World Acceptance Corporation

Good morning and welcome to World Acceptance Corporation's fourth quarter 2023 earnings conference call. This call is being recorded and at this time all participants have been placed on listen-only mode. Before we begin, the company 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, others 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 earning press release and in the risk factor 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 such 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 2023 year-end and fourth quarter rings call. Before we open up the questions, there are a few areas that I'd like to highlight. We made several changes in early fiscal 23 that we believe would have a significant impact on our business, and we've been very pleased with the results. As we discussed during prior earnings calls, we tightened underwriting about 18 months ago as economic uncertainty was increasing. At the time, inflationary pressure, concerns about delinquency normalization after a period of extraordinary portfolio growth, and growing recessionary concerns were key drivers for the strategic changes. Rather than lend into the economic uncertainty, we dramatically reduced our exposure to our highest risk customers. While new customer loan volume increased in the first quarter by 5% year over year, it declined significantly by between 35% and 45% during our fiscal second, third, and fourth quarters of this year as we worked to improve credit quality. During that time, through credit tightening, our book-to-look ratio decreased to a low of 20% during the second quarter, before slowly improving to 25% in the third quarter and 30% in this most recent fourth quarter. When we compare new customer originations to pre-pandemic periods, we're still around 90% to 100% of the loan volume in comparable fourth quarters, excluding the extraordinary growth in fiscal 2020-2022. Today, delinquency continues to show significant improvement, even as our book-to-look ratio has increased from 20% to 30% throughout the year. Early stage delinquency decreased in the fiscal third quarter and late stage delinquency decreased significantly in the fiscal fourth quarter, which we expect to result in fewer charge-offs into the next and upcoming quarter. More specifically, our first pay default rates have remained low throughout the year, even as our approval and loan booking rates have increased. First quarter new customer originations had a 16% lower first pay default rate year over year. Second quarter first pay default rates fell 37% year-over-year, and the third and fourth quarter first pay default rates are around 25% lower year-over-year. We expect the new customer credit quality and low first pay default rates we experienced in fiscal year 2023 to continue into 2024. To underscore how strong recent credit performance has been, The first pay default rates of the most recent three quarters are in line with or are lower than pre-pandemic comparison. They're even comparable to or lower than the low first pay default rates that we experienced on vintages that were positively impacted by the COVID stimulus. Finally, we're focused on both sides of the profit equation, decreasing losses as well as increasing gross yields. In addition to the positive credit performance that we mentioned earlier, We continue to steadily improve gross yields on the same vintages. New customer originations in the second quarter of this year had gross yields that were 7% higher year-over-year, and both the third and fourth quarter new customer vintages had gross yields around 25% higher year-over-year. Again, at the same time as a reduction in first pay default rates. As we see the normalization in former customer loan volume, similar adjustments have been made for returning and refinance customers with a focus on increasing credit quality and stabilization and overall portfolio yield as well. All of these outcomes are an especially great team accomplishment when we consider the reports of increasing default and delinquency rates across several credit industries during calendar 2022, including the personal installment loan industry. While economic uncertainty still exists into this year, management continues to accrue for the long-term incentive plan with vesting tiers of $16.35, $20.45, and $25.30 per share due to the much improved credit quality, yields, and operating conditions. We anticipate the first tier of vesting as early as the end of this fiscal year, assuming credit quality and performance remain stable and unemployment remains low. We started this fiscal year with the stated goal of managing the portfolio in a way that would ensure it could weather the stress of negative economic pressures And this quarter's results show that we are in a position to do that, as well as take advantage of market opportunities to grow it. I'm very proud of the incredibly hard work from our branch team members, as well as their supporting leaders and trainers, and corporate operations support, IT, analytics, our human resources department, marketing, and customer success teams. We're successfully navigating a challenging environment and are beginning fiscal year 2024 from a position of portfolio and capital strength. At this time, Johnny Camus, our chief financial and strategy officer, and I would like to open up to any questions.

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 were using a speakerphone, please pick up your handset before pressing the keys. And if you would like to withdraw a question, please press star then two. At this time, we will pause momentarily to assemble our roster. And our first question will come from Vincent Gaintick with Stevens. Please go ahead with your question.