Q2 2022 PROG Holdings Inc Earnings Call
Good morning, and welcome to the prop Holdings, Inc. Second quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Mr. John Baugh, Vice President of Investor Relations for Prague, holding please go ahead.
Thank you and good morning, everyone welcome to the Prague Holdings second quarter 2022 earnings call.
Joining me. This morning are Steve Michaels Public Holdings, President and Chief Executive Officer, and Bryan Garner, our Chief Financial Officer.
Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website, Investor thought Prague Holdings Dot com.
During this call certain statements, we make will be forward looking.
Including comments regarding our expectations related to the impact of our lease decisioning adjustments and write off levels.
Leasing write off level for full year 2022.
The benefits, we expect from the adjustments, we have made to our SG&A spend.
I wanted to call your attention to our safe Harbor provision for forward looking statements that can be found at the end of the earnings press release that we issued earlier this morning.
That safe Harbor provision identifies risks that may cause actual results to differ materially from the expectations discussed in our forward looking statements.
There are additional risks that can be found in our annual report on Form 10-K for the year ended December 31, 2021, which we encourage you to read.
Listeners are cautioned not to place undue emphasis on forward looking statements, we make today and we undertake no obligation to update any such statements.
On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP earnings per share, which has been adjusted for certain items, which may affect the comparability of our performance with other companies.
These non-GAAP measures are detailed in the reconciliation tables included with our earnings release.
The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods.
To assist them in understanding the company's ongoing operational performance.
With that I would like to turn the call over to Steve Michaels Clog Holdings, President and Chief Executive Officer.
Steve.
Thank you John and good morning, everyone.
Appreciate you being with US today as we discuss our second quarter results and update you on our business as we navigate this dynamic macro backdrop, while continuing to support key growth initiatives.
I'm proud of the team's ability to quickly adapt to conditions that have been especially challenging for our customers and partners.
We expect these actions will provide future benefits as we aim to increase our share of a largely unserved addressable market.
As you may have seen in our press release. This morning, we launched a new exclusive partnership with Samsung Dot Com.
We are excited to have emerged from this competitive process as the exclusive provider of Samsung Dot coms lease to own payment options and are pleased to have onboard at yet another national ecommerce partner.
While the full benefits of this relationship will not be realized in 2022, we believe we will see meaningful benefits in 2023 and beyond as the partnership continues to ramp.
During our Q4 earnings call in February and most recent mid June update we said, we expected headwinds to our 2022 results as we lap stimulus and other government support.
Bill we believe our ability to manage the company's portfolio performance and expense structure, while growing our customer count and generating significant free cash flow will help us remain in a strong position even with the slowdown.
We further tightened lease decisioning during Q2 to address the increase in delinquencies and write offs, we are seeing due to the inflationary pressures our customers feeling.
As we move forward through this difficult environment, we will continue to make the necessary adjustments that we believe will move us back towards our targeted annual write off levels of 6% to 8%.
Also in June we announced adjustments to our SG&A spend levels in response to the headwinds we are experiencing and to align with our revenue outlook.
While cost cutting measures are never easy these actions demonstrate our ability to quickly adapt our cost structure to changing economic conditions, while maintaining investments in revenue generating initiatives that we anticipate will support our future growth prospects.
We're a progressive leasing segment second quarter <unk> revenues were in line with our revised expectations.
Q2, <unk> was down two 4% year over year, while E Commerce, <unk> increased almost 18% representing 15, 6% of progressive Leasing's total <unk> for the quarter.
We have now added 32 E Commerce partners to our platform in 2022 with more consumer brands in the pipeline for the remainder of this year.
Widespread weakness in retail traffic along with our tighter decisioning drove the decline in <unk>.
However that weakness was largely offset by share growth within many of our U S partners.
Retailers and consumers need us more than ever as inflation remains unusually high levels.
As I mentioned before for retailers, we drive fast integration with prospective partners and incremental sales with existing partners and for consumers, we offer purchasing power through flexible payment options.
While we have not yet seen an impact from credit providers tightening above us there is increasing evidence that those pressures are beginning to bill.
Consumer cash reserves, which were inflated by government stimulus programs that reduce spending during COVID-19 are depleting rapidly as income struggled to keep pace with inflation, leading to increased credit utilization.
