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World Acceptance Corp (S.C.) (NASDAQ:WRLD)
Q4 2021 Earnings Call
May 7, 2021, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the World Acceptance Corporation Sponsored Fourth Quarter Press Release Conference Call. [Operator Instructions] [Operator Instructions] Before we begin, the corporation has requested that I make the following announcement. The comments made during this 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, plan, 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 in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2020, 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.

R Chad Prashad -- President and Chief Executive Officer

Good morning, and thank you for joining the World Acceptance earnings call for the end of the 2021 fiscal year and fourth quarter. As we've all experienced, this year has presented so many challenges both professionally and personally for all people. Our customers and team members are no exception, and both have risen to adapt and overcome the challenges. I first want to highlight a few amazing outcomes from this year. First, on the operating side, we've adapted to this new environment, creating safe and flexible work arrangements for employees, adjusting branch hours, expediting technology improvements, adapting underwriting and marketing with 39% of new customers now being sourced through digital channels, centralizing certain decisioning and loan funding segments, with a quarter of loans in our fourth quarter and approximately 24% being funded and closed remotely, all the while continuing and improving upon our already world-class customer service.

We're now seeing an all-time low in terms of loan delinquency, and we continue to see signs that customers' financial situations remain improved. Our culture also continues to be among one of our best assets, winning many Top Workplaces awards across the country, including being the only South Carolina-based company to be named a Top Workplaces USA in 2021. We also remain excited and optimistic in light of our successful execution across a range of initiatives in such an otherwise challenging year. We are now exceptionally well positioned for the future. Our capital and financing positions are solid with our recently amended bank agreement and $117 million in stock repurchase capacity today and continued low leverage. In order to fuel continued large loan growth, we expect to add another diversified funding source later this year. We've pivoted to serve higher-credit quality customers in Illinois with the recent passage of a 36% rate cap. Our portfolio in Illinois shrunk by less than 1% during the last fiscal year. This is compared to our entire portfolio, which decreased approximately 8.6% due to both the pandemic and the resulting stimulus drawbacks.

On the heels of its operational underwriting pivot in Illinois, we are proactively growing our large loan and lower interest rate portfolio in all of our states. During fiscal 2021, our large loan portfolio, loans greater than $2,500, grew by 7.4% compared to the end of March 2020. This is not a shift to focus on large loans and away from smaller loans but an additional focus on serving customers as they move up the credit market. In the states we currently operate in, this could roughly double the potential customer base and triple the potential portfolio size of just new customers in our expanded total addressable market. We've also been quite busy this quarter working with stakeholders across the country to convey the importance of equal access to regulated credit for all Americans. As in Illinois, rate caps can make it mathematically impossible to lend to large segments of the population, excluding millions of people from affordable regulated credit building and risk-priced credit. While World Acceptance has proven our ability to quickly pivot to higher-credit quality customers, as a community-based lender, we feel the responsibility to our communities to ensure that these citizens aren't left of choices, they don't give them a way to improve their credit history and/or put their assets at significant risk.

In the near future, we hope our customers will see us less as a lender and more as their one-stop shop for financial wellness. This includes our current installment loan and tax products but also seeks to improve the overall financial health of our customers with credit-building products, banking products like checking and savings accounts, revolving lines of credit and budget coaching that increases the financial stability through both proactively reducing monthly expenses and also increasing savings toward the customers' goals. We've piloted several financial health-related programs throughout fiscal 2021 and expect to announce several partnerships later this year to allow us to improve the financial lives of the 1.3 million to 1.5 million customers we serve annually. This is in addition to our traditional loan products. There's much to be excited about in the future.

At this time, John Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions about our fourth quarter fiscal 2021 earnings.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Kyle Joseph with Jefferies.

Kyle Joseph -- Jefferies -- Analyst

I think first one for John. Obviously, a lot going on last year in terms of the reserve with both COVID and CECL. But can you walk us through how you kind of envision the reserve going forward as ultimately loan demand recovers and theoretically the economy keeps chugging along?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Sure. Yes, so as of the end of March, we no longer have any incremental allowance related to COVID. And it's mostly a function to the stimulus that's happened over the last several months. So going forward, we expect it to be a more normalized process in allowance. And when you look at our portfolio and in gross loan portfolio, the allowance should grow at around 6% to 7% of that gross loan growth, right? There's a lot of different factors that can move that within that range or even possibly outside of that range. For instance, the 10-year, right? So if we begin to grow new customers, customers that are new to World, they could push that allowance to gross loans to the higher end. But if we grow larger loans that are to current and former customers, it could stay to that lower end of the 6% to 7%. And obviously, the other factors will be expected loss rates within those 10-year buckets, and those can move depending on the actual recent performance within those 10-year buckets. Does that help?

Kyle Joseph -- Jefferies -- Analyst

Got it. Very helpful. And then just in terms of loan demand recovering and kind of credit normalization, what are your expectations for the remainder of the calendar year here where -- stimulus is in the -- appears to be in the rearview. We had some changes in child tax credits and then kind of a more open economy with people -- discretionary spending going up.

