World Acceptance Corp (WRLD) 2005 Q3 法說會逐字稿

Welcome to the World Acceptance Corporation sponsored third-quarter press release conference call.

At this time all participants have been placed on listen-only mode, and a question and answer session will follow the presentation by the Corporation's President and its other officers.

Before we began 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 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 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.

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

Good afternoon.

Welcome to your Company's third-quarter earnings release call.

I am Doug Jones, your President and CEO.

Here with me in the home office today are our Chairman, Charlie Walters;

Sandy McLean, the Company's Chief Financial Officer; and several other members of your senior management team.

I will give you a brief overview of the third-quarter ending December 31, after which Sandy will review the details.

At the end of the call we will open the floor for any questions or comments that you may have.

The third-quarter is always our busiest quarter for loan demand, and this year we produced record loan volume in excess of $300 million for the quarter.

This is a 13.7 percent increase over the same quarter of the prior year.

We're also pleased to see G&A expenses trending down as our de novo branches began the maturing process.

I'll now turn the floor over to Sandy McLean who will share your Company's strong third-quarter performance as well as the year-to-date results in detail.

Sandy?

Thank you, Doug.

Once again we are very pleased with the results of our quarterly earnings.

Net income for the third quarter ended December 31, 2004, amounted to 5.5 million, or 28 cents per diluted share.

This represents a 19.5 percent increase over the 4.6 million or 23 cents per diluted share earned for the same quarter of the prior fiscal year.

Year to date net income amounted to 19.7 million or $1.01 per share, versus 16.3 million or 85 cents per share.

This represents a 20.6 percent year-over-year increase in net income and an 18.8 percent increase in our earnings per share.

These improved earnings as usual are as a result of our continued growth in our loan portfolio.

We ended the year, ended the quarter, with a record number, a record amount of gross loans, outstanding which amounted to 384.7 million.

This represented a 15 percent increase over the 334 million outstanding the same time of the prior year, and a 24 percent increase over the 310 million outstanding as of the beginning of the fiscal year.

Additionally, this is pretty much in line with the growth last year, which amounted to 25 percent.

We ended last year with loans at 334 million versus 267 million as of March 31, 2003.

Our mix in the loan portfolio changed slightly on a year-over-year basis; and we ended the December period with 71 percent in small loans, 27 percent in large loans, and 2 percent in our sales finance portfolio as compared to 73 percent in small loans last year, 25 percent in larger loans, and 2 percent in the sales finance category.

As Doug mentioned, we had a record quarter in terms of loan volume, and loaned $306 million in loans in 401,000 separate transactions on an average loan of $765.

This compared to 370 million for the same quarter of last year, which was as he said a 13.7 percent increase.

Year to date we have loaned a total of 809 million in over 1 million individual loan transactions for an average of $753.

Again, our growth in our loan balances has contributed to a very good increase in our revenues.

During the quarter total revenues amounted to 53.1 million, compared to 44.3 million for the same quarter of last year, which was a 21, 20 point 1 percent increase.

Year to date through the first 9 months of the current fiscal year, our total revenues amounted to 150.4 million compared to 126.2 million for the prior year 9-month period, which represented a 19.2 percent increase.

Our operating income, which we define as total revenues, less provision for loan losses, less our G&A expenses, amounted to roughly 10.0 million for the current quarter, compared with 8.1 million for the same quarter last year or a 22.6 percent increase.

Or as a percent of revenues, which it stayed very, roughly stable and is 18.8 percent for the current quarter versus 18.4 percent for the prior-year third quarter.

We continued to be impacted by our interest cost.

For the quarter our interest expense was 1.3 million, versus 997,000, which was a 31 percent increase.

This is due to our increase in average debt, which rose by 14 percent, as well as the increase in our overall interest cost due to the rise of interest rates.

Our same-store revenue, which is measuring the year-over-year and quarter-over-quarter increase in revenue in the 463 offices that were open throughout both periods, grows by 9.1 percent on a quarter-over-quarter basis and 10.0 percent on a 9-month period over 9-month period basis.

Office expansion, which is so important to our overall continued growth, was also very good during the current fiscal year.

We began the year at 526 offices, opened 26 new offices, purchased 29, closed 3, and ended the period of December 31 at 578 offices.

Acquisitions as in the past have been a very important part of our overall growth strategy.

