Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

World Acceptance Corporation (NASDAQ:WRLD)

Q1 2009 Earnings Call Transcript

July 29, 2008 10:00 am ET

Executives

Sandy McLean – Chairman and CEO

Kelly Malson – VP and CFO

Mark Roland – President and COO

Analysts

Rick Shane – Jefferies & Co.

John Rowan – Sidoti & Co.

James Hom – Miller Tabak

James Bosch [ph] – Giles [ph]

Joe Gagan – Atlantic Equity Research

Bill Dezellem – Titan Capital

Marc Abizaid – Mohican Financial

Daniel O'Sullivan – Utendahl

Andy Wagstaff [ph] – Touchstone Investments

Jordan Hymowitz – Philadelphia Financial

Operator

Good morning and welcome to the World Acceptance Corporation's sponsored first quarter press release conference call. 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 announcement.

The comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act 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. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing amount of revenues that may be recognized by the Corporation, changes in current revenue and expense trends; changes in the corporation's markets; and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission.

At this time, it is my pleasure to turn the floor over to your host, Sandy McLean, Chairman and CEO.

Sandy McLean

Thank you, Vicky. Welcome to the World Acceptance Corporation first quarter conference call. As Vicky said, I am Sandy McLean, the company's Chairman and CEO. With me is Mark Roland, our President and Chief Operating Officer; and Kelly Malson, our Chief Financial Officer; along with other members of our management team.

I’d like to spend just a few minutes reviewing the quarter results and then we will be happy to answer any questions. I am once again very pleased with our quarterly financial performance, especially considering the current economic environment. Although in many occasions in the past we have stated that World is generally not affected by macroeconomic trends, the current environment is an exception. The dramatic rise in energy and food prices has an impact on everyone, especially our customers.

Net income for the first quarter was $12.1 million or $0.73 per diluted share compared to $10.9 million or $0.61 per diluted share for the first quarter of fiscal 2008. This represents a 11.1% increase in net income and a 19.7% increase in net income per diluted share when compared to the two quarterly periods. The large difference between the net income and the per share increases is due to the large number of shares that the company repurchased during the prior fiscal year under its stock repurchase plan.

During fiscal 2008, the company repurchased 1,375,000 shares for an aggregate purchase price of $41.9 million. While the company did not repurchase any of the shares during the first quarter, it still considers share repurchases to be an important part of its long-term strategy going forward.

Gross loans amounted to $632.7 million at June 30, 2008, a 16.1% increase over the $545 million outstanding at June 30, 2007, a 5.5% increase since the beginning of the fiscal year. While our loan balances increased, our year-over-year growth rate is less than in the beginning of the fiscal year. We believe our loan demand was reduced during the quarter as a result of the many stimulus checks that were distributed during this period.

We experienced higher than normal loan payoffs during the period that we generally expect during this time of year. We also believe that a large number of these customers will reopen accounts with us in the coming months as the need arises. The growth that we did have was fairly evenly distributed throughout the company with all states experiencing at least a 9% growth rate, and nine of the 11 states exceeded a 10% growth rate.

Acquisitions continued to be an important factor in our overall growth during the first quarter of fiscal 2009 as the company acquired approximately 4,375 accounts and 7.1 million in gross loan balances in 11 separate offices. Of the 11 offices acquired, seven remain opened and the other four were consolidated into existing locations. For comparison purposes, during the first quarter of fiscal 2008, the company purchased approximately 6,600 accounts and 2.7 million in gross loans in 16 offices. Of these, 12 offices remained opened.

As expected, we continue the expansion of our branch network during the first fiscal quarter. We began fiscal 2009 with 838 offices. We opened 28 offices, acquired seven and merged one, giving us a total of 872 offices at June 30, 2008. Of the 28 de novo offices, 25 were in the United States and three were in Mexico. Our plans for fiscal 2009 are to open 70 offices in the United States and 25 in Mexico plus evaluate acquisitions as opportunities arise.

Total revenue for the quarter amounted to $88.4 million, which is a 15.8% increase over the $76.4 million during the first quarter of the prior fiscal year. This corresponds to a 16.3% increase in average net loans when comparing the two quarterly periods. Revenue from the 730 offices open throughout both quarterly periods increased by 10.1%.

One item of special note, total revenue for the quarter was positively affected by the mark-to-market adjustments on our $30 million interest rate swap. This adjustment for an unrealized gain amounted to $800,000 in the first quarter was compared to a similar unrealized gain of approximately $400,000 during the first quarter of the prior year.

Delinquencies and charge-off continued to increase during the first quarter as a result of the ongoing difficult economic environment. Accounts that were 61 days or more past due increased from 2.6% to 2.9% on a recency basis and from 3.7% to 4% on a contractual basis, when comparing the two quarter-end statistics.

