World Acceptance Corp (WRLD) 2011 Q4 法說會逐字稿

Good morning, and welcome to the World Acceptance Corporation sponsored fourth quarter press release conference call. Today's 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 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 details 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, Alan, and once again, welcome to the World Acceptance Corporation fourth quarter and fiscal year-end conference call. As Alan said, I 'm Sandy McLean. With me are Mark Roland, our President and Chief Operating Officer, Kelly Malson, our Chief Financial Officer, along with other members of our management team. As we have done in the past, I will spend a few minutes reviewing the quarterly and annual results, after which we will be happy to answer any questions.

Throughout fiscal 2011, we have seen significant improvements in our operational performance when compared to fiscal 2010. This trend has continued during the current quarter as well. We are pleased to report the continued expansion of our office networks, excellent growth in our receivable portfolios, ongoing control of our operating expenses, as well as continued improvements in our loan loss ratios.

Net income for the current -- for the recent fourth quarter was 34.2 million or $2.11 per diluted share compared to 29.7 million or $1.76 per diluted share for the fourth quarter of fiscal 2010. This represents a 15.4% increase in net income and a 19.9% increase in net income per diluted share when comparing the two quarterly periods.

For the full fiscal year, net income was 91.2 million or 5.63 per share, representing a 23.9% and a 26.5% increase in income and EPS respectively over the 73.7 million and 4.54 per share earned during fiscal 2010. Fiscal 2010 earnings included a 3.3 million in non-operating gains compared to 1 million in similar gains during the current fiscal year.

Gross loans [are managed] at 875 million at March the 31st, 2011, a 13.6% increase over the 770.3 million outstanding at March the 31st, 2010. This 13.6% increase in outstanding loans resulted from a 9.7% increase in the number of loans outstanding, combined with a 3.9% increase in the average balance of those loans.

While acquisitions continued to be an important factor in our overall growth strategy, the Company did not make any significant purchases during fiscal 2011. There were numerous small purchases amounting to 5,904 accounts and 4 million in loan balances. These accounts were spread among 20 offices, six of which represented relocation. For comparison purposes, during fiscal 2010, the Company purchased approximately 62,169 accounts at 3.9 million in gross loans in 22 offices. Of those, one office became a new location.

As previously disclosed, we had a moderate plan for our branch office expansion during fiscal 2011. We began the fiscal year with 990 offices. We opened 73 offices, acquired six, and merged two, giving us a total of 1,067 offices at March the 31st, 2011. Of the 73 de novo offices, 57 were in the United States and 16 were in Mexico. Five of the new offices were in Wisconsin, a new state for us. Our plans for fiscal 2012 are to open 63 offices in the US and 12 offices in Mexico, plus evaluate acquisitions as opportunities arise.

Total revenue for the current quarter amounted to 136.9 million, a 10.5% increase over the 123.9 million during the fourth quarter of fiscal 2010. For fiscal 2011, total revenue grew by 11.5% to 491.4 million compared to 440.6 million for fiscal 2010.

Interest and fee income grew by 14.4% and 13.2% when comparing the two quarterly and annual periods respectively, which corresponds to the 14.7 and 14.5 increases in average net loans over the two reporting periods.

Revenues from the 937 offices open throughout both annual periods increased by 8.9%.

Revenues from our tax preparation business decreased by 3 million or 29.3% during the fourth quarter of fiscal 2011 due to a 24% decline in the number of returns prepared. During the current tax season, we completed approximately 48,000 returns compared to approximately 62,000 returns during the prior year. This decrease resulted primarily from an increase in compensation from tax preparers who continued to offer an instant loan on tax refunds which the Company was unable to offer this year. Next year, it is expected that the refund anticipation loans will not be available for any tax preparer, so the Company should not have this competitive disadvantage going forward.

As we have noted on numerous occasions, loan delinquencies and charge-offs will always remain a primary area of the management's concern and focus. Accounts that were 61 days or more past due remained level at 2.4% on a (inaudible) basis and at 3.8% on a contractual basis when comparing the two year-end statistics.

