Q1 2020 Earnings Call
Please remain on your lines. Thank you.
[music].
Today's call is being recorded before we begin management has asked me to inform you that this conference call may contain forward looking statements.
Any statements made during this call that are not statements of historical facts may be deemed forward looking statements.
Statements regarding current or historical valuation.
Receivables because.
Dependent on estimates of future events also are forward looking statements.
All such forward looking statements are subject to risks that could cause actual results to differ materially from those projected.
I refer to to the company's annual report filed March 16th and its current report filed April 16th for further clarification.
The company assumes no obligation to update publicly any forward looking statements whether as a result of new information further events or otherwise.
With US here now is Mr., Charles Bradley, Chief Executive Officer, and Mr., Jeff Fritz Chief Financial Officer of consumer portfolio services.
I'll now turn the call over to Mr. Bradley.
Thank you and welcome everyone to our first quarter conference call.
I certainly there are challenging times for the company, we have a bunch talk about we've made a bunch changes its sort of all landing in the first quarter, but we'll get through it and I'd sort of trying to address all those issues.
And into the questions.
So first of a quarter was great. We actually had a very good quarter. Certainly we ended the quarter got interesting, but you know will go through the specifics of the quarter.
But we were very pleased with.
How are you doing work origination is functioning great collections is great. So generally I was taxis and so you expect the first quarter to be good as much as the coded you know problems started sort of halfway through March it really didn't have an effect in the first quarter, which is why you know the numbers were good and we had good results.
In terms of the operation I.
The other thing Nektar when I talk about it we're going to talk about or the accounting changes.
We made a change to go to the seasonal change as of January 1st and so that's got them to a few parts to it and also now we're operating with bubble legacy portfolio at fair value portfolio. So again, it counties getting a little more interesting and what kind of walk you through all that as well and lastly of course isn't going to talk about the crown virus.
The coated you know again, it's a little harder to tell the total effect, it's going to have in the portfolio. We can we're going to walk through some of the effect. It will have in terms of originations collections in performance at least what our best estimates in those areas are again, there's some positives that actually come out at some of these things, which will address as well so let's get to it again.
The first quarter, we were very happy results. The just really straight across the board originations very good our sales and marketing departments in a great job in terms of penetration I'm, we're buying what we want to buy we're not buying too deeply.
Collections at a very good quarter, we had.
Very good DQ numbers very good last numbers its almost pretty much. The same that we were having this great start to the year and then we ran into this cobrand thing. So you know again that's.
I mean do about it but if you try and look at just the first quarter. It was an excellent quarter for the company.
Terms accounting changes, we had adopt we chose to adopt Cecil again, when we switched to fair value. The beginning in 2018 that was in anticipation of adopting Cecil January this year. So there's really no reason to make any changes to that I think any and it'll be better for the company doing it this way.
I'm going to let Jeff walk through some of those changes in a minute in terms of cobot again the problem. Because it is you know just too early to tell I think overall the company has a very strong program and how to handle it I think we put a bunch of different things in place to address the different parts of it and overall I think we'll get through it and then.
You know we can do just fine through the whole thing, but we're going to that in a minute as well so I'll turn it over Jeff to walk through the accounting and the financials an accounting changes.
Thank you Brad welcome everybody.
Beginning with the revenues so the revenues for the first quarter was $70.8 million, that's a 17%.
Decreased compared to.
The fourth quarter of 85.7, and a 20% decrease compared to the first quarter 2019 of course, the big component in the unusual component and the revenues.
For this quarter is the mark down to the fair value portfolio of $10.4 million. So the the fair value portfolio is as you probably know by now the receivables we originated since January of 2018.
The the manner in which we account for those.
Doesn't include any credit losses, rather they are baked into the level of yield that we recognized in the revenues and so every quarter, whether there was a.
