World Acceptance Corp (WRLD) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the World Acceptance Corporation sponsored third quarter press release conference call. This call is being recorded. At this time all participants have been placed on listen only mode. 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 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 is my pleasure to turn the floor over to your host, Mr. Sandy McLean, Chairman and CEO. Please go ahead, sir.

Thank you, Lisa, and welcome to World Acceptance Corporation third quarter conference call. As Lisa said, I 'm Sandy McLean, and with me is Mark Roland, our President and Chief Operating Officer, and Kelly Malson, our Chief Financial Officer, as well as other members of our management team. As is customary, I will spend a few minutes reviewing the quarter results, after which we will be happy to answer any questions.

I am, once again, very pleased by our quarterly financial performance, and am happy that the positive trends that we experienced during our first two fiscal quarters have generally continued into the third fiscal quarter. Demand for our loan products remained stronger in the quarter, and, as hoped, we have continued to experience improvement in our loan loss ratios. Net income for the third fiscal quarter was $18.1 million, or $1.12 per diluted share, compared to $14.8 million, or $0.89 per diluted share, for the prior-year quarter.

This represents a 22.5% increase in net income, and a 25.8% increase in net income per diluted share, when comparing the two quarterly periods. For the first nine months of fiscal 2011, net income was $57 million, or $3.52 per diluted share, representing a 29.6% and 31% -- 31.3% increase, in net income and EPS respectively, over the $44 million and $2.68 earned during the first nine months of fiscal 2010.

The Company's EPS continues to benefit from an ongoing share re-purchase program. During the first nine months of fiscal 2011, we re-purchased 1,008,657 common shares for approximately $35.9 million, which will continue to be very accretive to per share earnings in the future. As you know, the third fiscal quarter is our busiest of the year in regards to loan demand, primarily due to the holiday season.

During the quarter, we closed approximately $761 million in gross loans, which was an 18.6% increase over the amount loaned in the second quarter, and a 13% increase over the same quarter the prior year. As a result, gross loans amounted to $965 million as of December 31, 2010, a 15.1% increase over the $839 million outstanding at December 31, 2009, and a 25.3% increase since the beginning of the fiscal year. This growth was fairly even -- evenly distributed throughout the Company, with 9 of our 12 states experiencing at least a 12% growth rate.

Additionally, 15% year-over-year growth resulted from a 9.8% increase in the number of accounts outstanding, and a 5.3% increase in average balance. While acquisitions will always remain an important factor in the overall growth strategy of the Company, there have been only moderate purchase activity during the first three quarters of the fiscal year.

17 small offices, consisting of 5700 accounts and $3.9 million in gross loans, were purchased. Of the 17, 6 became new office locations, and 11 were merged into existing offices. For comparison purposes, during the first three quarters of fiscal 2010, the Company acquired 1524 accounts, and $1 million in gross loan balances in four separate offices. All of which were consolidated into existing locations.

We remained on track with the expansion of our branch network during the first nine months of the current fiscal year, which is, as previously disclosed, a little more aggressive than in fiscal 2010. We began fiscal 2011 with 990 offices, opened 59, purchased 6, and closed 1, giving us a total of 1054 offices at December 31, 2010. 3 of the 18 new offices opened during the most recent quarter were in Wisconsin, a new state for us.

Our plan, for the remainder of fiscal 2011, is to open 5 offices in the United States and 8 in Mexico, which will give us 1067 offices at March 31, 2011. Total revenue for the quarter amounted to $126 million, a 12.2% increase over the $112 million during the third quarter of the prior fiscal year. This resulted from a 14.8% increase in average net loans when comparing the two quarterly periods.

The Company has experienced a slight decrease in yields over the last couple of quarters, due to a small change in the loan mix among the states and an increasing averaged balance for loan outstanding. However, these changes should not have material impact on earnings going forward. Revenues from the 937 offices opened throughout both quarterly periods increased by 9.3%.

The Company continues to see improvements in its delinquencies and charge-offs, during the third quarter, in spite the ongoing difficult economic environment. Accounts that were 61 plus days past due decreased from 3% to 2.8%, on a recency basis, and from 4.3% to 4% on a contractual basis, when comparing the two quarters in statistics.

Net charge-off, as a percentage of average net loans, decreased from 17.8%, on an annualized basis, during the prior year third quarter to 16.3% annualized during the most recent quarter. This is the seventh straight quarter that charge-off ratios declined from the corresponding quarter of the previous year, and current loss percentages are generally in line with historical levels.

However, it is unlikely that these declines will continue in future quarters, especially with the ongoing increase in the price of fuel and other related items. Over the last ten years charge-off ratios during the third fiscal quarter have ranged from a high of 19.6% in fiscal 2009, to a low of 15.3% in fiscal 2003. The Company remains focused on controlling operating expense.

