John Rowan

John Rowan from Janney Montgomery Scott LLC asked about the dynamic causing the company to report positive cash collections above forecast while simultaneously booking negative revisions to future expected recoveries.

Answer

President and CEO Ashish Masih clarified that these two metrics are not always directly correlated as they can relate to different portfolio vintages. He explained that strong current collections can sometimes represent a pull-forward of cash, which would necessitate a negative adjustment to future expectations for that specific vintage. Masih emphasized that these are vintage-by-vintage judgments and that the company is very pleased with the strong overall collections performance.

John Rowan asked about the expected 2025 purchasing mix between MCM and Cabot, the outlook for cash-over-collections performance, and whether the pro forma Q4 EPS serves as a good baseline for future earnings.

Answer

President and CEO Ashish Masih suggested the historical mix of around 80% MCM purchasing is a better guide for 2025 than the anomalous Q4. CFO Jonathan Clark provided the Q4 cash-over-collections figure of $26 million, but Masih declined to provide a forward-looking outlook. Masih affirmed that the adjusted Q4 earnings figure is a solid baseline for modeling, as it reflects current business momentum and interest expense levels.

John Rowan inquired about the specific financial impacts of three discrete items: the Mexico operations tax expense, the early bond redemption, and the increased provision for new customer growth. He also sought clarification on the future trajectory of personnel expenses related to long-term incentive compensation and the diluted share count given the GAAP loss.

Answer

Chad Prashad, President and CEO, detailed the $0.26 EPS impact from Mexico, $0.57 from bond redemption, and $0.78 from increased new customer provision. He confirmed the projected personnel expense trajectory for future quarters. Johnny Calmes, CFO and Strategy Officer, stated the quarter-ending share count was around 4.8 million, with typical dilution ranging from 100,000 to 200,000 shares.

John Rowan inquired about the specific breakdown of the $1.61 per share impact from unusual events, sought clarification on the trajectory of long-term incentive compensation expenses, and asked for details on the diluted share count given the GAAP loss.

Answer

Chad Prashad, President and CEO, detailed the $0.26 Mexico tax expense, $0.57 bond redemption cost, and $0.78 new customer provision impact. He also confirmed the projected long-term incentive expense trajectory. Johnny Calmes, CFO and Strategy Officer, stated the quarter-ending share count was approximately 4.8 million, with typical dilution ranging from 100,000 to 200,000 shares.

John Rowan of Janney Montgomery Scott asked for clarification on the new share repurchase authorization's structure and timing, and inquired about the credit performance covenants in the new credit agreement.

Answer

President and CEO R. Chad Prashad and EVP, Treasurer, Chief Financial & Strategy Officer John Calmes detailed the repurchase capacity, which includes a $100 million upfront allowance plus 100% of net income from January 1, 2025, fully accessible after retiring the outstanding bonds. Calmes also confirmed the new credit agreement contains no new performance-based governors and that the company has ample cushion under existing covenants.

John Rowan from Janney Montgomery Scott asked for clarification on the significant increase in 'insurance and other income', the reason for the sequential decrease in the loan loss allowance, and the company's future plans for share repurchases.

Answer

Chief Financial and Strategy Officer John Calmes confirmed the income increase was driven entirely by the tax preparation business. He attributed the lower allowance for loan losses to the runoff of the portfolio. Regarding buybacks, Calmes stated they expect to repurchase more shares, with increased flexibility anticipated after refinancing outstanding bonds that currently limit repurchases.

John Rowan inquired about the strategy of re-embracing the small loan portfolio, asking if the company is marketing to former customers with the same historical product economics, and requested details on the current contractual versus actual life of these loans.

Answer

Executive Chad Prashad explained that while the company is returning its focus to smaller loans and marketing to former customers, the product has evolved. Today's average new loan is larger (~$800-$850) than pre-2020 levels (~$650), and longer average terms (around 12 months for new loans) mean the company will not return to the very high refinancing rates seen historically. Chief Financial and Strategy Officer John Calmes added that the expected life of a loan is around 7-8 months, whereas the contractual life for the portfolio is about 12-13 months.

