World Acceptance Corporation — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021. The filing is an annual Form 10-K, not a fiscal 2020 fourth-quarter filing, although it includes fourth-quarter information. The company operates a small-loan consumer finance business through 1,205 branches in 16 U.S. states and reports one operating segment.
Business Context and Key Metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Total revenue | $525.5 million | $590.0 million | Down 10.9% |
| Interest and fee income | $451.1 million | $508.3 million | Down 11.3% |
| Income from continuing operations | $88.3 million | $28.2 million | Up 213.5% |
| Diluted EPS from continuing operations | $13.23 | $3.54 | Up substantially |
| Operating income margin | 26.1% | 10.3% | Improved |
| Net charge-offs / average net loans | 14.1% | 18.0% | Improved |
| Net cash from operating activities | $199.6 million | $257.4 million | Down $57.8 million |
| Gross loans receivable | $1.105 billion | $1.210 billion | Down 8.7% |
| Net loans receivable | $733.7 million | $804.4 million | Down 8.8% |
| Total debt | $405.0 million | $451.1 million | Down $46.1 million |
| Cash and cash equivalents | $15.7 million | $11.6 million | Up $4.1 million |
Income from continuing operations benefited primarily from a $95.5 million reduction in the provision for credit losses and the absence of the prior-year $21.7 million accrual for the Mexico investigation. These benefits more than offset lower revenue.
- The provision for credit losses declined to $86.2 million from $181.7 million.
- General and administrative expense declined 13.0% to $302.2 million, including lower personnel and advertising costs.
- Interest expense was $25.7 million, with an effective rate of 5.8%.
- Return on average assets was 9.1%, compared with 2.7% in fiscal 2020; return on average equity was 22.8%, compared with 6.1%.
- The company generated $199.6 million of operating cash flow, used $55.2 million in investing activities and $140.2 million in financing activities, including $102.5 million of stock repurchases.
Material Changes Versus the Prior Comparable Period
- COVID-19, reduced marketing, government stimulus and lower customer mobility reduced loan demand and disrupted normal seasonality. Loan volume fell to $2.372 billion from $2.929 billion.
- Gross loans receivable declined, while the portfolio shifted toward larger, lower-rate loans. The average portfolio APR was 51.8% at March 31, 2021, and the company no longer offered loans with APRs above 100%.
- Credit performance improved: loans at least 91 days delinquent on a recency basis were 3.1% of the portfolio versus 4.2%, and the net charge-off ratio fell to 14.1% from 18.0%. Management attributed improvement partly to stimulus and unemployment benefits, improved underwriting and a lower proportion of newer borrowers.
- The company adopted CECL on April 1, 2020. The adoption increased the allowance for credit losses by $28.6 million and reduced opening retained earnings by $21.2 million after tax.
- Tax preparation revenue declined 13.6% to $18.1 million, and the number of returns prepared fell to approximately 77,000 from 84,000.
- The branch network contracted by 38 locations, from 1,243 to 1,205. No new branches were opened or acquired, although the company completed 50 asset acquisitions, primarily loan portfolios.
- The company repurchased 1.13 million shares for $102.5 million during the fiscal year. It had $21.4 million of remaining repurchase authorization at March 31, 2021.
Debt, Liquidity and Capital
- The revolving credit facility provides commitments of up to $685.0 million and matures June 7, 2024. Borrowings bear interest at LIBOR plus an applicable margin, with a minimum rate of 4.5%; the amended facility reduced the applicable margin to 3.5% under specified terms.
- At March 31, 2021, $405.0 million was outstanding and $181.4 million was available, subject to borrowing-base limitations and other conditions.
- The company reported compliance with its minimum net worth, fixed-charge coverage, debt-to-adjusted-net-worth and collateral-performance covenants.
- Total contractual obligations were $580.2 million, including $463.1 million of debt obligations and $117.1 million of operating lease obligations.
- Debt was approximately equal to shareholders’ equity: $405.0 million of debt versus $404.9 million of equity.
- The company has not paid cash dividends since 1989 and expects to retain capital for operations, loan growth and possible repurchases.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific quantitative fiscal 2022 revenue, earnings or margin guidance. Management expects the portfolio to continue shifting toward larger, lower-rate loans, which could pressure interest and fee yields. It may open or acquire branches in existing or new markets when opportunities arise, but future expansion depends on regulatory approvals, funding and personnel.
- COVID-19: The company could experience continuing demand weakness, borrower payment stress, higher credit losses, liquidity pressure or covenant issues. Management stated that liquidity was sufficient for fundamental operations but could not estimate the pandemic’s full long-term impact.
- Credit risk and CECL: The allowance was $91.7 million at March 31, 2021. The estimate relies heavily on historical migration analysis, customer tenure, delinquency trends and management forecasts; actual losses could exceed reserves.
- Regulatory risk: The company is subject to extensive state and federal consumer-finance regulation. Rate caps, CFPB rulemaking, licensing changes or restrictions on fees and collections could materially reduce profitability or require operations to be modified or discontinued.
- Mexico investigation: In August 2020, the SEC resolution required the company to pay $21.7 million for disgorgement, prejudgment interest and civil penalties. The DOJ issued a declination letter and closed its investigation. A shareholder derivative complaint relating to the former Mexico operations remains contested.
- Legal contingencies: Management states that currently pending legal matters are not expected to produce material reasonably possible losses, but the ultimate outcomes and loss ranges are inherently uncertain.
- Interest-rate and funding risk: A one-percentage-point increase in LIBOR would increase annual interest expense by approximately $4.1 million based on the March 31, 2021 debt balance.
- Concentration: Texas, Georgia, Tennessee and South Carolina generated approximately 53% of total revenue. The company also faces cybersecurity, employee misconduct, competition, turnover and reputational risks.
Most Important Facts for Investors to Verify
- Whether improved credit performance persists after government stimulus and unemployment benefits fade.
- The adequacy and sensitivity of the $91.7 million CECL allowance under weaker employment or borrower conditions.
- Future loan demand, portfolio growth, refinancing activity and the effect of larger lower-rate loans on yields.
- Compliance with the revolving-credit borrowing base and financial covenants, including available liquidity.
- The impact of future state and federal rate-cap, CFPB and consumer-protection developments.
- The sustainability of earnings after excluding favorable year-over-year comparisons from lower credit-loss provisions and the absence of the prior-year Mexico penalty.
- The company’s continued use of capital for share repurchases versus loan growth and balance-sheet deleveraging.
- The company reported effective disclosure controls and internal control over financial reporting, and RSM US LLP issued unqualified audit opinions.