Net charge-off as a percentage of average net loans increased from 12.7% on an annualized basis during the prior year first quarter to 14.5% annualized during the most recent quarter. The 14.5% is the highest charge-off rate that the company has ever experienced during a first fiscal quarter. Previous higher charge-off ratios for the first fiscal quarter were 13.9% in June of ’05, 13.4% in June of ’03, and 13.5% in June of ’02. While we hope to see this rising trend in charge-off begin to level off during the quarter, the 14.5% is not far out of line with the company’s expectations given the current economic environment. Additionally, we did not believe that we’ll see reduced ratios for several more quarters.

General and administrative expenses amounted to $48.8 million in the first fiscal quarter, a 15.6% increase over the $42.2 million for the same quarter of the prior fiscal year. As a percentage of revenues, they remained consistent at 55.2% during both quarterly periods. Our G&A per average office increased by 2.8% when comparing the two fiscal quarters.

The company’s effective income tax rate decreased about 1% when comparing the two first quarter periods primarily as a result of the 265,000 adjustment to our FIN 48 reserves. The exposure on our federal mark-to-market issue was reduced as a result of a settlement by another company with similar facts, which provided guidance on where we should expect to ultimately settle (inaudible) issue.

Highlights of our expansion into Mexico include the following. 38 offices were opened in June 30, 2008, an increase of three during the current quarter. We now have approximately 38,000 accounts and approximately 18.7 million in gross loans outstanding. We had net charge-offs of approximately 183,000 during the quarter or 6.9% of average net loans on an annualized basis. And our 61-day delinquencies of 3% and 3.6% on a recency and contractual basis respectively. We lost approximately $\270,000 during the fiscal year, which we feel is very good in a rapidly expanding market. Finally, the company's annualized return on average assets of 9.7% and return on equity of 19.9% continued their excellent historical trend during the fiscal quarter.

At this time, we would be more than happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator instructions) We’ll take our first question from Rick Shane with Jefferies and Company.

Rick Shane – Jefferies & Co.

Good morning, guys. Thanks for taking my question. Two questions here. What percentage of the originations during the quarter were renewals?

Sandy McLean

Yes, Rick, bear with me one second. I can’t remember that number exactly, but we have it right here. 76.8%. I’m sorry, it took me a second.

Rick Shane – Jefferies & Co.

No problem. So, it actually declined from fourth quarter last year?

Sandy McLean

You know, Kelly?

Kelly Malson

I don’t remember out of the top of my head what the renewal percentages were for the fourth quarter. But you do have to remember during our fourth quarter, we do have a lot of paydowns because that’s when most of our – a large number of our customers are receiving their refunds. And though generally in the first quarter, that’s when they would start renewing again.

Rick Shane – Jefferies & Co.

Got it. And the second question is, given in terms of what you are seeing for credit and credit typically starts to soften a little bit in the back half of the year, where do you think losses could go?

Sandy McLean

That’s extremely difficult to answer. We don't really see drastic changes from where we are currently, but we are doing everything we can on a daily basis to monitor delinquencies and charge-offs, and we are really not changing our underwriting standard. So it just depends on how difficult the economic conditions continue to get.

Rick Shane – Jefferies & Co.

Okay.

Sandy McLean

So I really cannot – I cannot give you a percentage number, just on that.

Rick Shane – Jefferies & Co.

Do you expect that it’s going to continue to rise into the back half of the year?

Sandy McLean

I don’t believe that you will see year-over-year jumps any larger than what we saw during the first quarter. Of course, you know, we had a pretty substantial jump when comparing the first quarter of last year to the first quarter of this year. I don’t think we continue to see that type of increase, but once again, it’s very difficult to say.

Rick Shane – Jefferies & Co.

Got it. And then the last question, this is a little bit more conceptual, but – there are a lot of interesting trends that you see during the first quarter results. I mean, there was an impact of volumes associated with tax stimulus checks. It drove volumes down. Loan balances actually grew pretty strongly because that would suggest that payment rates weren’t that high, but at the same time, you didn’t see the benefit from tax stimulus checks in terms of credit quality. Is it fair to assume that what’s happening here is the portfolio quality is sort of segregating more to the end that you are seeing higher quality, your higher quality borrowers do better and significant deterioration on the lower end of the spectrum?

Sandy McLean

Well, I don’t think the spectrum – when you segregate our portfolio between the larger loan balances that does definitely have a higher quality customer versus the lower loan or small loan customers, either segregation between the higher end or lower end is very narrow. And what you consider a very good customer at one point in time could very easily become a charge-off customer in the near future just by depending on what happens to the individual circumstances. Our customers live in, as we’ve told you and as I said in the past, difficult economic times all the time just because of the nature of their economic circumstances. But it’s become even more difficult currently given the inflationary pressures of the two of the most important items that all of us have, the food and energy cost. I don't know if that's rambling or an attempt to answer your question, but –

Rick Shane – Jefferies & Co.

No, it’s the latter. Thank you guys very much.

Operator

(Operator instructions) Next we’ll take a question from John Rowan with Sidoti & Company

John Rowan – Sidoti & Co.

Good afternoon. One quick question, you said you didn’t repurchase any stock in the quarter, but your share count did go down. Is that just catch-up from repurchases late in the fourth quarter?

