Q4 2022 PROG Holdings Inc Earnings Call

The conference will begin shortly to raise them lower Johan during Q&A, you can dial star one one.

[music].

Yeah.

Good day, and thank you for standing by walking to the Prague Holdings fourth quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.

You will then hear an automated message advisors in your hand is raised to withdraw your question. Please press star one one again please.

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

Like to hand, the conference over to your Speaker today, John Ball, Vice President Investor Relations. Please go ahead.

Thank you and good morning, everyone.

Welcome to the product holdings fourth quarter 2022 earnings call.

Joining me. This morning are Steve Michaels product Holdings, President and Chief Executive Officer, and Bryan Garner, our Chief Financial Officer.

Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website.

<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. We expect from the three pillars of our strategy.

Lease portfolio performance in 2023 and <unk>.

<unk> with respect to delinquencies and write offs or GMB for 2023.

Our outlook for the 2023 full year and first quarter.

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.

The 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 two.

22 <unk>.

Which we expect to file later today.

Listeners are cautioned not to place undue emphasis on forward looking statements, we make today and we undertake no obligation to update any such statements.

On today's call.

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

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 performance.

With that I would like to turn the call over to Steve Michaels Bond Holdings, President and Chief Executive Officer, Steve.

Thank you John and good morning, everyone.

I appreciate you joining us this morning, as we report our Q4 and full year 2022 results as well as take this opportunity to provide thoughts on our initial 2023 financial outlook.

Last year was a challenging year for both our customers and merchant partners at the combination of weaker than expected retail traffic.

Rising inflation pressures impacted our business.

In response, we quickly adapted balancing near term expectations against long term growth strategy.

Managing our portfolio and right sizing our cost structure, while still advancing key investments and initiatives.

Towards the end of the first half of the year, we enacted changes to our decisioning that continue to bolster our portfolio performance today.

We substantially reduced our write offs in the second half of the year with Q4 is six 5%, marking our low point for 2022.

I am extremely proud of our efforts that resulted in annual write offs of seven 7%, which is within our targeted annual range of 6% to 8%.

We have a long history of managing our portfolio with various macro environments that have not exceeded our targeted annual write off range since we establish that range in 2016.

Entering 2023, we feel good about the health of our portfolio based on the Decisioning changes made last year and the delinquency performance, we have seen since that time.

Since the beginning of last year, our leadership team has continued to improve with a number of key additions in technology finance and other critical areas.

I believe that the experience and stability are executive the department is offer will provide the leadership necessary to successfully navigate this dynamic macro environment.

Again in 2022, we executed multi year renewals with a number of our top partners.

Renewed and extended exclusivity agreements our recognition by our retail partners the value they see and continuing to partner with progressive leasing.

Despite start declines across the retail landscape our balance of share within leasable categories grew with nearly every one of our top accounts thanks to technological improvements.

For integrations.

Mix shift towards e-commerce.

And success with co branded marketing campaigns.

We believe our history of delivering value for our existing and new partners will continue to benefit our future growth.

In Q4 ecommerce as a percentage of progressive leasing JV reached an all time high of 24%.

During the year, we saw a continued shift towards a more online or omnichannel shopping experience following the transition forced by the pandemic.

As the largest e-commerce lease to own provider by GMB, the value and aligning our offerings with our customers behavior is clear.

We remain focused on providing a range of customizable e-commerce integration options for our retail partners.

These accomplishments are a lot of operating more efficiently, while continuing to support our growth initiatives for both the short and long term and we exited the year in a strong financial position despite the macroeconomic headwinds.

Yes.

Our strategy remains centered around three key pillars grow enhance and expand.

We believe these pillars will deliver growth and value for our shareholders.

First we plan to grow <unk> through strategic collaboration marketing efforts with our existing partners.

In addition, we remain focused on converting our pipeline of retailers into new Pos partners at our ability to maintain and strengthen new and existing relationships, including addressing the changing needs of our partners is critical to the long term growth of our business.

We will also continue to expand our direct to consumer marketing efforts to attract new customers and drive <unk> through in store and online retailers.

Second we are investing in technology platforms that enhance customer engagement and simplify the lease application origination and servicing experiences.

We are committed to providing our customers with transparency flexibility and greater choice on how and where they choose to shop.

We're enhancing and innovating our e-commerce capabilities to benefit existing and new Pos partners and customers.

Third we expect to expand our financial technology product ecosystem through research and development efforts and strategic acquisitions that we believe will result in a more loyal and engaged customer base.

We will leverage our extensive database of lease agreements to offer current and previous customers products that meet their needs.

Okay.

While Brian will get into more detail on our 2023 outlook I'd like to summarize how we are thinking about the macro backdrop related to our positioning going into 2023.

Due to continued economic pressures felt by our consumer we believe there could be a delay in purchase intentions or a trade down to lower ticket items.

Consumers cash reserves are declining while credit utilization is increasing and data show that customer liquidity stress is at the highest level in three years.

Despite.

The challenging macro environment, our tighter Decisioning Foster has helped the portfolio recover.

With leases originated in the second half of the year performing on par with pre pandemic results.

Portfolio performance metrics look strong entering 2023, with lower delinquency rates and charge offs, which should improve gross margins year over year.

While we are still early in the year, we are on track to achieve our annual write off target of 6% to 8% of revenue yet again based on the results we've seen year to date.

From a <unk> standpoint in addition to the consumer stress potential declines in average ticket and potential deferred purchases that I just mentioned.

Because of our tightening of lease Decisioning in late Q2 of 2022.

We expect <unk> results to be pressured our first half of 2023, as we comp against higher approval rates from last year.

As we have discussed in the past we believe we are more valuable partner to retailers during tough retail environment, and we look forward to helping our partners convert more traffic.

As Youll see in this morning's release, we also shared a view of how we expect Q1 to shape up in addition to providing our normal annual outlook.

As we move throughout 2023, we plan to continue providing key current quarter metrics for greater visibility into how we believe the year will unfold.

As Brian will talk about momentarily, we ended 2022 with our gross lease assets balance the driver of future period revenue down five 3% year over year.

This decline in addition to our first half expectations around <unk> will weigh on our quarterly revenue comparisons.

We expect that these top line headwinds when coupled with factors such as wage inflation and continued investment in growth initiatives will result in negative operating leverage.

Finally during the year, we purchased $8 7 million shares, which represents 15, 5% of our outstanding stock and we generated $242 million in cash flow from operations illustrating our financial strength and commitment to returning value to shareholders.

Our net leverage ratio at the end of Q4 was one eight times, which is still in our opinion within a comfortable range.

We believe that the capital we generate in 2023 will continue to allow us to maintain a strong balance sheet.

Reinvest in the business.

Return excess capital to shareholders.

In closing I want to take a moment to thank our team for navigating through a challenging year by being adaptable.

<unk> to execute on our strategy.

We control the controllable aspects of the business as we head into 2023 with a healthy portfolio and an eye towards future growth.

I'll now turn the call over to our CFO , Bryan Garner, who will discuss our 2022 financial results and 2023 outlook in greater detail.

Brian .

Thanks, Steve.

Our fourth quarter results demonstrate our ability to remain nimble in a challenging macroeconomic environment by addressing financial drivers within our control.

Our portfolio management and cost actions resulted in year over year adjusted EBITDA growth in the fourth quarter. Despite a five 3% decline in revenues, which when combined with a materially lower share count resulted in a 25, 4% increase in non-GAAP diluted EPS for the quarter compared to <unk>.

Q4 of 2021.

Our better than expected consolidated results were primarily driven by margin improvement at our progressive recent segment.

Q4, adjusted EBITDA margin of 13, 6% compared to 10, 5% same quarter last year.

As indicated on prior calls throughout 2020, we navigated quickly changing trends and customer payment performance.

As cash reserves from stimulus decided point, we'll see starting to climb in the first half of the year.

<unk> net lease merchandise write offs of nine 8% in Q2.

Our continued investment in our data science team, coupled with our short duration portfolio allowed us to quickly reversed in write off trajectory. We saw in the first half.

Driving lower write offs higher margins and increased profitability as we exited the year.

Moving to consolidated results.

Consolidated revenues declined five 3% in Q4, 2022, and the company faced headwinds on GMB stemming from a more conservative decision posture year over year combined with softness in consumer trends for the categories. We serve.

As Steve mentioned these factors drove a declining gross lease asset balance.

And our accounts receivable provision remained elevated in comparison to pre pandemic levels.

