World Acceptance Corp (WRLD) 2005 Q2 法說會逐字稿

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

At this time, all participants have been placed on listen-only mode.

A question-and-answer session will follow the presentation by the Corporation's President and its 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 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.

At this time, it is my pleasure to turn the floor over to your host Doug Jones, President and CEO.

Sir, you may begin.

Thank you, Maria.

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

I'm Doug Jones, your President and CEO.

Joining us today by phone is Charlie Walters, our Chairman of the Board.

And here with me in the home office are Sandy McLean, the Company's Chief Financial Officer, as well as several other members of the senior management team.

I'll give you a brief overview of the second-quarter highlights, after which, Sandy will review the details.

At the end of his details, we will open the floor for any questions that you may have.

Our second-quarter always presents challenges with both branch employees and customers on vacation.

This year, we also had four hurricanes presenting additional challenges, but I'm pleased to let you know that your World team produced excellent results.

During our last call on July 21st, we told you that we were planning to expand into our 12th state.

I'm proud to announce that we currently have two branches open in Pueblo and Denver, Colorado.

We also completed two solid acquisitions on September 30th, 2004, adding ten offices in Texas and an additional seven offices in Kentucky.

Your Company is now operating 575 offices in 12 states.

By opening or acquiring 56 net branches last fiscal year, and 50 net branches already this year, we actually have nearly 25 percent of our branches that have been open less than 18 months.

While this is great for our long-term growth strategy, it also causes a temporary issue with revenues versus expenses.

We believe that this investment in the future is well worth the temporary impact on earnings.

I'll now turn the floor over to Sandy McLean, our Chief Financial officer, who will give you the details.

Thank you, Doug.

I would like to spend just a few minutes going over some of the financial highlights the second quarter of fiscal 2005.

For the quarter ending September 30th, 2004, net income amounted to 6.9 million or 36 cents per diluted share.

This compared to 6.1 million or 32 cents per share for the same quarter ending September 30th 2003, and represents a 13.2 percent increase in net income and an 11.6 percent increase in diluted EPS.

Year-to-date for the first six months of the period just ended, net income amounted to 14.2 million or 73 cents per share compared to 11.7 million or 62 cents per share for the same period of the previous fiscal year.

This represented a 21 percent increase year-to-date in net income and a 17.7 percent increase in our earnings per share.

Our receivable balances, which is extremely important to the overall success of the Company, as this is our primary earning asset, amounted to $349 million in gross balances at September 30th, 2004.

This represented a 23.3 percent increase over the 283.5 million at September 30th, 2003, and a 12.7 percent increase since the beginning of the fiscal year.

Our average net loans amounted to 258.7 million during the current quarter compared to 213 million for the prior-year quarter or a 21 percent increase on a year-over-year basis.

The mix of our portfolio between smaller loans, larger loans, and sales finance loans, varied slightly on a year-over-year basis as our small loans amounted to 243 million or 69.5 percent of our total portfolio.

Our larger loans amounted to 99.7 million or 28.5 percent of the total portfolio, and our sales finance amounted to 2 percent of that portfolio.

At the same time last year, our small loans were 72 percent, larger loans 26.1, and sales finance 1.9.

This represented an 18.9 percent increase on a year-over-year basis in our smaller loan balances, a 34.9 percent increase in our larger loan balances, and a 28 percent increase in sales finance loans.

Our loan volume continued to be very strong during the quarter.

As we loaned out a total of 251 million and 334,000 separate transactions on an average loan amount of $750.

This represented a 20.1 percent increase from the 209 million during the same quarter the last year.

Year-to-date, we continue to have -- we also had strong growth in our loan volume, as we had 502 million in gross loan volume during the first six months compared to 418 million for the same period the prior year.

This was a 20.2 percent increase.

As a result of these growth in loan balances, our revenue showed strong growth during the period.

During the quarter, our total revenue amounted to 49.8 million compared to 41.7 or a 19.4 percent increase on a quarter-over-quarter basis.

Year-to-date for the first six months, total revenue amounted to 97.2 million, or a 18.7 percent increase over the 81.9 million for the same six months of the prior year.

The revenue in our 465 offices that were open throughout both periods being recorded increased by 7.8 percent on a quarter-over-quarter basis and 10.5 percent on a six-month over six-month basis.

Our operating income, which we define as our total revenues less our provision, and our general and administrative expenses, amounted to 11.9 million for the current quarter compared to 10.3 million for the same period the prior year, which was a 15 percent increase.

And our operating margins, which is operating income as a percent revenues, were slightly down from the prior-year quarter at 24 percent versus 24.9 percent.

Our interest costs increased by 15 percent from 928,000 for the prior-year quarter to the 1.4 million for the current year as a result of a 9.8 percent in average debt outstanding during the two periods, as well as a slight increase in short-term interest rates (indiscernible).

Our office expansion, as Doug alluded to, has been very strong both this year and during the prior fiscal year.

Since the beginning of the current fiscal year or at March 31st, 2004, we started with 526 offices.

We've opened 22 offices on a de novo basis and purchased 28 other offices.

