World Acceptance Corporation (NASDAQ: WRLD) today reported
financial results for its second fiscal quarter and six months
ended September 30, 2019.
Portfolio results
As previously disclosed, we sold our Mexico operations effective
July 1, 2018. As a result of the sale, we have classified the
Mexico business as discontinued operations, and the US business as
continuing operations on the statements of operations for the
applicable periods.
Gross loans outstanding in the US, which are reported as
continuing operations, increased to $1.27 billion as of September
30, 2019, a 13.1% increase from the $1.13 billion of gross loans
outstanding as of September 30, 2018. This is compared to a 10.0%
increase for the comparable period ended September 30, 2018.
Year-to-date, the gross loans outstanding in the US increased 13.0%
as of September 30, 2019, compared to an increase of 12.2% for the
comparable period ended September 30, 2018.
Our customer base increased by 11.8% year-over-year as of
September 30, 2019, compared to 7.0% growth for the twelve months
ended September 30, 2018. Year-to-date, our customer base increased
10.7% from March 31, 2019, compared to an increase of 8.3% for the
same period ended September 30, 2018. During the quarter ended
September 30, 2019, the number of unique borrowers in the portfolio
increased by 4.8% compared to an increase of 5.5% during the
quarter ended September 30, 2018.
As of September 30, 2019, we had 1,234 branches open. For
branches open for both years, same store gross loans increased
11.3% in the twelve months ended September 30, 2019, compared to a
10.0% increase for the same period ended September 30, 2018. For
branches open in both years, the customer base on September 30,
2019, increased 9.3% year-over-year compared to a 6.5% increase for
the twelve months ended September 30, 2018. Additionally, for the
branches open for both years, the average customer base per store
increased by 8.3% year-over-year.
Second quarter refinance loan volume increased 12.1% over the
same quarter of the prior year compared to a 2.6% increase in the
second quarter of fiscal 2019 over the same quarter of the prior
year. This is the largest refinance loan volume in the second
quarter since fiscal 2015. Second quarter former customer loan
volume increased 4.9% over the same quarter of the prior year
compared to a 2.4% increase in the second quarter of fiscal 2019
over the same quarter of the prior year. Second quarter new
customer loan volume increased 3.6% over the same quarter of the
prior year compared to a 13.4% increase in the second quarter of
fiscal 2019 over the same quarter of the prior year. Individually,
the second quarter former and new customer loan volumes were the
largest on Company record.
Three-month financial results
Net income from continuing operations for the second quarter of
fiscal 2020 decreased $9.8 million, or 70.0%, to $4.2 million when
compared to net income of $14.1 million for the same quarter of the
prior year. The primary driver in the decrease of net income is a
$12.6 million increase in provision for losses, when comparing the
second quarter of fiscal 2020 to the second quarter of fiscal 2019.
We continue to believe the significant portfolio growth, discussed
above, will negatively impact the provision as long as there is
significant growth in new customers, relative to the whole
portfolio (more details below). We expect the earnings from
investment in new customers over the last several quarters to
exceed our cost of capital and be in line with long-term
expectations.
Net income from continuing operations per diluted share
decreased 66.0% to $0.51 in the second quarter of fiscal 2020 when
compared to $1.51 for the same quarter of the prior year. Net
income for the second quarter of fiscal 2020 decreased to $4.2
million from the $14.5 million reported for the same quarter of the
prior year. Net income per diluted share decreased to $0.51 in the
second quarter of fiscal 2020 from $1.56 in the prior year
quarter.
Earnings per share for the quarter benefited from our share
repurchase program. The Company repurchased 1,251,103 shares of its
common stock on the open market at an aggregate purchase price of
approximately $168.2 million during the quarter. This follows a
repurchase of 141,077 shares in the first quarter of fiscal year
2020 at an aggregate purchase price of approximately $21.8 million.
During the fiscal year ended March 31, 2019, the Company
repurchased 665,020 shares at an aggregate cost of $74.5 million.
The Company had approximately 7.2 million common shares outstanding
excluding approximately 0.8 million unvested restricted shares as
of September 30, 2019.
