Conn’s, Inc. (CONN) CEO Norman Miller on Q2 2021 Results – Earnings Call Transcript

Conn’s, Inc. (NASDAQ:CONN) Q2 2021 Earnings Conference Call September 3, 2020 11:00 AM ET

Company Participants

Norman Miller – Chairman, President & CEO

Lee Wright – EVP & COO

George Bchara – EVP & CFO

Conference Call Participants

Brian Nagel – Oppenheimer

Nels Nelson – Stephens Inc.

Kyle Joseph – Jefferies

Bill Ryan – Compass Point Research & Trading

Operator

Good morning and thank you for holding. Welcome to Conn’s, Inc. conference call to discuss earnings for the fiscal quarter ended June 31, 2020. My name is Diego and I’ll be your operator today. [Operator Instructions].

The company’s earnings release dated September 3, 2020, was distributed before market opened this morning and can be accessed via the company’s Investor Relations website at ir.conns.com. During today’s call, management will discuss, among other financial performance measures, adjusted net income and adjusted earnings per diluted share. Please refer to the company’s earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures. I must remind you that some of the statements made in this call are forward-looking statements within the meaning of federal securities laws. These forward-looking statements represent the company’s present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.

Your speakers today are Norm Miller, the company’s CEO; Lee Wright, the company’s COO; and George Bchara, the company’s CFO.

I would now like to turn the conference call over to Mr. Miller. Please go ahead, sir.

Norman Miller

Good morning and welcome to Conn’s Second Quarter Fiscal Year 2021 Earnings Conference Call. I want to start today’s call by updating you on our response to the COVID-19 crisis. Before turning the call over to Lee and George, who will provide additional details on the quarter and the actions we are taking to navigate the current economic and business landscape.

The economic environment remains extremely fluid as the pandemic continues to impact many communities across the country. We have adopted a conservative operating approach that we believe has positioned the company to successfully navigate these challenging market conditions. Overall, our second quarter results were better-than-expected given the unprecedented disruption the COVID-19 crisis has caused. Cash and third-party sales increased 51% compared to the same period in the prior fiscal year, reflecting our ability to capitalize on strong demand for home related products.

Applications in the second quarter also increased compared to the prior year, further demonstrating the demand for our products and credit offerings. Despite strong application performance, the underwriting changes that we put in place earlier this year in response to the COVID-19 crisis drove a 36% decline in sales financed through our in-house credit offering. At the onset of the pandemic, we responded quickly to adjust our credit operations and mitigate the potential impacts, high unemployment and economic uncertainty would have on our business. I believe recent trends speak to our conservative approach as well as the resiliency of our business model and the value of our essential home related products, diverse credit offerings and customer service capabilities.

The favorable credit performance, combined with proactive reductions in SG&A expenses had a positive impact on second quarter profitability and earnings increased nearly 13% to $0.70 per diluted share over the prior fiscal year period. In addition, we produced robust operating cash flow during the quarter and our balance sheet and liquidity position remains strong. Considering the disruption caused by the COVID-19 crisis and what we expect to be lasting changes in consumer buying habits, we are accelerating and increasing investments in our digital and omnichannel capabilities. We now plan to open between 7 and 9 new stores this fiscal year, which is down from the 14 showrooms opened last fiscal year.

We also expect to open between 8 and 10 showrooms next fiscal year, primarily in the Florida market in order to leverage our Lakeland distribution center that is scheduled to open in January 2021. We believe the digital investments we are pursuing in conjunction with more targeted new store growth, will enhance our competitiveness through the COVID-19 crisis and expand our market-leading value proposition to more customers in the future. As you can see, we continue to focus on successfully navigating the COVID-19 crisis while investing in our business to support the significant growth opportunities we believe we have in the future.

I want to personally thank all of our associates for their continued dedication during this challenging period. On behalf of everyone at Conn’s, we remain committed to helping our customers and communities in this time of need. So with this overview, let me turn the call over to Lee, who will provide more details on our second quarter operating results and the specific actions we are taking to respond to the COVID-19 crisis.

Lee Wright

Thanks, Norm. I’ll start my prepared remarks with a quick update on the recent impacts of Hurricane Laura, which made landfall in Louisiana on August 27. Prior the hurricane’s landfall, we closed certain showrooms to allow our employees time to evacuate from the path of the storm. All affected showrooms are now reopened and we are focused on supporting our local communities as they start the rebuilding process.

