World Acceptance (US:WRLD)2024-02-07 21:09PART I - FINANCIAL INFORMATION This section presents the company's consolidated financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Consolidated Financial Statements The unaudited consolidated financial statements for the period ended December 31, 2023, show improved profitability, with net income reaching $16.7 million for the quarter and $42.3 million for the nine-month period, reversing a prior-year loss, primarily due to a lower provision for credit losses Consolidated Balance Sheets As of December 31, 2023, total assets were $1.12 billion, a slight increase from $1.12 billion at March 31, 2023, driven by higher net loans receivable, while total liabilities decreased, leading to an increase in shareholders' equity to $407.0 million | Balance Sheet Items | Dec 31, 2023 ($) | Mar 31, 2023 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 12,775,524 | 16,508,935 | | Loans receivable, net | 907,229,249 | 887,788,486 | | Total assets | 1,119,538,669 | 1,117,318,141 | | Liabilities & Equity | | | | Senior notes payable | 305,089,480 | 307,910,824 | | Senior unsecured notes payable, net | 279,915,756 | 287,352,892 | | Total liabilities | 712,519,503 | 732,091,404 | | Total shareholders' equity | 407,019,166 | 385,226,737 | Consolidated Statements of Operations For Q3 FY24, net income was $16.7 million, a 187% increase from the prior-year quarter, and for the nine months, net income was $42.3 million, a significant turnaround from a $3.4 million loss, primarily due to a substantial reduction in the provision for credit losses | Metric | Three Months Ended Dec 31, 2023 ($) | Three Months Ended Dec 31, 2022 ($) | Nine Months Ended Dec 31, 2023 ($) | Nine Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | 137,749,387 | 146,532,150 | 413,948,499 | 455,708,616 | | Provision for credit losses | 40,631,994 | 59,608,655 | 127,697,072 | 214,051,068 | | Net income (loss) | 16,664,818 | 5,804,586 | 42,285,985 | (3,399,465) | | Diluted EPS | 2.84 | 0.99 | 7.17 | (0.59) | Consolidated Statements of Shareholders' Equity Shareholders' equity increased from $385.2 million to $407.0 million by December 31, 2023, driven by $42.3 million in net income, partially offset by $17.3 million in common stock repurchases - For the nine months ended December 31, 2023, total shareholders' equity increased by $21.8 million, reflecting the net effect of $42.3 million in net income and $17.3 million in common stock repurchases21 Consolidated Statements of Cash Flows For the nine months ended December 31, 2023, the company generated $182.0 million in cash from operating activities, used $157.3 million in investing activities, and $28.4 million in financing activities, resulting in a net decrease in cash of $3.7 million | Cash Flow Activity (Nine months ended Dec 31, 2023) | Amount ($) | | :--- | :--- | | Net cash provided by operating activities | 181,969,945 | | Net cash used in investing activities | (157,309,595) | | Net cash provided by (used in) financing activities | (28,393,761) | | Net change in cash and cash equivalents | (3,733,411) | Notes to Consolidated Financial Statements The notes detail accounting policies, including the CECL model for credit losses, debt structure, stock-based compensation reversals, operating lease obligations, and income tax positions - The company's allowance for credit losses is primarily determined by segmenting its loan portfolio into pools based on customer tenure, which management identified as the strongest predictor of default risk5355 | Allowance for Credit Losses Roll-forward | Nine Months Ended Dec 31, 2023 ($) | Nine Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Beginning balance | 125,552,733 | 134,242,862 | | Provision for credit losses | 127,697,072 | 214,051,068 | | Net charge-offs | (132,167,737) | (203,754,387) | | Ending Balance | 121,082,068 | 144,539,543 | - During the first nine months of fiscal 2024, the company repurchased and extinguished $8.25 million of its senior unsecured notes, recognizing a $1.2 million gain on extinguishment106 - A reversal of $4.9 million in previously recognized stock-based compensation occurred in the second quarter of fiscal 2024, as it was determined that the performance targets for certain Performance Options were no longer probable of being achieved89 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 187.1% increase in Q3 net income year-over-year, driven by a 31.8% decrease in the provision for credit