World Acceptance (US:WRLD)2023-01-27 20:18Financial Data and Key Metrics Changes - The company reported a positive trend in delinquency rates, with early-stage delinquency declining month over month, although later-stage delinquency is expected to result in elevated charge-offs in the next quarter [7] - The book-to-look ratio increased slightly to around 25%, up from a low of 20% in the previous quarter, compared to approximately 35% in the same quarter of fiscal years 2021 and 2022 [8] - New customer originations in the third quarter showed a 30%-plus reduction in first-pay default rates compared to the same quarter of fiscal year 2022, indicating strong credit performance [9] Business Line Data and Key Metrics Changes - New customer originations accounted for 55% of comparable December volumes in fiscal years 2019 and 2020, up from 31% in the third quarter of 2022 [12] - Gross yields for new customer originations in the third quarter were over 25% higher year-over-year, while first-pay default rates showed a significant reduction [10] Market Data and Key Metrics Changes - The company has successfully reduced exposure to high-risk customers, leading to improved credit performance during fiscal year 2023 [7] - The risk in the portfolio is expected to be lower as there has been less investment in new customers, contributing to a decrease in the allowance ratio from 13.5% to 12.9% [18] Company Strategy and Development Direction - The company plans to increase investments in marketing and new customer acquisition during the fourth quarter and into the next fiscal year, leveraging improved credit performance [12] - The management expressed confidence in the ability to grow while maintaining low delinquency and high gross yields, indicating a strategic focus on quality over quantity in customer acquisition [11][32] Management's Comments on Operating Environment and Future Outlook - Management noted that while elevated charge-offs are expected in Q4 relative to historical levels, they anticipate a positive trend in delinquency and charge-offs moving forward [28] - The company is optimistic about generating significant cash flow in the upcoming operating environment, particularly in fiscal 2024 [36] Other Important Information - The company amended its credit facility during the quarter and has ample room on all covenants, with no waivers as of the quarter end [24] Q&A Session Summary Question: Is the $7 million incentive change a reversal? - Yes, it is in personnel expense, with part being a reversal related to officers who left the company and a shift from bonus to base pay [14] Question: What is the expected run rate for personnel expenses going forward? - The reversal will not be present next quarter, and the expected personnel expense is around $45 million [16] Question: Why did the allowance ratio decrease? - The decrease is attributed to seasonal factors and a shift in lower tenured customers, which carry a higher expected loss rate [18] Question: What is the outlook for loan portfolio growth next quarter? - The company expects typical runoff during tax season and does not anticipate significant growth in new customer investments in Q4 [22] Question: What is the status of covenants and refinancing plans? - The company has ample room on all covenants and plans to extend the credit facility in the coming summer [24] Question: How will improvements in first-pay defaults impact delinquencies and losses? - The company expects charge-offs to decrease in the coming months, with positive trends indicating a better delinquency picture by March [26][28] Question: What is the strategy for acquiring new customers going forward? - The company plans to increase marketing investments while ensuring that new customer applications are likely to be approved, focusing on quality [32]