World Acceptance (WRLD) - 2019 Q4 - Annual Report

PART I Business World Acceptance Corporation operates 1,193 branches across sixteen states, providing small installment loans and ancillary services, with interest and fee income comprising 86.2% of fiscal 2019 revenues, while expanding branches and divesting its Mexico segment - The company operates a small-loan consumer finance business with 1,193 branches in sixteen states, offering installment loans generally between $300 and $4,000[15] Category | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | :--- | :--- | :--- | :--- | | Interest & Fee Income (% of Total Revenue) | 86.2% | 86.7% | 87.2% | | Tax Preparation Revenue | $21.5 million | $16.8 million | $14.7 million | | Tax Returns Prepared | 91,000 | 77,000 | 72,000 | - In fiscal 2019, the company opened 25 new branches, purchased 17, and consolidated 26 existing branches, and plans to open or acquire approximately 50 new branches in fiscal 2020[19] - On August 3, 2018, the company completed the sale of its entire Mexico operating segment, which is now presented as discontinued operations[24] - Approximately 78.7% of the company's loans in fiscal 2019 were generated through refinancings of outstanding loans and new loans to previous customers[41] Risk Factors The company faces significant risks from potential federal and state regulatory changes, particularly interest rate caps, ongoing FCPA investigation liabilities, dependence on its credit facility, and substantial credit losses due to its customer base - Federal legislative or regulatory actions, particularly the imposition of a 36% or similar annualized credit rate cap, would almost certainly eliminate the company's ability to continue its current operations[77][83] - The company is exposed to significant liabilities under the Foreign Corrupt Practices Act (FCPA) due to an ongoing investigation into certain payments made in its former Mexico operations, and an adverse finding could result in fines, penalties, and a potential event of default under its credit facility[91][92][94] - The business is substantially dependent on its $480.0 million revolving credit agreement for liquidity, and a breach of covenants or failure of lenders to perform could materially impact operations[110] - The company's lending activities expose it to significant credit risk, as its ability to collect on loans depends on the willingness and ability of borrowers with limited credit access to repay, which is influenced by economic conditions beyond the company's control[125] - The upcoming change in accounting standards to an "expected credit loss" model (ASU 2016-13) may require earlier recognition of credit losses and could have a material effect on the consolidated financial statements[129][156] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[164] Properties The company owns its Greenville, SC headquarters and leases its 1,193 branch locations, incurring approximately $26.9 million in total lease expense for fiscal 2019 - The company owns its headquarters in Greenville, SC, and leases its 1,193 branches under operating leases, with total lease expense of $26.9 million in fiscal 2019[165] Legal Proceedings The company is under ongoing investigation by the SEC and DOJ for potential FCPA violations related to improper payments in its former Mexico operations, with the ultimate financial impact currently not estimable - An ongoing investigation addresses whether improper payments were made between 2010 and 2017 by the former Mexico subsidiary to government officials, potentially violating the FCPA[167] - The company voluntarily contacted the SEC and DOJ in June 2017 and is cooperating with their investigations; the SEC has issued a formal order of investigation[167] - Potential consequences include fines, civil and criminal penalties, profit disgorgement, and injunctive relief, and the company cannot reasonably estimate the amount of any fine or penalty at this time[168] Mine Safety Disclosures This item is not applicable to the company - None[172] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under WRLD, has not paid dividends since 1989, and recently repurchased 626,198 shares for approximately $71.9 million under a $75.0 million program - The company has not declared or paid any cash dividends on its common stock since April 1989[175] Period | Total Shares Purchased | Average Price Paid | Value of Shares Remaining for Repurchase | :--- | :--- | :--- | :--- | | Jan 2019 | 223,469 | $109.27 | $46,822,817 | | Feb 2019 | 316,959 | $113.08 | $10,982,640 | | Mar 2019 | 85,770 | $122.22 | $500,087 | | Total for Quarter | 626,198 | $114.85 | $500,087 | Selected Financial Data This section provides a five-year summary of key financial and operational data, highlighting fiscal 2019 total revenues of $544.5 million, net income of $37.2 million, and total assets of $855.0 million Metric (Amounts in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $544,543 | $502,669 | $490,822 | $515,301 | $557,818 | | Income from continuing operations | $73,898 | $49,093 | $67,790 | $83,344 | $102,914 | | Net income | $37,235 | $53,690 | $73,600 | $87,396 | $110,833 | | Diluted EPS from continuing ops | $8.03 | $5.48 | $7.72 | $9.59 | $11.05 | | Total assets | $854,988 | $840,987 | $800,589 | $806,219 | $866,131 | | Total debt | $251,940 | $244,900 | $295,136 | $374,685 | $501,150 | | Shareholders' equity | $552,117 | $541,108 | $461,064 | $391,902 | $315,568 | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2019 income from continuing operations increased 50.5% to $73.9 million due to a lower tax rate, while total revenues grew 8.3% to $544.5 million, though provision for loan losses rose 26.2% to $148.4 million due to portfolio growth and higher charge-offs, with liquidity maintained via operations and a $480 million credit facility Comparison of Fiscal 2019 Versus Fiscal 2018 Fiscal 2019 income from continuing operations increased 50.5% to $73.9 million due to lower taxes, while revenues grew 8.3% to $544.5 million, offset by a 26.2% rise in loan loss provision and higher charge-off rates Metric | Fiscal 2019 | Fiscal 2018 | Change | :--- | :--- | :--- | :--- | | Total Revenues (Continuing Ops) | $544.5M | $502.7M | +8.3% | | Provision for Loan Losses | $148.4M | $117.6M | +26.2% | | Net Charge-off Ratio | 16.1% | 14.9% | +120 bps | | G&A Expenses | $288.3M | $269.1M | +7.1% | | Income from Continuing Ops | $73.9M | $49.1M | +50.5% | | Effective Tax Rate | 17.8% | 49.3% | -31.5 pps | - The increase in the provision for loan losses was attributed to portfolio growth ($17.4 million) and an increase in charge-off and delinquency rates ($13.4 million)[193] - The proportion of new borrowers (less than 6 months tenure) in the portfolio grew 39.4% year-over-year, accounting for 17% of the portfolio, up from 13.7% last year, contributing to higher overall delinquency and charge-off rates[194] Credit Quality The company's credit quality deteriorated in fiscal 2019, with 61+ day delinquencies rising to 7.8% and the allowance for loan losses increasing to 9.7% of net loans receivable Delinquency (61+ days past due) | March 31, 2019 | March 31, 2018 | March 31, 2017 | :--- | :--- | :--- | :--- | | Contractual Basis (% of Gross Loans) | 7.8% | 7.5% | 7.0% | | Recency Basis (% of Gross Loans) | 6.3% | 5.8% | 5.3% | Allowance for Loan Losses | March 31, 2019 | March 31, 2018 | :--- | :--- | :--- | | Ending Balance | $81.5 million | $66.1 million | | As a % of Net Loans Receivable | 9.7% | 8.9% | - The allowance for loan losses calculation includes a general reserve of 4.25% of the gross loan portfolio and a specific reserve representing 100% of loans 91 days or more past due on a recency basis[243] Liquidity and Capital Resources The company maintains liquidity through $244.7 million in operating cash flow and a $480 million revolving credit facility, with $227.8 million available and a 0.5 to 1.0 debt-to-equity ratio, remaining compliant with covenants - The company has a revolving credit facility with aggregate commitments of $480.0 million, maturing in June 2020[257] Liquidity Metric (as of March 31, 2019) | Amount | :--- | :--- | | Outstanding Debt | $251.9 million | | Unused Borrowing Availability | $227.8 million | | Debt-to-Equity Ratio | 0.5 to 1.0 | - The credit agreement contains financial covenants including a minimum consolidated net worth, a minimum fixed charge coverage ratio, and maximum debt-to-net worth ratios, with which the company was in compliance[261][262] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from its LIBOR-based revolving credit facility, where a 1% LIBOR change impacts annual interest expense by $2.5 million, and it no longer faces foreign currency risk after divesting Mexico operations - The company's outstanding debt of $251.9 million is subject to variable interest rates based on LIBOR, and a 1% change in LIBOR would cause an annual change in interest expense of approximately $2.5 million[271][272] - As a result of the sale of its foreign subsidiaries, the company is not currently subject to foreign currency exchange rate risk[273] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2019, including balance sheets, income statements, cash flow statements, and related notes, along with management's