We do not expect Hurricane Laura to have a meaningful impact on our third quarter financial results. So with this update, let’s look at our second quarter credit segment performance in more detail. We believe that the prudent underwriting changes we implemented in mid-March have positioned us to successfully navigate the impacts of the COVID-19 crisis. For example, the balance of customer accounts, 60-plus days past due has declined approximately 32% since the beginning of the fiscal year, which we believe will lead to sequentially lower charge-offs for the remainder of this fiscal year.

We expect continued improvements in overall credit trends as newer originations benefit from higher FICO scores and a higher mix of existing customers. In addition, we are seeing a larger population of higher quality applicants as other prime and near prime lenders have tightened their underwriting standards. Strong cash repayments on outstanding loans within our portfolio exceeded typical seasonal trends normally experienced in the second quarter.

In fact, we experienced the best second quarter cash payment rate within our portfolio in nine fiscal years, which we believe was driven by strong internal collection efforts and the benefits of government support programs. Consumers are also spending less and saving more and we are encouraged that they are using their available cash to pay down debt. We believe these trends are also having a positive impact on cash collections within our portfolio. To help our customers navigate the immediate impacts of the COVID-19 pandemic, we provided financial relief in the form of payment deferrals to our customers. We were pleased to support our customers in their time of need and the performance of these accounts is in line with our expectations. We are also focused on controlling the balance of reaged accounts within our portfolio and in June, we revised certain reaged programs to be more restrictive. As a result, we are starting to see a decline in reaged accounts as a percentage of the portfolio. I am also encouraged that the dollar balance of reaged accounts has declined approximately 14% since January 31, 2020.

As you can see, we continue to pursue a conservative credit approach given the uncertainties associated with the COVID-19 pandemic, the overall economic environment and the continuation of government stimulus and support programs. However, unlike other companies, we have the flexibility to prudently reduce risk while still providing consumers with alternative financing options as a result of our multiple third-party partnerships. We believe our second quarter results highlight the success and flexibility of our unique hybrid credit and retail business model and the ability to derisk our credit business while still supporting retail demand through our diverse credit options.

So looking at our retail segment performance in more detail. Total retail sales declined 8.6%, while same-store sales declined 13.2% for the second quarter primarily due to the underwriting adjustments that we began implementing in mid-March in response to the COVID-19 crisis. We believe tighter underwriting reduced same-store sales by an estimated 20% during second quarter. Given the continued uncertainty related to the economic environment, we expect to remain cautious in our underwriting approach, which will likely impact the level of sales financed through our in-house credit offering for the remainder of our fiscal year.

Overall, we continue to see strong demand for appliances during the quarter, which typically have lower average selling prices and lower retail gross margin. Appliance sales during the quarter increased 8.4%. Conversely, demand for more discretionary products such as furniture and mattress and consumer electronics remained below pre-COVID levels. Sales of furniture and mattress represent our highest ticket purchases and were most impacted by the underwriting changes, while consumer electronics continues to experience significant TV price deflation.

As a result, furniture and mattress and consumer electronics sales were down 18.6% and 11.7%, respectively, for the second quarter. Out of stock inventory also impacted second quarter retail sales and was caused by global manufacturing and logistics issues at our vendors as well as higher-than-forecasted demand, primarily within the appliance category. While manufacturer supply chains are generally improving, the environment remains fluid and fourth quarter demand is expected to strain the global supply chain. We are partnering with our vendors to support current and future demand while managing inventory levels heading into the holiday season.

As Norm mentioned, we are also prioritizing and accelerating investments in our digital and omnichannel initiatives. Last year’s launch of our new e-commerce platform and upgraded website have supported recent e-commerce growth and second quarter sales through this channel increased approximately 72% compared to the prior fiscal year period. New investments will focus on extending our digital capabilities and make it easier for our customers to interact with Conn’s online or through their mobile device. Our marketing strategy is also evolving to support our omnichannel and e-commerce growth plan. We are establishing new partners, investing in new capabilities and refining our overall marketing approach.

I am pleased with the early progress we are making transforming the effectiveness and sophistication of our marketing function. In fact, total applications increased 5.1% from the prior year period despite a meaningful reduction in marketing expenses during the quarter. Finally, we have put a greater emphasis on driving efficiencies across our organization and we have successfully lowered operating expenses across several categories since mid-March.

Retail SG&A expenses are down nearly 11% compared to the prior fiscal year period despite an approximately 8% year-over-year increase in retail square footage. In August, we opened 2 additional showrooms, bringing the total number of new stores opened to date to 6, all of which have been within existing markets. So to conclude my prepared remarks, I am pleased with the progress we are making navigating the COVID-19 pandemic while refining our strategies to support the current and future needs of our business.

