Q3 2022 CURO Group Holdings Corp Earnings Call
Good day and welcome to the Kearl Holdings third quarter 2022 conference call all participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
I'll ask a question you May press Star then one on the telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I'd now like to turn the conference over to Tamara show Heroes, Chief Accounting Officer. Please go ahead.
Yeah.
Thank you and good afternoon, everyone. After the market closed today <unk> released its results for the third quarter 2022, which are available on the investors section of our website at IR Dot Euro Dot com.
With me on today's call are curious Chief Executive Officer, Don J, Hart, and Chief Financial Officer, Roger Dean.
Before I turn the call over to Don I'd like to note that today's discussion will contain forward looking statements based upon the business environment as we currently see it including statements related to our future operational and financial performance.
As such it includes certain risks and uncertainties.
Please refer to our press release issued this afternoon and on our Form 10-K, and 10-Q for more information on the specific risk factors that could cause our actual results to differ materially from the forward looking statements included in today's discussion.
Any forward looking statements in this call are based on assumptions as of today and we undertake no obligation to update or revise these statements as a result of new information or future events.
In addition to U S. GAAP reporting we report certain financial measures that do not to for them to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release.
Before we begin I'd like to remind you that we will we have provided a supplemental investor presentation that we will reference in our remarks and that you can find it in the events and presentations section of our IR website.
With that I would like to turn the call over to Don.
Thanks, Tamara good afternoon, everyone and thank you for joining us today.
Before I turn to our results for the quarter you probably saw that earlier today, we announced that Roger Dean who is retiring as our chief financial Officer.
Roger has agreed to stay with us in an advisory capacity through a transition period.
Roger joined <unk> in 2016 was instrumental in all the transactions that have transformed our company over the past five years.
He's worked tremendously hard.
I'm very talented team of financial and accounting professionals.
Well personally Miss Roger's leadership, and friendship and on behalf of everyone at Kearl and those who know him both professionally and personally we always Roger and his family the very best.
We commenced the search for Roger successor Tomorrow at Shoals, Our Chief Accounting Officer will serve as interim Chief Financial Officer.
Tamara joined US last year from capital one he has done terrific job for us and we're confident so equally good then into a mold.
Turning to our business review I won't spend a part of Poland macro comments other than to say that we do see a lot of data that suggests some economic weakness in both the U S and Canada.
In the U S. Our customers are still working in a very tight labor market with consistent wage gains, particularly among lower wage hourly workers and these gains of purity offsetting the inflationary impacts of gas groceries and housing.
We should note as we have in the past the Canada and seeing some impact from the downside of pandemic related stimulus.
That stimulus was much more targeted and limited.
The U S with resulting inflation running about 150 to 200 basis points lower than in the U S.
But steady job market has shown some weakness over the past three months and the bank of Canada last week slowed the pace of rate increases.
So as we plan for 2023, our assumption is we'll experience some form of a mild recession in both the U S and Canada.
One that has higher levels of employment and wage growth and in the past, but with higher interest rates at least for the near term.
One final macro point relates to the Canadian dollar, which has sort of holding steady at about 80 cents to the USDA for much of the year depreciate rapidly over the end of the summer and has recently been trading at about 73 sets the industry.
It does not have a cash impact on us, but it does hurt us and translation on our Canadian revenue and earnings obviously in almost 10% decline during the quarter will meaningfully impact those results.
During the third quarter, we completed a series of transactions have dramatically reshaped the repositioning of our company.
We discuss these at somewhere in the previous calls so I wont spend a great deal of Poland.
To review other than to note that our results for the quarter are impacted.
One inclusion of results from our divested U S legacy business through July seven.
To a partial quarter of results from the first heritage, which we acquired on July 13th and three related nonrecurring items. Roger will review these items later.
Those transactions aside.
Characterize our results for the quarter was mixed.
Continued growth in earning assets and our direct lending businesses.
And our Canadian operations growing sequentially by 5% and 10%, respectively and in constant currency 21, and 29% since the beginning of 2022.
Flex. These loan book has continued its strong growth and ended the quarter at approximately 950 million Canadian or just under 700 million U S, which is 128% higher than a year ago and compares with approximately 250 million Canadian when we close the transaction in March 2021.
