America's CAR-MART Inc (CRMT) 2016 Q1 法說會逐字稿

Good morning, everyone, and thank you for holding. Welcome to America's Car-Mart first-quarter 2016 conference call. The topic of this call will be the earnings and opening results for the Company's fiscal first quarter 2016.

Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in the last night's press release, which can be found on America's Car-Mart's website at www.car-mart.com.

As you all know, some of management's comments today may include forward-looking statements which inherently involve risk and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The Company cannot guarantee the accuracy of any forecasts or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information regarding forward-looking information, please see item 1 of part 1 of the Company's annual report on Form 10-K for the fiscal year ended April 30, 2015 and its current and quarterly reports furnished to or filed with the Securities Exchange Commission on Form 8-K and 10-Q. Participating on the call this morning are Hank Henderson, the Company's Chief Executive Officer and President, and Jeff Williams, Chief Financial Officer.

And now I would like to turn the call over to the Company's Chief Executive Officer, Hank Henderson. Please go ahead.

Good morning, everyone. We appreciate you joining us today.

Bottom-line results for this quarter were obviously disappointing. Sales were very solid, and we're pleased with that aspect. Credit losses, however, were not. And we're not pleased with our results.

Sales were up 12.5% over same time last year with same store sales up 8.9%. So it was a good start to the year on sales. However, our provision for credit losses were 27.7% for the quarter versus 24.6% last year, and that is of course not how we wanted to start out this year. We finished the year end April 30 at 5.8% on our over 30-day accounts. So we did anticipate higher losses. Unfortunately, we saw more of those than typical that weren't worked out and saved. So we did end up with even more than expected.

The elevation in losses was not, however, across the board at all stores. We had about one-third of our stores with credit losses that were lower than last year's first quarter. Actually, we have several stores with remarkably low credit losses, and also many that were relatively flat. The bulk of our increase in losses is attributable to somewhere between 25 to 30 of our stores, depending on where you draw the line. And it is apparent to us that for these stores, this was primarily an execution issue.

As we discussed on our last call, we had an out of the ordinary year with the numerous policy, procedure and system changes that took place continuously throughout the year. And the distractions proved to be more difficult for some than for others. We are focused intently on the improved performance of each of these stores by better supporting each of these general managers with better, training, retraining as in sales and their staffs where appropriate and providing an increased level of accountability in all the areas that impact credit losses, which in our business is essentially every area.

We have implemented tighter underwriting oversight and are increasing the frequency and intensity of the review of collection processes. Additionally, we need to do a better job with the level of accountability of our area operations managers, as well, to better ensure that stores under their charge don't get back into this situation. Improving the loss rates particularly for these stores is how we will help our general managers to succeed and help our customers be successful with their accounts as well, and that is our mission.

The good news to this part of our business is that this past quarter we actually saw some of the biggest improvements made throughout every region with regard to our collections and delinquency rates than we've seen in years. Now, part of that's because we had more improvement to make than we should have, but nevertheless progress was made.

As I said earlier, we began the quarter with 5.8% in the over 30-days past due category. However, we ended the quarter at 3.8%. That's a significant improvement, and it's also a big improvement over the 4.7% where we were at the same time last year. This reduction effectively means we have 1200 fewer accounts sitting in the 30-plus category starting off this second quarter than we had beginning the first.

Again, we aren't happy with fact that we had so much room for improvement, but it is great to see that we got this back to where it needed to be quickly. So I'll go ahead now and turn it over to Jeff to give you more detail on our recent results.

Thank you, Hank.

Total revenues was up 12%, and as mentioned, same store revenues was is up 8.9% for the quarter. Revenues from stores in the 10-plus-year category was up 5.5%. Stores in the 5-to-10-year category was up around 7%. And revenues for stores in the less-than-five-year age category was up about 30% to $36 million for the quarter.

The overall average retail units sold per month per lot for the quarter was 28.9. That's up 1.8% from 28.4 for the first quarter of last year and up from 28.1 sequentially. At the end of the quarter 45, or 32% of our dealerships, were from 0 to 5 years old; 23, or 16%, were from 5 to 10 years old; and the remaining 74 dealerships were 10 years old or older.

Our 10-year-plus lots produced 31.3 units sold per month per lot for the quarter compared to 30.7 for the prior year. That's a 2% increase, or about 0.6 units per month per dealership. Our 23 lots in the 5-to-10-year category produced 28.7 compared to 28.2, so 1.8% increase. And the lots less than five years of age had productivity of 25.1 compared to 23.8 for the first quarter of last year, about a 5% increase.

