World Acceptance Corp (WRLD) 2005 Q4 法說會逐字稿

Good afternoon and welcome to the World Acceptance Corporation sponsored fourth quarter press release conference call.

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

A question and answer session will follow the presentations 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 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 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.

Good afternoon.

And welcome to your company's fourth quarter and year endings earnings release call.

I'm Doug Jones, your President and CEO.

Here with me in the home office today is Charlie Walters, our Chairman, Sandy McLean, Chief Financial Officer and several other members of our senior management team.

I'll give you just a brief overview of the fourth quarter ending March 31, 2005 after which Sandy will review the details.

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

Our fourth quarter's always our most profitable due to the heavy collections in our tax season.

This year's tax season produced approximately 10% increase in tax filings, and over 25%increase in revenues.

With record collections comes record loan receivable liquidation.

Therefore, our ledger balance growth at the end of the year was 13.3%, while significantly better than the small loan industry, overall it's less than the 16.3% that we saw last year.

The primary difference here was in the heavy liquidation of those receivables in January and February due to the tax season.

As you saw announced earlier today, after much due diligence, WRLD has decided to expand our operations into Mexico.

This represents a new opportunity, and in no way reflects on our commitment to continue growing our existing and our new states.

We currently have multiple offices along the Mexican border.

These branches consistently produce some of the lowest delinquency in charge offs, which in turn produce some of the best profits within our company.

Our entrance into Mexico is simply the next logical step.

We've hired an executive to manage this project, who has over 25 years finance experience, and has dual citizenship in both the US and Mexico.

All Mexican operations will report directly to him, which allows our three seniors vice-presidents to focus exclusively under US operations.

While we believe the potential in Mexico is significant, we will be proceeding very slowly to ensure that we develop the business model that can be easily duplicated, and has long-term sustainability.

With this I'll turn the floor over to Sandy, and he can share some of the details with you.

Thank you Doug.

The Fourth quarter of fiscal 2005 that the quarter ending 3/31/05 was very good quarter for your company, which led to another good fiscal year.

Net income for the quarter was 14.3 million or $0.73 per diluted share, which compared to 12.4 million or $0.63 per diluted share, for the same quarter to the prior fiscal year.

This resulted in a 15% increase in net income over the two quarterly periods, and a 15.4% increase in earnings per share.

For the year, for fiscal 2005, net income amounted to 34 million, or $4.74 per diluted share.

Which compared to 28.8 million or $1.49 per share, for fiscal 2004.

This represented 18.2% growth in net income and a 16.8% increase in our earnings per share.

Looking at our growth over the last two fiscal years, as Doug mentioned, we ended up with a 13.3% increase in our ending gross loans receivable.

Or at 3/31/05 we have 351.496 million outstanding, compared to 310 million as of 3/312004.

Our average net loans were 261 million versus 221 or an 18% increase.

This certainly reflects the great liquidation that Doug was talking about during the fourth quarter.

Our portfolio mix between small, large, and self finance loans, stayed approximately the same but we did see somewhat of a shift, a small shift toward the large loan portfolio.

At the end of the year, our small loans amounted to 68.2% of the total portfolio.

Larger loans 29.5 in the sell (ph) finance 2.3.

This compared to 70%, 28%, and 2% for the three quarter categories at the end of the prior fiscal year.

Loan volume remained very strong during the quarter and fiscal year.

And during the fourth quarter of the fiscal 2005, we loaned out 289,000 loans, or 219 million in total loan value for an average loan of $759.

For the year, we loaned out 1,365,000 loans, for record loan volume of over $1 billion.

This represented a 17.2% in loan volume on a year-over-year basis.

This generated excellent revenue for us.

As our total revenues for the fourth quarter amounted to 60.3 million, or 14% increase over the 59.2 million for the same quarter for prior fiscal year.

For the entire fiscal year, total revenues amounted to 210.8 million, or 17.6% increase over the 179.2 million during fiscal 2004.

Operating income for the year, which is our revenues less provision, less our G&A expenses, amounted to 58.5 million or 27.8% of our total revenues.