General and administrative expenses amounted to $61.4 million during the current fiscal quarter, a 10.6% increase over the $55.5 million for the prior year quarter, primarily as a result of the 79 net new offices opened over the past 12 months. As a percentage of revenues, our G&A decreased from 49.5%, during the third quarter fiscal 2010, to 48.7% during the current quarter.

Our G&A, per average opened office, increased by 2.9% when comparing the two fiscal quarters. We are also very pleased with the progress being made in our Mexican operations. We now have 87 offices opened as of December 31, 2010. Seven offices have been opened since -- during the current fiscal year, with an additional eight expected before the end of the fiscal year.

We now have approximately 96,000 accounts, and approximately $44 million in gross loans outstanding. This represents a 31.8% increase in accounts, and a 58.2% increase in ledger over trailing 12 months. We had net charge-offs of approximately $3.5 million during the first two quarters of the fiscal year, or 18.6% of average net loans on an annualized basis, and our 61 day delinquencies are 3.8%, and 4.4% on a recency and contractual basis, respectively.

This subsidiary has been profitable during the last two quarters, with net earnings of approximately $1 million for the current year. This profitability should improve as we continue to grow our outstanding receivables in our existing offices. The Company's trailing fourth quarter return on average assets of 13.3%, return on average equity of 22.7%, continue their excellent historical trend as we enter the fourth quarter 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, there has been a significant change in focus at the legislative level as the shift in power between the two major parties has become more balanced.

Of utmost importance, we are actively monitoring the development of the Consumer Financial Protection Bureau through our national trade associations, the American Financial Services Association and the National Installment Windows Association. We are meeting with key regulators as this process moves forward, and are providing comments, and other input, 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 time any of us would be more than happy to answer any of your questions. Lisa?

(Operator Instructions)We will take the first question today from Rafe Quinn, Archon Capital.

Hi, I was just hoping that you could provide the renewal percentage for the quarter?

If you will bear with me one second, I certainly have that information. 71.7%. That is the renewals as a percentage of total number of loans made.

Terrific. Thank you.

Up next we'll hear from Jason Weaver, Sterne Agee.

Good morning, congratulations on the quarter.

Thank you.

First of all, you mentioned that $35.9 million worth of shares you bought back in the fourth quarter. I was just curious if you could comment on what your likely plans are for the first quarter of '11.

I don't know specifically. We evaluate that on an ongoing basis, but with our current availability, which is roughly $13 million, plus we have, certainly, a lot of excess, I would anticipate this share repurchase will remain a very important part of our ongoing strategy. I just don't want to quantify that at this point in time.

Thank you. Just one follow-up. I was just hoping that due to the new regulations in Wisconsin, I was hoping you could comment on what you're seeing so far in terms of demand from consumers there.

Are you talking about demand for loan products?

Yes, new loan product demand totaled from the old payday loan consumer.

Sure. The issue here is that the licensing process in Wisconsin was lengthy. We met with those regulators, and went through the entire licensing process with them, kind of hand-in-hand, to make sure we did it correct and we weren't able to get those three new offices opened until late in December. So, there really hasn't been a growth period for us to monitor at this point. Certainly, we're making loans in all three locations, but, they have been open, really, just since December the 20th.

All right. Thank you, very much.

(Operator Instructions)

Next up is John Rowan, Sidoti.

Morning. (Inaudible question) and Mark actually just talked about it and I was wondering if you guys could discuss to the outlook for the tax season, the timing, and size of refunds, and whether or not you view any change in those numbers as a net benefit or a net negative?

Well, you know the tax season is, roughly, a week to ten days old, and initially, right out of the chute, we are not seeing as many tax refunds, tax preparation returns right now, but we don't know whether that is timing or what. We know that there may be some impact. In fact, we do not offer any [RAL] products this year and there are a couple of companies that do offer a limited RAL product, but only to certain people that have certain credit scores, and so forth.

Because we do not have a RAL, the length of time that customers are taking to get their refunds, everything is just a little different, so, it's really hard to compare exactly where we were, but we seem to be tracking fairly closely the last year, so, it's really early to tell.

What about if they come in late? Would that actually be a positive? Do you have a larger average loan outstanding through the quarter, before our payoff towards the end of the quarter?

To the extent, I guess it could be some slight benefit there, depending on the timing of when we are paid down, but, it should not be that significant.

The reverse of that could also be true, John, in that we typically grow in the March period, and take the majority of the runoff in January and February. It is possible that the pushback of the refunds by a couple weeks, or a little bit more, it could have no impact at all or it could go either way.

Okay. Thank you.

Our next question comes from Bill Dezellem, Tieton Capital Management.

