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spk02: Good morning and welcome to the Prague Holdings, Inc. Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Baugh, Vice President of Investor Relations for Prague Holdings. Please go ahead.
spk09: Thank you and good morning, everyone. Welcome to the Prague Holdings second quarter 2022 earnings call. Joining me this morning are Steve Michaels, Prague Holdings President and Chief Executive Officer, and Brian 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.progholdings.com. During this call, certain statements we make will be forward-looking, including comments regarding our expectations related to the impact of our lease decisioning adjustments on write-off levels, progressive leasing write-off levels for full year 2022, and the benefits we expect from the adjustments we have made to our SG&A spend. I want to call your attention to our safe harbor provision for forward-looking statements that can be found at the end of the earnings press release that we issued earlier this morning. That safe harbor provision identifies risks that may cause actual results to differ materially from the expectations discussed in our forward-looking statements. There are additional risks that can be found in our annual report on Form 10-K for the year ended December 31, 2021, which we encourage you to read. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today. and we undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP earnings per share, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance. With that, I would like to turn the call over to Steve Michaels, Prague Holdings President and Chief Executive Officer. Steve?
spk10: Thank you, John, and good morning, everyone. I appreciate you being with us today as we discuss our second quarter results and update you on our business as we navigate this dynamic macro backdrop while continuing to support key growth initiatives. I'm proud of the team's ability to quickly adapt to conditions that have been especially challenging for our customers and POS partners. We expect these actions will provide future benefits as we aim to increase our share of the largely unserved addressable market. As you may have seen in our press release this morning, we launched a new exclusive partnership with Samsung.com. We are excited to have emerged from this competitive process as the exclusive provider of Samsung.com's lease-to-own payment options and are pleased to have onboarded yet another national e-commerce partner. While the full benefits of this relationship will not be realized in 2022, we believe we will see meaningful benefits in 2023 and beyond as the partnership continues to ramp. During our Q4 earnings call in February and most recent mid-June update, We said we expected headwinds to our 2022 results as we lapped stimulus and other government support. Still, we believe our ability to manage the company's portfolio performance and expense structure while growing our customer count and generating significant free cash flow will help us remain in a strong position, even with the slowdown. We further tightened lease decisioning during Q2 to address the increase in delinquencies and write-offs we are seeing due to the inflationary pressures our customer is feeling. As we move forward through this difficult environment, we will continue to make the necessary adjustments that we believe will move us back towards our targeted annual write-off levels of six to 8%. Also in June, we announced adjustments to our SG&A spend levels in response to the headwinds we are experiencing and to align with our revenue outlook. While cost-cutting measures are never easy, These actions demonstrate our ability to quickly adapt our cost structure to changing economic conditions while maintaining investments in revenue-generating initiatives that we anticipate will support our future growth prospects. For our progressive leasing segment, second quarter GMV and revenues were in line with our revised expectations. Q2 GMV was down 2.4% year-over-year, while e-commerce GMV increased almost 18%. representing 15.6% of Progressive Leasing's total GMV for the quarter. We have now added 32 e-commerce partners to our platform in 2022, with more consumer brands in the pipeline for the remainder of this year. Widespread weakness in retail traffic, along with our tighter decisioning, drove the decline in GMV. However, that weakness was largely offset by share growth within many of our POS partners. Retailers and consumers need us more than ever as inflation remains at unusually high levels. As I've mentioned before, for retailers, we drive fast integration with prospective partners and incremental sales with existing partners. And for consumers, we offer purchasing power through flexible payment options. While we have not yet seen an impact from credit providers tightening above us, there is increasing evidence that those pressures are beginning to build. Consumer cash reserves, which were inflated by government stimulus programs and reduced spending during COVID, are depleting rapidly as incomes struggle to keep pace with inflation, leading to increased credit utilization. We cannot predict the timing of when we may see a tailwind from tight credit above us, but we expect ultimately that the current economic trends are more conducive to POS partners and consumers benefiting from our offerings. In short, we'll continue to