World Acceptance Corp (WRLD) 2006 Q2 法說會逐字稿

Good afternoon and welcome to the World Acceptance Corporation sponsored second quarter press release conference call. [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 inherent and subject to risks and uncertainties.

Factors that could cause results or performance to differ from expectations expressed or implied in such forward-looking statements include changes in timing amount [Audio difficulties] 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's my pleasure to turn the floor over to your host, Mr. Doug Jones, President and CEO.

The floor is yours, sir.

Thank you.

Good afternoon.

Welcome to your company's second quarter conference call for fiscal 2006.

I'm Doug Jones your President and CEO.

Joining me today here in Greenville, South Carolina are Sandy McLean, your Chief Financial Officer;

Mark Roland, your Chief Operations Officer; as well as several other members of your senior management team.

I will give you just a brief overview of the second quarter ending September 30, and my perspective on your company's current condition.

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

As you know, two of our key drivers are loan volume and ledger growth, both of which were very strong during the second quarter, increasing by 21.6 and 13.2% respectively this combined with lower delinquency, both regency and contractual puts us in good position for our third quarter growth season.

Net chargeoffs rose slightly but are in line with our historical results for the second quarter.

The last three years have been 16.06, 15.4, and 16.03 respectively.

We're very fortunate that Hurricanes Katrina and Rita did not have a larger impact on us than what they did.

Most of our branches were back up and running within 72 hours and all of our branches are currently operational.

Last quarter we mentioned the change in the law in Texas and we've certainly benefited from that, effective September 1, where it increased our maximum loan from $540 to 1080.

Load volume in Texas increased from $21 million in September '04 to $40 million in September '05.

Our Mexico project is on target with both stores opening in September as planned.

I visited those two stores last week and was very pleased with what I saw.

We remain cautiously optimistic for the future of Mexico.

I will now turn the floor over to Sandy McLean, your CFO, who will review the details of a very strong third quarter with you.

Thanks, Doug.

We are very pleased with the results of the second quarter of fiscal 2006.

For the quarter net earnings amounted to 7.4 million or $0.39 per share, compared to 6.9 million or $0.36 per share for the same quarter ending September 30, 2004.

This represents a 7.6% increase in earnings on a quarter-over-quarter basis.

For the first six months of fiscal year, net income amounted to 14.7 million, or $0.76 per share which is a 4% increase over the 14.2 million of $0.73 per share for the same period of the prior year.

One of the most important parts of our business and one of the drivers of our earnings is our ledger growth.

At the end of the quarter, we ended up with 395.6 million, which represented a 13.2% increase over the 349 million at September 30, 2004, and a 12.5% increase since the beginning of the fiscal year.

Our average net loans during the quarter were 287 million, or 11% greater than the 259 million for the same period last year.

The good thing about this quarter is a great deal of high growth came from internal growth.

To give you some idea, we began the quarter at June the 30th, last year with 334.5 million, and ended up in September 30, at 349 million which was $14.8 million in overall growth.

During that period, we acquired 10.6 million.

Now, making the assumption that all of those loans were outstanding at the end of the period, which is not a valid assumption but for purposes of comparing them, that would leave 4.2 million that we grew internally.

By comparison this year we started off the quarter at 371 million, at June the 30th, and ended the quarter at 395.6 million, which represented a 24.5 million in overall growth.

With 2 million in acquisitions, that gives us 23.5 million in internal growth.

However, as Doug mentioned we certainly benefited from the change in the law in Texas.

Texas at June the 30th, had 75 million in small loans and it ended the quarter at 90.9 million so we did incur about 15 million in growth in the loans in Texas, a lot due to the change of that law.

Primarily the result of the growth in the small loans in Texas, we did have a slight change in the mix of the overall portfolio.

We ended the quarter with 280 million in small loans, 107 million in larger loans and 7 million in sales finance.

And that represents 71% small loans, 27% large loans, and 2% sales finance.

Which compared to 70% small loans a year ago, 29% -- 28% in the larger loans at September 30, 2004, and 2% in the sales finance.

As Doug mentioned, loan volume continued to be very strong in the most recent quarter.

Total loan volume for the three months ending September 30, 2005 was 305.4 million or 21.6% greater than 250 million for the same quarter the prior year.

Year-to-date, total loan volume of 587 million was 16.9% over the 502 million for the same period.

Our same store revenue -- I'm sorry, getting to our revenue numbers, our total revenue for the quarter, ending September 30, 2005, was 56.7 million.

This represented a 14% increase over the 49.8 million for the same quarter the prior year.

