Consumer Portfolio Services Inc (CPSS) 2003 Q4 法說會逐字稿

Good day everyone, and welcome to the Consumer Portfolio Services fourth quarter 2003 earnings release conference call. (OPERATOR INSTRUCTIONS).

Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from these projected. I refer you to the company's SEC filing for further clarification. The company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the call over to your host, Charles E. Bradley, Chief Executive Officer of Consumer Portfolio Services. Sir, you may begin.

Thank you, and thank you all for attending our conference call this morning. Overall, we are very pleased with the quarter's results. As much as we did have a loss, I think everyone expected that loss; certainly we did. We're certainly in the middle or the midst of changing our accounting from going from a gain-on-sale accounting methodology to an on-balance-sheet portfolio accounting. And we think that is going just as expected, or maybe even slightly better than expected.

Overall, the quarter was good. The December quarter generally tends to be very weak in terms of portfolio performance. And not that strong, as well, in loan originations. I think probably the loan originations were about as expected; it wasn't a strong quarter. It was not terrible. In terms of portfolio performance, we probably had a little better portfolio performance than we would have expected. So, overall, we are very pleased with the results, and actually think that it was a good way to end the year, and sets us up for a good year this coming year.

With that, let me run through some of the numbers. In terms of revenue, our revenue was up to 28.2 million for the quarter. That compares favorably with the previous quarter of 26 million, and a year ago at 25 million. For the year results, that puts us at 100 million of revenue versus 92 million in '02.

For the expenses, the quarterly expenses went up a little bit to 33.9 million, compared to 29.3 the previous quarter, and 22 million for the quarter ended December of '02. Most of that can be attributed to us increasing the loss provision. As, I said, we are now doing portfolio accounting, and so as much as expenses look higher, it's almost all associated with us providing for the losses in the different accounting form.

The overall expenses for the year were 104 million versus 92 million for '02. Again, mostly the loss provision. The loss provision in the fourth quarter was 7.2 million. In the third quarter, it was 4.2 million. The loss provision for the year was 11.4 million. You can see that is almost exactly the difference in the overall expenses for the year.

In terms of pretax income for the quarter, we lost $5.7 million. That compares with $2.9 million in the September quarter, and a year-ago quarter of $3.3 million. For the year, we lost $3 million. That compares with a profit, or a slightly relatively-breakeven number for '02. And again, we mentioned we were going to have some losses coming through. Those losses are all attributed to the change in the portfolio accounting. And, for the most part, us having to provide loss provisions up front upon us acquiring the loans.

In terms of earnings per share, it was a loss of 28 cents per share for the quarter and two cents on the year. Again, what we would have expected, overall, for the quarters and the year.

Looking at some of the good numbers. Cash continues to increase. We had 33 million of cash on-hand at the end of the quarter. Restricted cash is 67.3 million, for total cash of $100 million. That compares to the last quarter of 27 of cash; 60 million of restricted cash; and 87 million of total cash, and the last year of having 51.8 million of total cash.

As most people know, when we bought the Mercury -- we did the Mercury acquisition -- there was a lot of cash involved in that company, and we were able to bring through a lot of that cash and put it on our balance sheet.

In terms of finance receivables, we had $302 million on our balance sheet at the end of '03, with an allowance of 35 million nine. For net, finance receivables of 266 million. That compares to 228 million the previous quarter, and only 84 million a year ago. And again, the enormous difference between last year and this year is now we have our receivables on our balance sheet, as opposed to off-balance-sheet when we are using gain-on-sale.

In terms of the debt, the securitization debt was 245 million versus last quarter of 202, and 71 million last December. The long-term debt was 102 million versus 103 million last quarter, and 103 million last December.

Some people have cited the company as having increased our debt. That, for what we care about and most people should care about, could not be more wrong! At the end of the day, long-term debt is the debt everybody refers to as your debt. And you can tell on our long-term debt, as I mentioned, has actually gone down, slightly, by $1 million. Remember that we bought the finance company, TSC, during the year. So, we were actually able to purchase a company which we paid $21 million for, without increasing our long-term debt.

