Q3 2022 PROG Holdings Inc Earnings Call

The conference will begin shortly.

As Johan during Q&A, you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the Park Holdings third quarter 2022 earnings Conference call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, John Baugh, Vice President Investor Relations. Please go ahead.

Okay.

Thank you and good morning, everyone.

Welcome to the product holdings third quarter 2022 earnings call.

Joining me this morning are Steve Michaels.

<unk>, President and Chief Executive Officer.

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.

Scott Prague Holdings Scott.

Sure.

During this call certain statements, we make will be forward looking including comments regarding our expectations related to the benefits of our least decisioning adjustments on delinquencies.

Write off levels.

Our accounts receivable provision.

Progressive leasing and write off levels all year 2022.

Our ability to convert additional retail partners for our pipeline.

Strength of our balance sheet going forward.

And our revised 2022 outlook.

I want 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.

We'll be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP .

Earnings per share, which have 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 and to assist them in understanding the company's ongoing operational.

<unk>.

With that I'd like to turn the call over to Steve Michael Hogg, Holdings', President and Chief Executive Officer, Steve.

Thank you John and good morning, everyone.

I appreciate your being with US today as we discuss our third quarter results and update you on our business.

I'd like to begin by highlighting the progress we have made to mitigate some of the impacts of the significant macroeconomic headwinds we face.

I will start with the actions we have taken to strengthen the quality of our portfolio.

As we mentioned last quarter. During Q2, we took decisive timely action around decisioning to address the trends we saw at the performance of our lease portfolio.

The second quarter's write offs were nine 8% well above our 6% to 8% targeted range.

A reflection of the continuing economic pressures being felt by our customer.

Our attention to early indicators pay performance and the decisive steps taken to impact the short duration portfolio have quickly benefited overall portfolio health.

As can be seen by the seven 2% write offs for progressive leasing for Q3.

And in the improved profitability from last quarter.

Based on the current performance of lease pools originated since our Q2 tightening efforts, we have not found it necessary to do additional pipe.

However, we continue to monitor early indicators of performance and we believe that we are still on track to achieve our goal of ending the year with write offs near the high end of our 6% to 8% targeted annual range.

Another REIT and we're controlling tightly our SG&A expenditures given the topline headwinds.

As we mentioned on our Q2 call, we have meaningfully reduced our level of spend.

These reductions were aimed at driving efficiencies across the organization and aligning servicing cost with our latest expectations around <unk> revenue.

For the third quarter SG&A as a percent of revenue for progressive leasing was 12, 4% down from Q2 levels of 13%, resulting from our focus on improving efficiency and right sizing SG&A across the organization.

The combination of these impairments and write offs and the cost reduction actions. We have taken were the primary drivers for progressive leasing strong increase in adjusted EBITDA margins from eight 1% in Q2 to 11, 3% in Q3.

We are pleased that our adjusted EBITDA margin in Q3 were more consistent with our historical targeted ranges. Despite the broad base of inflationary pressures on costs.

I would further point out that we achieved these margins while still investing in several key growth initiatives that we believe put us in the best position to capture the unserved market that remains.

With respect to progress on our growth initiatives. We've added approximately 60, new ecommerce retailers to our platform year to date and we remain on pace to add more than a dozen more in the fourth quarter.

These new partners will enable us to participate to an even greater degree and the continued expansion of online LTM.

Our GMB within the online channel continues to grow versus brick and mortar and E. Commerce accounted for 16, 5% of total Q3, <unk> compared to 14, 5% for the same period last year.

Yeah.

Our technology teams continue to deliver on our promise to develop products that enhance the experience for our retailers and customers.

We have collaborated with partners on a number of product innovations designed to increased balance of share while continuing to provide easy integration and interactions for retailers and increased flexibility for customers.

Constructive conversations with potential new retail partners are ongoing.

We firmly believe that this difficult retail environment is more conducive for us to connect with retailers, but we believe and benefit from our flexible payment solution and we remain optimistic about converting more of our pipeline over the next several years.

Our progress on portfolio health cost structure and key growth initiatives have mitigated some of the significant headwinds we continued to experience from the macroeconomic backdrop.

We saw weak consumer demand during the quarter across most of our retail verticals, including with the majority of our key partners.

And our addressable categories retail traffic remains down and we saw a number of large partners posted double digit negative comps in these categories.

Furthermore, the inflationary pressures being felt across the country are disproportionately impacting our customer creating softness in overall topline trends.

Despite this we were able to continue to increase our balance of share with a number of key partners.

While these challenges in the operating environment are not exclusive to us they represent the primary drivers for progressive Leasing's negative 11, 3% GMB comp in the period.

As the spending of the credit challenged consumer shifts away from our primary categories.

<unk> was also negatively impacted by our recent tightening of our lease Decisioning as I previously mentioned and as we discussed on our Q2 call.

Finally, as data for upstream credit providers 2022 origination pools become available we expect the increases in delinquencies recently reported across most FICO bands to continue.

While we have not yet seen meaningful tightening in the credit back above us these upstream delinquency increases historically perceived such tightening.

We anticipate that ultimately that tightening would lead to the widening of the top of our application funnel that we've been discussing for several quarters.

As a result of the continued challenging operating environment, we have lowered our full year 2022 financial outlook as shown in this morning's earnings press release.

As we have stated previously while not a direct read through our <unk> production is not immune to the double digit declines in some of our retailers are experiencing.

Nonetheless, we believe our focus on executing on initiatives to increase our balance of share with key retailers.

Continued technological innovations and additional pipeline conversions will help us mitigate some of those headwinds in the near and intermediate terms.

Looking forward, we expect Q4 will be challenging on the <unk> front and will likely come in similar to Q3 as year over year percentage decline.

We also expect write offs to remain similar to Q3 levels.

Our capital priorities remain unchanged during.

During the third quarter, we repurchased 588000 shares and have reduced our outstanding share count by 27% beginning of 2021.

We ended September with a cash position of $222 million.

We believe the capital we generate will continue to allow us to reinvest in the business and maintain a strong balance sheet, even with an uncertain economic backdrop.

During the quarter, we significantly improved our portfolio health, while right sizing our cost structure and remain focus on technological innovation and pipeline conversions as.

As we look ahead, we expect to continue managing these areas efficiently and within targeted annual ranges to benefit us as we enter 2023 and going forward.

I'll close with emphasizing the strength of our business model.

Even in a challenging environment with negative GMB growth, we have demonstrated our ability to manage the portfolio effectively create efficiencies within our cost structure and generate significant cash flow in the process.

Finally, I want to reiterate my appreciation for the teamwork of all proud employees as we continue to help consumers and retailers navigate this difficult environment.

I'll now turn the call over to Brian for a more detailed look at the quarters financials.

Brian .

Thanks, Dave and good morning.

Third quarter's financial results reflect the impact of a challenging operating environment mitigated to a degree by the actions we have taken.

Reducing write offs in SG&A spend that are progressive leasing segment.

During Q3, we saw adjusted EBITDA and adjusted EBITDA margins improved as a result of the actions we took while a challenging retail environment continues to negatively impact top line metrics.

Q3, <unk> for the Progressive Leisure segment was down 11, 3% year over year, driven primarily by macroeconomic factors, including a double digit year over year decline in addressable categories of many of our retailers and our tighter decisioning, partially offset by increases in our balance of share it.

Many key retail partners.

<unk> <unk> headwind in the quarter negatively impacted revenue and we believe it will continue to do so in the coming quarters.

As we exited the period, our gross lease asset balance was up three 3% year over year, a deceleration from the 12% growth reported for the end of the second quarter, which was primarily driven by the impact of a declining <unk> our portfolio size.

Progressive Leasing's revenue was $606 6 billion in the quarter compared to $635 million in the year ago period.

Four 5% decrease.

The accounts receivable provision, which is a direct reduction of revenue remains elevated from historical levels.

As you will see today in the company's 10-Q. This provision increased to $104 3 million for Q3 of 2022 from $61 5 million for Q3 of 2021.

The increase in our provision reflects higher delinquencies year over year.

However, as the full benefit of our tightening efforts impact our portfolio, we expect to see these delinquencies and AAR provision trend closer to pre pandemic levels.

Progressively should Q3 gross margin was 33% versus 31, 4% in Q3 of 2021, primarily a result of the higher accounts receivable provision, partially offset by lower 90 day buyout activity.

SG&A for the Progressive weakest segment was $75 2 million or 12, 4% of revenues versus $80 2 million or 12, 6% for Q for Q3 of 2021, a decrease of $5 million.

This decrease reflects the cost reduction actions, we discussed in Q2 as improvement efficiencies in an effort to rightsize, our cost structure, resulting in lower SG&A.

The rest of the weekend write offs of $43 5 million or seven 2% of revenues compared to $34 2 million or five 4% of revenues in the year ago period and to continue as we continue to compare against the stimulus stated period last year.

Write offs to clients from the nine 8% level, we saw in Q2, driven by our tightened efforts last quarter.

As we mentioned our annual target for write offs of 16% and we expect to be near the high end of this range for the full year of 2022.

Adjusted EBITDA for the Progressive leasing segment in the third quarter was $68 4 million compared to $8 4 million in the same period of 2021.

This decrease is a reflection of the difficult comparison to the stimulus same period last year and the current macro headwinds.

I will note that adjusted EBITDA for the Progressive leasing segment improved meaningfully.

For $51 2 million in Q2 was $16 4 million in Q3 and margins improved from eight 1% in Q2 to 11, 3% in Q3, driven primarily by the improvements in write offs SG&A.

Turning to consolidated results.

Q3 revenue from Prague Holdings of $625 8 million compared to $650 4 million in the year ago period at three 8% decrease.

