MicroFinancial Inc Reports Operating Results (10-Q)
Microfinancial Inc has a market cap of $54.57 million; its shares were traded at around $3.85 with a P/E ratio of 13.28 and P/S ratio of 1.18. The dividend yield of Microfinancial Inc stocks is 5.19%.MFI is in the portfolios of Jim Simons of Renaissance Technologies LLC, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: We finance the funding of our leases and contracts primarily through cash provided by operating activities and our revolving line of credit. On August 2, 2007, we entered into a new three-year $30 million line of credit with Sovereign Bank based on qualified TimePayment lease receivables. On July 9, 2008 we entered into an amended agreement to increase our line of credit with Sovereign from $30 million to $60 million. On February 10, 2009 we entered into an amended agreement to increase the line of credit again to $85 million. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets. Until the February 2009 amendment, outstanding borrowings bore interest at Prime or at LIBOR plus 2.75%. Following the amendment, outstanding borrowings bear interest at either Prime plus 1.75% or LIBOR plus 3.75%, in each case subject to a minimum interest rate of 5%. Under the terms of the facility, loans are Prime Rate Loans, unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically coverts to a Prime Rate Loan.
Total revenues for the three months ended March 31, 2010 were $12.3 million, an increase of $1.5 million, or 13.5%, from the three months ended March 31, 2009. The overall increase was due to an increase of $1.3 million in income on financing leases and a $440,000 increase in fees and other income partially offset by a decrease of $251,000 in rental income, a decrease of $48,000 in income on service contacts and a decrease of $13,000 in interest income. The decline in rental income is the result of the attrition of LeaseComm rental contracts which is offset in part by TimePayment lease contracts coming to term and converting to rentals. Service contact revenue continues to decline since we have not funded any new service contracts since 2004.
Our selling, general and administrative (SG&A) expenses include costs of maintaining corporate functions including accounting, finance, collections, legal, human resources, sales and underwriting, and information systems. SG&A expenses also include commissions, service fees and other marketing costs associated with our portfolio of leases and rental contracts. SG&A expenses decreased by $342,000 for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009. The decrease was primarily driven by decreases in accrued executive bonus compensation expense and payroll taxes of $167,000, legal expenses of $73,000 and collection expenses of $35,000. The number of employees as of March 31, 2010 was 114 compared to 102 as of March 31, 2009.
As of December 31, 2009, we had a liability of $32,000 for unrecognized tax benefits and a liability of $8,000 for accrued interest and penalties related to various state income tax matters. As of March 31, 2010 we had a liability of $35,000 for unrecognized tax benefits and a liability of $12,000 for accrued interest and penalties. Of these amounts, approximately $31,000 would impact our effective tax rate after a $16,000 federal tax benefit for state income taxes. The increase in the unrecognized tax benefit relates to $15,000 in additional tax liability and accrued interest expense less $8,000 related to the closing of an audit. It is reasonably possible that the total amount of unrecognized tax benefits may change significantly within the next 12 months; however, at this time we are unable to estimate the change.
Dealer funding was $18.1 million for the three months ended March 31, 2010, an increase of $1.0 million or 6.1%, compared to the three months ended March 31, 2009. We continue to concentrate on our business development efforts, which include increasing the size of our vendor base and sourcing a larger number of applications from those vendors. Receivables due in installments, estimated residual values, net investment in service contracts and investment in rental contracts increased from $197.9 million at December 31, 2009 to $200.9 million at March 31, 2010. Net cash provided by operating activities increased by $4.2 million, or 32.9%, to $17.1 million during the three months ended March 31, 2010, as compared to the three months ended March 31, 2009.
For the three months ended March 31, 2010 and 2009, our primary sources of liquidity were cash provided by operating activities and borrowings on our revolving line of credit. We generated cash flow from operations of $17.1 million for the three months ended March 31, 2010 compared to $12.8 million for the three months ended March 31, 2009. At March 31, 2010, we had approximately $54.8 million outstanding under our revolving credit facility and had available borrowing capacity of approximately $30.2 million as described below.
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