World Acceptance Corp (WRLD) 2006 Q1 法說會逐字稿

... 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 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 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 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 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.

Thank you. Good afternoon, and welcome to your Company's first quarter conference call for fiscal 2006. I'm Doug Jones, your President and CEO. Joining me today in our home office are Charlie Walters, our Chairman; Sandy McLean, our Chief Financial Officer; Mark Roland, our Chief Operations Officer, as well as several other members of your senior management team.

I will give you a brief overview of the first quarter ending June 30 and my perspective on your Company's current condition. At the end of the call, we will open the floor for any questions or comments that you may have.

First and foremost, fundamentally there have been no changes in how we'll operate and therefore, there has been no change in your management team's optimism for the future.

Many of our key operational results are equal to or better than the same quarter last year. Loan volume remained strong. There has been no change in our portfolio mix and both contractual and recency delinquency percentages show improvement from June 30 of '04.

Our employee retention program continues to improve as we focus on hiring the best people available and provide them the best training. This, however, does not change the comparative results for the first year's quarter compared to last year's. To put it in perspective, the first quarter of fiscal '05 was by far the best first quarter in our Company's 42 plus year history, with net income increasing 29.4%. This produced a year-end net income increase of 18.2%. Based on the fact that we made no fundamental changes in our historical performance, we expect results to be in line at the end of this fiscal year also.

The first quarter earnings results were negatively impacted by our year-over-year growth. We ended the first quarter of '06 up 10.9% in loans outstanding compared to 19.6 for the quarter ended June 30 of '04. The difference in the two quarters growth results were in the acquisition arena, where this past quarter, we had $900,000 in acquisitions compared to 8.4 million in the same quarter last year. While we had the opportunity during this first quarter and looked at several acquisitions, they did not fit within our strategy and therefore, we passed on them. All in all, however, the acquisition affront does not appear to have changed and we continue to think there is opportunity there.

Our charge-offs as a percent of average net loans increased to 13.9% while higher than our fiscal '05 first quarter of 12.5, it's in line with our historical performance of 13.4 in June of '03 and 13.5 in June of '02. These charge-off numbers are certainly within our normal band and allow us to continue to operate very profitably.

On the regulatory front, our Chairman, Charlie Walters, is diligently working on positive legislation in North Carolina. Our largest state, Texas, with over $75 million outstanding and 168,000 open customers, recently passed a bill increasing our largest loan from $540 to 1080. That same bill also increased our late charge from a maximum of 5% of the payment to a minimum of $10. This goes into effect on September 1 of '05, and will make a significant impact on the second half of this fiscal year and for many years to come.

Our Mexico project continues to be on track and we still expect our first two offices to be open by late September. The biggest risk to our timeline here is the installation of phone lines, which could take up to an additional 30 days. As investors, I think, it's very important that you need to know that your senior management is one of the best in this industry and is committed to delivering the historical results that we have all come to expect.

I'll now turn the floor over to Sandy McLean, our Chief Financial Officer, who will share the details, after which we'll open it for any questions and answers. Thank you.

Thank you, Doug. For the quarter ending June 30, 2005, net income amounted to 7,312,000. This was slightly up from the 7,266,000 for the first quarter of the previous fiscal year. This represented earnings per share of $0.38 for the current fiscal quarter compared to $0.37 per share for the same quarter of the prior year.

Our gross loans receivable, our primary earning assets, amounted to 371 million at June 30, 2005, which was a 10.9% increase over the 334 million at June 30, 2004, and a 5.6% increase from the beginning of the fiscal year. Our average net loans over the two corresponding quarters were 272 million, versus 246 million for the same quarter of prior year, which was a 10.7% increase.

Our mix in the loan portfolio between our small, large, and sales finance loans remained pretty much the same as it did same time last year. Our small loans grew by 10.4% and amounted to 69.7% of the total portfolio. Our large loans grew by 11.9 and amounted to 28.3% of the portfolio. And our sales financed loans grew by 15.8% and were 2% of the total. This compared to 70%, 28% and 1.9%, respectively, for the same category in the prior -- the year-ago period.

As Doug mentioned, our loan volume was very strong during the quarter and amounted to 281.9 million compared to 251 million for the prior quarter, which was a 12.2% increase. Our average loan amounted to $787 during the quarter, compared to 740 for the same time for the prior-year quarter.

Our same store -- no -- our total revenue for the quarter amounted to 51,768,000, which was a 9% increase over the 47.5 million for the prior year. The same store revenue in the 520 offices that were opened throughout both quarters rose by 3%.

We continue to be impacted somewhat by the rise in interest rates, as our interest costs grew to 1.3 million, or a 33.2% increase, over the 989,000 for the prior-year quarter. This is while our average debt dropped from 105 million last year to right at 95 million this year.

