World Acceptance (WRLD) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements (unaudited) Unaudited consolidated financial statements for Q2 2020 detail financial position, operations, and cash flows, noting CECL adoption and net income increase Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,960 | $11,619 | | Loans receivable, net | $681,597 | $804,403 | | Total assets | $902,645 | $1,030,086 | | Liabilities & Shareholders' Equity | | | | Senior notes payable | $352,206 | $451,100 | | Total liabilities | $511,402 | $618,123 | | Total shareholders' equity | $391,243 | $411,963 | | Total liabilities and shareholders' equity | $902,645 | $1,030,086 | Consolidated Statements of Operations Consolidated Statement of Operations Highlights (in thousands) | Account | Three months ended June 30, 2020 | Three months ended June 30, 2019 | | :--- | :--- | :--- | | Total revenues | $123,867 | $138,442 | | Provision for credit losses | $25,661 | $41,291 | | Total general and administrative expenses | $71,608 | $81,776 | | Income before income taxes | $21,036 | $10,971 | | Net income | $15,510 | $8,608 | | Diluted EPS | $2.24 | $0.97 | Consolidated Statements of Shareholders' Equity - Total shareholders' equity decreased from $412.0 million at March 31, 2020, to $391.2 million at June 30, 2020. The decrease was primarily driven by a $21.2 million cumulative effect of adopting ASC 326 (CECL) and $19.5 million in common stock repurchases, partially offset by $15.5 million in net income[16] Consolidated Statements of Cash Flows Consolidated Statement of Cash Flows Highlights (in thousands) | Activity | Three months ended June 30, 2020 | Three months ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,839 | $58,165 | | Net cash provided by (used in) investing activities | $65,173 | $(111,822) | | Net cash provided by (used in) financing activities | $(118,671) | $54,081 | | Net change in cash and cash equivalents | $(1,659) | $424 | Notes to Consolidated Financial Statements - On April 1, 2020, the Company adopted the new CECL standard (ASU 2016-13), resulting in a one-time $28.6 million increase in the allowance for credit losses, a $21.2 million reduction in retained earnings (net-of-tax), and a $7.4 million increase in deferred income taxes[30] - The allowance for credit losses is determined by pooling loans based on customer tenure, which was identified as the strongest predictor of default risk. The fiscal 2021 provision includes a $4.6 million increase for forecasted losses due to the economic impact of COVID-19 on new loans[47][51] - On August 6, 2020, the Company reached a resolution with the SEC and DOJ regarding its former Mexico subsidiary, agreeing to pay a total of $21.7 million in disgorgement, interest, and penalties. The DOJ declined prosecution[110][111][113] - On July 24, 2020, the Company amended its revolving credit agreement, reducing the minimum net worth covenant to $325.0 million and allowing for up to $50.0 million in share repurchases through March 31, 2021, among other changes[120][121][122] Management's Discussion and Analysis of Financial Condition and Results of Operations Analysis of Q2 2020 financial condition and operations highlights revenue decline, net income growth, and COVID-19 effects Q1 FY2021 vs Q1 FY2020 Performance | Metric | Q1 FY2021 (ended June 30, 2020) | Q1 FY2020 (ended June 30, 2019) | Change | | :--- | :--- | :--- | :--- | | Gross loans receivable | $1.07B | $1.22B | -12.7% | | Total Revenues | $123.9M | $138.4M | -10.5% | | Net Income | $15.5M | $8.6M | +80.2% | | Provision for credit losses | $25.7M | $41.3M | -37.9% | | G&A Expenses | $71.6M | $81.8M | -12.4% | - The decrease in revenue was primarily due to a decline in average net loans outstanding. Revenue from branches open throughout both periods decreased by 17.8%[135][136] - The provision for credit losses decreased due to lower loan volumes and improved delinquency, despite a $4.6 million increase to the allowance for forecasted losses related to the economic impact of COVID-19[138] - G&A expenses decreased by $10.2 million, driven by a $7.8 million reduction in personnel costs (lower incentive pay and benefits) and a $3.5 million (57.2%) decrease in advertising spend in anticipation of lower demand due to COVID-19[142][143][145] - The company's liquidity is supported by cash from operations ($51.8 million for the quarter) and a $685.0 million revolving credit facility, which had $212.8 million of unused availability at quarter-end[158][166] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate revolving credit facility debt - The company's main interest rate risk stems from its revolving credit facility. As of June 30, 2020, the outstanding balance was $352.2 million[186] - A hypothetical 1.0% change in the interest rate would result in an approximate $3.5 million change in annual interest expense, based on the outstanding debt at quarter-end[186] Controls and Procedures Management concluded disclosure controls and internal financial reporting controls were effective with no material changes during Q2 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in ensuring timely and accurate reporting as required by the SEC[188] - No material changes to the internal control over financial reporting were identified during the quarter ended June 30, 2020[187] PART II - OTHER INFORMATION Legal Proceedings This section refers to Note 12 for details on legal proceedings, primarily the resolution of the Mexico investigation - For details regarding legal proceedings, the report refers to Note 12 of the unaudited Consolidated Financial Statements[191] Risk Factors Key risk factors include COVID-19 uncertainties and CECL adoption, impacting credit losses and loan repayments - The adoption of the CECL methodology on April 1, 2020, introduces risk, as the ability to accurately forecast future credit losses may be impaired by the significant uncertainty surrounding the COVID-19 pandemic[193] - The COVID-19 pandemic poses a significant risk, with higher unemployment expected to increase delinquencies and credit losses. A second outbreak could lead to further economic disruption[194][195] - The expiration of enhanced unemployment benefits under the CARES Act could negatively impact customers' ability to repay loans, potentially leading to a material increase in delinquencies and adverse effects on financial results[196] Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchase activity for Q2 2020, including a new $30.0 million authorization and shares repurchased Share Repurchases for the Quarter Ended June 30, 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2020 | 254,886 | $55.74 | | May 2020 | 12,398 | $74.99 | | June 2020 | 59,014 | $72.94 | | Total | 326,298 | $59.58 | - On June 16, 2020, the Board of Directors authorized a new repurchase program for up to $30.0 million of common stock. As of June 30, 2020, the full $30.0 million was available under this authorization[199][200] Defaults Upon Senior Securities The company reported no defaults on its senior securities during the period - None Mine Safety Disclosures This section is not applicable to the company - Not applicable Other Information The company reported no other information required for disclosure in this section - None Exhibits This section lists exhibits filed with the quarterly report, including credit facility amendments and regulatory documents - The exhibits filed with the report are listed in the accompanying exhibit index[203]