WRLD
#Thank you.
Good morning, everyone, and welcome to our fourth quarter, fiscal year 2017 earnings call.
As well as our earnings release, we've issued a script that provide more details on our results and activities, and I will assume that everyone on the call today has read this script.
This script is filed with the SEC as an attachment to our 8-K.
To summarize briefly on the quarter, we're pleased with our results in both our Mexico and U.S. businesses, and we're now ready to take any questions that you may have.
Yes, in the past, we've opened sometimes 40 or 50 branches in a year.
And we believe that, that is too many, because it is a long process to find the right folks to run and manage those branches and to manage that level of branch growth.
So I would say that in fiscal year 2018, we'll be tempered in how we approach it and select the best locations.
The good news from our perspective is that we believe we'll have more attractive locations in fiscal year 2018 than the number of branches we plan to open.
So there is some runway to continue opening branches.
No, I don't think so, right.
So ---+ I guess, 1 impact ---+ so we try to see what's ---+ how the loans or originations are performing over the first 3 and 6 months, right.
And over the last year, those ---+ our originations have performed as well or better than the recent history, right.
So we don't think there is ---+ affect this change dramatically in that loan product.
Does that answer your question.
We just have that authorization.
So the 61-day and up, delinquency rate was 7.8% versus 7.1%, so increasing.
Should we not then expect perhaps a continued elevated charge-off level for the time being.
Yes, most of that elevation is in the 90-day ---+ 90 days past due, which again as you know, are fully reserved.
So yes, we may have ---+ continue to have some elevated charge-offs.
But the income ---+ [certainly the impact], that's already been provided for through the income statement.
More importantly, the funding delinquency, both in the U.S. and Mexico, has improved a lot since last year.
So for example, in the U.S. on recency basis, the 0 to 30 days past due dropped 19.4% to 15.9%.
A 30-day to 60-day delinquency drop from 3.3% to 2.8%.
And a 60-day drop from 1.9% to 1.8%, right.
So while charge-offs may remain elevated, we think going forward, it should moderate a little bit.
Okay.
Got it.
And with the cessation of the in-person collection visits almost 1.5 year ago, what collection methods are you seeing now to be most effective as we move forward.
Well there's a couple of statements.
One is, of course, we have a phone calling policy, we no longer visit the place of home or work, but we have a phone policy that we adhere to and we use that for all late customers.
But we also have ramped up our work on recoveries and how we manage charge-off accounts.
So we have an internal recoveries unit that has grown enormously from when we started it this fiscal year, in terms of personnel answering calls, and how we think about settlements and so on for charged-off accounts.
I see.
Okay.
Another question, maybe a little bit of a housekeeping.
But it looks like you restated last year's fourth quarter insurance and other income.
You originally reported, I think, $20 million and now it's $22.7 million.
Right, it wasn't a restatement.
We changed that before we issued the 10-K.
So if you look at the quarterly financials at the back of the 10-K, you'll see the updated number.
The insurance income did increase in between the earnings release and the 10-K last year.
Okay.
Got it.
And the tax refund anticipation loans, interest-free and the fee-free, could you talk about how that's helped your tax prep business during the quarter.
Sure.
We believe that our change in products and strategy for our tax prep business had a very positive effect, both last year when we made some improvements and then most recently in this most recent tax season.
And when we look at the performance of the tax loans, we find they are performing very well in terms of paybacks and so on, as well as they did last year.
So very pleased with the results of our tax prep business and the products we offer.
Okay.
And then the increase in tax prep revenue of $2.7 million, I assume that's all from the price increase, since those loans don't have fees or interests.
We don't ---+ we're not making money off the loan.
We receive a fee for paying the tax returns, right.
So the tax advance loan is really just an incentive for our customers to use us to prepare their taxes.
And the result in increase in revenue, it's both from an average price increase in our tax-preparation services and from the significant increase in tax preparations that we prepared in this past tax season, as per the earnings script.
Right.
Okay.
Yes, I see that like 13% increase in volume and 7% increase in price.
That's pretty good.
So it's what we just discussed.
So the primary reason for other income being elevated is because of the additional tax returns we prepared this year.
And the higher rate we charged on those tax preparations.
It is as well.
So ---+ and this detail is in the script as well.
