Good morning, and welcome to the World Acceptance Corporation Sponsored Third Quarter Press Release Conference Call. This call is being recorded. [Operator Instructions].

Before we begin, the corporation has requested that I make the following announcement. .

The comments made during this conference call may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events.

Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing and similar expressions are forward-looking statements..

Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectation expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2015, and subsequent reports filed with or furnished to the SEC from time to time.

The corporation does not undertake any obligation to update any forward-looking statements it makes..

At this time, it is now my pleasure to turn the floor over to your host, Janet Lewis Matricciani, CEO. Please go ahead. .

Thank you, and welcome everyone to our earnings call for quarter 3 of fiscal year 2016. I assume that everyone on the line has had a chance to read our earnings release. And so now, I will not read that or repeat the information that's within it.

But as I did last earnings call and as will be usual going forward, I'll add some details on our recent activities and successes beyond what is written in our earnings report..

During the last quarter, we have made several changes to our business activities in order to improve our performance and focus on our customers. The most significant change to our business practices is that we have ceased all field calls, both to a customer's place of work and place of residence. So we no longer do any field calls..

We have also ceased all phone calls to a customer's place of work for collection activities. This is part of our strategy to be best-in-class in industry practices in all our activities. And we believe this cessation is necessary in the current regulatory environment in which we operate. .

We cannot yet say what the impact of this change will be since we only made it company-wide in mid-December. But to the extent that the change negatively impacts delinquencies and charge-offs, we hope to mitigate some of the impact by implementing a more optimized phone call strategy for collections and by better underwriting in the future.

And this change also increases our efficiency of our branch teams, because they're now together all day in the branches, except when they're doing local marketing activities, and we believe this will also improve our training activities and our team communication..

We've already significantly reduced overtime and mileage expense this year, and we have reason to believe that these will continue to decrease with the elimination of all field calls.

We also now have the opportunity to hire individuals as assistant managers with a focus on strong sales skills rather than collection capabilities, which will likely help to improve our employee turnover as well..

Another change we have made is we've improved the quality of our field meetings.

For example, we're taking advantage of our state homestretch meetings, which occur in January and February, which are attended by branch managers, supervisors and the VPO of state, the SVP, to communicate important information about our company strategy and to emphasize key initiatives. .

And some of the key initiatives that we're emphasizing include customer service. We want to be best-in-class in this area. We've created a customer service manual, and we've also rolled out our operation pride, which focuses on how to have optimal telephone communications with customers..

Of course, we're also beginning to infuse data into everything we do, including these state and divisional meetings, so that we understand performance trends and can take specific actions to improve in areas where data show weaknesses..

Other activities, our branch support center, based in our headquarters in Greenville, is up and running and serving all states now to help operational personnel get fast answers with any issues they have in the branches..

Our third and newest large loan center in Alabama is now up and running. So now every state has a large loan center to help in underwriting our large loans. .

In marketing, I'm very pleased to say that we've hired a new head of marketing, who has experience in the financial services industry and particularly in digital marketing. He's been with us about a month now. .

We've seen that digitally we have a number of opportunities to improve the way we interact with our customers. We're also pleased with the increase in unique visitors to our website, which in December was a record high for our company. And I'm also pleased as well with our web apps, which was also a record high in December.

In fact, web applications in December were up more than 25% from November and were almost 3x what they were a year ago. But we're still aware there's so much more here we can do to gain customers and improve the customer experience. And we also plan to improve our creative offerings so they truly grab the attention of the recipient.

And this is an area where our new head of marketing also has experience. And we've begun to run them, and we'll continue to run new creative tests and look at our performance..

In data analytics, we've created dashboards for supervisors and vice presidents of operations who run our states to show performance in their states and districts, and these are now issued monthly. And we believe this will help our leaders in the field to pinpoint problems and improve performance at a branch level.

We've had a very positive reaction to this kind of graphical data..

We're focused on profitability, and we use data analytics to make decisions to open branches and merge branches because we want to maximize profitability at the branches we have. We want to merge branches where we can do so at an increased profitability because it makes sense.

