WRLD - NASDAQ

Good morning, and welcome to World Acceptance Corporation's Third Quarter 2025 Earnings Conference Call. 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. 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. 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 31st, 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. 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 2025 Third Quarter earnings call. Before we open up to questions, there are a few areas I'd like to highlight. We're excited about the results we're seeing throughout the portfolio after a few years of rightsizing and de-risking. Notably, yields have improved by over 200 basis points year-over-year, portfolio growth in the third quarter returned to pre-pandemic norms, the loan portfolio itself continues to perform well as first pay default rates remain low, even as we've increased our growth over the last several quarters. And finally, our portfolios returned to essentially the same size year-over-year after shrinking 10% year-over-year at the end of the third quarter last year, as well as, shrinking three of the last four years year to date. Our customer base has actually increased by 4% year-over-year compared to shrinking 2.2% for the 12 months ending December of 2024, and shrinking 14% for the same period of fiscal '23. All of these results show a stabilized portfolio with both higher credit quality and higher yields as we're poised to steadily grow in fiscal '26. During the third quarter of '25, we grew the portfolio by 6.6% compared to 1.5% during the third quarter of fiscal '24, and shrinking 2.8% in fiscal '23. For the customer base, we experienced 7% growth in our customer base during the third quarter which compares to 3% during the third quarter of the prior year, as well as an average of 6.3% customer base growth, pre-pandemic. We worked diligently to regrow our customer base with higher credit quality customers while decreasing our overall average balance to ensure the right risk-reward profile across our customer base, and to improve our yields and long-term customer profitability. Year-over-year, our average balance has decreased by almost 5.1% from December 31st, 2023, and by 12.6% from December 31st, 2022. Our yields have improved notably for the entire portfolio, driven by an improvement in yields for both our non-refinance customers as well as now including our refinance customers. Our non-refinance volume has rebounded during the third quarter with over 18% more loans made during the third quarter, compared to fiscal '24 and 53% more compared to fiscal '23. All this growth comes with marked improvement in yield as well as stable early performance indicators for credit quality. For new customers, marketing and acquisition channel adjustments continue to show increased quality in applications. Our approval rates for new customers has improved dramatically. The third quarter approval rates increased by 47% compared to the same period of fiscal '24, and by 80% compared to the same period of fiscal '23, all again, while maintaining low first payment default rates and improving our gross yields. With these shifts in the portfolio makeup and the waiting continuing into this current calendar year, we expect to see yields and delinquency trends continue to convert into the same revenue and income trends that we've already seen so far this year as well as into fiscal '26. We do continue to see an opportunity to improve our delinquency and charge-off rates, especially related to a large loan portfolio, part of -- which stems from our outsized investments into large loans made during fiscal years '21 and '22. Finally, in closing, we have an absolutely amazing team, and I'm very grateful to their commitment to our customers and to each other. They are helping our customers every day to establish credit, rebuild credit, as well as meeting an immediate financial need. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions you have.

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Kyle Joseph with Stephens. Please go ahead.

Hey, good morning. Thanks for taking my questions. Just thinking about growth versus credit quality in the macro-environment, obviously, inflation is lingering, and there's still good loan demand, but it really sounds like a lot of your kind of return to growth has been driven by new customers. Is that fair? And then, going forward, is this kind of the type of environment where you can see sustaining portfolio quality while also growing the portfolio?

Yes. Good morning, Kyle. So, a lot of our growth has been from non-refinance customers, so that includes our former customer base as well. While we have increased our approval rates and overall booking rates of our new customers, they still remain, I would say, within the normal range from a historic perspective. Over time, over the last year or two, we've really focused in on attracting former customers to return to us as well as increasing the retention of our current customers. So, to that point, from a risk perspective in the current macro-environment, we're not any more weighted towards new customers now than we have been in the past, pre-pandemic especially. We're certainly less weighted towards new customers today than we were from 2018 on through like 2021 or so. In terms of credit quality, in the macroeconomic environment, we've moved and shifted towards smaller loans over the last two to three years than we were doing in fiscal '21 and fiscal '22, which allows us a little more flexibility, and how we're underwriting and the type of loan products that we are fitting our customers with to make sure that we can recognize the product matches the risk of the customers, especially with new customers. So, in this environment, I don't anticipate unemployment to move up dramatically or even on the inflation side to see any real additional demands on our customers' pocketbooks that would have any real significant change in the way that we expect them to be able to repay their loans. So, I don't really anticipate anything in the short-term to have any significant impacts negatively.

