World Acceptance Corp (WRLD) 2018 Q4 法說會逐字稿

Good morning, and welcome to the World Acceptance Corporation's sponsored fourth 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, 2017, 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, Jim Wanserski, Interim President and CEO.

Great.

Good morning, and welcome to World Acceptance Corporation's Fourth Quarter Earnings Call.

Again, my name is Jim Wanserski.

I'm joined here with 2 members of my management team for this call and to participate in the Q&A session.

Just a couple of introductory remarks before we get started on the Q&A.

As is customary, we've published our fourth quarter earnings press release this morning, along with our earnings call script.

The 2 purposes of these documents are: number one, to provide summary data on our results; and then secondly, to display some various components of increase, decrease with some granularity within that script.

World is one of the largest small-dollar installment loan providers.

What I'd say, despite what could easily be described as mischaracterizations from certain segments of the media, but our website, customers, industry associations we deal with, regulators, many legislators, all display and know what installment loans are, as well as the differences between us and other loan types offered within the personal finance and lending industries.

Among a host of other metrics provided, you can see that installment loan portfolio has increased yet again this quarter.

We acknowledge the contributions from our seasoned field or operations and sales organizations, top-to-bottom, for this continuing momentum.

It's their enthusiasm and tenacity in embracing and driving a combination of ideas and changes into our branches, working closely with our headquarter's functions in Greenville, which have led us to bank those improvements and data-driven activities we worked on for some time.

By converting those ideas from our customers, implementing the improvement initiatives, system upgrades, all of the other things we've been working on for some time, along with our customer service-based selling, we've produced yet another quarter of continuing positive results.

So thanks to all of our employees and associates.

As I indicated, on this earnings call with me this morning our Chief Financial Officer, Johnny Calmes; and Senior VP of Analytics and Strategy, Chad Prashad.

And at this time, we're pleased to accept questions about our fourth quarter results.

(Operator Instructions) And our first question will come from John Rowan with Janney.

You guys gave the Mexican charge-off rate.

I couldn't find the U.S. It just said that it was flat, but I was curious if you had the number for the U.S. charge-off rate.

Yes.

So it was just under 16%, which is consistent -- slightly down from the same quarter last year.

Okay.

And then $101 million receivables in Mexico, that's down versus last year.

How much of that $101 million is payroll advance or payroll deduct?

And is there growth in the non-payroll deduct?

And if you could just parse out growth or contraction in the non-payroll advance business in Mexico versus the payroll advance business in Mexico.

Sure.

So the gross loan portfolio in the payroll deduct business is $50.1 million gross loans.

After -- so -- and $25.1 million net loans.

And then after allowance, we have an exposure of $13.3 million left in that payroll deduct loan portfolio.

So the run-off in Mexico is concentrated in that portion of the business, in the payroll deduct business and that the advanced pay or traditional loan business is up year-over-year.

Okay.

So the other business growing, you're saying you're $50.1 million.

But after you -- or $45.1 million.

But if you take out the allowance, you have $13 million of net loans still left in Mexico, correct?

Correct.

Now you closed 30 stores in Mexico, is that correct also?

That's right.

I will also say we closed actually 36 on the year, but 33 in the quarter, and those 33 in the quarter were the -- all in the payroll deduct business.

Okay, okay.

And as far as the asset quality issues, obviously, now we know one portfolio is growing, the other one is contracting.

All the asset quality problems that you called out in Mexico, is that all payroll advance?

Or was there deterioration or improvements in the traditional Mexican lending business?

There was a slight improvement in the traditional Mexican business from a delinquency standpoint.

So yes, all the issues are concentrated in the payroll deduct business.

Okay.

And then for the year, obviously, your unique customers are up for the fourth quarter.

It looks like in the U.S., your unique customers were down 7%.

Can you just explain why there's that weakness in the fourth quarter?

I can -- Chad can handle some of the more detailed questions.

But the decrease for the quarter is just the seasonal decrease, the seasonal run-off we have every year, right, which is aligned with the tax return season.

Which that 7% is sequential, not year-over-year?

That's right, sequential.

Okay.

And then just to make sure I have all the kind of onetime or unusual items down, it's $4.8 million in tax for a calculated repatriation tax, correct?

Correct.

And then $2.5 million, severance?

Correct.

$1.6 million in Mexican legal fees?

Correct.

$1.8 million in the change in the paid time-off policy?

Correct.

And then I would use, let's say, a 30% tax rate once you adjust out the adjustment to the tax rate for the repatriation issue?

I think 31.8% is the effective tax rate, ex the transition tax.

(Operator Instructions) Moving on, from Jefferies, we'll go to John Hecht.

