Theo Wright - CEO Mike Poppe - COO David Trahan - President, Retail Mark Haley - Interim CFO

Peter Keith - Piper Jaffray Brad Thomas - KeyBanc Capital Markets John Baugh - Stifel Nicolaus Brian Nagel - Oppenheimer Rick Nelson - Stephens David Magee - SunTrust Scott Tilghman - B Riley & Company Andrew Hain - Robert W. Baird Michael Cohen - Opportunistic Research Marcelo Desio - Crosslink Capital Ben Clifford - Nomura Securities

Welcome to the Conn's Incorporated Conference Call to discuss earnings for the fiscal year ended January 31, 2015. My name is Karen and I'll be your operator for today. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in the question-and-answer session. As a reminder, this conference call is being recorded. The company's earnings release dated March 31, 2015 distributed before the market opened this morning and slides that will be referenced during today's conference call can be accessed via the company's Investor Relations website at ir.conns.com. I must remind you that some of the statements made in this call are forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements represent the company’s present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties which could cause actual results to differ materially from those indicated today. Your speakers today are Theo Wright, the company’s CEO; Mike Poppe, the company's COO; David Trahan, the company’s President of Retail; and Mark Haley, the company's Interim CFO. I will now turn the conference over to Mr. Wright. Please go ahead, sir.