Sandy McLean

Yes. I mean, as you know, the average shares during the quarter and we did purchase a great deal during the fourth quarter.

John Rowan – Sidoti & Co.

Okay. That was purchases later though in the fourth quarter that flowed through to the average in the first quarter?

Sandy McLean

That is correct.

John Rowan – Sidoti & Co.

Okay. And there were no one-time types of items in your G&A expense, correct?

Sandy McLean

In the G&A, no.

John Rowan – Sidoti & Co.

Okay, thanks a lot.

Operator

(Operator instructions) Next we’ll hear from James Hom with Miller Tabak.

James Hom – Miller Tabak

On your facilities availability, is that $70 million? Is that an accurate assessment?

Kelly Malson

Availability. Yes, the availability at the end of the quarter was roughly $70 million.

James Hom – Miller Tabak

Okay. And just one last item, could you tell me what depreciation and CapEx was for the quarter please?

Kelly Malson

Hold on one second.

Sandy McLean

I apologize; we weren't anticipating that question.

James Hom – Miller Tabak

I understand. I know it’s not a large number, but I just needed to know some of the smaller details.

Kelly Malson

Depreciation was approximately $1 million consolidated.

James Hom – Miller Tabak

Okay.

Sandy McLean

What kind of capital expenditures did we have? I don't have the cash flow statement in front of me. I’m sorry.

James Hom – Miller Tabak

Okay, fine. Thank you very much.

Sandy McLean

Okay.

Operator

Our next question will come from James Bosch [ph] with Giles [ph].

James Bosch – Giles

Yes. Hi guys, thanks for taking the call. Couple of questions. One is, I wanted to get a sense of what’s early on in the final regarding roll-off rates. So what’s the percentage of delinquencies that are 30 days past due and how does compare to, let’s say, the last couple of quarters?

Sandy McLean

This is a number that we don’t normally disclose and we don’t vary from that.

James Bosch – Giles

Okay. Have you disclosed directionally in the past? Which way it’s going?

Sandy McLean

I certainly don’t mind doing that, but you know –

Mark Roland

They are up very similarly to the 60-day plus number that you already quoted.

Sandy McLean

They are up very similarly to the 60-day plus number that we just recently referred to.

James Bosch – Giles

Okay. Not in terms of the 14.5, but in terms of direction in other words?

Sandy McLean

No, that’s in terms of the delinquencies. If you remember, there were 3.7 versus 4.0?

James Bosch – Giles

Okay – I’m sorry, it was 3.7 this quarter versus 4.0 last quarter?

Sandy McLean

4 this quarter versus 3.7 last.

James Bosch – Giles

Okay. I apologize. And then one more question, in terms of you said that 14.5% charge-off rate, you are still comfortable with those levels. What’s the level that we should start getting concerned with? If it’s not 14.5, what levels do you guys get concerned with?

Sandy McLean

The 14.5% annualized rate is consistent with what we’ve had on a true annual basis for the last ten, eight years, except for one during the bankruptcies, if you remember. However, it is the largest for a first quarter. So if in fact that the trend continues to increase on a quarter-over-quarter basis by more than this 1.5% [ph] rough (inaudible) then we’ve got to take a look at things.

James Bosch – Giles

Okay. And last question, in terms of tax rebates, maybe what do you think of the tax rebates vis-à-vis charge-off rates? So in other words, I would think that the charge-off rates would have improved a little bit or somewhat because of the tax rebate situation. While at the same time I can clearly understand what you guys are saying in terms of lowering the amount of loan growth. But I’m wondering more in a charge-off basis what you think the rough impact might have been from tax rebates?

Sandy McLean

Well, normally I would agree with, as you know, every fourth fiscal quarter, which ends in March is always our best quarter from an earnings standpoint. It’s always a quarter when our customers are getting very large rebates. And it’s a quarter that our charge-off do in fact go down. However, given the size of these rebate checks, I think it did have an impact on our volumes as we stated, but those people they were having other difficulties and so forth did necessarily use those to pay off accounts and whatever. So it’s hard to quantify.

James Bosch – Giles

Okay. Okay, thank you very much.

Sandy McLean

Okay.

Operator

Our next question will come from Atlantic Equity Research’s Joe Gagan.

Joe Gagan – Atlantic Equity Research

I have a follow-up question on the question he just asked about the stimulus checks. Right. So you are seeing that the stimulus checks did not lower the charge-offs, but you are saying that you think that the stimulus checks lowered the volumes because people I guess have the money and didn’t need to take out loans. Is that what you are saying?

Sandy McLean

I’m sorry. What I was saying is that the possibility. We did not know for sure what impact the stimulus checks had on our charge-offs. We know that they went up and that’s kind of contrary to what you would expect, given the decrease in our volume. We also know given that the – what’s going on in the – and we generally don’t want to talk about what’s going on in the future, but we know that our volumes in the month of July are increasing when compared to prior year, just sort of loan volume, when you compare to prior year July quarter. So it’s – we are very pretty sure that the stimulus checks did have an impact on our volumes, and as a results probably had an impact on our year-over-year growth, but it’s extremely difficult to quantify what impact it had on charge-offs.

