AACE Ace Cash Express

DALLAS, Jan. 26 /PRNewswire-FirstCall/ -- ACE Cash Express, Inc. (NASDAQ:AACE) announced fiscal second quarter 2006 net income of $5.0 million and diluted earnings per share of $0.36, compared to fiscal second quarter 2005 net income of $5.8 million and diluted earnings per share of $0.42. During the fiscal second quarter of 2006, ACE's total revenue increased 12 percent to $72.3 million from $64.7 million in the prior year period, due primarily to a 13 percent increase in check cashing fees, an 8 percent increase in loan fees and interest, and a 23 percent increase in bill payment and prepaid debit card services. Comparable store revenues increased 4.2 percent compared to the prior year period. Loan fees and interest increased 2.9 percent, and in states not impacted by the revised FDIC Guidelines for PayDay Lending, increased by 8.0 percent. Check fees increased by 2.4 percent. "We remain confident in our long-term disciplined growth strategy of de novo store development complemented by opportunistic acquisitions and the introduction of new products and services. We continue to believe that there are increased consumer and financial performance benefits related to offering our customers a full suite of financial products in an expanding network of stores," said Jay B. Shipowitz, President and Chief Executive Officer. Among ACE's accomplishments during the fiscal second quarter 2006 were: * The total ACE store network, including franchised stores, had a second quarter record 10.7 million customer visits and processed approximately $2.7 billion in transactions. * Comparable store sales for company-owned stores increased 4.2 percent compared to the second quarter of fiscal 2005. * ACE company-owned stores cashed over 3.6 million checks, with a face value of approximately $1.4 billion, resulting in check-cashing fees for the quarter of $33.0 million, up 13 percent from $29.2 million in the second quarter of fiscal 2005. Comparable store check cashing fees increased 2.4 percent compared to the prior year. * ACE company-owned stores processed over 600,000 loan transactions, disbursed over $179 million in loan proceeds and generated interest income and fees of $26.5 million. Comparable store loan fees in company-owned stores increased 2.9 percent over the prior year's second quarter, and in states not impacted by the FDIC Revised Guidelines, increased by 8.0 percent. * ACE company-owned stores processed over 2.0 million bill payment and debit card transactions, producing a revenue increase of 23 percent, to $6.1 million, from $4.9 million in the prior year period. * ACE company-owned stores sold approximately 65,000 prepaid debit cards in the second quarter of fiscal 2006, an increase of 48 percent over the prior year's fiscal second quarter. "With over 1,500 locations and a diversified product and service offering, we believe ACE has developed a unique network serving the financial services needs of our customers," commented Mr. Shipowitz. "We are continuing to leverage our network to offer new products and services such as the VISA(R) and MASTERCARD(R) prepaid cards, payroll cards, an enhanced ACE loyalty card, and the ability to access money on a stored value card." Results for the Six Months Ended December 31, 2005 For the first six months of fiscal 2006, ACE's total revenue increased 9 percent, to $138.5 million, from $126.8 million in the first six months of fiscal 2005. Net income decreased 28 percent, to $7.9 million compared with $10.9 million in the prior year period, resulting in a decline in diluted earnings per share of 27 percent, to $0.57 per diluted share from $0.78 cents per diluted share in the prior year period. Net income for the first six months of fiscal 2006 includes an after-tax charge of $1.0 million related to losses from Hurricane Katrina. Comparable