World Acceptance Corp (WRLD) 2019 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.

(Operator Instructions)

Before we begin, the corporation has requested that I make the following announcements.

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 represents the corporation expectations and belief concerning future events.

Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Statements other than those of historical facts as well as those identified by the word anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing and similar expression are forward-looking statements.

Additional information regarding forward-looking statements and any factor that could cause actual results or performance to differ from the expectation expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earning press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2018, and subsequent reports filed with or furnished to the SEC from time to time.

The corporation does not take -- does not undertake any obligation to update any forward-looking statement it makes.

At this time, it is my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer.

Good morning.

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

I'm also joined here with Johnny Calmes, our Chief Financial and Strategy Officer; and Luke Umstetter, General Counsel.

I trust you've all had some time to absorb the Q3 release and the earnings transcripts.

So at this time, I'll go ahead and open it up to any questions.

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

So a couple of questions.

So you started your share buyback program.

I'm kind of wondering how aggressive you can be with your share buyback offer program.

And what sort of levels do you think you can -- you want to get to in terms of leverage you can put on in order to take you to a full run rate of share buybacks?

Sure, yes.

So we have started the buyback program.

We bought back -- through yesterday, we've repurchased around 267,000 shares, and we have a fair amount left on the authorization.

So there's now $48 million left on the authorization and around $50 million that we can buy back under the current debt terms.

We've always said that we felt like 2:1 debt-to-equity is fairly conservative for our balance sheet and performance.

So we're comfortable going to that level, and we'll just monitor the market and try to get as much along as we can.

Okay.

So do you have a sense of how quickly you'd like to get there?

Or is there sort of a pacing you'd like to do?

Just trying to get a sense of when the debt assumption started.

Sure.

We'd like to get there as quickly as possible, but we're limited by the volumes in the market, right?

So there's a limit on how much we can purchase on a daily -- under the daily limit of how much we can purchase.

So that will govern, to some extent, how much we buy back and, obviously, as well as having access to capacity of the debt facility.

Okay, that makes sense.

A little other ones.

On the -- when you think about your credit reserves going forward, could you maybe give us a forward look what levels you think are an appropriate level and then also where you think credit losses should trend from here?

So you've been seeing some nice growth in new customers.

I'm just kind of wondering if you could give us a -- just give us a sense of what we should be thinking about going forward, since it's kind of been a little bit tough to model, where we should be forecasting losses and where we should forecast the reserve level.

Yes.

So, I mean, a lot of that -- it's hard to project, right?

So a lot of it will be determined by our new customer growth.

So if we continue to accelerate our new customer growth, it could drive provisions higher or keep them at the same level.

Obviously, if we were to level off in new customer growth, you could expect the growth provision to level off as well.

So it's hard to say without knowing for certain what sort of new customer growth we'll have in the future.

Okay.

So the 17% charge-off rate that you had this quarter, is that sort of the right level?

Would you be comfortable going higher in order to try to get growth?

Just maybe give us any sense to how you're thinking about where you want to be in terms of the loss rate that maybe we can try to forecast provisions on our end.

Sure.

So the 17% loss rate for this quarter, as Johnny had mentioned, is tremendously impacted by the growth in new customers.

And we believe that growth in new customers is a good investment going forward.

So if you look at last year's loss rate and the increase from last year's loss rate, it's fairly substantial over this quarter.

But if you're looking for the whole year, it's somewhat marginal.

And going forward, we think that as long as it continues to be a good investment and we continue to see good opportunities to grow, whether it's through organic growth or acquisitions of other portfolios, and we believe the return is there, we'll continue to invest in it.

So going forward, to the extent that we believe it's still a good investment, I would expect to see similar loss rates as long as we're continuing to grow at the same rate.

Okay.

That makes sense.

The portfolios that you've been acquiring, could you describe like what's the -- has there been a good pipeline of portfolios?

And is there any specific characteristics of those portfolios you've been acquiring?

So over the last -- this is probably our third fiscal year of taking down fairly substantial acquisitions compared to what we've done in the past 10 years prior to that.

The common theme tends to be that we enjoy taking down portfolios that are 10 to 15 stores, ranging up to 100 stores.

We've also taken -- acquire portfolios that are within our footprint as well as clearly new states for us.

So last quarter, we acquired stores in Utah, which helps expand our footprint into a new state, but we also acquired nearly 100 stores within our current footprint.

Great.

And sorry, just the last one for me, and I'll get in the queue.

But the G&A expenses were up 16% year-over-year, and I'm just wondering if that's kind of a good run rate to think about in terms of your investments going forward.

When you're making the -- I guess you've increased your staff levels.

Is there any reason for that driver and also the higher marketing expense?

Sure.

Obviously, a lot of that increase was driven by the long-term plan, and we've included a schedule in the earnings release to show how that is front-end loaded.

So over the next 6 years, you'll see the expense related to that plan decrease significantly.

When we look at headcount, we have to add its [mega] increases, so as Chad said, we've acquired 97 locations during the year.

We've also had 21 -- we've added 21 new de novo offices during the year.

So there's headcount that comes along with that, but at the same time, we've been careful to focus on managing our accounts per employee.