Our securitization debt, on the other hand, has gone up. That is debt you always incur when you do securitizations, whether it is off-balance or on-balance-sheet. Certainly, if you look at the hold together, you could say that our debt today is 381 million versus 175 million last year. But, you know, you would be grossly misinformed to think that that is us increasing our long-term debt. That is just the difference of us putting our securitization debt on balance sheet, which we will continue to do. And as the portfolio grows, that number will go up. The number to watch, in terms of watching our debt, would be the long-term debt, which currently stands at 102 million, down about a million bucks from last year.

In terms of portfolio performance, delinquency for the fourth quarter was 6.22 percent. That is compared to 6.18 percent the previous quarter, and last year of 6.36. As I mentioned, almost no change at all, quarter to quarter; it went up just slightly, and is actually down from the previous December. So, we are happy with the delinquency performance; we think those numbers, considering the economy in the quarter, were actually quite good.

In terms of the net losses, the losses for the quarter were 7.61 percent versus 7.36 percent the previous quarter, and versus 8.23 percent a year ago. So, they are up a little bit from the third quarter. Again, the fourth quarter is sort of a little -- probably the hardest quarter of the year. But they are down substantially from the previous year -- 7.6 for the fourth quarter versus 8.23 for the quarter a year ago.

The overall losses are probably even more interesting. The net losses for the year were 6.8 percent, and that compares to losses for last year of 8.62 percent.

And, we have a total portfolio, today, of 741 million. That is down a little bit from the previous quarter of 752, but substantially up from a year ago at 595.

So, what have we done, really, for the year? I think the fundamental differences this year -- we had another acquisition. We've managed to go off or gain-on-sale accounting, which is a really -- generally considered a very tough thing to do, without having large losses for long periods of time. We've incurred some losses, quarter-to-quarter. We still managed to have a positive year for '03. It is going the way we would expect it to go. The portfolio -- the TSC portfolio we acquired -- is performing very well. The Mercury portfolio is actually close to running out, but it has also performed very well and has turned out to be a very successful acquisition for the company.

On the flip side of all that, of doing the acquisitions, we've also gotten our originations platform in order. We are now ready to grow, and we are beginning the process of growing so that we can originate more CPS loans on a quarterly basis, and get our portfolio growing even more. All that process seems to be going very well.

We actually did refinance some debt this quarter. We refinanced $35 million on more favorable terms. We'll probably do another refinancing in the first quarter, and after that, we should have most of our debt refinanced on balance sheet. Again, putting us in a very strong financial position, both in terms of our debt structure and our cash position.

Like I said, other than the earnings, which we fully expected to be down for the quarter, every other aspect of the company is doing very, very well. And we think we are well-positioned for a successful 2004.

With that, I think probably the only other comments to make in terms of the overall industry -- competition still seems to be out there. With a low interest rate environment, there are a lot of people that normally would not be in sub-prime, that have ventured into it to look for that higher yield, given the low cost of funds. The competition is still out there. It seems to be tapering off a little bit, or at least evening out.

In terms of the resale at auction and the used car prices -- they have leveled off. They have not particularly improved, but they certainly have not gotten worse in almost six months from our estimation. We would hope, as the economy recovers more fully in '04, that those recovery rates will improve further. We have always only expected them, or hoped that they would stay flat. We have never forecasted them in our modeling or our projections to actually increase. So, any increase would be a benefit to us.

In terms of interest rates, we foresee the interest rate environment not changing particularly over most of 2004. And so, again, we think we have very strong spread margins today, and can maintain those as we go forward.

We think as the rates do eventually go up, that will send out the competition even further. And actually, hopefully, coincide as we are really beginning to grow a little more aggressively, and give us the opportunity to grow even more easily.

Other than that, everything seems to be going fine. I will open it up for questions.

(OPERATOR INSTRUCTIONS). Flori Miller (ph).

Two questions. When you refinanced the 35 million you mentioned -- how significant of a savings are you able to affect in this environment?

(multiple speakers)

Is it material?

Certainly it was material. We probably picked up two points -- 200 basis points on the cost-of-funds. So, that would be material.

Yeah, that is pretty good. How much additional did you say you would hope to accomplish, going forward?