Consolidated SG&A as a percentage of revenue was relatively unchanged from 14, 8% in Q4 2021 to <unk>, 49% in Q4 of 2022.

The overall SG&A expense decreased by $4 4 million year over year in Q4, as a result of the cost reduction actions taken in Q2.

Consolidated adjusted EBITDA increased three 2% to $74 4 million in Q4 of 2022 of.

From $72 1 million in Q4, 2021, driven primarily by improvement in gross margin at Progressive we see from a lower accounts receivable progression and declining 90 day buyouts as well as lower SG&A expense year over year.

For our progressive weakness segment gross merchandise volume decreased 14, 8%.

$549 million in Q4 of 2022 as compared to Q4 of 2021, primarily.

Primarily result, the impact of tighter decisioning executed in Q2 and weaker retail traffic.

Revenue in the period declined five 9%.

However, the segment's Q4 gross margins improved year over year, returning to historical levels for the period.

Yes.

For us the real issues SG&A expense as a percentage of revenue declined year over year to 13, 2% in Q4, two from 13, 4% in Q4 of 2021.

And SG&A expense decreased $6 $4 million year over year also primarily a result of our cost actions.

The rest of the leases right offs of $38 3 billion or six 5% of revenues in Q4 down from six 8% in the previous year's period.

Additionally, at about six 5% represents a decline from the seven 2% in Q3 of 2022 and March peak of nine 8% in Q2 of 2020.

Looking at our balance sheet, we ended the quarter with net debt of $468 1 million.

A function of our $131 9 million in cash gross debt of $600 million, which is 183 times, our trailing 12 months adjusted EBITDA.

In 2022, we repurchased eight 7 million shares of our common stock at a weighted average price of $25 64.

And have $337 $3 million remaining under our previously authorized $1 billion share repurchase program.

I would now like to touch on a few key aspects of our 2023 outlook.

Which was provided in this morning's earnings release.

As Steve mentioned, we believe the economic and liquidity pressures felt by our customers will have an impact on our 2023 results including <unk>.

Which will face a tougher compare in the first half of the year and timing of our decision even in Q2 of last year.

Additionally, we expect the year over year percentage decline of our first quarter <unk> to be roughly in line with our Q4 rate of decline.

We enter 2023 with the gross these fast balance five 3% lower year over year, which is the basis for future period revenue.

We expected this decline and serve as a headwind to revenue, particularly in the first half of the year.

Our base case does not assume further economic downturn, while material negative impact on the unemployment of our consumers nor does it assume any benefit from tightening by providers above us in the credit stack.

Some factors we did take into account include a decline in average ticket size, a lower average tax refund amount versus last year and reduced government support programs.

Turning to our consolidated outlook for 2023, we expect revenues to be in the range of 234 billion to $2 44 billion.

Adjusted EBITDA to be in the range of $215 million to $245 million.

non-GAAP EPS in the range of $2 11, SaaS to $2 54.

This outlook assumes a difficult operating environment with continued soft demand for consumer durable goods.

No material changes in the company's assisting posture.

Effective tax rate for non-GAAP EPS of approximately 28% and no impact from additional share repurchases.

As Steve mentioned, while the revenue picture for 2023 was challenging we anticipate that our lease portfolio performance for lower 90 day buyout rates 23 will drive our progressive leasing gross margins higher year over year, helping to offset most of the pressure to earnings lower revenues.

In closing I'm also extremely proud of our company's ability to react to a macroeconomic backdrop in 2022.

Different from anything we have experienced over 20 years in this business.

Our team of dedicated employees showed a remarkable ability to quickly respond external pressures and I remain confident in our team's ability to continue that focus and adaptable approach.

I will now turn the call back over to the operator for Q&A portion of the call operator.

As a reminder to ask a question. Please press star one on your telephone.

And wait for your name to be announced to withdraw your question. Please press star one again.

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

One moment for our first question.

Our first question comes from the line of Brad Thomas from Keybanc. Your line is open.

Hi, good morning.

Steve and Brian and.

I had a couple of questions. If I could first one kind of on the environment that you're in and one on <unk>.

How you're operating the business today and so first.

Brian I think it was in your prepared remarks, you mentioned that the outlook.

Does not.

Factoring in any benefit from tightening within the subprime.

Part of the credit stack and I'd just be curious.

What youre seeing out there and hearing out there and if you if you think you're starting to get any benefit.

From tightening in that in that part of the credit well.

Yes.

Good question.

<unk>.

Weigh in on that as Susan Susan closely following up the sales team.

Good morning.

Yes, I would just say this is kind of a confusing one for me because as we've talked about on several calls this has been an expectation in mind for a while but as you know.

It should have happened already.

And as you are looking at.

The cash reserves data in.

Due to the savings rates.

Certainly our customer was impacted more quickly than the prime customer.

We're waiting to see the prime customer show up in our application funnel youre starting the year.

Some of the prime providers using the word tightening on their calls and Youre certainly season there.

Results.

Higher delinquencies and higher provisions.

Although I would say, we have not yet seen a material impact.

From those actions.

Have to do.

It's our expectation that it will lead to reduced credit supply of almost on the stack but.

We have not seen it.

To any material effect and so while we think it will happen it is not baked into our outlook because I've been terrible at predicting the timing of thus far so.

More specifically, we do operate in our <unk> business and so and there are a few instances where we are.

Both the second look and the tertiary provider within the retail environment and Monovisc tightened several times over the last 18 months and has seen.

<unk>.

A little bit of tightening from the prime provider above them.

But more broadly we have just not seen it yet although we are.

We're watching it like a hawk and looking forward.

Okay. That's helpful. Steve.

And then I was wondering if you could just.

Help us think a little bit more about how you think about the.

<unk> space of the business, obviously they were.

<unk> been many years, where.

Progressive experienced significant growth I think there's still a tremendous amount of growth opportunity ahead of you all.

But nonetheless, a tougher operating environment here in the near term in terms of <unk>, how do you feel about.

The cost structure business the level of spending and maybe could you talk a little bit more about some of the.

Specific savings opportunities that you may have here this year.

Yeah, I'll start and then Bryan can chime in.

We're very.

Focused on the expense side, but as you said in your question, we nothing has changed.

Even though this has been a crazy couple years, managing and navigating through this environment nothing has changed about our view on the size of the prize.

And the market that were out there trying to capture so while we're trying to be prudent on near term results. We're also investing for the future.

As you will remember we did a reduction in force last year.

<unk> got about 10% of our of our head count.

No earlier than most did that we definitely took some cost actions.

Right.

Rightsize the expense base as we started to plan for 'twenty three we start to think about how our revenue picture was shaping up.

<unk>.

We are very focused on the cost and there's not really any hiring in.

The base plan.

In fact based on active leases in how <unk> shapes out there could be some some head count reductions due to just through attrition in our ops and our ops area, but we are also operating in an environment of tough.

<unk>.

Recruiting and talent retention environment, there is wage inflation and so we have to win with the teams that we have on the field and we think it's the appropriate investment to the best back into those and those talented folks.

As it relates to specific investments, we continue to invest in product and technology in order to improve our offering both on E comm and.

And in the customer experience. So we believe that those are still the right foods because.

As you mentioned, it's been a tough revenue environment, but we don't think that this is the new normal we do believe that.

That growth will come in and we look forward to spring boarding off.

A better foundation when it does.

Yes, Brian I would just add.

As Steve said this is a balancing act.

Obviously, the cost structure, a lot of thought going into 2023.

The opportunity that remains.

Well as the kind of near term.

Okay.

The prepared remarks about the near term headwinds on revenue.

Moving to EMEA.

The natural deleveraging.

If you will from an operating leverage standpoint.

We are highly variable cost structure, we do have fixed cost and thats going to be something that does weigh on margins in 2023 is our expectation.

Members exist, we do control them to a large degree I think.

And in our judgment.

Good evening to reactive in this environment I think.

<unk>.

What would be the right decision wouldn't be mortgage careful and thoughtful about the investments in these expected ROI from those investments as we provided with that structure.

Really helpful. Thanks, Steve Thanks, Brian .

Brian Thank you.

Okay.

On a moment for our next question.

Our next question will come from the line of Anthony <unk> from Loop capital. Your line is open.

Thank you and good morning, Thanks for taking my question. So I just had a question on guidance specifically first quarter guidance. So if I look at your first quarter guidance pretty simplistically, particularly from an earnings perspective, youre, implying that earnings will be up pretty significantly year over year in that.

EBITDA will account for about.