We cannot predict the timing of when we may see a tailwind from tightened credit above us well, we expect ultimately that the current economic trends are more conducive to U S partners and consumers benefiting from our offerings.
In short we will continue to control what we can control.
Arguing do retailers complete.
Complete E Commerce integrations.
Improve the customer experience and manage our decisioning in a way that we believe will return us to our targeted financial performance.
Our Q2, adjusted EBITDA of $52 2 million was slightly better than our revised outlook as a result of lower than expected SG&A expense.
The provision for lease merchandise write offs for the second quarter was nine 8%.
As the quarter progressed, we made additional decisioning changes that have resulted in improvement in our early stage metrics and we believe that the adjustments. We have made year to date are working to drive our write offs lower from Q2 levels.
The average six to seven months duration of our lease portfolio means that our portfolio quickly shifts to the new lease pools originated with tighter decisioning.
As I mentioned earlier, the team executed well in the evolving environment.
Portfolio performance remains a key focus and we will continue to manage it through the remainder of the year in a manner that we believe will drive sustainable and profitable JV with healthy unit economics.
Our capital priorities remain unchanged.
During the second quarter, we repurchased three 9 million shares and have reduced our outstanding share count by 26% since the beginning of 2021.
We ended the quarter with a leverage ratio of 167 times, which is still in our opinion within a comfortable range.
We ended June with a cash position of $127 3 million, even after $98 4 million in share repurchases during the quarter.
Yeah.
The capital we generated for the full year will continue to allow us to reinvest in the business and maintain a strong balance sheet, even with dynamic economic backdrop.
I will close with emphasizing the strength of our business model.
Even in a challenging environment with negative GMB growth, we have demonstrated our ability to control unit economics quickly reduced cost to our revenue and generate significant cash flow.
Finally, I want to reiterate my appreciation for their resilience teamwork of all for all employees as we continue to execute on our strategy.
I will now turn the call over to Brian for a more detailed look at the quarters financials.
Brian .
Thanks, Steve and good morning.
Our second quarter financial results were in line with our June 16th update and reflect continued challenging operating conditions as our customers manage the impact of the current inflationary environment.
Our approach to navigating these headwinds is centered on addressing the financial drivers within our control. This includes making changes towards Sydney parameters to drive improved portfolio performance and.
In managing our SG&A costs to appropriate levels for the current revenue outlook.
With respect to the changes made in Decisioning.
Over the course of the last few quarters. The company has made a number of iterative changes to progressive Leasing's Decisioning algorithms and response to the deterioration in customer lease payment patterns.
We made the most significant of these changes in Q2 of 2022 based upon early indicators of increased delinquencies in the pools originated.
As we've stated previously the 6% to seven month average duration of our lease portfolio allows the company to influence the delinquency profile of our book relatively quickly through adjustments to our decision.
While the write off performance in Q2 was elevated relative to historical levels I am encouraged by the early data we've gathered on the performance of our recent lease pools, which have benefited from our tightened efforts.
We believe we remain on track to close the year near the high end of our 6% to 8% targeted annual write off range.
The annual outlook provided in our June update anticipates improvement from the write off levels, we saw in Q2.
As mentioned in our June release, the company took material steps to reduce its cost structure to align with our revised expectations for the remainder of the year.
While SG&A was elevated in Q2 of 'twenty. Two we expect these cost reduction measures will meaningfully reduce SG&A as a percentage of revenue from current levels.
These measures, including an approximately 10% reduction in our workforce.
Remove roughly $50 million of annualized cost compared to the plan that was the basis for our full year outlook provided in February of this year.
Turning to the financial results for the quarter, starting with progressive leasing segment.
<unk> revenue was $631 3 million for the quarter versus $646 million in the year ago period, and two 3% declines.
Our larger gross leased asset balances in the period, which ended the quarter up 12% year over year was a tailwind to revenue.
However, our accounts receivable provision.
Which is a direct reduction to revenue was $97 million in Q2 of 2022 compared to $39 8 million in the same period of 2021 more than offsetting the benefit of the larger portfolio.
Russell <unk> gross margin was 34% versus 31, 9% in the year ago period.
The decline in gross margin was primarily the result of the higher accounts receivable provision.
SG&A for the progressive waste segment, excluding restructuring charges was $81 9 million or 13% of revenues for Q2.
Resolution provision for lease merchandise write offs in Q2 was nine 8% or $61 8 million compared to four 8% and $31 3 million in the same quarter last year.
