World Acceptance Corporation

Good morning and welcome to World Acceptance Corporation's second quarter 2026 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, 2025, 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 26 second quarter earnings call. There are a lot of great things to report in the portfolio, but before I get into those, I want to spend some time discussing a few unusual and one-off events that impacted this quarter, and then we'll open up to any questions you have. First, we had a $3.7 million one-time expense from the early redemption of our bonds. This is approximately a $0.57 earnings per share impact after tax within the quarter. Second, Even though we discontinued and disposed of our Mexico operation years ago, we had a $1.3 million discrete tax-related expense this quarter. There were no additional items related to our prior Mexico operations that we expect to impact any future business or financials. But this $1.3 million expense represents approximately 26 cents per share after tax this quarter. We had the most new customer growth in the last four years this quarter. And this growth primarily in new customers, which are our riskiest customer segment, resulted in a new customer portfolio at the end of Q2 that is 35% larger year over year. This marginal increase in provision is solely due to the increased new customer base is approximately $5 million, solely due to new customers in the portfolio at the end of the second quarter. This represents approximately 78 cents per share after tax. These three unusual events in this quarter have a total impact of around $1.61 per share after tax on the quarter. Additionally, our long-term incentive comp changes make for year-over-year comparisons rather difficult. Last year, we reversed around $18.1 million in long-term comp from a prior plan, which benefited that quarter. Conversely, this quarter, we extensed around $5.8 million of long-term comp plan, which is about $23.9 million net increase in our long-term incentive comp expenses when you're comparing year-over-year quarters. If you're thinking about future quarters, the long-term incentive expense is front-loaded and will remain around $5.8 million for the third quarter before reducing by around $2 million in the fourth quarter and the following two quarters before reducing further. All right, that covers the major one-off and unique impacts within the second quarter. Now turning to the portfolio. Our new customer origination volume is up around 40% year-over-year at the end of the second quarter. Year-to-date, our new customer origination volume is up 35%, and back to pre-COVID levels, actually in line with the first half of both fiscal year 2019 and 2020. This is a remarkable feat, given the last few years of shrinking and reduced growth. Additionally, the first pay default rate slow file or delinquency rate of these new originations are in line with our fiscal 2019 and 2020 new bar originations. We're very grateful for all the hard work by so many folks within our teams and very pleased with these results that are able to return to healthy growth with good credit quality, maintain low first payment default rates while also increasing our portfolio yield by over 130 basis points year over year. We include our returning former customers and look at all non-refinanced originations. Originations increase 15% year-over-year in the second quarter, making it the highest volume second quarter on record, with the exception of fiscal year 2022. Year-to-date, the first half of the fiscal year had 14% higher loan volume than last year. Again, the highest volume on record for the first half of a fiscal year, with the exception of fiscal year 2022. This is especially important for our portfolio health as our repeat customers are lower credit risk, have a lower cost of acquisition and servicing, and help with overall retention, yield, and lower delinquency. All of this has helped us grow the portfolio nominally by 5.5% more this year relative to last year. We ended the second quarter with our portfolio up 1.5% year-over-year, compared to the starting position of being down 4% at the beginning of the year on April 1st, year-over-year. Other great improvements to our capital position include, as we previously mentioned, this quarter we repurchased and canceled the remaining $170 million of our bonds instead of a $175 million warehouse facility. Also in the quarter, we completed a new credit agreement, increasing commitments to $640 million and allowing for stock repurchases of up to 100% of net income, which is an increase from 50% of net income in our prior agreement, and an additional $100 million of upfront repurchase allowance in addition to the 100% of net income, which begins January 1st of 2025. For that repurchase potential, we've already repurchased 9.1% of our shares so far a year to date, which is around $80 million, with additional capacity to repurchase another $77 million this year. or approximately 8.6% of outstanding shares at yesterday's price, for a total potential repurchase of around 17.7% of outstanding shares, again, at yesterday's share price. We're excited about the current portfolio and its trajectory, which includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, stable and improving delinquency, lower cost of acquisition, improving yields, declining share count, and ultimately returning enhanced value to our shareholders through strong EPS growth. At this time, Johnny Calamee is our Chief Financial and Strategy Officer, and I would like to open up to any questions you may have.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. And your first question comes from John Rowan with Jannie. Please go ahead.