We believe our second quarter results demonstrate the resiliency of our business model and the growing success of our digital platform. This combined with our compelling financial model, experienced leadership team and strong balance sheet provides the necessary resources to successfully manage the business through this challenging period. On behalf of the entire leadership team, I’d like to thank our employees for your continued hard work, service and dedication.

Now let me turn the call over to George to review our financial performance.

George Bchara

Thanks, Lee. Starting with our liquidity position. Year-to-date, the business has generated $305.7 million of operating cash flow, including $153.2 million in the second quarter. The strong operating cash flow was driven by the significant year-over-year increase in cash and third-party sales and the decline in our customer accounts receivable balance as a result of tighter underwriting and strong cash collections.

The year-over-year increase in operating cash flow drove a decline in net debt as a percent of the ending portfolio balance from approximately 59% at January 31, 2020, to approximately 50% at the end of the second quarter. Net debt as a percent of the portfolio balance is at the lowest level since the beginning of the 2015 fiscal year. We ended the second quarter with cash and immediately available liquidity of $416.1 million before giving effect to the minimum liquidity requirement of $125 million.

As you can see, our liquidity position remains strong, which we believe will enable us to continue to navigate the COVID-19 crisis and support the current and future needs of our business. In addition, we continue to expect to complete 1 ABS transaction before the end of our fiscal year. Moving on to our financial results. On a consolidated basis, revenues were $366.9 million for the second quarter, representing an 8.5% decline from the same period last fiscal year.

We reported GAAP net income of $0.70 per diluted share for the second quarter compared to GAAP net income of $0.62 per diluted share for the same period last fiscal year. On a non-GAAP basis, adjusting for certain charges and credits, we reported net income of $0.75 per diluted share for the second quarter compared to net income of $0.62 per diluted share for the same period last fiscal year.

Reconciliations of GAAP to non-GAAP financial measures are available in our second quarter earnings press release that was issued this morning. Our financial results for the second quarter reflect the success of our cost savings initiatives as consolidated SG&A expenses were $115.3 million, a 9.6% decline from the prior year despite 14 additional stores. While we remain focused on cost controls, we expect SG&A expense to be flat to slightly up on a year-over-year basis for the remainder of our fiscal year. Looking at our retail segment in more detail. Total retail revenues for the second quarter were $279.9 million, an 8.6% decline from the same period last fiscal year. Retail gross margin for the second quarter was 36.9%, a decrease of 360 basis points from the same period last fiscal year.

The reduction in retail gross margin reflects strong sales of appliances, which have lower retail gross margin. Deleveraging fixed logistics costs on lower sales and a decline in retrospective income on RSA commissions also impacted retail gross margin during the quarter. We expect these trends will continue to put pressure on our retail gross margin on a year-over-year basis throughout the back half of this fiscal year. Retail segment operating income was $23.2 million compared to $36.1 million for the same period last fiscal year. Primarily due to lower retail sales and lower retail gross margin, partially offset by reductions in retail SG&A expense.

Turning to our credit segment. Finance charges and other revenues were $87 million during the second quarter. The 8.2% decline from the same period last fiscal year was primarily due to a 7.3% reduction in the average balance of the customer receivable portfolio. Lower insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decline in insurance retrospective income. For the remainder of fiscal year 2021, we expect finance charges and other revenue to be down year-over-year as a lower balance of loans more than offsets increasing yields.

As a reminder, under CECL, we are required to reserve for lifetime expected losses. Last quarter, we recorded an increase in our allowance for bad debts related to future estimated losses associated with the COVID-19 crisis. This quarter, our provision benefited from a decline in the allowance for bad debts as a result of an improving performance and shrinking portfolio balance, which was magnified by higher reserve percentages under CECL. As a result, our second quarter provision for bad debts was $32 million compared to $49.7 million for the same period last fiscal year despite elevated charge-offs during the quarter. Higher charge-offs this quarter were driven by loans originated last fiscal year and were already reserved in our allowance. Our credit spread for the second quarter was 2.2% compared to 8.9% for the same period last fiscal year and reflects the elevated charge-offs associated with accounts originated a year ago.

Despite the decline in our credit spread, credit segment income before taxes was $5 million compared to a loss before taxes of $8.7 million for the same period last fiscal year. The year-over-year improvement was driven by a decline in the provision for bad debts. Which reflects strong cash collections, newer, higher quality originations and the reduction in the portfolio balance as a result of higher cash and third-party sales.

