World Acceptance Corporation (WRLD) Earnings Call Transcript & Summary

Good morning, and welcome to World Acceptance Corporation's Third 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 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 words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing and similar 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 discussion. 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.

Good morning, and thank you for joining our fiscal 2026 Third Quarter Earnings Call. There are a few important aspects of the portfolio to cover in more detail. While we originated 16% more in new customer volume during the quarter, we actually ended the quarter with 25% more outstanding ledger in our active new customers than the same quarter of last year. And our new customers are again our riskiest customer segment. This 25% increase in the new customer outstanding portfolio required around an $8 million additional provision for this customer segment in the same quarter last year. The third quarter had the highest new customers since the same quarter of calendar 2021. Already, early performance indicates that these continue to be good investments in line with expectations. Compared to the prior high volume mark of the third quarter of calendar 2021, the first pay defaults are already 19% lower, relatively speaking. In addition, we continue to make credit box improvements on a regular basis. In some cases, those changes are due to credit performance in small credit and geographical pockets. But the majority of improvements in underwriting are to drive a faster return on the initial investment and increase long-term ROI with our most loyal customers. This is a long-term investment that will continue to improve both credit performance as well as customer retention, when combined, will continue to improve long-term yields. As we noted, yields improved 84 basis points year-over-year, as income has also improved. We expect this trend to continue due to improved rates in a few states, continued discipline with credit limits and underwriting, improving customer retention as longer tenured customers are also lower risk for us and continued smart investments in our customer base and overall ledger. Our customer base has grown substantially around 5.4% organically year-over-year. To put that in perspective, last year, we grew 2.2% year-over-year and declined in the 2 years prior to that. One of our largest growth years was in fiscal year 2022, where we experienced a 5.6% increase in our customer base organically. As mentioned earlier, the first pay default rates on our new customers made during the third quarter of this year are already 19% lower, relatively speaking to new customers of that same year of fiscal 2022. Organic growth in ledger is 2.4% year-over-year compared to a decline of 2.4% last year. Our average outstanding loan has declined around 2.5% in average balance year-over-year. That's due to the increased discipline around our underwriting and larger investments in new customers who are typically at lower balances. Again, this all combines to improve gross yields. Year-over-year earnings comparisons are complicated with the headwinds during this quarter of increased share-based comp expense, personnel expense as we have temporarily overstaffed to improve our branch team members, investments in new customers as well as our provision for loan losses. However, we remain committed to a long-term soundness and profitability of the portfolio and operations. We're most excited about putting several years of shrinking the portfolio behind us and continuing to see these gross yields grow. The customer base continues to expand and customer retention and tenure continues to improve. As one of our largest investments, we continue to be focused on improving branch operations and personal management. This year, we've already repurchased nearly 600,000 shares reducing our outstanding shares by 11% in the first 9 months of the year. We have over $60 million of remaining capacity for repurchases, which is approximately 9% of the outstanding shares as of yesterday's closing price, which will be a total of around 20% of outstanding shares this year. As a mid-quarter update, we're very early in our tax filing season, and we've already seen substantial improvement year-over-year in both the volume of filings as well as the revenue. While the current ice storm has affected approximately 10 of our states so far this week by some portion of their branches being closed, we are optimistic and continue to be optimistic that we'll experience an increase in tax filing volume and revenue throughout this quarter. I'd also like to take a moment to thank Clint Dyer for his incredible contribution to the company over the last 30 years and to celebrate his upcoming retirement. Clint has added tremendous value to our branch leadership over the decades and has produced many of our key leaders under his mentorship. We wish him the best in his upcoming adventures. I'm also grateful to our branch leadership under Clint for their commitment to world embracing the new style that Tobin Turner has brought in and stepping in to lead branch operations during the transition. Tobin brings his deep knowledge of analytics and marketing as well as retail operations to his approach of the management structure. We are excited about the current portfolio in this trajectory, which again includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, stable and improving delinquency, lower cost of acquisitions and improving yields as well as declining share count. All of which ultimately returns value to our shareholders through strong earnings per share growth. At this time, Johnny Calmes our Chief Financial and Strategy Officer, and I would like to open up to any questions you have.

[Operator Instructions] And the first question today will come from Kyle Joseph with Stephens.

I totally get the dynamics of the portfolio growth and particularly related to new consumers. But just looking for an update on kind of the health of the underlying consumer aside from that. Obviously, there were concerns in the fall, particularly related to the auto segment, but just any trends you've kind of seen in the consumer since then? And then how you're thinking about the outlook in the tax refund season with all the headlines of it that the consumers expect to get larger tax refunds?

Yes. I would say from the overall consumer perspective, we haven't seen a degradation in collections or in credit quality. There has been, I would say, a slight increase in demand. There's also been a significant decrease in our cost of acquisition for our higher credit quality new customers, which may be related to that, may not -- not really super sure on that one. But we haven't seen a significant change in our consumer behavior, whether it's due to tariffs or other expenses. On the tax filing side, we are seeing definitely an increased demand in taxes and tax filings. We are expecting to see larger returns of larger refunds this year. A lot of that is probably due to some of the tax law changes last year that would affect our customer base in particular. We have also changed marketing sort of last minute early in January, late December to really attract customers who are going to be in some of those segments, customers who are either paid but through tips. And so there's a might be experiencing refunds this season or other sort of changes in the tax code from last year. But on the tax filing side, we do remain optimistic this will be a very strong tax year for us.

Got it. And then yes, just shifting to G&A, the growth there, I get the sense it is largely incentive comp and the majority of that was stock-based comp. I think a couple of calls ago, you gave us kind of a little bit of a schedule in terms of how long it would be elevated. Can you just walk us through if there's any sort of -- if it should be elevated in the coming quarters or how you would expect the personnel line item to trend coming first?

Yes. So you should start to see that incentive line come down starting with Q4. There was a share-based comp grant last December that has been fully expensed at this point. And there will be another sort of cliff in December of next year. And -- but also the sort of the field level incentives could sort of tighten a little bit as we move forward as well. So I do expect to see some decent decreases in that incentive comp expense going forward.

[Operator Instructions] The next question will come from Guy Riegel with Ingalls & Snyder.

Question in the report -- earnings report, you had talked about an increase in head count in the field level offices, branch offices. And then -- and you spoke about deciding to have a reduction in the headcount going forward of 3% to 5%. Why the increase? And then why the decision to decrease?

Yes. Great question. So first, the decision to increase was building up a quality team in anticipation of some reduction in some underperforming team members and also some underperforming parts of the company. So really, it's building up in advance of turnover. We've done it across, I would say, roughly 80% of the company and about 50% of that was done very quickly. There's still sort of a lagging period where in anticipation of turnover, some underperforming team members we're holding on to some of our unperforming team members a little longer than anticipated as we're building up the base there, if that makes sense. So really, it's just building up in anticipation of that turnover. So we should expect to see the reduction pretty quickly within this quarter.

I see. And the underperformers was -- as it related to their ability not to collect or just any color on that?

Yes. It's related to a number of things. One of those is their ability not to collect. I think just overall performance in general, engagement, that's sort of thing in the current operating environment.

Okay. And one last question. I don't know if you have -- you don't have a crystal ball, but the headlines related to a 10% cap on credit cards. Was any of that related to underwriting -- I mean you guys underwrite your -- the loans you make. Was there any discussion about your area?

So as far as I know, there's been no discussions how that would relate to installment loans. But I would imagine with a 10% rate cap with the current cost of capital in the environment, there will be a severe reduction in access to credit cards. My rough estimate would be somewhere around the 750 to 780 credit score. Anyone who's below that would probably see a severe reduction in their access to credit. I think it would definitely drive up demand for our product or for installment loans in general. But aside from that, in our own credit card portfolio currently is still very small. I believe we currently have expanded with active customers, and I believe it's 46 states. But again, we're still very small in general, just a few million dollars outstanding. And so we can pivot very quickly on that end, if needed, but I don't think for now, there's really any serious implications negatively for our major portfolio.

This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.

Yes. Thank you for joining our third quarter fiscal 2026 earnings call, and this concludes the earnings call. Thank you.

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