Total revenues from continuing operations for the second quarter
increased to $141.6 million, an 11.4% increase from the $127.1
million reported for the same quarter of the prior year. The
revenues from the 1,154 branches open throughout both quarterly
periods increased by 10.5%. Interest and fee income increased
11.1%, from $113.5 million in the second quarter of fiscal 2019 to
$126.1 million in the second quarter of fiscal 2020, primarily due
to an increase in average earning loans. Insurance and other income
increased by 13.6% to $15.5 million in the second quarter of fiscal
2020 compared to $13.6 million in the second quarter of fiscal 2019
primarily due to the increased loan volume.
Accounts that were 61 days or more past due increased to 6.4% on
a recency basis at September 30, 2019, compared to 5.8% at
September 30, 2018. Accounts that were 61 days or more past due on
a contractual basis increased to 8.0% at September 30, 2019,
compared to 7.5% at September 30, 2018. Our allowance for loan
losses compared to net loans was 10.8% at September 30, 2019,
compared to 9.6% at September 30, 2018. Recent portfolio
acquisitions had a significant impact on delinquency as of the end
of the quarter. We have included a table of both the total
portfolio delinquency as well as the portfolio excluding acquired
accounts that have not paid off, charged-off or refinanced as of
the end of the quarter.
September 30, 2019
September 30, 2018
Total Portfolio
Rate
Excluding Acquired
Loans
Rate
Total Portfolio
Rate
Days Past Due
30-60
$54,101,357
4.2%
$48,809,084
3.9%
$44,470,880
3.9%
61-90
$30,534,482
2.4%
$28,549,522
2.3%
$24,995,370
2.2%
91 plus
$51,155,872
4.0%
$46,000,387
3.7%
$40,612,083
3.6%
61 plus
$81,690,354
6.4%
$74,549,909
6.0%
$65,607,453
5.8%
Net charge-offs as a percentage of average net loans on an
annualized basis increased from 14.4% in the second quarter of
fiscal 2019 to 16.8% in the second quarter of fiscal 2020. The
provision for loan losses in the second quarter of fiscal 2020
increased by $12.6 million, or 31.2%, when compared to the second
quarter of fiscal 2019. Net charge-offs in the second quarter of
fiscal 2020 increased $9.8 million when compared to the second
quarter of fiscal 2019. There was a $0.4 million increase in the
provision due to an increase during the quarter of accounts 91 days
past due when comparing the second quarter of fiscal 2020 to the
second quarter of fiscal 2019. The Company also recorded an
additional $5.0 million of provision due to the higher front-end
delinquency, which was largely driven by acquisitions as
illustrated above.
The rapid growth of the portfolio during the prior two years has
dramatically shifted the portfolio weighting of customers who are
new to the Company. As of September 30, 2019, $456.5 million of the
total loan portfolio is with customers who have been with the
company less than two years, a 56.0% increase from the average of
the fiscal year 2016-2018 second quarter portfolios. During that
same period, the portfolio of customers with more than 2 years
tenure has increased approximately 11.3% to $817.7 million. Both
the growth in the less than two year tenure portfolio and the
increase in weighting of that population in the portfolio mix have
contributed to the increase in delinquencies and charge-offs. The
tables below illustrate the changes in the portfolio as well as the
relative impact on charge-offs over the last five years.