control what we can control, partner with new retailers, complete e-commerce integrations, improve the customer experience, and manage our decisioning in a way that we believe will return us to our targeted financial performance. Our Q2 adjusted EBITDA of $52.2 million was slightly better than our revised outlook as a result of lower-than-expected SG&A expense. The provision for lease merchandise write-offs for the second quarter was 9.8%. As the quarter progressed, we made additional decisioning changes that have resulted in improvement in our early-stage metrics, and we believe that the adjustments we have made here today are working to drive our write-offs lower from Q2 levels. The average six- to seven-month duration of our lease portfolio means that our portfolio quickly shifts to the new lease pools originated with tighter decisions. As I mentioned earlier, the team executed well in the evolving environment. Portfolio performance remains a key focus, and we will continue to manage it through the remainder of the year in a manner that we believe will drive sustainable and profitable GMV with healthy unit economics. Our capital priorities remain unchanged. During the second quarter, we repurchased 3.9 million shares and have reduced our outstanding share count by 26% since the beginning of 2021. We ended the quarter with a leverage ratio of 1.67 times, which is still, in our opinion, within a comfortable range. We ended June with a cash position of $127.3 million, even after $98.4 million in share repurchases during the quarter. The capital we generate for the full year will continue to allow us to reinvest in the business and maintain a strong balance sheet, even with dynamic economic backdrop. I will close with emphasizing the strength of our business model. Even in a challenging environment with negative GMV growth, we have demonstrated our ability to control unit economics, quickly reduce costs to align with revenue, and generate significant cash flow. Finally, I want to reiterate my appreciation for the resilience and teamwork of all Prague employees as we continue to execute on our strategy. I will now turn the call over to Brian for a more detailed look at the Corvus Financials. Brian?
spk08: Thanks, Steve, and good morning. The second quarter financial results were in line with our June 16th update and reflect continued challenging operating conditions as our customers manage the impact of the current inflationary environment. Our approach to navigating these headwinds is centered on addressing the financial drivers within our control. This includes making changes to our decisioning parameters to drive improved portfolio performance and managing our S&A costs to appropriate levels for the current revenue outlook. With respect to the changes made in decisioning, over the course of the last few quarters, the company has made a number of iterative changes to Progressive Leasing's decisioning algorithms in response to the deterioration in customer lease payment patterns. We made the most significant of these changes in Q2 of 2022 based upon early indicators of increased delinquencies of the calls originated. As we have stated previously, The six- to seven-month average duration of our lease portfolio allows the company to influence the delinquency profile of our books relatively quickly through adjustments to our decision. While the write-off performance in Q2 has elevated relative to historical levels, I am encouraged by the early data we've gathered on the performance of our recent lease pools, which have benefited from our tightening effort. We believe we remain on track to close the year near the high end of our 68% targeted annual write-off range. The annual outlook provided in our June update anticipates improvement from the write-off levels we saw in Q2. As mentioned in our June release, the company took material steps to reduce its cost structure to align with our revised expectations for the remainder of the year. While SG&A was elevated in Q2 of 2022, We expect these cost reduction measures will meaningfully reduce SG&A as a percentage of revenue from current levels. These measures, including an approximately 10% reduction in our workforce, remove roughly $50 million of annualized costs compared to the plan that was the basis for our full-year outlook provided in February of this year. Turning to the financial results for the quarter, starting with progressive leasing segments. Progressive leases revenue was $631.3 million for the quarter versus $646 million in the year-ago period, a 2.3% decline. Our larger gross leased asset balance in the period, which ended the quarter up 12% year-over-year, was a tailwind to revenue. However, our account receivable provision, which is a direct reduction to revenue, was $97 million in Q2 of 2022 compared to $39.8 million in the same period of 2021, more than offsetting the benefit of the larger portfolio. Progressive leases gross margin was 30.4% versus 31.9% in the year-ago period. The decline in gross margin was primarily the result of the higher accounts receivable provision. SG&A for the progressive leasing segment excluding restructuring charges was $81.9 million or 13% of revenues for Q2. Progressive leasing provision for leased merchandise write-offs in Q2 was 9.8% or $61.8 million compared to 4.8% and $31.3 million in the same quarter last year. As discussed, we believe this period's write-off results will