(multiple speakers) $50 million of our debt came due at the end of January and the end of February. We have either paid or refinanced all of that debt already. We have another $20 million coming due in April. We will probably do one more refinancing that will take care of paying that debt. And again, we think we would pick up a couple hundred basis points on the overall cost of funds.

Well, that is real money.

Certainly is.

You're talking about over 100 --

What we would technically do is refinance around $70 million of debt for about the same amount. If you take the 50 that was due in January and February and add on the 20, you have a total of 70 we would want to refinance. And we will probably do in the neighborhood of 70, 75 million in refinancing. Some money, but what we will really do is get $70 million at about a couple of hundred basis points savings.

I think you mentioned, also, you're lengthening out the time?

Well, the maturities would be in late '05 or early 06 --?

So it is still relatively short?

Yeah, a little bit.

As you look ahead and you talk about -- well, now we're getting in a position to grow the company -- does the environment need to get somewhat better for you yet, as far as getting some of these competitors out who have entered the market because of low rates, etc. and the inability to lend elsewhere?

I think the market is generally improving that way. Certainly, there are a few people -- large banks and a couple of institutions have come in. And I think as the rates go up, they will go back out. But, you know, I think even so, I would say the market is probably slightly more competitive than it was -- I don't know -- six months or a year ago, but not predictably more competitive than it was a quarter go. It's not like its getting worse or anything, but the competition is not going away. And, it really will not until there's a significant increase in the lending rates or the cost of money. You're going to have people like banks and credit unions and the like who have low cost-of-funds, and can actually now hold sub-prime assets without having to us reserves against them. Those people are not going to go away until the interest rates -- you know the federal lending rates go up a couple hundred basis points, at least.

The 100 million you have in cash -- I presume that is of really good benefit as you work on your refinancing?

It certainly helps, yes.

Looking at the numbers, I cannot tell -- maybe -- is there such a thing as a positive cash flow or not? It looks like the year ended up, by looking at the year-end book value, it is about the same as it was a year ago.

We would probably look at cash flow in two lights -- one would be just straight cash flow, and we would include releases from trusts and things like that. In that sense, we certainly have a positive cash flow. Somewhat probably more, either relevant or interesting to us, would be the operating cash flow.

Is that like free cash flow in other industries? Not necessarily --

-- what the other industries are?

Other industries -- when you talk about free cash flows with cash flow that you don't need to finance the business; its over and above -- it essentially goes into net worth if you don't use it for anything.

Right. Like I said, basically, we are probably slightly negative on an operating cash basis, but we are very positively on a cash flow basis.

Overall --

Right.

It looks like, little by little, the chips are falling in place here.

Well, it's probably little by little on purpose. I mean, in this industry, going fast pretty much causes a demise in almost every single company that has tried to do it. So, you know, having a second life in this thing -- we would like to get it right and stay forever.

Yes -- I noticed that AmeriCredit has actually had some wonderful market action.

They certainly recovered very quickly. We would probably attribute their quicker recovery than ours almost totally, for probably several reasons, most importantly just a critical mass. As large a company as AmeriCredit was, they were able to -- certainly, they had everybody on Wall Street watching them initially, and when they were able to turn the corner, they came back rather quickly. Being a smaller company, it certainly takes longer to turn it around. And certainly it is going to take a little longer for us to get the recognition.

I think probably, in terms of the way we are doing things, we're putting everything in order; we are building the company correctly; we are fixing all the infrastructure; we made a couple of very nice acquisitions. You know, like everybody says, you put everything together and then the stock follows. You know, hopefully soon the stock will do just that.

With regards to acquisitions, are those opportunities pretty much behind you?

We continue to look for new acquisitions. When you look for them, they are harder to find; when you are not looking for them, you seem to find them more readily. But, we are always in the market. We have been successful in the ones we've had, so we would certainly entertain doing others.

Okay. Well, great. Thank you. Good going, and as they say -- Godspeed.

(laughter). Thank you very much, Flori.

(OPERATOR INSTRUCTIONS). Sir, there appear to be no further questions at this time.

Well, overall, like I said, it has been a good quarter. We look forward to '04. Thank you all for attending the call, and we look forward to having another call probably in April some time and having the first-quarter results. Again, thanks so much for attending.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.