World Acceptance (WRLD) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Consolidated Financial Statements Consolidated financial statements show asset and liability growth from loans and new lease accounting, with declining net income from continuing operations due to higher provisions and expenses Consolidated Balance Sheets Consolidated Balance Sheet Highlights (as of June 30, 2019 vs. March 31, 2019) | Account | June 30, 2019 (Millions $) | March 31, 2019 (Millions $) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,040.7 | $855.0 | +21.7% | | Loans receivable, net | $814.6 | $755.6 | +7.8% | | Right-of-use asset | $117.3 | — | N/A | | Total Liabilities | $491.0 | $302.9 | +62.1% | | Senior notes payable | $326.4 | $251.9 | +29.6% | | Lease liability | $117.9 | — | N/A | | Total Shareholders' Equity | $549.7 | $552.1 | -0.4% | - The significant increase in assets and liabilities is primarily due to the adoption of the new lease accounting standard (Topic 842), which resulted in the recognition of a Right-of-use asset and a corresponding Lease liability[13][14][36] Consolidated Statements of Operations Consolidated Statements of Operations (Three months ended June 30) | Metric | 2019 (Millions $) | 2018 (Millions $) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $138.4 | $122.8 | +12.7% | | Provision for loan losses | $41.3 | $30.6 | +35.0% | | Total G&A expenses | $81.8 | $67.8 | +20.7% | | Income from continuing operations | $8.6 | $15.6 | -45.0% | | Loss from discontinued operations | — | $(37.1) | N/A | | Net Income (Loss) | $8.6 | $(21.5) | N/A | | Diluted EPS (Continuing Ops) | $0.97 | $1.69 | -42.6% | - The decrease in income from continuing operations was primarily driven by a 35.0% increase in the provision for loan losses and a 20.7% increase in general and administrative expenses, which outpaced the 12.7% growth in total revenues[16] Consolidated Statements of Cash Flows Cash Flow Summary (Three months ended June 30) | Activity | 2019 (Millions $) | 2018 (Millions $) | | :--- | :--- | :--- | | Net cash provided by operating activities | $58.2 | $55.5 | | Net cash used in investing activities | $(111.8) | $(66.2) | | Net cash provided by (used in) financing activities | $54.1 | $(3.9) | | Net change in cash and cash equivalents | $0.4 | $(15.4) | - Investing activities primarily consisted of a $69.6 million increase in loans receivable and $40.3 million for acquisitions. Financing activities were driven by net borrowings of $74.5 million from senior notes, partially offset by $21.8 million in common stock repurchases[24] Notes to Consolidated Financial Statements - The company sold its Mexico operations (WAC de Mexico and SWAC) effective July 1, 2018, for approximately $44.36 million. These operations are classified as discontinued, with a reported loss on disposal of $39.0 million in the prior-year period[29][30] - On April 1, 2019, the company adopted the new lease accounting standard (ASU No. 2016-02, Topic 842), resulting in the initial recognition of a $92.3 million right-of-use asset and a $92.7 million lease liability[35][36] - The company is subject to an ongoing investigation by the SEC and DOJ regarding its former operations in Mexico, focusing on the legality of certain payments under the FCPA between 2010 and 2017. The ultimate outcome and potential liability are not yet determinable[104][105][107] - In June 2019, the company amended its revolving credit agreement, increasing total commitments from $480.0 million to $685.0 million and extending the maturity date to June 7, 2022[93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from loan expansion, offset by higher loan loss provisions and G&A expenses, leading to a decline in continuing operations income, alongside enhanced liquidity and share repurchases Results of Operations - Gross loans outstanding from continuing operations grew 15.1% YoY to $1.22 billion as of June 30, 2019[119] - The provision for loan losses increased by $10.7 million (35.0%) YoY, primarily due to a $6.8 million increase in net charge-offs and faster loan growth[125] - Net charge-offs as a percentage of average net loans (annualized) increased to 16.3% for the quarter, compared to 15.1% in the prior-year quarter[116][125] - G&A expenses rose by $14.0 million (20.7%) YoY, with personnel expense increasing by $11.7 million. Of this, approximately $6.5 million was due to additional share-based compensation from the long-term incentive program[127][128] Liquidity and Capital Resources - In June 2019, the company amended its revolving credit facility, increasing aggregate commitments to $685.0 million and extending the maturity to June 2022[149] - As of June 30, 2019, the company had $326.4 million outstanding under its revolving credit facility, with $351.5 million of unused availability[94][153] - The Board of Directors approved a new share repurchase program authorizing up to $200.0 million on June 7, 2019. During the quarter, the company repurchased 141,077 shares for $21.8 million[160][182] Regulatory Matters - The company continues to cooperate with an ongoing SEC and DOJ investigation into potential FCPA violations related to its former Mexico operations between 2010 and 2017[135][136] - The CFPB has delayed the compliance date for the 'ability to repay' requirements of its rule on short-term and installment loans to November 19, 2020. The company does not believe these requirements will have a material impact on its existing lending procedures[141][142] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk associated with its variable-rate revolving credit facility, with a 1.0% change impacting annual interest expense by $3.3 million, and no foreign currency risk after selling Mexico operations - The company's outstanding debt of $326.4 million is subject to variable interest rates based on LIBOR. A 1.0% change in interest rates would cause an approximate $3.3 million change in annual interest expense[174] - As a result of the sale of its foreign subsidiaries effective July 1, 2018, the company is not currently subject to foreign currency exchange rate risk[175] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective, 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 were effective as of June 30, 2019[177] - There were no material changes to the company's internal control over financial reporting during the quarter[176] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits filed with the report Legal Proceedings The company refers to Note 12 of its financial statements, detailing the ongoing SEC and DOJ investigation into former Mexico operations regarding potential FCPA violations, with an undetermined outcome - The primary legal proceeding discussed is the ongoing investigation by the SEC and DOJ concerning potential FCPA violations in the company's former Mexico operations, as detailed in Note 12 to the financial statements[180][104][105] 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, 2019, were reported - No material changes to the risk factors from the Annual Report on Form 10-K for the fiscal year ended March 31, 2019 were reported[181] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 141,077 shares for $21.8 million during the quarter and approved a new $200.0 million share repurchase program, with $178.2 million remaining available Share Repurchase Activity (Three months ended June 30, 2019) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approx. Dollar Value Remaining for Repurchase (Millions $) | | :--- | :--- | :--- | :--- | | April 2019 | — | — | $0.5 | | May 2019 | — | — | $0.5 | | June 2019 | 141,077 | $154.61 | $178.2 | | Total | 141,077 | $154.61 | $178.2 | - A new share repurchase program authorizing up to $200.0 million was approved by the Board of Directors on June 7, 2019[182] Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including amendments to employment agreements, the amended and restated revolving credit agreement, and required CEO/CFO certifications - The exhibits filed with this report include the Amended and Restated Revolving Credit Agreement dated June 7, 2019, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[186][188]