World Acceptance Corp (WRLD) 2004 Q3 法說會逐字稿

Good afternoon and welcome to the World Acceptance Corporation sponsored third quarter press release conference call. [Operator Instructions]. 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 SEC act that represent the Corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are entirely subject to risks and uncertainties.

Factors that 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 and expense trends, changes in the company's markets and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the SEC. At this time, it is my pleasure to turn the floor over to your host, Doug Jones. Sir, the floor is yours.

Good afternoon. And again, welcome to our third quarter earnings release conference call for World Acceptance. My name is Doug Jones, the president and Chief Executive Officer. Joining me today is our Chairman, Charlie Walters, Sandy McLean, our Chief Financial Officer, Mark Roland our Executive Vice President and several other members of the senior management team.

I just to open by sharing a few thoughts on our third quarter results after which our Chief Financial Officer, Sandy, will provide you with a detailed overview. At his completion, we'll open the floor for any comments or questions that you may have.

We're pleased to announce that your company is once again produced very strong results in many areas including revenues, net income, loans outstanding and EPS. This is our 12th consecutive quarter of improved EPS as compared to the same quarters in prior years.

Our third quarter is traditionally our busiest lending quarter and this year was no exception as we loaned a record 270 million dollars in over 372,000 separate loan transactions during the quarter. I now turn the call over to Sandy McLean who will go over the details with you.

Thank you Doug. We are pleased to report another very good quarter for the three months ending December 31st, 2003. We are continued to show improvement in most areas of operations and our results reflect this fact.

During the quarter, our net income amounted to 4,604,000 or 23 cents per diluted share, which represent a 37.4% increase over the 3,352,000, or 19 cents per share for the same quarter ending December 31, 2002.

Year-to-date through the first nine months of the current fiscal year, our net income amounted to 16.3 million, or 85 cents per diluted share, which represented a 29% increase over the 12,644,000 or 69 cents for share for the nine months of the prior fiscal year.

Our growth has done very well during the quarter. As Doug mentioned, this is a very important quarter for us as it is our busy season with the vacation and Christmas holidays and our ending gross loans reached a record level of 334,485,000.

This represents 11.2% increase over the 307 million outstanding in December 31, 2002, and represents a 25.4% increase since the beginning of the fiscal year. Our average net loans during the quarter amounted to 226.99 million, which was 11.4% increase over 203.8 million for the same quarter of the last year.

Our mix in the portfolio between our various categories of loans is staying relatively the same. At the end of December, we had 245.8 million or 73.5% of our portfolio in small loans, 81.9 million or 24.5% in the larger loan category, and 6.8 million or 2% in our sales finance category. At this time, last year, we had 72% in our small loans, 26% in our larger loans and once again 2% in the sales finance. So we have seen a slight adjustment towards shows higher yielding smaller loans.

As Doug mentioned, we had an outstanding volume period in the December quarter as we made 372,000 different loan transactions for a total of 270 million dollars for an average loan of 725 dollars. The same quarter last year, we made 336,000 loan transactions for 233 million on average loan balance of 692 dollars. Year-to-date we have made almost a million loans 967,000 800 and made a total of 687.7 million dollars in gross loan volume.

Our revenue continues to improve as we showed an increase in our earning balances or our loan portfolio and for the quarter, our total revenue amounted to 44.3 million, which represented a 13.4% increase over the 39 million for the three months ending December 31, 2002. Year-to-date through the first nine months, our revenues have grown by 14.8% and amounted to 126.2 million for the current nine-month period versus a 110 million for the same period last year.

Our operating income for the quarter is also showing improvement and which that is what we defined that as our revenues less provision less our G&A which amounted to 8.1 million or 18.4% of total revenues for the current quarter, which was a 27.6% increase over the 6.4 million or 16.3% of the total revenue for the same quarter of the prior year.

Again, the company is continuing to benefit by the lower interest rate scenario. Our actual interest costs for the quarter right at a million dollars is 15% less than 1.2 million for the same quarter last year, although our average debt was down roughly 10%.

Our same store revenue in the 434 offices that were opened throughout both quarterly periods grew by 7.7% and when you look are looking at the nine-month period, they grew by right at 9.8%. Our office network continued to expand as it has previously. We began the year with 470 offices. We have opened 19 new offices on a de novo basis. We have purchased 29 offices, merged two non-performing offices into existing offices to end the period with 516 offices.

Acquisitions remained a very important part of our growth strategy. And for the first nine months of the current fiscal year we have had 42 different office transactions for roughly 18,000 accounts or 10.9 million in gross ledger balance. In the same period for the first nine months of the previous fiscal year we had right at 40 transactions 19,000 accounts and 23.3 million in gross ledger dollar purchases.

