Q3 2024 Consumer Portfolio Services Inc Earnings Call
Good day, everyone and welcome to the consumer portfolio services 2024 third quarter operating results conference call.
<unk> call is being recorded.
Speaker Change: 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.
Speaker Change: Statements regarding current or historical valuation of receivables because dependent on estimates of future events are also 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 you to the company's annual report filed on March 15th for further clarification.
Company assumes no obligation to update publicly any forward looking statements, whether as a result of new information further events or otherwise.
Speaker Change: With us here is Mr. Charles Bradley Chief Executive Officer, Mr. Danny Bar, <unk>, Chief Financial Officer, and Mr. Mike Levin, President and Chief operating officer of consumer portfolio services I will now turn the call over to Mr. Bradley.
Charles Bradley: Thank you and welcome everyone to our third quarter earnings call again.
Charles Bradley: Give me another good quarter its title.
Speaker Change: Are we just basically trying to get comfortable with credits that we can start growing again.
So year over year from last year, and its continuing to be basically strong from the second quarter.
Speaker Change: The other highlight would be we think at this point as I mentioned, we're comfortable with the credit going forward and somewhat you know importantly, the paper from a 2022 in the first half of 'twenty, three which is what we'll loosely call. The problem problematic paper for us and everyone else is down to less than 33% of the portfolio. So it is.
Speaker Change: It runs off in the newspaper comes in.
Speaker Change: So they get a whole lot better so we're looking forward to that.
Speaker Change:
Speaker Change: Basically those are that's probably the other one would be the securitization.
Speaker Change: The rate drop we're now getting a better execution that market still remains very strong and so that's very positive for us going forward.
Speaker Change: Some other comments, but for now I'll turn it over to Danny to go through the financials.
Danny Bar: Thank you Brad going over the financial results revenues for the quarter 106 million is up 9% from 92.1 in the third quarter last year for.
Danny Bar: For the year to date period, 288 point to our revenues.
Danny Bar: Is 11% higher than the three months to three quarters for 2023 or $260 million.
Danny Bar: The top line revenues.
Danny Bar: Growth is driven by.
Danny Bar: Very good origination volume for the quarter $446 million is 38% higher than the 322, we did in the third quarter last year for the year to date period originations are one point to two 4 billion compared to 1.156, which is 16% higher than last year.
Danny Bar: <unk>.
Danny Bar: So the portfolio of the fair value portfolio, which drives our top line revenue is now $3 1 billion and we're yielding 11, 3% on that portfolio.
Remembering that the 11, 3% yield is net of losses the.
Danny Bar: The revenue for this quarter also includes a $5 5 million markup to the fair value portfolio and that Mark up as a result of better than expected performance on that portfolio.
Danny Bar: The prior year period the.
Danny Bar: Prior year quarter also included a mark up a $6 million for the fair value portfolio.
Danny Bar: Expenses during the quarter 93, 7%.
Danny Bar: Is up from 77.9 in the third quarter of last year for the year to date period expenses were $268 1 million versus 208 eight.
Danny Bar: And those expenses are primarily driven higher by increases in interest expense.
Danny Bar: Which is a function of both higher interest rates, but also because we have a larger portfolio and have a larger.
Danny Bar: Securitization.
Danny Bar: And a credit line that balance.
Danny Bar: The pre tax earnings for the quarter, $6 9 million compared to $14 2 million in the third quarter of last year year to date period pre tax earnings $20 1 million compared to 51 three.
Danny Bar: In the year to date period of 2023.
Danny Bar: Net income is $4 8 million for the quarter $4 seven was the June quarter and that compares to $10 4 million in the third quarter of last year for the year to date period, $14 1 million of net income versus $38 2 million in the year to date period last year.
Danny Bar: Diluted earnings per share is <unk> 20 per share compared to <unk> 19 last quarter and 41 cents per share last year for the year to date period 58 cents compared to a $1 51 for the nine months of 2023.
Danny Bar: Moving over to the balance sheet as I mentioned earlier, our fair value portfolio is now $3 1 billion or 17% higher than the $2 67 billion.
Danny Bar: As of 930 of 2023.
Danny Bar: Our securitization balances debt balance is $2 875 billion is 28% higher than the two point to four three as of 930 last year. So we've seen the.
Danny Bar: We've seen the portfolio grow faster than the debt balance is growing.
Danny Bar: Yes.
Shareholders equity is $285 1 million for this quarter compared to $2 $65, 9% to 7% increase year over year going over other metrics.
