World Acceptance Corporation — Fiscal 2024 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended December 31, 2023, compared with the corresponding periods ended December 31, 2022. World Acceptance is a consumer finance company offering small and medium-term loans, credit insurance, ancillary products, and tax-return preparation services. Results are seasonal, with the highest loan demand generally occurring in the third fiscal quarter.
Key Financial Metrics
| Metric | Three months ended Dec. 31, 2023 | Three months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2023 | Nine months ended Dec. 31, 2022 |
|---|---|---|---|---|
| Total revenue | $137.7 million | $146.5 million | $413.9 million | $455.7 million |
| Net income (loss) | $16.7 million | $5.8 million | $42.3 million | $(3.4) million |
| Diluted EPS | $2.84 | $0.99 | $7.17 | $(0.59) |
| Provision for credit losses | $40.6 million | $59.6 million | $127.7 million | $214.1 million |
| Net charge-offs | $48.4 million | $71.0 million | $132.2 million | $203.8 million |
| Operating income margin | 22.7% | 15.0% | 21.6% | 7.8% |
| Annualized net charge-offs / average net loans | 19.1% | 25.1% | 17.4% | 23.6% |
Calculated net income margins were approximately 12.1% for the quarter and 10.2% for the nine-month period. The filing reports trailing twelve-month return on average assets of 6.0% and return on average equity of 17.3%, compared with 1.2% and 4.1%, respectively, in the prior-year periods.
Balance Sheet, Cash Flow, Debt, and Liquidity
- Gross loans receivable were $1.401 billion at December 31, 2023, down 9.9% from $1.554 billion a year earlier but up 1.5% sequentially from September 30, 2023.
- Net loans receivable were $907.2 million after unearned interest, insurance and fees and a $121.1 million allowance for credit losses. The allowance was 11.8% of net loans, compared with 12.9% a year earlier.
- Cash and cash equivalents were $12.8 million, compared with $16.5 million at March 31, 2023.
- Operating cash flow for the first nine months was $182.0 million, compared with $205.9 million in the prior-year period. Investing cash usage was $157.3 million, primarily from a $153.2 million increase in loans receivable.
- Total debt was approximately $585.0 million, net of unamortized debt issuance costs, and shareholders’ equity was $407.0 million. Debt-to-equity was 1.4:1.0, compared with 2.0:1.0 at December 31, 2022.
- The revolving credit facility had $305.1 million outstanding, $274.4 million of unused availability, aggregate commitments of $580.0 million, and a June 7, 2026 maturity. The facility bears interest based on SOFR and an applicable margin, with a 4.5% minimum rate.
- The company had $282.6 million principal amount of 7.0% senior unsecured notes outstanding, due 2026, after repurchasing and extinguishing $8.25 million during the first nine months of fiscal 2024.
- The company was in compliance with its debt covenants at December 31, 2023. Substantially all assets secure the revolving credit facility.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 6.0%, and nine-month revenue declined 9.2%, primarily because of lower average loan balances.
- Quarterly net income increased 187.1% to $16.7 million; nine-month results shifted from a $3.4 million loss to $42.3 million of net income.
- Credit costs improved materially. Quarterly provision expense fell 31.8%, and nine-month provision expense fell 40.3%, primarily due to lower net charge-offs and improved delinquency trends.
- Loans at least 61 days past due on a recency basis declined to 5.8% of the portfolio from 7.4%; loans at least 90 days past due declined to 3.7% from 4.9%.
- General and administrative expense decreased 4.5% for the nine-month period, but increased as a percentage of revenue to 47.6% from 45.3%. Advertising expense increased 91.8% for the nine months due to customer acquisition programs.
- Interest expense declined 4.7% for the nine months because average debt declined 22.3%, although the effective interest rate increased to 8.6% from 6.8%.
- The company eased historically stringent underwriting standards, reporting increased borrowing by new, former, and refinance customers and a 2.4% increase in unique borrowers during the quarter.
- During the second quarter, the company reversed $4.9 million of previously recognized stock-based compensation because the performance-option target was no longer considered probable of achievement.
Outlook, Risks, Contingencies, and Unusual Items
- No specific earnings or revenue guidance is provided. Management expects operating cash flow and available revolver capacity to fund loan growth, branch expansion, and expected needs for at least the next twelve months.
- Management continues to monitor underwriting, delinquency, charge-off, borrower behavior, and allowance assumptions. Credit losses remain the principal operating risk.
- The CFPB has determined that the company is subject to CFPB supervisory authority, and management expects a supervisory review in the near future.
- The status and implementation of CFPB payment requirements remain uncertain following litigation concerning the CFPB’s funding structure. If applicable, the requirements could increase compliance costs and affect loan origination, payment procedures, refinancing, and profitability.
- Other stated risks include changes in interest rates, inflation, regulation, litigation, economic conditions, cybersecurity incidents, employee or third-party misconduct, management succession, and dependence on debt financing.
- A 1.0 percentage-point change in the revolving credit facility interest rate would change annual interest expense by approximately $3.1 million based on the December 31, 2023 balance.
- The company repurchased 148,765 shares for $17.3 million during the quarter. Remaining authorization under the current repurchase program was $2.8 million at December 31, 2023, subject to debt covenant and liquidity restrictions.
- Management disclosed no significant subsequent events requiring adjustment or disclosure and no material changes to previously reported risk factors.
Investor Verification Priorities
- Verify whether improved delinquency and charge-off trends persist as underwriting standards are relaxed and loan balances grow.
- Assess the adequacy of the $121.1 million credit-loss allowance against portfolio aging, customer tenure, economic conditions, and future charge-offs.
- Monitor CFPB supervisory activity and the final legal and regulatory treatment of payment requirements.
- Confirm continued compliance with revolving-credit covenants, borrowing-base requirements, and restrictions on repurchases or other capital distributions.
- Evaluate exposure to higher SOFR-based borrowing costs and the 2026 maturities of the revolving facility and senior unsecured notes.
- Reconcile reported earnings improvement with lower revenue, higher advertising costs, elevated credit-loss ratios, and the nonrecurring stock-based compensation reversal.