report on internal control Consolidated Financial Statements For fiscal year 2019, the company reported total assets of $855.0 million, total liabilities of $302.9 million, total revenues of $544.5 million, and net income of $37.2 million, with $244.7 million in operating cash flow Consolidated Balance Sheet Highlights (as of March 31, 2019) | Amount (in millions) | :--- | :--- | | Total Assets | $855.0 million | | Loans receivable, net | $755.6 million | | Total Liabilities | $302.9 million | | Senior notes payable | $251.9 million | | Total Shareholders' Equity | $552.1 million | Consolidated Statement of Operations Highlights (for FY ended March 31, 2019) | Amount (in millions) | :--- | :--- | | Total Revenues | $544.5 million | | Provision for loan losses | $148.4 million | | Income from continuing operations | $73.9 million | | Loss from discontinued operations | ($36.7 million) | | Net Income | $37.2 million | Consolidated Statement of Cash Flows Highlights (for FY ended March 31, 2019) | Amount (in millions) | :--- | :--- | | Net cash provided by operating activities | $244.7 million | | Net cash used in investing activities | ($207.0 million) | | Net cash used in financing activities | ($63.1 million) | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including the allowance for loan losses methodology, the $480 million senior revolving credit facility, executive long-term incentive programs, and the $38.4 million pre-tax loss from the Mexico operations sale - The allowance for loan losses is calculated using a general reserve of 4.25% of the gross loan portfolio plus a specific reserve of 100% for loans 91 days or more past due on a recency basis[301] - The company's debt is a $480 million senior revolving credit facility maturing June 15, 2020, with interest based on LIBOR plus a margin of 3.0% to 4.0%[351] - A new long-term incentive program was adopted, granting service options, performance options, restricted stock, and performance shares tied to specific trailing 4-quarter EPS targets[385][387][391] - The sale of the Mexico operating segment was completed on August 3, 2018, for a purchase price of approximately $44.36 million, resulting in a loss on disposal of $38.4 million before taxes[425][427] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no disagreements with its independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - The Company had no disagreements on accounting or financial disclosure matters with its independent registered public accounting firm[447] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2019, with no material changes during the quarter, an assessment concurred by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[448] - There were no changes to internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, these controls[449] - Management concluded that internal control over financial reporting was effective as of March 31, 2019, and the independent registered public accounting firm issued an unqualified opinion on its effectiveness[452][453] Other Information There is no other information to report under this item - None[456] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2019 Annual Meeting Proxy Statement, with executive officer details in Part I, Item 1 - Information is incorporated by reference from the Registrant's definitive Proxy Statement[458] Executive Compensation Information required by this item concerning executive and director compensation is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - Information is incorporated by reference from the Registrant's definitive Proxy Statement[459] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item regarding security ownership and equity compensation plans is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - Information is incorporated by reference from the Registrant's definitive Proxy Statement[460] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - Information is incorporated by reference from the Registrant's definitive Proxy Statement[461] Principal Accountant Fees and Services Information required by this item regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - Information is incorporated by reference from the Registrant's definitive Proxy Statement[462] PART IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements filed under Item 8 and references the Exhibit Index for a complete list of all exhibits filed as part of the Form 10-K - This section lists the financial statements filed with the report and incorporates the Exhibit Index by reference[464][466] Form 10-K Summary The company has not provided a summary under this item - None[470]