World Acceptance Corp (WRLD) 2007 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the World Acceptance Corporation, sponsored by Second Quarter Press Release conference call. [OPERATOR INSTRUCTIONS] Before we begin, the corporation has requested that the following statement be announced. The comments made during this conference -- may certain forward looking statements with the meaning of section 27-A of the Securities and Exchange Act, that the corporation - pardon me -- all right.

Again, the comments made during this conference, may certain forward looking statements within the meaning section 27-A in certain securities act represent the corporation. There are certain inherent subject risks, uncertain factors that contain certain actual results of performance from different -- certain expectations expressed or implied in the forward looking statements, including certain timing, amounts of revenue that may be recognized in the certain corporation changes.

Such factors are discussed in greater detail in certain filings and security and economy. Such factors are discusses in certain details in the corporation's filings and the Securities and Exchange claims.

At this time, it is my pleasure to turn the floor over to our host, Sandy McLean, CEO. Sir, please go ahead.

Thank you. I hope you can hear me much clearer than you could hear that opening statement. But anyway, welcome to the World Acceptance Corporation's second quarter conference call. I am Sandy McLean. With me are Mark Roland, our president and chief operating officer; Kelly Snape, our vice president and chief financial officer; as well as other members of our management team.

I would like to spend just a few minutes reviewing the quarterly results, after which time any of us will be happy to answer any questions. I am very pleased to be able to report another excellent quarter for your company. The very good results we achieved in the first quarter have continued in the second, primarily for many of the same reasons, continued strong loan demand, reduction in charge off ratios and continued improvement in expense ratios. As a result, net income increased by 32.7%%, when comparing the two quarterly periods.

For the current quarter, net income was $9.86 million, or $0.52 per diluted share, compared to $7.43 million, or $0.39 per share for the quarter ending September 30, 2005.

For the first two quarters net income was $19.8 million or $1.06 per dilute share, a 34.6%% increase over the $14.7 million, or $0.76 per share, for the corresponding six-month period of the prior fiscal year. Our gross loans outstanding amounted to $470 million on September 30, 2006. This represents an 18.9%% increase over the $396 million at 9/30/2005, and a 13%% increase since the beginning of the fiscal year.

Average net loans increased by 19.8%% when comparing the two quarterly periods, and by 19.2%% over the two corresponding six-month periods.

As has been the case with several periods, most of this growth has come from internal demand. We have continued to benefit from the change in Texas law that went into effect last October, that raised the maximum loan in Texas from $540 to $1,080. This has contributed to an increase in loans in Texas of 28.4%%. However, 10 of our 11 states had year real growth of at least 11%% or more and seven states had increases of at least 15%%.

Because of the growth of Texas and in Mexico, our small loan portfolio has grown by 19.9%%, compared to the growth in the large loans of 15.4. This has also contributed to an improvement in our operating margins.

Our acquisition activity has been slowed during the last year and a half. For the first six months of the current fiscal year, we acquired nine offices and $2.8 million in gross lines. Four of those nine offices were merged into existing offices. For the first six months of fiscal 2006, we acquired 14 offices and $3 million in loans, similar to the current year.

However, as was recently disclosed, we just purchased the assets of Titan Finance in early October. With this acquisition, we acquired 69 offices and approximately $15 million in gross loans for approximately $13.5 million. Twenty nine of these offices will be merged into existing offices.

Our office network has also been expanding on an accelerated basis. During the first six months of the current fiscal year, we have opened 57 offices, purchased five new offices and closed four non-performing offices, which gave us a total of 678 offices AT September 30, 2006.

Primarily due to the excellent loan growth, total revenues have been increasing in a similar manner. For the most recent quarter, total revenues amounted to $67.2 million, an 18.4 % increase over the $56.7 million during the second quarter of fiscal 2006.

For the first six months of the current year, total revenues were $131 million, a 20.8 % increase over the $108.5 million for the previous fiscal year. Revenues from the 571 offices open throughout both year-to-date fiscal periods rose by 15.6 %.

We have also benefited from an improvement in our loan delinquencies and charge-off ratios. Delinquencies on 61 plus day accounts reduced from 2.9 to 2.8 % on a recency basis and remained level at 4.1% on a contractual basis when comparing the two period end dates.

