Second quarter highlights:
- Net income of $13.4 million, a 433.1% increase from $2.5
million in same quarter prior year
- Net income per diluted share of $1.96, a 538.0% increase from
$0.31 per share in same quarter prior year
- Loans outstanding of $1.11 billion, a 3.9% increase from first
quarter and 12.9% decrease from same quarter prior year
- Total revenues of $124.4 million, a 0.5% increase from first
quarter and 12.1% decrease same quarter prior year
- Significant decrease in accounts 61 days or more past due from
first quarter and same quarter prior year
World Acceptance Corporation (NASDAQ: WRLD) today reported
financial results for its second fiscal quarter and six months
ended September 30, 2020.
Portfolio results
Second quarter of fiscal 2021 results and loan volumes continued
to be impacted by the spread of COVID-19 and its related effects,
including school and business closures and stay-at-home orders
across many states in which we operate. Gross loans outstanding
decreased to $1.11 billion as of September 30, 2020, a 12.9%
decrease from the $1.27 billion of gross loans outstanding as of
September 30, 2019. This is compared to a 13.1% increase for the
comparable period ended September 30, 2019. Gross loans increased
during fiscal Q2 2021 by 3.9% sequentially over fiscal Q1 2021 as
customer demand stabilized.
Our customer base decreased by 21.3% year-over-year as of
September 30, 2020, compared to 11.8% growth for the twelve months
ended September 30, 2019. Excluding the direct impact of portfolio
acquisitions, the customer base decreased 17.4% year-over-year as
of September 30, 2020, compared to 7.2% growth for the twelve
months ended September 30, 2019. During the quarter ended September
30, 2020, the number of unique borrowers in the portfolio decreased
by 3.7% compared to an increase of 4.8% during the quarter ended
September 30, 2019.
Fiscal Q2 2021 refinance loan volume decreased 19.7% during the
quarter versus the same quarter of the prior year. Refinance loan
volume is in-line with the 21.3% reduction in the customer base
year-over-year and an improvement, sequentially, from a 34.2%
decrease in refinance loan volume year-over-year in fiscal Q1 2021.
For comparison, fiscal Q2 2020, year-over-year refinance loan
volume increased 12.1%. Former customer loan volume in fiscal Q2
2021 increased 2.3% year-over-year, compared sequentially to a
58.1% year over year decrease during fiscal Q1 2021. The former
customer loan volume fiscal Q2 2020 year-over-year comparison is a
4.9% increase. New customer loan volumes in fiscal Q2 2021
decreased 46.9% over the same quarter of the prior year, compared
sequentially to a 74.1% year-over-year decrease in fiscal Q1 2021.
The new customer loan volume fiscal Q2 2020 year-over-year
comparison is a 3.6% increase.
As of September 30, 2020, we had 1,232 branches open. For
branches open throughout both quarterly periods, same store gross
loans decreased 12.7% in the twelve months ended September 30,
2020, compared to a 11.3% increase for the same period ended
September 30, 2019. For branches open throughout both quarterly
periods, the customer base on September 30, 2020, decreased 21.5%
year-over-year compared to a 9.3% increase for the twelve months
ended September 30, 2019.
Three-month financial results
Net income for the second quarter of fiscal 2021 increased by
$10.9 million, or 433.1%, to $13.4 million compared to $2.5 million
for the same quarter of the prior year. Net income per diluted
share increased 538.0% to $1.96 per share in the second quarter of
fiscal 2021 when compared to $0.31 per share for the same quarter
of the prior year.
Earnings per share for the quarter benefited from our share
repurchase program. The Company repurchased 460,120 shares of its
common stock on the open market at an aggregate purchase price of
approximately $43.2 million during the second quarter of fiscal
2021. This follows a repurchase of 326,298 shares in the first
quarter of fiscal 2021 at an aggregate purchase price of
approximately $19.5 million and the repurchase of 1,520,679 shares
in fiscal 2020 at an aggregate purchase price of approximately
$197.4 million. The Company had approximately 6.3 million common
shares outstanding excluding approximately 0.7 million unvested
restricted shares as of September 30, 2020.
