World Acceptance Corporation

Good morning, and welcome to World Acceptance Corporation's second quarter 2025 earnings conference call. This call is being recorded. At this time, all participants have been placed in a 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, 2024, 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. Please go ahead.

Good morning, and thank you for joining our fiscal 2025 second quarter earnings call. Before we open up for questions, there are a few areas I'd like to highlight. Over the last few years, Johnny and I have talked a good bit about right-sizing and de-risking the portfolio. And the results are showing improved yields and performance throughout most of our portfolio today. The second quarter of 2025, we experienced a 350 basis points increase in our customer base, which compares to 100 basis point increase year-over-year during the second quarter of last year, and sequentially is an improvement of 50 basis points over the fourth quarter of this year. Year-over-year, our average balance has decreased almost 6% from September 30th of 2023 to This is while our customer base has actually increased compared to September 30th of 2023. We worked diligently to regrow our customer base over the last year with high credit quality customers while decreasing our overall average balance to ensure the right risk-reward profile across our customer base and improve our yields and long-term customer profitability. Our non-refinance volume has rebounded in the second quarter, making stronger year-over-year gains, especially in August and September. And non-refi growth has actually surpassed all recent prior years, with the exception of fiscal year 2022. And first payment default rates remain low, even lower than comparable periods in the second quarter pre-pandemic. For new customers, in particular, marketing and acquisition channel adjustments continue to show increased quality in applications. Approval rates for new customers have historically been around 50%. In the second quarter of fiscal year 2022, with an approval rate in the historical norm of around 50 percent, our first payment defaults hit an all-time high, increasing nearly 50 percent from historical norms before we cut back dramatically in underwriting. This resulted in low approval rates during the subsequent years of fiscal years 23 and 24 that fell to less than 30 percent in the second quarter of those years. Their credit quality improved, and first payment defaults returned or exceeded historical norms. This year, during the second quarter, we achieved over a 50% approval rate for new customers while maintaining low first payment default rates that are in the historical range. Additionally, this quarter's originations continue to have higher gross yields than prior years, and we expect net yields to continue to increase as well. The new customer vintages from the second quarter of fiscal year 2023 to present are breaking even and becoming profitable on pace with, or significantly earlier than, historical pre-pandemic vintages. Overall, our gross yield has improved by 113 basis points year-over-year. Coupled with higher approval rates and larger investments in the new customers that are retaining this high credit quality, we're optimistic about the performance of these investments in the last few years. This week, we completed an acquisition of around $20 million in performing loans. Prior to closing this acquisition, we were continuing the trend of outpacing our recent years in loan growth during the month of October. To this end, we started the year with a ledger that was down about 8.8 percent year-over-year, and into the second quarter, a ledger that was down around 6 percent year-over-year. With the organic growth that we've achieved already in October, coupled with this acquisition, we expect to end October with a ledger that's down around 4 percent year-over-year as we enter our growth season of November and December. Refinance loan volume in dollars increased 3 percent within the quarter year-over-year, while the number of refinances actually increased 10.7 percent, showing a reduction in average balance. With these shifts in the portfolio makeup and the weighting continuing into the second quarter and third quarter of our growth season, we expect to see yields and delinquency trends continue to convert into the same revenue and income trends that we've already seen for this year thus far. We do see an opportunity to improve our delinquency and charge-off rates, especially related to our large loan portfolio, part of which stems from the outsized investment into large loans made during fiscal years 21 and 22. Given the account growth and yield improvements to the positive and slower-to-improve delinquency to the negative, management is no longer accruing for the second tier of our performance plan, but we continue to expect to achieve $16.35 EPS this year. Finally, we have an absolutely amazing team here at World. I'm grateful for their commitment to their customers and to each other. They're helping our customers every day to establish credit, rebuild credit, as well as meet their immediate financial needs. At this time, Johnny Camiz, our Chief Financial and Strategy Officer, and I would like to open up to any questions that you have.

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 are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from John Rowan with Jannie. Please go ahead.

Good morning. Good morning, John. Okay, so you're still vesting for 1635, you said, for fiscal 2025, correct? That's right. Does the... You know, are you using, is 399 counted for earnings for 2Q, which obviously we include the big $18.5 million reversal, or is it a different number that excludes the $18.5 million? It's the gap number, right?

So it would be the 399. Okay. Is there, would there be another reversal possible?

Well, I guess it wouldn't be another reversal to get to the 1635. Okay, just a 10,000-foot view, you know, I feel like the company spent a lot of years trying to get away from kind of the history of the company and small loans and refinancing. And, you know, obviously now we're seeing large loans, you know, contracting as a percentage of the portfolio. I'm just trying to figure out, you know, which way the company is headed, if we're still trying to get away from what the company was many, many years ago and trying to get more toward large loan lender with a high single-digit or low double-digit type loss rate. It just sounds like we're, the last couple of quarters, moving away from what was the stated goal of management.

Yeah, it's a good question, John. So, you know, historically, when we started increasing our large loan portfolio, it was really twofold. One was primarily a retention of our customer base. So, you know, historically, we will bring in customers with small loans, typically subprime credit, as they, you know, Performing those loans and we credit report, their credit scores go up, they begin to get offers from other creditors, and we would lose our customers to upmarket products, including credit cards or larger loans at lower interest rates. So moving into large loans was primarily a retention play, secondarily also a new customer growth channel. I think the timing of that back in fiscal 21 was probably ill-timed from a macroeconomic perspective, and also the large amount of investments we made into it made that more painful for us with those loss rates that we experienced back in fiscal 22. But from what our overall strategy is, we continue to focus in on primarily small loans, and large loans are a secondary interest for us. Today, large loans are primarily used as a channel for customer retention, as we originally planned them to be, but less so for a new customer growth opportunity. But for the main part of the business, and what our primary focus is for customer growth, is with small loans. It continues to be in small loans.

Okay, can you remind me when you guys typically renew your revolving credit facility and how much you have available under it?

Yeah, so the next renewal, we have two years or so left at this point, and maybe the spring of next year we'll start to look to extend that. At this point, I don't have the number right in front of me. I think we have about $300 million left on the revolver as of today.

Okay. If I'm not mistaken, you always keep – you have two years remaining, but you usually refinance it before the debt goes current within – with under a year maturing, correct? That's right. Yeah. All right. So we've still got a little wait before we get to that point. Okay. All right. Thank you.

Again, if you have a question, please press star, then 1. Please stand by while we poll for questions. Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.

Thanks for taking the time to join us today, and this concludes our second quarter earnings call for Royal Acceptance Corporation.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.