Cash America International, Inc. (CSH)

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Cash America International (CSH)

Q4 2012 Earnings Call

January 24, 2013 08:00 AM ET


Dan Feehan - President and CEO

Tom Bessant - CFO


John Rowan - Sidoti & Company

John Hecht - Stephens Incorporated

Bill Carcache - Nomura Securities

Bob Ramsey - FBR Capital Markets

Henry Coffey - Sterne Agee

David Scharf - JMP Securities

Sameer Gokhale - Janney Capital Markets

Bill Armstrong - CL King & Associates

Dan Furtado - Jefferies

Gregg Hillman - First Wilshire



… participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operation Instructions) As a reminder, this conference is being recorded Thursday, January 24, 2013.

I would now like to turn the conference over to Dan Feehan, President and Chief Executive Officer. Please go ahead.

Dan Feehan

Thank you and good morning ladies and gentlemen. Thanks for joining us this morning for the earnings call on our final quarter 2012. Tom Bessant, our Chief Financial Officer is with me here this morning and will be providing financial report on the quarter followed by brief overview remarks.

Before proceeding with our prepared remarks, I'd like to remind you that all the statements made during this call that relate to future results and events are forward-looking statements and are based on current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties which are discussed in our SEC filings and in the cautionary statement on our website under Investor Relations. We assume no obligation to update our forward-looking statements.

I also want to mention before we proceed that a reconciliation of any non-GAAP information provided on this call to the most directly comparable GAAP information is available on the Investor Relations section of our website at Non-GAAP financial information is not meant as a substitute for GAAP results but is included solely for information and comparative purposes.

Okay. Now, let’s talk about quarter. I want to start by making sure we’re all on the same page with respect to our earnings performance relative to the guidance we provided in late October in our third quarter earnings release. And that’s when we published guidance for the quarter for EPS in the range of $15 to $25. In our fourth quarter release issued early this morning showed reported EPS of $0.79 but also highlights two large non-recurring items totaling $0.50 per share which Tom will discuss in more detail momentarily.

Estimates for both of these charges were previously disclosed but not included in our earnings guidance of $15 to $25. So, adding those numbers back to the reported EPS would lift us to a non-GAAP number of $1.29 a share just above the top end of our guidance range.

So assuming that we’re all now on the same page with respect to our operating performance in the fourth quarter relative to our guidance range, I’ll spend a few minutes sharing my perspective on our recent trends of our two business segments.

First I’ll address the retail lending services segment of our enterprise which is a segment where both nonrecurring items are recorded in the fourth quarter. When you look past the nonrecurring items and focus on our US storefront business, you’ll see that the trends we discussed in Q3 and forecast it for the fourth quarter for our domestic pawnshops did indeed play out as we predicted.

I mentioned to you in our October call that we expected to experience very tough year over year comparisons due to fourth quarter of 2012 and the first quarter of 2013, for loan growth retail sales and scrap dispositions. Same store pawn loans were down slightly in the fourth quarter compared to the same period of last year although better yields and pawn loans acquired during the quarter combined to generate a welcome 8% gain in pawn service charge revenue.

Our disposition activity continues to be toughest year over year comparison particularly with the volumes and margins associated with commercial sales and scrap gold and diamonds. Over the counter retail sales and margins for the quarter were actually little better than I had expected, but the gross profit dollars on commercial sales were all significantly when compared to the fourth quarter of last year. This phenomenon first served first in the second quarter of this year and has worsened in each sequential quarter.

Now mentioned in third quarter report that we had experienced outsize growth in jewelry purchases and jewelry loans written during the last three quarters of 2011. Now we saw this abnormal growth pattern slow in the first quarter of 2012 and then dropped dramatically on a year over year basis beginning in the second quarter. Consequently as I expect in Q4, we had far less commercial inventory to scarp than we did this time last year and again I would expect we will continue to face remittable head wins for scrap dispositions in the first quarter and at least the portion of the second quarter here in 2013.

At same time we've seen volumes drop, our commercial margins are compressed on the year over year basis with gold prices stabilizing in high $1,600 range. I am encouraged however that our commercial margins are up sequentially from the third quarter of this year. Our scrap margin degradation was a bigger problem in the second and third quarter of this year. The impact of dropping volume was more of a factor in lowering year over year profits in Q4. Tom will provide a little more detail in his comments.

Now let me turn my attention to e-Commerce segment of our enterprise which did exceed our forecast in the fourth quarter in both the domestic and foreign portions of its business. We continue to see solid online loan demand across all product sets including our short term single pay products and longer term and solid products. In the US, our gross short term loan portfolio has grown approximately 25% over the past year while the U.S. gross installment loan portfolio has grown by 87%. Installment loans are now 27% of Innova's gross loan portfolio in the U.S. compared to only 20% at the beginning of the year. Included in that installment portfolio at year end is approximately $5 million of loans booked through the new net credit platform that we launched in June. We're seeing good demand for these product set, which gives us the opportunity to migrate upstream to a higher credit quality customer.

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