Interest costs, we have had an impact there, we have seen them 1.2 million for the year, versus 1 million even, and that's been reflected in the fact that we have seen our increase in rates over these periods.

Same store revenue in the 462 offices that were open during the two periods increased by 8.6% over the two fiscal years.

Our office expansion is very important to continued growth.

We opened --we began fiscal 2005 with 526 offices.

We opened 27 new offices, and purchased 30 offices.

We sold or merged two non -- four non-performing offices, and ended the year with 579 offices.

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

During fiscal 2005, we had several acquisitions that amounted to 53 offices, 26,000 accounts of 27.4 million in total receivables purchased.

This compared to 68 offices in fiscal 2004, or 28,000 accounts and 24.5 million in total loans purchased.

Delinquencies and charge off's.

First delinquencies, they increased slightly.

That clicked at the end of the fiscal year, on a recentcy (ph) basis, we ended with 8.8 million or 2.5% of the total gross loans outstanding.

This compared to 7.1 million or 2.3% as of March 31, 2004.

On a contractual basis, delinquency was 4.1%.

The total loans compared to 3.8% for the prior --at the end of prior fiscal year.

Net charge off's we saw a slight increase at the end of the quarter, however for the year, we ended up with a slight decrease.

Our net charge off, the average loans for the fourth quarter amounted to 13.9%.

This compared to 13.6% for the same quarter the prior year, and for fiscal 2005 at net charge off's to average loans was 14.6%, down slightly from 14.7 during fiscal 2004.

We continue to see improvement in our general administrative expense ratios.

Our total G&A for the fourth quarter of 2005 was 29.8 million or 49.4% of total revenues.

This compared to 26.6 million of 50.3% of the total revenues for the fourth quarter of 2004.

Year-to-date, our percent of revenues dropped to 53.2% compared to 53.8% for fiscal 2004.

Our general and administrative expenses per average open office during the period, increased by 2.2% for the entire fiscal -- when you're comparing the two fiscal years.

Paradata continue to perform very well during fiscal 2005.

Their revenue of 2.3 million compared rates pretty evenly with the last year revenue 2.2 million, for 3.6% increase.

However, their net profitability the net income before taxes amounted to 322,000 versus 228,000.

While these numbers are not significant to the overall profitability, they're doing more than their share by paying for themselves, and providing excellent data processing systems.

As Doug mentioned we had another excellent year from our tax preparation business.

During fiscal 2005 we completed approximately 55,000 returns, compared to approximately 50,000 returns in fiscal 2004.

This generated a net fees 6.8 million in the current fiscal year, versus roughly 5.5 million during the prior fiscal year.

Other ratios that we feel are very important, return on assets for the current year amounted to 11.8%, compared to 11.7% for the prior fiscal year.

And return on equity of 20.1%, was slightly down to a 21.5% in fiscal 2004.

Our share repurchase program, while not greatly active, we have purchased shares during the current year.

This quarter we've purchased 53,000 shares for a total of 1,440,000, which gave us on a year-to-date basis, 486,000 shares for 8.75 million or roughly average of $18 per share.

At this point in time, we'd be more than happy to turn it over to any questions.

Operator?

Thank you.

[Operator Instructions].

Our first question is coming from Bill Dezellem with Davidson Investment.

Please go ahead.

Thank you.

We have a group of questions.

First of all, how many shares were purchased since January 1st through today?

53,000.

Say it again, please?

53,000, for an average per share price of $27.

Thank you.

And then relative to Mexico, one of the questions that's going through our mind is, why move outside of the country when in the past I think you all have mentioned there are lots of opportunities here within our own borders, and within the existing states you already operate in, and that there are even some new states that seem to continually crop up?

Walk us through what makes Mexico -- I'll use my words, more appealing to expand into than, some of the existing states where you're not yet fully penetrated?

I think there is a couple of things there, Bill, that attracted us.

One, we've been operating along that border, as you know, for quite some time.

Some of our most profitable and best branches we operate are right there.

