Consumer Portfolio Services Inc (CPSS) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services 2009 second-quarter operation results 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.

With us now are Mr. Charles Bradley, Chief Executive officer, and Robert Reidl, Chief Investment Officer of Consumer Portfolio Services. I will now turn the call over to Mister Bradley.

Thank you. Thank you everyone for joining us on our call today. We have in fact now finished the second quarter. The results are about what we would have expected.

This (inaudible) seems at this point to have been two years where we've been kind of just slugging our way through the recession. It was two years ago we did our last sort of what we might call normal securitization in September of '07. We think, at this point, our goal through '07 and '08 and '09 -- or through the end of '07, and '08 and '09 is to sort of get through the recession, keep the infrastructure in place, service the portfolio to the best of our ability and work on things internally while we sort of waited for the recession to go through. Finally, it's nice to be thinking that day may finally be here.

So with that, and there's not a lot you can do with a company when the portfolio is declining. Actually, at this point, the portfolio is now aging (inaudible) we've gone through the highest loss time of the portfolio as well.

So you sort of have kind of a double whammy in terms of how the performance looks, but in fact we think the Company has performed very well and significantly well compared to our industry competitors. We will get into that a little bit more a little bit later, and for now we will just go through the numbers. Robert is going to do that since Jeff isn't here.

Thanks, Brad. As Brad mentioned, over the course of the last year, our real focus has been on preserving liquidity. We've done that a couple of ways, both through scaling back the amount of originations and through cost controls. As a result, our portfolio has shrunk pretty significantly over the last years, down 41% year-over-year. So you see that through the income statement as well as on the balance sheet.

So we start with the income statement. Revenues for the quarter were $58.3 million, down from $66 million in March and $99 million a year ago. So that is 12% for the quarter and 41% year-over-year. For the first six months of the year, revenues were $124.4 million, down from $202 million a year ago.

On the expense side, expenses for the quarter were $64.3 million, down from $66.6 in the March quarter, and that's down from $96 million a year ago, so 3% quarter to quarter, and 33% year-over-year. For the first six months of this year our expenses were $130.8 million, down from $195.6. That was also a 33% drop.

One of the larger expense items, our loss provision, was $18.5 million for the quarter, up slightly from the March quarter, at $16.1 million; that's 15% but down from $30.9 million a year ago. That's down 40%. That's really a function of the nominal new originations as well as the shrinking portfolio and the aging of the portfolio. Year-to-date that provision was $34.6 million for this year, down from $65.8 million, down 47%.

The pretax income line for the quarter was a $6.0 million loss, pretax loss. That loss is up from a $0.5 million loss in the first quarter and $2.7 million pretax income a year ago. Year-to-date pretax income loss of $6.5 million, and that's as compared to $6.5 million income a year ago.

Net income numbers were exactly the same as the pretax income numbers this quarter, net loss of $6 million for the quarter and $0.5 million for the first quarter, versus net income of $1.5 million a year ago. The reason those two numbers are the same pretax and net loss are the same our $2 million tax benefit that we took this quarter was offset by a $2 million valuation allowance that we replaced against our deferred tax asset. So year-to-date, our net income was a $6.5 million net loss, versus $3.6 million net income a year ago.

You can see the same impact on earnings-per-share. For the quarter, we lost $0.32 a share versus $0.03 a share in the first quarter, versus $0.08 a share of earnings a year ago. For year-to-date, a $0.34 loss versus $0.18 of earnings a year ago.

In terms of some of the metrics that we looked at for the income statement, the first one, the net interest margin for the quarter was $26.0 million. That's down slightly from the first quarter of $29 million and down from $54 million a year ago. Once again, that is a function of our shrinking portfolio.

Also, the interest expense from our more recent deals, 2007-2008, was a little bit higher, so the year-over-year shrinkage of 52% is a little bit more than our managed portfolio went down. Year-to-date, net interest margin is $55 million, down from $114 million a year ago.

In terms of our core operating expenses, that's one of the areas we've been really focused on is trying to control costs. So for the quarter, that was at $16.8 million, down from $18.3 million in the second quarter and down from $24.2 million a year ago. Year-to-date, our core operating expenses were $35.2 million versus around $50 million a year ago, and that's down 29%.

More importantly, our core operating expenses as a percentage of our average managed portfolio stayed fairly constant over the course of the last year. So for the quarter we were at 4.86%, that compares to 4.74% in the first quarter and 4.79% a year ago. Year-to-date, those expenses were 4.79%, as compared to 4.82% a year ago. So as our portfolio shrunk, we've taken the steps necessary to keep those costs in line.

We take a look at the balance sheet, first of all, our unrestricted cash for the quarter was at $21.5 million. That's up slightly from the March quarter at $20.8 million, almost exactly the same as a year ago at $21.8 million.

Restricted cash for the quarter was right around $140 million at the end of June, down slightly from the March quarter at $152 million and versus $180 million a year ago. That's really a function of our portfolio shrinking as our securitizations pay down, that restricted cash number decreases.

In terms of the finance receivables, at the end of June, we were at approximately $1.1 billion. That compares to $1.2 billion at the end of March and $1.8 billion at the end of June last year.

In terms of our debt, securitization, warehouse debt for the end of the quarter was $1.1 billion. That's down from about $1.3 billion at the March quarter, and down from $1.9 billion a year ago.

In terms of our long-term and residual debt, we were at about $1.6 million at the end of June. That's down slightly from $110 million at the end of the March quarter, and down from $121 million a year ago. So as our portfolio has shrunk, those numbers have come down and we've paid down some of that long-term debt.