Talking about our office network. We began the year with 579 offices. We opened 5 new offices, purchased 1, and sold 2. As Doug mentioned, acquisitions, which are always a very important part of our overall growth strategy, was certainly down this quarter compared to prior-year first quarter. We actually had 7 offices that we purchased -- 7 offices and/or both purchases for a total of 1,357 accounts for $944,000. This compared to 20 offices for the same quarter in the previous fiscal year, or 5,309 accounts, for $8.4 million.

Delinquencies and charge-offs. Our 60-day and over accounts on recency basis amounted to 2.6% of our total loan portfolio. This is slightly down from 2.7% at the same time last year. On a contractual basis, we saw a similar improvement -- to 3.7%, at June 30th 2005, from 3.8%, at June the 30th 2004.

Our provision for our loan losses grew by -- amounted to 9.5 million versus 8.6 million for the prior year, which was a 10.6% increase on a year-over-year basis, which is in line with the growth in our loan portfolio. However, as Doug mentioned, we did have a pickup in our charge-offs, and our net charge-offs to average loans for the quarter on an annualized basis amounted to 13.9% compared to 12.5 the previous year.

Our G&A expenses amounted to 29,240,000 compared to 26.4 million for the same quarter of the prior year, which represented a 10.7% increase. This is pretty much in line with the growth in our offices, as we began this fiscal year with 579 offices. We began last fiscal year in April of '04 at 526, which was a 10.1% increase in number of offices. However, due to the shortfall and the growth in the revenue, our percent -- our G&A as a percent of revenues amounted to 56.5% for the current quarter versus 55.6% for the same quarter in the prior year.

Our G&A for average opened office increased by 2.5%, when comparing the two quarterly periods.

ParaData, our computer subsidiary, continued to perform very well during the quarter, and their revenue of 639,000 was slightly up from 629,000 in the prior year. And from a profitability basis they remained profitable, they made 154,000 pre-tax versus 116,000 pre-tax for the same quarter of the previous year.

Other selective ratios, our return on assets on an annualized basis amounted to 9.8% for the current first quarter, compared to 10.8% for the same quarter of the prior year. And our return on equity was also down to 15.4% from 18.6% on an annualized basis of the previous year. And finally, our stock repurchase program was active during the quarter. We purchased 266,000 shares for a total of $6,885,000 or an average price per share of $25.88.

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

[Operator Instructions] The first question is coming from Dan Fannon of Jefferies.

Thanks guys. Can you please give us some commentary as to the pipeline of future portfolios for acquisitions, to kind of give us a little more confidence in future growth?

Dan, we can tell you a couple of things. As I said, we look at a couple of different acquisitions during this past quarter that really just did not fit our strategy, our future due to the size in loan in some of the locations. But we still had as many opportunities to look as we've been having. So that tells me that the opportunity is still there. We're currently looking at least one, and I know of another one that we should be looking at.

So it looks like the opportunities are there, we just got to make sure that they fit. And probably the biggest internal opportunities we've got is in Texas, where with the size of our loan being restricted and now could be double, I mean that's an opportunity that's just huge for us. Certainly, we don't want to mislead any one of the place that we're planning on doubling the size of those loans on those customers, but there certainly will be some incremental increases for those customers who've earned the right and deserve that.

Can you elaborate on that a little bit more on the taxes? I mean how will this be implemented and how will this affect your loss rates and growth? I mean is it only going to be to establish customers where you have a history of their payment patterns that you will increase their loans, or is it -- can you just talk about the different underwriting process you're going to go through and how that might impact your growth?

We are currently -- as you know, this just recently got signed. And we're currently putting together our complete strategy to roll out. But certainly present borrowers, who are already on the largest loans with an excellent pay history will be the first people that we identify. We'll actually have our supervisors go through, review those and mark which ones are eligible for an increase of whatever that number would be; whether it be $100 or 150 or more, depending on that customer and our historical data with them.

We'll do the same thing on our former borrowers. We've got all the data there and all the history there. We'll certainly do mailings to them. And then we will be evaluating new borrowers on a little different basis, because for years we've been restricted at 540, we didn't look for upward potential. So we'll certainly have a training opportunity there for our people, teaching them to look for a larger loan and larger opportunity, like we do in most of our other states already, Dan.

Okay. And lastly, will you be soliciting customers who you do, kind of, feel fit that profile of an established credit history before September 1st, so once that date does come, and that law is effective, you will have those loan increases earlier rather than them coming in over the natural course and finding out about that, you know, once they try to renew that loan?

Well, the timing is perfect for us, being September 1st, it’s 30 days prior to our growth season starting. So our volume increases significantly. We estimate that somewhere between September 1st and that end of the year we will probably renew 65 -- we'll touch 65% to 70% of that portfolio.

We will have those identified, but your question is will we make any of them before September 1. No, absolutely not, we will -- but we will know which one that we will be mailing to and contacting.