John Rowan of Janney Montgomery Scott LLC questioned the basis of the reported Q2 EPS, probed the company's long-term strategic direction regarding its loan portfolio mix, and inquired about the details of its revolving credit facility.

Answer

John Calmes, Chief Financial and Strategy Officer, confirmed the reported $3.99 Q2 EPS is the GAAP figure including a reversal. Executive Chad Prashad clarified the company's strategy, stating that the primary focus for customer growth remains on small loans, with large loans now serving mainly as a customer retention tool rather than a primary growth channel. Calmes also noted that the revolving credit facility has about two years remaining on its term with approximately $300 million available.

John Rowan of Janney Montgomery Scott questioned the profitability of older loan vintages, asking if any have negative economic returns given the tight spread between ROIC and cost of capital. He also inquired about the rationale, scale, and future plans for the company's share repurchase program.

Answer

CFO Jay Martin stated that even the most underperforming vintage (2022) is still generating a return above the cost of capital based on current forecasts. SVP & Treasurer Jay Brinkley confirmed significant repurchase activity, with 530,000 shares bought back in the quarter. He explained that with lower origination volumes, the company tends to be more active in buybacks and will likely seek additional board authorization as the current one has 391,000 shares remaining.

John Rowan of Janney Montgomery Scott questioned the profitability of older loan vintages given the narrow spread between return on capital and cost of capital. He also asked if capital was being diverted to share repurchases due to concerns about the economic profit of new loans, and requested details on the quarter's buyback activity and future plans.

Answer

Chief Financial Officer Jay Martin asserted that even the most underperforming vintage (2022) is still generating a return above the cost of capital and remains profitable based on current estimates. SVP & Treasurer Jay Brinkley confirmed significant repurchase activity, with 530,000 shares bought back, and explained that buybacks are typically more active when origination growth slows. He noted 391,000 shares remain on the authorization and the board will be consulted for more capacity.

John Rowan asked for the rationale behind accelerating dealer holdback payments. He also questioned if the Q1 salaries and wages figure represents a good run rate for future quarters and requested a repeat of the commentary on the market share decline and the related scorecard change.

Answer

Chief Treasury Officer Douglas Busk explained that accelerating dealer holdback is a long-standing practice designed to create a stronger incentive for dealers by linking their origination behavior more closely to their eventual profitability. Executive Jay Martin noted that Q1 operating expenses are seasonally higher due to payroll taxes and sales commissions but that the company still gained operating leverage year-over-year. CEO Kenneth Booth clarified that market share was 5.2% for the first two months of 2025, down from 6.0% in the prior year, attributing the change to a Q3 2024 scorecard update and increased competition.

John Rowan asked for the specific timing of the Q3 scorecard change and questioned if it was a strategic reaction to the consistent underperformance of recent vintages. He also sought an explanation for the significant sequential decline in G&A expenses.

Answer

CEO Kenneth Booth confirmed the scorecard change occurred during Q3, with its full effect likely felt in September, and stated it was an adjustment to reflect recent performance trends. He also noted that a more difficult competitive environment and challenging year-over-year comparisons could be contributing factors. Regarding expenses, Mr. Booth attributed the G&A decline primarily to volatility in legal expenses, which can fluctuate significantly quarter-to-quarter.

John Rowan asked for a detailed breakdown of what 'lower consumer prepayments' entails, its comparison to historical periods, and the drivers behind reduced refinancing activity. He also followed up on the 2022 vintage's declining spread, asking at what point its profitability becomes unjustifiable.

Answer

CEO Kenneth Booth explained that lower prepayments primarily mean fewer consumers are refinancing loans, a trend currently at near-historic lows. Chief Treasury Officer Douglas Busk added that forecasting this is difficult and confirmed that negative equity and tight credit availability are contributing factors. Regarding vintage profitability, Mr. Busk noted that the impact of collection shortfalls varies by program, with the purchase program being more sensitive than the portfolio program, which shares losses with dealers.

John Rowan asked about the portion of the customer base affected by new tax policies, any market changes for Bridget following the CFPB's rescission of guidance, and for clarification on the $32 million legal accrual.

