World Acceptance Corp Q1 FY2026 Earnings Call

Good morning, and welcome to World Acceptance Corporation's First Quarter 2026 Earnings Conference Call. This call is being recorded. 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. 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 Corporation's most recent Form 10-K for the fiscal year ended March 31, 2025, 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.

Good morning, and thank you for joining our fiscal 2026 first quarter earnings call. Before we open up to questions, we've had a few major updates this week to share along with highlights from the first quarter. We recently completed a new credit agreement, increasing commitments to $640 million, allowing for stock repurchases of up to 100% of net income, which is an increase from 50% of net income in the prior agreement, and a $100 million upfront repurchase allowance in addition to 100% of net income beginning January 1, 2025. The net income is around $45 million since January 1, 2025. In addition, we're in the process of redeeming the remaining bonds that were issued in 2021. If you recall, we issued $300 million in high-yield notes with a 5-year maturity in the fall of 2021 and have been repurchasing them in the market over the last few quarters. We currently have around $170 million outstanding that will redeem by the end of August. This removes the constraint to allow for more accelerated stock repurchases. That capacity may be over $200 million for share repurchases over the next 12 months, which is approximately 23% to 25% of outstanding shares at this morning's stock price. As a reminder, our earnings are quite seasonal. Historically, the first quarter is our lowest quarter for earnings as we rebound from growth and provision from the tax season runoff. Over the prior 3 years, first quarter net income has made up an average of only 5.6% of our total annual net income and has peaked at a high of only 12% of annual net income. We're excited about the current portfolio and its trajectory, which includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, growth in yields, and stable to improving late-stage delinquency. On growth, refinance volume increased 10% this quarter over the first quarter last year. To really underscore the overall growth we're seeing in the current lending environment, the number of new originations this quarter increased 12.6% over last year's first quarter. This is the highest volume of new originations in our first quarter since fiscal year 2020. In terms of dollars lent in new originations, we increased 12.8% year-over-year and are in line with fiscal year 2019 and 2020, both of which were some of the highest non-refinanced growth years on record. Our customer base increased by 4% this quarter compared to the first quarter of last year. This is our first positive customer base growth we've experienced during the first quarter in 3 years. And we've also returned to the largest customer base we've had since the first quarter of 2023. All this growth has put us on track to rapidly close the year-over-year ledger gap. We began the year on April 1 with a ledger that was down around 4% year-over-year or approximately $50 million. We've grown around $40 million in this quarter to end the quarter down about 80 basis points, which is approximately $10 million year-over-year. Even with the substantial growth, both new originations and the overall portfolio have stable first pay default rates and improving delinquency as well as, and quite importantly, gross yields have increased over 230 basis points year-over-year. These results and other operational capital improvements increase our confidence in a portfolio that will continue to have moderate growth with low cost of acquisitions, strong credit performance, improving yields, increased revenue, declining share count, and ultimately returning enhanced value to our shareholders through strong EPS growth. One short note on the New World Finance Smile credit card, we completed the first phase of internal testing and have moved on to live testing of customers. To reiterate, our main goals are to use this product slowly and wisely. And we want to better align yield with risk, especially in rate cap states, to help customers manage both installment and revolving credit, lower our overall cost of acquisition and service, improve customer retention, and expand our markets. Our approach is to be prudent in our efforts to serve the 1 in 3 Americans with minimal to no mainstream access to responsible and affordable credit. Finally, we have an absolutely amazing team 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 and rebuild credit while also meeting immediate financial needs. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions you have.

Our first question comes from Kyle Joseph of Stephens.

I would like to discuss some of the credit developments this quarter. I know you were anticipating higher charge-offs due to late-stage delinquencies from last quarter. It's clear that delinquencies have improved this quarter. Can you share what factors may be influencing this, such as changes in underwriting or macroeconomic conditions, and how that affects your outlook for charge-offs for the rest of the year?

Yes. So the biggest thing is the proportion of new customers in the portfolio. So we had a really good third quarter or December quarter with new customer growth. And at the end of December, our 0 to 5-month customer, right? So they had only been with us for up to 5 months. That made up 8.7% of our portfolio at December or $120 million. That's now down to 7.2% or $91 million at June. So a lot of the risk has come out of the portfolio as that 0 to 5-month customer becomes a smaller proportion of the overall portfolio.

Yes. Okay. I got it. That makes sense. And then kind of on the strategy in terms of smaller loans, higher yields, kind of give us a sense for where you are in terms of that strategy? Are you happy with the current mix? Would you expect ongoing growth in smaller loans? And how do you foresee that impacting kind of the portfolio yield over time?

Yes. Great question. So I think right now, we're fairly happy with the overall mix. We don't expect to dramatically increase investments into new customers beyond the current weighting of the portfolio. We have been running a strategy for the past year or two that really weighs both new customers and returning customers pretty heavily in terms of our investments. We would like to continue that strategy, especially in terms of returning customers and overall customer retention. We're not really in a place where we are looking to massively grow the portfolio, either the base or the ledger. We're not looking for double-digit growth there. We're not looking to take any unnecessary risks on from a credit perspective. So to the extent that application volume of acceptable risk customers continues to be this high, and operations continue to run as smoothly as it is, I would expect the current mix of new customers to be about the same as well as former customers, in addition to that, still aiming for an overall increase in customer retention.

Got it. That’s helpful. The last time we spoke was in April, and it’s clear that sentiment has changed significantly in the public equity markets. Can you share any updates on consumer behavior? Back in April, it seemed that tariffs hadn’t caused a substantial impact, but have there been any noticeable changes now that market sentiment has shifted considerably since our last discussion?

We have not observed any increase in risk from our newer customers. Typically, we would notice the first signs of weakness among them. For our new clients, we have maintained very strict underwriting standards for the past few years. Even when reviewing different credit segments, there have not been significant changes in terms of initial payment defaults or their repayment capacity. So far, we have not detected any real effects in this area.

Next question comes from John Rowan of Janney.

Can you repeat what you said about the repurchase authorization with the buckets that come in once you retire the remaining notes?

Yes. So with the new credit agreement, there's really 2 things at play here. So there's an upfront repurchase allowance around $100 million in the first 12 months. In addition to that, we can also repurchase up to 100% of net income, which begins with January 1, 2025. So, there's already approximately $45 million in that bucket as well. So as we sit today, that's around $145 million.

Okay, but I thought you mentioned that there's another $100 million, so that would give you about $200 million upfront?

That bucket will build as we continue to earn income going forward. So that used to be, it would build at 50% of net income, it's now 100% of net income.

Okay, just to clarify, you have $100 million coming in, but is that subject to the notes you need to repurchase?

Right. Yes. So the notes are sort of the limiting factor right now. So as of today, we can repurchase, I think, $7.2 million. But once we retire the bonds, that's no longer a factor.

Okay. And then you'll have just 100% of net income accruing into the bucket, correct?

Correct.

Does the new $640 million credit agreement have any performance-based conditions for repurchase? What about the credit performance related to the debenture?

There's nothing new regarding that. There are some CPI measures included, but they don't bring anything new to the table.

If I'm correct, I haven't checked the CPI for your previous credit agreement recently. It was in the low 20s on a trailing basis; is it still around that same number?

It's a progressive measure. Currently, we're around 18%. I believe the event of default is maybe 23% or 24%. I'm not certain about the exact number, but we have a significant cushion at this moment.

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

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

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