OMF - Earnings call transcript Q3 2017

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Operator

Welcome to the OneMain Financial Third Quarter 2017 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Catherine Miller, Vice President, Investor Relations. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. [Operator Instructions] It is now my pleasure to turn the floor over to Catherine Miller.

begin. may You

Catherine Miller

Good Cathie. thanks joining for Thank morning us. you, and

important by Let be XXXX during pages contain presentation statements can directing Investor measures. X will in section of begin the investor concerning morning's use and this and which be quarter to we The third of presentation you me our referencing non-GAAP and forward-looking that the X presentation, call. the found disclosures Relations of website

beliefs release. could forward-looking forward-looking statements contain not and company's to statements to We will of that about today current cause today. forward-looking forward-looking business results place undue these from the as financial are reliance to management's and inherent discussion Factors statements and performance in Our speak differ only on uncertainties future forth these reflecting press caution subject materially risks prospects set statements. you actual and earnings our are

be today, updated today, at XXXX listening this as replay of have to November call you If call. made to are remarks been not remind you the and we may herein the after subsequent X, point some that

After Scott call our Levine, our and from morning Chief will Jay we Our and the CEO; Financial a include remarks President formal of Q&A period. this formal the Officer. remarks, conduct conclusion Parker, will

let turn the me now So call over Jay. to

Jay Levine

good Thanks, and Catherine, everyone. morning,

already much sure you working to the in out of I’m Miller. investor Investor and have. with investor Catherine I extend in as leading relations big enjoy a Relations, our spent several instrumental roles programs. going discussion, Head was to the want I we business of building into and Before research her as get equity welcome to the relations are new some years Catherine last

captured our sheet. our solid growth, further Now, third financial credit benefits highlighted operating leverage to delivered product performance results. strengthen of balance by continued strong and performance. embedded attractive mix origination We stable the our quarter let’s We and a to turn

continue remained economy, we demand. and bode to consumer confidence and the Importantly, credit and overall importantly loan benign growth spending should environment This for strong. household see a well consumer

Consumer the employees Our diluted earnings others, our our our segment $X.XX share, impact. hurricane customers, many a the adjusted of expected, $X.XX to on of and business, impacted of per estimated a Like wellbeing lesser we our excluding our Insurance as and hurricane and maintained customers. degree focus about generated

a Let’s look at financial third now high-level our quarter results. take

billion almost to Turning QX. $XX.X at Consumer million up $XXX receivables Slide X. end, in insurance reached quarter

in XX% growth quarter’s made This productivity. great we’ve origination year-over-year strives branch reflected the

behind the our of up was significant made charge-offs impact credit included QX than last delinquencies to points XX third up XX X.X were basis in us, and production networks. X. a came quarter, prior basis loans per reflecting expectations. of original and in XX the which Slide the have was levels, about Net gap are and the the in plan strategic right OneMain closed proud two year-over-year. now well we legacy performance With we in the at were the Taking were look key This third progress branch integration XX quarter line XX% at year’s from between progress. higher our quarter. year-over-year, closing seasonally great low integration part points with the

year the As achieve track the charge-offs of rate fourth in net may on charge-off and quarter which full of X.X% to quarter. a delinquency integration, you for ’XX. QX result remain recall, the as X% elevated a We was early-stage rate this through flow

as XXXX portfolio in improvements continues to further our expect de-balance season. We

to X. Moving Slide

As great you me heard a before, say business. we have

companies in of and the greater portfolio secured a deal two great couple integrating effort the mix of lending. toward last put Over our years, evolving we’ve of a

companies positively two secured contributed to while this we’ve at in that in And much brought portfolio our together and portfolio. to QX resilient credit. yield term, a of evolution transition taken XX% impacted has a making about was ’XX, more operating time the for also fact, leverage made has In the in the it XX% near we the

result, again XXXX. deliver our full by we the strong in once migration or year additional by a see We the those to fully operating continued unlevered As for with behind integration and lending expect scale, of returns believe now driven returns responsible sector competitor our any unequaled runway We returns. greater us, we of receivables mix secured leverage upside lending. in portfolio have enhance to further a growth to and