Year-to-date, our total revenues of 108.5 million represented 11.6% increase over the 97.2 million.

As I begin to say earlier, our same-store revenue in the 516 offices that were opened throughout both periods grew by 7.2% on a quarter-over-quarter basis and by 5.1% on a year-over-year basis.

As would be expected, our earnings were impacted somewhat by the increase in our interest costs.

Interest costs for the quarter of 1.6 million was a 52% increase over the 1.1 million for the same period last year.

While our average debt for the quarter actually decreased by roughly 1%, we certainly were impacted by the increase in the short term interest rates.

Our average rate during the quarter was 5.9%, versus 3.87 for the same period last year.

Now, our office expansion, we began the year, fiscal year with 379 offices.

We opened 37 new offices.

We purchased one new location.

We merged four offices, and we actually sold two offices.

Those two offices in Colorado.

To end the year at 611 offices.

As Doug mentioned we did open two offices in Mexico, and are very pleased with the results year to date.

In the first office that we opened earlier in September, we have 353 accounts or 2.1 million pesos outstanding and at today's conversion rate, that's roughly $194,000.

The second office, which opened right at the end of the quarter, has 36 accounts and roughly $21,000 outstanding.

These are excellent results for the length of time these offices were open and considering we have done very little, if any marketing.

We are waiting to begin any type of marketing structure until we get some idea about the repayments and so forth and better understand how the portfolio is going to act.

But so far, delinquencies and so forth look extremely good.

On the acquisition front, our acquisitions have always played a very important part of our overall growth, however this year they've been less important to the growth strategy than in prior years.

For the six months ending September 30, 2004, we had 20 transactions and we purchased 22,000 accounts for a gross ledger balance of $19.0 million.

So far this year, this current fiscal year during the six months, we've had seven transactions, a total of 6,338 accounts or roughly $3 million.

Our delinquencies and chargeoffs which are very important to the profitability of the Company, our delinquencies have actually decreased on a year-over-year basis.

When you look at the 60 day and over accounts, our recent delinquency was 2.9% at September 30, 2005, compared to 3.1% at September 30, 2004.

On a contractual basis they were 4.1% for the current year, versus 4.6.

So we have seen a decline in our actual delinquency amounts and delinquency percentages on a year-over-year basis.

However we have seen an increase in the net charge-offs as Doug mentioned earlier.

For the quarter, net chargeoffs to average loans on an annualized basis were 16.1%, compared to 15.4% for the same quarter the prior year.

For the first six months of the fiscal year, our net chargeoff to average loans were 15%, compared to 14%.

Our G&A expenses, another very important category to our overall expenses, to our overall profitability, have also been very stable.

For the first -- for the quarter ending September 30, 2005, our total G&A was 30.1 million, or 53.1% of total revenue.

For the same period last year, they were $26.5 million or 53.3% of total revenue.

Year-to-date we have seen a slight increase in those percentages of 54.7, versus 54.5, but they're still very much in line with what we have seen.

Overall, our G&A as a percent -- G&A per average open office increased by 6% for the current quarter and 4.2% for the year.

ParaData we are pleased to say has continued to be profitable on a marginal basis but as in the past their primary focus is to provide us with the best data processing system available to any of the small loan companies out there.

But as I said, year-to-date, they made about $200,000, versus 137 for the prior year.

All the selected ratios that we consider very important on a year-to-date basis, our return on assets annualized at 9.6%, which is slightly down from the 10.2% for the same period the prior year, and our return on equity of 15.6% for the first six months compared to 17.7% for the prior year.

We continue to be very active in our share repurchase program and so far during this first six months of the fiscal year we have repurchased 534,400 shares for $13,906,000.

At this point in time we would be more than happy to answer any questions that any of you may have.

[OPERATOR INSTRUCTIONS] Our first question is coming from Dennis Paltrow of Siemens, Inc.

Please go ahead.

Just a couple of questions.

One in Texas, obviously, you saw a nice increase.

Is there any way to sort of gauge how much is left there, or what you think the potential is there?

Well, our average loan has actually gone up, Dennis, I think it was about 480, and it's a little over 530 right now.

Maximum loan we can make is 1,080.

We purposefully are taking this small steps at the time, that's about a 20% increase in our ledger balances out there, and, of course, if everyone who has qualified, technically you could double that but we certainly won't see that.

But we should continue to see pretty good increases through growth season for sure.

So you had both -- not only the average loan went up but it looked like the actual volume went up on a statistical number; is that correct, a fair amount?

Would you repeat that question?

Well, it looked like your loan balance went up about 20% and if average loan only went up 10%, then you had good loan growth absent just the increase in the average loan, correct?