Good morning and welcome to Conn’s fourth quarter of fiscal 2015 earnings conference call. I'll begin the call with an overview and then Mike will discuss our Credit segment further. Mark Haley will complete our prepared comments with additional comments on results and our balance sheet. Despite steadily tightening credit standards over the last year and improvements in collections, execution, Credit segment performance for the year did not made expectations. Over the last five months, seasonally adjusted delinquency performance did however provide evidence of stabilization with over 60 day delinquency declining. We reported a 50 basis point decline in over 60 day delinquency in February. We expect another decline in greater than 60 day delinquency in March. Last year's reported performance was a disappointment and we’re working to improve performance in the Credit segment through better execution and oversight. The Board introduced a number of initiatives last quarter to provide additional oversight. The following is an update on these activities. The Board established a Credit Risk and Compliance Committee responsible for reviewing credit risks, underwriting strategy and credit compliance activities. The Committee is supervising an independent evaluation of underwriting standards and collections performance. This evaluation is underway and progressing well. The Board also approved additional positions to augment the Management Team and the individuals been identified for the position of Chief Risk Officer to assist in analyzing and assessing credit risk. Additional search activities for Senior Leadership are underway with a search firm engaged, candidates are identified and being interviewed. In October of 2014, we announced that our Boards of Directors authorized Management to explore a full range of strategic alternatives to enhance value for shareholders. The Board of Directors has authorized Management to actively pursue the sale of all or a portion of the loan portfolio or other refinancing of our loan portfolio. The transaction being pursued is not a separation of the credit business or an exit from the credit business for sale of assets. I would like to thank our advisors, potential partners, the Board and others for their help in this process. The process was collaborative and Management is enthusiastic about the possibility of executing our plan. We believe this presents the best strategic approach to creating additional value. Sale of the portfolio could provide additional financial flexibility. Sale of the portfolio with an ongoing arrangement to fund receivables would significantly change the capital intensity, returns on capital and predictability of short term results. Turning to current retail trends, February same-store sales were down 5.8%. Preliminary indications are March same-store performance will be similar to February. For the first half of February, same-store sales were positive. Trends for mid February to mid March were solidly negative and have improved since mid March. I’ll comment on the impact of the port situation in a moment. In the fourth quarter of fiscal 2014, we opened eight stores, four stores opened in January of 2014. These stores are in the comparison base in Q1 of fiscal 2016 and we're comparing against grand opening sales. Comparisons will ease over the quarter and be less challenging in Q2 and later quarters. The most disappointing sales trend is in television, television sales trends have been consistently good, during promotional periods like Super Bowl, March Madness and Black Friday, outside of these periods television sales trends have not been as strong. For February as an example 49% of our television sales were UHD or 4K televisions. When customers have a need or a desire for new television, the value of the product is compelling, but we’ve not been able to generate sustained traffic for the category. Thus for we’re not seeing the hope for a replacement cycle. Our higher underwriting standards have minimally affected existing customer's approval rate. In the fourth quarter of fiscal 2015, stores opened in the last two years originate 69.5% of loans to new customers. All other stores originated 33.5% of loans to new customers. The impact of underwriting changes has reduced sales rates more at newer stores than in our more mature markets. Combined with cannibalization from new store openings, this is particularly affecting Arizona and New Mexico stores. We’re pleased with our sales performance overall in these states and are solidly profitable there. Keep in mind that we’re able to charge higher interest rates in Arizona and New Mexico. In our February sales release, we commented on the impact of the port situation on our sales particularly furniture. We felt the impact in Q4 and commented on it earlier, but the impact was not as extensive. To help understand how we've been affected, more than 70% of our appliance sales in fiscal 2015 were LG and Samsung branded appliances. Virtually all of our furniture in all categories is imported or includes a significant percentage of imported components. Historically, almost all of our imported products have come through West Coast ports. Some vendors shifted flow to the East Coast, but unfortunately the rapid increase in volume in these ports created delays as well. Generally higher value shipments can gain priority in both berthing and handling once in port. Case goods and complete upholstery or leather furniture have less value for container. Over the last several years we've changed our sourcing strategy and have increased gross margins, but we're more exposed to supply chain issues. Appliances were less affected than furniture because of the lower number of SKUs, higher unit sales per SKU and larger scale of our vendors. Appliances were also more fungible than furniture. Product flow was now improving in all categories, although delays remain. Our most recent conversations with vendors indicate continued improvement with flow back to normal in 30 to 90 days depending on with vendor. Today it's difficult to determine the potential impact of lower oil prices on our business. Houston continues to outperform other mature markets. Stores in the oil and gas producing areas like Loreto, Odessa, and Lubbock are a mixed bag with somewhat strong positive trends recently and some not. The valuation is complicated by the effective grand opening periods. We do expect stores in our oil producing regions to be negatively impacted by sustained lower oil prices although that's a relatively small number of stores. Markets like Houston and Dallas are less visible with no negative performance yet apparent. Lower gas prices are helping reduce the cost of living in all of our markets. Weather was a factor in our sales performance in both February and March. As an example Dallas, our second largest market and responsible for about 16% of federal sales has completely closed a number of days and we were not able to move product from our warehouse. Turning to our retail operations in the fourth quarter of fiscal 2015, on Slide 1 we showed product gross margins by product category for the second quarter. On Slide 1 is also gross margins by product category for the year. Total retail gross margin percentage for the quarter was 39.5% and right in line with our forecast from 39% to 40%. The decline in margins for the quarter from the prior year results principally from changing annual programs with key vendors. Fourth quarter a year ago benefitted from the exceptionally strong sales in the back half of 2014, which impacted vendor programs. We've worked with our relatively small group of key vendors to develop pricing structures that deliver consistent margins with lower quarterly volatility. Gross margin for the full year increased from 39.9% to 40.5%, despite the impact of additional warehouse and cost on fiscal 2015. For the year ended January 31, gross margin percentage of 40.5% was above our long-term goal of 40%. We're revising our gross margin goal to 42%. We believe this goal is achievable with decreasing share of revenues from electronics, increasing sales of furniture and mattresses, improving warehouse utilization and better material handling with a reduction in related scrap or discounted sales of products. On Slide 3 you can see a five-year trend in furniture and mattress sales. Same-store sales of furniture and mattresses increased 4.7% in the fourth quarter on top of the increase a year ago. For our new store sales of furniture and mattresses are about 34% of the total in the quarter. Completion of our relocation and remodeling programs along with store closures and new store openings should increase the share of sales from these categories. Our average store retail square footage is now 32,000 feet, supporting the ability to effectively compete as the furniture retailer chain-wide. The company set a longer term goal of 35% of sales from furniture and mattresses. We're making progress towards our goal and raising our goal to 45% of product sales. To support achievement of this goal we have over the last several years expanded warehouse capacity, expanded our average store footprint, improved and expanded the assortment and improved in-store presentation. To comment now on retail expenses, as shown on Slide 4 increased advertising expenses responsible for most of the SG&A increased over a year ago. In calendar 2014 we opened 22 new stores in 14 new DMAs or marketing areas including a number of larger high cost DMAs. For fiscal 2016 we have agreements in place for 14 new locations. Of these 11 will be in existing DMAs. We do not plan to open a new major metro area with higher mid-year cost in fiscal 2016. Store opening plans for fiscal 2017 will also include a high percentage of locations in existing markets. Advertising expenses increased with the store opening pace offsetting much of the operating leverage from increasing sales. As we build out markets and the customer base matures, we expect advertising expenses to decline as a percentage of sales. Given planned store growth, we don’t have or expect advertising to return to historical lows. Advertising expenses in mature markets are about 4% to 4.5% of sales today and are very much in line with historical lows. The impact on sales of supply chain problems with West Coast ports also had a minor impact on advertising leverage in the fourth quarter. Execution in our newer stores and markets needs to improve particularly with employee training and turnover. Overall sales for the fourth quarter did not fully meet our expectations. As sales mix shifts away from electronics, SG&A expenses will likely be pushed upward as a percentage of sales, advertising expenses for furniture and mattress retailers in particular are typically higher than for electronics. We’re offsetting some of the increase with greater efficiency and scale, but we don’t expect we can achieve our planned furniture sales performance with advertising expenses near historical lows. More of our sales are delivered to customer's homes. The furniture deliveries are about 50% more expensive per delivery than appliance or electronics deliveries. Delivery cost is included in our SG&A as you see on Slide 4 and is responsible for a significant portion of the increase in SG&A. Transportation costs have also increased as we’ve added locations in smaller markets for that warehouse. Some retailers although not all, include delivery or transportation in cost of sales. Our inclusion of delivery and transportation in SG&A may contribute to a false impression of higher gross margins and higher SG&A for Conn's and competitors with similar product offerings. Retail SG&A other than advertising has been well controlled. We’ve gained operating leverage on corporate overhead and compensation. Our expense challenges are largely confined to advertising and our store opening plan should address these challenges over time. Changes to the timing of expense related to our healthcare plans also negatively impacted the fourth quarter by about $0.01 per share. We plan to open 15 to 18 stores in fiscal 2016. Signed leases and purchase agreements are in place for 14 stores expected to open in fiscal 2016. We continue to pursue opportunities for new locations in accordance with prior plans for fiscal 2017. Turning to the regulatory environment, the CFPB recently released information on their proposed regulation of payday and other lenders. We believe these regulations if implemented would not impact Conn’s. Please keep in mind these are preliminary proposals and final regulations could impact Conn’s. As specific examples, Conn’s does not charge more than 36% interest including fees and add-on credit products in any jurisdiction. We do not automatically withdraw payments from customers. We do not provide financing to customers who are delinquent. We underwrite each loan assessing ability to pay and our business model is dependent on a low for sub-prime default rate. We expect to be subject to the CFPB's regulation at some point and regulation may have an impact on our business, but we provide a low cost customer friendly alternative for credit challenged consumers. We’ve recently taken other steps to improve the customer experience and ensure compliance with expected future required collections practices. While we’re happy to have fiscal 2015 behind us we’re looking forward to a bright year in 2016, the port situation is hopefully a temporary disruption and delinquency is declining sequentially. The causes of the credit deterioration are increasingly clear and we’re taking steps to improve performance. Many of the necessary changes or enhancements are in place are underway. Goals for gross margins and furniture sales have been raised and we believe we can progress towards these goals in fiscal 2016. Despite the volatility and performance over the last year, Management and the Board are committed to the business and its potential for growth. I’ve had the pleasure over the last several months spending time with associates and customers. Some of customers I’ve spoken with have made 5, 10, or 15 purchases from Conn’s. Our customers understand and value Conn’s credit offerings and they’re well aware of their alternative sources of financing. The interest rate in terms for Conn’s customers are attractive for our core group of customers. The option to pay zero percent interest given our core customers credit history is highly valued. Our associates are committed to providing value to our customers through competitive pricing, branded products and our unique credit offering. On our team are associates that have been with the company for many years. We offer a great long-term career path for retail associates. Conn’s business model provides a sensible alternative for sub-prime finance for consumers and a compelling overall value. Now I’ll turn the call over to Mike. Mike?

