World Acceptance Corp (WRLD) 2004 Q2 法說會逐字稿

Good afternoon, and welcome to the World Acceptance Corporation-sponsored second quarter press release conference call.

At this time, all participants have been placed in a listen-only mode. A question-and-answer session will follow the presentation [INAUDIBLE], Chairman, and it's other officers. Before we begin, the Corporation has requested that I make the following announcement.

The comments made during this conference may contain certain forward-looking statements within the meaning of section 27-A of the Securities and Exchange Act that represents the Corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing and amount of revenues that may be recognized by the Corporation, changes in current revenue, in expense trends, changes in the Corporation's markets, and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission.

At this time, it is my pleasure to turn the floor over to your host, Charlie Walters.

Good afternoon, everyone and thanks very much for joining us.

As you know, I retired as the company's Chief Executive Officer in August and am now involved in my role as Chairman of the Board. As such, Mr. Doug Jones, who is now the company's President and its new Chief Executive Officer, will give you an overview of the operational results for the second quarter, after which time, Sandy McLean, our Chief Financial Officer, will review the results in specific detail.

But again, thank you very much for joining us, and thank you very much for all of your support of me during my tenure as the company's CEO. And my congratulations, again, to Doug Jones, the company's new CEO. I have all the confidence in the world that he will continue to run this company with a strong management staff, as well as it's ever been run before.

Doug?

Thanks, Charlie and again, welcome to your company's second quarter conference call.

After I give you just a brief overview, we will open the floor for questions and answers, alright, after Sandy gives us a detail of the financials.

I'm pleased to report once again that your company has completed another strong quarter with record revenues, net income, and loans outstanding. Each of our three revenue lines have improved nicely, as has our general and administrative expense controls. Loan volume continue to improve, and expectations for our growth season, which has just started, are good.

All other ratios are showing a positive trend, with the exception of net charge-offs as a percent of average loans, which ended the quarter at 16% annualized, compared to 14.7% in the same quarter of last year.

Although our segment of the market is not impacted as much as -- by an economic downturn as some, we're certainly seeing the higher unemployment rates and record bankruptcies taking a toll with us in our delinquencies.

At a recent management meeting in September, we took several steps to combat this issue, and I think we will see some leveling off in this next quarter. Our focus on growing our more profitable core small loan portfolio, combined with the leveling off of growth of our large loan portfolio, also has an impact on this charge-off ratio.

All in all, your company remains very strong, very profitable, and with a great opportunity for future expansion.

I'll now turn the floor over to Sandy McLean who will review the financials in detail. Then we will have a question-and-answer period.

Thank you, Doug.

As Doug said, we believe we had a very good quarter ending September 30, 2003. And we have a lot of positive things going on at this point in time.

The -- for the quarter ended just recently, we had $6.1 million in net income, or 32 cents per diluted share. This represented a 32% increase over the $4.6 million, or 26 cents per share reported during the same quarter of fiscal 2003. Year to date, net income for the first six months amounted to $11.7 million, or 62 cents per share, compared to $9.3 million, or 50 cents per share for the six months ending September 30, 2002. This represented a 26% increase in net income when comparing the two six-month periods.

Looking at our growth over these periods, we ended the -- ended the quarter at September 30 with $283.5 million in gross loans outstanding. This represented an 11.1% increase over the $255.2 million outstanding at September 30, 2002, and a 6.3% increase since the beginning of the fiscal year. Our average net balances during the quarter also improved and amounted to 11.9% increase over the average net loans for the prior year quarter.

Our portfolio mix, which has been pretty stable the last few quarters, has changed slightly back in the most recent periods, as our small loan portfolio amounts to 72% of the total portfolio, as compared to 69.8% of the total portfolio at September 30, 2002. Prior to this recently, we have seen this mix shifting more towards the larger loans, so, this is certainly benefited as the mix is shifting currently back towards the small loan portfolio.

Loan volume remains very strong, as during the quarter we had 296,000 loans for $209 million in gross loan volume, compared to 269,000 loans, or $185 million in loan volume for the prior year quarter. This was a 12.9% increase in loan volume on a quarter-over-quarter basis.

Total revenue has been enhanced by these improvements. As for the quarter, our total revenue of $41.7 million, represented a 15.3% increase over $36.1 million for the same year -- same quarter the prior year. And year to date, through the first six months, total revenue amounted $81.9 million, or 15.5% increase over the $71 million for the first six months of the prior fiscal year.