Pandemic are not every quarter, we evaluate the carrying value of the fair value portfolio to determine if it is indeed stated in fair value and as a result of all those that happened at the into the quarter. We undertook in a project process to go through the components of the fair value portfolio.
Estimate what the to pandemic might do in terms of cash flows and defaults and severities and through.
Smelter by risk Department, and identifying all the credit demographics and characteristics of the fair value portfolio. The number that we marked it down was the $10.4 million that you see there and the revenue line.
Absent that the revenues are primarily of course comprised of interest income the legacy portfolio, which now represents 33% of the total yielded about 17.8% for the first quarter and the fair value portfolio, which is the remaining remaining 67% of the total portfolio yielded about.
5% for the quarter.
Moving on to expenses $67.7 million for the quarter, that's down 20% from the fourth quarter of last year and down 21% from the first quarter 2019, and the big change in the expenses is really the provision for credit losses, which I'm talking about when it here.
Most of the other core operating expenses were flat sequentially and up about actually.
10% or so year over year.
Interest expense also down sequentially, and we'll talk little bit about that as we move down the list here.
Let's look at the provision for credit losses for the quarter $3.6 million, that's down 83% from the December quarter and down 85%.
From the first quarter 2019, and as we've been talking about for long time, the legacy portfolio. The we've we've adopted.
We've elected to early adopter Cecil accounting method for this portfolio, which resulted in a single a lifetime allowance, establishing a single lifetime allowance for credit losses effective January.
First of this year and you don't see the impact to that in the PNM because it was strictly a balance sheet entry, where we established a $127 million and a lifetime remaining losses on the legacy portfolio.
And offset that with the tax affected entry to retained earnings the 3.6 million that we see in this quarter is our estimate of the impact of the pandemic the legacy portfolio.
Absent a pandemic there would have been I think zero provisions for credit losses. This quarter, because we have a lifetime Cecil allowance in place again, we worked with our risk Department and just made.
An estimate a judgment of what the impact on their legacy portfolio will be and it's still a little early to really fully understand with what the impact is it something we'll continue to monitor obviously.
Pretax earnings for the quarter $3.1 million, that's up significantly from what was essentially a flat fourth quarter of last year and up about 15% from the first quarter of 2019 net income for the quarter $10.8 million again up substantially from the flat quarter of the fourth quarter two.
2019, and again up substantially and of course, here's another unique aspect of this quarter.
We have an 8.8 million dollar tax benefit resulting from the cares act that was passed.
Two weeks ago to help companies and individuals get through the pandemic and when the cares Act was passed Theres couple of key aspects of that first.
It allows companies like us who happen to happen we did.
I will carry forward in the form of deferred tax assets on our balance sheet and now he's would've been tax benefits that we would have used prospectively offsetting future tax liability Bronco, Sam said that we could file a claim what's known as a carry back claim.
To recover those tax benefits and a form of a refund today rather than waiting to use them in the future and then they further said the companys all the companies who benefit from this can revalued those tax assets at the the old 35% corporate tax rate rather than the 21% corporate.
Tax rate that we had carry that we were carrying them on the books for so if you're still with me on that the the $8.8 million tax benefit. It was just writing up the tax assets to allow for the differential in the in the old tax rate and the current tax rate without the tax benefit. The net income would have been $2 million for that.
Quarter.
Diluted earnings per share 45 cents for the quarter, that's up again huge from the first quarter last year, where it was so a seven cents per share.
Again significantly influenced by the onetime or by that by the tax benefit.
The tax benefit the diluted earnings per share would have been eight cents per share.
Which still up from last year's a seven cents per share.
Going forward.
We expect the tax rate.
Not to be further influenced by this tax benefit and we're expecting a prospective tax rate a normal earnings of about 36%.
Moving on to the balance sheet.
Not too much changing here, except the thing that jumps out is the significant allowance for losses on the finance receivables portfolio as I mentioned, we adopted Cecil.
