RM - Earnings call transcript Q4 2019 | Regional Management Corp.

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Fourth Quarter 2019 Earnings Conference Call. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] As a reminder, all participants are in listen-only mode, and the conference is being recorded.

to conference like Edson to now ICR. with would turn over the Garrett I ahead. go Please

Garrett Edson

prior and you accessed and was our which earnings have By found be to announcement call on released may which also presentation at Thank supplement afternoon. our good regionalmanagement.com. now, website this and to everyone should

projections discussion of statements on formal forward-looking in subject statements, include The our begin remind the we the may actual estimates I in those are that to discussion uncertainties will from and as everyone to implied cause are today risks, based our predict forward-looking of that various statements. forward-looking other results could Before remarks, difficult materially or part today. assumptions, expectations, and to differ factors, they’re of expressed management and our which

with the performance press not These should you be risks and placed financial or the statements are and all of any our update presentation them. results Management obligations of except release, and of to statements, more and SEC not forward-looking guarantees of therefore, reliance refer filings for We a the extent the or applicable upon detailed our could discussion to undue and by future law. that forward-looking Regional intentions operating We condition future Corp. revise impact to required disclaim uncertainties any statements recent

Peter and of CEO introduce President Regional Knitzer, to like Corp. now would I Management

Peter Knitzer

call. XXXX on Officer, Garrett available the joined Thanks, financial who through our you earnings Rob website. I’m take supplemental Beck, our to quarter fourth Chief will and by our Financial welcome presentation

EPS $X.XX, over banner year. of $X.XX, quarter, an we an record improvement EPS increase quarter XXXX. capstone XXXX, XX% diluted In posted XXXX. the generated XXXX full of fourth a from quarter, XX% with The year we to closed a a We of the fourth of of diluted appropriate

through strategic objectives. execution short consistent Our strong on team sharp our achieved results the and long-term

existing our receivables branch hybrid of branches, strategy footprint. of to in continue our enjoy the benefit expanding We growing our

finance million receivables of $X.X the at to quarter. year-over-year receivable year topped average XX% billion the $X end, time. for a do This an branch improvement fourth generated We first revenue in receivables per growth

of period growth, maintained credit this significant stable we’ve performance. predictable and Throughout also

in XXXX to loss prior rate prior quarter points credit year rate rate was X.X% fourth and end XX-day period. the basis comparable in from of of decreased the our XX-day basis of delinquency net X.X% respectively points, period, XX loss our year and XX and Our year the

operating to ratio expense to business. XX in XX.X%. We’ve leverage, our We to also quarter. continuing efficiency improved points by XXX invest our basis fourth in while the basis our driven we operating XX.X% points improved Year-over-year by ratio

value. enhance XXXX shareholder beyond, and extremely bottom top generate ahead bright, customer significant and experience opportunity our tremendous our Looking future with line to is Regional’s and to to

service wherever For our customers, provide to our best-in-class however and goal they reach whenever, choose to is us.

Our a is high we for achieve double-digit XX basis. a quarters year-over-year reason receivables significant our in on consecutive customer finance why satisfaction growth

and we end, new opened quarter, to between and in Our and expect fundamental operations XX to branches To success branch we the that branches X in growth. open XX net branches XXXX. that fourth remain

omnichannel XX% of As continued new digital quarter quarter will also fourth towards of to We’ve make we XX% in channels, year-over-year in of generated our through fund sourced another have from new origination percentage up borrower With the and a increase is growth. becoming origination our by XXXX. digitally. the Rob significant of capacity greater to explain true progress We detail, provider. achieved

time. vital that infrastructure. and drive our over our investments customers, As prior capabilities these we we serve call, XXXX, efficiency in are to digital discussed expand our technology We in make plan to additional investments growth, our on margins support robust believe better and

Approximately healthy. As line with core of passed in the we’ve consistently performing our remains our are new our XX% our customers And underwriting loan noted, scorecards scorecard the credit criteria. has expectations. profile now portfolio of

believe We that to any serve they continue will macroeconomic us well in environment.

