World Acceptance Corp (WRLD) 2004 Q4 法說會逐字稿

And welcome to the World Acceptance Corporation Fourth Quarter Press Release. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to introduce your host for today's call, Mr. Doug Jones, President and COO. Sir, you may begin.

Thank you, Stephanie. Good afternoon. And welcome to your company's Fourth Quarter and Year-end Conference Call. Joining me today, by phone, is our Chairman, Charlie Walters; present with me here at the home office are Sandy McLean, our Chief Financial Officer, and various other member of your senior management team. I'll give you a brief overview of our results; after which, Sandy will review the details. At the end of the call, we'll open the floor for any questions that you may have.

I'm, once again, pleased to report that your company is performing at excellent levels, both in the fourth quarter and at yearend. Gross loans outstanding, total revenues, and net income -- all have increased significantly. We had a record number of branch openings through a combination of acquisitions and de novos, bringing our total to 526 branches in 11 states, as of yearend. All these branches played a major role in the increases, which in above they also contributed to a significant increase in our advertising line items. Our focus on employee retention through training and our focus on improving credit quality combined to have a positive impact on fourth quarter charge-offs as a percentage of average loans.

While we are pleased with the overall performance of your company, we're certainly disappointed with the market response to our fourth quarter earnings per share. As a whole, your company has positioned well to have another great year in fiscal '05. I'll now turn the floor over to Sandy McLean, our Chief Financial Officer, who will review the details of our fourth quarter and year. Sandy?

Thank you, Doug. I would like to take just a minute to read some of the financial highlights for the quarter. For the quarter ending this March 31st 2004, net income amounted to $12.4 million versus 10.2 million for the same quarter of the prior-year, fiscal year, representing a 21.8% increase. Earnings per share for the quarter was 63 cents compared to 67 cents for the same quarter last year, which represented a 10.5% increase.

The difference in the earnings per share increase and the net income increase was primarily due to the large increase in shares outstanding during the quarter -- during the year. During the fiscal year, approximately, 1.3 million options were exercised by various employees of the company. In addition, the diluted aspect of any options remaining has been greater, this particular period, due to the increase in the stock price. Year-to-date, net income of $28.8 million compared to 22.9 for a 25.8% increase. EPS for this current fiscal year was $1.49 compared to $1.25 for the same period last year.

From the gross standpoint, our ending gross loan balances amounted to 310.1 million at March the 31st 2004. This represented a 16.3% increase over the 266.7 million at March the 31st 2003. Average net loans during the period amounted to 241 million versus 313 million for an increase of 13.4%. Our portfolio of mix at the end of the fiscal year remained very stable and similar to the same period last year. Our small loan portfolio amounted to 217 million or 70% of the entire portfolio as compared to 69.6% at the same time last year, and our small loan portfolio grew by 17% on a year-over-year basis. Our larger loans amounted to 28% or 86.7 million and represented a 15% increase over the same -- over the prior-year numbers. Sales from that amounted to 2% and which was an 8% increase over the prior-year numbers.

Loan growth volume continued very strong, both during the quarter and the fiscal year. During the fourth quarter of the current fiscal year, we loaned out 190 million or 16.8% greater than the 163 million during the same quarter of the prior year. This represented an average loan of $704 versus 679 for the third quarter ending March 31st 2003. For the year, we loaned out 1.2 million loans for a total loan volume of $878 million or $709 per loan. This represented 11.3% in the number of loans made and 15% of total loan volume increase.

The result of the increased balances and the increased loan volume are total revenues, showed strong increase on both a quarter and year-to-date basis. For the quarter, total revenue amounted to 52.9 million, which represented a 15.9% over the 45.7 million for the same quarter for the prior fiscal year. For the fiscal year, ending March 31st 2004, total revenues amounted to 179.2 million, or 15.1%, increase over the 155.7 million for fiscal 2003. The same store revenue in the 433 offices that were open throughout both periods increased by 9.7% on a quarter-over-quarter basis and 9.8%, when comparing the two fiscal years. We continue to benefit by the low interest rate environment that we're operating in, as our interest rates (ph) decrease by 8.1 % to 1.1 million for the prior year versus 1 million for the current quarter.