Sequentially, the 10-year-plus dealerships were up 2.1 units per month, or 7% from 29.2. While competition is still intense, it was nice to see the sales volume increases at our older dealerships for the quarter.

Our average selling price increased a little over 5% compared to the prior year, but decreased 0.4% sequentially. The increase from the prior year relates primarily to our new 12-month service contract. Also, we did increase the pricing for our payment protection plan product just a little bit. And we did see a slight increase in overall selling prices for the quarter. As always, we will focus on basic transportation needs, and we know that we compete more effectively at the lower price points.

We're hopeful that decreasing wholesale prices, while painful in the short term for credit losses, may give us an opportunity to buy a little better car for around the same money as we move forward. We will continue to target flat to slightly increasing overall sales prices in our efforts to keep our payments affordable.

Our down payment percentage was 6.6% compared to 6.9% for the prior year, or down around $28 per transaction. Higher down payments do contribute to better credit results in the future. Collections as a percentage of average financed receivables was 14%, basically flat with the 14.1% last year.

Our average initial contract term was up to 28.2 months compared to 27.2 for the prior year, but down slightly from the fourth quarter's 28.3. While we will always work hard at keeping the term length down and customer equity up to help customer success rates, we're also focused on affordability of the payment in light of competitive landscape.

We remain very aware of the downsides with longer terms, but we are committed to trying to balance this against the competition. Our weighted average contract term for the entire portfolio, including modifications, was 30.4 months, which was up from 29.6 at this time last year and up from 30.2 months sequentially.

The weighted average age of the portfolio was 8.3 months at the end of the quarter compared to 8.4 months at this time last year. For competitive reasons, our term lengths may continue to increase some into the future but we're committed to minimizing increases.

As a point of reference in July of 2012, the point where we really recognized that the competitive landscape had changed significantly, our average originating contract term was 26.6 months, and with modifications the term was a little over 28 months. So we continue to fight the battle on keeping our terms down and continue to try to educate the consumer on the benefits of our offering compared to offerings with longer terms. We don't think that the additional term length over the last few years has had a major factor on our increased credit losses.

Interest income was up $1.2 million for the quarter due to the $36 million increase in finance receivables. For the first quarter our gross profit margin percentage was 41.2% of sales. That's down from 41.5% sequentially and down from 42.3% for the prior-year quarter. We will continue to work hard at reducing vehicle-related expenses, but the high level of repossession activity is also having a negative effect on margins, as the number of cars we have to handle and process has increased. As a result, both the volume of wholesales and the prices we're receiving are having a negative effect on overall gross margin percentages.

Also, we are carrying more inventory to support higher sales levels. But there's obviously a gross margin cost associated with doing this. Our goal is to balance affordability for our customers with appropriate gross margin percentages to enhance customer success rates. We do expect gross margin percentages to remain under pressure over the near term.

For the quarter SG&A as a percentage of sales was 18.1% compared to 18.4%. The $2.3 million increase in overall SG&A dollars compared to the prior-year quarter related primarily to higher payroll costs and other incremental costs related to new lot openings, the growth of younger dealerships and infrastructure costs to support the growth. Additionally we did incur around $600,000 in GPS expenses for the quarter. And we ended the quarter with over 80% of our accounts having the product. We continue to work on operational efficiencies with the product, and we have seen some recent improvements.

We're aggressively managing our expenses, and we continue to expect some longer term SG&A leveraging over time as we grow our revenues. It's always hard to pinpoint on a quarter-to-quarter basis, and with our collections challenges it may be a little harder in the short term.

For the quarter net charge-off as a percentage of average finance receivables was 7.8%. That's up from 6.3%, and flat with the fourth quarter's 7.8%. The increase for the quarter related to a higher frequency of losses, and to a lesser but significant extent an increase in severity. The higher severity of losses resulted from lower wholesale values at repo.

Our wholesale value recovery rates continue to come under pressure. Our recovery rates now have fallen below what we saw at the low point during 2010. The big difference between now and 2010 was that back in 2010 the frequency of losses was very low. At this point we're seeing low recovery rates and very high frequency of losses as compared to 2010 where the severity was high but the frequency was also very low.

