Upbound Group Inc. Q1 2023 Earnings Call
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Please be advised that today's conference is being recorded I would now like to hand, it over to the conference to your speaker today.
Brendan Medtronic Vice President of Investor Relations. Please go ahead.
Good morning, and thank you all for joining us to discuss the company's performance for the first quarter of 2023.
We issued our earnings release before the market opened today and the release and all related materials include a link to the live webcast are available on our website at investor Dot Dot com.
On the call today from our Bank group, we have Mr. Fidel, our CEO and family column our CFO .
As a reminder, some of the statements provided on this call are forward looking and are subject to factors that could cause actual results to differ materially from our expectations. These factors are described in our earnings release as well as in the company's SEC filings.
Bound group undertakes no obligation to publicly update or revise any forward looking statements.
As required by law.
This call will also include references to non-GAAP financial measures.
In our discussion of comparable year over year performance will generally refer to those non-GAAP results. Please refer to our first quarter earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures with that I'll turn the call over to Mitch.
Thank you Brendan and good morning, everyone and thank you for joining the call today.
Our first quarter was a promising start to the year with revenue of just over $1 billion adjusted EBITDA of $112 million and adjusted EPS of <unk> 83.
Top line trends were generally in line with our expectations gross margins improved due to fewer early payoffs in the quarter and coupled with lower expenses, we drove a 13% year over year growth and adjusted earnings per share.
Considering our performance so far this year the health of our portfolio.
Following a year of tighter underwriting standards and our assessment of the still uncertain external environment. We've raised our full year 2023, adjusted EPS guidance range.
Two $2 70 to $3 20, compared to our initial guidance of $2 50 to $3.
Reflecting on our performance through April and the risks and the opportunities we see for the year. We think the company is well positioned to achieve our goals.
First.
As discussed on previous calls, we've made substantial adjustments to our underwriting and risk management over the past year.
Today, our approach is more agile targeted and data centric, which has enabled us to improve loss rates and yields while better managing the impact on volumes.
The positive effects of these initiatives were demonstrated in the first quarter with a consolidated loss rate of seven 1%, improving 150 basis points year over year, and 40 basis points sequentially.
And our updated guidance, we've assumed the macro environment remains consistent with today's environment.
If we were to worsen that could result in some headwinds or tailwind for us depending on factors like higher inflation, which could increase losses or trade down, which could increase volume and improved credit quality of the portfolio.
Second our.
Our lease portfolio is finished the first quarter higher than expected.
<unk> portfolio was down three 2% year over year, which was an improvement.
From a four 7% year over year decline for the fourth quarter of 2022.
A seamless portfolio was also above our internal forecast the primary factor that drove higher portfolio balances was a smaller percentage of customers electing early payout options in the first quarter.
Although this led to lower merchandize sales revenue it was more than offset by better margins with more customer staying on rent longer.
Even when accounting for the impact of potential future delinquencies, we think the larger portfolio balances should be a net positive.
Especially for FEMA.
Third we are seeing some positive indications that consumers with stronger credit profile than typical LTE customers are increasingly turning to our lease film solutions.
This potential trend has been developing over the past few months and it's become more pronounced recently.
Third party risk scores for applicants have increased both on average and within our cap rated customer bands.
Moreover, we are seeing improved aggregate risk profiles for our portfolios with a combination of tightening measures as well as improved risk scores at the top of the funnel.
Resulting in a mix shift toward less risky customer cohorts.
Interestingly. These developments are occurring at the same time broad consumer credit metrics with declining from the highs experienced during the stimulus era.
Based on public comments from companies in the near Prime and below Prime market. We expect further tightening of consumer credit over the course of the year, which could result in even more customers turning to <unk> solutions.
Again, even though this is a possibility we are not counting on trade down accelerating and our updated guidance. This counter cyclical benefit could help stabilize or even enhance our topline trends over the course of the year.
Especially as the economy enters a more typical recession and our core consumer maintains our recent performance.
I think it's important to note that our core subprime consumers already experienced their own recession in 2022.
Simultaneously dealing with the effects of the stimulus winding down and high rates of inflation.
As a result, we believe many of them have already adjusted budgets to challenging economic conditions.
And that no macro uncertainty, notably inflation, that's the biggest factor that tempers, our optimism for the year less affluent households continue to experience pressure on discretionary income with prices for essential items still high and cash balances trending lower.
This pressure may partially explain the muted tax season, we experienced and it could be an indication that payment behavior may weaken in the future if inflation increases from here.
That could lead to higher delinquencies and losses reduced demand or both.
Also demand for large ticket consumer durable goods remained soft which has affected the seamless merchant partners.
It's still unclear how long the pull forward from the 2020 to 2021 stimulus will impact demand in key categories like furniture and appliances.
Now with all that being said, it's important to keep in mind that our business has outperformed and.
In previous economic downturns.
So moving to some segment highlights rent a center's demand continued to hold up relatively well with year over year portfolio trends improving sequentially from the fourth quarter of 2022.
The lower payouts from a somewhat muted tax season pressured new deliveries due to fewer re leasing opportunities overall the portfolio outperformed our expectations.
Growth initiatives continue to show good momentum with strong web traffic, leading to high teens growth in web agreements we've continued to.
To improve the customer experience, which has helped us maintain conversion rates despite tighter underwriting.
E Commerce accounted for approximately 25% of first quarter revenues at rent a center in the rent a center segment up from 23% in the first quarter of last year.
Same store sales were down six 6% year over year in the first quarter, which improved from an eight 1% decline in the fourth quarter of last year, even with less payout revenue than last year.
The team continues to execute well on in store operations, managing product inventory logistics and of course customer accounts.
Underwriting has remained a key focus and continues to drive improved risk metrics with pass through rates and loss rates down sequentially in the quarter.
Gibson loss rate improved 100 basis points from the fourth quarter of last year to four 8%, which was which we believe puts us on track to reach the mid to low 4% range by the end of the year.
Now shifting to a theme of the market remains challenging with merchants in our key categories still experiencing weak traffic and transaction volume for larger ticket durable goods, especially furniture.
However, based on our analysis and talking with our key merchant partners. So we believe we're at least holding share if not potentially gaining share.
<unk> was down 12, 6% year over year outperforming the mid teens decline, we projected on our last earnings call in February .
And a good sequential improvement from a 23, 4% decrease in the fourth quarter of last year.
The digital marketplaces, contributing meaningfully to DMV and we continue to add new merchants.
Lease application volume was essentially in line with our assumptions and the upside came from better conversion rates, which we think was driven in part by our commercial initiatives to simplify the consumer and the merchant experience.
Similar to rent a center's sema also experienced a lower percentage of early payoffs, which drove improved yield on the portfolio and increased gross profit margin in the quarter by 514 basis points.
I'm also really pleased with the progress the enterprise sales team has made and we're currently in discussions with several large potential retail partners importantly, there has been a notable increase in our pipeline over the past few quarters as we've talked about before large enterprise accounts have long sales cycles, but we believe we're making solid progress.
Now moving to the outlook for 2023, we remain focused on driving profitable growth and controlling cost to support margins and cash flow.
Additionally, we're also making progress on opportunities to offer our customer additional financial solutions.
We'll have more to say on these and other strategic initiatives at our upcoming Investor event on May 24th in New York City.