Our average debt also decreased about the same time -- about the same amount over the two periods. So finally, the rates roughly the same. We're continually asked on a long run basis, you know, what would be the impact of rising interest rates on the company. At the end of the fiscal year, we had 92.5 million outstanding and bearable debt; a 1% increase in interest rates during the next fiscal year would actually result in $925,000 increase in interest expense. On an after-tax basis, that would be 586,000 or roughly 3 cents per share.

Our office expansions during the prior fiscal year was also very strong. We began the year with 470 offices. We opened 21 offices on a de novo basis. We purchased 39 offices and merged or sold four non-performing offices to give us a total of 526 offices at the end of the fiscal year. Acquisitions continue to play a very important part to our growth strategy during fiscal 2004. We actually purchased 68 offices -- many of which were merged into existing offices. We purchased 28.009 million accounts, and we -- on a gross basis, the balance purchase was 24.5 million. This compared to 22.6 million during fiscal 2003.

Another positive impact or another positive trend during the quarter is our delinquencies and our charge-offs. As of March the 31st 2004, our 60-day and over accounts that was delinquent on a recessing basis were 7.1 million or 2.3%. This compared to 6.6 million or 2.5% of gross loans outstanding, a year previously. On a contractual basis, this amounted to 11.7 million or 3.8%, down from for the same time of the prior year. Net charge-offs to average loans during the quarter declined for the first time, during the current year, on a quarter-over-quarter basis. They amounted to 13.6% on an annualized basis during the quarter, ending March 31st 2004. This compared to 14.4% for the same quarter of the prior year. Year-to-date, for the fourth quarter, our net charge-offs to average loans were slightly up 14.7% compared to 14.6% for the prior fiscal year.

Our G&A expenses remained under tight control during the year. They amounted to 96.3 million versus 85.7 million for the prior fiscal year or, 12.4%. For the current fiscal year, our G&A as a total -- percent of total revenue amounted to 53.8%, down from 55.1% for the prior fiscal year. During the fourth quarter, we did however see a slight increase in our G&A to revenue ratio. Total G&A for the fourth ending March 31st 2004 was 20.6 million, or 50.3%, of our total revenue compared to 23.9% -- 22.9 million, or 50.2%, for the same quarter of the prior fiscal year. Our G&A was up 16.2% on a quarter-over-quarter basis, and this was due primarily to the 36 new offices that were opened or acquired, since December 1st 2003. We did purchase 36 offices in the early -- in the late December, down in Georgia, and the expenses from these offices were fully loaded for the quarter; however, the revenue because of the transition and so forth was not typical. So we did have an impact, but this should be greatly improved on an ongoing basis. Our G&A per average office opened during the two years were 5.1%.

Another impact that we saw during the quarter with the impact of little change in our income tax rate. We book our income taxes based on the estimate that we expect for the annual basis. As it turned out, our annual income tax rate was slightly up from 36.2% to 36.7% for the -- when compared the two fiscal years, because our estimate was based on last year's numbers and our expectations. This year, for the quarter, our tax rate was 38.1% versus 37.1, and this did have an impact on the quarterly earnings.

Another important part -- another important program that we have going during the fourth quarter is our tax anticipation loan and preparation business. We did have another excellent year. Our total returns during the current fiscal year were 50,000 compared to roughly 45,000 in the same time last year. Other selected ratio that we are proud of, of this year and previous year, was our return on assets that amounted to 11.7% for the current fiscal year versus 10.4% for the fiscal year ended March 31st 2003. Our return on equity was also very good this year, at 21.5%; however, this was down slightly from the 22.2% for the prior fiscal year.

And, finally, our share repurchase program that we have been very active in previous fiscal years. We did not repurchase any shares during fiscal 2004; however, given the current situation in the market, it is something that we will be looking at and think that it may be a viable alternative with our excess cash, going forward. At this time, we -- point in time, we'll be more than happy to answer any questions.