represent the high point for the year as the lease pulls originated under the most recent tightening efforts become a larger percentage of our portfolio. Tending to consolidate the results, Q2 revenues for Prague Holdings were 649.4 million versus 660 million in the year-ago period, a decline of 1.6%. Adjusted EBITDA was 52.2 million, or 8% of revenues in Q2, versus 104.9 million, or 15.9% for the prior year period. Reduction in revenue and EBITDA was primarily attributable to decrease portfolio performance in the period relative to the stimulus aided prior year period. We generated 57.4 million of cash from operations in Q2 and 155.7 million year to date. Our Q2 gap diluted EPS was 37 cents and our non-GAAP EPS was 52 cents. We have 600 million of gross debt and 127.3 million of cash at the end of Q2, or a net leverage ratio of 1.67 times our trailing 12 months adjusted EBITDA. We also entered the third quarter with 350 million of availability under our undrawn revolving credit facility. During Q2, we repurchased 3.9 million shares of stock for a total of $98.4 million at an average price of $25.23 per share. At the quarter end, we have $384.4 million remaining under our $1 billion repurchase program. In summary, our Q2 results were largely driven by the pressures on portfolio performance that negatively impacted near-term results. During the quarter, we adjusted our decisioning and aggressively addressed our SG&A spend levels in response to results caused by depressors that have impacted our customers. We continue to monitor operational and financial metrics as we manage the business in a disciplined manner. I will now turn the call over to the operator for the Q&A portion of the call. Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question will come from Kyle Joseph of Jefferies. Please go ahead.
spk00: Hey, good morning, guys. Thanks for having me on and taking my questions. So obviously a difficult operating environment. Stepping back, I mean, you guys are one of the biggest, if not the biggest, in the space. Can you talk about how the operating environment is impacting the competitive environment and what's happening to some of the smaller players?
spk10: Hey, Kyle. Good morning. Yeah, I mean, this is a tough environment. As far as competition goes, it's pretty much more of the same. We've got a decent amount of competition in the regions. There's a number of players out there trying to win business. There's some turnover and choppiness in the regions, but that's not different than it has been for the last several years. I have not heard anything specific of any smaller players folding up shop or disappearing. but the aggressiveness of offers ebbs and flows. As you know, the bigger impact or the bigger trend from a competitive environment has been the larger players becoming part of public companies, certainly with the SEMA and with AFF. There's more movement in that arena. On the enterprise side, We haven't really seen a big change there either, but we're always on the lookout for it. We have not seen the challenging conditions cause a decrease in competition.
spk00: Let's put it that way. I got it. Shifting to credit, I've been getting this question a lot. Folks are interested in auto finance. We talk about frequency and severity of losses, but can you give us a sense for The write-offs in the quarter, how much of that was frequency versus severity versus increase in reserve levels?
spk08: Yeah, Kyle, I'll take a stab at that with respect to write-offs. I mean, the 9.8% of the quarter is obviously elevated above where we've been historically, and we're working diligently to bring that metric down. In a challenging macro environment, we started to see the deterioration, as we mentioned on prior calls, kind of late in the year, last year, and into the front half of this quarter. We've made a series of changes along the way, most meaningful here in Q2. While it's still early, we will continue to examine the delinquency trends of these newer originated cohorts. And what we're seeing is encouraging in terms of their trend is moving back towards historical levels from the currently elevated levels. Your question around frequency versus magnitude versus reserve, really what we're seeing that's pushing us well outside the historical annual 68% with 9.8%. It's been a reserve bill over the course of the last few months. And that has been driven by the portfolio that was originated prior to these most recent tightening efforts. And so that's where the bulk of the movement you're seeing, you see that in our queue with respect to the change in the reserve that's disclosed. But that's the most meaningful portion. And again, it's early. There's plenty of runway left for us as we close out the year, but we believe our Titan efforts we've made to date are going to provide some relief as the pools originated after these Titan efforts become a higher concentration of the portfolio overall and start to bring some relief to the current levels.
spk00: Got it. Very helpful. One last one from me. Congratulations on the new retail partner. Very excited. It feels like it's been a while since we've seen one announced in the space. You know, just regarding your pipeline, can you give us a sense for, you know, the conversations you're having with new partners and, you know, are they more receptive given how much the environment has really changed in the last six months? Yeah. Thanks, Kyle.
