UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C.  20549 

FORM 10-Q

(Mark One) 

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

For the quarterly period ended July 31, 2019

 or

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 ý  No o

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	o	Accelerated filer	ý
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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 o  No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 29, 2019: 

Class	Outstanding
Common stock, $0.01 par value per share	28,903,361

CONN’S, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE FISCAL QUARTER ENDED JULY 31, 2019

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statement of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
	Exhibit Index	46
	Signature	47

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,” “$i Estas Aprobado,” 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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	July 31, 2019			January 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	7,563		$	5,912
Restricted cash (includes VIE balances of $66,444 and $57,475, respectively)	68,219			59,025
Customer accounts receivable, net of allowances (includes VIE balances of $273,685 and $324,064, respectively)	664,980			652,769
Other accounts receivable	67,056			67,078
Inventories	213,513			220,034
Income taxes receivable	763			407
Prepaid expenses and other current assets	9,948			9,169
Total current assets	1,032,042			1,014,394
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $365,180 and $230,901, respectively)	653,831			686,344
Property and equipment, net	174,225			148,983
Operating lease right-of-use assets	248,707			—
Deferred income taxes	25,612			27,535
Other assets	11,808			7,651
Total assets	$	2,146,225		$	1,884,907
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of debt and finance lease obligations (includes VIE balances of $1,945 and $53,635, respectively)	$	2,558		$	54,109
Accounts payable	73,205			71,118
Accrued compensation and related expenses	21,737			27,052
Accrued expenses	59,664			54,381
Operating lease liability - current	33,398			—
Income taxes payable	4,308			8,902
Deferred revenues and other credits	11,229			22,006
Total current liabilities	206,099			237,568
Deferred rent	—			93,127
Operating lease liability - non current	331,010			—
Long-term debt and finance lease obligations (includes VIE balances of $554,636 and $407,993, respectively)	945,981			901,222
Other long-term liabilities	26,400			33,015
Total liabilities	1,509,490			1,264,932
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	—			—
Common stock ($0.01 par value, 100,000,000 shares authorized; 32,000,548 and 31,788,162 shares issued, respectively)	320			318
Treasury stock (at cost; 1,874,846 shares and 0 shares, respectively)	(34,344		)	—
Additional paid-in capital	116,645			111,185
Retained earnings	554,114			508,472
Total stockholders’ equity	636,735			619,975
Total liabilities and stockholders’ equity	$	2,146,225		$	1,884,907

See notes to condensed consolidated financial statements.

1

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

	Three Months Ended   July 31,				Six Months Ended   July 31,
	2019		2018		2019			2018
Revenues:
Product sales	$	274,578	$	267,179	$	509,023		$	516,493
Repair service agreement commissions	27,647		25,662		51,671			48,525
Service revenues	3,837		3,472		7,347			7,051
Total net sales	306,062		296,313		568,041			572,069
Finance charges and other revenues	94,997		88,307		186,530			170,938
Total revenues	401,059		384,620		754,571			743,007
Costs and expenses:
Cost of goods sold	182,065		173,627		339,293			340,216
Selling, general and administrative expense	127,484		120,690		245,398			235,568
Provision for bad debts	49,736		50,751		89,782			94,907
Charges and credits	—		300		(695		)	300
Total costs and expenses	359,285		345,368		673,778			670,991
Operating income	41,774		39,252		80,793			72,016
Interest expense	14,396		15,566		28,893			32,386
Loss on extinguishment of debt	—		1,367		—			1,773
Income before income taxes	27,378		22,319		51,900			37,857
Provision for income taxes	7,404		5,308		12,417			8,114
Net income	$	19,974	$	17,011	$	39,483		$	29,743
Income per share:
Basic	$	0.64	$	0.54	$	1.25		$	0.94
Diluted	$	0.62	$	0.53	$	1.23		$	0.92
Weighted average common shares outstanding:
Basic	31,442,909		31,652,017		31,660,320			31,597,225
Diluted	31,958,704		32,242,463		32,198,024			32,210,759

See notes to condensed consolidated financial statements.

2

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

				Additional Paid-in Capital
	Common Stock						Retained Earnings		Treasury Stock
	Shares	Amount							Shares		Amount			Total
Balance January 31, 2019	31,788,162	$	318	$	111,185		$	508,472	—		$	—		$	619,975
Adoption of ASU 2016-02	—	—		—			6,159		—		—			6,159
Exercise of options and vesting of restricted stock, net of withholding tax	136,206	1		(1,241		)	—		—		—			(1,240		)
Issuance of common stock under Employee Stock Purchase Plan	12,158	—		198			—		—		—			198
Stock-based compensation	—	—		3,217			—		—		—			3,217
Net income	—	—		—			19,509		—		—			19,509
Balance April 30, 2019	31,936,526	$	319	$	113,359		$	534,140	—		$	—		$	647,818
Exercise of options and vesting of restricted stock, net of withholding tax	51,384	1		(327		)	—		—		—			(326		)
Issuance of common stock under Employee Stock Purchase Plan	12,638	—		194			—		—		—			194
Stock-based compensation	—	—		3,419			—		—		—			3,419
Common stock repurchase	—	—		—			—		(1,874,846	)	(34,344		)	(34,344		)
Net income	—	—		—			19,974		—		—			19,974
Balance July 31, 2019	32,000,548	$	320	$	116,645		$	554,114	(1,874,846	)	$	(34,344	)	$	636,735

				Additional Paid-in Capital
	Common Stock						Retained Earnings		Treasury Stock
	Shares	Amount							Shares	Amount		Total
Balance January 31, 2018	31,435,775	$	314	$	101,087		$	433,667	—	$	—	$	535,068
Adoption of ASU 2014-09	—	—		—			957		—	—		957
Exercise of options and vesting of restricted stock, net of withholding tax	143,021	2		(1,850		)	—		—	—		(1,848		)
Issuance of common stock under Employee Stock Purchase Plan	8,031	—		226			—		—	—		226
Stock-based compensation	—	—		2,520			—		—	—		2,520
Net income	—	—		—			12,732		—	—		12,732
Balance April 30, 2018	31,586,827	$	316	$	101,983		$	447,356	—	$	—	$	549,655
Exercise of options and vesting of restricted stock, net of withholding tax	100,018	1		(274		)	—		—	—		(273		)
Issuance of common stock under Employee Stock Purchase Plan	7,569	—		213			—		—	—		213
Stock-based compensation	—	—		3,042			—		—	—		3,042
Net income	—	—		—			17,011		—	—		17,011
Balance July 31, 2018	31,694,414	$	317	$	104,964		$	464,367	—	$	—	$	569,648

See notes to condensed consolidated financial statements.

3

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

	Six Months Ended July 31,
	2019			2018
Cash flows from operating activities:
Net income	$	39,483		$	29,743
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	17,682			15,434
Amortization of right-of-use asset	13,763			—
Amortization of debt issuance costs	4,210			6,382
Provision for bad debts and uncollectible interest	116,272			118,765
Stock-based compensation expense	6,636			5,562
Charges, net of credits, for facility relocations	(680		)	—
Deferred income taxes	475			(1,776		)
Tenant improvement allowances received from landlords	14,254			4,362
Change in operating assets and liabilities:
Customer accounts receivable	(95,829		)	(100,331		)
Other accounts receivables	(17,356		)	(14,679		)
Inventories	6,521			16,167
Other assets	(5,818		)	17,359
Accounts payable	763			11,091
Accrued expenses	(7,368		)	22,910
Operating leases	(626		)	—
Income taxes	(4,810		)	31,868
Deferred revenues and other credits	1,872			(7,205		)
Net cash provided by operating activities	89,444			155,652
Cash flows from investing activities:
Purchases of property and equipment	(33,330		)	(12,166		)
Net cash used in investing activities	(33,330		)	(12,166		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	381,790			—
Payments on asset-backed notes	(234,162		)	(481,883		)
Borrowings from revolving credit facility	778,166			839,236
Payments on revolving credit facility	(881,166		)	(655,036		)
Borrowings from warehouse facility	—			173,286
Payments on warehouse facility	(51,561		)	(52,226		)
Payments of debt issuance costs and amendment fees	(3,492		)	(3,539		)
Proceeds from stock issued under employee benefit plans	597			834
Tax payments associated with equity-based compensation transactions	(1,781		)	(2,516		)
Payment from extinguishment of debt	—			(1,177		)
Purchase of treasury stock	(33,019		)	—
Other	(641		)	(531		)
Net cash used in financing activities	(45,269		)	(183,552		)
Net change in cash, cash equivalents and restricted cash	10,845			(40,066		)
Cash, cash equivalents and restricted cash, beginning of period	64,937			96,158
Cash, cash equivalents and restricted cash, end of period	$	75,782		$	56,092
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities	$	968		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	53,974		$	—
Property and equipment purchases not yet paid	$	14,241		$	4,363
Share repurchases not yet settled	$	1,325		$	—
Supplemental cash flow data:
Cash interest paid	$	21,559		$	25,505
Cash income taxes paid, net	$	16,859		$	(21,969	)

See notes to condensed consolidated financial statements.

4

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- 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, 2019 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, 2019 (the “2019 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on March 26, 2019.

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

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

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

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 4, 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.

Cash and Cash Equivalents. As of July 31, 2019 and January 31, 2019, cash and cash equivalents included cash, credit card deposits in transit, and highly liquid debt instruments purchased with a maturity date of three months or less. Credit card deposits in transit included in cash and cash equivalents were $2.3 million and $2.5 million as of July 31, 2019 and January 31, 2019, respectively. 

5

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash. The restricted cash balance as of July 31, 2019 and January 31, 2019 includes $53.7 million and $45.3 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $12.7 million and $12.2 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. Based on contractual terms, we record the amount of principal and accrued interest on customer receivables that is expected to be collected within the next twelve months in current assets with the remaining balance in long-term assets on the Condensed Consolidated Balance Sheet. 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. In our role as servicer, we may also make modifications to loans held by the VIEs. 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. Any contractual interest income received from customers in excess of the interest income calculated using the interest method is recorded as deferred revenue on our balance sheets. At July 31, 2019 and January 31, 2019, there was $11.6 million and $11.2 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 July 31, 2019 and January 31, 2019, the carrying value of customer accounts receivable in non-accrual status was $14.6 million and $13.9 million, respectively. At July 31, 2019 and January 31, 2019, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled $95.4 million and $106.5 million, respectively. At July 31, 2019 and January 31, 2019, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of $12.1 million and $12.0 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 bad debts 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 bad debts. 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 doubtful accounts, including estimated uncollectible interest, to cover probable and estimable 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.

We record an allowance for doubtful accounts on our non-TDR customer accounts receivable that we expect to charge-off over the next 12 months based on historical gross charge-off rates over the last 24 months. We incorporate an adjustment to historical gross charge-off rates for a scaled factor of the year-over-year change in six month average first payment default rates and the

6

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

year-over-year change in the balance of customer accounts receivable that are 60 days or more past due.  In addition to adjusted historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, amounts realized from the repossession of the products financed, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance and repair service agreement (“RSA”) policies are also considered.               

Qualitative adjustments are made to the allowance for bad debts when, based on management’s judgment, there are internal or external factors impacting probable incurred losses not taken into account by the quantitative calculations. These qualitative considerations are based on the following factors: changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and volume of the portfolio, changes in lending management, changes in credit quality statistics, changes in concentrations of credit, and other internal or external factor changes. We utilize an economic qualitative adjustment based on changes in unemployment rates if current unemployment rates in our markets are worse than they were on average over the last 24 months.  We also qualitatively limit the impact of changes in first payment default rates and changes in delinquency when those changes result in a decrease to the allowance for bad debts based on a measure of the dispersion of historical charge-off rates.