About 33% ish of our full year EBITDA.

And then I look back at last year and EBITDA for the first quarter was about 25% of your full year EBITDA. So it would seem to imply that you're expecting numbers too.

Performance to sort of get worse as the year goes on.

I guess, what's leading you to think that or am I misinterpreting that I'm, just trying to sort of.

And so I'm just trying to square that all.

Okay. That's a good question Anthony.

I'll start and Steve can weigh in as well, but I think there are.

Some nuances as we enter 2023 that were thinking about from a headwind perspective.

And given the uncertainty in the environment.

Sure.

We're throwing out all the miserable and I think thats whats reflected in the guidance slightly to start.

<unk> said in the prepared remarks, we entered this year with.

Gross leased asset balances down roughly five 5% and so that's the that's the driver of our future period revenue and so while it's.

Impacting Q1 to some extent we expect continued.

It's an amortizing into revenue pressures from that dynamic.

We've also indicated some some near term <unk> challenges to start the first half of the year and so that's going to be.

In addition to the starting point on GLA.

Theres also.

And the expectation within our model that we are.

While payment performance trends are much better than they were in the first half 2022, we still haven't got back from it and I'm really referring to our accounts receivable provision, we're not yet back to what we saw pre pandemic from a performance standpoint. So our expectation there is that there is still going to be some level.

All of.

Challenged customer payment performance to a degree within our model and Thats working its way through.

So.

The last thing I would say.

Kind of from weight fees. The performance will be just the seasonality of that accounts receivable provision typically.

It feels like forever since we've had a normal cycle to talk about any kind of seasonality, but typically in Q1, you will see the lowest bad.

Bad debt expense more or radar provision.

In that period, and so that's going to be.

That's going to be helping the Q1 results and we expect that to soften a bit as we use will move throughout the year, but those are kind of the three things that I would.

0.2, and I mentioned the deleveraging aspects.

As revenue builds pressures as well.

Got it that's helpful. And then just one follow up question. So you gave some very helpful. Stats in terms of your existing.

Retail partners and the fact that.

Penetration lease penetration is growing.

These multi year renewals.

Any update in terms of the.

Retail partner pipeline.

Yes, Thanks, Steve.

This will be my normal frustrating answer, but it's difficult to talk about the pipeline until we actually have assigned MSA, which we're obviously working on.

Every day with very.

Yes.

That's our goal obviously is to convert that pipeline, we do expect to sign up some retailers in 'twenty three.

Whether they will be named in the press release worthy.

<unk>.

We're positive about the pipeline.

It's just that nothing has changed in that regard.

When we're dealing with these large enterprise for retailers and the timing of that conversion is difficult to predict.

Well I'll say that.

Nothing is changing in fact, when the economy is tough in retail comps are hard to come by.

<unk>.

We feel and are experiencing.

Positive momentum in processes and conversations.

In other environments may have otherwise stalled so.

Certainly.

Massive focus of ours to broaden our base so.

The retail environment is more positive that we have.

The bigger platform to grow from.

Got it yes, your answer was frustrating, but consistent good luck with that.

Okay.

Yes.

Okay.

One moment our next question.

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

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

So for the first one I was curious if you could talk about how your retail partners are performing just generally I'm curious how the holiday shaped up for them and then as well.

We started this year.

How performance has been I know that's been initiatives you called out weak customer traffic.

In the case for a while so I'm curious if there's been any signs of improvement or is it still been a pretty.

Backdrop.

Yes, Jason.

And obviously, we don't like.

Call out any specific retailer.

Definitely not before they're released there.

Our Q4 results but.

And you have to do a little bit of a read through I know, you've I know youre deepen the weeds, but the headline comps that they may or does that mean that they may report are going to be slightly different than the leasable categories that we participate in within their within their stores.

Dan.

Also the price points, whether it would be.

Super High end mattress or Super high end piece of jewelry would potentially.

Perform differently than an opening price point items. So we were.

The holiday season it was.

Generally weaker than we anticipated when we were going into it and kind of October .

Not massively weaker because we were not expecting a strong one but it was not.

It kind of thing.

Weaken as the quarter went on we're not really commenting on what we're seeing.

Since 231 other than to provide that outlook that we expect our <unk> to be down in the same neighborhood.

We were down in Q4 of 'twenty two.

Got it. Thanks, that's fair and then as a follow up maybe this question is maybe asked earlier, but I'm asking a little bit differently. So for the cadence of the margin guidance for the year I was getting to like about 11, 5% for <unk> and then I think the remainder of the year is closer to 9%.

Brian based on your response to an earlier question I think the biggest driver of that would be it sounds like.

<unk>.

Reserve coming through so is that.

<unk> like <unk>.

Effect of that that we should see like maybe like outsized gross margins.

In <unk> and then it sort of normalizes in the remainder of the year.

And sort of along the lines of that I guess my question more broadly.

For this year for 2023.

If I compare.

But your P&L for what to expect for 2023 versus what we saw like pre pandemic in 2018 or 2019, I think we're still I think margins are still below where you want them to be that like 11% to 13% target. So I'm curious what's the driver of that is at the AAR provision.

Write offs coming in higher.

Just like wage inflation over the years. So if you could kind of help compare those data would be helpful. Too. Thank you.

Let me take a stab of that piece of it.

Yes.

I think your math is roughly correct in terms of the.

<unk>.

The rest of the year in margins.

Linking it back to my earlier response.

In order of magnitude I'd say, the the deleveraging aspect of.

This is real.

Probably.

This is up slightly above the EUR components that are referenced.

So we've grown internal model the sensitivity on that is pretty meaningful in terms of if you're growing 5%, 10%. Your your margin profile. It can improve pretty meaningfully and if you quickly get to.

Certainly the low end of that 11% to 13%. So I think the focus on growth and investments in growth are critical to getting that margin, where we've typically seen it.

Obviously, we were and hold ourselves accountable on those investments and making sure that they are they're bleed through to margins over time.

<unk>.

Historically.

Just keep in mind, obviously each of the 19 as progressive reporting on a profitable product reported out.

What has been a public company at the time, so there's a lot of the.

Cost of being public are there, but when you're talking about something north of 11% and EBITDA margin.

I think as Steve talked about it internally Thats certainly.

That's certainly where we want to be.

And I think there is when you think about our business.

The variable costs of the business the contribution margin that it generates.

<unk>.

So we've got some we've got some.

Execution, so we need to.

When you see happen to get us to where we want to be there.

I would just I would do that and Bryan can keep me keep me honest here, but your point about the <unk>.

Our provision for bad debt expense I mean, while we're happy with where the portfolio is and proud of the actions we took last year to get the.

The write offs, where they are in the portfolio, where it is we do expect BD.

To win 23 is also done to be higher than they are better than 2002, and comfortable but but still higher than pre pandemic levels by by some measure.

Got it that's all helpful color. Thank you.

One moment our next question.

Our next.

Question comes from the line of Bobby Griffin from Raymond James Your line is open.

Good morning Alexandra minutes on for Bobby Griffin. Thank you for taking our question.

Firstly I just wanted to touch on kind of listing term. So what would you need to see in the economy or payment performance to start to loosen terms again and go after market correct.

Yes, so from a decisioning standpoint.

We're in the.

Kind of the same ballpark from a decisioning posture that we've been in since the summer time, when we talked about are tightening actions we are.

Our base case does not assume a recession in 2023.

But it also doesn't assume.

Really any any tailwind or any any improvement we're watching all the BLS data and all of the leading economic indicator data.

As we mentioned on the prepared remarks liquidity stress is high for our consumer credit utilization is up so.

We meet every two weeks on our risk Committee and we review the portfolio by vintage pool.

How it is playing out and we also review and inventory.

Levers that we have at our disposal, which.

Some are too.

Tightened in pockets and some art to look for opportunities to.

Increase approval rates, we don't want to knowingly, we profitable GMP on the table for us or our retail partners.

But we also feel like in this uncertain environment that we're operating in.

A little bit of a.

Defensive posture as appropriate.

I certainly hope, it's not my baseline expectation, but I hope that as we move through this year.

We can look for opportunities to increase approval rates.

We have those initiatives at the ready, but we're just.

To be prudent before we deploy them.

That's very helpful. And then maybe just a follow up on that one are you seeing in terms of application volumes are you continuing to see a sequential pressure has bachman.

Stabilized modestly.

Yes, we have seen and we have to look at it by channel right. So in store volumes.

Flat to slightly down D comm volumes are a little.

