World Acceptance Corporation

Good morning and welcome to World Acceptance Corporation third quarter 2023 earnings 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. The comments made during this conference call may contain certain forward-looking statements. within the meaning of Section 21E of the Security Exchange Act of 1934. That represents the corporation's expectations and beliefs concerning future events. Those forward-looking statements are about matters that are inherently subject to risk 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 variations of the foregoing and selling or actions 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 earning press release and in the risk factor section of the corporation's most recent form 10-K. where the fiscal year ended March 31st, 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. It's time. It's my pleasure to turn the floor over to your host, to Mr. Chad Perjad, President and Chief Executive Officer.

Good morning. and thank you for joining our fiscal 2023 third quarter earnings call. Before we open up to questions, there are a few areas that I'd like to highlight. We are pleased with the trends that are emerging from recent policy changes. As we discussed during our most recent quarterly earnings call, we began adjusting our underwriting toward the end of our last fiscal year as the economic uncertainty was increasing. This was primarily due to three drivers, inflationary pressures on our customers' cash flow, delinquency normalization after a period of extraordinary portfolio growth and stimulus, and growing macroeconomic and recessionary concerns. The first trend, delinquency, is showing positive trending. Our early-stage delinquency continues to decline month after month, while later stage will continue to result in elevated charge-offs into the next quarter. Earlier in fiscal year 2023, we quickly reduced our exposure to our highest-risk customers It successfully avoided the temptation to lend into the economic uncertainty. Now, we are fortunate to be in a position of credit performance improvement during the fiscal year, especially with our new customers. Second, we are now beginning to carefully renormalize credit. The third quarter's book-to-look ratio increased slightly to around 25%. This is up from a low of around 20% during the second quarter. This compares to approximately 35% during the third quarter of fiscal years 2021 and 2022. The book to look reduction has been focused on our most risky applicants and has also resulted in significant reductions in recent first pay default rates, which is a strong indicator of future credit performance. For example, new customer originations in the first quarter had a 16% lower first pay default rate year over year when compared to the first quarter of the prior year. Second quarter new customer originations first pay default rates were 38% lower year over year. While still early, our most recent third quarter first pay default rates show a 30 plus percent reduction compared to the third quarter of fiscal year 2022. To underscore how strong recent credit performance has been, the most recent two quarters have some of the lowest vintage first pay default rates, including pre-pandemic comparisons as well as the low first-pay default rates of vintages positively impacted by COVID stimulus. We're especially proud of this accomplishment considering the reports of increasing default and delinquency rates across several credit industries during the second half of calendar 2022. In addition to early indications of dramatic improvements in performance for these vintages, we continue to steadily improve the gross yields. New customer originations in our second quarter of 2023 had gross yields over 7% higher year-over-year when compared to the second quarter of fiscal year 2022, while the third quarter gross yields are over 25% higher, again, at the same time as a 30-plus percent reduction in first-pay default rates. Similar adjustments have been made for returning and refinanced customers as well. These performance outcomes are a result of incredibly hard work from our branch team members, as well as their supporting leaders and trainers, as well as corporate operations support, IT, analytics, HR, and marketing teams. As mentioned, our increasing confidence in the early indications of performance, low delinquency, and high gross yields allowed us to begin increasing marketing to new customers, our approval rates, and loan volume towards the end of the third quarter. For reference, new customer originations were 31%, of the originations in the third quarter of 2022 and 45% of the third quarter of fiscal years 2019 and 2020. This quarter, new customer originations increased with each subsequent month to 55% of comparable December volumes in fiscal year 2019 and 2020 and 45% of the prior year's December. We expect to continue increasing our investments in marketing and new customer acquisition during the fourth quarter and into the next fiscal year. Finally, our World Finance team is outstanding. I'm incredibly proud of our leaders at every level in the company, and not just their great accomplishments that I mentioned earlier, but that they embrace opportunities with positivity, fun, and grace. At this time, John Camise, our Chief Financial and Strategy Officer, and I would like to open up to any questions you have.

Thank you. We'll now begin the question and answer session. To ask a question, you may press star then one in your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To explore your question, please press star then two. This time we'll pause momentarily to assemble the roster. First question comes from John Rowan of G&E. Please go ahead.