That's correct.

We had some internal growth, but a lot of that loan growth -- a lot of our volume comes from renewals so as these ones are being renewed, then obviously, the loans are increasing then you'd see a larger increase probably in your loan volume than you would in the actual balances outstanding.

Okay.

But, the two real -- kind of track pretty similar overall, on a long-term basis.

And any comment on the difference in the fact that it seems to be more challenging this year, to make acquisitions or there are fewer out there or people just wanting more money, or--?

There's a combination of things going on out there.

Actually, we lost a pretty good acquisition due to one of the hurricanes that we were awfully close on, Dennis, but we did not work.

That would have made a large difference in the quarter for us.

But as far as the numbers that we're looking at, we're still seeing opportunities out there.

They are just not -- the stuff we are looking at right now is just not matching our model, like we want it to.

And sometimes the locations are just not where we are at, and not in a state that we're wanting to get into.

But we're still looking at quite a few.

And if I may add to that on an ongoing basis, the acquisition is not predictable at all.

We never have a backlog or a pipeline of acquisitions because the length of time to close these acquisitions is such a short period of time.

So all of these -- when they come in we evaluate them very quickly and even if they work then they are finalized and if they don't, then we move on to something else.

And over the years there's always been slow periods and there's been much more active periods but there's still a lot of independence out there that at some point in time they decide that they want to get out of the business and we just hope to take advantage of those opportunities when they present themselves.

All right, thank you very much.

Thank you.

The next question is coming from Dan Fannon of Jefferies.

Please go ahead.

Can you quantify your other revenue, the insurance, and other income portions?

It came in a little higher than we were -- I was expecting.

Is there any breakdown in there specifically that drove that?

The 8 million in revenue?

Sure.

Just one second.

Are you looking at the quarter or the year-to-date or what?

Just the quarter.

Okay.

During the quarter 4 million of that is in insurance. 3.1million is in other income.

This compared to right at 4 million insurance, $4.8 million insurance this year, versus 3.9 last year, and 3.1 versus 2.3 in other income.

Now, we did have something to take place in other income that was a one-time item, unfortunately we were the recipient of a -- some proceeds from a life insurance policy on a former officer that passed away during the period.

And that was about $390,000, but, other than that, there was no real significant changes.

The 390,000 of one-time stuff in that--?

In the other income category, that's correct.

Okay.

The change in Texas, that clearly affected loan growth in a positive way, but there was also a change in the minimum fee to $10.

Can you quantify any of the impact that had on your interest income?

That's on late charges.

Right.

The net effect of that was zero during the current period because none of those loans had been made and had an opportunity to become delinquent.

Okay.

This was not on prior loans.

It is only on loans made on a going forward basis.

So there will be some moderate benefit from that over time, but it will be quite some time before we get those benefits.

Okay.

And so you haven't really -- so you obviously haven't received any payments from those larger loans in the state of Texas?

That's -- there would be none.

All of our payments are monthly installments and anything made during September would not have the first payment due until October.

Okay.

Hopefully we've seen a few of them.

Okay.

Hopefully we have seen some in October, but none that are reflected in these quarterly financials.

We are now a little bit further along into October, can you give us any color on how the payments are tracking in Mexico?

There is very little, if any delinquency.

I think Mark was telling me earlier that we've had, Mark, excuse me.

No, that's fine.

We -- with the 360 or whatever odd accounts, and our Juarez one office, as of this morning there were only 16 customers of that group that were one or more days past due and approximately 220 of those customers had already had a payment date fall due.

So out of 220 customers, 17 were one day past due or more and that number fluctuates obviously daily.

It's been running all month at six, seven, eight, nine, ten, customers.

This morning a few fell out but it's a negligible number.

I can tell you that we were down there last week and had the parking lot taped off for our grand opening celebration and had some local dignitaries there and we had customers parking on a busy street trying to run up and make their payments at the office, because they were due that day.

And so they are motivated to pay.

Okay.

And when do you expect to add another store or expand into that region.

Dan, we're probably -- we're going to look at things for the next 60 days before we make any decisions, but it will be somewhere in the next 60 to 90 days, we'll know how it's performing and know how we want to proceed from there.

And just lastly to get an average loan size in that region, you said there was about $194,000 outstanding and 353 accounts.

That -- no, that was -- I gave you the information on two different offices.

In combined we have 390 -- 389 accounts, and roughly 2.1 million -- 2.125 million, something like that.

So I can't tell you exactly what that is, but--.

The net loan U.S is right around $400.