Answer

CEO & CFO Fahmi Karam stated that a 'meaningful percentage' of their customers would benefit from tax changes on tips and overtime. He noted no official changes have impacted Bridget's model from the CFPB's actions yet, but it's being monitored. The legal accrual covers several disclosed cases, with the majority related to the multi-state AG matter, and he framed the progress as a positive development.

John Rowan asked for clarification on future non-GAAP adjustments now that the CFPB matter is resolved and the Brigit transaction is complete. He also explored whether potential tariffs could push more goods above a financing 'waterline,' thereby increasing customer demand.

Answer

CFO Fahmi Karam clarified that the 'legal matters' adjustment line will persist as it covers other cases beyond the CFPB. He also noted that while Acima acquisition adjustments are winding down, new adjustments for the Brigit deal are ramping up. CEO Mitchell E. Fadel agreed with the tariff thesis, stating that price inflation could indeed act as a tailwind by making leasing a more attractive option, reinforcing the business's recession-resilient nature.

John Rowan of Janney Montgomery Scott requested an update on the CFPB lawsuit in light of changes at the bureau and asked how much the 'trade-down' phenomenon is influenced by the pending credit card late fee rule.

Answer

CEO Mitchell E. Fadel stated that regarding the CFPB, they are waiting for the situation to stabilize but remain confident in their legal position, especially since a competitor won a dismissal in a nearly identical case. He believes the trade-down trend is driven more by broad inflation and delinquency pressures at prime lenders rather than the specific late fee rule, and expects that tightening from other lenders will continue regardless. CFO Fahmi Karam confirmed their guidance assumes a stable trade-down environment.

John Rowan sought clarification on whether the $7.5 million legal expense accrual was specifically for the CFPB issue related to lease returns.

Answer

CEO Mitchell E. Fadel and CFO Fahmi Karam clarified that the accrual is not for a single issue. They confirmed the estimate is a collective amount for all three outstanding legal matters with the CFPB, the New York AG, and the Multistate AG, and represents an estimate for a potential settlement, not a finalized agreement.

John Rowan of Janney Montgomery Scott sought clarification on the timing of a restructuring charge and asked about the expected net income seasonality in the second half of the year.

Answer

EVP, Chief Financial & Administrative Officer Harp Rana clarified that the restructuring charge will be recognized in Q3, but the resulting savings will also begin in Q3, making the net impact neutral to positive for the quarter. President & CEO Robert Beck added that while growth is typically faster in the second half, the net income result will depend on how aggressively the company pursues that growth, which affects provisioning levels.

John Rowan sought confirmation of the full-year 2025 guidance for 'meaningful' net income growth and over 10% portfolio growth. He questioned how this would be achieved given the Q1 results and the expected provisioning drag from growth in the second half of the year.

Answer

CEO Robert Beck reaffirmed the full-year guidance, stating the company is targeting meaningful net income growth from its 2024 reported base of $41 million and a minimum of 10% portfolio growth. CFO Harpreet Rana detailed the path to achieving this, explaining that net income is expected to be back-end weighted. Key drivers include revenue growth from a larger portfolio, a sequential increase in revenue yield in Q2, and seasonally lower net credit losses in the second half of the year. Beck also clarified that the Q1 year-over-year net income decline was entirely due to the accounting effects of a prior-year loan sale.

John Rowan from Janney Montgomery Scott sought to clarify if the company was guiding for 2025 net income to be higher than the $41 million reported in 2024. He also asked if the Q1 G&A expense guidance of around $65 million was a good run rate for the year and inquired about the company's cost of funds trajectory.

Answer

CEO Robert Beck and CFO Harpreet Rana confirmed their commitment to meaningfully grow net income in 2025, which would place it above the 2024 result, while also highlighting the drag from CECL provisioning. Rana affirmed the Q1 G&A guidance of $65 million to $65.5 million. Both executives explained that unlike some peers, Regional's cost of funds will likely see a natural creep up as older, low-rate securitizations mature and are replaced at higher current rates, a factor that their past success in locking in low rates now influences.

