Q3 2020 Earnings Call

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Comments made during this conference call.

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This time it is my pleasure to turn the floor it over to your host Jesper shock, President and Chief Executive Officer.

Good morning, and welcome to our third quarter earnings call I'm joined by junk I mean, our chief financial strategy Officer.

I hope you've all had gone to review the press release this morning.

This quarter. We continue to include additional information about our group specifically to highlight the increase in our portfolio of newer customers and the corresponding risk in the stock, but it has got good or last couple of years.

We believe vaccine to grow our uncover portfolio the great investment for the company and we are really focused on the expected return over the longer.

At this time, we elected not to call for any questions in there.

Thank you if he would like to ask a question for the signal by pressing star one on your telephone keypad.

We are using the speakerphone. Please make sure assumption is turned off too and I guess signal.

Again, I started want to ask a question football for just a moment to allow everyone an opportunity to signal for questions.

Undertake were first question from John Rowan.

Jenny. Please go ahead your line is open.

Good morning, guys.

Right.

The 7.4 million shares outstanding is that just down quarter over quarter because of averaging down from the prior quarters repurchase or is that a number at the basic figure because of the GAAP loss in the quarter.

The the shares outstanding.

The average shares outstanding.

Oh, yes. It is the core started at a lower about than the previous quarter right. So it's just you had talked about.

I just wanted to make sure that it wasn't because there's a GAAP loss that you're using basic shares as opposed to diluted shares.

No.

Okay.

Okay.

And then again just you know I know you made some changes to the debt covenants during the quarter. It looked like a change with the.

Fixed charge coverage ratio.

I want to be sure as we head into next year and that you're still don't have an exemption.

And your covenants save for net worth for any dilution can book value caused by seems a little option.

Oh, so it's not there yet, but we've had there isn't sort of those conversations with the banks and.

I expect to be able to.

Amended agreement.

Just for any impact from.

People impact.

Oh, yes are we.

Come a little further with the implementation of legal.

We ran.

The model has obviously were 40% my team and we expect the impacts to be between 10 and $20 million.

When we implement sequel.

So you even without the minute.

Coming in two we still have the fourth quarter two to build equity you without an amendment.

Doug will.

Okay, but it takes them, we hope and expect to them into rheumatologist for that.

Do you think the allowance only goes up by 10% or 10% to 20% in Europe , where 113 million. So yeah, even a little bit less than that you're saying the allowance only goes up $10 million to $20 million on six one.

Funny.

Or is that right.

That's the only if we were starting to go up couldn't we might as of December 31st.

If we applaud the new methodology to sort of very first that's I don't know could actually come down I'm, a little bit by marching towards or April 1st.

Due to a change the mix of our portfolio.

Okay. No I mean, that's just a much smaller build to the allowance and other lenders regarding Gandhi too.

Right, but you know we we yeah, we it's hard to the difference.

We haven't factor in the difference between where we're starting to where there's already and where are you in the.

Our current allowance methodology adjust pretty quickly for the impact of of new customers and their losses.

Flow through the allows fairly quickly.

Under our current methodologies that.

We would've expected to have a significant change.

Okay, and then just you know given the fact that you know we're kind of tied up <unk>, well I get to sort of a buck the question on whats excluded from the covenants because.

You know you propose a settlement with DFT with that you. Okay, you see for for $8 million I assume that that was just your proposals I haven't counter I don't know her going to tell me, whether they count or not but let's say that numbers actually drastically higher and you have you know last next quarter would that would that delta in book value also.

Excluding because again, we're sitting here, yeah, a little bit over $20 million, not even $20 million actually above the.

Your company, you're you're not worth covenant trigger all I'm just trying to understand you know when you're good step back into the market by buyback stock right. Because you know you've got she still coming to your still trading above book value right people is going to consume some capital probably Watson people are thinking your point kind of $20 million and the allowance, which still get stocks.

