Ace Cash Express Q4
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Ace Cash Express Q4
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Ace Cash Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AACE)") else Response.Write("(NASDAQ: AACE)") end if %> UNION CITY, Ca., September 9, 1996/FOOLWIRE/ --- Ace Cash Express released their Q4 and FY 1996 results last Friday morning. Revenues for the fiscal year rose about 44% to $69 million. Correspondingly, net income increased about 67% to $3.3 million.
Accounting for the net income growth, they are particularly pleased with the improvement at the center margin. The center margin contribution or profit improved from 25.8% in 1995 to 29.6%. On the indirect operating expense side, they continue to have the decline they planned, moving from 16.5% to revenue down to 15.1%.
Another measurement, they think, of the health and wealth of the business to day is the improvement in their EBITDA. It nearly doubled from $6.5 million to $12.1 million and they are very pleased with that.
For Q4, they had growth in revenues of about 44% again, up to about $19.8 million. Net income grew by 16% which is a lower growth percentage but the company reminded people that last year's Q4 received a significant benefit from the delay in the distribution of IRS tax payments. They are pleased with the quarter-to-quarter improvement in net income from $0.21 to $0.24 per share.
The company was asked about the status of the $20 million financing. The company responded that they are well underway with completing the paperwork on concluding the financing. They have an investor identified to take on the private placement. They have a very complex security arrangement under their current lending facility and that has to be modified in such a way that the new lender can share collateral and that is the process that is occurring right now. They are hopeful to be done with that within a short period of time, but don't have an estimate on completing it yet.
The company was asked about the slight increase on a percent basis for net write-offs in the quarter. The company responded that they feel strongly that this is an expense line item that, if they can really get their hands around it, their bottom line will dramatically improve. It is a challenge as it has been in the past. One very specific change they have made within the supervision of the company at the beginning of this fiscal year is that they transitioned from what they used to have -- a center manager/supervisor responsible for their own store, plus 6-10 other units -- to full-time supervision. They are no longer tied to an individual unit and are no longer responsible for the individual unit's performance. The idea is to give them greater flexibility as to when they show up at what store, to improve the quality of training an individual is receiving, to spend more time working with the other people in order to observe what is occurring and serve as a deterrent. They would like to think this change will impact the return in collections and cash short amounts in FY 1997.
Also contributing to the improvement in net income was a relatively healthy improvement in same store sales growing to 4.7% from the 1.6% they reported in 1995. The highest they have ever posted on same store sales was 7.5%. In 1994 it was 1% and in 1995 it was 1.6%. While they have had improvement in same store sales by revenue category, the basic check fee level (the recurring cashing of payroll checks) had about a 2.7% increase in same store sales. They remain dependent on the addition of new products and services into the store sites. They think this year that the expansion of the loan program has helped same store sales. They are committed to try to continue to expand those products and services with the relatively fixed expenses they have for store sites. Utility payment services is a category that has grown pretty well. They don't want to make a prediction for 1997. They are pleased with the results they got last year. They want to improve upon it, but that depends on a couple of things occurring.
In 1996 they opened 33 new stores and acquired 67. For FY 1997, their game plan remains as it has been in the past, probably expecting 30-45 new units and they have already acquired 22 units in the first two months of the fiscal year. They are very pleased with the impact that the acquisitions have had on the company's performance. They think the pro formas they had planned to achieve generally are being achieved and that strategy is working well for them. They have as a goal, on an EBITDA basis, to have a 3-year or less payback for acquisitions. And, to-date they generally have been able to achieve that. They are actively seeking and intend to continue to do acquisitions. They think the unit count of 60-70 units in a fiscal year is an achievable goal for the company. They are typically spending $45,000-$50,000 on a new unit. After the unit has matured which takes about 3 years, they are expecting to have a center-level EBITDA before overheads of about $45,000.
Today they have about 90 franchisees and they expect the royalties from those franchisees to be about $700,000 per year plus any new franchise sales. They are in the process of getting the paperwork filed, they have a salesman in place, and are doing presentations to potential franchisees. The company was asked if it is difficult to market the franchise opportunity or is it a pretty attractive opportunity for the franchisee. The company responded that today they have 3 different programs for the franchisees. One is a freestanding building or an independent of 30,000 square feet. They have a plan for a kiosk and then a small city plan. Right now their plan is to get involved in convenience stores. They have had some conversations with Shell and Exxon about adding stores. A lot of companies with existing convenience stores, rent-to-own stores, and other businesses are pulling in secondary businesses to get more revenue out of the building space. Ace thinks that the franchise idea gives them some flexibility in maybe attracting and filling some of those needs for other people.
The company was asked to talk about the performance of the payday loan business for which they now have 149 stores and the small number of stores in Texas doing small consumer loans and what their plans are for growing that business. The company responded that they are going to opt to grow where the legal environment permits it and right now the legal environment, the way it is currently structured, is going to cap them at the 140-odd stores for the moment. In Texas, they had 4 stores they were running a test on to see how the loan program would work. They made quite a few loans. As the portfolio has gradually matured, the quality of the portfolio has grown but they weren't overall satisfied that is the best way for them to do loans in Texas.
In response, they have opened up a couple of stores immediately adjacent to existing Ace Cash Express stores and have put a sign up on the exterior that they make loans. They expect these particular units to make the more traditional small loans ala World Acceptance up to a cap of $430. They are also trying to work around a position with the Attorney General in Texas to set up a payday loan. The Attorney General in Texas has taken the position that it is illegal for Ace to defer depositing a personal check. They have found that the quality of the program is substantially better when they are able to take a check from the consumer that allows them to make the deposit. They want the piece of paper because the piece of paper causes the consumer to have to make a decision and they think that is good leverage. They think there are some substitute programs they might be able to implement in Texas and they are currently working on them. If they can figure out a legitimate way to do a quality portfolio in Texas, they think it is going to take off. To put it in perspective, in 1995 their revenue from the loan product was just under $600,000. In 1996 it was $2.5 million and the Q4 revenue alone was $910,000. They don't think it is unreasonable to expect this to be a $4-5 million line item.
The company was asked what would prevent a payday run on their company, a conspiracy where on any one given day X number of franchises or branches of Ace are hit with a number of checks that are fraudulent. The company responded by first making a comment that clearly they do cash some fraudulent checks, as their numbers reflect. It is a cost of doing the business. They also take some comfort in the POS they have designed because there are safeguards build in. The PC in the store is monitoring to determine if this is a new customer or new maker and communications do exist between the stores and a centralized database and the system is designed, if for example a person shows up at a second location claiming to be a new customer, he won't be able to cash that check. That is a basic protection that the company has had in place in it's Point-of-Sale system and really was one of the genesis points of trying to put that in. The company was then asked about employee fraud. They responded that it was more of a problem in FY 96 than it had been previously. That may be because they are looking harder and classifying it differently than they have historically, but they have had some internal fraud. Their overall turnover is in line with other retail operations. Their key is to try to retain the better managers because they make a huge difference in the performance of the individual units.
The company was asked to explain, in light of the recent Boatmen's/Nations merger and the feeling that sellers are going to be increasingly looking for a higher premium, how they intend to continue to make their acquisitions at three times cash flow. The company responded that they wanted to take that three times cash flow and twist it and explain how it looks to the seller. They think that can probably convert to the seller to 9-12 times EBITDA. It's only because of the economies of scale, the POS they have in place, and their relatively fixed overheads that allow them to do that kind of transaction. They think it is a win-win for both the buyer and the seller. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |