World Acceptance - Earnings Call - Q1 2026
July 24, 2025
Executive Summary
- Q1 FY2026 revenue rose 2.3% year over year to $132.5M and beat Wall Street by ~$10.1M, while diluted EPS fell to $0.25 and missed consensus by $1.91; operating income margin compressed to 8.7% versus 17.5% in Q1 FY2025 on higher CECL provision and G&A. Revenue Consensus Mean=$122.38M*; EPS Consensus Mean=$2.16*.
- Credit metrics improved versus March: 61+ day recency delinquency fell to 5.4% (6.0% in Q4), 90+ day recency delinquency to 3.3% (3.7% in Q4), and customer base grew 4.0% y/y; net charge-offs increased sequentially to $44.8M (19.4% annualized) as expected given prior late-stage delinquency mix.
- Strategic catalysts: new $640M senior secured ABL (3-year) enabling accelerated buybacks—board authorized up to $100M and facility permits up to $100M plus 100% of cumulative net income since Jan 1, 2025; management plans to redeem ~$170M of 2021 notes by end of August to remove repurchase constraints.
- Management emphasized yield expansion (+~234 bps y/y), moderated growth with credit discipline, and live customer testing of the Smile credit card to improve unit economics and retention, reinforcing a medium-term EPS growth narrative via higher yields and lower share count.
What Went Well and What Went Wrong
- What Went Well
- “Gross yields have increased over 230 basis points year-over-year,” supporting revenue growth despite portfolio mix shifts.
- Delinquency improved sequentially: 61+ day recency to 5.4% (from 6.0% in March) and 90+ day to 3.3% (from 3.7%), positioning for lower charge-offs in coming quarters.
- Customer base expanded 4.0% y/y, with higher borrowing across new (+30.8%), former (+6.3%), and refinance (+9.6%) customers versus prior-year Q1.
- What Went Wrong
- EPS dropped to $0.25 due to higher CECL provision ($50.5M, +$5.1M y/y) driven by growth, a seasonal adjustment (~$5M), and a $1.0M tax advance reserve; G&A rose 14.6% y/y on compensation and benefits.
- Net charge-offs increased to $44.8M (19.4% annualized) from $38.7M (16.4%) y/y, reflecting the December cohort’s higher new customer mix.
- Insurance income declined 10.8% y/y while overall operating income margin fell to 8.7% from 17.5% in the prior year quarter.
Transcript
Speaker 3
Good morning and welcome to World Acceptance Corporation's first quarter 2026 earnings conference call. This call is being recorded. At this time, all participants have been placed on listen-only mode. Before we begin, the corporation has requested that I make the following announcement. The comments made during the conference call may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Statements other than those of historical fact, as well as those identified by the words anticipate, estimate, intend, expect, believe, may, will, and should, or any variation of the foregoing and similar expressions, are forward-looking statements.
Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements, today's earnings press release, and in the risk factor section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2025, and subsequent reports filed with or furnished to the SEC from time to time. The corporation does not undertake any obligation to update any forward-looking statements it makes. At this time, it is my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer.
Speaker 2
Morning, and thank you for joining our fiscal 2026 first quarter earnings call. Before we open up to questions, we've had a few major updates this week to share along with highlights from the first quarter. We recently completed a new credit agreement increasing commitments to $640 million, allowing for stock repurchases of up to 100% of net income, which is an increase from 50% of net income in the prior agreement, and a $100 million upfront repurchase allowance in addition to 100% of net income beginning January 1, 2025. The net income is around $45 million since January 1, 2025. In addition, we're in the process of redeeming the remaining bonds that were issued in 2021. If you recall, we issued $300 million in high-yield notes with a five-year maturity in the fall of 2021 and have been repurchasing them in the market over the last few quarters.
We currently have around $170 million outstanding that we'll redeem by the end of August. This removes the constraint to allow for more accelerated stock repurchases. That capacity may be over $200 million for share repurchases over the next 12 months, which is approximately 23% to 25% of outstanding shares at this morning's stock price. As a reminder, our earnings are quite seasonal. Historically, the first quarter is our lowest quarter for earnings, as we rebound from growth and provision from the tax season runoff. Over the prior three years, first quarter net income has made up an average of only 5.6% of our total annual net income, and it's peaked at a high of only 12% of annual net income.
We're excited about the current portfolio and its trajectory, which includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, growth in yields, and stable to improving late-stage delinquency. On growth, refinance volume increased 10% this quarter over the first quarter last year. To really underscore the overall growth we're seeing in the current lending environment, the number of new originations this quarter increased 12.6% over last year's first quarter. This is the highest volume of new originations in our first quarter since fiscal year 2020. In terms of dollars lent in new originations, we increased 12.8% year over year and are in line with fiscal years 2019 and 2020, both of which were some of the highest non-refinanced growth years on record. Our customer base increased by 4% this quarter compared to the first quarter of last year.
This is our first positive customer base growth we've experienced during the first quarter in three years, and we've also returned to the largest customer base we've had since the first quarter of 2023. All this growth has put us on track to rapidly close the year-over-year ledger gap. We began the year on April 1st with a ledger that was down around 4% year over year, or about approximately $50 million. We've grown around $40 million in this quarter to end the quarter down about 80 basis points, which is approximately $10 million year over year. Even with this substantial growth, both new originations and the overall portfolio have stable first-pay default rates and improving delinquency, as well as, and quite importantly, gross yields have increased over 230 basis points year over year.
