Q4 2020 Earnings Call
[music].
Good morning, and thank you for holding welcome to the QAD Inc. conference call to discuss earnings for the fiscal quarter ended January 31st 2020. My name is Michelle and I'll be your operator today during the presentation, all participants will be and they listen only mode.
After the speaker's remarks, you'll be invited to participate in a question and answer session.
As a reminder, this conference call is being recorded.
Companys earnings release dated April nine 2020 Bucks distributed before market opened this morning and can be accessed via the company's investor relations, What's our website at <unk> art Dot Com Dot com.
During todays call management will discuss among other financial performance measures adjusted EBITDA adjusted net income and adjusted earnings per diluted share. Please refer to the Companys earnings release that was issued today for a reconciliation of these non-GAAP measures to the most comparable GAAP measures I.
I must remind you that some of the statements made in this call are forward looking statements within the meaning of the federal security laws.
These forward looking statements.
Is that the company present expectations or beliefs concerning future about.
The company cautions that such statements are necessarily based on the certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.
Our speakers today, our norm Miller, the company's CEO and Lee Wright, the company COO and George Bashar The company CFO I would now like to turn the conference call over to Mr. Nick Miller. Please go ahead Sir.
Good morning, and welcome to Cogs fourth quarter fiscal year 2020 earnings conference call.
I want to start today's call by reviewing the rapidly evolving Colbert 19 crisis before turning the call over the weekend, George who will provide additional details on the quarter and our response to the current economic and business landscape as result of the covert 19 situation.
The cobot digestive health crisis has had a significant impact our daily lives and our Hearts go out to anyone who has been impacted by the illness.
We are taking decisive actions to respond to the near term challenges that have occurred since the crisis began.
The health and safety of our customers and employees has always been our top priority.
We are closely monitoring federal and state guidelines to ensure we are doing our part in helping prevent the spread of yield this while focusing on keeping our stores distribution centers and service operations open to provide a central products and services that help our customers a josh to in home activity.
Okay and lifestyles.
As of today nearly all our showrooms are open and I'm pleased that we can continue supporting our community by offering necessary home goods at affordable financing programs.
We are in regular contact with our state and local officials to ensure our stores remain open to provide a central products, such as refrigerators, and freezers washers and dryers air conditioners at home office products.
Critical to our response to the Cobot 19 crisis or the actions we have taken over these past four years to improve our balance sheet and credit operation, which provides us greater flexibility to successfully operate our business through this period of uncertainty.
Well over 130 years colleges provided a central products and services did improve the lifestyles of our local communities, while supporting customers and good and bad times to our affordable financing option.
In fact, our credit business started over 50 years ago helped Texas oil workers finance essential products for their homes during difficult market cycles.
We are proud of the strong relationships, we established during challenging periods as our products financing options and support help our customers recover in our communities rebuild.
I'm extremely pleased and grateful with how our team has responded.
I want to thank all our associates for their dedication to these uncertain times.
Demonstrating our commitment to our associates I'm pleased to one else we have temporarily increased wages by $2 an hour to support our frontline employees through this crisis.
In addition, we are temporarily reducing the salaries and compensation for certain business leaders.
This includes the salary reduction of 20% for our named executives and section 16 officers and a 25% reduction in my salary.
Throughout our history College business model has demonstrate has demonstrated its resiliency, while our fourth quarter credit and retail results were disappointing our near term objective is focused on navigating the unprecedented challenges created by the cobot 19 crisis.
We remain committed to helping our customers employees and communities in this time of need.
Our experienced leadership team profitable operating model and strong balance sheet provides us with the necessary platform and resources to respond to this challenging period.
So with this overview, let me turn the call over the we who will provide more details on our fourth quarter operating results and the specific actions, we're taking to respond to the coal bed banking crisis. Thanks norm, our fourth quarter financial results did not meet our expectations. We're disappointed with the performance of our credit and retail segments.
During the fourth quarter, we experienced declining credit trends associated with high risk vintages and increase a new customers in difficulties in collection efforts related to the implementation of our new loan management system.
As a result, we experienced an increase in first payment default 60, plus day delinquencies and reach balances. In addition, higher charge offs during the fourth quarter impacted our credit spread which declined to 790 basis points for the fourth quarter fiscal year 2020, compared to 890 basis points for the fourth quarter last fiscal year.
Sure.
In late March John Davis, President of credit collections resigned from the company and I have temporarily assumed his responsibilities until a replacement is found.
The difficulties in collection efforts associated with the loan management system are largely behind us and we are focused on improving underwriting in pursuing additional programs to enhance our yield.
Looking at our fourth quarter retail results, we believe tighter underwriting standards that we announced during the third quarter impacted same store sales by approximately 3% to 4% in the fourth quarter the challenging market conditions within our consumer electronics category. We mentioned on our last call also impacted same store sales by approximately 6% to 7%.
In addition, we continue to see some residual impact from hurricane Harvey during the fourth quarter as well as the continued impact new store cannibalization has had on same store sales.
Offsetting some of the retail weakness we experienced in the fourth quarter were strong sales of appliances accelerating ecommerce sales in the contribution of new stores I'm encouraged that we were able to maintain retail gross margin above 40% for the fourth quarter and full year, despite lower retail sales.
While our fourth quarter retail and credit results are disappointing we remain confident in our long term opportunities we're committed to the previous growth strategies, we've communicated over the past several quarters, which includes growing our store base, increasing our ecommerce sales expanding our product categories and leveraging our credit offerings. However.
Over the near term, we are adjusting our priorities respond to the cobot 19 crisis.
Let's look at the actions, we're taking in more detail.
We entered this challenging period in a strong financial position as our near term priorities adjust we revise our fiscal year 2021 store expansion plans and now playing on opening between six and eight showrooms. This fiscal year, which is a reduction from 16 to 18 showrooms. We previously announced we have also decided to delay.
Like any new showrooms associated with our future, Florida distribution center to next fiscal year.
From an operational standpoint in store shopping hours have been temporarily reduced across our store base to provide flexibility for our employees into allow more time for additional cleaning within our showrooms.
We're closely monitoring C.D.C. in federal guidelines, promoting a safe and healthy environment for our customers and employees.
In addition, as required in certain jurisdictions, we are limiting the number of customers in our showrooms at one time and practicing social distancing.
Meanwhile, the investment we made throughout fiscal 2022, our E Commerce digital and mobile platforms have played an important role in our ability to interact with customers more effectively while improving our online user experience and providing customers with important updates and account access 24 hours a day.
As customers adapt to in home lifestyles, we have recently experienced an increase in demand for a central home appliances and home office products, which are partially offset weaker demand for more discretionary categories like furniture and mattress.
From a credit perspective, the lessons we've learned from past disasters has provided us an operating framework to quickly respond to customer operational and performance issues. For example, we utilize third party collection companies with assets around the world, which will enable us to quickly increased capacity as the volume of delinquencies rise. In addition, many of our.
Total collectors and third party resources can work from Italy, which enabled us to continue to operate this important function.
To control delinquencies and charge offs, we've implemented a series of underwriting changes starting in March to remove high risk applicants selectively increase down payments and lower credit limits to improve performance of loans originated during this period.
The investments we've made in our credit platform allows us to actively monitor portfolio trends and we will continue to evaluate further underwriting changes to manage risk based on performance indicators. Finally, we have launched a number of payment relief programs to help customers through the hardships they're facing as a result of the Kobin 19 crisis.
To conclude my prepared remarks, while we made a lot of progress during fiscal year 2020, install our full year credit spread expanded 920 basis points, we experienced challenging retail credit results during the fourth quarter and we're disappointed with our recent performance.
We believe our experienced leadership team profitable operating model and strong balance sheet as well as the essential retail credit products, we provide customers will support us through the unprecedented challenges. The Kobin 19 health prices has created.
We are working hard to support our employees customers and communities throughout this period and I look forward to updating investors on the progress, we're making as we respond to the coping 19 pandemic and improve our credit in retail performance.
Before I turn the call over to George I also want to thank our 4100 associates across the 14 states in which we operate on behalf of the entire leadership team. Thank you for your hard work service and dedication through this challenging period now let me turn the call over to George to review our financial performance.
Actually on a consolidated basis revenues were $413 million for the fourth quarter. This fiscal year, representing a 4.6% decline from the same period last fiscal year.
GAAP net income was 17 cents per diluted share compared to 91 cents per diluted share for the fourth quarter fiscal year 2019 on a non-GAAP basis adjusting for certain charges and credits that income for the fourth quarter fiscal year 2020 was 20 cents per diluted share compared to 96 cents per diluted share for the same period last fiscal year.
Yes.
Adjusted EBITDA was $35.8 million or 8.7% of total revenue for the fourth quarter compared to $67.7 million or 15.6% of total revenue for the same period last fiscal year.
Reconciliations of GAAP to non-GAAP financial measures are available on our fourth quarter earnings press release that was issued this morning.
Looking at our retail segment in more detail total retail revenues for the fourth quarter were $315.3 million, a 7% decline from the same period last fiscal year.
Retail segment operating income was $35.7 million compared to $54.7 million for the same period last fiscal year.
The decline in retail segment profitability was primarily a result of lower retail sales and higher asked you know expenses associated with a greater number of new showrooms and additional investments we've made to support our growth.