Okay. Great. Thank you.

Thank you.

The next question is coming from Henry Coffey of Ferris, Baker Watts.

Good afternoon, everyone.

Hi, Henry.

A couple of questions, first, if you could add really just three items actually. First, if you could you give us any color on your charge-offs experience and how do you think that sets the tempo for the rest the year?

As you know it ticked up a little bit this quarter, Henry, but it ticked up to above where it's been 3 out of the last 4 years. So, you know, we think it was pretty normal.

And then what about, particularly in Texas, with the new larger loan size, any -- how are you competing against the payday loan industry. Have you had any -- learned anything additional from your experience in Colorado. Obviously, this new product in Texas opens up some opportunities. I was just wondering if you could give us an overview on, what sort of competitive trends you see between your industry, the small loan industry and the payday loan business?

Well, certainly the payday loan industry is a competitor of ours. Although when only about half of our customers have checking accounts, they're probably not our strongest competitor out there, but they certainly are a valid competitor. As far as marketing with them, I think if the customer begins to learn how payday loans work, it will be kind of like it was when they learned how Visa cards work. It takes them 22 years to pay one off if they paid minimum payments. As they learn how works, I think the consumer and the more educated, they will look for an installment loan, of course part of our job is to market that and help them understand the difference in the two products.

And then finally, everybody's favorite subject, buybacks. You're not really into your growth season yet. Have you any thoughts about buying back additional stock? And I'll just off the line and listen to your answer. So thank you.

Well, as you know, we have got -- they authorized us an additional 20 million. We have spent part of that. We are definitely in the market and will continue to be. Especially in light of the way the stock is performing to date.

Thank you.

The next question is coming from Bill Dezellem (ph) of Titan Capital Management.

Thank you and good morning. Couple of questions for you. First of all, you referenced the acquisitions in the first quarter here that you looked at, but did not fit from a strategic standpoint. Would you walk us through how were those did not fit and from what perspective that you just didn't like where they were coming from? And then secondarily, walk us through any changes you have or have not seen relative to pricing on acquisitions please.

Okay. I can't share too much information with you, Bill, on the acquisitions that we passed on because confidentiality agreements that we have signed. But basically, it was an acquisition, I can tell you it was about $15 million and it was split between small loan and large loans. Due to the fact that a lot of large loans were in a state where we don't usually do that business, we had no interest there, so therefore we pursued the smaller loan piece.

When it finally came down to the end I thought we made a very fair offer on about 50% of that portfolio, but they decided they wanted to try to market the whole thing. They could come back to us. It has not closed yet. And we're in contact. But we are just not interested in getting into a business that we don't do -- in a state that it doesn't work profitably for us. So that was the acquisition.

Thank you. How about pricing on acquisitions in general?

Haven't seen much change on the pricing. Our acquisitions -- we price them on – we’ve got a model for each state depending on what we know they are worth to us and we're not seeing much.

However, I do think as you see interest rates increasing out here you may see some of these smaller independents get in a little tight on money availability, which could open some opportunities to us. So we will just see how that goes.

That's helpful. And then finally relative to Mexico, what's the update there please?

Update is everything is on target. We haven't run into any real surprises. There's a lot of issues when it comes to human resources, benefits, and those things, but operationally we haven't seen any surprises. We're still very excited and plan to have those two branches open late September. We'll model them. They won't make much impact this year, but we will spend 3 or 4 months making sure we've got the model that works, then we're ready to move on from there.

Thank you very much.

Thank you.

The next question is coming from Daniel Cole of Columbia Capital Management.

(Inaudible) quarter were 3%, and I was wanting to get detail on what that had trended over the last several quarters, and then what your expectations for the next couple of quarters or so would be.

Dan, I am sorry but your question got cut off on the front-end. We didn't get to hear it.

Okay. You've mentioned that your same-store sales in the quarter were around 3% the growth. What's the trend then over the last few quarters and what are your thoughts about the next 2 or 3 quarters?

We've been running in the 5 to 8 range there, 8 being on the very top end of that. What we are seeing is, we have opened quite a few stores in the several years, and as those roll in we've got more young stores in there than we had.

Okay.

And it also -- it takes longer to turn a profit than it used to be -- because of front-end expenses on those things. So as they mature I think we'll see that increase.

Okay. Great. Thank you.

Thank you. [Operator Instructions].

We certainly appreciate your participation this afternoon. We appreciate the questions and just want to reassure each of you that your management team is committed here, and we fully expect to see our results continue like they have in the past years. Thank you for joining us.

Thank you for your participation.

Before concluding this afternoon's teleconference, the corporation have ask me to 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 expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Factors that can cause actual results or performance to differ from the from the expectations, expressed or implied in such forward-looking statements, include changes and the timing 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 filing with the Securities and Exchange Commission.

This concludes the World Acceptance Corporation quarterly teleconference.