Got it. So, it's a good segue to -- yes, on the portfolio yield, you highlighted, I think a 200 basis point improvement. Is that a function of mix? Is that a function of credit quality? And, kind of, give us a sense for -- you know, do you see that being stable going forward at the new base level?

Yes, I'll take that. It's a -- it's primarily mix, right? So, I mean, you can see that our large loan portfolio as a percent of the mix has shrunk to 48.2%, where it was 55.2% last year. So, year-over-year, our large loans have shrunk close to 14%, while small loans have grown close to 14%. So, that's the largest part of it. But yes, certainly, credit quality will have a -- a part in that as well. So -- obviously, we're not accruing interest on our non-performing loans. So, that does help as well.

Very helpful. Thanks. And then one last one from me, just given where we are in the quarter. Any insight you guys have on tax refunds, how you're thinking about this season in terms of timing and magnitude versus last year?

Yes. I mean, I think it's still a little too early to tell. I think we're off to a good tax season. We've made a number of operational changes over the last couple of years that have really taken hold and taken root in our branches throughout the country. So, kudos to our operators. I think they've done a wonderful job there. From a marketing perspective, same thing. So, I think we've seen early signs or at least the same or increased customer demand or interest in the product with us. But it's still -- it's early -- we haven't quite hit our biggest weeks yet that we normally file, which will be this week into the first couple of weeks of February. So, I would say, it's early to tell, but we're cautiously optimistic.

Great. Thank you very much for answering my questions.

Thanks, Kyle.

[Operator Instructions] Our next question will come from John Rowan with Janney. Please go ahead.

Good morning, guys.

Good morning, John.

So, it feels like you guys were -- you're obviously, kind of, reembracing the small loan portfolio, kind of, the history of the company. I'm curious, I mean, are you guys marketing to customers that, you know, I want to say Jettison, but were not really the core focus as you were growing the large loan portfolio? Are you going back to former customers? Are you marketing to them? And what are you marketing to them? Is it the same economics that we grew to know in the history of the company, meaning, you know, the yields, the periods in which you market or refinance and then also, you know, the typical refinancing rates that, you know, the company has had for 20 or so years? I'm just curious if you're basically remarketing the same small loan product to the same customers that may have left the company during the growth of the large portfolio growth?

Yes, morning, John. Great question. So there's a little bit of yes, there's a lot of no to that answer. So, we are moving back to our smaller loan customers, not quite as small on the whole as you would have seen pre-2020. To give you some context, leading up to 2020, our average new or non-refinanced customer was seeking around a $650 loan, today, that's closer to around $800 to $850, which is still down a good bit from the $1,100, $1,150 that we were lending back in -- in calendar '22 and prior '21. So, while we've come back down, it's still not as low as it used to be. On the economic side, we have worked to get our yields up close to where they used to be. Again, the loans are not quite as small as they used to be, so the yields are not going to be quite as high as they used to be, the gross yields. And then on the refinance side, I don't see us ever being able to return to a super-high refinance rate that you would see back pre-2010, certainly not even back to what you would see pre-2015, part of that is the product itself is a little bit different. So, our average term is longer than it used to be. So, for a new customer walking the door, you're looking at around 12 months. For a term, all of our loans today are closer to about 18 months for an average term. So, we're typically not going to see customers refinance more than once or twice within a year, just given the length of that loans, right? So, we're not -- we're not in a period where we're looking at six-month term loans or seven-month term loans and four refinances in a year. So, it's moved on to a different product from that perspective. From an overall performance perspective, though, you know, we are still really focused on, one, the small loan customer from a growth perspective for new and former customers, and we do continue to market to those former customers who've left us over last couple of years to return for smaller dollar loans. On the larger loan side, we are actively and continue to actively continue to work to make sure that large loan portfolio is really well underwritten, and also secured.

Okay. Can I just make sure I understood one of the answers? Particularly with the duration, so, on a small loan today, what's the stated contractual length when the loan is underwritten? And when are you marketing a refinance? Like what's the -- what's the contractual life versus the actual life of -- the average life of the portfolio basically?

Yes. So, the typical new loan will be, let's say, around 12 months with roughly 45% of our customers choosing to refinance in the first year. It's probably the best way to articulate that.

Yes. So I think the expected life versus -- you know, it's probably more around seven to eight months where the contractual life is probably 12 to 13, the portfolio.

Okay -- yes, that's what I needed to know. All right. Thank you very much.

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

Thank you guys for taking the time to join us today, and this concludes our third quarter earnings call for World Acceptance Corporation.