Joe Gagan – Atlantic Equity Research

But if they did have an effect on your volumes, why wouldn’t they have just used the money to pay you off? This doesn’t make any sense. So now, you did mention in the press release that some people were reluctant to take on new loans I guess because of the economic things going on? Is that – can you elaborate on that? Is that what you are finding, that people don’t want to take on more debt?

Mark Roland

The first part of your question, this is Mark Roland, in the first quarter when we are in our fourth fiscal quarter when our customers are receiving large tax refunds, those are averaging in the $2,000, $3,000, $4,000 range. And they certainly have implications with regards to our overall delinquency. These tax stimulus checks, especially at the levels that our borrowers were receiving them, were $300 for an individual, $600 for high end. That may have precluded a renewal of a loan of an existing loan, or perhaps done some other things. But for the most part, that was enough money to offset fuel, put some gas in the car, do something at the grocery car. It wasn’t as significant as what we see in that in our fourth quarter in terms of payoffs, paydowns, and reduction in delinquencies.

Joe Gagan – Atlantic Equity Research

Okay. But – now the gross loan growth was 11%, right, which I guess was 21% the year before. Right? So I guess my question is, forgetting about the stimulus check, are your people that work in your offices telling you that they are having a tough time generating new loans? Is that what’s going on?

Sandy McLean

Well, let's correct the numbers first. The gross loan increase was 16.1% when you compare the periods and it was like 18.5% as of the end of the fiscal year and similar to that last year. So the differences are not that dramatic.

Joe Gagan – Atlantic Equity Research

I thought I saw some 11% figure in there. What was–?

Kelly Malson

This is Kelly. The number you are referring is the volume number. So the volume number had 11% increase in the current year where in the prior year the volume number had about 20%.

Joe Gagan – Atlantic Equity Research

Okay. And so I guess what we can take from that is that the amount of the loan is going up, but the number of loans are not. The amount of the loan is going up higher than the number of loans, correct?

Sandy McLean

No. I mean, because you are dealing with the renewal volumes and so forth. I don’t – can you–?

Kelly Malson

Yes. In short, to answer your question, the average size of the loan made from a volume standpoint went up a very, very tiny amount.

Joe Gagan – Atlantic Equity Research

Yes. Okay. Okay. But my question was, I mean – so from what you are seeing here from – you said that the gross loan outstanding went up 16% and the loan volume went up 11%. Right? So the only thing I can figure out is, if the gross loan outstanding was 16 and the loan volume was 11, then the amount per loan had to go up, right? Is there any other mathematical answer to that?

Sandy McLean

No, a lot of it depends – as Mark said, possibly because of the stimulus checks, they did not come in and remove that loan this month. That doesn’t change the fact that his balance isn’t still there. It’s just that our loan volume per se for this current quarter was not as a percentage of the loan outstanding and so forth that were maybe not as high as they had been previously. But the fact that we are – as I told earlier, we are experiencing greater volume in July than we had in the same period of last July.

Joe Gagan – Atlantic Equity Research

Yes.

Sandy McLean

You know, I don’t think any quarter – what happens on any one quarter from a loan volume standpoint is it is indicative of what happens as far as your outstanding portfolio.

Joe Gagan – Atlantic Equity Research

Okay. One more question. So the charge-offs went up to 14.5% from 12.7%, right? So the – but your allowance as a percentage of gross loans is still around 5.5% and it’s been that way for a number of years. Is there a reason for that? Is that’s going to eventually go up you think or is that going to remain the same?

Sandy McLean

Obviously that’s something that the company and its external auditors discuss in great detail at the end of every quarter. And we have seen fluctuations in the past. We use certain models and so forth to determine the adequacy of those reserves. In the past, we have seen our charge-off levels go down and we did not reduce the allowance at that time, and we’ve seen them fluctuate up and we don’t change our modeling. But yes, to answer your question, if in fact this trend continues beyond a certain point, then that we have to continue to evaluate that. Then you will see how our allowance as a percent of loans also tick up.

Joe Gagan – Atlantic Equity Research

Okay, thank you.

Sandy McLean

Okay.

Operator

Our next question will come from Titan Capital Management’s Bill Dezellem.

Bill Dezellem – Titan Capital

Thank you. A couple of questions. Relative to share repurchases, since you did not purchase any in the quarter, would you discuss a strategy why you chose not to purchase any shares in the quarter?

Sandy McLean

I think a lot of it was due to the great fluctuations that were going on with the stock price as well as we were in the throes of renewing our loan agreements and so forth. And we just – it was not a priority during the quarter.

Bill Dezellem – Titan Capital

That’s helpful. And relative to your customers, would you discuss any trends that your customer base may be experiencing? I have to admit sometimes I’m not quite in touch with your customer base.

Sandy McLean

I can’t – I cannot – well, I guess the only way to answer that is the trends that they are experiencing are the trends that all of us are experiencing. If you are affected by the increases that are going on in energy and food prices, fortunately for you it is such a small part of your disposable income that it really doesn’t have an impact. But for our customers, it’s a pretty substantial part of their disposable income. I think that they are experiencing difficult economic circumstance.

