World Acceptance Corp (WRLD) 2005 Q1 法說會逐字稿

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

At this time, all participants have been placed on a listen-only mode. (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 27A 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 the amount of revenues that may be recognized by the Corporation; changes in current revenue and expense trends; changes in the Corporation's market; 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, Doug Jones, President and CEO.

Good afternoon, and welcome to your Company's first-quarter earnings release conference call.

I am Doug Jones, your President and CEO.

Joining me today at the home office are Sandy McLean, our Executive Vice President and Chief Financial Officer, along with Justin Chaffin (ph), our General Counsel.

I will give you just a brief overview of the results, after which Sandy will review the details with you.

At the conclusion of his presentation, we will open the floor for any questions or comments that you may have.

I am once again pleased to report that your Company's performing at excellent levels in all areas of the operations.

First-quarter results were driven by strong internal growth, as well as good activity in the acquisitions arena.

Compared to last year's first quarter, there is solid improvement in virtually every area.

Your Company is currently operating 544 branch locations in 11 states.

We're serving more than 469,000 customers at quarter end.

All of our existing states are contributing nicely to these results.

We are also looking forward to expanding into Colorado during our second quarter.

Colorado just recently passed a small loan law which will allow us to operate profitably there, and naturally, we are excited about that.

Strong growth in the first quarter puts us in a good position for the remainder of the year.

I will now turn the floor over to Sandy, who will share the details with you.

Thank you, Doug.

As Doug mentioned, we did have a very good first quarter of the current fiscal year.

As he also mentioned, just about all areas of our financials showed improvement over the same quarter the prior year.

I would like to take just a few minutes to go over some of the financial highlights.

For the first quarter ending June 30, 2004, net income amounted to $7,266,000, or 37 cents per share, compared to $5,611,000, or 30 cents per share for the same quarter for the prior fiscal year.

This represented a 29.5 percent increase in net earnings, and a 24.7 percent increase in earnings per share.

Our diluted shares outstanding amounted to 19.5 million during the current quarter versus 18.8 million for the same quarter of the prior year.

This is the result of the options that were exercised during the prior fiscal year, as well as the dilutive effects of other options because of the increase in the stock price.

This was somewhat mitigated by our ongoing stock repurchase program that we will touch on in just a minute.

Next, I would like to touch on the growth in our loan portfolio.

As of the end of June 30, 2004, ending gross loans were $334.6 million.

This represented a 19.6 percent increase over the 279.8 million at June 30, 2003.

This also represented a 7.9 percent increase over the 310 million at the beginning of the fiscal year.

Our average net loan balances during the quarter were 246 million versus 206 for the same quarter in the prior year, which represented a 19.2 percent increase.

Our portfolio mix between our small, larger, and sales-financed loans remained roughly the same at the end of the year compared to the same time the prior year.

We had 243 million in small loans, which was 70.1 percent; 93.9 million of larger loans, which was 21.8 percent -- I mean, 28.1 percent -- and 6.3 million in the sales-financed, which is 1.9.

This compared to 71, 27.1, and 1.9 for the prior year.

Loan volume continued to be very strong during the quarter.

We loaned out $251 million in 339,000 separate loan transactions for an average loan of $740.

This compared to 208 million for the quarter ending June 30, 2003 and 299,000 transactions, with an average loan balance of $298.

This was a 20 percent growth in our loan volume when we're comparing the two quarterly periods.

As a result of the increase in loans and the loan volume, our total revenues for the first quarter of the current fiscal year amounted to 47.5 million, which is a 17.9 percent increase over the 40.3 million for the same period of the prior year.

We continued to receive a benefit for our lower interest cost.

And as a result, our total interest expense for the quarter was roughly the same.

It was 989 versus 991,000 for the same time, prior year, which was, like I said, roughly the same.

Average debt during that period increased by roughly 2 percent.

While our overall yield rates are pretty much comparable, we have been getting the benefit of the reduction in our subordinated notes, which we have been paying down over the last couple of years.

And they are at 10 percent, which is being replaced by the lower-cost, floating-rate money.

Regarding our office expansion, we began the fiscal year with 526 offices.

We opened 7 new offices.

We purchased 12 new offices.

We merged 1, and we ended the period, as Doug said, with 544 offices.

Another item worth note is that as of June 30, 2003, we had 473 offices.

As we just said, we ended the current quarter at 544 offices, which represents a 71 net increase number of offices during that 1-year period.

Acquisitions continued to be a very important part of our growth strategy.

During the first quarter of the current fiscal year, we purchased 20 offices.

As I said before, we purchased 12, but 8 of those offices were merged into existing offices.

Those 20 offices represented 5,296 accounts, with a gross loan balance of $8.4 million.

During the same quarter of the prior year, we had 8 transactions, 2,500 accounts, or $3.1 million.