losses, despite a 6.0% decline in revenue, while addressing regulatory matters and improving the debt-to-equity ratio Results of Operations For Q3 FY24, net income surged 187.1% to $16.7 million, primarily due to a $19.0 million (31.8%) decrease in the provision for credit losses, despite a 6.0% fall in total revenues, with net charge-offs improving significantly - Gross loans outstanding decreased 9.9% YoY to $1.40 billion as of December 31, 2023, but the company eased underwriting standards, resulting in a 2.4% increase in unique borrowers during the quarter125 | Metric (Q3 FY24 vs Q3 FY23) | Q3 FY2024 | Q3 FY2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $16.7M | $5.8M | +187.1% | | Total Revenues | $137.7M | $146.5M | -6.0% | | Provision for Credit Losses | $40.6M | $59.6M | -31.8% | | Net Charge-offs (annualized %) | 19.1% | 25.1% | -6.0 p.p. | - For the nine months ended Dec 31, 2023, net income increased to $42.3 million from a $3.4 million loss in the prior year, driven by an $86.4 million (40.3%) decrease in the provision for credit losses143147 Regulatory Matters The company is monitoring a CFPB rule on payment requirements, currently under U.S. Supreme Court review, and expects a supervisory review soon after the CFPB asserted its "dormant authority" over the company - A CFPB rule imposing payment requirements on certain loans was vacated by the Fifth Circuit, but the decision is currently under review by the U.S. Supreme Court, creating uncertainty about its future implementation156 - The CFPB has asserted its supervisory authority over the company using its "dormant authority" to examine nonbank entities that pose risks to consumers, and the company expects a supervisory review soon158 Liquidity and Capital Resources The company maintains liquidity through cash from operations and its revolving credit facility, with $274.4 million available as of December 31, 2023, an improved debt-to-equity ratio of 1.4:1.0, and ongoing share repurchase programs - Primary sources of liquidity are cash flows from operations ($182.0 million for the nine months ended Dec 31, 2023) and borrowings from institutional lenders160 - As of December 31, 2023, the company had $274.4 million of unused availability under its revolving credit facility, and its debt-to-equity ratio was 1.4:1.0169174 - The Board of Directors authorized a $20.0 million share repurchase program in November 2023, with $2.8 million remaining under this authorization and approximately $33.2 million permitted under debt covenants as of December 31, 2023176177 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate revolving credit facility, where a 1.0% change would alter annual interest expense by approximately $3.1 million - The company's main market risk is interest rate risk, where a 1.0% change in interest rates would cause an annual change in interest expense of approximately $3.1 million on its revolving credit facility balance as of December 31, 2023189 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to provide reasonable assurance of timely and accurate reporting191 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting190 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, and details on unregistered sales of equity securities and use of proceeds Item 1. Legal Proceedings The company is involved in various litigation matters arising from normal business operations, and while estimating potential losses is difficult, an adverse outcome could materially affect its financial condition - The company is subject to litigation in the normal course of business, and while it cannot easily estimate losses, an adverse outcome could have a material adverse effect on financial results116117 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023, were reported - No material changes to the company's risk factors were reported for the quarter195 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 FY24, the company repurchased 148,765 shares of common stock at an average price of $115.42 per share, totaling approximately $17.2 million, with $2.8 million remaining available for repurchase | Period | Total Shares Purchased | Average Price Paid ($) | Total Cost ($) | | :--- | :--- | :--- | :--- | | Oct 2023 | 0 | — | 0 | | Nov 2023 | 64,062 | 110.18 | 7,058,424 | | Dec 2023 | 84,703 | 119.38 | 10,112,101 | | Total for Quarter | 148,765 | 115.42 | 17,170,525 | - As of December 31, 2023, the company had $2.8 million remaining in its share repurchase authorization196197