World Acceptance Corp (WRLD) 2007 Q4 法說會逐字稿

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

[OPERATOR INSTRUCTIONS]

Before we begin, the Corporation has requested that I make the following announcements. 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's my pleasure to turn this over to your host, Sandy McLean, CEO. Please go ahead.

Thank you. Welcome to the World Acceptance Corporation Fourth Quarter Conference Call. As she said, 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'm going to spend just a few minutes reviewing the quarter results, after which time, any of us will be happy to answer any questions that you may have.

I'm very pleased to be able to report another excellent quarter for World Acceptance Corporation. The excellent results that we have achieved in the first three quarters of the fiscal year continued into the fourth quarter primarily due to many of the same reasons -- continued strong loan demand, managing charge off ratios, and continued control over our operating expenses.

As a result, net income increased 16.3% to $21 million or $1.17 per diluted share compared to $18.1 million or $0.96 per share for the quarter ending March 31, 2006.

For the fiscal year, net income was $47.9 million or $2.66 per diluted share, a 24.4% increase over the $38.5 million or $2.02 per share for the prior fiscal year.

Fully diluted earnings per share rose by 21.9% when comparing the two fourth quarter -- two fourth quarterly periods, and by 28.7% for the two fiscal years. The higher growth in EPS than in net earnings is due to 1.2 million shares repurchased by the company during the most recent fiscal year.

Gross loans outstanding amounted to $506 million at March 31, 2007. This represents a 21.5% increase over the $416 million outstanding at March 31, 2006. Average net loans increased by 21.1% when comparing the two quarterly periods and by 20.2% over the two fiscal years.

As has been the case, for several periods, a great deal of this growth has come from internal demand. Three out of 11 states had loan growth exceeding 30%, two of the three benefited from the Titan purchase. And nine of 11 states exceeded a 15% growth rate.

Of greater importance, the 21.5% increase in gross loans for the current year is made up of a 14.7% increase in the number of accounts outstanding and a 5.9% increase in the average loan balance. At March 31, 2006, the 18.4% increase -- annual increase in gross loans consisted of only a 6.8% increase in number of accounts.

Acquisitions continue to be an important part of our overall growth strategy. While we closed only two small transactions during the fourth quarter, the purchase of Titan Finance in the third quarter was very important to our growth during the year. During the current fiscal year, we acquired 86 offices and $20.5 million in gross loans. 36 of the 86 offices were merged into existing offices. These offices have been fully integrated into our systems and are running very smoothly at this point.

Our office network has also been expanding on an accelerated basis. During the current fiscal year, we have opened 68 offices, purchased 50 net new offices and closed 6 non-performing offices, which gave us a total of 732 offices at March the 31st, 2007. This is a net increase of 112 offices or 18.1% during fiscal 2007.

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 $87.2 million, an 18.7% increase over the $73.4 million during the fourth quarter of fiscal 2006. For the current fiscal year, total revenues were $292 million, a 20.2% increase over the $243 million for the previous fiscal year.

Revenues from the 566 offices opened throughout both fiscal years rose by 12.5%. The smaller growth rate in total revenues than in average loan growth for the fourth quarter was primarily due to a somewhat disappointing tax season.

During the fourth quarter, we've prepared approximately 60,000 returns for net fees of $7.7 million. This compared to approximately 57,000 returns or $7.1 million in fees during the prior year quarter.

During the quarter, we had a slight increase in loan delinquencies as well as in our charge off ratios. Delinquencies in the 61 plus accounts increased from 2.1% to 2.2% on a recency basis and from 3.4 to 3.5% on a contractual basis when comparing the two year-end dates.

Net charge-offs as a percentage of average net loans increased from 11.6% to 11.8% on an annualized basis when comparing the two fiscal quarters. However, we had a substantial decrease in net charge-offs from 14.8% to 13.3% when comparing the two yearly periods.

This decrease was primarily due to the decrease in bankruptcies by 42.7% over the two fiscal years. It has now been over a year since the revised bankruptcy regulations have been in place, so we did not expect to see the continued declines of the charge off ratios going forward as we have during the most recent fiscal year.

Another area of great importance to our continued financial success is our control over our operating expenses. Our general and administrative expenses increased by 17.6% when comparing the two quarterly periods and by 19.5% when comparing the two yearly periods. This is primarily due to the 112 net new offices open between March of '06 and March of 2007.