Losses were up significantly for the quarter, both compared to the prior-year quarter and sequentially. As Hank mentioned, while we did see several of our older dealerships with credit losses at very low levels, unfortunately we saw many older dealerships with very high loss levels. Competitive pressures, both at the point of sale and at default point, continue to be high. But we believe that most of our poor results were related to internal issues, as Hank mentioned.

Principal collections as a percentage of average finance receivables for the quarter was 14%, down slightly from 14.1%. The slight decrease in principal collected between periods primarily resulted from the longer average term and slightly higher contract modifications offset by lower delinquencies and a higher level of early payoffs, another indicator that the competitive environment remains intense. Also, average percentage of AR current for the quarter was relatively flat, but we finished the quarter much higher.

Once again, our accounts over 30 days past due are at 3.8% compared to 5.8% at the beginning of the quarter and 4.7% at this time last year. And also at July 31, 2013 the 30-plus percentage was 5.4%. So the 3.8% at the end of this quarter is very good by historical standards. Also, delinquencies in our 3-to-29 day past due bucket was 13.2% at the end of the quarter. That's compared to 15.3% at April 30 and that's compared to 15.8% at the end of our first quarter of last year.

Credit losses on the income statement was 27.7% compared to 24.6% for the prior year. And based on the fact that 74 of our older dealerships saw the biggest increases in the credit losses overall, once again several older dealerships had very low losses, but we had some very high at the same time. These lots also carried higher percentage of the excess delinquencies into the quarter and were not as successful at saving accounts, especially in the 30-plus bucket as we expected.

Our expectations were that losses would be elevated but that the older dealerships would have more success in helping these delinquent accounts succeed. The negative effect on credit losses from just the shifting of age of our dealerships was only around 17 basis points for the quarter.

We are very disappointed in our credit results and will stay focused on cash-on-cash returns and capital deployment. As mentioned in our press release, we have spent several years and a lot of money and time on infrastructure to efficiently support a customer base -- a larger customer base in need of good, solid, affordable transportation and excellent service after the sale. With our current results, we're certainly not seeing the benefit from these investments.

As Hank mentioned, we do have specific plans in place to improve our credit results. We'll have to work hard on maintaining sales volumes as we try to better deal structures and minimize losses. We will continue with our good, solid expense management and helping as many customers as possible succeed. If losses were to continue at these elevated levels, we may be in a position to have to raise our credit loss reserve during this fiscal year. The fact that we have lowered the 30-plus delinquencies by almost $8 million during the quarter should obviously provide a positive.

At the end of July our total debt was $105 million. That's up $2.7 million from the end of the fiscal year. During the quarter we did repurchase 46,000 shares for $2.3 million. Our current debt-to-equity ratio is 45.3%. And our debt-to-finance receivables ratio was down from the end of the year to 24.6%. We did have $38 million in additional availability under our revolving credit facilities at the end of July.

Now I'll turn it back over to Hank.

All right. Thanks, Jeff.

We have recently opened two new locations: Albany, Georgia and Raleigh, Missouri. We do have several projects in the works, and if they stay on track we should have three more openings within the second quarter.

We are disappointed with our results for the quarter, but we are not deterred. We have opened almost 50 stores in the past five years and the majority of which are doing very well. You can't have that level of growth without a few bumps in the road.

We have great shared vision of the Company we are building and an extremely capable and dedicated team to get us there. We have a solid plan in place to correct our shortcomings and we will work it intensely. When we fall short or make a mistake we gain valuable experience that makes us better, provided of course that we learn from it. And this recent quarter has gotten our attention drawn intently to exactly where it needs to be, and I fully expect we will be better for it.

That concludes our prepared remarks and we would like to now move on to your questions. So, operator?

Thank you. At this time, the management will now answer questions from the callers. I would like to reiterate that my earlier comments regarding forward-looking statements apply both to the management prepared remarks, and to anything that may come up during the Q&A.

(Operator Instructions)

And our first question comes from the line of Elizabeth Suzuki from Bank of America. Please go ahead.

Good morning, guys. Given that you ended the quarter with only 3.8% of accounts over 30 days past due, which is, I think, the lowest level since April of 2011, are you pretty confident that charge-offs as a percent of receivables should at least come down somewhat sequentially?

Based on our experience, that is typically the case. So, that is what we're counting on. But we're not -- we're definitely not resting on it. We're kind of using this as a building point. So -- but, yes, that is our expectation.