Adjusted EBITDA for Q3 was $65 million or 10, 4% of revenues compared to $93 6 million or 14, 4% of revenues for the stimulus and it's third quarter last year.

We generated $127 4 million cash from operations in Q3, which is net of the working capital required to fund GMB.

As a reminder, we typically have net cash outflows from operations in Q4 period as a result of funding as a result of funding seasonally high <unk>.

Our Q3, GAAP diluted EPS of <unk> 32 cents.

And our non-GAAP EPS came in at 68.

We have $600 million of gross debt at $222 million of cash at the end of the third quarter.

And our net leverage ratio of 149 times trailing 12 months adjusted EBITDA.

We also ended the period with $350 million of availability under our Undrawn revolving credit facility.

During the third quarter, we repurchased $10 $9 million of outstanding common stock at an average share price of $18 52.

At quarter's end, we had $373 $5 million remaining under our $1 billion share repurchase program.

Finally, as Steve mentioned, we have lowered our full year 2022 financial outlook to reflect the challenges. We are currently experiencing around the macro environment.

Since our Q2 earnings call our expectations around <unk> have been adjusted downward.

As our customers deal with the impacts of inflation.

We also saw weaker than expected customer payment behavior on leases originated prior to our Q2 tightening efforts, which is reflected in our provision for accounts receivable.

As we enter 2023 and more of the portfolio is concentrated in leases originated after our Q2 tightening we expect this provision will trend towards pre pandemic levels.

Our updated fiscal year 2022 outlook gives us follows.

Revenues in a range of $2 580 to $2 five 9 billion.

Adjusted EBITDA between $235 and $240 million and non-GAAP EPS of $2 32 to.

<unk> to $2 38.

In summary, we are encouraged by the performance of our lease pools originated after the Q2 timing, which helps deliver into Q3 write offs seven 2%.

We're also encouraged by the improvement of our leasing segment's adjusted EBITDA margins.

To see similar benefit Q4, thanks to continued hard work and effort of our teams.

With that I'll now turn things over the operator for the Q&A portion of the call operator.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone.

These standby, while we compile the Q&A roster.

Yes.

Our first question comes from Kyle Joseph with Jefferies. Your line is now open.

Hey, good morning, guys. Thanks for having me on.

Just on.

<unk> obviously.

<unk> quarter on quarter, just trying to wrap my arms around how much of that was incremental macro pressure versus.

Underwriting changes or I guess, another way I could ask would be what was the date the underwriting changes or specifically made in <unk> and how much of an impact that they have in <unk> versus <unk>.

Yes. Good morning. This is Steve So we made we made underwriting changes throughout Q2 debates.

Early may late May and in June again, so it's difficult to parse out the <unk>.

<unk> in Q2, obviously they were in.

In full effect throughout all of Q3.

As you think about kind of the.

The <unk> pressures.

It's really two headwinds and a tailwind that have been around all year, because we made a we made some other small tweaks to the decisioning.

Back in February and March as well, so you've got you've got the macro weakness, we've seen application volume, which is kind of a proxy for.

Consumer demand in our retail partners be down in the in store channel.

<unk>.

Flat to slightly up in the online channel, but because.

Online, we have lower approval rates and lower conversion rates due to the well known kind of.

<unk> approval rate standpoint, but also lower purchase intent online.

Losing an app in store has a bigger impact on funded <unk>, losing an in App online.

So it's really been it's been consumer weakness from an app standpoint.

Along with our Decisioning posture offset slightly by higher ticket. So we have seen above four 5% to 5% increase in ticket. This.

This year.

Due to basically just inflationary pressures in the retail environment. So.

As you think about it year to date.

Yes.

Predominantly consumer weakness.

And decisioning offset by.

Ticket Q3, more specifically was probably more than 50% decisioning than you had.

Maybe a third ish from consumer weakness also offset by ticket.

Okay got it very helpful and then as you're thinking about the prospects for <unk> recovery, you guys mentioned that the supply of credit haven't seen any tightening yet there.

Italy more on the demand side.

There is it.

Thats just a function of if inflation gets under control is that do we have to lap some certain comp or do we kind of need to move away from the big product cycles. We saw in 2020 in 2021, but just how youre thinking about potential catalyst for our consumer demand to recover.

Yes.

The demand side.

It is obviously more difficult to predict there's always going to be a break fix cycle, but the farther we get away from the sort.

The testing and the stay at home.

Demand pull forward in the high liquidity.

Environment.

The pandemic, obviously the better it is for demand.

Certainly not expecting.

Some massive rebound in 2023 from a retail standpoint.

Depending on what your forecast is for the macro and whether we're going into a recession or not but.

But we do continue to be encouraged by our ability to.

Execute on certain Roadmaps that we have with retailers that can allow us to increase our balances of share even in the face of.

The headwinds from a demand standpoint.

We've done some of those this year, we've talked about them previously whether it would be fully E comm integrations or or waterfalls.

The credit stack or for continued marketing or.

<unk> of the stores so it's just.

We're certainly facing.

A difficult retail environment and as I've said, a number of times, it's not a direct read through to us.

Because we do have ways to mitigate but we're but we're not immune to it. So it's certainly cost pressures on <unk> and as we said in the prepared remarks, we're expecting a similar result in Q4.

Because of all the pressures that we've talked about the fact that the all important holiday season is still still in front of us and it remains to be seen how it's going to play out.

Got it and then one last one for me.

Follow up progressive for a long time.

This is probably one of the most.

The most challenging environment I think the business has faced.

But in consideration of that.

Have you seen any impact on the competitive environment. Obviously, you guys are one of the biggest in the space I would imagine some of the smaller competitors are.

Really the impact even more and are there any potential opportunities as a result of that in terms of winning partners are partners with us and with competitors et cetera, how youre thinking about the competitive dynamics given the tough tough backdrop.

Yes, I mean, it is a tough backdrop, but also.

It gives us the chance to demonstrate the strength of the business model and are one of the things that.

As shown through this this quarters, our ability to control the portfolio, which we've been talking about for a long time and have now proven it but.

But from a competitive standpoint from a growth standpoint, I mean, obviously the biggest size of the prize for US is still the Unserved Pam So we're going out there and having fruitful and constructive conversations with retailers that don't have lgs. We obviously are highly focused on taking share from competitors as well and taking advantage of opportunities.

Neither has a funding issue or is not living up to the promise to that retail partner.

But as we've said for years, it's a it's a very choppy and competitive environment, especially in the regions and so it's.

It's kind of like two steps forward, one step back in that Youll.

You can win a regional player from a competitor, but then you.

Turnaround and find out that somebody has come in and taken a little bit of business from you in a different one we're making progress there we've got a great regional our SMB team and they're doing really well there.

Progressive continues to the.

To show its leadership position in the industry and how we can win so were.

Encouraged about our ability to continue to grow that way.

It can help mitigate some of the.

Some of the like for like or same store pressures that we're feeling from a JV standpoint.

Sure.

Got it. Thank you very much for answering all my questions.

Thanks Scott.

Thank you.

Our next question comes from Jason Haas with Bank of America. Your line is now open.

Hey, good morning, and thanks for taking my questions. So it looks like from the guidance theres going to be better flow through from GMB.

Into revenue in the fourth quarter I don't know if thats, a reflection of lower accounts receivable provision.

And maybe just.

Given the Decisioning, it's better quality GMP that youre, bringing in better profitability I know those are tied together, but just curious if you can talk about that dynamic and if so we should continue to see that.

Your next four quarters or so into next year.

Yes, Jason it's Brian .

Yes, the accounts receivable revision as a direct reduction to revenue.

As I know you understand in B C.

The dynamics at play are the Decisioning changes, we made in the first half year continue to work their way through at this point in time.

If we think about.

Our accounts receivable position its still heavily weighted towards the old portfolio call it or the pre <unk>.

<unk> originations and so what's going to happen is that kind of moves towards our new Decisioning posture is you are going to see some relief on that accounts receivable attrition on a go forward basis, I think youll see it here in Q4 step down a bit and so that's part of the dynamic that I think you are seeing.

Got it that's great to hear.

In terms of the gross margin I am calculating it for the progressive.

Leasing segment.

And we're still running quite a bit I think it's maybe I don't know 200, bips or so below what you were doing in 2019. So I'm just curious if you could talk about.

Why that gross margin is lower I don't know if its a function of the environment's more competitive are you shifting to large national retailers that maybe have a different pricing structure.

And is it possible that we could get back to more like 2019 levels or is this the right run rate to use going forward.

Yes, I would say at the top of the list of factors impacting that that gross margin is this accounts receivable division.

Seeing how much it's increased from a year over year perspective, it's up I think roughly $43 million year over year from an absolute dollars perspective, as a percentage of call. It.

Gross revenue before that provision.

While elevated from historical levels. So I think the key to getting back to gross margins that are familiar pre.

Pre pandemic, it's going to be seeing that accounts receivable provision come down.

That's going to be a function of continuing to see delinquencies come down.

And Thats I think the path forward you.

The next the next biggest drivers or just what's happening from a disposition standpoint, but we actually saw 90 days come down a little bit year over year as we use a comp against a highly liquid.

Similar to same period last year, and so that's actually working as.

A tailwind so theres not been there has not been significant composition changes in terms of retailers or retail behaviors that will rise to the top of the list or is the biggest factors, we need to we need to turnover.

The accounts receivable.

Dynamic and we expect that will battle.

Moving to a more favorable spot.

Starting here in Q4.

We will work to make that continue.

Okay, great. Thank you.

Okay.

Thank you.

Our next question comes from Anthony <unk> with loop capital. Your line is now open.

Good morning, Thanks for taking my questions. So if I look at your.