Total revenues for the second quarter of fiscal 2021 decreased
to $124.4 million, a 12.1% decrease from the $141.6 million
reported for the same quarter of the prior year. The revenues from
the 1,203 branches open throughout both quarterly periods decreased
by 14.3%. Interest and fee income declined 13.6%, from $126.1
million in the second quarter of fiscal 2020 to $108.9 million in
the second quarter of fiscal 2021, primarily due to a decrease in
average earning loans. Insurance and other income increased by 0.5%
to $15.6 million in the second quarter of fiscal 2021 compared to
$15.5 million in the second quarter of fiscal 2020. Other income
increased by $1.9 million, $0.7 million of which was due to higher
tax preparation revenue as a result of an extended tax season. The
Company also recorded a gain on company owned life insurance of
$1.1 million due to the death of a former executive. Insurance
revenue decreased due to lower loan volume during the quarter.
Accounts 61 days or more past due decreased to 4.5% on a recency
basis at September 30, 2020, compared to 6.4% at September 30,
2019, and 5.7% at June 30, 2020. Total delinquency on a recency
basis decreased to 7.6% at September 30, 2020, compared to 10.7% at
September 30, 2019, and 8.3% at June 30, 2020. Our allowance for
loan losses compared to net loans was 13.4% at September 30, 2020,
compared to 10.8% at September 30, 2019, and 14.2% at June 30,
2020.
On April 1, 2020, the Company replaced its incurred loss
methodology with a current expected credit loss ("CECL")
methodology to accrue for expected losses. The provision for loan
losses decreased $26.9 million, or 50.7%, to $26.1 million from
$53.0 million when comparing the second quarter of fiscal 2021 to
the second quarter of fiscal 2020. The provision decreased during
the quarter due primarily to a $9.7 million decrease in net
charge-offs as well as an improvement in delinquency. Net
charge-offs as a percentage of average net loans on an annualized
basis decreased from 16.8% in the second quarter of fiscal 2020 to
14.5% in the second quarter of fiscal 2021. Loans that were 90 days
recency past due decreased $11.8 million during the quarter
compared to a $7.0 million increase in the second fiscal quarter of
the prior year. We are experiencing lower losses on loans that were
in the portfolio as of April 1, 2020, than initially predicted
under our CECL methodology. Approximately 78% of the loans in the
portfolio as of April 1, 2020, are no longer in the portfolio as of
September 30, 2020, as a result of pay-off, charge-off, or
refinance. Despite the positive performance of the portfolio to
date, we have increased the expected future losses on originations
during the fiscal year due to the continuing high level of
unemployment claims.
The table below is updated to use the customer tenure based
methodology that aligns with our CECL methodology. After
experiencing rapid growth of the portfolio during the prior two
years, primarily in new customers, the gross loan balance declined
in the first half of 2021 as a result of the ongoing pandemic and
its affect on the overall economy. The tables below illustrate the
changes in the weighting within the portfolio as well as the
relative impact on charge-offs within the vintages over the last
five years.
Gross Loan Balance By Customer
Tenure at Origination
Period Ended
Less Than 2 Years
More Than 2 Years
Total
09/30/2015
$310,107,929
$756,622,104
$1,066,730,033
09/30/2016
$273,189,656
$718,891,904
$992,081,560
09/30/2017
$291,973,107
$731,951,643
$1,023,924,750
09/30/2018
$359,527,657
$767,262,482
$1,126,790,139
09/30/2019
$456,470,161
$817,738,336
$1,274,208,497
09/30/2020
$363,394,115
$746,030,781
$1,109,424,896
Year-Over-Year Growth
(Decline) in Gross Loan Balance by Customer Tenure at
Origination
Period Ended
Less Than 2 Years
More Than 2 Years
Total
09/30/2015
$(20,293,101)
$3,512,257
$(16,780,844)
09/30/2016
$(36,918,274)
$(37,730,200)
$(74,648,474)
09/30/2017
$18,783,451
$13,059,739
$31,843,190
09/30/2018
$67,554,550
$35,310,839
$102,865,389
09/30/2019
$96,942,504
$50,475,854
$147,418,358
09/30/2020
$(93,076,046)
$(71,707,555)
$(164,783,601)
Portfolio Mix by Customer
Tenure at Origination
Period Ended
Less Than 2 Years
More Than 2 Years
9/30/2015
29.1%
70.9%
9/30/2016
27.5%
72.5%
9/30/2017
28.5%
71.5%
9/30/2018
31.9%
68.1%
9/30/2019
35.8%
64.2%
9/30/2020
32.8%
67.2%
The table below includes the charge-off rate of each vintage
(the actual gross charge-off balance in the subsequent 12 months
divided by the starting gross loan balance) indexed to the
September 30, 2016, vintage.