Okay. Great. Do you think the market got incrementally more competitive in the quarter? Because last quarter it sounded like it might be starting to get more rational, but that seems to maybe not have been the case.

I wouldn't say there was any significant change in this quarter over the prior.

Okay. Thanks. And just one more quick one: Has the CFPB oversight of non-bank auto lenders resulted in changes to your reporting requirements? Because I think in the press release you noted that there were some distractions related to policy changes. So, I'm just wondering if you could elaborate on that, and whether it's CFPB-related?

Part of our compliance investment over the last couple of years has been in anticipation of being a larger participant. So, there have been some policy changes, nothing significant, nothing that really changes our collection practices at all. It just relates to formalizing some things that have been in place.

There have been a few tweaks, and a few processes and procedures changed as a result, but we've been anticipating this and working in this direction for a while. But we certainly have had to formalize some things, and do a better job documenting and getting more consistency in lot-level operations in anticipation of being a larger participant.

Okay. Thanks very much.

Thank you.

Our next question is from David Scharf from JMP Securities. Your line is now open.

Good morning. Thank you. The changes in policies, and just some of the operational issues that impacted collections -- can you expand a little more, maybe a little more specifically? It was pretty telling that only about, in your view, I guess, about 25%, 30% of stores accounted for the bulk of the losses. Can you maybe get a little more granular, reviewing perhaps the top three policy and process factors that impacted losses this quarter, and that give you comfort that these are more primarily Company-specific operational issues and not broader?

I would tell you that there are a few things. One, and we talked about it somewhat on our last call, certainly with the addition of the GPS. And as we had said early on for us, the GPS device was not to be a repossession tool, per se, although obviously in the tail end it does prevent the losing of cars.

But really our intent was to use it more so on the front end, so that we're able to be sure to contact the customer when they're just one or two payments behind versus finally laying hands on them when they're multiple payments behind. We feel like that would give us an opportunity to work with them better. And how that was integrated and used, it was a change, particularly for some of our managers that have been around a long time, because we've had a set standard and process that we follow. So, that changed a little bit.

I think, as I'd mentioned before, feel like that also lent to the fact that we had an increase, as we had the past year. I think people were taking more chances and we had some -- a bit of pile-up on our collections with the idea that we're going to take more chances, let some go a little further. I think that was a big change.

Additionally, we've talked a bit about the fact that we changed all of our operational software. And when I say all of it, I do mean all of it. We have a system that does our inventory management, our sales process, handles our payments; also handles all of the collections. So, the look and feel of where they get information, in order for our accounts reps to work the delinquency list, it has a total different look to it, and there was an adjustment to that.

Additionally, this past year we did tighten up some of our compliance with regard to collections. And while it didn't radically change the process, we did put in more strict limitations on the number of calls that could be made to a customer, times and places where they could be contacted. We also put tighter restrictions on the contacting of references. So, all those things had an impact, and it was a big change.

David, we did also centralize a number of non-core administrative-type processes that had some collection aspects to them. So, there was some changes with some things that we took on more centrally that did affect how the lots operated.

Got it. And as you think about some of the changes that require a little more training and adjustment period, particularly the software ERP interfaces and some of the new, maybe refined collection practices, is this something that probably elevates or weighs on collection patterns maybe for a couple more quarters? Not to the extent of this past quarter, but do you have a sense for, corporate-wide, how long it takes for the system to absorb all these changes internally?

As I mentioned, we actually saw great improvements during the quarter. So, I hope that we are past all that. We knew going through this that we would have some pains. As everyone knows, retraining can sometimes be more challenging than training. And so -- and again, many of our folks been around many, many years. So, there was a lot of changes to adapt to.

But as was mentioned, our over 30s ended this past quarter lower than they have in the past few years even. So, we like to think we're past the biggest hurdle for that.

Got it. That's helpful. And then just lastly, following up on the last question just regarding competition and the like, as we think about vehicle price, and obviously this customer being so focused on maintaining a affordable monthly payment, vehicle price I guess is up about 5% year over year. First, just in terms of clarification, is that primarily the new service contract that's embedded in the average retail price?

Yes, that's -- the increase for the year is related to the new service contract, and also we tweaked the pricing a little bit on the PPP product. And then just a little bit of sales pricing increase. It's down a little bit sequentially, but for the year most of that related to the add-on product.