Additionally, net charge off, as a percentage of average net loans, decreased from 16.1 % to 14 % on an annualized basis, when comparing the two fiscal quarters, and from 15 % to 12.8 % annualized, when comparing the two six-month periods.

These decreases were primarily due to a decrease in bankruptcies of 45.7 % over the two corresponding six-month periods. About 1.4 % of the decrease in charge off percentages was due to the reduction in bankruptcies.

Another area of continued improvement is our expense control. Our G&A expenses increased by 17.1 %, when comparing the two quarterly periods, and by 18.1 %, when comparing the two six-month periods. This is primarily due to the 67 net new offices that were opened between September 2005 and September 2006.

However, the expenses as a percent of revenues decreased from 53.1 % to 52.5 % over the two quarterly periods, and from 54.7% to 53.5 over the two six-month periods. Our G&A per average open office increased by 7.8% over the two six-month periods.

Other ratios also improved over the two fiscal periods. Our return on assets annualized increased from 9.6 to 11.3% over the six-month periods and our return on equity increased from 15.6 to 17.8%.

We are also very pleased with our progress in Mexico. At the end of the current quarter, we had eight offices open, with 7,548 accounts and approximately $3.6 million in gross loans outstanding. We had less than 70,000 charge-offs year to date, and our 61 plus delinquencies are less than 1% on both a recency and a contractual basis. During the first two quarters of the current fiscal year, we made approximately $121,000 from our Mexican operation.

Finally, we are very pleased with the success of our convertible debt offerings, which closed in early October. We raised $110 million, with an interest rate of 3 %, and repurchased 1.03 million shares for $47.7 million. The remaining funds were used to pay the Visa transaction, enter into a call option, and to pay down existing debt. These transactions should be a credit to earnings for some time come.

At this point, we will be more than happy to answer any questions that you may have.

[OPERATOR INSTRUCTIONS] Our first question comes from [Henry Cook], from FDW. You're line is open.

Yes, good morning Sandy. The sound quality is a little tough. A couple of things. You gave out the recency and contractual delinquency data. Could you just give that to me again?

Sure. Again, I'm sorry about the sound.

It's kind of like -- sounds like their batteries are running out.

Yes, the recency and delinquencies decreased -- hold on one second -- from 2.9 % at September 30, 2005 to 2.8 % at the end of the most recent quarter.

And then the contractual?

It remained flat at 4.1 %.

Okay. And then you made a comment about small and large loans?

Yes, I just said that as a result -- primarily as a result of what's going on in Texas and our growth in Mexico, that our large loan portfolio grew by about a little over 19 -- no, almost 20 %, 19.9 %, compared to the growth in our larger loan portfolio of 15.4.

Okay, the small loans were up 19.9?

Yes.

And the large loans were up 15.4?

So that's changed our mix a little bit, but not a whole lot.

Excellent. And this acquisition, was this one of the [Faxton] companies that you bought? Just trying to keep --

I don't think it has any history to the Faxton.

No, it was just -- it was another bankrupt --

Yes, it was, another bankrupt company.

Are there a lot of opportunities like that out there?

I do not know of anything else at this point in time. I wouldn't think so, but we certainly are always monitoring those situations.

Can you give us some guidance in terms of how accretive the convert deal is?

It's not - I mean, obviously it's less accretive because of the rise in stock prices during the process, but it should be anywhere from 8 to 12% on a --

$0.08 to $0.12 or 8 to 12%?

$0.12 on a full year basis.

Okay, and that would be -- Any insight into how the -- just how loan quality is performing on and October versus October basis, now that the bankruptcy bill is -- you sort of lapped the bankruptcy bill and obviously December was a big charge-off quarter because of that. What does it look like in a very narrow point of view now that that bill is kind of -- you're about to lap the bill?

Well, I tried to show you that for the quarter over quarter basis.

Very good.

The reduction on an annualized basis of -- actually for the six-month because I only have the six-month charge off figures, but for the six-month periods our net charge off as a %age of average loans on an annualized basis, decreased from 15 % to 12.8 %, of which 1.4 % of that decrease came from bankruptcy. So --

No, that's helpful.

-- 2.2 % total reduction on an annualized basis, 1.4 % of which came from bankruptcy.

Great. Well thank you very much. I'll let other people ask questions.

Sure.

Take care.

All right, thanks.

Thank you. Our next question comes from [Daniel Bendhime] form Integrity Assets. Your line is open.

