OMF - Earnings call transcript Q4 2017

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Operator

Welcome to the OneMain Financial Fourth Quarter and Full Year 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 Maria. 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 fourth 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

listening we subsequent February some and to call. of at today, not this XX, replay that If herein this as made updated been you you remarks have remind maybe are via today, to XXXX after point the

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

me call now over the turn So, let to Jay.

Jay Levine

and with operating in grew Thanks, fourth losses receivables We line $XXX Catherine million everyone. and and in had our expectations, our the a great objectives portfolio morning almost our key achieved Credit were yields by loan quarter. good quarter. stabilized

to and share fourth a adjusted out a lower XXXX. insurance issued balance earnings our segment of way our sheet, generated close at a quarter. cost strengthened per consumer our meaningfully All-in, reduced tangible further diluted great was the also leverage and adjustable This in We of $X.XX funds. debt

direct our we secured drove all auto we year end billion, at year synergies proud on reflecting at grew receivables reached XX% loan of our which the year. continued accomplished. more reduction drove $X.X our lending, the versus point portfolio last and We year, by product ratio. back expense that the I with improved As operating cost of growth together of the our growth look total charge-offs Full XXX past basis am which in steady net than

shareholder back, considerable the So, in a when to priorities value itself our the and whether it number across drive tax XXXX trends our strategic are excited see all loan healthy looking has demand been of and a beneficial environment everyone we boost manifests first recent customer. and to a are we backdrop, sure we on safe making our XXXX remain in we focused Historically, it’s in that that income say made pockets for customers’ benefit key continue customers’ through we fact of in as for opportunities starts needs. or choice improvements with serving financial progress additional to with credit economic reform our it in all their

a presents to already the our reform plans invest in So, augment and invest while namely further this in foundation, business recent opportunity platform compelling had year, planned our tax people. our our to and we those core

end, of key in a most providing we initiatives refining retain on customer which rewarding the and number focused improve are with the factors. certainly attract, brand to raising and differentiating efficient To are customers our and customers engagement, our identified including experience We our have and technology. ways awareness serve we that

the best more our mind that needs, time cohesive as to ready are company, providing we one front in want of we customer customers And customers’ how and we brand sure of the that are are possible to operating elevating experience. become make our and invest we help awareness we of Now, as who we we our are everyday.

So, the capabilities. that we our and online both supports our are investing in technology branches

future can team apart to we members’ plan providing collecting our best-in-class We personalized dedication sets recoveries to strategies. portion off the our in also service charge-off believe post We invest a from rest. by OneMain internally. finally, charged larger accounts improve And of

So, we our by to a benefit issuing of team special wage minimum are and the reform bonus sharing tax our members. raising

We are need they our are showing with and further investing people serve equipped and also our in best customers. resources training that programs to well tools

strategic to a XXXX year be our priorities expect which and we drives in OneMain So momentum forward.

to right to best, do providing what financial with flexibility. customers improve we products our We stick the will and their standing

enhance fundamental Scott. value our all that I we businesses for With call drive our in shareholders. value As customers, the the to long-term for that, the will build we trends over continue turn will to creation

Scott Parker

Jay. Thanks

our continued led momentum our of quarter across business, We drivers key fourth to results. the a strong which

We $XX basis versus quarter $XX or diluted in per $X.XX quarter or GAAP are million the per in fourth XXXX. on million share share in fourth a the of $X.XX

estimated of this to tax on on presentation. million $XX reform. can found Further detail included our be XX impact in Slide results related quarter’s charges earnings This

income million adjusted Our share per Consumer $X.XX and basis on or this million Insurance segment diluted per earned in fourth the share $X.XX net of or compared quarter XXXX. quarter $XXX an to $XXX

were by of to billion, from grew last versus a net last Let’s reflected billion XX%. move year. $X.X and of on almost mix Ending Originations secured receivables performance. our in drivers up key the quarter year financial $X.X the fourth XX%

strategic year and a from year of up Our lending receivables on focus XX% portfolio, the Auto reached supported ago. were XX% end. total Direct XX% the by secured portfolio growth of this

a As this our risk the adjusted product most attractive reminder generates portfolio. in returns

on pricing. XXXX reflecting disciplined prioritize to secured credit quality, continue and lending will in focus our We receivable

and quarter, assets average higher in growth assets about was levels almost $XXX first The originations historically growth in reflected in quarter. increase up million the trends from with exhibited seasonal reflected higher portfolio quarter. slower a last while fourth the Interest the X% reminder, growth third year’s year-over-year X% from primarily have income income yield. average higher sequential As and our