<unk> revised guidance. So you brought down the midpoint of revenues by about 2%, but the breadth, but you brought down the midpoint of your EBITDA guidance by about 10% and if I. If I look at the sort of implied EBITDA margin. It goes from like 10% to nine 2%.

At the midpoint so.

I was just wondering what.

What accounts for that particularly given the fact that you said, you're taking costs out and it sounds like.

The lease merchandise rate write off rate has stabilized.

So I guess that was my first question.

Yes, there's a few moving parts.

I'll just offer I think you think about Q4 period.

You didn't have the highest <unk> generation expected with that you've got some variable cost.

<unk> transactions.

Transaction related costs that.

Flow through so.

Arc <unk>.

<unk> is it going immediately translate to revenue. So that's probably the that's probably the biggest piece I'd point you to I would just expect while we made a.

Our progress here in Q3 on SG&A.

I'm proud about where we've been from an execution standpoint on that cost reduction plan for Florida is a.

Yeah.

A number of that.

There is more reflective of where were at before we became a public company in 2019, and so so we've got a lot of work there, but theres still going to be I expect to tick up probably SDA into Q4, with which is those those transaction costs with the higher <unk> volume coming in in Q4 that we expect.

Relative to Q3, and that's going to put put a little bit of pressure as our expectation.

Got it that's helpful and then.

Talked about the fact that.

Because I see a lot of weakness with your retail partners.

System obviously.

We're seeing out there, but I guess the sort.

It's a double edged sword right because I think that would help you from a.

Retail partner pipeline perspective, So I was just wondering if you could give us any update in terms of.

Our retail partner pipeline.

Yes, Youre right.

In a tough retail environment Anthony events win.

Our.

Our offering of having a fully developed finance back.

In all retail should.

Should be more acceptable and more more conducive for those sales. So we're having we don't obviously talk about specific things in the pipeline, but this is the this is the environment, where we think that the.

We have the ability to make hay of obviously, where we are right upon code freezes for retailers for the holiday season. So.

It doesn't go quiet, because we're still having great conversations, but we're not really actively with hands on keyboards, but.

But it is a big opportunity for us.

Over the next one.

One to three years to convert the pipeline and were.

And encouraged about our ability to continue to do that.

Got it that's very helpful. Thank you.

Thank you Anthony.

Thank you.

Our next question comes from Brad Thomas with Keybanc. Your line is now open.

Hi, good morning, Thanks for taking my questions.

First just with respect to it.

Client underwriting Decisioning levels I was I was hoping for just perhaps a little bit more perspective on.

Where you are from a historic perspective, obviously it had some tightening in <unk>, but can you help give us some context for if you look back over maybe the last 10 years, where you stand on that kind of looser versus tighter perspective.

10 years is a long time and there has been.

Just kind of.

Massive changes to our Decisioning certification over that time and Theres been channel shift.

But what I will say this I'll give you absolute.

Approval rates changes like I did last quarter or so.

Further we're actually fairly flat when you're talking about year to date. So we're we're down 200 bps year to date for 'twenty, two versus 21, but only about $100.

Down 100 for our versus 2019 kind of pre pandemic now if youre talking about just Q3. After we did the decisioning changes.

Material decision changes in Q2.

We're down 750, or so 800 basis points from 2021, obviously 2021 was for.

For <unk>.

Approval rates because of the payment performance.

The stimulus Ada just.

The environment, we're in but we're down about 225 basis points from 2019 now these are weighted approval rates.

By channel. So if you were to normalize for channel and theirs.

A pretty material difference between approval rates online versus approval rates in store or.

Not even not to mention the conversion rates, but if you normalize by channel back in 2019 were fairly consistent with 2019 approval rates.

The apps were coming from the same channel.

If you go back previous to 19 back to the 15 to 18 period I always I don't have the data in front of me, but I would say we're approval rates are probably higher just because we've found ways through our decisioning models too.

Combined for those next approvals that can be can.

Can be profitable for us.

Yes, that's really helpful perspective, thank you.

And then I was hoping to ask a question just about.

EBITDA margins and maybe some initial thoughts as you think out 2023.

Yeah.

Our view on progressive as debt.

You've got tremendous opportunity to be a highly profitable business.

Out of that just comes with getting your underwriting aligned with the kind of consumer backdrop that you are a part of and obviously you've taken a lot of that medicine earlier this year.

We're also seeing a difficult retail environment, though.

So I guess as you think out to next year can you help me think about that those elements of.

Getting the underwriting more aligned with how the consumer actually is able to pay coupled with.

There's a level of investment that you think is warranted in the business and this perhaps more challenging environment.

And your optimism for margins for next year. Thanks.

Yes.

I mean.

From.

From the underwriting standpoint.

If you look at the if you look at the pools originated post.

June 30 or July one I mean, we're where we were where we expect to be or want to be.

With our historical six plus year, 6% to 8%.

Target of annual range from a loss standpoint.

Obviously, we're continuing to watch it in.

If unemployment starts to pick up.

No.

If we need to make or find it necessary to make additional decisioning changes, we will do that and as you have seen they can have fairly quickly quick <unk>.

Impacts on the portfolio, so as we flip the calendar page.

Into 2023, the portfolio will be.

Majority of heavy majority.

Comprised of leases originated post seven one of 'twenty two.

It won't be fully.

Fully there, but it'll be it'll be almost there.

As we think about.

The portfolio performance and portfolio health into 'twenty, three we feel good about where we are.

Clearly a risk is further deterioration in the economy.

Potential unemployment.

Though I would say that as.

As a green shoots of that that usually and it should.

The result in the.

The credits back above us tightening as we've all been kind of predicting and waiting for for several quarters that should open up the top of the application Paul for us which can bring in.

<unk>.

On average better quality applicants into our funnel without us even making any decisioning changes so.

So repeater in summary, the portfolio is in good shape moving forward.

Leases posted 71 and <unk>.

We have not found the need based on our weekly and daily monitoring to make additional changes since then but we stand ready to do it if it's necessary.

So from a health standpoint that will be a tailwind for us for sure for 2023, just because we won't be.

Having these.

Higher write offs and higher.

Bad debt expense or at least our provisioning expense.

From a.

We talked about pipeline, so thats, an encouragement I'm not sure.

How much of an impact that will have an.

And actual 2023, <unk>, but it could impact future future years and then.

From a from a growth standpoint, we look to be able to continue our productivity within our existing doors.

Hopefully add some more but you mentioned it.

Profitable business it is a profitable business.

Maybe less profitable this year than it has been historically, but it's.

It's a problem business that generates a significant amount of cash flow in all cycles.

And as we once we see the widening of the top of the funnel that'll be.

A removal of a headwind.

Hopefully a decent sized tailwind for us.

To continue to deliver those historical.

Margins and dollars.

Great. Thanks, very much deep.

Thank you.

Our next question comes from Bobby Griffin with Raymond James Your line is now open.

Morning, Bonnie Thanks for taking my questions.

I wanted to circle back just on the Opex side of the business.

Fever for Brian .

The fixed variable nature of this business changed over like the last 12 to 18 months with some of the investments I'm just trying to kind of connect the dots are if <unk> down again in <unk>.

<unk> why aren't we seeing opex kind of flex down with lower transactions or anything like that versus pick up as the earlier comments that sequentially.

Yes.

Just to add some color there the take up is.

From a from a Q3 to Q4.

A commentary there.

Yes.

That's not unusual when you when you look at seasonality historically, you've got a you've got a.

Higher <unk> Q4 is your highest that GMP degenerative period, and something that's going to step up from Q3, as our expectations and so that's going to be.

Part of the cost driver.

Hi.

The fixed variable nature of the business.

It was largely largely remained unchanged over the year as obviously, we have some public company costs.

We layered on post split.

Both of those are in a.

Yes.

Probably the range of $10 million to $15 million.

Of our total spend.

But generally generally speaking we remain a very highly variable.

The cost structure of that that's why we were able to.

We don't have Walter fixed obligations.

Saddled us.

For multiple years. So that's why we were able to quickly.

Demonstrate the improvement in SG&A in the Q3 timeframe.

Last quarter as Steve mentioned in his prepared remarks so.

It's one of the things that <unk> youre going to see you're going to see some.

Jamie moves sequentially from a from a quarter to quarter standpoint, you'll see SG&A move, but it still remains.

Largely within our control.

On a go forward basis, and so Steve comments about margins and our ability to maintain margins.

Part of part of the strength of the model is our continued control over that so it was really it was really commentary I'll just.

Expectations that SG&A as a percentage of revenue is generally higher in Q4, and Thats, what I'd expect suspect to see here, especially given kind of the way we're scheduling out GOP.

Okay. So maybe taking a step further I mean like if you back out the restructuring you back out the impairment were looking at maybe roughly 100 million Bucks.

In SG&A this quarter.

DNA so like if we have a couple more quarters that we go into 2023 and the GMB stays pressure, we will see that $100 million flex down in dollar terms or is there like <unk>.

Level of <unk>.

Investments thats going on there that we're not seeing the flex down in dollar terms. So thats why I mean, it just kind of looks like it's holding roughly at a $100 million may be picking up.

Yes, without getting too much color into into 2023, I guess I would say that generally I would expect.

Q1 SG&A.

Dollars or percentage to two.

The percentage of revenue to to relieve a bit from from Q4 levels, but again, we're not we're not.

Committing to into 2023 metrics just yet there's there's ongoing planning cycle, but I think youre thinking about it Ryan generally have just.

A bit of a tick up here in Q4.

Okay. That's helpful. I appreciate all the detail does it for my questions. Thanks for all the detail best of luck.

Okay.

Thank you.

