World Acceptance Corporation (NASDAQ: WRLD) today reported
financial results for its quarter ended June 30, 2017.
Net income for the first quarter of fiscal 2018 decreased 21.4%
to $13.1 million compared to $16.6 million for the same quarter of
the prior year. Net income per diluted share decreased 21.9% to
$1.48 in the first quarter of fiscal 2018 compared to $1.89 in
the prior year quarter.
Total revenues increased to $128.9 million for the first quarter
of fiscal 2018, a 1.4% increase from the $127.1 million reported
for the first quarter last year. Revenues from the 1,291 offices
open during both quarters increased by 1.2%. Interest and fee
income increased 1.4%, from $114.0 million in the first quarter of
fiscal 2017 to $115.6 million in the first quarter of fiscal 2018
primarily due to an increase in average earning loans. Insurance
and other income increased by 1.8% to $13.3 million in the first
quarter of fiscal 2018 compared with $13.0 million in the first
quarter of fiscal 2017.
Accounts in the US that were 61 days or more past due increased
to 4.9% on a recency basis and to 6.6% on a contractual basis at
June 30, 2017, compared to 4.6% and 6.2%, respectively, at June 30,
2016. On a consolidated basis, accounts that were 61 days or more
past due increased to 5.5% on a recency basis and to 7.5% on a
contractual basis at June 30, 2017, compared to 4.8% and 7.0%,
respectively, at June 30, 2016. As a result of the higher
delinquencies, our allowance to net loans increased from 9.2% at
June 30, 2016, to 9.6% at June 30, 2017.
As previously disclosed, the Company ceased all in-person
collection visits effective December 18, 2015. During the fourth
quarter of fiscal 2016, the Company experienced higher than normal
delinquencies in January and February as well as higher than normal
charge-offs, especially in the month of March, as accounts became
more than 90 days past due. We continue to see elevated net
charge-offs and delinquencies compared to historical levels,
however we have seen an improvement in net charge-offs during the
first quarter of fiscal 2018 compared to 2017. The provision for
the quarter decreased $1.2 million when comparing the first quarter
of fiscal 2018 to the first quarter of fiscal 2017. This is
primarily due to a decrease in net charge-offs. Net charge-offs as
a percentage of average net loans on an annualized basis decreased
from 14.9% to 13.9% when comparing the two quarters. Consolidated
net charge-offs were down $2.0 million when comparing the two
quarters. The portion of the provision related to an increase in
loans outstanding increased $800,000 quarter over quarter due to
gross loans outstanding increasing $50.6 million in the first
quarter of fiscal 2018 versus $20.5 million in the first quarter of
fiscal 2017.
General and administrative (“G&A”) expenses amounted to
$72.9 million in the first quarter of fiscal 2018, a 15.8% increase
over the $62.9 million in the same quarter of the prior fiscal
year. As a percentage of revenues, G&A expenses increased from
49.5% during the first quarter of fiscal 2017 to 56.6% during the
current quarter. G&A expenses per average open office increased
by 16.0% when comparing the two quarters. G&A expense increased
due to increased advertising expense, personnel costs, and legal
and professional expense.
Personnel expense increased $3.0 million quarter over quarter.
Salary expense increased $1.6 million, primarily due to an increase
in part-time employees hired to enable our branch offices to extend
their hours without significant overtime or hiring additional full
time employees. Incentive expense increased $1.3 million, primarily
due to the expense associated with equity awards granted during
October 2016 and higher branch level bonuses as the branch level
performance improved.
Advertising expense increased 109.4%, or $2.6 million due a
significant increase in our direct marketing program relative to
the same quarter last year.
Legal and professional expense increased $2.5 million due to
additional expense related to the previously disclosed internal
investigation related to our operations in Mexico. We incurred $2.4
million in expense directly related to the investigation during the
quarter. See “Other Matters” below for additional information
regarding the internal investigation.
Interest expense for the first quarter decreased $1.3 million
compared to the first quarter of the prior fiscal year due to a
20.2% decrease in the average debt outstanding. The Company has
reduced its outstanding debt by $59.8 million as of June 30, 2017,
compared to June 30, 2016.
The Company’s first quarter effective income tax rate increased
to 37.5% compared to 37.4% in the prior fiscal year’s first
quarter.
Gross loans increased to $1.11 billion as of June 30, 2017 a
2.1% increase from the $1.09 billion of loans outstanding as of
June 30, 2016. Our unique borrowers in the US increased by 15,616
or 2.1% during the first quarter of fiscal 2018. This is compared
to an increase of 3,482 or 0.5% in the first quarter of fiscal 2017
and an increase of 3,672 or 0.5% in the first quarter of fiscal
2016.