Turning to the credit segment finance charges and other revenues were $97.7 million up 3.8% from the same period last fiscal year.
The credit segment loss before taxes was $28.6 million compared to a loss before taxes of $16.2 million, but the same period last fiscal year.
The larger segment loss credit segment loss was primarily due to $13.9 million year over year increase in the provision for bad debts and the credit segment as a result of an increase in incurred loss rate as well as higher first payment default and delinquency rate.
With this overview on our fourth quarter financial result, I want to discuss our current financial situation and the actions we have taken in response to the covert 19 pandemic.
We entered this challenging period in a strong financial position with diverse funding sources and ample liquidity.
We have more than two years until our high yield notes or revolving credit facility mature and we recently completed a 486 million dollar ABS transaction in November.
As a precautionary measure to maintain financial flexibility in mid March we borrowed an additional $275 million under our existing revolving credit facility and as of today's call. We have over $270 million a cash on our balance sheet.
We also have approximately $120 million availability under our revolving credit facility, bringing our total cash and immediately available liquidity to approximately $400 million as of today's call.
We believe that are available cash and liquidity and history accessing the capital markets give us a distinct advantage as we navigate this uncertain economic environment.
From an investment and operational perspective, we are delaying or eliminating certain non essential capital expenditures more aggressively managing working capital levels and cutting SGN expenses.
For example related to capital expenditures, we have significantly reduce the number of new showrooms, we plan to open this fiscal year, including delaying our Florida expansion.
It is important to note that our stores remain profitable even with significantly lower revenue as a result of the variable cost structure of our retail stores at high retail gross margins.
On average our showrooms break even with a reduction in retail revenue of nearly 60% from fiscal year 2020 levels.
We believe that our retail operating model provides us with additional flexibility to navigate challenging economic period, including most recently during the 2008 in 2009 recession.
We also expect to benefit from several provisions in the recently passed cares act, including accelerating certain tax deductions utilizing net operating loss carry backs at higher tax bracket and delaying the payment of certain payroll taxes.
In addition, the cares that has a number of unemployment an employer benefit that will help provide temporary relief to are meant to many of our customers.
As a note as you can see in the press release that was issued this morning revise our unaudited financial results for the third quarter fiscal year 2020 to reflect the correction of an error. This error has been updated in our historical financial result, and did not impact full year financial result for the year ended January 31 2020.
Before providing a final comment on diesel I want to mentioned that like many other retailers and given the near term uncertainty surrounding cobot 19, we are suspending our quarterly financial guidance.
As we've communicated over the last couple of quarters, we were required to adopt Cecil the current expected credit loss accounting standard on February Onest 2020.
We currently estimate that adopting Cecil will increase our total allowance for bad debts by 40% to 60% based on the portfolio composition that economic outlook as of February Onest 2020.
As a reminder, Cecil is simply an accounting changes and does not affect the cash flow are fundamental economics of our business. However, we believe that the combination of adopting Cecil and the economic certain uncertainty surrounding covert 19 will increase the variability of our provision for bad debts in the future and could impact quarterly segment profitability as a result.
Of higher provisions for bad debt.
Well this overview normally and I are happy to take your questions. Operator, Please open the call up the questions.
Thank you we will now be conducting a question and answer session. If you like to ask your question. Please press star one and your telephone keypad confirmation Tom will indicate your line is in the question Q you make press star to if he'd like to move your question from the Q for participants using speaker equipment, maybe necessary to pick up.
Handset before pressing the star Keith one moment, please only pull for your questions.
Our first question comes from the line of Rick Nelson with Stephen. Please proceed with your question.
Hi, Thanks.
Good morning.
I wish you don't have first quarter.
But uh huh.
You could expect kind of encouraging.
Cures thing where two weeks.
At quarter end terms, so it was tails.
Good credit book cohort in currencies.
Before and after Cobra, though right.
Sure Hi, Rick I'll start on the same store sales trends and then we can touch on the credit.
Side at the house on the same store sales prior to the.
The Corona virus hitting we were seeing in same store sales trends in had improved from the fourth quarter trends.
Once the virus hit.
We saw modest improvement from that trend initially in the same store sales, but a significant mix shift.
Away for more discretionary purchases, if you will furniture and mattresses and towards more essential purchases.
Home office products.
In the last several weeks.
I will say, it's been fairly volatile but.
We've seen same store sales settle in at approximately down 30%.
Driven by several factors, obviously as Lee mentioned, our reduced hours in our showrooms about 60% of our stores have limited occupancy of how many customers Andorra associates can be in our stores at any one time.
Also as Lee mentioned.