The total G&A expenses as a percent of revenues decreased from 48.6% to 48.2% over the two quarterly periods and from 52.8% to 52.6% over the annual period. The G&A expense for average open office increased by only 5.2% over the two annual periods.

Other key ratios also improved over the two fiscal years. Our return on average assets increased by -- increased 11.9% to 12.5% over the two fiscal years. And our return on average equity increased from 19.9 to 22.2%.

We continue to be very pleased with our progress in Mexico. At the end of the current year, we had 15 open offices with 12,141 accounts and approximately $5.5 million in gross loans outstanding.

We have had approximately $136,000 in net charge-offs during the current fiscal year, which amounts to a 4.8% charge-off ratio to average net loans. Furthermore, our 61 plus delinquencies are 0.6% and 1.4% on a recency and contractual basis respectively.

During the fiscal year, we made approximately $153,000 from our Mexican operations, which we consider outstanding in a new growth area.

Finally, we have continued to be active in our share repurchase program. During the most recent quarter, we repurchased 112,495 shares for a total cost of $4.5 million. This increased the total shares repurchased during the fiscal year to 1.2 million shares or $54.1 million total expenditure. This compares to 800,400 shares and $20.8 million during fiscal 2006.

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

Thank you.

[OPERATOR INSTRUCTIONS]

We'll go first to Dennis Telzrow with Stephens, Inc.

Good morning, gentlemen. Great quarter.

Thank you, Dennis.

I wonder if you could comment on your growth prospects in Mexico this year, having opened 15 stores, I guess, within the last year, year and a half.

Our current plans have opened 20 stores during the current fiscal year.

Will those be in existing cities that you're in? Or, will you be going to any new cities?

Primarily, in the -- four cities that we currently have offices.

And last question. Is there anything new, on the regulatory front, from the standpoint of any states that are looking closely at adopting laws, that would allow you to offer the type of product you have in those states?

This has been a very active year from a legislative standpoint. There's been a lot of bills introduced in a lot of the same states we operate that have attempted to regulate the payday industry. And in certain instances, it is often that these bills carried over and incorporated some of our products.

In South Carolina -- well that's -- in South Carolina, there's a payday lending bill that does not affect us.

In Georgia, there was a bill introduced to -- which would permit payday lending, which was made illegal several years ago. And in the process, the bill that was introduced -- that would impact us also. As it turned out, both of these bills never got out of the various committees. So we were not affected this year in Georgia.

In Texas, there's a bill that was introduced to have a rate -- a 36% cap across the board. This never did get out of -- at this point in time, that bill is dead also.

New Mexico had a payday lending bill that was enacted. It was, by definitions, we were excluded specifically from that bill.

Oklahoma had a similar type bill that has died.

The two only remaining things are Illinois and Missouri. And Illinois initially had a payday loan reform act that had certain things that did not affect us. But then has since [incorp] expanded, this may affect us going forward.

This is something we're monitoring very closely that we are trying to -- hopefully we can, through our efforts can -- do -- have similar language inserted that would exclude us from the process. But that's one that's pending that we are just monitoring on a very close basis.

Missouri has a bill that is pending also but would affect only loans under $500. At this point in time, we do not think it will make it out of committee. But, if in fact it does, then we should be okay by making -- we can adjust our lending accordingly.

And finally, on the national front -- the military bill that capped all loans at 36% -- the language that has been circulated for adoption specifically excludes installment loans like ours. And if that is the ultimate regulations that are put into effect, we should be okay, as far as that's concerned also.

So yes, it's been a very active year. Primarily, as a result of attempts to regulate the payday lending industry. But as I mentioned, a lot of this -- there's been a lot of overflow that's -- that we've had to monitor on a very close basis.

All right. Thank you very much.

And other than that, it's nothing we know of.

All right. Thank you.

We'll go next to Dan Fannon with Jefferies.

Hey guys. Thanks for taking my questions. First off, were there any one-time items in the other income line that we should be looking at as non-recurring, going forward?

Nothing of any significance.

Okay. But in -- your commentary made it seem as if the tax business this year was disappointing from what your internal guidance, only slightly up year over year or your internal projections?

Well, there's a difference between internal guidance and internal projection is we don't make guidance, as you know. Certainly, the tax business has been disappointing every year. From the standpoint that we have over 600,000 customers and we only bid 60,000 returns, a lot of which are not private customers. But this is a very competitive product, so we're certainly pleased with a 5, or 6, or 7% increase in the number of returns and fees generated, but certainly we believe we can do better.

It did have an impact when you look at percentages, when you compare the two quarterly periods, as far as our 20% growth in loans versus our 20% growth in revenues.

And then, you mentioned the payday industry before with regards to the legislative front. Has there been any change on the competitive side that you've seen? As they've looked at more products that would fit the mold of your installment loan or core product, have you seen anything in certain states where these guys -- where that industry is more -- is starting to migrate and target your customer base with products similar to yours?

We are not -- we have not seen that. We're not familiar. We've certainly heard that that's -- in certain areas, that's taking place. But, I do not know of any specific instances by any specific payday lender that is doing that currently.

Great. Thank you very much.

Okay, Dan.

[OPERATOR INSTRUCTIONS]

And we'll go next to Henry Coffey with Ferris Baker Watts.

Morning, guys. Really strong quarter. I was wondering, Sandy, if you could clarify a couple of things for me. I was listening to your discussion of acquisitions and I was just having trouble getting the numbers matching. You were talking about the Titan deal being very useful, and then you gave off some numbers. I weren't certain if they just applied to Titan or they applied to everything?

That was everything -- those numbers that we referred to was for the entire year.

So you purchased 86 branches?

86 branches or loan portfolios. We count the number of offices, the loan portfolios -- of those 86, 36 were merged into existing offices. So we had net -

And you picked up $25 million of gross loans?

$20.5 million.

20.5. Thank you. And then, on the tax front, I mean you're still seeing positive growth, but you did mention that a lot of these people aren't your customers. But what percentage of the returns that you file are sort of new walk-ins? Of the 60,000 -

We don't know this year because we hadn't run an analysis, and historically, about 50% of our customers -- I mean, of the tax returns that we prepare, are customers versus non-customers. And we have found that these tax customers are not necessarily a loyal customer. We may not have the same group this year as next. They're interested in getting them done as quickly as possible.

What -- do those non-customers ultimately start becoming borrowers or is it just a --

We have no track record -- we could not specifically bring a correlation to that at this point.

You mentioned, on a full year basis, that bankruptcies were down 42.7%.

Yes.

That's in dollars or in volume? You know, head count or --

Dollars.

And, when you look at just the March quarter, how did bankruptcies sort of factor on a year over year basis?

Bear with me one second.

Just for the quarter.

Yes. Okay, bankruptcies were down on a gross number basis by 8.7%. So $133,000. It's $1.5 million versus $1.4 million. So it's down about 8% compared to 40% for the year.

Right.

As I said, it's leveling off.

Just the last question. I understand there was a large franchise out there for sale that apparently is going into the hands of the private equity market. Can you contact -- comment on the southern situation or -- are the M&A -- what the M&A outlook is for you all, in general, in fiscal '08?

Well, as you know, our acquisition -- acquisitions are not long-term and we generally identify a potential acquisition target within a week of purchasing or passing on them. Now something like Southern, it takes much longer. But, at this point in time, we are not actively part of that due diligence process. So I would -- on an ongoing basis, I certainly think the outlook is positive. We just don't know specifically where those offices will be purchased from. And, like I say, as far as southern is concerned, I'm not sure what's going to happen there.

And then, on the regulatory issues you mentioned in Illinois and Missouri, can you give us a sense of how imminent any developments there are, or is it just going to drag on forever?

Things will drag on some -- for a while. I don't know about forever because the legislative session is not -- there is a finite time frame. But there's nothing certainly pending that's going to take place tomorrow, to our knowledge.

Thank you sir. Great quarter, by the way.

Thank you.

We'll go next to Daniel O'Sullivan with Utendahl.

Yes, good morning. Thanks for taking my questions. Sandy, I was just wondering if you could comment a little bit on the -- what you say in the trends with charge offs and [liquities]. Has that continued into April, or has that got a bit better?

I couldn't comment on what's going on in April, at this point in time.

Okay.

One -- I mean, even if I did, one month wouldn't necessarily indicate a trend for any long period of time. So I really prefer not to do that.

Okay. Fair enough. And also, maybe a little bit of information on new products and services you guys are looking at this year -- we're going forward to leverage your footprint.

We have no plans for any new specific products, at this point in time.

Okay. Nice quarter. Thanks, guys.

Okay. Thanks.

And it appears we have no further questions at this time.

Thank you very much for your interest today and participating in the call.

Once again, thank you for your participation. Before concluding this afternoon's teleconference, the Corporation has asked again 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'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.

This does conclude the World Acceptance Corporation quarterly teleconference. You may disconnect at this time.