store sales increased by 3.2 percent during the first six months of fiscal 2006 compared to the first six months of fiscal 2005 as a result of continued strength in loan fees and bill payment services. Acquisition of Popular Cash Express Stores On November 30, 2005, ACE completed the acquisition of 107 stores owned and operated by Popular Cash Express for $33.6 million. In connection with this acquisition, ACE issued a $19.4 million convertible note to the seller with an interest rate of 3.625% convertible into shares of ACE's common stock at a conversion price of $26.77 per share. ACE plans to invest approximately $5 million of capital improvements in the acquired stores during the next 24 months. Store Openings ACE reached the 1,500th retail store milestone during the fiscal second quarter of 2006. For the quarter, the Company opened 25 company-owned stores, including 12 ACE Cash Express stores and 13 ACE Cash Advance stores, and acquired 116 stores, including the 107 Popular Cash Express locations. ACE franchisees also opened an additional 7 stores during the quarter. ACE ended the quarter with 1,301 company-owned stores, 219 franchised stores and a total network of 1,520 stores. Fiscal 2006 Business Guidance The statements in the bullet points below are the Company's outlook or forecast for the Company's business for the third quarter ending March 31, 2006 and the fiscal year ending June 30, 2006. These statements are made only as of January 26, 2006 and indicate only the expectations of the Company's management as of that date. These statements supersede any and all previous statements made by the Company regarding the matters addressed. These statements are "forward-looking statements," cannot be guaranteed and may prove to be wrong. * The Company expects to open 20 to 30 additional ACE Cash Express stores in the next two quarters for a total of 50 to 60 stores in fiscal 2006. * The Company expects to open 26 to 36 additional ACE Cash Advance stores in the next two quarters for a total of 50 to 60 stores in fiscal 2006. * The Company expects to close 8 to 18 additional stores in the next two quarters for a total of 20 to 30 stores in fiscal 2006. * The Company currently estimates franchisees will open a total of approximately 25 to 30 stores in fiscal 2006. * The Company expects its fiscal 2006 tax rate to be 39 percent. * The Company began expensing stock options in fiscal 2006 and expects to record stock option expense of approximately $1 million. * The Federal Deposit Insurance Corporation's Revised Guidelines for Payday Lending, which took effect July 1, 2005, is expected to adversely impact the Company's payday loan business in fiscal 2006. The Company cannot currently quantify this impact or the benefits that recently introduced alternative loan products may have on its revenue and profitability in fiscal 2006. At this time ACE currently offers its customers the following loan products: -- Short-term consumer loans offered pursuant to state regulation (ACE Loan) in 21 states and the District of Columbia with an average term of approximately 14 days; -- Short-term consumer loans in Texas, Arkansas and Pennsylvania offered by Republic Bank of Kentucky (RBT Loan) with a 14-day term; -- On August 1, 2005, the Company began to offer installment loans in Texas, Arkansas and Pennsylvania made by First Bank of Delaware (FBD Loan) with a 20-week term. An FBD Loan generates loan fees and interest for ACE of approximately 55 percent to 80 percent of the loan fees and interest generated by an RBT Loan depending upon the number of days the FBD Loan is outstanding. Customers are only offered an FBD Loan if they do not qualify for an RBT Loan. * The Company expects its provision for loan losses to be between 35 percent and 37 percent of its loan fees and interest in its third fiscal