World Acceptance Corp (WRLD) 2011 Q1 法說會逐字稿

Good morning, and welcome to the World Acceptance Corporation Sponsored First Quarter Press Release Conference Call.

Today's Conference is being recorded.

(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 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 to 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 filings with the Securities and Exchange Commission.

At this time, it is my pleasure to turn the floor over to your host, Sandy McLean, Chairman and CEO.

Please go ahead.

Thank you, Anthony.

Welcome to World Acceptance Corporation's First Quarter Conference Call.

As Anthony said, I'm Sandy McLean, the Company's Chairman and CEO.

With me is Kelly Malson, our CFO; along with other members of our management team.

Mark Roland, our President and Chief Operating Officer, is out of town but joining us by phone.

As is customary, I will spend a few minutes reviewing the quarter results, after which we'll be happy to answer any questions.

Once again, I am very pleased by the quarterly financial performance.

Our results during the first quarter of fiscal 2011 continued the positive trends that we have experienced during the latter quarters of fiscal 2010.

We're glad to be able to report the ongoing expansion of our office network, excellent growth in our receivable portfolio, improved control over our operating expenses, as well as continued improvement in our loan loss ratios.

Net income for our first fiscal quarter was $18.7 million, or $1.14 per diluted share; compared to $14.6 million, or $0.90 per diluted share for the first quarter of fiscal 2010.

This represents a 27.9% increase in net income and a 26.7% increase in net income per diluted share when comparing the two quarterly periods.

Additionally, the earnings for the first quarter of fiscal 2010 benefitted from a $2.0 million (sic -- see Press Release) pretax gain from the early repayment of 10 million face amount of our convertible bonds.

This resulted in an increase of $1.5 million in net earnings and $0.09 per diluted share during the prior-year quarter that was not present during the current quarter.

Gross loans amounted to $824.9 million at June the 30th, 2010, a 13.6% increase over the $726.1 million outstanding at June the 30th, 2009 and a 7.1% increase since the beginning of the fiscal year.

This growth was fairly even distributed throughout the Company, with eight of our 11 states experiencing at least a 10% growth in gross loans.

While acquisitions continued to be an important part of our overall growth strategy, the Company did not make any significant purchases during the first fiscal quarter.

Four small offices consisting of approximately 1,000 accounts and 857,000 gross loans were purchased, two of which were merged into existing offices.

This was very similar to the acquisition activity during the first quarter of the prior year.

As planned, the expansion of our branch network during the first fiscal quarter was increased from the prior-year level.

We began fiscal 2011 with 990 offices, opened 18 and purchased two; giving us a total of 1,010 offices at June the 30th, 2010.

Our plans for fiscal 2011 are to open 55 offices in the US and 15 in Mexico, plus evaluate acquisitions as opportunities arise.

Total revenue for the quarter amounted to $110.4 million, which is a 10.1% increase over the $100.2 million during the first quarter of the prior fiscal year.

Excluding the $2.4 million gain from the convertible note repurchases during the prior-year first quarter, the increase in total revenues would have been 12.8% on a quarter-over-quarter basis.

This is more in line with the 14% increase in average net loans when comparing the two quarterly periods.

Revenue from the 935 offices opened throughout both quarterly periods increased by 8.8%.

Delinquencies and charge-offs once again showed signs of improvement during the first quarter, a continuation of the trend that we experienced during the latter quarters of fiscal 2010.

Accounts that were 61 days or more past due decreased slightly, from 2.8% to 2.5% on a recency basis and from 4% to 3.6% on a contractual basis when comparing the two quarter-end statistics.

Net charge-offs as a percentage of average net loans decreased from 13.8% annualized during the prior-year first quarter to 12.5% annualized during the most recent quarter.

This 12.5% is more in line with historical charge-off ratios for the first fiscal quarter.

From an historical basis, charge-off ratios were 12% in Q1 of '02, 13.5% of Q1 of '03, 13.4% Q1 of '04, 12.5% in '05, 13.9% in '06, 11.6% in '07, and 12.7% in '08.

You can see that these are right in line with those historical numbers.

General and administrative expenses amounted to $57.3 million in the first fiscal quarter, a 7.4% increase over the $53.3 million in the same quarter of the prior fiscal year.

As a percentage of revenues, our G&A decreased from 53.2% during the first quarter of fiscal 2010 to 51.9% during the current quarter.

Our G&A per average open office increased by 1.7% when comparing the two fiscal quarters.

We remain very excited with our expansion into Mexico.

At June the 30th, 2010, we have 80 offices.

No offices were opened during the current quarter, but we plan to open 15 new offices during the current fiscal year.