Bill Dezellem – Titan Capital

In that same vein, does your customer tend to be one of the first that’s laid off and show when we hear about unemployment rate ticking up a little bit, that in fact your customer base may be more impacted than the general population?

Sandy McLean

Well, those are the economic trends that we have historically said really don’t have as much of an impact on us as other institutions, because our customers – they can find jobs. So even if they are laid off at a mill or something, they can find alternative sources of income, whereas the middle income individuals that get laid off from banks or large automobile manufacturing facilities and so forth, face totally different challenges. So I'm really less – well, I'm very concerned from an overall economy as what goes on with unemployment. But as far as World’s success and so forth, we’ve been extremely successful despite of what happens with the unemployment rates.

Bill Dezellem – Titan Capital

Sandy, really kind of your perception is that the bigger issue with your customer is their budgets squeeze rather than employment or some of those other bigger issues.

Sandy McLean

That is what we believe. That’s correct.

Bill Dezellem – Titan Capital

All right. Thank you. And then you had mentioned that July that the loan volume had improved and – has it bounced back to that 15%, 20% sort of growth rate that you have historically experienced?

Sandy McLean

It’s difficult to tell for one reason. Every – Julys are different. We have more working days, less working days. When does the 4th of July fall, when does the month end fall? I mean, we’ll know that on Thursday and for certain that it appears to be reaching a more normal level than this kind of the depressed or suppressed level of volume that we saw for a large portion of the first fiscal quarter.

Bill Dezellem – Titan Capital

And in response to – not response, but following up on prior questioner’s question relative to the loan volume versus the loans outstanding, the loan volume, what you are talking about there is the amount of new loans that you write in any given quarter. Is that a correct definition?

Sandy McLean

That is correct in a sense that it covers three types of loans. It’s loans to new customers, it’s loans to former customers that are coming back in and taking out new loans as well as renewals of loans to existing customers. But that is correct. When we talk about loan volume, that is the dollar amount of new loans written during the period as opposed to balances outstanding.

Bill Dezellem – Titan Capital

And one of these things, if we make – I just want to make sure we're understanding how you're thinking about your business, that with these stimulus checks you are feeling that there were less renewals, so customers who had had loans that pulled the balance down a bit and enough that you would be comfortable writing them a new loan and letting them walk out of the branch with a check. That given that they actually receive the check in the mail, the stimulus check, you customer didn’t have a desire to do that renewal is the way it appears. Is that what you are trying to convey before?

Sandy McLean

It’s not only renewals. It’s new customers. Apart from that normally may have come in this time of year for whatever reason, to take a vacation or for whatever reason, may not have felt the need to do that during this period because he did receive the stimulus check at that point in time. But from a – on an overall standpoint, we actually had less new customer loans made during the quarter compared to the same quarter last year, although we were that much larger. But that’s why we believe that we’ll see the – we’ll get the benefit as we go forward.

Bill Dezellem – Titan Capital

And then lastly, as we speak about just the World underwriting, would you please remind us when the last time as that you changed your underwriting standards?

Sandy McLean

We’ve never really changed those underwriting standards from the standpoint that we go through a very thorough application process. We determine or attempt to determine all available income that our customers have and then we’d attempt to determine all of the debt that that person has outstanding in the process of calculating a pre-income. And once we determine that pre-income, we look at the normal expected amount of payouts on a normal – I mean, you have to live and so forth. And if there is money available to repay us, then we consider that a good loan. Now the only thing we may change is the amount that you normally expect because of some inflationary pressures that our customers are facing now, but the process is the same as it has always been.

Bill Dezellem – Titan Capital

That underwriting criteria has not changed for 20 or 30 years then?

Sandy McLean

Well, the company has been around since 1962 and the process has always been very good.

Bill Dezellem – Titan Capital

Okay. Thank you both.

Sandy McLean

Okay.

Operator

Next we’ll hear from Marc Abizaid with Mohican Financial.

Marc Abizaid – Mohican Financial

Yes, hi. Can you give a bit more color on your experience so far in Mexico, how many locations you currently operate, how many you expect to open in the remaining of the year, and how you see the business going forward?

Sandy McLean

Yes, I’d be happy to. We currently have 38 offices. We expect to open – we’ve already opened three and we expect to open a total of 25 during the year, which will take us to 60 offices as of March 30, 2009. We are experiencing an extremely – we are very pleased with the growth that we are experiencing there. And so far, we are very pleased with the performance of the portfolio. The reason we’re still not making money is because we have so many new offices that have not been open long enough to have reached a critical mass necessary to support the expense structure. With those offices that have been open for going on – little over two years, all of those are performing extremely well. And we believe as the number of offices in Mexico grow and we have a more mature offices, then it should be extremely profitable for us, for indefinitely. We just think the prospects there are outstanding.

Marc Abizaid – Mohican Financial

Okay. And how do you target which regions in Mexico you are going to move into? Is it mostly border-type regions, or–?