quarter of 2006. * The Company expects its interest expense, inclusive of the interest expense associated with its recently issued $19.4 million Convertible Note, to be between $4.1 million and $4.4 million in its third fiscal quarter of 2006. * In the Company's third fiscal quarter of 2006, the number of diluted shares outstanding will include approximately 725,000 shares issuable pursuant to the recently issued $19.4 million Convertible Note. About ACE Cash Express ACE Cash Express, Inc. is a leading retailer of financial services, including check cashing, short-term consumer loans, bill payment and prepaid debit card services, and the largest owner, operator and franchisor of check cashing stores in the United States. As of December 31, 2005, ACE had a network of 1,520 stores in 34 states and the District of Columbia, consisting of 1,301 company-owned stores and 219 franchised stores. ACE focuses on serving consumers, many of who seek alternatives to traditional banking relationships in order to gain convenient and immediate access to financial services. ACE's website is found at http://www.acecashexpress.com/ . Forward-Looking Statements This release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of words such as "expect," "anticipate," "estimate," "believe," "intend," "plan," "target," "goal," "should," "would," and terms with similar meanings. Although ACE believes that the current views and expectations reflected in these forward-looking statements are reasonable, these views and expectations, and the related statements, are inherently subject to risks, uncertainties, and other factors, many of which are not under ACE's control and may not even be predictable. Any inaccuracy in the assumptions, as well as those risks, uncertainties and other factors could cause the actual results to differ materially from these in the forward-looking statements. These risks, uncertainties, and factors include, but are not limited to matters described in ACE's reports filed with the Securities and Exchange Commission, such as: * ACE's relationships with Republic Bank & Trust Company, First Bank of Delaware, Travelers Express and its affiliates, and its bank lenders; * ACE's relationships with providers of services or products offered by ACE or property used in its operations; * federal and state governmental regulation of check cashing, short-term consumer lending and related financial services businesses; * any impact to ACE's earnings derived from the RBT loans offered by Republic Bank & Trust Company and the FBD loans offered by First Bank of Delaware at ACE's stores in Texas, Pennsylvania and Arkansas from the Federal Deposit Insurance Corporation's Revised Guidelines for Payday Lending, which took effect on July 1, 2005 and require that such banks develop procedures to ensure that a payday loan is not provided to any customer with payday loans outstanding from any lender for more than 3 months in the previous 12 months; * any litigation; * theft and employee errors; * the availability of adequate financing, suitable locations, acquisition opportunities and experienced management employees to implement ACE's growth strategy; * increases in interest rates, which would increase ACE's borrowing costs; * the fragmentation of the check cashing industry and competition from various other sources, such as banks, savings and loans, short-term consumer lenders, and other similar financial services entities, as well as retail businesses that offer services offered by ACE; * the terms and performance of third-party services offered at ACE's stores; and * customer demand and response to services offered at ACE's stores. ACE expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in ACE's views or expectations, or otherwise. ACE makes no prediction or statement about the performance of its common