Sandy, how much store opening expense did you guys incur in the quarter for the new offices? Do you break that out, or can you break that out?

I do not - I cannot tell you for the quarter. I do look at our de nov openings for -- obviously keep track of all our de novo openings and they have contributed about a $2.5 million loss year to date.

Okay. And --

That does not include Mexico, which I said earlier, has actually shown a profit.

Okay. And then just on personnel expense, which was up year over year, but sequentially from last quarter, it was relatively flat. How do you get flat personnel expense when you open a fair number of new offices?

Year over year basis, let me address that first, I know that's not your question, but if you remember, we did adopt 123-R this year, at the beginning of the year, and that contributed during the quarter about $727,000 to the overall year over year gain, and year to date, that's been about $1.4 million. As far as --

Because last quarter, I think, you guys had $23.6 million in personnel expense under G&A and you're slightly above that this quarter, but with the 30- something more branches and some of the stuff going on, I just thought the number might be a little bit higher.

It could have been. It's the timing of bonuses. I know the bonuses paid in the March -- I mean in April and May months are much higher than they are in the June and July months. And that's offset, of course, by the new de novos that we have been opening.

Plus, a lot of these de novo personnel expenses started in the first quarter. So I really can't tie that down a whole lot tighter than that.

Okay. And then just as you look out to this next quarter, are you guys planning anything new or different, in terms of advertising or drumming up business as we approach the Christmas season?

No. We believe our direct mail campaign is the most effective method of marketing and it has proven so in the past. I think that more or less, will be the way we'll continue to approach that.

Okay, great, thanks.

Okay.

Thank you. Our next question comes from Dan Fannon from Jeffries. Your line is open.

Good morning. Was there any one-time costs in the quarter that flowed through the interest income or the insurance and other line item?

Yes, there was, Dan, and I'm glad you brought that up, because I meant to bring that up in the process, but we had -- if you remember, we have a swap transaction on $30 million in debt and in the first quarter we had an actual gain. However, with the changing rates and so forth, we incurred a $640,000 pre-tax loss on that swap transaction during the current quarter.

Okay. Is that swapped -- now that you have the convert out there, is that still in place, going forward?

Yes it is. It was a five-year swap. It is in place. We had thought about -- at one point we had a fairly significant gain in it. We thought about closing it out, but before we could do so, it started dropping. So now we are getting a very definite monthly benefit from that swap.

Okay. And can you refresh us last year in the December period, what the impact was to bankruptcy, so we can try to normalize that when we look at the number? I mean, I think you guys reported losses of over 17%, about 17.4% for the December period of last year. Do you know what the contribution to the bankruptcy law change was?

I know it's started. And we began to have the benefit in that quarter and it has continued each quarter since, but I don't remember that number, I'm sorry.

You had a benefit in the December period of last year? I thought it was a negative last --

Okay, it started in the fourth quarter and I do not remember the impact.

Okay. And then could you talk about any potential legislation that's out there, as we get closer to legislative season for next year?

There's been no change, to my knowledge, in anything during the current quarter, other than on a federal basis -- you know, the military law that was passed that restricts the interest rate on loans to the military, but all of the state efforts, there's been no change. There's something pending in Kentucky and a couple of other states, but there's nothing to report at this point.

Okay. And then your exposure to the military, and that law passage, what was that?

Roughly 5,000 to 6,000 accounts and somewhere around $6 or $7 million in gross loans.

Okay. And then lastly, could you -- you guys obviously bought back a lot of stock with this convert - I mean, what is your appetite for repurchases over the next couple of quarters? Is it safe to say you guys are done repurchasing stock in the near term, or could you give us any color there?

We will continue to monitor -- we don't have an order in place, to answer your question. We have an authorization, as part of this transaction, to use up the 50 % of the proceeds, which would have been $55 million, rather than the $58 million that we had purchased in the transaction. It's something that we will be monitoring and do according to what we think is best.

Okay, thank you.

Okay.

Thank you. Our next question comes from Dennis Telzrow from Stephens Incorporated. Your line is open.

Good morning Sandy.

Hey Dennis.

Just a couple pg questions on Mexico. I believe you've probably gone into another city besides Juarez. Can you update us on the number of cities you're in at the moment.

Mark, why don't you update them on Mexico. He's --

We've opened a location in Matamoros and a location in Reynosa, and as of today, the second in Matamoros may be open. I'm not positive, but I think that's right. We've got one open in each of Matamoros and Reynosa at this point.