As discussed we believe this period's write off resolved will represent the high points of the year as the lease pools originated under the most recent tightening efforts become a larger percentage of our portfolio.
Turning to consolidated results.
Q2 revenues from Prague Holdings were $649 4 million versus $660 million in the year ago period.
Client of one 6%.
Adjusted EBITDA was $52 2 million or 8% of revenues in Q2 versus $104 9 million or 15, 9% for the prior year period.
The reduction in revenue and EBITDA was primarily attributable to decreased portfolio performance in the period relative to stimulus aided prior year period.
We generated $57 4 billion of cash from operations in Q2, and $155 7 million year to date.
Our Q2 GAAP diluted EPS was <unk> 37.
And our non-GAAP EPS was <unk> 52 sets.
We have 600 million of gross debt and $127 3 million in cash at the end of Q2 for a net leverage ratio of 167 times, our trailing 12 months adjusted EBITDA.
We also entered the third quarter with $350 million of availability under our Undrawn revolving credit facility.
During Q2, we repurchased three 9 million shares of stock for a total of $98 4 million at an average price of $25 23 per share.
As of quarter end, we had $384 4 million remaining under our $1 billion.
Purchase program.
In summary, our Q2 results were largely driven by the pressures on portfolio performance that negatively impacted near term results.
During the quarter, we adjusted our Decisioning and aggressively addressed our SG&A spend levels and response results caused by the pressures that are have impacted our customers.
We continue to monitor operational and financial metrics as we manage the business in a disciplined manner.
I'll now turn the call over to the operator for the Q&A portion of the call operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing mckeith.
Draw. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Kyle Joseph of Jefferies. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
So obviously a difficult operating environment stepping back.
I mean, you guys are one of the biggest if not the biggest in our space can you talk about how the operating environment as it is.
Impacting the competitive environment and what's happening to some of the smaller players.
Hey, guys good morning.
Yeah, I mean, it's tough tough environment.
Yeah.
As far as competition goes I mean, it's pretty much more of the same I mean, we've got a decent amount of competition in the regions is theres a number of players out there trying to.
Trying to win business.
And it's it's a there is some turnover and choppiness in the regions, but that's not different than it has been for the last several years I have not heard anything specific of any any smaller players are holding up shopper or disappearing.
But the aggressiveness of offers kind of ebbs and flows.
So as you know theres been the bigger.
Impact or the bigger trend in the from a competitive environment has been.
I guess, the larger players, becoming part of public companies with the certainly with the sema and with with Ambev. So there's more there's more movement in that.
Arena, we were having on the enterprise side we.
We haven't really seen a big big change there either.
But we're always.
We're always on the lookout for it so no no.
We have not seen the challenging conditions cause.
A decrease in competition, let's put it that way.
I got it and then shifting to credit Oh I've been getting this question a lot of folks are interested.
Auto finance, we're talking about frequency and severity of losses, but can you give us a sense for the write offs in the quarter, how much of that was frequency versus severity versus increase in reserve levels.
Yes.
Oh, I'll take a stab at that with respect to write offs.
The nine 8% in the quarter is obviously elevated above Ben.
But historically and are working diligently to bring that back down.
In a challenging macro environment.
We started to see the we're starting to see a deterioration I just mentioned on prior calls kind of late in the year last year and into the front half of this quarter. We've made a series of changes along the way and most meaningful here in Q2.
While it's still early.
We will continue to examine the delinquency trends of these of these new originated cohorts and what we're seeing is encouraging in terms of their trend is moving back towards historical levels.
From the currently elevated levels your question around.
Frequency versus versus magazine versus reserve really what we're what we're seeing that's pushing us.
Well outside the historical annual 16% with a nine 8%. It is it's been a reserve build over the course of the last.
Last few months and that that is being driven by the portfolio that was originated prior to this most recent tightening efforts.
So that's where the that's where the bulk of the movement you are seeing and you see that and you'll see that in our Q with respect to the change in the reserve that's disclosed.
But that's the most meaningful portion of it again, it's early.
There's there's plenty of.
Plenty of runway left for us as we close out the year, but we've tightened efforts. We've made to date are going to provide some relief as the.
But what was originated after these tiny numbers become a higher concentration of the portfolio overall and start to bring some relief to the current levels.