We now only open branches where data shows us there's expected to be strong demand, and data analytics are involved in every merger and open decision for our branches..

We're also focused on cost reductions. As I mentioned, mileage cost is down significantly, even before we stopped all field calls. So we expect this to decrease further as it becomes more efficient. Overtime costs have been reduced.

They saved us $600,000 already this year compared to last year so far, and we expect they'll save us up to $1 million this year in reduce overtime..

We've also seen some good things in our growth during growth season, which, for us is October through December. More former borrowers came in during growth season for loans with us than did a year ago.

And although our open loans, same-store revenues, and refinancing volumes decreased over the quarter, the rate of decline is slowing as compared to prior quarters. And this has been true over the last few quarters in these categories..

We feel this is a good sign that our initiatives are improving results, although it is certainly too early to know the full trend. We will continue this focus on improving our results..

And although we brought in fewer customers overall during this growth season than last year, we find it very positive that the customers who came in were higher-quality customers as measured by higher average Beacon scores. And all this was done without the head of marketing during growth season.

And now we have someone with the expertise to also drive our creatives to the next level. .

But we still have a lot to do, especially in IT. We're focused on upgrading our technology in all the branches, having virtual terminals, and so Internet at every terminal.

And this will allow us to improve in many areas going forward, including the delivery of models to branches, credit reports at every terminal so we can then do everything we need for an application at one workstation.

It allows us to have data analytics to share with branches more easily, and it's more efficient as employees don't need to move to other terminals..

Part of the work to come is also to update our underwriting models and to improve digital customer connection channels to create a full, optimized digital experience for current and potential customers..

Now there are a number of areas where we feel ahead in the industry, like having every branch with debit card terminals so customers can pay on a debit card; and texting, which we do to more than half our customers of course, who have all opted in for this service.

And furthermore, we were the first in our industry to sell our charged-off accounts, and now others have followed in our wake..

But we're aware of opportunities where we can improve our competitive position. For example, in terms of accepting payments by phone, which we've been testing in our collection center, and we're also behind in taking online payments as well as our techniques in digital marketing, as I mentioned already.

And we need to consider using external data sources more effectively for underwriting. And we are taking steps to fill all of those gaps..

On the CFPB front, I appreciate that you may have questions. But as we stated before, we don't intend to make further statements until we reach the end of the process and conclusion. I know that the market is looking forward to us regaining our growth in accounts and ledger.

Our focus is on bringing in higher-value, lower-risk customers through better marketing and underwriting, and thus increasing our profitability. We now have data on customer profitability by state, by credit score range, by whether or not they're a former customer, and their payment history if they are refinancing.

So now we feel able to weed out unattractive customers and focus on our most attractive segments going forward. .

In summary, we look forward to growing and improving our business, building on our culture of data analytics, collaboration and quality customer service as we add technological improvements and best-in-class practices throughout our company. We are excited about what we're doing..

Thanks for your time, and I'd now like to open the call to any questions. .

[Operator Instructions] We'll take our first question from J.R. Bizzell with Stephens Inc. .

I guess, the first question I have, just kind of a 30,000-foot view. Just wondering if you could give us an update, Janet, maybe on kind of what you're seeing in the competitive environment, what you're hearing from your branch managers about what they're seeing in their respective fields, and we can -- yes, that's the first question. .

So in terms of the competitive environment, I think some of the things I've mentioned is what we're seeing is we're behind in terms of, for example, our online presence and in terms of some other areas where we can certainly improve that I've mentioned, like in our use of IT and how we manage that.

But our branch managers are also seeing, I mean, a lot of good signs, as I mentioned, with high-quality -- higher-quality FICO scores coming in. But's it's also a time of a lot of change for us, right, as we develop our technology and data analytic skills so that we can seed our future growth.

As we develop these capabilities, we expect to get set back to growth. So I think what the branches are seeing is similar to what I said in my verbal speech with what the branch managers need, and our #1 focus is on bringing new customers into our branches. We've always said we have 2 main factors that we're focused on.

