World Acceptance Corporation

Good morning, and welcome to the World Acceptance Corporation's second quarter press release conference call. Today, 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. 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 of the corporation's most recent form, 10-K for the fiscal year ended March 31, 2022, 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, Mr. Chad Parshad. You may proceed, sir.

Good morning, and thank you for joining our fiscal 2023 second quarter earnings call. Before we open up the questions, there are a few areas that I'd like to highlight. As we discussed in our first quarter earnings call, we began making underwriting adjustments at the end of our last fiscal year to protect our $1.6 billion portfolio that we had built as we were heading into economic uncertainty. This was mainly with the perspective of the impact of inflationary pressures on our customers' cash flow, and delinquency normalization coming off stimulus payments, but also with the growing concerns over the likelihood of a recession in the next year. We're pleased to have continued to execute on this preemptive plan for fiscal year 2023 by reducing our exposure to our highest risk customers and making progress to increase our gross yield. First, you'll notice a substantial decrease in new customer originations in the second quarter. much more in line with the origination volume of fiscal year 2021 than a high-growth year like last year, fiscal year 2022. However, one major difference is the $41 million in new origination volume in the second quarter of fiscal year 2021 was in a low-demand environment. In contrast, this most recent quarter's originations are in a high-demand environment where we're much more selective with a book-to-look ratio that's nearly half of the prior two years. roughly 20%. This is the third consecutive quarter of improving credit performance of our new customer vintages. First pay default rates have been decreasing with each vintage throughout the calendar year. And new customers originating in the most recent quarter have the lowest first pay default rates since we rolled out our credit grading system in late 2019. This includes surpassing the low first pay default rates on vintages positively impacted by stimulus as well. In addition to increasing credit quality, we have also focused on growing our gross yield. For new customer originations, the gross yield has increased substantially throughout the second quarter, and we expect it to remain elevated throughout the remainder of the year. Similar adjustments have also been made for returning and refinance customers as well, with an emphasis on increasing credit performance, minimizing our exposure to our higher risk customers, maintaining high customer retention, as well as increasing the gross yield where applicable. To this point, gross yields on origination in the most recent quarter have stabilized and even increased in the September month, and this is for all originations. With this emphasis on credit quality, yields, retention, and deemphasizing risk, as well as growth, as we look towards the next six to 12 months of an uncertain economy and pinning cash flow risk to our customers, We do expect a muted growth season this year in comparison to prior years. While we continue to invest in the highest credit quality new former and refinance customers, we expect our reduced book-to-look rate to continue into the third and fourth quarters for new customers especially, as well as tighter underwriting and exposure to refinances. Finally, our World Finance team is outstanding, and I'm incredibly proud of our leaders at every level in the company and the work that they've done to adjust and build the strong, and nuanced infrastructure that creates the levers for our operational leaders who need them to effectively and quickly manage our portfolio. Further, they do it with positivity, fun, and grace, and over half of our branches are in states or cities that have won top workplaces awards again this year. In addition to our overall company being South Carolina's only company to be a top workplaces winner for two consecutive years, we also recently won a National Culture Excellence Award for professional development. which truly reflects our incredible team of strong, homegrown leaders. At this time, Johnny Calmes, our Chief Financial and Strategy Officer and I would like to open up to any questions.

As a reminder, if you do have a question, please press star then one on your touch-tone phone. Please remember to pick up your handset or to put down your handset before pressing the keys. I will now pause momentarily to assemble our roster. Today's first question comes from John Rowan with Jannie. Please proceed, sir.