We now have approximately 85,000 accounts and approximately $36.7 million in gross loans outstanding.

This represents a 28.7% increase in accounts and a 40.6% increase in ledgers from June the 30th, 2009 to June the 30th, 2010.

We had net charge-offs of approximately $900,000 during the quarter, or 16.2% of average net loans on an annualized basis, and our 61 delinquencies were 3.6% and 4.8% on a recency and contractual basis respectively.

We lost approximately $54,000 during the first quarter, which we believe is very reasonable given the large number of new offices that have been opened over a relatively short period of time.

Most of our mature offices are doing very well, and we expect this subsidiary to provide a positive contribution to our profits during the current year.

The Company's trailing 12-month return on average assets of 13% and return on average equity of 22.3% continue their excellent historical trend during the first quarter of fiscal 2010.

As you know, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act last week.

While we do not anticipate any material adverse rulings from the newly to-be-created Bureau of Consumer Protection, there remains a great deal that is unknown at this time as to the ultimate impact on industry of this massive reform deal.

We will continue to work closely with the Treasury organizations -- AFSA, American Financial Services Association; and the National Installment Lenders Association -- to promote our industry and to meet with the regulators that this bureau is creating.

We will attempt to identify and quantify the consequences of any proposed restrictive regulations -- primarily the elimination of available credit to a large segment of the population that does not have ready access to bank and card forms of credit.

At this time, any of us will be more than happy to try to answer any questions that you may have.

Anthony?

(Operator instructions) John Rowan, Sidoti & Company.

Morning.

Morning.

Are you guys done with the repurchase authorization?

John, this is Kelly.

And as of today, we have approximately $2 million remaining on the current authorization.

But as you know, the Board historically has increased that authorization as needed.

Okay.

Have you guys looked to Colorado at all with the change in the Payday Loan law, and how that could work as an installment product?

No, we have -- no, we've not --

Okay.

-- this point in time.

Okay.

And then, just one last thing -- have you guys noticed any change in the income levels or kind of the consumer demographics of the people who are coming in for new loans -- customers you haven't seen before?

That would be very hard to answer, but I doubt very seriously that there's been a dramatic change at this point.

Mark, can you add anything to that?

I don't really believe that would be the case.

We are not seeing anything that would indicate that there's a shift in consumers that historically had not been our customer.

Okay.

Thank you very much.

David Burtzlaff, Stephens, Inc.

Morning, guys.

And congratulations on a great quarter.

Thank you, Dave.

Just a couple of questions here, Sandy.

In regards to Mexico -- it seems like you -- when you start to make a profit there -- I know you kind of expected it this year, and the results seem a little better than the first quarter last year but are still trending -- or still negative?

Well, I mean -- we anticipate and plan for this subsidiary to be profitable in fiscal 2011.

I mean, we've accomplished a great deal down there.

And to open 80 offices in the five years that we've been open is -- I believe, is a tremendous accomplishment.

And given that the economy down there suffered as much as or more than the US's economy, then I think that we've been very successful this past year and up through this first quarter, although, as you say, we have not actually started making money.

But things are improving.

We've got a -- we've made a lot of progress on the middle-management and supervisory and VPO level.

And we're really excited to believe that we'll see some really positive financial results this year.

Okay.

And then, regarding the charges and losses -- now that they've kind of come back into historical ranges -- and over the last, what, four quarters, you've really benefitted from improving loss rates and charge-offs -- how do you see that kind of continuing?

And do you think you can still get the same benefit, or -- as you start to cycle through the improvements of last year?

I mean, I think that we certainly can't continue to see 1.3% reductions in annualized charge-off rates.

I mean, that's obvious.

And at some point, this cycle continues.

You can look over a long history, and it goes up and down depending upon a lot of different factors.

But I believe that once those ratios level off, then it'll be more driven by our revenue growth and our expense control, which is what the case has been for quite -- the history of the company.

Okay.

And then lastly, in South Carolina, has there been any movement on the bill to close the loophole -- the Payday lending loophole --

Dave --

-- of shifting towards supervised lenders?

They passed something.

The governor, I believe, rejected it.

I haven't seen any movement --

I don't think there's been a whole lot of movement [recently].

I'm sorry that I can't tell you exactly.

I know that there's been a lot of discussions and a lot of things that have been brought before the legislature.

And something was passed that the governor did in fact veto.

And I'm not sure the latest status of that.

Okay.

All right, thank you very much.

Okay.

Henry Coffey, Sterne Agee.

Yes, good morning, everyone.

