World Acceptance's CEO Discusses F3Q 2014 Results - Earnings Call Transcript

Jan.28.14 | About: World Acceptance (WRLD)

World Acceptance Corporation (NASDAQ:WRLD)

F3Q 2014 Earnings Conference Call

January 28, 2014 10:00 AM ET

Executives

Sandy McLean - Chief Executive Officer

Janet Matricciani - Chief Operating Officer

Analysts

John Heck - Stevens Investment Bank

Bob Ramsey - FBR

John Rowan - Sidoti & Company

Bill Armstrong - CL King & Associates

Henry Coffey - Sterne Agee

Operator

Good morning, and welcome to the World Acceptance Corporation-Sponsored Third Quarter Press Release Conference Call. This call is being recorded. At this time, all participants have been placed on listen-only mode. A question-and-answer session will follow the presentation by the Corporation’s CEO and its other officers.

Before we begin, the Corporation has requested that I make the following announcements. The comments made during this conference may contain certain forward-looking statements within the meaning of Section 21Es of the Securities and Exchange Act that represents 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.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include the factors discussed in today’s earnings press release and in the Risk Factors section of the Corporation’s most recent Form 10-K/A and other 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, Sandy McLean, CEO.

Sandy McLean

Thank you, Sam and good morning everybody. With me this morning is Janet Matricciani, our new Chief Operating Officer, John Calmes, our Chief Financial Officer as well as several other members of our management team. I hope that all of you have had a chance to review our press release as well as our summary of results.

And at this point in time I will be more than happy to try to answer any of your questions?

Question-and-Answer Session

Operator

(Operator Instructions). And we will take our first question from John Heck with Stevens Investment Bank.

John Heck - Stevens Investment Bank

Morning and thanks for taking my questions.

Sandy McLean

Sure. How are you John?

John Heck - Stevens Investment Bank

I'm great. Thanks very much. Just as thinking about loan volumes, I mean can you give us any sense for new customer trends versus recurring customer trends? And anything you can make out of those trends in terms of making it kind of a discussion points about what the customer might be thinking or what opportunities you may have to get credit elsewhere?

Sandy McLean

I'm not sure, what kind of conclusion that you can draw from this. But I'll be happy to share with you some statistics. If you remember for the first six months of the -- through September of the year, our new customer, brand new customer loans in the U.S. were down about 7.7%. During the third fiscal quarter those new customer loans were down about 3.3%, while they are still down, this is a trend that we certainly think as the improvement.

Also our growth in the U.S. was between 5% and 6%. Our growth in Mexico was about 30%. So, we still see somewhat weak demand in the U.S. but hopefully things are improving a little bit. But I don't know what kind of conclusions to draw from that. We're certainly very conscious of our growth rates and then operations or evaluate all aspects of our collection, underwriting and all part of our operational business.

John Heck - Stevens Investment Bank

I guess operationally, I mean, I know it's hard to track the customers. But are you underwriting more severely, maybe as your [accruing] down is greater or are you able to determine whether customers maybe went somewhere else or have access to other types of credit in order to kind of try to assess what might be going on?

Sandy McLean

It is our believe that we have substantially changed our underwriting criteria over the last 20 years. I mean I think our process is a very valid process and it’s appropriate for our business. We do not believe our turndown rights can rhythm dramatically. However, the likelihood of the increased competition within our industry certainly could have an impact but that’s very difficult to try.

John Heck - Stevens Investment Bank

Okay. And then turning to credit; you said I guess in a sense of regression or kind of more normal rates of charge-offs historically. Are you able to kind of parse out a frequency versus severity component of this or do you have any conclusions on what might be going on or is this just sort of we are in the latter innings of the credit cycle so there is just a more normal kind of trend we should observe?

Sandy McLean

It’s very difficult to predict the trend based on results of one quarter. As you know we have 16 quarters in a row where year-over-year charge-offs declined and then we had three in a row where they’ve kind of increased dramatically. And then of course this past quarter they went from, I don’t know they went up by 1 basis…

Unidentified Company Representative

15.6 to 15.7.

Sandy McLean

15.6, 15.7, so certainly that is what I consider a trend to more normal charge-off rates that is the indicative of what’s going on the overall economy or is it, we’ve made a lot of changes, we’d continue to make a lot of changes around here. And we’re always adjusting collection policies and adjusting all aspects of our business. And anytime you make changes there is certainly periods of where we are going through transitions, where it takes our employees some time to get used to these changes. And maybe it’s an indication that they’re more comfortable with the amount of changes that we have made. So I would not attempt to indicate the change in any type of trend based on one quarter, but we certainly feel better, just the previous three quarter trend has been steadily slowed down.

John Heck - Stevens Investment Bank

Okay. And then one other question, what was the end of quarter share count?

Sandy McLean

$10.9 million.

John Heck - Stevens Investment Bank

$10.9 million, okay. And final, it seems like Mexico is going pretty well I wonder if you can talk about -- maybe for this calendar year, is there any change of plans there in terms of deployment of capital or focus on growth?

Sandy McLean

I think, no really. I mean we’ve continued to be very aggressive. We will end up - I forgot exactly how many offices, but all the years we will probably end up opening another 14 office standard between now and the end of the fiscal year. I think that the payroll and debt loans are becoming a little bit more import part of the overall portfolio down there and I think that’s a real good opportunity for us, but we certainly have not in any way shake a (inaudible) abandoned the traditional installment loan. So no, I do think there is a lot of good things taking place and we are excited about the possibilities.

John Heck - Stevens Investment Bank

Alright. Thank you very much for answering my questions.

Sandy McLean

You are welcome.

Operator

And we will take our next question from Bob Ramsey with FBR.

Bob Ramsey - FBR

Hey, good morning.

Sandy McLean

Good morning, Bob.

Bob Ramsey - FBR

I wanted to ask first about the incentive comp accrual, I know you guys highlighted that there was a benefit this quarter given the resignation of your former COO. Is there a similar accrue reversal to occur when Kelly actually, when her resignation becomes final and then is there any offsetting expense now that you have hired replacements from both the COO and CFO, is there additional expense that comes on board? I am starting to think about the timing of the incentive comp movements?

Sandy McLean

This will be a little bit difficult for us to track exactly first of all. To answer your question, about $600,000 of cumulative accrual compensation went through during the second quarter when Kelly initially announced her retirement, about $2.1 million went through during the third quarter when Mark announced his resignation. And we expect somewhere between $500,000 and $600,000 to come through during the fourth quarter, when Kelly actually leaves.

And yes, there is offsetting amounts of -- somewhere, for the quarter it is like $165,000 for three new participants. And I don’t have right on hand exactly the run rate of those three new participants. And then also Janet in all likelihood will be given a grant that will have an impact, but that’s subject to the timing and amount has subject to the compensation committee. So I don’t have all those numbers. But thirdly, it was a fairly significant reversal during the second and third quarter.

Bob Ramsey - FBR

Okay. And then obviously you guys saw nice loan yield increases on a year-over-year basis and you all highlighted the data, reflected the fee changes which you talked about last quarter. I’m just curious a quarter end to these changes; if your expectations have changed, I mean what you are seeing other competitors in the marketplace do, what has been kind of customer reaction, but sort of what’s you are seeing from the fee uptick?

Sandy McLean

Well I think, I believe that what took place during the quarter was kind of inline with our expectations that we kind of indicated previously that was -- and I think the increase was primarily due to that. It’s premature to determine exactly how this plays out over the course of the next four or five quarters, whether it will have an impact on demand and/or losses and so forth. And I really do not again not able to address what some of our competitors are doing because they are private, most of them are private companies and we really don’t have access to their information.

Bob Ramsey - FBR

Okay. Is it reasonable to expect that the I guess year-over-year increase in yields you saw this quarter should be the same or even greater next year as more of that portfolio kind of works through the new fee structure?

Sandy McLean

I really would not want to predict that. I mean I think you will continue to see it because obviously the first major quarter that they’re rolling in impact and it will take several quarters before the full impact of ongoing basis is known. So, I believe we will see an increase in yields, but to what degree, it’s hard to be very specific.