So with this overview, Norm, Lee and I are happy to take your questions. Operator, please open the call up to questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Brian Nagel with Oppenheimer.

Brian Nagel

First of all, I’m going to give congratulations on managing the business really well through obviously a difficult time. Numbers speak for themselves. Congrats on that. The question I have, look, you spent a lot of time in the prepared comments just talking about your strategic decision to pull back on lending here, given the environment. Lee, you mentioned we expect the tighter lending standards to remain in place through the balance of the year. So maybe a few questions, beyond the obvious, I mean, are there specific indicators you’re looking for that could lead you to, as a company to lessen these restrictions? And then secondly, is it an all or nothing? Or could you start to go market-by-market even recognizing there’s different risk profiles in the categories you sell category by category within your stores?

Lee Wright

Absolutely. I’ll answer the second part first, which it is not all or nothing and although we anticipate being tighter from an underwriting standpoint, the back half of the year relative to last year, that does not necessarily mean at the 20% levels, which are really at that tight end — at that type of an underwriting standpoint, Brian, that’s tighter than any time the company’s been in the last 10 years. I would not expect necessarily us to be at that level of tightening through the entire back half of this year.

We believe that there are opportunities both geographically and with different segments of customers to give us some opportunities to take appropriate risk going forward in the back half of the year. I guess the underlying message is we’re being quite cautious as we go forward with unemployment still in double digits and unknown what’s going to happen, having obviously never been through a pandemic we’d rather be a little more cautious here in the short-term and ensure that as we come out of it, our portfolio is in very strong shape. We believe because of the non con financing sales opportunities being up over 50% demonstrates that from a business model standpoint, we have an opportunity as long as we can keep our portfolio in very strong shape coming out of the pandemic to capture not only increased retail sales opportunities, but continue to benefit from a strong credit business as well.

Brian Nagel

Got it. And then maybe some — just a couple of quick follow-ups, norm on that. So one, look, I mean, at least in my view, Conn’s, to a certain extent, stands alone in what you do in the marketplace. But as you look out there, are competitors from a credit standpoint, doing something similar to Conn’s? Or is there the chance that within certain niches of your market, you actually — given how tight you are with lensing right now, you could be losing market share temporarily. Then the second one to that is — I want to make sure I asked this correctly, but we talked about — you have, as Lee just mentioned a second ago, the significant surge in sales that are not tied to your in-house credit. Is that serves mutually exclusive from what you’re seeing with your credit? Or do you actually have customers that since they can’t get your credit or are still buying a product in your stores using some other credit needs?

Norman Miller

I’ll answer the second part first. I don’t think they’re exclusive. I mean, with the increase on our third-party financing on the cash side and the Synchrony I think we’re attracting both customers because of our full credit spectrum offering, we’re attracting those customers, actually marketing to those customers, probably more than we have in the past. So I think there’s opportunities and we expect coming out of the pandemic that our mix will skew higher than it was pre-pandemic on some of those alternative financing.

And what separates us at the end of the day, going to your first question, is the full credit spectrum offering that we have. There are others out there that obviously have Synchrony or high credit offerings or options for those prime customers or higher credit quality customers. And there are businesses out there, competitors out there that have lease-to-own as well. So there is competition on both of those ends. But as far as from a Conn’s financing, 550 to 650 FICO that’s still about 50% of the business. There’s no one out there underwriting at our 29% APR for that credit quality customer currently in the marketplace that we’re aware of.

George Bchara

And I would just add to that, Brian, from a consumer finance standpoint, what you’re seeing in terms of our pull back on originations is not unique to us. There are a number of other consumer finance companies whose originations are down, up to 90% for the second quarter. So it’s not a Conn’s phenomenon. This is something that you can see across the industry.

Brian Nagel

I appreciate that color.

Norman Miller

One other thing I’ll add up, Brian, I’d say is we are seeing more opportunities as higher credit finance or banks and other options are tightening from a higher credit quality. We are seeing the opportunities at our higher-end of the credit spectrum to — that we think will create opportunities for us going forward as credit tightens across the entire spectrum, not just from us, but from everyone along the higher credit spectrum.

Operator

Our next question comes from Rick Nelson with Stephens.

Nels Nelson

Like to ask about sales trends as the quarter progressed and what you’re seeing in that current quarter-to-date?