Gross Loan Balance by Customer
Tenure at Origination
Period Ended
Less Than 2 Years
More Than 2 Years
Total
9/30/2015
$311,048,514
$755,681,520
$1,066,730,033
9/30/2016
$273,902,397
$718,179,163
$992,081,560
9/30/2017
$293,153,825
$730,770,924
$1,023,924,750
9/30/2018
$360,864,115
$765,926,024
$1,126,790,139
9/30/2019
$456,526,235
$817,682,263
$1,274,208,497
Year-over-Year Change in Gross
Loan Balance by Customer Tenure at Origination
Period Ended
< 2 Years
> 2 Years
Total
9/30/2015
$(20,055,362)
$ 3,274,518
$(16,780,844)
9/30/2016
$(37,146,117)
$ (37,502,357)
$(74,648,474)
9/30/2017
$19,251,429
$ 12,591,761
$31,843,190
9/30/2018
$67,710,290
$ 35,155,099
$102,865,389
9/30/2019
$95,662,119
$ 51,756,239
$147,418,358
Year-over-Year Change in Gross
Loan Balance by Customer Tenure at Origination
Period Ended
Less Than 2 Years
More Than 2 Years
Total
9/30/2015
(6.1)%
0.4%
(1.5)%
9/30/2016
(11.9)%
(5.0)%
(7.0)%
9/30/2017
7.0%
1.8%
3.2%
9/30/2018
23.1%
4.8%
10.0%
9/30/2019
26.5%
6.8%
13.1%
Portfolio Mix by Customer
Tenure at Origination
Period Ended
Less Than 2 Years
More Than 2 Years
9/30/2015
29.2%
70.8%
9/30/2016
27.6%
72.4%
9/30/2017
28.6%
71.4%
9/30/2018
32.0%
68.0%
9/30/2019
35.8%
64.2%
Charge-off Rates by Tenure
Since the Second Quarter of FY2016
Period Ended
Less Than 2 Years
More Than 2 Years
Total
9/30/2015
1.74
0.70
1.00
9/30/2016
2.16
0.86
1.22
9/30/2017
1.83
0.79
1.09
9/30/2018
1.67
0.74
1.04
9/30/2019
1.81
0.76
1.13
As illustrated above, charge-off rates for customers new to the
Company are up moderately in the second quarter relative to the
same period last year, but generally in line with the prior four
years. For comparison, both customer groups performed similarly or
better than the same period of fiscal 2018, but had a higher
overall charge-off rate, due to the increased weighting of
customers who are new to the Company. We continue to expect the
return on these pools of customers to exceed our cost of capital
and be in line with our long-term performance expectations.
General and administrative (“G&A”) expenses amounted to
$78.5 million in the second quarter of fiscal 2020 compared to
$64.9 million in the same quarter of the prior fiscal year. As a
percentage of revenues, G&A expenses increased from 51.1%
during the second quarter of fiscal 2019 to 55.4% during the second
quarter of fiscal 2020. G&A expenses per average open branch
increased by 17.1% when comparing the two fiscal quarters,
primarily due to an increase in personnel expense.
Personnel expense increased $9.7 million, or 24.3%, during the
second quarter of fiscal 2020, as compared to the second quarter of
fiscal 2019. Approximately $6.7 million of the increase is due to
additional share-based compensation associated with the long-term
incentive program and director equity awards, as previously
disclosed. Salary and benefit expense increased approximately $3.4
million, or 10.5% when comparing the two quarterly periods ended
September 30, 2019 and 2018, as a result of an increase in
headcount. Our headcount as of September 30, 2019, increased 10.2%
compared to September 30, 2018, primarily driven by acquisitions
during the twelve months ended September 30, 2019. However, our
accounts per employee have increased by approximately 3.0% over the
same twelve months. Additionally, for branches open for both years,
the number of active customers per store at the end of the second
quarter increased 8.3% year-over-year.
Interest expense for the quarter ended September 30, 2019,
increased by $2.2 million, or 52.2%, from the corresponding quarter
of the previous year. The increase in interest expense is due to a
76.8% increase in the average debt outstanding, from $237.4 million
to $419.8 million for the quarters ended September 30, 2018 and
2019, respectively. The increase due to average debt was offset by
a reduction in the benchmark interest rate and interest margin on
the credit facility. The Company’s debt to equity ratio increased
to 1.3:1 at September 30, 2019, from 0.4:1 at September 30,
2018.
Other key return ratios for the second quarter of fiscal 2020
included a 6.0% return on average assets and a return on average
equity of 10.8% (both on a trailing 12-month basis).
Six-month results
In accordance with accounting principles generally accepted in
the US, we recognized a $31.3 million cumulative foreign currency
translation loss in the first quarter of fiscal 2019, as a result
of classifying our Mexico operations as held for sale. Due to this
impairment in the prior year, net income for the six-months ended
September 30, 2019, increased $19.8 million to $12.8 million
compared to the $7.0 million loss reported for the same period of
the prior year. This resulted in net income of $1.50 per diluted
share for the six months ended September 30, 2019, compared to the
net loss of $0.75 per diluted share in the prior year period.
Total revenues in the US for the first six-months of fiscal 2020
increased 12.0% to $280.0 million compared to $249.9 million during
the corresponding period of the previous year. Annualized net
charge-offs as a percent of average net loans increased from 14.7%
during the first six-months of fiscal 2019 to 16.6% for the first
six-months of fiscal 2020.
Other matters
As previously disclosed, we retained outside legal counsel and
forensic accountants, upon receipt of an anonymous letter regarding
compliance matters, to conduct an investigation of our operations
in Mexico. The investigation focuses 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 voluntarily
contacted the U.S. Securities and Exchange Commission ("SEC") and
the U.S. Department of Justice (“DOJ”) in June 2017 to advise both
agencies that an investigation was underway. We are committed to
compliance with applicable laws and regulations and intend to
cooperate fully with both the SEC and the DOJ.
About World Acceptance Corporation
World Acceptance Corporation is one of the largest small-loan
consumer finance companies, operating 1,234 branches in sixteen
states as of September 30, 2019.
Second 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/1118/32136. The call will
be available for replay on the Internet for approximately 30
days.
Cautionary Note Regarding Forward-looking Information
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 current
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. The Company’s actual results and financial condition
may differ materially from those indicated in the forward-looking
statements. Therefore, you should not rely on any of these
forward-looking statements. Important 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, including the effect of changes
in tax law, such as the effect of the Tax Cuts and Jobs Act that
was enacted on December 22, 2017; the nature and scope of
regulatory authority, particularly discretionary authority, that
may be exercised by regulators, including, but not limited to, the
SEC, DOJ, U.S. Consumer Financial Protection Bureau, and individual
state regulators having jurisdiction over the Company; the
unpredictable nature of regulatory proceedings and litigation;
developments in, and the outcome of, our ongoing investigation into
certain transactions and payments in Mexico, including any legal
proceedings or government enforcement actions which could arise out
of the matters under review, and any remedial actions we may take
in connection therewith; any determinations, findings, claims or
actions made or taken by regulators or other third parties in
connection with or resulting from our ongoing investigation or the
SEC's formal order of investigation; the sale of our Mexico
subsidiaries, including claims or litigation resulting therefrom;
uncertainties associated with management turnover and the effective
succession of senior management; the impact of changes in
accounting rules and regulations, or their interpretation or
application, which could materially and adversely affect the
Company’s reported consolidated financial statements or necessitate
material delays or changes in the issuance of the Company’s audited
consolidated financial statements; the Company's assessment of its
internal control over financial reporting; changes in interest
rates; risks relating to expansion; risks inherent in making loans,
including repayment risks and value of collateral; cybersecurity
threats, including the potential misappropriation of assets or
sensitive information, corruption of data or operational
disruption; 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); 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, 2019 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
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited and in thousands,
except per share amounts)
Three months ended
September 30,
Six months ended
September 30,
2019
2018
2019
2018
Revenues:
Interest and fee income
$
126,091
$
113,490
$
249,002
$
221,934
Insurance income, net and other income
15,482
13,626
31,014
27,971
Total revenues
141,573
127,116
280,016
249,905
Expenses:
Provision for loan losses
52,968
40,359
94,259
70,949
General and administrative expenses:
Personnel
49,611
39,906
102,070
80,700
Occupancy and equipment
13,554
11,901
26,911
23,710
Advertising
6,270
5,116
12,380
9,956
Amortization of intangible assets
1,258
275
2,213
539
Other
7,759
7,738
16,655
17,808
Total general and administrative
expenses
78,452
64,936
160,229
132,713
Interest expense
6,328
4,158
10,731
8,383
Total expenses
137,748
109,453
265,219
212,045
Income from continuing operations before
income taxes
3,825
17,663
14,797
37,860
Income taxes (benefit)
(395
)
3,604
1,968
8,163
Net income from continuing operations
4,220
14,059
12,829
29,697
Discontinued operations (1)
Income from discontinued operations before
impairment loss and income taxes
—
—
—
2,342
Impairment gain (loss)
—
629
—
(38,378
)
Income taxes
—
150
—
627
Net income (loss) from discontinued
operations
—
479
—
(36,663
)
Net income (loss)
$
4,220
$
14,538
$
12,829
$
(6,966
)
Net income per common share from
continuing operations, diluted
$
0.51
$
1.51
$
1.50
$
3.20
Net income (loss) per common share from
discontinued operations, diluted
$
—
$
0.05
$
—
$
(3.95
)
Net income (loss) income per common share,
diluted
$
0.51
$
1.56
$
1.50
$
(0.75
)
Weighted average diluted shares
outstanding
8,202
9,293
8,532
9,273
__________________________________________
(1) As previously disclosed, we sold our Mexico operations
effective July 1, 2018. As a result of the sale, we have classified
the Mexico business as discontinued operations on the statements of
operations for the applicable periods.