What we've seen since 9/11 of '02 however, is due to the inability to cross their borders regularly, those branches where at one time were probably 90% Mexican residents, are dropped down to about the 40%.

If you look at a place like El Paso, we've got 10 branches in El Paso with probably half a million people living there, and less than a half mile away there's five times that many of our customers sitting on the other side, that can't get to us, and there's very low to no competition there.

The only companies that have been there any length of time is Citigroup's been there since '93.

I think they're up to maybe 175 branches or so.

But there's certainly a lack of competition and availability for our product there.

I think that's one of the things.

Geographically it fits easy for us because it's along Texas.

And the other key was the fact we were able to hire Javier Salza (ph), an executive who has much experience over there.

And so we were able to take care of that.

And naturally the rate is extremely good in Mexico.

Okay, that actually was going to be my next question because I would concur that Mexico certainly is geographically more accessible than Bangladesh or somewhere like that.

More accessible to us than Oregon also.

Well, I guess that's an interesting point I had not considered.

Relative to the -- I guess I'll term it the regulatory environment in Mexico, how does it characterize relative to the regulatory environment in the states that you currently operate in?

Obviously it's -- based on our initial studies we believe that the regulatory environment is very appropriate.

Of course as we get into this, we'll learn more and more about what we're doing.

That's why we're opening two offices, and we'll get settled in, and reevaluate at the end of that period of time.

However, we think that it's as Doug mentioned it's certainly worthwhile, because of the number of customers there, with the demographic aspects that meet our type of lending, as he's mentioned the rate, the proximity to current offices certainly, you know, all in all, we just think it's the appropriate place to go.

Bill, also, where we deal in the US in state laws, and state regulations, Mexico pretty much runs all their states there, all regulations for lending is at the federal level.

So you really only have one set of rules that you're having to keep up with, which certainly is -- we like that idea pretty well.

And so initially I'm thinking, if I understand you correctly, you'll be moving into the borders basically the Mexican side of the US Mexico border, that's where your offices will be, but given that we are talking about federal regs, there's no reason you couldn't have offices I mean, all the way down Mexico city and beyond.

Technically we could go anywhere under the same laws.

Okay, and the rates that you would be getting in Mexico versus some of the states that you currently operate in?

There deregulated so they'll certainly be comparable to some of the more favorable rates that we're currently charging.

Thank you.

[Operator Instructions].

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

Please go ahead.

Hi, guys.

You should keep doing this for 10 or 20 more years.

Plan to.

Sandy, I'm looking backwards more than forward.

It looks like gross loans increased $41.4 million, and obviously I know enough about your business that I can't simply equate your acquisitions to the year and come up with a simple definition of internal growth, but could you go over your -- review your acquisition numbers and give me some impact, some notion as to what percentage of your sort of new growth was tied to acquisitions, and what was internally generated?

Henry, as you know, we've discussed this in the past, it's impossible to actually know that number because as you know, our portfolio turns over numerous times during the course of the year.

Maybe you could go -- give me the statistics again in terms of what you acquired this year and last year.

I will, wait one second -- the current total 41.4 million, that we grew between March of last year and March of this year.

You know, I did say, we had 27.3 million in gross loans that we added to our portfolio.

And you talked to -- how many accounts did you add?

Total year to date?

Did you acquire, how many accounts did you buy?

27,000, 29 last year, 27 this year, Henry.

Okay

But as you know, those loans are folded into the portfolio, they payoff quickly, they renew, they're charged off.

Right.

Any loan that was purchased in, or any group of loan purchased in April or May of last year, it's certainly not going to be the same loan.

It may be the same customer, and hopefully it is the same customer, but, you know, quite a few of them could have been charged off.

How many do you know how many accounts or customers you had on the books in '05 versus '04?

Yes, I do, if you'll bear with me one second.

At the end of '04 we had 407,000, versus 454,000 at the end of '05.

No, wait a minute.

I'm sorry. 310,000.

No 453,000 at the end of March 31, 2004, and 483,000 at the end of March 31, 2005.

Okay 453 at the end of '04.

What was the number for '05?

483.