spk10: And we are excited about partnering with Samsung and we're pleased that to have come out of that competitive process as the exclusive provider of one of the top global brands. We continue to believe and have said that these conditions that we're in, while challenging, are where this business model should shine, both for consumers and for retail partners. I think from a GMV standpoint, not exactly that that was your question, but our business our negative 2.4% GMV while below where we wanted it to be is a testament to the fact that we're actually outperforming the underlying performance of a mixed basket of our retailers as it relates to headline comps. So that's another kind of feather in the cap of the business model that we can gain share in these difficult times. All of that to be said, that it should be a more attractive solution for retailers that don't have a fully developed finance stack. And we've been consistent in that. And we continue to believe that these are, as you've observed over the years, long sales cycles. And we're doing everything we can to compress that time. We're fast approaching code-free season for most retailers as we prepare for the holiday season. But yeah, I mean, the conversations that we're having from a pipeline standpoint are positive, and we look to have conversion over the next couple of years.
spk00: Great. Thanks so much for answering my questions. Thanks, Kyle.
spk02: The next question comes from Anthony Chukumba of Loop Capital. Please go ahead.
spk06: Good morning. Thank you so much for taking my questions. So, you know, allow me to ask a question that's a bit psychoanalytic. So you put out a press release about signing up Samsung. If I recall correctly, typically you don't put out press releases when you sign up new retail partners. I don't recall a Best Buy one or a Lowe's one. So I guess I'm just trying to figure out like why a press release about this particular one? Is it just a difference in sort of philosophy? Is it that you're super excited about this? Should we expect press releases on other partners? Like how should we sort of think about that? I'm probably overanalyzing, but, you know, that's what we do on the sell side. No, I appreciate that, Anthony.
spk10: And it's a good question. I mean, because it has not been this company's DNA to put out the information like that. I would say that partially, you know, that was when Progressive was under the Aaron's umbrella. And now that we're a standalone public, maybe we do have a different philosophy. I would also say that in the instance of Lowe's and Best Buy, you know, folks like yourself and specifically you would break the news about an exciting partner that we'd have. And then we would be forced to respond to it. So I think we decided to kind of own our own news cycle and put it out there. And we are excited about Samsung. We think a top five global brand endorsing the program and endorsing our leading position and capabilities is a thing to do. a thing to talk about. And so we decided to partner with them and put the release out.
spk06: Got it. Fair enough. Fair enough. Okay. So just one follow-up question. It's more on the credit tightening. So how should we think about... credit tightening from the perspective of, like, I guess, acceptance, credit acceptance rates, right? Like, in other words, like, when you tightened it, did the acceptance rate go down from 70% to 60%, 60% to 55%? Like, how should we think about order of magnitude?
spk10: Yeah, certainly. And so, approval rates are kind of how we measure that. It's the same thing as acceptance rates, in your words.
spk06: So...
spk10: You know, we took a series of tightenings. And as you know, during the pandemic, after the first kind of shock wore off, we looked for opportunities to actually increase approval rates because of the payment conditions and the liquidity that was in the market. So you got to look at it a couple different ways. If you were to look at Q2 approval rates versus Q2 of 21, we're probably down about 400 basis points. If you were to look at Q2 of 22 versus Q2 of 19, kind of undisturbed pre-pandemic, it's more like 100 basis points. Now, as Brian said, we tightened during the quarter. So April approval rates were higher than June approval rates. So to give you another more useful data point, if you look at As we sit here today, last week, if you will, it's a little bit more pronounced, the change. So we're more like, you know, 600 or 700 basis points lower than last year and about 200-ish basis points lower than Q2 of 2009. I'm sorry, July of 2019.
spk06: I'm so lost right now. Sorry, what was the change in the year-over-year and then what was the change over 2019? I sort of, I'm confused.
spk10: Okay, sorry. The average approval rate in Q2 of 22, right, so the quarter we're reporting on now, was about 400 basis points lower than last year in 21. Okay. And it was about 100 basis points lower than the second quarter of 2019 before the pandemic. Got it.
spk06: Got it. Okay. That's helpful. Thank you.