One is growing loans the right way. You still need to keep your strong underwriting. And the second is regulatory compliance. And the branch focuses on those same areas. .

Excellent. And I guess, kind of switching gears and just to be -- the debt collection policy, kind of a major change here, if you will. And like you said, there're some positive points for your branches.

But just wondering, maybe if you could kind of go into more detail around kind of how often and what percentage of collections were done in person outside of the branch. .

Obviously, the vast majority of our loans don't have field calls. But it was still a part of our collection strategy in full compliance with all regulatory requirements and done in a lawful and correct manner. I don't have the statistics you're asking for in terms of the number of collection calls.

But we do know that in certain areas, the cost of collection calls, for example, when you factor in mileage and time out of the office, in certain branches, could certainly outweigh the benefits. But like I said, it's too early to know the effect of stopping the field calls at the moment.

We believe that this will be of benefit to the company because we will ensure that we continue with strong underwriting going forward and use the time now available to keep the team together in the office, working on growing customers and improving customer service. .

And I guess, kind of building on this longer term and thinking about the regulatory focus here on kind of the collection processes at the branch level.

Just wondering if you all have kicked around and/or are planning on kind of doing some work around maybe doing a centralized collection process for your loans as opposed to collections at the branch?.

Yes, this is not a new idea to us and is certainly something that we are thinking about. We are looking at optimizing all different forms of our business and all processes and procedures, from evaluation forms of personnel, to how a loan application is used, to how documents are received and sent from the large loan centers.

And a centralized collection strategy is no different from this. And we would expect to talk more about these kinds of things as we launch relevant opportunities. But this is not off our agenda at all. .

And next, we will go to John Rowan with Janney Montgomery. .

Just 2 questions.

So first, can you explain the issue with the tax rate and what we should expect going forward for that line item?.

Sure. So I can't go into too much detail; I don't want to go into too much detail. But basically, we had an opinion from a judge in one of our states written in the second quarter, and the same judge reversed his own opinion in the third quarter. And that resulted in us needing to reserve against that tax position.

It ended up having about a rough $1.7 million impact on income tax this quarter. As you can see, for year-to-date, it's -- the effective tax rate is relatively flat, and we expect that for the year-to-date, for the full year as well. .

Okay. And then for Janet, you talked a lot about your technology and improving it. And obviously, there's a big shift in the market toward better data analytics, more variables, trying to pinpoint the customers that are going to pay you back.

Can you maybe give us more of a -- I don't want to say details, but some quantitative points as to what you've done? Maybe just simply, how many variables did you used to use? How many do you have now? How many do you expect to get to? How many do some of your peers use? Just maybe frame up the argument of how far along we are in a process to getting to the point where you're comfortable with the data analytics side.

.

Well, I guess I don't have the numeric data at hand at the moment on this call. But I wouldn't say we are behind what the general market is doing in terms of how we think about the data that we have for analytics of the business.

In fact, I think we are very pleased with what we're doing on our dashboards and the data that we can pull from our system to look at trends in profitability, account growth and so on by branch, district, state and division over a period of time.

In terms of using external data sources to help us, the wider range of datasets you can get about your customer, the better you can also learn about your customer.

And we're having various conversations there to look at different data that we can add that is not necessarily added by competitors, but we believe is a competitive advantage for us in the marketplace. I haven't got the specific metrics behind that to give you at this moment. .

And next, we will go to John Hecht with Jefferies. .

Yes, so you gave -- I guess, you gave us a series of a lot of different initiatives internally. And I completely understand the logic and the focus there.

But I'm wondering, what does it mean -- have you guys given a thought to what it means for kind of overall cost levels as we step to the next few quarters, whether it's op or SG&A or any component of that?.

So part of the rollout of Internet to every terminal and every branch out there is that there is a cost associated with that. It's a few million dollars, but that will be spread over 3 to 5 years. So while there will be an impact, it wouldn't be a significant impact to any individual year. But we wouldn't expect it to. .