Bob Ramsey - FBR

Okay. Fair enough. That’s helpful. I guess last question I will ask is about your new COO. And I am kind of curious, both from your perspective Sandy and from Janet’s perspective. What is it about Janet that you guys thought would be a great fit for World? And then Janet, what is it about World that sort of drew you in? I don’t know a lot about your background, but it looks like you’ve got a lot of international and tech sort of experience which is not exactly -- I mean while World is in Mexico, not exactly how I think of this company. So, I’m kind of curious where both of you see the fit is being really good?

Sandy McLean

I'll start then I'll let Janet follow-up. But from our standpoint, the search committee found Janet to be very bright and very energetic and she has a tremendous amount of experience. And while she does not have specific experience in I would say the niche business that World is in, she does have a great deal of financial services experience. And we have a lot of talent within World that knows how World operates today. And we got four SVPs that I believe is as good as anybody in the industry.

And I think the Board and myself believe that Janet can come in and work with these individuals and possibly identify additional opportunities and possibly save the best of our practices and offer some suggestions to improve them. So, we're really excited about Janet joining us. And I think this will make this team a better team going forward.

Janet Matricciani

Yes. Bob, thank you very much for that question and for giving me a chance to mention why I've come to World, which I'm very excited about. In terms of my background, actually I have a lot of financial services experience. I was part of McKinsey Financial Services’ practice which included working on with [Blooming] of a situation in Jamaica in 1997 after the financial crisis, working with all regulatory bodies including government officials.

I worked at Capital One, very highly known for their data analytics skills for example, first in International Corporate Development then Installment Loans. I was responsible for multi-billion dollar portfolio in growing that business. A lot of experience in financial services in all aspects from marketing, operations; also at Countrywide Bank, I was the Key Strategy Officer and so across the wide range of financial products not just the mortgages and deposit, but also insurance services. And at Capital One, I had international experience in Mexico and other countries and of course as a Mexico business here at World and I speak Spanish.

Furthermore in my other work, I’ve had a great experience of the use of technology, particularly the use of Online World and how individuals use digital media and how that can be used with strong effect.

I feel that with my analytic skills and all my work experience, I can make a real difference to the company that I am excited to join, because it has been managed so well so long through recessions, through different environment with continuous growth, strong and successful management of Sandy and the team, now it can make intelligent decisions balanced with some reward well.

So, I feel there is a very strong foundation on which I can create both, encourage best practices work closely with Sandy, Don and the team to create an even better company than the excellent company that exists.

Bob Ramsey - FBR

Great. Thank you very much both. Go ahead, I am sorry.

Janet Matricciani

Wanted to make sure I answered your question, Bob.

Bob Ramsey - FBR

No, you did very well. Thank you both very much for your perspectives.

Operator

And we’ll take our next question from John Rowan with Sidoti & Company.

John Rowan - Sidoti & Company

Good morning everyone.

Sandy McLean

Good morning John.

John Rowan - Sidoti & Company

Just a follow-up on Bob’s question. Janet, you mentioned that you worked at Capital One. It’s kind of well known that one of your other peers has recruited from Capital One in the past in order to bolster decision analytics and bolster their live checks business. I was wondering if that had any -- at least for Sandy if that had any role in your pick and whether or not that’s -- would we expect World to go down?

Sandy McLean

Yeah, I could answer that, if you are referring to the live check practice, we did not have any plans of going down that road at this point in time, and it’s unlikely that we’ll do so in the near future.

John Rowan - Sidoti & Company

Okay. As far as the allowance goes, it was a little bit sequentially, any reason for that or what should be the trend going forward?

Sandy McLean

I’m not sure, I understand the question.

John Rowan - Sidoti & Company

Your allowance ratio right, was up a few basis points on a sequential basis, it seems like you added a little bit more to the allowance that you needed to. I am just curious if you are going to continue to build the allowance?

Sandy McLean

I think, we continue to follow the same type of practice as we did add $1 million or so last quarter that could have been reflected in part of the impact on a year-over-year basis, but we did not make any type of adjustment similar to that this quarter.