spk10: Those numbers are a little bit wider if you look at mid-July versus the average of the quarter.
spk06: So that's what I was trying to communicate. Okay. Got it. Got it. Thanks for clarifying. Got it.
spk02: The next question comes from Jason Haas of Bank of America. Please go ahead.
spk01: Hey, good morning, and thanks for taking my questions. The first is just on the write-off expectations for the rest of the year. I think I heard high end of 6% to 8%. Is that the annual number? Is that what's expected for the second half? And then what sort of GMV growth are you expecting for the second half to get there?
spk08: Yeah, so I think our commentator was near the high end of the 6% to 8%, and that's on an annual basis. So as we get to the end of the year and look back over the 2012, Jason, we expect a to be near that 8%.
spk10: And we haven't given... Yeah, on the GMV, we haven't specifically guided the GMV, but I will tell you that based on what we're seeing now and what informed our pre-announcement in mid-June, we're anticipating having the back half GMV be weaker than the front half. And that's built into the outlook, the revenue outlook, I know it may be difficult to kind of triangulate that because of moving and various disposition types, but we're expecting weaker GMV, negative for the year, and the back half being weaker than the front half.
spk01: Got it. That's helpful. And then I wanted to ask about how the vibe segment's performing. It looks like it's been pretty strong. I'm curious if you're tightening credit there. Or maybe if you're seeing a different dynamic for that customer, because I know it's a little more higher income than the progressive leasing business. Yeah.
spk10: So Vive has been strong over the last couple of years. It is also seeing some headwinds from a GMV production standpoint. And obviously it has a much different revenue recognition model. And so that's, GMV trends don't impact revenue quite as quickly as it does on the leasing model, but it has been strong and resilient through this cycle. It's a longer average duration of the portfolio, so we've managed it differently during the pandemic. We have tightened a little bit, although we did not loosen during the pandemic when when the liquidity conditions were so favorable. So I don't have the same kind of approval metrics that I just gave Anthony on the leasing side, but we're tighter than we were pre-pandemic. And we continue to look for evidence of primaries or competitive secondaries tightening in different retail environments, because as you all know, that's our standing assumption is going to happen, although it's, uh, we haven't seen much evidence of it and it's too early to tell, but Vive, um, is, is, uh, is managing its portfolio very well. Um, and, uh, um, looking for opportunities to tighten and to react to what the credit supply around it and above it, um, is doing so that we can manage the reserve rates, uh, within a tight tolerance, but also try and, uh, Achieve growth and partner well with our POS partners.
spk01: Got it. That's helpful, Connor. Thank you.
spk02: The next question comes from Bobby Griffin of Raymond James. Please go ahead.
spk11: Good morning. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our questions. First, I kind of just wanted to dive a little bit more into the more recent demand and payment activity trends. So have you seen kind of a somewhat stabilization versus the mid-June business update, or are trends still kind of continuing to deteriorate and remain volatile?
spk10: Well, certainly it continues to be a dynamic market. I can't say that things have changed materially in the last month, you know, since June. We do, you know, we're kind of looking at, well, we always do this, no matter what the environment is, but we're looking at a, origination pool, kind of static pool analysis. And so we've got the composition of the portfolio that was originated before the Q2 decisioning changes and then the ones that were originated after. And we're seeing, you know, impact to payment behavior and pool performance based on those decisioning changes. But as far as kind of some macro shock or shift function up in improvement or deterioration in overall payment performance, we haven't seen a change, a material change since the mid-June update.
spk11: Okay, that is helpful. And then can we maybe talk a little bit more about the steps you've taken to align the cost structure? What part of the workforce was that 10% decline in? And then are you continuing to cut costs or do you feel good about where you are today based on the current portfolio performance?