So the United Auto Club looks flat this quarter ---+ I'm sorry, actually it was up this quarter, flat for the year.
But that's important because it has been decreasing quite a bit over the last several quarters.
So we have seen a lot more acquisition opportunities arise just over the last several months.
I don't want to discuss too much about how we value those acquisitions because of that.
So we do expect that there will be some additional opportunities going forward.
So I think, we're on a process of continuous improvement, <UNK>.
I don't think there's much that we haven't looked at.
It's not just about innovation and bringing in new technology, it's how we run and manage every single department to make it world-class; having a data analytics department, having that being world class; improving marketing, so that we are having a stronger digital marketing presence; improving IT, so that we are stronger in our loan origination, loan management systems; and even in a myriad of small functions that we use across the company and how we manage help desk support and everything.
So there's going to be continual improvement, and there is a lot of room for us to improve and strengthen and grow the company on every level.
So I think, we've done a lot over the last 3 years.
We're pretty transparent about the changes that we've made.
And there's a lot more that we're working on right now.
Sure.
So the ---+ will they allow us to buy back ---+ we will be able to get back to the 2 to 1 debt to equity that we were targeting in the past.
So if you look at it based on kind of the pool that we build for 2017 net income, will allow us to buy back $36 million in the first quarter.
If you assume we have the same earnings as we did last year, that allows about ---+ around $57 million for ---+ during fiscal 2018, and around $72 million through Q1 of fiscal '19.
So it won't be at the same levels as ---+ that we were doing several years ago, but still allows for quite a bit of repurchases.
So a lot of the improvement is partially to do with just the comp of last year, right.
So Q4 of last year was ---+ the first quarter after we'd ceased field calls, so after those charge-offs were elevated as our management has lost contact with a lot of the customers once we weren't able to do field calls anymore.
So that explains some of it.
Obviously, at the same time, we are lending to a lot more new borrowers today than we have in recent history, right.
And we know that the loss rates on new customers are the highest of any of our customers.
So that will also have a negative impact on net charge-offs.
And the same with live checks.
So they seem to have slightly higher charge-off rates than the say the [future] form of borrower than say just a normal form of borrower.
So all those things together could lead to just elevated charge-offs in the future, but I think it's necessary.
Can I just add that ---+ yes, as <UNK> has said, our live checks program is right now to former borrowers and they're still less risky than new borrowers.
But also that at every type of customer, former borrowers, new customers, and of course, our present borrowers, our credit scores are improving for those customers.
So to the extent you believe there is a link between credit scores and charge-offs, which we do, we can expect that this will have a positive effect on charge-offs from the other side of the equation.
So what I would say is this, we've talked in several past earnings calls about how we've tightened our lending at lower credit scores, for simplicity sake.
Of course we have more details behind this, but at lower credit scores, we've tightened our lending, and we've generally seen, as well, through our strength and underwriting, that the credit scores of our new format and current customers are going up.
And we've talked about this for a couple of quarters.
So going forward to the extent there aren't other factors that impact the economy and so on and so forth, you would expect that to have a positive impact on charge-offs.
Certainly more positive than if you had not tightened your credit score.
You know what I mean.
Yes, so that will all come through our migration analysis, right.
So as those loans move through delinquency, if they move through at a faster rate, our model will compensate for that.
Furthermore, as we do more and more live check campaigns, I think we've done 5 now, we get, of course, more knowledgeable about the performance of those customers.
And so we can restrict or change the criteria in order to improve the performance each time learning from each test.
Yes, so generally, just the inbound ---+ the volume of inbound calls of people looking to sell their business has increased.
I can only speculate why that is.
I think it's probably just a more favorable broker environment and people feel that they can get a better valuation than they could a year or 2 ago.
Other than that, I would just be speculating.
Yes, so [I believe] ---+ we hope we can use it, right.
So we hope through growing the portfolio and share repurchases that ---+ and maintain a reasonable level of liquidity at the same time, we felt it was appropriate level.
Also from our strategy and the changes that we've made and the good quarters that we've experienced recently, we believe that we're in a stronger position to not feel in any way constrained by a credit facility when we're moving to growth season this year.
So we aren't diverging our effort and focus on growing in the best way we can to worrying about a credit constraint.
Just to say thank you very much to everybody who's been on this call.
We appreciate your support.