Thank you, Theo. Starting with underwriting, on Slide 5 is our average FICO score in the portfolio for the last five years. The portfolio has been in a narrow range of credit scores and remain there in the last quarter. In late fiscal 2014 and throughout 2015, we made changes to our underwriting to reduce risk. These changes are shown on Slide 6. Although we did not make any individually significant changes after Q1 of fiscal 2015, we made a number of minor changes that reduced originations to lower credit quality customers. These changes will affect fiscal 2016 sales comparisons but at a decreasing rate over the year. The total impact of these underwriting changes is estimated to have reduced the sales rate by 5% to 7% compared to the fourth quarter a year ago. Beginning in late October of fiscal 2015, we started originating 18 and 24 months no interest loans to customers with prime credit scores. As of February 28, 2015, 18 and 24 month no-interest consumer loans represented 3.3% of the total portfolio and we expect this percentage to increase over the next several quarters. The average FICO score of these loans at origination was 697. Originations to these customers is expected to add six to eight points to our average score underwritten and should benefit static pool loss rates by about 50 basis points once fully seasoned into the portfolio. The FICO score underwritten in Q4 of fiscal 2015 was 611 compared to 605 in Q4 of fiscal 2014 and 608 in Q3 of fiscal 2015. Last quarter, we said we would continue to evaluate our underwriting standards. We decided as a result of this ongoing evaluation to stop selling gaming hardware, cameras and certain tablets. See Slide 7 for our delinquency data by product category. The combination of lower than average gross margins on sales of these products at much higher than average credit losses on the related consumer loans does not deliver acceptable returns on capital. We sold $50 million of these products in fiscal 2015 representing 3.8% of total product sales. Sale of small electronics is seasonal with 39% of the total sales of the discontinued products occurring in the fourth quarter. We do not expect a significant impact to Q1 and the discontinuation will not be fully implemented until mid-third quarter. Our internal evaluations of underwriting have not identified other underwriting changes we believe are necessary to achieve our objectives at this time. The company has engaged Fair Isaac FICO to review and update its risk scoring model and provide a more advanced tool for first-party fraud detection. This engagement may yield additional changes to underwriting. As Theo mentioned earlier, the credit risk and compliance committee of supervising an independent evaluation of underwriting standards, the process is underway but not complete and may result in additional changes to underwriting. Now to discuss static loss trends, we're pleased to report that fiscal 2013 static pool losses appear to be finalizing in line with our earlier projection at around 8.6% with run-off accelerating. Going back a year many suggested the losses on its pool could be 12% to 15%. As we've discussed on several previous calls, the fiscal 2014 origination static losses will be elevated and we now expect these to be around 10.5% based on current collections trends. Our prior expectation for fiscal 2014 static loss was 9.5%. Our expectation for loss increased primarily because of our assessment of the impact of tighter re-aging standards and reduced account combinations. We’ve evaluated the remaining balances and recent changes in run-off patterns, we believe our revised estimate is consistent with fiscal 2013 pool performance after consideration of changes in collections policies and policies related to account combinations and re-aging. There have been others with a view that static losses could be far higher 15% or more. We do not believe this is a realistic based on the current condition of the portfolio and the fact that roughly 80% of these accounts have never been 60 days past due. A 15% static loss rate for fiscal 2015 tools would require delinquency to rise dramatically in the near term given the short remaining life of this tool, one of the reasons we begin reporting delinquency monthly. Recent periods of reported static loss rates are affected by our decision to see sale of charged-off receivables. This has impacted life today reported static loss for 2014 by approximately 20 basis points and 2015 by approximately 10 basis points. Future periods will be affected by this change as well, although we expect longer term recoveries of charged-off accounts and their impact of terminal loss rates to be in line with historical averages. Additionally, I would note that the changes impacting near term quarterly charge off rates by approximately 80 to 100 basis points. Fiscal 2013, '14 and '15 are now benefiting from account combinations that is combining newly originated accounts with existing accounts. This is for existing customers and is returning closure to our historical pattern. It is important to understand that when applying for new purchase the customer must satisfy all underwriting requirements including being current on their existing accounts. We expect the impact on fiscal 2014 and '15 balance run-off from account combinations to trend towards historical patterns and periods prior to fiscal 2012. Fiscal 2015 origination static loss should trend down from fiscal 2014 because of tighter underwriting standards and improved collections execution. We’ve tightened underwriting in a series of steps with the impact to low score originations shown on Slide 8. Loss rates are expected to decline over the year with later months originations in fiscal 2015 expected to outperform earlier months. The proportion of new versus existing customers increased in fiscal 2015 compared to fiscal 2014. This will offset some of the benefit of improved collections performance and tighter underwriting. The proportion of new versus existing customers has been trending downwards since Q3 of fiscal ’15 and as expected to decline in fiscal 2016 compared to fiscal 2015. One cause of the deterioration of static losses for fiscal year 2013 through 2015 has been increasing relatively loss severity. Re-aged accounts as a percentage of the portfolio increased 30 basis points from the end of Q3 similar to the increase for the same period a year ago. Accounts re-aged have remained stable over the last 12 months as compared to delinquent balances which is the eligible population for re-aging. Accounts re-aged is a percentage of the last 12 months average 30 plus day delinquency balance with a monthly average of 118% for fiscal 2015 compared to 120.5% in February of fiscal 2016. Simply put, if delinquency is higher then re-aged accounts will be a higher percentage of the portfolio. Having said that, about re-aging the reason for increase severity is charging-off earlier in the loans life. Some of the increase represents the higher likelihood of first payment default and default early in loan life for new customer accounts. Excessively restrictive re-aging polices caused both severity and rate of charge-off to increase. We have modified our re-aging policies to make them somewhat less restrictive with the most significant change to allow re-aging more frequently. Until May of last year, we did not allow a second re-aging event for six months after the initial re-age. Without a minimum payment opportunity on our fixed payment installment loans like is available revolving credit, customers often could not resolve delinquency until their account has been past due for many months at which points may customers have prioritized other obligations ahead of their current account making it more difficult to cure their pass due status. Many re-age customers will ultimately pay their account in full and payments received will reduce severity if the account charges-off. Our re-aging policies remain much more restrictive than prior to fiscal 2012. The total number of re-ages is still limited and we do not allow re-aging without a meaningful payment by the customer. Our long-term goal is to deliver static loss rate of 8%. The changes we have made in underwriting increased originations to prime rated customers, improvements in collections operations and policies and changes in customer and product mix should help us move towards that goal. In the fourth quarter, total originations grew 22% over the prior year fourth quarter compared to a growth rate of 52% a year ago. In February fiscal 2016, the portfolio balance decline, March balances will grow only slightly or be unchanged from February. Slower portfolio growth is benefiting the underlying performance of the portfolio, but has a negative effect on reported delinquency rates. The proportion of originations to new customers, customers who have made fewer or no payments and sales rates in our electronics categories are all declining. The average age of the portfolio was increasing. All of these factors should benefit portfolio performance over time. A year ago our collections, operations were under extreme stress from portfolio growth. Rapid growth in the workforce led to high turnover rates and a workforce with minimal tenure. At the end of February a year ago, 43% of collection agents had more than six months tenure at Conn’s and a large percentage of supervisors and managers were new as well. At the end of February of fiscal 2016, 68% of collection agents have tenure of more than six months. All of our managers have two or more years of tenure today and senior leadership for the collection operation hired or promoted in fiscal 2015 also has had time to season. Portfolio growth and staffing needs have become more predictable and we believe the team is well positioned to execute our growth plan. Our collections infrastructure has seasoned as well. Although not perfect, our collections technology infrastructure is much improved and stable. The changes to our technology are providing enhancements in controls, effectiveness and efficiency. Our objective is to improve execution over the course of the year. Sustained improvement will be needed before the provision rate and related reserves will decline. We do not expect a decline in reserves in Q1. First quarter of fiscal 2016 delinquency will be down compared to the fourth quarter of fiscal 2015. March greater than 60 days delinquency is expected to be down compared to February. We've remained focused on achieving and maintaining appropriate staffing levels and improving underlying credit quality of origination and will continue to identify opportunities to improve execution and credit quality. Now I’ll turn the call over the Mark Haley. Mark?