spk08: Yeah, I'll take that just with respect to the cost measures. First and foremost, these acts are difficult, especially when they involve our employees. And so we absolutely took these steps knowing that they were going to be difficult, but understanding the top-line projections that we were putting out there. So we aligned quickly as we saw the deterioration of the portfolio and the consumer trends shifting as a result of the current environment. Like I said, these were meaningful. You mentioned roughly 10% of our headcount. They were focused primarily on driving increased efficiencies throughout the organization. with focus on right-sizing the variable cost for the revenue picture that we were staring at, or we are staring at. But a meaningful portion of those cost measures came from just getting more out of the business and driving efficiencies. And we saw that in our sales functions. We saw that in our operational functions. And we really wanted to emphasize the importance of maintaining our investment layer of future growth. We are not at a point where we want to wind those back meaningfully. We believe there's very meaningful traction we have and we've maintained that in technology and elsewhere. And so we've continued to include those as part of our cost structure. Like you mentioned, we expect these to become more evident in the P&L as we exit the year and start to trend more towards pre-pandemic posture as a percentage of revenue. And that sets us up well, I think, going into 2023 from a run rate perspective. I mean, it's probably worth mentioning. That's an outcome even after absorbing some of the inflationary pressures that we've seen on wages, et cetera, throughout the course of the year.
spk11: Thank you so much, and best of luck on the back half of the year.
spk08: Thank you.
spk02: The next question comes from Brad Thomas of KeyBank Capital Markets. Please go ahead.
spk05: Hi, good morning. Thanks for taking my questions. I apologize if I missed this, but did you talk about what the customer growth was in the quarter? I know that had been trending pretty favorably the last few quarters. How is the customer count trending for you?
spk08: It is trending higher. It's in our queue. I don't have that number right in front of me. But we do have that disclosed in our queue.
spk05: Okay, no problem. Maybe another question for you. Steve, as you and the team are talking to retailers where we know that – sales are challenged and getting a bit softer of late. What are you hearing from them in terms of, you know, trying to use more tools from the progressive toolkit and, you know, the likelihood that they may take on more and lean more into progressive in the quarters ahead here?
spk10: Yeah, thanks, Brad. I mean, yeah, we're having great conversations there. And I think that's one of the reasons why we've been able to gain share within a number of our retail partners is because, we've been able to become more important to the retailers that we currently have and save more sales. So things like marketing that we've talked about before, both direct consumer marketing from Progressive, co-branded marketing with retailers and Progressive, and then even cross-marketing with multiple retailers within our uh, preferred partner network, uh, sending out kind of joint offers. Those things are becoming, uh, we're having great conversations and our, and our marketing teams are partnering well with, uh, their, uh, counterparts that are at our retail partners. Um, as I think I mentioned in a previous quarter, we have had some conversations about, um, potentially accelerating certain initiatives that were already on the roadmap, but maybe not, um, slotted until 2023. Those things are difficult, right? Everybody has a good idea and says, let's do this and let's get it done before holiday 23 or 22. But then the real world comes in and there's competing priorities. So we're constantly fighting through that slog and trying to prove or demonstrate with data why our initiative has a bigger size of the prize than something else they may be working on. And we're having some success there. So there's tons of examples of ways that we can become more productive, ways that we can continue to integrate into our retail partners and become a bigger part of their business. These are the types of conditions where those conversations are fruitful. And we look forward to continuing to prove the value of our partnership.
spk08: Hey, Brad. Just to follow up, just to put the product up in front of me here. So the total active customers, just under $1.1 million for the – as of June 30 versus just about 990,000 for same period 2021. And that's a total customer count across the organization. So that's a 9.2% increase. Progressively seen was 965,000 versus 905,000 same period last year. And that's a 6.6% increase. It's really, really helpful. Thank you. And I think that certainly gives us some optimism
spk05: about the continued growth prospects for the business. Just as it relates to, you know, revenues, I know you're lapping some of the, you know, tightening and early buyout trends are normalizing here, I think, a bit. How are you all thinking about, you know, revenues in 3Q and, you know, if, I mean, I think it's implied that maybe they get a little bit better even than what you just had in 2Q. you know, any more color about how you're thinking about, you know, overall revenues in the back half would be helpful.
