Q2 2025 World Acceptance Corp Earnings Call
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Operator: 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.
Good morning, and welcome to the World Acceptance Corporation second quarter 2025 earnings Conference call.
Speaker Change: 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.
Operator: 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.
Speaker Change: The comments made during this conference call may contain certain forward looking statements within the meaning of section 21 E 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.
Operator: 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.
Speaker Change: 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.
Speaker Change: K for the fiscal year ended March 31, 2024, and subsequent reports filed with or furnished to the S. E C from time to time.
Speaker Change: The Corporation does not undertake any obligation to update any forward looking statements. It makes.
Chad Prashad: 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.
At this time it is my pleasure to turn the floor over to your host Chad Pochade, President and Chief Executive Officer. Please go ahead.
Chad Prashad: Good morning, and thank you for joining our fiscal 2025 second quarter earnings. 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 portfolios. The second quarter of 2025, we experienced a 350 basis points increase in our customer 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.
Chad Pochade: Good morning, and thank you for joining our fiscal 2025 second quarter earnings call.
Chad Pochade: Before we open up for questions. There are a few areas I'd like to highlight.
Chad Pochade: Over the last few years, Jay and I have talked a good bit about right sizing and derisking the portfolio.
Chad Pochade: And the results are showing improved yields and performance throughout most of our portfolio today.
Chad Pochade: The second quarter of 2025, we experienced a 350 basis point increase in our customer base, which compares to a 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 first quarter of this year.
Chad Prashad: Year-over-year, our average balance has decreased almost 6% from September 30th of 2023. This is while our customer base has actually increased compared to September 30th. We work 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 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 2020.
Chad Pochade: Year over year, our average balances decreased almost 6% from September 30 of 2023.
Chad Pochade: This is while our customer base has actually increased compared to September 32023.
Chad Pochade: We worked diligently to re grow our customer base over 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.
Chad Pochade: 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.
Chad Prashad: 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 application. 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%, our first payment defaults hit an all-time high, increasing nearly 50% from historical norms before we cut back dramatically in underwriting. This resulted in low approval rates during the subsequent years, the fiscal years 23 and 24, that fell to less than 30% in the second quarter of those years.
And first of all first payment default rates remain low even lower than the comparable periods in the second quarter pre pandemic.
Chad Pochade: For new customers in particular marketing and acquisition channel marketing and acquisition channel adjustments continue to show increased quality and applications.
Chad Pochade: Approval rates for new customers have historically been around 50%.
Chad Pochade: In the second quarter of fiscal year 2022.
Chad Pochade: With the approval rate in the historical norm of around 50% of first payment defaults hit an all time high increasing nearly 50% from historical norms before we cut back dramatically and underwriting.
Chad Pochade: This resulted in lower approval rates during the subsequent years of fiscal years 'twenty three 'twenty four that fell to less than 30% in the second quarter of those years.
Chad Prashad: Their credit quality improved and first payment defaults returned or exceeded a historical norm. 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 in year view.
Our credit quality improved in first payment defaults returned or exceeded historical norms.
Chad Pochade: This year during the second quarter, we achieved over 50% approval rate for new customers, while maintaining low first payment default rates that are in historical range.
Chad Pochade: Additionally, this quarter's originations continue to have higher gross yields in prior years, and we expect net yields to continue to increase as well.
Chad Pochade: The new customer vintages from the second quarter your second quarter of fiscal year 2023 to present, our breaking even and becoming profitable on pace with or significantly earlier than historical pre pandemic vintages.
Chad Pochade: Overall, our gross yield has improved by 113 basis points year over year.
Chad Prashad: 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 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% year-over-year, and into the second quarter with a ledger that was down around 6%. 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% year-over-year as we enter our growth season of November and December.
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.
Chad Pochade: This week, we completed an acquisition of around $20 million in performing loans.
Chad Pochade: Prior to closing this acquisition, we were continuing the trend of outpacing our recent years in loan growth during the month of October to.
Chad Pochade: To this end we started the year with a ledger that was down about eight 8% year over year and into the second quarter ledger that was down around 6% year over year.
Chad Pochade: With the organic growth that we've achieved already in October coupled with this acquisition, we expect to in October with a letter that's down around 4% year over year as we enter our gross season of November and December.
Chad Prashad: Refinance loan volume in dollars increased 3% within the quarter, year-over-year, while the number of refinances actually increased 10.7%. 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 and the large loans made during fiscal years 21 and 22.
Chad Pochade: Refinance loan volume and dollars increased 3% within the quarter year over year, while the number of refinances actually increased 10, 7% showing a reduction in average balance.
Chad Pochade: With these shifts in the portfolio makeup and the waiting continuing into the second quarter and third quarter of our gross season, we expect to see yields and delinquency trends continue to convert into the same revenue income trends that we've already seen for this year thus far.
Chad Pochade: 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 outsize investment into large loans made during fiscal year 'twenty, one and 'twenty two.
Chad Prashad: 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.
Chad Pochade: Given the account growth and yield improvements to the positive and slower to improve delinquency to the negative management is no longer accruing for a second tier of our performance plan, but we continue to expect to achieve $16, 35% $16 35.
P S. This year.
Chad Pochade: Finally, we have an absolutely amazing team here at World I'm grateful for their commitment to their customers and to each other.
Chad Pochade: They are helping our customers everyday to establish credit rebuild credit as well as meet their immediate financial needs at.
Chad Prashad: At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open it up to any questions.
Speaker Change: At this time, Johnny come either Chief financial and strategy Officer, and I would like to any questions that you asked.