Got it very helpful. One last one from me congratulations on that.
New retail partner very excited it feels like it's been awhile since we've seen one announced in the space.
Just regarding your pipeline.
Can you give us a sense for the conversations youre, having with partners and are they more receptive given how much the environment has really changed in the last six months.
Thanks, Kyle and we are excited about about partnering with Samsung and we're pleased.
So you have come out of that competitive process.
As the exclusive provider of the one of the top global brands.
Yes.
We continue to believe and have said that these conditions that we're in while challenging our.
This business model should shine, both for consumers and for our retail partners.
I think from a <unk> standpoint, not not exactly that's that was your question, but are you there.
Our negative two 4% GMB, while below where we wanted it to be as investments are the fact that we're actually outperforming the underlying.
Performance of the mix.
Mixed basket of our retailers as it relates to as it relates to headline comps. So that's another kind of feather in the cap of the of the business model that we can.
Gained share and these are difficult times all of that because you said that it should be a more attractive solution for retailers that don't have a fully develops.
Finance back and we've been consistent in that and we continue to believe that these are as you have observed over the years long sales cycles, and we're doing everything we tend to to compress that time.
We're fast approaching.
Code free season for most retailers is weak as we prepare for the holiday season, but the but yeah I mean the the.
The conversations that we're having from a pipeline standpoint.
<unk> are positive and we look to.
To have conversion over the next couple of years.
Great. Thanks, so much for answering my questions.
Okay.
The next question comes from Anthony <unk> of Loop capital. Please go ahead.
Good morning. Thank you so much for taking my questions. So you know I allow me to ask a question that's a bid cycle analytics.
So you put out a press release about signing up Samsung.
If I recall correctly typically you don't put out press releases when you when you sign up new retail partners I don't recall Bestbuy winter allows one so I guess I'm just trying to figure out like why why a press release about about this particular one is it is it just defer.
Difference in sort of philosophy is it the answer is super excited about this I mean should we expect press releases on other partners like how should we sort of think about that I'm, probably over analyzing but that's what we do on the sell side.
No I appreciate that it's a it's a good question I mean, because it has not been this company's DNA to to put out the information like that I would say that.
Partially that was win progressive was under the Aaron's umbrella and now that we're a stand alone public.
We do have a different philosophy I would I would also say that in the instance of Loews and best buy.
You know folks like yourself and specifically U.
We break the news about our about an exciting partner that we would have and so and then we will be forced to respond to it. So I think we decided to take.
So it kind of own our own new cycle.
Put it out there and we are excited about Samsung, we think a top five global brand.
Endorsing the program and endorsing our leading position and capabilities is the thing to think.
Thing to talk about and so we decided to.
A partner with them.
And put the release out.
Got it fair enough fair enough. Okay. So just one one a follow up question, it's more on the credit tightening. So how should we think about credit tightening from the perspective of like.
Ah I guess acceptance credit acceptance rates right like in other words like when you tightened it do the do the acceptance rate go down from 70% to 50%, 60%, 55% like how should we how should we think about order of magnitude.
Yes.
Certainly and so approval rates or kind of how we measure that in some of the same thing as acceptance rates in your words so.
We took a series of tightening.
And as you know during the pandemic after the first kind of shock or off we look for opportunities to actually increase.
Rates because of the payment conditions and the liquidity that was in the market. So.
You got to look at it a culprit for a couple of different ways. If you were to if you were to look at Q2 approval rates.
First is Q2 of 'twenty, one we're probably down about 400 basis points. If you were to look at Q2 of 22 versus Q2 of 19.
Undisturbed pre pandemic.
It's more like.
100 basis points.
Now as Brian said, we tightened.
During the quarter. So April approval rates were higher than June approval rate so to give you another more.
Useful data point, if you look at.
As we sit here today last week, if you will it's a little bit more pronounced the change. So we're more like six or 700 basis points lower than last year and about 200 ish basis points lower than Q2 of 2009, I'm sorry July of 2019.
I am so loss right now sorry, sorry, what was the change in a year over year and then what was the change over 2019 I sort of.
I'm confused.
Hey, guys sorry.
The average approval rate in Q2.
Of 22.
So the quarter, we're reporting on now.
It was about 400 basis points lower than last year in 'twenty one.
Okay.
And it was about 100 basis points lower than the second quarter of 2019 before before the pandemic.