Other key return ratios for the first quarter of fiscal 2018
included an 8.3% return on average assets and a return on average
equity of 16.3% (both on a trailing 12-month basis).
At June 30, 2017, we had approximately 164,000 accounts and
approximately $128.5 million in gross loans outstanding in Mexico.
There were $101.5 million in gross loans as of June 30, 2016.
Annualized Mexican net charge-offs as a percentage of average net
loans increased from 10.3% at the end of fiscal 2017 to 11.2% at
the end of the current fiscal quarter. Additionally, our Mexican
61+ day delinquencies were 10.5% and 14.8% on a recency and
contractual basis, respectively, as of June 30, 2017, a change from
7.6% and 14.7%, respectively, from June 30, 2016. Excluding
intercompany charges of $0.3 million in fiscal 2018, Mexican pretax
earnings amounted to $2.8 million for the first quarter of fiscal
2018, compared to $1.1 million in pretax earnings for the first
quarter of fiscal 2017.
Other Matters
As previously disclosed, we are conducting an internal
investigation of our operations in Mexico, focusing on the legality
under the U.S. Foreign Corrupt Practices Act and certain local laws
of certain payments related to loans, the maintenance of the
Company’s books and records associated with such payments, and the
treatment of compensation matters for certain employees. We
promptly retained outside legal counsel and forensic accountants to
lead the investigation upon receipt of an anonymous letter
regarding compliance matters, and we have voluntarily contacted the
U.S. Securities and Exchange Commission (“SEC”) and the U.S.
Department of Justice (“DOJ”) to advise both agencies that an
internal investigation is underway. We are committed to compliance
with applicable laws and regulations, intend to cooperate fully
with both the SEC and the DOJ, and are developing and executing a
remediation plan to ensure compliance with applicable laws and
regulations and to remediate the material weaknesses in our
internal control over financial reporting.
As previously disclosed, on August 7, 2015, the Company received
a letter from the CFPB’s Enforcement Office notifying the Company
that, in accordance with the CFPB’s discretionary Notice and
Opportunity to Respond and Advise (“NORA”) process, the staff of
CFPB’s Enforcement Office is considering recommending that the CFPB
take legal action against the Company (the “NORA Letter”). The NORA
Letter states that the staff of the CFPB’s Enforcement Office
expects to allege that the Company violated the Consumer Financial
Protection Act of 2010, 12 U.S.C. §5536. The NORA Letter confirms
that the Company has the opportunity to make a NORA submission,
which is a written statement setting forth any reasons of law or
policy why the Company believes the CFPB should not take legal
action against it. Following the CFPB’s NORA Letter, the Company
made NORA submissions to the CFPB’s Enforcement Office. The Company
understands that a NORA Letter is intended to ensure that potential
subjects of enforcement actions have the opportunity to present
their positions to the CFPB before an enforcement action is
recommended or commenced. While the Company believes its marketing
and lending practices are lawful, there can be no assurance that
the CFPB’s ongoing investigation or future exercise of its
enforcement, regulatory, discretionary or other powers will not
result in findings or alleged violations of federal consumer
financial protection laws.
About World Acceptance Corporation
World Acceptance Corporation is one of the largest small-loan
consumer finance companies, operating 1,331 offices in 15 states
and Mexico.
First Quarter Conference Call
The senior management of World Acceptance Corporation will be
discussing these results in its quarterly conference call to
be held at 10:00 a.m. Eastern time today. A simulcast of the
conference call will be available on the Internet at
https://www.webcaster4.com/Webcast/Page/1118/21865. The call will
be available for replay on the Internet for approximately
30 days.