Lee Wright

Yes. Rick, it’s Lee, So clearly, we saw a little bit of a deceleration as we went through the quarter. And as we saw some of the government stimulus that wane with the Cares Act being ended at the end of July, clearly, we’re not giving guidance on the go forward, as we said in our press release. But we don’t expect anything in particular to change from sort of where we stood in the second quarter.

Norman Miller

Yes. From an overall standpoint, I’d say that’s the case and Lee mentioned in his comments, some inventory constraints on the appliance and home office standpoint that hurt us in the back half of the quarter that we are seeing some improvement there, here in August, but as long as we’re maintaining our underwriting, which we are currently at least at that 20%-plus range, we would expect to see same-store sales approximately where they’re at for the quarter.

Nels Nelson

Got you. Also on the credit side, looking at the static loss data we’ve had step-up in cumulative losses in fiscal ’18, ’19 and ’20 vintages, if you could speak to that and how much is — you pick is COVID driven? And where you see the final loss rates on those vintages? And any commentary as to what you might expect for the fiscal ’21 loss rates.

George Bchara

Rick, this is George. I’m not going to comment on any specific vintages. But what I would tell you is that under CECL, as a reminder, we’re now fully reserved for lifetime losses on anything in our portfolio. So unlike the incurred loss model, pre-CECL, any losses that we expect on our existing portfolio are already reserved for in our allowance.

Lee Wright

Rick and just as a follow-up, clearly, one of the things that you’ve seen, I know you follow our credit stats very closely. As you look at what we put into the portfolio in Q2, we feel very good about as we continue to go forward, even turning to pandemic. I think we’re very pleased with the performance we’re seeing of those new originations and again, as the portfolio itself. And you’ve seen those metrics as the entire portfolio, I think, continue to get better even during the pandemic. So we’re pleased with that.

Nels Nelson

Great. And then gross margin. Well, you talked about the mix of driving those pressures. If you could speak to like-for-like categories, if you’re seeing any pressure having to get more aggressive at all with pricing to attract more cash and credit card buyer?

George Bchara

I’d say from a general standpoint, because we don’t break out the specific detail, but the margin deceleration that you’re seeing is not being driven because we’re being more aggressive from a pricing standpoint as we sit here, it is being driven by two primary items. The mix shift, obviously, number one and the deleveraging from a sales standpoint on the logistics side of the house, are really the two primary drivers that are driving the margin change.

Operator

Our next question comes from Kyle Joseph with Jefferies.

Kyle Joseph

Just wanted to touch a little bit more on credit. Obviously, a lot of moving parts with a shrinking portfolio, stimulus and tighter underwriting there. I think you said earlier that you expect net charge-offs to be down this year. Is that on a dollar basis? Or is that on a percentage basis as well, just given the denominator effect with a shrinking denominator?

Norman Miller

The reference was on a dollar basis, Kyle. So we expect charge-offs to be down sequentially for the balance of the year and provision in total for the back half of the year to be down on a year-over-year basis.

Kyle Joseph

Got it. And then in terms of your reserve level from here, obviously, you talked about reserve for lifetime losses, but given the credit performance, delinquencies, a little bit of uncertainty surrounding stimulus. Can you give us a sense for — are you expecting kind of the reserve level to hang around where it is?

Norman Miller

As a percentage, I would say that it’s going to be flat to declining in the back half of the year as we see the benefits of better performing new originations in the portfolio. The bigger driver, though, as you know, is going to be the level of the balance of the portfolio.

Kyle Joseph

Yes. Got it. And then since stimulus ran out at the end of July, have you seen any noticeable changes in terms of credit performance August or early September?

Lee Wright

Kyle, it’s Lee. So again, as Norm stated, we’ve been very conservative of what we’re booking in originations because of the pandemic. So we haven’t seen anything from a new booking. The only thing that we have seen is from a payment rate. Clearly, you saw, we laid out in the investor deck, the enhancement of the payment rate over prior year. We have seen that come down a little bit, but still strong. So we’ve been pleased with the combination of collection execution, which has been very impactful, but also the fact that we did get that government stimulus. But as we get further from that, our expectation is that will come down some.

Kyle Joseph

Got it. And then last question for me. If I recall, I think you guys tightened underwriting a bit, at least in the fall of last year. I’m just trying to get a sense for kind of when we lap the underwriting changes in terms of supporting the comp?

Lee Wright

Yes. So Kyle, that’s correct. In the fall, we did do some tightening last year. So we will lap that as we come in…

Norman Miller

It’s really October.

Lee Wright

Yes. It’s really October…

Norman Miller

October, November time frame.