Got it.
Got it okay. That's helpful. Thank you.
Those numbers are a little bit wider if you look at.
Mid July versus the average of the quarter. So that's what I was trying to keep.
Communicate okay got it got it thanks for clarifying.
Got it.
The next question comes from Jason Haas of Bank of America. Please go ahead.
Hey, good morning, and thanks for taking my questions.
The first is just on the write off expectations for the rest of the year I think I heard high end of 6% to 8% was that is that the annual number is that what's expected for the second half.
And then what sort of GMP growth are you expecting after the second half to get there.
Yes, So I think your commentary was near the high end of the 68% and that's on an annual basis. So as we get to the end of the year and look back over the trailing 12, Jason we expect.
It would be near about 8% and we haven't given beyond that on the GMB.
Specifically <unk>, but I will tell you that.
Based on what we're seeing now and what we what we what informed our pre announcement in mid June and mid June we're anticipating having the back half G M b be weaker than the than the front half so and that's built into the outlook.
The revenue outlook I know it may be difficult to kind of triangulate that because of.
Moving and various disposition types, but we're.
We're expecting.
Weaker weaker GB.
Negative.
For the year.
And in the back half being weaker than the front half.
Got it that's helpful. And then I wanted to ask about how device segments performing at it looks like it's been pretty strong.
If you are tightening.
Credit there or maybe if youre seeing a different dynamic for that customer because I know, it's a little more higher income than the progressive leasing business.
Yes.
Has been strong over the last couple of years.
It is also seeing some some headwinds from us.
<unk> production standpoint.
And obviously it has a much different revenue recognition model.
And so G M b trends don't impact revenue quite as quickly as it does on the leasing model, but but it has been strong and resilient through the through the cycle.
It's a it's a longer average duration of the portfolio. So we manage it differently during the pandemic.
We have tightened a little bit.
<unk>.
Although we did not loosen during the during the pandemic.
When the liquidity conditions were so favorable so I don't have the same kind of approval metrics that I just gave anthony on the leasing side, but.
We're tighter than we were pre pandemic and we continue to look for evidence of Oh primaries or competitive secondary is tightening.
And different retail environments, because as you all know that's.
Our standing assumption is going to happen, although it's we.
We haven't seen much evidence of it and it's too early to tell but vibe is is managing its portfolio very well and.
Looking for opportunities to tighten and to react to what the credit supply.
Around it and above it.
<unk> is doing so that we can manage the reserve rates are within a tight tolerance, but also to try and achieve growth in partner well with our with our <unk> partners.
Got it that's helpful color. Thank you.
The next question comes from Bobby Griffin of Raymond James. Please go ahead.
Good morning. This is Alexandra <unk> on for Bobby Griffin. Thank you for taking our question.
Firstly can I just wanted to dive a little bit more into the more recent demand and potent activity trends.
Do you see kind of a somewhat stabilization birthday, and made given business update or trends still kind of continuing to deteriorate and remains volatile.
So it certainly continues to be a dynamic market I can't say that.
Things have changed materially in.
In the last month since June .
We do.
We're kind of looking at well, we always do this whether no matter what the environment is but we're looking at a origination pool kind of static pool analysis and so we've got the.
Portfolio the composition of the portfolio that was originated before the Q2 Decisioning changes and then the ones that were originated after <unk>.
And we're seeing you know.
Impact to Oh.
Payment behavior, and port and pool performance based on those decisioning changes, but as far as kind of some macro shock or shift function up and.
Improvement or deterioration in overall payment performance, we haven't seen a change material change since the mid mid June update.
Okay that is helpful. And then maybe you can talk a little bit more about the steps you've taken to align the cost structure, what part of the workforce, but that 10% decline in and then are you continuing to cut costs or do you feel good about where you are today based on the current portfolio performance.
Yes, I'll take that just just with respect to the cost measure first foremost these out as Steve said these actions are difficult, especially when they involve our employees and so we.
Absolutely took.
These steps knowing that they're going to be difficult, but but understanding the top line projections that we were putting out there. So we aligned quickly because we saw the deterioration in the portfolio and the consumer trend shifting.
As a result of the current environment.
Like I said these are these meaningful use you mentioned roughly 10% of our head count they were focused primarily.
On driving increased efficiencies throughout the organization.
With with focus on right sizing the variable cost for the for the revenue picture that we were we were staring out or we are staring at.