So terrific progress and just about 18 months.
Growth rates in our direct lending book in both the U S and Canada did slow in the third quarter as credit tightening measures that we took beginning in April and May had the intended impact, particularly in the lower credit tiers in the U S and in our lend direct brand in Canada.
We'll talk about credit in more detail later, but we believe that we're well positioned to continue to grow our portfolio in both the U S and Canada in a disciplined way, while generating good credit outcomes, even amid more macroeconomic uncertainty.
We expect our consolidated loan book to grow in our fourth quarter with more than 60% of that coming from seasonal holiday growth influx. These merchant base of more than 8000 of retail partner stores and online shopping sites.
Was that loan growth in Canada, we saw strong revenue growth in constant currency, the combined Canadian operations growing too.
139 million, Canadian or 11% sequentially and 43% year over year.
For heightened first encourage their combined operations saw revenue growth of 10%, earning asset growth of 14% versus the third quarter of 2021, which includes periods prior to our purchase.
While revenue growth was strong so short of our expectations.
Our credit tightening has marginally more impact than anticipated, particularly in the lower credit scores, which have higher relative yield and more of our revenue stream comes from upfront origination fees.
Impact was most pronounced in the smaller segment of our U S direct lending.
These impacts to continue for the next several quarters.
As we stated when we purchase Heights and first heritage. Our focus is on driving growth in the larger loan segment of high.
Credit quality borrowers.
Quarter, one of our $739 million U S loan portfolio approximately 70% within the large loan category and we expect to see that percentage continue to increase overtime.
Excluding the divested legacy business, our net charge off rate for the quarter in the U S improved by 110 basis points over the second quarter as we benefited from higher recoveries some of which resulted from new centralized collection procedures and resources.
Arlington Heights, and having to work at first heritage.
That said net charge off rates.
Within the U S. Brazil are still trending higher than we anticipated as we are experiencing higher defaults on loans originated.
For Q3, and Q4 2021.
Before we close on the sale.
We expect the charge offs on these vintages to peak.
Q4 early first quarter 2023.
Forward pointing toward a more normalized rate.
And Karen a direct lending we saw year over year loan growth of 19%.
Reported balances were relatively flat on a sequential basis, but up 6% on a constant currency basis.
Year over year or sequentially net charge offs increased 260 basis points and 90 basis points respectively.
We expect this increase in net charge off rates as we return to pre Covid performance levels overall, I'd say the credit in Canada has normalized a bit faster than anticipated, but we are comfortable with current trends I would note that we now have more than 20% of our loan book originated the Internet channel.
Where we will see slightly higher charge offs and in in store originations to some mix shift there as well.
Our Canadian point of sale lending business Flexi, a modest increase in net charge offs of 20 basis points, and 30 basis points year over year and sequentially respectively.
As more of a flexi portfolio moves into revolving status from different theories were no payments are doing well see charge offs ticked up but yields will move up higher as well.
We should spend a minute on this as it is important to understand how this dynamic coupled with continued loan growth.
Drive sequential earnings improvements at flexing.
In addition to the discount the flexi earns from its merchant partners. We also were in interest and fees from consumers, but only after the end of the promotional period.
Given that this is largely prime book, a significant portion of consumers will pay off the balance during the promotional period.
More consumers give that for independent of it all.
Also and importantly of the book is growing it will by definition have more new customers in the deferral period.
While the flux the loan book is on track to meet its expected loan growth of 80% to 90% for this year, we expect more modest growth of 30% to 35% for 2023.
And that's in the lower operating costs across both of the U S and and Kenneth.
In Canada, we are closing 59 branches in consulting nose into our remaining 10, a direct lending stores.
Which was 140 non-cash money stories remaining.
So very strong networks in both Canadian Metro areas.
Consolidation capitalize on the strength of our online channel, which I mentioned earlier.
And demonstrates the more limited need for a line of credit customers to visit the branch locations.
You've also do store head count in certain markets to better align the branch traffic.
Collectively we expect these actions to save us.
13 or $14 million on an annual basis.
And Ah, Canada point of sale business, you've identified additional opportunity to disturb plan staffing conditions and other expenditures, which will result in savings of approximately $5 million.
