AAN (2019 - Q3)

Good afternoon. My name is Andrea and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aaron's Inc. Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the conference over to Mr. Michael Dickerson, Vice President of Corporate Communications and Investor Relations for Aaron's, Inc. You may begin your conference. Michael

Thank you and good afternoon, everyone. Welcome to the Aaron's Inc. third quarter 2019 earnings conference call. Joining me this morning are John Robinson, Aaron's Inc. President and Chief Executive Officer; Ryan Woodley, Chief Executive Officer of Progressive Leasing; Douglas Lindsay, President of the Aaron's business; and Steve Michaels, Aaron's Inc. Chief Financial Officer and President of Strategic operations. Many of you have already seen a copy of our earnings release issued this afternoon. For those of you who have not, it is available on the Investor Relations section of our website at aarons.com. During this call, certain statements we make will be forward-looking. I want to call your attention to our safe harbor provision for forward-looking statements that can be found at the end of our earnings release. The safe harbor provision identifies risks that may cause the actual results to differ materially from the content of our forward-looking statements. Also, please see our Form 10-K for the year ended December 31, 2018 and subsequent filings with the SEC for a description of the risks related to our business that may cause the actual results to differ materially from our forward-looking statements. Listeners are cautioned not to place under emphasis on forward-looking statements 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 EBITDA and adjusted EBITDA, non-GAAP earnings and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows 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. Lastly, effective as of the first quarter 2019, the company adopted ASC 842, a new standard related to accounting for leases. In our press release we have added some information to the revenue table to provide you a year-over-year comparison on an equivalent basis. Throughout our call today, we will make comments related to the comparability of certain items with the prior year and assumed in these comments that the adoption of this new standard was made at the beginning of each period compared. With that, I will now turn the call over to John Robinson.

Thanks, Mike, and thank you all for joining us today. While the third quarter was challenging, both Progressive and the Aaron's business accomplished key objectives which we believe significantly improve our long-term prospects for growth. On a consolidated basis, we achieved revenue growth of 8.4% over the same quarter in 2018. This increase is primarily a result of continued strong invoice growth at progressive and the Aaron's business acquisition of franchise locations in 2018 partially offset by the closure of underperforming Aaron's stores in the first half of 2019. Adjusted EBITDA and diluted non-GAAP EPS were $87.1 million and $0.73 per share respectively, both up from the prior year third quarter. The Progressive team delivered another excellent quarter for both revenue and earnings. Invoice volume grew 18.6% over the prior year third quarter due to increased productivity from new and existing retailers, which along with the recent rollout of additional locations should drive accelerating invoice growth in the fourth quarter. We are encouraged by Progressive's consistently strong results and continue to invest in people and systems to deliver future growth. The Aaron's business had a challenging quarter, with negative same-store revenues and a year-over-year decline in adjusted EBITDA, resulting primarily from weaker collections performance. On a positive note, the team was successfully driving customer traffic and sales conversion leading to a 13.7% increase in revenues written into the portfolio. We are encouraged by the team's ability to generate customer demand in both our store and e-commerce channels, which gives us confidence to continue investing in the Aaron's business. We remain conservatively capitalized with a net debt to adjusted EBITDA ratio of less than 0.5 turn and ended the third quarter with available liquidity of over $500 million. Our strong balance sheet provides us flexibility to continue to invest in our businesses, pursue M&A opportunities and return capital to shareholders. During the quarter, we returned approximately $27 million to our shareholders through share repurchases and our quarterly cash dividend. Now, I will turn the call over to Ryan to discuss the Progressive business.

Thanks, John. I'm proud of the team, for delivering another outstanding quarter of invoice, revenue and earnings growth, consistent with trends we've been experiencing for the last several years. Revenues were a record $529 million in the third quarter, up 20.1% as compared to the third quarter or 2018. Revenue growth was generated by the year-over-year increase in the lease portfolio, resulting from consistently strong growth in invoice volume of the last several quarters. In the third quarter, invoice grew 18.6% due to record of $421 million, driven by a 20.5% increase in invoice per active door. The significant increase in invoice per active door was due to a strong year-over-year increases in lease transactions per location in nearly every vertical, contributing to an all-time high level of productivity across the portfolio. While it is difficult to forecast the timing of invoice volume exactly, we are very pleased with our position as we enter into the fourth quarter. We're currently experiencing an acceleration in invoice growth as existing partnerships expand and new partnerships continue to ramp. Our third quarter active door count was approximately 19,900, down 1.6% from the third quarter of 2018. We expect this metric to shift to positive in the fourth quarter as we begin to comp mattress and mobile reductions from the prior year and as the new retail partner locations, we have recently onboarded become active. As previously mentioned however, we believe door count has become less predictive as a leading indicator of future revenue growth, particularly as our overall mix shifts towards larger footprint locations in e-commerce transactions. EBITDA increased by 21.5% as compared to the same period last year, primarily due to the 20.1% increase in revenues. On a consistent accounting basis, EBITDA was 11.9% of revenues, an increase of 20 basis points from 11.7% in year ago period. The EBITDA margin expansion was driven by an increase in gross margin, partially offset by accelerating investments in SG&A to support the growth of new and existing retail partners. Also calculated on a consistent accounting basis, write-offs were 7.7% of revenues in the third quarter of 2019, slightly better than the 7.8% in the year-ago period. As demonstrated by the consistency of this metric, our lease pool performance continues to be strong. And we expect to end the year well within the annual write-off range we previously provided. I'm excited about the momentum we're carrying into the remainder of the year, and I'm pleased with the significant ongoing effort, the team is making to providing the best possible experience for credit challenged consumers. I will now turn the call over to Douglas to discuss the Aaron's business third quarter results.

