Earnings call transcript: World Acceptance Q2 2025 misses EPS, stock falls

World Acceptance Corporation (WRLD) reported its Q2 FY2026 earnings, revealing a significant miss on earnings per share (EPS) expectations. The company posted an EPS of -$0.38, falling short of the forecasted $1.49, a surprise of -125.5%. Despite this, revenue exceeded expectations at $134.47 million, surpassing the forecast of $127.85 million. The stock responded negatively, dropping 10.13% in pre-market trading. According to InvestingPro data, the company maintains strong fundamentals with a GREAT financial health score and impressive YTD returns of 54.28%.

Key Takeaways

• EPS missed expectations by a significant margin, with a surprise of -125.5%.
• Revenue surpassed forecasts, achieving a 5.18% surprise.
• Stock price fell 10.13% in pre-market trading.
• Unusual expenses impacted financial performance.
• Company continues to target modest growth in its portfolio and customer base.

Company Performance

World Acceptance Corporation’s Q2 FY2026 performance was marked by several unusual financial events, including a bond redemption expense, a Mexico-related tax expense, and increased provisions due to new customer acquisitions. These factors contributed to the EPS miss. Despite these challenges, the company reported a nominal portfolio growth of 5.5% year-over-year and a return to pre-COVID growth levels in customer origination volumes.

Financial Highlights

• Revenue: $134.47 million, up from the forecast of $127.85 million.
• Earnings per share: -$0.38, compared to a forecast of $1.49.
• Portfolio growth: 5.5% year-over-year.
• New customer origination volume increased by 40% year-over-year.

Earnings vs. Forecast

World Acceptance reported a significant EPS miss, with actual EPS at -$0.38 against a forecast of $1.49, resulting in a negative surprise of 125.5%. Revenue, however, exceeded expectations by 5.18%, at $134.47 million compared to the forecasted $127.85 million.

Market Reaction

Following the earnings announcement, World Acceptance’s stock fell by 10.13% in pre-market trading, reflecting investor disappointment in the EPS miss. The stock price dropped to $173.08, moving away from its 52-week high of $185.48. Despite the revenue beat, the market response was largely negative, influenced by the unexpected EPS shortfall. InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 10.42 with a gross profit margin of 69.3%. InvestingPro subscribers have access to 8 additional key insights about WRLD’s valuation and growth prospects.

Outlook & Guidance

Looking forward, World Acceptance is targeting modest growth in both its portfolio and customer base. The company plans to continue optimizing its marketing spend and maintaining conservative credit standards. Guidance for the upcoming quarters indicates a focus on steady growth, with EPS forecasts for subsequent quarters ranging from $0.87 to $8.00. InvestingPro data shows management’s commitment to shareholder value through aggressive share buybacks, while maintaining strong liquidity with a current ratio of 13.03. Get detailed analysis and more exclusive insights with InvestingPro’s comprehensive research report, available for over 1,400 US stocks including WRLD.

Executive Commentary

CEO Chad Prashad expressed optimism about the company’s portfolio trajectory, stating, "We’re excited about the current portfolio and its trajectory." He emphasized the company’s adaptive marketing approach, noting, "We are very much a test and learn sort of environment." Despite the challenges, Prashad reassured stakeholders, "We haven’t seen any major signs of weakness."

Risks and Challenges

• Unusual financial events, such as bond redemption and tax expenses, may continue to impact profitability.
• The consumer loan market is showing some weakness, particularly in auto loans.
• Potential macroeconomic pressures could affect customer acquisition and retention.
• The company’s stock repurchase strategy may be influenced by market conditions and financial performance.

Q&A

During the earnings call, analysts focused on discrete financial items, the health of the consumer loan market, and the company’s marketing strategies. Concerns were raised about operational expenses and the impact of unusual financial events on future earnings.

Full transcript - World Acceptance Corporation (WRLD) Q2 2026:

Conference Operator: Good morning and welcome to World Acceptance Corporation’s second quarter 2026 earnings conference call. This call is being recorded. At this time, all participants have been placed in a listen-only mode. 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, 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.