In the U S. Beginning this month it through the first quarter of 2023.
We plan to cause approximately 10% of our U S direct lending stores.
We are targeting both lower performing sores as well as storage, where we have overlapping footprints.
This consolidation capitalize on in depth analysis of local market sensitive and continuing improvement and Centralised digital operations. We expect these store closures to resolve it.
Savings of $10 million to $12 million.
In addition, we've also made the difficult decision to suspend the definitely the rollout of our first phase Nonprime credit card.
[noise] was meant to appeal to customers are U S legacy business and.
The rapid change in the macroeconomic environment for funding costs credit performance and liquidity considerations significantly altered the return horizon for this initiative.
Will continue to work on a larger balanced card product that appeals are current U S directly in the customer base, but do not expect to launch any new offerings. In this area of 2024 at the earliest.
We expect the suspension to resolve the potential operating savings of approximately.
$7 million.
A crossword geographic footprint, we are consolidating certain back office functions as well as reducing our corporate office footprint.
To reflect the changes in our businesses through the acquisitions and sale and how our employees work post pandemic.
To achieve approximately $5 million to $7 million operating expense savings by consolidating corporate office functions in space.
Pulling it up to the consolidation rationalization across our Canadian U S operations in our corporate functions in office space, We expect to see a net annualized imprudently adjusted pretax income of approximately.
$40 million to $45 million, while reducing our overall headcount from approximately 4000 employees.
Three 500 3600 employees.
We also expect to incur pretax non-recurring restructuring charges in the fourth quarter of 2022, and the range of $5 million to $7 million relating to these initiatives over its $3 million represents cash cost.
Okay risk adjusted revenue to address the margin compression we've experienced you the rising interest rates.
Premier inappropriate based upon the competitive environment.
We're working in three areas.
First adjusting pricing to consumers in all three business units second adjusted discount rates for flexi to reflect higher base rates and three adding more resources in that mitigation tools for consumers, while we expect that the ongoing shifts in the portfolio flexing U S direct lending larger loans.
Modest we reduce our overall yield these measures taken together.
Should improve our risk adjusted yields and 2023 across our entire portfolio by 100 to 125 basis points.
In conclusion, we believe we have identified revenue enhancements, an operating expense reductions, which should result in a meaningful improvement in pretax earnings of 2023, which will help offset the increase in interest expense due to rising rate.
We can Canadian currency and other economic headwinds.
Are these certain duration of these headwinds makes it difficult for us to provide any for at outlook. At this point, we do feel very confident that we are well positioned to continue to grow our business in a very disciplined fashion and deliver a solid and sustainably profitable business 2023 and beyond.
And I'll turn the call over to Roger to review the details.
Third quarter of 2022 results.
Thanks Dawn.
Net loss for the quarter was $12 million or 29 cents adjusted loss per share compared to 15 cents adjusted earnings per share in the second quarter of 2021 <unk>.
Primary drivers of the year over year decline in earnings for one decreased revenue and are you a segment.
Product mix of the U S shifted with the acquisitions of highschool financial and first heritage and the sale of our legacy U S direct lending business.
Two.
Increased interest expense attributable to rising benchmark race and increased borrowing to support and parked the acquisition of heights and loan portfolio growth.
And three increased loanloss provisioning on sequential loan growth and loss rates returning to pre pandemic levels.
Total revenues in the third quarter increased $5 million or two per cent you over here.
He ended the direct lending revenue rose $13 million or 19% year over year.
In Canada, Pof's increased by $60 million for 143% as compared to the third quarter of 2021.
And the U S revenue decreased by 24 million or 18%.
Because of the sale of the legacy do us direct lending business.
For perspective.
The full business had revenue of $127 million in the third quarter of last year.
For this third quarter, the combination of heights, and a partial quarter of first heritage.
Added $97 million in revenue.
Consolidated operating expense for the quarter decreased 6 million or 5% compared to the prior year, primarily driven by the divestiture of of the U S directly legacy business in July 2022.
Partially offset by the acquisitions of Heights Finance and first heritage.
Interest expense increased $24 million year over year.
That'd be increase approximately $20 million was attributable to higher average borrowing levels.