X% modest remain pricing quarter was depending quarter-to-quarter gains. primarily mix, For compared around product $XXX from last year, occur down lower yield fluctuations was XXXX, to we to other quarter Fourth expect day relatively count. may capital million. levels, and on fourth stable reflecting This revenue

quarter, full We compared Also XXXX XX-day we losses to the the lending and in releases growth. our year by points credit expectations. improved the third expect Fourth decline reflects year, to quarter in million the recall compared our expenses on outlook. On X% come investment million, continued and disciplined our leverage to year. line year. XXXX, tend in was in quarter our XXXX by asset increase the credit our This basis with quarter. in million focus charge-offs OpEx our quarter benefits the Total delinquencies reflecting underwriting. That we processes. $XX represented improvement quarter said, our in asset to below prior cost should and performance to were $XXX secured the XX-day continue trend million, reserves reserve for reflects or were X.X%, $XXX of have to million line portfolio. loss growth. Fourth operating bills savings for our X% receivables first were largely in benefits due $XXX the of this plus X.X% reflecting of net were lower the loan declining and increased the X% for builds ratio XXX The lower to seasonal in loss X.X% with returns reserving X.X% XX prior in ratio which to the expect that and note, plan than last $X delinquencies

compensation degree a continued to forward, X% expense leverage, we expect These lesser levels. benefit and lead earlier. mentioned operating Jay to with should XXXX operating achieve modest to given growth combined although from increases planned reinvestments Going our around investments

direct in the fourth million active quarter. at Moving of We were as issued unsecured $XXX on X.X% markets million as X-year to and we the of debt ABS auto our funding X.X%. X-year liquidity, at well debt very in revolving $XXX

addition quarter million XXXX we end, maturities. unsecured of debt In after the our X.XX retired shortly $XXX

strong On continue unencumbered in and we very $X of be $X capacity. We billion undrawn the billion had loans of consumer liquidity over position. conduit side, a to

achieved we tangible ratio the by target our track of Xx of XXXX. leverage achieve Excluding Xx. tax to the end remain We of impact on reform,

year secured improvements last ratings the or we so, achieve been our to over unsecured able back programs. in and Looking have

our direct deal auto a with tranche. first AAA Specifically, we issued

upgraded had of In personal tranches we our certain AAA. programs to loan addition,

this that, We multiple duration received also in XXXX unsecured our will We on I remarks. maturities. strong laid building to increase we strong further our made plan our that lead these of turn Overall, rating. Jay efforts call look the momentum on extending the and to for priorities our debt. his our the upgrades continued mix of build liquidity credit to even to assets We by on closing our XXXX. out significant strategic will foundation in With progress in and for corporate ratings. enhance on we year freeing and up believe the profile improvement forward back so will Doing we

Jay Levine

Thanks, is are aligned provided our they Together, are shareholders, a the in we credit say stronger Värde. balance what appropriate returns, sheet. disciplined out, just and although excited we the put the support transaction grateful hasn’t future and like closed, Scott. are officially that for I risk to we all very about to continuation very the strategic we strong over of and to value much even objectives an growth, come, laid years have risk-adjusted shareholder which will Apollo drive

that, build a will more priorities, and these the I to business. operator call on execute with turn the the we to will resilient As over And we Q&A. begin profitable

Operator

John Our Thank the comes you. of [Operator Hecht from question line Jefferies. first Instructions] of

John Hecht

Thanks questions my morning. guys. very taking much and Hey, for good

base, that wondering out as we originations much a secured to this where because that gave portion you portfolio where mix consider it origin, year? receivables as auto is about the a doesn’t XXXX in or First of the will I composition auto secured, continue to percentage grow point am think overall auto balance are the I and of change receivables should of the of they the total a

Jay Levine

increasing. the year the so we to continue of the expect Yes, at over auto originations has it the It John. same kind won’t just increase that last at or rate would

increase. to percentage And expect so do we the continue direct of auto and

John Hecht

you what’s your capital end thanks. forth. are about with do they the excess update not know coming of thoughts in at over an I you thought year capital on you give what the next about, base be Can Okay, they year, ratings And and your so in might increases future, you time? near but the about talked the we talked leveraged capital be guess in I and to us might are guidance, returns? Jay, your then the

Jay Levine

Sure.

is approach most the continue And leverage and tried we with share we agencies extent to And will we in point, at clear suspect that business, we to least approach what exactly are be, at are is our our where it the but sense level, to think have than we which excess say more have at have we all the where key priorities that. Xx. will still We remain we are board, getting discuss board is to the will as looked that, will we rating makes this capital the conversations our actively be way trajectory there as the shareholders it pleased pretty of we which needs active I’d with end XXXX, I the appropriately. at the