Is about a month ago, we started a variety of credit tightening efforts in anticipation of bomb credit pressure, what's the Corona virus and we're estimating it that impacted about 16%, 15% to 16% of sales at least the underwriting changes that we've done to this point we continue.
To examine the portfolio.
On a daily basis and determine.
You know and be comfortable with where.
Where our underwriting is that.
The customer traffic in the stores are down slightly more than the same store sales trend.
As customers are coming into the stores from an attempt to purchase standpoint, it's probably at a higher level than it typically is.
So we're converting more of the customers that come in applications online are up dramatically year over year.
By 30% plus.
I will say the dynamics are changing by the day and by the week as I said earlier high degree of variability for example, the shopping patterns are very very different than what they were pre corona virus.
During the week, we get much heavier traffic.
We do on the weekends the weekend the traffic is dropped off dramatically pre corona virus and stronger patterns during the week relatively speaking so.
You know, it's a it's a very dynamic environment. One there were obviously monitoring on a regular basis.
If we feel fortunate that 95% of our stores are open.
And able to operate.
Our associates have responded.
I can't stress enough and such a manner to be able.
To safely serve our customers take care of our customers with these essential products that we provide our communities and the way they've responded as Ben.
It's been pretty remarkable and testament to the quality of the workforce that we have so.
You want to touch and yes, I believe Rick on the credit side. Obviously, you saw we increased our provision because our allowance was increased for the fourth quarter due to what we're seeing in the portfolio for future charge offs that we were going to roll through so we saw that I will tell you we were having an excellent tax season because.
It was humming along prior to the complete outbreak of the Coca 19 pandemic.
Obviously post many the.
Sheltering places and basically shutdown of the economy.
We saw collections activity.
Decrease I would tell you that started to come back we're pleased with the cares act some of the stimulus programs others going out in the unemployment benefits. So as norm said one of the benefits of having our showrooms open is a 25% to 30% of our customers have historically make payments in our showrooms. So thats enabled us to continue that obviously from a collection standpoint.
We have people not only is still on our call centers still working but we also have work from home capability. So we're actively continuing to collect and we have seen collection standpoint things stabilize a bit.
We're certainly very focused on making sure that we're collecting from our portfolio. During this time period.
Because of our diverse both in house and third party collection groups.
You know and the ability from a flexibility standpoint to be able to work from home.
About 50% of our collectors are working from home now.
Outside of our showrooms and then we've increased collection efforts with the third party as well.
We feel confident right now.
The turns were getting in and that connects we're getting with customers.
Issue is that having the.
The cash and how that plays out in subsequent months makes it very difficult to predict what will happen with.
With the portfolio, but suffice to say we understand.
How critical it is to stay connected with our customers the recency from a payment standpoint.
Which is why a big reason why we want the stores opened not just.
Not just to be able to deliver those essential products, but also for those customers to be able to be able to make payments, which they are continuing to do it at a significantly but a significant level in the stores.
But.
Very difficult to predict what will happen what the portfolio going forward with what number of unknown once we have.
[laughter]. Thanks for like color you could be could be.
[laughter] Mark.
You know how about looking at.
When you anticipate could go to market try again I know you sure Scott completed a deal.
November.
Yeah, Hi go forward potential.
Sure Hey, Rick This is George let me start by Jane.
Today, we have approximately $400 million.
Cash and immediately available liquidity on our balance sheet.
To put that in context, when we drew down on the HDL about a month ago, we got just over $400 over the last month, we essentially news relatively little cash available liquidity.
To answer your question specifically.
A few weeks ago, Dave you asked market when schools dried up completely now we're starting to see.
The prime auto deals get done.
And more activity that's market, but as we sit here today.
$400 million of cash and liquidity on our balance sheet, we've got enough liquidity to Las Vegas for for the near term.
[laughter] character, and what you're kind of real estate man crews that.
Catch up to <unk>.
Accounting change or is there going forward.
Okay, but what are you should think about for recurrent Europe.
No. It's just a flip between Q3 in Q4.
Got it.
Thank you.
Look.
Thanks, Rick.
Thank you. Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your question.
Hey, good morning, guys. Thanks for answering my questions and for for all the color you. The color you provided given the volatility.
Seen recently first George just just going back to Steve. So yeah, we've seen some headlines about potential relief.
Related to see so I think it ties more to banks.
Are there any potential options to delays diesel or is it it's going to go in India effect kind of consistent with the color you gave us last quarter.
Oh no changes Unfortunately, the language and who cares act was specific to.
Depository institution.
There were some conversations about being bought it but as we sit here today, our intention is to adoption so consistent with the requirements in the for first quarter.
Sure and then just one follow up from me related to she credit in the Cecil World.