Established allowance on January 2nd to enter first or second how you look additive hundred $27 million that is intended to be a lifetime remaining allowance for that legacy portfolio.
Manner, which we the methodology we used for that is was a very data driven approach looking at all the sort of quarterly pools that made up the legacy portfolio and extrapolating out what their lifetime losses are likely to be based on past history.
On the debt side of balance sheet and might be important bench and at this time here that the warehouse credit facilities.
At quarter end were about 47% utilized so we have 300 billion of capacity and the warehouse in our warehouse facilities and had only consumed about 47% of that are $142 million at month and <unk>.
Brad will talk a little bit about the ABS market.
More after we're done here.
Moving on to somebody other metrics.
Net interest margin for the quarter was $43.8 million that's down.
25% from the fourth quarter and 28% from the.
From last year's first quarter. This is still significantly influenced by the the transition of the portfolio from.
From the old method of accounting to the fair value accounting.
Just one note that we usually make at this point was the blended cost of all ABS for the quarter was about 4.4%, which is about which is flat compared to the first quarter of 2019.
The risk adjusted net interest margin $40.2 million for the quarter, that's up a little bit from the fourth quarter by 10% and it's up 9% from the previous quarter. This is largely being contributed.
Benefits from a reduction significant reduction in the provisions for credit losses.
Moving on to core operating expenses as I said earlier operating expenses core operating expenses are largely flat sequentially and just up slightly about 8% year over year that percentage that we that we monitor closely of operating expenses as a percentage of the managed portfolios at six.
Only 1% for the quarter compared to 5.9% in the fourth quarter last year and 5.7% for the first quarter of 2019.
And that leads us to the return on managed assets pretax income as a percent of the managed portfolio its 0.5% for the first quarter.
And that compares favorably to 0.1% for the fourth quarter last year and 0.4% for the prior for the first quarter of 2019 remembering to that these results reflect the aggregate of 10.4 excuse me $14 million in.
Charges to the earnings for the quarter that we would attribute to the pandemic.
Couple of credit performance metrics the delinquency for the quarter ended at 12.4% that's an improvement over the fourth quarter of 15.5%, which has a seasonal improvement we typically see going from Q4 to Q1 every year and the delinquencies up just a little bit compared to 12.1% in the March.
Quarter of last year.
Annualized losses for the quarter.
Brooke basically, 7%, which is down from the fourth quarter of 7.9, and the first quarter of last year, where they were closer to 8% and as Brad mentioned, we really had a good credit performance quarter.
Not really materially impacted by the pandemic and we did as we do every year at this time.
Right.
Okay.
Receive some benefits from the tax refund season, both on the credit performance side and on the origination side.
Just one comment ABS market, we did do our first quarter ABS transaction 2020, a in January.
And this is long before the markets were affected by the pandemic blended cost of funds of that deal was 3.8%, which is up slightly from 2.95% for the 2019 deal we did on October.
But it's interesting to note that the benchmarks had had risen significantly and we got significantly tighter spreads on all the investment grade rated tranches compared to the 2019 deal. So the asset backed market was was really on fire and very receptive to our bond offerings.
For that first quarter transaction, obviously, there's it has to rebound from where it is right now.
With that I think I'll turn it back over to Brian.
Thanks.
Let's talk about growth virus in coated and how it affects what we're doing one of the first things. We did I think most people then as we tightened credit we wanted higher income higher payment income, we pretty much start making any exceptions to any of our programs and we raised the score across the board.
Obviously, we think there's going to be in effect.
And people, who don't silly, but so tightened the credit is an obvious thing to do.
Jason volume, we did around $100 million in March originations.
We did has dropped off significantly since then we would expect probably that number to settle in at about half for the next month or two or three depending on how long that social the social isolation Wyeth and social distancing.
You know that doesn't really it affects it started in the long term did were.
Poised for a very good growth here, but again, that's about what we would expect as Jeff mentioned in terms of warehouse line, we have plenty of room on those lines to handle that volume.