I was wondering if you could just help me out on Mexico -- what were the growth figures on gross loans again?

Year-over-year?

Bear with me one second.

The 40% in ledger from June of last year to this year, and 28.7% in accounts.

28 point what percent?

Seven.

And have you -- you've been, I know, adjusting the product.

How has that change been working for you all?

Very well.

Like I said, we're very pleased with all the movement down there.

And I know we got the provision figure.

I was wondering, Kelly, if you could give me -- what was the exact net charge-off figure during the quarter?

The dollar amount of the net charge-off?

Yes, in dollars, yes.

Net charge-off, dollar-wise, was $18.4 million.

And the delinquency figure with contractual went from 4% to 3.6%?

Correct.

And recency went from 2.8% to 2.5%?

Correct.

Thank you.

And on your buyback, are we sort of in the season where you'll keep buying back loans, or -- I'm sorry, buying back stock, or are we heading into the growth cycle now, and you're more likely to be using cash for new business?

We certainly will continue to look at the stock repurchase program as a viable part of our overall strategy on an ongoing basis.

And I think that we'll have -- in the process of working with the banks and increasing our availability of funding, which should be finalized within the next couple weeks, so -- or maybe even a month, I don't know, not too long -- but so I think we'll be doing all of those things, Henry.

So the -- you're still able to buy back stock over the next few months?

Absolutely.

Thank you.

(Operator instructions) Dan Bandi, Integrity Asset Management.

Thanks.

Hey, Sandy, I was just wondering -- on the insurance increase, is there anything different there?

Or is it just a matter of the mix within the -- the growth within the States, of why it was up more than your revenue?

It's primarily a mix.

There have not been any new products added to any of the states.

So it's just strictly of, like you said, a mix shift.

Okay.

And then, I'm curious -- you guys have around -- right around probably, what, 40 branches in Louisiana, 40 in Alabama?

Are you guys seeing any impact at all credit-wise from the aftereffects of the oil spill down there?

Dan, this is Mark.

We really don't have a lot of branches in Louisiana that are all the way down to the Gulf.

We are in Houma and a couple other places down there.

But a very insignificant amount of the branches in Louisiana; we're concentrated farther north.

Alabama -- we've got a couple offices near Mobile.

But really again, in Alabama, we're concentrated farther north.

Okay.

Mark, do you know, in those offices where you are closer, have you guys seen any impact there?

I've talked to our Vice President of Operations in Louisiana last week.

And his indication was that really they're not seeing anything jump out.

In fact, there's -- there is money flowing to some of those folks, either through BP or FEMA or whatever.

So he's not seeing an immediate impact.

That doesn't mean there wouldn't be one later.

Okay.

And for the quarter, for the offices that you guys opened -- were they pretty much spread throughout the quarter, or more towards the end?

Dan, those leases are signed as they come in, and negotiated.

I believe we began opening offices as early as mid-April and continued straight through.

There wasn't any rush towards the end of the quarter.

They were pretty well spaced throughout the period.

So --

(Inaudible) open, three in April, eight in May, and the remainder in June.

So it has been pretty much spread throughout.

So then, when you look at your G&A expense, then, I guess that's pretty fairly reflected.

We wouldn't necessarily -- as you start to ramp these expansions, then you wouldn't necessarily expect to see that G&A go up as a percentage of revenues, then?

At some point, I believe you will.

I think what we're getting this year is the benefit of the fewer offices we opened last year.

Got you.

Okay.

And then, Kelly, with -- could you just talk about -- what was the actual net number of shares that were -- the net reduction in shares for the period?

Net reduction?

Yes.

At quarter end, as opposed to the average number.

Yes.

When you're looking at absolute shares, it's roughly -- we bought back roughly 900,000 shares during the quarter.

Okay.

And -- yes.

We bought back roughly 900.

Okay.

Great.

Hey, thanks a lot.

Again, another great quarter.

The market doesn't seem to think so, but it looked like a really great quarter.

Thanks, guys.

(Operator instructions) Bill Dezellem, Tieton Capital Management.

Thank you.

A group of questions here.

First of all, given that charge-offs have come back into your normal range now, what is the historical pattern?

Do you often then continue on down and basically undershoot the norm, and that's just how -- that's how you get an average?

Or does it oftentimes come into the normal range, and then just stay there until we end up with another credit cycle?

Well, I mean, if you look at it -- if you look at our annualized charge-off ratios over the last seven or eight years, they've been real close to 14.5%, except for one year when they had the bankruptcy reform, and then of course the last two years, with what's been going on.

So I would like to think that they would be rather stable.