We determine allowances for those accounts that are TDR based on the discounted present value of cash flows expected to be collected over the life of those accounts based primarily on the performance of TDR loans over the last 24 months. The cash flows are discounted based on the weighted-average effective interest rate of the TDR accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as an allowance for loss on those accounts.

Debt Issuance Costs. Costs that are direct and incremental to debt issuance are deferred and amortized to interest expense using the effective interest method over the expected life of the debt. All other costs related to debt issuance are expensed as incurred. We present debt issuance costs associated with long-term debt as a reduction of the carrying amount of the debt. Unamortized costs related to the Revolving Credit Facility, as defined in Note 4, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were $5.2 million and $6.1 million as of July 31, 2019 and January 31, 2019, respectively.

Income Taxes. For the six months ended July 31, 2019 and 2018, we utilized the estimated annual effective tax rate based on our estimated fiscal year 2020 and 2019 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 six months ended July 31, 2019 and 2018, the effective tax rate was 23.9% and 21.4%, respectively. The primary factor affecting the increase in our effective tax rate for the six months ended July 31, 2019 was a decrease in deductible compensation expense compared to the prior year period.

Stock-based Compensation. Stock-based compensation expense is recorded, net of estimated forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. An adjustment is made to compensation cost for any difference between the estimated forfeitures and the actual forfeitures related to the awards. 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 (“RSUs”), 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 (“PSUs”), the fair value of the grant is the market value of our stock at the date of issuance adjusted for a market condition, a performance condition and a service condition.

The following table sets forth the RSUs, stock options and PSUs granted during the three and six months ended July 31, 2019 and 2018: 

	Three Months Ended   July 31,				Six Months Ended   July 31,
	2019		2018		2019		2018
RSUs (1)	100,365		69,478		103,794		149,889
Stock Options (2)	—		—		—		620,166
PSUs (3)	33,894		—		33,894		—
Total stock awards granted	134,259		69,478		137,688		770,055
Aggregate grant date fair value (in thousands)	$	2,774	$	1,673	$	2,845	$	17,184

(1) The majority of RSUs issued during the three and six months ended July 31, 2019 and 2018 are scheduled to vest ratably over periods of three to four years from the date of grant.

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(2) The weighted-average assumptions for the option awards granted during the six months ended July 31, 2018 included expected volatility of 68.0%, an expected term of 6.5 years and risk-free interest rate of 2.67%. No dividend yield was included in the weighted-average assumptions for the option awards granted during the six months ended July 31, 2018.

(3) The PSUs issued during the three months ended July 31, 2019 will vest, if at all, upon certification, after the Company’s fiscal year 2022 by the Compensation Committee, of the satisfaction of certain performance conditions.

For the three months ended July 31, 2019 and 2018, stock-based compensation expense was $3.4 million and $3.1 million, respectively. For the six months ended July 31, 2019 and 2018, stock-based compensation expense was $6.6 million and $5.6 million, respectively.

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   July 31,		Six Months Ended   July 31,
	2019	2018	2019	2018
Weighted-average common shares outstanding - Basic	31,442,909	31,652,017	31,660,320	31,597,225
Dilutive effect of stock options, PSUs and RSUs	515,795	590,446	537,704	613,534
Weighted-average common shares outstanding - Diluted	31,958,704	32,242,463	32,198,024	32,210,759

For the three months ended July 31, 2019 and 2018, the weighted-average number of stock options and RSUs not included in the calculation due to their anti-dilutive effect, was 927,969 and 624,291, respectively. For the six months ended July 31, 2019 and 2018, the weighted-average number of stock options and RSUs not included in the calculation due to their anti-dilutive effect, was 892,098 and 497,224, respectively.

As the performance conditions pursuant to the Company’s PSU agreements have not been met in full, 228,477 PSUs are not included in the computation of diluted EPS for the three and six months ended July 31, 2019 and 400,834 PSUs are not included in the computation of diluted EPS for the three and six months ended July 31, 2018.

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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At July 31, 2019, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was $230.2 million as compared to the carrying value of $227.0 million, excluding the impact of the related discount. At July 31, 2019, the fair value of the asset-backed notes approximates their carrying value 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 three and six months ended July 31, 2019, we recognized $1.0 million and $1.4 million of revenue for customer deposits deferred as of the beginning of the period. During the three and six months ended July 31, 2019, we recognized $1.3 million and $2.5 million of revenue for RSA administrative fees deferred as of January 31, 2019.

Recent Accounting Pronouncements Adopted. In February 2016 the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for most leases. Effective February 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach. For most leases, a liability was recorded on the balance sheet based on the present value of future lease obligations with a corresponding right-of-use asset. Primarily for those leases currently classified by us as operating leases, we recognize a single lease cost on a straight line basis. Other leases are required to be accounted for as financing arrangements similar to how we previously accounted for capital leases. Upon adoption we elected a package of practical expedients permitted under the transition guidance within the new standard. The practical expedients adopted allowed us to carry forward the historical lease classification, allowed us to not separate and allocate the consideration paid between lease and non-lease components included within a contract and allowed us to carry forward our accounting treatment for land easements on existing agreements. We also adopted an optional transition method finalized by the FASB in July 2018 that waives the requirement to apply this ASU in the comparative periods presented within the financial statements in the year of adoption. Therefore, results for reporting periods beginning after February 1, 2019 are presented under ASC Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies under ASC Topic 840.

Additionally, we have elected the short-term policy election for the Company for any lease that, at the commencement date, has a lease term of twelve months or less. We will not recognize a lease liability or right-of-use asset on the balance sheet for any of our short-term leases. Rather, the short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects our short-term lease commitments.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as a result of the adoption of ASC 842 were as follows (in thousands):

	Impact of Adoption of ASC 842
(in thousands)	Balance at January 31, 2019		Adjustments due to ASC 842			Balance at February 1, 2019
Assets
Current assets (1)	$	1,014,394	$	(2,983	)	$	1,011,411
Operating lease right-of-use assets (2)	—		227,421			227,421
Deferred income taxes (3)	27,535		(1,447		)	26,088
Liabilities
Current liabilities (4)	237,568		(12,426		)	225,142
Operating lease liability - current (5)	—		29,815			29,815
Deferred rent (4)	93,127		(93,127		)	—
Operating lease liability - non-current (5)	—		300,170			300,170
Other long-term liabilities (3)	33,015		(7,606		)	25,409
Stockholder’s equity (3)	619,975		6,159			626,134

(1) Reclassification of the $3.0 million January 31, 2019 balance of accounts receivable for tenant improvement allowances to a reduction in the operating lease liability.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) The operating lease right-of-use assets represent the present value of the lease liability offset by the full value of deferred rent and tenant improvement allowances received from the lessor which had not been utilized as of the date of adoption.

(3) A net cumulative-effect adjustment to increase retained earnings by $6.2 million to recognize the $7.6 million January 31, 2019 balance of deferred gains which resulted from sale and operating leaseback transactions made at off-market terms offset by the $1.4 million impact on our deferred tax asset related to the sale-leaseback transactions.

(4) Reclassification of the full value of deferred rent and tenant improvement allowances received from lessors, which were previously recorded as liabilities as they had not been utilized as of the date of adoption, to a reduction of the operating lease right-of-use assets.

(5) The operating lease liability represents the $340.5 million present value of future operating lease obligations as of January 31, 2019, offset by $10.5 million of accounts receivable for tenant improvement allowances.

Recent Accounting Pronouncements Yet To Be Adopted. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The standard will become effective for us in the first quarter of fiscal year 2021 and early adoption was permitted beginning in the first quarter of fiscal year 2020. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2019-04 requires that the current estimate of recoveries are included in the allowance for credit losses. We have formed a cross-functional working group comprised of individuals from various functional areas including credit, finance, accounting, and information technology. While we are currently evaluating the likely impact the adoption of this ASU will have on our Consolidated Financial Statements, the adoption of ASU 2016-13 will result in a material increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.

2.    Customer Accounts Receivable

Customer accounts receivable consisted of the following:

(in thousands)	July 31, 2019			January 31, 2019
Customer accounts receivable portfolio balance	$	1,557,920		$	1,589,828
Deferred fees and origination costs, net	(15,742		)	(16,579		)
Allowance for no-interest option credit programs	(15,866		)	(19,257		)
Allowance for uncollectible interest	(15,213		)	(15,555		)
Carrying value of customer accounts receivable	1,511,099			1,538,437
Allowance for bad debts	(192,288		)	(199,324		)
Carrying value of customer accounts receivable, net of allowance for bad debts	1,318,811			1,339,113
Short-term portion of customer accounts receivable, net	(664,980		)	(652,769		)
Long-term customer accounts receivable, net	$	653,831		$	686,344

	Carrying Value
(in thousands)	July 31, 2019		January 31, 2019
Customer accounts receivable 60+ days past due (1)	$	132,187	$	146,188
Re-aged customer accounts receivable (2)(3)	389,591		395,576
Restructured customer accounts receivable (4)	190,654		183,641

(1) As of July 31, 2019 and January 31, 2019, the carrying value of customer accounts receivable past due one day or greater was $420.5 million and $420.9 million, respectively. These amounts include the 60+ days past due balances shown above.

(2) The re-aged carrying value as of July 31, 2019 and January 31, 2019 includes $86.0 million and $92.4 million in carrying value that are both 60+ days past due and re-aged.

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(3) The re-aged carrying value as of July 31, 2019 and January 31, 2019 includes $15.9 million and $26.5 million in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.

(4) The restructured carrying value as of July 31, 2019 and January 31, 2019 includes $44.3 million and $43.9 million in carrying value that are both 60+ days past due and restructured.

The following presents the activity in our allowance for doubtful accounts and uncollectible interest for customer accounts receivable: 

	Six Months Ended July 31, 2019									Six Months Ended July 31, 2018
(in thousands)	Customer Accounts Receivable			Restructured Accounts			Total			Customer Accounts Receivable			Restructured Accounts			Total
Allowance at beginning of period	$	147,123		$	67,756		$	214,879		$	148,856		$	54,716		$	203,572
Provision (1)	79,062			37,067			116,129			85,117			33,146			118,263
Principal charge-offs (2)	(80,330		)	(30,267		)	(110,597		)	(82,124		)	(25,264		)	(107,388		)
Interest charge-offs	(18,479		)	(6,963		)	(25,442		)	(16,161		)	(4,972		)	(21,133		)
Recoveries (2)	9,102			3,430			12,532			7,873			2,422			10,295
Allowance at end of period	$	136,478		$	71,023		$	207,501		$	143,561		$	60,048		$	203,609
Average total customer portfolio balance	$	1,360,643		$	192,212		$	1,552,855		$	1,340,360		$	162,951		$	1,503,311

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

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

3.     Finance Charges and Other Revenues

Finance charges and other revenues consisted of the following:

	Three Months Ended   July 31,				Six Months Ended   July 31,
(in thousands)	2019		2018		2019		2018
Interest income and fees	$	85,204	$	80,435	$	169,221	$	156,781
Insurance income	9,590		7,774		16,904		14,045
Other revenues	203		98		405		112
Total finance charges and other revenues	$	94,997	$	88,307	$	186,530	$	170,938

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 July 31, 2019 and 2018, interest income and fees reflected provisions for uncollectible interest of $14.4 million and $12.4 million, respectively. The amount included in interest income and fees related to TDR accounts for the three months ended July 31, 2019 and 2018 were $8.6 million and $6.5 million, respectively. During the six months ended July 31, 2019 and 2018, interest income and fees reflected provisions for uncollectible interest of $26.7 million and $23.9 million, respectively. The amount included in interest income and fees related to TDR accounts for the six months ended July 31, 2019 and 2018 were $16.7 million and $12.3 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     Debt and Financing Lease Obligations

Debt and financing lease obligations consisted of the following:

(in thousands)	July 31, 2019			January 31, 2019
Revolving Credit Facility	$	163,500		$	266,500
Senior Notes	227,000			227,000
2017-B VIE Asset-backed Class B Notes	29,001			98,297
2017-B VIE Asset-backed Class C Notes	78,640			78,640
2018-A VIE Asset-backed Class A Notes	61,415			105,971
2018-A VIE Asset-backed Class B Notes	37,038			63,908
2018-A VIE Asset-backed Class C Notes	37,038			63,908
2019-A VIE Asset-backed Class A Notes	187,959			—
2019-A VIE Asset-backed Class B Notes	64,750			—
2019-A VIE Asset-backed Class C Notes	62,510			—
Warehouse Notes	2,074			53,635
Financing lease obligations	5,402			5,075
Total debt and financing lease obligations	956,327			962,934
Less:
Discount on debt	(1,684		)	(1,966		)
Deferred debt issuance costs	(6,104		)	(5,637		)
Current maturities of long-term debt and financing lease obligations	(2,558		)	(54,109		)
Long-term debt and financing lease obligations	$	945,981		$	901,222

Senior Notes. On July 1, 2014, we issued $250.0 million of unsecured Senior Notes due July 2022 bearing interest at 7.25% (the “Senior Notes”), pursuant to an indenture dated July 1, 2014 (as amended, the “Indenture”), among Conn’s, Inc., its subsidiary guarantors (the “Guarantors”) and U.S. Bank National Association, as trustee. The effective interest rate of the Senior Notes after giving effect to the discount and issuance costs is 7.8%.

The Indenture restricts the Company’s and certain of its subsidiaries’ ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock (“restricted payments”); (iii) prepay, redeem or repurchase debt that is junior in right of payment to the notes; (iv) make loans and certain investments; (v) sell assets; (vi) incur liens; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. During any time when the Senior Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period. As of July 31, 2019, $213.8 millionwould have been free from the restricted payments covenant contained in the Indenture. Events of default under the Indenture include customary events, such as a cross-acceleration provision in the event that we fail to make payment of other indebtedness prior to the expiration of any applicable grace period or upon acceleration of indebtedness prior to its stated maturity date in an amount exceeding$25.0 million, as well as in the event a judgment is entered against us in excess of $25.0 million that is not discharged, bonded or insured.

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.

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, as amended. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 July 31, 2019 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)
2017-B Class B Notes	$	132,180	$	131,281	$	29,001	12/20/2017	4/15/2021	4.52%	5.30%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.35%
2018-A Class A Notes	219,200		217,832		61,415		8/15/2018	1/17/2023	3.25%	4.82%
2018-A Class B Notes	69,550		69,020		37,038		8/15/2018	1/17/2023	4.65%	5.60%
2018-A Class C Notes	69,550		68,850		37,038		8/15/2018	1/17/2023	6.02%	6.97%
2019-A Class A Notes	254,530		253,026		187,959		4/24/2019	10/16/2023	3.40%	4.71%
2019-A Class B Notes	64,750		64,276		64,750		4/24/2019	10/16/2023	4.36%	5.17%
2019-A Class C Notes	62,510		61,898		62,510		4/24/2019	10/16/2023	5.29%	6.18%
Warehouse Notes	121,060		118,972		2,074		7/16/2018	1/15/2020	Index + 2.50% (3)	6.43%
Total	$	1,071,970	$	1,062,998	$	560,425

(1) After giving effect to debt issuance costs.

(2) For the six months ended July 31, 2019, and inclusive of the impact of changes in timing of actual and expected cash flows.

(3) The rate on the Warehouse Notes is defined as the applicable index plus a 2.50% fixed margin.

On April 24, 2019, the Company completed the issuance and sale of asset-backed notes at a face amount of $381.8 million secured by the transferred customer accounts receivables and restricted cash held by a VIE, which resulted in net proceeds to us of $379.2 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 October 16, 2023 and consist of $254.5 million of 3.40% Series 2019-A, Class A Asset Backed Fixed Rate Notes, $64.8 million of 4.36% Series 2019-A, Class B Asset Backed Fixed Rate Notes and $62.5 million of 5.29%, Series 2019-A, Class C Asset Backed Fixed Rate Notes.

Revolving Credit Facility.On May 23, 2018, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into a Fourth Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “Fourth Amendment”), dated as of October 30, 2015, with certain lenders, which provides for a $650.0 million asset-based revolving credit facility (the “Revolving Credit Facility”) under which credit availability is subject to a borrowing base and a maturity date of May 23, 2022.

Loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to LIBOR plus the applicable 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 the greatest of the prime rate announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR 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 weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was 6.5% for the six months ended July 31, 2019.

The Revolving Credit Facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory, and provides for a $40.0 million sub-facility for letters of credit to support obligations incurred in the ordinary course of business. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2019, we had immediately available borrowing capacity of $403.0 million under our Revolving Credit Facility, net of standby letters of credit issued of $2.5 million. We also had $81.0 million that may become available under our Revolving Credit Facility if we grow the balance of eligible customer receivables and total eligible inventory balances.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 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. As of July 31, 2019, we were restricted from making distributions, including repayments of the Senior Notes or other distributions, in excess of $266.4 millionas 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.

Debt Covenants. We were in compliance with our debt covenants, as amended, at July 31, 2019. A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at July 31, 2019 is presented below: 

	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed (minimum)	4.69:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed (minimum)	4.38:1.00	1.50:1.00
Leverage Ratio must not exceed (maximum)	1.90:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed (maximum)	1.12:1.00	2.00:1.00
Capital Expenditures, net, must not exceed (maximum)	$27.3 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.

5.     Leases

We lease most of our current store locations and certain of our facilities and operating equipment under operating leases. The fixed, non-cancelable terms of our real estate leases are generally five to 15 years and generally include renewal options that allow us to extend the term beyond the initial non-cancelable term. However, prior to the expiration of the existing contract, the Company will typically renegotiate any lease contracts as opposed to continuing in the current lease under the renewal terms. As such, the lease renewal options are not recognized as part of the right-of-use assets and liabilities. Most of the real estate leases require payment of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments. Equipment leases generally provide for initial lease terms of three to five years and provide for a purchase right at the end of the lease term at the then fair market value of the equipment.

Certain operating leases contain tenant allowance provisions, which obligate the landlord to remit cash to us as an incentive to enter into the lease agreement. We record the full amount to be remitted by the landlord as a reduction to the operating lease right-of-use assets upon commencement of the lease and amortize the balance on a straight-line basis over the life of the lease.

Supplemental lease information is summarized below:

(in thousands)	Balance sheet classification	July 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	248,707
Finance lease assets	Property and equipment, net	5,993
Total leased assets		254,700
Liabilities
Operating (1)	Operating lease liability - current	$	44,804
Finance	Current maturities of debt and finance lease obligations	613
Operating	Operating lease liability - non current	331,010
Finance	Long-term debt and finance lease obligations	4,789
Total lease liabilities		$	381,216

(1) Represents the gross operating lease liability before tenant improvement allowances. As of July 31, 2019 we had $11.4 million of tenant improvement allowances to be remitted by the landlord.

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Lease Cost		Three Months Ended July 31, 2019		Six Months Ended July 31, 2019
(in thousands)	Income statement classification
Operating lease costs (1)	Selling, general and administrative expense	$	14,587	$	28,515

(1) Includes short-term and variable lease costs, which are not significant.

Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Additional details regarding the Company’s leasing activities as a lessee are presented below:

Other Information	Six Months Ended   July 31, 2019
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	33,408
Weighted-average remaining lease term (in years)
Finance leases	11.4
Operating leases	7.3
Weighted-average discount rate
Finance leases	6.1		%
Operating leases (1)	8.5		%

(1)  Upon adoption of ASC 842, discount rates for existing operating leases were established as of February 1, 2019.

The following table presents a summary of our minimum contractual commitments and obligations as of July 31, 2019:

	Operating Leases		Finance Leases		Total
(in thousands)
2020	$	74,187	$	925	$	75,112
2021	73,119		889		74,008
2022	72,213		763		72,976
2023	68,284		731		69,015
2024	61,316		771		62,087
Thereafter	157,042		3,576		160,618
Total undiscounted cash flows	506,161		7,655		513,816
Less: Interest	130,347		2,253		132,600
Total lease liabilities	$	375,814	$	5,402	$	381,216

6.     Contingencies

Securities Litigation. On April 2, 2018, MicroCapital Fund, LP, MicroCapital Fund, Ltd., and MicroCapital LLC (collectively, “MicroCapital”) filed a lawsuit against us and certain of our former executive officers in the U.S. District Court for the Southern District of Texas, Cause No. 4:18-CV-01020 (the “MicroCapital Action”).  The plaintiffs in this action allege that the defendants made false and misleading statements or failed to disclose material facts about our credit and underwriting practices, accounting and internal controls.  Plaintiffs allege violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Texas and Connecticut common law fraud, and Texas common law negligent misrepresentation against all defendants; as well as violations of section 20A of the Securities Exchange Act of 1934; and Connecticut common law negligent misrepresentation against certain defendants arising from plaintiffs’ purchase of Conn’s, Inc. securities between April 3, 2013 and February 20, 2014.  The complaint does not specify the amount of damages sought.

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The Court previously had stayed the MicroCapital Action pending resolution of other outstanding litigation (In re Conn’s Inc. Sec. Litig., Cause No. 14-CV-00548 (S.D. Tex.) (the “Consolidated Securities Action”)), which was settled in October 2018. After that settlement, the stay was lifted, and the defendants filed a motion to dismiss plaintiff’s complaint in the MicroCapital Action on November 6, 2018. Briefing on the motion to dismiss was completed on January 16, 2019. On July 26, 2019, the magistrate judge to which defendants’ motion to dismiss had been assigned issued a report and recommendation, recommending that defendants’ motion to dismiss the complaint be granted in part and denied in part.  Both parties filed timely objections to that report and recommendation on August 9, 2019.  Those objections currently are pending before the Court.

We intend to vigorously defend our interests in the MicroCapital Action. It is not possible at this time to predict the timing or outcome of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.

Derivative Litigation. On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a derivative shareholder lawsuit against us and certain of our current and former directors and former executive officers in the U.S. District Court for the Southern District of Texas, captioned as 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, 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 (the “Original Derivative Action”). 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 Consolidated Securities Action. The plaintiff seeks unspecified damages against these persons and does not request any damages from us. Setting forth substantially similar claims against the same defendants, 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, was filed in the U.S. District Court for the Southern District of Texas, which has been consolidated with the Original Derivative Action.

The Court previously approved a stipulation among the parties to stay the Original Derivative Action pending resolution of the Consolidated Securities Action. The stay was lifted on November 1, 2018, and the defendants filed a motion to dismiss plaintiff’s complaint. Briefing on the motion to dismiss was completed December 3, 2018. The Court’s ruling is pending. The parties are currently engaging in discovery.

Another derivative action was filed on January 27, 2015, captioned as Richard A. Dohn v. Wright, et al., Cause No. 2015-04405, in the 281st Judicial District Court, Harris County, Texas. This action makes substantially similar allegations to the Original Derivative Action against the same defendants. We received a copy of the proposed amended petition on October 12, 2018, but the amended proposed petition has not yet been filed. The parties jointly requested a stay on this case pending resolution of the Original Derivative Action. This case remains stayed until at least June 27, 2019.