These results and other operational capital improvements increase our confidence in a portfolio that will continue to have moderate growth with low cost of acquisitions, strong credit performance, improving yields, increased revenue, declining share count, and ultimately returning enhanced value to our shareholders through strong EPS growth. One short note on the new World Finance Smile credit card. We completed the first phase of internal testing and have moved on to live testing with customers. To reiterate, our main goals are to use this product slowly and wisely. We want to better align yield with risk, especially in rate cap states, help customers manage both installment and revolving credit, lower our overall cost of acquisition and service, improve customer retention, and expand our markets.
Our approach is to be prudent in our efforts to serve the one in three Americans with minimal to no mainstream access to responsible and affordable credit. Finally, we have an absolutely amazing team at World, and I'm very grateful for their commitment to their customers as well as to each other. They are helping our customers every day to establish and rebuild credit while also meeting immediate financial needs. At this time, Johnny Calmes is our Chief Financial and Strategy Officer, and I would like to open up to any questions you have.
Speaker 3
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. For your phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kyle Joseph of Stephens. Go ahead, please.
Speaker 0
Hey, good morning, guys. Thanks for taking my questions. I just want to parse through some of the credit developments in the quarter. I understand that you guys were expecting charge-offs to be higher because of late-stage DTUs last quarter. Obviously, delinquency has moved in the right direction this quarter. Is there anything that's driving that, whether it's underwriting changes and macro and how that kind of positions your outlook for charge-offs for the remainder of the year?
Speaker 1
Yeah, I think the biggest thing is the proportion of new customers in the portfolio. We had a really good third quarter or December quarter with new customer growth. At the end of December, our zero to five-month customer, right? They've only been with us for zero to up to five months. That made up 8.7% of our portfolio at December, or $120 million. That's now down to 7.2%, or $91 million at June, right? A lot of the risk has come out of the portfolio as that zero to five-month customer becomes a smaller proportion of the overall portfolio.
Speaker 0
Okay, I got it. That makes sense. You know, kind of on the strategy in terms of small loans, higher yields, give us a sense for where you are in terms of that strategy. Are you happy with the current mix? Would you expect ongoing growth in small loans and how you foresee that impacting the portfolio yield over time?
Speaker 1
Yeah, great question. I think right now we're fairly happy with the overall mix. We don't expect to dramatically increase investments into new customers beyond the current weighting of the portfolio. We have been running a strategy for the past year or two that really weights both new customers and returning customers pretty heavily in terms of our investments. We would like to continue that strategy, especially in terms of returning customers and overall customer retention. We're not really in a place where we are looking to massively grow the portfolio, either the base or the ledger. We're not looking for double-digit growth there. We're not looking to take any unnecessary risks on from a credit perspective.
To the extent that application volume of acceptable risk customers continues to be this high and operations continues to run as smoothly as it is, I would expect the current mix of new customers to be about the same, as well as former customers. In addition to that, still aiming for overall increase in customer retention.
Speaker 0
Got it. Helpful. Last time we caught up was April. Obviously, sentiment has shifted dramatically, at least in terms of public equity markets. At least, just give us a sense for any changes in your consumer behavior. It didn't sound like in April there had been a dramatic impact from tariffs. Any changes as at least the public stock market sentiment has shifted pretty dramatically since we last caught up.
Speaker 1
Yeah, we have not really seen any increase in risk from our, especially our newer customers. We would tend to see first signs of weakness there first. For our new customers, we've had some really tight underwriting for a few years, and even as we look at different credit bands, we haven't seen any real dramatic shifts in terms of first-pay defaults or their ability to repay. So far we haven't seen any real impacts of that.
Speaker 0
Got it. That's it for me. Thanks for taking my questions.
Speaker 1
Thanks.
Speaker 3
Question comes from John Rowan of Janney Montgomery Scott. Go ahead, please.
Speaker 4
Good morning, guys.
Speaker 1
Morning.
Speaker 4
Can you, Chad, repeat what you said about the repurchase authorization with the buckets that I guess come in once you retire the remaining notes?
Speaker 1
Yeah, with the new credit agreement, there's really two things at play here. There's an upfront repurchase allowance of $100 million in the first 12 months. In addition to that, we can also repurchase up to 100% of net income, which begins with January 1, 2025. There's already approximately $45 million in that bucket as well. As we sit today, that's around $145 million.
Speaker 4
Okay, I thought you said that there's another $100 million, that you'd have like $200 million upfront.
Speaker 1
That bucket will build as we continue our income going forward. Where that used to be, it would build at 50% of net income, it's now 100% of net income.
Speaker 4
Okay, you have $100 million that comes in, but is that governed by the notes that you have to repurchase?
Speaker 1
Right, yeah, the notes are sort of the limiting factor right now, right? As of today, we can repurchase, I think, $7.2 million, but once we retire the bonds, that's no longer a factor.
Speaker 4
Okay, you'll have just 100% of net income accruing into the bucket, correct?
Speaker 1
Correct.
Speaker 4
Okay. The new $640 million credit agreement, does that have any type of performance-based governor to repurchase or what are the debenture as far as the credit performance within that?
Speaker 1
There's nothing new in terms of that. There are some CPI measures in there, but that's nothing new in terms of that.
Speaker 4
If I'm not mistaken, I haven't looked at the CPI in a little while for your old credit agreement. It was in the low 20s, if I'm not mistaken, for a trailing, you know, on a trailing basis. Is that still around that same number?
Speaker 1
It's a progressive measure, right? It did, I think right now we're around 18. I think, I can't remember exactly what it is, maybe 23 or 24 is an event of default. I can't remember exactly what the number is, but we got plenty of cushion at this point.
Speaker 4
Okay. All right. Thank you.
Speaker 3
Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.
Speaker 2
Thank you for taking the time to join us today, and this concludes the first quarter earnings call for World Acceptance Corporation.
Speaker 3
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.