press we development. quarter our two XXXX first release, In described

know Xst. to impact January Rob CECL you you effective transition through the transitioned take we’ve as will CECL shortly. accounting of First, the

in an IT in outage Second, infrastructure resulted system. our an event caused that January, extended human error of management loan isolated

During branches forms most the service and convenience outage, our check customers open, we continue loans payments. accepted to book of remained to

payment. during were originate branch process of types loan unable we to time, However, that and certain electronic

remainder we’re result, $XXX,XXX by adversely We additional the resolved impact the technology first a income of throughout estimating outage of by million net will issue. the As that in an approximately $X.X year. this and the quarter XXXX

Our system has again. that since occur won’t issue the been confident functioning normally and we’re

remain this development business strong. Notwithstanding first our of the quarter, fundamentals in the

expect in XXXX. growth we continue CECL modest receivable our associated double-digit and We the the EPS revenue in despite earnings with expect growth and headwinds to year-over-year our year-over-year transition, diluted

and transition beyond. look CECL returning we growth the EPS year, diluted our Following forward year-over-year to to XXXX in double-digits

program reminder, million at price $XX.XX the fourth of repurchase a total share. shares average as repurchased XXX,XXX per completed in having approximately our $XX weighted of we stock Finally XXXX, of a quarter

will to opportunities our capital additional our Our to Directors evaluate return of shareholders. regularly continue to Board and capital structure

I’ll that, to our on turn to call financial. With additional now Rob the provide over color

Rob Beck

Peter hello you, Thank and everyone.

the results. provide our the for of we with with fourth Slide We’re highlights presentation, you extremely quarter supplemental On the quarter. pleased X

from quarter fourth of As million, fourth net the $XX.X XXXX. generated up XX% we of you see, quarter can income

the XX.X% represent point assets point basis Our X.X% quarter return return XXX on equity and from fourth respectively the XXX year on period. basis improvements, in prior and

million in record third improvement in the the were robust XX.X% which under we our in resulted receivables growth finance XX% the a by just year over average was This that set growth These prior of XXXX. in in pace driven returns year-over-year quarter a revenues ending period. $XX increase and receivables sequential

double-digits a we’ve for On grown by XX quarters. basis, consecutive revenues year-over-year now

growth by attributable in to due allowance impact our losses Our quarterly a credit improvement million the of credit $X that rose scorecards. year-over-year. partially higher credit increase of is X.X%. to was offset a the result or $X.X of the The provision our for portfolio of million losses an

Flipping Large and loan loans our period. while $XXX the or loan makeup to and our XX% prior X% now loans products core of XX% year our Slide represent grew total total XX% grew portfolio, of small million X, to XX% portfolio. grew compared

we tax experienced demand As first in size in existing loan a reduction loan customers reminder of the and typically loans. quarter, and softens as down the a our pay use total bonuses refunds to portfolio

and to XX as prior points in both based fee total also basis Turning period, quarter, change our the December the primarily XX% basis approximately and of due than points yield an our to below be at noting XX that XX%. In the interest the to on and Slide mix products. from of lower interest basis the portfolio our prior the It’s has XXst, total points worth year first yield of of the XX mix we or revenue X, declined to period, yield in fee expect portfolio. year change ongoing APR

on Slide to Moving X.

credit point business The as finance non-file losses for an Our X.X% change of of XX accounted we’ve percentage basis were increase the year XXXX, the basis prior quarter annualized insurance calls receivables in average rate. discussed practice on increase prior that period. fourth a our points XX loss net in for from of

X. Slide to Flipping

quarter credit of a points for to receivables basis losses down ticked percentage the finance X.X%. sequentially XX as allowance fourth Our in

on new you the we CECL January standard know, Xst. accounting As implemented

As $XX million, and taxes. approximately million by our a net increased $XX reserve million by of our reduced result, in equity we $XX

on Our rate December on reserve XX.X% from X.X% Xst. to January increased XXst

rate CECL a Looking reserve release result ahead, will as of seasonal in portfolio liquidation at reserve in the the first March XXst. quarter

XX.X% and current between Assuming conditions, XXXX. the economic of our reserve expect we XX.X% throughout to rate remainder float

As flow our with we’ve to to to over doesn’t operations, of for is accounting ability consistently, return any our present capital cash an respect covenants, said debt thing. growth, funding CECL shareholders. strictly It challenges

We execute to have than more strategies. long-term fund our liquidity adequate on and

X. to Turning Slide

XX adverse plus plus plus basis at delinquency XXst delinquency with end the with at respectively. delinquency XX of to quarter, associated and day system our first December outage. the inclusive front, an X.X% point we rate our be stood year, expect of On the XX impact day approximately levels flat XX At the and prior X.X%, the day

outage system first The increase result quarter provision. will our $XXX,XXX approximately through in

loss see by credit custom larger Going portfolio underwritten our expect delinquency our improved forward, a is all percentage to of else being and equal, scorecards. overall as performance we

Turning G&A to $XX.X prior million million than higher of with period, expenses X the necessary novo de branches $X.X were $X expenses year-over-year XXXX XX. an of loan line million. opened in and the of growth Slide branches expenses, accounted to since with accounted XXst, in incremental in for Expenses fourth year increase associated quarter expectations. while support and for XXXX, operating existing additional December $XXX,XXX our the

our well very expansion novo account by ratios. investments as improvements to the digital corresponding expense even However, in efficiency expenses perform continue de our ongoing growth, and operating in managing significant with in and evidenced we the our capabilities,

about to outage. of In the $X.X clients. higher $XXX,XXX expense the investments branch associated first be with the to million growth higher system $X.X home and de expenses operations approximately loan support and expense year-over-year, expense inclusive office quarter, G&A of necessary of related Most to million we expect increases novo G&A to our

will and We system XX all expenses. expect basis the period, the prior the XX operating ratio expense ratio that by increase compared outages points, increase year points attributable to and efficiency to basis our with respectively,

by $XXX,XXX quarter than higher the year XX. Turning the fourth Interest primarily million to amount driven growth XXXX prior $XX.X long-term larger receivables. finance debt Slide in was period, to expense withstanding strong of in of the

finance fourth quarter in to X.X% basis percentage as points to interest primarily average a receivables due expense of funds reductions sequentially On the rate. Fed XX our improved

the our in that expense first interest flat expect We quarter be rate will sequentially.

Slide funding the at to-date. that million X.XX%. best in rate which As securitization rate of October weighted fixed $XXX coupon completed average strong, funding added shown XXXX, our execution XX, of remained on by aided a asset-backed we profile our

with $XXX a On of outstanding that our XX% funding can available million Slide of you December rate. we long-term of debt had XX, see fixed at XXst, and as

X.X: Our X. quarter was debt-to-equity fourth ratio funded

And Slide illustrates in sales strong over of more XXXX, expansion the the past year record quarter one of XX.X% quarters. the due XX branches same-store importance receivable same-store novo three de old, growth primarily to strategy. prior to our XX.X% the up fourth in year than our growth and compared our period, were sales

branches to rates. continue mature at than more opened five for years those most grow Our double-digit

as shown new growth Slide increasing branches from are on XX. of originations, Our benefit our digitally-sourced an which loan part

sourced our growth, reminder, experience customer these plan to drive digitally digital branches. make both improve continue generate fully significant investments front-end We back-end capabilities, at underwritten efficiencies. to are and while a loans our As which the in and

back concludes now Peter remarks. wrap That the turn to my to call I’ll up.

Peter Knitzer

shareholders. an of and members team year. our to In their the strong great for commitment the that all developed Rob. business XXXX, returns sustained our capable Thanks, our and a We’ve work supporting our in quarter end into grateful generated business returned of invested outstanding is It well growth to I’m we that for customers. the a we was resilient fourth hard and model future.

and execution expand of our technology and for remains continue look to to in drive to XX to infrastructure and finance and our value we for intact. receivables customers in better share XXXX, With digital our for We’ll to growth branches. XX growth also team strategy strategies, even firmly increase existing we’ll experience market our new We successful our As provide branches, members. our generate order open additional shareholders. capabilities and an within invest our plan continued

and you please the open questions. Thank your you again Operator, I’ll open would time call now for line? the interest. for

Operator

is session. question-and-answer ahead. from [Operator Please Thank Instructions] Our the you. David question Scharf Securities. first go with We’ll begin JMP now