Forward-Looking Statements
This press release may contain various “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, that represent the Company’s expectations or
beliefs concerning future events. Statements other than those of
historical fact, as well as those identified by the words
“anticipate,” “estimate,” ”intend,” “plan,” “expect,” ”project,”
“believe,” “may,” “will,” “should,” “would,” “could” and any
variation of the foregoing and similar expressions are
forward-looking statements. Such forward-looking statements are
about matters that are inherently subject to risks and
uncertainties. Factors that could cause actual results or
performance to differ from the expectations expressed or implied in
such forward-looking statements include the following: recently
enacted, proposed or future legislation and the manner in which it
is implemented; the nature and scope of regulatory authority,
particularly discretionary authority, that may be exercised by
regulators, including, but not limited to, the SEC, DOJ, and the
Consumer Financial Protection Bureau (the “CFPB”), having
jurisdiction over the Company; the unpredictable nature of
regulatory proceedings and litigation; any determinations,
findings, claims or actions made or taken by the SEC, DOJ, CFPB,
and other regulators or third parties that assert or establish that
the Company’s lending practices or other aspects of its business
violate applicable laws or regulations, which may or may not be in
connection with or resulting from the previously disclosed ongoing
internal investigation of our operations in Mexico or the civil
investigative demand or the NORA Letter from the CFPB; the impact
of changes in accounting rules and regulations, or their
interpretation or application, which could materially and adversely
affect the Company’s reported financial statements or necessitate
material delays or changes in the issuance of the Company’s audited
financial statements; the Company’s assessment of its internal
control over financial reporting, and the timing and effectiveness
of the Company’s efforts to remediate the reported material
weaknesses in its internal control over financial reporting, which
could lead the Company to report further material weaknesses in its
internal control over financial reporting; changes in interest
rates; risks relating to expansion; risks relating to foreign
operations; risks inherent in making loans, including repayment
risks and value of collateral; our dependence on debt and the
potential impact of limitations in the Company’s amended revolving
credit facility; the timing and amount of revenues that may be
recognized by the Company; changes in current revenue and expense
trends (including trends affecting delinquency and charge-offs);
and changes in the Company’s markets and general changes in the
economy (particularly in the markets served by the Company). These
and other factors are discussed in greater detail in Part I, Item
1A, “Risk Factors” in the Company’s most recent annual report on
Form 10-K for the fiscal year ended March 31, 2017 filed with the
SEC and the Company’s other reports filed with, or furnished to,
the SEC from time to time. World Acceptance Corporation does not
undertake any obligation to update any forward-looking statements
it makes. The Company is also not responsible for updating the
information contained in this press release beyond the publication
date, or for changes made to this document by wire services or
Internet services.
World Acceptance Corporation
Condensed Consolidated Statements of Operations
(unaudited and in thousands, except per share amounts)
Three Months Ended June 30,
2017 2016 Interest &
fees $
115,639 $ 114,045 Insurance & other
13,271 13,035 Total revenues
128,910 127,080 Expenses: Provision for loan losses
30,840 32,014 General and administrative expenses Personnel
44,997 41,996 Occupancy & equipment
10,676 10,502
Advertising
4,924 2,351 Intangible amortization
186
110 Other
12,134 7,989
72,917 62,948 Interest expense
4,247
5,587 Total expenses
108,004
100,549 Income before taxes
20,906 26,531
Income taxes
7,838 9,913 Net
income $
13,068 $ 16,618 Diluted earnings per
share $
1.48 $ 1.89 Weighted average shares
outstanding (diluted)
8,827 8,770
Condensed Consolidated Balance Sheets
(unaudited and in thousands)
June 30, March 31, June
30,
2017 2017 2016
ASSETS Cash $
14,543 $ 15,200 $ 10,124 Gross loans
receivable
1,110,372 1,059,804 1,087,502 Less: Unearned
interest & fees
(312,786 ) (291,908 ) (302,092 )
Allowance for loan losses
(76,526 )
(72,195 ) (71,993 ) Loans receivable, net
721,060
695,701 713,417 Property and equipment, net
24,401 24,184
24,465 Deferred tax benefit
40,272 39,025 39,339 Other
assets
13,472 6,067 14,157 Goodwill
8,432 6,614 6,121
Intangibles
4,584 13,797
2,806 $
826,764 $ 800,588 $ 810,429
LIABILITIES AND SHAREHOLDERS’
EQUITY
Liabilities: Notes payable
300,550 295,136 360,360 Income
tax payable
15,008 12,519 18,413 Accounts payable and
accrued expenses
32,743 31,869
26,879 Total liabilities
348,301 339,524
405,652
Shareholders’ equity
478,463 461,064 404,777
$
826,764 $ 800,588 $ 810,429
Selected Consolidated Statistics (dollars in
thousands)
Three Months Ended June 30,
2017 2016 Expenses as a
percent of total revenues: Provision for loan losses 23.9 % 25.2 %
General and administrative expenses 56.6 % 49.5 % Interest expense
3.3 % 4.4 % Average gross loans receivable
$
1,077,249 $ 1,072,900 Average net loans receivable
$ 777,988 $ 777,291 Loan volume
$
662,464 $ 648,129 Net charge-offs as percent of
average loans
13.9 % 14.9 % Return on average
assets (trailing 12 months)
8.3 % 9.3 % Return
on average equity (trailing 12 months)
16.3 % 21.5 %
Offices opened (closed) during the period, net
4 -15
Offices open at end of period
1,331 1,324
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170803005210/en/
World Acceptance CorporationJohn L. Calmes Jr.,
864-298-9800Chief Financial Officer
World Acceptance (NASDAQ:WRLD)
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