But once you kind of go through the funnel, there's a pretty material difference is funding GMB from items in store versus E. Comm Avenue, and that's that makes sense theres higher purchase intent when someone's in the store talking to our sales associates.

Breweries are higher in store conversion rate is higher in store and so when you have.

The increases online it has.

While the law of big numbers kicks in it does not have a smaller flow through.

<unk> per App released to <unk> so.

That's something we're watching from the App side, we're watching but we're also more specifically watching the profile of the App to look for evidence of that opening of the top of the funnel from the credit providers above is tightening.

But thats, what we are observing so far.

Thank you semiconductor blocking train.

Thank you.

One moment our next question.

Our next question comes from the line of how gorge from loop capital. Your line is open.

Hey, good morning, guys to ask you about the components.

GMB for 2023 like you.

Your thoughts on how much of that you might think it is coming from the back book of merchants you had on.

The books in 2021 that are like basically same store sales all through 2022 and 2023 now and then merchants you added in 2022, and then your assumption for GMP that might come from.

Since you add this year.

Are those in your forecast.

Give us your thoughts on those kind of three buckets, where <unk> is being originated from.

Yes.

So I'll start with the last one I mean, we always have.

We also have a number in our <unk> plan for pipeline, we want to make sure we keep that keep that pressure on the bid.

Pipeline is in there.

But the.

The named accounts are the really exciting ones.

Even if we have an announcement this year it would not be a material impact to <unk> to 'twenty three <unk>. So.

There is a smaller number in our view or in our outlook from a from a pipeline standpoint, and then the rest of it is kind of just baseline existing retailers.

And not really with.

With the specificity to calling out the 2019 vintage of the 'twenty one vintage we do.

We do have the ability.

And the initiatives to become more productive and so that will ultimately play out and what you said, which was kind of like a same store sales metric.

But we have the ability we are focusing on these deeper integrations as we mentioned in our in our <unk>.

Prepared remarks so.

No.

E Com cart integrations, which we've talked about for the last couple of years, we still have some opportunities with top 10 partners in that area.

More waterfalls more prominent displays on landing pages and PDP.

On the E comm side.

In the store.

Credit waterfalls things of those majors things of that nature in order to.

Increase and grow with them.

Within the same retail environment and become continue to grow that balance of sale even in a.

Potentially down comp environment for that retailer.

One thing that we mentioned and I just wanted to reiterate here is we are obviously still comping against the higher approval rates from 2022 in the first half. So in the first half of 'twenty. Three so those are that that will be more difficult.

To overcome even with those productivity initiatives.

And the timing of those productivity initiatives are are difficult to predict even throughout the year, because we have to collaborate and partner well with our retail partners tech teams or through our merchant teams.

The project might be we're working hard on.

Using this opportunity to become more meaningful to partner with all of our retailers and we have some well developed roadmaps at the partner level to achieve that.

Okay.

Hey, guys can I ask a follow up on your risk model.

You are now trending towards the lower end of.

Lease write off range.

Job market for maybe the lease to own customers seem to be very very strong at this point in time.

Like.

Your color on.

The job market is factored into your Decisioning and what we've heard from other lenders in the less than prime space.

Several companies have said, hey, we're probably leaving some loan volume on the table for <unk>.

Doing less than we could.

Abundance of caution and just wanted to get your thoughts on.

Where you stand relative to the a statement like that.

Because all these companies are focused on the job market, which is pretty good.

All saying probably leave it the volume on the table what are your thoughts on that.

And listen I mean, I think we're all.

For a couple of years, where all arm chair neurologist trying to figure out the pandemic and now we're all armchair economist is trying to figure out what's going to happen on the macro side.

No exception to that because.

It's frustrating might be talking about all these macro things that I hear on CWC.

Looking out in the morning so.

Listen the one thing that could be a tailwind for us that would be a welcome tailwind as we might actually see some increases in our delivery, but not in our customer base right.

Kind of alluded to that.

That jobs number for January was.

Blew the doors off and I don't know, if thats sustainable or not I.

I don't want to give you the big long economic commentary that I'm not qualified to give but I would say that.

There are some elements of the macro that could actually break our way.

I'm not used to things break our way over the last couple of years, so I'm not counting on them.

Sure.

Yes.

But back to your original question I mean, it is possible and probably more likely than not that we are leaving the volume on the table out of abundance of caution.

I think thats the appropriate position for us to be in until we get some more clarity.

Thank you.

One moment our next question.

And as a reminder to ask a question Thats Star one one.

Once again Thats star one way.

Our next question comes from the line of Vincent <unk> from Stephens. Your line is open.

Hey, good morning, Thanks for taking my question most of my questions have been asked but one.

To touch on cash generation and your expectations for 2023, and I know in the <unk> guidance It was though.

Share repurchases, but you were active at <unk>. So just wanted to get your thoughts on how youre thinking about capital return for 2023.

Yes, I mean from a from a cash standpoint, we will.

Generate cash in 2023, that's one of the.

Really nice elements of our business model with good cash conversion cycle in the short duration portfolio. So.

Obviously.

The timing of the GMP production will impact.

The actual cash levels.

As.

Brian It was right when he said, we havent had a normal year in many many years, but in a normal year, we would generate more than 100% of our cash in the first half of the calendar year and then depending on GW production in the back half, we might actually be a cash user but over the course of the year, we will generate positive cash flow.

As it relates to share repurchases or shareholder return.

Obviously.

Our history would show that.

We.

We have optimism about our future prospects and think that the shares are a good value here.

We'll always look at it did lead to a prudent capital allocation and I want to keep a strong balance sheet.

Keeping note.

Kind of a view over the next.

Two two years as you talk about the leverage ratio will look like and then we'll prior always prioritize prioritize investment in the business first but then.

By our definition of excess capital, we'll look to return to shareholders.

Our history with Joey's generally favor.

The share repurchase repurchases.

I don't remember the exact number but I think it's in the neighborhood of $337 million remaining under our original board authorized share repurchase program.

Okay, perfect Thats very helpful.

Last question just a quick follow up on the merchant questions from earlier.

So understanding that.

The comments on the pipeline, but.

When you're talking about with your existing merchant partners.

And there was some discussion about.

Engagement there I was wondering if you could maybe talk about that in more detail. Our they are you seeing more.

<unk>.

<unk> marketing campaigns or anything like that or is the engagement.

Increasing there thank you.

Yes. Thanks, Vincent Yes, we definitely are I mean, I'm pleased with the level of engagement I can't I don't think we've had better collaboration and partnering with our counterparts at our merchant partners.

Then we have now and that makes sense because every retailer is out there trying to scratch and claw for comps so.

<unk>.

The idea of someone always having it.

A negative view on point of purchase materials the stores, but then decided okay, let's let's try that out and give it a test that is a positive development.

The partner, we which has been really successful kudos to the margin gains were coming up with that and we've got more and more partners wanting to participate in our broad partner rig, which really which.

Markets to previous customers on a co branded not co branded well progressed sysco brand as well as the two of our merchants would be.

We send something out with progressive on there as well for example, like best buy and Kay jewelers or something like that so that that's increasing and velocity and frequency and we're seeing some good returns there.

And then just generally.

We have a pretty good.

Good track record in the data backing up Blake talked.

<unk> talked about the tool in our tool belt for years now.

Conversations and potential resource allocation, which is the most important part of that statement.

Our positive like if there's tools that are left unused in that tool belt across a specific merchant partner those things now there's always limitations.

Everybody have a good intentions.

Have the resource to be able to.

Execute on that before holiday this year or something like that but we are focused on taking the burden taking as much of the burden off the retailer as we can and putting that that work on our side of the ledger to the extent, we can we can't do it 100%, but to the extent, we can make it easier housing easier integration with easier.

Sure.

<unk> of those tools.

That benefits us and the retailer and makes us.

The continued preferred partner so we're encouraged by those things and we hope to.

Sure.

Actual evidence and execution of a number of those things in 2023.

Perfect. Thanks, so much.

Thank you and I'm not showing any further questions in the queue I will turn the call back over to Steve for any closing remarks.

Thank you Victor.

I appreciate you all joining us today as we wrap up.

A very challenging 2022.

2023 also has its challenges, but we are optimistic about what we can accomplish and what the future the multi years, even in the near term and intermediate term future holds for US really just want to reiterate my appreciation and thanks to the team.

For for executing well and four.

And for.

Due to the work that's going to get us to.

To where we need to be so we look forward to updating you all here shortly in six years or so days at the end of April about our Q1 results.