Thank you, Mike. Before I get to my commentary, I’d like to highlight a few changes to our financial statements. On the income statement you will note that we're showing delivery, transportation and handling cost separate from the rest of the SG&A expenses. As Theo mentioned, within the retail industry there is diversity and practice and what costs are included and cost of sales versus SG&A. Separating these cost provides more transparency to our expenses to allow an easier comparisons to others. On the balance sheet, we're showing deferred rent as a separate line item within long term liabilities, which resulted in a re-class of prior year current liabilities to long term. Deferred rent is made up of two items, first tenant improvement allowances received from landlords which we are showing separately on our cash flow statement when received and our amortizes of reduction to the rent expense over the lease term. Second deferred rent which is a result of the difference between rents expenses recognized on a straight-line basis and rent payments on leases have escalating payments during the lease term. These changes did not impact the income statement or any financial covenants and were made to provide additional transparency. Turning to the financial performance for the quarter, starting with the retail segment, total retail revenue was $351.7 million for the fourth quarter of fiscal 2015, an increase of $49.6 million or 16.4%. This growth reflects the impact of the net addition of 11 stores over a year ago and an increase in the same-store sales of 1.3%. Retail gross margin was 39.5% for the quarter, a decrease of 110 basis points from the prior year period. Delivery, transportation and handling costs were 3.9% as a percent of total retail revenue for the quarter compared to 3.7% for the same period a year ago. Retail SG&A excluding delivery was 22.8% for the quarter compared to 20.8% for the same period a year ago. During the quarter, we recognized $2.1 million related to facility closures, professional fees associated with our review of strategic alternatives and the class action lawsuits and severance costs compared to a $0.7 million benefit a year ago due to adjustments to facility closure costs. On an adjusted basis, retail operating margin decreased from 16.3% in the fourth quarter of last year to 13% in the fourth quarter of fiscal 2015. For the credit segment, revenues increased due to the growth in the portfolio as yield was flat to last year at 18.2%. Credit SG&A expenses for the quarter increased 24% year-over-year also due to the growth in the portfolio, but were down as a percentage of the average portfolio balance outstanding to 8.6% from 9% last year. The provision for bad debts increased $20 million from the prior year to $58 million. The increase resulted from several factors including a 30.7% growth in the portfolio balance, a 23% increase in origination volume compared to the same quarter last year, a year-over-year increase in the 60 plus days delinquency due to deterioration in customer credit quality after origination. The accelerated pace of realization of credit losses and $2.8 million increase related to a 6.5% increase in balances treated as troubled debt restructuring. Interest expense rose $4.8 million on increased borrowings and a higher effective interest rates due to the senior note issued in July of this year. Turning now to our balance sheet and liquidity, as of January 31, 54% of our $159 million in inventory was financed with outstanding accounts payable. Our inventory turn rate was approximately 5.2 for the year. Inventory level seasonally declined from October to January and declined further in February impacted by the port issue discussed by Theo. Turning now to Slide 9, total debt was $774 million at January 31 or 57% of the total customer portfolio balance. At the end of the year, we had $529.2 million of borrowings outstanding under our revolving credit facility, including standby letters of credit issued with the total of $350.8 million of total borrowing capacity available. Since the end of the year, we have paid down our revolving credit facility by another $50 million due to the benefit of the tax refund season. As of July 31, we are well within compliance of our debt covenants. Our cash recovery rate was 4.78% compared to 4.82% a year ago well above the required minimum level of 4.49%. Based on current facts and circumstances, we expect to remain in compliance with our debt covenants and we believe we have sufficient liquidity for the foreseeable future. For the first quarter of fiscal 2016, we expect a percent of net charge offs to the average outstanding balance to be between 12.5% and 13.5% and interest income and fees to be between 17% and 17.5%. The yield is impacted by the growth in our 18 and 24 months no interest program as well as the elimination of certain fees previously charged to customers. For the full fiscal year 2016, we expect change in same-store sales to be flat to up low single digits and retail gross margin to be between 40% and 41%. We plan to open 15 to 18 new stores with the closures of two stores. I will now turn the call over to the operator to begin the question-and-answer portion of our call.

[Operator Instructions] Our first question comes from the line of Peter Keith from Piper Jaffray.

Yes, thanks good morning everyone and thank you for all the detail on today’s call. Just a couple of clarifying questions, Theo when you were highlighting that you're going to actually pursue of sales of loan portfolio, just want to be clear that you guys at this point fully intend on keeping the underwriting in-house and just selling off the existing portfolio, are we interpreting that correctly?

