World Acceptance Corporation

Good morning and welcome to the World Acceptance Corporation sponsored fourth quarter press release conference call. This call is being recorded. At this time, all participants have been placed on listen only mode. Before we begin, the corporation has requested that I make the following announcement. These comments made during the conference call may contain certain forward looking statements within the meaning of the 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, and any variation of the foregoing 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 corporate most recent Form 10-K for the fiscal year ending 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.

Good morning, and thank you for joining our fiscal 2022 fourth quarter and year-end earnings call. Before we open up to questions, there are a few areas that I'd like to highlight. First, for the third consecutive quarter, we've experienced record growth in origination volumes. During the fourth quarter, gross originations grew by approximately $220 million more than the prior year fourth quarter, and at over 700 million surpassed our prior strongest fourth quarter originations by approximately 40%. We attribute this record growth to positive customer experiences increased marketing intelligence, and larger loan offerings, all in the midst of tighter credit underwriting for new customers that we began in the third quarter. Further, we experienced this broad expansion across all customer types and continue to see tremendous increases in new and returning customer loan volumes when compared to last year or even pre-pandemic levels. In particular, new customer originations in the fourth quarter increased from approximately $25 million to over $60 million as new loan applications increased significantly by 64% versus the fourth quarter of fiscal 21 and 41% versus the fourth quarter of fiscal 20. In all, we experienced an exceptional 37.8% year-over-year portfolio growth. We are confident that this extraordinary growth is profitable growth, but recognize that growth at this rate is likely unsustainable. Therefore, we believe our continued and additional credit tightening that we recently began in April will also result in further reduced credit risk and higher profitability as we slow growth and reduce the credit provision in the new year. Another contributing factor was the significantly lower paydowns and lower runoff in the most recent fourth quarter. Traditionally, we see runoff averaging approximately 12 to 12.2%. approximately $200 million for our beginning portfolio size. This quarter's runoff was just over 5%, or only $80 million, largely resulting from our move to higher-balance loans, which are less subject to lump-sum payoffs through tax refunds. In other words, that approximate 7% difference equates to around $150 million of higher-performing ledger going into the new fiscal year. Regarding credit performance, We expect the origination cohort performance to remain relatively consistent in the near term, based on several factors, including overall economic environment, changes to our credit underwriting, and increase of larger loans to remain the most attractive options for our best customers. We continue to expect to hit our long-term incentive EPS targets of $25.40 per share before the end of fiscal year 2025, and we are accruing accordingly. Further, delinquencies remain within expectations and lend confidence to long-term EVA expectations. It's important to note that with the change to seasonal provisioning last year, we expect to grow our provision in real time as our portfolio grows and reduce our provision in real time with any seasonal runoff, which is traditionally during tax season. During periods of rapid growth, this temporarily depresses net income as compared to our historical delinquency-based provisioning model. The loan growth and day one provisioning of CECL should positively impact revenue and income in future quarters, especially in quarters when we begin to decelerate our growth rates. For the entire year, we originated approximately $800 million more than in the prior year, with over $200 million of that being unseasonal during the most recent fourth quarter. With this growth, as mentioned before, we've also significantly increased our loan loss reserves under CECL accounting. I'd also like to point out that over the last five years, we've achieved over 10% compounded annual growth rate in the portfolio, including the dramatic reduction we experienced throughout the pandemic. Finally, aside from our continued record growth, we have much to be thankful for and excited about at World. First, our branch team and those who support them have done a tremendous job of navigating the last two years and putting our customers' needs and safety first. Second, we continue to win top workplace awards across the country, with over half of our branches being in winning states or regions this year, in addition to the overall company being South Carolina's only company to be a Top Workplaces USA winner for two consecutive years, reflecting the incredible culture that our world family has created and continues to foster. I couldn't be prouder of them. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, And I would like to open up the questions about our fourth quarter and fiscal year 2022 earnings.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Vincent Cantick of Stevens. Please go ahead.