Yes.

This concludes.

Today's conference call. Thank you for participating.

May now disconnect everyone have a great day.

[music].

[music].

Good day, and thank you for standing by walking to the Prague Holdings fourth quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone you live in here in <unk>.

Message advising your hand is raised to withdraw your question. Please press star one again.

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.

Welcome to the product holdings fourth quarter 2022 earnings call.

Joining me. This morning are Steve Michaels Prime Holdings, President and Chief Executive Officer, and Bryan Garner, our Chief Financial Officer.

Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website, Investor Dot Prod Holdings Dot com.

During this call certain statements, we make will be forward looking including comments regarding our expectations related to the benefits. We expect from the three pillars of our strategy.

Portfolio performance in 2023 and.

Including with respect to delinquencies and write offs, our G&A for 2023.

And our outlook for the 2023 full year and first quarter.

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.

The 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 2022.

We expect to file later today.

Listeners are cautioned not to place undue emphasis on forward looking statements we make today.

And we undertake no obligation to update any such statements.

On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP EPS, 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.

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 performance.

With that I would like to turn the call over to Steve Michaels Bond Holdings, President and Chief Executive Officer, Steve.

Thank you John and good morning, everyone.

I appreciate you joining us this morning, as we report our Q4 and full year 2022 results as well as take this opportunity to provide thoughts on our initial 2023 financial outlook.

Last year was a challenging year for both our customers and merchant partners at the combination of weaker than expected retail traffic.

And rising inflation pressures impacted our business.

In response, we quickly adapted balancing near term expectations against long term growth strategy.

Managing our portfolio.

And right sizing our cost structure, while still advancing key investments and initiatives.

Towards the end of the first half of the year, we enacted changes to our decisioning that continue to bolster our portfolio performance today.

We substantially reduced our write offs in the second half of the year with Q4, six 5%, marking our low point for 2022.

And I am extremely proud of our efforts that resulted in annual write offs of seven 7%, which is within our targeted annual range of 6% to 8%.

We have a long history of managing our portfolio with various macro environments that have not exceeded our targeted annual write off range since we establish that range in 2016.

Entering 2023, we feel good about the health of our portfolio based on the Decisioning changes made last year and the delinquency performance, we have seen since that time.

Since the beginning of last year, our leadership team has continued to improve with a number of key additions in technology finance and other critical areas.

I believe that the experience and stability are executive the department is offer will provide the leadership necessary to successfully navigate this dynamic macro environment.

Again in 2022, we executed multi year renewals with a number of our top partners.

These renewed and extended exclusivity agreements our recognition by our retail partners, but the value they see and continuing to partner with progressive leasing.

Despite start declines across the retail landscape our balance of share within leasable categories grew with nearly every one of our top accounts thanks to technological improvements.

Deeper integrations.

Mix shift towards e-commerce.

And success with co branded marketing campaigns.

We believe our history of delivering value for our existing and new partners will continue to benefit our future growth.

In Q4 e-commerce as a percentage of progressive leasing <unk> reached an all time high of 24%.

During the year, we saw a continued shift towards a more online or omnichannel shopping experience following the transition forced by the pandemic.

As the largest e-commerce lease to own provider by GMB, the value and aligning our offerings with our customers behavior is clear.

We remain focused on providing a range of customizable e-commerce integration options for our retail partners.

Yes.

These accomplishments allowed us to operate more efficiently, while continuing to support growth initiatives for both the short and long term and we exited the year in a strong financial position despite the macroeconomic headwinds.

Our strategy remains centered around three key pillars grow enhance and expand.

We believe these pillars will deliver growth and value for our shareholders.

First we plan to grow <unk> through strategic collaborations and marketing efforts with our existing partners.

In addition, we remain focused on converting our pipeline of retailers into new <unk> partners, and our ability to maintain and strengthen new and existing relationships, including addressing the changing needs of our Pls partners is critical to the long term growth of our business.

We will also continue to expand our direct to consumer marketing efforts to attract new customers and drive <unk> through in store and online retailers.

Second we are investing in technology platforms that enhance customer engagement and simplify the lease application origination and servicing experiences.

We are committed to providing our customers with transparency flexibility and greater choice on how and where they choose to shop.

We're enhancing and innovating our e-commerce capabilities to benefit existing and new Pos partners and customers.

Third we expect to expand our financial technology product ecosystem through research and development efforts and strategic acquisitions that we believe will result in a more loyal and engaged customer base.

We will leverage our extensive database of lease agreements to offer current and previous customers products that meet their needs.

Yeah.

While Brian will get into more detail on our 2023 outlook I'd like to summarize how we are thinking about the macro backdrop related to our positioning going into 2023.

Due to continued economic pressures felt by our consumer.

We believe there could be a delay in purchase intentions or trade down to lower ticket items.

Consumers cash reserves are declining while credit utilization is increasing and data show that customer liquidity stress is at the highest level in three years.

Despite the challenging macro environment, our tighter Decisioning Foster has helped the portfolio recover.

With leases originated in the second half of the year performing on par with pre pandemic results.

Portfolio performance metrics look strong entering 2023, with lower delinquency rates and charge offs, which should improve gross margin year over year.

While we are still early in the year, we are on track to achieve our annual write off target of 6% to 8% of revenue yet again based on the results we've seen year to date.

From a <unk> standpoint in addition to the consumer stress potential declines in average ticket and potential deferred purchases that I just mentioned.

Because of our tightening of lease Decisioning in late Q2 of 2022.

We expect <unk> results to be pressured first half of 2023, as we comp against higher approval rates from last year.

As we have discussed in the past we believe we are more valuable partner to retailers during tough retail environment, and we look forward to helping our partners convert more traffic.

As Youll see in this morning's release, we also shared a view of how we expect Q1 to shape up in addition to providing our normal annual outlook.

As we move throughout 2023, we plan to continue providing key current quarter metrics for greater visibility into how we believe the year will unfold.

As Brian will talk about momentarily, we ended 2022 with our gross lease assets balance the driver of future period revenue down five 3% year over year.

This decline in addition to our first half expectations around <unk> will weigh on our quarterly revenue comparisons.

We expect that these top line headwinds when coupled with factors such as wage inflation and continued investment in growth initiatives will result in negative operating leverage.

Finally during the year, we purchased $8 7 million shares, which represents 15, 5% of our outstanding stock and we generated $242 million in cash flow from operations illustrating our financial strength and commitment to returning value to shareholders.

Our net leverage ratio at the end of Q4 was one eight times, which is still in our opinion within a comfortable range.

We believe that the capital we generated 2023 will continue to allow us to maintain a strong balance sheet.

Reinvest in the business and return excess capital to shareholders.

In closing I want to take a moment to thank our team for navigating through a challenging year by being adaptable and continuing to execute on our strategy.

We control the controllable aspects of the business.

And we head into 2023, with a healthy portfolio and an eye towards future growth.

I will now turn the call over to our CFO , Bryan Garner, who will discuss our 2022 and financial results and 2023 outlook in greater detail.

Brian .

Thanks, Steve.

Our fourth quarter results demonstrate our ability to remain nimble in a challenging macroeconomic environment by addressing financial drivers within our control.

Our portfolio management and cost actions resulted in year over year adjusted EBITDA growth in the fourth quarter. Despite a five 3% decline in revenues, which when combined with a materially lower share count resulted in a 25, 4% increase in non-GAAP diluted EPS for the quarter compared to <unk>.

Q4 of 2021.

Our better than expected consolidated results were primarily driven by margin improvement at our progressive recent segment.

<unk> had a Q4 adjusted EBITDA margin of 13, 6% compared to 10, 5% same quarter last year.

As indicated on prior calls throughout 2020, we navigated quickly changing trends and customer payment performance.

As cash reserves from stimulus decided point, we'll see starting to climb in the first half of the year.

<unk> net lease merchandise write offs of nine 8% in Q2.

Our continued investment in our data science team, coupled with our short duration portfolio allowed us to quickly reversed in write off trajectory. We saw in the first half.

Driving lower write offs higher margins and increased profitability as we exited the year.

Moving to consolidated results.

Consolidated revenues declined five 3% in Q4, 2022, and the company faced headwinds on GMP stemming from a more conservative decision posture year over year combined with softness in consumer trends for the categories. We serve.

As Steve mentioned these factors drove a declining gross lease asset balance.

And our accounts receivable provision remained elevated in comparison to pre pandemic levels.