We closed one non-performing office to give us a total number of offices at September 30th, 2004 at 575.

As a reminder, last year was also very strong in our office expansion.

We began the year at 470, added 21, purchased 39, and closed to end the year at 526.

Acquisitions continue to be very important as part of our overall and growth strategy.

So far this year, we've had 46 offices purchased for a total of $19 million or 22,000 accounts during the first six months of the prior year, as compared to 13 offices and $4 million.

Our delinquencies have been very stable, as is normally the case.

On a (indiscernible) basis, 61-day accounts delinquent, or 10.8 million or 3.1 percent of the total versus 8.8 million or 3.1 percent of the total at September 30th, 2003.

On a contractual basis, these 61-day accounts started at 16 million or 4.6 percent of our total loan portfolio versus 13.2 million or 4.7 percent a year ago.

Our net charge-offs continued to improve on a year-over-year basis.

And for the quarter, our net charge-offs to average net loans were 15.4 percent compared to 16 percent for the same quarter of the prior year.

Year-to-date, these charge-offs amounted to 14 percent versus 14.7 percent during the same six-month period of the previous fiscal year.

Our general and administrative expenses for the quarter grew by 20.8 percent to 26.5 million from 22.0 million for the same quarter last year.

And as a percent of revenue, for the first time in quite a few quarters on an comparative basis, they actually rose to 53.3 percent compared to 52.7 percent for the same quarter of the last year.

Year-to-date, our G&A is up 18.7 percent to 52.9 million compared to 44.6, and as a percent of revenue, rose slightly from 54.4 percent to 54.5 percent.

Our average G&A per open office when comparing the two periods rose by 4.4 percent during the quarter and 3.8 percent on a year-over-year basis.

Other selected ratios that we think are continuing doing very well is our return on assets on a year-to-date basis, annualized, amounted to 10.2 percent versus 10.1 percent for the same six months of the prior year, and our return on equity remained very strong on an annualized basis at 17.7 percent versus 18.9 for the same period last year.

Our share repurchase program -- we did not repurchase any shares during the quarter because of the volatility of the stock, but year-to-date, we have repurchased 433,000 shares for $7.3 million.

At this point, we'd be more than happy to open the floor to any questions that any of you may have.

Operator?

(Operator Instructions).

Your first question is coming from Richard Eckert with Roth Capital.

Please pose your question.

I actually have a couple of questions here.

Sandy, can you tell me the dollar amounts of your net charge-offs for the quarter?

Yes, Rich.

For the quarter, the net charge-offs were 9,982,000.

My second question concerns the growth in G&A expense.

Year-over-year, they grew by over 20 percent.

And I can understand store expansion representing a net investment.

But in the previous two quarters, which were also somewhat ahead of your historical pattern, they had only grown by 16, 16.5 percent year-over-year.

Is this something that we can expect to see for the next couple of quarters?

I can't really address too much (indiscernible) what to expect (indiscernible) unimportant.

But you've got to remember, in the last two fiscal years, as Doug mentioned, we opened 60 offices last year and 50 this year.

And since September 30th of last year, in a twelve-month period, we've opened 89 offices.

This is a pretty aggressive expansion for World, as you know.

And I think a lot of it depends upon the timing of these acquisitions from one year to the next.

And like in any one twelve-month period, an 89 net increase is fairly substantial for us.

I think that we will see some leveling off.

And this is the first quarter in quite some time -- I don't know exactly how many quarters -- that we've actually seen the G&A to revenue percent increase on a period-over-period basis.

Okay.

I'm just trying to get a feel for how to model this going forward.

Like I say, I understand we try to avoid addressing things on an ongoing basis.

But certainly -- the past is the best indicator of the future.

Thank you.

Thank you.

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

Please pose your question.

Hi.

Henry Coffey.

Just a series of small questions, and I hope I don't occupy too much time.

Sandy, what was your share count at the end of the period?

Bear with me one second. 18,714,339 shares.

18,714,339?

Actual shares outstanding.

That does not include the dilutive effect (multiple speakers) --

(multiple speakers) right, right.

I just needed that number.

You made the comment 89 stores in the last 12 months?

That includes acquisitions and net of closings?

That's a net increase.

And it's acquisitions and openings?

Net of closings.

That's right.

Right.

A question of a little more substance.

How are things going in North Carolina?

I know that state is entertaining small loan legislation.

This is Charles Walters.

I'm the one to answer that.

I've spent right much time in North Carolina in this quarter.

Things are going well.

Passing new legislation is a difficult, arduous choice, but we feel good where we are.

We've made a lot of good contacts up there.

And it's a process; it's a work in progress.

I'm in contact with only interested parties in North Carolina.

We have another meeting scheduled for early November to iron out any differences that we might have with the North Carolina resident lenders, and come up with a draft legislation that everybody's happy with and go forward.

But we feel good about it.

And the Legislature convenes in North Carolina January 28th, and we will be there ready to roll with our legislation.

And at this point, we feel good about it.

So this is something, Charlie that you're trying to accomplish in '05 basically?