Credit is Conns' competitive advantage. So our intention is to retain the ability to originate and service accounts in any circumstances. The form of the transaction we entered into could vary, but fundamentally it includes Conn’s retaining the ability to originate, underwrite and service consumer's accounts.

Okay. Thanks. So looking at your guy's outlook for the same-store sales or the comps to be flat to up low single digits, I was just wondering if you could talk about some of the positive drivers because there is some concern that you guys will have difficult comping this year, tightening credits at least for the first half of the year. You probably will have some cannibalization with new store openings now you’re exiting some product categories. Could you just get us a little more comfortable on how you’re thinking about the positive comp trend for the year?

You bet. First off, we had cannibalization last year that affected the comparisons that was pretty similar. A lot of the stores opened in markets where we were already open like Tucson and Albuquerque. So the cannibalization effect is not new to us and we commented on that over a number of quarters. We also tightened underwriting beginning actually in the fourth quarter, fiscal 2014. So many of the most restrictive changes to underwriting are already behind us and those most strongly affected the stores that are going to roll into the comp base. In addition to that, we exited lawn and garden a year ago that affected comparisons last year. So those are some of the positive consideration. The other positive considerations are if you look through the trends related to supply availability, we think we have the ability to top strongly positive in the appliance and furniture and mattress categories and with increasing strength over the course of the year that has to be proven out. But it’s our view that we have an opportunity in those categories with the right availability and the right store execution to deliver strong positive comps in the back half of the year.

Okay. That's helpful color; appreciate it. Also just for Q1, with the port delays negatively impacting comp, should we think about that as lost sales entirely? Or does some of that just take some time to deliver and could actually show up in the second quarter?

More of those sales would be lost as opposed to delay, but there are a number of those sales that will be delayed. We have an unusually high balance in what we have right now that our sales that have been written but not yet delivered to the customer and assuming that product flow improves reasonably quickly, there will be some sales that we’re able to complete that have already been written, but not yet delivered to the customer which is when we recognize the sale on our financial statements.

Okay. Great one last housekeeping question, for the March stats around comp and delinquency, would we expect to get those this week on especially Thursday?

That will happen on April 9, Thursday.

Okay. Very good. Thanks a lot guys.

Thank you.

Thank you. Our next question comes from the line of Brad Thomas from KeyBanc Capital.

Thank you. Good morning. Want to just follow up on the question, first, about the sale of the loans. I was wondering if you could share any insights into how much appetite or liquidity it seems that there is in that marketplace today; and what kind of a discount you all have historically seen when you've sold some of your loans.

We have not sold active accounts in the past. So we can’t give you a perspective on those active accounts. I’ll give you some thoughts as to feel. I’ll give you some thoughts on demand and then Mike can comment on some of the inputs into potentially valuing the portfolio. But that’s one of the reasons we arrived at this alternative was there was apparent interest in the assets and that interest was strong and from multiple parties. So that was a consideration that drove us in this particular direction and I’ll let Mike comment on some of the inputs and evaluation.

And just at a high level probably the key thing to think about from the discount is we have nearly 12% in reserves against the portfolio on the book. So at a 12% discount against the phase, there would be no P&L impact to a sale of portfolio. When you think about the run-offs of the portfolio the yield in the portfolio ex charge-off, but net of no interest programs is about 19.5% with a phase APR of about 22% and then some fee income on top of that with cash options at roughly 30% of the portfolio balance starting and then running off over 12 month period with about 40% of those customers realizing the benefit is how you get through that yield. And it assumes that there is somewhere in the mid teens low to mid teens range in charge-off to incur on the book that is -- would be if you’re looking at January 31 portfolio balance. And the biggest -- high percentage of the portfolio would run-off within a 12 month period. So the cash flow comes very quickly when valuing the portfolio.

About 30% of the portfolio would be remaining after one year period and our actual call it hard servicing costs in a stable on environment should be around 4.5% of the portfolio something in that range.

Great. So if I'm doing the math right, the loans are on the book at face value at about $1.4 billion; on your balance sheet they're discounted already; which totals I think about $1.2 billion at the 12% reserve that I think you mentioned. Is that right?

That’s right.

Okay. And so just a follow-up, Mike. As you look at the marketplace, do you have a sense of what the typical discount is for installment loans like this, with this level of FICO score?

We don’t know, as we said in our release we do not have a completed transaction close and I’ll see what the process yields. So we don’t know much of the valuation depends on what that discount rate would be but again I would say there was a lot of interest in a potentially high yield in short lived asset.

Great. And then just to connect the dots to the income statement, in a scenario where you were able to sell off, hypothetically, all of today's loans, what would be the effects that we would see on this year's income statement?

The effect in the retail segment income statement would essentially be -- before I try to dig into the details without knowing the actual transaction it's hard to come up with hypothetical impacts to the statement. But I think our segment disclosures give you good insight into the relatively allocations between those two segments and should allow you to estimate what the potential impacts could be in different scenarios.

Great, great. Okay. Thank you for all the color and I'll turn it over to somebody else.

Thanks.

Thank you. Our next question comes from the line of John Baugh from Stifel.

Thank you. Good morning. I just want to be clear. So the exit of videocamera, etcetera, that's included in your comp guidance assumption?

Yes.

Okay. And is there a way to think about -- you mentioned the charge-offs there are much higher.

John, can I interrupt you just one second? It is included in our guidance but keep in mind that won’t be drags that won’t be fully implemented until the third quarter. So it’s not a full year impact. It's only a partial year impact.

Understood. And then if I were to assume a full year or fully flowed through impact to credit losses, what kind of -- relative to maybe a static terminal loss number, exiting these products would help how many basis points?

It would help in the neighborhood of, give me just second on that John.

Do you have another question, well he is doing the quick math for you here?

You had mentioned, Theo that sales I think since mid-March had improved after being weak mid-February to mid-March. Is that solely due to supply constraint related to the port getting better, or some other factor?

Mostly port issues, but also weather which affected us in the later part of February in early part of March as well.

Okay. And then my final question, while Mike is still searching for that one, I think there was a 1.1% year of origination in FY 2015, which is sort of a first data point. So commentary you had around the impact of some things relating to earlier charge-off or higher elevated early-stage charge-offs -- can you go back and review what you said about that? It wasn't clear to me, and how that may be impacting that first data point on the FY'15 originations on the static loss. Thank you.

