World Acceptance Q1 2025 Earnings Report

World Acceptance EPS Results

• Actual EPS: $1.79
• Consensus EPS: $1.69
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $1.62

World Acceptance Revenue Results

• Actual Revenue: $129.53 million
• Expected Revenue: $141.00 million
• Beat/Miss: Missed by -$11.47 million
• YoY Revenue Growth: N/A

World Acceptance Announcement Details

• Quarter: Q1 2025
• Date: 7/26/2024
• Time: Before Market Opens
• Conference Call Date: Friday, July 26, 2024
• Conference Call Time: 10:00AM ET

World Acceptance (NASDAQ:WRLD) (NASDAQ: WRLD) is a consumer finance company headquartered in Greenville, South Carolina. Founded in 1972, the company provides credit solutions to underserved customers who may have limited access to traditional banking services. Over the decades, World Acceptance has built a reputation for tailored lending that emphasizes responsible underwriting and personalized customer service.

The company’s core product offerings include short-term installment loans designed to meet the immediate financial needs of its clients. These loans are structured to be repaid over a series of scheduled payments, allowing borrowers to manage unexpected expenses such as vehicle repairs, medical bills or other emergencies. World Acceptance underwrites each loan based on an individual’s financial profile and repayment capacity, with a focus on risk management and regulatory compliance.

World Acceptance operates through a network of retail loan centers spanning several states in the Southeastern and Southwestern United States, including Alabama, Georgia, Illinois, New Mexico and Texas. Each branch serves as a local point of contact for loan applications, customer service and repayment processing. The company’s geographic footprint reflects its strategy of maintaining close community ties and offering face-to-face interactions that differentiate it from online-only lenders.

Guided by an experienced executive management team, World Acceptance continually refines its underwriting standards and customer engagement practices. The company emphasizes ongoing training for branch personnel, investments in proprietary loan-origination technology and a commitment to transparent lending practices. Through these initiatives, World Acceptance aims to balance growth with prudent credit management, striving to deliver value to both its customers and shareholders.

World Acceptance Q1 2025 Earnings Call Transcript

Key Takeaways

• World Acceptance’s portfolio saw 50 basis points growth in its customer base, with average loan balances down nearly 7% year-over-year (and over 11% from peak), while yields, delinquency metrics, and loss reserves all improved.
• The company has adjusted new-customer acquisition channels, leading to higher approval rates and lower first-pay default rates; new customer loan volume fell 8% year-over-year, while customer count only declined 3.5% and average balances decreased.
• Returning former customers hit a 10-year high in July—counts rose 6.3% year-over-year with average origination balances down 13%, higher yields, and the lowest first-pay default rates; refinance counts also climbed 6% with 10% lower balances.
• Prudent cost management drove a 9.9% reduction in G&A expenses year-over-year, and management remains on track to accrue against a $20.45 EPS long-term incentive target for fiscal 2025.
• World is under CFPB supervision without material impacts to date and is establishing a warehouse facility in fiscal Q3 as the first step toward loan securitization.

Presentation

[Operator]

Good morning, and welcome to World Acceptance Corporation's first quarter 2025 earnings conference call. This call is being recorded. At this time, all participants have been placed in a listen-only mode. 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.

[Operator]

Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations 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, 2024, 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 my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer. Please go ahead.

[Chad Prashad, CEO at World Acceptance Corporation]

Good morning, and thank you for joining our fiscal 2025 first quarter earnings call. Before we open up the questions, there are a few areas I'd like to highlight. We've talked a good bit about rightsizing and de-risking the portfolio over the last year or two, as well as returning to moderate growth this year. In the first quarter of 2025, we experienced moderate growth in our customer base of around 50 basis points. Their average balance declined slightly, and gross yields improved across all customer types. Year-over-year, our average balance has decreased almost 7% from June 30th, 2023. Currently, our average loan balance has decreased over 11% from the peak average loan size, which was towards the end of fiscal year 2023. Along with that decrease in average loan size, we've significantly improved our gross yields, delinquency, and G&A expenses.

[Chad Prashad, CEO at World Acceptance Corporation]

As the underlying portfolio improves, our loss reserves have also declined year-over-year in step with the maturing of the portfolio. We are focused on modest, single-digit, high credit quality growth this year through specific strategies for each of our customer types. For new customers, we've adjusted our acquisition channels and are already increasing our approval rates while minimizing losses. In the first quarter, while new customer loan volume was down about 8% in dollars within the quarter year-over-year, our new customer average loan balance also decreased, and the number of new customers in the quarter declined by only 3.5% year-over-year. We also improved our first pay default rates, which are an early indication of success for those customers.

[Chad Prashad, CEO at World Acceptance Corporation]

This is part of a low-cost growth strategy in terms of both the upfront cost of acquisition, as well as the total cost of acquisition for a tenured performing customer. As we've regrouped to a higher credit quality and performing portfolio, we've grown a large paid-off customer population that continues to return as a former customer and make up a larger percent of our non-refinance loans. As we increase their weighting in the portfolio, our net yield and income naturally improve. Within the quarter, both returning and refinance customers had a similar trend and improvement in performance and yield, as well as lower average balances. While the former customer loan volume in dollars declined 7.6% this quarter versus first quarter last year, the number of former customers actually increased by 6.3% year-over-year.

[Chad Prashad, CEO at World Acceptance Corporation]

For returning former customers, the average balance of those originations decreased 13%, and the average yield is significantly higher, and they have the lowest first pay default rates of our non-refinance originations. Similarly, refinance loan volume in dollars decreased 5% within the quarter year-over-year, while the number of refinances actually increased 6% in the quarter, and the average balance of those originations decreased 10%. With these shifts in the portfolio makeup and the weighting continuing into the second quarter, we expect to see yields and delinquency trends continue to convert into the same revenue and income trends that we're already seeing this year. To date, in the second quarter, we've seen growth in our former customer base. Currently, we're the highest number of former customers in July that we've had going back at least 10 years.

[Chad Prashad, CEO at World Acceptance Corporation]

All at lower average balances, higher yields, and great credit quality, leading us to expect continued low delinquency. To date, in July, new customers has improved over the prior two years as well. But our focus remains on a low total cost of acquisition of performing customers, and we'll continue to invest wisely for high credit quality growth as we work towards moderate single-digit ledger growth this year. In addition to portfolio performance, our prudent management has also resulted in 9.9% reduction in G&A expenses this quarter compared to the first quarter last year. This is especially important during a prolonged period of increasing expenses nationwide. With economic stability increasing and improved portfolio performance, management continues to accrue for the long-term incentive plan, with vesting tiers of $16.35 and $20.45 earnings per share....

[Chad Prashad, CEO at World Acceptance Corporation]

Even with the much improved credit quality yield and operating conditions I've discussed, we'll continue to build confidence throughout the second quarter on achieving these targets, especially the $20.45 for the full fiscal year target. Finally, we have an absolutely amazing team here at World, and I'm very grateful for their commitment to their customers as well as to each other. They are helping our customers every day to establish credit, rebuild credit, and meet their immediate financial needs. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open to any questions that you may have.

[Operator]

We will now begin the question and answer session. To ask a question, you may press Star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from John Rowan with Janney. Please go ahead.

[John Rowan, Analyst at Janney Montgomery Scott]

Good morning, guys.

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Morning.

[John Rowan, Analyst at Janney Montgomery Scott]

Chad, did I hear you correctly saying that you're going to grow ledger by mid-single digits or low single digits for well, fiscal 2025?

[Chad Prashad, CEO at World Acceptance Corporation]

Yes, that's right.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay. So, I mean, just so you're talking about off of period end fiscal 2024, so the $1.3 billion gross or, I don't know, $847 million net, just mid-single-digit growth off of that number by the end of the year?

[Chad Prashad, CEO at World Acceptance Corporation]

Yes, that's right.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay. Is there a reason why it looks like you guys increased the allowance ratio a little bit sequentially? Is there, you know, are you changing any, you know, expected loss, loss rates?

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

I think a lot, a lot of it was just the expected loss rates increased faster this year than they did relative to last year. But they're still lower at June 30 this year than they were at June 30, fiscal 2024. So we haven't increased them. So it's really more has to do with what happened last year. The expected loss rates were decreasing faster in Q1 of 2024 than they were this year, if that makes sense.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay. Just to be clear, you're still accruing for $20.45 of earnings for this year in the incentive comp? Because there was something in the press release about lower incentive compensation.

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Right. So a lot of it has to do with... There's two things going on there. We had some officers field officers leave during the quarter, which led to some retired during the quarter, which led to some releases. And there's also with the great investing nature of the long-term plan, there's just less expense to accrue. So, you know, relative to last year, we're no longer accruing for the third tranche, so that's not in there. And, you know, there's basically six time-based tranches in that plan. We're only still accruing for one of those tranches because the others have been fully expensed. So that's what's driving that share base comp number coming down.

[Chad Prashad, CEO at World Acceptance Corporation]

And, John, yes, we are still accruing towards $20.45, but, you know, the main factors into achieving that for this fiscal year are really some things around growth, yields, and delinquency. So as we continue throughout this current quarter, the second quarter, you know, we'll build some confidence around, you know, how likely we continue to think that is.

[John Rowan, Analyst at Janney Montgomery Scott]

Yeah. So I mean, I was going to get into that next. I mean, we've spoken in the past about, you know... I remember, you know, the $25.30 tranche, which obviously you stopped accruing for. I mean, you know, we had kind of penciled in the, the only way to get to that number is a high single-digit type loss rate. You know, I think at the 20-something number, the 20-45 number, you're talking about a low double-digit type loss rate, if I remember correctly from prior conference calls. You know, your charge-off rate came down a little bit year-over-year, but it's still, you know, 16.4%. Like, we're, we're still really far away from a low double-digit loss content. How do you, how are you getting there?

[John Rowan, Analyst at Janney Montgomery Scott]

I mean, and then to be frank, I mean, you have to actually overcompensate, given, you know, for the remaining three quarters of the year, given that you are at 16.4% for the quarter. How are you getting to that type of number?

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Yeah. So, there's a few things there. So, over the last 12 months, the yields have continued to increase, and that's that takes some of the pressure off of the net charge-off rate, right? So, yeah, but to be fair, yeah, we still need to see improvement in that net charge-off rate, and we see a lot of the things happening operationally that can lead to that. But yeah, so it's a combination of yields continuing to increase, continued improvement in that net charge-off rate and some modest growth. And as Chad said, you know, we'll build some confidence in whether that's achievable, by September. We'll have a pretty clear picture by September.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay. I mean, wouldn't modest growth actually hurt your chances to get to that? I mean, modest growth would help next year, but given how much you have to reserve for your CECL provision, I would think that the modest growth actually is a hindrance to earnings growth.

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Fair enough. It depends when that growth happens, right? So yeah, you're right. So, you know, modest growth that all happens in Q4 doesn't help us a whole lot, but, you know, if we can get it in the next quarter or so. There's enough revenue that comes with it throughout the fiscal year that it benefits us.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay.

[Chad Prashad, CEO at World Acceptance Corporation]

John, that's also-

[John Rowan, Analyst at Janney Montgomery Scott]

Yeah, sorry, go ahead.

[Chad Prashad, CEO at World Acceptance Corporation]

Yep. That's also why we have focused more on former customers. One, just the lower cost of acquisition, but two, also their performance leads us to accrue less for them. And then, you know, overall profitability is higher for those, for that group of customers. And then for new customers, we're still focused on new customers, but we are looking at lower total cost of acquisition. And when I say that, I'm talking about not just the marketing spend, but operational spend, as well as provision loss on that group. So, with all that in mind, yes, we're very aware that any growth we have hurts in the short term. So, you know, one, we recognize we still have to do it as a company, because that feeds the future success for the portfolio.

[Chad Prashad, CEO at World Acceptance Corporation]

But two, making sure we do it incredibly prudently from a cost perspective, and credit quality perspective.

[John Rowan, Analyst at Janney Montgomery Scott]

Okay, and then last question for you, just what's the right tax rate to use? A little bit lower than my model for the quarter. I just want to make sure I have it, going forward.

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Yeah, it'll kind of changes quarter to quarter, but you know, it's still in that 20%-21% for the year.

[John Rowan, Analyst at Janney Montgomery Scott]

You see 20%-21%?

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Yeah, for the year.

[John Rowan, Analyst at Janney Montgomery Scott]

All right. Thank you very much.

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Yep.

[Operator]

Again, if you have a question, please press Star, then one. The next question is from Guy Riegel with Ingalls & Snyder. Please go ahead.

[Guy Riegel, Analyst at Ingalls & Snyder]

Hey, guys, good morning. I was just curious, can you speak to... Hello? Can you speak to-

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Good morning.

[Guy Riegel, Analyst at Ingalls & Snyder]

-to the regulatory environment, in the states you operate in, as well as on the federal level?

[Chad Prashad, CEO at World Acceptance Corporation]

Yeah. So at the state level, you know, there's two states over the last couple of years that we have moved to, to be sub-36%, both Illinois and New Mexico. You know, for the other states that we operate in, we haven't seen any significant changes, from a regulatory or legislative perspective. Of course, you know, every state we operate in, we are regulated by those states and supervised by those states, and continue to be so. At the federal level, as you know, back in February, the CFPB published an order establishing their authority to supervise World. We continue to cooperate with them and their supervision process. You know, this is both our first supervision by them as well as their one of their first supervisions of an installment lender.

[Chad Prashad, CEO at World Acceptance Corporation]

So we expect that, you know, they're going to focus on the areas outlined in that order, and that this will be a learning process, and it'll likely be very difficult for us to judge, you know, any of their timelines. You know, however, their order does give us the ability to petition to end their supervisory period after two years. At this time, you know, aside from the supervisory order itself from the CFPB, we don't have any other updates to report on.

[Guy Riegel, Analyst at Ingalls & Snyder]

Okay. So to date, it, it hasn't—they haven't impacted your business?

[Chad Prashad, CEO at World Acceptance Corporation]

No, no, not to date.

[Guy Riegel, Analyst at Ingalls & Snyder]

Okay. And then, I thought maybe a while ago you maybe mentioned the possibility of securitizing some of your loans. What's the status of that?

[John Calmes, Chief Financial and Strategy Officer at World Acceptance Corporation]

Yeah, so we're actually in process, you know, as we speak, of creating a warehouse facility. And that's sort of the first step in the securitization process, right? So, you know, we hope to have that warehouse facility rolled out in the probably fiscal third quarter.

[Guy Riegel, Analyst at Ingalls & Snyder]

Great. Okay. Thank you so much.

[Chad Prashad, CEO at World Acceptance Corporation]

Thanks, Guy.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Chad Prashad for any closing remarks.

[Chad Prashad, CEO at World Acceptance Corporation]

Thank you for taking the time to join us today, and this concludes the first quarter earnings call for World Acceptance.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Chad Prashad, CEO
• John Calmes, Chief Financial and Strategy Officer

Analysts

• Guy Riegel, Analyst at Ingalls & Snyder
• John Rowan, Analyst at Janney Montgomery Scott