John Hecht

Great, guys. much. Thanks very

Operator

Our from Citi. the Cyganovich line of question next of comes Arren

Arren Cyganovich

a not and if some pay-downs The borrow income customer capacity or indications the if any was little activity whether could in impacting if tax more because increased of quarter consumer’s seeing more? cause bit putting actually the what from money pockets will discuss give will your are first that’s to you them this are or is that Thanks. the and of more yet reform you wondering expectations

Jay Levine

tell your would to early, impact, take yes. debt a be so I take the one flow it’s thing. the some based have probably couple and second all who to others hard retire one probably on will still so some it’s people the yes There to additional free cash on any like the really say on and confidence first that savings it’s debt. that’s of And things, and immediate

we little bit So are sure with a both am as will exact do refunds but when of come. balances most we tax seasons I the detailed, get

Arren Cyganovich

am in get higher inflection enough. than And it fair I the terms off? are of your if book on stable, yield, the coming rolling why starting outlook new expect rising say wondering be there would you Okay, to be be what originations when in terms of on is an wouldn’t – you to relatively

Scott Parker

is Scott. this Yes,

actions Auto increase we about the of Direct kind the percentage think we So a pricing as we the you portfolio so the of know is seen the have expect the you pricing on are the do to is it in question Direct product. John increase. kind offsetting, Auto, just secured, lower able about so secure of way asked to

Arren Cyganovich

it, Thank Got okay. you.

Operator

America. ahead. Hammond from Bank comes Please of Mark question of next Our go

Mark Hammond

Two rates, delta, savings, tech morning. tax probably bucket change X%? and million questions, you the would just $XXX on Good when number you between that get employees so if I first about marketing is the tax off

Scott Parker

– Bucket, you our what reinvestments Mark? mean,

Mark Hammond

Right. rate I that are That tax going see additional the marketing tech employees listed? lower savings from and and

Scott Parker

Yes.

Mark Hammond

go? that’s Just to going specifics on where

Scott Parker

Yes. don’t give a need specific. I think we to

to with as how investing Jay to easier in – as mentioned, tax I think our our I as to expectation for evolve and we inflationary as as continue expenses, think customer that by we us – does is it technology our looking kind I overall well before. engage an reform, customers it in opportunity give part business. were have making really in reinvest of that the increases of the mentioned employees normal the And

Mark Hammond

Okay. if on change them you tranche rating that to business the structures to was your so elaborate prompt deal? a latest And could then sign or switching or wondering, most in agencies senior I AAA ABS to rating your in to financing, minds

Jay Levine

of performance the credit on I the a of continuation think it’s kind portfolio.

of recognized So can gives it rating because of that the and by agencies marketplace. the that out us additional put new to we happy we in are that access kind new was structures the investors,

Mark Hammond

Scott, thank and Jay Alright. you.

Jay Levine

Sure.

Operator

Our question comes of the Michael line of Compass next Point. from Tarkan

Michael Tarkan

the taking for Thanks question.

from mix Just long-term unsecured where you XX% sort basis that is now, level on mix? it off a do just XX%, of for secured,

Scott Parker

Yes.

get of to we on would would get good we kind feel level. the are is we that mixed A increase continue can that we dependent customer to overall near-term have and base there, going to if kind secured we I to kind but lot trajectory, of of where the XX-XX. think on of like the think when I the to that’s

more of XX remember are lines. doesn’t of so the one prior for and profitable you was kind As spring it – our us products more secured leaf the product

that be would to performance overall it profitability from overall a mix. credit secured good grow well to both So as as continue

Michael Tarkan

guess Okay. is that different sort like of competitively you pretty it still from mix, sort perspective? that stable I as secured seeing dynamics, of you are any grow

Jay Levine

a not is the certainly, weekly The There one. choices indirect we where much yes. say of spot competition. would in I office, providing is competitive there the are direct the customers of market is as sort market on

can as continuing very are we So a that front in to of see customers. we viable option put

Michael Tarkan

but are me any and accounting thoughts how CSO, Okay. am around it’s new about just Thank updated a And you from then know last on it I I little thinking you. now? ways curious away,

Jay Levine

forward. standard standards. kind of bit form Yes. a I get we of and early are new I of how we little and that, CSO see doing new give is think that kind of the accounting the ‘XX going place that around I as of we XXXX, in accounting we impacts internal evaluation rest the we better later our industry can forming clarity goes think analysis And as into the so ‘XX, think in