Okay. And then the -- on the marketing -- the advertising side, I mean, obviously, there's a pickup in the quarter, it's seasonal. Is there anything -- you've been advertising consistently, I guess, relative to prior years. But as you guys have noted, you have kind of new customer acquisition or just in general borrowing levels are down.

I'm wondering where -- should we see it change in terms of advertising strategy going forward? Or is it more of the same, it's just harder? Because you're underwriting more tighter, it's harder -- the acceptance rate may be down despite advertising at the same levels. .

So I think there're a couple of answers to that one. First of all, this year, in growth season, we've tested quite a few different forms of creatives.

And naturally, when you test the effect, when you see a great response, is limited by the fact that it was a test, and next year we'll be able to roll out some of those effective tests at a much greater level.

Secondly, we have found that in terms of looking at direct mail versus digital strategies, there's a great emphasis that we need to place on the digital front. And we also need to be more effective in direct mail, and we're starting to do that in who we send mail to. So I wouldn't say that the market isn't there.

It's just a question of using data analytics more effectively to select the right customer. And also, that means an increase in our advertising or marketing budget.

It means using the money more effectively to maximize the response and, in effect, in booking rate in loans for where you put your advertising dollars, and that is a very big focus for us with our new head of marketing now. .

Okay. My final question.

Where can you juxtapose the migration, lower charge-offs versus higher delinquencies? Is there anything with respect to the changing questions, procedures, that's leading that outcome? Or is this just a signal of your borrowers' kind of trends? Or anything we could glean from that?.

So given the uncertainty being up and then the higher delinquencies year-over-year, we are carrying more allowance as compared to net loans as we have in the past. So December 31, 2014, the allowance for net loans was 8.9%. This quarter, it's 9.3%.

And so we are still within a reasonable range of what our model is telling us allowance should be, but we're at the higher end of that range and it's carrying a little bit extra due to the uncertainty. .

Yes. I guess the question is more about -- the charge-offs in the quarter compared well year-over-year. And then you're telling us you're reserved adequately and so forth, but maybe there's increase in charge-offs coming.

Or how do I kind of -- but how do I kind of take -- what's the takeaway from this?.

Right. It is the function of delinquencies being up, right, to your point. So charge-offs have been trending better for several quarters now, but we saw a pickup in delinquencies in December. So we thought it was appropriate to hold a little bit of an additional allowance at December 31 because of that. .

Okay. I guess -- yes, sorry to keep asking.

But is that -- is there a regional weakness? Or is that just across the board in the delinquencies? Or is there any trigger that you saw that caused an increase in delinquencies?.

It isn't actually across the board in every state. It is more pronounced in some states versus others. But yes, I'm not sure if that answers your question or not. .

Okay. We'll look at the numbers and get back to you. .

[Operator Instructions] We will go next to Vincent Caintic with Macquarie. .

A couple of questions. First, appreciate the change to collections as part of the ongoing change in the regulatory environment.

Are there any other practices that we should be contemplating that might be changing in the future?.

I would say there is nothing specific on our horizon, but we are going to continue to monitor the regulatory environment and the decisions that come out and are made as regards other companies or new rules or laws.

And where decisions are made, we are going to err on the side of cautiousness, even when we know we are in full compliance with regulatory rules, procedures, and state laws and regulations. But there's not something specific I can think of at this moment. Again, we will be monitoring closely and see what comes up. .

Okay. Got it. Second question is, how is the market for the sale of charge-offs? And actually, I'll just go to my third.

Has lower gas prices had any impact on what you're seeing for charge-offs?.

Sure. So we're still under our current contract for the sale of the charge-offs, so we haven't been testing the market for any future sales. So as far as the impact of gasoline prices on charge-offs, there's no specific data to say that's what it is for sure.

But we do believe that the decrease in gasoline prices has probably positively impacted our charge-offs. So hopefully, it answers your question. .

And next, we will go to Clifford Sosin with CAS Investment. .

I want to understand a little better the new initiatives that were, call it in -- that were rolled out for growth season this year.