Affected you have to wait until Mexico is settled before you get comfortable putting your put back into water to buyback stock right. Because all these things if there's a lot better settlement in Mexico or seems was actually you know that she told but they're all consumptive of book value.

Right. So we feel like we can't elaborate too much on the the Gulf of Mexico, but we feel like it's.

A reasonable estimate for adults that settlement.

So I know you've got the rather coming in the fourth quarter that is our historically our largest earnings quarter. So we expect to add to equity.

Quite a bit during during the fourth quarter.

Okay. All right. Thank all have a us in Melbourne.

And I would take one next question from Vincent Caintic from Stephens.

Go ahead your line is open.

Thank you and good morning.

Just a I'll take a step back and more bigger picture question. So.

I appreciate you highlighted your long term fiscal 2025 guidance on the press release.

I guess from this point.

Adding there.

You could just discuss how do you how you envision sort of that's that's five year framework that before your framework.

Working and kind of from.

Where we're seeing it today, where you have VBS declined year over year, how does it went in how does it in flight and how to use how do you get from here that long forgotten.

Yeah. Good morning, Vincent this is Chad.

A lot of the way that we view. This the last couple of quarters is this is an investment into future growth both for the company, but also for MPS.

The last two years, we've grown our portfolio by the numbers here, a little over 20% and evolve into a number of her ends that not only.

Increased the rate that we are gaining new customers, but also to increase our retention of former customers and current customers.

And reduces the risk the portfolio in the back end do you. It's our firm belief that this initial investment.

In gaining new customers and increasing you know that the market share.

As long as we continue to retain customers and you treat them fairly if they stay with us over the next couple of years and the grow them into a less risky portfolio long term.

We believe it will pay dividends.

This this initial lump that we're taking is really just an investment to kind of expedite our overall long term growth objectives.

And it's one thing that we point out before but I think it's worth pointing out here again, a lot of this growth roughly half of that last two years has come from acquisitions that were opportunistic.

There are fairly large acquisition.

Do you.

When we see those and the price makes sense, we are happy to take them down and as long as we believe that they're accretive to the long term exactly what the company.

Same time, because a lot of work and growing organically and so this this quarter, we try to highlight some of our organic growth without the acquisitions just to kind of.

I have more of an apples to apples comparison.

Yeah. So this year, we grew 23% year over year.

Excluding acquisitions are a year to date, putting acquisitions, which is roughly the same as last year, a that hadn't solar cells or whatever other what have been in years past.

We believe that the combination of.

Rapid growth of new customers as well as retention that we're seeing and current an older customers will help us not only jumpstart the growth of portfolio that begin to right size. It quickly and I think we're beginning to see that are beginning to happen and we'll probably see that happened within this this quarter the fourth quarter for us.

So that's one side of the equation the other say the equation for hitting this long term earnings earnings per share target.

Is reducing the number of shares outstanding so.

We did go out earlier this year and began a fairly aggressive repurchase program.

Well, probably try to continue that.

Within the next couple of quarters and a lot of it had to deal with the equity as available and you know what but the share prices. So over the long term is it's really a simple as there's two things coupled with controlling our cost to service and then all of our models show that wasn't there were on target to.

This is the next five years.

Okay got you.

From your malls I guess.

So this year.

Yes.

Investments.

When do you when should we expect to see the harvesting of that grows.

More like a fiscal 2023 year event and then.

Yes. When you do you have your charts, which are really helpful. About your new customers versus your tenured customers and it seems like two years, it's the dividing points with it and this is your this past years. Your first year of accumulating these new customers or is it more of like.

I guess once we get to the two year Mark.

You will start to see that inflection I, just I guess im just trying to.

Just wondering when we see the harvesting the that you'd be at school yeah.

That's a great question. So you know from the the chart in the press release.

No, it's broken out into customers less than two years and customers in two years and it looks like a fairly substantial club, it's actually in a much more settlement that with the new Cecil methodology going forward, we have fairly granular.

