World Acceptance Corp (WRLD) 2011 Q2 法說會逐字稿

Good morning and welcome to the World Acceptance Corporation sponsored second-quarter press release conference call. This call is being recorded. (Operator Instructions).

A question and answer session will follow the presentations by the Corporation's CEO and its other officers. Before we begin, the Corporation has requested that I make the following announcement.

The comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act that represent the Corporation's expectations and beliefs concerning future events.

Such forward-looking statements are about matters that inherently are 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 is my pleasure to turn the floor over to your host, Sandy McLean, Chairman and CEO.

Thank you, Holly, and welcome to the World Acceptance Corporation's second-quarter conference call. As Holly said, I am Sandy McLean. With me are Mark Roland, our President and Chief Operating Officer, and Kelly Malson, our Chief Financial Officer, along with other members of our management team.

As is customary, I will spend a few minutes reviewing the quarterly results and then we will be happy to answer any questions.

I am once again very pleased with our quarterly financial performance. And I'm happy that the operational improvements that we experienced during our first fiscal quarter have generally continued into the second quarter. Demand for our loan products remained strong during the quarter, and as expected, we have continued to experience improvement in our loan loss ratios.

Net income for the second fiscal quarter was $20.2 million or $1.26 per diluted share compared to $14.6 million or $0.89 per diluted share for the prior-year quarter.

This represents a 38.5% increase in net income and a 41.6% increase in net income per diluted share when comparing the two quarterly periods.

For the first six months of the fiscal 2011, net income was $38.9 million or $2.40 per share, representing a 33.2% and a 34.1% increase in net income and EPS, respectively, over the first six months of fiscal 2010.

Gross loans amounted to $868 million at September 30, a 15% increase over the $755 million outstanding at September 30, 2009, and a 12.7% increase since the beginning of the fiscal year.

This growth was fairly evenly distributed throughout the Company, with nine of our eleven states experiencing at least a 12% growth rate.

Additionally, the 15% year-over-year growth resulted from 8.5% increase in the number of accounts outstanding and a 6.5% increase in average balances.

While acquisitions will always remain an important factor in our overall growth strategy of the Company, there has been very little purchase activity during the first two quarters of the fiscal year. Nine small offices, consisting of 3,872 accounts and $3 million in gross loans were purchased. Of the nine, four became new office locations and five were merged into existing offices.

For comparison purposes during the first two quarters of fiscal 2010 the Company acquired 1,132 accounts and $841 million in gross loans balances in two separate offices, both of which were consolidated into existing locations.

We remain on track with the expansion of our branch network during the first six months of the current fiscal year, which is, as previously disclosed, a little more aggressive than fiscal 2010. We began fiscal 2011 with 990 offices, opened 41, purchased 4 and closed 1, giving us a total of 1,034 offices at September 30, 2010. Our plan for fiscal 2011 is to open 55 offices in the US and 15 in Mexico, plus evaluate acquisitions as opportunities arise.

Total revenue for the quarter amounted to $118 million, a 13.3% increase over the $104 million during the second quarter of the prior fiscal year. This resulted from a 14.2% increase in average net loans when comparing the two quarterly periods.

This Company did see a slight decrease in yields due to a greater increase in the larger loans outstanding when compared to the small installment loans; however, this change in overall mix was not dramatic.

Revenues from the 937 offices opened throughout both quarterly periods increased by 11%.

The Company continued to see improvement in its delinquencies and charge-offs during the second quarter in spite of the ongoing difficult economic environment. Accounts that were 61 plus days past due decreased from 3.3% to 2.9% on a recency basis, and from 4.6% to 4.2% on a contractual basis when comparing the two quarter end statistics.

Net charge-offs as a percentage of average net loans decreased from 16.2% annualized during the prior-year second quarter to 14.8% annualized during the most recent quarter. This is the sixth straight quarter that the charge-off ratios declined from the corresponding quarter of the previous year. And current loss percentages are back in-line with historical levels. Over the last 10 years charge-off ratios during the second fiscal quarter have ranged from a high of 17% in fiscal 2008 to a low of 14% in fiscal 2006.