Actual Gross Charge-off Rate
During Following 12 Months; Indexed to 9/30/2016 Vintage
12 Months Beginning
Less Than 2 Years
More Than 2 Years
Total
9/30/2015
1.71
0.91
1.14
9/30/2016
1.52
0.80
1.00
9/30/2017
1.53
0.75
0.97
9/30/2018
1.66
0.75
1.04
9/30/2019
1.74
0.78
1.12
We continue to see that the increase in overall charge-off rate
is primarily due to the elevated weighting of the lower tenure
portion of the portfolio, while the charge-off rates within the
tenure buckets are within historical norms. We continue to expect
the long-term value of these newly added customers to exceed our
investment return threshold.
General and administrative (“G&A”) expenses decreased $3.2
million, or 4.0%, to $75.3 million in the second quarter of fiscal
2021 compared to $78.5 million in the same quarter of the prior
fiscal year. As a percentage of revenues, G&A expenses
increased from 55.4% during the second quarter of fiscal 2020 to
60.5% during the second quarter of fiscal 2021. G&A expenses
per average open branch decreased by 5.0% when comparing the two
fiscal quarters.
Personnel expense decreased $2.8 million, or 5.6%, during the
second quarter of fiscal 2021 as compared to the second quarter of
fiscal 2020. Salary expense decreased approximately $1.9 million,
or 6.1%, when comparing the two quarterly periods ended September
30, 2020 and 2019. Our headcount as of September 30, 2020,
decreased 10.2% compared to September 30, 2019. Benefit expense
decreased approximately $0.9 million, or 9.3%, when comparing the
quarterly periods ended September 30, 2020 and 2019, primarily as a
result of decreased health insurance claims. Incentive expense
decreased $1.6 million due to a decrease in share based
compensation partially offset by an increase in bonuses paid to
branch employees. The Company deferred $1.7 million less in
origination costs under ASC 310, when comparing year over year, due
to lower originations during the quarter which increased personnel
costs.
Advertising expense decreased $1.0 million during the quarter.
The Company anticipated lower demand as a result of COVID-19 during
the quarter and reduced our marketing spend.
Interest expense for the quarter ended September 30, 2020,
decreased by $0.4 million, or 6.9%, from the corresponding quarter
of the previous year. The decrease in interest expense is due to a
9.3% decrease in the average debt outstanding, from $419.8 million
to $380.7 million for the quarters ended September 30, 2019 and
2020, respectively. The Company’s debt to equity ratio decreased to
1.2:1 at September 30, 2020, from 1.3:1 at September 30, 2019. The
Company had outstanding debt of $424.9 million as of September 30,
2020.
The Company has generated approximately $174.6 million in free
cash flow over the last twelve months.
Other key return ratios for the second quarter of fiscal 2021
included a 4.4% return on average assets and a return on average
equity of 11.3% (both on a trailing 12-month basis).
Six-month results
Net income for the six-months ended September 30, 2020,
increased $17.8 million to $28.9 million compared to $11.1 million
for the same period of the prior year. This resulted in net income
of $4.20 per diluted share for the six months ended September 30,
2020, compared to $1.30 per diluted share in the prior year period.
Total revenues in the US for the first six-months of fiscal 2021
decreased 11.3% to $248.3 million compared to $280.0 million during
the corresponding period of the previous year. Annualized net
charge-offs as a percent of average net loans decreased from 16.6%
during the first six-months of fiscal 2020 to 16.4% for the first
six-months of fiscal 2021.
