Consumer Portfolio Services Inc (CPSS) 2004 Q2 法說會逐字稿

Good day, everyone, welcome to the Consumer Portfolio Services Consumer Portfolio second quarter 2004 earnings release conference call. Today's call is being recorded. 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 filings 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 will now 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 second quarter conference call. As you can see from the press release, it was another good quarter. We're very pleased with the results. I think probably the highlight of the quarter is the successful integration of our SeaWest acquisition. We've now had that portfolio and have successfully integrated it into our systems, and it's all worked very well. We're seeing some good results.

That now makes our third acquisition in three years. It's done very well in terms of boosting the servicing portfolio. Currently, with that acquisition we now have another $900 million portfolio, which is about 68% CPS paper, it's 15% SeaWest paper, 13% TFC paper, and 4% Mercury, representing those three acquisitions.

It's kind of been our goal to continue to grow the Company but to buy other companies, or have those other company's portfolios to supplement our portfolio as we continue to grow. But as time goes by, the percentage of our portfolio, as of the whole, becomes larger and larger. And in terms of that structure, it's worked out very well for us.

All the portfolios are performing very well. The SeaWest portfolio, for those who aren't familiar with the portfolio, the SeaWest portfolio was mostly bulk purchases. The TFC portfolio was mostly military purchases, and the Mercury is a little bit of the lower end of sub-prime, and then CPS would be a little higher cut than all of that. So probably of the three, CPS is the strongest performing portfolio and the highest credit cut of the four, but as a result of our ability to class, we've been able to have all four portfolios perform very well.

In terms of the marketplace, the marketplace is still very competitive and business is still extremely slow across the country. As much as CPS has been trying to grow, we've been able to grow a little bit; we've been growing 10, 15% as time goes by. That's not quite the growth we'd hoped for, but again, we absolutely cannot sacrifice credit quality in terms of what we buy in order to grow.

I think as the marketplace continues to change in terms of the improving environment economically and the economy, the business will pick up. As the interest rates start to go up, it's going to put some pressure on sort of the newest competitors in the market, which are mostly banks and credit unions.

And as the interest rates gradually go up, that's going to put pressure on those institutions to back out since they're regulated, and we've seen in the past that the regulatory agencies are not real wild about banks, and I'm sure credit unions will follow, about lending in this kind of a market.

The good news is that because of the history of the industry, the barriers to entry are very extensive and really, no new entrants have come into the market lately and we really don't expect any. The lead time for a new entrant in the marketplace to really get up to speed would be very long. So, we're really kind of, as much as we'd like to grow, we think overall the portfolio and what CPS has done in terms of growing in the marketplace, we've been very successful to date.

Also, during the second quarter, we were able to establish a new credit line with Union Bank of Switzerland for $100 million, that supplements our $125 million credit line with West OB, so we now have $225 million of warehouse credit line debt. We also extinguished a smaller line, enrolled into the West OB line. So we now have a new lender, which is nice, that part's all working out very well.

Also during the quarter, we drew down another $25 million from our senior lender. At the same time, we paid off some of our subordinated debt. We paid off $36.5 million of outstanding debt and as you can see by the numbers, our overall debt load has decreased somewhat.

Probably also significant is in 2004, for those who have been following along, we had almost all of our debt came due in early 2004. And at this point, we've successfully refinanced all of that debt with none of that new debt coming due until the end of '05. So we have a nice window in terms of growing the Company, we have a lot of cash, the debt's all in the best rates we've had ever. So it's all working very well along those lines, as well.

In terms of the financials, the revenue for the quarter, as you can see, were 32.7 for the quarter. That's up a bit from 27.5 for the previous quarter, and up significantly from the year-ago quarter of 23.7 million. Year-to-date this year is 60.2 million of revenue versus 46.3 same period last year. So the revenue line's growing very well for the Company, quarter-to-quarter and year-over-year.

In terms of the expenses, expenses were 32.9 million for the quarter versus 28.9 for the previous quarter, and 20.6 for the previous year quarter. Mostly that's a loss provision. As everyone knows, we've gone off gain in sale. With a second quarter closing we've now had an entire year without gain on sale, and as you can see by the earnings numbers, we've made a very nice transition.

Usually it's very hard and takes a lot longer to go from -- you always have negative earnings as you go off of gain on sale, and it takes a lot to get back to break even or positive, and we think we've just about managed to do it in a year. So, we're pretty happy with that.

The pretax income for the quarter, as you can see, was a $200,000 loss, approximately, versus 1.4 million for the previous quarter and a gain on the previous year quarter of 3.1 million. Remembering that, that 3.1 million represents the last quarter that we were on gain on sale, and so as I just got done saying, we've now pretty much gone back to where the building of the provision is going nicely and we've lowered the loss to almost a break-even for this quarter.

That, obviously, left us with earnings per share of a penny loss versus the 7-cent loss in the previous quarter and a 12-cent gain for the quarter a year ago. In terms of the balance sheet statistics, our cash now is at 85 million versus 98 a quarter ago and 67 a year ago. That 85 million is slightly low due to the fact that we didn't do a securitization in the second quarter. We didn't do one only in means of timing; there wasn't anything going on.