Sandy McLean

Just to give you some examples, and primarily initially we have focused on the northern part of the country, but certainly not necessarily just over towns. But as of right now, I’d just give you an indication of some of the towns that we are in. We are in Juarez, Matamoros, Reynosa, Monterrey, Saltillo, Chihuahua, Torreon, Nuevo Laredo, and Casas Grandes. And these are primarily north and just kind of surrounding the Monterrey area. And that is our intent to go throughout Mexico, except currently we are kind of avoiding the Mexico City area.

Marc Abizaid – Mohican Financial

And how would you describe the competition in Mexico?

Sandy McLean

Certainly on a comparative basis, it’s substantial less competitive than what we see in the United States because of the historical lack of credit. But as time goes on, it will become more competitive, but it’s such a tremendous market, but that should not be a serious problem for many years to come.

Marc Abizaid – Mohican Financial

And the regulatory environment in Mexico?

Sandy McLean

It’s been extremely good. It’s – we’ve been very pleased and we are a (inaudible) there that is a regulated body. But it's not heavily regulated and it gives us some protections. And I think it’s just a very good environment for us to operate.

Marc Abizaid – Mohican Financial

Okay, thanks. And then back here in the US, how many branch managers do you currently have?

Sandy McLean

One for every office and we have – we have currently 834 offices and so each one – we have one for each branch.

Marc Abizaid – Mohican Financial

Okay. And how would you describe the turnover of those branch managers?

Sandy McLean

Branch manager turnovers running about – somewhere around 20% on an annualized basis?

Marc Abizaid – Mohican Financial

Okay. Is that increasing or stable or–?

Sandy McLean

Been very stable for the last two or three years.

Marc Abizaid – Mohican Financial

Okay. Okay, thank you.

Sandy McLean

Sure.

Operator

Our next question will come from Daniel O'Sullivan with Utendahl.

Daniel O'Sullivan – Utendahl

Good morning everyone. Just a couple of follow-on questions to Mexico. Sandy, can you elaborate a little bit more why you don’t think Central Mexico is attractive for you guys?

Sandy McLean

It’s not particularly Central Mexico, it’s Mexico City proper. And it’s because of safety concerns for individuals from the United States traveling there as well as for our own employees in that market.

Daniel O'Sullivan – Utendahl

Okay.

Sandy McLean

Until we feel more comfortable moving around Mexico City, there is plenty of places to go to avoid that.

Daniel O'Sullivan – Utendahl

Okay. And also in Mexico, obviously you guys are much closer to than we are, can you give us a sense of the trends in the economy there, and any impact on your consumer base?

Sandy McLean

As far as trends and so forth, I don’t know that – I mean, I know that it’s been pretty good from the standpoint that the exchange rate has acted favorably over the last year or so and that they are not faced with serious unemployment to my knowledge. But I really can’t get in – I personally just can’t get in any real differences. Some of the things that we are faced with the United States aren’t there. Fuel prices are heavily subsidized in Mexico. So we are not seeing wild fluctuations in what it’s taking those folks to fill up their cars with gas. And food similarly is not – doesn’t be under that kind of pressure as well.

Daniel O'Sullivan – Utendahl

Okay. But I mean, food prices are probably increasing?

Sandy McLean

I don’t know. I couldn’t tell you for certain. I mean, we don’t – I don’t know the grocery store there. But in terms of eating, restaurants, whatever I have not noticed a substantial change at all. We are not seeing a deterioration in credit quality at this point in time.

Daniel O'Sullivan – Utendahl

Okay. And I’m sorry if I missed this, I actually joined the call a few minutes late. But can you update us on your planned store openings for fiscal ’09?

Sandy McLean

Yes. We plan to open 70 in the US and 25 in Mexico, plus whatever acquisition opportunities that may – we will evaluate those as those opportunities arise.

Daniel O'Sullivan – Utendahl

Okay. Actually to segue my next question, are you seeing small operators, given the credit crunch and the move up in charge-offs and things like that maybe under pressure and maybe some acquisition opportunities will arise this year?

Sandy McLean

We see acquisition opportunities on an ongoing basis. Last year the activity was not quite as – as you know, was not quite as – acquisition activity was not quite as great as in previous year. So far, the beginning of this year we've evaluated numerous small type acquisitions and have closed several. And I don’t know that it still have – we don’t see a major increase as a result of what’s going on at this point.

Daniel O'Sullivan – Utendahl

Okay. And lastly, can you give us a regulatory update? Is there anything lingering in any of the states you’re in right now? I know most of the sessions have ended, but is there anything still outstanding there?

Sandy McLean

The only place where there is a lot of – I mean, there has certainly been some activity is in Illinois. And I mean, a senator there is going through some kind of exploratory meetings and so forth trying to become more educated in the small loan credit. And there was the attempt made last year to try to do some kind of regulations to regulate the payday lending industry. And in all likelihood those discussions will continue into this year, but nothing pending except – and then again, on Senator Durbin's bill that was introduced on a national level for an overall 36% rate cap is certainly of a concern, but we don’t – we hopefully don’t believe that that will take hold and ever pass.