During the first 9 months of the current fiscal year we have had 19.5 million in gross ledger balances purchased.

This is in 52 separate office transactions for a total of 23 point 6,000 accounts.

This compared to the prior year 9 months of 42 transactions or $10.9 million in gross loans purchased.

We did seem an increase in overall delinquencies when looking at the December 31, 2004, period compared to the same time last year.

On a regency basis our delinquencies, 60-day accounts and over, amounted to 12.5 million or 3.2 percent of our total gross loans.

This compared to 9.4 million or 2.8 percent for the same time last year.

On a contractual basis total delinquencies 61 days and over are 18 million or 4.7 percent, compared to 13.5 or 4 percent for the same period of time last year.

However on a net charge-off basis, when you are looking at net charge-offs to our overall average loans receivable, we saw a slight increase during the quarter to 15.9 percent compared to 15.7 the same time last year.

However, on a year to date basis, our net charge-offs to average loans amounted to 14.7, which is a slight decrease from 15.0 for the same 9 months of the previous fiscal year.

Our G&A expenses while rising, we are still seeing some improvements when comparing them to our total revenues.

For the quarter our total G&A amounted to 29.5 million, versus 25.1 million for the same quarter of the prior year, which was a 17.5 percent increase.

However, as a percent of revenues, our G&A expenses were 55.4 percent for the current quarter, versus 56.6 percent for the same quarter for the prior fiscal year.

On a year to date basis our G&A to revenue amounted to 54.8 percent, compared to 55.2 percent for the same 9 months of the prior fiscal year.

Our average G&A per open office increased by only 0.7 percent when comparing to 2 quarters or 2.9 percent when comparing the first 9 months of this year versus last.

ParaData continues to be profitable, but more importantly continues to give us numerous enhancements from a data processing standpoint.

We have begun our tax preparation.

This is a very important time of the year for us, this fourth quarter, as not only are we collecting a great deal on our loans, but our branches are very busy preparing tax returns.

It's too early to tell exactly how this is going to shape up, but we are off to a good start.

And we began the first tax return preparations without any real hitches this year.

So everything appears to be going forward very well.

Finally, other selected ratios; our return on assets for the current year remains very high on a 9-month basis, annualized at 9.2 percent versus 9 percent for the same period last year, and our return on equity at 16 percent versus 17 percent last year.

At this point in time, Holly, we would like to open the floor for any questions.

(OPERATOR INSTRUCTIONS) Bill Dezellem, of Davidson Investment.

We had a couple of questions.

First of all, your debt to equity ratio or debt as a percentage of the total capital structure has been declining.

Strategically, what is your view of what you would like to see happen going forward from this point?

And then secondarily, the bad debt up here in the quarter or the charge-offs is that noise?

Or is there something noteworthy that we should be spending a little bit more time on?

To answer your first question, certainly we realize that this Company generates a great deal of excess cash flow; and we have historically been able to continue to pay down debt while growing the Company overall.

As you know we did have a stock -- we have a stock repurchase program in place, and we did actually repurchase right at 7.3 million or 433,000 shares during the first quarter of this fiscal year.

We have not done anything in the stock repurchase line in the last two quarters given the great volatility of the stock and the way it has increased.

Plus during the fourth quarter we like to have as much cash available at as we enter our busy season.

Going forward this is something the Board continuously addresses.

There are always discussions about the plusses and minus versus dividends, pluses and minus versus stock repurchase, and this is something that I cannot specifically say what we will be doing; but it is something that we continue to address.

Sandy, if I may follow-up before we go to the bad debt.

Are you reaching a point where you'd rather not see debt as a percentage of the capital structure decline any further?

Or are there any strategic thoughts, which you'd like to add?

This Company will certainly stand a great deal more leverage than it has had in quite some time.

We are not particularly afraid of additional debt.

I think we can support a substantial amount more debt.

Yes, it's getting to the point that we need to do something, whether it's repurchases or something else.

But are there any specific plans at this point in time?

I can only say, no.

Strategically that is something that the Board evaluates on an ongoing basis.

That is helpful, though, that generally kind of where the thought process is at.

Okay.

Regarding the other one, I'll start and then Doug can add in.

Yes, we did have a slight up tick in our charge-offs as a percent of net loans during the quarter.

Overall I think we saw a slight up tick the last quarter also; and it was down quite a bit the first quarter.

It is something that you should be concerned about?

Obviously one of the most important things that we look at is the growth in our loan portfolio and the quality of this portfolio.

This is what's being addressed on an ongoing basis by all levels of management.

There will be fluctuations in these charge-off figures, and so I don't look at it as a serious trend one way or the other.

But that's what I'd say, and Doug, you can add to that anyway you'd like.

Bill, with my discussions with a lot of our competitors, of course none of them are public companies, but in my discussions with them most of those guys would be very happy to see a leveling off there of the bad debt.

So while we didn't like the 20-basis increase of the net charge-offs to average loans in this quarter, to be (ph) 30 basis points lower year to date, it is certainly operating within a safe band that we feel pretty good about right now.

Never like to see it continue to increase though.

Thank you.

Do you feel as though there is a dynamic out there, whether it's payroll related or employment related or something of that nature; or again would you just consider this part of the normal band that the charge-offs would bounce around?

I think, Bill, that that is just a normal band that we are going to see.

When it is staying that close, that is a pretty tight band.

Nothing specific impacting that.

Great.

Thank you both.

(OPERATOR INSTRUCTIONS) Henry Coffey, of Ferris, Baker Watts.

Great quarter; everyone is pleased.

Right in line.

Could you talk about a couple of things, really two unrelated issues but they all do tie around the excess cash flow of the Company.

You talked in the past about what your tolerance is for buyback, and at what price levels it would still be additive.

Can you add to that?

Can you also give us a sense both of sort of new branch openings for the fiscal '06 that's going to be coming up or right around the corner from that?

Acquisitions and any new products that you might try to put through the branches?

Henry, I will start with you, address the first one.

We're always evaluating the impact of repurchasing stock on our earnings going forward.

Even at these levels, the current stock price level and the current interest rate level, they are still accretive to earnings going forward.

Would you describe that as attractive also, or just accretive?

Accretive is attractive.

But by the same token at these stock prices and if there was a rise in interest rates, it is less attractive and less accretive than it was several months ago.

But as I said earlier we're continuing to evaluate the alternatives, and I suspect something will take place.

This next quarter we generate quite a bit of excess cash flow.

This is when we get our greatest loan repayments.

This is when we get our greatest earnings from both the tax preparation business as well as our interest and fee income.

This is when we pay down the most outstanding debt.

So our leverage during this quarter will decrease, and it is especially appropriate that we will have these types of discussions with the Board going forward.

This is Charlie Walters.

I can add to that, what to do with our excess cash and the fact that we are in a great position with respect to our debt to capital.

This will obviously be an agenda item for our upcoming Board meeting February 2, and we will make some decisions about what we want to do with that excess cash or with that excess leveragability.

It is something that, although management reviews that on an ongoing basis, and Sandy does a great job of that, we talk about it at our Board meetings as well.

We may be at a junction where we want to make some decisions and put together a strategy going forward with respect to doing something with the excess cash.

As far as your second question, Henry, certainly this time of year we're not opening offices, obviously.

We're busy getting through the most (indiscernible) growth season.

We are preparing tax returns and our offices are extremely busy.

We will be having our senior management meeting in the next month or 6 weeks, which is an annual tradition.

During that time we get together with all of our officers and determine where we would like to expand next, and as (technical difficulty) we're not very informative on the future plans.

We will open at least 25 offices next year and in years going forward, and evaluate the acquisition opportunities as they present themselves.

Acquisitions, as you know, cannot be predicted, we generally don't seek targets.

They are generally presented to us.

We evaluate them very quickly and close on them if that fits our overall agenda.

But we have been very successful in attracting acquisitions and closing them over the last few years, and we see no reason that will change.

The last item is, I know there were some changes going on in the regulatory front, both in North Caroline and potentially in Texas.

Can you comment on that at all?

Charlie is very familiar with what's going on but --.

Let's put it this way, Henry.

There are some regulatory changes going on.

There are some proposals to change the regulations there.

The general assembly convenes January 28 in North Carolina.

We will be introducing some legislation in February that will deal with authorizing an alternative rate for small loans, which would enable us to operate in North Carolina as profitably as we do in some other states.

There are discussions going on in Texas, I think probably on both sides of the coin.

