World Acceptance Corp (WRLD) 2016 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) 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 21(e) 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, 2015, and subsequent 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, it is my pleasure to turn the floor over to your host, Janet Lewis Matricciani, CEO.

Good morning, and welcome to our conference call for the second quarter of our Fiscal Year 2016. I assume that everyone on the line has read our press release, and so I will not read that or repeat the information within it. This quarter, we have combined the information in our usual earnings script into our press release, so it is the same amount of information but in one document for simplicity. We expect to the same in future quarters. As I did last earnings call, and as will be usual going forward, I will add some details on our recent activities and successes beyond what is written in our earnings release.

I have now traveled to all of our states, while talking about our vision and direction, which we call the New World of World. This is now my 29th day as Chief Executive Officer, and it is a perfectly reasonable question to ask, what will be different under new management? So, let me address what we are planning to do to build on our already-strong foundation in order to continue to make our Company more profitable and even stronger.

I shared this new vision, and the philosophies to support it, with every member of our company via e-mail on my first day as CEO. These concepts were built by listening very hard to our executive team, VPOs, senior leaders in the field, branch employees, industry experts, and other knowledgeable folks within our industry and beyond, and I'll give it at a high level here.

If we want to be the best in class in our industry, we need to meet the customers where they are, and this means finding them where they are, and allowing them to choose how they are serviced. To find new customers, we plan to use direct mail, local advertising, the Internet and other digital and media channels. And, we will also use all channels available to serve our customers in the best possible manner. That means branches for in-person payments; postal service for mail-in payments; the telephone for pay-by-phone payments; the Internet for online payments; debit cards for convenience payments; texting for customized messaging; and collection centers for very late or charged-off customers.

We'll strive to be the best-in-class when serving our customers. We believe we have a sound and robust compliance department, where customer complaints are tracked through to resolution. We will focus additional training to help build even better customer relationships in branches, specifically where complaints occur. We want to ensure we treat our customers with fairness and compassion at every single interaction. We need to hire the right people, and create the right incentives for them to stay, as our people are by far the single most important asset we have.

We'll also constantly look at process improvement, and be strategic in everything we do, by examining our operations at every level to find best practices and share those company-wide; by providing support to our branch employees with immediate feedback about day-to-day operations through our Branch Support Center, which is right now rolling out in test phase to Alabama -- this will help employees run stronger branches; and by using data analytics to identify trends in performance at every level, to target and improve our performance.

We plan to further leverage the strength of our brand name and reputation. We hope to build on our stability, consistency and reputation for best-in-class customer service since 1962, to draw in new customers to our 1,346 branches. We anticipate using focus groups to better understand the market, build on strengths, and mitigate weaknesses. And, above all, we'll promote a culture of collaboration, communication, caring, sharing, and fun, so that we all come to work excited and happy every day.

In conclusion, continuing to innovate and improve on our already-solid foundation will allow us to become even stronger. We're about to start the next chapter in our lives as a company that listens and adapts: listens to our employees, customers, market experts, vendors, and all contact points at our business, and adapts to where the market is going. So, we will constantly ask ourselves, how can we do better? The company that asks this every day, does better every day, and stays at the top of its game.

We're already making improvements in marketing, and have built an entirely new prospect model that includes mailing new customers with characteristics that we have not sought before, and this growth season we're testing that model before rolling it out across the board. We're also testing a wider variety of new creative pieces than in the past, including target-specific and event-specific marketing. We launched our new, consumer-friendly website on August 12, and have made it responsive such that it works well with mobile devices, and thus allows us to rank higher in searches in accordance with Google's new ranking methodology.

Finally, before moving to open the floor to questions, I would be remiss if I did not say something about the CFPB, since it's likely it'll come up in other questions, otherwise. Our management team advisors are fully-cooperating with the CFPB's investigation into World Acceptance. In the meantime, our focus remains the same. We're committed to serving our customers, and ensuring we provide the best experience possible.

Now, I'd like to open the line for questions.

(Operator instructions) We'll take our first question from John Rowan from Janney, your line is open.

Good morning.

Good morning.

To go back to the comment on the support facilities, or the support functions being centralized into a facility in Alabama, when you talk about moving late-stage delinquency collections into a centralized facility, that's what we're talking about, right? This new facility in Alabama?

No, sorry. Let me add some clarity to that. We have set up in our head office in Greenville, what we call a Branch Support Center, so that all questions from branches about operations, where a branch is uncertain how to do something, whether it be operations, IT marketing, or want more information, can be answered quickly and efficiently. In order to roll this out, we're starting by offering this service to Alabama, and it will become a company-wide offering.

Okay, well, what was -- the comment about the late-stage delinquencies being centralized, did I hear that correctly?

I don't believe so. We plan to continue our operations as they are, regarding our collections activities.

is that still done in the branch?