Thanks, Ryan. You may recall from our second quarter update, the Aaron's business recently launched new marketing and sales programs, designed to drive higher customer traffic and conversion to our in-store and e-commerce channels. The marketing initiative reallocated our spend to direct response programs and brand advertising. The sales initiative was a companywide program designed to further develop our team member selling skills and behaviors. These combined initiatives drove a 13.7% increase in the revenues written into the portfolio, which was the highest quarter in several years and resulted in a sharp increase in deliveries to new customers. Included in this growth was 50% increase in the e-commerce revenues written into the portfolio, which represented approximately 13% of deliveries in the quarter. Because of the success of these initiatives, our recurring per store was higher entering the fourth quarter on a year-over-year basis. While we're pleased with the demand generated from the sales and marketing initiatives, the significant increase in deliveries resulted in in-sufficiently the capacity to handle the elevated workload in our stores. This capacity imbalance created a shortfall in collections performance which had an unfavorable impact on lease revenues and write-offs in the quarter. During the quarter, we addressed this decline by adding collection resources across the system and rebalanced our in-store team members efforts between sales and collections. We're already seeing our collection performance improve as a result of these actions and believe collections will return to a more normalized level as we exit the fourth quarter. Ultimately, our goal is to find the right balance of delivery and collections performance that will generate consistently profitable growth. Despite a significant increase in revenues written into the portfolio and higher recurring revenue per store on a year-over-year basis, same-store revenues in the quarter declined 2.9% due to our collections performance. Given these results, we've adjusted our annual same-store revenues outlook from a range of flat to up 2% to a new range of negative 1% to positive 1%. Adjusted EBITDA decreased $7 million or 21.5% compared to the year-ago quarter. Adjusted EBITDA declined primarily due to the negative impact of collections in the quarter, partially offset by the benefit of increased revenue written into the portfolio and expense reductions related to close stores. Write-offs were 7.4% of revenues versus 5.4% in the same period last year. The increase in write-offs was primarily driven by operational imbalances created by our new sales initiatives, the closure of 155 stores in 2019 and an increasing mix of e-commerce revenues. Despite some challenges, I'm very encouraged by the progress we're making in the Aaron's business including the improved delivery activity experienced throughout the quarter. We continue to invest in key strategic initiatives that we believe will improve the customer experience and drive operational efficiencies. To enable our focus on highest value added activities. I'll now turn the call over to Steve.

Thanks, Douglas. On a consolidated basis, revenues for the third quarter of 2019 were $963.8 million, an increase of 8.4% over the same period a year ago when calculated on a basis consistent with the 2019 adoption of ASC 842. Adjusted EBITDA for the company was $87.1 million for the third quarter of this year compared to $82.5 million for the same period last year, an increase of $4.6 million or 5.6%. Adjusted EBITDA was 9% of revenue in the third quarter of 2019, down slightly from the 9.3% in the third quarter of 2018 on a constant accounting basis. Diluted EPS on a non-GAAP basis for the quarter increased 5.8% to $0.73 versus $0.69 in the prior year quarter. Operating expenses decreased approximately $37.3 million. Adjusted operating expenses in the third quarter of 2018 to be consistent with 2019 reporting, operating expenses would have increased $27 million in the third quarter of 2019 compared to the year-ago period. Approximately half of the increase in operating expenses relates to increases in write-offs evenly split between progressive and the Aaron's business. The balance relates to increased personnel costs of progressive and increased personnel and occupancy costs or the Aaron's business related to the acquisition of franchise stores in 2018. These increases in the Aaron's business were partially offset by the closure of underperforming stores as part of our restructuring actions. During the third quarter, the company reported reconstruction cost of $5.5 million, primarily related to changes in estimates made to prior quarter restructuring activities as well as the planned closure of an administrative building. Cash generated from operating activities was $351 million for the nine months ended September 30. 2019 and we ended the quarter with $150 million in cash compared to $50 million at the end of 2018. During the quarter, we repurchased 399,000 shares of the company's common stock at an average price of $62.61 per share, returning approximately $27 million to our shareholders through these repurchases and our quarterly cash dividend. We remain conservatively capitalized and ended the third quarter with available liquidity of $537 million and a net debt to adjusted EBITDA ratio of less than 0.5 turns. You will note that we have narrowed our outlook for 2019, primarily in response to the shortfall in the third quarter, resulting in a revised 2019 non-GAAP EPS outlook of $3.75 to $3.85 compared to our previous outlook of $3.85 to $4. Finally as you may have seen in our Form 10-Q filed earlier this afternoon, we have updated our disclosure relating to the CID's received from the FTC in July 2018 and April 2019. Because we are actively engaged with the FTC staff on these matters, we are not able to comment on them any further at this time. I'll now turn the call over to the operator who will assist with the question-and-answer period.