Prior to filing a lawsuit, an 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 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 as 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, Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn’s, Inc., Cause 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 Original Derivative Action. The complaint does not specify the amount of damages sought. No further activity has occurred in this case since the Final Order and Judgment was entered in the Consolidated Securities Action.

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 derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.

Regulatory Matters. On July 15, 2019, we reached a settlement with the SEC relating to the previously disclosed SEC investigation commenced in November 2014 into the Company’s underwriting policies and bad debt provisions from July 31, 2012 to July 31, 2014. In connection with the settlement process, on July 15, 2019, the SEC filed a civil complaint and agreed judgment against the Company and a former officer in the U.S. District Court for the Southern District of Texas.

Without admitting or denying the allegations in the SEC’s complaint, the Company consented to entry of a final judgment pursuant to which it paid a civil monetary penalty of $1.1 million to the SEC.

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

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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 all credit insurance income together with certain recoveries related to 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.

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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)	July 31, 2019			January 31, 2019
Assets:
Restricted cash	$	66,444		$	57,475
Due from Conn’s, Inc., net	8,874			5,504
Customer accounts receivable:
Customer accounts receivable	625,436			538,826
Restructured accounts	152,062			135,834
Allowance for uncollectible accounts	(125,142		)	(106,327		)
Allowance for no-interest option credit programs	(7,278		)	(8,047		)
Deferred fees and origination costs	(6,213		)	(5,321		)
Total customer accounts receivable, net	638,865			554,965
Total assets	$	714,183		$	617,944
Liabilities:
Accrued expenses	$	4,465		$	3,939
Other liabilities	5,086			5,513
Short-term debt:
Warehouse Notes	1,945			53,635
Long-term debt:
2017-B Class B Notes	29,001			98,297
2017-B Class C Notes	78,640			78,640
2018-A Class A Notes	61,415			105,971
2018-A Class B Notes	37,038			63,908
2018-A Class C Notes	37,038			63,908
2019-A Class A Notes	187,959			—
2019-A Class B Notes	64,750			—
2019-A Class C Notes	62,510			—
	558,351			410,724
Less: deferred debt issuance costs	(3,715		)	(2,731		)
Total long-term debt	554,636			407,993
Total debt	$	556,581		$	461,628
Total liabilities	$	566,132		$	471,080

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

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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.

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 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 July 31, 2019, we operated retail stores in 14 states with no operations outside of the United States. No single customer accounts for more than 10% of our total revenues.

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Financial information by segment is presented in the following tables:

	Three Months Ended July 31, 2019								Three Months Ended July 31, 2018
(in thousands)	Retail			Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	99,455		$	—		$	99,455	$	97,066	$	—		$	97,066
Home appliance	99,356			—			99,356		91,471		—			91,471
Consumer electronics	53,692			—			53,692		55,654		—			55,654
Home office	17,883			—			17,883		19,289		—			19,289
Other	4,192			—			4,192		3,699		—			3,699
Product sales	274,578			—			274,578		267,179		—			267,179
Repair service agreement commissions	27,647			—			27,647		25,662		—			25,662
Service revenues	3,837			—			3,837		3,472		—			3,472
Total net sales	306,062			—			306,062		296,313		—			296,313
Finance charges and other revenues	203			94,794			94,997		98		88,209			88,307
Total revenues	306,265			94,794			401,059		296,411		88,209			384,620
Costs and expenses:
Cost of goods sold	182,065			—			182,065		173,627		—			173,627
Selling, general and administrative expense (1)	88,147			39,337			127,484		83,003		37,687			120,690
Provision for bad debts	(19		)	49,755			49,736		243		50,508			50,751
Charges and credits	—			—			—		300		—			300
Total costs and expenses	270,193			89,092			359,285		257,173		88,195			345,368
Operating income	36,072			5,702			41,774		39,238		14			39,252
Interest expense	—			14,396			14,396		—		15,566			15,566
Loss on extinguishment of debt	—			—			—		—		1,367			1,367
Income (loss) before income taxes	$	36,072		$	(8,694	)	$	27,378	$	39,238	$	(16,919	)	$	22,319

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	Six Months Ended July 31, 2019									Six Months Ended July 31, 2018
(in thousands)	Retail			Credit			Total			Retail		Credit			Total
Revenues:
Furniture and mattress	$	187,819		$	—		$	187,819		$	194,086	$	—		$	194,086
Home appliance	176,646			—			176,646			169,494		—			169,494
Consumer electronics	103,341			—			103,341			107,956		—			107,956
Home office	33,589			—			33,589			37,599		—			37,599
Other	7,628			—			7,628			7,358		—			7,358
Product sales	509,023			—			509,023			516,493		—			516,493
Repair service agreement commissions	51,671			—			51,671			48,525		—			48,525
Service revenues	7,347			—			7,347			7,051		—			7,051
Total net sales	568,041			—			568,041			572,069		—			572,069
Finance charges and other revenues	405			186,125			186,530			112		170,826			170,938
Total revenues	568,446			186,125			754,571			572,181		170,826			743,007
Costs and expenses:
Cost of goods sold	339,293			—			339,293			340,216		—			340,216
Selling, general and administrative expense (1)	167,769			77,629			245,398			160,755		74,813			235,568
Provision for bad debts	110			89,672			89,782			503		94,404			94,907
Charges and credits	(695		)	—			(695		)	300		—			300
Total costs and expenses	506,477			167,301			673,778			501,774		169,217			670,991
Operating income	61,969			18,824			80,793			70,407		1,609			72,016
Interest expense	—			28,893			28,893			—		32,386			32,386
Loss on extinguishment of debt	—			—			—			—		1,773			1,773
Income (loss) before income taxes	$	61,969		$	(10,069	)	$	51,900		$	70,407	$	(32,550	)	$	37,857
	July 31, 2019									July 31, 2018
(in thousands)	Retail			Credit			Total			Retail		Credit			Total
Total assets	$	699,382		$	1,446,843		$	2,146,225		$	416,166	$	1,380,335		$	1,796,501

(1) For the three months ended July 31, 2019 and 2018, the amount of corporate overhead allocated to each segment reflected in SG&A was $9.7 million and $9.3 million, respectively. For the three months ended July 31, 2019 and 2018, the amount of reimbursement made to the retail segment by the credit segment was $9.7 million and $9.4 million, respectively. For the six months ended July 31, 2019 and 2018, the amount of corporate overhead allocated to each segment reflected in SG&A was $17.6 million and $17.6 million, respectively. For the six months ended July 31, 2019 and 2018, the amount of reimbursement made to the retail segment by the credit segment was $19.4 million and $18.8 million, respectively.

9. Guarantor Financial Information

Conn’s, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. The Senior Notes, which were issued by Conn’s, Inc., are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Guarantors. As of July 31, 2019 and January 31, 2019, 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 on the ability of any of the Guarantors to transfer funds to Conn’s, Inc. in the form of dividends or distributions.

The following financial information presents the Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Income, and Condensed Consolidated Statement of Cash Flows for Conn’s, Inc. (the issuer of the Senior Notes), the Guarantors, and the Non-Guarantor Subsidiaries, together with certain eliminations. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and operations. The condensed consolidated financial information includes financial data for:

(i) Conn’s, Inc. (on a parent-only basis),

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(ii) Guarantors,

(iii) Non-Guarantor Subsidiaries, and

(iv) the parent company and the subsidiaries on a consolidated basis at July 31, 2019 and January 31, 2019 (after the elimination of intercompany balances and transactions).

Condensed Consolidated Balance Sheet as of July 31, 2019:

(in thousands)	Conn’s, Inc.		Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	7,563	$	—	$	—		$	7,563
Restricted cash	—		1,775		66,444		—			68,219
Customer accounts receivable, net of allowances	—		391,295		273,685		—			664,980
Other accounts receivable	—		67,056		—		—			67,056
Inventories	—		213,513		—		—			213,513
Other current assets	—		9,935		8,874		(8,098		)	10,711
Total current assets	—		691,137		349,003		(8,098		)	1,032,042
Investment in and advances to subsidiaries	834,864		148,049		—		(982,913		)	—
Long-term portion of customer accounts receivable, net of allowances	—		288,651		365,180		—			653,831
Property and equipment, net	—		174,225		—		—			174,225
Operating lease right-of-use assets	—		248,707		—		—			248,707
Deferred income taxes	25,612		—		—		—			25,612
Other assets	—		11,808		—		—			11,808
Total assets	$	860,476	$	1,562,577	$	714,183	$	(991,011	)	$	2,146,225
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of debt and financing lease obligations	$	—	$	613	$	1,945	$	—		$	2,558
Accounts payable	—		73,205		—		—			73,205
Accrued expenses	686		83,754		4,465		(3,196		)	85,709
Operating lease liability - current	—		33,398		—		—			33,398
Other current liabilities	—		13,783		2,346		(4,900		)	11,229
Total current liabilities	686		204,753		8,756		(8,096		)	206,099
Operating lease liability - non current	—		331,010		—		—			331,010
Long-term debt and financing lease obligations	223,055		168,290		554,636		—			945,981
Other long-term liabilities	—		23,660		2,740		—			26,400
Total liabilities	223,741		727,713		566,132		(8,096		)	1,509,490
Total stockholders’ equity	636,735		834,864		148,051		(982,915		)	636,735
Total liabilities and stockholders’ equity	$	860,476	$	1,562,577	$	714,183	$	(991,011	)	$	2,146,225

Deferred income taxes related to tax attributes of the Guarantors and Non-Guarantor Subsidiaries are reflected under Conn’s, Inc.

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Condensed Consolidated Balance Sheet as of January 31, 2019:

(in thousands)	Conn’s, Inc.		Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	5,912	$	—	$	—		$	5,912
Restricted cash	—		1,550		57,475		—			59,025
Customer accounts receivable, net of allowances	—		328,705		324,064		—			652,769
Other accounts receivable	—		67,078		—		—			67,078
Inventories	—		220,034		—		—			220,034
Other current assets	—		12,344		5,504		(8,272		)	9,576
Total current assets	—		635,623		387,043		(8,272		)	1,014,394
Investment in and advances to subsidiaries	815,524		146,864		—		(962,388		)	—
Long-term portion of customer accounts receivable, net of allowances	—		455,443		230,901		—			686,344
Property and equipment, net	—		148,983		—		—			148,983
Deferred income taxes	27,535		—		—		—			27,535
Other assets	—		7,651		—		—			7,651
Total assets	$	843,059	$	1,394,564	$	617,944	$	(970,660	)	$	1,884,907
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of debt and financing lease obligations	$	—	$	474	$	53,635	$	—		$	54,109
Accounts payable	—		71,118		—		—			71,118
Accrued expenses	686		88,478		3,939		(2,768		)	90,335
Other current liabilities	—		24,918		2,592		(5,504		)	22,006
Total current liabilities	686		184,988		60,166		(8,272		)	237,568
Deferred rent	—		93,127		—		—			93,127
Long-term debt and financing lease obligations	222,398		270,831		407,993		—			901,222
Other long-term liabilities	—		30,094		2,921		—			33,015
Total liabilities	223,084		579,040		471,080		(8,272		)	1,264,932
Total stockholders’ equity	619,975		815,524		146,864		(962,388		)	619,975
Total liabilities and stockholders’ equity	$	843,059	$	1,394,564	$	617,944	$	(970,660	)	$	1,884,907

Deferred income taxes related to tax attributes of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries are reflected under Conn’s, Inc.