I sure hope, you'll be able to join us on the 24th.
Top priorities for the year have not changed for the rest of your business. It is to grow and retain the customer base will do this by expanding access to approximate brands for our extended aisle offerings and by improving customer experience and engagement along numerous fronts.
We plan to continue to invest in technology to enhance the digital and Omnichannel journey for customers and on top of these priorities reducing loss rates back towards 4% of course remains a key focus.
Top priorities for Sema include optimizing performance with existing merchants growing the merchant base, including small to medium sized business and enterprise accounts, continuing to optimize underwriting and continuing to enhance our technology capabilities.
Additionally, we're also making progress on opportunities to offer our customer additional financial solutions well.
This includes recovery and account management improvements by leveraging the expertise and footprint of our rent a center business.
We will also continue to assess ramping up our direct to consumer solutions as market conditions become more supportive.
We also recently published our second annual sustainability report.
Which highlights the solid steps, we've taken in the past year and the robust plans for the coming year. So a lot going on I'm really pleased that we got that.
Our second annual sustainability report out recently, and then clothing and my clothing I just want to thank the entire team for their continued effort and dedication has really really was the benefit I've been impressed with the progress we've made over the last year and our opportunity going forward is tremendous and I just see more great things coming so with that I'll turn the call over to Amy.
Thank you Mitch and good morning, everyone I will start today with a review of the first quarter results and then discuss our fiscal year 2023 guidance after which we will take questions beginning.
Beginning on page six of the presentation.
As Mitch noted we're off to a good start relative to our initial outlook for the year.
Our first quarter results were highlighted by continued improvement in loss rates expansion of our margins at a FEMA and strong overall execution, despite the challenging macro backdrop.
Consolidated revenue for the first quarter was down 12, 4% year over year, driven by 19, 3% decrease for our Sema and a six 5% decrease for the rent a center business.
Looking at revenue categories. The dollar value decrease was almost evenly split between rentals and fees revenue and merchandize sales revenue.
Rental and fee revenues were down eight 6%, reflecting lower portfolio values for both businesses during the first quarter of this year.
Merchandise sales revenues decreased 30% due to fewer customers electing early purchase options and a smaller a CMO portfolio that resulted from a 23% year over year decline in <unk> for the second half of 2022.
Consolidated gross margin was 49, 8% and increased 298 basis points year over year.
The margin expansion was driven by a few factors, including a higher mix of rent a center segment revenue a higher mix of rental and fee revenue in the current year period for both businesses and a higher portfolio portfolio yield for the <unk> business in the current year.
We continue to manage cost well in the first quarter with consolidated operating expenses, excluding skip stolen losses down six 1% year over year.
On a six 1% decrease in labor cost 15, 4% decrease in general and administrative costs and other operating costs down low single digits.
Our disciplined approach to underwriting is working.
As a consolidated skip stolen loss rate decreased year over year led by a 370 basis point improvement for a CMO.
Loss rates also improved 40 basis points sequentially led by 100 basis point improvement for the rent a center business.
First quarter consolidated adjusted EBITDA of $111 5 million increased 12, 1% year over year with 136% growth for sema, and 16% lower corporate costs, partially offset by a 31% decline for rent a center.
Adjusted EBITDA margin of 11% was up approximately 240 basis points compared to the prior year period with approximately 930 basis points of margin expansion for FEMA, partially offset by approximately 550 basis points of contraction for the for rent a center.
I will provide more detail on the segment results on the next few slides.
Looking below the line first quarter net interest expense was $27 7 million compared to $18 9 million in the prior year due to an approximately 400 basis points year over year increase in variable benchmark rates that affected our variable rate debt, which was across approximately $900 million at quarter end.
The effective tax rate on a non-GAAP basis was 27, 4% compared to 25, 2% in the prior year.
The non-GAAP diluted average share count was $56 4 million in the quarter compared to $60 1 million in the prior year period.
GAAP earnings per share was <unk> 84 in the first quarter compared to an 8% loss in the prior year period. After adjusting for special items that we believe do not reflect the underlying performance of our business non-GAAP diluted EPS was <unk> 83 in the first quarter of 2023 compared to <unk> 74 in the prior year period.
During the first quarter, we generated $95 9 million of free cash flow compared to $188 9 million in the prior year period.
We distributed our quarterly dividend <unk> 34 per share. Additionally, we paid down $42 $6 million of our term loan and finished with a net leverage ratio of two six times down from two eight times at the end of the fourth quarter.
Drilling down to segment results starting on page seven.
The rent a center business lease portfolio was down three 2% year over year, which drove a three 8% decrease in the first quarter rental and fee revenue and contributed to a 26, 6% decrease in merchandize sales revenue.
Merchandise sales were also impacted by fewer customers electing early payout options compared to the prior year.
Total segment revenues decreased six 5% year over year with same store sales down six 6%.
Skip stolen losses increased 90 basis points year over year to four 8%, but decreased 100 basis points on a sequential basis consistent with our forecast assumptions.
Past few rates continued to move lower in the first quarter validating the underwriting changes initiated over the past few quarters and supporting our outlook for additional loss rate improvement over the course of the year.
Adjusted EBITDA margin for the first quarter decreased 550 basis points year over year to 15, 2%, primarily due to the deleveraging effect of lower revenues on fixed cost as well as higher loss rates compared to the prior year period.
This was reflected by 280 basis point year over year increase in the ratio of operating expenses, excluding losses as a percent of revenue. Despite the expense dollars remaining flat.
Moving onto a FEMA.
Active merchant count was up modestly year over year for the first quarter and average ticket size was up low single digits.
Open lease count was down low teens year over year as a result of a mid to high teens decrease in cumulative GMB for the trailing three quarters.
This drove a 19, 3% year over year decrease in revenues with rental and fee revenue down 14, 4% and merchandize sales revenue down 31, 3%.
As Mitch noted earlier, there was a meaningful shift away from customers using early buyout option in the first quarter of this year, which drove 514 basis points of gross margin expansion for our Cmos compared to the prior year period.
As a reminder, the yield on early buyout transactions is relatively modest due to higher cost of goods in the seamless segment.
Consequently, just does not require a large change in customer behavior to impact profitability.
Importantly to note. It is too early to note. This shift is temporary or sustainable or how this translates into future performance in this environment.
Considering the proximity of the tax season, and the fact that tax refunds were reported to be down by an average of approximately 10%. This year. Some customers may have lack of funds to exercise early options. This tax season, which kept our portfolio values above our expectations.
If this trend continues it consumers remain on rent longer than this could support continued upside to our margins. However, if this trend is either temporary or a sign of future higher charge offs and that can put pressure on margins and losses and lead to further underwriting actions.
Skip stolen losses decreased 370 basis points year over year to eight 9%.
The underwriting changes made in the first half of last year and our continuous monitoring of higher risk segments has continued to benefit losses since the high seen earlier in 2022.
Looking at just the virtual channel, which is the majority of the CMS segment loss rates were seven 7% and within the 6% to 8% range that we had originally expected for the business.
Adjusted EBITDA of $68 6 million was up 136% year over year with lower losses higher portfolio yields and lower operating costs more than offsetting lower revenue.
Adjusted EBITDA margin of 14, 2% increased 932 basis points year over year.
The results of our franchise segment were relatively unchanged compared to compared to the prior year and our Mexico segment, adjusted EBITDA was down approximately $1 million due to higher loss rates.
