World Acceptance Corp (WRLD) 2022 Q1 法說會逐字稿

Good morning, and welcome to the World Acceptance Corporation Sponsored First Quarter Press Release Conference Call.

This call is being recorded.

(Operator Instructions)

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

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 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, 2021, 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.

Good morning, and thank you for joining our 2022 quarter 1 earnings call this morning.

Before we open it up to questions, there are a few aspects about the quarter that I'd like to highlight.

First, we continue to experience record loan delinquency as a result of several factors: the continued improvement in the overall economic environment; changes to our credit underwriting and new loan products and marketing to ensure that we remain the most attractive option for our best customers.

Recently, we eliminated all loans with APRs in the triple digits and continue to evolve our underwriting criteria.

We've also made meaningful progress in large loan offerings that provide more attractive terms to increase customer retention.

After the recent rate changes in Illinois, we have had to shift away from serving the subprime population towards a larger average balance loan and higher FICO customer.

As a result, our Illinois portfolio has grown 31% year-over-year and 17.5% in the first quarter of this year.

Across the rest of our footprint, we're also growing a large loan portfolio.

However, we're still serving the nonprime community.

And in June, we saw new customer demand return to parity with pre-pandemic levels, which has continued to evade in July so far in this quarter.

During this time, our most selective underwriting has resulted in our approval and booking rate declining by approximately 20%, increasing the overall quality of our average new customer as this customer segment remains very important to us and our future.

On the customer access front, a year ago in the first quarter of 2021, roughly 1% of our loan proceeds were funded to debit cards, almost exclusively, remotely and outside of the branch.

This year, during quarter 1 of 2022, with over 45% of funds dispersed via debit card, we've demonstrated our ability to adapt and meet customers' needs and allow them to get funded without the need for a branch visit.

As a result of these changes, today, over 40% of our portfolio is below 36% APR, and nearly 2/3 of our portfolio is below 50% APR.

This is a dramatic increase from 26% and 50%, respectively, just 3 years ago.

Along with this portfolio shift, our first quarter loan growth is the largest on record.

With the change to CECL provisioning last year, we should expect to grow our provision in real-time as the portfolio grows, which temporarily decreases net income as compared to our historical delinquency-based provisioning model.

The loan growth and earlier provisioning of CECL should continue to positively impact revenue and income in future quarters, and we continue to expect to hit our long-term incentive EPS targets before the end of FY 2025 and accrue as expected.

Finally, we continue to pilot and explore our products to add to our financial wellness suite.

Our ultimate goal is to help all of our customers improve their financial health, credit score and access to affordable credit.

There's much to be excited about at world.

At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open up to questions about our fourth quarter -- our first quarter fiscal year 2022 earnings.

(Operator Instructions) Our first question comes from Kyle Joseph with Jefferies.

First one, just on the reserve.

Obviously, there's a lot of moving parts right now.

But just to give us a sense for how you think about it trending from here, weighing where we are versus kind of the pre-COVID level and then also factoring in some of the portfolio developments.

You talked about the tighter underwriting and kind of the shift to a lower APR.

But how should we think about the reserve level going forward?

Yes.

So like you said, there are a lot of moving pieces there, right?

In general, or a high level, when you look at the Q1 ending allowance, the allowance on the performing portfolio was around 6.6%, right?

And then the allowance on the -- some nonperforming 90-plus day delinquent was around 1.4%, right?

So this is to gross loans.

So the allowance to gross loans was 8% in total, right?

So as we go forward, that's a decent benchmark to apply the growth, right?

So if we grow $100 million in a quarter, you'd expect it to add $6.6 million to the allowance, right?

But that $6.6 million can move depending on a lot of factors, right?

So one of the big factors are the tenure of the portfolio.

And as we bring back former customers and increase the loan size of existing customers, those are longer-tenured customers that have a lower expected loss rate, right?

So that could move that 6.6% to something lower than that.

Vice versa, if we were to bring back a lot of -- bring in a lot of new customers, it could push that 6.6% higher.

Does that make sense?

Yes.