John actually asked a lot of the questions.

I'm wondering, you talk about new versus recurring customers versus getting back some of your prior customers.

How's the credit performance of those 3 cohorts?

Is it fairly consistent?

Or is there different delinquency and charge-off patterns on those levels?

John, this is Chad.

So between those different levels, the performance has been fairly consistent over the past couple of years, improving slightly for new customers and former customers especially.

But over the last couple of years, the originations for new and former customers have increased in volume.

Okay.

And then the ALL as a percentage of loans has been fairly consistent.

There are some seasonal fluctuations.

I'm just sort of thinking about the mixed bag and what's going on in Mexico, and then some of the performances, it sounds like domestic performance is pretty clean.

Should we still kind of, from a modeling perspective, think about the ALL as a percentage of loans as being kind of flat year-over-year?

Is there any changes we should anticipate going forward?

So as that payroll deduct business continues to roll off, I expect the allowance to loan percent ratio to come down with that, given that a lot of that -- the weakness and the delinquencies are in that portfolio.

Okay, that's helpful.

And final -- well, actually, 2 questions related to Mexico.

You guys talked -- you've given us some credit information.

Do you have any information pertaining to the contribution of pretax profits from that segment?

So that'll -- we haven't shared that in the past and we'll share Mexico in total, sharing the -- in the 10-K.

And we can consider breaking out more information there around the payroll deduct business as well.

Okay.

But I guess the question is related to the strategy in Mexico.

You pointed out you shut down some branches.

Are those just solely tied to the payroll deduction business?

Or are you just optimizing branches tied to the general traditional lending basis?

Or how do we just think about the Mexico strategy going forward?

Yes, sure.

Yes, so those branches are solely tied to the payroll deduct business.

In Mexico, there's -- we don't sort of co-mingle the businesses in one branch.

So the [avance] traditional loan business has still been expanding their branch network.

(Operator Instructions) Moving on, we'll go to Vincent Caintic with Stephens.

Just 3 quick ones for me, and they'll really just follow-ups, but the first one is a follow-up.

But just on the sort of the Mexico payroll deduct business, should we -- should our base case be that, that net $13 million loans remaining, that just runs off over time?

Or should we expect maybe that at some point holds on or stabilizes and grows again?

So we've stopped originating in that portfolio.

So the expectation is that portfolio winds down over time.

Okay, got it.

Secondly, just your call-out for advertising expense, up 33% year-over-year, and then some other personal expenses.

Is that something we should expect rolling forward and kind of what your thought is around marketing and advertising, going forward?

So in Q4, that's up a little over 30%.

There are a couple of things contributing to that.

There's been some changes in our marketing campaign volume and also the channels that we use.

We've shown what we think are pretty impressive results in Q4 as far as increases in new customers and former customers.

Secondly, we're also in the middle of phasing in a centralization of some of our mail that was previously sent from the branches.

And so you're going to see some of those expensive -- expenses move from the branches to the central advertising budget.

So you'll probably see that continue to increase over the next couple of quarters.

But it's quite positive, we don't expect 30% increases in our marketing budget next year.

We do expect some increases to that budget, which we think is reasonable given that some of the success we've had in marketing recently.

Okay, got it.

And would you attribute a lot of the accessories seen with some of the other -- it seems like the sub-prime consumer lenders as a group has have done well this previous quarter to date.

Are you seeing kind of just in general favorable trends with sub-prime?

Or would you attribute a lot of this to your actions?

If you can just parse those two out?

So it's hard to know exactly what is going on in the market.

But we certainly have made a lot of internal changes to our practices and procedures regarding marketing over the last 1.5 years to 2 years.

So we certainly attribute a lot of that success to the changes we made here.

And those things have led to a higher-quality customer as well and some of those things have obviously helped in charge-offs down the road.

Yes.

So we actually like we've had the success, despite pulling back on lending to the lower credit scores in our segment.

And at the same time, decreasing our cost acquisition.

Got it, that make sense.

And just last one for me, just following up from last quarter.

I think, John, you discussed that typically in the spring, you'd go through your credit facility, renegotiation.

Just wondering if there's any update on that.

Thanks.

Sure.

Those negotiations are ongoing.

And we don't expect any issues with extending that kind of facility this spring.

Thank you for your participation.

This concludes the World Acceptance Corporation quarterly teleconference.

You may now disconnect.

Yes, great.

So thanks for everybody's time this morning and interest.

And I'm sure we'll be talking some more with the other disclosures coming up with 10-K, et cetera.

Thanks for your time and interest.

And once again, we thank everyone for your participation.