Our operating income, which we define as total revenues less the provision and less general and administrative expenses, has improved, as it amounted to $10.4 million for the first six months, which is 24.9% of total revenues, compared to $8.3 million for the prior year, or 23.1%. The company continues to benefit by low interest -- the low cost of money in the low interest rates, as our total interest expense for the quarter was $1.9 million versus $2.2 million for the same period at prior year.

Our same store revenue and the 435 offices that were opened throughout both six-month periods rose by 11.1% when comparing this six-month period to the same period last year. And for the quarter it was 11.8%, both very strong numbers.

Our office expansion, we began the year with 470 offices, we've opened 13 new [de novo] offices during this first six months, we've purchased five new offices, and we've merged two non-performing offices, and we ended up the quarter with 486 offices.

During the first six months, as we have had some acquisitions, but it's been a -- a less significant part of our growth, as we've had the total of 13 transactions for 5,000 accounts, or roughly $4 million in ledger balance. And this compared to 25 transactions for 14,000 accounts, or $13.6 million in ledger balances for the first six months of the prior fiscal year.

On a delinquency basis, our [recentcies] -- our 60-day and over accounts on a [recentcy] basis, rose to 3.1% from 2.9% for the same time last year. And on a contractual basis, it's 4.7% versus 4.5% at the same time -- as of September 30, 2002.

And as Doug mentioned, net charge-offs are up slightly when comparing this quarter to the prior year. They amounted to 16% of average net loans for the quarter. This would compare to 14.7% of average net loans for the quarter ending September 30, 2002. Year to date, our net charge-offs amounted to 14.7% on an annualized basis compared to 14.1%.

Our G&A ratios continued to be -- to improve, and our total G&A for the quarter of $21.9 million represented 52.7% of total revenue, compared to 55.9% of total revenue for the quarter ending September 30, 2002. Year to date, our total administrative expenses of $44.6 million represented 54.4% of total revenue, compared to 56.9% for the same time last year.

ParaData continues to be profitable, but is, as last year, is not generating a lot of gross profit before taxes, but they continue to do what we want them to do, and that's to provide us with the best data processing system available.

Finally, we do have other ratios that we're very proud of. Our return on our average assets on a year to date basis, annualized at 10.1%, compared to 8.9% for the same time last year. And we continue to have very strong return on equity. On an annualized basis for the first six months it's 18.9% versus 18.4 the prior year.

Operator, at this point in time we'd be happy to entertain any questions that anybody would have.

Thank you. The floor is now open for questions. If you have a question, please press the numbers 1, followed by 4 on your touch tone phone at this time. Please hold while I poll for questions.

Our first question is coming from Charlie Mills with Mills Value Advisors.

Yes. Hey, great quarter. But I just wanted to ask you about one thing. You know, we have our loan losses, but then we have this other line, which is insurance, and the insurance is actually to cover loan losses. You know, I've kind of netted those things out, and I looked at September, but otherwise it's kind of hard to understand how you make like 36% more money when your loan losses go up, maybe they really didn't go up.

Anyway, if you have provisions like last year, 7.6, and you had collected insurance against those of 3.8, you know, aren't I right in saying that, you know, if you netted those out, you know, you really lost $3.8 million, you know, on loan losses, you know, after giving credit to the fact that you collect on insurance? And that's like 11.75% of revenue.

And then go through the same exercise this quarter, and your insurance revenue has gone way up, it's up to $5.127 million, or whatever. I netted -- I did that number, it looks like it's down to 11.49. I know you can't really apply the insurance revenue, maybe, against the loan losses, but actually, there doesn't seem to me that there's been much change at all in losses, except maybe they've gone down some. What's wrong with my analysis?

Charlie, let me address that. First of all, the insurance line item that you're addressing is not strictly insurance. I mean, it involves insurance and other income, including things like our -- some residual effects of our tax preparation business that took place in the first quarter -- well actually, some of it came in this quarter, also.

It passed things like NSF charges, sale of some other ancillary products. So, to indicate that everything in that line item represents insurance commissions is not exactly correct.

All right, so is it maybe 70 or 80%, though, insurance?

It's leans to more like 50, but still, the insurance is not necessarily a -- an offset to your charge-offs and provisions, it's more of a yield enhancement. In certain states, you're allowed certain strictly fees, and they'll be a little bit higher than other states where your interest rate may be lower, but then you're allowed to sell credit insurance, to hopefully, you know, to enhance the yield.