Daniel O'Sullivan – Utendahl

Okay. And lastly, can you give us a sense of what states maybe you are – are you looking at for next year?

Sandy McLean

Right now, the only possibility I think is Mississippi, but we don’t have any definite plan at this point. We have not established a timetable or identified any locations.

Daniel O'Sullivan – Utendahl

Okay, great. Thanks a lot.

Sandy McLean

Okay.

Operator

(Operator instructions) Next we’ll hear from Andy Wagstaff [ph] with Touchstone Investments.

Andy Wagstaff – Touchstone Investments

Hi there, thanks for taking my question. I wanted to – if you guys can, please give me the delinquency breakdown you guys gave on recency greater than 61 days and then also on a contractual basis? What were those numbers again?

Kelly Malson

This is Kelly. On a recency basis, it was 2.9% and on a contractual basis it was 4%.

Andy Wagstaff – Touchstone Investments

Okay. So that contractual number is flat with the fourth quarter, is that correct – or flat with the last quarter, is that correct?

Kelly Malson

The prior year first quarter – ?

Sandy McLean

The last quarter.

Kelly Malson

Hold on one second.

Sandy McLean

Bear with me one second. That is correct. Contractual was 4.4% and recency was 2.6%.

Andy Wagstaff – Touchstone Investments

Got it, got it. Couple of additional – and I’m hoping you guys can provide some additional color and really questions. Why is it that we can’t get the delinquency data on a quarterly basis by dollars and percentages?

Sandy McLean

Delinquency data on a quarterly basis by dollars and percentages. We do – I mean, we provide the 60-plus-day numbers for both recency and contractual in both dollars and percent.

Andy Wagstaff – Touchstone Investments

Right. But in terms of 61 to 90 and then greater than 90?

Sandy McLean

We just have – I mean, that’s not anything that we are adding. It’s never been a way that we've been presenting that information.

Andy Wagstaff – Touchstone Investments

Got it. Okay. And what is the total number of accounts that you guys have open and how many customers have multiple accounts?

Sandy McLean

We currently have 696,035 loans open. And I could not tell you at this point in time that exactly the percentage that have more than one loan, of those loans how many customers have more than one loan, but we believe it’s a 30 small percent – I mean, we know it’s a very small percent. But Mark, do you want to add to that?

Mark Roland

Our World Class Buying Club product, our sales financing product, is given almost solely to existing borrowers. So whatever that number is and Sandy has it right here.

Sandy McLean

13,000.

Mark Roland

13,000 customers I can tell you certainly are duplicated. We have states where that is the only duplication allowed. Our largest state, Texas, will not allow any loan duplication whatsoever. So there are states that allow do loans. Typically for World it will be, a guy has a loan at our Colonial Finance store on one side of town and maybe World on the other. But both branches are certainly aware that they have a duplicated account and they underwrite accordingly, given that they know that. But I would guess that the overall duplication rate in the portfolios of two actual loans is way, way south of 5%.

Andy Wagstaff – Touchstone Investments

Great. Okay. And then the last question is, the net charge-offs, obviously we have the percentage. Can you give me what the dollars of net charge-offs were in the quarter versus the year ago quarter?

Sandy McLean

Yes, I can if you'll bear with me one second. Net charge-offs for the quarter were 16.4 million and for the prior year quarter it’s 12.4 million.

Andy Wagstaff – Touchstone Investments

12.4 million. And what was it in the March quarter?

Sandy McLean

I don’t have that number, I’m sorry.

Andy Wagstaff – Touchstone Investments

Okay. All right. Thank you.

Operator

Our next question will come from Jordan Hymowitz with Philadelphia Financial.

Jordan Hymowitz – Philadelphia Financial

I’m sorry, all of my questions have been answered, just except for one. You mentioned Durbin bill, I’m not familiar with that bill. What does that do again?

Sandy McLean

It’s Senator Dick Durbin out of Illinois at the federal level introduced legislation somewhat mirroring the military 36% rate cap. It would be a federal rate cap. Our federal trade association, AFSA, believes that bill won’t even get a reading this year. It’s really posturing for some move next year to – as you are aware of Senator Obama and his Presidential platform, states that he is in favor of the 36% national rate cap. We believe it’s posturing for now to see what will happen later.

Jordan Hymowitz – Philadelphia Financial

And now that it’s going to happen now, but would a 36 pay cap, would that apply to all loans? I mean, it’s not just – obviously short-term loans, it would apply to payday or the Internet or – would this be national in scope?

Sandy McLean

It would apply to every loan made in the US and it’s not actually an APR. It includes things like late charges and whatever. So it in fact affect not only World and payday, but also bank credit cards and almost everything that you see.

Jordan Hymowitz – Philadelphia Financial

Okay. Thank you.

Operator

We’ll take a follow-up from Rick Shane with Jefferies and Company.

Rick Shane – Jefferies & Co.

