carrying value ~~(4)~~(3)	12.2		%	8.8		%	Balances 60+ days past due as a percentage of total customer portfolio carrying value ~~(4)~~(3)	11.1		%	11.0		%
Re-aged balance as a percentage of total customer portfolio carrying value ~~(5)~~(3)	Re-aged balance as a percentage of total customer portfolio carrying value ~~(5)~~(3)	16.5		%	18.3		%	Re-aged balance as a percentage of total customer portfolio carrying value ~~(5)~~(3)	15.9		%	16.1		%
Carrying value of account balances re-aged more than six months (in thousands) (3)	Carrying value of account balances re-aged more than six months (in thousands) (3)	$	31,521		$	61,807		Carrying value of account balances re-aged more than six months (in thousands)(3)	$	31,085		$	35,808
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	18.2		%	18.5		%	Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	16.6		%	17.2		%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	33.0		%	32.0		%	Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	35.9		%	34.0		%


		Three Months Ended October 31,						Nine Months Ended October 31,							Three Months Ended July 31,						Six Months Ended July 31,
		2022			2021			2022			2021				2023			2022			2023			2022
Total applications processed	Total applications processed	231,526			337,112			756,611			971,456			Total applications processed	341,118			257,381			634,949			525,085
Weighted average origination credit score of sales financed (1)	Weighted average origination credit score of sales financed (1)	621			616			620			615			Weighted average origination credit score of sales financed (1)	623			620			621			620
Percent of total applications approved and utilized	Percent of total applications approved and utilized	23.8		%	21.5		%	22.4		%	21.9		%	Percent of total applications approved and utilized	21.5		%	23.5		%	20.6		%	21.8		%
Average income of credit customer at origination	Average income of credit customer at origination	$	50,900		$	49,100		$	50,600		$	48,400		Average income of credit customer at origination	$	52,600		$	50,800		$	51,800		$	50,500
Percent of retail sales paid for by:	Percent of retail sales paid for by:													Percent of retail sales paid for by:
In-house financing, including down payments received	In-house financing, including down payments received	54.0		%	52.9		%	51.9		%	50.9		%	In-house financing, including down payments received	62.2		%	52.1		%	60.7		%	51.0		%
Third-party financing	Third-party financing	17.6		%	17.9		%	18.2		%	17.5		%	Third-party financing	14.1		%	18.9		%	14.7		%	18.4		%
Third-party lease-to-own option	Third-party lease-to-own option	7.2		%	9.2		%	7.1		%	11.0		%	Third-party lease-to-own option	8.0		%	6.8		%	8.1		%	7.1		%
		78.8		%	80.0		%	77.2		%	79.4		%		84.3		%	77.8		%	83.5		%	76.5		%

(1)Credit scores exclude non-scored accounts.

(2)Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.

(3)Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.

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~~(4)Increase was primarily due to a decrease in cash collections driven by the impact of stimulus benefits in prior year.~~

~~(5)~~Decrease was primarily due to the change in the unilateral re-age policy that occurred in the second quarter of fiscal year 2021 and the tightening of underwriting standards that occurred in fiscal year 2021 and fiscal year 2022.

Our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts. Customer accounts receivable include all accounts for which the payment term has not been cumulatively extended over three months or refinanced. Restructured accounts include all accounts for which payment term has been re-aged in excess of three months or refinanced.

For customer accounts receivable (excluding restructured accounts), the allowance for uncollectible accounts as a percentage of the total customer accounts receivable portfolio balance decreased to ~~16.1%~~14.5% as of ~~October~~July 31, ~~2022~~2023 from ~~15.8%~~15.0% as of ~~October~~July 31, ~~2021.~~2022.

The percentage of the carrying value of non-restructured accounts greater than 60 days past due increased ~~410~~by 20 basis points over the prior year period to ~~10.8%~~ 9.8% as of ~~October~~July 31, ~~2022~~2023 from ~~6.7%~~9.6% as of ~~October~~July 31, ~~2021. The increase was primarily due to lower payment rates and the impact of stimulus benefits in the prior period.~~2022.

For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was ~~42.2%~~39.4% as of ~~October~~July 31, ~~2022~~2023 as compared to ~~40.9%~~43.0% as of ~~October~~July 31, ~~2021.~~2022. This ~~increase reflects higher~~decrease is primarily due to an overall improvement in 60+ delinquency ~~rates on~~within restructured accounts.

The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance was 15.8% for the three months ended July 31, 2023 compared to 13.7% for the three months ended ~~October~~July 31, ~~2022 compared to 8.0% for the three months ended October 31, 2021.~~2022. This increase is primarily related to the impact of stimulus benefits in the prior period.

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As of ~~October~~July 31, 2023 and 2022, allowance for credit losses are presented net of recovery receivables which were $48.7 million and ~~2021,~~$45.1 million, respectively.

As of July 31, 2023 and 2022, balances under no-interest programs included within customer receivables were ~~$340.9~~$354.2 million and ~~$360.4~~$354.1 million, respectively.

Liquidity and Capital Resources

We require liquidity and capital resources to finance our operations and future growth as we add new stores to our operations, which in turn requires additional working capital for increased customer receivables and inventory. We generally finance our operations through a combination of cash flow generated from operations, the use of our Revolving Credit Facility, and through periodic securitizations of originated customer receivables. We have the ability to draw on our Delayed Draw Term Loan and plan to execute periodic securitizations of future originated customer receivables.

We believe, based on our current projections, that we have sufficient sources of liquidity to fund our operations, store expansion and renovation activities, and capital expenditures for at least the next 12 months.

Operating cash flows. For the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, net cash used in operating activities was $3.6 million compared to net cash provided ~~by operating activities was $72.5 million compared to $167.7~~of $62.8 million for the ~~nine~~six months ended ~~October~~July 31, ~~2021.~~2022. The decrease in net cash provided by operating activities was primarily driven by lower cash collections compared to the prior year due to a lower ~~average customer accounts receivable~~ portfolio ~~balance,~~income from lower ~~customer payment rates,~~sales, normal fluctuation in accrued expenses and accounts payable as well as a decrease in net income when adjusted for non-cash activity in comparison to the prior year ~~period.~~period

Investing cash flows. For the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, net cash used in investing activities was ~~$50.2~~$30.0 million compared to ~~$33.2~~$35.1 million for the ~~nine~~six months ended ~~October~~July 31, ~~2021.~~2022. The cash used during the ~~nine~~six months ended ~~October~~July 31, 2023 was primarily for investments in new stores and technology investments. The cash used during the six months ended July 31, 2022 was primarily for investments in new stores and technology investments, including the acquisition of a lease-to-own technology platform. ~~The cash used during the nine months ended October 31, 2021 was primarily for investments in new and existing stores and technology investments.~~

Financing cash flows. For the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, net cash ~~used in~~provided by financing activities was ~~$8.0~~$3.6 million compared to ~~net cash used in financing activities of $158.7~~$4.8 million for the ~~nine~~six months ended ~~October~~July 31, ~~2021.~~2022. During the period ended ~~October~~July 31, 2022, we issued the 2022-A Class A and Class B VIE asset backed notes resulting in net proceeds ~~to us~~ of ~~approximately~~approximately $273.7 million and $129.1 million, net of transaction costs, respectively. The proceeds were used to pay down the balance of the Company's Revolving Credit Facility and for other general corporate purposes. During the period ended ~~October~~July 31, 2021, we issued 2020-A Class C VIE asset backed notes resulting in net proceeds to us of approximately $62.5 million, net of transaction costs. The proceeds from the 2020-A VIE asset-backed notes were used to partially pay down the balance of the Company's Revolving Credit Facility. Cash collections from the securitized receivables were used to make payments on asset-backed notes of approximately $301.0 million during the nine months ended October 31, 2022 compared to approximately $329.5 million in the comparable prior year period. During the period ended October 31, 2022,2023, net payments under the Revolving Credit Facility were ~~$35.0~~$184.0 million compared to net ~~borrowings~~payment of ~~$255.0~~$149.0 million during the comparable

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prior year period. ~~During the nine months ended October 31, 2021, we retired the remaining $141.2 million aggregate principal amount of our Senior Notes outstanding.~~

~~Stock Repurchase Program.~~ On December 14, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022. No shares were repurchased for the three months ended October 31, 2022. For the nine months ended October 31, 2022, we settled the repurchase of 3,462,848 shares of our common stock at an average weighted cost per share of $20.70 for an aggregate amount of $71.7 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.

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The asset-backed notes outstanding as of ~~October~~July 31, ~~2022~~2023 consisted of the following:


(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)
2021-A Class C	$	63,890	$	63,450	$	56,452	11/23/2021	5/15/2026	4.59%	5.15%
2022-A Class B	132,090		129,050		128,392		7/21/2022	12/15/2026	9.52%	10.64%
2022-A Class C	63,090		43,737		63,090		11/30/2022	12/15/2026	—%	21.40%
Total	$	259,070	$	236,237	$	247,934

(1)After giving effect to debt issuance costs.

(2)~~For the nine months ended October 31, 2022, and~~Effective interest rate is inclusive of the impact of changes in timing of actual and expected cash ~~flows.~~

On July 21, 2022, the Company completed the issuance and sale of approximately $407.7 million in aggregate principal amount of asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of approximately $402.8 million, net of debt issuance costs. Net proceeds from the offering were used to repay indebtedness under the Company’s Revolving Credit Facility, as defined below, and for other general corporate purposes. The asset-backed notes matureflows, calculated on December 15, 2026 and consist of $275.6 million of 5.87% Asset Backed Fixed Rate Notes, Class A, Series 2022-A, approximately $132.1 million of 9.52% Asset Backed Fixed Rate Notes, Class B, Series 2022-A. Additionally, the Company issued approximately $63.1 million in aggregate principal amount of zero coupon Asset Backed Fixed Rate Notes, Class C, Series 2022-A (the "Class C Notes") which mature on December 15, 2026. The Class C Notes were retained by the Company upon issuance. On November 30, 2022, the Company sold the Class C Notes. See ~~Note 10, Subsequent Events, for details.~~an annualized basis.

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.

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The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of $40 million to $100 million, solely at the discretion of the lenders for such amounts in excess of $40 million. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of ~~October~~July 31, ~~2022,~~2023, under our Revolving Credit Facility, we had immediately available borrowing capacity of ~~$155.4~~$181.1 million, net of standby letters of credit issued of ~~$22.3~~$25.2 million and an additional ~~$358.3~~$135.7 million that may become available if the balance of eligible customer receivables and total eligible inventory balances increases.

~~Loans~~On November 21, 2022, we entered into Amendment No. 1 (the "Amendment") to the Fifth Amended and Restated Loan Agreement. Under the Amendment, loans under the Revolving Credit Facility bear interest, at our option, at a rate of ~~LIBOR~~SOFR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or ~~LIBOR~~SOFR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the Revolving Credit Facility in the immediately preceding quarter. The Amendment also waived testing of the interest coverage covenants beginning with the third quarter of fiscal year 2023 and continuing until the date on which the Company delivers financial statements and a compliance certificate for the fiscal quarter ending April 30, 2024 (unless earlier terminated pursuant to the terms of the Amendment). After giving effect to the foregoing amendment, as of July 31, 2023, we were in compliance with the covenants in our Revolving Credit Facility.

On February 21, 2023, the Company, the Borrowers, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the required lenders party thereto entered into the second amendment (the “Second Amendment”) to the Fifth Amended and Restated Loan Agreement. The Second Amendment, among other things, permits the Company and the Borrowers to enter into the Term Loan (as defined below) and made certain changes conforming to the Term Loan. The weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was ~~4.3%~~8.4% for the ~~nine~~six months ended ~~October~~July 31, ~~2022.~~2023.

~~Debt Covenants.~~Term Loan and Security Agreement. On ~~November~~February 21, ~~2022, we~~2023, Conn’s, Inc., as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers (the “Borrowers”), entered into ~~Amendment No. 1~~a second-lien term loan and security agreement (the ~~"Amendment") to~~“Term Loan,” and together with the Fifth Amended and Restated Loan Agreement, the “Senior Loan Agreements”) with Pathlight Capital LP, as administrative agent and ~~Security Agreement, dated~~ collateral agent, and the financial institutions party thereto,

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as lenders (the “Lenders”). The Term Loan provides for an aggregate commitment of ~~March 29, 2021,~~$100.0 million to the Borrowers pursuant to a three-year secured term loan credit facility, which ~~waived testing~~was fully drawn on February 21, 2023. Outstanding loans under the Term Loan will bear interest at an aggregate rate per annum equal to the Term SOFR Rate (as defined in the Term Loan), subject to a 4.80% floor, plus a margin of 7.50%. The obligations of the Borrowers under the Term Loan are guaranteed by the Company and certain of the Borrowers’ subsidiaries. The Borrowers are required to make quarterly scheduled amortization payments of the Term Loan prior to the maturity thereof in an amount equal to $1.25 million. The Term Loan is secured by liens (subject, in the case of priority, to the liens under the Fifth Amendment and Restated Loan Agreement) on substantially all of the assets of the Borrowers and their subsidiaries, subject to customary exceptions.

