Consumer Portfolio Services Inc (CPSS) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services first quarter 2005 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 fact 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 those 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.

Thank you. And thank you all for attending our first-quarter conference call. Overall, the Company is very pleased with our quarter. We thought the results worked out the way we wanted them to. We think the Company is on track in terms of our program of growing the Company and moving it forward. So overall, we thought it was a good quarter. So let me run through some of the results and then we will get to the questions. In terms of the quarter, revenues were 41.8 million this quarter. That compares favorably to 27.5 million a year ago quarter and in the sequential quarter 37.6. So they were up nicely.

In terms of expenses for the quarter at 42.1, that compares to taking out the loss we -- the extraordinary loss from last quarter. Loss expenses last quarter of 41 and the expenses a year ago of 29. So the expenses were up a little, but not nearly as much as the revenue. So that part is working the way it is supposed to. In terms of the income, we did have a small loss, $239,000, this quarter compared to last year of 1.4 million and the large loss of 12.3 million in the sequential quarter. That's earnings per share of just a $0.01 loss this quarter, compared to $0.57 last quarter and $0.07 the year ago quarter. In terms of the finance receivables, the portfolio now stands at 620 million after the allowance. That compares to 550 million for the previous quarter and 312 million for the year ago quarter. So our receivables are growing and growing nicely. As I've said in the previous conference calls, probably not as quite as fast as we would like, but we are making progress in that direction.

In terms of the debt, the debt mostly stayed the same. Overall the long-term debt, we paid down about 7 million of long-term debt. Other than that, everything stayed the way it was before. In terms of looking at some of the performance numbers, we thought the results this quarter were probably at least as good as we expected if not better. In looking at the delinquency line, the delinquency for the consolidated portfolio, not counting third-party servicing, was 3.22% for this quarter, that compares to 5.6% last quarter and 3.72 a year ago quarter. So either way you look at it the delinquency was really good this quarter, down from the comparable period last year by a little bit and certainly down from the seasonally high fourth quarter of '04. In terms of the losses, the losses, again, of consolidated note third party were 6.64 for the quarter, that compared to 8.77 for the fourth quarter of '04 and 6.95 for the year ago quarter.

And, again, those numbers are exactly what we want, some improvement over the year ago quarter and very significant improvement over the last quarter. Somewhat also of note, if we just strip out the CPS portfolio, which is a portfolio we are adding every day and growing and over time will become virtually all of our portfolio, the CPS numbers or the CPS originated paper for those same periods, delinquencies were 2.5% for this quarter compared to 4.68% for the last quarter and 3.16 for the year ago quarter. So those numbers probably are about as good as they can get. So we are very pleased with those. In terms of the losses for the CPS originated only paper for the quarter was 5.73, that compares to 7% for the last quarter and 5.85% for the year ago quarter. Again, we are very pleased with these numbers and certainly it says a lot for us doing the right thing in terms of how we originate loans and, certainly, how we collect those loans.

In terms of the overall portfolio, it now stands at 926 million, that's up a little bit from 907 million last quarter, and up somewhat significantly from the year ago quarter of 736 million. Again, we would expect some slow but gradual increase in our portfolio over time. In terms of originations for the quarter, we did 144 million, that compares to 127 million in the fourth quarter and 93 million the year ago quarter. So, again, if you look at just those numbers, the originations are doing quite well. We are making some real progress. Our overall goal, again, is to get to the numbers we used to do and so those aren't close to those numbers. Our overall goal is to get to something close to 300 million-plus per quarter. So, even though the 144 million is nice improvement over the 127 and significant over the 93 of a year ago, it is still not even halfway to our goal of around 300 million a quarter. We are continuing to work in that area and eventually will achieve that goal.

As I mentioned in the collections and delinquency numbers or the delinquency and the loss numbers, our collections area of the Company is doing a tremendously good job. We are probably putting forth some of our strongest collection efforts to date. The numbers are in fact showing that. The pool performance is exceptional. We couldn't be more pleased with that. One thing to note is the recoveries at the auctions have continued to improve and those recoveries obviously play into how the loss numbers work and we have waited a significantly long period of time where those recoveries at auction were quite low. They continue to strengthen on a quarterly basis and can only help our results. In terms of marketing, again, this is what we are working so hard on. We want to get our volume up. Unfortunately, the most -- the complicated way is you can't really just buy loans because if you buy bad loans it will come back to haunt you dramatically. We are doing what we can to grow. We are expanding our market. We are adding new dealerships in different states.

