WORLD ACCEPTANCE CORP annual report, FY2022

World Acceptance Corporation — Form 10-K Summary

Business context and reporting period

World Acceptance Corporation operates a small-loan consumer finance business serving primarily non-prime borrowers. As of March 31, 2022, it operated 1,167 branches across 16 states and had 3,121 employees. Products include installment loans, credit insurance and ancillary services, automobile club memberships, and tax-return preparation and advances.

The filing covers the fiscal year ended March 31, 2022, with comparisons to fiscal 2021 and fiscal 2020. The requested “2021 Q4” period does not correspond to the filing’s reporting period; the filing separately reports the fiscal fourth quarter ended March 31, 2022.

Financial performance and key metrics

Metric	Fiscal 2022	Fiscal 2021	Change
Total revenue	$582.4 million	$525.5 million	+10.8%
Interest and fee income	$485.7 million	$451.1 million	+7.7%
Insurance and other income	$96.7 million	$74.4 million	+30.0%
Provision for credit losses	$186.2 million	$86.2 million	+115.9%
General and administrative expense	$297.2 million	$302.2 million	-1.7%
Interest expense	$33.4 million	$25.7 million	+30.1%
Net income	$53.9 million	$88.3 million	-38.9%
Diluted EPS	$8.47	$13.23	-36.0%

Operating income margin was 17.0%, compared with 26.1% in fiscal 2021. Net margin was approximately 9.3%, compared with approximately 16.8%.
Gross loans receivable increased 37.8% to $1.523 billion, while net loans receivable increased 35.7% to $985.5 million. Average net loans receivable increased 19.6%.
Loan volume increased to $3.268 billion from $2.372 billion. Refinancings represented 63.9% of originations, down from 69.2%.
Net charge-offs were 14.2% of average net loans receivable, compared with 14.1% in fiscal 2021. Accounts at least 91 days delinquent increased to 4.5% of the portfolio from 3.1%.
The allowance for credit losses increased to $134.2 million from $91.7 million. The allowance and related estimate are based on the CECL model and were identified as the audit’s critical audit matter.
Cash provided by operating activities was $281.5 million, compared with $217.3 million. Investing cash outflow was $460.9 million, primarily reflecting a $445.3 million increase in loans receivable.
Cash and cash equivalents were $19.2 million at March 31, 2022, compared with $15.7 million.
Total assets were $1.218 billion and shareholders’ equity was $373.0 million. The reported debt-to-equity ratio was approximately 1.9 to 1.

Material changes versus the prior comparable period

Revenue growth was more than offset by the $100.0 million increase in the provision for credit losses, resulting in substantially lower earnings and returns. Return on average assets declined to 4.8% from 9.1%, and return on average equity declined to 13.4% from 22.8%.
The portfolio shifted toward larger, lower-rate loans. Management expects this mix shift to continue and to reduce interest and fee yields in the near term.
New borrowers represented 31.7% of the year-end portfolio, up from 31.0%. Borrowers with less than five months of tenure increased to 13.1% from 8.4%, contributing to higher delinquency and charge-off rates.
Insurance and other income benefited from higher insurance commissions, tax-preparation revenue, and automobile club revenue. Tax-preparation revenue increased 19.9% to $21.7 million.
General and administrative expense declined despite portfolio growth, and G&A as a percentage of revenue improved to 51.0% from 57.5%.
The Company merged 38 branches and ended the year with 1,167 branches, compared with 1,205 at March 31, 2021. It did not acquire or open branches during fiscal 2022, although management may pursue expansion opportunities.
On September 27, 2021, the Company issued $300 million of 7.0% senior unsecured notes due 2026. Proceeds were used primarily to repay revolving borrowings and for general corporate purposes.

Debt, liquidity, outlook, risks, and unusual items

At March 31, 2022, $397.0 million was outstanding under the $685.0 million revolving credit facility, with $287.7 million of unused availability subject to borrowing-base limitations. The facility matures June 7, 2024, and borrowings generally bear interest at LIBOR plus 3.5%, subject to a 4.5% floor.
Total debt was approximately $697.0 million, consisting primarily of revolving borrowings and the $300 million senior unsecured notes. Substantially all assets secure the revolving facility.
On May 3, 2022, the Company amended the revolving facility to temporarily reduce the minimum fixed-charge coverage ratio from 2.75 to 1.0 to 2.10 to 1.0 through June 30, 2023, permit formation of up to two special-purpose subsidiaries for a potential warehouse facility or securitization, and transition the benchmark from LIBOR to a SOFR-based rate.
Management stated that operating cash flow and available borrowings should be adequate to fund expected loan growth, branch expansion, and operations for the next 12 months and beyond. The filing provides no formal revenue or earnings guidance.
Interest-rate risk is material: a 1 percentage-point change in LIBOR would change annual interest expense by approximately $4.0 million based on the March 31, 2022 revolver balance.
Consumer lending is highly regulated. Potential federal or state rate caps, CFPB rules, licensing changes, enforcement actions, or restrictions on lending, collections, refinancing, or payment practices could materially affect profitability or operations. CFPB payment requirements were scheduled to take effect in June 2022 for certain covered loans.
Credit risk is heightened by the non-prime customer base, increased new-borrower exposure, rising delinquencies, inflation, unemployment, and other economic pressures. The Company generally does not perfect security interests in collateral for smaller loans.
The Company resolved its Mexico-related FCPA investigation in 2020. The SEC resolution required total disgorgement, prejudgment interest, and civil penalties of $21.7 million; the DOJ declined prosecution. A shareholder derivative action related to the matter remains pending, and potential losses cannot currently be estimated clearly.
COVID-19, cybersecurity incidents, employee turnover, vendor failures, regulatory compliance, litigation, and dependence on revolving-credit availability remain significant risks.
The Company has not paid cash dividends since 1989. During fiscal 2022 it repurchased $111.1 million of common stock and had $15.4 million remaining under its current repurchase authorization at March 31, 2022.
Management and RSM US LLP concluded that internal control over financial reporting was effective as of March 31, 2022, and the auditor issued unqualified opinions on the financial statements and internal controls.

Important facts for investors to verify

Whether delinquency, charge-off, and allowance trends continue to worsen as the portfolio grows and becomes more concentrated in newer borrowers.
The adequacy and sensitivity of the $134.2 million CECL allowance, including the effect of customer-tenure assumptions, forecasts, and rehabilitation rates.
Compliance with revolving-credit and senior-note covenants after the May 2022 amendment, including fixed-charge coverage and collateral performance requirements.
The cost and operational effect of transitioning from LIBOR to SOFR and of any future increases in interest rates.
The implementation and business impact of CFPB payment requirements and any federal or state interest-rate caps or other consumer-lending restrictions.
Future loan yields and profitability as the Company shifts toward larger, lower-rate loans.
Cash needs associated with loan growth, share repurchases, debt service, and any planned warehouse facility, securitization, acquisitions, or branch expansion.
The status and potential financial exposure of the shareholder derivative litigation and other regulatory or legal matters.
Whether the Company’s stated liquidity outlook remains valid given its reliance on secured revolving borrowings and borrowing-base availability.