So $400 net loan U.S.

On average, okay.

Thank you very much.

It's too many conversions going from pesos and so forth that I can't do that very quickly.

Mr. Fannon, do you have any further questions?

No, that's it.

Thank you.

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

Please go ahead.

A couple of questions here, just I wanted to double check something.

Sandy, you said your same store sales were -- on a year-over-year basis in the quarter were 5.5%.

For the quarter it was 7.2% and for the year-to-date comparative it was 5.1.

And you said.

I couldn't hear whether -- you said average overhead per store was it up or down 6%?

It was up.

Okay.

So the 6% for the quarter and 4.2% for the year.

They calculate a little differently because this is G&A divided by the average stores opened during the period, whereas the same store revenue eliminates any offices that were not opened throughout both periods.

Right.

Exactly.

Okay.

The deal you lost because of the hurricane, is that possible that it will come back or is it under water, so to speak?

It's under -- that's a good question.

We don't know.

It impacted quite a few of their branches.

So we just don't know.

We're going to revisit that in probably 90 days and see if there's anything to it.

I know Dennis was asking questions in this direction, but I guess the way to really look at it, is the store count in Texas--.

Okay.

The store count in Texas, did it -- hang on a second.

I think it's the Louisiana hurricane victim calling in.

The store count in Texas -- the increased loan size in Texas, did that produce for you an increase in customer count?

Minimal.

Minimal.

Offering a bigger loan made it more profitable with your existing customers but it hasn't brought new customers in?

It has not had a large impact on new borrowers.

But we should have some benefit of that, as we normally do in the quarter we're entering right now which is our normal Christmas growth season.

You think you may be able to bring more people into the branches?

We certainly hope so.

And then finally the bankruptcy bill.

We've talked to a couple of other companies and have been told that they think it had a modest impact on their numbers just because before people declare bankruptcy they run out and borrow a bunch of money, and they don't pay it.

Have you been able to quantify one way or the other how the change in the bankruptcy bill impacted you this quarter and how you think it's going to impact you going forward?

It's had very little impact, actually on us this quarter, Henry.

We are not sure about the next quarter because, according to the papers and stuff, there was an awful lot of filings, during the last ten days, right before that October 17, cutoff.

No way to know how many of those were our customers.

But my understanding is normally there is 100,000 or so in that period and it was 500,000, so we just don't know yet.

It has not hit here.

We haven't gotten the notices yet.

All right.

Well, thank you very much.

[OPERATOR INSTRUCTIONS] Our next question is coming from Bill Dezellem of Tieton Capital Management.

Please go ahead.

Thank you.

We had a couple of questions.

First of all, straight up the middle, share repurchase activity in the quarter and then secondarily, if you would, please, detail the thought process that went behind closing the two offices in Colorado.

Sandy, if you'll take share repurchase and I will get the Colorado figures for you.

Now what is it?

I'm sorry, what is it exactly you are asking regarding the share repurchase.

We were very active, as I said.

And we did repurchase 534,000 shares during the first six months, the 13.9 million and we have roughly 5 million remaining under a previously authorization of the Board but I don't know if I answered your question or not.

You did.

And with the stock price increasing here recently, did that change your propensity to repurchase at the rate that you have been at all.

We have been under a blackout during this period which does not go away until tomorrow, and we will evaluate tomorrow what's going on.

On an ongoing basis, we certainly will continue to be a participant in this -- we are not a participant.

We will be -- continue our program of stock repurchases but at what levels and what amounts and so forth, I couldn't tell you right now if I knew.

And then Sandy, also, is it correct that coming into the season where you are loaning more money out, that you do tend to be less active on the repurchase front until that money starts getting paid back next spring?

Generally that is the case.

It's always nice to make sure we have plenty of funds available.

We do have significant funds available because we do have a temporary line that kicks in I think on October or November 15.

That's additional 15 million in availability.

So barring any major acquisitions we certainly have funds to do both, but you are right, generally speaking, as we go into this quarter, we are more concerned with making as many loans as we possibly can.

Thank you, Sandy.

Okay.

Bill, as far as the Colorado piece, any time we go into a new area, as you know, this was the first time that we have entered a new state, just as they change the law and while the branches we were able to finally figure out the market in, we picked up the accounts, the refund method that they passed in Colorado, was a full lateral method and it just does not -- did not fit our model.

As you know, part of our -- or a large majority of our business comes from the renewal business and on a pro rata basis, all of your risk is at the beginning, but your revenues are equal.

So while we're a high risk, we were getting the same income when our risk was the highest as we were when it was our lowest and it just did not work.