In terms of the workforce.
We do qualifies and essential industry.
However, we have said very early on I think sort of the beginning middle of March we sent everyone who could work from home to work from home. So that happened then.
We also have the ability to send all the questions people home and work from home as well however for the moment most of the collection people are working from the offices. We did have one office, where someone did catch the virus in that office now works from home and it works. Its you know I'm sure we'll lose some small amount of effectiveness from working from home, but overall it seems fine.
And the fact of the matter is at the volumes are going to be lower there's going to be enough people to sort of get the job done.
So having the technology so everyone can do their jobs from home is.
Very important to making this whole work and like I said before the fact that all of our people are still working no. One is sitting at home doing nothing in many ways. Our company can function just as well and as stated in his if this had never happen so that parts good.
In terms of expected losses, as Jeff pointed out the peer to peer value loss is 10.4, the legacy losses 3.6.
We looked a lot of different things were going to risk department be fair no. One knows exactly how long the extent of what the effect on the portfolios going to be so those are estimates and what we think's going to happen over the next six to 10 months again as time goes forward, we'll have a better idea, but since we're in the midst of it there's no reason not to be cautious.
We do know.
It's a little bit interesting is in the one hand, depending on how long. This takes him when people go back to work all the.
People have been getting their 1200 dollar check on the good news is every one of our customers qualifies for that check so everyone's been getting that check obviously our question folks are focused on getting some portion of that check sent to us for our payments.
Well you might expect as we go forward as a greater use of extensions to extend our customers have a problem.
They've been good paying customers, we would probably use an extension so again, depending on how long this last between the the check from the government and the cautious use of extensions. We could go through a few months without having a dramatic effect in the portfolio performance the longer it takes time and where that number could change.
Also.
We've been going to our job titles, and where our folks work and we probably don't have that much exposure in terms of.
Generally speaking of you picks or the restaurant industry, most waiters and waitresses and such don't qualify for our programs. So those kind of industries that are going to be dramatically hurt by this.
Probably don't carry over to my children to our portfolio certainly there'll be some but not really to the extent were probably overly worried about.
It takes something like the airline industry, which will be dramatically affected we probably don't have any loans to people working in airline industry because rolling unions. So there's different ways to look at it but weve spent some time on and we think leaking most of our job titles should be okay. Construction workers and if you compared to 2008 when low.
Loads the folks we would finance where in the construction industry are in construction industry related businesses that was a dramatic hit when that business just stop that shouldn't be that time. The case. This time and so we're optimistic and certainly getting those checks certainly helps too.
And moving on in terms of the repos.
Aren't a lot of repos going on the easy answer is we're going to try and run our business as effectively as we can and is normally as we can so collections continue originations continue but things like the auctions. The legal part the back end of the business in terms of collections those things, who all slow dramatically, we're not doing a lot of repos. Many states you can't do read.
Pose obviously, we're following those guidelines, but even things like bankruptcies in the trustees none of them are working either so we would expect the back end of the businesses. Both somewhat if not dramatically you know again that will stretch the timeline out a little bit, but we hope won't affect us overall, what we really one of things, we probably assure will be affected.
There is when the auctions open again there'll be lots of used cars and repossess car stacked up of those auctions. So we would expect hit in terms of liquidation value in the recoveries, we get once we got auction and again lot of those numbers are built into the reserves we've taken this quarter.
And looking at Wall Street.
You know as Jeff pointed out a warehouse lines are only half full met all of our lines or to your line none of them expired one of them expires at the end of this year. So we're probably in a very strong position, we learned a lot from 2008.
Heavier lines expire right about now would be a very bad thing ours down having a lines full would be a very bad thing ours or not.
Interesting noted we used to do our securitization to the end of a quarter. So we would have been trying to do securitization at the end of March than we would not have been able to get one done by doing the securitization in January the beginning of the quarter, we were able to get our security.
