World Acceptance Corp (WRLD) 2015 Q1 法說會逐字稿

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

Before we begin, the Corporation has requested that I make the following announcement. The comments made during this conference call may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 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. Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release and in the Risk Factors section of the Corporation's most recent Form 10-K for the fiscal year ended March 31, 2014 and subsequent reports [filled with our furnished] to the SEC from time to time. The Corporation does not undertake any obligation to make an update to any forward-looking statements it makes. And at this time, it is my pleasure to turn the floor over to your host, Mr. Sandy McLean, CEO.

Thank you, Levi and good morning, everybody. I hope you've had a chance to review our press release and the narrative that we traditionally disclose and at this point, I would like to just go directly to questions. Levi, if you would?

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

Good morning, Sandy. How much of the loan growth that you reported here -- obviously, I know new accounts were flat year over year. But is there a component of that loan growth that is basically just the new fees in Texas and North Carolina -- or Georgia rather and North Carolina?

Number one, we are not in North Carolina, but certainly we have had an impact from Texas and Georgia. But I am not sure I understand the question?

Well, the loan growth, is that being bolstered by the new fees, right?

Well, actually, I mean if you look at the growth in the Texas portfolio on a year-over-year basis, it is in line with the Company growth on a year-over-year basis. So I would not say that Texas is growing more or less than the Company as a whole, which obviously is a lot less than it was a couple years ago. The same is to be said for Georgia. At the same time, obviously, a greater part of our revenue is being contributed by those states, which has got to offset -- we are not getting the full impact because it is kind of offset because our renewal volume is down substantially as a result of the change that we put into place at the end of December and beginning in January. So we continue to have kind of a deterioration in yields because of the shift in mix, the reduced renewal volume, but that has been somewhat offset by the additional fees that we are getting in these two new states. Does that answer your question?

Yes, that is fine. Any updates on the CID?

No, we haven't not heard anything from the CFPB at this point.

Okay, and you don't know -- you wouldn't know when the expected resolution of that is going to be at this point? Correct?

I don't even know when we are going to hear from them initially and I don't necessarily believe that once we do hear from them, that will be the resolution. That would certainly be nice, but we would anticipate possibly additional questions, clarifications or something else. I have been led to believe that this process can take quite some time. But by the same token, we really don't believe that we are doing anything wrong and it would be very nice if they would finish their review within the six months and go onto a different project.

All right. And then just the timing of the share repurchases during the quarter. I'm just trying to gauge kind of how much of that is going to filter through into the diluted sharecount into the second quarter. Just kind of the timing, were they early, late in the quarter? That is my last --.

It was throughout the quarter, John.

Okay, so there is still some residual impact to hit the diluted sharecount next quarter then from (multiple speakers) first quarter?

It was throughout the quarter to the extent that we were not within blackout periods.

That is right. So we started in May. So it was more in May and June and not in April.

Okay, very good. Thank you.

Bob Ramsey, FBR Capital Markets.

Hey, good morning. Just to follow up on that last question. Remind me, is the right way to think about the diluted sharecount as we head into next quarter that you all ended this quarter with 9.6 million shares outstanding and there is a couple hundred thousand shares of dilution on top of that?

That is correct.

Okay, great. Just wanted to talk a little bit about loan growth. I know you all have talked a lot about growth being the greatest challenge that you all face. And I guess it seemed a little bit encouraging to me that same-store revenues, while still slow, did improve from last quarter and I guess year over year dropped and loan originations also improved from last quarter. Are you all seeing any signs of a little bit firmer demand out there?

If you remember, quite a few quarters last year, we reported that the actual number of new and former borrowers was down on a year-over-year basis. I am happy to report that, for the first quarter in the US, the number of new borrowers -- loans to new borrowers is up 2.6%. The loans to former borrowers were up 0.6%. But our renewals were down 14.1% for an overall decrease in our loan volume. But we are encouraged that we are now beginning to see an increase in that category, which is so crucial to our long-term success.

