World Acceptance Corp (WRLD) 2014 Q3 法說會逐字稿

Good morning 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 presentation 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 21E of the Securities and Exchange Act that represents the Corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing and similar expressions are forward-looking statements.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include the factors discussed in today's earnings press release and in the risk factors section of the Corporation's most recent form 10-Ka and other reports filed with or furnished to the SEC from time to time. The Corporation does not undertake any obligation to update any forward-looking statements it makes.

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

Thank you, Tim, and good morning everybody. With me here this morning is Janet Matricciani, our new Chief Operating Officer; John Calmes, our Chief Financial Officer, as well as several other members of our management team.

I hope that all of you have had a chance to review our previous release press release as well as our summary of results. And at this point in time, we will be more than happy to try to answer any of your questions.

(Operator Instructions). John Hecht, Stephens Investment Bank.

Good morning and thanks for taking my questions. In thinking about loan volumes, can you give us any sense for new customer trends versus recurring customer trends and anything you can make out of those trends in terms of making it kind of discussion points about what the customer might be thinking, what opportunities they may have to get credit elsewhere?

I am not sure what kind of conclusions you can draw from this but I will be happy to share with you some statistics.

If you remember for the first six months through September of the year, our new customer, brand-new customer loans, were down -- in the US were down about 7.7%. During the third fiscal quarter, those new customer loans were down about 3.3%. While they are still down this is a trend that we certainly think is an improvement.

Also our growth in the US was between 5% and 6% and our growth in Mexico was about 30%. So we still see somewhat weak demand in the US but hopefully things are improving a little bit. But I don't know what kind of conclusions to draw from that.

We are certainly very conscious of our growth rates and operations evaluating all aspects of our collections, underwriting and all part of our operational business.

I guess operationally I know it is hard to track the customers but are you underwriting more severely? Maybe is your turn downs greater or are you able to determine whether customers maybe went somewhere else or have access to other types of credit in order to kind of try to assess what might be going on?

We do not believe that we have substantially changed our underwriting criteria over the last 20 years. I think our process is a very valid process and it is appropriate for our business. We do not believe our turn down rates have risen dramatically. However, the likelihood of increased competition within our industry certainly could have an impact but that is very difficult to track.

Okay. Then turning to credit, you cite I guess in a sense a regression of more normal rates of charge-offs historically. Are you able to kind of parse out what frequency versus severity component of this or do you have any conclusions of what might be going on or is this we are in the later innings of a credit cycle so there is just a more normal kind of trend we should observe?

It is very difficult to predict a trend based on the results of one quarter. As you know, we had 16 quarters in a row where year-over-year charge-offs declined and then we had three in a row where they kind of increased dramatically and then of course this past quarter they went from -- they went up by 1 basis point, 15.6 to 15.7. So certainly that is what I consider a trend to more normal charge-off rates. Is that indicative of what is going on in the overall economy? We made a lot of changes, we are continuing to make a lot of changes around here and we are always adjusting collection policies and adjusting all aspects of our business and anytime you make changes, there are certainly periods of where we go through transitions where it takes our employees some time to get used to these changes and maybe it is an indication that they are more comfortable with the minor changes that we made.

I would not attempt to indicate a change in any type of trend based on one quarter but we certainly feel better that the previous three quarter trend seems to have at least slowed down.

And then one other question, what was the end of quarter share count?

10.9 million.

10.9 million, okay. And then finally, it seems like Mexico is going pretty well. I wonder if you can talk about maybe for this calendar year is there any change of plans there in terms of deployment of capital or focus on growth?

I think no. Really we continue to be very aggressive. We will end up -- I forgot exactly how many offices but Javier will probably end up opening another 14 offices down there now and the end of the fiscal year. I think that the payroll deduct loans are becoming a little bit more important part of the overall portfolio down there and I think that is a really good opportunity for us. But we certainly have not in any way, shape or form abandoned the traditional installment loans. I just think there is a lot of good things taking place and we are excited about the possibility.

All right. Thank you very much for answering my questions.

Bob Ramsey, FBR.

Good morning. I wanted to ask first about the incentive comp accrual. I know you guys highlighted that there was a benefit this quarter given the resignation of your former COO. Is there a similar accrual reversal that will occur when Kelly actually -- when her resignation becomes final and then is there any offsetting expense now that you have hired replacements for both the COO and CFO? Is there additional expense that comes on board? I'm just trying to think about the timing of the incentive comp movements?