Corporate costs were 16% lower compared to the prior year, reflecting lower general and administrative costs.
Shifting to the 2023 financial outlook.
Note that references to growth are decreases generally refer to year over year changes unless otherwise stated.
Most of my commentary will be focused on non-GAAP results.
Our revised forecast incorporates a strong start to the year and our cautious approach in this uncertain environment.
For the full year, we expect to generate revenue of three eight to 4 billion unchanged from our previous guidance.
Adjusted EBITDA is now expected to be 395 million to $435 million, excluding stock based compensation of approximately $23 million.
We are projecting similar to slightly lower margins compared to the prior year and to the first quarter as we expect gross margins to compress from high seen this quarter.
We are increasing our target range for fully diluted adjusted earnings per share to $2 70 to $3 20.
Which which assumes a fully diluted average share count of $56 7 million with no share repurchases built into the forecast throughout the year.
For the year, we expect $200 million and.
$235 million of free cash flow net interest expense of $105 million to $110 million and an effective tax rate of approximately 26, 5%.
Our forecast assumes a macroeconomic backdrop consistent with existing conditions continued disciplined and targeted underwriting persistent inflation and a slight increase in unemployment.
Our outlook does not assume that a shift away from early purchase options that we experienced in the first quarter will continue throughout the rest of the year.
We're also not including a meaningful shift or increase in applicants from trade down.
For our Sema no change to our full year 2023, GNP expectations of down mid single digits year over year.
We expect merchant partner volumes remained under pressure from the prevailing macroeconomic conditions and the continued impact of a significant demand pull forward.
We expect <unk> to be down mid to high single digits in the second quarter for the second half of the year, we expect <unk> will be flat to up low single digits.
Although we are not changing our <unk> outlook as we've previously commented application volumes are down across our retail partners, especially in furniture, which is our biggest segment.
Despite this headwind we have demonstrated our ability to shift our mix to other product categories and believe we will be able to substantially offset the softening in furniture demand with merchant growth digital volume and other sales initiatives.
Similar to <unk>, we are not changing our CMO revenue outlook for the year and continue to expect revenues will be down low double digits to low teens.
Based on the first quarter gross margin expansion, we are increasing our full year of sema adjusted EBITDA margin to be in the low double digits to low teens range and be towards the bottom end of the range in the second half of the year.
We expect loss rates for the full year in the eight five to nine 5% range. The biggest variable we see is whether the shift from early payoffs was a one time event related to lower tax refunds or sustainable change in consumer behavior and whether this dynamic in the first quarter will have an impact on delinquencies and losses going forward.
We expect <unk> to be down mid to high single digits in the second quarter for the second half of the year, we expect <unk> will be flat to up low single digits.
Although we are not changing our GMB outlook as we've previously commented application volumes are down across our retail partners, especially in furniture, which is our biggest segment the.
Based on the unit economics of a lease transaction. This shift has a disproportionate impact on margin and profits.
Despite this headwind we have demonstrated our ability to shift our mix to other product categories and believe we will be able to substantially offset the softening in furniture demand with emerging growth digital volume in other sales initiatives.
For the rent a center segment no major changes to our outlook, except we do expect slightly better losses, especially in the second quarter as our underwriting changes continue to work through the portfolio.
Similar in GMB, we're not changing our CMO revenue outlook for the year and continued to expect revenues will be download double digits to low teens.
We now expect losses to be in the four 5% area for the full year versus ending the year at four 5%.
Based on the first quarter gross margin expansion, we are increasing our full year of Sima adjusted EBITDA margin to be in the low double digits to low teens range and be towards the bottom end of the range in the second half of the year.
To reiterate our previous guidance, we expect 2023 revenues in same store sales to be down in the low to mid single digit range and adjusted EBITDA margin to be in the mid teens throughout the year.
We expect the Mexico and franchising businesses will generate similar results to 2022 corporate costs are still expected to increase mid single digits.
We expect loss rates for the full year in the 8.5% to 95% range. The biggest variable we see is whether the shift from early payoffs with a one time event related to lower tax refunds or sustainable change in consumer behaviour and whether this dynamic in the first quarter will have an impact on delinquencies and losses going forward.
For the second quarter, we expect some of the momentum from the first quarter to carryover and for the total consolidated revenue to be down into high single to low double digits year over year with adjusted EBITDA margin in the 10% to 11% range.
Based on the unit economics of a lease transaction. This shift has a disproportionate impact on margin and profits.
Interest expense and share count should be similar to the first quarter of 2023 and the tax rate should be approximately 26%.
For the Renters Center segment, no major changes to our outlook, except we do expect slightly better losses, especially in the second quarter as our underwriting changes continue to work through the portfolio.
Regarding capital allocation. The top priority is continued to be reinvestment in the business dividend payments and debt reduction.
We now expect losses to be in the four 5% area for the full year versus ending the year at 4.5%.
We are committed to paying down debt as demonstrated in the first quarter as we reduced gross debt by over $40 million and reduced leverage to two six times.
To reiterate our previous guidance, we expect 2023 revenues and same store sales to be down in the low to mid single digit range and adjusted EBITDA margin to be in the mid teens throughout the year.
Over the long term, we continue to target a one five times debt to EBITDA ratio, but we will also appropriately way near term opportunities to allocate capital that generate favorable risk adjusted returns and create shareholder value, especially as consumer payment behavior remains strong benefiting our margins and increasing our free cash flow.
We expect the Mexico and franchising businesses will generate similar results to 2022.
Corporate costs are still expected to increase mid single digits.
For the second quarter, we expect some of the momentum from the first quarter to carry over in front of the total consolidated revenue to be down in the high single to low double digits year over year with adjusted EBITDA margin in the 10% to 11% range.
In summary, we are encouraged by the progress the company has made over the past year successfully executing a range of initiatives that have contributed to a solid start there are several tailwind that position us to continue to outperform our initial outlook, including disciplined underwriting standards based on our data analytics and a resilient portfolio.
Interest expense and share count should be similar to the first quarter of 2023 and the tax rate should be approximately 26%.
Regarding capital allocation. The top priority is continued to be reinvestment in the business dividend payments and debt reduction.
At the same time, we understand that there is still a high level of external uncertainties today and demand may continue to be under pressure for durable goods.
We are committed to paying down debt as demonstrated in the first quarter as we reduced gross debt by over $40 million in reduced leveraged the 2.6 times.
So as we look out over the rest of the year. We are cautiously optimistic which is why we raised our full year 2023, adjusted EBITDA and adjusted EPS guidance.
Over the long term, we continue to target of one five times debt to EBITDA ratio, but we will also appropriately way near term opportunities to allocate capital that generate favorable risk adjusted returns and create shareholder value, especially if consumer payment behavior remains strong benefiting our margins and increasing our free cash flow.
Longer term, we believe we have a compelling opportunity to create value for shareholders.
Resilient cash flow generating business that also has significant opportunities for long term growth.
Thank you for your time. This morning, we will now turn the call over for your questions.
Yes.
Yes.
Thank you at this time, we will conduct a question and answer session.
In summary, we are encouraged by the progress of the company has made over the past year successfully executing a range of initiatives that have contributed to a solid start there are several tailwinds deposition is to continue to outperform our initial outlook, including disciplined underwriting standards based on our data analytics and a resilient portfolio.