You can you give us a sense for I know you guys mentioned here you are still collecting but what you know what options do customers have that have been impacted should we anticipate sorta that the reengage balance increasing kind of similar to what we stop coast Harvey and just give a sense for how you see that.
Impacting DKI is a re aged balances and then as was the balance sheet in the piano.
Yes, Hey, tirelessly. So obviously, it's still early we do have relief programs for our customers. Obviously, we want to balance. The fact of these are ongoing customers with us we want to show compassion during the time period of great financial stress in their lives at the same point, obviously, we've extended credit and need to get paid but we do have.
Really programs for our customers.
And similar as you said to what we Didnt Harvey where we did a a goodwill today we're lead program.
That being said people do have to reach out to us directly it's not a at automatic.
Granting to every single person, we want to make sure that they call us we understand the exact circumstances and what's happening.
But we do have programs.
For them to provide them or leave how thats going to roll through obviously, we've got to watch very carefully it's still pretty early for us to see.
What transpires the air, but clearly as norm talked about we're very focused on collections, we understand the importance of it we have a lot of different ways and means a stay recent with our customers and still get some cash but also show the appropriate compassion to them.
And in addition to that Kyle we also had some programs where the customers are paying a certain amount of cash.
Right and in an effort to keep that recency with them, we are giving them some benefits from a concession standpoint.
Ensure that we're staying connected there and.
No keeping that cash flowing and so but again all of these as you mentioned are driven by the customer we're not doing anything unilateral across the portfolio and we will track this going forward.
Both Colgate.
Forbearance programs and not to be able to hopefully give some color on what's happening with.
Well there its program part of the portfolio as well as the remainder of the portfolio.
I appreciate that thanks, one last one from me too.
You know given.
Come in the economics economic disruption we seen.
And going back to the last financial downturn can you give us sense for current you know how that financing options change and starting to penetration rates.
Third party financial firms you guys Geez third party financing firms you guys.
Yes, Hey, cow, Italy and.
Well look clearly it's one of the benefits of we have as a retailer. The fact that we have a broad spectrum of financing options for our customers. If you want to pay cash for credit Thats Fantastic. Obviously, we have synchrony with some best in class no interest financing options to our higher.
Credit score customers and then obviously, we have our core call on credit programs for our customers and then to the extent that it makes more sense. There was a lisa an option. So unlike a lot of other retailers. We have the full spectrum I will tell you what we have seen and what we've talked about in our investor decks and other investor meetings is during the time to stress what we do see.
As we see.
Customers start to fall somewhat so to the extent that they may have been able to use cash or credit or use alternative means of financing. They may fall into our buckets. So we have the ability to provide them cost financing or if they fall out of us we've got leave stone so.
Well, we have seen the norm mentioned the number of applications have come to us via web has been up a very large amount. So we've seen people looking for credit obviously, they understand the importance of credit and Thats one of the beauties of our retail and credit model put together and as you know Kyle being in the credit space.
For a while and understand that added in 2008 2009 with the subprime market.
You see a tightening at the higher end, so that actually creates ultimately as you work through the environment.
Well typically some sales opportunities for takes more.
Fall into our.
Into our core cons credit, but as we mentioned we had in credit options across the spectrum enables us ultimately to serve those customers wherever they fall in the spectrum.
Got it that's very helpful. Thanks, very much for answering my questions.
Thanks.
Thank you. Our next question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Good morning, Norm Lee and George Thanks for taking my question.
I wanted just follow up on on some of the recent trends and the tightening just to make sure I heard your right nor am I think you said that that you had settled out closer to 30% down more recently on same store sales I think you said that you thought changes in underwriting maybe hurting your right now by 15% to 16% on same store.
Ill.
Is that right.
We did those are the correct numbers as we sit here today.
Okay, Great [laughter], so just as we're thinking about how the rest of the year.
Plays out.
The current underwriting set up has you running at a 15% to 16% headwind I guess can you help us think about.
How dynamic that that underwriting scorecard might be what Mike might make you change things back to the way they used to be so that some of that headwind goes away I'm just trying to separate out how much your same store sales might be hit by traffic issues and social listening thing issues versus some of the changes in underwriting you all are putting into place.
No I understand what I would say Brad as she is I wish I could give you.
I wish we had more concrete information we can give you the projecting what's going to happen I will tell you. We look at we're looking at the underwriting our first payment defaults, what's happening early delinquency trends in the buckets on literally a daily basis cash collected.
So those changes that we've done that 15% to 16% they've been in three or four different.
Integrations, where we've done a variety things credit limits.