Consolidated SG&A as a percentage of revenue was relatively unchanged from 14, 8% in Q4, 2021% to 49% in Q4 2022.

The overall SG&A expense decreased by $4 4 million year over year in Q4, as a result of the cost reduction actions taken in Q2.

Consolidated adjusted EBITDA increased three 2% to $74 4 million in Q4 of 2022 of.

From $72 1 million in Q4, 2021, driven primarily by improvement in gross margin at progressive leasing from a lower accounts receivable progression and declining 90 day buyouts as well as lower SG&A expense year over year.

For our progressive weakness segment gross merchandise volume decreased 14, 8% to five.

$549 million in Q4 of 2022 as compared to Q4 of 2021, primarily.

Primarily result, the impact of tighter decisioning executed in Q2 and weaker retail traffic.

Revenue in the period declined five 9%.

However, the segment's Q4 gross margins improved year over year, returning to historical levels for the period.

Yes.

First of all issues SG&A expense as a percentage of revenue declined year over year to 13, 2% in Q4, two from 13, 4% in Q4 of 2021.

SG&A expense decreased $6 $4 million year over year also primarily a result of our cost actions.

Press releases write offs of $38 3 billion or six 5% of revenues in Q4 down from six 8% in the previous year's period.

Additionally, about six 5% represents a decline from the seven 2% in Q3 of 2022 and from our peak of nine 8% in Q2 of 2020.

Looking at our balance sheet, we ended the quarter with net debt of $468 1 million.

A function of our $131 9 million in cash and gross debt of $600 million, which is 183 times, our trailing 12 months adjusted EBITDA.

In 2022, we repurchased eight 7 million shares of our common stock at a weighted average price of $25 64.

And have $337 $3 million remaining under our previously authorized $1 billion share repurchase program.

I would now like to touch on a few key aspects of our 2023 outlook.

Which was provided in this morning's earnings release.

As Steve mentioned, we believe the economic and liquidity pressures felt by our customers will have an impact on our 2023 results including <unk>.

Which will face a tougher compare in the first half of the year and timing of our decision even in Q2 of last year.

Additionally, we expect the year over year percentage decline of our first quarter <unk> to be roughly in line with our Q4 rate of decline.

We enter 2023 with a gross lease asset balance five 3% lower year over year, which is the basis for future period revenue.

We expected this decline will serve as a headwind to revenue, particularly in the first half of the year.

Our base case does not assume further economic downturn, while material negative impact on the unemployment of our consumers nor does it assume any benefit from tightening by providers above us in the credit stack.

Some factors we did take into account include a decline in average ticket size, a lower average tax refund amount versus last year and reduced government support programs.

Turning to our consolidated outlook for 2023, we expect revenues to be in the range of 234 billion to $2 44 billion.

Adjusted EBITDA to be in the range of $215 million to $245 million.

non-GAAP EPS in the range of $2 11, SaaS to $2 54.

This outlook assumes a difficult operating environment with continued soft demand for consumer durable goods.

No material changes in the Companys assisting posture.

An effective tax rate for non-GAAP EPS of approximately 28% and no impact from additional share repurchases.

As Steve mentioned, while the revenue picture for 2023 was challenging we anticipate that our lease portfolio performance for lower 90 day buyout rates 23 will drive our progressive leasing gross part is higher year over year, helping to offset most of the pressured earnings from lower revenues.

In closing I'm also extremely proud of our company's ability to react to a macroeconomic backdrop in 2022. It was different from anything we have experienced over 20 years in this business.

Our team of dedicated employees showed a remarkable ability to quickly respond external pressures.

And I remain confident in our team's ability to continue that focus and adaptable approach.

I will now turn the call back over to the operator for Q&A portion of the call operator.

As a reminder to ask a question. Please press star one on your telephone.

And wait for your name to be announced to withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.

One moment for our first question.

Our first question comes from the line of Brad Thomas from Keybanc. Your line is open.

Hi, good morning.

Steven Bryan.

Had a couple of questions if I could first one kind of on the environment at year end and one on.

How you're operating the business today and so first.

Brian I think it was in your prepared remarks, you mentioned that the outlook there.

Does not.

Factoring in any benefit from tightening within the subprime.

Part of the credit stack and I'd just be curious.

What youre seeing out there and hearing out there and if.

If you think you are starting to get any benefit from tightening in that in that part of the credit well.

Yes.

The question I'll, let Steve.

Weighing in on that a season the season closely following up the sales team.

Good morning.

Yes, I would just say this is kind of a confusing one for me because as we've talked about on several calls this has been an expectation in mind for awhile, but as you know.

It should have happened already.

And as you are looking at.

The cash reserves data in.

Due to the savings rates.

Certainly our customer was impacted more quickly than the prime customer.

We're waiting to see the prime customer show up in our application funnel youre starting the year.

Some of the prime providers using the word tightening on their calls that Youre certainly season there.

Results.

Higher delinquencies and higher provisions.

Although I would say, we have not yet seen a material impact.

From those actions.

<unk> two <unk>.

It's our expectation that it will lead to reduced credit supply above us on the stack, but.

We have not seen it.

To any material effect and so while we think it will happen it is not baked into our outlook because I've been terrible at predicting the timing of thus far so.

More specifically, we do operate our <unk> business and so and there are a few instances where we are.

Both the second look and the tertiary provider within a retail environment and Monovisc tightened several times over the last 18 months and has seen.

<unk>.

A little bit of tightening from.

The prime provider above them.

But more broadly we have just not seen it yet although we are.

We're watching it like a hawk and looking forward.

Okay. That's helpful. Steve.

And then I was wondering if you could just help us think a little bit more about how you think about the.

<unk> expense base of the business obviously they were.

Had been many years, where progressive experienced significant growth I think there is still a tremendous amount of growth opportunity ahead of you all.

But nonetheless.

For operating environment here in the near term in terms of <unk>, how do you feel about.

The cost structure business the level of spending and maybe could you talk a little bit more about.

Specific savings opportunities that you may have here this year.

Yes, I'll start and then Bryan can chime in.

Yes.

We're very.

Focus on the expense side, but as you said in your question. We nothing has changed even though this has been a crazy couple years, managing and navigating through this environment nothing has changed about our view on the size of the prize.

And the market that were out there trying to capture so while we're trying to be prudent in near term results. We're also investing for the future.

As you will remember we did a reduction in force last year.

<unk> got about 10% of our of our head count.

No earlier than most did that we definitely took some cost actions.

Right.

Rightsize the expense base as we started to plan for 'twenty three we start to think about how our revenue picture was shaping up.

<unk>.

We are very focused on the cost and there's not really any hiring in.

The base plan.

In fact based on active leases in <unk> shapes out there could be some some head count reductions due to just through attrition in our ops and our ops area, but we are also operating in an environment of tough.

<unk>.

Recruiting and talent retention.

There is wage inflation and so we have to win with the team that we have on the field and we think its appropriate investment.

We invest back into those and those talented folks.

As it relates to specific investments, we continue to invest in product and technology in order to improve our offering both on E comm and.

And in the customer experience. So we believe that those are still.

Still the right decision because.

As you mentioned, it's been a tough revenue environment, but we don't think that this is the new normal we do believe that.

That growth will come and we look forward to springboard off of.

A better foundation when it does.

Yes, Brian I'll just add.

Steve.

Balancing act and what we do is obviously the cost structure a lot of thought going into 2023.

The opportunity that remains as well as the kind of near term.

Okay.

Her remarks about the near term headwinds on revenue.

There's going to be.

Our natural deleveraging.

If you will from an operating leverage standpoint.

We are highly variable cost structure, we do have fixed cost and that's going to be something that does weigh on margins. In 2023 is our expectation. So whoever's exists we do control them to a large degree I think.

And in our judgment.

Judy to reactive in this environment I think.

Would be the right decision wouldn't be mortgage careful and thoughtful about the investments in these expected ROI from those investments as we provided with that structure.

Really helpful. Thanks, Steve Thanks, Brian .

Thank you.

Okay.

On a moment for our next question.

Our next question will come from the line of Anthony <unk> from Loop capital. Your line is open.

Thank you and good morning. Thanks for taking my question. So just had a question on guidance, specifically first quarter guidance. So if I will.

Look at your first quarter guidance pretty Simplistically, particularly from an earnings perspective, youre, implying that earnings will be up pretty significantly year over year in that.

EBITDA will account for call.

About 33% ish of our full year EBITDA.