Danny Bar: Net interest margin is $55 million compared to $54 two in the third quarter of last year, that's a 7% decrease for.
Danny Bar: For the year to date period net interest margin is $149 5 million is there is 3% lower than 153 seven for the nine months of 2023.
Danny Bar: Core operating expenses for the quarter $44, six 6% higher than the $42 million last year for the year to date period core operating expenses of $134 million is 9% higher than $123 1 million for 2023.
And the core operating expenses as a percentage of the managed portfolio is now down to five 4% in the current quarter compared to five 7% last year, that's a 5% decrease.
Speaker Change: On an annualized basis core operating expenses were flat at five 7%.
Speaker Change: I will turn it over to Mike.
Thanks, Gary and originations and sales like Danny mentioned in Q3 or will be originated $446 million in new contracts, which is a slight increase month over month over a $431 million we did in Q2.
Speaker Change: Just want to note.
Mike Levin: In the month of October we just had our best origination month of the year and actually the second best month in the 33 year history of our company given our 24 growth to date, we have been able to build our portfolio of receivables to $3 3 billion at quarter end, which is an increase of 12% over the portfolio.
Mike Levin: Size of $2 9 billion at the end of Q3 'twenty three.
Mike Levin: If we continue at our current origination pace for the remainder of the year, we will have achieved a year over year growth rate.
Mike Levin: Between 18% and 20% so good year overall it is important to note very important to note actually that we have achieved this growth without loosening our credit to be more specific we have done this without raising our ltvs are changing our payment to income our debt to income ratios, that's very very hard to do in our space.
Mike Levin: Taking a step further we've achieved that growth while maintaining a strong average APR that is running just north of 20%. In fact, we've only been we've only had to minimally lower our price on the margins in various states and only to our best and be great dealers. So we're running a strong APR growing and.
Mike Levin: Listening our credit at the same time.
Mike Levin: The growth has come organically through improving metrics, such as funding dealers dealer loyalty and capture with our current roster of 103 sales reps we.
We have been.
Mike Levin: Marching up our sales force, we added roughly 17 sales reps and added are fortified 12, new geographic territories in Q3.
Mike Levin: We've actually added 23 sales reps so far in 'twenty four that's the best growth rate, we've had in our sales force and a couple of years.
Mike Levin: We're also starting to see results of our multiyear initiative to add more large dealer group business to our portfolio.
Mike Levin: We did $119 million and large dealer groups originations in Q3, which is a 21% increase over Q2, and a whopping 40% increase over Q1.
Mike Levin: We have taken our largest dealer group from 21% of our originations at the beginning of the year to roughly 28% at the end of Q3.
Mike Levin: I also believe that there's significant room for improvement in this area of the business as we move forward.
Mike Levin: We also continue to bolster our efforts to provide our dealers with frictionless transactions. This goes to our brand and our stated purpose of having the best customer service in the industry, we've been able to lower our funding time to an all time low of $1 79 funding days, which is a dramatic drop from our historical average of roughly $3.
Mike Levin: <unk> funding days the faster the dealer can get their money. The March access, we're going to get to to get more business in the same in the same token we have been able to raise our same day funding to $17 three 5% of deals funded which is a significant improvement over our average same day funding of six.
Mike Levin: 5% in 2023 again, the faster the dealer gets their money tomorrow. After we are to get more business from that dealer.
Mike Levin: We have been able to achieve some of these results using AI on the front end of our business, which is speeding up processing, we're being able to check proof of income.
Mike Levin: Really quickly, we're able to get through Verifications and improve stipulations.
Mike Levin: With AI and without human interaction and with precise accuracy.
Mike Levin: The other thing that has helped as we have seen a higher penetration of E contracting in our business.
Mike Levin: So far this year and we expect that to get higher moving forward switching over to your portfolio performance are.
Mike Levin: Annualized net charge offs for Q3 were 753% of the portfolio as compared to 686% for Q3 of 'twenty three.
Mike Levin: Delinquencies greater than 30 days, which includes repossession inventory were 14.04% of the total portfolio as of the end of Q3 and thats compared to $12 three 1% as of the end of Q3 23.
Mike Levin: Diving, a little deeper we were able to knock down the DQ month over month for the first five months of this year and have seem to get it under control going forward through Q3.
Mike Levin: <unk> taken a step further looking at our <unk> on a vintage basis.
Mike Levin: All the way back to 2022, we have seen an increment we have seen incremental improvements vintage ever vintages from 2022 through the first three quarters of this year. So are trending downward on the CNS as we move forward through 2024 and into 2025.