Thank you. The floor is now open for questions. If you do have a question, please press "*" "1"on your touchtone telephone, at this time. If at any point, your question is answered, you may remove yourself from the queue by pressing the "#" key. Your questions will be taken in the order that they are received. And we do ask that, while posing your question, you please pick up your handset to ensure proper sound quality. Once again, to ask a question, please press "*" "1" on your touchtone telephone at this time.

Our first question today is coming Brad Brown. Sir, please state your affiliation and pose your question.

Anderson & Strudwick. Sandy, you had mentioned the year-to-date charge-off number. I missed what that was. That was, so far, this quarter, I'm assuming through the quarter ending June 4th?

The year-to-date charge-offs for the full year, ending March 31st 2004, net charge-off to average loans outstanding was 14.7%...

OK. I'm sorry, but...

... compared to 14.6% for the fiscal year ending March 31st 2003. On a quarter-to-date basis, for the quarter ending March 31st 2004, on an annualized basis, they were 13.6%, which compared to 14.4 for the same quarter of the previous fiscal year.

OK. OK. I got that. And you mentioned the 1% rise of interest rates would have a net after-tax effect of 3 cents per share that's for the -- I'm sorry -- that's for -- as of the end of the fiscal year?

Yes. That is -- well, that's not -- that is -- (inaudible) not taking place last year; that's based on the actual shares outstanding for the current fiscal year, had we had a 1% increase...

Right.

... in the interest rates on the 95 million outstanding or 92.5 million outstanding as of the end of March. You know, going forward, we could have more debt outstanding or whatever...

Sure.

... in our income tax rate to change our shares outstanding to change, but that's the best estimate that I have at this point in time.

Got you. OK. Thank you, guys.

Thank you.

Thanks, Brad.

The next question is coming from Robert Osborne. Sir, please state your affiliation and pose your question.

It's Robert Osborne calling from Des Moines, Iowa. I'm a private investor and advisor. When did Doug Jones, who is listed in the press release as President and CEO, take over after Charles D. Walters?

As of the annual meeting, last year. All (inaudible). This was -- Charlie is still very active with the company as Chairman of the Board.

And he is right here.

And he's on the phone. He's on the phone.

And why has he sold $6 million of stock recently?

To diversify my portfolio, to make some real estate investments, and a part of that sale was a (inaudible) limited partnership -- to which I was advised by my tax advisor in order to take advantage of the tax status of that partnership and not be taxed, it would be appropriate to, you know, dissolve some of the shares.

So this has no reflection on the outlook of the company?

Absolutely not.

And it's not anything that to do with propend out (ph)?

Absolutely not.

Thank you.

The next question is coming from Donald Ordnar (ph). Sir, please state your affiliation and pose your question.

I'm an individual investor and from Atlanta, Georgia. I have two questions. Number one, the dividend -- well rather stock for repurchase. As you're already repurchasing stock, is there any type of quarter amount that you all will be looking to repurchase -- number one is number of shares; and number two, would there ever be a possibility with the low PE the stock is enjoying right now, as you are ever declaring a dividend?

At this point in time, the board has given us authorization to repurchase up to $5 million worth of shares, given the stock price and given -- this is something we balance on an ongoing basis. Well, as far as our total availability of funds, the acquisition opportunity outlook, the stock price, and a lot of different variables. And at this point, it's, you know, up (inaudible) with the board to do; but it certainly makes sense to evaluate increasing that availability of the mix the board will maintain. There has been, -- at this point in time, there has been no serious consideration given towards the dividend at this point in time, as we believe that the use of funds for acquisitions and/or stock repurchase makes no sense at this point; but that's not to say it may or may not be considered in the future.

OK. Thank you very much.

The next question is coming from Bill Dezellem. Sir, please state your affiliation and pose your question.