During each quarter of the current and previous fiscal year, we have seen a reduction in our year-over-year loan losses. Annualized net charge-offs as a percentage of average net loans decreased from 13.6% during the fourth quarter of fiscal 2010 to 13.1% during the most recent fiscal quarter. This is much more in line with our (inaudible) fourth quarter charge-off ratios and in fact, much lower than several of these quarters. These ratios were 15.4%, 14.4%, 13.6% and 13.9% during the fourth quarter of fiscal 2002, 2003, 2004 and 2005 respectively.

For the year ended March 31, 2011, net charge-offs to average net loans were 14.3% compared to 15.5% for the prior fiscal year. We believe that we have returned to our -- we have returned our charge-off ratios to at or below historical levels and further decreases in this ratio were not really expected.

General and administrative expenses amounted to 63.7 million in the fourth fiscal quarter, an 11.3% increase over the 56.4 million in the same quarter of fiscal 2010. As a percentage of revenues, there was a slight increase during the quarter from 45.8% to 45 -- from 45.5% during the prior year fourth quarter.

For the year ended March 31, 2011, our G&A expenses increased by 9.4% to 237.5 million from 217 million for the prior year. As a percent of revenues, they decreased from 48.3% from 49.2% over the two yearly periods. Our G& A per average open office increased by 2.4% when comparing the two fiscal years.

Highlights of our expansion into Mexico include the following -- 95 offices were open at March the 31st, 2011, an increase of 16 during the current year. At year-end, we had 102,619 accounts and approximately 51.4 million in gross loans outstanding, a 55.2% increase over the 33.1 million at March the 31st for last year.

Our gross in loan balances as measured in US dollars benefited somewhat from a change in the exchange rate as the value of the dollar declined against the Mexican Peso during the year.

We had net charge-offs of approximately 4.8 million during the year or [18.3]% of average net loans.

Our 61-plus day delinquencies were 3.4 and 3.8% on a (inaudible) contractual basis respectively, an improvement from the previous year levels.

During the current year, the Mexican subsidiaries had net earnings of approximately 1.9 million which we believe will increase dramatically as we increase the average loans per office and those offices open for more than a year.

Overall, the Company's return on average assets were 13.9%. Return on equity of 22.8% during the current year remain consistent with the Company's historical trends.

Finally, there's nothing new to report on a regulatory or legislative front at the current time. Nothing material for the Company is pending at the state level and the biggest concern at the federal level remains the creation of the Consumer Financial Protection Bureau and we are actively engaged in its development to the extent possible through the American Financial Services Association and the National Installment Lenders Association.

At this point in time, we'd be more than happy to try to answer any of your questions. Alan?

Thank you, sir. (Operator Instructions). Our first question comes from Jason Weaver with Sterne Agee. Please go ahead, sir.

Good morning and congratulators on the quarter. First of all, could you talk about the effect from higher food and fuel prices on your customer base and how much of that translates into likely loss and delinquency rates?

If you recall, the last time that we saw a large spike in the gas prices, it occurred early in mid-summer of the year in question. I can't tell you exactly. I think it was '08, and we really didn't see the impact of that until the December quarter in full. I think if gas prices continue in this range right now that we would see some impact on our borrowers in coming months. Right now, they haven't stayed up in the $4 range or haven't actually reached that on a national average, and it's actually lower than $4 in the states in which we operate. So we have not seen that impact yet.

Similarly, in '08, we saw increases in food prices as well, commodities, milk, eggs, meat, and whatever, anything that needed to be transported. So I would suspect if things -- if inflationary pressure continues and gas goes up that, yes, you would see some of that in our second and third fiscal quarter of this year.

All right. Thank you. The second -- just two real quick ones. What was the renewal rate during the quarter and can you comment on what you're seeing as far as progress in the Wisconsin stores?

Sandy's looking at (inaudible).

I can't even -- renewal, that really hasn't changed a whole lot, but the percent renewals during the current quarter was 80.1% versus 80.6% of the quarterly loan volume, and that's on a consolidated basis.