Hi guys. Thanks for taking a follow-up. Obviously one of the questions that people really focused on is trying to figure out what the impact of tax stimulus checks are on loan volumes. And especially when you look at the store growth on an year-over-year basis, basically loan volume grew roughly in line with store growth. And again that gets a little bit skewed because I’m sure that over those 12 months, there is a ramp in loan volume within those stores. Do you have same store loan volume for 12-month old stores that we can look at for the first quarter? And it would actually be really interesting to compare that to fourth quarter same store loan volume growth. So that we can try to parse out what is the function of tax stimulus checks versus sort of a slowdown in loan volume.

Sandy McLean

I do not have that number. The only number that we calculate internally as far as same store sales type of things is the revenue, same store revenue that we mentioned earlier.

Rick Shane – Jefferies & Co.

Okay.

Sandy McLean

That’s not to say we couldn’t calculate it, but it’s quite a model to go through the process and it’s just not – it’s not something we have done in the past. I mean, like we said, it’s not something that we don’t have the ability to do. We certainly got reports and so forth, but it’s just not anything – I don’t have that number.

Rick Shane – Jefferies & Co.

Okay. I mean, I guess going forward if you continue to see what is relative weakness in terms of loan volume, that would be very helpful data. I mean, if this is a one quarter aberration, that’s one thing. But certainly given the data we are looking at today, I think people would be very interested in seeing that.

Sandy McLean

Absolutely.

Rick Shane – Jefferies & Co.

Thanks guys.

Sandy McLean

We'll take that into consideration.

Operator

Next we’ll take a follow-up from Joe Gagan with Atlantic Equity Research.

Joe Gagan – Atlantic Equity Research

One quick question. How much was the operating cash flow for the quarter and how much was the line item increase in loans receivable?

Sandy McLean

Operating cash flow I guess would be the same about the operating income was 21.8 million and the increase in loans receivable – Kelly, you have that?

Kelly Malson

Yes. Increase in loans receivable was roughly 32 million.

Joe Gagan – Atlantic Equity Research

Okay. And do you know why the operating cash flow like it was last year was 20.5 million and this year it was 21.8 million. Right? So it went up a very negligible amount, right? Yet–?

Sandy McLean

Last year it was 20.0 versus 21.8. It’s up 9%.

Joe Gagan – Atlantic Equity Research

Right, okay. So I mean, I have a – so, 9%. But I guess my question is, why do you think that – so, say it is up 9%, the operating cash flow, and how much was the net income up – the net income percentage up?

Sandy McLean

Net income was up 11.1%.

Joe Gagan – Atlantic Equity Research

Okay. And you’ve been kind of tracking that for a while where the net income is up more than the operating cash flow. Do you know why that is?

Sandy McLean

I mean, the only real difference between our operating income and our pretax income is our interest income, which has remained very fairly constant. I’m not sure – but therefore you income tax rate is generally about the same, so you would expect your net income to kind of track your operating income, if I’m answering your question correctly.

Joe Gagan – Atlantic Equity Research

I’m asking about the net income growth compared to the operating cash flow growth. Is this – in other words, the operating cash flow growth from my looking at it, has the operating cash flow growth has not been as strong as the net income growth? Any thoughts there?

Sandy McLean

That would be the fact that from – with the excess cash flow to a certain extent we give paydown or certain amount of our debt, plus we’ve had – this past year we’ve had a reduction in interest rates when compared to the prior year. So I mean, like we said, the primary difference between pretax earnings and operating cash flow is our interest cost.

Joe Gagan – Atlantic Equity Research

Okay. All right. Thank you very much.

Operator

Next, we’ll take a follow-up from Mohican Financial’s Marc Abizaid.

Marc Abizaid – Mohican Financial

Hi, just a quick follow-up on the long-term Mexico operations. I’m just wondering what are the impediments to more aggressive growth plan in Mexico? What would you have to see or when would you feel more comfortable with growing more substantially maybe through acquisitions or whatnot?

Sandy McLean

Our biggest impediment to growth there is acquiring – not acquiring, but attracting and training qualified individuals to manage the operations from both the branch level, the supervisor level and the VP level. We have not been moving people across the borders. I mean, we did initially took a few people over, but because there's differences in the salary structures and so forth, we have grown this from internally by hiring employees from the various cities where we are operating. So the larger we become, the faster we can train individuals and the faster we can accelerate that growth. And as far as acquisition opportunities, we are not aware of any – certainly if they become available, we’ll evaluate them.

Marc Abizaid – Mohican Financial

Thank you.

Operator

And at this time, there are no further questions. I’ll turn the conference back over for any additional and closing remarks.

Sandy McLean

We appreciate you being with us today. Thank you very much.

Operator

Thank you for your participation. Before concluding this afternoon’s conference, the corporation has asked me again to remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of Section 27-A of the Securities and Exchange Act 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. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing, amounts of revenues that may be recognized by the corporation; changes in current revenue and expense trends; changes in the corporation's markets; and changes in the economy. Such factors are discussed in greater detail in the corporation's filings with the Securities and Exchange Commission. This concludes the World Acceptance Corporation quarterly teleconference.

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!

Source: World Acceptance Corporation Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts