WRLD (2026 - Q2)

Good morning, and welcome to World Acceptance Corporation's Second Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]. 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 insular 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. Chad Pra

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 onetime 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 are 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 $0.26 per share after tax this quarter. We had the most new customer growth in the last 4 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 $0.78 per share after tax. These 3 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 expensed around $5.8 million of long-term comp plan, which is about a $23.9 million net increase in our long-term incentive comp expenses when you're comparing year-over-year quarters. As you think 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 2 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 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 of the hard work by so many folks within our teams and very pleased with these results. They 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. When we include our returning former customers and look at all non-refinance originations, originations increased 15% year-over-year in the second quarter, making it the highest volume second quarter on record with the exception of fiscal year 2020 -- 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 the fiscal year with the exception of fiscal year 2022. This is especially important for our portfolio of 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 a starting position of being down 4% at beginning of the year on April 1 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 and stood up 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 1, 2025. For that repurchase potential, we've already repurchased 9.1% of our shares so far year-to-date, which is around $80 million, with additional capacity repurchased 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 this 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 Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions you may have.

[Operator Instruction]. And your first question comes from John Rowan with Janney.

My apologies, the phone broke up -- my phone broke up a little bit when you were talking about the 3 discrete items, I got into $0.26 from Mexico, but what were the other 2 to get to the $1.61?

Yes. So we had $0.26 in Mexico. We had $0.57 due to the $3.7 million early redemption of our bonds and approximately 78% -- or $0.78 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 I understand a little bit more about the -- 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 year -- this quarter, going down to $5.8 million next quarter and then down to $3.8 million a quarter, for that $1.8 million a quarter after that. Does that sound correct?

Yes. Sounds good.

Okay. And then kind of 1 last housekeeping question. So obviously, you had a GAAP loss for the quarter. I'm assuming the diluted share count is just the basic share count. Can you tell me what the -- but the period end diluted share count was? Or the period end share count and then what the dilution is, we can maybe get an idea of what the diluted share count is with positive earnings?

Yes. So the quarter ending share count is up $4.8 million. And the dilution usually runs in the 100,000, 200,000 shares, depending on obviously where the share prices and other factors.

Your next question comes from Kyle Joseph with Stephens. Go ahead.

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 some portfolio mix shift going on. But just stepping back and talking about the health of the underlying consumer and how that's impacting both demand and credit?

Yes, it's a great question. So we do track how our consumer is performing on other loans. And yes, we have seen the same sort of weakness that you're reading about the papers, especially in the 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 volumes. But in terms of performance, we haven't seen anything major that would impact the portfolio today.

Got it. And then 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 and where you guys have been having success in kind of an update on the competitive environment as well.

Yes. 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 -- 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 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 here as well. Now with that being said, we haven't anticipated 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 mid to high single digits on the customer base side. So all that is kind of tailwinds in terms of growth, but we're still maintaining 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.

There are no 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 time to join us today. This concludes the second quarter earnings call for World Acceptance Corporation.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.