We think -- it is a little bit of a process but over time getting more marketing reps out across the country and having them develop strong dealer bases will eventually drive our marketing, our origination volumes to levels we expect. In terms of the industry, the industry really doesn't seem to be doing a whole lot. Competition seems to have cooled off a little bit. It's still there. It hasn't really gotten any more intense but it probably hasn't gotten any easier. In terms of the overall economy, probably as people can see, the economy seems to be improving somewhat, maybe not to the extent everybody had hoped or thinks. Certainly the car industry hasn't improved all that much, if it has improved at all. Probably if that industry would improve a little bit, it would have some helpful effects on how we finance cars. So we would like to see the auto industry improve as well. But overall, it is not as good as it could be, but certainly it's not bad and even within that marketplace we can continue to grow as demonstrated by the numbers.

I did want to mention one thing on litigation. We had a couple of questions about when we announced last quarter that we settled the California litigation. The California litigation was a very significant and potentially the more harmful the litigation involved in that. We thought that litigation was one to worry about. So having settled that really is important to the Company. We do have a small case in Rhode Island, which we are very competent and comfortable on our position in and we have reserved against. We are not very worried about that litigation. So to the extent people confuse the two, it was the California litigation that was very significant. In terms of the overall outlook for the Company, we think everything is going the right way.

As I said, portfolio performance is very important and ours is doing very well. All the pool performance is great. Our balance sheet and capital position is very good. All we really need to do is let the Company continue to grow. The transition from our accounting, it's probably safe to say at this point, is complete. We're now where we wanted to be and we would expect nice results going forward. So with that we'll open up for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Laurie Miller.

Yes. Charles, the -- from listening to your presentation here, it would seem like all the trends of this business you are engaged in are finally favorable. The wind is at your back and you mentioned that your goals, regular wise, are substantially higher, almost double what you are doing right now as far as originations go. So how difficult is that to -- I mean doubling, that's kind of a tall order it would seem to the casual entrant. How do you guys go about that?

Well, actually I'll address both parts of your question. In the first part, we've said the Company has been well-position before. It's certainly as well-positioned as it's ever been and all the trends are, in fact, favorable and we are very pleased with the way we sit in the industry currently. In terms of growing, that's a tricky question. But there's two ways to look at it. On the one hand, all we want to do is get back to the size we were before. So we know what the volumes are, we know how to get there. It's just a matter of having the patience to let the Company develop itself rather than to force it. Obviously, forcing the Company to grow by buying bad loans or making unwise strategies is not something we are interested in doing. So it really is a matter of patience. I think if the Company can grow 20% originations growth annually, we will get there. It will take a little longer.

I think there's some areas where we can make some improvements in terms of dealer efficiency, customer service. If those things work, I think it could pick up a little faster. Certainly the wild card is if another company or industry has some problems or there is some trends in the industry or some -- with the rising interest rates, for instance, some of the banks and the credit unions might back out of the industry a little bit. That would very quickly could turn into a windfall in terms of a growth opportunity for the Company. So we have two ways to look at it. We can follow what was going to be our slow and steady growth curve, again, using 20% as flow and steady. Or we can, hopefully, benefit from some changes in the industry with our competitors and then pick up some significant growth that way.

So we are really going to look for a combination of the two. Historically, the second thing tends to happen quite often and so we have some opportunities there. Certainly within our industry, some companies have changed hands and have ceased operating in the business. So there are opportunities sort of over and above just normal growth. So we are going to focus on the normal growth. To the extent we can get a little bit lucky and have something happen in the industry that benefits our growth, that's just fine too.

Okay. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from Ken Liddy with Wachovia.

Hi, guys, how are you.

Good, how are you, Tim.

Congratulations on finally being done with this accounting.

It's taken longer than we expected but it's good to have it behind us.

What kind of earnings power does the Company now have at this level of revenue? Can we expect anything back prior to the change in accounting, can we expect a similar type of earnings power?

Well, I think over time. Right now the thing we need to create the earnings power is some growth. Remember the Company is still infrastructure-wise and sort of strategically positioned to be a bigger company than it currently is. I think the benefit we have is if we grow, or when we grow, that we'll have a lot more efficiencies in terms of the operating infrastructure and so a lot more of it will go to the bottom-line quickly as opposed to normally when a company grows having to put out infrastructure and things like that. We don't really have those issues. Unfortunately, again, the wild card is how quickly do you grow. And if we don't pick up some growth, it may take a little time, but we are hopeful that the numbers will swing the right way soon and we will get that growth we are looking for.