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(unaudited and in thousands)
September 30, 2019
March 31, 2019
September 30, 2018
ASSETS
Cash and cash equivalents
$
10,225
$
9,335
$
5,596
Gross loans receivable
1,274,147
1,127,957
1,126,793
Less:
Unearned interest, insurance and fees
(334,327
)
(290,813
)
(297,699
)
Allowance for loan losses
(101,469
)
(81,520
)
(79,310
)
Loans receivable, net
838,351
755,624
749,784
Right-of-use asset
119,403
—
—
Property and equipment, net
27,076
25,424
23,816
Deferred income taxes, net
31,899
23,832
22,892
Other assets, net
16,151
18,399
20,970
Goodwill
7,262
7,034
7,034
Intangible assets, net
27,449
15,340
8,857
Total assets
$
1,077,816
$
854,988
$
838,949
LIABILITIES &
SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable
518,831
251,940
230,190
Income taxes payable
6,850
11,550
13,565
Lease liability
120,130
—
—
Accounts payable and accrued expenses
37,061
39,381
30,203
Total liabilities
682,872
302,871
273,958
Shareholders' equity
394,944
552,117
564,991
Total liabilities and shareholders'
equity
$
1,077,816
$
854,988
$
838,949
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
SELECTED CONSOLIDATED
STATISTICS (1)
(unaudited and in thousands,
except percentages and branches)
Three months ended September
30,
Six months ended September
30,
2019
2018
2019
2018
Gross loans receivable
$
1,274,147
$
1,126,793
$
1,274,147
$
1,126,793
Average gross loans receivable (2)
1,253,249
1,098,797
1,212,281
1,063,148
Net loans receivable (3)
939,820
829,094
939,820
829,094
Average net loans receivable (4)
923,046
807,450
894,935
783,708
Expenses as a percentage of total
revenue:
Provision for loan losses
37.4
%
31.7
%
33.7
%
28.4
%
General and administrative
55.4
%
51.1
%
57.2
%
53.1
%
Interest expense
4.5
%
3.3
%
3.8
%
3.4
%
Operating income as a % of total revenue
(5)
7.2
%
17.2
%
9.1
%
18.5
%
Loan volume
729,775
647,271
1,481,923
1,319,512
Net charge-offs as percent of average net
loans receivable
16.8
%
14.4
%
16.6
%
14.7
%
Return on average assets (trailing 12
months)
6.0
%
6.9
%
6.0
%
6.9
%
Return on average equity (trailing 12
months)
10.8
%
11.0
%
10.8
%
11.0
%
Branches opened or acquired (merged or
closed), net
16
8
41
12
Branches open (at period end)
1,234
1,189
1,234
1,189
__________________________________________
(1)
As previously disclosed, we sold our
Mexico operations effective July 1, 2018. As a result of the sale,
we have classified the Mexico business as discontinued operations
on the statements of operations for the applicable periods.
(2)
Average gross loans receivable have been
determined by averaging month-end gross loans receivable over the
indicated period, excluding tax advances.
(3)
Net loans receivable is defined as gross
loans receivable less unearned interest and deferred fees.
(4)
Average net loans receivable have been
determined by averaging month-end gross loans receivable less
unearned interest and deferred fees over the indicated period,
excluding tax advances.
(5)
Operating income is computed as total
revenues less provision for loan losses and general and
administrative expenses.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191031005163/en/
John L. Calmes, Jr. Chief Financial and Strategy Officer (864)
298-9800
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