Operator

Our next question comes from Brad Thomas with KeyBanc.

Unidentified Analyst

This is Andrew on for Brad. We were encouraged by the online growth in the quarter. Could you talk about online as a percentage of Conn’s credit portfolio? And how do you think about this impacting profitability of the credit business going forward?

Norman Miller

I’ll take the first pass at it, then Lee can add any comments he wants. It’s about 2%. It’s been running between 2% and 3% of balance of sale, for our business here, which is up materially, as you heard, over 70% from prior year. We believe, ultimately, it can be a 10% of our business in total from a profitability standpoint. And actually, we charge the same pricing from a credit — and online for the most part that we do in store. So we don’t see a significant drop from a margin standpoint with our online business that other retailers do because of the financing element of it.

Now because of the fact from an underwriting standpoint with Conn’s financing, although we do business with Conn’s financing online. We are much tighter online than we are in the stores to ensure from a risk standpoint, that we don’t have issues with the portfolio, but the ultimate profitability overall because of the tight underwriting, is similar to what we see in store.

Unidentified Analyst

Understood. Thanks for the detail there. And then with progressive increasing to 8.4% of your overall financing mix, could you talk about how that relationship is playing out and how you expect it to evolve over the coming quarters?

Lee Wright

Yes. I mean, clearly, we’re happy that it’s up. We still think there is significant opportunity for more. Obviously, as we talked about with tightening 20%, we think there’s a lot of opportunities for our lease-to-own partner. So we think there should be additional growth there and opportunity.

Unidentified Analyst

Got you. And then my last question is, we appreciate the details that you all provided on the underlying sales drivers for the quarter. But could you talk about the types of customers you’re seeing and how average selling price is changing? And then has this changed at all as you moved into August?

Norman Miller

What I’d say is from a — we have seen a reduction from an overall ASP, but it’s driven by the mix shift from a category standpoint. If you look historically, appliances, have a lower average sales ASP than our furniture and our mattress categories. So we have seen pressure from an overall ASP, but it’s being driven by two things predominantly. Number one, the shift to appliances as a larger mix of our overall sales. Plus the tighten underwriting, one of the major things we’ve done from an underwriting standpoint is to reduce risk is lower overall credit limits across the credit spectrum. So that has resulted in all of our categories with some lower ASPs, but that’s driven proactively by us to mitigate risk with the portfolio.

Operator

Our next question comes from Bill Ryan with Compass Point.

Bill Ryan

A couple of questions. First, thinking about the underwriting side of the equation. Was there any incremental tightening that took place in the second quarter? And the thought process behind that is, I believe you said in May, in-house finance sales was kind of in the 57% range and I think it closed out the quarter in the 49-ish, 50% area. So I was wondering if there’s any incremental tightening that took place during the course of the quarter?

Norman Miller

No, most of it was done at the very end, there was almost nothing done in the second quarter was at low 20% range from an underwriting standpoint, the whole quarter, Bill.

Lee Wright

Yes. Bill, the one impact that you do get, obviously, as we’ve made those changes. It takes a little bit of time. They do our customers do have an open time period to use their credit. So that does have a little bit of flow through. So it’s probably some of the effect you saw.

Bill Ryan

Okay. Okay. That’s helpful. And then kind of segregating the provision. I’m just trying to put everything together for modeling purposes going forward. You’ve definitely tightened credit. You’re seeing some good results from it. You kind of implied that the provision or call to the reserve level is going to remain flat to maybe slightly lower going forward, but with the tighter underwriting standards. It seems like it should be coming down. So sort of what the thought process is on that. And then, if you can be more specific, I’m not sure if you can, but the specific provisioning rate that you’re looking kind of within a range on some of your new originations given the tighter underwriting?

George Bchara

Bill, this is George. The way you described the thought process around the allowance percentage for the back half of the year makes sense. Obviously, the environment right now is still uncertain. And so that’s why we characterize it as flat to slightly down. In terms of the specific provision rate or percentages, we’re not providing guidance at this time, but I think that gives you enough to think through the modeling for the back half of the year.

Operator

We have reached the end of the question-and-answer session. And now I will turn the call over to Norm Miller for closing remarks.

Norman Miller

First, I want to thank everyone for their interest in the company and their participation on the call. We also want to take another opportunity to thank all of our associates across 14 states we do business and in our headquarters and call centers for their work there in these challenging times, it’s been remarkable. We look forward to talking to you at the next earnings call. Thank you.

Operator

Thank you. This concludes today’s conference. All parties may disconnect. Have a great day.

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