spk08: Yeah, I think your intuition is right. And you can kind of do the math on where we're at to date and where our guide is. And I think you're right. It starts to imply some improvement as we enter the back half. I mean, really the challenge that we've been facing so far this year, you know, you've heard me say before, as the portfolio grows, that's a, that's a tailwind for revenue. You know, you highlight customer count and you can also look at gross leased assets and those are, those are moving in the right direction. And what's been, you know, more than offsetting the momentum that we've, we've had there is, is we start to see kind of consumer dispositions come back, you know, 90 days starting to trend back down to earth, et cetera. It's been offset by, you know, by the AR provision and the buildup there, including the reserves, as the portfolio has felt pressure. So I think the path to a better place and a path to revenue growth, I mean, it starts with GMB. We've got to get that on the upward trajectory, but I would say the GLA and seeing this AR provision because of the decisioning changes that we've made start to start to come back down to a reasonable level. That's the recipe for revenue growth moving forward. And I think we've taken meaningful steps, like we talked about, about getting the portfolio in the right place. And I think that's a big step in the right direction.
spk05: Great. Thanks so much. Good luck.
spk10: Thanks, Brad.
spk02: The next question comes from Vincent Cantick of Stevens. Please go ahead.
spk07: Thanks. Good morning, and congratulations on winning Samsung. I'm looking forward to hearing more of those merchant wins. I wanted to follow up with the discussions you're having with your potential merchant partners and a bit of a two-part question. So first, how's their focus and prioritization when they think about adding Leastone? I remember I think during the pandemic there wasn't as much focus, but sort of wondering what their thinking is now and then second part now I know some of these merchants like Samsung have other finance provider providers in categories like buy now pay later as an example and I know you're still looking for evidence that primary lenders are tightening but from your discussions with your potential merchant partners are you hearing them you know maybe getting frustrated with their current lenders or seeing tightening and you know trying to increase sales conversion by adding progressive and looking outside their existing partnerships. Thank you.
spk10: Yeah, thank you, Vincent. Yeah, I mean, those two questions go together. And I think the short answer would be yes. A more robust answer would be clearly during the pandemic, it was tough to get an audience because things were going so great. We've talked about that. Now, comps are challenged, and depending on what your view is on what the macro looks like from a recession standpoint, is that going to happen? Is it not going to happen? Is it going to happen in 2023? Retailers are looking for solutions to have a more full suite of options and lease to own for those that don't have it. It seems like a no-brainer to us, and so that's our job to communicate that with retailers, and we are having productive conversations about that. and having conversations about how do we get a pilot? How do we prove this? How do we get put into the priority stack for development resources? As it relates to other credit supply, I mean, we haven't seen evidence of primaries tightened, but there's undeniable evidence about BFPL players tightening. I mean, they've ratcheted down out of necessity. massively. And when I, when I'm talking about the MPL in that, in that instance, I'm being more specific to the paying for providers. As we've said many times, those aren't really a competitor for a lease to own kind of thousand plus dollar average ticket. Uh, but it does go into the psyche and the overall, uh, um, kind of posture of the retailer. Uh, they're both the merchant, uh, merchandising department as well as the finance department. So, uh, Those things, while the shiny new object of paying for during the pandemic probably took away some mindshare from us, now those things are not maybe living up to the expectations. And so there can be a follow-up conversation with us that we think can be very fruitful and have massive positive ROI for the retailer. I think the Samsung thing is a, is a, um, a nice data point for that. And we look forward to, uh, we have a, we have a roadmap with, uh, partnering with, with Samsung that will, you know, kind of crawl, walk, run, just like we have previously. Um, and, uh, those are the types of things that, uh, that can really provide good evidence and give good data for our biz dev team to go out and talk to future retailers. So we're, We're optimistic, but we're also realistic about the sales cycle and the time it takes to get the large kind of enterprise clients that we're trying to convert across the goal line.
spk07: Okay, perfect. That's very helpful. Thank you. And I guess speaking about a recession and kind of going back to underwriting, I guess if you could – give us a sense. It sounds like you feel comfortable with that underwriting perhaps is stabilized here. From the write-offs, it seems like the reserving is from losses that maybe haven't happened yet, so maybe reserves for future losses. Sort of wondering what are your assumptions and expectations that have been baked in when you think about the macro and a potential upcoming recession? Thank you. Yeah, I mean, so...