Hi, or higher risk credit band and we were doing at based on what we're seeing what's the portfolio on a daily basis. So as we as Lee mentioned, we've seen the portfolios you know come in a more stable place here recently from a collection standpoint, so that gives us encouragement with.
Some of the stimulus things that are going on and frankly, as we connect with our customers and they understand the importance that we provide because in essence, although we're not a line of credit customers understand from doing business with us through the years when they pay us and they were good stead with us.
They have the ability to come back a ball from us in the future for these essential products and services in their home so.
Keeping that connectivity with them and the importance for the customer to continue to pay us. So that we can continue to serve them in the future are important talk all points for our collection teams in our collection efforts that as we see that stabilize that will ultimately determine what we will do with the portfolio.
Going forward, but for us to predict that right now very difficult if not impossible to do.
Got you that that's helpful color and then I guess just a question that that we've been getting about the business is how to think about.
The puts and takes on cash flow and and liquidity and it's it's clear that you all are being proactive about.
Making sure you have ability to to you know access your revolver and liquidity.
If we were to continue to see the sales running down at this 30% level I guess could you help us give us give us some.
Color around what sort of levers you can pull in terms of inventory reduction or perhaps tightening even more so that you are.
I don't need cash as much anymore color around that would be helpful.
Yeah, Hey, Brad This is George I think the first Dave that's important to point out is that.
Clearly the dynamics of our business are different from other traditional retailers mcl slow for US we continue to collect on receivables on our portfolio, but we're purchasing less inventory. So it actually is a positive can be positive from a liquidity standpoint in the short term in addition to the out the.
We've taken actions to.
Improve our working capital levels and cut expenses. So the combination of those two things are the reason why our liquidity has basically remained unchanged in both in the last month since the corner buyers.
Pandemic started.
And it's an area.
Brad that we continue to look at from an expense standpoint from a capital standpoint now we're.
Our stores are open a collection centers or we're still delivering into homes. Our service teams are still out servicing our products.
If they break down so our organization, although a number of folks are working remotely from headquarters standpoint.
In the field work or.
Our objective here is to get whatever revenue, we can to fill the needs from our customers and continue to be able to collect in service our customers.
And whether that's true.
To that way will.
We'll mitigate our need to have to take more draconian measures. It's our hope on an expense standpoint.
Gotcha, that's very helpful. Thank you all so much and good luck here.
Thanks, Brad.
Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Hi, good morning.
Good morning bright.
Thanks for taking my questions and I appreciate all the colors so far.
Sure I had a few topics I want to dive into here.
First off my guess is basically we talked about the press release in your prepared comments the issues with the loan management system. This one I understand better.
What happened there again, probably more importantly, it is that now is that issue where those issues now correct.
Yes, Hey, Brian good morning.
So just not to go into great detail, but add some color as you know we implemented two new systems.
Last year.
One of which was our loan management system, when we made a change.
Limitation of that.
Created some difficulties from as we looked at our ability.
To see and interface with our actual collections system and the visibility we had was more model than we would've liked so from a nimbleness perspective, an ability to act as quickly as we would have liked we weren't able to do that and that was would cause some of the issues that flowed through and that we talked about on the call.
And those are predominantly at this point.
No. We don't have been corrected anymore, we have the visibility we need to be able to effectively collect.
At the rate than we would expect going forward.
Okay got it then the second question.
No obviously with with the Cobot crisis, and there's a lot of Watergate reports here, but before we were talking before the crisis.
We were discussing you're talking to one about the dynamic within the TB business.
The more punctual higher.
Price TBC come down.
Come down in price significantly and that really impacted.
The value so to say that that cons added up market.
Again lots going on there how should we think about that that guidance that dynamic is that's beginning to correct itself or.
This cobot crisis potentially lengthen that bad issue as TV manufacturers, maybe you're not introduced as quickly as they could up you have more functional TPZ.
Yeah, Brian what I would say is I don't know fits links it did it certainly has exacerbated the issue.
Ladies MPD data that was out.
From two weeks ago, we're showing.
Hey, Espy's on from a national standpoint on TV is well under $300.
Which it has never I mean, that's the lowest point it has ever been because as what's happened is TV units are actually up slightly.
But asps across the board are down and they're down even at a greater extent at the higher value TV because Walmart cosco.
The Big box, guys, I hope and Thats, where and the online that's we're.
A significant majority the Tvs are being purchased as we sit here today. So in the absence of you know 8-K, which is coming out this year and and some other new functions and functionalities TV wise, depending on how that plays out with the goal that 19, it gets introduced into the stores.
[music].
I don't expect that to abate.
Or to improve in the short term.
We believe longer term. This is just a cyclical nature of the TV electronics business Thats occurred in the past before but.