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: Good morning, and thank you for joining our fiscal 2026 second quarter earnings call. There are a lot of great things to report in the portfolio, but before I get to those, I want to spend some time discussing a few unusual and one-off events that impacted this quarter, and then we’ll open up to any questions you have. First, we had a $3.7 million one-time expense from the early redemption of our bonds. This is approximately a $0.57 earnings per share impact after tax within the quarter. Second, even though we discontinued and disposed of our Mexico operations years ago, we had a $1.3 million discrete tax-related expense this quarter. There are no additional items related to our prior Mexico operations that we expect to impact any future business or financials, but this $1.3 million expense represents approximately $0.26 per share after tax this quarter.

We had the most new customer growth in the last four years this quarter, and this growth, primarily in new customers, which are our riskiest customer segment, resulted in a new customer portfolio at the end of Q2 that is 35% larger year over year. This marginal increase in provision is solely due to the increased new customer base, is approximately $5 million, solely due to new customers in the portfolio at the end of the second quarter. This represents approximately $0.78 per share after tax. These three unusual events in this quarter have a total impact of around $1.61 per share after tax on the quarter. Additionally, our long-term incentive compensation changes make for year-over-year comparisons rather difficult. Last year, we reversed around $18.1 million in long-term compensation from a prior plan, which benefited that quarter.

Conversely, this quarter we expense around $5.8 million of long-term compensation plan, which is about a $23.9 million net increase in our long-term incentive compensation expenses when you’re comparing year-over-year quarters. If you’re thinking about future quarters, the long-term incentive expense is front-loaded and will remain around $5.8 million for the third quarter before reducing by around $2 million in the fourth quarter and the following two quarters before reducing further. All right, that covers the major one-off and unique impacts within the second quarter. Now turning to the portfolio, our new customer origination volume is up around 40% year over year at the end of the second quarter. Year to date, our new customer origination volume is up 35% and back to pre-COVID levels, actually in line with the first half of both fiscal year 2019 and 2020.

This is a remarkable feat given the last few years of shrinking and reduced growth. Additionally, the first payment default rate, slow file, or delinquency rate of these new originations are in line with our fiscal 2019 and 2020 new borrower originations. We’re very grateful for all the hard work by so many folks within our teams and very pleased with these results that are able to return to healthy growth with good credit quality, maintain low first payment default rates while also increasing our portfolio yield by over 130 basis points year over year. When we include our returning former customers and look at all non-refinance originations, originations increased 15% year over year in the second quarter, making it the highest volume second quarter on record with the exception of fiscal year 2022.

Year to date, the first half of the fiscal year had 14% higher loan volume than last year. Again, the highest volume on record for the first half of a fiscal year with the exception of fiscal year 2022. This is especially important for our portfolio health as our repeat customers are lower credit risk, have a lower cost of acquisition and servicing, and help with overall retention, yield, and lower delinquency. All of this has helped us grow the portfolio nominally by 5.5% more this year relative to last year. We ended the second quarter with our portfolio up 1.5% year over year compared to a starting position of being down 4% at the beginning of the year on April 1, year over year.

Other great improvements to our capital position include, as we previously mentioned, this quarter we repurchased and canceled the remaining $170 million of our bonds instead of a $175 million warehouse facility. Also, in the quarter, we completed a new credit agreement, increasing commitments to $640 million and allowing for stock repurchases of up to 100% of net income, which is an increase from 50% of net income in our prior agreement, and an additional $100 million of upfront repurchase allowance in addition to the 100% of net income, which begins January 1, 2025. For that repurchase potential, we’ve already repurchased 9.1% of our shares so far year to date, which is around $80 million, with additional capacity to repurchase another $77 million this year, or approximately 8.6% of outstanding shares at yesterday’s price for a total potential repurchase of around 17.7% of outstanding shares, again, at yesterday’s share price.

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, stable and improving delinquency, lower cost of acquisition, improving yields, declining share count, and ultimately returning enhanced value to our shareholders through strong EPS growth. At this time, Johnny Calmes is our Chief Financial and Strategy Officer, and I would like to open up to any questions you may have.

Conference Operator: We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, 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. Your first question comes from John Rowan with Janney Montgomery Scott. Please go ahead.

Good morning, guys.

John Rowan, Analyst, Janney Montgomery Scott: Morning.