Okay, any projections in terms of '06, in terms of branch openings beyond the 2 in Mexico?

We're pretty consistent there, Henry.

It will be north of 25.

But depending on acquisition opportunities, I don't know how much north of that it will be.

The last couple of years have been very good in 50 plus, but it all depends.

And, you know, turning you away from Mexico for a minute, North Carolina is getting way legislation or they've got legislation in process?

Charlie is here and I can let Charlie respond to that because he's all over it.

Henry, we passed our bill out of the house financial institutions committee two weeks ago.

The next step would be to go through the finance committee in the house and then go to the floor of the house.

If we're successful there, we'll move over to the Senate where we'll go through another three-step process, two committees and then the floor, and hopefully another step when we get the governor to sign the legislation.

But we're still working hard on that and working all the members of the General Assembly up there to have a positive outcome.

But the General Assembly will adjourn in North Carolina by the end of June.

We have until May 19 to achieve what we call a crossover.

So in other words, we need to get the bill out of the house by May 19, in order to move over to the Senate, in order for it to be considered during this legislative term.

We're cautiously optimistic that we'll be successful in all of the 5 or 6 steps we've got to go through all the way to the governor's desk.

Now you're not -- I mean, obviously you're now in the payday loan business, but are you seeing any other states that are passing legislation that would either be favorable or hurtful to you that you're monitoring?

Texas is considering payday legislation.

The word we get is, that so far it's been favorably considered by the house committee.

We -- there's also some legislation in Texas where we have an opportunity, and are pursuing an opportunity to get some rate increase in Texas, primarily in the late charge area.

And depending, we may achieve an increase in the seedling on the loans that we can make in Texas, which currently are limited to about -- limited to I think about 560 - 70 dollars under current statute.

Thank you.

Yes, sir.

Thank you.

Our next question is coming from Ira (indiscernible) with Brand Point Capital (ph).

Please go ahead.

Great quarter.

Glad to see you're continue to go buy back stock.

Can you just go over for me, how many stores you have left on your repurchase authorization, and what your thoughts are with this Mexican opportunity to stock buybacks in the coming year?

All right.

The authorization is not in terms of shares.

It's in terms of dollars.

And right now there's roughly 6.5 million remaining.

I certainly think the board, should we end up spending that, I think the board would be open to increasing that, just depending on what happens to stock price and so forth.

Initially I don't believe our investment in Mexico will have one impact - any impact whatsoever on our capital structure as, you know, given the -- I mean the timing of the initial offices and so forth.

Hopefully it can have a big impact in years to come, but it's not something that should be a concern right now.

Got it.

So we should hope to -- if the stock doesn't do anything, since you paid 27 earlier this year, to see you continuing to buy back stock over the course of the year?

We'll certainly continue to evaluate that.

Good.

Another good quarter thanks, guys.

Thanks.

[Operator Instructions].

Our next question is a follow-up question coming from Bill Dezellem.

Please go ahead.

A few more questions for you.

First of all, would you please update us on the world class buying club and also credit insurance in you shared with us what was going on with tax prep but those and also some detail questions here, cash from operations, either for the full year or in the quarter, and then the CapEx in the quarter and depreciation and amortization in the quarter first.

Let's start with the world class buying club.

It continues to be a very minor part of our overall business but it's still very important.

The gross profit from those sales for the quarter were right at $552,000 compared to $302,000 for the same quarter the prior year.

For the entire fiscal year, gross profit were 2.2 million versus $1.7 million for the prior year or roughly a 32% increase.

A lot of that resulted from the fact -- of the decision made to actually put some products in the offices in the form of inventory and so forth, so that customers come in, they don't have to wait until it's shipped to them and so forth.

While we're not in the retail business per say, to have a few TV's and so forth sitting around in the front (ph) office has certainly done a lot to improve sales.

As far as the credit insurance, it's still a very important part of our overall revenue.

For the quarter, our total income from credit insurance was up about 5.5%.

On a year to date basis, it's up about somewhere around 20%, and that's due to the biscuit loan volume that we talked about earlier in the press release.