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CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Income for the Three Months Ended July 31, 2019:

(in thousands)	Conn’s, Inc.			Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	306,062	$	—	$	—		$	306,062
Finance charges and other revenues	—			43,327		51,670		—			94,997
Servicing fee revenue	—			8,865		—		(8,865		)	—
Total revenues	—			358,254		51,670		(8,865		)	401,059
Costs and expenses:
Cost of goods sold	—			182,065		—		—			182,065
Selling, general and administrative expense	—			125,549		10,800		(8,865		)	127,484
Provision for bad debts	—			20,355		29,381		—			49,736
Total costs and expenses	—			327,969		40,181		(8,865		)	359,285
Operating income	—			30,285		11,489		—			41,774
Interest expense	4,443			1,337		8,616		—			14,396
Income (loss) before income taxes	(4,443		)	28,948		2,873		—			27,378
Provision (benefit) for income taxes	(1,218		)	7,979		643		—			7,404
Net income (loss)	(3,225		)	20,969		2,230		—			19,974
Income from consolidated subsidiaries	23,199			2,230		—		(25,429		)	—
Consolidated net income	$	19,974		$	23,199	$	2,230	$	(25,429	)	$	19,974

Condensed Consolidated Statement of Income for the Three Months Ended July 31, 2018:

(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	296,313		$	—		$	—		$	296,313
Finance charges and other revenues	—			56,653			31,654			—			88,307
Servicing fee revenue	—			3,035			—			(3,035		)	—
Total revenues	—			356,001			31,654			(3,035		)	384,620
Costs and expenses:
Cost of goods sold	—			173,627			—			—			173,627
Selling, general and administrative expense	—			115,515			8,210			(3,035		)	120,690
Provision for bad debts	—			29,868			20,883			—			50,751
Charges and credits	—			300			—			—			300
Total costs and expenses	—			319,310			29,093			(3,035		)	345,368
Operating income	—			36,691			2,561			—			39,252
Interest expense	4,448			3,733			7,385			—			15,566
Loss on extinguishment of debt	—			142			1,225			—			1,367
Income (loss) before income taxes	(4,448		)	32,816			(6,049		)	—			22,319
Provision (benefit) for income taxes	(1,058		)	7,805			(1,439		)	—			5,308
Net income (loss)	(3,390		)	25,011			(4,610		)	—			17,011
Income (loss) from consolidated subsidiaries	20,401			(4,610		)	—			(15,791		)	—
Consolidated net income (loss)	$	17,011		$	20,401		$	(4,610	)	$	(15,791	)	$	17,011

24

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Income for the Six Months Ended July 31, 2019:

(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	568,041		$	—	$	—		$	568,041
Finance charges and other revenues	—			107,352			79,178		—			186,530
Servicing fee revenue	—			17,698			—		(17,698		)	—
Total revenues	—			693,091			79,178		(17,698		)	754,571
Costs and expenses:
Cost of goods sold	—			339,293			—		—			339,293
Selling, general and administrative expense	—			245,005			18,091		(17,698		)	245,398
Provision for bad debts	—			44,339			45,443		—			89,782
Charges and credits	—			(695		)	—		—			(695		)
Total costs and expenses	—			627,942			63,534		(17,698		)	673,778
Operating income	—			65,149			15,644		—			80,793
Interest expense	8,886			5,924			14,083		—			28,893
Income (loss) before income taxes	(8,886		)	59,225			1,561		—			51,900
Provision (benefit) for income taxes	(2,126		)	14,169			374		—			12,417
Net income (loss)	(6,760		)	45,056			1,187		—			39,483
Income from consolidated subsidiaries	46,243			1,187			—		(47,430		)	—
Consolidated net income	$	39,483		$	46,243		$	1,187	$	(47,430	)	$	39,483

Condensed Consolidated Statement of Income for the Six Months Ended July 31, 2018:

(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	572,069		$	—		$	—		$	572,069
Finance charges and other revenues	—			102,308			68,630			—			170,938
Servicing fee revenue	—			19,781			—			(19,781		)	—
Total revenues	—			694,158			68,630			(19,781		)	743,007
Costs and expenses:
Cost of goods sold	—			340,216			—			—			340,216
Selling, general and administrative expense	—			235,308			20,041			(19,781		)	235,568
Provision for bad debts	—			36,876			58,031			—			94,907
Charges and credits	—			300			—			—			300
Total costs and expenses	—			612,700			78,072			(19,781		)	670,991
Operating income (loss)	—			81,458			(9,442		)	—			72,016
Interest expense	8,891			6,766			16,729			—			32,386
Loss on extinguishment of debt	—			142			1,631			—			1,773
Income (loss) before income taxes	(8,891		)	74,550			(27,802		)	—			37,857
Provision (benefit) for income taxes	(1,906		)	15,979			(5,959		)	—			8,114
Net income (loss)	(6,985		)	58,571			(21,843		)	—			29,743
Income (loss) from consolidated subsidiaries	36,728			(21,843		)	—			(14,885		)	—
Consolidated net income (loss)	$	29,743		$	36,728		$	(21,843	)	$	(14,885	)	$	29,743

25

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows for the Six Months Ended July 31, 2019:

(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(597	)	$	173,701		$	(83,660	)	$	—		$	89,444
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(379,200		)	379,200			—
Sale of customer accounts receivables	—			—			379,200			(379,200		)	—
Purchase of property and equipment	—			(33,330		)	—			—			(33,330		)
Investment in subsidiary	—			(33,019		)	—			33,019			—
Net cash used in investing activities	—			(66,349		)	—			33,019			(33,330		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	—			—			381,790			—			381,790
Payments on asset-backed notes	—			—			(234,162		)	—			(234,162		)
Borrowings from revolving credit facility	—			778,166			—			—			778,166
Contribution from subsidiary	33,019			—			—			(33,019		)	—
Payments on revolving credit facility	—			(881,166		)	—			—			(881,166		)
Payments of debt issuance costs and amendment fees	—			(55		)	(3,437		)	—			(3,492		)
Payments on warehouse facility	—			—			(51,561		)	—			(51,561		)
Proceeds from stock issued under employee benefit plans	597			—			—			—			597
Tax payments associated with equity-based compensation transactions	—			(1,781		)	—			—			(1,781		)
Purchase of treasury stock	(33,019		)	—			—			—			(33,019		)
Other	—			(641		)	—			—			(641		)
Net cash provided by (used in) financing activities	597			(105,477		)	92,630			(33,019		)	(45,269		)
Net change in cash, cash equivalents and restricted cash	—			1,875			8,970			—			10,845
Cash, cash equivalents and restricted cash, beginning of period	—			7,462			57,475			—			64,937
Cash, cash equivalents and restricted cash, end of period	$	—		$	9,337		$	66,445		$	—		$	75,782

26

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows for the Six Months Ended July 31, 2018:

(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(834	)	$	(33	)	$	156,519		$	—		$	155,652
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(170,144		)	170,144			—
Sale of customer accounts receivables	—			—			170,144			(170,144		)	—
Purchase of property and equipment	—			(12,166		)	—			—			(12,166		)
Net cash used in investing activities	—			(12,166		)	—			—			(12,166		)
Cash flows from financing activities:
Payments on asset-backed notes	—			(169,803		)	(312,080		)	—			(481,883		)
Borrowings from revolving credit facility	—			839,236			—			—			839,236
Payments on revolving credit facility	—			(655,036		)	—			—			(655,036		)
Borrowings from warehouse facility	—			—			173,286			—			173,286
Payments of debt issuance costs and amendment fees	—			(2,825		)	(714		)	—			(3,539		)
Payments on warehouse facility	—			—			(52,226		)	—			(52,226		)
Proceeds from stock issued under employee benefit plans	834			—			—			—			834
Tax payments associated with equity-based compensation transactions	—			(2,516		)	—			—			(2,516		)
Payments from extinguishment of debt	—			(1,177		)	—			—			(1,177		)
Other	—			(531		)	—			—			(531		)
Net cash provided by (used in) financing activities	834			7,348			(191,734		)	—			(183,552		)
Net change in cash, cash equivalents and restricted cash	—			(4,851		)	(35,215		)	—			(40,066		)
Cash, cash equivalents and restricted cash, beginning of period	—			10,836			85,322			—			96,158
Cash, cash equivalents and restricted cash, end of period	$	—		$	5,985		$	50,107		$	—		$	56,092

27

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders’ Equity

Share Repurchases

On May 30, 2019, we entered into a stock repurchase program, effective as of May 31, 2019, pursuant to which we may repurchase up to $75.0 million of our outstanding common stock. The program will remain effective for one year, unless extended by the Board of Directors. During the three months ended July 31, 2019, we repurchased 1,874,846 shares of our common stock at an average weighted cost per share of $18.30 for an aggregate amount of $34.3 million.

11.     Subsequent Events

For the period August 1, 2019 through August 29, 2019, we repurchased an additional 1,207,690 shares of our common stock for $23.6 million at an average price of $19.56 per share. The total shares repurchased through August 29, 2019 under the plan in aggregate is 3,082,536 shares for $57.9 million at an average price of $18.79 per share.

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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; 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, and proceeds from accessing debt or equity markets; the expected timing and amount of our share repurchases; 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, 2019 (the “2019 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 $401.1 million for the three months ended July 31, 2019 compared to $384.6 million for the three months ended July 31, 2018, an increase of $16.4 million or 4.3%. Retail revenues were $306.3 million for the three months ended July 31, 2019 compared to $296.4 million for the three months ended July 31, 2018, an increase of $9.9 million or 3.3%. The increase in retail revenue was primarily driven by new store growth, partially offset by a decrease in same store sales of 2.3%. The decrease in same store sales was driven by a decrease of 9.3% in markets impacted by Hurricane Harvey, partially offset by an increase of 0.4% in markets not impacted by Hurricane Harvey. Same store sales include e-commerce sales. We believe the decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the three months ended July 31, 2018. Credit revenues were $94.8 million for the three months ended July 31, 2019 compared to $88.2 million for the three months ended July 31, 2018, an increase of $6.6 million or 7.5%. The increase in credit revenue resulted from the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to 21.9% from 21.3% for the comparative period in fiscal year 2019, and from a 3.0% increase in the average outstanding balance of the customer accounts receivable portfolio. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the three months ended July 31, 2019.

Retail gross margin for the three months ended July 31, 2019 was 40.5%, a decrease of 90 basis points from the 41.4% reported for the three months ended July 31, 2018. The decrease in retail gross margin was primarily driven by higher margins realized in the comparative three months ended July 31, 2018 due to the one-time benefit of increases in appliance retail pricing related to tariff adjustments and the associated forward purchases of inventory, coupled with increased logistics costs to help support future

29

growth in the three months ended July 31, 2019. The decrease was partially offset by an increase in retrospective income on our repair service agreements (“RSAs”) during the three months ended July 31, 2019.

Selling, general and administrative expense (“SG&A”) for the three months ended July 31, 2019 was $127.5 million compared to $120.7 million for the three months ended July 31, 2018, an increase of $6.8 million or 5.6%. The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs and compensation costs period over period offset by a decrease in advertising expense. The SG&A increase in the credit segment was primarily due to an increase in general operational expenses and third-party legal expenses related to collection efforts on charged off accounts.

Provision for bad debts decreased to $49.7 million for the three months ended July 31, 2019 from $50.8 million for the three months ended July 31, 2018, a decrease of $1.1 million. The decrease was primarily driven by lower net charge offs of $1.6 million for the three months ended July 31, 2019 compared to the three months ended July 31, 2018, partially offset by a larger increase in the allowance for bad debts for the three months ended July 31, 2019 compared to the three months ended July 31, 2018. The larger increase in the allowance for bad debts was primarily driven by the year-over-year increase in the carrying value of the customer accounts receivable portfolio from July 31, 2018.