But certainly they will vary on a quarter-by-quarter basis, just depending upon a lot of different factors.

And then, shifting to Mexico, and the charge-offs down there -- I guess I've got a couple parts to the question.

The first one is just, in general, what's your view of the charge-off levels, given that they're now higher than -- and the delinquency levels are higher than what they are here in the US?

And when you initially entered Mexico, it was just the opposite.

So I guess the first question there is -- what's your view?

And then, the second question related to Mexico and the charge-offs is -- what are you seeing from a trend perspective down there, please?

Well, I mean, number one -- first of all, as you enter in a new state or new country -- or new office, for that matter -- as you're adding loans, then your charge-off ratios, generally, will be less because you're building your book of business.

That was certainly the case, to a certain extent, in Mexico.

The second thing is that I believe we will have very good experience down there.

But we have a higher yield there, so we can certainly afford higher loss ratios and have the same type of margins to here.

And so, I don't know that we have completely stabilized in all the areas.

We don't know exactly what to expect.

But generally speaking, in our established offices where we have got a -- kind of grown to maturity, clearly, we're seeing a fairly similar loss ratio that we've seen in the US.

And Mark, you [maybe] can add to that.

Only to the extent that we've got many areas in Mexico where the -- that are more established, that have been around since the first and second year of operation, where our charge-off levels are running again at or below US levels.

Some areas are higher.

Monterrey region and some other places continued to be higher than the Mexico norm.

So it's -- I think it's important to think about Mexico geographically in pieces, rather than on the whole.

And I guess, as Sandy mentioned, the other thing that's important to note is that the Mexico economy was hit much harder than the US economy.

And those individuals down there don't have the kind of safety net that many workers in the US do.

There is no unemployment insurance or other federally provided benefits for those individuals.

And when they're told that the factory is closed for three weeks, they're simply out of income.

So I think, when the economy improves, that those ratios will improve.

And a couple follow-ons to that -- number one, you mentioned the various regions.

Does that continue to be largely a function of different management in those different regions, and so --

I think it's more a function, Bill, of the availability of credit.

In Monterrey, there are certainly more players in the industry.

For whatever reason, that seemed to be the point of origin for a lot of the consumer credit expansion in Mexico.

So I think there's that.

I think there's the fact that those employees in that area are, on the whole, two or three years less seasoned than some of our employees along the border and towards the Juarez region.

So I think there's a number of factors in play there.

And then, the next question is -- when you folks first entered, if I recall, there were some other players that were already there; maybe even parts of some of the larger international banks.

Yes.

And given the credit cycle or crisis that we just went through, have you seen folks -- competitors pulling out of Mexico and closing those locations?

Or --

Well, certainly, AIG jettisoned their entity of 80 or 100 branches.

It was bought by an individual there in Monterrey.

Wells is closing, or has closed, their offices there.

And Citi has contracted to some extent.

But those are the -- those were the three big players when we entered, and -- for the most part.

Again, AIG is still there, branded differently.

And Citi is contracted to some extent.

And my final question -- and I'll get off the line here -- in the past -- and I'm speaking, a few years ago -- there had been a discussion that the Mexican population simply had a greater appreciation for credit, and therefore it was almost a point of honor to pay that credit back.

And given what you said about the lack of safety net, and how quickly you charge off loans, have you been finding that your recovery rates are greater in Mexico than what you are accustomed to?

And I'm thinking about the scenario where the plant closes for three weeks.

You charge off somebody's loan.

But after they are working again for another six or eight weeks, they come and they get that loan paid off.

No.

In fact, recoveries build over time.

And our recovery level as a percentage of charge-offs over a trailing period are probably significantly less in Monterrey than they are in the US.

In the US, one of the reasons why recoveries tend to be better and are more predictable is that credit reporting agencies will continue to report our bad credit for a period of time.

And there is some incentive for individuals in the US that are trying to recover from a prior bad period to repay those debts.

Again, it's too early to tell right now.

But no, the recovery levels in Mexico are not as high as the US.

All right, thank you.

(Operator instructions)

Anthony, I did want to make a clarification that David Burtzlaff asked.

And I did say that the governor overrode -- I mean, vetoed the Payday legislation in South Carolina.

And I was just told that that veto was overridden by the legislature, and that has -- that the law is now -- it [is] become a law.

We did have a question from Charles Walters, World Acceptance.

I don't have any questions now.

But great job, everybody.

Thanks, Charlie.

And with that, it would appear that we have no further questions in the queue.

We'd like to thank everyone for their participation.

Before concluding this morning'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 and may be recognized by the Corporation as 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 Quarterly Teleconference.

Thank you.