Thank you. Davidson Investment Advisors. And we have a group of questions. First of all, as you look back in the past, what has been the peak interest expense as a percentage of revenue; and then, secondarily, relative to the shares outstanding, with the stock price train at current levels, assuming that we're flat for the remainder of the year, approximately how many shares would be outstanding for fiscal 05?

I cannot answer the first question. I do not remember what the maximum interest rate to total revenue was. We have never -- we are not a very highly leveraged company. At this point in time, I think, our total debt to total capitalization represents somewhere about 38 -- 37 or 38%. It's never been extremely how we leverage except one time right after the LBO back in 1989, but it's -- interest expense to total revenues has never been that significant of a expense in relation to the G&A provision and that type of thing. As far as your next question regarding what would the shares be outstanding next year, given the same level of stock and so forth, it was up -- yes, the best answer at this point in time would be roughly what they were doing in the fourth quarter. The actual number of shares outstanding as of the end of the fiscal year was 18.857 million. The diluted impact of options -- you know, the remaining options is totally dependent upon what happens with stock price.

Right. And that's what we were driving at as trying to understand now at the stock balance, how many options may have gone underwater and therefore out of the fully diluted calculation; and if I heard you correctly, about 1.2 million is roughly the answer to that?

No, the remaining includes the total number of shares that were exercised under options done for the most recent fiscal year.

No. I'm sorry, Sandy; I was looking at the difference between 19.5 -- actually, 19.8 million and 18.5 million shares, which is what I thought I just heard you say. So it's really more like 1.3 million?

The 18.5 is the average actual shares outstanding during the most recent fiscal year. If nothing happens during the upcoming fiscal year -- meaning if we don't repurchase any or no other options are exercised, the average, going forward, would be 18.857 million plus any diluted impact of options. And given that the number of options that were exercised during the most recent fiscal year, the diluted impact going forward would be less and then the other important factor is, you know, what happens to the stock price.

Sandy, this is Charles Walters. I may also add that there will be options that were granted ten years ago just as our last year and the prior year, those options expire and their recipient either has to exercise them or lose them. So -- and that's one of the reasons we have a lot of shares, lot of options that were exercised during this last year, at least with one of the reasons I exercised some and everybody else. If we didn't exercise, we'd loss them. Going forward, we will have options that will expire each year for the next several years and will be exercised in those options, which will obviously have an impact on a number of shares outstanding.

Thank you. And then relative to the offices that were purchased in Georgia in early December, what was the dilution in the fourth quarter from that acquisition?

I can answer that. I know -- I just don't have that much detail at this point in time regarding the incremental cost of those offices versus the incremental cost of -- I mean, the incremental revenue generated by their offices and one impact from a G&A standpoint would be. Not only did we have the 23 offices open, purchase in Georgia, we also had quite a few of other. We had offices roughly -- another 10 offices purchased between the end of December and the end of March. So, you know, I couldn't answer this. We had a great deal of research.

Would it be your general impression that the net impact would have been negative rather than positive or that be unfair?

No -- I couldn't say that those offices actually lost money, but I can say that the G&A to total revenue generated by those offices would be higher than the remaining offices because this office went through a substantial transition. We offered only different system for period of a month and a half. Then we had to convert them with themselves (ph). We have trained their people to do things the way we don't. So, any acquisition while they are more profitable than opening from a noble basis, they are generally less efficient in (inaudible) office it will be. One of our offices actually appears to pack.

That's helpful. Thank you all very much.

Thank you.

Once again, to ask a question, please press "*' "1" on your touchtone telephone at this time.

Tiffany, there appears to be no other question.

Actually, sir, we do have another question.

OK.

Coming from Cindy Bredhoff (ph).

Thank you.

I am calling from Capital Partners. You had stated earlier that you're disappointed in the strict response to your earnings release that you considered issuing earnings guidance what the consensus numbers made that are lined themselves with your record reported quarter?

Given the state of this violence (ph), we generally do not give that type of guidance. We tried up both that type of forward-looking statements and so forth.

OK. Thank you.

We have another question coming from Ira Anson (ph). Please state your affiliation and pose your question.