With that, I will turn it back over to Brad.

Thanks, Robert.

In terms of the portfolio delinquency, the June quarter ended at 6.99%, call it 7%. That's up a little bit from 6.73% last quarter and up a little bit from 6.12% a year ago. You know, keeping the delinquencies steady is really a good thing being how the portfolio is shrinking and also as it continues to get older, but it's up a little bit but still in a range we are very comfortable with.

In terms of net losses for the quarter, $10.59 million; that's down from $11.59 million the previous quarter but up from $6.85 million a year ago. Net losses annualized -- $11.12 million versus $6.75 million a year ago. This is -- the large increase is, again, predominantly because of the shrinking size of the portfolio. Again, that portfolio has now gone through what would be a significant loss phase, so we are beginning to see some real good trends in terms of the delinquencies and losses, and so I think both that, coupled with some of the indications on the economy, are beginning to really show that the portfolio has done well and is beginning to come around significantly, so we like that as well.

So in terms of where we sit today, as I said earlier, it's been sort of a trying couple of years. It's almost easy enough to look back and say that our company was sitting very well two years ago. We were performing well; our model worked; we had good lenders and good performance in all areas, and then of course we had the recession trigger by the subprime mortgage, which toppled over the securitization market into something we truly did not expect or count on. And we had to go into sort of a maintained or even a conservative mode of keeping everything going until that market started up again, and it's been a long couple of years in terms of that.

However, during those two years, the Company was able to do very well in terms of the performance, our portfolio and our model. It was well tested in terms of how well it was able to perform in a recession. Well, we've got to answer that. That was a question we got routinely over the last ten years. Now, we have a very significant recession and our portfolio has done very well during that recession. All of our pools have performed within the range of, albeit at the high end of the range but nonetheless well within our expectations, even though they've been stressed dramatically by this recession, the high unemployment and everything else.

So we are very proud of how the portfolio has performed. As Robert points out, we've spent the last two years keeping our costs in line, cutting as much and as aggressively as we could. We in fact did learn a little bit from this ten years ago, and when we saw sort of the problems coming, we cut very quickly and I think that has really helped us in terms of how the portfolio, or how the Company has managed to this problem in that we are able to cut quickly and cut expenses very fast, cut our headcounts, as painful as all of that was. But those kind of moves have allowed us to sort of hang in there and do actually kind of well through this downturn.

On the other side, we've also spent some time sort of reviewing all aspects of our business, the parts of the -- the different aspects of the Company in terms of marketing, originations, collections, and we've been able to come up with some real improvements in terms of the overall model and how it all works, and so we are rather eager to see how that will work once we start growing again.

So, from a Company point of view, we've also worked very well with our lenders. We've had real good relationship with everyone. They've all worked with us through these difficult times, and I think that is, again, a testament to how well the Company has done and the portfolio has performed.

So, the interesting part now is looking at the industry. Some of our friendly competitors haven't been so lucky and others have done fine. I think a lot of the banks have pulled out of this industry so that the landscape going forward could be tremendously beneficial for the companies still here.

I think people probably know that America did its securitization a month or so ago. Ironically, that seems to have sort of opened up the doors of Wall Street a bit. We are getting a lot more calls, considering that very few for a year ago. Now it really looks like Wall Street is finally beginning to thaw out. We are looking at a few opportunities today, and I think it is really the first signs that maybe this thing is really starting to turn around a little bit.

I think we are still going to have sort of a difficult '09. You're going to have to wade through it while everybody gets going, but I think '10 certainly looks like it could get -- FY '10, people will really feel like recession has ended. I think Wall Street will get back to work and start lending money, and I think we're going to be tremendously well positioned to take advantage of that situation.

In terms of the dealerships, the "Cash for Clunkers" program has really put a lot of business in the dealerships, kept them going, give them a little breath of air, which I think they all needed. The dealerships are dying for financing. They wanted -- they needed to sell cars. I think having our company and others ready to fill that hole when Wall Street opens up would really create the opportunity for a lot of business and even rather quickly.

So again, if you look at it from the Company point of view, we've done pretty well. If you look at it from the industry point of view, our company has performed very well with our own industry, and that industry is now well-positioned with the people that have survived this problem to really take advantage going forward.

Ironically, while we lost two years ago with Wall Street and the financing available through Wall Street and as I said, I think, in the last even month or so, you're beginning to see the signs that the Wall Street folks are getting back to business and starting to look at opportunities lending money. The first sign of that was the America securitizations -- securitization. I think there will be more to come. They extended [TALF] some more, so there's lots of things that really sort of make it seem like things are going to get better.

Having said that, I think it will take a little longer; I think the rest of this year will be slow. But again, I think certainly this time next year, I think there's going to be some real opportunities and some opportunities for our company to grow and get really back in the game and get going again.

With that, we will open it up for questions.

(Operator Instructions). Mr. Bradley, at this time, there are no questions.

Okay, thank you. Given it's August and everybody is busy doing other things, we understand that this would be -- and we also kind of announced the call a little bit late, but having said that, it's on replay and people can hear it again.

So, we appreciate everyone attending the call. We think we are kind of getting to where we need to go to, and I think the next couple of quarters and next year are going to be very interesting for the Company and everything we are doing. Thank you.

Thank you. This does conclude today's conference call. A replay for the conference will be available two hours from now until Tuesday, May 26, by dialing 1-800-642-1687 or 706-645-9291, with conference identification number 10358893. (Operator repeats numbers). A broadcast of the conference call will also be available live and 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.