That is correct.

Thank you.

Thank you. (Operator Instructions).

Your next question is coming from Matthew Dane (ph) with Davidson Investment.

Please pose your question.

Thank you.

I was hoping that you could put some light on how do you view your business model going forward?

And if you can cast some light, especially on your acquisitions and de novo openings, that would be great.

Thank you.

I'll address the de novo openings first for you, Matthew.

We've projected this year to open about 23 branches from a de novo status.

We've got 22 of them open.

That includes the two in Colorado.

The acquisitions, as far as what's out there in the future, there's an awful lot of independent operators still out there.

We don't have anything particularly we're zeroing in on.

But we continue each quarter to send letters to the independent operators and let them know that if they're looking to sell, then we're always interested.

Normally you don't see that happen an awful lot in our third quarter because it's our growth season, and we're spending so much of our time and our money focused on those three months and growing that ledger.

But I would think the de novos are pretty much through for the year.

We try to get those open in time before the growth season in October.

Great.

Thank you.

Thank you.

Our next question is coming from Robert Schwarzkopf with Kayne Anderson Rudnick Investment Management.

Please pose your question.

Could you talk about what is happening in the industry environment that has convinced you to accelerate your office base?

Would you touch upon whether there are changes in regulation that improve the profit potential?

Is there a drop-out in competition?

Is it something to do with the interest rate cycle?

Is it in your ability to leverage fee businesses through it, or the availability of enough personnel to man them?

Would you talk about what has caused this acceleration?

This is Sandy.

And first of all, I don't know that the acceleration is necessarily a "management" decision to do so.

We have historically said that our goal is to open roughly 25 offices per year on a de novo basis, and evaluate acquisitions as the opportunities present themselves.

It just so happens the last couple of years we've had some really good acquisition opportunities.

Generally, we do not, other than what Doug has mentioned about, sending out letters.

But generally, we do not target specific companies and go after them from an acquisition standpoint.

Generally, we're approached by selling owners of these companies when they are ready to retire or get out of business or whatever.

I do not believe that there's any major shift in the legislative environment or the interest rate environment, or whatever that's promoted a lot of this.

Although a couple years ago, there was a funding situation that probably caused a lot of independents to be real concerned about the future funding, but I think that's leveled off quite a bit.

I'm not sure I answered your question completely, but from my standpoint, it's business as usual.

We'll continue the same model that we've had in the past, that has opening de novos.

And it just depends on what opportunities we have from an acquisition standpoint.

Thank you.

Thank you.

Our next question is coming from Seth Chadborne (ph) with Chadborne Capital Management.

Please pose your question.

Yes, hi.

I just wanted a couple items off the cash-flow statement if you can give those to us.

First of all, what was cash flow from operations for the six months -- CapEx and cash you spent on acquisitions?

And then also, I was wondering if you expect that you would continue to buy back shares even if they stayed at current prices.

Let's address your first question.

Are you asking for the quarter or for the six months?

For the quarter, net cash provided by operating activities was 24.3 million.

Net assets acquired from office acquisitions, primarily loans, was 8.2 million.

Were they the two items you were talking about?

CapEx?

Capital expenditures, premises and equipment for the quarter were 642,000.

Okay.

As far as stock repurchases, we still have authority from the board to repurchase shares -- will not make a specific statement as far as when we'll be doing that, but is part of our ongoing strategy to do so.

A lot depends on what happens with the stock price and what happens in the acquisition market and what's the best use of our funds.

But we believe on an ongoing basis, this is part of the long-term strategy of the Company.

And then one final question.

Can you tell me if you have an ROA hurdle for new stores?

Your ROA dropped below 10 percent for the quarter.

And I didn't know if you are comfortable with that being below 10 percent.

We don't manage the Company specifically around return on assets.

But the way we calculate our return on assets is our taking the current quarter, multiplying it by 4 to annualize it to come up with -- and then divide it by average assets.

So our most profitable quarter is our fourth quarter.

So our return on assets will be greater for the fourth quarter annualized and for the year ending March 31st.

So we don't particularly -- we're not upset about any fluctuation return on assets for any given quarter.

Thank you.

Thank you. (Operator Instructions).

Your next question is a follow-up from Henry Coffey with Ferris Baker Watts.

Please pose your question.

Yes, just quickly, how much have you authorized -- or how much left do you have on your current authorization for buying back stock?

Roughly 7 million.

And the original size of that authorization was?

It was 5 that we did in the first quarter, and then it was 10 that we have done some of it since.

So I mean, you know, (multiple speakers) --

And you didn't purchase any stock on the second quarter, just --

That's correct.

We did not.

Thank you.

Thank you.

Gentlemen, I'm showing no further questions at this time.

On behalf of the nearly 2,000 World employees, we'd like to thank you for your participation and your ongoing support.

Thanks for joining us today.

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 contain certain forward-looking statements within the meaning of Section 27 A of the Securities Exchange Act that represent 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 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.

This concludes the World Acceptance Corporation quarterly teleconference.

You may disconnect your lines at this time, and have a wonderful day.