Securitization off at a very good price and put us in a position the weather. This problem much more easily as Jeff pointed out the fact that the government decided to send out letters skews around a wells backwards. We havent, we're going to have an influx of capital of $23 million again, very timely and gives us even more runway we weren't really in a liquid.
The issue, but with the check a minimum the government that gives us even more so we think we can run with the lines in the and the reduced volumes are running at for as long as we need to at this point, probably I mean, we would like to do securitization, but we probably because we would normally do one in the beginning of April but we're in a position where we could wait probably.
Depending on what it looks like we could wait as long as July or longer if we needed to but probably our target now would be to just do the normal July securitization currently in the market GM may see and Stanton there are both in the market. This week doing deals. Both those deals are investment grade and above Santander is subprime so we would norm.
Only sell down to double b or single B, we probably like to sell down to double b in a normal situation. So the fact that triple being above is all being sold already.
Probably bodes well that the market, we'll get there in the next month or so so we think the timing works for US there again I think liquidity is super important right now so we're going to manage what we buy I don't think we're going to have a problem. There is not a lot of people buying cars currently with all of people staying home. So I think the whole thing started dovetails out again some of the benefits are the 12 and knowledge.
Yes to all of our customers or is it usually great thing. The 23 million of liquidity is great thing. So we have a lot of good things, even though overall is not the perfect thing.
In terms of looking at the industry.
This is where it gets more interesting I think.
You know this isn't the recession, we were talking about and this is and how we ever thought it would happen, but you probably likely have had that arrive. We've said for multiple years that a recession have a interesting affecting our industry. This will probably feel that bill we've already heard lots of other companies are slowing down lots of companies have had layoff layoff a few comes.
And these have ceased to originate already.
It'll be very interesting to see the overall effect on the competitors in the industry and the good news is we're here over the long haul we don't have any of those issues. So.
We'll see but are the longer last I think the more painful to be for lot of our friendly competitors and you know who knows but I think this is something industry needed I think in the end it'll probably be beneficial all the people will hang around.
But again, it will be sort of walk to see how that affects everything.
Hopefully we've covered most of the topics I will open in now for questions.
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Yes.
Thank you.
Our first question is coming from.
David Scarf with JMP Securities.
Hi, good morning.
Good morning.
Thanks for a thanks for all the color bread, and Jeff and I hope everybody staying safe.
Hey.
Brett I'm wondering.
It is we look forward and you obviously highlighted there there are more unknowns unknowns at this point.
For the next couple of months sounds like you're.
Your expectations are the dislocations are going to lead to kinda by having the origination volume.
But.
Since we really don't know.
Hey, when social distancing sheltering at home is going and kind of the pace at which it ultimately.
He's is out since we're not just kind of flip a switch in a couple months by any means.
Yeah.
Any sense for.
How many months.
50% or greater reduction in demand origination volumes demand.
Look at what point do you sort of re address.
Maybe to fixed cost base of of the company it sort of this size.
Because it may be more than just a couple of months of reduce capacity obviously.
Certainly we're looking at all that you know weve.
It's probably I don't know maybe three things we care about number one of the liquidity you don't have any liquidity you got alter its problems our liquidity fine even before the tax refund I would put he was fine for the next three to five months.
[noise] excuse me.
With the tax refund is much long.
Goodness.
We would the tax refund as much longer so we're not really worried about liquidity, but the way you manager liquidities by how fast you originate.
I think region nascent volumes are going to be depressed for at least three month.
Thank goodness.
Maybe longer.
Well, we will do and initially our whole goal is to manage our originations based on liquidity.
What we would like to do is originating a low enough loans each month, we keep our loan portfolio at a static basis to the extent that is impossible. Because this thing drags out yes, we would look at reducing fixed overhead we would reduce costs everywhere we can.