Our next question comes from Vincent <unk> with Stephens. Your line is now open.

Hey, good morning, Thanks for taking my questions just two follow ups on earlier questions. So first on the write off rates. It was very nice to see.

The write off rates declined quarter over quarter, and I think you know.

Only one of the least one guys to show that good result.

So from the adjustments the tightening that was made in the second quarter is there still more.

More room for that write off rate to decline. So we haven't seen all of the improvement yet in the third quarter.

And then if you could maybe talk about the tightening have you done what sort of.

Hum macro backdrop is built into that or said another way like what what would it take in order for that write off rates potentially perhaps get worse.

Yeah I'll start this is Steve and Brian can chime in but.

The way that the portfolio works Theres two different dynamics when it comes to portfolio performance and what is the the write offs, which is R. Potently reported metric.

And that one moves more quickly because it's based on the.

The book value of the inventory that we have on lease and then there is the.

The AAR provision, which is also publicly reported metric but.

That.

It takes a little bit longer to move through the system. So from a write off standpoint.

B.

The post seven one lease originations are more of a story in Q3 then.

On the AR side.

They will continue to become the story in Q4, but as we said in the.

Our prepared remarks, we're expecting write offs in Q4 to be in the same neighborhood similar range to Q3.

Our goal from an annual standpoint of 6% to 8%. So we're not actually trying to drive write offs down.

Yes.

Five or even where they were during the pandemic.

It's probably too tight of a posture.

So we're expecting similar similar results.

In Q4, which we think will get us.

Near the high end of our 6% to 8% annual range, which we're proud of especially given the.

The.

Impacts of earlier this year.

Performance on the portfolio.

What's built in is we're basically China, we're basically tracking all of our early indicators, whether it be first pay balance or delinquencies or any of the other.

Indicators that we have against our pre pandemic pools because.

I don't remember the exact numbers in 18, and 19, but we delivered somewhere in the low sevens of write offs.

In those years and so that's kind of down the middle of the fairway of our 6% to 8% range and if we can track.

On a weekly basis.

Same results as the pool of matures then we feel good about our ability to deliver those results.

There is whats baked into it is kind of like the current economic backdrop.

Backdrop.

<unk> the stressors on our consumer.

What's not baked into it is some material shift up in unemployment.

<unk>.

Unemployment is also an interesting dynamic right because I expect unemployment to go up but but what are you hearing out there as far as layoffs is mostly in <unk>.

Engineers and tech in Silicon Valley is not necessarily an.

Hourly service workers and manufacturing now that May come and we are braced for that and we have our hands on the wheel to make adjustments, but there still seems to be a shortage in those workers and they would have to be a decent amount of demand destruction in order for further to the material weakness in that end of the employment curve.

Not saying, it's not going to happen, but I'm, saying that we're looking forward to embrace forward and can make adjustments. So.

So we're tracking towards pre pandemic.

That's our kind of guideposts and.

We're feeling really good about where we are.

Tools originated after after 701.

Okay, great. That's a lot of helpful detail.

And then a follow up.

Great to hear that merchant engagement is increasing just wondering if you could update us on sort of the discussions you are having in terms of the merchants that you are winning in the <unk>.

60, so far and another 12 this quarter.

If there is any sort of like <unk>.

Industries or bands that Youre, getting particular success with it and as far as should we think about the fourth quarter and the holiday selling selling season, what sort of engagement are you getting.

Marketing and promotional activity with the merchants. Thank you.

Yes, so on the economy, we're excited about our e-commerce activities.

If we add $75.

So new retailers in 2022, that's a we think a successful year. These are on the smaller side, obviously, they're not going to materially move the.

<unk>.

But they help us.

It's an E tail only retailer that's great if it's on E com.

Slow for a brick and mortar retailer that we already serve that helps us broaden and deepen the relationships. So.

We're pleased and excited with that.

With those with that progress.

And.

As it relates to the fourth quarter on larger merchants as I mentioned, mostly we have code freezes, but.

Yes.

As far as industries, there is theres a lot of opportunity for US right down I guess industry is another area, where it let's call it categories or verticals, there's a lot of it.

Opportunity for us right down the middle of the Fairway, we'll look to expand a little bit here and there.

If it fits that mold.

A bigger ticket item for a consumer.

Sure.

And we're definitely having conversations in that regard as well as it relates to the fourth quarter.

Marketing.

She is going to be an interesting one we're hearing from some of our retailers that they expect it to be a late developing holiday season, and I guess, the consumer has a lot of power in that because if the consumer says hey, I'm going to sit on my hands and wait.

Because I think theres going to be promotional activity or markdowns than just the fact of them waiting kind of causes the retailers to get.

Concerned and create markdowns and promotional activity so.

We're expecting.

The period on and around Black Friday through Christmas to be.

More heavily weighted than maybe even it is normal to normal years.

But in preparation for that we're we've got a number of things that we're doing partner with.

With our retailers' co branded marketing campaigns daily.

Daily deals in that and that partner week, we've also got a retailer <unk>.

Adopting point of purchase materials for the first time since we have been.

Since we've been with them. So we're pleased with.

The fact that our retailers are trusting us.

And reaching out to us in collaborating with us on how to.

How to make the most of out of our programs.

Okay perfect a lot of helpful detail. Thanks, so much.

Thank you.

Our next question comes from Howard <unk> with loop capital. Your line is now open.

Hey, Thanks, guys I had a question on the retailers that you've added maybe by not by name, but by cohort or the year. They were added in.

It's a mix of brick and mortar is a mix of E. Commerce. It mostly mentioned E. Commerce merchants you guided for the year and then you've also said later on the call that.

Uh huh.

Lower approval rates and generally lower lower take rates.

Quality is not as good.

Could you show this might be like.

The retailers that you added in 2018 1920.

'twenty one.

With the cohort that we're adequately during the pandemic did they come on at much higher productivity levels than normal and we're seeing that fall.

How are the cohorts by year Theyre added acting as you do that kind of analysis, because it seems like youre, adding merchants.

Every year every quarter <unk> down because of this.

Just trying to figure out like when things bottom up you're going to have it.

The next upturn.

We will have more merchants doing more business will come.

Coming out of this with ethical as cyclical and not just say flattish here. Thanks.

Yes, I'll try to tackle that one I'll start with the last part of your comments I mean, thats, certainly our basis and our expectation that the broader we can broaden the base the more.

Retailers and customers that we can add.

Well.

Create.

A better springboard, if you will for when retail environment.

Picks up and have that inflection point on growth.

Reverting back to the earlier part of the question.

It's difficult to say I mean two.

<unk> 2000 <unk>.

19 of obviously was a banner year for us that's why we when we added.

Best buy and Lowe's.

We didn't like ramp so 2019 was a good year, but we didn't ramp productivity faster than we otherwise would have during the pandemic because we actually felt like during the pandemic, we had a headwind on GMP production because customers have so much cash they didn't rely on.

Flexible payment options is mostly just paid cash of the REIT at the point of sale. So.

It kind of was the Covid pause if you will from a we did fine and we grew with those with those retailers, but I think all things being equal if we hadn't had COVID-19, we'd be we'd be further along with with those retailers than we are now.

And then as it relates to.

I don't want to make it sound like I'm not interested in online applications because.

Online applications you can you can get them very quickly and they can be millions of applications and in store while they do.

Have higher approval rates and higher conversion rates.

It's a numbers game, so even with the.

Even with the lower approval rates and conversion rates the numbers can can swamp the in store over time as we broaden our base of E Commerce.

E Tailers as well as our interaction with our own digital platforms as it relates to projects in their comments.

The Prague App so.

There is channel shifts we expect to continue channel shift not only from the application side, but also from the sub.

The <unk> side, we talked about growth there and up to 16, 5% of our <unk> was from the E. Com channel. So we expect that to continue.

It's just difficult to kind of go back to 17, 18, 19 and say what.

What happened and what will happen, but I would.

I would just add with that is our.

It is our goal and our objective is to get as many retailers as we can even while retail businesses saw such that when we get in those extra placement cycle and get that inflection point up we're starting from a much larger base.

Okay.

I'd say, though than that.

That.

The.

Our credit performance.

A big contributor to your earnings surgeon.

In 2020, 'twenty late 2020 in 2021 then.

That's right it's a portfolio.

Yes, well good performance, absolutely, yes, absolutely I mean, we.

We've been targeting that 11% to 13% adjusted EBITDA margin for a number of years.

When towards the payment performance because of all the stimulus came through in 2020. One we had write offs down in the two and 3% to 4% and we were very very clear that we are over earning the model at least in the growth phase that we expect that we're in so we're 40% to 60% EBITDA margins.

Cause and out of.

Out of target.

While we execute on so.

We expect to kind of get back towards those ranges. This year has been a reset.

In the opposite direction.

And my last question is that would you say that whats that.

Credit underwriting you've done to date the last time in Q2.

And the performance you just put up in Q3.

Speed at which the book turns over.

Would you say you are pretty set up to be in that 7% to 9% range.

Go forward from here.

Are you talking about the right offerings of 68% range yet.

Basically normalized Harcourt.

Yes, I think we feel good about where we are I think.

We have proven and demonstrated our ability to influence the portfolio very quickly.

And as the.

The months turn and we turned into 23 in the portfolio is comprised of.

Pools originated after the tightening we would expect it to deliver performance within those ranges.

Alright, Thank you very much.

Thank you.

That concludes today's question and answer session I will now turn the call over to Steve Michaels for closing remarks.

And thank you everyone for joining us today. We appreciate your continued interest in <unk>.

<unk> I just want to thank the team for really executing in a very difficult environment are our goal is to.

To make things easy for our retailers and our consumers and we continue to do that.

And this time in this choppy environment is when we become more important to both of those.

We look forward to continue to deliver on that promise and look forward to updating you next quarter.

This concludes today's conference call.

You for participating you may now disconnect.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

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Good day and thank you for standing by welcome to the <unk> Holdings third quarter 2022 earnings Conference call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, John Baugh, Vice President Investor Relations. Please go ahead.

Yeah.

Thank you and good morning, everyone.

I'll come to the product holdings third quarter 2022 earnings call.

Joining me. This morning are Steve Michaels private holdings, President and Chief Executive Officer and <unk>.

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.

<unk> Dot Prague Holdings Dot com.

During this call certain statements, we make will be forward looking including comments regarding our expectations related to the benefits of our lease decisioning adjustments on delinquencies.

Write off levels.

And our accounts receivable provision progressive leasing and write off levels for full year 2022.

Our ability to convert additional retail partners from our pipeline.

The strength of our balance sheet going forward.

And our revised 2022 outlook.

I want 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.

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'll be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP .

<unk> per share, which have 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 and to assist them in understanding the company's ongoing operational.

<unk>.

That I would like to turn the call over to Steve Michael Hogg, Holdings', President and Chief Executive Officer, Steve.

Thank you John and good morning, everyone.

I appreciate your being with US today as we discuss our third quarter results and update you on our business.

I'd like to begin by highlighting the progress we have made to mitigate some of the impacts of the significant macroeconomic headwinds we face.

I'll start with the actions we have taken to strengthen the quality of our portfolio.

As we mentioned last quarter. During Q2, we took decisive timely action around decisioning to address the trends we saw in the performance of our lease portfolio.

The second quarter's write offs were nine 8% well above our 6% to 8% targeted annual range.

A reflection of the continuing economic pressures being felt by our customer.

Our attention to early indicators payment performance and the decisive steps taken to impact the shorter duration portfolio have quickly benefited overall portfolio health.

As can be seen by the seven 2% write offs for progressive leasing for Q3 and in the improved profitability from last quarter.

Based on the current performance of lease pools originated since our Q2 tightening efforts, we have not found it necessary to do additional pipe.

However, we continue to monitor early indicators of full performance and we believe that we are still on track to achieve our goal of ending the year with write offs near the high end of our 6% to 8% targeted annual range.

Another REIT and we are controlling tightly our SG&A expenditures given the topline headwinds.

As we mentioned on our Q2 call, we have meaningfully reduced our level of spend.

These reductions were aimed at driving efficiencies across the organization and aligning servicing costs with our latest expectations around <unk> revenue.

For the third quarter SG&A as a percent of revenue for progressive leasing was 12, 4%.

Down from Q2 levels of 13%, resulting from our focus on improving efficiency and right sizing SG&A across the organization.

The combination of these improvements in write offs and the cost reduction actions. We have taken were the primary drivers for progressive leasing strong increase in adjusted EBITDA margins from eight 1% in Q2 to 11, 3% in Q3.

We are pleased that our adjusted EBITDA margin in Q3 were more consistent with our historical targeted ranges. Despite the broad based inflationary pressures on costs.

I would further point out that we achieved these margins while still investing in several key growth initiatives that we believe put us in the best position to capture the unserved market that remains.

With respect to progress on our growth initiatives. We've added approximately 60, new ecommerce retailers to our platform year to date and we remain on pace to add more than a dozen more in the fourth quarter.

These new partners will enable us to participate to an even greater degree and the continued expansion of online <unk>.

Our GNP within the online channel continues to grow versus brick and mortar and E. Commerce accounted for 16, 5% of total Q3, <unk> compared to 14, 5% for the same period last year.

Yeah.

Our technology teams continue to deliver on our promise to develop products that enhance the experience for our retailers and customers.

We have collaborated with partners on a number of product innovations designed to increased balance of share while continuing to provide easy integration and interactions for retailers and increased flexibility for customers.

Constructive conversations with potential new retail partners are ongoing.

We firmly believe that this difficult retail environment is more conducive for us to connect with retailers, who we believe can benefit from our flexible payment solution and we remain optimistic about converting more of our pipeline over the next several years.

Our progress on portfolio health cost structure and key growth initiatives have mitigated some of the significant headwinds we continue to experience from the macroeconomic backdrop.

We saw weak consumer demand during the quarter across most of our retail verticals, including with the majority of our key partners.

And our addressable categories retail traffic remains down and we saw a number of large partners post double digit negative comps in these categories.

Furthermore, the inflationary pressures being felt across the country are disproportionately impacting our customer creating softness in overall topline trends.

Despite this we were able to continue to increase our balance of share with a number of key partners.

While these challenges in the operating environment are not exclusive to us they represent the primary driver for progressive leasing negative 11, 3% GMB comp in the period.

Is the spending of the credit challenged consumer shifts away from our primary categories.

<unk> was also negatively impacted by our recent tightening of our lease Decisioning as I previously mentioned and as we discussed on our Q2 call.

Finally, as data for upstream credit providers 2022 origination pools become available we expect the increases in delinquencies recently reported across most FICO bands to continue.

While we have not yet seen meaningful tightening in the credits back above us these upstream delinquency increases historically perceived such tight.

And we anticipate that ultimately that tightening would lead to the widening of the top of our application funnel that we've been discussing for several quarters.

As a result of the continued challenging operating environment, we have lowered our full year 2022 financial outlook as shown in this morning's earnings press release.

As we've stated previously while not a direct read through our GMP production is not immune to the double digit declines in some of our retailers are experiencing.

Nonetheless, we believe our focus on executing on initiatives to increase our balance of share with key retailers.

Continued technological innovations and additional pipeline conversions will help us mitigate some of those headwinds in the near and intermediate terms.

Looking forward, we expect Q4 will be challenging on the GMP front and will likely come in similar to Q3's year over year percentage decline.

We also expect write offs to remain similar to Q3 levels.

Our capital priorities remain unchanged.

During the third quarter, we repurchased 588000 shares and have reduced our outstanding share count by 27% beginning of 2021.

We ended September with a cash position of $222 million.

We believe the capital we generate we will continue to allow us to reinvest in the business and maintain a strong balance sheet, even with an uncertain economic backdrop.

During the quarter, we significantly improved our portfolio health.

Right sizing our cost structure and remain focus on technological innovation and pipeline conversions.

As we look ahead, we expect to continue managing these areas efficiently and within targeted annual ranges to benefit us as we enter 2023 and going forward.

I'll close with emphasizing the strength of our business model.

Even in a challenging environment with negative <unk> growth, we have demonstrated our ability to manage the portfolio effectively create efficiencies within our cost structure and generate significant cash flow in the process.

Finally, I want to reiterate my appreciation for the teamwork of all proud employees as we continue to help consumers and retailers navigate this difficult environment.

I'll now turn the call over to Brian for a more detailed look at the quarters financials.

Ryan.

Thanks, Steve and good morning.

Third quarter's financial results reflect the impact of a challenging operating environment mitigated to a degree by the actions we have taken.

Reducing write offs in SG&A spend at our progressive leasing segment.

During Q3, we saw adjusted EBITDA and adjusted EBITDA margins improved as a result of the actions we took while a challenging retail environment continues to negatively impact top line metrics.

Q3, <unk> for the Progressive leasing segment was down 11, 3% year over year, driven primarily by macroeconomic factors, including a double digit year over year decline in addressable categories of many of our retailers and our tighter decision, partially offset by increases our balance of share it.

Key retail partners.

<unk> headwinds in the quarter negatively impacted revenue and we believe we'll continue to do so in the coming quarters.

As we exited the period, our gross lease asset balance was up three 3% year over year, a deceleration from the 12% growth reported for the end of the second quarter, which was primarily driven by the impact of the decline <unk> our portfolio size.

Progressive Leasing's revenue was $606 6 billion in the quarter compared to $635 million in the year ago period.

Four 5% decrease.

The accounts receivable provision, which is a direct reduction to revenue remains elevated from historical levels.

As you will see today in the company's 10-Q. This provision increased to $104 3 million for Q3 of 2022 of $61 5 million for Q3 of 2021.

The increase in our provision reflects higher delinquencies year over year.

However, as the full benefit of our tightening efforts impact our portfolio, we expect to see these delinquencies and AAR provision trend closer to pre pandemic levels.

Progressive we said Q3 gross margin was 33% versus 31, 4% in Q3 and 2021, primarily a result of the higher accounts receivable provision, partially offset by lower 90 day buyout activity.

SG&A for the Progressive weakest segment was $75 2 million or 12, 4% of revenues versus $80 2 million or 12, 6% for Q for Q3 of 2021, a decrease of $5 million.

This decrease reflects the cost reduction actions, we discussed in Q2 as improvement efficiencies in an effort to rightsize, our cost structure, resulting in lower SG&A.

Our restaurant, we can write offs of $43 5 million seven 2% of revenues compared to $34 2 million or five 4% of revenues in the year ago period and to maintain as we continue to compare against the stimulus stated period last year.

Write offs declined from the nine 8% level, we saw in Q2, driven by our tightened efforts last quarter.

As we mentioned at our annual target for write offs of 16% and we expect to be near the high end of this range for the full year of 2022.

Adjusted EBITDA for the aggressive leasing segment in the third quarter was $68 4 million compared to $8 4 million in the same period of 2021.

This decrease is a reflection of the difficult comparison to the stimulus same period last year and the current macro headwinds.

I will note that adjusted EBITDA for the Progressive leasing segment improved meaningfully.

For $51 2 million in Q2 was $16 4 million in Q3 and margins improved from eight 1% in Q2 to 11, 3% in Q3, driven primarily by the improvements in write offs of SG&A.