John, I’m not sure, I 100% I understand the question, but I’ll give you that short. First half fiscal '15 because it’s a early pool is affected by the pace of growth that occurred during that fiscal year with the highest growth in the front part of the year, steadily declining over the year. So you have an annual pool that has a balance that’s more weighted towards the early part of the year and therefore more weighted towards those accounts that would have had time to potentially get to charge-off. So that’s a little bit of the mechanics of that -- of how that pool might be affected. And then the other things that we commented on our changes in account combination practices, which should cause fiscal '15 to liquidate more rapidly than fiscal '14 and fiscal '13 did, so more rapid liquidation resulting in an expecting lower charge-off for that pool. And then in addition to that we believe the changes to underwriting as well as the changes to our re-aging policies should allow more of the customers to stay current, make payments and ultimately pay off without ultimately resulting in a charge-off and those changes took place over the course of the year or even in some cases subsequent to yearend and so will not be fully reflected in the results that we see for the fiscal '15 pool to date at January 31 of 2015.

Okay. So that 20 basis point and 10 basis point reference to, I believe it was FY '14 to '15. That was relating to the combination impact?

No that was related specifically to the discontinuation of the sale of charged off accounts.

We don’t think that the permanent impact to the terminal static loss rate is just a timing difference that we would expect to get those recoveries over time and so it's going to shift, it's going to back end load the recoveries in the static loss curve where when we are selling were front end loading the recoveries.

Understood, thanks for that clarity and do you have a guess Mike at that number

I do -- I think it will be 40 to 50 basis point benefit to static loss rate.

Great. Thanks for that color and good luck.

Yeah, once -- so like the 18 and 24 months cash option when you're looking at full year periods, you got to get, we feel we will still have sales and as Theo pointed out, we won’t be out till third quarter. So there will still be some negative impact this year.

Understood, yes. Thank you.

Thank you. And our next question comes from the line of Brian Nagel from Oppenheimer.

Hi good morning, thank you for all the details, very helpful.

Good morning.

On the credit business, I wanted to maybe take a step back again. But if we look at the data, and now that you are reporting on a monthly basis your 60-plus-day delinquency rate, so if we look at -- that 60-plus-day delinquency rate has been, I think, by most measures stabilizing. And then some of the information you gave us today suggest that it’s actually beginning to moderate versus year-on-year levels. With your static -- the loan loss provision that hits your P&L is still elevated, how should we think about the relationship between those two data points and so to say maybe the delayed effect of an improving delinquency rate on that loan loss provision?

The loan loss provision is projection of expected future performance and a consideration in that projection is seeing sustained performance improvement over a period of time. So I think it’s a question of the extent and period of improved performance and how that will affect our expectation of future performance and as we noted in the call, we don’t expect a reduction in the reserve as a percentage of the portfolio in the first quarter of this year.

And calculation as Theo pointed out heavily weighted to actual recent performance trends and so until we have more sustained improvement in performance that won’t flow into the reserving analysis.

Got it. Then on that same point then, as you looked at that loan-loss provision -- and I haven't followed your Company now for a while -- has there been any type of philosophical change in how you project that? Is there an extra air of conservatism in there now than you had maybe a few quarters ago? Or is it basically the same philosophy?

It’s certainly the same philosophy as a quarter ago. We haven’t made any change to the basic process whatsoever since that time and overall I would say our process has fundamentally been similar for a long period of time.

Then just one follow or final question, going back to a prior question with respect to the potential to sell the portfolio. Just want to understand this correctly. So the idea would be -- and again I recognize there is no transaction announced and such -- but you sell the portfolio today for a certain price; and then going forward there is some type of relationship established whereby you are continuing to sell loans, but Conn's is still essentially servicing those loans?

Yes that’s definitely the structure that we’re talking about. Others could assist us in servicing those loans. We might not and we don’t actually today service 100% of the loans. We do work with some third parties on a portion of the portfolio, but we would retain the ability to service loans in order to maintain our competitive advantage in any structure.

Got it. Thank you.

Thank you.

Thank you. And our next question comes from the line of Rick Nelson from Stephens.

Just to follow up on that, Theo, when Target sold their receivables they had an agreement with TD to underwrite, fund, risk manage the portfolio. Target continues to service those receivables. Is that the type of arrangement you see? Or the underwriting, funding, continued to be done by Conn's?

I think the simple way to think of it is we would not continue with the funding, but we would continue to have input into the underwriting and servicing and as I said, have the ability to under any circumstances both underwrite, originate and service the portfolio.

Got it. The decision to maintain the store growth, 15 to 18 stores, if you could provide some color. What was behind that? It seems that the portfolio growth was one of the challenges that the Company had.

Yes the decision behind that is we believe it’s still an opportunity to create value for our stockholders and to earn an attractive return on investment with returns above our cost of capital. So that’s the fundamental including equity cost of capital, that’s our fundamental basis for the decision and portfolio growth was clearly a factor in our performance deterioration. But at the point where portfolio really affected our ability to execute, we were growing the portfolio in a 40% or 50% growth rate and while we are looking at now with slightly less productive storage more along lines of 15% to 20% probably closer to 15% and 20% portfolio growth rate, which we believe we’re well positioned to manage and have taken the steps to be in position to manage effectively and have the capital to support.

And if you could, provide some color on the balance per customer -- you report in your documents the balance per active account -- and how that is trending per customer.

Yes it actually has not changed this quarter from what we talked about last quarter, it is maintained fairly, fairly static.

And the average…

Sorry, go ahead Rick.

Mike, do you think those high balances per customer are contributing to the credit challenges?

No we don’t -- we boil it down to a payment. They're more focused on the payment and their payment is at customer level is in the $120 to $130 range and it is not about $20, $25 higher than our long-term average. So it’s not a huge change in the monthly payment for obligation.

Thanks and good luck.

Thank you.

Thank you. Our next question comes from the line of David Magee from SunTrust.

Yes, hi, good morning. Just piggyback on a prior question there, if you are able to hit the numbers this year in terms of the broad parameters that you've outline for fiscal 2016, do you envision opening up some a similar number of stores next year?

We do.

So you're actively right now working on next year's plan in terms of new store additions?

Yes we included that in our comments. We’re working on fiscal 2017 as well finalizing that plans for 2016.