But a meaningful portion of those cost measures came from just getting more out of the business and driving efficiencies and we saw that in.
Our sales function as we saw that in our operational functions and we really wanted.
To emphasize the importance of maintaining our investment layer of future growth, they're not we're not.
At a point, where we want to wind those back meaningfully weavers, there's very.
The meaningful traction we have and we've maintained that in technology.
And elsewhere and so we've we've continued to include those as part of our cost structure. So.
Like you mentioned, we expect that used to be.
More evident in the P&L as we exit the year and start to trend more towards pre pandemic posture as a percentage of revenue and that sets us up well I think going into 2023 from a run rate perspective.
I mean, it's just it's probably worth mentioning I mean, that's about an.
And I'll come even after absorbing some of the inflationary pressures that we've seen on wages et cetera.
Throughout the course of the year.
Thank you so much about the Bakken.
Thank you.
The next question comes from Brad Thomas of Keybanc Capital markets. Please go ahead.
Hi, good morning, Thanks for taking my questions I apologize if I missed this but did you did you talk about what the customer growth was in the quarter I know that had been trending pretty favorably in the last few quarters.
How does the customer count trending for you.
It was trading higher and it's in our.
I don't have that number right in front of me.
<unk>.
But we do have that disclosed in our Q.
Okay no problem.
Maybe another question for you.
Steve as you and the team are talking to retailers, where we know that.
Those are challenged in getting a bit softer of late.
What are you hearing from them in terms of.
Trying to use more tools from the progressive tool kit.
And the likelihood that they may take on more and lean more into progressive in the quarters ahead here.
Yes, Thanks, Brian .
Yes, we're having great conversations there and I think that's one of the reasons why we've.
We've been able to gain share within a number of our retail partners is because we've been able to become.
More important to the retailers that we currently have and and.
Save more sales so things like marketing that we've talked about before both our direct to consumer.
Marketing for from Progressive.
Co branded marketing with retailers and progressive and then even.
Ross.
Cross marketing with multiple retailers within our within our.
Preferred partner network.
Sending out kind of joint offers those things are becoming we're having great conversations and our and our marketing teams are partnering well with their.
Their counterparts at our at our retail partners.
As I think I've mentioned in the previous quarter, we have had some conversations about potentially accelerating certain initiatives that were already on the roadmap, but maybe not.
Yeah.
Slotted until 2023, those things are difficult right everybody has a good idea and says.
Let's do this and let's get it done before holiday 'twenty, three or 'twenty two.
But then the real world comes in and there's competing priorities. So we're constantly fighting through that slog and trying to.
Prove or demonstrate with data Y O Y. Our initiative is has a bigger size of the prize and something else. They may be working on and we were having some success there so.
There's tons of examples of ways that we can become more productive ways that we can continue.
Continue to.
We integrate into our retail partners and become a bigger part of their business. These are the types of conditions, where those are.
Where those conversations are are fruitful and <unk>.
We look forward to continuing to Hum.
To prove the value of our partnership.
Hey, Brad.
Just a follow up.
All of them in front of me here so the.
Total total active customers one point, just under $1 1 billion for the.
As of June 30 versus just a.
990000.
For the same period of 2021 and that's a total customer count across the organization. So that's a nine 2% increase progressive leasing was was 965000 versus $905. The same period last year and lots of six 6% increase.
Okay.
That's really really helpful.
And I think that certainly.
Just some optimism about the continued growth prospects for the business.
As it relates to you know.
Revenues I know you're lapping some of the.
Tightening and early about trends are normalizing here I think a bit.
How are you all thinking about.
Revenues in <unk> and <unk>.
I mean, I think it's implied that maybe they get a little bit better even than what you just hadn't <unk> any more color about how youre thinking about overall revenues in the back half would be helpful.
Yes, I think your I think your intuition is right. You can you can kind of do the math on where we're at today and where our guide is and I think youre right. It starts didn't imply.
Some improvement as we as we entered the back half I mean really the challenge that we've we've been facing.
So far this year.
You've heard me say before.
As the portfolio grows that's that's a tailwind for revenue highlight customer count and you can also look at gross leased assets and those are those are moving in the right direction and what's been.
More than offsetting the momentum that we've had there is as we start to see kind of consumer dispositions come back you know 90 days starting to trend back down to Earth et cetera, its being offset by by the IPA our provision and then the buildup there, including the reserves at the Port.