That is gross pet flexi and Canadian direct lending.
Increase for the senior notes tack on <unk>.
New facilities for heightened for sure.
The remainder of the increase was due to increases in the benchmark rage for flexibility and Canadian direct lending facilities.
Bruce loans receivable preview over here by over $1 billion for 115%, primarily driven by the acquisition of Heights in December 2021, and first heritage in July 2022.
Which contributed $509 million and.
$225 million to the balances.
Respectively.
For for Canada, It's worth mentioning that the Canadian dollar weakened by 7% during the third quarter with 4% of the decline occurring in the last two weeks of September .
This negative effects you over here and sequential loan cops.
Luxury loans group 143 per cent.
Adding 388 billion loan balances you over here.
Canada, recommending grew 19%, adding $74 million in loan balances here over here.
Acquisition of first heritage.
And Canadian Pof's lending growth of $63 million or 10%.
It can increase is offset by the sale of the legacy U S direct lending business.
Excluding the loans sold with the divestiture abuse legacy direct lending business.
Gross loans receivable grew $302 million sequentially.
Of which $225 million came from the first heritage acquisitions during the quarter.
<unk> was relatively flat sequentially, but on a constant currency basis increased by 6%.
The first heritage acquisition for accounting purposes were required to account for the loans and other balance sheet amounts acquired at fair value as of the date acquired.
We have included a brief summary of the purchase accounting.
Page 13 of our industrial presentation.
The fair value of the loan portfolio incorporates the credit losses expect it to be realized on that portfolio.
So at day one.
There is no allowance for loan losses for the required portfolio.
The roughly 18 million dollar discount.
It's been accreted into revenue over the life of the loan portfolio.
Charge offs related to this portfolio will be recognized supervision.
So while these entries should be neutral to risk adjusted revenue the geography on the piano will be different than our originated loans.
Also over time, we will be building allow us a moment originated post acquisition as well as any further credit deterioration that was not included in the initial valuation of the acquired portfolio.
We are also on track to adopt the Cecil accounting standard on January 1st.
We are still finalising, all of our processes and procedures, including review with our external auditors.
We expect that adoption on January 2023 will have a material impact by increasingly allowance for loan losses.
With a corresponding reduction in shareholders' equity.
We expect that they want to impact to be similar to what appears experienced upon their adoption.
As of January 2020.
And the liquidity and funding side, we announced during the quarter, we put in place new non recourse revolving warehouses just before W. S business.
And we also expanded the capacity and extended the maturity on our flexi.
Facility.
Maturity date for these facilities now extend through 2025.
In August we renewed our U S revolver for 12 months.
At the end of the third quarter, we had $118 million of available liquidity, including unrestricted cash and unbroken borrowing base capacity on our various warehouse facilities.
As Tom mentioned earlier, we expect to fund among other cash inflows and outflows approximately $3 million cash restructuring charges in the fourth quarter of 2022.
Given the payback. We believe this was an attractive investment and we have incorporated the use of cash and all of our liquidity projections.
With respect to our dividend.
While we feel comfortable that our current liquidity position would allow us to make this quarter's payment we.
We are prioritizing cash and liquidity needed to fund our growing loan book.
And to make investments include.
Including.
Cash restructuring costs in the fourth quarter.
[noise] deliver sustainable profitability with our new business model in 2023 and beyond.
As such we are suspending our quarterly dividend and will continue to review with her for going forward.
I'll wrap up by saying.
Privilege it is going to be part of curios journey since 2016.
I've worked with some of the best and most talented people.
A very knowledgeable and engaged board of directors.
<unk> advisors.
And I've known many of the investors and analysts on this call for over a decade.
And I thoroughly enjoyed engagement and support.
I would likely admits it all on some level, but <unk>.
After 38 years in accounting and finance.
I'm ready to slow down a bit chapter.
Chapter mediocre.
This concludes our remarks and I'll ask you out.
We will now begin the question and answer session.
Ask a question <unk> on your telephone keypad, if you are using.
A speaker phone please pick up your hand, Kathy for pressing a key.
Can withdraw your question. Please press 19 at this time, we will pause momentarily to assemble our roster.
[noise] Sanchez.