And could you comment on just your satisfaction level with the stores that are newer on the East Coast, the Carolinas and then in Tennessee?

Actually overall we are satisfied, we have a couple of markets there where we opened one store in a market that ultimately as in the case of Charlotte they have five markets, so we dialed back the advertising investment in those markets and the stores in East Charlotte is an example still doing quite well. But as we opened the additional stores in that market, one of which opens here shortly, we will start to be more aggressive, we have some stores in the east that are doing really well Memphis has been exceptionally strong for us, and even there we’re not fully opened. So overall I think we are satisfied, as I commented though in my prepared comments, I think we have work to do on execution in all of our new stores particularly with training new sales associates and managers and the related turnover, I think we have opportunities to improve execution and we’ve been working diligently over the last several months to develop plans to improve our execution. So overall satisfied but definitely room to improve and I would limit that to – I would not limit that to stores on the East, I think we start to have some execution opportunities in all of our stores that we’ve recently opened.

Thank you. Then lastly you mentioned earlier a static loss goal of about 8%. I am just curious; is that something that you see happening in a two- or three-year time period? Or how would you judge how long it would take for you to achieve that goal?

I think we’re going to need Conn to pass and have greater visibility of impact from the changes that we’ve made already like increasing originations to prime, credit rated customers, the elimination of some of these product categories and other changes that we made underwriting and collection practices. So my best answer is we don’t know, but to the extent that we’re not -- we don’t feel like we're moving in that direction, we’re going to continue to make adjustments.

And I think Mike had said that the bad debt provision might be similar in the first quarter to what it was in the fourth quarter. Did I hear that correctly?

The reserve balance could be similar with slower growth in the portfolio balance that we’ve talked about in the past, the faster growth the more fluid the provision. Often I talk about the fact, the portfolio balance would be relatively flattish for the quarter.

Would you care to say the second and third quarter generally speaking, how you expect that to unfold?

No. Appreciate the question though.

Fair enough. Thanks guys.

Thank you.

Thank you. Our next question comes from the line of Scott Tilghman from B Riley.

Thanks, good morning. One still on the bad debt provision question, but looking backwards. Within the release you commented that the increase in balances originated during the fourth quarter created some pressure. Is there any way to capture the magnitude of what that pressure was with the higher new balances? Recognizing that you do have an upfront bad debt provision with those.

We have generally equated a there is a 30% increase in the balance and so we’ve generally equated that to probably something in the neighborhood of 200, 250 basis points increase and it puts pressure on the provision rate versus…

Okay. And the -- I’m sorry is that off balances or is that off new origination balances?

Off of -- looking at just total balanced growth.

And the other question I wanted to ask, because most of my others have been asked at this point, just looking at the charge-off rate going into first quarter, seems like a fairly high level after seeing what you had in fourth quarter. And recognizing that delinquencies are coming down, you have a higher proportion of the high FICO score no-interest customers, how should we think about the charge-off rate going forward? Is this a last push-through and we should see it getting a little bit better?

First quarter will still be similar to fourth quarter, which is what we indicated in our guidance and then we would expect to start seeing improvement as we go further in the year.

And first quarter is as we pointed out in our comments impacted by the discontinuation of charge-off, charged-off loan sales and we commented that that impact is the charge-off rate, if you’re comparing to earlier periods in the company’s history of 82, 100 basis points if I am remembering that right.

Yes.

Thanks. And one quick question on retail. If I remember correctly, the free delivery, the ending of the rebates kicked in around May of last year. Am I right in recalling that that was about a 1% comp drag?

You’re correct because the delivery charges that we realize are reflected in sales and it was a comp drag.

Great, that’s all I have. Thank you.

Scott, Scott, one quick follow up to your initial question about the impact of growth and I was looking at the year-over-year growth rate on the portfolio of 30%, the portfolio grew about 10% to 15%, 10% in the quarter and that would contribute in the quarter more like a 100 to 150 basis points sorry for that correction.

Right. And like I said, I was asking about the increase in new originations rather than just to our growth.

Yeah, we've looked at it more and just how it impacts total portfolio of growth because the provision is based on projecting out where the balance at the end of any given period is how it’s going to run-off over the next 12 months and so a factor in that is how big is the portfolio balance and the projection.

And one last comment is the charge-off rate would typically on the same balances decline over the course of the year because of portfolio growth. So the normal seasonal pattern is that the portfolio grows after the end of the first quarter and so that does affect the calculated charge-off rate as well in those periods, generally pushing the charge-off rate down.

Great, thank you.

Thank you.

Thank you. Our next question comes from the line of Andrew Hain from Baird.

Hi, thanks for taking the questions. A couple quick numbers. Can you just remind me of the static loss rates historically for 2012 and 2013?

2013 we are currently sitting at 8.3% and we projected that to land around 8.6%. And fiscal ’12 was at 6.6% and might move up another 10% or so from there but it’s basically done.

Okay. And just apologize, could you just also then just give me -- I think you threw these out there. But what are your current expectations for 2014 and 2015? And then what would just be your longer-term expectations? So just three more numbers there; sorry.

So fiscal '14 we said in the comments, we think around 10.5%.

Okay.

Fiscal '15 we haven’t set a specific target yet, but we believe it will be inside of the fiscal '14 better than the fiscal '14 performance.

Okay.

And then our long term goal is 8%

8%, okay. That’s great. That’s helpful. Just a couple other ones. If you are successful in monetizing the loan portfolio, what are the limitations as to the use of proceeds?

Yeah, the limitations that we have under existing credit agreements are detailed in those agreements and we haven’t -- we don’t have a specific transaction and have not worked through the use of proceeds, but we if solve the whole portfolio it would yield the cash amounts that are considerably larger than all of our liabilities and so will gave us the opportunity to explore a number of different alternatives.

Okay, thanks. And then just given that we're -- maybe you gave this and I apologize. Given that we are two-thirds of the way through the first quarter, do you guys have an estimate for same-store sales in the first quarter?

We do not and we've historically provided same-store guidance on an annual period not quarterly in any event.

Okay. Thanks. Appreciated.

We did report February at the beginning of March and we will be put March same-store sales on the April the 9.

Great, thanks.

Thank you. Our next question comes from the line of Michael Cohen from Opportunistic Research.

Hello. Hi; thanks for taking my question. Could you provide a little bit more detail on the account combinations and what percent of accounts historically have been combined, and what percent of the remaining balances existed on the loans -- of the original principal balance were on the loans that were combined?