So we have seen improvements in the accounts per employee even though we've seen increases in our headcount.

So we feel good about that, and we'll continue to focus on that and try and improve our accounts per employee, which is, effectively, our efficiency.

So with market expense, we feel like there's some attractive opportunities out there and we can still acquire customers at good returns, and we feel comfortable spending that money to acquire new customers.

Our next question is from John Rowan from Janney.

So easy one first.

Tax rate for next year?

So yes.

We think, long term, in the between 23%, 24% range.

It was a little bit lower this year, just -- we've had some state tax settlements and that have been favorable to us, so it's driven the tax rate down.

But long term, we still think it's in that 23% to 24% range.

Okay.

Just to go back to your comments about 2:1 debt-to-equity ratio.

This has been a theme that we've heard before.

There was a period in which around the same time, you guys did the less relatively large stock comp plan, there was a period of levering up, and you're buying back $130 million -- $200 million worth of stock per year.

It took a few years to go from a 40 -- a sub-1 debt-to-equity ratio to almost 2. How are you guys looking at it?

I mean, are we going to see $200 million a year of share repurchases?

What availability do you have in your revolver?

How comfortable are the lenders with the buybacks, with the open Mexico investigations still in place?

Just help us frame out the timing of this because it can be fast, it can be slow, and whether or not we can use history as an example here.

Sure.

Honestly, there's some uncertainty, and we don't know for sure, right?

So all we can say is that we intend to get back in the market and get back to that 2:1 as fast as we can.

But there's certain things that are out of our control and so it's hard to give you any sort of idea on timing on when we get there.

Can you remind me how much you have available on your revolver?

So the commitments on revolver right now are $480 million roughly, I'd say.

Yes, we have -- our fourth quarter is our big cash flow quarter.

And so we'll see where -- the debt outstanding at the end of the quarter was $308 million, and you'll see that come down during the -- over the course of the fourth quarter, to by about March 31.

Can you remind me if there's any covenant related to payout ratio, speed of repurchases?

I mean, can you just go lever right up to $480 million in any time frame necessary to generate earnings accretion?

Or is there a pacing required under the covenants?

Yes.

So there are restrictions on our restricted payments or buybacks out of that agreement.

So we are limited to 50% of our consolidated net income.

So as of right now, with what we've spent to date, we still have $50 million left under that clause.

But we'll add to it -- so we'll add 50% of our consolidated income to that each quarter.

(Operator Instructions) Our next question is from Kyle Joseph from Jefferies.

Appreciate you throwing in the stock-based comp table in there.

But just related to that, a modeling question, is there any sort of seasonality regarding those payments?

Or can we expect them to be kind of spaced out evenly over the year?

Well, so it's great investing, so it will be on -- every 12 months, you'll see a decrease, right?

So the grant was in October.

So the run rate will be steady through -- or stable through Q2 of next year, and then it will drop and then be steady for the next 4 quarters and then drop again, right?

So there's sort of some staggering and then clips in there.

But you should be able to calculate that based on the information we included in the earnings release.

Got it.

And going back to the acquisitions you were talking about earlier, can you give us a sense for the pipeline given sort of your target acquisitions?

Sure, yes.

So over the past 12 months, we've reviewed several very large acquisitions, some medium-sized acquisitions as well.

We are very thoughtful on how we price them, and so we've taken down a couple of the smaller ones.

We haven't yet secured a large acquisition deal.

When I say large, I mean $200 million, $300 million in ledger.

But they are in the market, and we do review them fairly regularly.

So I haven't seen a slowdown over the past year of what's being traded in the market or at least being marketed.

In fact, I think it's probably fair to say we've seen an uptick over the last 12, 18 months over what's out there, and so that's an indication, we assume, there is a fairly decent pipeline over the next year, 2 years.

Got it.

And then going back to kind of performance to really understand how new borrowers impact provisioning and the like.

But if we could sort of x those out and look at sort of your recurring customers, if you could give us a sense for the health of the underlying consumer.

Sure.

So for just returning customers and existing customers, everything looks fairly stable compared to historicals, from both a credit score perspective and from overall performance perspective.

Really, the 2 major drivers in the increase in our provision have been, one, just the growth in the entire portfolio, and that makes up probably close to around 60% of growth of the provision; two is the sheer weighting increase of new customers, which have grown so much over the past year.

I believe the actual portfolio increase is around 40% of new customers.

So that ends up creating -- if you look at the provision increase, somewhere around 30% of that is due to these new customers.

There is about 10% out there that's just other things, which could be the impact of taking on some of these larger acquisitions and pulling them into our portfolio.

It could be overall economic conditions, et cetera, right?

So that one, we're not really so sure about, but overall, that's what the increase has been due to.

It appears there are no further questions at this time.

I would like to turn the conference back to you for any additional or closing remarks, Mr. Prashad.

Thanks for joining us today.

This concludes our 2019 Q3 earnings call.

Thanks, everyone, for joining us, and look forward to next time.

Thank you for your participation.

This concludes the World Acceptance Corporation quarterly teleconference.

You may now disconnect.