Reminder, to ask a question you need to press star one on your telephone you might see name to be announced.
Brian question.
One of lending feature.
Please standby, while we compile the Q&A.
Okay.
Yeah.
Our first question comes from the line of.
At the same time, we understand that there are still a high level of external uncertainties today and demand may continue to be under pressure for durable goods.
Bobby Griffin.
John go ahead Bobby.
Good morning, Brian Thanks for taking my questions and congrats on some delivering some upside this quarter I guess first it's more of a high level question. I was just curious what is the what does the guidance assume the change in tax refund means guys on one side you have people on lease longer so the portfolio can be larger than that could generate better earnings but on the other side.
So as we look out over the rest of the year. We are cautiously optimistic which is why we raise our full year 2023, adjusted EBITDA and adjusted EPS guidance.
Longer term, we believe we have a compelling opportunity to create value for shareholders with a resilient cash flow generating business that also has significant opportunities for long term growth.
This could mean that these consumers now are facing more additional hardship because they didn't get the same level of refunds. They typically depend on so just curious kind of how you guys talking that in what you've assumed.
Thank you for your time. This morning, we will now turn the call over for your questions.
Thank you at this time, we will conduct a question and answer session as I.
That means within the guidance.
I need to ask a question you need to start one line on your telephone.
Hey, Bobby Good morning. Thanks for the question. So I think you nailed it as far as kind of a balance that we tried to strike between kind of the uncertainty that we're seeing from this tax season.
Nice to meet you.
Question.
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<unk> violently compiled.
Okay.
So as far as our guidance and the outlook, what we're assuming is that our payment behavior from our consumers kind.
Next question.
Griffin.
Kind of reverts back we don't expect this type of.
John .
<unk>.
Good morning, <unk>, Thanks for taking my questions and congrats on on some delivering some upside this quarter I guess first it's more of a high level of question I was just curious what is the what is the guidance assume the change in tax refund means cause on one side you you have people on lease longer so the portfolio can be larger than that could generate better earnings but on the other side.
Performance or behavior from an early payout standpoint to continue.
So we're assuming that our gross margins compressed from the first quarter throughout the remainder of the year.
We did note that the second quarter will have some of this momentum carry into it we've seen that in.
In April so far.
This can mean that these consumers now are facing more additional hardship because they didn't get the same level of refunds. They typically depend on so just curious kind of how you guys <unk>.
But throughout the rest of the year the gross margin should come back down to what we initially thought coming into the year as.
As far as losses go you know on the seamless side, we mentioned, we reiterated eight five to nine 5%. So we did lower it a little bit from our initial guidance, but we kept the top end of the range just given that level of uncertainty and for rent a center. We mentioned that we have seen a continued benefit from both delinquencies and.
And what you assumed.
That means within the guidance.
Hey, Bobby good morning, and thanks for the question. So I think you nailed it as far as kind of a balance that we tried to strike between the uncertainty that we're seeing from this tax season.
So as far as our guidance and the outlook, what we're assuming is that our payment behavior from our consumers.
Losses.
And so we continue to expect that to play itself through the portfolio and really performed well for the for the rest of the year and while we lowered the loss forecast to four 5% for the full year. So so the guidance really is around things kind of normalizing or not continuing the way we saw in the first quarter.
Kind of reverts back we don't expect this type of.
Performance or behavior from an early payoff standpoint to continue.
So we're assuming that our gross margins compress from the first quarter throughout the remainder of the year we.
Yes, I think Ed.
Bobby.
We did note that the second quarter will have some of this momentum carry into it we've seen that in April so far.
Bobby This is Mitch I, just was going to add to that it certainly.
When we were.
But throughout the rest of the year the gross margin should come back down to our initial.
Talking about normalizing for a minute from a payout standpoint.
Certainly.
Initially thought coming into the year.
If they stay lower.
As far as losses go on the <unk> side, we mentioned, we reiterated 8.5% to 95% that we did lower it a little bit from our initial guidance but.
That's upside when it comes to payments, we we certainly are forecasting everyone.
Being able to pay us perfectly even though they weren't able to payout obviously muted tax season is going to put some pressure on payments going forward. So we tried to walk that line in our in our in our guidance with a lot of uncertainty.
But we kept the top end of the range just given that level of uncertainty and for rent a center. We mentioned that we have seen a continued benefit from both delinquencies and losses.
So we continue to expect that to play itself through the portfolio and really perform well for the for the rest of the year and why we lowered the loss forecast to foreigners, 5% for the full year. So so the guidance really is around things kind of normalising or not continuing the way we saw in the first quarter.
Whereas if you assumed everybody was just going to pay us fine now that they.
Didn't pay out, especially on the athima side, you'd be even you'd be quite a bit higher than than what we guided to but you can assume that I think it would be wrong to assume that some some are going to default Thomas and.
Yes, I think that.
That doesn't mean necessarily lose money if people you know the margins are so low on the payouts and somebody gets a couple of months farther into it and then default, we'd probably still made more than if they would have if they did the 90 day payout, but especially on the <unk> side.
Oh, sorry, Bobby this Mitch I, just was going to add to that.
Certainly.
When we were famished.
About normalizing tremendous from a payoff standpoint.
Certainly.
If they stay lower.
You don't get the difference between wholesale and retail so it's a fine line, it's certainly going to it's going to put some pressure on payments going forward and we factored them in.
That's that's upside when it comes to the payments, we we certainly are forecasting everyone.
Being able to pay us perfectly even though they weren't able to pay out obviously muted tech season's going to put some pressure on payments going forward. So we tried to walk that line in our in our in our guidance with a lot of uncertainty.
With all the uncertainty we think we've factored in appropriately.
Okay. Thank you I appreciate that that's helpful. And then I guess secondly for me just on the GMB.
Upside I guess versus our original expectations here in the FEMA.
Whereas if you assumed everybody was just going to pay us find now that they.
I was curious what do you think is driving that is that the potential trade down that youre starting to see because I think for most of our checks would say retail likely weaken during the quarter and it looks like Youre GMB based on when we talk lax actually got a little bit better as we move through <unk>. So just curious on what do you think drove kind of that direct.
Didn't pay out, especially on the Messiah beaven you'd be quite a bit higher than than what we guided too, but you can assume that I think it would be wrong. This room that some some are going to default on this and.
Doesn't mean necessarily lose money at people you know the margins are so low on the payouts and somebody gets a couple of months further into it and then defaults, we'd probably still made more than if they would if they did the the 90 the payout, especially on the <unk> side, where you don't get that difference between wholesale and retail so it's a <unk>.
No change versus the corresponding just retail trends that we saw from a topline standpoint.
Yeah. Good question I think.
It was primarily in conversion rate because of the retail traffic wasn't wasn't great to your point. So a lot of it was conversion rate there is.
In line, it's certainly going to it's going to put some pressure on payments going forward and we factored in.
Some trade down and there were certainly seeing trade down.
And as we mentioned in the prepared comments and that's even more so more recently than if you go back to the beginning of the first quarter. It was there wasn't a whole lot you could see but certainly as the quarter went on and you get into April you'll see a more pronounced like I said as we mentioned, but conversion rate was higher I think we've done a good job.
You know with all the uncertainty we think we factored in appropriately.
Okay. Thank you I appreciate that that's helpful. And then I guess secondly for me just on the G b upside against the verse of our original expectations here in the <unk>.
I was curious what do you think is drive and that is that the potential trade down that you're starting to see because I think for most of our check you would say retail likely weaken during the quarter and it looks like your GMB based on when we talk lax actually got a little bit better as we move through one Q. So just curious on what do you think drove kind of that <unk>.
The flow and getting youre, making the flow better from.
From a technology standpoint from a conversion rate standpoint, I think we got some help from the <unk>.
We did have merchant growth.
Sure.
No change versus the corresponding.
In the seamless segment. So we put on more if we're still having merchants.
Retail trends that we saw from a top line standpoint.
We haven't we haven't signed any any real big ones, yet, but we're still adding merchants hundreds of merchants in the first quarter I think goes around 400 merchants added in the first quarter net add in the first quarter. So so we're adding merchants certainly the conversion rate as we as we continue to improve the technology and the <unk>.
Yeah. Good question I think.
Primarily in conversion rate because of the retail terrific wasn't wasn't great to your point.
So a lot of it was conversion rate.
Probably some trade down and there were certainly seen trade down.
And as we mentioned in the prepared comments and that even more so more recently than than if you go back to the beginning of the first quarter was there wasn't a whole lot you could see but it certainly is a quarter went on and you get in April you see it more pronounced.
<unk> please.
Our online marketplace had had good growth in it. So I think when you put put all that together the merchant productivity was higher with the conversion rate we added merchants in the marketplace.
Like I said as we mentioned, but conversion rate was higher I think we've done a good job and.
And we were.
Two 3% better than we thought we'd be from a GMP standpoint, and quite an improvement from last quarter, when we were down 23% to be down.
The flow and getting you, making the flow better.
From a technology standpoint from a conversion rate standpoint, I think we got some help from the.
Just 12.
Which we're not happy being down 12 don't get me wrong and then.
We think we can get back to flat by the third and fourth quarter flat to slightly positive second quarter will be better than the first so it's trending in a real positive direction and again, our online direct to consumer marketplaces are part of that as well.
Did have merchant growth.
And are in.
<unk> seemed to segment. So we put on more if we're still having merchants.
Thank you I appreciate the detail best of luck here in the second quarter.
We're still adding merchants hundreds of merchants in the first quarter I think it was around 400 merchants added in the first quarter net add in the first quarter. So so we are adding merchants certainly the conversion rate as we as we continue to improve the technology in the marketplace.
Thanks, Bobby.
Thank you our next question.
Comes from the line of Jason Haas.
Go ahead Jason.
Hey, good morning, and thanks for taking my questions.
Our online marketplace had had good growth in it. So I think when you put put all that together the merchant productivity was higher with the conversion rate, we added merchants in the marketplace and.
So maybe to start I was looking at the charts that show the past due rates in the slide deck and it looks like the.
Rent a center.
Passengers have come down nicely over the past few months, whereas <unk> has been flat or even slightly up is there anything to read from those trends.
Yeah, two 3% better than we thought we'd be from a <unk> standpoint, and and quite an improvement from last quarter. When we were down 23% to be down.
I know, it's just a few months here, but im curious if theres anything to note between those two businesses.
Just 12.
Which were not happy being down 12 don't get me wrong and then.
No I think.
Okay.
I would say Jason that.
We think we can get back to flat by the third and fourth quarter flat to slightly positive second quarter, we better than the first so it's trending in a real positive direction and again, our online direct to consumer marketplaces are part of that as well.
Siemens started tightening sooner than than rent a center last year.
When you look at those those pass through rates or especially the losses.
Pass through rates compared to last year in the first quarter are quite a bit lower even though they're pretty flat recently, but.
Thank you I appreciate the details best Luckier in second quarter.
Thanks, Bobby.
The losses.
Thank you and next question.
Look on that same chart right above it the eight 9% losses for the combined the virtual and the theft acceptance now business the eight 9% combined.
Comes from the line at Jason.
Hey, Jason.
Hey, good morning, and thanks for taking my questions. So.
So maybe just start I was looking at the charts that showed the past due rates in the slides and it looks like the rent a center.
That compares to an $8 six in the first quarter of 2021.
Which had to be a boswell as you can get the first quarter 2021, when youre talking about stimulus standpoint, So we're pretty happy with where it is we're also balancing that with <unk> we.
Pastor come down nicely over the past few months, whereas like I've seen has been flat or even slightly <unk> is there anything to read from those trends.
Can always take more if we need to and certainly we'd look for areas, where there is potential to drive more <unk>. So.
I know, it's just a <unk> a few months here, but I'm curious.
No between those two businesses.
No I think it's good.
I think the difference so the short answer to your question is the seamless tightened sooner and brother brought their delinquency down sooner than rent a center and rent a center when that popped up if you look at their chart when that popped up in the summer and we started tightened them pretty hard.
I would say Jason that.
Seamless started tightening sooner than than rent, a senator or last year.
When when you look at those those past due rates are especially the losses.
The pass through rates compared to last year in the first quarter are quite a bit lower even though they're they're pretty flat recently, but the.
You're really seeing the impact here in the first quarter. So I think it's really just a matter of timing of one one came down a lot versus the other one more level.
The losses, you look on that same chart right above it the $8, 90% losses for the combined the virtual and the staffed acceptance now business to eight 9% combined in that compares to an eight six in the first quarter of 2021, which had to be about as well as you can get the first quarter of 2021, when you're talking about a steamy.
Uh huh.
Got it. Thank you that's helpful.
I know you've mentioned on the in the prepared remarks that you're starting to see the benefit of credit tightening of trade down, which as Greg as I know you're looking for that for some time.
Are you seeing more of the benefit in the CMS segment or in the rent a center segment.
Standpoints, So we're pretty happy with where it is we're also balancing it with G. M V.
Hi, Tim.
Probably slightly more in the <unk> segment, but it's in both.
We can always type more if we need to and and certainly we'd look for areas, where there's potential drive more GMB. So.
And both when we look at our third party scores.
You know, it's a little more I'd say, yeah, I haven't quite analyzed exactly you have a family I think its a little more and assuming but it's really in both yes. It's on both sides and then when you look at the rent a center business and you break it down between in store and on the web you see a really big difference in our in our third party credit scores on the web which is.
I think the difference so the short answer to your question is b as seamless tightened sooner and brother brought their delinquency down sooner than rent a center and reminiscent or when that popped up if you look at their charts when that popped up in the summer and we started tightening pretty hard.
You're really seeing the impact here in the first quarter. So I think it's really just a matter of timing of one one came down a lot versus the other one more level.
Could be a sign of trade down because new customers may not want to come into the store would rather kind of test it out online and so there is definitely signs over the last two or three months and into April really on both sides of the business. Yes. It's a good point on the web we're really happy with that the E comm business continuing to grow on their own center Dotcom site.
Oh.
Got it. Thank you that's helpful.
No you've mentioned on the and the prepared remarks that you're starting to see the benefit of credit tightening of trade down which is crazy.
Great that's helpful and if I could squeeze one more in.
For that for some time are are you seeing more of the benefit in the CMS segment or in the <unk> Center segment.
I was curious you talked about an expectation for acceleration in <unk> through the year I think you said flat or slightly positive.
And I'd say, probably slightly more near seamless segment Brinson, both it's certainly in both when we look our third party scores.
Can you just talk about what the drivers are there is that largely a function of you'll be lapping the credit tightening that took place last year is there anything else on that gives you confidence that you should see.
You know, it's a little more I'd say, yeah, I haven't quite analyzed exactly like you have a family I think it's a little more on assuming but it's really in both yeah. It's on both sides and then when you look at the <unk> Centre business and you break it down between in store and on the web you see a really big difference in our in our third party credit scores on the web which.
Acceleration through the year on same day.
Yes, I think.
Your point, that's the biggest reason is that.
We comp the.
The tightening because it wasn't like literally tightened once last year and it was one and done February one or something like that or when Aaron already came back in and grabbed a hold of the underwriting in early March or something it wasn't like a one and done so yeah. I think later in the year were fully capping it.
Could be a sign of trade down because new customers may not want to come into the store would rather than a test it out online and so there's definitely signs over the last two or three months and into April really on both sides of the business. Yeah. That's a good point on the web we're really happy with that the he Cam business continues to grow on the run center Dot Com site.
We've got merchant growth that we continue to expect merchant growth over the course of the year that again.
The fully capping the tightening the biggest reason, but when you think about merchant growth.
Great that's helpful and if I could squeeze one more and I was just curious you've talked about an expectation for acceleration GMB through the year to get to anything he said flatter slightly positive.
Better conversion rate based on some of the enhancements we've made to our tour technological flows and then the marketplace growing all add to it.
Can you just talk about what the drivers are there is that largely a function of you'll be lapping the credit tightening that took place last year is there anything else that gives you confidence that you should see acceleration through the yard champagne.
The number one point that you made.
Maybe I'll add to that a little bit.
Going back to what Mitch mentioned earlier around our conversion rates and things like that I really look at it also as part of us optimizing our underwriting.
Yeah, I think that your point that's the biggest reason is that.
Even now tightening for almost.
Almost a year or a little over a year and we continue to find ways to further penetrate our existing merchant.
We camp.
The the tightening because it wasn't like literally tightened once last year and it was one and done February 1st or something like that or when Aaron I'll read came back in and grabbed a hold of the underwriting in early March or something it wasn't like a one and done so yeah. I think later in the year, we're fully capping. It you know we've got merchant growth.
Network with just better better underwriting and trying to find those pockets, where we think we can potentially expand and in pockets, where we find some some higher risk and we need to contract. So it's also just us optimizing our underwriting practices inside of our existing merchant base as well and then also the mix the mix of products.
That we continue to expect merchant growth over the course of the year that but again the the fully capping the tightening of the biggest reasons, but when you think about merchant growth.
Our ability to you know.
Shift it furniture is having a rough couple of quarters, you know you're shifting to auto you shift into jewelry and we've demonstrated our ability to do that and so those things coupled with the comps gives us confidence that by the by the end of the year, we should start seeing some some better year over year gains.
Look better conversion rate based on some of the enhancements we've made to our to our technological flows and then the marketplace growing all add to it.
To the number one point that you made and Jason maybe I'll add to that a little bit just going back to it makes you mentioned earlier around our conversion rates and things like that I really look at it also is part of us optimizing our underwriting.
It's great to hear thank you.
Thanks, Jason.
Thank you. The next question we have comes from the line of P. J.
We've been now tightening for <unk>.
Steven Your line is open.
Almost a year a little over a year and we continue to find ways to further penetrate our existing merchant.
Hey, Thanks, good morning, Thanks for taking my questions.
First on the FEMA side wanted to talk a bit more on that merchant engagement.
Network with just better better underwriting and trying to find those pockets, where we think we can potentially expand and and pockets, where we find some some higher risk and we need to can track. So it's also just as optimizing our underwriting practices inside of our existing merchant base as well and then also the mix the mix of products.
On the existing partner side, when thinking about same store sales.
The discussion is going with merchants to drive more sales in this environment and are you getting.
Any more discussions perhaps to do some of the merchants to promote more leasing or any other promotional activities and then on the pipeline for new merchants how are those discussions and what are the potential maybe frictions or concerns that that merchants are having before Simon. Thank you.
Our ability to you know.
Shift furniture's, having a rough couple of quarters, you shift into auto you shift into jewelry and we've demonstrated our ability to do that and so those things coupled with a comps gives us confidence that by the by the end of the year, we should start seeing some some better year over year gains.
Yes, sure Vince and good morning.
It does seem to be picking up as far as the pipeline for new merchants.
The SMB side, we continue to add like I mentioned like 400 in the quarter. So.
It's great to hear thank you.
Thanks, Jason.
Thank you. The next question, we had <unk> <unk> Pancake then Steven.
Net.
So that continues on the SMB side and there is a lot more activity.
<unk> or something.
The bigger accounts too. So I think there is that starting to happen as far as the.
Hey, Thanks. Good morning, Thank you for taking my questions.
First on the suicide wanted to talk a bit more on that merchant engagement I guess on the system partner's side when thinking about the same store sales how into discussions going with merchants too.
<unk>.
Seeing tightening at prime and near Prime Prime and near Prime lenders I think people are realizing that a lot of our current.
Partners Vince.
Five more sales in this environment then are you getting.
Vincent talk to US a lot about how if we can drive more traffic to them through our marketing, which we do.
Any more discussion perhaps to do from the merchant super milk or leasing or any other promotional activities and then on the pipeline for new merchants how are those discussions and what are the potential maybe frictions or concerns that that merchants are having before signing thank you.
Because we've got millions of customers in our database.
They're already already approved for dollars, we've got millions of customers over the years, even gone back before sema from rent a center standpoint, So we've got a lot of customers to market too.
Yeah, sure Vince and good morning, Yeah.
It does seem to be picking up as far as the pipeline toward new merchants.
So as as retailers, especially in the furniture space, where it's been slower SaaS for for help on how we can drive more business we certainly.
You know the Smb's side, we continue to add like I mentioned like 400 and the quarter. So.
Try to spread our marketing around.
Net.
So that continues on the Smb's side and there is a lot more activity in the bigger accounts too. So I think that that's starting to happen as far as the the.
<unk>.
Two.
To those merchants and I think thats one of the reasons that our channel checks they were gaining a little bit of share.
Matt gone backwards at all and actually gaining share compared to some of their other options. So.
Scene tightening up.
Prime and near Prime from primary near Prime lenders I think people are realizing that a lot of our current.
It's been especially tough for some of our furniture partners and again, we're doing all we can help from a with the marketing side, but yes. There is more chatter around that is I think the prime and near Prime lenders tighten.
Partners Vince.
Vincent talked to US a lot about how if we can drive more traffic to them through our marketing, which we do.
Because we got millions of customers in our database.
Okay. That's great. Thank you Mitch and finally switching over to the funding side just.
That already I already approved for dollars, we got millions of customers over the years, even going back before <unk> from my rent asunder standpoint, So we've got a lot of customers to market too and so as as retailers, especially in the furniture space, where it's been slower SaaS for for help and how we can drive more <unk>.
Some of these broader macro concerns and some of the some of these banks.
Going under and maybe pulling back on on availability of credit did you talk about your financing your discussions with your financing partners and then he needs you might have thank you.
Business, we certainly.
Yeah, No we're very happy with where we are from a liquidity position, we have about $560 million of liquidity about $400 million available under our revolver.