Yes that would be the to covert 19 crisis is not going to help us in that area. Our ASP is still over $1000, but it's down.
Ill 20, plus percent continues to be down 20 plus percent from prior year.
Thanks Thats helpful. The my final question this looking forward.
Oh, it's clearly.
No one knows how how long this crisis will persist.
But as you can you know you know you know the business extraordinary walk me how I.
I assume you've got the crisis guys abate in the not too distant future how should we think about.
The recovery potential for costs are both from a retail and add a credit standpoint as as cities does the shock resins headwinds as begin to two to lessen.
Yeah, I would say.
On the credit side first they'll probably be more stress in the credit portfolio initially depending on.
You know reagents and the performance of those customers if the employment comes back.
Relatively quickly and one one of the things about our.
Our core customer at least is.
They make about around 47 $48000 in here and.
They live in recession.
Ill.
All the time basically they live paycheck to paycheck and interesting enough even when we were in the very early stages that the coal bed and and the shelter in place.
Orders were had not been issued yet, but you were starting to see the media pickup in early March we were already seeing our customers cut back from a tax season standpoint.
And preserving cash because they understand how to do that very very well and they're very very nimble in that environment. So.
Now in the short term big the credit portfolio is what will be if we have stress in the business. That's will come from believe ultimately it will create more opportunities from a retail standpoint, that's credit gets tightened by those.
Higher end in the spectrum and now with our full credit offering from GE, all the way down to lease the old now we believe it will create more opportunities ultimately from a retail.
Sales opportunities going forward as anticipated.
Got it very helpful.
Thanks again in a vessel Walker.
Thanks. Thanks.
Thank you. Our next question comes from the line of John Baugh Stifel. Please proceed with your question.
Good morning, and thank you for your all the time and detail I was wondering if we could maybe start with the with John Davis departure. He was an important hiring you build up a team around Jim what.
In hindsight.
I'm just trying to get some color for.
Either what went wrong with his decision, making your execution versus you know external factors, which there of course memory the start there.
Yeah, Hey, John Tousley toward.
Look obviously can't respond directly to his resignation, but clearly as I said in my prepared remarks, not happy with our credit performance in the quarter and obviously, we increased our allowances, we foresaw future charge offs increasing.
And obviously, we had a material weakness in a restatement.
And the operational issues resulted from that certainly that created that.
Certainly didn't make as happy so I mean, that's probably the most so we can go into I think what I would add though is.
We did build up a deep credit team. So we do have a team.
It certainly has been built up and and Thats why we have been able to make continue to make underwriting changes.
We continue to make those obviously monitor very closely with the team that we have in place. So so you're right. He was very important.
He did add value.
While he was here, but we still have a full team and obviously, we're actually looking for replacement and we'll continue to go forward and obviously have stepped into that role and working very closely with the team going forward.
And then could you, perhaps Carlos you mentioned.
Losses are up a p. deezer up delinquencies are up.
Is there way of looking at that.
Saying, how much or all pop, perhaps probably not is due to quote new customers or are you seeing deterioration with existing customers well.
So John and again as I've said in the prepared remarks, obviously, we had higher risk vintages that we had originally originated.
In the summer that was even through Q3, obviously, we made some underwriting changes to the middle of Q3, all that takes time to bake is it rolls through and we certainly have seen an increase from new customers. We continue to to talk about that and we've always talked about new customers are riskier than than existing customers and it takes time to sort of.
Settle them out and make them.
Look from a percent of the overall portfolio at the end of the fiscal year, new customers were 40% versus 38% last fiscal year.
And probably more importantly, when we even saw in Q4 was new customers were approximately 40, 43% versus last year. They were 34% so the new customer mix.
We saw as well as a high risk vintages, and then I've talked about the difficulties or the collection efforts related to the implementation of our loan management system. All three of those things had caused some issues and then you overlay with the covert 19.
Situation. So clearly we're monitoring very closely we're working through it I think we've made the right news from an underwriting perspective to make sure that who we are extending credit to is going to pay us back even with some of the koby 19 issues rolling through.
But again I was just tell you we're very focused on monitored all that let me let me highlight two things too if I could John one is just.
To amplify the comments that we made the credit team has done a very different place.
It was 4.55 years ago.
The resources the quality of the team the sophistication that the team is very different than it was 4.5 years ago.
When the credit business was losing a couple of hundred $250 million.
The second piece.
The second piece of it is the credit business itself.
Is it a very different place than it was 4.55 years ago.
That as we move to and in the third quarter saw thousand basis point spread and even in this fourth quarter with the now with disappointing performance still at about eight 700 9800 basis points to spread.
We have part of the reason that I've talked about for multiple years that thousand basis points. The spread is to give the company the flexibility during challenging difficult times to whether through.
