GREENVILLE, S.C.--(BUSINESS WIRE)--World Acceptance Corporation (NASDAQ: WRLD) today reported financial results for its second fiscal quarter and six months ended September 30, 2020.
Portfolio results
Second quarter of fiscal 2021 results and loan volumes continued to be impacted by the spread of COVID-19 and its related effects, including school and business closures and stay-at-home orders across many states in which we operate. Gross loans outstanding decreased to $1.11 billion as of September 30, 2020, a 12.9% decrease from the $1.27 billion of gross loans outstanding as of September 30, 2019. This is compared to a 13.1% increase for the comparable period ended September 30, 2019. Gross loans increased during fiscal Q2 2021 by 3.9% sequentially over fiscal Q1 2021 as customer demand stabilized.
Our customer base decreased by 21.3% year-over-year as of September 30, 2020, compared to 11.8% growth for the twelve months ended September 30, 2019. Excluding the direct impact of portfolio acquisitions, the customer base decreased 17.4% year-over-year as of September 30, 2020, compared to 7.2% growth for the twelve months ended September 30, 2019. During the quarter ended September 30, 2020, the number of unique borrowers in the portfolio decreased by 3.7% compared to an increase of 4.8% during the quarter ended September 30, 2019.
Fiscal Q2 2021 refinance loan volume decreased 19.7% during the quarter versus the same quarter of the prior year. Refinance loan volume is in-line with the 21.3% reduction in the customer base year-over-year and an improvement, sequentially, from a 34.2% decrease in refinance loan volume year-over-year in fiscal Q1 2021. For comparison, fiscal Q2 2020, year-over-year refinance loan volume increased 12.1%. Former customer loan volume in fiscal Q2 2021 increased 2.3% year-over-year, compared sequentially to a 58.1% year over year decrease during fiscal Q1 2021. The former customer loan volume fiscal Q2 2020 year-over-year comparison is a 4.9% increase. New customer loan volumes in fiscal Q2 2021 decreased 46.9% over the same quarter of the prior year, compared sequentially to a 74.1% year-over-year decrease in fiscal Q1 2021. The new customer loan volume fiscal Q2 2020 year-over-year comparison is a 3.6% increase.
As of September 30, 2020, we had 1,232 branches open. For branches open throughout both quarterly periods, same store gross loans decreased 12.7% in the twelve months ended September 30, 2020, compared to a 11.3% increase for the same period ended September 30, 2019. For branches open throughout both quarterly periods, the customer base on September 30, 2020, decreased 21.5% year-over-year compared to a 9.3% increase for the twelve months ended September 30, 2019.
Three-month financial results
Net income for the second quarter of fiscal 2021 increased by $10.9 million, or 433.1%, to $13.4 million compared to $2.5 million for the same quarter of the prior year. Net income per diluted share increased 538.0% to $1.96 per share in the second quarter of fiscal 2021 when compared to $0.31 per share for the same quarter of the prior year.
Earnings per share for the quarter benefited from our share repurchase program. The Company repurchased 460,120 shares of its common stock on the open market at an aggregate purchase price of approximately $43.2 million during the second quarter of fiscal 2021. This follows a repurchase of 326,298 shares in the first quarter of fiscal 2021 at an aggregate purchase price of approximately $19.5 million and the repurchase of 1,520,679 shares in fiscal 2020 at an aggregate purchase price of approximately $197.4 million. The Company had approximately 6.3 million common shares outstanding excluding approximately 0.7 million unvested restricted shares as of September 30, 2020.
Total revenues for the second quarter of fiscal 2021 decreased to $124.4 million, a 12.1% decrease from the $141.6 million reported for the same quarter of the prior year. The revenues from the 1,203 branches open throughout both quarterly periods decreased by 14.3%. Interest and fee income declined 13.6%, from $126.1 million in the second quarter of fiscal 2020 to $108.9 million in the second quarter of fiscal 2021, primarily due to a decrease in average earning loans. Insurance and other income increased by 0.5% to $15.6 million in the second quarter of fiscal 2021 compared to $15.5 million in the second quarter of fiscal 2020. Other income increased by $1.9 million, $0.7 million of which was due to higher tax preparation revenue as a result of an extended tax season. The Company also recorded a gain on company owned life insurance of $1.1 million due to the death of a former executive. Insurance revenue decreased due to lower loan volume during the quarter.
Accounts 61 days or more past due decreased to 4.5% on a recency basis at September 30, 2020, compared to 6.4% at September 30, 2019, and 5.7% at June 30, 2020. Total delinquency on a recency basis decreased to 7.6% at September 30, 2020, compared to 10.7% at September 30, 2019, and 8.3% at June 30, 2020. Our allowance for loan losses compared to net loans was 13.4% at September 30, 2020, compared to 10.8% at September 30, 2019, and 14.2% at June 30, 2020.