stock. ACE CASH EXPRESS, INC. AND SUBSIDIARIES INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) Three Months Ended Six Months Ended December 31, December 31, 2005 2004 2005 2004 Revenues $72,264 $64,747 $138,457 $126,773 Store expenses: Salaries and benefits 18,019 15,767 35,254 30,554 Occupancy 9,967 8,378 19,423 16,560 Provision for loan losses and doubtful accounts 9,462 6,994 17,621 14,462 Depreciation 2,159 1,771 4,225 3,458 Hurricane Katrina related expenses --- --- 1,655 --- Other 10,238 9,565 20,573 19,373 Total store expenses 49,845 42,475 98,751 84,407 Gross margin 22,419 22,272 39,706 42,366 Region expenses 6,107 5,806 12,025 11,025 Headquarters expenses 5,577 5,065 10,407 9,746 Franchise expenses 301 321 579 588 Other depreciation and amortization 889 679 1,710 1,385 Interest expense, net 1,236 794 2,046 1,387 Other (income) expense, net 103 (106) 36 66 Income before income taxes 8,206 9,713 12,903 18,169 Provision for income taxes 3,202 3,885 5,034 7,268 Net income $5,004 $5,828 $7,869 $10,901 Earnings per share: Basic $0.37 $0.43 $0.58 $0.81 Diluted $0.36 $0.42 $0.57 $0.78 Weighted average number of common shares outstanding: Basic 13,521 13,465 13,495 13,414 Diluted 14,096 13,973 13,964 13,910 ACE CASH EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, June 30, 2005 2005 (unaudited) ASSETS Current Assets Cash and cash equivalents $178,599 $109,430 Accounts receivable, net 7,236 3,969 Loans receivable, net 26,473 20,787 Prepaid expenses, inventories and other current assets 14,793 13,685 Total Current Assets 227,101 147,871 Noncurrent Assets Property and equipment, net 41,542 37,657 Covenants not to compete, net 2,570 1,668 Goodwill, net 132,504 98,702 Other assets 8,079 6,723 Total Assets $411,796 $292,621 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Revolving advances $111,300 $43,300 Accounts payable, accrued liabilities and other current liabilities 48,566 36,117 Money orders payable 14,364 4,867 Total Current Liabilities 174,230 84,284 Noncurrent Liabilities Deferred income tax 3,731 4,302 Deferred revenue 3,602 3,271 Convertible notes payable 19,400 --- Other liabilities 4,353 4,079 Total Liabilities 205,316 95,936 Commitments and Contingencies Shareholders' Equity Preferred stock, $1 par value, 1,000,000 shares authorized, none issued and outstanding --- --- Common stock, $.01 par value, 50,000,000 shares authorized, 14,069,368 and 13,912,045 shares issued and 13,857,968 and 13,700,645 shares outstanding, respectively 139 137 Additional paid-in capital 106,558 103,544 Retained earnings 106,705 98,836 Accumulated comprehensive income (loss) 138 (56) Treasury stock, at cost, 211,400 shares (2,707) (2,707) Unearned compensation - restricted stock (4,353) (3,069) Total Shareholders' Equity 206,480 196,685 Total Liabilities and Shareholders' Equity $411,796 $292,621 ACE CASH EXPRESS, INC. AND SUBSIDIARIES SUPPLEMENTAL STATISTICAL DATA (unaudited) Three Months Six Months Year Ended Ended Ended December 31, December 31, June 30, 2005 2004 2005 2004 2005 2004 Company Operating and Statistical Data: Company-owned stores in operation: Beginning of period 1,163 1,055 1,142 1,026 1,026 968 Acquired 116 17 118 40 74 34 Opened 25 23 54 38 80 53 Sold --- (3) (1) (3) (6) (5) Closed (3) (7) (12) (16) (32) (24) End of period 1,301 1,085 1,301 1,085 1,142 1,026 Franchised stores in operation: Beginning of period 226 202 229 204 204 200 Opened 7 17 13 26 48 32 Acquired by ACE (3) (3) (5) (14) (22) (13) Closed/Sold (11) --- (18) --- (1) (15) End of period 219 216 219 216 229 204 Total store network 1,520 1,301 1,520 1,301 1,371 1,230 Percentage increase (decrease) in comparable store revenues from prior period: (A) Total revenue 4.2% 4.8% 3.2% 6.1% 3.1% 5.0% Check fees including tax check fees 2.4% (2.8%) 1.2% (2.3%) (3.8%) 4.1% Loan fees and interest 2.9% 14.0% 3.1% 