Question anytime John Hacked Jaffray's. Please go ahead.
Hey, guys Roger Best of luck, Fedrigo, but I'm sure we'll keep in touch.
Congratulations on on on a big move so.
Let's see just.
Yeah, I guess just trying to.
I guess take out some of the noise from the acquisitions and all the moving pieces, there I guess acquisitions in and and sales of loans portfolio can you.
Maybe tell me what organic growth was and yeah I know, there's no perfect science, Tennessee, you're gonna have to maybe.
Gage at it organic growth was.
Quarter to quarter, so from Q T. D Q3, laxity and then the direct business in Canada and in the U S business.
Just trying to get a sense from what is organic momentum for those three categories.
[noise] sure, Hey, Hey, John Thanks, Thanks for the comments by the way so I I think at the beginning of our earnings release the.
We put we added some tables.
Kind of unpack.
Moving parts are very summary level.
If you look at the loans.
[noise] ignores what we sold.
The U S direct lending business.
You know what's up.
Obviously up 40% sequentially, but $225 million of the growth of the $300 million of growth came from the acquisition of course heritage.
So if you if you.
<unk> grew 8% sequentially organically.
Yep.
Canadian direct lending was flat sequentially, but that was currency driven.
In Canadian dollars. It was it was 6% sequentially.
Okay, but the reported numbers are flat because of the because we took the head of the the weakening of the Canadian dollar of September 30th So.
And then pass through 10% sequentially.
And then U S dollars, though yeah.
So when I got out of it.
It would've been like 14% okay.
And given what.
What you're you're you're done you mentioned, just being a little bit more calls surgical from a credit perspective, how do we think you know I guess seasonally thinking about seasonality.
And you guys.
It's getting a little bit more selective.
What would you how would you how would those what do you think happens to that type of growth for the next few quarters.
Yeah, So Jonathan I, Thank God, She's got particularly in the in the flesh City business right, you've got you've got that that merchant pace, which is.
A lot of big ticket suffered geared to to to holiday shopping. So I think that that that our expectation is that that business that portfolio and kind of in U S. Dollars is probably gonna grow mid mid teens.
Maybe mid to high teens during through the end of the year the.
Balance of the portfolio I think the U S business starting at the base of.
737 40.
We can see.
Maybe maybe 20 $30 million portfolio growth are getting kind of where we are from a from a credit perspective.
And then I think Canada.
Direct lending will go up.
Probably three per cent in U S dollars for the for the fourth quarter again.
Kind of adjusting firm, where the trend was vs. Some some some of the credit tightening measures. So but then if you go forward to the end of Q1.
B U U.
We'll still see flexi still gonna grow although it won't it obviously won't be coming off of the holiday period.
The rest of their portfolio of cause it's actually for a little bit the rest of your portfolio will shrink a little bit so from Q for for for December 31 to March 31.
It's very little growth in there because of the you know we still the the small loan portfolio at Heights has some real income tax impacts that that'll be it will see the biggest amount of shrinking that portfolio, but that's that's $200 million of the total learning asset base right now the large loans will will will kind of run.
And place maybe growing touch and then as I said, Canada direct lending all will grow in touch inflection grow somewhere but the whole portfolio be relatively flat December to to March and then you know.
It's really hard to you know with the with the.
Kind of the macro situation. We're we're we're anticipating some some continued growth in the portfolio sequentially across the balance of of of twenty-three and we feel like as I think I've said. He has had flexi is going to grow from year and it'll grown 30 75 per cent by the end of of Q for most Q4 23, most of that though is just within the.
This takes a full year of the existing merchant base base. If they have that does not assume that they sign any any more.
Meaningful kind of enterprise merchant partners.
Okay, and then I guess sort of a similar question, but turning to credit.
Cause you guys do you like give them the NCO rates.
By channel I guess, the U S direct lending Canadian track lighting appeal I said, you know where where are those are again understanding of seasonal considerations, but you know you're still talking about seeing.
Seeing some weakness or normalization.
What's the kind of normalized level for those.
Those three categories of loss rates or are we kind of in the zone at this point when thinking about seasonality.
No I think we're running I think is not mentioned on the call.
The prepared remarks heights.