David Scharf

questions Hi. for was of terrific the end and taking couple my Good I things. Hey, to a Peter afternoon. year. Thanks wondering

think you handle this first quarter wanted I the better First, a time. this it is I most the know, know, your solicitation as because channel of partners? Can exclusively get you Regional’s sort you last third-party going on on out for the the through direct-to-consumer, to sourcing. at just almost kind digital of of website remind to presentation called me I of consumers or

Peter Knitzer

third-party Hi, lead primarily generators. David. through it’s

our the nice in to or get going seen fourth of up that where prospects growth customers our They to a number also criteria meet to them website, we’ve the and prequalification and prequalify quarter direct fair arena we XX% branches. in directly them – of We XXXX.

digital, be want whenever we by invest in So, so digital progress, to however, we investing we’re can serve customers to in that continue served us. they our will nice

David Scharf

increases? But is of Got doing underwriting, yourself the should changing the it. regardless the the we customer you mentioned, the had as and at mix channel, either acquisition business know level. – cost I higher about third-party this thinking know, or you’re of branch lower you source that be

Peter Knitzer

our be. of we spend we marketing Great David last we that we can make question. it’s optimize that efficient the as sure What hour as is, do, all such to spend,

So on way on just et best our applying digital investment the accordingly. them more to dollars money looking dollars margin, mail, of not spending or then we and at the that cetera, we’re are push marketing

David Scharf

that, looking And Got maybe and related on it one is back to it, think a the kind as had was be least last call coming then large The get you mix that to forecast keep queue. it to our of be a probably could just follow-up, revenue to the Is I geographic quarter, it? at notes the from mean, relative there that XX% I or at up follow you regulations almost even pricing in I the place anything little loans. up environment commented down yield on okay. bit know, back is just higher watermark, entirely and pricing state, this mix? interpret my you might represent And take a high anything, there know, stronger we that I’ll that stayed potentially there. yield website is yield good would or geographic a was

Peter Knitzer

below we I is keep our you time, our to states some you’ll portfolio, place overall for which as loans, and think not yield on large range we’ve that’s to the it. but for loans as we drive good know been in able see our that’s to maintain APR that’s continue the in customers because a well our the and Overall going pretty our yield large more for our to quite been XX% of operate. it’s on loans average state-specific, large drop

David Scharf

Got it. Great, thank you.

Peter Knitzer

David. Thanks,

Operator

ahead. question from go next is The with Sanjay Please Sakhrani KBW.

Steven Kwok

in Steven Sanjay. for is for question. this actually Hi, taking filling Thanks Kwok my

impact first it’s quarter management in growth whole of the first The impacts just for the the rest like your as guess from we loan we about back system. was as quite because should should the that one the at loan the strong then and think throughout how around think quarter growth, to I the the first last year, loan perspective, we year. outage year about Any the well? look for

Peter Knitzer

in then. open growth period seen customers reached and couldn’t overall loans receivable names, of a a in nice growth, So loan all the the we time, a terms out log, their kept who have in of branches took them for rebound our to since

didn’t back, demonstrated of balance long-term the and any good know, be you So, we we of the feel that we’ll balance that don’t our during XXXX, period, the this come as And trajectory XXXX. we’re business be a seeing we that strong growth service will on a in by the issue of for year. think for

Rob Beck

Rob. is And Steven, this

we Just quarter know, from and to bonuses first that, you seasonal the in do remind liquidation normally tax you my to related refunds. experience comments

So in should quarter you that to continue expect of ‘XX. to see the first

Peter Knitzer

a business. natural as because, that’s But our in point, quarter. you some of know, occurrence Rob, good seasonally that Yeah, liquidation we first have Steven the

Steven Kwok

strips flow as I we kind seasonality look that mentioned going reserve a between the be there. at can of XX.X% think forward we to rate? seasonality, talk should about, high the about period know, points the which which points will XX.X%, how periods around a mean the Yeah, to that of yep. year-over-year basis CECL on And and you out you reserve rate provisions, tend follow-up will Yep, low you the be should

Peter Knitzer

gave the so range. previously reserve XX.X% is Yeah, that know, the we took that on in kind and between Xst that guidance one-time comfortably you that’s is, Obviously, of January we range.

mitigate forward, of some look going so we as I make to calculation, the see seasonal qualitative do, will CECL we adjustments some think as through those swings. that you is, we what come we will look seasonality

know, be, information something that we’ll we that’s as through get providing the So, year. more on you

Steven Kwok

right. it, Got taking Thanks for my question.