Folio is spelled pressure, so I think that the path to a better place in the past.
Revenue growth I mean, it starts with G. M B, we've got to get that on the.
The upward trajectory, but I would I would say the GLA and C N B and C and this AOR provision because of the decision. He changes that we've made start to start.
Start to come back down to a reasonable level, that's the recipe for our.
Our revenue growth moving forward and that I think we've we've taken meaningful steps like we talked about about getting the getting the portfolio in the right place and I think that's up.
A big step in the right direction.
Great. Thanks, so much and good luck.
Thanks, Brad.
Yeah.
The next question comes from Vincent <unk> of Stephens. Please go ahead.
Thanks, Good morning, and congratulations on winning Samsung looking forward to hearing more of those merchant wins I wanted to follow up with.
With the.
The discussions youre, having with potential merger partners.
A bit of a two part question so first.
How's their focus and prioritization when do you think about adding we still and I remember I think.
During the pandemic there wasn't as much focus but sort of wondering what their thinking is now and then second part no.
I know some of these merchants are.
Like Samsung have other finance provider providers in categories like buy now pay later as an example, and I know you're still looking for evidence that primary lenders are tightening but.
Some of your discussions with your potential merchant partners.
Are you hearing them you know maybe getting frustrated with their current lenders are seeing tightening and not.
Trying to increase sales conversion.
Bye bye, adding progressive and looking outside their existing partnerships. Thank you.
Yes, Thank you Vincent.
Yes, I mean, those things those two questions are you know go together and I think the short answer would be would be yes.
Some more robust answer it would be.
Clearly during the during the pandemic.
It's tough to get an audience because things were going so great.
We've talked about that.
Now I'll comps or are challenged and.
Yeah.
Depending on what your view is on what the macro looks like from a recession standpoint is that going to happen is it not going to happen is it going to happen in 'twenty three retailers or are looking for solutions to you know to.
I have a more full suite of options and lease to own for those that don't have it seems like a no brainer to us and so that's our that's our job to communicate that retailers and we are having.
Productive conversations about that and having conversations about how do we get.
How do we get a pilot how do we prove the how do we.
It put into the into the priority stack for development resources as it relates to other credit supply I mean, we haven't seen.
Evidence of primaries tightened, but theres undeniable evidence about a b a b L. Players tightening I mean, they've ratchet it down out of necessity massively and when I when I am talking about the NPL and that in that instance, I'm being more specific to the paying for providers as we've said many times those aren't really a competitor for.
Alisa I'm kind of a 1000 plus dollar average ticket, but it does go into the psyche of the overall.
Kind of posture of the retailer.
Both the merchant.
Merchandising department as well as the Finance Department.
Uh huh.
Those things, while you know the shiny new object of paying for during the pandemic probably took away some mind share from us.
Now.
Those things are not maybe living up to the expectations and so there can be a a follow up conversation with us that we think can be very fruitful and and have massive positive ROI for the retailer I think that Samsung Bang as a as a.
A nice data point for that and we look forward to.
We have a roadmap with partnering with Samsung that will you know kind of crawl walk run just like we have previously.
And.
Those are the types of things that are that can really provide good evidence and get good data for our biz Dev team to go out and talk to some future retailers. So.
But we're optimistic.
But we're also realistic about the.
Sales cycle and the time it takes to get the large kind of enterprise clients that are that we're trying to.
Convert across the go lives.
Okay perfect.
Very helpful. Thank you and I guess speaking about a risk.
The recession kind of going back to underwriting.
Yes, if you could give us a sense it sounds like you feel comfortable with.
Debt underwriting, perhaps a stabilized here.
From from the write off it seems like you know the reserving is from losses that maybe haven't happened yet so maybe reserves for future losses sort of wondering what are your.
Assumptions and expectations that had been baked in when you think about the macro and.
You know on a potential upcoming recession. Thank you.
Yes, I mean so.
I kind of.
Without being too cute like I feel our customers in a recession right now like we may not be in a recession, but the but the bottom 40% do you see the Walmart news I mean, theres just so many data points.
Our customers in a recession now where there's strong employment right. So that's that's a that's a good thing that's why it's kind of a unique set of economic circumstances right now, but our customer is.
Is facing.