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Sure, yes. So we're pretty hopeful for the next year after we have the April data, right? And April was more or less flat relative to March 31. And when you look year-over-year, we're down less than 2% versus last year just through April and that we're seeing similar trends obviously very early on in May. So obviously, most of the stimulus is behind us, it appears. And this year feels very different than last year. So when our customers received a stimulus last year, they didn't really have a lot of options to spend that stimulus money. So we feel like this year, there's more options for them, and that could help with demand for our loan product. Yes, obviously, I think there'll still be some impact of the stimulus for the next several months. But really, in the second half of the calendar year, we hope to see demand come back to more normalized levels.

Kyle Joseph -- Jefferies -- Analyst

Got it. Last one from me. Interesting commentary from you guys on Illinois that your loan portfolio has kind of hung in there better than the rest of the country. Is that kind of a function of other credit providers exiting that market as a result of regulations? Or can you explain what drove that?

R Chad Prashad -- President and Chief Executive Officer

Yes. It -- I mean that certainly is a potential factor. We put a lot of work in mid- to late January to pivot quite quickly. So we didn't wait until the bill was signed, which was several weeks later, but began operating as if it were in effect pretty much immediately. And so we changed our underwriting criteria and began to restrict underwriting to the most risky customers under the new rate cap and began moving more upstream to higher-credit quality customers, and the demand was quite high. But we're also able to retain a lot of our existing customers. World historically has been primarily a small-dollar lender with a smaller large loan business on the side. And through this process, we've been very proactive in making sure we have very competitive products that help retain customers and provide a very attractive option for them instead of going elsewhere. So I think that is the bigger cause for Illinois' overall success rather than decreased competition.

Operator

[Operator Instructions] The next question comes from John Rowan with Janney.

John Rowan -- Janney -- Analyst

I know you guys don't give guidance, but John, you kind of touched on it anyway. Can you give us an idea of what you think happened sequentially with the gross loan portfolio?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Look, yes, I mean I was trying to be fairly vague there, right?

John Rowan -- Janney -- Analyst

You opened the door.

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Yes, yes. So I'm not going to give hard numbers, right? But just in general, April looks good and May looks promising. Just anecdotally, we feel like that should lead to a pretty good second half of the calendar year. Obviously, it's hard to project exactly what that's going to look like. This is all new territory for us and everybody else. But we're hopeful, and there's early signs that demand should come back.

R Chad Prashad -- President and Chief Executive Officer

Just a few points that might help as you're modeling this. But last year, we took the opportunity to increase our central decisioning and how that whole process is rolled out and implemented. And through that process, we're able to adjust our underwriting criteria fairly rapidly. But we also made very conscious decisions to reduce our marketing spend for new customers right around this time last year just due to all the uncertainty. And so through the process from this point last year throughout the rest of the year, we saw our cost of acquisition decline mainly due to significant changes in marketing as well as significant investments and as we pivoted toward more digital sourcing of customers. And I see those playing out for the rest of the year. It certainly has been quite productive for us. So as you're thinking about future demand, prior to this point last year, it was primarily just brick-and-mortar entrants with a smaller portion coming in online. But that -- the online portion has continued to grow, and it's built into our overall process now. So that will certainly play a factor into future loan demand.

John Rowan -- Janney -- Analyst

Okay. Repurchases, did you buy any stock back this quarter? What's the outlook? Obviously, you have an authorization, but just based on the share count, it didn't look like you did much on that front this quarter.

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

That's right, yes. We didn't buy a lot back in the fourth quarter. We do have $21.4 million left under the current authorization and, as Chad mentioned, around $117 million available under the current debt facility. So yes, we'll likely get back in the market over the next several quarters.

John Rowan -- Janney -- Analyst

But there wasn't any type of limitation on the debt stack to why you couldn't have repurchased during this quarter, correct?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

No, no. There wasn't...

John Rowan -- Janney -- Analyst

Or not really like a restricted bucket or something?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

No. It was more just price-driven, right? I mean obviously, I don't know if you -- I'm sure you follow our stock, that I think we had some of the GameStop effect going on in the fourth quarter that drove our stock up pretty wildly during late January, early February. So that drove a lot of it.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Prashad for any closing remarks.

R Chad Prashad -- President and Chief Executive Officer

Thanks for joining us this quarter. And special thanks to all of our incredible team members for making this year incredibly successful in light of all the challenges that we've all faced professionally and personally. This concludes the 2021 Q4 earnings call for World Acceptance. I hope to see you guys for our Q1 call in August.

Operator

[Operator Closing Remarks]

Duration: 17 minutes

Call participants:

R Chad Prashad -- President and Chief Executive Officer

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Kyle Joseph -- Jefferies -- Analyst

John Rowan -- Janney -- Analyst

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