Our capital expenditures for the quarter -- bear with me a minute -- I mean, our capital expenditures are net were very important parts of our overall capital considerations, but premises of equipment for the quarter were right at 0.5 million or 2.5 million for the year.

And what was the other question you had?

Cash ops, and the depreciation and amortization.

Depreciation and amortization, depreciation was 2 million, our amortization of intangible assets was 2.5 million roughly.

A total of 4.5 million?

Plus, 56,000 in amortization of loan cost and so forth.

But roughly, that's correct.

That's fine, Okay and in cash from operations?

88.1 million.

And that would be for the full year, not the quarter, correct?

Yes, it is.

Okay ,would have been a nice quarter.

Absolutely.

Okay.

And then finally, in something that I don't think that I'm understanding very well and could use a little bit of help with was that your loans receivable net, I think you may have discussed this early on, but I wasn't listening carefully enough or something, but loans receivable net were only up 12%, and on the surface that raises the question does that indicate that there's some slowing in the rate of growth?

Loans -- we did not actually mention loans receivable net -- we mentioned gross loans receivable were up 13.3% on a year-over-year basis.

We did mention that our average net receivables on a quarter-over quarter or year-over-year basis were up more than that, and a lot of that -- the reduction was due to the significant runoff during the fourth quarter and the timing of acquisitions this year versus last year.

I don't think that will you could -- anywhere in these numbers could you predict that there's been a major change in our business or our prospects for growth or whatever.

Okay.

And then secondarily, relative to the provision for loan losses that was up 24% in the March quarter versus the March quarter.

But the interest and fees revenue -- part of the revenue block was only up 12%.

What is that telling us?

To a certain extent, our provision -- well let's start off, to a certain percent our allowance is a direct result of or a percent of our loans outstanding combined with some other factors like delinquencies and expected losses and so forth.

But generally speaking, as you see, the portfolio changed from December to March, then you would think your provision is going to be less than you would between September and December as your portfolio is growing.

Also, what can impact is it is the timing of acquisitions normally it's sometimes that way.

You have allowances -- a small amount of allowance that may get through, get there without going through provisions.

So, I don't but I really don't think it's a whole lot -- so much of it depends upon the timing and what's going on in the portfolio.

From your perspective that increases in the provision relative to the increase in the interest revenue is not an indication of anything ominous.

No, the increase of interest revenue is more as a result of the rapid pay downs in the loans, resulting from tax refunds and so forth.

As people pay off loans, then you capture remaining unearns on non-refundable charges and so for.

That generally would not have a direct impact on what's going on through your provision.

All right.

Thank you.

Thank you.

Our next question is a follow-up question coming from Henry Coffey.

Please go ahead.

Yes you made a comment at the beginning of the call, Sandy, some of this, that you originated 1,365,000 loans in '05.

Can you give us that comparable number for '04?

Its again 1.2 million

A million two?

1,200,238. 10.2% increase in number of units year-over year, Henry.

And in terms of share buybacks, what's the -- I know Ira asked all this.

What's the status of the current program?

We have roughly a little over $6 million that the board has authorized us to repurchase.

We're currently in a blackout period for a couple of days.

Certainly as Ira mentioned if 20 - if we follow previously at 27, it certainly makes sense on a certain basis to do so, and after that I'm sure we'll as I said, evaluate going forward.

So you have $6 million left, you bought 50,000 shares this quarter, and it's a good guess that you're going to be buying more stock in the future once your required period ends?

To a certain extent.

We'll continue to evaluate on that, Henry.

Thank you, sir.

Thanks.

All right.

Gentlemen, there are no further questions at this time.

Thank you very much.

Thank you.

We certainly may appreciate you joining us for the call, and look forward to our next one when we'll be able to reported good results after the first quarter, we hope.

Thanks again.

Thank you for your participation.

Before concluding this afternoon's teleconference, the corporation's asked me 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 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 the timing amount of revenues that may be recognized by the corporation, changes in current revenue and exchange, charges 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 Exchange Corporation.

This concludes the World Acceptance Corporation quarterly teleconference.