Nothing else we've done this multiple times tubing times to be sure. So it's not the good news is and hopefully we learn from 2008, but if we had two we could go back to doing exactly what we did in 2008 and make all sorts of changes in all sorts of cuts to make sure everything survives.
We think we're probably in a far better position this time around.
I agree with you we don't know how long this will last.
Dealerships are open they are selling cars online.
We're actually surprised the volumes have been dropped further and they might.
So, we'll see but I think the real real trick here is to be able to sort of you know react and move any dynamic situation. You know the at this last too long or longer we'll have to play along with that you know the most important thing for us as we have liquidity to manage through it.
Almost no matter how long it takes you know if we have to cut costs, we will do it.
We think in the end, it's probably more of a three to five month problem than a six to 12 month problem, but we'll see it but you know the probably easy answer as you know it's early in its early in the whole process I think when people go back to work that will be a big step when they started coming up with different ways to do social distancing valve.
The Big step, we just don't know when those two dates are I guess the most important date for US is when the wall Street markets will start being normalized having a couple deals in the market. This week is already a nice step like I said, we're not even really focused on the next month or two but you know given the next couple of months you might think the wall Street markets would improve and get.
Something more to a functioning level, where we can access them, if we need to.
Yeah, I put a number on it but that's what we can do yeah no no listen I mean can appreciate all the Oh, the all the planning that's going around.
And given given so many unknowns maybe.
Maybe maybe one on the.
Just to forecasting side and then.
Q I mean.
Oh, so many variables have to go into.
The provisioning on the legacy and the Mark to market on the fair value.
I'm wondering.
What kind of broad assumptions about.
Used car values.
Job loss, you know I mean can you give us a little color on.
No.
How you would characterize the E forward provisioning and in markets that you've made if you.
Feel they were just.
Overly conservative little on the aggressive side or just kind of.
I guess given current you know current data in hand.
I'm, just trying to understand sort of what went into.
The forward outlook at this point.
Sure I mean easy part is.
You know experience helps we can look at the 2008 pools in the pools originate in that timeframe and how they perform if you use that as hopefully the worst case, that's a good place to start.
And so.
Should we assume that you know the shouldn't I mean, we really think the whole job last thing I mean for us as I said numerous times unemployment. The most important thing to have an effect and Howard portfolio performed.
So to extend unemployment doesn't spike and obviously spiking, but there's a different perception today with unemployment going up but lots of people just being furloughed and then having them come back. So you know we would we're probably make one assumption unemployment won't end up being as bad as 2008 and to that it won't last as long and.
So if we make that assumption in say 2008 performance is the worst it's going to be at least for the moment you probably from provision along those lines in terms of how the pools will perform.
As an quarter goes by and it gets better or worse, we'd have to readjust as those levels, but I think we're making what we hope to be relatively safe bet that our pool performance and this will again be the pools from sort of 2019 in 2021 perform any worse than the pools originated in two.
I wasn't seven in 2008, we use that as the guideline probably a pretty fair I guess it may end up being conservative, we don't know yet, but we'd rather be conservative than aggressive.
Great appreciate it thank you.
Thank you.
Thank you.
Our next question is coming from John Rowan with Janney.
Good afternoon guys.
I'm doing.
When you say, we're going to originate enough to keep our portfolio stable does that is that just you know summation of both the fair value in legacy portfolio or are we talking about fair value remaining stable, while the legacy continues to amortize off.
Well legacy is going to amortize off anyway. So what we made that comment we're sort of thing if our portfolios 2.4 billion EUR 2.5 billion, we would like it to stay there and try and lose a little ground on that number as possible. So that would be the level, we're trying to maintain and for us that would be something in the 70 million maybe.
Little bit more range. So right now we're going to give something that we're going to be giving up a little if we do 50 or so but you know again as little hard to tell but the real triggers are going to give up a little bit for three months form on six months you just don't know so I'm glad to keep that number.