Yeah, I’m not sure we can provide you that detail at this time, but our historical number of accounts per customer was about 1.1, So almost all accounts with repeat customers were combined. At one point we had reached about, closer to 1.3 accounts per customer even with fewer repeat customers in the portfolio and that’s been trending down and we would expect the number of accounts per customer to trend down towards a historical norm, although given our store opening plans we would not expect to get all the way down to 1.1 accounts per customer.

Okay. I guess I'm coming at it from a slightly different perspective. What I'm trying to understand is: what percent of the payoffs are due to account combinations?

It’s a significant percentage of the total pay offs

So like when you list in your static data, for example, historically about 94% of balances were paid back during the era in -- prior to Synchrony. And then obviously that's changed a little bit over the past few years. What percent of the payoff of a given vintage was due to an account combination?

I’m not sure we know the answer to the question, certainly haven’t calculated for all those years pools, but account combinations given our high rate of repeat purchase are a significant component of customer pay-offs and have always been even in more recent periods, one of the ways in which customers resolve their accounts.

And about 10% to 15% of the balance originated over the last few years have been the existing account that was added on to the new account.

Okay; that's helpful. That gives you some degree of order of magnitude. Then I guess you guys described a lot of the factors that are going to contribute to improving credit performance on a go-forward basis. Such -- almost that one could look at this and say, well, gee, it seems like the pig is passing through the python. In that context, if the worst is behind you with the existing book, why the rationale to sell it?

And so I think the straightforward rationale was included in my comments if we can sell the portfolio it has potential to significantly change our financial profile, dramatically increase our returns on shareholder's capital and reduce earnings volatility at least in the short term. So with our regard to the condition of the credit portfolio, sale of the portfolio has the potential to be a significant change to the structure of the business that creates value for shareholders.

Understood; that makes sense. Then last question. I guess in past proxy statements you guys have detailed the fact that you -- the bonus component based on hitting various net income targets. I know you guys noted that you didn't hit those levels for fiscal 2015. Do you know what those numbers will be for fiscal 2016 for management's full attainment of bonus, as well as the incremental bonus for exceedingly good performance?

For fiscal '15 for our tenured named executives there was no bonus under our existing plan and we have adopted the goals for fiscal 2016 and we would detail some of those in our proxy which will be filed shortly.

Great. So the fiscal '16 bonus targets will be available in the proxy that's going to be filed tonight?

It’s not going to be filed tonight. The proxy, but we will disclose the targets for 2016 in a manner similar to what we’ve done in the past.

Great, thank you. That’s very helpful. Thank you for taking my questions.

Thank you. You bet.

Thank you. Our next question comes from the line of Marcelo Desio from Crosslink.

Hi there. Have you been contacted by the CFPB at all in any way? If so, or even if they haven't, are they -- the new regulations, what part of your business will that affect in general?

We commented on that in our prepared comments and the proposed new regulations based on our reading and interpretation would not affect Conns' and we’ve not been in communication with the CFPB.

Okay. And then they haven't contacted you at all in any way?

That’s correct.

Okay. And then -- so what does the business model look like going forward without the financing business? Is it your plan just to be a pure retail company?

Yes, as we mentioned before, we would continue to have the ability to originate and service loans, we would necessarily hold those loans on our balance sheet, but credit is our competitive advantage and we’re not exiting the credit business.

So then what does the revenue and profit stream from -- look like for that servicing business?

Yes, as we pointed out, the revenue and profit stream you could infer from our segment disclosures on the retail segment with some adjustments depending onthe form of the transaction, At this point we don’t have a specific transaction or terms. So we can't present what that would look like, but I think that information is available in the segment disclosures in our financial statements.

Thanks.

Thank you.

Thank you. And our next question comes from the line of Ben Clifford from Nomura Securities.

Hey, guys. Thanks for taking the questions. The first one is on the rent-to-own side of the business that the Acceptance Now takes on, is it true that they pay you full retail price when you send the customers over there and they convert them into a sale? If so, why don't you send more customers that way?

Yes it’s generally true that we receive the same amount on the sale of a product to Acceptance Now as to a customer. There could be some instances where we pay a discount since we changed the program to allow customers to pay off early. Why don’t we send more customers there? The simple answer is the closing rate would be lower. So we would sell less product and also the customer who can qualify, credit has a much lower monthly payment and more affordable payment that’s a better deal for the customer and is more likely to result and repeat purchases for Conns.

That's good commentary. This next question, on your insurance commission revenue, is that subject to any change going forward in terms of regulatory risk or how that is actually marketed to the customer? Just any thoughts around that.

I think like everything we do in the consumer finance area is subject to potentially regulatory risk. We’re not aware of any changes and our sale of credit insurance is predominantly property insurance and we require the customers to have property insurance, but they’re not required to purchase from us. So we’re similar to any typical auto lender or mortgage lender or others.

Okay; that makes sense. And if you can help me reconcile two numbers for modeling purposes, in terms of your retail sales that were financed by -- financed in-house, it looks like you came to about $872 million for this year. And then when I look at the originations that you reports, it's more like $1,317 million. I was just wondering what makes up the difference there, besides like a sales tax item.

So you got sales taxes, also you got credit insurance premiums, which you don’t see in retail sales. So those would be in the amount financed. The repair service agreement what you see on the income statement is our commission not the selling price to the consumer. So there is bump up there. And then growth referring back to our conversation earlier about adding on existing accounts if they combine their existing accounts that will roll into the origination amount. So all of those components result in the difference between what you get off the income statement and what the balance we originate.

Okay. And I guess one last question. When you were talking about the credit portfolio and the inputs in terms of selling that, I think you mentioned something about charge-off rate in the mid-teens. I was wondering how you can reconcile that with your guidance going forward.

That is just the -- all that number was the estimate of the expected losses in the portfolio at point in time for the remainder of the life of the book as opposed to an ongoing portfolio and the provisioning for continued originations.

Okay. That makes sense.

Just to be sure, we’re clear there, our provision for bad debts does not for all accounts or even for most accounts include the full life of the loans. It includes only a one-year period of expected charge-offs. So it’s not a full life methodology.

Got it.

That’s on our books.

All right. Thank you.

All right. Well, thank you very much. Thanks everyone for joining on the call.

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day.