Double digit inflation in the things that matter and energy and housing and food and so they're feeling it already we're not anticipating things getting materially worse, but we're not anticipating them getting better so where.
We're firmly as we always have are firmly watching our pool performance and other than our customer service hub of activity in our call center activity.
Not a ton that we're that we can do on a pool that was originated in December of 'twenty, one or January of 'twenty, two but the pools that as Brian said that were originated post.
All of our Decisioning changes, we're watching them and and seeing how they're how they're performing we feel.
We feel good about the early indicators on those Bulls and we're doing.
Doing everything we can to not have the pools originated before those changes.
Deteriorate further.
We're not anticipating massive improvements in the or.
Any improvements quite frankly in those in those pools performance, but we're you know we're doing everything we can to make sure. They don't deteriorate further from here.
Okay. Okay. That's perfect. Thanks very much.
The next question comes from Hal dosage of.
Of loop capital. Please go ahead.
Okay. Thank you guys. My question is on approval rates I think you mentioned that maybe right now your approval rates are.
200 basis points lower than 2019 levels and I think in Q2, you mentioned they were a 100 basis points lower than 2019.
So those are much tighter conditions, there, but also your funnel of potential customers. There's a lot of people you have a lot more merchants on the platform and I think you mentioned you had 30, new ecommerce merchants added in the first half of the year.
And my question is like.
What is happening to just overall app.
Applications are.
Before you can improve in someone's house can apply so.
Give us your thoughts on on what Youre seeing.
Coming to you before you prove it as that.
Growing.
Is that down because of the economy and my follow up is if we can.
You have a job a strong job market.
Hum.
Is there a chance for better recovery later on down the line when people adjusted their new cost structures, but they still have their jobs and they start re engaging on payments.
Blast. Thank you.
Yeah. So on the first part of the question.
Youre right.
The top of funnel.
As is our applications are higher because we have.
A broader base of retailers and we're adding new E com players all the time.
It did it.
I do want to drill into approval rates quickly as it relates to being.
Compared to pre pandemic 2019 levels. There. There is has been channel shifts right in and we talk about 32, new E comm retailers just this year.
So the.
The source of your applications will impact approval rates as well and by their very nature E com or digital applications would have a lower approval rate than in store.
Sales.
Sales assisted applications so when.
When we compare when we're comparing July of 'twenty two approval rates to July of 19 approval rates a channel shift is.
A sizable component of those changes besides our view on.
The health of the consumer.
In this period versus that period.
Back to your question about Oh, Yeah, App volume volume is up.
Up nicely.
And and conversion is hanging in there we're just not.
Not improving as many as.
As we were.
Back then for the for various reasons, because we because we're managing.
Managing the portfolio to our targeted levels.
But what we expect and what we hope is we can continue to diversify the base.
And broadened the base of retailers and new consumers to Brad's point about our customer base going up such that when things do turn.
Or when.
Les when we when we when we see the tightened credit supply above us which is still our.
Base case assumption.
The top of the funnel it opens up even wider and we have a a bigger pool of.
Of applicants to approve and to convert and to grow G. N V with so.
There is work being done during this time of maybe.
Maybe more caution.
Two to help us help us grow when we come out of the other side of this.
Your question about employment and incomes matter right.
Our customers are resilient.
<unk> lived through various recessions are cycles, a lot and they they will get a second job they'll pick up a part time job to do something and so.
I do expect that they can adjust to the new normal and as long as things don't continue to get.
Progressively worse, they just kind of stay the same strong employment and helps.
No so far or wage inflation hasn't caught up or hasn't kept up with with cost inflation for our consumers. So they're there in a deficit.
But.
Over time, they will make the necessary adjustments and hopefully that'll show through in our in our portfolio performance and and customer payments.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Steve Michaels for any closing remarks.
Yes. Thank you and we appreciate you joining us this morning.
As we update you on our Q2.
I said this in my prepared remarks, but I certainly like to thank the.
All of the product people, it's a tough environment and they're doing a great job, taking care of our customers and partnering with our with our retailers to AR to continue to prove the value of the partnership everyday and I really appreciate everybody's efforts.
So it's a tough environment that we're in we're navigating through who would have thought that it would be hard to exit the pandemic them to get them to manage into the pandemic, but but that's where we find ourselves and we appreciate <unk> interest and we look forward to updating you in the coming quarters.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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