World Acceptance (WRLD) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The unaudited consolidated financial statements for the period ended December 31, 2021, reflect significant asset growth, increased revenues, and a decline in net income due to higher credit loss provisions Consolidated Balance Sheets Total assets increased to $1.27 billion by December 31, 2021, driven by loan growth, while liabilities rose due to new debt issuance, and equity remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Mar 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,668 | $15,746 | | Loans receivable, net | $1,039,398 | $733,659 | | Total assets | $1,270,205 | $954,269 | | Liabilities & Equity | | | | Senior notes payable | $425,174 | $405,008 | | Senior unsecured notes payable, net | $295,143 | $0 | | Total liabilities | $860,799 | $549,342 | | Total shareholders' equity | $409,406 | $404,927 | | Total liabilities and shareholders' equity | $1,270,205 | $954,269 | Consolidated Statements of Operations Q3 FY2022 revenues increased to $148.6 million, but net income declined to $7.3 million due to a significant rise in the provision for credit losses Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $148,572 | $130,946 | $416,058 | $379,254 | | Provision for credit losses | $56,459 | $28,857 | $128,768 | $80,608 | | Net income | $7,327 | $14,491 | $35,538 | $43,399 | | Diluted EPS | $1.14 | $2.25 | $5.53 | $6.44 | Consolidated Statements of Shareholders' Equity Shareholders' equity slightly increased to $409.4 million, driven by net income and stock option exercises, partially offset by share repurchases - Key activities impacting shareholders' equity in the first nine months of fiscal 2022 included common stock repurchases of $50.5 million, proceeds from stock option exercises of $11.7 million, and net income of $35.5 million[20] Consolidated Statements of Cash Flows Net cash from operations was $171.1 million, while investing activities used $438.9 million, largely offset by $270.8 million from financing activities Cash Flow Summary (Nine months ended Dec 31, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $171,052 | $131,409 | | Net cash used in investing activities | ($438,922) | ($131,252) | | Net cash provided by (used in) financing activities | $270,791 | ($2,085) | | Net change in cash and cash equivalents | $2,921 | ($1,928) | Notes to Consolidated Financial Statements Notes detail accounting policies, including CECL adoption, finance receivables, debt structure with a new $300 million senior note, and legal contingencies - The company adopted the Current Expected Credit Loss (CECL) model on April 1, 2020, which replaced the incurred loss methodology for determining the allowance for credit losses[35][44] Allowance for Credit Losses Rollforward (Nine months ended Dec 31, in thousands) | Description | 2021 | 2020 | | :--- | :--- | :--- | | Beginning balance | $91,722 | $96,488 | | Impact of ASC 326 adoption | $0 | $28,628 | | Provision for credit losses | $128,768 | $80,608 | | Net charge-offs | ($87,209) | ($92,257) | | Ending Balance | $133,281 | $113,467 | - On September 27, 2021, the company issued $300 million in 7.0% senior unsecured notes due 2026. Net proceeds were used to repay a portion of the outstanding debt under its revolving credit facility[109][110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 27.0% loan growth to $1.61 billion, revenue increases, and net income decline due to higher credit loss provisions, alongside liquidity and share repurchases Results of Operations Q3 FY2022 revenues rose 13.5% to $148.6 million, but net income dropped 49.4% to $7.3 million due to a 95.6% increase in credit loss provisions Q3 FY2022 vs Q3 FY2021 Performance | Metric | Q3 FY2022 | Q3 FY2021 | Change | | :--- | :--- | :--- | :--- | | Gross Loans Outstanding | $1.61B | $1.26B | +27.0% | | Total Revenues | $148.6M | $130.9M | +13.5% | | Provision for Credit Losses | $56.5M | $28.9M | +95.6% | | Net Income | $7.3M | $14.5M | -49.4% | - The increase in delinquencies and charge-offs was expected due to the growth in new and shorter-tenured customers in the portfolio[134] - For the nine months ended Dec 31, 2021, net income decreased 18.1% to $35.5 million, while revenues increased 9.7% to $416.1 million compared to the prior year period[145][146] Liquidity and Capital Resources Liquidity is supported by operations and a revolving credit facility, enhanced by a $300 million senior note issuance, with $46.1 million remaining for share repurchases - The company issued $300 million in 7.0% senior notes due 2026 to repay a portion of its revolving credit facility and for general corporate purposes[165][166] - As of December 31, 2021, the company had a $685.0 million revolving credit facility with $425.2 million outstanding and $259.5 million available for borrowing[106][107] - The Board of Directors authorized a $50.0 million share repurchase program in December 2021. As of December 31, 2021, $46.1 million remained available for repurchase[177] Critical Accounting Policies Management identifies Allowance for Credit Losses, Share-Based Compensation, and Income Taxes as critical accounting policies requiring significant judgment - The company's most critical accounting policies are considered to be the allowance for credit losses, share-based compensation, and income taxes due to the significant degree of management judgment involved[182] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its $425.2 million variable-rate debt, with a 1.0% rate change impacting annual interest expense by $4.3 million - The company's main market risk is interest rate risk. Based on the $425.2 million outstanding balance on its revolving credit facility at December 31, 2021, a 1.0% change in the interest rate would cause an annual change in interest expense of approximately $4.3 million[189] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[191] - No material changes to internal control over financial reporting occurred during the quarter[190] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is a nominal defendant in a shareholder derivative complaint filed in September 2020, stemming from a Mexico investigation - A shareholder derivative complaint was filed on September 25, 2020, against certain current and former directors and officers related to the company's resolution of an investigation in Mexico[120] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year ended March 31, 2021 - No material changes to the risk factors from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021, have been reported[195] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q3 FY2022, the company repurchased 93,722 shares for $19.3 million, with $46.1 million remaining under its authorization Share Repurchases (Q3 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2021 | 6,000 | $160.66 | | November 2021 | 43,605 | $200.52 | | December 2021 | 44,117 | $218.45 | | Total for the quarter | 93,722 | $206.41 | Other Items (Items 3, 4, 5, 6) This section confirms no defaults on senior securities, no mine safety disclosures, and no other reportable information, referencing filed exhibits - The company reported no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other information (Item 5)[197][198][199]