But that's just looking at the entire managed portfolio as one unit. That's correct, yes, Okay. I mean, all nomination go to the fair value portfolio anyway, no I understand that I just wanted to make sure because if if if the assumptions the fair value portfolio remains stable and Oh, and the you know and the legacy portfolio continue to amortize.
It's obviously it will then the portfolio actually be going down the average managed portfolio. So I shouldn't make sure I understood. The distinction there okay, yes, absolutely right.
Can you tell me what the charge off the dollar value charge offshore in the quarter from legacy portfolio.
I think we have you taken back into it but I think to aid with it with the one would the day one adjustment the seasonal I'm not sure I can actually accurately back into it John I think I can tell you. It was it was about.
I'm trying to visualize my head about $20 million of legacy portfolio net charge offs. Okay. That's what I had gotten too.
So I mean, just if we were to back out all the seasonal adjustments all of the the tax benefit the fair value adjustment the change in the.
The provision for the fair value portfolio, and just took the charge off of your as a provision I mean, you guys would be losing money at this point correct. I mean is it safe to say that you know Cecil is really the main reason why you're actually remaining profitable at this point.
Well I'm going to see some provides the early adoption Cecil provides this kind of.
Odd or unusual transition, where when you're when you're recognizing the next losses for maybe the next four years and you take that out of the provision expense. Yes. Then you have this sort of a revenue windfall from those receivables and we didn't do it went into like a pro forma and I don't think we would do a pro forma that shows.
What the results would be without without seasonally because you'd have to put in some other provision expense and it's it's really kind of a moot point I mean, so we want to help people understand the result, obviously and what they represent.
And the cut the Cecil you know standard is just the cards that we were dealt and we're we managed it I think in the best way, we could buy two years ago being proactive and adopting fair value. So we minimize the impact of having adopted at this quarter.
It's worth pointing out I mean, the business is profitable for sure.
We adopt him from going with C., So and then going with fair value, you're actually hurting yourself going forward for with fair values as much as you got a little bit of a boost from some of the seasonal numbers on the legacy actually losing some of those numbers on the fair value. So it's much more of a pushing you might think.
Certainly taking the coated adjustments we've been taking has a significant impact you know that certainly we would hope would be a onetime effect.
For the basics of the business Evan change.
Okay. I mean, I know, obviously, you talked about you know being able to cut cost and stuff. It things go further but.
My comment here, it's just that.
It does business.
Regardless of the optics of how profitable looks undersea. So I mean, youre your salaries and expenses in DNA, we're still up 12% year over year, which is a fairly sizable number given what's kind of a stagnant portfolio can you just talk about you know regardless of the wholesale shifting cost cutting because of this pandemic where do you.
Is there any reason to think that you would cut costs or just trying to keep them stable as opposed to.
Double on nearly keen growth rate year over year.
No that we did some hiring but we've also got automation coming in we would expect those cost to go down substantially almost anyway, forgetting about cutting cost because of the cobot thing.
We're in a position, where we staff up expecting a big growth year, and then of course this isn't going to happen. So we've got some issues to work through plus we put into new technology that will take root over the next probably quarter or too that will allow us to really keep the overhead down as we grow assuming we get to grow so we're a little in a tough spot because we expected.
2020, the very good growth here and we were set up for it and we thought the technology would actually help that make it easier. The fact that we're looking at what we're doing now we're gonna have to look at that depending on how long this last and whether we get some real benefit within the industry from what happens so you're right but.
I'm going both ways the numbers aren't going up 12% annually for sure and there's room to make some changes there either way.
Okay, and what did you guys touched on your plans for share repurchases at all.
Well, we cant repurchase shares today, but we would probably think about doing that given the stock price.
Okay alright, thank you.
Thanks, John.
Thank you.
Our next question comes from Kyle Joseph with Jefferies.
Hey, good morning, guys that thanks for taking my question.
We've talked about the demand side of your business. It sounds like your volumes have come down about 50% like shipment focus over again.