17.2% 12.7% 7.8% Capital Expenditures: (in thousands) Purchases of property and equipment, net $4,506 $3,741 $7,539 $6,438 $18,951 $7,439 Store acquisition costs: Property and equipment 1,793 275 1,825 614 958 511 Intangible assets 34,946 3,042 36,222 6,551 18,429 6,403 Check Cashing Data: Face amount of checks cashed (in millions) $1,356 $1,201 $2,578 $2,348 $5,277 $5,103 Face amount of average check $376 $358 $373 $358 $396 $388 Average fee per check $9.15 $8.72 $9.05 $8.75 $9.98 $9.91 Fees as a percentage of average check 2.43% 2.44% 2.43% 2.44% 2.52% 2.55% Number of checks cashed (in thousands) 3,603 3,353 6,912 6,557 13,325 13,151 Check Collections Data: (in thousands except percentages) Face amount of returned checks $8,973 $6,897 $17,975 $12,849 $26,914 $21,705 Collections 7,667 5,291 14,768 9,332 20,951 13,947 Net write-offs $1,306 $1,606 $3,207 $3,517 $5,963 $7,758 Collections as a percentage of returned checks 85.4% 76.7% 82.2% 72.6% 77.8% 64.3% Net write-offs as a percentage of revenues 1.8% 2.5% 2.3% 2.8% 2.2% 3.1% Net write-offs as a percentage of the face amount of checks cashed 0.10% 0.13% 0.12% 0.15% 0.11% 0.15% ACE CASH EXPRESS, INC. AND SUBSIDIARIES SUPPLEMENTAL STATISTICAL DATA, continued (unaudited) (in thousands, except averages and percents) Three Months Six Months Year Ended Ended Ended December 31, December 31, June 30, 2005 2004 2005 2004 2005 2004 Combined Short-Term Consumer Loans Operating Data: Volume - new loans and refinances $179,656 $172,309 $361,176 $331,982 $640,356 $527,723 Average advance $310 $292 $305 $288 $290 $278 Average finance charge $46.82 $46.08 $45.49 $45.47 $45.87 $43.71 Number of loan transactions - new loans and refinances 533 579 1,096 1,134 2,139 1,909 Matured loan volume $179,411 $163,457 $352,338 $318,022 $613,380 $516,741 Loan fees and interest $26,515 $24,514 $51,724 $47,737 $91,793 $77,029 Loan loss provision $9,417 $6,979 $17,531 $14,403 $26,941 $24,280 Gross margin on loans 64.5% 71.5% 66.1% 69.8% 70.7% 68.5% Loan loss provision as a percent of matured loan volume 5.2% 4.3% 5.0% 4.5% 4.4% 4.7% Loans Processed for Republic Bank: (B) Volume - new loans $26,275 $50,954 $55,038 $99,408 $184,646 $159,692 Average advance $314 $321 $312 $318 $319 $296 Average finance charge $55.46 $56.71 $54.97 $56.05 $56.30 $52.11 Number of loan transactions 84 159 177 313 578 541 Matured loan volume $25,600 $49,206 $57,163 $96,505 $181,153 $157,018 Loan fees and interest $3,946 $7,594 $8,480 $14,858 $27,880 $24,036 Provision for loan losses payable to Republic Bank $1,778 $2,223 $3,336 $4,560 $8,686 $7,390 Loans Processed for First Bank of Delaware: (C) Volume - new loans(D) $7,730 --- $14,999 --- --- --- Average advance $349 --- $345 --- --- --- Average finance charge (E) $34.67 --- $34.23 --- --- --- Number of loan transactions (F) 22 --- 43 --- --- --- Matured loan volume (G) $25,142 --- $36,884 --- --- --- Loan fees and interest $3,496 --- $5,397 --- --- --- Provision for loan losses payable to First Bank of Delaware $1,305 --- $1,914 --- --- --- ACE Loans: Volume - new loans and refinances $145,651 $121,355 $291,139 $232,574 $455,710 $368,031 Average advance $307 $278 $301 $274 $277 $269 Average finance charge $45.58 $41.22 $44.19 $40.57 $41.17 $39.40 Number of loan transactions - new loans and refinances 427 420 876 821 1,561 1,368 Matured loan volume $128,669 $114,251 $258,291 $221,517 $432,227 $359,723 Loan fees and interest $19,073 $16,920 $37,847 $32,879 $63,913 $52,993 Loan loss provision $6,334 $4,756 $12,281 $9,843 $18,255 $16,890 ACE Loans Balance Sheet Data: Gross loans receivable $40,879 $34,485 $40,879 $34,485 $31,790 $27,663 Less: Allowance for losses 14,406 12,961 14,406 12,961 11,003 10,616 Loans receivable, net of allowance $26,473 $21,524 $26,473 $21,524 $20,787 $17,047 Allowance for losses on loans receivable: Beginning of