In Mexico, on the other hand, the number of new borrowers is actually down. There has been some real competitive forces going on down there with some products and so forth. But the number of former borrowers was up substantially, but obviously the renewals were down there also. So Companywide, our new borrowers was pretty much flat, our former borrowers was up about 2.5% and our renewals were down about 14%. Plus, Janet has got quite a few initiatives going on that we believe will hopefully drive additional people -- potential customers in our offices and you will be hearing more about those things as we go forward.

Is there any detail you can share with us so far on some of Janet's efforts?

I will let Janet do so herself, but keep it short.

Hi, Bob. Yes, yes, I don't know if you all have seen that we have our new consumer-focused website out there. Very exciting. Previously, it was more of an investor-focused website. And we have a branch locator up and running on that, which is terrific. And of course, as we've mentioned in the past, we will be bringing the ability to fill in apps online, not for decisioning but to fill in apps online and that is very much work in progress at the moment and we expect to have some news on that with a bit of more time.

We also are in the finals stages of creating text messaging. This will be first for renewal mail and then for collections reminders, friendly reminders. And actually we even have people calling the office here to say -- you have to opt in for a text message, but saying, hey, when are you starting, I am so excited? We are also piloting debit card payments by customers in two branches at the moment. And we iron out any small hitches in activities and make sure our training is good, we will then roll that out in a month or so to eight branches and then further on.

I will mention two other things. We have increased our referral fees. We believe that makes us more competitive in the marketplace. We offer a great product and service, nice word-of-mouth referrals. And we're putting together a sales and business development manual to help us get much more involved in our local community and increase brand awareness for the great products we offer.

And I'll add to that. In Mexico, we believe this is a tremendous opportunity in the union payroll deduct loans and we are in the process of signing quite a few additional unions that will allow us to participate in those programs and are excited about the possibilities there. So growth is still way beyond -- way lower than what we have traditionally experienced and it is a lot lower than what we would like to see. But I think we are doing all the right things that hopefully will get us back on track to see something closer to something better than what we have shown the last 18 months.

No, that is good. It is good to hear about those steps to sort of effect some changes. I am curious too though, you mentioned renewals are down 14% across the Company. How much of that is related to the small dollar renewal changes that you all made and then is it your sense that that is timing or some of that is timing? Or is it simply with the changes you have made is it more of a structural change?

I believe almost it is 100% due to that. I think that we will continue to see reduced renewal volume. We started these initiatives back when this problem was identified a year ago, but then we made some formal system changes at the beginning of the calendar year. So until we actually lap those formalized changes, you will probably see a drop in year-over-year renewal volume. But by the same token, we will still make those loans in those cases where the customer wants to. We are just no longer soliciting directly, if you remember.

Yes, okay. Then last question and I will hop back out, but your all's debt-to-equity now is pushing up close to 2 times debt to equity. Does that suggest that the pace of share repurchases could slow from here and be closer to sort of matching the free cash flow that you all generate internally or just how are you thinking about the appetite given where the balance sheet sits today?

I believe that that is a correct assumption. At the current time, I don't think that now would necessarily be the timing to go out and do any type of restructuring of the balance sheet given the couple of issues that we have still unresolved like the CFPB and the class action lawsuit and so forth. But that is something that we evaluate on an ongoing basis. But we have to maintain a certain amount of free availability under the barring-based rules knowing that we have a growth season that comes into play during the third fiscal quarter. So yes, I think what you stated would be a correct assumption for the time being.

Okay. And is it still sort of the idea that with most of the free cash flow that you guys generate annually, that that would be put into share repurchases?

We prefer putting them into small loans, but (inaudible) small loans that that would be a primary use of any excess [funds].

Okay, great. And what is the remaining repurchase authorization at the end of current quarter or at the end of the June quarter?

It is around 2 million at the end of June.

Okay, great. Thank you very much, guys.

Henry Coffey, Sterne Agee.

Good morning, everyone. As you look at your small loan product and your installment loan product, could you comment on a couple of things? One, do you have any sense of how much product intrusion you are getting from the longer-term installment lenders like Pioneer and LEAP and OneMain? And two, what are the marketing opportunities in terms of really getting consumers to look at your product versus the cost of an installment loan through one of the payday lenders? And then, finally, has the whole idea of buying any of the assets of OneMain crossed your thinking?