Got it. And just from a behavioral standpoint, and for maybe the top tier of your customer, the ones most susceptible to be lost to traditional and direct lenders, is there a sense that they're looking for a more expensive car, trying to find a way to afford a more expensive vehicle? Just trying to get a sense for how stretched they may be, and whether another round of lower gas prices is impacting their behavior.

We do know that with the loosening of credit and all the availability that's been out there a few years, it has given some of our customers an opportunity to go to a new-car store, where, in years past, they haven't necessarily. So, it's been an opportunity for them to probably buy a later model car; and with the long terms that are available with some of those, probably even get a lower payment. However, and this is just anecdotal, but just talking with one of our manager's been around many years, yesterday, their sales were up considerably, and this was one of our stores that have excellent losses. They said they're actually beginning to feel like some of those folks are coming back.

We've been talking about this additional competition for a while now. It really began three years ago; it's been that long. And so, if there's a bright side, I don't know this for sure, and again, this is just anecdotal with one particular manager anyway, beginning to indicate that maybe some of these customers have cycled through some of that process already and are coming back.

Okay, got it. Just one last question on gross margins, as well: Not to try to pin you down to too granular a level, but second quarter in a row where the margin was under 42%, where we've usually seen it hold. Just based on wholesale values, the amount of inventory you're keeping, what you're getting at repo, should we expect the full-year gross margin probably to come in below 42%? Is that a safe bet?

Yes, at this point, I think that would be a safe bet. We'd love to see some improvements there, but we're not optimistic at this point that we'll get any benefit from wholesale values, and we still have some challenges on the repair side. So, I would say we're going to be a little lower than we've historically been.

Got it. Very helpful. Thanks very much.

Thanks.

Our next question is from the line of John Rowan from Janney Montgomery Scott. Your line is now open.

Good morning, guys.

Good morning, John.

I just want to follow up on one of the last questions about used car prices. Obviously, I understand that part of the credit problems are driven by system changes, and that it was more localized within certain dealerships. But the fact that you're getting less of a recovery in the wholesale market, that would be a broader market issue.

Can you talk about the recovery rates? I know the model had been built on around a 30% recovery rate. Where are you trending now? What types of cars are seeing losses?

I've seen various reports saying that smaller, entry-level cars are where we're seeing the most price compression, certainly well above depreciation rates. And I just want to understand the dynamic as to why, if that's the case, why we're seeing -- and again, it goes back to maybe gas prices or there's a big supply increase in those types of cars. I just want to understand what's driving that.

We're talking about a wholesale car with a value of around $2,000. So, this -- the fact that even scrap prices are down has some effect on that really low-end car. And it is a little more focused on the basic cars. The SUVs and trucks carry a higher value. But we're down in the mid-20%s on recovery rates. And that percentage was well above 30% back in the fourth quarter, third quarter, fourth quarter of 2012.

It's hard to know where that's going. It certainly has had a big negative effect. But when you look at the increased credit losses for the quarter, over 80% of our increase relates to frequency, and under 20% relates to severity. So, it is a big deal.

It is something that we're trying to offset with higher down payments and better structures on the front end, and trying to be more efficient when we do have to repo a car and wholesale it off, trying to make sure we're maximizing values there. But it is a $2,000 -- $1,800 to $2,000 car. So, it's not going to follow maybe some trends that you're going to see at those higher price points.

And when you talk about scrap values, we're talking about metal prices?

Basically, yes. There's a point where these cars are just worth scrap, and that's basically -- that's a really low-end car. But I think we're receiving several hundred dollars less per car down at that scrap level now than we were a few years ago.

Your frequency of default -- my understanding is that it's been -- I know you've said it before, it's in the 40%, or above the 40% range. Of that 40%, what percent goes scrap and what's sold wholesale to be resold somewhere else? I just want to understand where the baseline is for how sensitive your severity of loss is to actual commodity or metal prices.

It's all over.

I wouldn't say the percentage of scrap versus wholesale has changed much over the years.

What is the breakout, roughly?

I don't know, maybe 20% scrap, 80% would go through a wholesale process. That probably hasn't changed much over the last few years.

Okay. And then just lastly -- I get the software issues. Were there any -- when you look at the stores, the third of stores that contributed to most of the credit problems -- was there any type of geographical concentration, or was it really scattered about or -- I'm just trying to look for any type of trend there.

A little of both. We saw some elevated in various areas. However, there was a little bit of concentration in Texas and Oklahoma.