Apply side.
And he started competitive disruption you've seen as a result, maybe asked because from what I've been reading sounds like used car prices are off more than your volumes. So have you seen only have an offset there from lower competition.
Are you know that's truly 64000 $9000 question because you know we are beginning to hear all the rumors going around the industry what other folks are doing.
Certainly a few people I mean, a couple of originators of quit originating a bunch of people who have had layoffs a bunch of people are tightening I would imagine almost everyone is tightening.
So, yes, we could actually be picking up some amount of volume from that affect.
To be perfectly honest, we would hope that number would be a whole lot bigger and a whole lot longer and get better. So we'll see we just don't know the only thing. We do know is we're not set up the way a lot of the other folks are we don't have a PE fund behind US we don't have different flow programs and things like that that we have to worry about whether they're going to be there in terms of.
Only pay but all we care about you know is the wall Street market and being able to do ABS deals when we need to so many ways. Our life is a little bit simpler than many of our friends. We'll have to see I mean, it's too early to tell we've heard rumblings of all sorts of different things in the industry, we can't really putting on what what's going to happen but.
You're right, we probably are picking up something it's just too hard to tell just yet.
Got it and then a follow up there.
Right.
Lets you adjust pricing at this point as it sounds like.
Well you know we were edging in pricing to see what I think once we get to handle on what the volume levels will be again, obviously, if we wanted to go lower we can raise the price a little bit and see whether we get the business with the price or whether it goes away. So if you remember that in this way to look at this sort of issue is March was great.
All the way through the end of March you know either out of inventory or no volumes and couldn't even tell anything was going on so now were two weeks into sort of the new world and it's just too early to tell but you know in one hand, maybe we'll get some more volume from other folks not playing.
Maybe we could get that volume with the price increase it says we just with two weeks in we just don't know yet all we know right now as volumes have slowed significantly in the in the first two weeks, which is exactly what we expected whether they stay that way they're going on further they pick up we just don't know yet.
Got it and then one last one I appreciate the color.
Some of your assumptions.
For for the fair value Mark in the incremental provision.
On unemployment and from a residual value perspective are you using.
As Nate as a model obviously.
Most recent and most relevant but.
Back in cash for clunkers, as well what sort of a assumptions are you making on.
Hi.
You know.
We would at some point our yard residual should be just as good as ever I mean, but at the moment you just don't know so you're right, though our parameters are you could argue if this thing doesn't last long and everybody got to check and we give out a couple of extensions and there is no serious job loss at least within our portfolio. We could we could fair this thing pretty well.
Well the extended 2008 that then there's real unemployment that's all of their game. So I mean, I just can't say right now which ended the spectrum you had.
You know.
Well, we want to do is the people go back to work and see really does unemployment and then see what effect on unemployment that what's left of that unemployment has in our people in our portfolio you just can't tell yet.
I appreciate that that's helpful.
Answering my question.
Thank you.
Thank you.
Now I'll turn the floor back over to Mr., Charles Bradley for any additional for closing remarks.
Thank you. Thank thank you everybody for attending the call. Obviously, there is challenging times, you know where I guess the good news is we're set up to do this we've we've we've spent a lot of time working on it in the last few months to make sure everything can work, we're a little bit lucky and sort of the way our industry works being a service industry that we can keep running we havent.
I had to close a plan or something like that you know all of our job titles are functioning and you know.
On the downside this isn't the take off for the year, we'd expected, we expected 2020 to be Super strong year, and it's obviously going to have a dip in some downside in the middle hopefully it comes back sooner and maybe the silver lining is this is the disruption or industry. We've been waiting for for several years and so you just don't know like I said importantly.
We can get through you know goods side, maybe this is positive changes for us the bad side is probably hopefully no worse in 2008 and given how early we are in the cycle. That's about all we can get too. So thanks for attending and mobile speaking next quarter.
Thank you.
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