Turning to consolidated results.

Q3 revenue from Prague Holdings of $625 8 million compared to $650 4 million in the year ago period at three 8% decrease.

Adjusted EBITDA for Q3 was $65 million or 10, 4% of revenues compared to $93 6 million or 14, 4% of revenues from stimulus and in third quarter last year.

We generated $127 4 million of cash from operations in Q3, which is net of the working capital required to fund GMB.

As a reminder, we typically have net cash outflows from operations in Q4 period as a result of funding as a result of funding seasonally high <unk>.

Our Q3, GAAP diluted EPS of <unk> 32 cents.

And our non-GAAP EPS came in at 68.

We have $600 million of gross debt at $222 million of cash at the end of the third quarter.

And our net leverage ratio of 149 times trailing 12 month adjusted EBITDA.

We also ended the period with $350 million of availability under our Undrawn revolving credit facility.

During the third quarter, we repurchased $10 $9 million of outstanding common stock at an average share price of $18 52.

At quarter's end, we had $373 $5 million remaining under our $1 billion share repurchase program.

Finally, as Steve mentioned, we have lowered our full year 2022 financial outlook to reflect the challenges. We are currently experiencing around the macro environment.

Since our Q2 earnings call our expectations around <unk> have been adjusted downward as.

As we enter 2023 and more of the portfolio is concentrated in leases originated after a Q2 tightening we expect this provision will trend towards pre pandemic levels.

Update the fiscal year 2022 outlook is as follows.

Rather than a range of 25825 $9 billion adjust.

Justin EBITDA between 235 and 240 million.

non-GAAP EPS of $2.32 to $2.38.

In summary, or encouraged by the performance of our least pools originated after the Q2 timing, which helps deliver the Q3 write offs 72%.

We are also encouraged by the improvement of our leasing segments adjusted EBITDA margins and expect to see similar benefit in queue for thanks to contain hard work and effort of our changed.

With that I will now turn things over the operator for the Q&A portion of the call operator.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone.

Please stand by when we compile the Q&A roster.

Our first question comes from Kyle Joseph with Jeffries. Your line is now open.

Good morning, guys. Thanks for having me on.

On on G M B obviously.

Celebrated quarter on quarter, just trying to wrap my arms around you know how much of that was incremental macro pressure versus.

Hiding changes or I guess, another way I could ask would be you know what what was the date. The underwriting changes were specifically made and <unk> and you know how much of an impact that they haven't <unk> versus three Q.

This is Steve So we made we made underwriting changes throughout Q too early.

Early.

And then in June again, so it's difficult to parse out the the inbox didn't do too obviously they were in.

Full effects throughout all of those two three and then as you think about that.

<unk> pressures.

Really.

Tailwind that have been around all year, because we made up within some other small sweet tooth.

Decisioning back.

<unk>.

February and March as well so you got you got.

The macro weakness, we've seen application volume, which is kind of a proxy for.

Consumer demand in our retail partners be down in store channel.

And flag, the slightly up but the online channel, but because.

Alright, we have lower rates lower conversion rates due to the well known kind of.

Fraud from Unappropriate standpoint, but also lower purchase <unk> online.

Losing an average store has a bigger impact on by the Govt, losing and it's an app online.

So it's really been busy consumer weakness from an app standpoint.

Along with our decision imposture offset slightly by higher ticket. So we have seen about four and a half to five per cent increase in ticket. This.

This year.

Due to basically just inflationary pressures in the retail environment. So as as you think about a year to date is.

<unk>.

Predominantly consumer weakness.

And decisioning offset by.

Ticket to three more specifically was probably more than 50% Decisioning then you had.

Maybe a third dish from consumer weakness also offset by tickets.

Okay got it very helpful. And then as your thinking about the prospects for a G. M V recovery I know you guys mentioned that the supply of credit I haven't seen any timing, yet they're bailey, Italy more on the demand side.

Is there.

Is it just a function of if inflation gets under control is it do we at the last uncertain comps or or do we need to move away from the big product cycles. We saw in 2000 2002 thousand 21, but just how you're thinking about potential catalyst for consumer demand and recover.

Mmm.

The demand side is obviously more difficult to predict.

There's always going to be a great big cycle, but the farther we did away from the from the <unk>.

Testing and stay at home and kind of.

Demand pull forward in the high liquidity.

Environment of the.

The pandemic.

The better it is for demand, we're certainly not expecting.

Some massive rebound in 2023 from a retail standpoint.

Depending on what is your forecast is for the macro and whether we are going into recession or not but.

But we do continue to be encouraged by our ability to Texas.

Execute on certain Roadmaps that we have with with retailers.

Allow us to.

Decrease our houses of share even in the face of headwinds from a demand standpoint.

Done some of those this year, we've talked about them previously whether it be fully come integrations or or waterfalls.

Credits back or for continued marketing or.

Okay, Oh period of the stores. So it's just.

We are certainly facing.

Difficult retail environment, and as I've said, a number of times, it's not a directory through to us.

Because we do have a ways to mitigate but we are but we are not immune to it. So it's certainly causes pressures on GMB and as we said as it prepared remarks were expecting a similar result in queue for.

Just because.

With all the pressures that we've talked about it and the fact that.

All the port holiday season to spill still in front of us remains to be seen how it's gonna play out.

Got it and then one last one for me I follow up progressive for a long time.

Obviously this is probably one of the most.

Is the most challenging environment I think that the business of space.

But you know in consideration of that you know.

Have you seen any impact on the competitive environment. Obviously, you guys are one of the biggest in the space I would imagine some of the smaller competitors are feeling.

Feeling the impact even more and are there any potential opportunities as a result of that in terms of winning partners are partners with with competitors et cetera, how you're thinking about the competitive dynamics given the tough tough backdrop.

Yeah, I mean, it is above backdrop, but it's also.

Given the chance to demonstrate the strength of the business model.

<unk>.

One of the things that.

As shown through this quarter is our ability to control the portfolio, which we've been talking about for a long time and have now proven it.

But from a competitive standpoint from a growth standpoint, I mean, obviously the biggest size of the prize for us silly Unserved. So we're going out there and having a fruitful.

Conversations with retailers that don't have <unk>. We obviously are highly focused on taking share from competitors as well and taking advantage of opportunities if somebody.

Neither has a funding issue or is not living up to the promise that retail partner.

But as we've said for years.

It's a very choppy and competitive environment, especially in the regions and so.

It's kind of like two steps forward one step back in that you'll you can you can win a regional player from a competitor, but then you.

Turnaround and find out that somebody to come in and taken a little bit of business from you in a different one we're making progress there we've got a great regional or SMB team and they're doing really well out there and.

Progressive continues to.

To show leadership position in the industry and how we could wind solar for were incur.

Encouraged about our ability to continue to grow that way, which can help mitigate some of the.

Some of the like for like or same store pressures that were feeling from a juvie standpoint.

Alright, Thank you very much for answering all my questions.

Okay Scott.

Thank you.

Our next question comes from Jason Hosmer think of America. Your line is now open.

Hi, good morning, and thanks for taking my questions.

It looks like from the guidance, there's going to be better flow through from Jim B into revenue in the fourth quarter I don't know if that's a reflection of a lower accounts receivable provision.

Maybe you just.

Given the decision on your it's better quality GB that you're bringing better Collectability Uhm I know those are tied together, but just curious if you're talking about that dynamic and if so we should continue to see that with extra four corners are sent into next year.

Yeah, Jason is Brian .

Yeah. The the accounts receivable division is a direct reduction to revenue as I know you understand a M b.

Reading the dynamics at play or the decision. The changes we made in the first half year continue to work their way through at this point in time.

If we think about.

Our accounts receivable application, it's still heavily weighted towards b.

Portfolio and call her the pre.

<unk> originations.

What's going to happen is that kind of move towards our new decision imposture as you are going to see some relief on that accounts receivable tradition on the go forward basis, I think you'll see it here in Q4 step down a bit so that's part of the dynamic, but I think you're seeing.

Got it that's that's great to hear in terms of the gross margin calculating it for the progressive.

Bsing segment.

And we're still running quite a bit I think it's maybe I don't know 200, or so below what you're doing a 2019. So I'm just curious if you could talk about.

Why that gross margin lower I don't know if it's a function of the environment more competitive are you shifting to large national retailers and maybe have a different pricing structure.

And is it possible that we could get back to more like 2019 muscles or is this the right run right to use going forward.

Yeah, I would have to say at the top of the list of factors impacting that that gross margin is this accounts receivable division.

You see how much it's increasingly year over year perspective, it's up I think roughly $43 million a year over year from an absolute dollars perspective, as a percentage of call. It.

Gross revenue before that provision, it's well elevated from historical levels. So I think the key to getting back to gross margins that are familiar.

Pre pandemic, it's going to be seeing that accounts receivable Parisian come down.

It's going to be a function of continuing to see delinquencies come down.

And that's the I think the path forward you.

The next the next biggest drivers are just what's happening from a disposition standpoint, but we actually saw 90 days come down a little bit year over year as we use a cough against a highly liquid.

Significant period last year, and so that's actually working as a tailwind. So there's not been there has not been significant composition changes in terms of retailers retail behaviors that will rise to the top of the.

The list or is the biggest factors, we need to we need to turnover.

The accounts receivable.

Dynamic and and we expect battle Battle.

Two or more favorable spot <unk>.

Starting to air in queue for and and and we will work to make that could tell ya.

That's great. Thank you.

Thank you.

Our next question comes from Anthony to come back with a capital. Your line is now open.

Good morning, Thanks for taking my questions. So as I look at your revised guidance. So you brought down the midpoint of revenues by about 2%, but.