On April 1, 2020, the Company replaced its incurred loss methodology with a current expected credit loss ("CECL") methodology to accrue for expected losses. The provision for loan losses decreased $26.9 million, or 50.7%, to $26.1 million from $53.0 million when comparing the second quarter of fiscal 2021 to the second quarter of fiscal 2020. The provision decreased during the quarter due primarily to a $9.7 million decrease in net charge-offs as well as an improvement in delinquency. Net charge-offs as a percentage of average net loans on an annualized basis decreased from 16.8% in the second quarter of fiscal 2020 to 14.5% in the second quarter of fiscal 2021. Loans that were 90 days recency past due decreased $11.8 million during the quarter compared to a $7.0 million increase in the second fiscal quarter of the prior year. We are experiencing lower losses on loans that were in the portfolio as of April 1, 2020, than initially predicted under our CECL methodology. Approximately 78% of the loans in the portfolio as of April 1, 2020, are no longer in the portfolio as of September 30, 2020, as a result of pay-off, charge-off, or refinance. Despite the positive performance of the portfolio to date, we have increased the expected future losses on originations during the fiscal year due to the continuing high level of unemployment claims.
The table below is updated to use the customer tenure based methodology that aligns with our CECL methodology. After experiencing rapid growth of the portfolio during the prior two years, primarily in new customers, the gross loan balance declined in the first half of 2021 as a result of the ongoing pandemic and its affect on the overall economy. The tables below illustrate the changes in the weighting within the portfolio as well as the relative impact on charge-offs within the vintages over the last five years.
| Gross Loan Balance By Customer Tenure at Origination | |||
| Period Ended | Less Than 2 Years | More Than 2 Years | Total |
| 09/30/2015 | $310,107,929 | $756,622,104 | $1,066,730,033 |
| 09/30/2016 | $273,189,656 | $718,891,904 | $992,081,560 |
| 09/30/2017 | $291,973,107 | $731,951,643 | $1,023,924,750 |
| 09/30/2018 | $359,527,657 | $767,262,482 | $1,126,790,139 |
| 09/30/2019 | $456,470,161 | $817,738,336 | $1,274,208,497 |
| 09/30/2020 | $363,394,115 | $746,030,781 | $1,109,424,896 |
| Year-Over-Year Growth (Decline) in Gross Loan Balance by Customer Tenure at Origination | |||
| Period Ended | Less Than 2 Years | More Than 2 Years | Total |
| 09/30/2015 | $(20,293,101) | $3,512,257 | $(16,780,844) |
| 09/30/2016 | $(36,918,274) | $(37,730,200) | $(74,648,474) |
| 09/30/2017 | $18,783,451 | $13,059,739 | $31,843,190 |
| 09/30/2018 | $67,554,550 | $35,310,839 | $102,865,389 |
| 09/30/2019 | $96,942,504 | $50,475,854 | $147,418,358 |
| 09/30/2020 | $(93,076,046) | $(71,707,555) | $(164,783,601) |
| Portfolio Mix by Customer Tenure at Origination | ||
| Period Ended | Less Than 2 Years | More Than 2 Years |
| 9/30/2015 | 29.1% | 70.9% |
| 9/30/2016 | 27.5% | 72.5% |
| 9/30/2017 | 28.5% | 71.5% |
| 9/30/2018 | 31.9% | 68.1% |
| 9/30/2019 | 35.8% | 64.2% |
| 9/30/2020 | 32.8% | 67.2% |
| Actual Gross Charge-off Rate During Following 12 Months; Indexed to 9/30/2016 Vintage | |||
| 12 Months Beginning | Less Than 2 Years | More Than 2 Years | Total |
| 9/30/2015 | 1.71 | 0.91 | 1.14 |
| 9/30/2016 | 1.52 | 0.80 | 1.00 |
| 9/30/2017 | 1.53 | 0.75 | 0.97 |
| 9/30/2018 | 1.66 | 0.75 | 1.04 |
| 9/30/2019 | 1.74 | 0.78 | 1.12 |
Personnel expense decreased $2.8 million, or 5.6%, during the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020. Salary expense decreased approximately $1.9 million, or 6.1%, when comparing the two quarterly periods ended September 30, 2020 and 2019. Our headcount as of September 30, 2020, decreased 10.2% compared to September 30, 2019. Benefit expense decreased approximately $0.9 million, or 9.3%, when comparing the quarterly periods ended September 30, 2020 and 2019, primarily as a result of decreased health insurance claims. Incentive expense decreased $1.6 million due to a decrease in share based compensation partially offset by an increase in bonuses paid to branch employees. The Company deferred $1.7 million less in origination costs under ASC 310, when comparing year over year, due to lower originations during the quarter which increased personnel costs.