Yes.

Very helpful.

Next question on child tax credits.

I believe the first round of payments kind of went out in the last week or so on the heels of stimulus.

How do you see this impacting loan demand and kind of credit for the rest of the year?

So it should...

Calendar year.

Sorry?

I guess just calendar year, so kind of more immediate term.

Right.

Yes.

So it could have an impact on both, right?

So we expect it to continue to have a positive impact on credit quality.

And it could -- on the smaller loans, new customers, it could hurt demand a little bit.

I don't know if you want to add anything to that, Chad?

Yes.

I think in the short term, we haven't seen it yet, but this is very early into the child tax credit in July being out there.

But we haven't seen it hurt demand yet on the new customer or former customer refinance side.

But I think if it were going to hurt anywhere, potentially it'd be on the smaller loan new customer side.

We have eliminated the vast majority of our smallest loans across our footprint for several reasons: one, from just an APR perspective as we strive to lower overall APR; but two, also just from a risk perspective with those individual customers that you typically lend to in the smallest loan area.

So since we've already eliminated those, I think we'll probably have less of an impact from this early on.

It kind of remains to be seen what the potential impact may be.

But what we have seen through the prior stimulus payments over the last 12 to 15 months is typically with larger payments, those are short-term impacts that last for 1 or 2 months and then there's a rebound afterwards.

So theoretically, you might see the same thing here.

Moving into Q4 fiscal, it remains to be seen how that might impact overall tax refunds and how folks need to balance their cash flows over the next 9 months.

Understood.

Got it.

And then last one from me.

It looks like the insurance drive showed good growth in the quarter.

Anything to think about there?

And should we expect that to continue going forward?

Yes.

I think you should be excited to continue going forward, right?

That's really just a function of as we shift into the larger loans.

In a lot of our states, we don't offer -- in the face of law you offer insurance products on the smaller loan portfolio, right?

So as the portfolio grows into that, especially over $2,000, $2,500, you should expect to see higher insurance sales as a result of that.

(Operator Instructions) The next question is from John Rowan with Janney.

Chad, what was that number you said first?

I believe you said, was it 1/3 of your portfolio was sub-36%?

I got the second one when you talk about 2/3 being below 50%.

I just want to make sure I heard the first one correctly.

Yes.

Today, roughly 40% of our portfolio is below 36%.

And you also mentioned accruing expenses under the assumption that you will meet the earnings target set for fiscal 2025.

Spent a lot of time looking it up.

Can you remind me what the earnings targets are, maybe if you have a couple of years worth?

Just give me an idea of what the thresholds are that you need to hit?

Yes.

There are 3 thresholds.

They range from roughly $16.35 to $25.30, I believe.

And the middle is around a $20, yes.

Wait.

So it's $16.35 and the high end is what?

$25.30.

$25.30.

And that's for fiscal 2025.

Well, yes, the performance period runs through fiscal '25, yes.

Okay.

And then just to kind of get back to the insurance and other income.

I know you mentioned -- well, okay.

So the only thing that looks like kind of an unusual item to me in the quarter is the fact that we had tax refunds getting moved to some degree from the March quarter to the June quarter.

Looking to your press release, I don't really see any like other callouts for unusual items.

Can you just kind of confirm that there was no other onetime-ish items that we should be adjusting for?

That's right.

Yes.

So -- yes, so we don't -- going forward, we wouldn't expect the delay.

But if you remember in Q4 of last year (technical difficulty) were lower than normal.

So it's really just a temporary shift.

John, just to confirm, the 3 targets are $16.35, $20.45 and $25.30.

This concludes our question-and-answer session.

I would like to turn the conference back over to Mr. Prashad for any closing remarks.

If there are no further questions, I want to thank all of our team members here at World for continuing to serve our customers and our communities with dignity and respect.

You guys are the reason our customers continue to trust us with their own financial needs as well as refer their friends and families to us.

Thanks again for your tremendous spirit, especially over the last year.

With that said, we'll conclude the first quarter earnings call and look forward to speaking next quarter.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.