The loan quality continued to show some improvement when compared the 2 (ph) quarterly periods.

At 61 days recency accounts -- on a recency basis -- at the end of June of this year, we had 8.9 million, or 2.7 percent of our gross loans, compared to 7.9, or 2.8 percent a year ago.

On a contractual basis, our delinquencies amounted to 12.8 million or 3.8 percent compared to 11.9 or 4.3 percent.

So, we did show improvement on both the recency and contractual basis.

And even more important, our net charge-offs to average loans on an annualized basis amounted to 12.5 percent compared to 13.4 percent for the same quarter for the previous fiscal year.

We also showed improvement in our G&A as a percent of revenues.

For the quarter, our total G&A amounted to 26.4 million, or compared to 26.6 million for the same quarter of the prior year, which represented a 16.7 percent increase.

As a percent of total revenue, this represented 55.6 percent during the current quarter, and 56.2 percent for the same quarter of the prior year.

ParaData continued to do very well, and is continuing to break even, which is their primary responsibility.

And they are doing a great job from an overall support function.

Other selected ratios that we are very proud of -- our return on assets on an annualized basis for the first quarter of fiscal 2005 were 10.8 percent, compared to 9.7 percent on an annualized basis for the same period of the prior year.

Our return on equity of 18.6 percent was slightly less than the 18.7 percent for the prior year.

And as I mentioned, we did continue our share repurchase program during the quarter.

I think we had a press release during the period that said we had purchased our -- the authorization of 5 million and we had increased it to 10.

But as of the end of the quarter, we had repurchased 433,000 shares for an aggregate total of 7.3 million.

At this point in time, we would be more than happy to turn it over to the floor for any questions.

Operator?

(Operator Instructions).

Richard Eckert, Roth Capital Partners.

I have a couple of questions here.

I may have missed it, but how many shares did you repurchase in the quarter?

433,000.

433,000.

And where did your subordinated notes stand at the end of the quarter?

As of the end of June, we (ph) made our last payment.

So the primary subordinated note is zero.

We do have one minor subordinated note for $482,000 that's still outstanding.

Okay.

And finally, you exhibited much faster loan growth than I anticipated.

Is there any particular factor in the quarter that might account for this loan growth?

Richard, one of the things we did in April this year is -- in fact, we were analyzing this today.

We ran on (ph) incentive that we don't normally do in the first quarter to get a fast start.

It paid pretty big dividends, it looks like, because two-thirds of that growth in the first quarter was internal growth.

So while it cost us a little bit of money, it looks like it was money well spent.

Bill Dezellem, Davidson Investments.

Thank you.

Following on up on the last question, given that I believe your goal for the year was 25 new locations through openings and acquisitions and you've already done 19, what are the implications for the full year now, with the first quarter under your belt?

And then secondarily, what are the biggest challenges that you face in terms of growing the number of locations quickly?

The 25 number that you are referring to there is a minimum for us always.

And as you'll notice, in the past several years, we have been able to exceed that.

We did project some de novos.

I think we've got 7 de novos left to open.

Other than that, it will just depend on how the acquisition market responds for the rest of the year as far as what opportunities we have.

That would put us somewhere between 25 and 30 without any more acquisitions.

As far as challenges, our challenges continue to be the legislative issues out there in each of the states in which we have to manage on a day-to-day basis.

As long as nothing pops up there, we feel pretty good about everything.

Colorado, we're excited -- think there is some opportunity for expansion in there.

And we will probably have a couple of branches there open in the next 60 days.

If I may add to that, I think you've addressed what's the challenges as far as accelerating that growth in offices.

And money has never been a problem or number of locations.

Our limiting factor is having the number of qualified people to go in and manage these new offices and so forth.

So that's somewhat of a prohibitor.

That is helpful.

And if I could follow up on the first question relative to acquisitions of locations.

Walk us through the competitive landscape on the acquisition front.

How many others are else out there that are making acquisitions?

How aggressive are they relative to you folks in pricing?

Share some details there, if you would, please.

We've got a little advantage, we think, over the competition in the fact that we've been in this business for 42 years -- being very active in each of the state associations, we know most of the independent operators, and have known them for years.

So usually there is a relationship there for us.

As far as who else is active out there -- of course, there are several companies -- one larger than us, and several large companies that we compete with.

But, like I said, we feel that the relationship there and our ability to provide the benefits for the employees kind of gives us a little bit of an upper hand when it comes to an independent that is selling out out there.

Howie Flinker (ph), Flinker & Company (ph).

You guys calculate your returns on equity and assets in an unusual and self-deprecatory way.

Could you please tell me your method again?

Sure, I would be happy to.

Because the actual return on assets and equity are higher than what you say.

Okay, well, anyway, the main thing is that we are consistent the way we apply it.

But what we do is we take the quarter-end balances -- so for the first quarter, we actually only use the March and June quarters -- and that becomes the average asset that we use as far as the denominator.

Our earnings is, of course, the numerator.

That gives us a percentage.

And we annualize it by multiplying it times 4.

Of course, in the second quarter (multiple speakers)

Okay.

And so for the second -- for the first 2 quarters, there will be 3 balances that go into calculating the average asset.

And it is done the same way as far as our equity.

We use the end-of-quarter balances to determine the average equity, and then annualize it based on the length of the period that we're looking at.

Okay.

So you take the most recent quarter or quarters and then take the earnings and multiply by 4?

If it is a quarter.

But if it's 2 quarters, we (multiple speakers) times 2.

With no adjustment for seasonality?

That's correct.

We do not do a trailing 12-month period.

It's strictly what's going on this fiscal year (multiple speakers)

Right.

I forgot what it was, and I just wanted to be reminded.

And it is less, because our best quarter is our fourth quarter.

So the return is always less for the first 3 periods, and then when you put in that fourth quarter, and it ends up being more.

Yes, that I know;

I just forgot the methodology.

Henry Coffey with Ferris, Baker.

Excellent quarter, obviously. 2 questions.

First, can you tell us a little bit -- I know you mentioned you thought you could open 2 offices in Colorado.

Looking beyond that, can you talk to us about what the potential for that state might mean over the next few years?

Henry, that's a little bit hard to answer.

In fact, that law came about very quickly, and it was not something that we had on our radar or were anticipating.

So our due diligence into the state as far as looking at locations, getting demographics on that state -- that was not a state that was very high on our list.

So we're having to do a lot of work going in there.

So to tell you what potential is -- the law is going to allow the potential to be very good.

We've just got to find the locations and make sure the demographics on that customer base match up right for the potential to be there.

And I guess the second question -- probably this is the hardest one to answer.

You have had some positive improvement in charge-offs and delinquencies on a year-over-year basis.

Is that sustainable?

Are we going to see a sort of a net reduction in charge-offs on a full-year basis going forward, or what does your crystal ball tell you?

Henry, as you know, we experience a lot of seasonality and a lot of fluctuations in charge-offs.

To sit here and say that this is a trend that you could expect the rest of the year would be foolish.

We know that our competitors are also enjoying an improvement in their delinquencies and charge-offs.

So it's more than just something we're doing internally.

But to tell you what's going to happen next quarter or for the rest of the remaining of the fiscal year, we don't know.

And I guess, if we did, we certainly would not be in (ph) a position to project it.

Bill Dezellem, Davidson Investments.

Relative to the balance sheet, given that there does seem to be some indication that interest rates will be over time drifting upwards, does it make sense to add a long-term piece -- tranche of debt to your balance sheet at this point in time?

I can tell you that that's certainly a question -- we are vulnerable from the rising interest rates, given that just about 100 percent of our portfolio is variable-rate.

We have actually looked into doing swaps and caps, and at this point, based on the pricing and so forth, the insurance policy we believe is more expensive than the insurance is worth.

I think you'll run into the same situation if you go out and try to place longer-term debt at this point in time, given that the pricing would be such that it just doesn't work financially.

That's something that we're very conscious of.

It's something that we continue to discuss internally on an ongoing basis.

At some point in time, we may feel that the situation is improved, so maybe we should do that.

But at this point in time, we have no plans to do so.

Great.

And then, Sandy, given that over the last several quarters or years, you have reduced the amount of leverage with the business.

And the earnings sensitivity to rising interest rates now is much less than it otherwise would have been, from a strategic standpoint, as we roll the clock forward -- and let's assume that rates do go up, would you anticipate relevering the balance sheet?

Or really just the significant free cash flow that you all generate, just the lower average -- this is really the way World Acceptance will be going forward?

I don't believe so.

As I mentioned earlier, our restraint to growth is generally not capital.

And as a result, as you say, we have been generating excess cash on a yearly basis.

In the past, we have demonstrated a proven track record of repurchasing stock.

And we have -- like I said earlier, we have reinitiated that program this year.

And of course, you know, the higher the stock gets, then -- at some (ph) point, it's still reasonable.

But at some point, we're not as aggressive as at other times.

But I think that you will see a stock repurchase program as part of this company's long-term philosophy for quite some years.

And that will be one of the ways that we will try to maintain that leverage going forward.

I hope that answers your question.

It does.

Thank you.

(Operator Instructions).

Operator, there doesn't appear to be any more questions.

Thank you all very much for being with us today.

Thank you for your participation.

Before concluding this afternoon's teleconference, the Corporation has asked me to again remind you that the comments made during this teleconference may have contained certain forward-looking statements within the meaning of the Section 27A 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 in such forward-looking statements include changes in the timing and the amount of revenues that may be recognized by the Corporation; changes in current revenue and expense trends; change in the Corporation's market; 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.