Mike Levin: This is a testament to our early tightening of our credit in late 2022, and continuing into the first quarter of 2024. It also correlates to the implementation of our Gen. Eight credit Decisioning model that we've put that we set forth and October of 2023 and.
Mike Levin: And of course, I would be remiss without mentioning that it is also related to your good old fashion hard work by our servicing department.
Mike Levin: To that to that end, we have tightened our collection model.
Mike Levin: We've hired more collectors.
Mike Levin: In the back half of 2023 and enter 2024. This has allowed us to reallocate veteran collectors.
Mike Levin: The earlier easier accounts to the tougher vintages.
Mike Levin: And we've been able to leverage our smaller nearshore team to lessen the DQ role by hammering down on the potential of EQ accounts. That's one to 2009 accounts are extensions remained flat as a percentage of our portfolio. One note given the two hurricanes that rolled through Q3, we've seen minimal impact in both hurricane.
Mike Levin: <unk> in Florida, and specifically North Carolina.
From a technology standpoint, we recently migrated our Omnichannel collection system to the cloud, which provides us a more powerful auto dialer and will allow us to better communicate with our customers via text, which is by far the most important touch point and also email and chat we should see some collection lift.
Mike Levin: From this migration moving forward.
Mike Levin: Cloud migration will also allow us to launch our AI voice spot. After a successful pilot we expect the AI voice spot to further allow us to reallocate those veterans collectors.
Mike Levin: To tougher accounts and increase our call efficiency and promote self service payments.
Mike Levin: Yes.
Finally, looking at our portfolio performance as market against our competitors.
Mike Levin: Market analysis by certain bankers reveals that we are consistently outperforming our peers by up to 5%.
Mike Levin: In the P&L, starting from 2022 to present.
One final note before I take it back to Brad.
Mike Levin: And our ongoing battle against fraud, we integrated a new AI fraud score earlier. This year that we estimate are saved us nearly $4 million in losses to date.
Mike Levin: Those savings will compound as we move forward and we're also currently piloting another AI fraud score that we will that we believe will further lower losses going forward now with that I'll pass it back to Brad.
Brad: Thanks, Mike.
Brad: So looking at the industry I think.
Brad: Probably.
Brad: Kind of good about our industry is everybody's playing everybody's kind of doing what it's supposed to be doing there arent any real problems. Most everyone is still working through the 'twenty two early 'twenty three originations I'm trying to get a credit back in line.
I mentioned our credit now is we're very we feel very good about where we sit in the credit spectrum.
Brad: But one of the reasons to be able to grow a lot is because we like what we said and we're becoming a little more aggressive in the market.
The other players are still doing about the same thing some aggressive summer still trying to get through those problems, but either way the health of the industry is very good.
Brad: There have been no new entrants in our industry in a long time, which again I think just shows the that the industry has matured and only strong players are still here and that's important because you know when someone blows up and causes ripples within the oil industry. It also those kind of problems affect the ABS market and since that's where we need every quarter.
Brad: We want that market stays strong and as I mentioned it is.
Brad: I think.
Brad: And looking at the economy, everybody can say, it's all about the election and especially as it may be I don't think whatever the result is it will affect us in a tremendous way one way or another as we've said numerous hundreds of times, what we care about is unemployment unemployment is in a great position today I don't think that'll change Marriott who went through election.
Brad: I think the economy is in a very good position today, and so I think with a growing economy and very strong unemployment numbers the backdrop for us in terms of going next year and you throw in the fact that the fed is now lowered rates once and as expected a lower rates a few more times.
Brad: We now are coming into a perfect kind of place in terms of we're comfortable with our credit we are comfortable with our growth strategies and we're executing them. We're doing many other things in the sort of the back side of the business to improve things. So we as I mentioned before we were trying to get positioned for next year and I think we've done a wonderful job of doing that almost across the board.
Brad: With the economy being strong unemployment being good and the rates coming down and that's been in a position to grow substantially in the new year, we really the future looks quite bright for what we're doing.
Brad: With that I think I will see how the rest plays out we have one more quarter. This year and then we can.
Brad: I hope, we got off to a big start for next year, we look forward to speaking with everyone again some time in February.
Brad: Thank you for attending.
Speaker Change: Thank you. This concludes today's teleconference. A replay will be available beginning two hours from now for 12 months via the company's website at www Dot consumer portfolio Dot Com. Please disconnect. Your lines at this time and have a wonderful day.
Okay.
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Speaker Change: Okay.
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Speaker Change: Yes.