Peter Knitzer

Thanks, Steven.

Operator

The with from Stephens. Vincent go question is Caintic Please next ahead.

Vincent Caintic

also wanted Hey, the follow-up thanks. afternoon. system I outage. Good to on

provision Is gave So rest guidance largely about appreciate the year? on. for the something for rest year some quarter? quarter, first the it continues this it quarter so something the impact of you does also the the that get guidance gave the trail of gave Or in that, so and first you by the complete and is of to and you second terms

Peter Knitzer

to Yeah, I total in quarters net last the mean, is the income. amount $XXX,XXX of three impact of

view don’t balance this the for the as significant we year. So of

Vincent Caintic

Okay.

is like building provisions the quarter probably And largely there to you So second statement? mostly then. if like, out income separate it that into or different impacts could your

Rob Beck

NCL a Yeah, that the that’s the credit first expect would so standpoint, reserving quarter. either largely revenue or it’s required in lines all the from will on happen impact the you

is lost throughout rest during during pretty mentioned that some So – outage just that Peter shortfall what happened the the of amount. of the yield some the really volume a deminimis see year $XXX,XXX you on the for

Vincent Caintic

That Okay. makes sense.

helpful. very So

Second way the question that I for reacting, your have coronavirus loans, are but thing I the you guessing that could been impact could think loan one any they what markets foresee particularly, Thank support is you. to used a of if travel, the given when just usage have to asking from what describe ask, it’s people not investors and pandemic but I’m help? the for? take – out you origination business most

Peter Knitzer

of the take first. second part question I’ll the

like funds that that needs Our you as medical cash. they for customers credit have need down from treat where and they they use then for expenses, when renew it and loans household a they know, unforeseen pay line expenses, it the often they of for their more

to and and things members customers operations our the servicing doing But centralize remotely work are of potential outbreak allow efforts. is developing the other the to paramount. team our the and members marketing of we’re among adjust plants of coronavirus, we wellbeing terms our health that are certain both In obviously, team our to to

respond want don’t we they way has to customers we been the geography At risk. our members serviced, accordingly seriously area make we hit. need a and upon that but want quite we team and, severity, to even same at if this take be remotely you depending We put if our will particular it’s token, the know, service sure to

Vincent Caintic

very Great, you. helpful. Thank

Peter Knitzer

Thank you.

Operator

is [Operator Dezellem with ahead. next Please Instructions] Bill from question The Tieton Capital. go

Bill Dezellem

Thank you. I have three unrelated please. questions,

all, relative on the go outage, of did I’ll here. last? that and long system ahead to How just First pile

Peter Knitzer

It days, seven approximately business - lasted Bill. seven

Bill Dezellem

that And event in longest loan And the maturity? Great, very equate thank would is business auto exist? dated your then the that you. business, would that secondarily, to what longest

Peter Knitzer

$XX have you we mean, going I but be million, this. portfolio Yeah, left $X per tail month, there’s roughly to that’s and decreasing our know, million in a on

the as by we’re know, So be gone. this you far concerned pretty as end it’ll of year, much

we So issues of don’t see portfolio. the any rest the with liquidation of

Bill Dezellem

maturity do the you what is And long? on to happen out the furthest date know

Peter Knitzer

I –

Rob Beck

We’d to – get back have

Peter Knitzer

I don’t know that, yeah.

Bill Dezellem

all. worries now how branch? that mean, your the that XX%. lastly, per grow this? you to the find Right are about But that loans at branches still thinking growing then interesting you’ve are would in you and no crossed million at older ability with And mark, that And $X talk I it I about mind,

Peter Knitzer

think of repay well then remaining loans. customers those that for or into Well, loans. upside our and have lot lot grow receivables our migrating better we’ve beyond million. the a strategy and graduating that grants loan through We you demonstrated to ability is that’s creditworthy of we’re And our customers those growth $X increased small continuing, bringing of to a branches with in and generated there’s existing a from you know, larger large in know, our

de branches of good growth. a our Having novo we are believe receivable also source and said revenue growth that, that

two change new under is As and years, even you a under a quickly little breaks know, bit. that’s we relatively year to CECL, under a going the said payback before, branch

the of Rob, do off top your you head? have that

Rob Beck

Yeah.

breakeven under back metrics. and think standpoint, CECL six overall under we roughly year than average I years typically a an on from pay in in two adds would with breakeven or and months So payback those

Peter Knitzer

of reserve doesn’t build to it we’re change issue CECL. a going again, our of flows underlying cash But the have as and business it’s to part that

Rob Beck

very know, basis, flow mean reserve upfront strong, the cash the though still you CECL. even from, returns you discounted accelerating know, I are IRR Yeah, for you’re basis,

Bill Dezellem

both. you thanks Great,

Peter Knitzer

Bill. Thanks,

Operator

Janney. with go Next from John Rowan question ahead. Please is

John Rowan

afternoon, guys. Good

Peter Knitzer

Hi, John.

John Rowan

business, down one allowance the throughout earnings relatively you I years in create flat So right? to the CECL. pay XQ? year mean, assume that know, just a in On portfolio let’s you seasonal volatility within because have the more of,

Peter Knitzer

be impact, down, one-time model. Yeah, CECL the in a know, as the under on X.X% that XXst. see end a on forecasting Obviously, you what XX.X%. was reserve pay But you you of LLR so will terms release loss year incurred at build our in seasonal at line we’re we’re March will liquidation the not see that, number

releasing of portfolio the be quarter, at will So, higher that first rate. as CECL in the liquidate you some you

John Rowan

Okay.

presumably seasonal, earnings mean, the a I the know, for seasonality, would we go toward right, then, build payoff go-to in I in periods long So and you more which – where earnings it’s how This year change as and there’s building. more less the models periods was

Peter Knitzer

Yeah, exactly.

as boost – and So you as traditional reserves earlier as forward know, aggressively, versus But liquidation, – a earnings get you you you’ll to model. effectively you’ll a in see said a that, bringing have forward portfolio build I the of

John Rowan

you Okay, Can you repeat earnings and expense? housekeeping XXXX guidance items. growth gave the just G&A the for just

Peter Knitzer

So, that. given on we thus growth But don’t we haven’t give far guidance guidance and earnings

Rob, you gave –

Rob Beck

the and we thing the quarter given – other guidance Well we’ve on some I – first think

John Rowan

you that be rate – XXXX, double-digit thought you mid and to said That be back you’d I growth at then there was going low – was growth. post single-digit know,

Rob Beck

you Yeah, imagine and with so as periods – is you growth full say expect and modest in you they’ll comp that EPS so then to be would obviously comparable reduces growth percentage that’s, year we you rates in we know, of first know, the growth lately, know, return did to, XXXX, XXXX. this year double-digit year CECL, period

John Rowan

guidance? G&A the was what then And Okay.

Peter Knitzer

the we versus G&A the any first up would but year. year, for said didn’t prior to $X.X the quarter, be it that We million million guidance full give for $X.X

John Rowan

prior the first year, versus quarter. In

Peter Knitzer

Yeah.

John Rowan

very much. you thank Okay,

Rob Beck

you of know, during as the And $XXX,XXX includes impact FAS the is the we just first much that liquidation a quarter. defer bit XX, you the outage as with know, which, can’t well little as

John Rowan

you. thank Okay,

Peter Knitzer

you. Thank

Operator

any turn remarks. question-and-answer now This to over Knitzer back concludes closing session. the conference for Peter would to like I the

Peter Knitzer

I speaking just with on much call, today, thank if sooner. your want forward everybody not look Thanks you to we to earnings next interest everybody. and for Bye now. our so

Operator

concludes conference standing by. Thank you call. today’s This for

for have pleasant may you disconnect day. and your participating a You line. Thank

Regional Management (RM) 25 Feb 202019 Q4 Earnings call transcript