Interest expense decreased to $14.4 million for the three months ended July 31, 2019, compared to $15.6 million for the three months ended July 31, 2018, a decrease of $1.2 million. The decrease was driven by a lower weighted average cost of borrowing.

Net income for the three months ended July 31, 2019 was $20.0 million or $0.62 per diluted share, compared to $17.0 million, or $0.53 per diluted share, for the three months ended July 31, 2018.

Company Initiatives

In the second quarter of fiscal year 2020, we delivered strong credit segment performance, driven by higher yields, better portfolio performance and lower borrowing costs.  Retail operating margins remained strong, demonstrating our differentiated business model, improved product mix, and emphasis on disciplined cost management. We delivered the following financial and operational results in the second quarter of fiscal year 2020:

• Achieved earnings per diluted share of $0.62 for the three months ended July 31, 2019, an increase of 17.0% compared to $0.53 for the three months ended July 31, 2018;

• Recorded an increase in same store sales of 0.4% in non-hurricane Harvey markets;

• Recorded retail gross margin of 40.5% representing our fifth consecutive quarter above our target retail gross margin of 40%;

• Recorded an increase in e-commerce sales of 467% compared to the second quarter of fiscal year 2019;

• Recorded record second quarter yield on our customer receivables portfolio of 21.9% as a result of the continued seasoning of loans originated under our higher-yielding direct loan program;

• Increased our credit spread, which is the difference between net yield and charge-offs as a percentage of our average customer accounts receivable portfolio balance, to 8.9% for the three months ended July 31, 2019 from 7.5% for the three months ended July 31, 2018;

• Reduced interest expense as a result of our deleveraging efforts combined with the continued successful execution of our asset-backed securitization program, which led to a 7.5% reduction in interest expense compared to the second quarter of fiscal year 2019; and

• Repurchased $34.4 million or approximately 1.9 million shares of the Company’s common stock at an average share price of $18.30.

We believe that we have laid the foundation to execute our long-term growth strategy and prudently manage financial and operational risk while maximizing shareholder value. We remain focused on the following strategic priorities for fiscal year 2020:

• Increase net income by improving performance across our core operational and financial metrics: same store sales, retail margin, portfolio yield, charge-off rate, and interest expense;

• Open 14 new stores in our current geographic footprint to leverage our existing infrastructure;

• Continue to refine and enhance our underwriting platform;

• Mitigate increases in our interest expense;

• Optimize our mix of quality, branded products and gain efficiencies in our warehouse, delivery and transportation operations to increase our retail gross margin;

• Continue to grow our lease-to-own sales;

30

• Continue to grow our e-commerce sales;

• Maintain disciplined oversight of our SG&A;

• Ensure that the Company has the leadership and human capital pipeline and capability to drive results and meet present and future business objectives as the Company continues to expand its retail store base; and

• Leverage technology and shared services to drive efficient, effective and scalable processes.

Outlook

The broad appeal of the Conn’s value proposition to our geographically diverse core demographic, unit economics of our business and current retail real estate market conditions provide us ample opportunity for continued expansion. Our brand recognition and long history in our core markets 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 United States with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to continue 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 higher net sales to further leverage our existing corporate and regional infrastructure.

Results of Operations 

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

Consolidated:	Three Months Ended   July 31,							Six Months Ended   July 31,
(in thousands)	2019		2018		Change			2019			2018		Change
Revenues:
Total net sales	$	306,062	$	296,313	$	9,749		$	568,041		$	572,069	$	(4,028	)
Finance charges and other revenues	94,997		88,307		6,690			186,530			170,938		15,592
Total revenues	401,059		384,620		16,439			754,571			743,007		11,564
Costs and expenses:
Cost of goods sold	182,065		173,627		8,438			339,293			340,216		(923		)
Selling, general and administrative expense	127,484		120,690		6,794			245,398			235,568		9,830
Provision for bad debts	49,736		50,751		(1,015		)	89,782			94,907		(5,125		)
Charges and credits	—		300		(300		)	(695		)	300		(995		)
Total costs and expenses	359,285		345,368		13,917			673,778			670,991		2,787
Operating income	41,774		39,252		2,522			80,793			72,016		8,777
Interest expense	14,396		15,566		(1,170		)	28,893			32,386		(3,493		)
Loss on extinguishment of debt	—		1,367		(1,367		)	—			1,773		(1,773		)
Income before income taxes	27,378		22,319		5,059			51,900			37,857		14,043
Provision for income taxes	7,404		5,308		2,096			12,417			8,114		4,303
Net income	$	19,974	$	17,011	$	2,963		$	39,483		$	29,743	$	9,740

31

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. 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.

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

Retail Segment:	Three Months Ended   July 31,								Six Months Ended   July 31,
(dollars in thousands)	2019			2018		Change			2019			2018		Change
Revenues:
Product sales	$	274,578		$	267,179	$	7,399		$	509,023		$	516,493	$	(7,470	)
Repair service agreement commissions	27,647			25,662		1,985			51,671			48,525		3,146
Service revenues	3,837			3,472		365			7,347			7,051		296
Total net sales	306,062			296,313		9,749			568,041			572,069		(4,028		)
Finance charges and other	203			98		105			405			112		293
Total revenues	306,265			296,411		9,854			568,446			572,181		(3,735		)
Costs and expenses:
Cost of goods sold	182,065			173,627		8,438			339,293			340,216		(923		)
Selling, general and administrative expense (1)	88,147			83,003		5,144			167,769			160,755		7,014
Provision for bad debts	(19		)	243		(262		)	110			503		(393		)
Charges and credits	—			300		(300		)	(695		)	300		(995		)
Total costs and expenses	270,193			257,173		13,020			506,477			501,774		4,703
Operating income	$	36,072		$	39,238	$	(3,166	)	$	61,969		$	70,407	$	(8,438	)
Number of stores:
Beginning of period	127			118					123			116
Opened	4			—					8			2
End of period	131			118					131			118

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Credit Segment:	Three Months Ended   July 31,									Six Months Ended   July 31,
(in thousands)	2019			2018			Change			2019			2018			Change
Revenues:
Finance charges and other revenues	$	94,794		$	88,209		$	6,585		$	186,125		$	170,826		$	15,299
Costs and expenses:
Selling, general and administrative expense (1)	39,337			37,687			1,650			77,629			74,813			2,816
Provision for bad debts	49,755			50,508			(753		)	89,672			94,404			(4,732		)
Total costs and expenses	89,092			88,195			897			167,301			169,217			(1,916		)
Operating income	5,702			14			5,688			18,824			1,609			17,215
Interest expense	14,396			15,566			(1,170		)	28,893			32,386			(3,493		)
Loss on extinguishment of debt	—			1,367			(1,367		)	—			1,773			(1,773		)
Loss before income taxes	$	(8,694	)	$	(16,919	)	$	8,225		$	(10,069	)	$	(32,550	)	$	22,481

(1) For the three months ended July 31, 2019 and 2018, the amount of overhead allocated to each segment reflected in SG&A was $9.7 million and $9.3 million, respectively. For the three months ended July 31, 2019 and 2018, the amount of reimbursement made to the retail segment by the credit segment was $9.7 million and $9.4 million, respectively. For the six months ended July 31, 2019 and 2018, the amount of corporate overhead allocated to each segment reflected in SG&A was $17.6 million and $17.6 million, respectively. For the six months ended July 31, 2019 and 2018, the amount of reimbursement made to the retail segment by the credit segment was $19.4 million and $18.8 million, respectively.

Three months ended July 31, 2019 compared to three months ended July 31, 2018

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 July 31,											%		Same Store
(dollars in thousands)	2019		% of Total		2018		% of Total		Change			Change		% Change
Furniture and mattress	$	99,455	32.5	%	$	97,066	32.8	%	$	2,389		2.5	%	—
Home appliance	99,356		32.5		91,471		30.9		7,885			8.6		3.4
Consumer electronics	53,692		17.5		55,654		18.8		(1,962		)	(3.5	)	(12.2	)
Home office	17,883		5.8		19,289		6.5		(1,406		)	(7.3	)	(11.2	)
Other	4,192		1.4		3,699		1.2		493			13.3		6.3
Product sales	274,578		89.7		267,179		90.2		7,399			2.8		(2.1	)
Repair service agreement commissions (1)	27,647		9.0		25,662		8.6		1,985			7.7		(3.6	)
Service revenues	3,837		1.3		3,472		1.2		365			10.5
Total net sales	$	306,062	100.0	%	$	296,313	100.0	%	$	9,749		3.3	%	(2.3	)%

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

The increase in product sales for the three months ended July 31, 2019 was primarily due to new store growth, partially offset by a decrease in same store sales of 2.3%. The decrease in same store sales was driven by a decrease of 9.3% in markets impacted by Hurricane Harvey, partially offset by an increase of 0.4% in markets not impacted by Hurricane Harvey. We believe the decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the three months ended July 31, 2018.

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

	Three Months Ended   July 31,
(in thousands)	2019		2018		Change
Interest income and fees	$	85,204	$	80,435	$	4,769
Insurance income	9,590		7,774		1,816
Other revenues	203		98		105
Finance charges and other revenues	$	94,997	$	88,307	$	6,690

The increase in interest income and fees resulted from an increase in the yield rate to 21.9% for the three months ended July 31, 2019 from 21.3% for the three months ended July 31, 2018, an increase of 60 basis points, and from an increase of 3.0% in the average balance of the customer accounts receivable portfolio. The increase in the yield rate resulted from the origination of our higher-yielding direct loan product, which represented approximately 75% of our originations for the three months ended July 31, 2019. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the three months ended July 31, 2019.

The following table provides key portfolio performance information: 

	Three Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Interest income and fees	$	85,204		$	80,435		$	4,769
Net charge-offs	(50,005		)	(51,642		)	1,637
Interest expense	(14,396		)	(15,566		)	1,170
Net portfolio income	$	20,803		$	13,227		$	7,576
Average outstanding portfolio balance	$	1,542,849		$	1,497,635		$	45,214
Interest income and fee yield (annualized)	21.9		%	21.3		%
Net charge-off % (annualized)	13.0		%	13.8		%

Retail Gross Margin

	Three Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail total net sales	$	306,062		$	296,313		$	9,749
Cost of goods sold	182,065			173,627			8,438
Retail gross margin	$	123,997		$	122,686		$	1,311
Retail gross margin percentage	40.5		%	41.4		%

The decrease in retail gross margin was primarily driven by higher margins realized in the comparative three months ended July 31, 2018 due to the one-time benefit of increases in appliance retail pricing related to tariff adjustments and the associated forward purchases of inventory, coupled with increased logistics costs to help support future growth in the three months ended July 31, 2019. The decrease was partially offset by an increase in retrospective income on our RSAs during the three months ended July 31, 2019.

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Selling, General and Administrative Expense

	Three Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail segment	$	88,147		$	83,003		$	5,144
Credit segment	39,337			37,687			1,650
Selling, general and administrative expense - Consolidated	$	127,484		$	120,690		$	6,794
Selling, general and administrative expense as a percent of total revenues	31.8		%	31.4		%

The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs and compensation costs offset by a decrease in advertising expense. The SG&A increase in the credit segment was primarily due to an increase in general operational expenses and third-party legal expenses related to collection efforts on charged off accounts. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment for the three months ended July 31, 2019 increased 10 basis points as compared to the three months ended July 31, 2018.