spk10: I kind of, without being too cute, like I feel our customer's in a recession right now. Like we may not be in a recession, but the bottom 40%, you see the Walmart news. I mean, there's just so many data points that, you know, our customer's in a recession now where there's strong employment, right? So that's a good thing. That's why it's kind of a unique set of economic circumstances right now. But our customer is facing, you know, double-digit inflation in the things that matter in energy and housing and food. And so they're feeling it already. We're not anticipating things getting materially worse, but we're not anticipating them getting better. So we're firmly, as we always are, firmly watching our pool performance. And other than our customer service hub activity and our call center activity, there's not a ton that we can do on a pool that was originated in December of 21 or January of 22. But the pools that, as Brian said, that were originated post a couple of our decisioning changes, we're watching them and seeing how they're performing. We feel good about the early indicators on those pools, and we're doing everything we can to not have the pools originated before those changes deteriorate further. We're not anticipating massive improvements or any improvements, quite frankly, in those pools' performance, but we're doing everything we can to make sure they don't deteriorate further from here.
spk07: Okay. Okay, that's perfect. Thanks very much.
spk02: The next question comes from Hal Gostich of Loop Capital. Please go ahead.
spk04: Thank you, guys. My question is on approval rates. I think you mentioned that maybe right now your approval rates are 200 basis points lower than 2019 levels, and I think in Q2 you mentioned they were 100 basis points lower than 2019. Those are much tighter conditions there, but also your model of potential customers is a lot bigger. You have a lot more merchants on the platform, and I think you mentioned you have 30 new e-commerce merchants out in the first half of the year or My question is, what is happening to just overall applications? Before you can approve them, someone has to apply. Give us your thoughts on what you're seeing coming to you before you approve it. Is that growing? Is that down because of the economy? My follow-up is, because we do have a job, a strong job market, is there a chance for better recovery later on down the line when people adjust to their new cost structures but still have their jobs and they start reengaging on payments if they've lapsed. Thank you.
spk10: Yeah, so on the first part of the question, you're right. The top of the funnel is applications are higher because we have a broader base of retailers and we're adding new e-comm players all the time. I do want to drill into approval rates quickly as it relates to being compared to pre-pandemic 2019 levels. There has been channel shifts, right? And we talk about 32 new e-comm retailers just this year. So the source of your applications will impact approval rates as well. And by their very nature, e-comm or digital applications would have a lower approval rate than in-store, you know, sales-assisted applications. So when we're comparing July of 22 approval rates to July of 19 approval rates, channel shift is a sizable component of those changes besides our view on the health of the consumer. in this period versus that period. But back to your question about the app volume. I mean, app volume is up nicely and conversion is hanging in there. We're just not approving as many as we were back then for various reasons because we're managing the portfolio to our targeted levels. But What we expect and what we hope is we can continue to diversify the base and broaden the base of retailers and new consumers to Brad's point about our customer base going up such that when things do turn or when less, when we see the Titan credit supply above us, which is still our base case assumption, the top of the funnel opens up even wider and we have a bigger pool of applicants to approve and to convert and to grow GMV with. So there's work being done during this time of maybe more caution to help us grow when we come out of the other side of this. Your question about employment, I mean, incomes matter, right? And our customer is resilient and lives through various recessions or cycles a lot. And they'll get a second job, they'll pick up a part-time job, they'll do something. And so I do expect that they can adjust to the new normal. And as long as things don't continue to get progressively worse, they just kind of stay the same. Strong employment and Now, so far, wage inflation hasn't caught up or hasn't kept up with cost inflation for our consumers, so they're in a deficit. But, you know, over time, they will make the necessary adjustments, and hopefully that will show through in our portfolio performance and customer payments.
spk06: Thank you.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Steve Michaels for any closing remarks.
spk10: Thank you, and we appreciate you joining us this morning as we update you on Q2. I know I said this in my prepared remarks, but I'd certainly like to thank all the Prague people. It's a tough environment, and they're doing a great job taking care of our customers and partnering with our with our retailers to continue to prove the value of the partnership every day. And I really appreciate everybody's efforts. It's a tough environment that we're navigating through. Who would have thought that it would be harder to exit the pandemic than to manage into the pandemic? But that's where we find ourselves. And we appreciate y'all's interest and we look forward to updating you in the coming quarters.
spk02: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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