We're actually going to complete that securitization today, and that will raise our current cash position above where the previous quarter's cash position was. In terms of finance receivables, we now have $422 million on the balance sheet, that's versus 312 last quarter and 174 the year-ago quarter. And that, obviously, is a growth of the on balance sheet portfolio, as different from the gain on sale off balance sheet portfolio.

So you put the two together, obviously, the $900 million portfolio is made up of -- the 421 you also have the loss provision, so, basically right now the entire service portfolio is roughly half on balance sheet and half off balance sheet, and that trend should continue to move more strongly to being on balance sheet as time goes by.

In terms of long-term debt, we now have 74 million this quarter versus 87 million last quarter, and down from 106 million the previous quarter. And I think that's certainly significant in that we've now reduced the overall debt, as I've mentioned earlier. We're very happy with the way this year has turned out in terms of refinancing and paying off some of our loans; it's worked out very well for us.

Overall, with the exception of the growth not being quite what we expected, we're in a nice position being able to be patient and wait for that growth to come, rather than go out and have to push for it. I think given that our -- given all the things we've tried to do and say the last year in terms of going off of gain on sale, continuing with the acquisitions, it's all been very successful and we were actually very patient and willing to wait for the growth to come to us as we wanted to, rather than to try and reach for it in a more difficult economic environment.

With that, we'll open it up for questions.

Thank you. [Operator instructions.] And our first question comes from Ken Liddy of Wachovia Securities.

Congratulations on the quarter, guys.

Thank you.

I wanted to see if you could give us some guidance as far as revenues for the next six months?

We would expect revenues to continue, sort of on the trend that we've actually got going for the last few quarters. Revenues should continue to gradually grow. To the extent the market turns in our favor somewhat substantially, the revenues might go up a little quicker. But I would probably say, sort of the line, the trend line you're looking at would be sort of what we would expect.

You mentioned that you expect to continue to post operating loss for the year based on more securitizations. What type of time frame do you think you'll be before you'll be reaping the benefits of what you've done over the last 12 months?

Well, as the on balance sheet portfolio continues to grow, it's going to take over the differential from getting off of gain on sale. I guess, another way to answer that question is a year ago when we announced we were going to go off of gain on sale, we estimated that would be a year or two of losses before we get back to a profitable position.

Obviously, given this quarter of being nearly break-even, we would say we are cautiously optimistic that that time frame is longer than necessary. At the moment we would say for the fiscal -- or for the calendar year this year, we're still looking at a potential loss for the year, but certainly, I would not say it's a two-year window any longer.

And as far as the loan portfolio, where do you see that 12 months from now?

Oh, we would probably -- given the way it's growing -- expect it to be certainly north of a billion. I would expect it to be at least 1.2 billion a year from now.

And as far as securitizations, do you expect to do two more, three more this year?

We're really just on the same -- as I think I mentioned in the previous call, we've always done four annually or one a quarter. As much as we move -- we've moved a little bit off the quarterly, we will still do four this year.

And one last question. Given the solid performance and the likelihood of much better results next year, have you moved forward as far as trying to get some coverage going to conferences, stuff like that, as far as the Company's stock is concerned?

Certainly, we're now focusing much more on that than we have in the past, not that we haven't focused on it too much in the past. As I think I've said before, that we try to get everything fundamentally the way we want it. Now that all that really has been achieved, our goal and focus is certainly on getting the stock depreciation going in the right direction.

And have you done any numbers as far as giving this amount of revenue, where you might be had you used your previous gain on sale accounting?

Certainly it would be -- to be fair, I haven't -- we haven't done it because that would probably be disheartening in some sense, but obviously, if we'd stayed on gain on sale, the numbers would be somewhat robust at this point.

I mean, just looking at it, I would think that you would have somewhere around 50 cents in earnings between the last couple of quarters. Is that -- ?

I haven't looked at it, so it's hard for me to say. But certainly, you could imagine it would be -- if we're break-even going off of gain in sale, if we'd stayed on gain in sale -- an easier way to do it is you can take the amount of portfolio originated, and if you take 4 or 5% of that number, you can almost throw that directly into the top line without any inherent expense to it.

Okay. Well, again, congratulations, and I look forward to the more.

Thank you very much.

Thanks.

Thank you. [Operator instructions.] There appear to be no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Okay, thank you very much. As I said, it's been a nice quarter. We're very happy with the direction of the company, we're very pleased with the way we've been able to successfully go off of gain on sale and switch to portfolio accounting, and we're also very happy with the refinancings we've been doing, the structure and status of our current balance sheet and also the acquisitions.

All three acquisitions have turned out very well for us, we will continue to look for more. We don't really have any in the hopper at the moment but I think the overall plan, in terms of what we said we were going to do a year ago and where we are today and where we're going to go in the future, is standing pretty much exactly the way we hoped it to be, with the exception we haven't grown quite as much.

But again, I think our focus going forward is to do just what we're doing: focus on growth and focus on stock depreciation. So, thank you all for attending this call and we'll look forward to talking to you next quarter.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.