Still.
Yeah, it's still above what we expect because of those 21 vintages are still working their way through I think maybe maybe the trailing 12 annualized rate is maybe a couple of hundred basis points about where we'd like it to.
Okay.
But the the you know in Heights visitor delinquencies and again in fact.
Hoping to get a clean cut in the end of because we still have the legacy stuff, but in the <unk>.
<unk> business of delinquencies came down the early stage sub came down from June to September So and we feel like you know the shop. So you can track the subsequent vintages and you get into the end of last year. The first part of this year. The subsequent vintages curves are are performing better than the stuff that was being written in sort of called June doctor.
Period of last year.
So we feel good about our ability to.
And get that.
Get the trailing 12 right down another down a couple of hundred basis points.
Okay and then.
The.
Some of the.
Measures your taking for expenses and this quarter.
How much of that kind of run rate expenses do you think.
Go away when she went to all the dust settles there [noise].
Yeah. So I think if you go to jot it could go to page I know it was a.
A lot of words in the script because there are a lot of initiatives, but if you go to and are earning SEC. If you go to page 14, I think it is hold on a second.
[noise], 612th I'm, sorry, fish called on our Earth.
So again I apologize that when when you started to call it.
It was this wasn't up and nowadays so a lot of the questions I have are are answered.
We had some technical difficulties with business for this afternoon, but hum.
But anyway, if you look at that page job you know the the.
The Canadian store closures have happened they happen.
And so that that's that's settled to start will start realizing that in November .
You know because the Canadian feel after the first fan curse over the course of 2023.
U S store closures yeah. We we saw those are those are starting to see those are starting three quarters of those were talking circle 50 stores.
30 of those will happen in this quarter.
Balance will happen in the first probably.
But at the end of the first quarter.
23 so.
Two thirds, maybe this quarter of the balance in the first quarter of next year.
The first phase suspension that's that's.
Yeah.
Tough decisions, but.
Related costs that people have been laid off and so that that happened.
The corporate office function consolidation enclosures. The closures have occurred we close we consolidated corporate offices those have all occurred.
Corporate office function, so thats tech dependent and that's probably gonna get achieved by the first half in the first quarter, India I I would say I would say most of that happened this quarter, though Jonathan it's yep.
Little bit of it that avoided in the first quarter of next year, but most of that that that $5 million to $7 million normal happened this year [noise].
Uh-huh.
Well, that's all very helpful I'll get back in the queue, because I've asked a few questions, but thanks very much.
The next question is from dancing can take US Stevens. Please go ahead.
Taking my questions and Roger well deserved and well there and we're gonna Miss you, but after 38 years [laughter], it's it's a well deserved so congratulations.
So a couple of of follow ups.
In terms of the the pricing power. So I know you were talking about passing on to the consumer on the fly to the side and you were telling me a bit about the merchants and maybe getting some discount rates sort of wondering what you're seeing there and what you are seeing with merchant engagement, especially headed the holidays that you know what the what the maybe opportunities are.
For getting some merchants.
And then if you can talk maybe but the difference is since we don't cover.
Cover many Canadian companies just how the differences are between that Canadian consumer versus a U S. Consumer. Thank you.
Hey, Hey, Vincent started thank thank you just to make sure I said the first part of course, you're talking about about new merchant.
Yeah, just in terms of cause.
So just hearing from the U S based guys like you know.
Like a symphony and bread talking about well you know maybe the consumers.
[noise] macro headwinds, but actually maybe the merchants are engaged in more maybe there's there's pricing opportunities.
Sure in terms of the discount rate, just maybe maybe making it a broad question that in terms of you know what you can do with Flexitime.
Yeah, I think it's just and I think we send somebody put them.
Overwhelmingly the merchant base that contractually, we have and again it works a little bit differently when each contract someone should I give you a blank answer but.
We generally have the ability to pass along.
Interest rate increases the base rate increases.
In the seat or in the form of higher discount so I I think Russell.
The comfort of your proximity to make sure just as a reminder, on that point. So and then there are within each marching on there was any fear from secret breakfast. Yeah, you have a variety of different sort of promotional <unk>.