John Rowan from Janney Montgomery Scott asked if the heightened delinquencies impacted the fair value marks and requested a reminder of the company's exposure to floating-rate debt.

Answer

CFO Steven Cunningham stated that the fair value marks have remained very stable, as they reflect lifetime unit economics rather than short-term fluctuations in metrics like NCOs. He provided expected NCO ranges, noting performance within these ranges still drives strong results. Cunningham also confirmed that about 50% of the company's debt is floating rate and is most sensitive to SOFR.

John Rowan inquired about the remaining capacity under the share repurchase authorization, the buyback strategy for 2025, and any pending CFPB regulations that could affect the business.

Answer

CEO David Fisher affirmed the stock is still seen as undervalued, justifying continued opportunistic buybacks. CFO Steve Cunningham specified about $200 million remains on the authorization. Regarding regulations, David Fisher mentioned the 1071 small business rule and the small dollar rule's payment provisions, stating neither would have a significant impact, but their delay would be a minor positive by freeing up resources.

John Rowan of Janney asked for the reason behind the sharp sequential increase in CSO loan balances. He also sought to reconcile the 'stable credit' commentary with the year-over-year increase in consumer 30+ day delinquency rates.

Answer

CFO Steven Cunningham explained that CSO loan balances can fluctuate based on specific geographic demand opportunities that align with their economic framework and are not typically a persistent trend. He clarified that consumer charge-offs were down year-over-year and the rise in 30+ day delinquency was due to a product mix shift toward CashNet. He emphasized that underlying credit is stable, supported by flat fair value premiums and a lower 1+ day delinquency rate year-over-year.

John Rowan asked for an explanation for the higher 'other revenue' in the quarter and sought more detail on whether rising legal expenses would hinder the company's ability to meet its 60%-plus efficiency goal for 2025.

Answer

Rakesh Sehgal, EVP and CFO, explained that the increase in other revenue was driven by a normal-course transaction within their securities and antitrust claims business (CCB). Both Sehgal and CEO Vik Atal reiterated that the 2025 cash efficiency target of over 60% already accounts for the expected level of legal spending, which is a strategic investment that will fluctuate with the volume and type of portfolio purchases.

John Rowan of Janney Montgomery Scott pointed out a discrepancy in the operating expense ratio, noting that the year-to-date figure of 6.5% and the full-year guidance of 6.7% implies a significantly higher Q4 ratio. He asked for an explanation and how this aligns with the goal of long-term OpEx ratio improvement.

Answer

CFO Jenny Osterhout acknowledged that expenses can be lumpy quarter-to-quarter and suggested looking at year-over-year trends, reaffirming the 'around 6.7%' guidance. CEO Douglas Shulman added that while they are aggressive on expense control, they also make necessary long-term investments for future growth, and they manage the business for years, not single quarters.

John Rowan of Janney Capital Markets questioned if the all-stock merger agreement included any contingencies related to First Cash's stock price. He also sought clarity on the level of cost synergies assumed in the 2017 accretion estimates and the nature of the $15 million in immediate depreciation savings.

Answer

Executive Chairman Dan Feehan confirmed the exchange ratio is fixed with no stock price-related contingencies. EVP and CFO Doug Orr explained that while an exact 2017 synergy number is difficult to provide due to a variable closing date, the majority of savings are expected within 24 months. Dan Feehan, Doug Orr, and Cash America CEO Brent Stuart clarified the $15 million in immediate savings stems from combining technology platforms and sun-setting Cash America's in-development POS system, leading to reduced depreciation via purchase accounting.

John Rowan from Janney Capital Markets asked about potential stock price-related contingencies in the merger agreement and sought clarity on the level of cost synergies assumed in the 2017 accretion estimates, specifically questioning the immediate $15 million in technology savings.

Answer

Executive Chairman Dan Feehan confirmed a fixed exchange ratio with no stock price contingencies. EVP and CFO Doug Orr stated that while a specific 2017 synergy number is hard to pinpoint due to the closing timeline, the majority would be realized within 24 months. Brent Stuart, President and CEO of Cash America, clarified the $15 million in immediate savings would come from sunsetting Cash America's in-development POS platform.