Michael Tarkan

you. Understood. Thank

Operator

comes Coffey Wedbush line next Henry with the question from of Securities. Our

Henry Coffey

thank morning and question. everyone you my taking Good for

that sales your finished you sort also unit inside, can on both same-store growth and sort but the or the going of focus front new just Fortress with environment nursing Now of of those outside what’s basic the on you business openings, more is profitability be growth maximizing store process of likely terms and it the on business acquisitions, to units? products either new in and

Jay Levine

we to able there but a add got sure in grow. customers productivity are of to today put suite be a that of have overall customers. I our to is plan are I things products front no dilutive. very say are at said to the immediate without product We they great branches that think we we on efficiency and Overall, good Look, of sort additive But that overall looking base, that being in we have and it’s focused to can always are making would helpful question. our continue

news through adequate getting loan and more we the of continue really we We matter see through that. good a to continue have that is than sorting – is demand

for she part I So say is as would expect there as goes. business the most

markets We a there but open most loan part we over branch demand, will at we under-penetrated, few you for think expect where the think to may the is there, branches here count look maybe can and we I be flattish pretty probably time.

Henry Coffey

much as obviously installment you access parties Do that of the have there then any lending well, on but a from at that’s seeing? to end pulled some mean other has thoughts competition, Club have into Lending with have business rate, the way seeing great with your credit, I what rate Avant though other market, got so the great you getting at capital, that were are the back to you you companies offering lenders like got credits supposedly good and have you your higher course payday loans happening

Jay Levine

those I are we all attention to. of pay mean look lot things

lend, think is this a easy do trying the and people pricing out few was that experience customer an think money that not collateral returns I thing. without base just getting right and you so And to give all will back. easiest in that person that it thought the pay they found to customer and this naturally you without I and identified

are as say, more great certainly we in to to things continue customers you make to are kinds see we X want players sure there online front a as the maintain just of almost local I unions, customers and where start of we X.X So front in are just to local to we can necessarily there, the overall, always relationships experience with mind those we mentioned, the pretty we need do what’s communities with mind something. provide out all when and than best million ourselves and they base credit million place. former the and good we is XX sensitive But million we and long of as would

Henry Coffey

Great. Well, thank you and a great quarter.

Jay Levine

much so Thanks Henry.

Operator

question comes the of from next David of JMP. Our line Scharf

David Scharf

morning. answered, should investment believe a the remind and this be this your in-house Jay, recoveries collections, up charge-off at I recovery questions sold a just you either but about edges? Hi, to follow-ups more side of can development much been have your reinvestment good thinking on material the I we focused going part just post of my savings or couple mean or or more is around was of Most building of mentioned us point are actually you outsourced how whether be tax

Jay Levine

just It’s that as proportion thought of to reduce further. as the kind integration, before of we around see edges. transition, the even higher We now portfolio their we that activities, through was that have gone OneMain opportunity we a

it’s We will we third-parties, in a bring servicing model. more but a on that But think investment our leverage good on continue collection the there is to edges, in-house effectiveness of to based material item. it’s our

David Scharf

on maybe competition around other or more would maybe just a so, specifically that sub-prime year think off And edges, that credit highlighted feeling of questions Okay, Jay competition ago a response the about that’s helpful. in from backing about you it that I then are think some or the we card. to was capital? as follow-up is you to Is sources lastly competition, about as something last still question

Jay Levine

ones to Those for to sort say compete for $XXX I’d of sub-prime the the amount and a and people much purpose different much few is cards complication, one debt. use I’d brand to it’s we there $X,XXX allow just don’t refinance are life. fair are more to it extent are that of general flexibility out them are of we in think typical $X,XXX and the that cards which of the say one both our sub there name product a loan of is of not with, more,

anyone of the put So, etcetera. a that very of number referring the much a very certainly in it’s is debt stable of I last it’s else’s I cards, our customers lot which credit customers’ would landscape think in and mix was installment I in say terms customer to stable advertising. of we have something mentioned terms auto ago that that much was has, my year our customer’s what on other and look how wallet. one debt And a wasn’t on of the it book. wallet more without year clarity, what’s in We debt, a customer’s the of other really particularly And we find line been items in use have for and seen the proven providing

my the our of So, the as there of it too, but I was year, it’s over than comment, debt customers. more it terms much very last competition, really since say stable we been I’d use reference has by made look out was the in

David Scharf

Got it.

is So, underwriting you new takeaway are – household overall is of in in in the leverage main pretty new terms applications? stable seeing what

Jay Levine

For our customer base, yes.

Scott Parker

that the loans the for booking. are are for booking, we we loans Yes,

David Scharf

Perfect. Thanks Congratulations. so much. Right.

Jay Levine

Thanks.