It is going to be a little bit difficult for us to track exactly but to answer your question, about $600,000 of cumulative accrual compensation went through during the second quarter when Kelly initially announced her retirement. About $2.1 million went through during the third quarter when Mark announced his resignation and we expect somewhere between $500,000 and $600,000 to come through during the fourth quarter when Kelly actually leaves. And yes, there is offsetting amounts somewhere for the quarter it is like $165,000 for three new participants and I don't have right offhand exactly the run rate of those three new participants.

And then also Janet in all likelihood will be given a grant that will have an impact but that is subject to the timing and amount that is subject to the compensation committee. So I don't have all of those numbers but certainly it was a fairly significant reversal during the second and third quarter.

Okay. Okay. And then obviously you guys saw nice loan yield increases on a year-over-year basis and I know you all highlighted that that reflected the state fee changes which you all had talked about last quarter. I am just curious a quarter into these changes if your expectations have changed any what you are seeing other competitors in the marketplace do what has been kind of customer reaction but sort of what you are seeing from the fee uptick?

I believe that what took place during the quarter was kind of in lines with our expectations that we kind of indicated previously. And I think the increase was primarily due to that. It is premature to determine exactly how this plays out over the course of the next four or five quarters whether it will have an impact on demand and/or losses and so forth. And I really do not -- am not able to address what some of our competitors are doing because most of them are private companies that we really don't have access to their information.

Okay. Is it reasonable to expect that the year-over-year increase in yields you saw this quarter should be the same or even greater next year as more of that portfolio kind of works through the new fee structure?

I really would not want to predict that. I think you will continue to see it because obviously the first major quarter is a rolling in impact and it will take several quarters before the full impact on an ongoing basis is known. So I believe we will see an increase in yields but to what degree it is hard to be very specific.

Okay, fair enough. That is helpful. I guess last question I will ask is about your new COO and I'm kind of curious both from your perspective, Sandy, and from Janet's perspective, what is it about Janet that you guys thought would be a great fit for World? And then Janet, what is it about World that drew you in? I don't know a lot about your background but it looks like you have got a lot of international and tech experience which is not exactly -- while world is in Mexico -- not exactly how I think of this Company. So I am curious where both of you see the fit as being really good.

I will start and then I will let Janet follow up. From our standpoint, the search committee found Janet to be very bright and very energetic and she has a tremendous amount of experience and while she does not have specific experience in I would say the niche business that World is in, she does have a great deal of financial services experience. And we have a lot of talent within World that knows how World operates today and we have four SVPs that are as good I believe as good as anybody in the industry.

I think the Board and myself believe that Janet can come in and work with these individuals and possibly identify additional opportunities and possibly save the best of our practices and offer some suggestions to improve them. We are really excited about Janet joining us and I think it is going to make this team a better team going forward.

Thank you very much for that question and for giving me a chance to mention why I have come to World, which I am very excited about.

In terms of my background actually I have a lot of financial services experience. I was part of McKinsey's Financial Services practice which included working on reforming the situation in Jamaica in 1997 after the financial crisis working with all regulatory bodies including government officials.

I worked at Capital One, very highly known for their data analytic skills for example, worked in international corporate development and installment [loans]. I was responsible for a multibillion-dollar portfolio and growing that business.

I have a lot of experience in financial services in all aspects -- in marketing, operations. Also at Countrywide Bank, I was the Chief Strategy Officer and saw across a wide range of financials [for them], not just the mortgages and deposits but also insurance services. And at Capital One I had international experience in Mexico and other countries and of course as a Mexico business here at World and I speak Spanish.

Furthermore in my other work, I had a great experience of the use of technology particularly the use of online world and how individuals use digital media and how that could be used to a strong effect. I feel that with my analytic skills and all of my work experience I can make a real difference in a company that I am excited to join because it has been managed so well for so long through recessions, through different environments, with continuous growth from a successful management from Sandy and the team, now it make intelligent decisions balanced risk and reward well.

So I feel there is a very strong foundation on which I can create growth and encourage best practices, work closely with Sandy, John and the team to create an even better Company than the excellent Company that exists.

Great. Thank you very much both. Go ahead, I am sorry.

I wanted to make sure that I answered your question, Bob.

No, you did very well. Thank you. Thank you both very much for your perspectives.

John Rowan, Sidoti & Company.

Good morning, everyone. Just a follow-up on Bob's question. Janet, you mentioned that you worked at Capital One. It is kind of well-known that one of your other peers has recruited from Capital One in the past in order to bolster decision analytics and bolster their live checks business. I was wondering if that had any at least for Sandy if that had any role in your pick and whether or not that is a road we would expect World to go down?