But certainly, the Company over time, you can look back to the days when we were doing those kind of large numbers, there is nothing to say we can't get there, it's just a matter of when. So if you put -- where we sit today is being a nice place and all the sort of problems we have had behind us, the focus is to get to where we were in 1998, and those were some very attractive numbers and they would be attractive both in terms of the growth parameters for the Company and also the earnings parameters and what it would do for the stock price. The real question is when do we get there and that is a little up in the air yet.

Is there a trade-off between growing now and earning now, meaning if you grow too much today, will it mean that you won't see the profits until -- ?

Yes, that is a very astute question because under the new accounting, to the extent we grew quickly and to the extent we have grown somewhat quickly a little bit, even at 20%, since you have to take the provisioning, it does in fact hurt you. When you sell -- a good way to look at it is in sort of either hypothetical or a model, if you grew at 20% to 25% for three or four years, or even, say, you grew at 35% for two years, you are going to be hurting your earnings during those two years, but the minute you slow down and grow at 10%, the earnings will catch back up. So in some ways you would almost rather grow a little bit quickly and then let the earnings follow. But almost no matter what, given, say, a 20% growth rate, your earnings are going to follow a little bit until you slow down. But from where we sit, we would rather grow and let the earnings trail a little bit because once they catch up, they would be significant. But that is, in fact, exactly what is happening -- what will happen given in the provisioning and the new accounting.

And if you think about it, if you certainly follow the Company, if you think about gain on sale, you put all your earnings first, and then hopefully the earnings -- the real earnings caught up to that gain on sale you put through the revenue line. Today it is exactly the opposite. If you grow, you take the expense first and the revenue follows.

What numbers on the balance sheet are you focused on primarily right now?

I'll answer that in sort of in two parts. One, we want the on balance sheet portfolio to grow. To the extent that we can grow that portfolio and the provision -- a nice thing, here's a scenario that would be interesting. If, in fact, we could grow the on balance sheet portfolio and the portfolio performance was better, you might not have to provision quite as much and therefore you wouldn't be hurt so much by that growth.

So to the extent -- the ability to grow and have better performance will offset the negative earnings implication of growth. So that's good. We focus on that. Certainly another thing we're doing is trying to lower our overall debt structure, given that back in the last three years we've had to raise what can be, at least, considered moderately expensive money, if not expensive money, if we can refinance our balance sheet and get cheaper money, that obviously -- those savings would go through right now regardless of what growth rate you are doing. So what I am looking at is both portfolio growth and what can we do to get cheaper money. Since we are paying off a lot of our debt, that certainly helps too. But even as we sit, we would like to get some lower long-term debt to replace the current debt out there.

Do you expect to be in the black over the next few quarters?

We think, without saying one thing or another, we think the results will continue to improve.

Can we expect sequential growth -- well, quarter-to-quarter growth in revenues?

Our goal would be sequential revenue growth and earnings growth.

And one last question. As far as attracting institutional investors and the retail investors, have you engaged in any type of conferences or any type of arrangements where you are trying to seek coverage from some of the firms that covered you in the late '90s?

I think this fall will probably be the time we can hit that market. There isn't going to be a lot going on between -- I mean, we either have to get in the market immediately in sort of May-June or wait till September. But we are certainly looking at that now that we think we are in a really good spot to get that kind of coverage and following. In other words, we have a good story to tell at this point with no issues -- with all issues behind us. So, yes, we are going to try and do that.

I am sorry. One last question. Is the Company still buying back its stock?

We are, I think to the extent -- when -- when we have an opportunity, we pick it up. We haven't bought that much lately.

Okay, great. Thanks.

Thank you very much.

At this time, there appear to be no further questions. I would like to turn the floor back over to Mr. Bradley for any additional or closing remarks.

Again, we think the Company has put together a good quarter. We are very pleased with the overall performance of all the different areas of the Company. Our focus is continued growth. We think that growth will translate into better earnings. We think over time this could really turn into what we've all been waiting for. We appreciate your very long and steadfast support and we look forward to our next conference call. Thank you very much.

Thank you. This does now conclude today's teleconference. A replay will be available beginning an hour from now until Tuesday, May 10th, by dialing 877-519-4471 or 973-341-3080 with pin number 6003840. A broadcast of the conference call will also be available live for 30 days after the call via the Company's website at www.consumerportfolio.com and at www.streetevents.com. Please disconnect your lines at this time and have a wonderful day.