The Borrowers may elect to prepay all or any portion of the amounts owed under the Term Loan, subject to a prepayment fee. The Borrowers are required to make mandatory prepayments of amounts owed under the Term Loan in an amount equal to (a) 100% of the proceeds received as a result of any of the following events, subject to certain adjustments: (i) the issuance of any equity securities by the Company pursuant to the exercise of an equity cure under the Term Loan that the Company contributes as additional common equity contributions to any Borrower; and (ii) the receipt by the Company, the Borrowers or any of their affiliates of any portion of the CARES Act Tax Refund Proceeds (as defined in the Term Loan), subject to a cap and (b) the amount by which the outstanding loans under the Term Loan are in excess of the sum of the (i) revolving borrowing base and (ii) term loan push-down reserve (if any) then maintained against the revolving borrowing base. Voluntary and mandatory prepayments will be applied to the remaining scheduled installments of principal due in respect of the Term Loan in the inverse order of maturity.

The Term Loan contains customary covenants regarding the Borrowers and their subsidiaries that are generally based upon and are comparable to those contained in the Fifth Amended and Restated Loan Agreement including, without limitation: financial covenants, such as the maintenance of a minimum interest coverage ~~covenants beginning with the third quarter of fiscal year 2023 and continuing until the date on which the Company delivers financial statements and compliance certificate for~~ratio, subject to a covenant relief period through the fiscal quarter ending April 30, 2024, ~~(unless earlier terminated pursuant~~and a maximum leverage ratio; and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Term Loan also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, and change of control.

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covenants, such as a maximum leverage ratio; and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions and, where applicable, cushions to the Senior Loan Agreements. The Delayed Draw Term Loan also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-acceleration to the Senior Loan Agreements, cross-defaults to the warrants and certain other agreements (other than the Senior Loan Agreements as defined in the indenture), and change of control.

Stephens Inc, and its affiliates, and The Stephens Group LLC, and its affiliates, are significant stockholders of the Company. Bob L. Martin, a member of the Company’s Board of Directors and Lead Independent Director, is an Operating Partner of The Stephens Group LLC, one of the Lenders under the Delayed Draw Term Loan; and Douglas H. Martin, a member of the Company’s Board of Directors, is a Senior Executive Vice President of Stephens Inc., an affiliate of Stephens Investments Holdings LLC, one of the Lenders under the Delayed Draw Term Loan.


	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	~~Not Tested~~Test Waived	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	~~Not Tested~~Test Waived	1.50:1.00
Leverage Ratio must not exceed maximum	~~1.64:~~2.17:1.00	4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum	~~0.84:~~1.67:1.00	2.50:1.00
Capital Expenditures, net, must not exceed maximum	$~~50.4~~53.4 million	$100.0 million

All capitalized terms in the above table are defined by the Revolving Credit Facility and may or may not match directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

Capital Expenditures. We currently lease ~~the majority~~all of our stores under operating leases and our plans for future store locations anticipate operating leases, but do not exclude store ownership. Our capital expenditures for future new store projects should primarily be for our tenant improvements to the property leased (including any new distribution centers and cross-dock facilities), the cost of which is estimated to be between $1.5 million and $2.5 million per store (before tenant improvement allowances). In the event we purchase existing properties, our capital expenditures will depend on the particular property and whether it is improved when purchased. We are continuously reviewing new relationships and funding sources and alternatives for new stores, which may include “sale-leaseback” or direct “purchase-lease” programs, as well as other funding sources for our purchase and construction of those projects. If we do not purchase the real property for new stores, our direct cash needs should include only our capital expenditures for tenant improvements to leased properties and our remodel programs for existing stores. We opened seven new standalone stores ~~and 19 new store-within-a-store locations with Belk, Inc.~~ during the ~~nine~~six months ended ~~October~~July 31, ~~2022 and currently plan to open a total of 11 standalone locations and 19 store-within-a-store~~

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~~locations.~~2023. Our anticipated capital expenditures for the remainder of fiscal year ~~2023~~2024 are between $20.0 million and $25.0 million, which includes expenditures for new stores and distribution centers we plan to open in fiscal ~~years 2023 and~~year 2024.

