Q1 2020 Earnings Call

Some to the event center and event specialist will join you shortly.

Okay.

Thank you for calling much conference.

You too.

The world acceptance earnings call.

Your name with spelling.

Ryan series B R y and HP.

Hi.

And one of them every cut first.

978.

Seven 9011 create.

What company are you with.

Era A.I.E.R. J.

I you are able to get you right and okay.

Yes.

Welcome.

For the reasons I was I was just speaking to.

In regards to the provision.

It will.

React to to our growth right. So.

As we continue to accelerate our new customer growth.

We continue to see relative increases in the provision going forward.

So it's yes.

Obviously, our goal is to hopefully continue to accelerate or new customer growth.

And so as long as we is as long as we do that.

We may see those relative increases, but as you know a lot of the provision growth is just a function of.

A growth in the portfolio right, so our charge offs.

Increased 6.8 million during the quarter.

4.1 million of that was simply due to the increase in the average loans outstanding.

Right, so and another <unk> million in half of the increase in provision was just our general reserve.

Oh, no we applaud all loans.

Increased.

One and a half million this quarter because we grew.

Almost 95 million during the quarter versus 58.5 last year right. So a lot of that build and vision is simply due to growth.

Yes, and then the rest is related to.

The change in mix and the increase in new customers, which are has Chad said with our our our risky as customers.

Got you and for the new customers I guess, how does the pipeline look so are we going to see a lot of growth in new customers for the next year or two years, just sort of how you think about that and then is there a way to.

And maybe this is a strategic call, but is there a way to throttle that where if you have more customers, maybe you charge more and try to like.

Pace the level of growth in those new customers.

Yes, so we view a growth in the next couple of years and basically two channels you have organic growth and we have acquisition growth.

That we've experienced the last two years and we we can see.

For the foreseeable future continued steady growth on the organic side.

Which again, we experienced this quarter as well.

It seems that all the processes we have in place.

Throughout our acquisition channels.

As well as throughout our field operations throughout the company.

Continued support continued organic growth.

On the acquisition side, we've just positioned ourselves to be very opportunistic.

And so when the portfolios present themselves that are accretive to the company.

We are prepared to take those down.

We do see in the near future.

An increase in the number of potential acquisitions that doesn't always translate into.

Deals that we closed just based on.

Quality of the accounts and what we think it how we think it might work within our existing portfolio.

So I do see in the in the short term there is still that potential for more acquisitions in the short term as well.

Okay got you sorry that just for one more question I'll get back in the queue, but in terms of your acquisitions versus.

Your share buybacks when you think about your capitalist or.

Sort of what sort of hurdle rates on when you're thinking about say buying back stock versus these acquisitions could you give us a framework of how you think about that thank you.

Sure.

Yeah. So yeah, we have a a hurdle rate that we.

We use internally, yeah honestly want to want to share that.

Because we use it as we.

Price our acquisitions.

But you are right now, we feel comfortable with both acquisitions and ill.

Most acquisitions as well as the repurchase program. So we're comfortable with.

The where the share price is today and the return that should generate in the future.

Got it thanks very much.

As a reminder, it is star one to ask a question. We will now take our next question from Joseph of Jefferies. Please go ahead. Your line is open.

Hey, good morning, I'm just following up on the on the acquisition question. It looks like your branch count grew.

In the quarter or was that acquisition driven or are those de novo openings.

It was a little bit of both but it was a majority of that growth was through an acquisition. So I think.

The valuation we had during the quarter was around 50 locations and I'm, sorry, 100 locations.

And we kept 25 of those those open.

Without but we also had some some closures in and if you didn't have those in there as well, but the vast majority of the new locations. During the quarter were a result of the acquisition.

Okay, and when and when you guys are talking about acquisitions are you thinking about just portfolio acquisitions or or stores come what does as well.

Well book, both right. So ideally we can roll their locations into an existing location of ours.

But in this past case during the quarter. They were they had 25 locations that were either in.

Areas that we are currently or.

At least far enough away from an existing location of hours that it made sense to keep those those open.

Got it and then obviously your growth has been very impressive.

On on wrap my hands around what's what's driving this growth. Obviously you guys are outpacing call at the market level of growth is it is it marketing on your point is that.

Obviously aided by the acquisitions, but your same store growth is very impressive and I'm just kind of want to get your thoughts on what's driving that.

Yes, it's a combination of several things so portfolio acquisitions have definitely contributed to same store growth year over year.

Continued refinement and improvement throughout our marketing channels.

As well as as contribute towards that growth, but also.

Further.