Rams are being run with merchants and so maybe 90 days same as cash 12 months, you know equal monthly payments and all of those are going to have kind of different economics different discount rates.
Et cetera, with with with the merchant and a lot of the you know the.
Hard work in that business is working with merchants to help align these promotional programs with.
Advertising spending have as well as sort of product introductions and initiatives in some cases, we have a multiline retailers would have had different brands. They may have.
Applying sure but also you know opening some you know a mattress stores and trying to work with them on Rollouts, a new promotion. So there's a hole and that's you know I think the team up there and that's what that's what they're really really good at working across his eyes, and making sure that we're both both maximizing the opportunity for retailers to sell through so they get high.
You know more financing higher conversions, but also doing it in a way that doesn't.
In an environment, where gross margins have been strained at the retail level, you know shipping costs, and you know and again for furniture retaliation lumber et cetera, it's been a a tougher inflation.
Environment and supply chain environment is caught them as well so I guess, what I would say it feels like the the supply chain pressures in the gross margin pressures are abating to an extent and that given the I think the economic climate and certainly there's a lot of demand for demand for concern.
Credit remains pretty good in the U S. Likewise in Canada, we feel like it sets us up for a pretty good holiday season.
With the merchant that we thought you know I think most of the work to set up new programs has kind of been.
And then she sent the evolve new discount rates et cetera, and that's been that's already been worked out with them.
With the retailer. So I think we're just doing everything camera to make sure we're supporting them the merchants and they can sort of finished that you are a strong and what's what's been.
Sort of get into the next question, which is you know Canada did not see the.
The run up in retail fed by stimulus that we did in the U S. But they did see some of it so and you can track the bigger you'll MFL group is our biggest partner up there, they're a publicly traded company. So.
So they've seen sales kind of bounce around a lot, but generally kind of keep moving in the right direction and not sort of see the big you know big.
Big sort of whiplash effect from the currently is how many online bigger ticket retailers, a furniture retailer's that I've seen in the U S. So I think I think the consumer in the environment and county economy is generally pretty good I mentioned that the.
The labor market isn't quite as tight.
As it is in the U S. So you're not seeing.
One seven job openings for every applicant kind of thing, but the flip side of that is inflation is is lower in the bank of Canada last week sort of surprised everybody by five five with most people buy only raising 50 basis points and signaling the hey, we want to make sure we're balancing.
Strength and ongoing strengthen the economy with with the need to contain inflation, so it and and I haven't had time to read you know today's going on in the world, but it does seem like the fed when I ran into effect quickly.
Fatuous continue to raise so there's a little bit of a divergence there I think I'm almost in my view entirely owing to the amount of stimulus that was spent in the U S and the effect that the that that that had an inflation. So we feel good about the Canadian consumer I said a million times.
An average Canadian consumer.
Similarly, situated same similar FICO similar income you know and all that sort of became kind of the ability to repay.
Metrics that you'd run in the U S that that customer's going to pay you know payment rates over time, we're going to be 15 to 20 per cent higher than what you see in the U S and the flip side obviously.
He's in charge offs for similarly, situated customers are gonna run lower.
Reason theories about why that happens, but it certainly has just been my 25 years of experience doing.
Business out there.
Okay, Great very helpful. Thank you separate question last question just on the the capital structure. Your funding structure, how should we think about that in terms of a Verizon you're ready environment, perhaps if you can give us some sensitivity and is there a are you comfortable with your current capitalist.
Sure or should be maybe see it evolve. Thank you.
Yeah I think.
We've been will evolve.
But what's most immediate as we are it might've saw that we posted the deck because we were at the ABS conference launching.
Launching a U S securitization transaction that we expect to close just after the first of the year.
And you know deals deals are still getting done regional just price I think last week and.
Opportunity into the the avs markets.
So they're not is certainly not as attractive as they were six months ago, but but deals are still getting done. So we we expect to for the U S business to do with securitization sometime in the first quarter.
Flexing he will tap securitization markets again middle of next year.
And.
We are we are evaluating.
Some potential opportunities even for the Canadian directly in the business for similar.
The securitization as we start to put the flexing nonprime.
Assets collateral into combining the flexing nonprime collateral with our with our Canadian direct lending quieter. So that's really the biggest thing we have on the plate.