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our ~~short-~~short and long-term liquidity requirements, including payment of operating expenses, funding of capital expenditures and repayment of debt, we rely primarily on cash from operations. As of ~~October~~July 31, ~~2022,~~2023, beyond cash generated from operations, we had (i) immediately available borrowing capacity of ~~$155.4~~$181.1 million and $50.0 million under our Revolving Credit Facility and Delayed Draw Term Loan, respectively and(ii) ~~$8.4 million~~$8.6 of cash on hand. However, we have, in the past, sought to raise additional capital.

We expect that, for the next 12 months, cash generated from operations, proceeds from potential accounts receivable securitizations and our Revolving Credit Facility will be sufficient to provide us the ability to fund our operations, provide the

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increased working capital necessary to support our strategy and fund planned capital expenditures discussed above in Capital Expenditures.

We may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, the Company’s cash position, compliance with debt covenants and restrictions and other considerations.

Off-Balance Sheet Liabilities and Other Contractual Obligations

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K. The following table presents a summary of our minimum contractual commitments and obligations as of ~~October~~July 31, ~~2022:~~2023:


				Payments due by period											Payments due by period
(in thousands)	(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt, including estimated interest payments (1):	Debt, including estimated interest payments (1):											Debt, including estimated interest payments (1):
Revolving Credit Facility (1)	Revolving Credit Facility (1)	$	129,461	$	6,413	$	123,048	$	—	$	—	Revolving Credit Facility (1)	$	335,494	$	23,724	$	311,770	$	—	$	—
2021-A Class A Notes (2)		25,190		255		510		24,425		—
2021-A Class B Notes (2)		72,805		1,897		3,794		67,114		—
Term Loan												Term Loan	126,227		12,747		113,480		—		—
Delayed Draw Term Loan												Delayed Draw Term Loan	—		—		—		—		—
2021-A Class C Notes (2)	2021-A Class C Notes (2)	74,271		2,933		5,865		65,473		—		2021-A Class C Notes (2)	62,380		2,591		59,789		—		—
2022-A Class A Notes (2)		237,476		11,222		22,444		203,810		—
2022-A Class B Notes (2)	2022-A Class B Notes (2)	183,975		12,575		25,150		146,250		—		2022-A Class B Notes (2)	163,521		12,223		151,298		—		—
2022-A Class C Notes (2)												2022-A Class C Notes (2)	63,090		—		63,090		—		—
Other												Other	7,053		7,053		—		—		—
Financing lease obligations	Financing lease obligations	7,278		1,198		2,120		1,161		2,799		Financing lease obligations	6,081		1,224		1,664		673		2,520
Operating leases:	Operating leases:											Operating leases:
Real estate	Real estate	610,492		93,959		177,790		137,841		200,902		Real estate	634,698		101,212		176,101		146,725		210,660
Equipment	Equipment	38		13		25		—		—		Equipment	30		14		16		—		—
Contractual commitments (3)	Contractual commitments (3)	98,332		94,380		3,900		52		—		Contractual commitments (3)	70,024		65,094		4,659		271		—
Total	Total	$	1,439,318	$	224,845	$	364,646	$	646,126	$	203,701	Total	$	1,468,598	$	225,882	$	881,867	$	147,669	$	213,180

(1)Estimated interest payments are based on the outstanding balance as of ~~October~~July 31, ~~2022~~2023 and the interest rate in effect at that time.

(2)The payments due by period for the asset-backed notes were based on their respective maturity dates at their respective fixed annual interest rate. Actual principal and interest payments on the asset-backed notes will reflect actual proceeds from the securitized customer accounts receivables.

(3)Contractual commitments primarily include commitments to purchase inventory of ~~$71.6~~$51.0 million.

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Issuer and Guarantor Subsidiary Summarized Financial Information

Conn’s, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. As of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the direct or indirect subsidiaries of Conn’s, Inc. that were not Guarantors (the “Non-Guarantor Subsidiaries”) were the VIEs and minor subsidiaries. There are no restrictions under the indenture that governs the asset-backed notes on the ability of any of the Guarantors to transfer funds to Conn’s, Inc. in the form of dividends or distributions.

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The following tables present on a combined basis for the Issuer and the Guarantor Subsidiaries, a summarized Balance Sheet as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, and a summarized Statement of Operations on a consolidated basis for the ~~nine~~six months ended ~~October~~July 31, ~~2022.~~2023. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Amounts provided do not represent our total consolidated amounts, as of ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, and for the ~~nine~~six months ended ~~October~~July 31, ~~2022:~~2023:


(in thousands)	(in thousands)	October 31, 2022		January 31, 2022		(in thousands)	July 31, 2023		January 31, 2023
Assets	Assets					Assets
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	10,542	$	9,765	Cash, cash equivalents and restricted cash	$	10,670	$	21,644
Customer accounts receivable	Customer accounts receivable	138,966		243,527		Customer accounts receivable	235,829		169,994
Inventories	Inventories	259,285		246,826		Inventories	234,478		240,783
Net due from non-guarantor subsidiary	Net due from non-guarantor subsidiary	1,957		14,903		Net due from non-guarantor subsidiary	120,034		4,654
Other current assets	Other current assets	84,122		78,556		Other current assets	115,375		108,260
Total current assets	Total current assets	494,872		593,577		Total current assets	716,386		545,335
Long-term portion of customer accounts receivable	Long-term portion of customer accounts receivable	138,928		264,527		Long-term portion of customer accounts receivable	287,678		207,479
Property and equipment, net	Property and equipment, net	218,640		192,763		Property and equipment, net	221,881		218,956
Right of use assets, net	Right of use assets, net	255,202		256,267		Right of use assets, net	284,457		262,104
Other assets	Other assets	50,187		52,199		Other assets	13,971		15,004
Total assets	Total assets	$	1,157,829	$	1,359,333	Total assets	$	1,524,373	$	1,248,878

Liabilities	Liabilities					Liabilities
Current portion of debt	Current portion of debt	$	919	$	889	Current portion of debt	$	9,039	$	937
Lease liability operating - current	Lease liability operating - current	56,295		54,534		Lease liability operating - current	60,294		53,208
Other liabilities	Other liabilities	185,386		200,326		Other liabilities	174,625		164,482
Total current liabilities	Total current liabilities	242,600		255,749		Total current liabilities	243,958		218,627
Lease liability operating - non current	Lease liability operating - non current	323,410		330,439		Lease liability operating - non current	349,654		331,109
Long-term debt	Long-term debt	118,517		154,224		Long-term debt	405,682		225,289
Other long-term liabilities	Other long-term liabilities	29,315		26,889		Other long-term liabilities	23,133		22,343
Total liabilities	Total liabilities	$	713,842	$	767,301	Total liabilities	$	1,022,427	$	797,368


	~~Nine~~ Six Months Ended ~~October~~ July 31, 2023
Net sales and finances charges	$	~~922,203~~542,568
Servicing fee revenue from non-guarantor subsidiary	~~33,276~~15,472
Total revenues	~~955,479~~558,040
Total costs and expenses	~~980,987~~622,750
Net ~~loss~~(loss)	$	~~(25,508)~~(64,710)

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Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Certain accounting policies are considered “critical accounting policies” because they are particularly dependent on estimates made by us about matters that are inherently uncertain and could have a material impact to our Condensed Consolidated Financial Statements. We base our estimates on historical experience and on other assumptions that we believe are reasonable. As a result, actual results could differ because of the use of estimates. Other than with respect to the additional policy below, the description of critical accounting policies is included in our ~~2022~~2023 Form 10-K, filed with the SEC on March 29, ~~2022.~~2023.

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Recent Accounting Pronouncements

The information related to recent accounting pronouncements as set forth in Note 1, Summary of Significant Accounting Policies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates. We have not been materially impacted by fluctuations in foreign currency exchange rates, as substantially all of our business is transacted in, and is expected to continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. Our asset-backed notes bear interest at a fixed rate and would not be affected by interest rate changes.

During the ~~nine~~six months ended ~~October~~July 31, ~~2022,~~2023, loans under the Revolving Credit Facility bore interest, at our option, at a rate equal to ~~LIBOR~~SOFR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). The alternate base rate is a rate per annum equal to the greatest of the prime rate, the federal funds effective rate plus 0.5%, or ~~LIBOR~~SOFR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that is available for future borrowing or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit on the Revolving Credit Facility in the immediately preceding quarter. Accordingly, changes in our quarterly total leverage ratio and ~~LIBOR~~SOFR or the alternate base rate will affect the interest rate on, and therefore our costs under, the Revolving Credit Facility. As of ~~October~~July 31, ~~2022,~~2023, the balance outstanding under our Revolving Credit Facility was ~~$114.0 million.~~$308.0 million. A 100 basis point increase in interest rates on the Revolving Credit Facility would increase our borrowing costs by ~~$1.1~~$3.1 million over a 12-month period, based on the outstanding balance at ~~October~~July 31, ~~2022.~~

2023.

ITEM 4. CONTROLS AND PROCEDURES

Based on management’s evaluation (with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

For the quarter ended ~~October~~July 31, ~~2022,~~2023, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 6, Contingencies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

As of the date of the filing, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our ~~2022~~2023 Form 10-K.

~~Table of Contents~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~The following table presents information with respect to purchases of Conn's common stock by Conn's or its affiliates during the three months ended October 31, 2022.~~

~~Period~~

~~Total Number of Shares Purchased (in thousands)~~ ~~(1)~~

~~Average Price Paid per Share~~ ~~(2)~~

~~Total Number of Shares Purchased as Part of Publicly Announced Program (in thousands)~~ ~~(1)~~

~~Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)~~ ~~(1)~~

~~August 1 - 31~~

—

~~23.0~~

~~September 1 -30~~

—

~~23.0~~

~~October 1 -31~~

—

~~23.0~~

~~Total~~

—

(1) On December 15, 2021, our Board of Directors approved a stock repurchase program pursuant to which we had the authorization to repurchase up to $150 million of our outstanding common stock. The stock repurchase program expires on December 14, 2022.

~~(2) Average price paid per share excludes costs associated with the repurchases.~~None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

3942

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ITEM 6. EXHIBITS

The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing):


Exhibit Number						Description of Document

3.1						Certificate of Incorporation of Conn’s, Inc. (incorporated herein by reference to Exhibit 3.1 to Conn’s, Inc. registration statement on Form S-1 (File No. 333-109046) as filed with the Securities and Exchange Commission on September 23, 2003)
3.1.1						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated June 3, 2004 (incorporated herein by reference to Exhibit 3.1.1 to Form 10-Q for the quarterly period ended April 30, 2004 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 7, 2004)
3.1.2						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated May 30, 2012 (incorporated herein by reference to Exhibit 3.1.2 to Form 10-Q for the quarterly period ended April 30, 2012 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 5, 2012)
3.1.3						Certificate of Correction to the Certificate of Amendment to Conn’s, Inc. Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1.3 to Form 10-K for the annual period ended January 31, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on March 27, 2014)
3.1.4						Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. as filed on May 29, 2014 (incorporated herein by reference to Exhibit 3.1.4 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 2, 2014)
3.2						Third Amended and Restated Bylaws of Conn’s, Inc. effective as of December 7, 2020 (incorporated herein by reference to exhibit 3.2 to Form 10-Q for the quarterly period ended October 31, 2020 (File No. 001-34956) as filed with the Securities and Exchange Commission on December 4, 2020)
~~10.1~~4.1						~~Offer Letter, dated October 17, 2022, between Conn’s, Inc. and Norman L. Miller~~Form of Warrant to Purchase Common Stock (incorporated herein by reference to Exhibit ~~10.1 to Conn’s, Inc.’s Current~~ ~~Report~~ ~~on Form 8-K (File No.~~ ~~001-34956) as filed with the Securities and Exchange Commission on October 18, 2022).~~
~~10.2~~						Amendment No. 1 to Fifth Amended and Restated Loan and Security Agreement, dated November 21, 2022, among the Company, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., certain banks and financial institutions named therein, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders ~~(incorporated herein by reference to~~E in Exhibit 10.1 to Conn's,, Inc.'s Current Report on Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on ~~November~~July 31, 2023).
4.2						Base Indenture, dated as of August 17, 2023, by and between the Issuer and the Trustee (incorporated by herein reference to Exhibit 4.1 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, ~~2022)~~2023).
4.3						Series 2023-A Supplement to the Base Indenture, dated as of August 17, 2023, by and between the Issuer and the Trustee (incorporated by herein reference to Exhibit 4.2 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, 2023).
10.1						Delayed Draw Term Loan and Security Agreement, dated as of July 31, 2023, among Conn's Inc., as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers, certain financial institutions, as lenders, and Stephens Investments Holdings LLC, as administrative agent (incorporated herein by reference to Exhibit 10.1 to Conn's, Inc.'s Current Report on Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on July 31, 2023).
10.2						First Receivables Purchase Agreement, dated August 17, 2023, by and between the Seller and the Depositor (incorporated by herein reference to Exhibit 10.1 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, 2023).
10.3						Second Receivables Purchase Agreement, dated August 17, 2023, by and between the Depositor and the Receivables Trust (incorporated by herein reference to Exhibit 10.2 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, 2023).
10.4						Purchase and Sale Agreement, dated August 17, 2023, by and between the Depositor and the Issuer (incorporated by herein reference to Exhibit 10.3 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, 2023).
10.5						Servicing Agreement dated as of August 17, 2023, by and among the Issuer, the Receivables Trust, the Servicer and the Trustee (incorporated by herein reference to Exhibit 10.4 to Conn’s, Inc. Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on August 22, 2023).
31.1						Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) (filed herewith)
31.2						Rule 13a-14(d)/15d-14(d) Certification (Chief Financial Officer) (filed herewith)
32.1						Section 1350 Certification (Chief Executive Officer and Chief Financial Officer) (furnished herewith)

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Exhibit Number						Description of Document

101*						The following financial information from our Quarterly Report on Form 10-Q for the ~~third~~second quarter of fiscal year 2023, filed with the SEC on ~~December 6, 2022,~~August 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets at ~~October~~July 31, ~~2022~~2023 and January 31, ~~2022,~~2023, (ii) the Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, (iii) the Condensed Consolidated Statements of Shareholders Equity for the periods ended ~~October~~July 31, ~~2022~~2023 and ~~2021,~~2022, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October~~July 31, ~~2022~~2023 and ~~2021~~2022 and (v) the notes to the Condensed Consolidated Financial Statements.
104*						Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)

*Filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			CONN’S, INC.

			Date:			~~December 6, 2022~~August 30, 2023

			By:			/s/ George L. Bchara
						George L. Bchara
						Executive Vice President and Chief Financial Officer
						(Principal Financial Officer and duly authorized to sign this report on behalf of the registrant)

4145


	Three Months Ended October 31, 2022						Three Months Ended October 31, 2021
(in thousands)	Retail		Credit		Total		Retail		Credit		Total
Revenues:
Furniture and mattress	$	79,927	$	—	$	79,927	$	106,756	$	—	$	106,756
Home appliance	102,884		—		102,884		128,385		—		128,385
Consumer electronics	31,911		—		31,911		46,751		—		46,751
Home office	8,630		—		8,630		17,373		—		17,373
Other	9,824		—		9,824		9,036		—		9,036
Product sales	233,176		—		233,176		308,301		—		308,301
Repair service agreement commissions	18,804		—		18,804		23,769		—		23,769
Service revenues	2,378		—		2,378		2,513		—		2,513
Total net sales	254,358		—		254,358		334,583		—		334,583
Finance charges and other revenues	270		66,572		66,842		262		70,613		70,875
Total revenues	254,628		66,572		321,200		334,845		70,613		405,458
Costs and expenses:
Cost of goods sold	169,842		—		169,842		211,298		—		211,298
Selling, general and administrative expense (1)	94,240		32,003		126,243		100,969		37,112		138,081
Provision for bad debts	261		34,843		35,104		36		26,496		26,532
Charges and credits	8,006		—		8,006		—		—		—
Total costs and expenses	272,349		66,846		339,195		312,303		63,608		375,911
Operating income (loss)	(17,721)		(274)		(17,995)		22,542		7,005		29,547
Interest expense	—		11,478		11,478		—		5,206		5,206
Income (loss) before income taxes	$	(17,721)	$	(11,752)	$	(29,473)	$	22,542	$	1,799	$	24,341