John Rowan - Sidoti & Company

Okay. And then just last one question, this may seem like an odd ball, but I know it’s a small part of your business, but I was wondering if there was any real divergence in the performance of like let’s say your World Class Buying Club and the rest of your business, and this just in part comes because some of the horrible results that we’re seeing coming out of the rental and retailers, which I think is somewhat comparable to the buying club. I was wondering if there was a divergence in the performance of that business versus your. Obviously…

Sandy McLean

There has always been a divergence in that business between the [regular installment loan] business, the loss ratios have historically been higher, our reserve ratios on that portfolio are significantly higher and I think the credit of the individuals making those loans are probably lower. So…

John Rowan - Sidoti & Company

Are you seeing more pressure in that business right now or is that just the status quo for you guys?

Sandy McLean

I think if anything, it makes ours -- it maybe down slightly, but given the size of the portfolio, it doesn’t show up within the consolidated total.

John Rowan - Sidoti & Company

Okay. All right. Thank you.

Operator

And we’ll take our next question from Bill Armstrong with CL King & Associates.

Bill Armstrong - CL King & Associates

Good morning, Sandy. We had recently four large banks announcing that they are exiting the so called deposit advance business which is obviously a payday loan type of product geared towards the self-run demographics. I was wondering if you are expecting any kind of possible influx of customer demand for your product as a result of this. And if you have any plans to or any ability to market directly to any of these customers to maybe capture some of this potential influx?

Sandy McLean

I don’t know that this customer is our customer and I don’t -- it would be very difficult for us to identify. I mean unless we change our marketing techniques dramatically which we certainly will be evaluating over time as time goes on, but I am not anticipating a positive or negative impact from those decisions, those banks, but that’s a very kind of a guess. I really can’t address that very well.

Bill Armstrong - CL King & Associates

Okay. Fair enough. And then just one quick follow-up; what was same-store revenues during the quarter?

Sandy McLean

6.1%.

Bill Armstrong - CL King & Associates

6.1%. Okay. Thank you.

Sandy McLean

All right.

Operator

(Operator Instructions). We’ll take our next question from Henry Coffey with Sterne Agee.

Henry Coffey - Sterne Agee

Yes. I think everybody has kind of picked up on a theme here Sandy that particularly at the COO level instead of bringing in a small loan professional, you brought in someone with a very complex skill set. At the CFO, I don’t know, I know a lot about your COO’s background, she is a -- we have colleagues that know her very well here at the firm. And at the CFO level, my guess is you’ve just done the same. We’ve seen Springleaf do this, we’ve seen (inaudible) do this. Is the notion that you are going to start investing in a more fixed level of infrastructure or is the focus going to be more strategic in nature?

Sandy McLean

Well, I’d like to think that going forward we will continue to be extremely strategic. But we are an installment lender currently and have no plans to change. But…

Henry Coffey - Sterne Agee

I am not talking about change, but your analytical set, at least based on the questions we used to ask your COO that he would never answer. We got always got the feeling at the analytical data he was working with could be improved. And we’ve seen other companies -- credit card background and…

Sandy McLean

There is definitely a place in our business to improve our data analytics on both the front-end and on the back-end and the way we do things throughout the process. So certainly, I mean we’ve had some capabilities. (Inaudible) our Head of Marketing has spent many years with Equifax and has experienced this, but we have not necessarily chosen to go down that road in the past, so. But I believe we all recognize that it's time to -- we embrace a technology, we embrace data and we embrace the analysis of that data to potentially improve on what we do day in and day out.

So, yes I hope that using the talent that we have in place, as well as the extraordinary talent that we brought into the company, and I hope that we can do a lot of things that will improve the way we do business in all areas.

Henry Coffey - Sterne Agee

Well I think just outpacing what we've heard this morning, it sounds like a good step forward. Thank you.

Sandy McLean

Okay. Thank you.

Operator

And at this time, there are no other questions in queue. I'll turn it back to our speakers for any closing remarks.

Sandy McLean

I just want to appreciate you all participating this morning. Thank you for your interest in World Acceptance Corporation. And if there are no other questions, you all have a good day. Thank you, Sam.

Operator

Thank you for your participation. Before concluding this morning's teleconference, Corporation asked again for me to remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act that represents 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 facts, 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.

Factors that could cause actual results or performance to differ from expectations expressed or implied in such forward-looking statements include the factors discussed in today’s earnings press release and in the Risk Factors section of the Corporation’s most recent Form 10-K/A and other 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.

This concludes the World Acceptance Corporation quarterly teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!