I think we have the chairman of financial institutions who wants to review the consumer credit code, probably has some items on his agenda that might not be favorable.

We have some on our agenda and the commissioner's agenda that are favorable.

I'd expect some discussion will ensue and some compromise might be made.

But I can tell you, passing any kind of interest rate legislation both positively or negatively is a tough deal in the state of Texas.

So whether there will be any outcome from those discussions or efforts is just unpredictable.

Thank you.

(OPERATOR INSTRUCTIONS) Bill Dezellem of Davidson Investment.

Sandy, you may have already answered this with as much depth as you would like.

But the branch openings that you will be doing next year, hoping to get some idea of directionally where you would like to go with those.

Whether it tends to be fill-in that you are focused on; whether it tends to be new markets that you're more focused on; states that you're thinking about?

And the second question is, you mentioned ParaData in your comments.

Let me ask you to simply comment on how you view your technology in the aggregate, relative to your larger competitors?

Let me answer the second question first.

I think our technology compared to any of our competitors is outstanding and superior.

Jim Rosenauer (ph) and his staff does an outstanding job for us.

The beauty, the great thing about Jim and them is that they are not only a tremendous data processing department for us, but they are also an excellent Company for their other vendors.

We're in the position, the enviable position of having one of the best data processing departments for a company our size and even larger that pays for itself.

So on top of being slightly positive, profitable for the year, we've gone through numerous conversions in house and made some upgrades.

I just can't sing their praises enough.

As far as our expansion going forward, we've not identified any new states presently that we are planning on entering.

We're continuing to look at new markets at all times.

I would think at this point -- we don't get into specifics as far as our plans going forward; we do not provide guidance, as you know.

But generally speaking you should see some of the same things going forward that you've seen in the past.

If memory serves us right Colorado was a new state for you last year where the legislation came along very quickly.

Assuming that's a correct recollection --

That's correct.

-- what is your update relative to Colorado?

We currently have two branches up and running.

They have a good growth season up there.

Colorado is certainly a state that we will be looking at for expansion.

However we are finding that was not a ready-built market for us.

There was no one there doing the type business that we're doing.

So the education process when we go into a new location is the greatest (ph); the growth is a little slower than what it is normally when we go into a market that already has small loans lenders established.

All they understand in Colorado is the payday lending.

To teach them that there is alternative takes a little more, and we've had to do a few different things on the marketing end.

Still think there is excellent potential there, but it doesn't move quite as fast as it does in an established market when we go in there.

So the strategy when you have a market that's a little immature like that would be to work with a few locations, rather than many, many locations that you have call it a slow start with.

Is that a fair synopsis?

That is correct.

We need to make sure, while we assume that the business model we work and the way we do business in the other states, because the laws are the same, will produce the same results.

The marketing is going to have to be different there.

One other point, when we were talking about regulation a while ago, there is some legislation being presented in Kentucky that would enhance the yield there.

We would look at a fee-based income in Kentucky similar to what we have in Tennessee and some other states where we operate.

If that were to come about, that could be positive.

But as Charlie stated a while ago, you never bet on regulation going through.

We will just see how it goes.

But it looks pretty good.

At least they are receptive and talking.

Thank you again.

Henry Coffey, of Ferris, Baker Watts.

This is going too well.

What about Sarbanes-Oxley?

We haven't heard anything about that from you all yet?

We are in compliance.

Obviously, this is something new to us, as it is with all other companies.

We have engaged outside accounting firms to come in and help us with our documentation and our initial testing.

The majority of that is being done, and our external officers are in their offices as we speak beginning their phase of the testing.

I feel comfortable that we have a very good internal controls.

Whether or not all of our documentation will be what they are expecting and so forth, and how this process goes is going to be very interesting, because it's all new to us.

How large a bonus are you paying to them? (multiple speakers) I'm sorry;

I meant to say what is the SOX expense this year?

It's been -- I don't want to get into specifics.

I can't tell you exactly, but it has been expensive.

Thank you.

There are no further questions.

I would like to turn the floor back over to management for any closing comments.

We certainly appreciate you joining us today for the call and look forward to our next call at year-end.

Thank you.

Thank you for your participation.

Before concluding that 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 27A of the Securities and 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 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 revenues 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.

This concludes the World Acceptance Corporation quarterly conference.