Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Regional Management Corp reported a strong start to 2024, outperforming both top and bottom line expectations with net income of $15.2 million and diluted earnings per share of $1.56.
- The company saw an increase in total revenue yield to 32.8%, which is 80 basis points better than the previous year, contributing to record quarterly revenue of $144 million.
- There was a sequential improvement in operating expense ratio by 110 basis points, indicating effective cost management while still investing in growth and strategic initiatives.
- The credit performance of the portfolio remains strong, with a 30-plus day delinquency rate improving by 10 basis points from the previous year to 7.1%.
- Regional Management Corp has maintained a strong balance sheet with ample liquidity, having $478 million of unused capacity on credit facilities and 81% of debt at a fixed rate.
Negative Points
- Despite overall strong performance, the company observed mixed economic indicators, including persistently high inflation rates, prompting a marginal increase in the loan loss reserve rate to 10.7%.
- The company's auto secured portfolio, although growing, still represents a small portion of the total portfolio at 9.2%, indicating potential underutilization of this asset class.
- Digital originations decreased by 9% year over year, suggesting potential challenges in the digital lending space.
- The company's back book accounted for 25% of the 30-plus day delinquent accounts, indicating higher relative delinquency in this segment.
- Regional Management Corp faces ongoing economic uncertainty, which could impact loan growth and credit quality, necessitating a cautious approach to underwriting and loan origination.
Q & A Highlights
Q: Hey, guys, thanks for taking my question. I know you guys, you mentioned the revenue yield about 50 basis points below Q2 to Q1 and from Q1, which I think is normal from a seasonal perspective, but have it and I think that's suppressed because of delinquencies. But how do we think about core yields throughout the year given pricing increases? And how should that influence the yields in the second half.
A: Hi, Jan. It's a hard. Thank you for the question. So I think you're referring to second quarter guidance where we said that we would be lower by 50 basis points and that very much is seasonal. Our NCLs are going to go up in the second quarter. So that's very much due to that. In terms of yields on in terms of yields, for the full year, we did provide guidance and we said that they were going to be 40 basis points to 50 basis points up year over year. And that is inclusive of the pricing that we've spoken about previously.
Q: Okay. And then just on expenses real quick. I mean, you've been share specific guidance by $5 million in the quarter. You said you referred to some of it was timing difference, but your Q2 guide is less than that. So I mean, I guess the question is, where are you getting some good leverage in the expenses? And how does that kind of impact the expense rate past the next quarter?
A: So John, thank you for that question. It's harp again. So in terms of our beat this quarter, we really were focused on managing all lines, but we very much managed our personnel line and part of what we said in the prepared remarks is there was going to be timing between first quarter and second quarter. That's a little bit under $1 million that you'll see shift from first quarter into second quarter, which is part of that increase that you see in the second quarter guidance. The other increase that you see in the second quarter guidance is really marketing and volume-related expenses as their volumes pick up in the second quarter. But our B versus first quarter was again due to that timing item, but also very much due to us managing our line items quite meticulously and specifically personnel.
Q: Thank you. That's Tieton Capital. I did want to delve a little bit more into it. Yes. I guess the conditions you're looking for before you do lean into growth with what more can you share with that around that figure, although the economy has been slowing, it's still has and GDP growth. And just so I was looking to get a little bit more guidance on what you're looking for before you start from the loan?
A: Yes. Hey, Matt. No, great question. Look, I think I've heard what our track of what a lot of people are saying about the state of the customer. And I think that's really what is the driver of how aggressively lean into growth. So, you know, the metrics that we're looking at is, you know, consumers bad real wage growth last year, as you said, the economy's growing and there's still 8.5 million open jobs out there. Most of them or a large portion of them are for lower income folks, and that's all the positives that we see. Obviously, inflation is still higher than expected in our we're not seeing obviously the number of rate cuts that we would have anticipated early in the year. I mean, maybe we'll see one. And so when I look at it is customer is still recovering from the inflation hangover, right? So the last since April 2024 inflation is up about 21%. But wage growth in our kind of for the, call it the 20% or 40% you know, segment of the population has been a little over 5%. And so while stimulus has helped you and how the stimulus money, how people come in and stay on top and meet their their family obligations. You know, they're still working there through working our way through kind of that inflationary period. And so from our standpoint on, we're able to be very selective in where we put on growth, and we're able to be very selective where we put on some of the higher risk, higher return growth. And so I think what we're what we're really looking for is, you know, on really looking for is inflation to continue to fall. And I will tell you that On Demand, in my opinion, has started to pick up here in the month of April on. That's encouraging, but it has to be the right kind of demand. Obviously, you want to make sure it's on customers with our underwriting that we can can pay their pay their bills. So that's kind of where we're at. I mean, I feel like it's some it's a good place to be because we have, you know, we've tested into the smaller loan portfolio we're seeing and how that's performing. We know how to turn the dials up to in oh two. We feel like it's the right time, but I don't think it's prudent necessarily to get out slamming the accelerator down at this point in time either. So, you know, on as long as we continue to make those right trade-offs each and every quarter. I know I see I see things continuing to and improve. I will also say that from a credit standpoint, on the credit on the front book is performing, you know, in line with our expectations. Of course, everybody would like to have inflation go down faster, but we are where we are and I would tell you that on, you know, our 1 to 89 day delinquency buckets about 190 basis points below 2019 and 200 basis points below the fourth quarter, while delinquencies overall in the first quarter up 20 basis versus the fourth quarter, when you kind of normalize for the loan sale to actually down 70 basis points. So we're seeing the trends and dumb, although I don't typically say this, I will now disclose that in the April delinquency numbers below 7%, and that's in line with the on the seasonal improvement that Harp talked about in the second quarter. So we're feeling good about pricing and the impact. We're feeling reasonably good about credit on and we're cautiously optimistic about when we can, you know, might lean back into more aggressive growth as macro conditions continue to improve.
Q: Great cloudier. I've had that cards. My questions. Thank you.
A: Great. Thanks, Matt.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