Okay --

-- this is gross yield --

Although what you're saying is true, you do have protection against loss -- you know, loss of life or disability and that sort of thing. So, it does improve your yields in those states, as well.

The other thing that, you know, when you look strictly at the provision line, the provision line includes net charge-offs, as well as an increase in the, you know, the allowance, the general allowance for losses. So, depending on the growth of gross loans during the quarter versus the same time last year, the allowance may have grown a little bit more than last year. So, the better way to look at it is what your net charge-offs are doing rather than what the provision's doing at any point in time.

Next quarter, the loans will be growing substantially, and in the fourth quarter the loan balances will be going down, so, the provision will be going all over the place, whereas the net charge-offs should be more of a stable figure, although there is some seasonality.

Okay. All right.

Our next question is coming from Henry Coffey with Ferris, Baker Watts.

Hi, I missed some of the mixed -- data you gave out, Sandy.

Okay. As you know in the prior quarter, our mix has been shifting a little towards the larger loans, but this quarter for the first time we saw that mix reversal.

As of June 30, 2003, our portfolio consisted of 72% small loans, 26% large loans, and right at 2% for sales finance loans. The same time -- this same period last year we had -- right at 70% small loans, 28% larger loans, and about 2% for sales finance. And the interesting part I should have mentioned --

And where are you today? You're at 70 -- you're at 72, 26, and 2?

Yeah, correct.

Okay.

And the good thing, if you look at the gross numbers, we had $204 million outstanding in smaller loans at the end of the quarter, compared to 117 --

You had 204 outstanding this quarter?

-- compared to 178 as of September 30, 2002.

Is that gross or net?

That is gross.

Okay.

And that represents a 14.7% increase in the small loan category. Whereas we had $74 million in larger loans this quarter, and $73 million in large loans last quarter, and right at a 1.8 --

-- 73 in the year-ago quarter?

That's correct.

And, Doug, you were saying that one of the reasons why your net charge-offs increased was driven by this shift in mix?

Yeah. Somewhat. That also enhances our -- our yields, naturally --

Right, right.

-- but the losses are higher in that portfolio, Henry.

Kind of an -- in response to Mills' question, I mean your -- your yields are up more than your net charge-offs?

That's correct.

Can you give us, sort of, charge-off data by -- by business mix or -- ?

I don't have that available at this point in time. It's something we analyze on an ongoing basis, but I do not have that --

What -- what dynamics in your mind would -- are likely to -- I mean, when -- when you look into -- into your crystal ball, where are charge-offs going? And what issues are going to really drive that event for you?

The crystal ball is cloudy.

-- the crystal ball broke this morning, Henry.

Then how come you keep doing so well? [ Laughter ]

We're just good. If we -- if we lose it somewhere, Henry, we just find a way to make it up somewhere else.

Thank you.

Our next question is coming from Jimmy Moncrief with South Fork Capital.

Who's the question from? I didn't hear who the question was from.

It's Jimmy Moncrief from South Fork Capital.

Hi, Jimmy.

Yes, how many locations are you planning to add in the fourth quarter and in 2004?

We probably will not see much addition -- did you say the third quarter or the fourth quarter, Jimmy?

The fourth quarter and in 2004.

Our fourth quarter is January through March. We're expecting to end the year probably -- we'll probably end up with another 6 to 10 branches, depending on acquisition opportunities out there. Our de novos are open. We've got two de novos left to open. But if things run normally, we'll pick up another five or six branches.

Okay, thanks.

Sure.

Once again, the floor is open for questions. If anyone does have a question, please press the numbers 1, followed by 4 on your touch tone phone. There are no further questions at this time.

We certainly appreciate you joining us this afternoon, and we look forward to our next call after our third quarter results.

Bye-bye.

Thank you for your participation.

Before concluding this afternoon's teleconference, the Corporation has asked to again remind you that the comments made during this conference may have contained certain forward-looking statements within the meaning of section 27-A of the Securities and Exchange Act that represented the Corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Factors that could cause actual results or performance to differ from the expectations expressed or implied, and such forward-looking statements include changes in the timing and amount of revenues that may be recognized by Corporation, changes in current revenue and expense trends, changes in the Corporation's markets, and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission.

This concludes the World Acceptance Corporation quarterly teleconference.