Which were impactful and which kind of worked as expected? Which were not impactful and didn't work as expected? And then also, maybe if you can discuss, in a little more detail, the things that were piloted during growth season.

Which were impactful and which weren't? And specifically, I want to focus on a set of items sort of directly related to new customer acquisition. .

Well, part of new customer acquisition is also bringing former borrowers back. In this growth season, we had an increased focus on mailing former borrowers that we believe will be attractive and have enjoyed past good experience with us. And that was successful.

We came up with new creatives that we felt were better targeted to our audience and also modernized for the year that we're in and environment we're in, in just terms of text font, lookout, et cetera, and also that had the right messaging for our customers. And some of those tests had significant increased lift.

We also focused on maximizing where we put our marketing, so not trying to get the same number of applications at every branch, but really focused on where the highest response rates were. And that was helpful to us. And where we can do better, I think, is in the digital channels. We're still learning this business.

We're pleased to have a head of marketing who understands online very well. And there are certainly better ways that we can make our presence known and available to new customers in the digital world, whether it is on a computer or a mobile device. .

So just so I can understand the difference between things that were -- because obviously, new customers -- there were a lot of things [indiscernible], but there were others that were successful, but new customers were down year-over-year.

And so I guess, I'm trying to understand what was new and successful and rolled out versus what was new and successful and piloted, with a thought towards -- and hopefully the piloted things may have more of an impact in the future as they get more fully rolled out. .

Well, I guess what was rolled out was a significant focus on bringing former borrowers back because we believe folks really appreciate and enjoy their experience with us. And it's very gratifying to get so many former borrowers back.

And then there were just, Cliff, a lot of small tests that were piloted that you can't pilot and roll out at the same time. Like I said, like new creatives or targeting different small customer groups or some work on the Internet around search engine optimization and so on.

And on the Internet front, we were -- we feel -- even though we have record volume, we feel we could have done a whole lot better. And we're learning from that. .

So I just -- I guess what I'm trying to understand is of the things that show benefit, were most rolled out during the growth season? Or were most in test pilot mode and hopefully benefit going forward?.

Yes. I think in this growth season, because we haven't done as much testing in the past, it was really a time of test and learn. So I don't think we expected a massive change during growth season. But as we learn and develop from those tests, we'll be -- we expect and hope to be in a stronger position from that learning going forward.

There wasn't a seismic change in our marketing strategy during growth season. .

Okay.

So what you're saying is I shouldn't necessarily interpret a great deal from the year-on-year new customer performance because the tests which were -- hopefully had an impact, were not rolled out during -- in any size during that period?.

Yes, correct. I understand your question. You're saying, "Did you roll out some major new initiatives from which you expected incredible results in growth season and then did not achieve them?" No.

This growth season was again about testing and learning and improving in many areas what we're doing, and bringing in expertise to help us improve in areas that are very important to us, such as digitally. .

Can I ask a hypothetical? If I took your test results that were successful, and I recognize there's a question about the scalability of these things and so forth -- but if I took those successful test results and imagined that they were fully rolled out, do you believe you've found at this point enough things to do better where, if they had all been rolled out at scale, that the company would have shown meaningful new customer growth? Or do you think that you still need to sort of test and find the new things that will drive growth in order to get to meaningful new customer growth?.

I think this is a question that we're going to have to answer over a period of time with our new head of marketing. There were some tests that were winners for us. As you said, it's hard to know if you roll that out in full, what the response would be, and so how big a segment it's appropriate for.

But this is going to be some of our work over the next 9 months as we prepare for the -- towards a launch in test products as we prepare for the next growth season. I wouldn't say there is a magic silver bullet, or we weren't doing one thing, and that one thing is the answer.

It is a series of changes and improvements that we're working on now that are going to help us create the growth we're looking for. .

It appears we have no further questions at this time. .

All right. Well, thanks very much. And if there aren't any other questions we'll just wish everyone a good day. Thank you. .

Thank you. .

Thank you for your participation. This concludes the World Acceptance Corporation's quarterly teleconference. You may disconnect at any time..