My apologies, the phone broke up a little. My phone broke up a little bit when you were talking about the three discrete items. I got the $0.26 from Mexico, but what were the other two to get to the $1.61?

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: Yes, we had $0.26 in Mexico. We had $0.57 due to the $3.7 million early redemption of our bonds, and approximately $0.78 EPS impact from around right at $5 million increase in our provision solely due to more new customer growth this second quarter than last second quarter.

Okay. I just want to make sure I understand a little bit more about some of your operating expenses going forward. You had $25 million, an increase of $25.4 million in personnel expense because of the grants, right? I’m assuming that that’s up $25 million versus the $18.5 million reversal last year. Is it safe to assume that there’s like $6.9 million, the net difference of that in personnel expense this quarter, going down to $5.8 million next quarter, then down to $3.8 million the quarter after that, and $1.8 million the quarter after that? Does that sound correct?

John Rowan, Analyst, Janney Montgomery Scott: Yep, sounds good.

Okay. I have one last housekeeping question. Obviously, you had a GAAP loss for the quarter. I’m assuming the diluted share count is just the basic share count. Can you tell me what the period end diluted share count was or the period end share count, and then what the dilution is so we can maybe get an idea of what the diluted share count is with positive earnings?

The quarter ending share count is around 4.8 million, and the dilution usually runs in the 100,000 to 200,000 shares depending on, obviously, where the share price is and other factors.

Okay. All right. That’s it for me. Thank you.

Conference Operator: Again, if you have a question, please press star then one. Your next question comes from Kyle Joseph with Stephens. Go ahead.

Kyle Joseph, Analyst, Stephens: Hey, good morning, guys. Thanks for taking my questions. Just want to get your sense for the health of the underlying consumer and kind of any changes since the last time we talked. Obviously, there’s been a lot of headlines, primarily in the auto space, and concerns about the consumer. I recognize you guys have some portfolio makeshift going on, but just stepping back and talking about the health of the underlying consumer and how that’s impacting both demand and credit.

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: Yeah, it’s a great question. We do track how our consumer is performing on other loans, and yeah, we have seen the same sort of weakness that you’re reading about in the papers, especially on auto loans. However, for us, we haven’t seen any major signs of weakness. We have proactively tightened our credit box for new customers multiple times so far this fiscal year. Very marginal tightening, typically on the very low end. Nothing really substantial in terms of overall approval rates or approval volumes. In terms of performance, we haven’t seen anything major that would impact the portfolio today.

Kyle Joseph, Analyst, Stephens: Got it. You guys talked about origination growth and new customers and just kind of want to get an update on marketing efforts that have been driving that, where you guys have been having success and kind of an update on the competitive environment as well.

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: Yeah. On the marketing side, we’ve done a number of things that have, I think, been very successful. We are very much a test and learn sort of environment. We have brought some modeling in-house on the solicitation model’s propensity to respond and couple those with overall performance expectations. We have a couple of very successful tests this past quarter that have dramatically reduced our cost of acquisition for pre-approval campaigns, primarily for new customers. This fiscal year, we have made some substantial changes to the way that we market to our former customers in order to increase our repeat business. We’ve seen substantial reductions in overall cost of acquisition there as well. With that being said, we haven’t anticipated returning back to the $20 million plus sort of marketing budget that we used to have in marketing.

We’re, for now, looking to aim for modest growth, somewhere in the mid to low single digits on the portfolio side, which is mid to high single digits on the customer base side. All of that is kind of tailwinds in terms of growth, but we’re still maintaining sort of smaller budgets on the marketing front. We are seeing increased demand and sort of increased application volume from customers in general. Maybe that’s also helping to fuel our lower cost of acquisition.

Kyle Joseph, Analyst, Stephens: Got it. Very helpful. Thanks for taking my questions.

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: Yep.

Conference Operator: Further questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.

Chad Prashad, President and Chief Executive Officer, World Acceptance Corporation: In closing, I want to thank our absolutely amazing team across the country, as well as those here in Greenville. I’m very grateful for their commitment to their customers and to our team members every day. They are helping our customers to establish and rebuild credit while meeting their immediate financial needs. Thank you for taking the time to join us today. This concludes the second quarter earnings call for World Acceptance Corporation.

Conference Operator: Conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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