period $13,221 $12,021 $11,003 $10,616 $10,616 $8,734 Provision for loan losses 6,334 4,756 12,281 9,843 18,255 16,890 Charge-offs (5,229) (4,793) (8,958) (8,626) (18,996)(15,295) Recoveries 80 977 (H) 80 1,128 1,128 287 End of period $14,406 $12,961 $14,406 $12,961 $11,003 $10,616 Allowance as a percent of gross loans receivable 35.2% 37.6% 35.2% 37.6% 34.6% 38.3% (A) Calculated based on changes in revenue for all company-owned stores open in both periods and open for at least 13 months. (B) Republic Bank loans are short-term consumer loans made by Republic Bank & Trust Company at our company-owned stores in Arkansas, Pennsylvania and Texas since January 1, 2003. (C) First Bank of Delaware loans are 20-week installment loans made by First Bank of Delaware at our company-owned stores in Arkansas, Pennsylvania, and Texas since August 2005. (D) Includes only the loan origination amount for each installment loan. (E) The loans processed for First Bank of Delaware are 20-week loans; the average finance charge is presented based upon the 14-day average duration of the ACE loans and the Republic Bank loans. (F) Includes the initial 20-week loan transaction only. (G) Includes maturing principal amount for each 2-week payment. (H) Includes the recovery of $0.9 million from the sale of previously charged-off ACE loans. ACE CASH EXPRESS, INC. AND SUBSIDIARIES REVENUE ANALYSIS (unaudited) Three Months Six Months Year Ended Ended Ended December 31, December 31, June 30, 2005 2004 2005 2004 2005 2004 2003 Revenues (in thousands): Check cashing fees $32,957 $29,243 $62,569 $57,360 $131,619 $129,194 $125,703 Loan fees and interest 26,515 24,514 51,724 47,737 91,793 77,029 70,806 Bill payment services 6,067 4,925 11,363 9,634 20,266 16,960 13,507 Money transfer services 3,307 2,883 6,275 5,708 11,868 11,136 10,898 Money order fees 1,671 1,695 3,270 3,426 6,875 6,330 6,960 Franchise revenues 825 855 1,594 1,602 3,180 2,774 2,346 Other fees 922 632 1,662 1,306 3,048 3,236 4,069 Total revenue $72,264 $64,747 $138,457 $126,773 $268,649 $246,659 $234,289 Three Months Six Months Year Ended Ended Ended December 31, December 31, June 30, 2005 2004 2005 2004 2005 2004 2003 Percentage of Revenues: Check cashing fees 45.6% 45.2% 45.2% 45.2% 49.0% 52.4% 53.7% Loan fees and interest 36.7 37.9 37.4 37.7 34.2 31.2 30.2 Bill payment services 8.4 7.6 8.2 7.6 7.5 6.9 5.8 Money transfer services 4.6 4.4 4.5 4.5 4.4 4.5 4.6 Money order fees 2.3 2.6 2.4 2.7 2.6 2.6 3.0 Franchise revenues 1.1 1.3 1.1 1.3 1.2 1.1 1.0 Other fees 1.3 1.0 1.2 1.0 1.1 1.3 1.7 Total revenue 100% 100% 100% 100% 100% 100% 100% CONFERENCE CALL January 26, 2006 5 p.m. EST An investor conference call will be held today, January 26, 2006 at 5 p.m. EST, regarding the release of ACE Cash Express, Inc.'s fiscal 2006, second quarter earnings. The Company invites you to participate in the conference call by dialing (800) 442-9701. The confirmation code to access the call is 4204924. Jay B. Shipowitz, President and Chief Executive Officer, and William S. McCalmont, Executive Vice President and Chief Financial Officer, will present the second quarter review. For your convenience, the conference call will be replayed in its entirety beginning at approximately 6 p.m. EST on January 26th through 12 p.m. EST on February 2nd. If you wish to listen to a replay of this conference call, dial (800) 642-1867, provide your name and use confirmation number 4204924. If you have questions regarding this conference call, please contact Joy Robinson at (972) 753-2305. DATASOURCE: ACE Cash Express, Inc. CONTACT: William S. McCalmont, Executive Vice President & CFO, +1-972-753-2314, or , or Douglas Lindsay, Vice President of Finance, +1-972-753-2342, or , both of ACE Cash Express, Inc. Web site: http://www.acecashexpress.com/

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