Our delinquency remained very good at the end of the quarter. As our recent delinquency amounted to 9.4 million or 2.8% of our gross ledger ballots, this compared to 8.3 million or 3.8% of our ledger ballots at December 31, 2002. On a contractual basis, our total 60-day plus contractual delinquency amounted to 13.5 million or 4% of our total loans compared to 12.7 or 4.2% of total loans the same time last year.

The only negative in our numbers is once again relates to our net charge-off for the quarter our average net charge-off to average net loans outstanding amounted to 15.7%. And this compares to 15.3% for the same quarter of the prior year. And this trend is very consistent with what we've seen the last two quarters and still remains at a reasonable level. Year-to-date net charge-off to average loans amounted to 15% compared to 14.5% for the nine months of the previous year.

We continued to show improvement in our G&A expenses. Our total G&A for the quarter amounted to 25.1 million or 56.6% of total revenues compared to 22.4 million or 57.5% of total revenues for the same quarter of the previous year.

Year-to-date, G&A to revenue was 55.2%, which amounted to 69.7 million versus 57.1% for the prior nine-month period. Para Data continues to be profitable but is not -- basically breaking even, for the fiscal year, our net earnings of 364,000 versus 454 so it's not really making a major impact from a financial standpoint, but they are doing an outstanding job as far as their contributions to our overall success.

The other ratios that remain have very strong return on assets year-to-date are 9% versus 7.7% for the first nine months of the previous fiscal year and our return on equity of 17% versus 16.9% for the previous fiscal year. These returns should increase, as our fourth quarter is generally our most profitable quarter.

Finally, we are in the midst, we have just begun our tax preparation business during this month and we are off to a pretty good start and hopefully we'll be successful in that area, also. At this point, I'd like to turn the floor over to any questions that you may have.

Ladies and gentlemen, the floor is now open for question. [OPERATOR INSTRUCTIONS] A question comes from Charles Mills with Mills Value Advisor.

This isn't much of a question but I'd like to thank you for doubling our money since August the 18th.

You're welcome.

Our wives and girlfriends appreciate it greatly.

Thank you for being here with us, Charles.

OK.

Thank you, Mr. Mills. Our next question comes from Guy Rego with Ingalls Snyder.

Yes, I was just curious the share count was up. With that option related or from acquisitions?

The share count, with all of our acquisitions has been cash purchases. The share count is up directly due to number 1, there have been many employees that have exercised options during the last six months due to the rise in price, plus the remaining options outstanding are more diluted because of the way we calculate EPS on a diluted basis.

Thanks very much.

The next question comes from James Leonard with the Leonard Management Group.

Good afternoon gentlemen. I'd like to get a little more insight on your acquisition parameters. What do you look for and what's available and what -- how do you price them and, you know, things of that nature?

Generally, we know the type of loans that we're looking for. And more often than not, the company to be purchased will approach us. They want the sale for some reason. Maybe there's been a change in their ability to finance it or a change in the -- maybe they want to retire or maybe it's a bank that wants to get out of the consumer finance business. There could be any number of reasons.

But generally, they will approach us. We will go out and take a look at the underwriting and the loans and so forth. And because they are generally in areas where we're currently doing business, we know what to expect from the performance of these types of loans. And generally, the price will be based on the larger the loan it will be on some multiple -- not multiple but some premium or discount to the net balances, generally if they are smaller loans, there will be generally some small premium on gross balances.

So you are basically not -- you are just buying assets.

That's correct, all our acquisitions or purchases of assets.

Do you have any competition in this area?

We'd like to think we are the purchaser of preference. But there is certainly competition for some of these. There are a lot of independent operators out there that are big enough to make certain size acquisitions.

OK. And I'd like to also talk about your provisions for loan losses and how you would expect -- assuming the economy recovers and how you would expect them to trend as far as percentage of loans.

The provision -- you know, we don't believe that we are directly impacted as much as other companies by the changes in the economy and so forth given our customer base and so forth. By the same token, we know there is some correlation. But the provision, you know, as the -- one of the main functions of our provision are in fact the charge-offs. So as the charge-offs increase the provision is going to increase.

What has been your experience over the past economic cycles?

The charge-offs is the percent of average loans fluctuates up and down over any given cycle. But historically, given the last four or five years, the trend has been slightly up. And that's so much the result of economic cycles or is that a result of people's attitudes toward paying their bills and incidents of bankruptcy and things like that, it's hard to determine what is the driving force behind that. We believe our underwriting criteria have been sound and will remain sound going forward.

After you write off a loan, do you take any active effort to collect it? Or what's your procedure after you write it off?