And we had an opportunity to sell those two branches at a slight profit, as we were opening in Mexico and we just put that money and took it to Mexico.

All right.

Thank you.

And then from a bigger picture perspective, have you seen any indication that the higher gas prices are pushing some individuals that were really not your customer, pushed them over the edge to where they have become your customer into your customer demographics and if I didn't ask the question, clearly, I will try again.

I think I know what you are asking but that's a very difficult thing for us to quantify.

Are we picking up some customers that the banks are turning down for whatever reason and could that be impacting it?

I guess it certainly could but it would not be something that we could quantify.

Thank you.

Your next question is coming from Jamie O'Brien, of Brean Murray.

Please go ahead.

Yes, good afternoon.

James O'Brien.

Speaking of $3 gas, on the credit quality side, it weakened a little bit year-over-year but still seemed to be well within the hashmarks of the seasonally -- or a little bit weaker quarter.

But that said with $3 gas, credit card minimum payments going up, et cetera, it seems like the American consumer is starting to feel more pain, but you seem to be navigating the credit quality front pretty well.

Can you kind of give us a feel for how that's being done?

I think part of that, James, is the customer base that we are dealing with.

They are used to having tight funds and while the gas is impacting them somewhat, an awful lot of our customers do not have credit cards.

So we're not expecting, hopefully that big increase in January to hit us as hard as it will a lot of people.

Okay.

But our customer is the customer that if they lose a job today, they will be working again tomorrow because they're going to take whatever job they can find.

Right.

And they are just survivors.

And I think the little decrease in delinquency from this quarter to the same quarter last year just shows what kind of customer we are dealing with.

Okay.

And then shifting back to Mexico a little bit, I know, it's really preliminary, you only have two stores open there, relatively recently, but do you see down the road, the Mexican stores, as a certain percentage of your total store base?

And then maybe can you talk a little bit qualitatively about the reasons for being in Mexico.

Are you seeing not much competition there, or the customers are a certain demographic, that you want to be involved with, or the cost of doing business there is lower.

I was wondering maybe you could talk a little bit qualitatively about Mexico?

I'll be happy to address that James, from the standpoint that we look at Mexico as another market that there is very little competition and we know that there's a lot of potential customers there that match the demographics of our customers here in the states.

It's an opportunity that we're not the first people to go there, but where certainly there's very few companies there offering these products and, if, in fact, the model works as we anticipate, then it's just a tremendous opportunity.

That's not to say that we will shift our focus from continuing to expand in the United States, but it's just an opportunity we felt like we just couldn't pass up.

Okay.

And then one last quick question on opening of the stores it seemed like you opened quite a bit in the quarter.

What are the targets for, say, the next two quarters and then maybe for fiscal '07.

As far as -- generally we do not open offices in the third quarter.

We made -- as far as the first quarter and the second quarter year, it's more of a timing issue of when you could get leases signed and so forth.

And we may have two or three that are opening.

But that's not by design, we would like our offices to be opened at the beginning of October so that they are ready for the growth season.

We rarely open offices in the fourth quarter because that's when our tax preparation business is going on and so forth and that's the period of least demand.

So the goal is every year to start opening offices in the first quarter and in the second quarter, and as we've stated in the past our goal is to open at least 25 to 30 offices and add to that whatever we see in acquisitions.

Okay.

Terrific.

Thank you very much.

Okay.

Thanks, James.

You do have a follow-up question from Henry Coffey of Ferris, Baker Watts.

Please go ahead.

Yes, Sandy.

You had mentioned you've repurchased 534,000 shares year-to-date.

How much of that was in this September quarter?

Oh, I gave you the quarter.

I'm sorry, it's 800,000.

I was looking at my notes wrong.

I apologize.

That was the quarterly numbers.

For year-to-date it was 800,400, for 20,791,000.

And you have $5 million to go?

That's correct.

Secondly you only have had two branches in Colorado; is that correct.

That's correct.

So you are just closing out that state and moving on.

For the time being and there's some chance that they may come in and change the laws and regulations but that's not our focus at the current time.

Well, thank you very much.

Thank you, Henry.

Gentlemen, I am not showing any further questions from the phone lines at this time.

Thank you very much.

We certainly appreciate you joining us today and we look forward to our call after the third quarter.

Thanks again.

Thank you for your participation.

Before concluding this afternoon's teleconference, the Corporation has asked that I 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 represents 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 expectations expressed or implied in such forward-looking statements include changes in 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 filings with the Securities and Exchange Commission.

This concludes the World Acceptance Corporation's quarterly teleconference.