But you brought down the mid point of view EBITDA guidance by about 10%.

And if I, if I look at the sort of implied EBITDA margin. It goes from like 10% to 9.2% at.

At the midpoint, so I guess I was just wondering what.

What.

What accounts for that particularly given the fact that you said, you're taking costs out and it sounds like police merchandise right right off right has has stabilized.

So so I guess that was my first question.

Yeah, there's there's a few moving parts.

I'll just offer I think you think about a Q4 period.

You didn't have the highest GMB generation expected with that you've got some some variable cost.

Transaction related costs.

This flows through so.

That aren't going to be is that going to mean, we translate the revenue that's probably the that's probably the biggest key side point too I would just expect while we made a ton.

Tottenham progress here in Q3 on SG&A that I'm proud about.

Where we've been from an execution standpoint on that cost reduction plan $12 for is a.

Is a.

A number of it.

More reflective of where we're at before we became a public company in 2019, and so so we've got a lot of work there, but they are still going to be I expect to pick up probably an SDA in the queue for with with just those those transactions costs with a higher volume coming in in queue for that we expect.

Relative to Q3, and that's gonna put put a little bit of pressure is our expectation.

Got it that's helpful. And then you know you talked about the fact that you know cause.

Cause I've seen a lot of weakness with the retail partners.

[noise] consistent obviously, what we're seeing out there, but I guess that you know the sort of.

It's a double edged sword right because everything that would help you from a.

Retail partner pipeline perspective, So I was just wondering if you could give us any update in terms of the retail partner pipeline.

Yeah, you're right on the.

In a in a tough retail environment Anthony events win.

Yeah R.

Are offering of having a fully developed finance back.

Retail should.

Should be more accessible and more more conducive for those sales so we're having.

Talk about specific names in the pipeline, but this is this is the environment, where do we think that we have the ability to to make hay obviously were.

Right upon code freezes for for retailers for the holiday season. So.

It doesn't go quiet, because we're still having great conversations, but we're we're not really actively with hands on keyboards, but but it is a big opportunity for us.

Over the next one.

Three years to convert the pipeline and we're encouraged about our ability to to continue to do that.

That's very helpful. Thank you.

Thank you anything.

Thank you.

Our next question comes from Brad Thomas with Keybanc. Your line is now open.

Hi, Good morning, Thank you for taking my questions.

First with respect to the.

Underwriting and Decisioning levels.

I was hoping for just perhaps a little bit more perspective on where you are from a historic perspective, obviously it you did some tightening of two Q that can help give us some context for if you look back over the last 10 years, where you stand on that kind of looser versus tighter perspective.

I mean 10 years is a long time and there has been.

Just kind of.

Massive changes to our decisions certification over that time, and there's been channel shift so what I'll say this I'll give you absolute.

Approval rates that changes like I did last quarter. So for the we're actually fairly flat when you're talking about here today. So we're we're down 200. This year to date for 22 versus 21, but only about 100.

Down 100 for a versus 2019 kind of prevent them.

Now if you are talking about just Q3 after we did the decisioning changes.

Material decision changes in Q2.

We're down 750, or so 800 basis points from 2021, obviously 2021 was.

For elephant approve.

Approve rates because of the payment performance in the the stimulus Ada just.

Environment, we are in but we're down about 225 basis points from 2019 now.

Now these are weighted approval rates.

Waited by channel. So if you were to normalize for channel and there is a.

Pretty material difference between approval rates online versus approval rates in store and not even just not to mention a conversion rates, but if you are normalized by channel back in 2019.

Fairly consistent with 2019 approval rates.

Apps were coming from the same channel.

If you go back previous to 19 back to the.

<unk> 15 to 18 period I always I don't have the data in front of me, but I would say were approved rates are probably higher just because we've found ways. There are decisioning models too.

Combined for those next approvals that can be.

Can be profitable for us.

Yeah. That's that's really helpful perspective C. Thank you.

And then I was hoping to ask a question just about.

EBITDA margins and and maybe some initial thoughts as you think at 2023.

Our view on progressive is that now.

Got tremendous opportunity to be highly profitable business.

A lot of that just comes with getting your underwriting are lined with the kind of consumer backdrop that you're a part of it and obviously if you've taken a lot of that medicine. This year. We're also seeing a difficult retail environment, though and and so I guess you think after next year can you help us think about that those elements of good.

Underwriting more aligned with how the consumer actually is able to pay coupled with his.

The level of investment that you think is wanted in the business and perhaps more challenging environment and and your optimism for margins for next year.

Yeah.

I mean.

From.

From the underwriting standpoint, I mean, if you look at the if you look at the pool originated posted.

June 30, or July one I mean, where where we were where we expect to be or want to be.

With our historical six plus year, 6% to 8%.

<unk> annual range from a law standpoint.

Obviously, we are continuing to watch it in.

If unemployment starts to pick up.

Oh.

If we need to make or find it necessary to make additional decisioning changes, we will do that and as you have seen they can have fairly quickly quick <unk>.

Impacts on the portfolio so as we flip the calendar page the into 2000 2003, the portfolio will be.

Majorities I mean, a heavy majority.

Comprised of leases originated posts seven one of 22.

It won't be fully.

Fully there, but it'll be it'll be almost there.

So as we as we think about the the.

Portfolio performance and portfolio health.

Into 23, we feel good about where we are.

Clearly a risk is further deterioration in the economy.

Potential unemployment, although I would say that.

Is a green shoots of that that usually and should.

Result in the.

The credits back above us typing as we've all been kind of predicting and waiting for for several quarters that should open up the top of the application fall for us which can bring in.

On average better quality applicants into our final without us even making any decision changes so.

Just.

To repeater in summary, the portfolios in good shape moving forward.

Posted seven one and we have not found the need based on our weekly and daily monitoring to make additional changes since then but we stand ready to do it if it's necessary.

So from a health standpoint that will be a tailwind for us for sure for 2023, just because we won't be.

Having these.

Higher write offs and higher.

Bad that expense release provisioning expense.

From a.

We talked about pipeline. So that's an encouraging man I'm not sure.

How much of an impact and.

An actual 2023, GMB, but he could impact the future future years and then.

From a from a gross standpoint, we look to be able to continue our productivity within our existing doors.

Hopefully add some more but you mentioned it but it's a profitable business. It is a profitable business. It's maybe less profitable this year than it has been historically, but it's it's a proper business that generates.

A significant amount of cash flow.

All cycles and as we once we see that widening of the top of the funnel that'll be.

Hey, removal headwind and a.

Hopefully a decent sized tailwind for us.

To continue to deliver those historical margins.

Margins Anne.

Great. Thanks very much.

[noise]. Thank you.

Our next question comes from Bobby Griffin with Raymond James Your line is now open good.

Good morning body. Thanks for taking my questions first I want to circle back to us on the Opex side of the business.

Fever O'brien.

The fixed variable nature of this business changed over the last 12 or 18 months with some of the investments I'm just trying to kind of.

Connect the dots of if D&B down again and.

<unk> why aren't we seeing opex kind of flex down with lower transactions or anything like that verse pick up as the earlier comments said sequentially.

And.

To.

Some color there that take up as it is.

From a from a Q3 to a Q for.

A commentary theirs.

And that's not unusual when when you look at seasonality historically, you've got a you've got a.

Higher GMB Q4 is your highest GMP generative period, and something that's going to step up from Q3 is our expectations. So that's going to be.

Part of the cost driver B.

The fixed to variable nature of the business.

Is largely.

Largely remained unchanged over the years, obviously have some public company cost that we that we layered on post split.

Those are those are in a sickness.

Probably the range is $10 million to $15 million of our of our total span.

But generally generally speaking we remain a very highly variable.

The cost structure and that's that's why we were able to we don't have long term fixed obligations that kind of saddle us.

For multiple years, that's why we were able to quickly.

Demonstrate the improvement and SG&A in the queue three timeframe.

Last quarter as Steve mentioned his prepared remarks or so.

It's one of those things, but when <unk>, you're gonna see you're going to see some.

Amy moves sequentially from a from a quarter over quarter standpoint, you'll see yesterday move but it still remains.

Largely within our control on a go forward basis, and so Steve comments about margins and our ability to maintain margins.

That's part of part of the strength of the model is our continued control over that so it was really it was really commentary I'll just put it in the expectation that SG&A as a percentage of revenue.

Generally higher in queue for and that's what I would expect expect to see here, especially given kind of boy and reschedule it out G. A b.

Okay. So maybe taking a step further I mean like if you if you back out the restructuring your back out.

Impairment, we're looking at maybe roughly 100 million Bucks.

<unk> <unk> to like if we have a couple more quarters that we go into 2023 and the Gmb's stays pressure, we will see that 100 million flex down in dollar terms or is there like a <unk>.

Level of investments that's going in there that were were not seen the flex down and so that's why I mean, it just kind of looks like it's holding roughly at $100 million or may be picking up.

Yeah without getting too much color into into 2023, I guess I would I would say that generally unexpected kind of Q1 SG&A.

Dollars or a percentage that too.

A percentage of revenue to to relieve a bit from from Q4 levels, but again, we're not we're not.

Committing to 2000.

Thousand twenty-three metrics just your average there's log in my planning cycle, but I think you're thinking about it Ryan generally have just Ah.

A bit of a kick up your in the queue for.

Okay. That's helpful. I appreciate the details I'll do it for my questions. Thanks for all the details and best of luck.

Thank you.

Our next question comes from Vincent contact with Stevens. Your line is now open.

Hey, good morning, Thanks for taking my questions just to follow ups on earlier questions. So first right off rates. It was very nice to see that.

Right off rate's decline quarter over quarter, and I think you know.