The Company remains focused on controlling operating expenses on an ongoing basis. General and administrative expenses amounted to $56 million during the current fiscal quarter, an 8.4% increase over $52 million in the prior-year quarter, primarily as a result of the 68 net new offices opened over the past 12 months.

As a percentage of revenues, our G&A decreased from 49.7% during the second quarter of fiscal 2010 to 47.5% during the current quarter. Our G&A per average open office increased by 1.6% when comparing the two fiscal quarters.

Also, during the quarter the Company was successful in restructuring its balance sheet, providing more flexibility in its financing sources.

In addition to extending the maturity of its primary bank facility for another year, the Company received an additional $75 million subordinated commitment from one of its primary banks. This additional availability has allowed, and will continue to allow, the Company to to aggressively pursue its stock repurchase program, as well as meet its obligation to retire its remaining outstanding convertible notes a year from now.

During the first half of fiscal 2011 we have repurchased almost 1 million shares for approximately $34 million, which should be very accretive to per-share earnings in the future.

At September 30, there remains approximately $20 million in Board authorization to repurchase additional shares of stock.

We are also very pleased with the progress being made in our Mexican operations. We now have 83 offices opened as of September 30, 2010. Three offices have been opened during the current fiscal year, with an additional 12 expected before the end of the year.

We now have approximately 92,000 accounts and approximately $42.6 million in gross loans outstanding. This represents a 28.2% increase in accounts and a 57.2% increase in ledger over the trailing 12 months.

We had net charge-offs of approximately $1.9 million during the first two quarters of the fiscal year, or 16.1% of average net loans on an annualized basis. And our 61-day delinquencies are 4.2% and 5.4% on a recency and contractual basis, respectively.

The subsidiary became profitable during the quarter, which should only improve as we continue to grow our outstanding receivables.

The Company's trailing four-quarters return on average assets of 13.4% and return on equity of 22.9% continued their excellent historical trend as we past the midpoint of fiscal 2011.

Finally, I would like to provide a brief update on the regulatory and legislative landscape, the Company's greatest risk factor. Currently there is very little activity at the state level, with no material legislation pending in any of the states where we operate. However, this is an ongoing challenge that we have successfully managed throughout our Company's history.

At the federal level we are actively monitoring the development of the Consumer Financial Protection Bureau. Through our national trade association, the American Financial Services Association and the National Installment Lenders Association, we are meeting with key regulators to participate in the process as new regulations are created and implemented.

We continue to believe that the value of the vital service we provide, that is providing credit opportunities to so many individuals that have limited access to the credit markets, will continue to be recognized as this new bureau is developed.

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

(Operator Instructions). David Burtzlaff, Stephens Financial.

Congratulations, guys, on a great quarter. A couple of questions, Sandy. In the past you have given the profitability of Mexico, how much it has lost. How much did it make this quarter?

Excuse me one second. It made $685,000. However, on a pretax basis it made $279,000. We did have a $400,000 tax benefit in Mexico as a result of some changes in the way we are recognizing our tax expense. Historically it has been more in a cash basis, and this is to give it more in-line with GAAP procedures.

Okay, so nice ramp there.

Yes, it is.

During that quarter.

Yes.

So right now the way I look at it, your business seems to be performing very well. Loan growth has been really good. Credit metrics are improving. Expenses are well-controlled. What concerns you right now about the business?

Well, I mean -- you know, we are very, very pleased with all of the operational metrics. And I think, as always, the biggest concern represents a legislative and regulatory nature. That is not to believe that we think that this is necessarily a threat to the existence of the Company, but there is so much unknown as this bureau is developed, and I am sure it is going to have some impact on the way we do business. But I believe because of the service we provide that we will be able to continue to provide that service, but we are just not sure how things may change as we go forward.

So from an operation standpoint, we are sticking to what we know best, and we believe we can continue to do this, and there is lots of opportunities for expansion going forward. But the uncertainty from what is currently going on in the federal level is certainly something that we are monitoring very closely.

Okay, thank you very much.

(Operator Instructions). John Rowan, Sidoti & Company.

Quickly, on the allowance ratio it seemed to tick up this quarter versus last. Anything specifically driving that, and is it something that you would see continuing to move up in future periods?

