Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Regional Management Corp (RM, Financial) delivered $8.4 million of net income in the second quarter, a 40% increase compared to the same period last year.
- The company's total revenue grew by 7% year-over-year, reaching $143 million in the second quarter.
- RM's portfolio grew by $29 million sequentially to $1.8 billion, up 5% from the prior year.
- The total revenue yield increased by 80 basis points year-over-year due to increased pricing, growth of higher-margin small loans, and improved credit performance.
- RM maintained tight control over G&A expenses while still investing in growth and strategic initiatives, with revenue growth outpacing G&A expense growth by 2.9 times.
Negative Points
- The company increased its full-year net credit loss (NCL) rate guidance to 11.1% to 11.2%, reflecting the lingering effects of inflation and the growth in higher-margin small loans.
- Despite the growth in revenue, the shift to small loans negatively impacted overall portfolio credit performance and required higher G&A expenses to support the greater collection intensity.
- RM's 30-plus day delinquency rate remained stable at 6.9%, but the growth in the high-margin small loan portfolio added incremental delinquency and NCL rates.
- The economic environment, particularly inflation, has not improved at the pace predicted, continuing to strain RM's customer base.
- The company expects higher provisioning for loan losses in the second half of the year due to higher receivables growth, which will be a near-term drag on earnings.
Q & A Highlights
Q: Can you provide an update on the health of the consumer?
A: Robert Beck, President and CEO: The labor market is softening slightly, but there are still over 8 million open jobs, particularly in lower-income roles. Recent data shows a positive trend in real wage growth for our customer segment, indicating that consumers are healing. However, the pace of credit normalization is impacted by increased debt levels. Overall, we feel optimistic about the second half of the year.
Q: What levers can you pull if the economic environment changes?
A: Robert Beck, President and CEO: We can lean into our higher rate business, which has ample job opportunities and built-in stress assumptions in our underwriting. The auto-secured business also remains strong with low delinquencies. We can manage expenses tightly and adjust our growth strategies based on economic conditions.
Q: How are you managing credit reserves given the higher credit losses guidance?
A: Harpreet Rana, CFO: We've adjusted our reserve guidance slightly higher to 10.2% to 10.3%. This reflects the growth in our small loan portfolio and higher revenue yields. The final reserve rate will depend on macroeconomic variables and the run-off rate of our back book.
Q: How are you achieving better efficiency on expenses while increasing receivables growth?
A: Robert Beck, President and CEO: We manage our expenses tightly and leverage scale benefits. Efficiency gains come from technology improvements and sourcing customers digitally. The higher rate business also offers efficient marketing opportunities. We focus on deploying expenses where they yield the maximum return.
Q: Should we expect a stronger push in originations and revenue in the fourth quarter?
A: Harpreet Rana, CFO: Yes, we expect higher originations in the fourth quarter to meet our full-year ENR growth guidance of 6%. This will naturally lead to a stronger revenue bump in the fourth quarter compared to the third quarter.
Q: What are your expectations for 2025 in terms of ENR growth?
A: Robert Beck, President and CEO: While we can't provide specific guidance for 2025, we are opening 10 new branches this year to drive future growth. We will continue to monitor economic conditions and adjust our growth strategies accordingly.
Q: How are you balancing the growth of high-margin small loans with other products?
A: Robert Beck, President and CEO: We are modestly leaning into the small loan business due to its strong yields and lower delinquencies. This is balanced by growth in our auto-secured business, which has low delinquencies and strong demand. This balanced approach helps us manage risk and maximize returns.
Q: What is your strategy for managing expenses and investments in the future?
A: Robert Beck, President and CEO: We will continue to manage expenses tightly while investing in growth opportunities like new branches and technology. Our goal is to improve operating efficiency and ensure long-term success and profitability.
Q: How are you managing your funding and liquidity?
A: Harpreet Rana, CFO: We maintain a strong balance sheet with ample liquidity and diversified funding sources. Our recent ABS transaction was successful, and we have significant unused borrowing capacity. We will continue to manage our interest rate exposure and maintain a strong funding profile.
Q: What are your expectations for credit performance in the second half of the year?
A: Harpreet Rana, CFO: We expect our net credit losses to decline as we reduce our back book portfolio. Our delinquency rate may rise slightly due to seasonal patterns, but overall, we anticipate improved credit performance in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
