Q3 2019 World Acceptance Corp Earnings Call
Greenville Feb 6, 2019 (Thomson StreetEvents) -- Edited Transcript of World Acceptance Corp earnings conference call or presentation Thursday, January 31, 2019 at 3:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* John L. Calmes
World Acceptance Corporation - Executive VP, CFO, Chief Strategy Officer & Treasurer
* Ravin Chad Prashad
World Acceptance Corporation - President, CEO & Director
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Conference Call Participants
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* John J. Rowan
Janney Montgomery Scott LLC, Research Division - Director of Specialty Finance
* Kyle M. Joseph
Jefferies LLC, Research Division - Equity Analyst
* Vincent Albert Caintic
Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst
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Presentation
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Operator [1]
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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.
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Ravin Chad Prashad, World Acceptance Corporation - President, CEO & Director [2]
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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.
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Questions and Answers
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Operator [1]
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(Operator Instructions) We will now take our first question from Vincent Caintic from Stephens.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [2]
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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?
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John L. Calmes, World Acceptance Corporation - Executive VP, CFO, Chief Strategy Officer & Treasurer [3]
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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.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [4]
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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.
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John L. Calmes, World Acceptance Corporation - Executive VP, CFO, Chief Strategy Officer & Treasurer [5]
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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.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [6]
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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.
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John L. Calmes, World Acceptance Corporation - Executive VP, CFO, Chief Strategy Officer & Treasurer [7]
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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.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [8]
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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.
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Ravin Chad Prashad, World Acceptance Corporation - President, CEO & Director [9]
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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.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [10]
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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?
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Ravin Chad Prashad, World Acceptance Corporation - President, CEO & Director [11]
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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.
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Vincent Albert Caintic, Stephens Inc., Research Division - MD and Senior Specialty Finance Analyst [12]
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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?
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John L. Calmes, World Acceptance Corporation - Executive VP, CFO, Chief Strategy Officer & Treasurer [13]
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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.