And in to I’m lead over to the XXXX. We to unlevered this going call improve turn that, expect with Scott. returns to

Scott Parker

everyone. morning, Good

third highlighted, to towards objectives another progress execution and performance strategic we execute quarter on The Jay improving for our our continue performance. great our quality strong the us. of and portfolio, was may financial As operating our team

third million $XX on quarter basis So results quarter GAAP share on quarter a $X.XX in let’s $XX closer take or versus a X. XXXX. per or share at the Slide third per diluted this look of We the million in $X.XX earned

This quarter’s estimated charges. results of included $XX hurricane-related million

this adjusted estimated a charge earned of to of third approximately diluted consumer net million that this share quarter or $X.XX or the $XXX impacts. Our basis $XX third pre-tax million or an compared segment million per quarter performance share share per quarter $X.XX $XXX Note year’s on XXXX. per income hurricane-related of included insurance in $X.XX

by drivers $XXX of to strong momentum Auto. almost key Direct from our driven quarter, on in million financial Moving performance. We grew the by continued last the receivables

$XXX Interest largely over quarter, third year fact, share ended or income from the in XX% with million X% asset reduction quarter. portfolio. quarter impacted of to higher by with reached our receivables XX% the In portfolio, flat and Auto the the the anticipated last roughly total Direct in and Interest of a growth the about we portfolio from due levels of million $X.X ago. up income in second yield Auto year’s the Direct was larger

the hurricane-related points assistance. borrower This quarter’s basis from by yield $X was XX million also reduce or

the third We excluding impact yields expect fourth stabilize of to around quarter the hurricanes. quarter levels,

last APRs exceeded first the our year, on on leaving the since portfolio. originations balances For time the APRs

to on credit. Moving

Third quarter portfolio performance remained strong.

excluding line reflect provision The in $XX quarter due slightly a stable quarter. the basis, was bill elevated items our On to third hurricane a million guidance, rate the best was and discrete to some of previous tax impact. GAAP our estimate with in

there you a As aware, corporate talk is lot of are currently about taxes. reducing income

full from Although come this if through, it is impact meaningful could payer. does a far given completed, on we tax earnings, have our it are

Moving X. to Slide

expenses now of make year. quarter $XXX Let’s than third lower operating for where of quarter, $XX progress: with last to we at third OpEx look great million a the continue take our million

to a successful execution year, XXX and plan of cost for reflecting compared of Auto. the prior basis ratio our the OpEx a leverage Our the of improved quarter mix by Direct higher points savings benefit

improvements. Moving into continued we leverage XXXX, expect operating

We and of $XXX debt attractive September an Slide rates. issued rating in to a at million XX% The average SMP cost with advance Turning ABS X.X% of AA. of rate was XX. funds

We also reduced unsecured retired $XXX $XXX maturities million. debt. million XXXX our This remaining of to approximately

side, continue very we On in be position. the strong a to liquidity

have quarter. of over about $XXX of $X unencumbered loans the consumer at conduit available end billion $X.X billion of million the cash We undrawn of capacity and

Turning XX. to Slide

delever to the We quarter. continued third in

reach tangible in the growth, equity continue ratio quarter acquisition-related X leverage expect increase the quarter. remained target last end marginal we times as cost times, year our We by was tangible to fourth to debt X.X Our to down from on decline. accelerated as be X.X by outpaced

I'll tangible year, $XX to the made will acquisition-related equity as on in of fall million closing With beyond last that, and and resulting in, in move growth liquidity we As continue our Jay have the XXXX, since over remarks. position best in XXXX. accelerate below to progress capital lot costs a All for it had turn of over we $XXX have impact the XXXX acquisition. his the million we

Jay Levine

lifting We would ago, we behind noise, there thrilled almost X with be are what has Scott. the been started knew us. Thanks, journey we and while some a years heavy

the momentum the We will to couple as quarters last ‘XX. achieved of open build continue we over closed in we on

billion end expect the billion our year $XX.X This reflect $XX.X optimization net outlook hurricane. We and receivables. of recent impact of pricing of to to with

today. C&I share earnings $X.XX, per As a XXXX, we excluding of now sit the expect feel good we impact. hurricane we result, for Net-net, where very about adjusted

capital to We generate are excess shareholder well build positioned drive value. and profitability, stronger

capital in to begin Cathie greater target, potential evaluate times our the capital X we to back leverage generation Q&A. XXXX. visibility enhanced With distribution that, with to fact, call In towards the I'll for plan and the turn

Operator

floor [Operator now for is Instructions] of from Point. The Compass line the questions. open Your with question Michael comes first Tarkan

Michael Tarkan

preliminary of should just Capital kind that? Dividend return thought any comments, think there? how we about buyback,

Jay Levine

as opportunities the of most dependent upon generation we an and right and progress be with say I’d are it two be lot board I’d have we is share think but on the preliminary, thing do think capabilities word have it’s start strong. about makes it’s is well have dive in looking good one the and It But certainly important for to said to But think with the will of important makes the the to expect most a price, we you say, “preliminary”, to we sense. be kind discussing out as what what feel capital goal to are we our sense. I which own going deleveraging. to I made time us, know sort what going where been so net-net,

Michael Tarkan

XXXX, few to anything sort then it’s know I ability months? grow are competitively? a we the early, the just given the environment? terms of Has outlook, In to over current growth but what of how continue you your terms about seen past think changed should meaningfully And little in of

Jay Levine

of say across strong We remain from I’d of take the seeing applications the customers. we’re consumer proxy the demand applications best and board that solid

lead-up seen said we as or generally we flow feel So demand. customer did. application haven’t in any we We’ve really

any proxy XXXX it’s I for to early think growth. point

think as running the good we’ve think kind been that and discuss round we’ve of for out at But probably I feel the seeing, pace we been we’ll think I now. I the about we year. applications

Michael Tarkan

comments the lastly, then around alternate potentially ask just sale, reports but it, any or strategic Thank on got that? you. I’ve And

Jay Levine

rumors. No, imagine, can don’t as on comment we market you

Operator

the Cyganovich. line Your of Arren next question comes from

Arren Cyganovich

a talk higher to coming into higher continue than loan the trend the expect were what do you’ve just about new you Can yields to If little thinking the existing coming talk you the the bit that than that on And yield, XXXX, yields originations? you could number? book. about were existing mentioned on

Jay Levine

but pricing, think we’ve I quarter through quarter, think into specifics, been we the the get testing want I as mentioned reason segments. in don’t different for last competitive to we

portfolio have that it originations We’re are I than portfolio yet clearly that regards but before, as remix don’t mentioned the What tell done the mentioned the loss some not takes side. higher you those time for testing, we just slightly we to exiting. on in that are APRs would

color more So ’XX, think, we and bit trajectory, will we’ve kind of ‘XX quarter. around I that in you get as we next think feel that good as into guidance into the you I a give stabilized go then little

Arren Cyganovich

And related I how then modest the that in projection shortfall hurricane in much increases much amount of, the to guess, – is impact? of versus XQ, how pricing was the terms

Jay Levine

It’s very combination all both that. the a of pieces of difficult to it’s disaggregate and component

I a third impacts. outlook quarter pricing quarter the fourth say and hurricane both So the the and of the just kind of both are combination

Operator

question Suisse. next The line comes Moshe with of Crédit Orenbuch the from

Moshe Orenbuch

guidance impact Last specific ’XX, fourth from reasonable I kind be second in a it it and give hurricanes it I that growth could know have I third half than question. quarter new mean and to the seems of application if mean, certain strong, of but the Is you volumes ’XX both want assume to don’t assumption? reasonable for this in better that year. was mostly were the

Jay Levine

terms of growth? In

Moshe Orenbuch

growth, yeah. of terms In

Jay Levine

Certainly.

have if hurricanes. if than we think, hurricanes, I we’ll better do have certainly don’t didn’t we

applications. we the about I look, So as good said, feel

since glad branch our We’re we good continue seeing will without to life be to. feel and hurricanes and make about and more certainly hence, the we smoother net-net, productivity,

Moshe Orenbuch

-- to XXXX? pricing. With and in good that in I you thoughts more towards remixing think -- Any that of how the was in showed QX secured just about given secured obviously respect sort mean, funding, funding you gap about did the really the do

Scott Parker

us kind One, a every of reasons. that we do; for us term, can like sources kind amount balance facilities. liquidity that year Scott. unsecured in short say kind we’ve conduit side, we’ve of long gives about, the balancing steady is, multiyear the this been and gives on the we duration, our a a would as couple secured Moshe, of the talked is our of the I

pledge assets capital the up And so the them unencumbered liquidity event to the in gives that having against market.

we kind But expect that we the balancing where act. and go So into mix as like don’t materially shift the to XXXX. of we are

Moshe Orenbuch

an that can I and some Okay. if standpoint any suggests efficiency us? to flush kind out that comments least for to Last the further is improve you of just, work mean, made that thing at thoughts grow. from you continue nice from on operating continue it me expenses you should

Jay Levine

bennies. we to fine we previous on well the the see comp operating I fact growth be that won't on and growth but having as mainly pace But before, think, receivable we’re that, see said that inflation model chart the I’ve mentioned to operating normal our just will you’ve that, expense reduction tune given both kind nominal through in our gone I at our to will driven growth. by nominal as calls, seen going think continue expenses of outpace we’ve and as we the as expect records asset in business leverage,

operating model. positive So leverage I in is there our think still

Moshe Orenbuch

Thanks very much.

Operator

Jefferies. Your of comes from Hecht with line next question the John

John Hecht

passes. there the the give difference the composition in -- didn’t I’m Is the us the versus OneMain I legacy of much. any very the terms get traditional amongst well? wall in level of various details Springleaf what's how of originations in at of kind performed and that Thanks as guys. can – morning, if wondering walls where you wonder Good disposition composition? the I segments originations

Jay Levine

looks almost originations, It’s coming similar. between there the from what’s underwriting look two through. branches a mixes legacy differences, marketing a Once integrated but very bit the high on Clearly being any little of production closed but state we level, of the what’s I’d low of across is similar. if very networks, books identical. they’re each Certainly, the the

customers there of historically was business the much OneMain focus that companies, terms the to. to gap thrilled got and, and was about knew big first-time customers historically put on think quarter knew bring larger big differential I part if question. a we where the of the priority terms to a emphasis the We two in growth And a first how of one that’s close in larger this growth. new on third on having look,

priority maybe do key expected. the almost then we and faster done we’ve probably have even We than a quarter

initiatives board the like across understanding for and year. I So of a take-up programs marketing various the across real feel well positioned the next we’re

John Hecht

of for talk more about then we deals. the could how to And you a guess wonder future? does iLoan has the What much your of better online term, than that I lake a about if think business competitive mean platform, from presence? as shifted perspective

Jay Levine

customers I’d that us. they level, say very cetera. At is important how et a high to important omni-channel interact, It’s have choices

We branch. and calls, we continue into I see the of of to through are As today, a through the and apply on protection a underwriting growing online. important verification, have pre-screening they product percentage going to of previous branch that we customers that’s a part loan close an customers the XX% said in new of coming get We a even et before the suitable, sets respond lot online. were of the overall for relationship. But cetera, normal come

important years. priority dynamics what been has So handle say ours being of digitally to is changing equipped the I’d for

expect better will over get doing continue way, to that an are credit the good for it important is continue that only think on interaction but may job in-person we go also say fulfill model. initially with the branch that at of want we’re helps very relationship to I not in think But our that. And that executing may understand to part I fact to to or but look that not you a and that. those the time I that helps we’ll we ways

that sure integrator fit for customers’ but the look very omni-channel box technology, is we core I’ll make net-net, something for suite can loved tinny a ways early we very part. us our about think all business we continue the needs your So to that and appropriately. I answer and really for

Operator

next the Your question comes Sanjay from line Sakhrani. of

Sanjay Sakhrani

yields there stuff. you is versus parts some and guess portfolio mix as moving seasoning lot then well sort a of as and the I between provision the vintages have the of

help could should where us ahead, the maybe yields they about look risk-adjusted guys stabilize? and the portfolio As we you of think

Scott Parker

Yes.

think what more yield, portfolio, on So might yield. secured kind the risk-adjusted would a little about aspect. of as unlevered have focus bit return lower know you I I think the you would I

but a out size get the lower leverage loan have it’s operating losses, of also the you of that. We the and

So is Jay on of, we’ve prepared that’s why when products, at company risk I based for in for that, return. focused we’re on driving yield the adjusted the kind profitability up remarks, clearly, as think overall really products. And his of but one looking you’re looking each mentioned it’s what different unlevered at look the we the

operating lower have the So the tends yield, is but made to risk-adjusted with leverage. little bit secured up a

Sanjay Sakhrani

it about consumer to towards move think mix towards Direct we shift then can we when – And is another to the Auto going contain towards or loans, of that installment? back

Scott Parker

I Well, growing the think of both parts portfolio. we’re

to getting So not customer the the we’re product. clearly think profitability needs. basis. continue as we not provide about that just the product is of growth. we both of The at to need for something grow products continuing for market question us I it’s different grow portfolio looked that opportunities, a the on our rates. where see and parts that us. give That’s certain not just a the book different different good normally the market. will would component the It’s based the close for do loans customer on There to overall ability and we we is But at unsecured an the Part

competitors another out to leg the think, I there. some relative us, gives that of So

Jay Levine

of of add car is, has. the Sanjay, the Direct thing I other customer sort would a it’s Auto, end

the sort XX and end need totally hitting America. cars. sort years particularly in the when over are XX But went our that bucket had don’t out XX control customer and old we don’t get years the customers’ on will just your year the most car So in of lot and to what newer day, of of to into of cars road older the I average car of in a a and

demand So have loans we meet up what appropriately to they to set collateral bring based they and of the had available. or we’ll want size sort and on

Sanjay Sakhrani

of Okay. Final might way Is of various you in that was frame And then could question back how have. be to do and could conceivably I much a of understand are sort all capital maybe you the multiples? early of guys but of hasn’t it, mean, potentially how that on payout quite it on of any stock is it why of just have the the on demonstrated just distribution terms you terms levels progress. payout am sort you in there the for bit I do? like your just discuss that I I that you stock. out views earlier. really curious what given mean, Thanks. to sort us done broken constituencies of a asked yet

Jay Levine

can say sense grow think generate we we best not figure the of percentage makes. going to sort it’s of same equity think early single investment returns continue significant distributed. the at be But is at if that term. I reinvested what to to the on have that compound we’re could that doesn’t long us capital great the capital the for make is a that plus, But and were a heard business the business you XX% out with core distribution time sort we net-net, which

want look mix. to think we the I at So

answer to question, any trade we think if we will as business. spot Scott see your continue because continue which itself do, great on of it of to, to alluded part to I a we return a what had is as why think growth, doing, is in care put enhancement will try where just unlevered time for but I take I great we As continue we’re –

Sanjay Sakhrani

you. Thank

Operator

line comes from Your Rick final of Shane JPMorgan. question with the

Rick Shane

things. of couple A

seen You the in terms you typically operating curious talked clearly terms of about I of different secured transition observed to also that term extend auto loans, we you something to into in that reserves the frankly as leverage the if credit that shifts? am terms reserve we extending comps some policy and headed there. need think those lending a that has benefits the of and of have guys about mix out at of look the Is are than in XXXX the

Scott Parker

Scott. this is Rick,

manifest our a significant line we But that that talked loss had that have. if and had emergence overall loss the we is for over did products reserving with itself the would about, adjust between trend consistent difference time, for different As say our But auto periods. there we’ve emergence kind we’ve far. and different methodology that. loans policy have in a loans reserving person that we would still is I so it of not

Rick Shane

line. further guidance then to basically the look remainder like And I would a yields little for the When year. the of we talk been about bit just out comments, in

well. normalization in of at line volumes highlighted branches. OneMain normalization absorbed, has doing the the and the been OpEx is with former You’ve credit of very expectations

All out if ex-ing guidance in lower the it way attribute said, describe What again, because metrics the everything line is them, guidance. guys at better. like below look do of even to? sounds well low-end did – you in Is the individual to -- that it hurricane those that you impacts, you you really

Jay Levine

earlier we down fourth The third less that’s One our quarter, of hurricane we work outlook the from pricing, optimization kind it I we and into be that an to hurricane. and receivables. But the pricing in quarter. continue through impact to mentioned attributable factor two think, Rick, that things. the we expect was one the the was receivables our we to of side, as brought why

Operator

one do of more with Mark have the DeVries line We question Barclays. from

Mark DeVries

The other portfolios. $XX was hurricane to comparable called you impact consumer as much a some that million lender is larger out

wondering of might expect also have have had have you kind that you more where loan you types whether kind impact why state to exposure, color kind So of quarter? just been an had and fourth help might me of on some where get any size into of effects might the

Jay Levine

pieces three is that out, kind Mark. the go break down into mount really overall you component I the if of C&I side, So called it

areas we different hurricane was loss million And that in in the impact experiences the and estimating that use for quarter. on as used historical difference have this disasters, loan proxy we for a reserves. natural $XX So the

helping segment And so build reserve We portfolio. others that borrower out real good called have the reserves and million We information. million $X customers historical as is we had And given feel addressed was the last related through tough in was we piece C&I based that insurance then set put portfolio that the our I that that’s on up outside interest $X of up on about done, of additional have on that. a get income, that feel business. have we the we to, our legacy which assistance our which for time. the $X million some for and estate modest

So we’ve at we end day, provided our felt everything, for from with the of but comfortable say, the the potential can pretty never you you third got impact that quarter. estimate I think the

Mark DeVries

Okay. on And other then the charge-off just guidance. question one

and think to a would why fact this integration out elevated artificially related that two quarter up of you were basis When expect normally that which to you for X.X% XQ, points. always point XX about you’re due seasonal only is see in do calling your basis sequential completely mainly elevated XXX almost kind you have XX would to that – years -- I explain expenses, through, then from flows flat Is increase XQ? it’s weakness. and to charge-off If an was had due called delinquencies once

Scott Parker

but charge-offs. based about. Xs is the have was losses you supplement, we delinquency at but proxy details as It’s improvement was the quarter you of of kind driver look of of XX that’s and the of the XX-day do go Mark, if in so what's the we’ve look for on best second lot answer, quarter I and of we is provide ended a I bucket why it is kind next XX-plus at yielded there the delinquency, kind seen fourth symmetry quarter think the X.X, back trends, know X.X, or if talked is not The and plus third credit quarter’s what the simple in the -- delinquency math, direct we kind mid in to is. and

integration some days back ultimately historical of effectiveness You in itself manifesting as predictability, our the about from talk and noise is then to and XX to numbers the end out year, take last collection improvement XX the the mentioned, buckets of the plus there XX some the charge-off. but Jay that on and is we

Mark DeVries

That’s guys. helpful, thanks. Okay

Scott Parker

Okay.

Operator

the or I now closing turn Catherine additional to Miller back any over floor will for remarks.

Catherine Miller

Cathie. actually This call Thanks, our morning. concludes the for

So feel and with have questions. day. please reach to further free us Thanks a great

Operator

call. does today's this Please This wonderful a and disconnect your lines day. have time, conclude at conference

OneMain (OMF) 2 Nov 172017 Q3 Earnings call transcript