And do you think in Texas, maybe it's relating to the oil industry? How much -- workers -- I'm just trying to understand if there's something other than just a software change.

Software was not the main thing. Just to clear this, that's just one of many distractions we had. But, no, I think it's more managerial execution, frankly.

Okay. Thank you very much.

Thank you.

And our next question is from the line of John Hecht from Jefferies. Your line is now open.

Thanks, guys, very much. Actually most of my questions have been asked -- I guess just a little bit more of a tag-on to the prior questions from John. You did give some geographic context with respect to maybe some concentration losses. If you review the troubled accounts, are there any characteristics you can take out from this? Is it maybe a higher-risk customer from an underwriting perspective? Is there any other geographical correlations, or is it just across-the-board sloppiness in some ways?

I would say it's more the latter, yes, unfortunately. I think the good news is we can do something about that. And as I said, this is not to excuse any of it; we have to control it as we grow it.

But we have opened 50 stores in the past five years, and that spread us out a little bit, and also means in the process we're bringing up new people through the GM, also through our middle ranks, area managers and such. And so, we have to do a better job of training these folks, and we are. Again, I'd point to the fact we did see great success this past quarter, but it was a bit of a clean-up from the rise in collections.

I'd say, if you see any trends, again, one of the things that has affected us is the competition. There are -- with so many alternatives out there, I think some of the motivation to work a little harder to try and make something work has declined a bit. I think when people can go tell someone else they just gave one back and still qualify for some credit, I think that's a problem with the system. But I think that most of our stores are experiencing that.

Okay. That's good color. And then, historically, not all the time that you guys had a little bit of a credit hiccup, but sometimes you would rein in sales just to make sure that you had the capacity to deal with various issues. I'm not hearing that this time. So, is this something you think that you'll continue to see good -- as we work through these credit issues, you would still observe good same-store sales increases, or might you rein things in a little bit as you work through this?

No, we definitely will. It's going to be -- we're really going to have to tighten up on those that -- where we see the higher losses. And again, when we have a number of stores that have such low losses, I think our quest is to really push more sales where we're most effective, and we will have some areas where we're going to have to tighten up a bit.

Yes, we will definitely tighten up some. So, there is a potential that it can hit volumes, but we also see a good number of stores where we feel like we have the potential to still increase sales for some offset there. And that's our plan. That's our intention. But, yes, volumes could be impacted.

Okay. And then last question is: Jeff, you mentioned that if this persists, you may have to increase the ALLL level. What's the tenor of that? If you got three or four quarters before you have to reconsider it, and what kind of magnitude might we think about there?

We've had two pretty high charge-off quarters in a row, but then we've never -- it's been a while since we've ended a quarter as low on delinquencies as we are right now. So, we really are too early in the quarter to know how that's going to roll out. But if we don't see some good, solid reductions in losses pretty soon here, we're going to have to look at -- of course, that's always a non-cash charge to the reserve -- but we're going to have to look at something theoretically as early as this next quarter end.

And certainly, as we get to the end of the third quarter and on into the fourth, we may -- depending on how losses come in, we may have to look at an adjustment at that point. And it's hard to say what that range might be, but it would certainly be something above the 23.8% we have out there now. But I don't have a specific number. We're really waiting to see how these lower delinquencies are going to play out in the current quarter, and then maybe on into the next quarter.

Great. Thanks very much.

Thank you.

And our next question is from the line of Bill Armstrong from CL King & Associates. Your line is now open.

Good morning, Hank and Jeff. So, in addition, I guess, to the maybe your collection personnel not following protocol as tightly as they should in terms of how on day X make a call, day Y make a call, are they having any increase in difficulty in actually locating the customers, whether it be through systems glitches or maybe the customers themselves are maybe more transient than they were in years past? Anything along that front?

No, it's not necessarily anything that just happened, but I will go back and say we talked about the software effect. The bulk of the stores actually didn't get rolled out until about February or so. So, this was right before we rolled in -- as we were rolling into our fourth quarter. So, there was a lot of that change, and we feel like we saw the rise in collections during the fourth quarter.

Actually, I think now, with the vast majority of our accounts now have the GPS, actually locating has become better. But prior to that it was getting worse because now people primarily use cell phones -- virtually everyone does -- and those seem to change more frequently, loss of numbers and, yes, people still move. That's always been with us. But we used to utilize, in years past, contacting references and so forth to locate people, and we have tightened up on that.