Provision for Bad Debts

	Three Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail segment	$	(19	)	$	243		$	(262	)
Credit segment	49,755			50,508			(753		)
Provision for bad debts - Consolidated	$	49,736		$	50,751		$	(1,015	)
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	12.9		%	13.5		%

The provision for bad debts decreased to $49.7 million for the three months ended July 31, 2019 from $50.8 million for the three months ended July 31, 2018, a decrease of $1.1 million. The decrease was driven by lower net charge-offs of $1.6 million for the three months ended July 31, 2019 compared to the three months ended July 31, 2018, partially offset by a larger increase in the allowance for bad debts for the three months ended July 31, 2019. The larger increase in the allowance for bad debts was primarily driven by the year-over-year increase in the carrying value of the customer accounts receivable portfolio from July 31, 2018.

Charges and Credits

During the three months ended July 31, 2018, we incurred $0.3 million in costs associated with a contingency reserve related to a regulatory matter.

Interest Expense

Interest expense decreased to $14.4 million for the three months ended July 31, 2019 from $15.6 million for the three months ended July 31, 2018, a decrease of $1.2 million. The decrease was driven by a lower weighted average cost of borrowing.

Loss on Extinguishment of Debt

During the three months ended July 31, 2018, we recorded a $1.4 million loss on extinguishment of debt related to the retirement of our Series 2017-A Class B and Class C Notes (the “2017-A Redeemed Notes”) and associated call premiums.

Provision for Income Taxes

	Three Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Provision for income taxes	$	7,404		$	5,308		$	2,096
Effective tax rate	27.0		%	23.8		%

The increase in income tax expense for the three months ended July 31, 2019 compared to the three months ended July 31, 2018 was primarily driven by an increase in pre-tax earnings and an increase in the effective tax rate. The primary factor affecting the increase in our effective tax rate for the three months ended July 31, 2019 was a decrease in deductible compensation expense compared to the prior year period.

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Six months ended July 31, 2019 compared to six months ended July 31, 2018

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

	Six Months Ended July 31,											%		Same Store
(dollars in thousands)	2019		% of Total		2018		% of Total		Change			Change		% Change
Furniture and mattress	$	187,819	33.1	%	$	194,086	33.9	%	$	(6,267	)	(3.2	)%	(5.3	)%
Home appliance	176,646		31.1		169,494		29.6		7,152			4.2		0.2
Consumer electronics	103,341		18.2		107,956		18.9		(4,615		)	(4.3	)	(10.4	)
Home office	33,589		5.9		37,599		6.6		(4,010		)	(10.7	)	(13.5	)
Other	7,628		1.3		7,358		1.3		270			3.7		(1.4	)
Product sales	509,023		89.6		516,493		90.3		(7,470		)	(1.4	)	(5.1	)
Repair service agreement commissions (1)	51,671		9.1		48,525		8.5		3,146			6.5		(6.2	)
Service revenues	7,347		1.3		7,051		1.2		296			4.2
Total net sales	$	568,041	100.0	%	$	572,069	100.0	%	$	(4,028	)	(0.7	)%	(5.2	)%

(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 product sales for the six months ended July 31, 2019 was due to a decrease in same store sales partially offset by new store growth. The decrease in same store sales was 11.9% in markets impacted by Hurricane Harvey and 2.5% in markets not impacted by Hurricane Harvey. We believe the decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the six months ended July 31, 2018. We also believe same store sales were negatively impacted, primarily in the first fiscal quarter of fiscal year 2020, by a greater-than-expected shift towards online applications, which exhibit higher credit risk and lower approval rates, disruption in the transition to our new e-commerce platform to support our full omnichannel offering and the delay in federal tax refunds.

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

	Six Months Ended   July 31,
(in thousands)	2019		2018		Change
Interest income and fees	$	169,221	$	156,781	$	12,440
Insurance income	16,904		14,045		2,859
Other revenues	405		112		293
Finance charges and other revenues	$	186,530	$	170,938	$	15,592

The increase in interest income and fees resulted from an increase in the yield rate to 22.0% for the six months ended July 31, 2019 from 21.0% for the six months ended July 31, 2018, an increase of 100 basis points, and from an increase of 3.3% in the average balance of the customer accounts receivable portfolio. The increase in the yield rate resulted from the origination of our higher-yielding direct loan product, which represented approximately 76% of our originations for the six months ended July 31, 2019. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the six months ended July 31, 2019.

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The following table provides key portfolio performance information: 

	Six Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Interest income and fees	$	169,221		$	156,781		$	12,440
Net charge-offs	(98,066		)	(97,093		)	(973		)
Interest expense	(28,893		)	(32,386		)	3,493
Net portfolio income	$	42,262		$	27,302		$	14,960
Average outstanding portfolio balance	$	1,552,856		$	1,503,311		$	49,545
Interest income and fee yield (annualized)	22.0		%	21.0		%
Net charge-off % (annualized)	12.6		%	12.9		%

Retail Gross Margin

	Six Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail total net sales	$	568,041		$	572,069		$	(4,028	)
Cost of goods sold	339,293			340,216			(923		)
Retail gross margin	$	228,748		$	231,853		$	(3,105	)
Retail gross margin percentage	40.3		%	40.5		%

The decrease in retail gross margin was primarily driven by higher margins realized in the comparative six months ended July 31, 2018 due to the one-time benefit of increases in appliance retail pricing related to tariff adjustments and the associated forward purchases of inventory, coupled with increased logistics costs to help support future growth in the six months ended July 31, 2019. The decrease was partially offset by an increase in retrospective income on our RSAs during the six months ended July 31, 2019.

Selling, General and Administrative Expense

	Six Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail segment	$	167,769		$	160,755		$	7,014
Credit segment	77,629			74,813			2,816
Selling, general and administrative expense - Consolidated	$	245,398		$	235,568		$	9,830
Selling, general and administrative expense as a percent of total revenues	32.5		%	31.7		%

The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs and compensation costs offset by a decrease in advertising expense. The SG&A increase in the credit segment was primarily due to an increase in general operational expenses, occupancy costs and third-party legal expenses related to collection efforts on charged off accounts. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment for the six months ended July 31, 2019 remained flat as compared to the six months ended July 31, 2018.

Provision for Bad Debts

	Six Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Retail segment	$	110		$	503		$	(393	)
Credit segment	89,672			94,404			(4,732		)
Provision for bad debts - Consolidated	$	89,782		$	94,907		$	(5,125	)
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)	11.5		%	12.6		%

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The provision for bad debts decreased to $89.8 million for the six months ended July 31, 2019 from $94.9 million for the six months ended July 31, 2018, a decrease of $5.1 million. The decrease was driven by a greater decrease in the allowance for bad debts during six months ended July 31, 2019 compared to the six months ended July 31, 2018, partially offset by a year-over-year increase in net charge-offs of $1.0 million, which was primarily driven by an increase in the average balance of the customer receivable portfolio. The decrease in the allowance for bad debts as of six months ended July 31, 2019 was primarily driven by a year-over-year decrease in the incurred loss rate as of the six months ended July 31, 2019 compared to the six months ended July 31, 2018.

Charges and Credits

During the six months ended July 31, 2019, we recognized a $0.7 million gain from increased sublease income related to the consolidation of our corporate headquarters. During the six months ended July 31, 2018, we incurred $0.3 million in costs associated with a contingency reserve related to a regulatory matter. 

Interest Expense

Interest expense decreased to $28.9 million for the six months ended July 31, 2019 from $32.4 million for the six months ended July 31, 2018, a decrease of $3.5 million. The decrease was driven by a lower weighted average cost of borrowing and a lower average outstanding balance of debt.

Loss on Extinguishment of Debt

During the six months ended July 31, 2018, we recorded a $1.7 million loss on extinguishment of debt related to the retirement of our Series 2016-B Class B Notes (the “2016-B Redeemed Notes”) and 2017-A Redeemed Notes and associated call premiums.

Provision for Income Taxes

	Six Months Ended   July 31,
(dollars in thousands)	2019			2018			Change
Provision for income taxes	$	12,417		$	8,114		$	4,303
Effective tax rate	23.9		%	21.4		%

The increase in income tax expense for the six months ended July 31, 2019 compared to the six months ended July 31, 2018 was primarily driven by an increase in pre-tax earnings and an increase in the effective tax rate. The primary factor affecting the increase in our effective tax rate for the six months ended July 31, 2019 was a decrease in deductible compensation expense compared to the prior year period.

Customer Accounts Receivable Portfolio

We provide in-house financing to individual consumers on a 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 30%. 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 76% of our originations during the six months ended July 31, 2019, which have a maximum equivalent interest rate of up to 27% in Oklahoma, up to 30% in Texas and Tennessee, and up to 36% in Louisiana under our direct consumer loan programs. In states where regulations do not generally limit the interest rate charged, our loan contracts generally reflect an interest rate of 29.99%. These states represented 12% of our originations during the six months ended July 31, 2019.

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

38

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 may provide the customer the ability to re-age their obligation by refinancing the 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 extends the term. 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 July 31,
	2019			2018
Weighted average credit score of outstanding balances (1)	594			594
Average outstanding customer balance	$	2,711		$	2,503
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)	8.7		%	8.7		%
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(4)	25.8		%	24.9		%
Carrying value of account balances re-aged more than six months (in thousands) (3)	$	97,510		$	83,496
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	13.3		%	13.5		%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	23.7		%	20.9		%

	Three Months Ended   July 31,						Six Months Ended   July 31,
	2019			2018			2019			2018
Total applications processed (5)	311,062			295,564			569,849			579,050
Weighted average origination credit score of sales financed (1)	609			610			609			609
Percent of total applications approved and utilized	28.0		%	31.4		%	27.8		%	30.9		%
Average income of credit customer at origination	$	45,700		$	43,700		$	45,500		$	43,700
Percent of retail sales paid for by:
In-house financing, including down payments received	68.8		%	70.5		%	68.5		%	70.3		%
Third-party financing	17.7		%	16.4		%	16.9		%	15.7		%
Third-party lease-to-own option	6.5		%	6.4		%	7.3		%	6.9		%
	93.0		%	93.3		%	92.7		%	92.9		%

(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.

(4) First time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas included in the re-aged balance as ofJuly 31, 2019 and July 31, 2018 were 1.1% and 2.8%, respectively, of the total customer portfolio carrying value.

(5) The total applications processed during the three and six months ended July 31, 2018, we believe, reflect the impact of the rebuilding efforts following Hurricane Harvey.

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.

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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 10.0% as of July 31, 2019 from 10.7% as of July 31, 2018. This decrease is primarily driven by an increase in customer recoveries, as well as a reduction in the non-TDR loss rate. The percentage of the carrying value of non-restructured accounts greater than 60 days past due decreased 10 basis points over the prior year period to 6.7% as of July 31, 2019 from 6.8% as of July 31, 2018.

For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was 36.2% as of July 31, 2019 as compared to 35.4% as of July 31, 2018.

The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance was 13.0% for the three months ended July 31, 2019 compared to 13.8% for the three months ended July 31, 2018. The decrease was primarily due to the seasoningof loans originated with tighter underwriting standards,improved collections execution, improvements in recoveries due to enhancements in our collections program and an increase in our average outstanding portfolio balance.

As of July 31, 2019 and 2018, balances under no-interest programs included within customer receivables were $368.6 million and $315.1 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 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 six months ended July 31, 2019, net cash provided by operating activities was $89.4 million compared to $155.7 million for the six months ended July 31, 2018. The decrease in net cash provided by operating activities was primarily driven by a decrease in cash provided by working capital and the collection of an income tax refund of $34.5 million during the six months ended July 31, 2018 offset by an increase in net income when adjusted for non-cash activity.