For the types of customers and risks that we have so we'll begin to see it more rapidly I wouldn't say within the next couple of quarters, especially I see so comes into play will begin to see the reserves come down granted we don't make any large acquisitions that dramatically to.

Changed the distributions in the portfolio that the portfolio were remain basically the same as those customers age in six non nine month 12 month bucket you begin to see a rather rapidly.

Okay got it thanks much.

Yes. Thank you.

I'm good now take or next question, but before that as a reminder, please just add wants to ask a question.

Next question is from Kyle Joseph with Jefferies. Please go ahead your line is.

Hey, good morning, Thanks for taking my questions.

First as I wanted to talk about the competitive environment. Obviously, you guys have found pockets pockets of growth and I've been going very strong, but just talk about the competitive environment, both from other storefronts as well online.

Yes over the last couple of years I think one of the biggest changes we've seen in the industry is growth of not only awareness but.

Dapsone or sorry adoption of customers with installment loans.

The last five to seven years I think the growth within the entire industry has been tremendous a lot of that recognition of the product itself has I think to do with online lenders.

But also you know more credit reporting related to this industry in general so customer see it more as an alternative product to payday and kinda Olin rightfully, so and its just raise awareness in general and I think that's one of the the benefits that we've seen.

Great all of the industry in general rate, so with that being said we've done a lot in the past years, specifically to the target.

Customers, who are looking for a standalone bookings improved credit a we've rebranded ourself and company to more accurately reflect what differentiates us in the marketplace.

And the I think the other thing that is interesting here is that last couple of years, we've seen that customers who are interested in rebuilding their credit histories see us as a viable option for that.

And we've seen a lot of success with customers in that area.

So we've continued to see that and I think we've benefited from customer recognition of the chronic and also the improvements that we've made here in terms of soliciting that's customers and you kind of bringing them into the the marketing Sanofi will.

Got it that's very helpful. And then just factoring in Seattle and kind of that.

As you as your book matures can you walk us through sorry are you know they want to impact the seats on day, two I know you touched on it early or any highlighted the need potentially into equity so that would be an attack, suggesting number of what your reserve increase would be.

But more along the lines, how you're thinking about day two impacts.

Right.

I think the news the new model.

Could create some more volatility within the year, but it should be fairly neutral over the course of a year right. So we're anticipating using customer tenure.

In the Pacific loss rates to the project losses will be so in periods of large growth like the third quarter, where we add a water a lot of new customers.

And they're typically build towards.

Shorter tenured customers that could drive the allowance up but yeah, we see in the fourth quarter typically those lower heater customers will.

Pay all or target after the fourth quarter. So.

Yeah, because of that you could see swings throughout the year due to seasonality, but over the course of the year it should be fairly neutral.

As far as an impact on one of the vision all we believe it will be.

Yeah, I think the to kind of highlight a couple of things there related to potential acquisition. If you go back over this this fiscal year earlier in Q1 in Q2, we had a.

Fairly significant acquisitions.

And we began to see the show up and our provision and our loss rates in Q3, but to the Q2, then also into Q3 and potentially even the Q4 as the.

Portfolios begin to age when the differences with diesel the degree to take on of ours acquisition you would see.

The the reserve increase dramatically in that quarter right. So there could be the case in future, where we think on large acquisition and has dramatic and impacts to VBS within that quarter right versus having that spread out over time, but again, that's something we have to keep in mind and think about as far as.

What we think is the best potential long term investment for the company.

That's very helpful. Thanks, very much for answering my questions.

Thank you.

Hey specified one ask a question.

We have no further questions at this time, Mr for shot I'd like to turn the confidence back to you for any additional color thinking Mike.

Yeah.

Alright, if there's no other questions I appreciate all of you dealer joined today for the third quarter earnings call I look forward to speaking to you guys in the spring for the fourth quarter and cool. Thank you.

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