Advertising expense decreased $1.0 million during the quarter. The Company anticipated lower demand as a result of COVID-19 during the quarter and reduced our marketing spend.
Interest expense for the quarter ended September 30, 2020, decreased by $0.4 million, or 6.9%, from the corresponding quarter of the previous year. The decrease in interest expense is due to a 9.3% decrease in the average debt outstanding, from $419.8 million to $380.7 million for the quarters ended September 30, 2019 and 2020, respectively. The Company’s debt to equity ratio decreased to 1.2:1 at September 30, 2020, from 1.3:1 at September 30, 2019. The Company had outstanding debt of $424.9 million as of September 30, 2020.
The Company has generated approximately $174.6 million in free cash flow over the last twelve months.
Other key return ratios for the second quarter of fiscal 2021 included a 4.4% return on average assets and a return on average equity of 11.3% (both on a trailing 12-month basis).
Six-month results
Net income for the six-months ended September 30, 2020, increased $17.8 million to $28.9 million compared to $11.1 million for the same period of the prior year. This resulted in net income of $4.20 per diluted share for the six months ended September 30, 2020, compared to $1.30 per diluted share in the prior year period. Total revenues in the US for the first six-months of fiscal 2021 decreased 11.3% to $248.3 million compared to $280.0 million during the corresponding period of the previous year. Annualized net charge-offs as a percent of average net loans decreased from 16.6% during the first six-months of fiscal 2020 to 16.4% for the first six-months of fiscal 2021.
Resolution of Mexico Investigation
As previously disclosed, we retained outside legal counsel and forensic accountants, upon receipt of an anonymous letter regarding compliance matters, to conduct an investigation of our operations in Mexico. The investigation focused on the legality under the U.S. Foreign Corrupt Practices Act and certain local laws of certain payments related to loans, the maintenance of the Company’s books and records associated with such payments, and the treatment of compensation matters for certain employees. We voluntarily contacted the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice (“DOJ”) in June 2017 to advise both agencies that an investigation was underway. On August 6, 2020, the Company announced that it reached resolution with both the SEC and the DOJ regarding allegations primarily involving the Company’s former subsidiary in Mexico.
Non-GAAP financial measures
From time-to-time the Company uses certain financial measures derived on a basis other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. Such financial measures qualify as “non-GAAP financial measures” as defined in SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items and other infrequent charges. The Company may present these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s core operating performance and provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components to understanding and assessing the Company’s financial performance. Such non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are, thus, susceptible to varying calculations, any non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies.
For purposes of its internal liquidity assessments, the Company considers free cash flow. The Company defines free cash flow as cash flow from operating activities less purchases of property and equipment and net funding/repayment of loans, which are considered to be operating in nature by the Company but are included in cash flow from investing activities.
Free cash flow is commonly used by investors as an additional measure of cash generated by business operations that may be used to repay debt, may be available to invest in future growth through new business development activities or acquisitions, or repurchase stock. These metrics can also be used to evaluate the Company’s ability to generate cash flow from business operations and the impact that this cash flow has on the Company’s liquidity. However, free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for cash flow from operating activities or other income statement data prepared in accordance with GAAP. The following table reconciles cash flow from operating activities to free cash flow:
| Twelve months ended September 30, | |
| 2020 | |
| Net cash provided by operating activities (1) | $219,146,780 |
| Net cash used in investing activities: | |
| Increase in loans receivable, net | (33,703,548) |
| Purchases of property and equipment | (10,904,802) |
| Free cash flow | 174,538,430 |
| (1) As previously disclosed, the Company paid $21.7 million in disgorgement, prejudgment interest, and civil penalties during the second quarter of fiscal 2021 to resolve an investigation into its former Mexico operations. | |
About World Acceptance Corporation (World Finance)
Founded in 1962, World Acceptance Corporation (NASDAQ: WRLD), is a people-focused finance company that provides personal installment loan solutions and personal tax preparation and filing services to over one million customers each year. Headquartered in Greenville, South Carolina, the Company operates more than 1,200 community-based World Finance branches across 16 states. The Company primarily serves a segment of the population that does not have ready access to credit, but unlike many other lenders in this segment, we strive to work with our customers to understand their broader financial pictures, ensure they have the ability and stability to make payments, and helps them achieve their financial goals. In its last fiscal year, the Company helped more than 225,000 individuals improve their credit score out of subprime and deep subprime. For more information, visit www.loansbyworld.com.