Investing cash flows.  For the six months ended July 31, 2019, net cash used in investing activities was $33.3 million compared to $12.2 million for the six months ended July 31, 2018. The change was primarily the result of higher capital expenditures due to investments in new stores, renovations and expansions of select existing stores, a new distribution center and technology investments we are making to support long-term growth.

Financing cash flows.  For the six months ended July 31, 2019, net cash used in financing activities was $45.3 million compared to net cash used in financing activities of $183.6 million for the six months ended July 31, 2018. During the six months ended July 31, 2019, we issued 2019-A VIE asset-backed notes resulting in net proceeds to us of approximately $379.2 million, net of transaction costs, which were used to pay down the entire balance of the Company’s Revolving Credit Facility outstanding at the time of issuance and for other general corporate purposes. Cash collections from the securitized receivables were used to make payments on the asset-backed notes of approximately $285.7 million during the six months ended July 31, 2019 compared to approximately $534.1 million in the comparable prior year period. During the period ended July 31, 2019, net payments under our Revolving Credit Facility were $103.0 million as compared to net borrowings of $184.2 million during the period ended July 31, 2018.

During the six months ended July 31, 2018, the issuance of additional funding under the Warehouse Notes resulted in net proceeds of $169.7 million, net of transaction costs and restricted cash. The proceeds from the Warehouse Notes were used to early retire the 2016-B Redeemed Notes.

Share Repurchase Program. On May 30, 2019, we entered into a stock repurchase program, effective as of May 31, 2019, pursuant to which we may repurchase up to $75.0 million of our outstanding common stock. The program will remain effective for one year, unless extended by the Board of Directors. During the three months ended July 31, 2019, we repurchased 1,874,846 shares of our common stock at an average weighted cost per share of $18.30 for an aggregate amount of $34.3 million.

Senior Notes. On July 1, 2014, we issued $250.0 million of the unsecured Senior Notes due July 2022 bearing interest at 7.25% (the “Senior Notes”), pursuant to an indenture dated July 1, 2014 (as amended, the “Indenture”), among Conn’s, Inc., its subsidiary guarantors (the “Guarantors”) and U.S. Bank National Association, as trustee. The effective interest rate of the Senior Notes after giving effect to the discount and issuance costs is 7.8%.

The Indenture restricts the Company’s and certain of its subsidiaries’ ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock (“restricted payments”); (iii) prepay, redeem or repurchase debt that is junior in right of payment to the notes; (iv) make loans and certain investments; (v) sell assets; (vi) incur liens; (vii)

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enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. During any time when the Senior Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period. As of July 31, 2019, $213.8 millionwould have been free from the restricted payments covenant contained in the Indenture. Events of default under the Indenture include customary events, such as a cross-acceleration provision in the event that we fail to make payment of other indebtedness prior to the expiration of any applicable grace period or upon acceleration of indebtedness prior to its stated maturity date in an amount exceeding$25.0 million, as well as in the event a judgment is entered against us in excess of $25.0 million that is not discharged, bonded or insured.

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.

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, as amended. 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 July 31, 2019 consisted of the following:

Asset-Backed Notes	Original Principal Amount		Original Net Proceeds (1)		Current Principal Amount		Issuance Date	Maturity Date	Contractual Interest Rate	Effective Interest Rate (2)
2017-B Class B Notes	$	132,180	$	131,281	$	29,001	12/20/2017	4/15/2021	4.52%	5.30%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.35%
2018-A Class A Notes	219,200		217,832		61,415		8/15/2018	1/17/2023	3.25%	4.82%
2018-A Class B Notes	69,550		69,020		37,038		8/15/2018	1/17/2023	4.65%	5.60%
2018-A Class C Notes	69,550		68,850		37,038		8/15/2018	1/17/2023	6.02%	6.97%
2019-A Class A Notes	254,530		253,026		187,959		4/24/2019	10/16/2023	3.40%	4.71%
2019-A Class B Notes	64,750		64,276		64,750		4/24/2019	10/16/2023	4.36%	5.17%
2019-A Class C Notes	62,510		61,898		62,510		4/24/2019	10/16/2023	5.29%	6.18%
Warehouse Notes	121,060		118,972		2,074		7/16/2018	1/15/2020	Index + 2.50% (3)	6.43%
Total	$	1,071,970	$	1,062,998	$	560,425

(1) After giving effect to debt issuance costs.

(2) For the six months ended July 31, 2019, and inclusive of the impact of changes in timing of actual and expected cash flows.

(3) The rate on the Warehouse Notes is defined as the applicable index plus a 2.50% fixed margin.

On April 24, 2019, the Company completed the issuance and sale of asset-backed notes at a face amount of $381.8 million secured by the transferred customer accounts receivables and restricted cash held by a VIE, which resulted in net proceeds to us of $379.2 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 October 16, 2023 and consist of $254.5 million of 3.40% Series 2019-A, Class A Asset Backed Fixed Rate Notes, $64.8 million of 4.36% Series 2019-A, Class B Asset Backed Fixed Rate Notes and $62.5 million of 5.29%, Series 2019-A, Class C Asset Backed Fixed Rate Notes.

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Revolving Credit Facility.On May 23, 2018, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into a Fourth Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “Fourth Amendment”), dated as of October 30, 2015, with certain lenders, which provides for a $650.0 million asset-based revolving credit facility (the “Revolving Credit Facility”) under which credit availability is subject to a borrowing base and a maturity date of May 23, 2022.

Loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to LIBOR plus the applicable 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 the greatest of the prime rate announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR 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 weighted-average interest rate on borrowings outstanding and including unused line fees under the Revolving Credit Facility was 6.5% for the six months ended July 31, 2019.

The Revolving Credit Facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory, and provides for a $40.0 million sub-facility for letters of credit to support obligations incurred in the ordinary course of business. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2019, we had immediately available borrowing capacity of $403.0 million under our Revolving Credit Facility, net of standby letters of credit issued of $2.5 million. We also had $81.0 million that may become available under our Revolving Credit Facility if we grow the balance of eligible customer receivables and our total eligible inventory balances.

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, 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. As of July 31, 2019, we were restricted from making distributions, including repayments of the Senior Notes or other distributions, in excess of $266.4 millionas 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.

Debt Covenants. We were in compliance with our debt covenants, as amended, at July 31, 2019. A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at July 31, 2019 is presented below: 

	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed (minimum)	4.69:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed (minimum)	4.38:1.00	1.50:1.00
Leverage Ratio must not exceed (maximum)	1.90:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed (maximum)	1.12:1.00	2.00:1.00
Capital Expenditures, net, must not exceed (maximum)	$27.3 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 lease the majority 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), and for our existing store remodels, estimated to range between $0.3 million and $1.5 million per store remodel (before tenant improvement allowances), depending on store size. 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 eight new stores during the first half of fiscal year 2020 and currently plan to open a total

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of 14 new stores during fiscal year 2020. Additionally, we plan to upgrade several of our facilities and continue to enhance our IT systems during fiscal year 2020. Our anticipated capital expenditures for the remainder of fiscal year 2020 are between $20.0 million and $23.0 million.

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- 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 July 31, 2019, beyond cash generated from operations we had (i) immediately available borrowing capacity of $403.0 million under our Revolving Credit Facility, (ii) $81.0 million that may become available under our Revolving Credit Facility if we grow the balance of eligible customer receivables and our total eligible inventory balances and (iii) $7.6 million 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 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 covenant 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 July 31, 2019: 

			Payments due by period
(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5Years
Debt, including estimated interest payments (1):
Revolving Credit Facility (1)	$	186,502	$	8,175	$	178,327	$	—	$	—
Senior Notes	275,697		16,458		259,239		—		—
2017-B Class B Notes (2)	31,243		1,311		29,932		—		—
2017-B Class C Notes (2)	94,061		4,679		9,358		80,024		—
2018-A Class A Notes (2)	70,344		1,996		3,992		64,356		—
2018-A Class B Notes (2)	44,734		1,722		3,445		39,567		—
2018-A Class C Notes (2)	47,001		2,230		4,459		40,312		—
2019-A Class A Notes (2)	219,912		6,391		12,781		200,740		—
2019-A Class B Notes (2)	78,865		2,823		5,646		70,396		—
2019-A Class C Notes (2)	79,045		3,307		6,614		69,124		—
Warehouse Notes (1)	2,123		2,123		—		—		—
Financing lease obligations	7,677		947		1,652		1,502		3,576
Operating leases:
Real estate	520,918		73,247		146,524		132,095		169,052
Equipment	1,643		964		641		38		—
Contractual commitments (3)	142,584		135,134		5,650		1,800		—
Total	$	1,802,349	$	261,507	$	668,260	$	699,954	$	172,628

(1) Estimated interest payments are based on the outstanding balance as of July 31, 2019 and the interest rate in effect at that time.

(2) The payments due by period for the Senior Notes and 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.

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(3) Contractual commitments primarily include commitments to purchase inventory of $117.9 million.

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 2019 Form 10-K, filed with the SEC on March 26, 2019.

Leases

On February 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). We determine if an arrangement is a lease at inception. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We record lease incentives as a reduction to the operating lease right-of-use assets upon commencement of the lease and amortize the balance on a straight-line basis over the life of the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Rather, the short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Lease expense is recognized on a straight-line basis over the lease term.

We have made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component.

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 Senior Notes and asset-backed notes bear interest at a fixed rate and would not be affected by interest rate changes.

Loans under the Revolving Credit Facility bear interest, at our option, at a rate of LIBOR 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 announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. Accordingly, changes in our quarterly total leverage ratio and LIBOR or the alternate base rate will affect the interest rate on, and therefore our costs under, the Revolving Credit Facility. As of July 31, 2019, the balance outstanding under our Revolving Credit Facility was $163.5 million. A 100 basis point increase in interest rates on the Revolving Credit Facility would increase our borrowing costs by $1.6 million over a 12-month period, based on the outstanding balance at July 31, 2019.

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 July 31, 2019, 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 

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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 2019 Form 10-K.

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 quarter ended July 31, 2019.

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)
May 1 - 31	—	$	—	—	$	—
June 1 - 30	745	$	17.56	745	$	61.9
July 1 - 31	1,130	$	18.79	1,130	$	40.7
Total	1,875			1,875

(1) On May 30, 2019, our Board of Directors approved a stock repurchase program, effective as of May 31, 2019, pursuant to which we may repurchase up to $75.0 million of our outstanding common stock. The program will remain effective for one year, unless extended by the Board of Directors. See Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to share repurchases.

(2) Average price paid per share excludes costs associated with the repurchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

None. 

ITEM 4. MINE SAFETY DISCLOSURE 

Not applicable.

ITEM 5.   OTHER INFORMATION

None. 

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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	Second Amended and Restated Bylaws of Conn’s, Inc. effective as of November 27, 2018 (incorporated herein by reference to exhibit 3.2 to Form 10-Q for the quarterly period ended October 31, 2018 (File No. 001-34956) as filed with the Securities and Exchange Commission on December 4, 2018)
10.1*	Executive Severance Agreement by and between Rodney Lastinger and Conn’s Inc., dated as of June 3, 2019
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)
101	The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal year 2020, filed with the SEC on September 3, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets at July 31, 2019 and January 31, 2019, (ii) the Condensed Consolidated Statements of Income for the three and six months ended July 31, 2019 and 2018, (iii) the Condensed Consolidated Statements of Shareholders Equity for the periods ended July 31, 2019 and 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2019 and 2018 and (v) the notes to the Condensed Consolidated Financial Statements.

*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:	September 3, 2019
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)

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