And on the Wisconsin openings, if you recall, we talked about them at the end of the December quarter. Those openings occurred late in December. It took us a little longer to get licensed than we anticipated and so we really didn't go through what we would consider a busy season for those initial three offices. We opened two later in this current quarter, in February and March. They haven't been around long enough to do anything yet in terms of rapid growth, but at this point, they're doing exactly what I would have anticipated. I believe at the end of the period, we had somewhere around 600 or 700 accounts in those original three offices that were opened right before December.

Okay. Thank you.

Our next question comes from John Rowan from Sidoti & Company.

Good morning. Can you give me an idea of the timing of the share repurchases in the quarter because it looked like you guys repurchased a decent amount, but the diluted share count is going up. So I'm wondering if there was a timing issue with the share repurchases or if there was other -- some other dilutive impact which negated that?

John, this is Kelly -- if you want to just give me one second.

Okay. And then maybe while Kelly is looking for that, maybe just give me the average loan balance for this quarter versus last year.

Average net loans for the quarter were 671 million -- 671.6 million versus 585.6 million.

Sandy, I should -- I probably should have phrased it differently -- the average consumer balance?

Consumer.

On the individual loans made, okay. I'm sorry, I misunderstood.

No, it was my fault. I said it wrong.

The average loan made, consolidated company-wide was $1,133, up 4.6% from $1,083 for the same quarter of last year.

Thanks. That's what I wanted.

Okay.

And John, this is Kelly. To answer your question regarding the shares repurchased during the fourth quarter, the majority of those occurred in March.

Okay. So it was more of a timing issue than a dilutive impact from something else?

Correct.

Okay. All right. Thanks, that's it.

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

Thank you. We're curious, have you done anything different with the way that you're approaching credit or do you get any sense at all that your customers are, say, more appreciative of the credit that they are receiving, and therefore, paying back the loan is a higher priority to them? And we pose the question in light of the fact that you're back to a normal level of charge-offs in spite of the fact that the economy doesn't yet feel like it would be in a normal state.

Bill, we haven't changed our underwriting significantly in 40 years. We underwrite to ability, stability and willingness of the borrower to repay at the time at which he makes the application for a new loan or an increase in his present loan. So having said that, it factors all current circumstances into play on each loan decision, So as -- obviously, we're not making loans to individuals who are currently unemployed, so I mean, by the very fact that we underwrite each loan transaction, it's taking into account current economic circumstances in the locale in which they live.

So I guess the other part is that it's not surprising to me that we're at or near historical levels for charge-off, because unemployment has stayed relatively consistent for a number of months, and our customers that we're making loans to are currently employed. Whether or not they significantly care about repayment more than they would have in the past, our customers always attempt to repay their debts unless there's a circumstances in which they can't. So I don't know that it's any more or less important to them now than it ever was, but I guess the proof is in the pudding.

And did we hear correctly that when you start looking at your -- I'm sorry, I just lost my train of thought. Let me change direction slightly. Did you, or have you, over the last couple of years made any increased effort with your branch managers, whether it be retraining or any sort of incremental focus on those branches that may have had higher loan losses, to really focus that issue, maybe more so than in the past.

That's the -- probably other than adequately growing your current office, I believe that the management emphasis is always on delinquency and bad debts, no more so now than it ever has been, but it's certainly a primary focus of our supervisors and our operational VPs. Every time they enter a branch office is to review the method and the activity of collection work on every account in the office.

That's always been the case and will always be the case.

And then I did recall where I lost my train of thought before. You'd mentioned the flat, or relatively consistent unemployment level, and so your point was the fact that unemployment has stayed relatively stable, you believe that that is more important than the fact that unemployment is at a historically higher level?

Yes, I do. I mean, you saw our charge-offs spike considerably in the third fiscal quarter two years ago when unemployment shot up for the prior six, eight months, and the net result was we had current active customers who became unemployed and were unable to repay their bills. Moving forward from that point, we were not making new loans to unemployed individuals, so I believe that the fact that unemployment remains level at this point is more important for performance purposes than it actually being at a lower level. It does impact growth, however, because there's a segment of the population out there who we can't make a loan to.