Things that are outside of our control and it has put us in a place even with disappointing results coming out of the fourth quarter to be in a very solid position going forward to whether or not only the.
The deterioration in some of the credit performance in the portfolio, but also the coal that 19 pandemic as we whether through that here in the coming weeks and months.
Thanks for that and my last question was on the the the lease to own piece, which I think was in a 6% plus range for January quarter.
As you've tightened here again in March underwriting would we expect to see that funnel increase and be a bit of an offset maybe to the pressure you're seeing and then likewise.
What happens sort of the high end up here, you know you're you're up synchrony piece.
Where do you see the mix in other words of all the Threed underwriting buckets.
Well I mean, it's still early in the process what I would say is we are seeing.
At least on balance the sale increase we're also seeing synchrony increase as well.
On both ends of the credit spectrum.
Cash and credit is also.
People paying by cash in or credit card is also up.
You know initially out indicate as well so.
And for US all of those are like cash customers. So those are very positive for both the cash flow standpoint, and a credit portfolios.
And last if I could sneak one last one of them maybe for George.
You mentioned the last month being kind of a breakeven cash flow period is there some seasonal.
Unusual band that's it from the tax season that makes of all the other metrics for your business or similar you know the next month.
Different cash flow number that's that's a kind of a stable lumber.
I don't expect that our portfolio that are tasked images is going to remain flat here I mean, I think as a general comment.
You know, there's John when when sales slow for us.
Our business can generate cash.
Obviously, we're monitoring our cash and liquidity position here.
Here are closely and we believe that we've got enough cash available liquidity to last us your near term.
Okay.
Thanks, and good luck and there's still time.
Thanks, John.
Thank you. Our final question comes from the line of Bill Ryan with Compass point. Please proceed with your question.
Good morning, and thanks for taking my questions.
First question.
To what extent if any have you know some of the states have implemented various collection moratoriums.
And if that may be impacting.
Your ability to do collections are performing collections and related to that.
It's obviously, there's lot of deferrals going on Forbearances various programs at all to credit companies are offering.
How has that impacted the way you are recognizing interest income in the income statement and then the second question.
Yes, just on SGN A., I think everybody's kind of modeling a little bit north of four had been modeling a little bit north of 500 million NSG Nay for fiscal 21, you're obviously got some efforts to bring those expenses under control and bringing back down a little bit and you put dialed back on your new store openings, how should we be thinking about that number if you can give us a little bit of thought.
On that going into fiscal 21. Thanks.
Hey, Bill its Lee so with regards to your first question on states and restrictions or moratoriums on collection efforts, obviously each of the states and it's really only a handful they've done that.
And typically what we have seen at least for the states that we are actively and it's that restricted third party collection efforts.
Obviously, we're a first party collector, so it really hasn't impacted us much at all to be except that there is anything else for us. Obviously, we are complying by any of the state regulations or 30 statements are they made out there, but it really hasn't had a significant impact at all on us in particular, but obviously we're monitoring closely.
So states that we do we pull it back we have some third party. The does collections and then in Nevada in States, where there has been some impact.
It's not been material, we just pulled it back in house and done it ourselves.
Yes.
As it relates to your question about SGN, a obviously, we've gone from opening 16 18 stores to six to eight we incur upfront expenses associated with opening those new stores. So that by itself will reduce our sheet expense.
Lower than it otherwise would have been.
In addition to that we've taken a number of proactive measures to cut costs.
So we you should expect to see asked you to expense lower than it otherwise wouldn't that now obviously, we've now put out Q1 guidance.
And don't expect to put our full year guidance here, but but I think just as a directional sense that that's how I think about it and what I would say bill as we know this is the timeframe. When our next earnings call is fairly close relatively speaking because of the year end. So early June when we reported for the first quarter, our expectation as we would be.
I want to provide.
Even if we're not giving some guidance to be able to provide some direction from SGN standpoint on that activities that we've taken.
Okay and just the final question was related to interest income recognition, obviously, all financial institutions are granting various waivers deferments forbearances has that impacted or will it impact the way you recognize interest income on loans they receive some of those deferrals.
No it depends on the nature of the discussion as we sit here today.
Sending a alone is consistent with some of our policies that we have already got does not have itself changed the income recognition on.
On the account.
Okay. Thanks for taking my questions.
Okay.
Thank you there no further questions at this time I'd like to turn the call back over to Mr. Miller for any closing remarks.
Thank you very much first we appreciate.
The participation in the investors in your questions and your interest in the company, especially at all times, but especially guarantees unprecedented times and we look forward to providing you an update in a couple of months on our first quarter results and.
I have a great day.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful that.