Collaboration with our field operations and.

And growth mindset within our operations.

Has been very receptive to words, new customer growth.

All right and then one last one from me I understand gross and credit performance of new bar worse, but can you give us a sense for the credit performance of your existing customers any any sort of changes you're seeing there and then in addition to that give us or give us a sense for how you envision the reserve given sort of the evolving credit performance.

Yeah. So yeah I had mentioned earlier that there is the the increase waiting and new customers, but on the the more tenured customers with world.

Yes. So if you look at customers, who have been with us for at least a year.

Whether they have been with us and paid off their account and then come back to US are there with us continually for a year.

Out through several years.

Overall there their performance is the same too and he actually has improved in some areas.

So we feel really good about the strength of the portfolio, especially as the portfolio ages.

So what we have experienced recently is just.

Increased risk.

Of the overall portfolio just do the rating of just due to the waiting.

Of an increase and newer customers.

But for the more tenured customers we haven't experienced.

Any softness in and their charge off rates or delinquency.

Got it thanks very much for answering my questions.

Yes. Thank you.

And we will now take our final question from Clifford Sosin see I guess.

Okay.

Ladies.

Hey, guys. Thanks for taking my question.

Hi, good.

So.

Maybe just if you can just spend a moment walking through the analyses that you're doing on your and I get you comfortable that these days.

At a higher rate of charge offs.

It's really just a consequence of a mix shift towards more newer less tenured borrowers maybe just walk us through the data that you're looking at that gets you get you comfortable with that statement.

[noise] Hi, Cliff this is Chad.

Thanks for the question so the way that we monitor this and its evolve somewhat overtime and some of it has been.

A necessary evolvement due to our increase in acquisition activity over the past couple of years.

And some of it's just been a change in mindset as we've brought in.

New perspectives with my move to the CEO position and bring in.

You folks in the strategy and analytics Department.

So the way that we look at things now is we basically.

Stratify, our portfolio by customer tenure as well as a few other attributes.

And monitor their delinquency and charge off rates over time.

So that gives us a lot of confidence in.

When we bring in portfolio acquisitions and.

Basically match them with our existing portfolio. It takes out some of the weirdness that we used to see in terms of new customers former customers and repeat customers.

So now that we look at overall customer tenure with world. It does have a dozen customers milled into this methodology and so we stratify it that way, we have a lot of comfort and the overall charge off rates as we turn them out through the stratify portfolio and is and.

It also allows us to.

Perform what if analysis, so if we were to.

Basically have the same mix of customer tenure that we had last year with today's portfolio size, we can see what that would look like.

Compared to the actual.

Portfolio mix that we have today, which gives us a lot of confidence that most of what we're seeing today is due to the weighting in new customers and not.

Some change in the credit risk portfolio.

Credit risk profile the entire portfolio.

[noise]. That's that's helpful. Thank you and.

You mentioned that the mix of less than one year tenure customers rose from 17% to 25% of the portfolio.

Is there any chance you can quantify.

How much higher that charge off rate is for those newer customers just as a way for us to try to triangulate too.

How is the mix of newer customers impacts the overall charge off.

Yes, we don't typically share that.

It is higher than the average portfolio as you know.

And it hasn't changed dramatically over time.

That's the number we don't typically share.

What about in terms of the bridge.

Hi, good chance you could try to try to figure I'm, sorry didn't mix.

Collars and charge offs.

Okay.

I'm, sorry, I didn't catch the very innovative.

I apologize my thought extremely tobacco.

Is there any chance John provided helpful. Next Oh, the rise in charge offs and instead of the dollar affects that drove that and I was wondering if there was a way you could provide and see what you estimate the mix effect of charge offs was versus the other being sort of overall performance.

Ah effect.

Zero.

Cliff are you asking for the mix of the increase in charge offs, that's due to the overall portfolio increase or versus.

Yes. So John you said that there were six 6 million higher charge offs, I think 4 million related to larger a larger portfolio and other factors I was wondering if you could quantify in dollars roughly how much higher charge offs were on account.

More new customers.

That's.

Right now we don't have that in front of US right now, but we could we could look into doing that in the future.

That's right. Thank you. Thank you very much I appreciate it.

Yes. Thanks.

And to the appears there are no further questions at this time I would like to turn the call back to Mr. for Chavez for any additional or closing remarks.

Thanks for joining us today for the conference call. This concludes the fiscal 2020.

First quarter earnings call.

Look forward to you joining us for our second quarter earnings call in October .

Thank you for your participation. This concludes the World acceptance Corporation quarterly teleconference. You may now disconnect.