When I look back at last year and EBITDA for the first quarter was about 25% of your full year EBITDA. So it would seem to imply that you are expecting numbers too.

Performance to sort of get worse as the year goes on.

I guess, what what's leading you to think that or am I misinterpreting. It I'm just trying to sort of.

And so I'm just trying to square that all.

It's a good question Anthony.

And I'll start and Steve can weigh in as well, but let me there are some nuances as we enter 2023 that were thinking about from a headwind perspective.

And given the uncertainty in the environment.

<unk>.

We're throwing out all of the mutual and I think thats the.

It was reflected in the guidance slightly to start.

We said in our prepared remarks, we're entering this year with.

Gross leased asset balances down roughly five 5%. So that's the that's the driver of our future period revenue and so while it's.

Impacting Q1, two to some extent we expect continued.

Sure.

It's an amortizing into revenue pressures from that dynamic Steve also indicated some some near term <unk> challenges to start the first half of the year and so that's going to be.

In addition to the starting point of our GLA.

There is also.

And the.

Patient within our model that we are.

While payment performance trends are much better than they were in the first half of 2022 still havent got back from it and I'm really referring to our accounts receivable provision, we're not yet back to what we saw pre pandemic from a performance standpoint, and so on.

Our expectation there is that there is still going to be some level of.

Challenged customer payment performance to a degree within our model and Thats working its way through.

So.

The last thing I would say.

Kind of from waive fees the performance will be just the seasonality of that accounts receivable provision typically.

It feels like forever since we've had a normal cycle to talk about any kind of seasonality, but typically in Q1, you will see the the lowest bad.

Bad debt expense more or radar provision.

In that period, and so that's going to be.

That's going to be helping the Q1 results and we expect that to.

To soften a bit as we as we move throughout the year, but those are kind of the three things I would.

Two and I mentioned the deleveraging aspects.

As revenue builds pressures will.

Got it that's helpful. And then just one follow up question. So you gave some very helpful. Stats in terms of your existing.

Retail partners and the fact that the.

Penetration lease penetration is growing in <unk>.

Thanks to these multi year renewals.

Any update in terms of the.

Retail partner pipeline.

Yes, Thanks, Andrew.

This will be my normal frustrating answer, but it's difficult to talk about the pipeline. So we actually have assigned MSA, which we're obviously working on.

Everyday with various.

That's our goal obviously is to convert that pipeline, we do expect to sign up some retailers in 'twenty three.

Whether they will be named in press release worthy.

<unk>.

We're positive about the pipeline.

It's just that nothing has changed in that regard.

When we're dealing with these large enterprise retailers the timing of that conversion is difficult to predict.

Well I'll say that.

Nothing is changing in fact, when the economy is tough in retail comps are hard to come by.

<unk>.

We feel and are experiencing.

The momentum and processes in conversations.

In other environments may have otherwise stalled so.

Certainly.

Massive focus of ours to broaden our base so that when.

The retail environment is more positive that we have.

The bigger platform to grow from.

Got it yes, your answer was frustrating, but consistent good luck with that.

Okay.

Yes.

Okay.

One moment our next question.

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

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

So for the first one I was curious if you could talk about how your retail partners are performing just generally I'm curious how the holiday shaped up for them and then.

We started this year.

Our performance has been I know that's been initiatives you called out weak customer traffic.

Case for a while so I'm curious if there's been any signs of improvement or is it still been a pretty weak backdrop.

Yes, Jason.

And obviously, we don't like.

Call it any specific retailer.

Definitely not before they're released there.

Our Q4 results but.

And you have to do a little bit of a read through I know I know you are deep in the weeds, but the headline comps. So they may they may reporter can be slightly different than the leasable categories that we participate in within their within their stores.

And.

Also the.

The price points, whether it would be yes.

Super High end mattress or Super high end piece of jewelry would potentially.

Perform differently than an opening price point.

So we were.

The.

The holiday season it was.

Generally weaker than we anticipated when we were going into it and kind of October .

Not massively weaker because we were not expecting a strong one but it was not.

It kind of seem to weaken as the quarter went on we're not really commenting on what we're seeing.

<unk>.

Since 231 other than to provide that outlook that we expect our <unk> to be down in the same neighborhood.

We were down in Q4 of 'twenty two.

Got it that's fair and then as a follow up maybe this question is maybe asked earlier, but I'm asking a little bit differently. So.

The cadence of the margin guidance through the year.

Getting to like about 11, 5% for <unk> and then I think the remainder of the year closer to 9%.

Brian based on your response to an earlier question I think the biggest driver of that would be it sounds like it's the AAR.

Reserve coming through so is that like.

The effect of that that we should see like maybe like outsized gross margins in.

In <unk> and then it sort of normalizes in the remainder of the year.

And sort of along the lines of that I guess my question more broadly is just for this year for 2023.

If I compare.

At your P&L for what to expect for 2023 versus what we saw like pre pandemic in 2018 or 2019, I think we're still I think margins are still below where you want them to be that like 11% to 13% target. So I'm curious what's the driver of that is at the AAR provision.

Write offs coming in higher is that just like wage inflation over the years. So if you could kind of help.

Compare those Jay would be helpful too. Thank you.

Let me take let me take a stab at that and pieces promo.

I think your math is roughly correct in terms of the.

The rest of the year margins and linking it back to my earlier response.

In order of magnitude I'd say, the the deleveraging aspect of.

This is real.

Probably so.

This is up slightly above the EUR components that are referenced.

Growing internal model the sensitivity on that is it is pretty meaningful in terms of if you're growing 5%, 10% your your margin profile.

Can improve pretty meaningfully and if you quickly get to certainly the low end of that 11% to 13%. So I think the focus on growth and investments in growth are critical to to give you that margin, where we have typically seen it.

Obviously, we were and hold ourselves accountable on those investments and making sure that they are they're bleed through to margins over time.

<unk>.

I think historically.

Yeah.

Keep in mind, obviously each of the 19 as progressive reported on a profitable product reported out.

What has been a public company at the time, so there's a lot of the.

Cost of being public are there, but when you're talking about something north of 11% EBITDA margin.

Steve I haven't talked about it internally thats certainly.

That's certainly where we want to be.

And I think there is when you think about the.

The variable costs of the business the contribution margin that it generates its team.

We've got some we've got some.

Executions that we need to.

When you can see happen to get us to where we want them either.

I would just add as Brian we would keep me keep me honest here, but your point about the way our provision for bad debt expense I mean, while we're happy with where the portfolio is and proud of.

Actions, we took last year to get there.

The write offs, where they are in the portfolio, where it is we do expect BD.

To win 23 has also begun to be higher than better than 'twenty, two than comparable but but still higher than pre pandemic levels by by some measure.

Got it that's all helpful color. Thank you.

One moment. Our next question. Our next question comes from the line of Bobby Griffin from Raymond James Your line is open.

Good morning Andre.

Minutes on for Bobby Griffin, Thank you for taking our question.

I just wanted to touch on kind of listing term. So what would you need to see the economy or payment performance to start to loosen terms again and go after market growth.

Yes, so from a decisioning standpoint.

We are in the.

Kind of the same ballpark from a decisioning posture that we've been in since the summer time, when we talked about are tightening actions we are.

Our base case does not assume a recession in 2023.

But it also doesn't assume.

Really any any tailwind or any any improvement we're watching all the BLS data and all of the leading economic indicator data.

As we mentioned on the prepared remarks liquidity stress is high for our consumer credit utilization is up so.

We meet every two weeks on our risk Committee and we review the portfolio by vintage pool.

And how it is playing out and we also review and inventory.

Levers that we have at our disposal, which.

Some are too.

Tightened in pockets and some are to look for opportunities to <unk>.

Increase approval rates, we don't want to knowingly leave profitable <unk> on the table for us or our retail partners.

But we also feel like in this uncertain environment that we're operating in.

A little bit of a.

Defensive posture as appropriate.

I certainly hope, it's not my baseline expectation, but I hope that as we move through this year.

We can look for opportunities to to increase approval rates.

And we have those initiatives at the ready, but we're just.

Be prudent before we deploy them.

That's very helpful. And then maybe just a follow up on that what are you seeing in terms of application volumes.

Please proceed with your question pressure has bachman.

Stabilized modestly.

Yes, we have seen and we have to look at it by channel right. So in the store volumes are.

Flat to slightly down D comm volumes are below.

But when you kind of go through the funnel.

Pretty material difference.

<unk> from our in store App versus E Comm Avenue, and that's that makes sense theres higher purchase intent when some of the store talking to our sales associates.