At the time we write it off, we believe that we have gone -- exhausted most efforts in collecting that loan and we remain on our system and recovery is, we have a substantial amount of money with recoveries over a period of time with people wanting to get additional credit or things of that nature.

This is not because of any activity on your part?

Not generally.

Thank you.

OK.

Our next question comes from Henry Coffey with FBW.

Hey, guys. Your acquisitions normally, you don't make acquisitions during the growth season. Was this tied toward the troubles at Faxon? And I noticed that your good will went down in the face of an acquisition and maybe you can explain all that.

Number one, it had nothing to do with the Faxon group, Although there was consumer finance company that was in some trouble in the state of Georgia, we actually purchased this out of a bankruptcy hearing. And we paid, you know, as a result of the circumstances and so forth, we bought that at a discount that resulted in no good will or other type of intangibles.

And yet you were able to get it-- Georgia small loan office?

That's correct. Henry one thing that really enticed us there, you know it's difficult to get loan licenses in the state of Georgia. Normally we don't usually go out and search for acquisitions during that third quarter simply because that's when everyone is growing the portfolio and it usually doesn't make sense to do a lot of acquisitions in that quarter. However, due to the circumstances of this company, it wasn't growing. And the timing was kind of driven by the court system. It made a lot of sense for us.

So both acquisitions that you referred to are actually this bankrupt company.

That's not true. The only acquisition that we refer to in here that took place during the quarter is the Georgia acquisition and some slight reference to two other smaller acquisitions that took place in the January, which is the fourth quarter.

So the Georgia ones was the December quarter deal?

That's correct.

Are you giving any guidance in terms of next year's earnings or the pending quarter's earnings?

No, we don't.

Thank you.

Next question comes from William Dezellem with Davidson Investment.

This is a remedial question and I need some help here understanding the provision for loan losses in ballpark terms as a percent of revenues is approximately 25% and yet the charge-offs as a percent of average loans is closer to 15%, 16%. Maybe as I'm asking this I'm answering my own question. But why are those numbers so far different?

The provision as a percentage of revenue is 1% and the charge-offs as a percentage of assets are a different percent? Did I get the question correct?

You know what, Sandy you are repeating that highlights the simplicity of the question; the denominator is different in each case.

That's correct.

And just to carry this out, the provision, that's what you anticipate, will end up being write-offs in the future. And so theoretically, that 11 million this quarter will work out to be 15%, 16% of some future asset amount.

Not the provision the allowance that's on the balance sheet is the amount that's been set-aside in anticipation of existing losses within our existing portfolio. And given the portfolio turns over, you know, several times a year, then that, you know, that allowance may represent 6 months worth of charge-offs.

That is helpful of the thank you. And thanks for taking the remedial question.

No problem. Any questions are welcome.

Next question comes from Julie with Cain Anderson from Investment Management.

This is Bob Schwarzkopf and you mentioned earlier that interest rate declines have helped you. I'm just trying to understand the impact of rates if they go up. On one hand, I see that your interest expense is only 3% of your expenses, your total expenses. And, so I don't think it's the big deal. On the other hand, I see it as 15% of your pre-tax income and it looks more important.

And I'm also going to assume that if rates go up, your clients aren't really interest rate sensitive and volume will not necessarily decline. So, could you tell us what impact the company would feel if rates went up and what would you do to restructure your liabilities in that case?

That's an excellent question. You are absolutely right, that basically all of our assets or loans are priced at the maximum allowed by most states. And as a result, those are not, first of all, they are not price sensitive and second they are not rate sensitive.

And, so as we have an increase in our rates that we pay, there will be an impact on our bottom line. Second thing is, at this point in time, almost all of our financing, external financing is on a variable rate. So, knowing that we have roughly a little over 100 million outstanding, a 1% increase in interest rates will result at right at a million dollars increase in interest expense or 650,000 after tax.

If, in fact, that the company believes that we may be faced with that situation, then at that point we may do something in terms of interest rate swaps or things to offer some types of insurance against this. At this point in time, we do not believe that's necessary.

Thank you very much.

You're welcome.

At this time, we show no further audio questions. I would like to turn the floor back over to management for any closing comments.

Yes. We certainly appreciate everyone calling today. We are very thankful for your interest and support. We'll continue to try to produce the results and you continue to support the stock. We appreciate it and you have a good day.

Thank you for your participation. Before concluding this afternoon tele conference, the Corporation has asked again to 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 SEC that represented the Corporation's expectations and beliefs concerning future events. Such forward-looking statements are above matters that are inherently subject to risks and uncertainties.

Factors that could cause actual results or performance to differ from the expectations express or implied in such forward-looking statements includes changes in the timing and amount of revenues that may be recognized by the 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 SEC. This concludes the World Acceptance Corporation quarterly teleconference.