Tried to spread ducks spread our marketing around.
Two two.
To those merchants and I think that's one of the reasons.
<unk>, our channel checks they were gaining a little bit of share and not not not gone backwards at all and and actually gaining share compared to some of their other options. So.
Healthy amount of.
Cash so from a liquidity standpoint, we're in really good shape, we were able to pay down some debt this quarter and drop our net leverage down.
It's been especially tough for some of our furniture partners and again, we're doing all we can to help from a with the marketing side, but yeah. There was more chatter around that is I think the.
From two eight times to two six times. So we're doing very well from a from a liquidity standpoint really have no concerns.
And can really fund up.
The prime and near Prime lenders Titan.
Some of the enterprise accounts as Mitch mentioned do pop up we have plenty of liquidity to service those those type of clients. So.
Okay. That's great. Thank you Mitch and finally switching over to the funding side just with some of these broader macro concerns and some of the some of these banks.
Some of those things from a macro standpoint, we view as a you know could be positive for us.
Going under and maybe some pulling back on on availability of credit that you talk about your your financing your discussions with your financing partners in any needs you might have thank you.
If it causes other lenders above us to tighten up that you couldn't see that accelerate some of the trade down as we've been talking about.
Okay, Great. That's very helpful. Thanks very much.
Yeah, No we're very happy with where we are from a liquidity position, we have about $560 million of liquidity about $400 million available under our our revolver and health.
Thank you.
The next question comes from the line of Alex Fuhrman.
Alex Your line is open.
Healthy amount of cash so from a liquidity standpoint, we're in really good shape, we were able to pay down some some that this quarter and drop our net leverage down.
Hey, guys. Thanks, very much for taking my question and congratulations on a really strong start to the year.
I wanted to ask just from a high level I mean, it sounds like obviously, a huge opportunity for both of your business is to take a lot of market share as we're starting to see credit tightening across the board. How do you kind of weigh the opportunity to continue to take market share against the pressures you might be.
From 2.8 times to 2.6 times, so we're doing very well from a from a liquidity standpoint, and really have no concerns and.
And can really fund up.
Some of the enterprise accounts as much sense mentioned do pop up we have plenty of liquidity to service those those type of clients. So.
Feeling good.
Some of the things from a macro standpoint, we view is.
Further tightened your own credit standards, just given the rise in interest rates.
It could be positive for us.
Potential economic slowdown that that everyone else is seeing just from a high level would love to hear about kind of your main puts and takes as you balance those two things.
It causes other lenders above us to tighten up that you can see that accelerating some of the trade down as we've been talking about.
Okay, Great. That's very helpful. Thanks very much.
Well, thanks, Phil and thanks for joining us this morning.
The good part of that question or the best part is that the when when theres tightening above us and those customers come into the top of our funnel.
Thank you.
The next question comes your line Alex <unk>.
Mmk cabinet there.
And I ended up being.
Hey, guys. Thanks, very much for taking my question and congratulations on a really strong start to the year.
Those.
Bill.
Actually help with the underwriting because of that.
The top of the funnel right so it actually.
Would allow us to either carve off a little more on the bottom or take it all.
And then it just depends how we're performing at the bottom of the funnel.
Automatically cutoffs something at bottom because because of the higher <unk>.
Scores coming in at the top if theyre performing at the bottom you just take all but it does allow you to even to even we've even maybe even more critical of the bottom wrong. The bottom, 5%. If you had 5% more at the top so so really what happens is one really helps the health or and I guess, that's one of the benefits of being quote on quote it.
Feeling to further tighten your own credit standards is given the rise in interest rate, then and potential economic slowdown that that everyone else is being just just from a high level would love to hear about your main put to take the the balance those those two things.
[laughter] well, thanks, and thanks for joining us this morning.
At the bottom of the funnel versus.
The good part of that question are the best part is that the when when there's tightening above us and those customers come come into the top of our funnel.
On the middle or at the top of the funnel at the top of the funnel you know when you carve off something on the bottom there is nothing nothing helping at the top.
As this is the slowdown starts to get of.
Those those.
Of course, our subprime customers had the slowdown last year.
They had the recession in 2022 and now there's been a lot of adjustments, but here at the top of the funnel and starts to get into middle income and upper middle income, it's tough to replace it for us being at the bottom they actually work very well together and they really can't be much of a better scenario for us.
And then it just depends how we're performing at the bottom of the funnel.
Great. That's really helpful. Nick appreciate that and then just thinking about these customers that that youre starting to get at the top of the funnel are they buying the same types of items and opting for similar terms as you know the customers you've had for years. If you could just kind of share you know.
Score is coming in at the top if they're performing at the bottom you just take all but it does allow you to even to even be even maybe even more critical of the bottom wrong the bottom 5% of the fee at 5% more at the top so so really what happens is one really helps the hustler and I guess, that's one of the benefits of being quote on.
These customers are kind of acting compared to the customers you have for longer.
<unk> at the bottom of the funnel versus.
Let's say seen same product categories, but of course, if you're at the top of the funnel you tend to get approved for higher dollar amounts that interferes the bottom so.
On the middle or at the top of the funnel at the top of the funnel you know when you carve off something on the bottom there is nothing nothing helping at the top.
Kind of automatically ends up where maybe their ticket is higher.
The higher Europe in the funnel the ticket is going to be higher just because you get approved for more when youre at the top of the funnel versus the bottom. So it's another case of one feeds the other when you're at the top of the funnel kind of becomes automatically have more to spend.
They had their recession in 2022 and now there's been a lot of adjustments, but if you're at the top of the funnel and starts to get in the middle income and upper middle income.
It's tough to replace it for us being at the bottom they actually work very well together and they're really can't be much of a better scenario for us.
Not a problem.
Not surprisingly, though.
The better customers.
Don't use all of the approval as compared to customers and any underwriting scenario. When you are more towards the bottom they tend to use everything you approve them for whereas.
People that are.
Much more have a higher propensity to worry about being able to make every payment on time and those kind of things will be more cautious with their approval a month. So.
Acting compared to the customers you've had the longer.
It kind of it kind of works its way out that way out because of.
That's a scene Saint product categories, but of course, if you're at the top of the following intend to get approved for higher dollar amounts to interfere at the bottom so.
The way the top of the funnel performed so that's why it's such a good scenario for us.
To see this trade down at least starting and hopefully continues and even if it accentuates. It's another reason why we're adding so much emphasis to our digital capabilities into that marketplace on the seamless side. So the more we can offer them.
Automatically ends up where maybe their ticket is higher.
The higher you are up in the funnel the tickets going to be hired just because you get approved for more when you're at the top of the final versus the bottom. So it's another case of one feeds the other when you're at the top of the foreign kind of becomes automatically have more to spend.
Different retailers and different products once we get them in the door to more they are likely to do to do another lease with us. So as we think through that having better customers and then giving them a variety of products, especially on the digital front, we think thats upside.
Not not.
Pricing Lee, though the best the better customers don't use all of the approval as compared to customers and any underwriting scenario. When you are more towards the bottom they tend to use everything you approve them for whereas.
Especially later in the year.
Okay. That's really helpful. I appreciate that very much.
People that are.
Alright. Thanks.
Thanks Bill.
Our next question comes on line.
Thomas Thank you.
Okay.
It kind of it kind of works its way out that way out because of the the <unk>. The the way the top of the funnel performs that's why it's such a good scenario for us.
Thank you Brad.
I just wanted to follow up with another question on sort of underwriting from a big picture context was hoping you could zoom out a little bit and maybe give us some more perspective about where you are from kind of a tight versus loose standpoint versus maybe some of the pre pandemic levels.
To see this trade down at least starting and hopefully continues and even if it accentuates. It's another reason why we're adding so much emphasis to our digital capabilities into that marketplace on the <unk> side. So the more we can offer them.
And just how the setup in the different segments.
Well from a pre pandemic.
Different retailers and different products once we get them in the door the more they're likely to do to do another lease with us. So so as as we think through that having better customers and then giving them a variety of products, especially on the digital front, we think thats upside, especially later in the year.
Standpoint.
There's no question, we're a lot tighter than than we were pre pandemic.
EBIT, even even though you think obviously, where a lot tighter than during stimulus, but even when you go to pre pandemic I would say we are.
Okay. That's really helpful. Appreciate that very much.
We're a lot tighter than that certainly on the rent a center side that we didn't own the seam of pre pandemic, but in talking to those to the folks that have been there and the underwriting team I think they would still say, it's even tighter than pre pandemic and families sitting here shaking his head I think to the best of our knowledge of the way they underwrote.
Alright.
Thanks <unk>.
Thank you. The next question comes on line.
Thomas T H capital K.
One second.
I just want to follow up with another question on sort of underwriting from a big picture contacts and was hoping you could zoom out a little bit and maybe give us some more perspective about where you are from kind of a tight versus loose standpoint versus maybe some of the pre pandemic levels.
Before we were before we acquired them.
It's even tighter than than pre pandemic and certainly rent a center rent a center is.
And I'll also say the way we look at it now.
A lot different than it was even in the middle of the pandemic and then definitely pre pandemic on how we take more of a data centric view of our portfolio and the customer we look at things at the merchant level the category level, the customer type, whether they're new returnee, whether on the rent a center side, whether it's online versus versus in the store. So.
And just had a set up in the two different segments.
Well from a pre pandemic.
Standpoint.
There's no question, where a lot tighter than than we were pre pandemic.
Even even even though you think obviously, we're a lot tighter than during stimulus, but even when you go to pre pandemic I would say, we're we're a lot tighter than that certainly on the <unk> side now we didn't known seem a pre pandemic, but in talking to those to the folks that had been there in the underwriting team I think they would still.
It's.
And just overall tighter, but then also the way we look at it as much different actually hard to compare actually that's probably with the guys in salt Lake on the underwriting say I don't know how to compare it to 2019.
With a different tools, we have now and the way, we're so targeted and data driven aspect of it youre right I mean, even on the rent a center side. It's just it's really a whole different process of how much how much better we've gotten at it so.
Say, it's even tighter than pre pandemic families sitting there shaking his head I think to the best of our knowledge of the way they undergo.
<unk>, we we were before we acquired them.
But overall I think you'd still see if you had to pick one you'd say, it's tighter than even pre pandemic Brad.
See even tighter than than pre pandemic and certainly ran a center around a center is.
That's really helpful context, thank you for that.
And I also say the way we look at it now.
And then following up on.
A lot different than it was even.
Athima side.
Just as you assess the health of your network.
In the middle of a pandemic and then definitely pre pandemic on how we take it more of a data centric view of our portfolio and customer we look at things at the mercy level the category level of customer type, whether they're new returnee, whether on the rent asunder side, whether it's you know online verse verse in the store so it's.
Mentioned your growth in account.
I guess, we were in a landscape, where we're seeing retailers have to close stores and go out of business the bed Bath <unk> beyond the Tuesday morning to the World and of course merchant partners.
But as you look at your retail partner network, how do you feel about the health of them and can you talk about drivers that you might have to redirect business. If you end up with some stores that have to close.
And just overall tighter, but then also the way we look at it as much difference actually hired to compare actually that's probably with the guys in salt Lake on the <unk> I don't know how to compare it to 2019 at with the with the different tools, we have now and the way we are so targeted and the and the data driven aspect of a hit your right family and even on the <unk> side. It's just that it's really a whole different price.
Yes, I think.
For us a big a big advantage, we have is how diversified the portfolio.
<unk>, how much how much better we've gotten at it so.
Our portfolio of partners is an and.
We wanted to we wanted to be getting a whole lot more enterprise accounts, but right now there's no one or two merchants that are going to that are even going to move or move our needle. So that's that's the we don't worry about that will operate because it's so diversified certainly on the furniture side.
But overall I think you'd still say if you had to pick one you'd say, it's tighter than even pre pandemic of bread.
That's that's really helpful contacts. Thank you for that and then a follow up on the <unk> side.
You know just as you assess the health of your network you mentioned your your your growth an account.
There is some.
Very small retailers.
I guess, we were in a landscape, where we're seeing retailers have to close stores and go out of business to bed Bath and beyond the Tuesday morning to the world and of course marching partners.
With a couple of stores that maybe.
Not making it through the pandemic now.
Cost of money so much higher in business has slowed down a little bit in in.
And maybe it isn't fast enough for the money during this stimulus here and all those kind of things and so.
But as you look at your retail partner network, how do you feel about the health of them and and can you talk about drivers that you might have to redirect business. If you end up with some stores that have to close.
There's certainly a little of that going on but hardly noticeable to us just based on how diverse we are in our partner base.
Yeah I think.
Really helpful. Thanks, so much okay. Thanks, Brett.
For us a big a big advantage, we have is a diversified.
Thank you for your questions I would now like to turn it back to Michelle for closing remarks.
The portfolio of partners is and.
Well, thank you Haley and thank you everyone for joining us. This morning, we appreciate your time and congratulate the entire outbound team on a great start to the year, whether it's a seam of rent a center Mexico franchising you name it congratulations to everybody for a great start we hope to see all of you on the 24th at our Investor Day up in New York.
We wanted to we wanted to be getting a whole lot more enterprise accounts, but right now there's no one or two merchants that are gonna that or even going to move our move our needle. So that's.
We don't worry about that elaborate because it's so so diversified certainly on the furniture side.
Some you know very small retailers you know that you know with a couple of stores that maybe.
Where were we will talk more longer term strategic initiatives and longer team.
Not making it through the pandemic now that the cost of money. So much higher in business has slowed down a little bit and.
Longer term I should say financial metrics and things like that so look forward to seeing you on the 24th and thank you again for this morning.
And maybe they didn't stash enough for the money during this stimulus era and all those kinds of things.
So.
There's certainly a little of that going on but hardly noticeable to us just based on how diverse we are in our partner base.
Really helpful. Thanks, so much.
Thanks bread.
Thank you for your questions I would now like to turn it back to you and they should ask the closing remarks.
Well, thank you Hayley and thank you everyone for joining us. This morning. We appreciate your time can congratulate the entire upbound team and a great start to the year, whether it's Sima run the Senator Mexico Franchising you name it congratulations to everybody for a great start we hope to see all of you on the 24th at our Investor Day up in New York.
We're we're we'll talk more longer term strategic initiatives and longer team.
Longer term I should say financial metrics and things like that so look forward to see me on the 24th and thank you again for this morning.
Mmm.
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Uh-huh.
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