Well, I believe that we are in a very competitive environment. I do not believe that we are necessarily running head-to-head with OneMain or Springleaf, but I certainly think there is probably some overlap there. Certainly it is a competitive environment for the smaller installment loans because of the growth in some of the players there, but I still think there is plenty of opportunities. We have signed our first lease and are waiting to get our first license in the state of Idaho, which will be another new state for us. So I think there is still plenty of opportunities for us going forward.

Second question is we continue -- I mean we believe that our product is substantially different than our payday product. We don't know what the impact is on our ability to attract new customers because of what the payday lenders are doing because we don't necessarily see those products during the application process because I don't believe that they report to the same type of CRAs that we do. So I really can't answer that question very well and no, we are not currently planning to look at any available assets that OneMain may be in the process of selling, at least not currently.

Thank you.

I hope that answered your question.

Yes, thank you very much.

(Operator Instructions) Brian Steck, Mangrove Partners.

Hi, guys, thanks for taking my question. I had a follow-on question related to the first question on Texas. I understand from your comments that loan balances in Texas and Georgia have grown at a similar rate as the rest of the Company. I was hoping to get a little bit more granularity in terms of demand from new customers, the frequency with which refinancing is done by existing customers. Have there been any changes on those metrics in Texas?

We have access to that information; I just don't know what that is at this point in time. I am sorry.

Okay.

I mean it is available in the system. I did not anticipate the question, so I don't know the answer. But I mean we could certainly find that answer.

That was real good. I will follow up offline. And that was my only question.

That was -- I certainly I would think it may -- no, really I can't say. Anything I would say at this point would be pure speculation.

Thank you, Sandy.

(Operator Instructions) Bob Ramsey, FBR Capital Markets.

Thanks for taking the follow-up. Just wanted to touch on credit and the uptick in 61 plus day past-due delinquencies. It looks like a lot of that came out of Mexico and I know sometimes there are timing issues in the payroll deduct business. So just kind of curious on whether that was a factor this quarter or sort of what you attribute the increase in the delinquencies in Mexico to, or elsewhere for that matter. Just comments on credit.

The (inaudible) -- well, we call it (inaudible), but the payroll deduct loan portfolio in Mexico has grown from like $28 million to $42 million, so it is a much bigger part of the Mexican portfolio. And the good thing about it is that the collection efforts for that are zero. As long as these customers remain employees of these teaching unions and so forth, then we will get our payments and that is the good thing. The bad thing is we are subject to the unions forwarding those payments to us and unfortunately, during the summer, they are closed for a month or possibly as much as two months. So there has been a dramatic increase in those late -- in those loan payments that we had received, but we feel very certain that we will be receiving those in due course.

Okay. No, that is helpful. And then in terms of, if you take Mexico out of the equation, what were the trends on the 61 day delinquencies in the United States?

I think they were up a little bit also. John, do you remember right off?

They were up a little bit. They have been consistent with the previous years. So on a trend basis for March 31, December 31, and September 30, they are fairly consistent. They are up from June 30 of last year.

Okay. And then I guess normally when I see the 61 plus day delinquencies go up, I expect charge-offs to be a little bit higher next quarter when those hit 90 plus days. But if it really is timing out of Mexico that is most of this, I guess that wouldn't necessarily be the case because you still expect to be paid in full. Is that fair?

For the piece that is Mexico, that is fair. For the rise in the US portion of it, whenever those 60s and 90s start reversing, if it in fact goes down, then there would be an impact. Well, I would like to think that our offices are collecting them better, but generally speaking from a trend standpoint, you may see an uptick. I mean it may be the offset of the down -- the decrease we had during the quarter may offset that somewhat. It is hard to quantify.

Yes, okay. Great, thanks for taking the follow-up.

Okay.

And we have no further questions at this time.

Well, I appreciate -- thank you for your interest in World and I appreciate your interest in joining us today on today's call. I will turn it over to you, Levi.

Thank you for your participation. This concludes the World Acceptance Corporation quarterly teleconference.