Operator

Our the next Suisse. question from of Credit Moshe line comes of Orenbuch

Moshe Orenbuch

of Most of those get questions into X% the my timeframe kind about towards I the you benefit would between that But towards to just would kind end get factor will what could range thanks. talk of and also growth and kind growth? to of making lower maybe end, loan of some investments you answered. what higher you Great, and and things XX%, of they guess how investments will get over the what to are loan what you have been asked that

Jay Levine

think I range, high-level growth. we questions, when into will the Look, sort two of about one separate

credit adjusted thing, box we had that focused most our there. are First we maintaining the and risk out returns on maintaining have is

on of are chase point growth clear going for not really I we sake chasing So, to and that. at growth any to want be the

today, where credit and the reasonably but which secured, is closer book may like don’t market talked the the is And the be, us good as see can ultimately mix the book. – to see So good shape. the we about, our customer here It extent, to To the to and higher sit end up will moving we to wind credit to we in end. end, a allows maintain would at Scott loans standards. XX% the the as lower the grow news extent want box upper we we at of we

to As to of customers we it, is support and capacity paycheck, all at their loads, debt good when darn look news paycheck the our we but know, their the their ability are overall solid. its vast pretty majority income

when investments about making, say of the materially the they I all short-term see on we would driving any base. are helping I think we we growth, say to long-term mall are our of say are the providing customer value things them margin, what I As I don’t our people and

don’t the it So, probably necessarily one do but is most will meaningful we with. I to you think would our any are and them will be XXXX, be it I with of to say from do the we loans we important comes but way, it the in will want going take of message growth us would that hear any

Moshe Orenbuch

obviously It are that And the unsecured plans, it. out a on financing what’s rates then sense. you getting and lot Got are makes both bit Scott, plans just a the off. rolling than kind you the talk little could of secured better just flush

are maybe So, through you likely XXXX? we to talk in kind could see what of

Scott Parker

I kind bit Yes, Moshe, little talked of that. about a

our on increase to and or maturities liquidity less a balance as ladder continue of sheet. kind continued move we well side as I and would nice like that we assuming to the to of to think as do both help encumbered little the to a our mentioned us on bit get markets going unsecured of durations I kind markets there – access continue will future to are more

make So, kind both between types I been is don’t of material have have that doing. the to of We in what we think sure like there just would funding. balance continued a change we

Moshe Orenbuch

you debt the ‘XX unsecured? cost the or off that you in pay either of the approximate Do that’s have maturing can

Scott Parker

Well, the that on we in I maturity XXXX. the unsecured was a $XXX that XXXX maturities million in that million. we coupon mentioned paid no January have and was the off $XXX

our that down XXXX maturity stack we as So, to keep going million. $XXX took

XXXXs, as have really get mix of XXXX a there, So coupons kind on are into kind debt. we of of now different of we that looking kind where you

beneficial markets, going the make as So, we not that at now, versus mentioned, in has given the the of is but to am in a our position cost been Jay that’s are current strategy continue forward. continue funding right going expiring originations point, new overall I whether us. funding to that forecast, a which balance to to

Moshe Orenbuch

Great. Thanks so much.

Operator

comes from the question John Rowan next of line Janney. Our of

John Rowan

quick Have recent the you are Two will anything adjustment call questions. and changes you the which morning, a guys not products have just Lending there to change of make side had usury whether ancillary is had auto under counted on we maybe for, or MLA, the Good against to Military it that? because guys. any Act to

Jay Levine

of Look, we pay of MLA sort made and a the those lot of understand about probably can’t implications year the of we sort offered we and be attention to bifurcations can what a ago.

Scott Parker

recently just GAAP contracts and members very of fact. Okay. a their But I change matter to believe there recent family regarding service is a

John Rowan

reserve that said can I just half repeat is you you you to there quarter Can that Scott, what it be the first first building question guys going said down? the or some you you year. just second reserve just releases The just without in over then later guidance think gave was and

Scott Parker

Yes.

a back seasonally know is a over our as years, release, So reserve you our which have lot lowest the you if reserve look first we quarter is and couple highest quarter because the of loss then build. third loss in it’s seasonally quarter

John Rowan

very thank much. Okay, you

Operator

Ken from final Our question of Bruce today line Bank the of America. of comes

Ken Bruce

Good answered. My questions have Thanks. morning. been

Good leave will I much. at quarter. it very you Thank that. So

Jay Levine

Thanks, Ken.

Scott Parker

Ken. Thanks,

Operator

final call. conclude does was question. and conference ladies you today’s That our gentlemen. This Thank

You a time can disconnect this at lines wonderful have and your day.

OneMain (OMF) 15 Feb 182017 Q4 Earnings call transcript