Thank you, very much. I have a couple of questions here. First of all, relative to your comments in the opening remarks, that you have had a little bit of yield compression, but you do not anticipate that to impact your EPS as you go forward, would you please discuss the go forward thought process as to why that will not continue to be an impact on earnings?

A lot of it is still, to a certain extent, unknown. There are various things that's effect that yield. Depending on which mix change, it may effect of the top line yield, but then shift things into the other income category.

So, obviously, as our average balance increases over time, that will have a slight impact, but that's has been the case for, I don't know, the last 20 years. Every year our average balance increases 3% to 5% as part of the overall growth of the company. That doesn't seem to be a major impact.

So, we are monitoring this, and over the last couple of quarters we've seen, kind of, a shift between the various states, and between, what we call internally, smaller loans and midsize to larger loans. But, like I say, it is not a mix that we believe was going to be substantial.

Thank you. And, then, relative to the states, I think, if we did the math correctly, you had three states that grew at less than 12% rate.

That is correct.

Congratulations that all the others were growing at a faster rate. Is there a common characteristic amongst those three states? And, some thoughts that came to our mind, and these may not even be close, but, those states are more mature, or the state economies tend to be lagging, the other economy, the other states, where you are seeing the better growth, or maybe it is just world specific issues and you need to make some adjustments there.

Yeah, Bill. I mean, the biggest, in a dollar category, of those states is Georgia, and it's still running up in the 9% range. That's a state where they're not issuing new licenses. In order to expand in that state you have got to acquire, you can't go de novo. Louisiana we've -- has just -- not growing, we've not added a lot of new branches there, and the third one is New Mexico, and, again, that's just a state where we haven't focused on a lot of new branch growth.

As a result of that lack of new branch growth, does that tie in with my first supposition of maturity, because one of the things that helps you grow the states is opening new offices?

Louisiana has been around for a while, Bill. It's more of a matter getting comfortable with the management group down there, and making sure that we are hitting on all cylinders before we open additional branches and add supervisors.

It 's not really anything we're doing consciously. It's just we always try to be careful with our branch openings, to make sure that we have trained and tenured individuals to go into supervisory roles. That's just one of the areas that we continue to work on that.

Thank you. And then, the final question is relative to the Consumer Protection Bureau, would you please discuss your perception of how their mindset, that Bureau's mindset, has shifted from the pre-election time period to today?

I can't really -- I don't really know that I have an opinion at this point, because I don't know that the Bureau's thought process or -- I don't believe that it's necessarily changed. Elizabeth Warren is still actively involved in the initial setup.

It is still unknown who the director, official, confirmed director may be at some point in time, and so far there's not been that much, there's only been a couple of regulations where a comment has been requested, so, I think it's pretty early to say exactly what the ultimate output of that Bureau may be.

Thank you both.

(Operator Instructions)

Next up we will go to Jordan Hymowitz with Smith Finn.

Hi, guys. This is Jordan Hymowitz with Philadelphia Financial. Very quickly, the Durban Amendment, an increasing number of people, between 5% and 10% it seems, are being forced out of the mainstream banking environment. Do you see a -- I mean, it's too soon to tell, but will you see an uptick in your loan volume as result of that, do you think?

It's certainly possible. I could not say, at this point in time, that our reduction in charge offs, or whatever the direct result of, maybe a more qualified applicant could come into place. Mark, do you want to add anything? I don't believe we have evidence to support that, at this point, but logically speaking, it could very well be a result that takes place.

We know that there is a group of larger consumer finance lenders that are not there anymore. When you look at HSBC that's shuttered, Household, and Benny, and some of the others that are not actively in that market, you would certainly believe that there are opportunities for us to grow in that range. To say that it has happened, not materially at this point. We're not seeing it.

My other question is, there's been a huge rise in prepaid debt card issuance's, especially with net spend associated with Ace Cash express. Have you guys thought at all about issuing prepaid debit cards in your branches?

We have explored a lot of different things, of which that has been one, over the years. But at the branch location, given the activity in our branches and the limited number of personnel, it adds certain other type products.

You may have to add additional personnel, and when you expand that over 1000 branches, it's got to be extremely profitable with a lot of volume to make sense. And, we also found that a lot of those things have become a distraction rather than a plus. It's something we have looked at, but it's not something we're currently considering.

Thank you.

Mr. McLean, at this time there are no further questions. I'll turn the conference back to you for any additional or closing remarks.

We appreciate -- No, I don't have really anything except that we appreciate your joining us today. I'll turn it back over to you, Lisa. Thank you, very much.

Thank you, very much. And, ladies and gentlemen, thank you for your participation. Before concluding this morning's teleconference, the Corporation has asked 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 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. Thank you for joining.