Approval rates are higher in store conversion rate is higher in store and so when you have app increases online it has.

While the big numbers kicks in.

A smaller flow through.

Per app released to <unk> so.

That's something we're watching from the outside that we're watching but we're also more specifically what's the profile of the app to look for evidence of that.

The top of the funnel from the credit providers above us tightening.

So thats, what we are observing so far.

Thank you so much and best of luck in trying to integrate.

Thank you.

One moment our next question.

Our next question comes from the line of how gorge from loop capital. Your line is open.

Hey, good morning, guys to ask you about the components.

GNP for 2023.

Thoughts on how much of that you might think it's coming from.

The back book of merchants you had on the.

The books in 2021 that are like basically same store sales all through 2022 and 2023.

Three now and then merchants you added in 2022.

And then your assumption for GMP that might come from.

Person to add this year.

Are those in your forecast.

Can you give us your thoughts on those kind of three buckets.

<unk> is being originated from.

Yes.

Sorry, the last one I mean, we always have.

Well, it's not a number in our <unk> plan for pipeline.

Want to make sure we keep that keep that pressure on the business.

So pipeline is in there.

But the.

The named accounts are the really exciting ones.

Even if we have an announcement this year it would not be a material impact to <unk> to 'twenty three <unk>. So.

There is a smaller number in our view or in our outlook from a from a pipeline standpoint, and then the rest is kind of just baseline existing retailers.

And not really with.

With the specificity to calling out the 2019 vintage of the 'twenty one vintage we knew.

We do have the ability.

And the initiatives to become more productive and so that will ultimately play out and what you said, which is kind of like a same store sales metric.

But we have the ability we are focusing on these deeper integrations as we mentioned in our prepared remarks.

Remarks.

No.

E Comm card integrations, which we've talked about for the last couple of years, we still have some opportunities with top 10 partners in that area.

More waterfalls more prominent displays on on landing pages and PDP.

On the <unk> side.

In store.

Credit waterfalls things of those majors things of that nature in order to.

<unk> increase and grow with them.

Within the same retail environment and become continue to grow that balance of sale even in a.

Potentially down comp environment for that retailer.

One thing that we mentioned and I just wanted to reiterate here is we are obviously still comping against the higher approval rates from 2022 in the first half.

In the first half of 'twenty three so those are that it will be more difficult.

To overcome even with those productivity initiatives.

And the timing of those productivity initiatives are are difficult to predict even throughout the year, because we have to collaborate and partner well with our retail partners tech teams or or or merchant teams whatever the project might be where we're working hard on.

Using this opportunity to become more meaningful to partner with all of our retailers and we have some well developed roadmaps at the partner level to achieve that.

Okay.

Hey, guys can I ask a follow up on your risk model.

You are now trending towards the lower end of.

Lease write off range.

The job market for maybe the lease to own customers seem to be very very strong at this point in time.

In.

Your color on.

The job market is factored in new Decisioning and what we've heard from other lenders in the less than prime space.

Many several companies.

We're probably leaving some loan volume on the table for <unk>.

Doing less than we could.

Abundance of caution I just wanted to get your thoughts on.

Where you stand relative to the statement like that.

Because all these companies because of our focus on the job market, which is pretty good, but they're all saying that probably leave it the volume on the table what are your thoughts on that.

And listen I mean, I think we're all for a couple of years, where all armchair virologists trying to figure out the pandemic and now we're all armchair economist trying to figure out what's going to happen on the macro side.

No exception to that because I always frustrating might be talking about all these macro things that I hear of CIBC.

Working out in the morning so.

Listen the one thing that could be a tailwind for us that would be a welcome tailwind as we might actually see some increase in the unemployment rate would not be in our customer base right and so you kind of alluded to that does that.

Net jobs number for January was.

Blew the doors off and I don't know, if thats sustainable or not.

I don't want to give you the big long economic commentary that I'm not qualified to give but I would say that.

There are some elements of the macro that could actually break our way I'm not used to things break our way over the last couple of years, so I'm not counting on them.

Yes.

But back to your original question I mean, it's possible and probably more likely than not that we are leaving the volume on the table out of abundance of caution.

I think thats, the appropriate position for us to be and until we get some more clarity.

Yeah.

Thank you.

One moment our next question.

And as a reminder to ask a question Thats Star one one.

Once again Thats star one way.

Our next question comes from the line of Vincent <unk> from Stephens. Your line is open.

Hey, good morning, Thanks for taking my question most of my questions have been asked.

I wanted to touch on cash generation your expectations for 2023, and I know in the <unk>.

Quite frankly guidance.

No share.

Share repurchases, but you were active at <unk>. So just wanted to get your thoughts on how youre thinking about capital return for 2023.

Yes, I mean from a from a cash standpoint, we will generate.

Generate cash in 2023, that's one of the.

Really nice elements of our business model with good cash conversion cycle in the short duration portfolio. So.

Obviously, the timing of the <unk>.

<unk> production will impact.

The actual cash levels.

As Brian .

Bryan Bryan was right. When you say, we haven't had a normal year in many many years, but in a normal year, we would generate more than 100% of our cash in the first half of the calendar year and then depending on GMP production in the back half, we might actually be a cash user but over the course of the year, we will generate positive cash flow.

As it relates to share repurchases or shareholder return.

Obviously, our history would show that.

We.

We have optimism about our future prospects and think that the shares are a good value here.

We'll always look at it through the lens of prudent capital allocation and I want to keep a strong balance sheet.

Keeping note.

Kind of a view over the next.

Two two years as you talk about the leverage ratio will look like.

And then we'll prior always prioritize prioritize investment in the business first but then.

Our definition of excess capital, we'll look to return to shareholders.

Our history, which I always generally favor.

The share repurchase repurchases.

I don't remember the exact number but I think it's in the neighborhood of $337 million remaining under our original.

The authorized share repurchase program.

Okay perfect. That's very helpful. And then last question just a quick follow up on the merchant questions from earlier.

So understanding that.

The comments on the pipeline, but.

When you're talking about with your existing merchant partners.

And there was some discussion about.

Engagement there I was wondering if you could maybe talk about that in more detail. Our they are you see more.

<unk>.

Co marketing campaigns or anything like that or is the engagement.

Increasing there thank you.

Yes. Thanks, Vincent Yes, we definitely are I am pleased with the level of engagement I can't I don't think we've had better collaboration and partnering with our counterparts at our merchant partners.

Then we have now and that makes sense because every retailer is out there trying to scratch and claw for comps and so.

<unk>.

The idea of someone always having it.

A negative view on point of purchase materials the stores, but then decided okay, let's let's try that out and give it a test that is a positive development.

The partner week, which has been really successful kudos to the margin gains were coming up with that and we've got more and more partners wanting to participate in our partner League, which really which.

The market's two previous customers on a co branded non cobranded with progressive co brand as well as the two of our merchants would be.

We send something out with progressive on there as well for example, like best buy and Kay jewelers or something like that so that that's increasing and velocity and frequency and we're seeing some good returns there.

And then just generally.

We have a pretty good.

Good track record in the data backing up Blake talked.

<unk> talked about the tool in our tool belt for years now.

Conversations and potential resource allocation, which is the most important part of that statement.

Our positive like if there's tools that are less unused in that tool belt across a specific merchant partner those things now there's always limitations.

Everybody have a good intentions.

Have the resource to be able to.

Execute on that before holiday this year or something like that but we are focused on taking the burden taking as much of the burden off the retailer as we can and putting that that work on our side of the ledger to the extent, we can we can't do it 100%, but to the extent, we can make it easier and easier.

Easier integration with easier deployment of those tools.

That benefits us and the retailer and makes us.

The continued preferred partner so we were encouraged by those things and we hope to.

Actual evidence and execution of a number of those things in 2023.

Perfect. Thanks, so much.

Thank you and I'm not showing any further questions in the queue I'll turn the call back over to Steve for any closing remarks.

Thank you Victor.

I appreciate you all joining us today as we wrap up.

A very challenging 2022.

2023 also has its challenges, but we are optimistic about what we can accomplish and what the future. The multiyear in the near term and intermediate term future holds for US really just want to reiterate my appreciation and thanks to the team.

For for executing well and four.

And for.

Do the work that's going to get us to.

So where we need to be so we look forward to updating you all here shortly in 60 or so days the end of April about our Q1 results.

Yes.

This concludes today's conference call. Thank you for participating.

You may now disconnect everyone have a great day.