Resolution of Mexico Investigation
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 focused 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. On August 6, 2020, the
Company announced that it reached resolution with both the SEC and
the DOJ regarding allegations primarily involving the Company’s
former subsidiary in Mexico.
Non-GAAP financial measures
From time-to-time the Company uses certain financial measures
derived on a basis other than generally accepted accounting
principles (“GAAP”), primarily by excluding from a comparable GAAP
measure certain items the Company does not consider to be
representative of its actual operating performance. Such financial
measures qualify as “non-GAAP financial measures” as defined in SEC
rules. The Company uses these non-GAAP financial measures in
operating its business because management believes they are less
susceptible to variances in actual operating performance that can
result from the excluded items and other infrequent charges. The
Company may present these financial measures to investors because
management believes they are useful to investors in evaluating the
primary factors that drive the Company’s core operating performance
and provide greater transparency into the Company’s results of
operations. However, items that are excluded and other adjustments
and assumptions that are made in calculating these non-GAAP
financial measures are significant components to understanding and
assessing the Company’s financial performance. Such non-GAAP
financial measures should be evaluated in conjunction with, and are
not a substitute for, the Company’s GAAP financial measures.
Further, because these non-GAAP financial measures are not
determined in accordance with GAAP and are, thus, susceptible to
varying calculations, any non-GAAP financial measures, as
presented, may not be comparable to other similarly titled measures
of other companies.
For purposes of its internal liquidity assessments, the Company
considers free cash flow. The Company defines free cash flow as
cash flow from operating activities less purchases of property and
equipment and net funding/repayment of loans, which are considered
to be operating in nature by the Company but are included in cash
flow from investing activities.
Free cash flow is commonly used by investors as an additional
measure of cash generated by business operations that may be used
to repay debt, may be available to invest in future growth through
new business development activities or acquisitions, or repurchase
stock. These metrics can also be used to evaluate the Company’s
ability to generate cash flow from business operations and the
impact that this cash flow has on the Company’s liquidity. However,
free cash flow has limitations as an analytical tool and should not
be considered in isolation or as a substitute for cash flow from
operating activities or other income statement data prepared in
accordance with GAAP. The following table reconciles cash flow from
operating activities to free cash flow:
Twelve months ended September
30,
2020
Net cash provided by operating activities
(1)
$219,146,780
Net cash used in investing activities:
Increase in loans receivable, net
(33,703,548)
Purchases of property and equipment
(10,904,802)
Free cash flow
174,538,430
(1) As previously disclosed, the Company
paid $21.7 million in disgorgement, prejudgment interest, and civil
penalties during the second quarter of fiscal 2021 to resolve an
investigation into its former Mexico operations.
About World Acceptance Corporation (World Finance)
Founded in 1962, World Acceptance Corporation (NASDAQ: WRLD), is
a people-focused finance company that provides personal installment
loan solutions and personal tax preparation and filing services to
over one million customers each year. Headquartered in Greenville,
South Carolina, the Company operates more than 1,200
community-based World Finance branches across 16 states. The
Company primarily serves a segment of the population that does not
have ready access to credit, but unlike many other lenders in this
segment, we strive to work with our customers to understand their
broader financial pictures, ensure they have the ability and
stability to make payments, and helps them achieve their financial
goals. In its last fiscal year, the Company helped more than
225,000 individuals improve their credit score out of subprime and
deep subprime. For more information, visit
www.loansbyworld.com.
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/1118/38109. 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,”
“probable” 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: the ongoing impact of the COVID-19 pandemic; 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, U.S.