Operator: 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 key. To withdraw your question, please press star then two.
Speaker Change: We will now begin the question and answer session to.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
John Rowan: The first question is from John Rowan with JANI. Please go ahead.
Speaker Change: The first question is from John Rowan with Janney. Please go ahead.
John Rowan: Good morning. Um, okay, so you're still vesting for 1635 you said for fiscal 2025, correct? Does the, you know, are you using, is $399 counted for earnings for 2Q, which obviously would 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'll be the $399.
John Rowan: Good morning.
Good morning, Joe Okay. So you still vesting for 16 35, you said for fiscal 2025 correct.
John Rowan: Okay.
John Rowan: Does the.
John Rowan: You know who you are.
Using is 399 counted for earnings for the for <unk>, which obviously we include the big $18 $5 million reversal or is it a different number but that excludes the $18 million.
John Rowan: It's the.
The GAAP number right so it'll be it would be the 399.
John Rowan: Okay, is there... Would there be another reversal? Well, I guess there wouldn't be another reversal to get to the $1635,000.
Speaker Change: Okay is there.
John Rowan: Yes.
Speaker Change: Would there be another reversal.
Speaker Change: It wouldn't be another reversal to get to the $16 35.
John Rowan: 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's headed. If we're, you know, still trying to get away from, you know, 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.
Speaker Change: Okay.
10000 foot view.
Speaker Change: I feel like the company spent a lot of years trying to get away from.
Speaker Change: Kind of the history of the company and small loans in <unk>.
Speaker Change: The refinancing and obviously now we're seeing large loans contracting as a percentage of the portfolio I'm just trying to figure out.
Speaker Change: Which way the company is headed if we're.
Speaker Change: Still trying to get away from what the company was many many years ago in trying to get more toward large loan lender or was this high single digit or low double digit type loss rate because it just.
John Rowan: It just, you know, it just sounds like we're the last couple of quarters moving away from what was kind of the stated goal of management.
Speaker Change: It just sounds like where the last couple of quarters moving away from what was kind of the the stated goal of management.
Chad Prashad: 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, you know, perform on those loans and we credit report, you know, their credit scores go up, they begin to get offers from other creditors. And we will lose our customers to, you know, upmarket products, including credit cards or larger loans at lower interest rates.
Speaker Change: Yes, it's a good question Jon So historically, when we started increasing our large loan portfolio.
Speaker Change: It was really twofold, one was primarily a retention of our customer base. So historically, we will bringing customers with small loans typically subprime credit.
Speaker Change: As they.
Speaker Change: Performing those loans and we have credit report their credit scores go up they began to get offers from other creditors.
Speaker Change: And we will lose our customers too.
Speaker Change: Upmarket products, including credit cards or larger loans at lower interest rates. So moving into large loans was primarily a retention play.
Chad Prashad: So, moving into large loans was, you know, primarily a retention play. Secondarily, also a new customer growth channel.
Secondarily also a new customer growth channel.
Chad Prashad: I think, you know, 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, you know, made that more painful for us with those loss rates that we experienced back in fiscal 22. But from, you know, what our overall strategy is, we continue to focus in on primarily small loans. Large loans are secondary interest for us. You know, 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.
Speaker Change: The timing of that back in fiscal 'twenty, one was probably ill time from a macroeconomic perspective and and also the the large amount of investments we made into it.
Speaker Change: We made that more painful for us with those loss rates that we.
We experienced back in fiscal 'twenty two.
Speaker Change: But from what our overall strategy as we continue to focus in on primarily small and large loans are secondary interest for us.
Speaker Change: A large loans are prime.
Primarily use as a channel for customer retention as we originally planned and debate, but less so for a new customer growth opportunity.
Chad Prashad: But for the main part of the business and what our primary focus is for customer growth is with small loans.
Speaker Change: But for the main part of the business and what our primary focus is for customer growth is with small lines and continues to be in smaller okay and can you remind me when you guys typically renew your revolving credit facility and how much you have available under it.
John Rowan: It continues to be in Okay, can you remind me when you guys typically renew your revolving credit facility and how much you have available under it?
Chad Prashad: Yeah, so the next renewal, we have two years or so left at this point, and you know, 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.
Speaker Change: Oh, yes.
The next renewal.
Speaker Change: In two years or so left at this point.
Speaker Change: Yes.
Speaker Change: Maybe the spring of next year will start to flow.
Speaker Change: So two to extend that.
Speaker Change: Yet at this point.
Speaker Change: I have the number right in front of me.
Speaker Change: <unk>.
Speaker Change: I think we have about $300 million left on the revolver.
John Rowan: 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, within under a year of maturing, correct? That's right. Yeah.
Speaker Change: Good day.
Speaker Change: Okay.
Speaker Change: You always keep you have two years remaining but you usually refinance it before the Deco is current within was under review or shorten correct. That's right. So we still got a little wait till we get to that point, Okay. Alright. Thank you.
Chad Prashad: Alright. So we've still got a little wait before we get to that point. Okay.
Operator: Alright, thank you. Again, if you have a question, please press star, then 1. Please stand by while we poll for questions.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Please standby, while we poll for questions.
Operator: Showing no further questions, this concludes our question and answer session.
Speaker Change: Showing no further questions. This concludes our question and answer session I would like to turn the conference back over to Mr. <unk> for any closing remarks.
Chad Prashad: 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 World Acceptance Corporation.
Thanks for taking the time to join US today and this concludes our second quarter earnings call for World Acceptance Corporation.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Yes.
Speaker Change: [music].