Good morning, and welcome to the World Acceptance Corporation's First Quarter 2024 Earnings Conference Call. This call is being recorded. At this time, all participants have been placed on 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 and 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 facts 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 31, 2023, 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. Please go ahead..

Good morning, and thank you for joining our fiscal 2024 first quarter earnings call. Before we open it up to questions, there are a few areas that I'd like to highlight. Last year, we instituted a number of adjustments that we believe would have a significant impact on our business and have been quite pleased with the results.

As we discussed during prior earnings calls, we tightened underwriting about 1.5 years ago as economic uncertainty and inflation concerns were increasing.

We have weathered a period of delinquency normalization after a period of extraordinary portfolio growth as well as higher-than-expected delinquency and losses throughout most of our last fiscal year.

Today, we continue to see lower and normalizing delinquency rates in our portfolio as well as increasing yields and expect this trend to continue for several more months. This is primarily due to many operations adjustments, including a heightened focus on credit quality and yields as we previously discussed.

We're also very consciously increasing approval rates to new customers as we still see the potential of this uncertain economic environment to impact our customers in the coming year. During the first quarter, our customer base grew more than the prior three years, both in nominal and relative terms.

New loan originations by number increased dramatically over the prior year quarter -- over the prior quarter, excuse me, by 47% and are returning to a normal way as a percentage of the customer base.

Return customer originations also increased dramatically around 76% over the previous quarter and exceeded the first quarter of last year as well, thanks to an increased focus by our marketing and operations teams.

All these outcomes are an especially great team accomplishment, and we consider the reports of increasing delinquency rates across several credit industries during both the calendar year of 2022 as well as the first half of 2023.

While economic uncertainty still exists, management continues to accrue for a long-term incentive plan with vesting tiers of $16.35, $20.45 and $25.30 per share due to much improved credit quality, yields and operating conditions.

We anticipate the first tier vesting as early as the end of this fiscal year assuming credit quality and performance remains stable and unemployment remains low. We're pleased to begin our fiscal year 2024 from a position of portfolio and capital strength.

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] Our first question comes from John Rowan of Janney. Go ahead..

Just on the accrual, can you repeat the accrual numbers again that you just gave? And also, you had been accruing -- assuming that you get to the full -- the highest hurdle, but there was a reduction in incentive compensation in the quarter.

Was there any type of accrual reversal? And are you still accruing assuming that you reach the highest the $25.40 vesting hurdle?.

Sure. So, the tiers that we're accruing towards on an EPS basis are $16.35, $20.45 and $25.30, and those -- we have been accruing for those over the last four-plus fiscal years and we have not reversed any of the accruals on any of those tiers..

Right, we haven't reversing expense. Over the period, we have shifted our expectations on when we may hit those, which will have can have an impact of changing the quarterly expense on those. But at the same time, it depends on what period you're comparing it to, it's great investing.

So over time, the compensation expense will decrease as some of those tranches become fully invested and we're no longer expensing..

Okay. So, I was just trying to figure out, there was a reduction in incentive compensation for the quarter. If that wasn't a reversal, is this level of compensation expense or correct run rate? I'm trying to figure out if there was a reversal and it pops back up or this is the correct run rate..

I got you. Yes. So if you're comparing Q1 over Q1, a lot of the reason for that decrease would be the great investing, right? So that run rate will be appropriate, at least through the second quarter of this year.

And then it will decrease again because we have the time-based vesting will happen in October, right? So that will be no tranche is fully invested. So then the run rate will decrease again for Q3 and Q4 of this year..

And John, I believe it's been a few years that we released a great investing schedule. We'll have to go back and look, it's been probably three or four years since we released that..

Okay. And then just to switch gears a little bit. Obviously, you renegotiated the credit facility. There was no change in rate on that facility, correct? It's still the same.

I mean it -- whatever the spread is over so far, that's still the same spread?.

That's correct. Yes..

Was there one lender taken out because there were some shifts in it? I showed that there was a lender put in, but did anyone fall out of the facility?.

Yes. So, there were two banks that needed to come out for different reasons, and as we had two banks that came out and one bank that came in..

Okay. And then I guess just maybe one last question. I probably should have bunch before we went into the next question. But you've kind of given some numbers in the past. I mean, what is it, the 2530 is effectively the number for fiscal 2025 based on the compensation plans.

We talked probably a couple of quarters ago about what kind of loss rate you needed to see to get there? Obviously, you're at like 16% this quarter or 16% to change. You still need to be materially lower than that. I think you had given kind of a high single-digit, low double-digit type number.

Is that still what you're targeting to get to the EPS hurdles?.

That's right. Yes. So, we -- the charge-off rate has improved substantially, but we still see room for improvement going forward..

Okay. And just to be clear, the $25.30, that's the 2025 figure because you mentioned changing the time frame at some point.

That's still 2025, right?.

That's correct..

[Operator Instructions] Our next question comes from Vincent Caintic of Stephens. Go ahead..

Just wanted to expand on John's line of questioning and maybe just pull up a little bit. So, the fiscal 2025 EPS target at $25.30. Just wondering, if you could walk through the bigger drivers and how to get there since we're $1.62 this quarter? So, it would be a material increase in run rate EPS.

You spoke a little bit just now about the charge-offs, but any other kind of key components to get from here in first quarter of '24 to get to that run rate for the full year 2025?.

Yes, sure. So I'll say one of the most important components at this point will be the charge-off rate. And we -- again, I've seen substantial improvement there and see room for continued improvement. And we will need some growth in the -- sort of the later quarters to help drive revenue there.

But we are seeing some benefits of a shift in the portfolio to smaller loans, right? So, that shift is driving up our overall yields. You can see that the yields increased in Q1 versus Q4 of last year and Q1 of last year, right? So, the growth that we had in the first quarter was coming from the small loan portfolio.

We actually had some -- a little bit of shrinkage in the large loan portfolio and some growth in the small loan portfolio, which has created some tailwinds to yields, and we'll need to continue to do that, and that will benefit revenue and obviously, continuing to control costs, right? We've done a really good job of controlling costs over the last couple of years, and we'll continue to do that with some buybacks mixed in as well in the later half of this year and next year..

Okay. That's very helpful. And would it be possible to know the metrics that we're seeing in your results is the portfolio results. So of course, having originations that were a little while ago.

But if you could maybe talk about sort of the economics of the loans that you're originating today, are they already sort of that high yield, low loss and low unit expenses where we would already get to that $25 EPS? Just trying to see that path from your current metrics versus kind of what you're putting on today..

Yes. Vincent, this is Chad. Great question. So when we started tightening about this time last year, a little before during the first quarter of the last fiscal year, especially with new customers.

We began to experience much higher credit quality and much higher performance, a dramatic improvement, especially from mid second quarter last fiscal year and on a dramatic improvement in the gross yields of those loans we originated. However, as we've talked about, there was a much lower volume of those loans that we were originating.

So while those credit tranches are performing very well, they are very small and don't carry a lot of weight in the overall portfolio or at least haven't for some period of time. For what we're originating today, the quality remains very similar to that.

The expected performance and expected both gross and net yields, we believe will also be similar to what we have been originating in the past fiscal year. But we've been able to continue to grow those tranches on a subsequent basis. So in terms of size and weighting in the portfolio, that's on the new customer origination front.

There's been a similar pattern for the former customers who are returning. And then in terms of refinancing, we put a number of things in place, and that's where the majority of the portfolio really sits with customers to have a good bit more tenure.

So, we've had a number of things in place that we're beginning to see overall portfolio increases in yield as well as overall performance and decrease in delinquency. So, it does take time as a process we began over a year ago, but we're beginning to see it trickle through the overall portfolio.

And so, that's really where, as it gets to the whole portfolio versus just new customers, we'll begin to see increased net yields as we anticipate hitting that $25.30 target by the end of next fiscal year..

Our next question comes from John Rowan of Janney. Go ahead..

Just a couple of quick follow-ups. So just to be clear, you guys are no longer on waivers with the revolving credit facility, correct? I didn't -- I just want to make sure that we are now not in violation of debt covenants because I only saw an adjustment to the fixed charge coverage ratio..

Yes. Yes. So no, we're in good shape relative to all the covenants on the debt facility. Yes, we did change the fixed charge coverage ratio. Obviously, it looks like interest rates might be higher and for longer. So, that was really just to make sure that we have plenty of room over the next three years. So, we don't need to amend again in the future.

So, that's kind of what was driving that..

But the collateral performance indicator, that's still part of the credit facility, correct?.

Oh, yes, that is, and we're in really good shape there..

Okay. And then just last question for me. Obviously, your you're more bullish on growing new customers now I mean I think you were a year or so ago when you really pulled back -- it wouldn't be a year ago, but I mean, three quarters ago, you really start to pull back on new customer volume.

What's different today with the new customers and you saw back then when obviously we are spiking losses that caused you to pull back in that cohort.

What's different now? Is there a change in first pay default like what makes you so sure that growing new customers at this point is not going to yield the same results?.

Yes. That's an insightful question. So, there are a couple of things. And before I begin, I just want to caution a little bit.

I'd say we're more bullish, but we're not strongly bullish on growing new customers at this time, right?.

So, we're still tighter today than we were much tighter today than we were a year ago. So, if we just -- we've loosened from relative to Q3 of last year, where we were extremely tight..

That's right. So in terms of where we've been able to loosen and be slightly more bullish and grow the new customer loan volume, it really comes down to where we've seen great operational performance. So, where we've seen the gross yields grow. We've seen delinquencies decline.

And as we've seen that, those operational results, it gives us more confidence to begin loosening in certain areas.

And actually, in many states, we're not loosening in terms of credit quality, but we are beginning to drive more of those higher-quality customers in or make more attractive loans and increase the approval rates for those that were desiring the most.

Again, still seeking to grow the overall gross yield during that whole process, right? So, there's a little bit of a chicken egg here, right? So it's not like we're moving down the credit spectrum or anything like that to lower the credit quality in order to juice application flow or approval rates or anything of that nature.

It's -- as we're seeing the performance of those loans. And also we're seeing the gross yields and customers accept those terms. This is a very different origination environment today this summer than it was last summer, given the higher interest rates and other craters have pulled back.

So, it gives us a little more confidence on the margin being slightly more bullish..

Our next question comes again from Vincent Caintic of Stephens. Go ahead..

Just one quick follow-up. You mentioned share repurchases later this year.

If you could remind us what, if any, limitations you have just so we could kind of frame how much to share repurchases to model in?.

Sure. Yes. So, the big hurdle there is we need to get the fixed charge coverage ratio back over 2%. And we may get there after the second quarter, but we fully expect to be there after the third quarter, so which would mean we could either start buying repurchasing in Q3 or Q4.

And then, we still have the same sort of good reset of net income requirements that we've always had in there..

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

I just want to thank everyone for taking the time to join us today. And this concludes our first quarter earnings call for World Acceptance Corporation. Thank you..

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