World Acceptance Corp (WRLD) 2019 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 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 informations regarding forward-looking statements and any factors that could use 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 34 -- 31, 2018, 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, Chad Prashad, President and Chief Executive Officer.

Please go ahead, sir.

Good morning.

This is Chad Prashad, President and CEO of World Acceptance.

I trust you've all had a chance to review the financials released this morning as well as the script.

At this time, we'll go ahead and open up to any questions.

Well, we'll give you guys a few more minutes for questions.

(Operator Instructions) We will now take our first question from Vincent Caintic of Stephens.

You talked on the prepared script about the new growth that you're experiencing.

I'm just wondering if you can give us just kind of a sense of how that new growth trend is growing.

And then saw that the provisions and the losses were a bit higher, perhaps as a result of that.

But maybe if you could explain that a bit further and if -- just given the strong growth that you saw with new customers, if we should be expecting maybe an elevated level of that credit trend to continue for a little bit.

Yes.

So there are a number of factors contributing to our new customer growth, mostly in the marketing and analytics improvements we've made over the last year or so.

Also, a fair amount of operational improvements in our stores to allow us to receive customers faster and begin processing applications faster.

So you can see that new customers are up tremendously year-over-year, which is contributing to what you're talking about.

On the provision side, I'll let Johnny chime in in just a second, but there are a couple of things that are going on with the provision for this quarter.

One is we have an unusually large amount of accounts that became due on the 29th, 30th and 31st of the month.

Roughly -- we've had roughly a doubling the number of customers who are requesting payment increases -- or, sorry, payment extensions on their first payment due date, which we allowed them to pick the date during the month, which they want their first payment to be due.

So what that resulted in is the number of customers who are due at the end of the month, with July and August having 31 days in the month this year and September having 30 days, which fell on a Sunday.

So one thing we did notice in October is an unusually large amount of payments coming in on accounts that were just recently past due, specifically on the 30th and 31st or would have been due at 30th, 31st of September.

And Johnny can speak more to the provision on that.

Right.

So as Chad mentioned, so we had an uptick in our sort of early delinquency.

So really -- especially in that 0 to -- 1 to 30 days past due at the end of September.

So when we look at delinquencies, the 0 to 60 days past due bucket was 23.1% at September 30 compared to 21.4% at September 30 of last year.

So when that flows through our model, it spits out a higher number that needs to be allowed for.

As we expected, we saw a significant increase in payments in the week following, so the first week of October.

And during the month of October, that front-end delinquency dropped back down to 20.8% as of the end of October.

And that's compared to 21.5% at the end of October of last year.

So it improved substantially from September as well as October of last year.

And you mentioned that our loss rates did increase, Q2 versus Q2.

But when you -- and a lot of that has to do with the fact that we have, essentially, a larger proportion of our portfolio that are new customers in recent years.

When you go back several years to when the company was growing at similar rates that we are right now, the charge-off rate is in line, even better than in some of those years -- some of those second quarters in previous years.

So we're still comfortable with the performance of that portfolio, and we're looking at those originations and how they're performing on a vintage, and they're performing in line with the past performance.

So we don't believe there's any weakness.

We're not dropping credit quality to achieve growth.

The credit quality is similar or better and it's just a function of having more growth.

Okay.

That's really helpful.

And on that one piece where there are high delinquencies in September, but that's come back in October, does that mean that -- would you expect a large reserve release this quarter?

And if there's any sense on where you can kind of quantify that, that would be helpful.

Yes.

It's still -- it's only one month of the quarter, right?

So I don't want to project too much of what might happen in the quarter, but that could be the case.

Okay.

Makes sense.

Just my last one is just on the competitive environment, just what you're seeing out there.

So you got good growth with new customers.

Heard that -- might have heard that some of the banks are getting into the small dollar, higher APR space, and I'm just kind of wondering what you're seeing generally with the competition.

Yes.

So we do see increased competition into the higher credit quality rating of the customers that we serve.

On one side, this competition also increases awareness.

So we're seeing more and more use of customers that's using the internet to find, source and educate themselves about different types of loans.

So what we find and what we believe are going to lead to is just more educated consumers in general but more customers who are probably entering the installment loan space now than would have entered several years ago.

From a competitive environment, we believe that's been helpful, and we could see that our new customer growth is at all-time record highs for us right now.

And we have no reason to really believe that -- even as other customers are -- other competitors enter this area that it's going to significantly hurt us from a growth perspective.

(Operator Instructions) We will now take our next question from Kyle Joseph of Jefferies.

I just wanted -- on the new customers, and my question is primarily about portfolio yield.

But what's the preference of the new customers, if you guys can quantify it for us?

Are they looking for sort of the larger balance, lower-yielding loan?

Or where are you guys seeing the best pockets of growth in terms of specific products?

So, so far our customer increasing -- our customer increases in the new customer area have been mostly in the small dollar area still.

Average loan amounts are still in the $1,100, $1,200 range.

We still haven't seen a lot of increases above $2,500.

So that remains very consistent over the last, we'll say, 4 or 5 years.

And then from a yield perspective, Johnny?

Yes.

So I think our point has always been to, as we attract new customers, to keep them on the smallest loan as we possibly can, right, because new customers are our riskiest customers.

So we want to minimize the loss given default.

And generally, we'll -- as those customers perform and demonstrate a willingness to pay, we'll increase them into larger, lower-yielding loans over that time.

So some of the yield decreases as you've seen have been a result of that, right?

So we've had several years of good new customer growth, and we're now growing that sort of older vintage customer into larger, lower-yielding customers as they have demonstrated good performance.

In some pockets -- in some states, we have reduced rates in general just due to try and increase demand.

It hasn't been widespread, but we did see a good uptick in growth in that -- in the states where we dropped rates.

Yes.

The major states that we dropped rates represented about 8% of the portfolio.

So it's rather small.

Okay, got it.

That's really helpful color.

And then just thinking about your growth opportunities going forward, obviously, you guys are seeing a good pickup in same-store sales.

It also looks like you expanded into a new state with a small acquisition.

But can you talk about your -- the balance of growth between new store builds versus ongoing same-store sales -- or same-store loan growth, sorry?

Yes.

Sure.

So our focus is on increasing same-store growth as much as we can over the next several years.

Part of increasing our overall portfolio will be increasing our footprint of stores, whether that's expanding geographically as we just did with a new state or continuing to flesh out the states we're already in.

But overall, our focus will be in increasing same-store growth as the major metric that we're seeking.

Got it.

That's helpful.

And then one just modeling question for me, and apologies if I missed it last quarter.

But given the Mexico sale, can you give us a sense for where you expect your tax rate to be?

Sure.

So going forward, we expect the tax rate to be around 24%.

(Operator Instructions) It appears there are no further questions at this time.

I'd now like to turn the conference back over to Mr. Prashad for any additional or closing remarks.

We've -- I think we've experienced a really good quarter this quarter and look forward to continued growth over the next several years.

We appreciate the questions we've had today and look forward to fielding them next quarter.

Thank you.

Thank you for your participation.

This concludes the World Acceptance Corporation quarterly teleconference call.

You may now disconnect.