Wind Point Capital. Great quarter on the net income, guys. But, the reason of stock is obviously EPS comparisons are not that favorable.

All right.

And, you know, can you talk about sort of your attitude going forward to trying to actually shrink the number of shares outstanding as opposed to doing acquisition and what criteria you use because clearly by buying back stock takes a lot less risk and you grow your earnings at a nice clip that way?

Right.

This is Charles Walters. Let me answer that question. It could be my recommendation that we, given these prices as long as they are craving (ph), we don't have major acquisitions on the table that make sense. We will buy -- I will recommend that we buy back as many shares as we have the capital to do so, jeopardize in our ability to fund loan growth and make acquisitions. The two best uses of capital in our business is small loan portfolio, existing small loan companies. Second is these are obviously is to buy back stock, and we will take advantage both of those opportunities as they occur. Acquisitions don't occur on their own and obviously we will use our excess capital to buy back as many shares as we can, given the current market environment and the price of stock shares.

Great. That's all we wanted here.

Me too.

Your next question is coming from David Schroff (ph). Sir, please state your affiliation and pose your question.

I'm going to pass. Thank you.

Your next question is coming from Jim Mancois (ph). Please state your affiliation and pose your question.

Southport Capital (ph). You mentioned interest rate expense. Can you talk a little bit more about that? It looks to me like you all would be a little more proactive and mitigating the interest rate risk in this environment. Can you just give some more color, I guess, on kind of your hedging strategies going forward if you're going to enter into anything?

We have -- we continually evaluate the appropriateness of putting in type of some type of hedge. For the past couple of years, we have decided that the insurance associated -- the cost of that insurance was not justifiable at this point in time. We are continuing to have -- we continually have discussions with our group of banks about the feasibility of putting in things like interest rate swaps or caps and so forth. And it's something that we will consider but we just have not said that it was appropriate to do so given the level of debt and given the sensitivity of our earnings based on interest rate changes.

Thanks.

Your next question is a follow-up question coming from Bill Dezellem. Sir, please restate your affiliation and pose your question.

Davidson Investment Advisors. Thank you. We have two additional questions. First of all, bring us up to date if you would please on the acquisition landscape as you see it and your pipeline and then I will have an additional question.

We continue to get lease on a regular basis and the acquisition market still looks favorable at their place. To note, six months down the road, but there are some acquisitions available or the question is are they going to be in states where we can operate profitably or will they be in places that we just prefer not to go right now? But, all in all, it looks very positive for us.

Thank you. And then relative to the reduction in the charge-offs, provide a little more detail in terms of what you read into and what we are to be reading into it. Really what is that telling us -- how should we be thinking about that?

Bill, let again once. Yeah. I'd like to say that a good improvement in one quarter is the trend but one in a row does not make the trend. We don't know how the economy is going to continue to respond out there. We do know that we're focusing on the employee vacation (ph) and we're making significant improvements there, which mean we got a better-trained employee out there in the branches doing the collecting for us that we've had in the past. And I think that impacts us very positively. But as far as -- will it continue? I don't know. We see in the charge-off improvement primarily in our larger loan portfolio, and we've done some things on approvals and then centralized approval. So, the things we can control would be on very proactive end. Will the results continue? We certainly hope so.

And therefore, may we interpret from that that at this point, you are more inclined to say that the improvement in the charge-offs is a function of internal initiatives rather than the macro environment?

Yes.

Thank you.

One again, to ask a question, please press "*" "1" on your touchtone telephone at this time. Gentlemen, there appear to be no further questions at this time. Do you have any closing comments?

No closing comments. We'll make sure we read our forward-looking statement.

Stand by, guys, I'll call you back.

Before we close, I need to read this statement, please. For all of you, the comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act that represent the Corporation's expectations and belief concerning future events. Such forward-looking statements are about matters that are inherently subject to risk 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 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. Thank you.

Thank you.

Thank you for your participation. That does conclude today's teleconference. You may disconnect your line at this time and have a great day. Thank you.