Yes. Aside from our sale of charged-off accounts, which we've talked about, collections activities are managed in branches, and we also have two collection centers, one in Georgia, and one in Alabama.

Okay. And then, the insurance revenue. I mean, it was down, insurance and other was down 23% year-over-year. What's changing, there? I know we've obviously seen negative numbers for the last few quarters, but the rate of decline is actually pretty sharp this quarter.

Right. I mean, a lot of that's driven by -- so, one thing is, we are, have been growing our small loan portfolio more this quarter than we have in the past. We've also seen a decline in our large loan portfolio, so that's driving some of that. So, we've originated fewer new, large loans, as well as the kind of refinancing volume within that large loan portfolio, has also declined. That's a lot of what's driving that.

Okay, and then I'm going to ask a CFPB question in another way. Have you had any communication with your lenders regarding the ability to buy back stock, or you know, be -- the credit facility and where we stand vis-a-vis the NORA Letter?

Sure. So, yes, we've had conversations with our bank group since the receiving of the NORA Letter. They're aware of kind of the high level things the [CID] is looking at, and you got -- I don't believe until there is absolute clarity and a resolution of the CID, that they'll allow us to buy shares back. I still think that until that, we have that clarity, it'll be kind of more of the same.

And then, you know, wrapping up this CID and the NORA Letter, do you guys have a time frame on it? I mean, with other instances, the NORA Letter was relatively close to when there was an actual fine levied. So, I just want to understand if you guys are internally thinking about a time frame to get this resolved?

No, we don't have a time frame for this, and we haven't been told a time frame. So, we don't think it's appropriate for us to speculate. The information is there in the market on how long this time has taken for other companies. But, I think we have no, no particular knowledge ourselves, so it wouldn't be appropriate for us to say any more on timing.

Fair enough, thank you.

(Operator instructions) We'll go next to Henry Coffey from Sterne Agee, your line is open.

Good morning, everyone, and thank you for taking my call. When you look at loan quality issues, obviously some of that insight you gave us in terms of what is, and what should be, is your assessment of the new charge-off program that it's working?

You mean the sale of charge-offs?

You're getting -- I mean, the numbers suggest that, but I was wondering what your view on the change is. Is it working? Is it producing better results? Is it --

So, [actually] yes, you can look at our NOIs, net charge-offs, and they are improving, as well as our delinquencies compared to this quarter last year, which is the kind of the first apples-to-apples comparison we've had since the change in the incentive program. So, it certainly appears that it's working. We see more sort of those [late pays], delinquencies, being rehabilitated, and start paying again. So, the indication is that it has been working.

If you look at the states in which you sell insurance products, and add-on products, and what's the other one? Auto club? Is the most relevant state to talk about, Georgia? Or would you prefer we focus on different ones?

We don't usually do a state-level analysis, or state-level recommendations. We look at that from an operating perspective.

Well, let me ask the question this way. In the state of Georgia, if I make a -- say, if I borrow $600, can you walk through so that I don't have to call your branches, can you walk through the pricing structure for me? You know, what products would be sold to me? What would the interest and fees look like?

Henry, we don't want to get into that level of detail on the call. We can discuss that level of detail off the call.

Okay, I'll give you a check-in later. Has there been any behavioral changes in the branches around the sale of insurance products? Or, is it just due to the fact that you're -- you've got less renewals, and lower volumes of large loans?

It's the latter. We haven't had any changes in our policy or activities around the sale of our optional insurance products.

Great. Thank you very much.

Thank you. We'll go next to Randy Heck, from Goodnow Investment. Your line is open.

Thanks for taking the call -- the question. First is, in your text, you point out that the first time -- number of loans to first-time borrowers and former borrowers was 150,000, which is up 2.3% year-over-year. Is that the first -- when's the last time you had growth in that metric?

It's been a few quarters. I do believe there's one, has been one quarter in the last -- in the last 12 months. I can't recall exactly which one.

Yes. So, is that -- I mean, should we be encouraged that some of these efforts, whether it's utilizing the Internet, another technology that may be finally turning the corner?

Well, I think we are all encouraged by the increase in former borrowers and new borrowers. It's hard to know specifically what to attribute it to, but we believe our marketing initiatives, and our improved website, and our texting activities, where more than half our customers are signed up for texting and enjoy having that service are definitely helpful to us as we look at our growth.

Okay. Secondly, someone else earlier asked a question about insurance being down a lot. I see that it was only down $860,000, and the decline was primarily because of the reversal of the sold receivables? Is that correct?

That's correct, yes.

Okay. And then, John, I would imagine legal expenses are up. There was an expense of -- because of that buyback, of a net of $1.5 million. You've got this $5 million provision which seems to be one-time. There's another charge of $1.3 million. Your interest expense is also up year-over-year, because of the revised deal. So, and you also had a reversal -- on the other side of the ledger, you had a reversal of the long-term comp. But, net-net, by my math, your earnings -- other things being equal, were up in the quarter, a few million bucks. Is that a fair assessment?