And pardon me for taking so much time, but one more question, so that if unemployment were to fall at a faster rate than it has been, from your standpoint, is that potentially -- should we be thinking of that more as a driver to loan growth because you then have more individuals that are employed and that you would be willing to make a loan to?

I wouldn't argue with that.

All right. Thank you.

(Operator Instructions). We will go next to Henry Coffey with Sterne Agee. Please go ahead.

Hi, good morning. Let me add my congratulations on the quarter. I've got a couple of questions, but I thought I'd go back to what the previous questioner was bringing up and just ask it in a different way.

The last three years have obviously been pretty challenging for your offices, and in the years prior to that, you had a lot of growth. Is it fair to say that your existing team of branch managers, particularly the less seasoned ones, are dramatically smarter at the whole process of underwriting and collecting, now that they've gone through this cycle, and that's kind of part of what your success has been? I mean, there is kind of training timing factor and I guess the last three years have been kind of graduate school.

Henry, we've been at the lowest levels of employee turnover at the management ranks for the last three years. I don't have the final number for March 31, but I would suspect that it's again in the 17 or 18% range. When we can retain 83 or 84% of our branch managers in management positions for several years, obviously, that cannot have a negative impact on us.

Thank you. Yes, the other question is completely unrelated. Your convert is coming up this summer and I know you've pretty much lined up the liquidity to fund that, but with your stock kind of pointing towards 70, a lot of -- what's the dynamic? I know that you had sort of a strike price on the convert and then you set an option that raised that bar. Can you kind of give us a sense what's the dynamic surrounding those converts, quote, "when you've called them?" What's the strike price? How do the options work? Kind of when that thing comes off the books in July, what's the earnings impact? Can you kind of run through some of those numbers for us, Kelly?

Yes, Henry. The first item is regarding when it's callable and under the contract, the volume weighted average price has to be above the strike price for 30 concurrent days before it's callable, and it also -- they can't start calling it until July 1st.

Right.

I would suspect though that no one -- if it's in the money, that no one would call it until the actual maturity date. At that point in time when it matures, if it's in the money, then we, because of the call spread that we have in conjunction with the convertibles, will be given the shares to pay the bondholders as long as the price is below approximately $74.

If the shares are below 74, the person on the other side of the call spread (inaudible) five shares in the marketplace and then hand them to you.

They will get incremental shares, so the par value of bonds will be paid in cash.

And then -- but there's also -- what is the strength in the original bond and what did you raise it to --

The original strike price is 62.41 and we raised it to 73.94.

So as long as it's below 73.94, there's no stock that comes your way?

From a physical standpoint, correct. However, from a GAAP standpoint, if it's above the contractual strike price of the 62.41, then there will be a dilutive impact to our EPS until the convert matures.

And then --

Of course, during the current quarter, not (inaudible).

Right. And so -- yes, and you're thinking of basically redeeming this thing this summer, so it's just a lot of noise that could occur around this. What is the -- when you get past the noise, what is the earnings per share cost then because of the accounting, the 7%? It's a very high income that they charge that interest expense that you don't really pay.

From a GAAP standpoint, the interest expense on the convert is about 8.5% where the coupon rate is 3%.

So when that goes away, then there's another contribution to earnings. Can you tell us about what that is or --

Well, the spread between that is roughly 5.5% and you've got 77 million outstanding.

So there's a cash savings of roughly the difference between our revolver amount of -- what's the revolver?

The revolver currently is at about -- the effective rate is about 4.2%.

Versus --

And then there will be a GAAP savings too, right?

There will be a GAAP savings between 8.5 and 5 and a cash loss between 3 and 5. so I mean, it's really not that material.

Thank you.

And it appears there are no further questions at this time, sir.

Thank you for your interest today and we certainly appreciate it and have a good day.

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 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 for your participation. You may now disconnect.