I can answer that if you are referring to the live check practice, we do not have any plans of going down that road at this point in time and it is unlikely that we will do so in the near future.

Okay. As far as the allowance goes it was a little bit sequentially. Any reason for that or what should be the trend going forward?

I'm not sure I understand the question.

The allowance ratio was up a few basis points on a sequential basis. It seemed like you added a little bit more to the allowance than you needed to. So I was just curious if you were going to continue to build the allowance?

We continued to follow the same type of practices, we did add $1 million or so last quarter that could have been reflected -- been part of the impact on a year-over-year basis but we did not make any type of adjustment similar to that this quarter.

And then just one last question, this may seem like an oddball but I know it is a small part of your business but I was wondering if there was any real divergence in the performance of let's say your World Class Buying Club and the rest of your business? And this just in part comes because some of the horrible results we are seeing coming out of the rent-to-own retailers which I think are more -- is somewhat comparable to the Buying Club and I was just wondering if there was a divergence in the performance of that business versus your obviously --?

There is always been a divergence in that business between the regular installment loan business, the loss ratios have historically been higher. Our reserve ratios on that portfolio were significantly higher and I think the credit of the individuals making those loans are probably lower.

But are you seeing more pressure in that business right now or is it just the status quo for you guys?

I think if anything it may be down slightly but given the size of the portfolio, it doesn't show up within the consolidated totals.

Okay. Thank you.

Bill Armstrong, CL King & Associates.

Good morning, Sandy. We had recently four large banks announcing that they are exiting the so-called deposit advance business which is obviously a payday loan type of product geared towards the subprime demographics. I was wondering if you were expecting any kind of possible influx of customer demand for your product as a result of this and if you have any plans to or any ability to market directly to any of these customers to maybe capture some of this potential influx?

I don't know that this customer is our customer and it would be very difficult for us to identify and unless we change our marketing techniques dramatically which we certainly will be evaluating over time as time goes on, but I am not anticipating a positive or negative impact from those decisions of those banks but that is a very kind of a guess. I really can't address that very well.

Okay, fair enough. And then just one quick follow-up. What were same-store revenues during the quarter?

6.1%.

6.1%.

6.1%, okay. Thank you.

(Operator Instructions). Henry Coffey, Sterne, Agee.

I think everybody has kind of picked up on a theme here, Sandy, that particularly at the COO level instead of bringing in a small loan professional you have brought in someone with a very complex skill set. At the CFO, I know a lot about your COO's background. She is a -- we have colleagues that know her very well at the firm. And at the CFO level (technical difficulty) you have just done the same, we have seen SpringLeaf do this, we have seen (technical difficulty) Management do this.

Is the notion that you are going to start investing in a more complex level of infrastructure or is the focus going to be more strategic in nature?

I would like to think that going forward we will continue to be extremely strategic. But we are an installment lender currently and have no plans to change but (multiple speakers)

I'm not talking about changing but your analytical set at least based on the questions we used to ask your COO that he would never answer, we always got the feeling that the analytical data he was working with could be improved and we have seen other companies (multiple speakers) come in with credit card backgrounds and I mean (multiple speakers).

There is definitely a place in our business to improve our data analytics on both the front end and on the back end and the way we do things throughout the process. So certainly I mean we have had some capabilities. Yvette Drake, our Head of Marketing, spent many years with Equifax and has experience at this but we have not necessarily chosen to go down that road in the past. But I believe we all recognize that it is time that we embrace a technology, we embrace data and we embrace the analysis of that data to potentially improve on what we do day in and day out. So yes, I hope that using the talent that we have in place as well as the extraordinary talent that we brought into the Company, I hope that we can do a lot of things that will improve the way we do business in all areas.

I think based on what we've heard this morning, it sounds like a good step forward. Thank you.

At this time there are no other questions in queue. I will turn it back to our speakers for any closing remarks.

I just want to appreciate you all participating this morning. Thank you for your interest in World Acceptance Corporation and if there are no other questions, you all have a good day.

Thank you for your participation. Before concluding this morning's teleconference, the Corporation asked again for me to remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of section 21E 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. Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing and similar expressions are forward-looking statements.

Factors that could cause actual results or performance to differ from expectations expressed or implied in such forward-looking statements include the factors discussed in today's earnings press release and in the risk factors section of the Corporation's most recent form 10-Ka and other reports filed with or furnished to the SEC from time to time. The Corporation does not undertake any obligation to update any forward-looking statements it makes.

This concludes the World Acceptance Corporation quarterly teleconference. You may now disconnect.