Yes, I think that's fair, yes, considering those factors, yes.

Okay, all right, that's all I have, and good luck.

Thanks.

Thank you.

Thank you.

(Operator instructions) We'll take a follow-up question from John Rowan with Janney, your line is open.

Hi guys, sort of the follow-up on the loan growth figure. So, loan growth is down 2.6% year-over-year. Can you guys kind of segment that to what's currency-driven, what might be driven by you know, lower insurance, add-on products which obviously drive part of that loan balance, and what's really more the organic in-store domestic number?

Right. So, obviously as we say in the earnings release, the growth in Mexico was significantly hurt by the move in FX. Just on the insurance comment, it wouldn't impact the gross loan amount. Right? So, the way that works is, if a customer chooses to buy insurance, it'll reduce the cash proceeds that they receive. So, whether they do or don't choose to select insurance wouldn't have an impact on the overall gross loan amount. There has been sort of a renewed focus on growing our small loans, and so, obviously those -- we're seeing some growth, there, but we've seen some declines in the large ones. So, that's why you've seen kind of that reversal in the shift in the mix, right, where we were for a long time, increasingly building the large loan portfolio. Now, we're starting to grow that small loan portfolio again.

Okay, and then, just -- you know, obviously, you know there are several programs designed to bolster loan growth. But, I mean, we've had a very long trend of lower numbers year-over-year, and 13 consecutive quarters where it's down on a sequential basis. I just want to understand, at what point do you guys look at the branch staffing and say we have to cut costs, or -- you know, when do you get to that point where you know, you have to look at which branches are effective, and which ones are, you know, just don't have enough loan balance to warrant a certain staffing level?

John, look, we do this every day. It's not just about growth, it's called good corporate management. So, we, for the revenue side and for the cost side, we look at all of our branches and where we feel we gain in efficiencies, that's reduce -- and reduce costs, and it makes sense to combine two branches, we do it, where we think it makes sense to open a new branch, we do that. These are all profitability decisions. So, while we focus on revenue, we have also closed some branches and merged some branches, and also put in some new branches. And, we also do look at our employees and our branches, and make sure we have the right staffing for the size of the branches. That is an everyday, ongoing activity that we track and improve.

Okay, thank you very much.

Thank you. We'll take our next question from Clifford Sosin with CAS Investment. Your line is open.

Hi, thank you, guys. Can you guys just provide us an update on the charged-off loan sale program? The context of the $1.5 million reversal, and the prospects for that program, and its impact on your charge-offs going forward?

Yes. So, we continue to sell our charged-off accounts. We have a very good relationship with the buyer. We did take a reduction or discount, and we bought back some of those accounts. This is a new process, so we bought back the accounts that didn't have full documentation and reporting. But, as I said, we have a good relationship with the buyer. We continue to sell them [forward flow] at a discounted rate. We expect that to continue. We really can't give much more detail on this, as this is not material for us.

I guess when it was announced, you guys described the amount of proceeds you would expect to get on an annual run rate basis. Now, I guess if you're selling these charged-off loans at a discounted rate, can you update us on the annual benefit that you'd be getting?

Sure, yes. So, kind of through the -- I'll give it to you, some of the numbers for the end of the fiscal year. So for the third quarter, our fiscal third quarter, we expect those proceeds to be around $800,000, and then $1.9 million for the fiscal fourth quarter.

Okay, and so, what would that make it, sorry on a -- just help me get the annual number, if I don't have the other?

Well, so for the second half of the year, $2.7 million.

Okay, so if I doubled that, I'd be about right?

Right, well, the program only runs through kind of the first quarter of next year, I believe.

Do you guys believe that your partner is making good enough economics that there's a likelihood this program will continue, or do you think this program is likely to be discontinued?

We can't speak to their performance.

Okay.

I mean, obviously, there's -- at the end, there's just a wider market for it, so whether it's with this buyer or another buyer, there's still potential to sell in the future.

Yes. In fact, adding to that, we were the first in our industry segment to market this, and now we see that some competitors are following our lead. So, we expect there to be a marketplace for this, and we are pleased with our decision to be the first to start this process.

Thank you, and on a slightly different topic, do you mind just sharing with us the mix of the decline in insurance [and other] between WCBC, Paradata, and I guess actually you broke out the gain on sale, and anything else you think might be worth calling out?

Sure. So, if you look at -- so just looking at the quarter, as I believe Randy said, insurance was down around $800,000. WCBC was down around $1 million for the quarter. We had to have a pickup impaired out of income of around $500,000, and the motor club was down around $300,000. And then, obviously, you have the $1.5 million associated with [JH].

Thank you very much.

(Operator instructions) We have no further questions at this time. Thank you for your participation. This does conclude the World Acceptance Corporation Quarterly Teleconference.

Thank you very much.