Even though we haven't seen the benefit of the GPS product yet, obviously the timing of it is good because if we had not done that with some of the restrictions we've imposed on ourself now, we would have a lot more difficulty locating some. But, no, just here recently I would say it's actually getting better. And again, I think the results in this recent quarter speak to that.

And I guess just trying to reconcile whether these issues are mostly Company-specific, which means they're within your control to improve, or whether it's more macro-driven, the fact that you're considering raising your allocation in the relatively near future would seem to indicate that you're a little concerned. And maybe even with the improved practices and improved execution, you still might not be able to reduce the losses enough, which would indicate maybe there's more of a macroeconomic issue going on. Is that fair to say?

Well, obviously, the discussions about raising this are based on the past couple quarters' experience, because we went two in a row with higher than expected. And as Jeff mentioned earlier -- and again, it doesn't account for the bulk of the increase -- it's a small part of it, but we do feel like these wholesale prices, we try to get the best we can, but that piece of it is a bit out of our control.

However, we feel strongly that most of this increase is a result of -- we got off on our standard collection practices and had to make some changes to that. And we do feel like, again, in this past quarter we've gotten most of that fixed. And so, we are expecting to see our losses go down. But this talk of raising the reserve is strictly just a result of the past couple of quarters. Provided that they go down as we believe they will with the lower delinquencies, we should be okay.

We're just -- as Hank mentioned earlier, we've really started seeing a big shift in the competition and the landscape about three years ago. So, we've been seeing increased losses for an extended period of time now. Our expectations have been all along that we're going to get some relief at some point.

And now that we've seen a couple of high quarters in a row, we've just got to be realistic on what is the new norm. We'd love for those losses to come back down, but we're not seeing a huge reduction in competition, maybe some anecdotal examples here and there. But then you see the earnings releases of some of the indirect lenders being up significantly on their volumes, and picking up market share. So, there's still a lot of competition. It's very intense out there. And we've been in this for three years now, and we're not quite sure where it all settles down.

Got it. Thank you very much.

Thank you.

Thanks, Bill.

And we have a question from the line of Jean Neustadt from US Capital. Please go ahead.

Hello, gentlemen.

Hello.

I'd just like to ask you: On your buyback, how much have you got left on that?

There's about 800,000 shares still out on that.

Okay. And do you plan on increasing that this year?

No, I think that's going to be -- I think last year we bought 400,000 shares last year. So, we should be in good shape there.

Okay. And then my next question, Hank, would be if you could elaborate a little bit on why you all are not paying a dividend?

Well, we've had this conversation, I guess, a few times. We feel like that our buyback program does serve our long-term shareholders well. And that's our decision, along with the guidance, of course, of our Board of Directors, we feel like that's the proper path for us to take.

I mean, you got the shares down so low now, another 800,000 shares, how many will be outstanding?

We'd be at less than [8 million].

Right. Well, that's not much float in here. And I would just like you all to consider a dividend. Some of us have been with you many years, and that would sure be a nice payback for us. Thank you all very much.

Thank you.

Thank you.

And we have a question from the line of Jeffrey Matthews from Ram Partners. Please go ahead.

Hi. Thank you. Can you hear me?

Yes.

My question is about the change in your collection policies, or how you follow up with customers. It sounds like you eased some of those actions. I'm wondering, did you do that in response to the competition? Did you do it in response to what you're thinking might come down the road from the feds with the Consumer Protection Bureau? Or did you do it because of your enhanced growth rate in the stores? Or was it because of the technology you implemented? Just trying to get (multiple speakers)

I would say it's a combination of several things. Obviously, collection practices are coming in greater scrutiny, and we want to be above reproach in everything that we do, and anywhere where we felt like -- in any area that could be in question, we addressed it. And certainly with the addition of the GPS now that we've added over the past couple of years, we felt like we were in a position to put some more restrictions on ourselves with, again, with the number of calls and so forth. So, I would say it's a combination of things.

Got it. Okay. Thanks very much.

Thank you.

Thank you.

And I'm not showing any further questions. You may proceed with any final remarks.

All right. Well, again, we thank you all for joining us today. And clearly we know what area of the Business we need to focus on. Again, we're pleased with our sales, not happy with our losses. We are pleased with the collection results we've had in the past quarter with regard to getting our delinquencies down, in better shape than they've been in a very long time. But we do have much work to do, and hope to bring you all some better results soon. So, thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Have a wonderful day, everyone.