So would that mean we're over eight stores now?

We're at eight stores right now, with three leases consummated, and those branches scheduled to open within the next 30 days.

And we also - we will be going into Monterrey --

Within the next two months.

-- within the next two months.

And, I think you addressed part of this Sandy, when you talked about the swap costs, but insurance and other category growth was a little lower than I thought. Was that due in part to this swap impact? Is that where that shows up?

It does show up in that category, but that would be -- did you say it was an increase more than you thought, or less?

Less.

Okay. Well, that certainly would contribute to that.

Okay. And I know it's early, but any thoughts on store growth for Mexico in the next fiscal year, or is it too soon to talk about that?

It's a little soon to talk about that. The goal of 15 offices by March 31st is a firm goal and then we'll -- as we get closer to that, we'll have a better idea of what we can expect going forward.

And last question, I'm not sure I heard it right, but you talked about Titan, and I think there's, was it, 68 or 69 stores, but you're merging how many?

Twenty nine of the 69 will be merged into existing offices and 40 will remain free-standing offices.

Thank you very much.

Okay.

Thank you. Our next question comes from Jordan Jolson from JMP. Your line is open. All right Mr. Joelson, you're line is open. All right, our next question comes from Jordan Hymowitz from Philadelphia Financial. Your line is open.

I'm sorry, my questions have been answered. Actually, if I can ask one more thing. The delinquency number that was flat year over year, the contractual one, what was it sequentially?

Very close to that same number. They always remain in a very tight band, and I'm sorry I don't remember what that number from last quarter --

Okay, thank you very much.

Thank you. We have our next question coming from [Henry Coffey] from FBW. Your line is open.

Hi Sandy. I assume that's for me. You talked about -- two items, you talked about the hedged loss of 640, but I'm also assuming there was an offsetting gain in interests savings, correct?

That's correct.

Okay.

I don't -- not to the same extent.

And -- so you had a gain in the June quarter, but obviously if you had a gain on the hedge position, then you lost on the interest expense side, right?

Not necessarily. What we did is we locked $30 million at a fixed rate of [off mic] - 9.98. Anyway --

9.98, was that the -- what was the fixed rate cost on the $30 million?

All three of us are trying to remember exactly -- anyway, the variable rate has gone beyond the fixed rate now for at least two quarters.

It's below the fixed rate?

No, the variable rate is greater.

Is greater, okay.

So that's where we're getting the benefit.

Right, exactly.

The fixed rate is 4.8 %, plus 1.9 % over LIBOR. So we're looking at --

So you fixed LIBOR at 4.8, basically?

That's correct.

Right. And then on the convertible transaction, obviously you capitalize a lot of those costs, but are there any costs that are either going to show up in -- that showed up either in the September quarter or the December quarter?

There was no cost that showed up -- I mean the transaction did not close until October --

Right.

-- and no costs that have shown up there and almost all of the costs, you know, accounting fees and the underwriting fees and so forth, will be amortized over the five-year period.

Right. So all that's capitalized, basically.

That's correct.

Great, thank you very much.

Okay.

Thank you. We have a follow-up question from Dan Fannon from Jeffries. Your line is open.

Yes. Just wondering, will there be any one-time costs with the Titan acquisition and the store closings, or is that something that was negotiated in the purchase price?

There will not be. I mean, the on-going costs -- there are no real one-time costs that are going to be significant or material. I mean, there will be some conversion costs, and we'll have to -- we'll use their beta processing provider to help us for a month or so, but we're not talking about material dollars.

Okay. So when we look at the December quarter, there should be no one-time costs associated with either the convert or with the Titan acquisition?

That is correct.

Okay, thank you.

Thank you. [OPERATOR INSTRUCTIONS]

There doesn't appear to be any more questions. We appreciate your joining us today on the conference call. Thank you.

Thank you for your participation. Before concluding this afternoon's teleconference, the corporation has asked me to remind you that the comments made during the 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 expectation and beliefs concerning future events.

Such forward-looking statements are about matters that are inherently subject to the risk of uncertainty. Factors that could cause actual results or performance to differ from the expectations expressed or implied such forward looking statements, including the timing and amount of revenue and may recognize the corporation's changes in its current revenue/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 will conclude World Acceptance Corporation quarterly conference.