Good morning, guys. Good morning. My apologies. The phone broke up a little bit. My phone broke up a little bit when you were talking about the three discrete items. I got the 26 cents from Mexico, but what were the other two to get to the $1.61?

Yeah, so we had 26 cents in Mexico. We had 57 cents due to the $3.7 million early redemption of our bonds. And approximately 78 cents EPS impact from around right at $5 million increase in our provision solely due to more new customer growth this second quarter than last second quarter.

Okay. So I just want to make sure you understand a little bit more about some of your operating expenses going forward. So you had $25 million, an increase of $25.4 million in personnel expense because of the grants, right? But I'm assuming that that's up $25 million versus the $18.5 million reversal last year. So is it safe to assume that there's like $6.9 million, the net difference of that in personnel expense this quarter, and going down to 5.8 next quarter, and then down to 3.8 the quarter after that and 1.8 the quarter after that. Does that sound correct? Yep.

Sounds good.

Okay. And then kind of one last housekeeping question. So obviously you had a gap loss for the quarter. I'm assuming the diluted share count is just the basic share count. Can you tell me what the period end diluted share count was or the period end share count and then what the dilution is so we can maybe get an idea of what the diluted share count is with positive earnings?

Yeah, so the quarter ending share count is about $4.8 million. And the dilution usually runs in the $100,000, $200,000 shares, depending on obviously where the share price is and other factors.

Okay. All right, that's it for me. Thank you.

Again, if you have a question, please press star then 1. Your next question comes from Kyle Joseph with Stevens. Go ahead.

Hey, good morning, guys. Thanks for taking my questions. Just want to get your sense for the health of the underlying consumer and kind of any changes since the last time we talked. Obviously, there's been a lot of headlines, primarily in the auto space and concerns about the consumer. And I recognize you guys have, you know, some portfolio mix shift going on. But, you know, just stepping back and talking about the health of the underlying consumer and, you know, how that's impacting both demand and credit.

Yeah, it's a great question. So we do track how our consumer is performing on other loans. And, yeah, we have seen the same sort of weakness that you're reading about in the papers, especially on auto loans. However, for us, we haven't seen any major signs of weakness. We have proactively tightened our credit box for new customers multiple times so far this fiscal year. Very marginal tightening, typically on the very low end. Nothing really substantial in terms of overall approval rates or approval volumes. But in terms of performance, we haven't seen anything major that would impact the portfolio to date.

Got it. And then, yeah, you guys talked about originations growth and new customers, and just kind of want to get an update on marketing efforts. that have been driving that where you guys have been having success and kind of an update on the competitive environment as well?

Yeah, so on the marketing side, we've done a number of things that have, I think, been very successful. We are very much a test and learn sort of environment. We have brought some modeling in-house on the, you know, for solicitation models, propensity to respond, and couple those with overall performance expectations We have a couple of very successful tests this past quarter that have dramatically reduced our cost of acquisition for pre-approval campaigns, primarily from new customers. This fiscal year, we have made some substantial changes to the way that we market to our former customers in order to increase our repeat business. We've seen substantial reductions in overall cost of acquisition there as well. Now, with that being said, We haven't anticipated, you know, returning back to the $20 million plus sort of marketing budget that we used to have in marketing. We're for now looking to aim for modest growth somewhere in the mid to low single digits on the portfolio side, which is, you know, mid to high single digits on the customer base side. So, you know, all that is kind of tailwinds in terms of growth. but we're still maintaining, you know, sort of smaller budgets on the marketing front. We are seeing increased demand and sort of increased application volume from customers in general, so maybe that's also helping to fuel our lower cost of acquisition.

Got it. Very helpful. Thanks for taking my questions. Yep.

Further questions at this time? This concludes our question and answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.

In closing, I want to thank our absolutely amazing team across the country as well as those here in Greenville. I'm very grateful for their commitment to their customers and to our team members every day. They are helping our customers to establish and rebuild credit while meeting their immediate financial needs. Thank you for taking the time to join us today. This concludes the second quarter earnings call for World Acceptance Corporation.

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