If it moved up, it didn't move up a noticeable amount. We have not really changed the metrics on how we look at the allowance and/or the provisions, so, no, I would not anticipate any substantial change there. The biggest change you should have seen it in the provision, as we have seen a reduction in charge-off ratios.

I obviously see that, but it looks like you probably provisioned a little bit more versus the charge-offs than if you were to have just kept the allowance ratio flat versus last quarter. So I just wanted to see if there was a change in how you were calculating the allowance, or if that was going to continue. But you answered my question. Thank you.

Henry Coffey, Sterne Agee.

Congratulations on the quarter. I just had one quick question regarding the Mexican loan growth. I know you mentioned the gross number, but what would that be on a same-store basis?

We have opened some many -- it is a big number, because we have so many of our offices that have been opened within the last two years. Kelly, can give us that number, but it is not really --.

It is roughly 30%.

30%, okay. That is the only question I had. Thank you.

(Operator Instructions). Edwin Groshans with Height.

Good morning, and thank you very much for taking my call. In your remarks you mentioned the creation of the Bureau of Consumer Financial Protection, working with your industry groups to be involved in the process.

Elizabeth Warren has been pretty vocal in saying that she is focused on disclosure. So I guess my first question is, when you look at your business model and the disclosures that are in your documents in the US, what do you think the focus is going to be on with regards to disclosures?

I mean -- I don't --.

I know; I know. I am just wondering, because it seems like it is disclosed, right, so I don't understand where the focus could be.

If you look at some of your credit card statements, or if you read some of your mortgage loan documents, there is some pretty extensive disclosure there. And it is a lot of fine print and so forth.

Then, as you know, a lot of that is required by the federal government and -- well, it is hard for me to address that, because if you look at our documentation it is very straightforward. I don't know how it could be much more straightforward and simple. So I don't really believe that she is referring to the installment loan product when she is talking about the disclosure issues.

Okay. She has highlighted several times that "payday lenders" are on her agenda of coming -- of additional regulation.

Right, and we are well aware of that. And as you know, we are certainly not in that -- we are not in that industry and do not offer that product.

Okay. But your products are subject to regulation?

As all financial products are subject to regulation. They are currently subject to regulation at the state level, but they certainly will also be within the realm of this new bureau, that's correct.

Okay. Then this is probably a tougher question, but it seems that in her writings she seems to think that this industry has a bad reputation and mistreats consumers. How do you address those kind of issues?

I don't -- I mean, if that is in those writings, I have never seen her specifically address the installment loan industry in a negative way. I am not aware of those that we are mentioned in any of the directives from Congress as an industry that needs to be looked at initially. Now that is not to say -- I am sure we will not -- we will not be reviewed -- just like all financial services products will be reviewed.

Right, okay. Then when you talk about your industry groups working with the regulators, are there issues that you are focused with in helping to formulate the policies?

As is standard practice with all regulations, that as these regulations are proposed there will be requests for comments from a lot of different industries. And as is our responsibility, we want to be in a position to respond to those comments, to make sure that certain regulations don't inadvertently do things that are not anticipated, as often happens.

Great, I appreciate you taking my questions. Have a good day.

Matt Dhane, Tieton Capital Management.

You mentioned that larger loans ticked up in the quarter. And I believe they have been trending up over time. Is that a correct impression? And how should we be viewing the larger loans growth?

It is an -- as I ended the statement, it is not a significant change. If you look out over a period of time then you would recognize that our percent of the larger loan portfolios has been running roughly 26% to 27%. And we did see a slight increase in that, less than 1%, which could account maybe for some of the slight decrease in yield, but it is not an intentional direction of the Company.

But as we move into newer markets where the larger loans make more sense, then it could become a slightly more important product. But our focus will always continue to be on the small loan products.

Great, thank you.

(Operator Instructions). At this time we have no further questions in the queue. I will turn the conference back over to our speakers for any additional or closing remarks.

We have none. We appreciate your interest in World and we appreciate you joining us today. Thank you, Holly.

You are very welcome. We thank you for your participation. Before concluding today's teleconference, the Corporation has asked me to again 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 and amount of revenues that may be recognized by the Corporation, changes in current revenue and expense trends, changes in the Corporation's markets and changes in the economy.

Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission. This concludes the World Acceptance Corporation quarterly teleconference.