Consumer Financial Protection Bureau, and individual state
regulators having jurisdiction over the Company; the unpredictable
nature of regulatory proceedings and litigation; the outcome of, or
developments related to, our investigation into certain
transactions and payments in Mexico, including any legal
proceedings or government enforcement actions which could arise out
of such matters, 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 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, 2020 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,
2020
2019
2020
2019
Revenues:
Interest and fee income
$
108,886
$
126,091
$
218,746
$
249,001
Insurance income, net and other income
15,555
15,482
29,562
31,014
Total revenues
124,441
141,573
248,308
280,015
Expenses:
Provision for loan losses
26,090
52,968
51,751
94,259
General and administrative expenses:
Personnel
46,833
49,611
91,455
102,070
Occupancy and equipment
13,515
13,554
26,697
26,911
Advertising
5,256
6,270
7,868
12,380
Amortization of intangible assets
1,286
1,258
2,668
2,213
Other
8,402
7,759
18,213
16,655
Total general and administrative
expenses
75,292
78,452
146,901
160,229
Interest expense
5,893
6,328
11,455
10,731
Total expenses
107,275
137,748
210,107
265,219
Income before income taxes
17,166
3,825
38,201
14,796
Income taxes
3,767
1,312
9,293
3,674
Net income
$
13,399
$
2,513
$
28,908
$
11,122
Net income per common share, diluted
$
1.96
$
0.31
$
4.20
$
1.30
Weighted average diluted shares
outstanding
6,853
8,202
6,890
8,532
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(unaudited and in thousands)
September 30, 2020
March 31, 2020
September 30, 2019
ASSETS
Cash and cash equivalents
$
13,988
$
11,619
$
10,225
Gross loans receivable
1,109,366
1,209,871
1,274,147
Less:
Unearned interest, insurance and fees
(289,700
)
(308,980
)
(334,327
)
Allowance for loan losses
(109,601
)
(96,488
)
(101,469
)
Loans receivable, net
710,065
804,403
838,351
Right-of-use asset
95,335
101,687
119,403
Property and equipment, net
25,910
24,761
27,076
Deferred income taxes, net
29,425
23,258
30,192
Other assets, net
26,123
28,548
24,833
Goodwill
7,371
7,371
7,262
Intangible assets, net
22,930
24,448
27,449
Assets held for sale
1,144
3,991
—
Total assets
$
932,291
$
1,030,086
$
1,084,791
LIABILITIES &
SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable
$
424,900
$
451,100
$
518,831
Income taxes payable
4,723
4,965
10,757
Lease liability
96,482
102,759
120,130
Accounts payable and accrued expenses
38,911
59,299
41,835
Total liabilities
565,016
618,123
691,553
Shareholders' equity
367,275
411,963
393,238
Total liabilities and shareholders'
equity
$
932,291
$
1,030,086
$
1,084,791
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
SELECTED CONSOLIDATED
STATISTICS
(unaudited and in thousands,
except percentages and branches)
Three months ended September
30,
Six months ended September
30,
2020
2019
2020
2019
Gross loans receivable
$
1,109,366
$
1,274,147
$
1,109,366
$
1,274,147
Average gross loans receivable (1)
1,088,191
1,253,249
1,105,573
1,212,281
Net loans receivable (2)
819,666
939,820
819,666
939,820
Average net loans receivable (3)
805,227
923,046
821,740
894,935
Expenses as a percentage of total
revenue:
Provision for loan losses
21.0
%
37.4
%
20.8
%
33.7
%
General and administrative
60.5
%
55.4
%
59.2
%
57.2
%
Interest expense
4.7
%
4.5
%
4.6
%
3.8
%
Operating income as a % of total revenue
(4)
18.5
%
7.2
%
20.0
%
9.1
%
Loan volume (5)
647,024
729,775
1,110,507
1,481,923
Net charge-offs as percent of average net
loans receivable on an annualized basis
14.5
%
16.8
%
16.4
%
16.6
%
Return on average assets (trailing 12
months)
4.4
%
6.1
%
4.4
%
6.1
%
Return on average equity (trailing 12
months)
11.3
%
10.8
%
11.3
%
10.8
%
Branches opened or acquired (merged or
closed), net
(8
)
16
(11
)
41
Branches open (at period end)
1,232
1,234
1,232
1,234
(1) Average gross loans receivable have
been determined by averaging month-end gross loans receivable over
the indicated period, excluding tax advances.
(2) Net loans receivable is defined as
gross loans receivable less unearned interest and deferred
fees.
(3) 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.
(4) Operating income is computed as total
revenues less provision for loan losses and general and
administrative expenses.
(5) Loan volume includes all loans
generated by the Company. It does not include loans purchased
through acquisitions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201022005291/en/
John L. Calmes, Jr. Chief Financial and Strategy Officer (864)
298-9800
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