Will continue to work to expand our senior revolver.
Participants on that but but the big the Big thing you know as as securitization of the of the U S Port the heights large loan portfolio.
First first first authenticate yep.
[noise] great perfect. Thanks very much.
[noise], Okay, and if you have the question. Please prescribing one the next question is from <unk>. Please go ahead.
Good afternoon guys.
Okay.
Hi, Roger I Echo everyone's Centromin, that's certainly been nice to talk with you over the last few years certainly keep in touch.
Thanks, John as far as clothing store. So you I mean, you're basically closing stores I assume that you bought from heighten first heritage right. There's no. Other stores that you do have in the U S am I correct, Sir in the U S. Yeah, Yep Yep Okay.
And.
Just to be clear, you're pulling the $2 for 240 guidance for 2023.
Well, we didn't we gave it as an outlook John we just sat yeah, we don't we feel like given.
Where we are in the macro it doesn't you know, giving giving forward Alec doesn't it doesn't make sense for us right now.
And a lot of that goes back to the interest expense I'm just the the ramp up an interest expense has been pretty steep and it seems to be almost one for one was changes in the fed funds rate them. Just how sensitive are you I mean, what's the what's the percentage of your funding that's fixed versus floating in nature.
So I was just watching it is yeah now we did we as we said.
It's about four.
$40 million of of increase from from Martin once the curve started moving off kind of in March of last year that hurt our twenty-three outlook bypass I'm $40 million pretax and then currency, which is it you know we don't move money back and forth. So it's not a cash issue for us, but it is certainly it will translate into into that.
Egf's number that that we gave but but Roger give you the breakdown of it obviously part of it as we just talked about this and move you know.
I'm, having portfolios that we can.
Moving out of the warehouse and the securitization transaction helps you know both from a duration standpoint at a at a fixed versus.
Versus floating standpoint as well.
What's the breakdown of the great. It's about half enough, we got 2 billion, a desk and half of it out of its fixed rate in half of in Florida, right and that's what I was gonna say the base rates have gone up you know.
Free 5400 basis points, that's kind of that that 40 million dollar number right there.
And then you said 30 to 35 and you're just 30 to 35 per cent growth in the point of sale business for next year is that correct and you said you would and this year about where you expected can you remind me where you expect it to end this year and refresh my memory, if I'm correct on the 35 per cent growth for twenty-three.
So you're the.
So the question is where we had just a point of sale portfolio correct.
Yeah I.
I hear you correctly, you gave guidance for 35 per cent growth in twenty-three yep that that's just gonna give you just get to the.
Number of Aerospace and we also said was gonna grow about Ah Ah Ah.
Yeah, they're gonna have the next six weeks or it'll be the holiday season. So yeah and then they said.
We expect that portfolio, which is about you asked about 690 now will end in.
$800 million range.
U S dollars at the end of the year.
And then 35 per cent cross on top of that.
About that cross next year Yep Yep.
I'll make the point that's part of why we're talking about sort of the young stuff, which is you know there's that.
Maturation in business and you can start to look at what you're getting twenty-three wherever we think the business will move from being so it's kind of a cash P&L profitable business, how do you add back depreciation amortization provision impact and and and the MTR, which isn't we don't disclose that separately. We do we do it and then there's a there's a addendum.
And the earnings tax.
So we think it'll move it'll it should be you know a gap a gap profitable business in the pre tax line early in in and we hope early in 2003, but even with because of that growth.
An ongoing healthy dose of permission of a triple one growth does the revenue yield in that business still go to about 5% as you know you get past that cohort of consumers that are in the promotional period.
Yeah, I think it I think it should grow pretty radically over the year and an exit and by the time you get to 20 Q for you should you should have that whole 500 basis point increase okay. Alright. Thank you very much.
This concludes our question and answer session I would like to turn the conference back Alright, <unk> gay hearts or closing remark.
Great. Thank you everybody for joining us again, and we'll talk to you look forward to seeing you again for a year and call and will I will add my thanks, and goodbyes and good wishes Roger.
And his family as well so thanks for everybody have a good evening.
That's what I'm thinking now concluded. Thank you for attending today's presentation you may now disconnect.
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