Anyone who believes stolen guys to show that could result.

So from B the adjustments tightening that was made in the second quarter is there still more room for that and write off right to decline. So we haven't seen all the improvement yet in the third quarter.

And then if you could maybe talk about the tightening W dot what sort.

Of.

Macro backdrop is built to that or is it another way like what what would it take in order for that right off right to potentially perhaps get worse.

Yeah I'll start visit this is Stephen Brian can chime in but.

The way that the portfolio works there is $2.

The dynamics when it comes to portfolio performance and what is the the write offs, which is R poorly reported metric.

And that one moves more quickly because it's based on the.

To a book value of the inventory that we have out on leaves and then there's the the AAR provision, which is also reported a metric but.

That.

That takes a little bit longer to move through the system. So from a write off standpoint.

The.

The post seven one lease originations are more of a story in Q3, then on the side.

They will continue to become the story in queue for but as we said.

Our prepared remarks were expecting write offs in queue for it to be in the same neighborhood similar range to Q3 and in our goal from an annual standpoint is 68%. So we're not actually trying to drive write offs down to down.

Down to five or even where they were during the pandemic that that's that's probably that's two titles foster.

So we're we're expecting similar similar results in.

Q for which we think will get us.

Near the high end of our 68% annual range, which were Toronto, especially given the.

The.

Impacts of earlier this year so.

Performance on the portfolio, what's built in as we're basically trying to basically tracking all of our early indicators, whether it be first they bouncer delinquencies or any of the other.

Indicators that we have against.

Our pre pandemic pools because.

I don't remember the exact numbers at 18 to 19 Bowie delivered somewhere in the low seventies of write offs and in those years and so that's got a down the middle of the fairway of our six eight per cent range and if we can track.

On a weekly basis.

Same results as the pool of the jurors then we feel good about our ability to deliver those results there's.

What's baked into it is kind of like the current economic.

Backdrop, the inflation the stressors on our consumer.

What's.

What's not baked into it as something material shift and unemployment.

You know in the unemployment is also an interesting dynamic great because I expect unemployment to go up but but what are you hearing out there as far as layoffs is mostly in.

Engineers and tech in Silicon Valley is not necessarily an hourly service workers and manufacturing now that may come and weren't brace for that and we have our hands on the wheel to make adjustments, but they're still seems to be a shortage in those workers and they would have to be.

The amount of demand destruction in order for further to be material weakness in that end of the employment curve not thing is not going to happen, but I'm, saying that we're looking forward to embrace forward and can make adjustments so that.

We're tracking towards pre pandemic.

That's R kind of guy posts.

We're feeling really good about where we are on our pools originated after after seven one.

Okay, great. That's a lot of helpful detail.

And then follow up so great to hear that merchant engagement is increasingly just wondering if you could update us sort of the discussions you are having in terms of the merchants at your wedding in the sixties.

60, so far and another 12 this quarter.

If there's any sort of like and.

Industries or band somewhere that you are getting particular success with it and asked what else do we think about the fourth quarter and the holiday sailing selling season.

What sort of engagement now you're getting.

Perhaps of marketing and promotion activity with the merchant. Thank you.

Yeah. So on the economy, we're excited about our economy activities.

So if we add 75 or or.

So new retailers in 2022, that's you think a successful year. These are on the smaller side obviously.

They're not going to materially move the the GMB, but they but they help us if it's any detail only resale or that's great. If it's an E call.

Slow for a brick and mortar retailer that we already serve that helps us broaden and deepen their relationship. So we're we're pleased and excited with that.

That goes with that progress.

And.

As it relates to the fourth quarter on larger merchants as I mentioned, mostly we have code freezes, but we're.

As far as industries, there's there's a lot of opportunity for us right down I guess industry is not the right where it let's call it categories, where vertical there's a lot of it.

Opportunity for us right down the middle of the fairway will look to expand a little bit here and there if it's if.

If it fits that mold of.

The bigger ticket items for consumer.

And we're definitely having conversations in that regard as well as it relates to the fourth quarter.

Marketing analyses is going to be an interesting one or we're hearing from some of our retailers that they expect it to be a late developing holiday season, and I guess, the consumer has a lot of power on that because if the consumer says hey, I'm gonna sit on my hands and wait.

Because I think there's going to be promotional activity, you're markdowns than just the fact of them waiting kind of causes the retailers to <unk>.

Get concerned and create markdowns and promotional activity. So we're expecting.

The period on and around Black Friday through Christmas to be.

More heavily weighted and maybe even it is normal normal years.

But in preparation for that we're we've got a number of things that were due in Prague partner, we with with our retailers Cobranded marketing campaigns Dale.

Daily deals in that in that partner week, we've also got a resale or adopting.

Adopting point of purchase material for the first time since we've been.

Since we've been with them. So we're pleased with with.

The fact that our retailers are trusting us and and reaching out to us and collaborating with us on how to.

How to make the most out of out of our programs.

Okay perfect a lotta helpful detail, thanks very much.

Thank you.

Our next question comes from how catch which is the capital. Your line is now open.

Hey, Thanks, guys I've got a question on the retailer's that you've added maybe by not by name, but by cohort or the year. They were added and I was with a mix of brick and mortar mix. It ecommerce it mostly mentioned e-commerce nursing queue, you've added for the year and then you've also said later on the call that they have.

Lower approval rates and generally lower lower take rates because of the quality is not as good but.

Could you still have some ideas on like the.

The retailer that you added in 2018 1920.

21 like we're.

With a cohort were added let me during the pandemic could they come on it much higher productivity levels than normal and we're seeing that fall like.

How are the cohorts by year, they've added acting it's easy to do that kind of analysis cause it seems like you're adding merchants Ah.

Every year every quarter Gmb's down because it's you know and we're just trying to figure out like hey, with things bottom up you know you can have it up at the next upturn.

You'll have more immersions doing more business and you'll come.

You know.

Out of this with ethical cyclical not just say flatus here. Thanks.

Yeah, well I was trying to tackle I'll start with the last part of your comments I mean, that's certainly are are based based on our expectation that the broader we can broaden the base the more <unk>.

Retailers and customers that we can add.

Well.

Create a better springboard if you will for wind retail environment. Thanks, Thanks up and have that an inflection point on growth.

Reverting back to the earlier part of the question.

It's difficult to say I mean 2000.

19, a obviously was a banner year for us that's when we when we added.

Best buy and lows.

We didn't like ramp so 2000, I think it was a good year, but we didn't ramp productivity faster than we otherwise would have during the pandemic because we actually felt like during the pandemic, we had a headwind Jimmy production because customers had so much cash they didn't rely on.

Flexible payment options as much they just paid cash at the at the rate at the point of sale. So it it kind of was the Covid pause. If you will from Ah, We did fine and we drew with those with those retailers, but I think it all things being equal if we hadn't had COVID-19, we'd be we'd be farther along with with those retailers than we are now.

And then is it related to you know.

I don't want to make it sound like I'm not interested in online applications because.

Online applications you can you can get them very quickly and they can be millions of applications and in the store while they do.

Have higher approval rating higher conversion rates.

It's a numbers game, so even with the <unk>.

With the lower approval ratings in the conversion rates the numbers can can swamp the in store over time as we broaden our base of E Commerce.

And E tailers and as well as our interaction with our own digital platforms as it relates to probably some of their comments and the Prague App. So.

Is channel shifts we expect to continue channel shift not only from the application side, but also from the it's funded GMB side, we talked about growth there and up to 65% of our <unk> was from the E. Comm channel. So we expect that to continue.

It it's just difficult to kind of go back to the 17, 18, 19 and say what.

What happened and what will happen, but I would I would just add with that is R.

That is our goal and our objective is to get as many retailers as we can even while retail businesses saw such that when we get into the next replacement cycle and get that inflection point up we're starting from a much larger base.

Okay.

You would say though than that.

That.

The.

Credit fulfillment.

<unk> to your earnings surgeon in 2000, 2020th 2000, 2000 2021, then.

That's right a lot of software vulgar.

Yeah.

Absolutely yeah, absolutely I mean.

We've been targeting that 11, and 13% adjusted EBITDA margin for a number of years and.

When.

Payment performance because of all the stimulus came through and 20th 21, we had write offs down on the two and three and 4% and we were very very clear that we were over earning the model at least in the growth phase that we that we expect that we're in so when we were 14% to 60% of EBITDA margins was was was one out of.

Yeah out of target.

What are we execute on so we.

We expect to kind of get back towards those ranges. This year has been reset and the and the.

The opposite direction.

And my last question is would you say that what the credit underwriting you've done to date, the last Titan Q too.

The performance you just put up in Q3, and the speed at which the book turns over.

Would you say, you're pretty setup to be in that 79% range.

Go forward from here.

Are you talking about right offerings with 68% really don't provide on radio.

Yeah, basically definitely mobilized gummy Harcourt.

Yeah, I think we feel good about where we are I think we've proven and demonstrated our ability to influence the portfolio very quickly.

And as the.

The months turn and when you turn it into 23 and then in the portfolio is comprised of of.

Rules originated after the tightening we would expect it to <unk> to deliver performance within those ranges.

Yes, alright, thank you very much.

Thank you.

That concludes today's question and answer session.

Now turn the call over to Steve Michael for closing remarks.

Yeah. Thank you everyone for joining us today, we appreciate your continued interest in them.

<unk> I just want to thank the team for really executing in a very difficult environment or our goal is to.

To make things easy for retailers and our consumers and we continue to do that.

And this time and this choppy environment is when we become more important to both of those so Wheeler.

We look forward to continue to deliver on that promise look forward to updating the next quarter.

This this concludes today's conference call. Thank.

Thank you for participating you may now disconnect.