[Operator Instructions] And our first question comes from Brad Thomas of KeyBanc Capital Markets.

Hi, good afternoon guys.

Hey Brad.

A couple of questions, if I could. Maybe I'll start with Progressive. I guess could you maybe help us think through the adjustment that you're making here on the full year guidance revenue for Progressive? And maybe talk a little bit about why you are lowering the high end of the range and whether that's coming from partners that are may be more mature versus what you're seeing out of some of your younger partnerships?

Happy for you Brad. Thanks for the question, Ryan here. We're obviously happy with the strong rate of growth in the quarter. It is difficult to get the timing of invoicing exactly right, an opportunity to launch in that pace at which it will grow. It shifted a bit later in the year than we had anticipated when we you would bias the outlook in the second quarter, but that's some very large launches and it takes time to integrate the program and into the store environment and drive awareness among the retail sales associates and customers. And we were very excited about the potential there as well as the ongoing productivity from existing doors. It's both of those -- both existing and new locations that are contributing to the acceleration and invoice graph that I mentioned in the prepared remarks that we are seeing currently in the fourth quarter and leaves us very optimistic about our ability to drive strong growth into the future, but that's essentially what it is. It's just getting the timing of invoice note now and reflecting that in the range of outlook we provided. But we remain very optimistic about what we said.

Got you. And if I could ask a follow-up question around Aaron's business and how you all are thinking about profitability there. I guess the first part of that question would be, Douglas can you help us think about maybe when we look at margins and profitability in the quarter, how much of the missed up this quarter, is maybe execution of some of the initiatives you have rolling out versus the end market being a bit more challenging today?

Sure Brad. I mean, I would say it's all -- if you want to put in execution bucket I would say that, as you know we rolled out a new sales and marketing initiative. That initiative drew a lot more demand into our stores than we had anticipated. We have 14% revenue written into the portfolio which is a very large number and also a big delivery number relative to where we've been and we put pressure on our infrastructure in doing that. And so, as we think about the quarter we feel like we've rebounded from that. As I said in my prepared remarks, we've offsetting impact on collections that we felt in the quarter, but we have been trying to get the business back in balance, but collecting and delivering which we believe we’re seeing signs of and have seen evidence in the last few weeks. So we feel good about the outlook. We don't think we will fully recover until the end of the fourth quarter and get back to normalized collections and the outlook that we've put in place is really reflective of that. It's reflective of getting back in balance through the year and putting through some cost savings that we have put in as well. So we feel like this all on us. The good news is, we've really broken through and found a way to convert the traffic that's coming into our stores and found more productive ways to go acquire the customer. The bad news is, it had a short-term impact on collections which we are reacting to right now. So in terms of external impact, I would say there's nothing it's all really internal.

And Brad this is John Robinson. I would echo what Douglas said. We've -- you've been following us for a while and know that pulling levers to drive traffic and conversion have been something we've struggled with over the last few years. So I'm really pleased with Douglas and the team for finding that lever in the third quarter, but as Douglas said, if these things these changes are difficult or challenging to do them at scale can be a little bit choppy and that's what we experienced, but generally really pleased. But their ability to do that now we got to just find that right balance. And overtime, the businesses has gotten better, but change is now always linear and we just got to keep working hard and really remain optimistic, but this quarter was just a little choppy.

Got you. Thank you. I'll turn it over.

Our next question comes from John Baugh of Stifel. Please go ahead.

Thank you, good evening, John Baugh in. The increase here in the core business of written. I know there the customer count that was down 2.6% still year-over-year and I know you closed some stores. But could you sort of I don't know back to the old DOR or give us a sense of what this means, if not from this quarter maybe ensuing quarters in terms of the comp or the pace of that business assuming collections gets back?

Sure. John, this is Douglas. So yeah, customer counts down 2.9%. I think that's number since Q4 2016. So it's moving in the right direction as you know that number kind of build upon itself in the portfolio business. The reason it's starting to move in the right direction is we added high -- low single-digit into the portfolio in terms of deliveries this quarter and so it begins to move in the right direction. I stated in my prepared remarks, when you not just look at customers, but if you look at the value of the portfolio on a per store basis year-over-year, at the end of Q3, we were actually up relative to last year, which is a very good leading indicator to where same-store revenues can be, if you're up in the dollar amount year-over-year for the same quarter, you just need to collect the money. It would happen unfortunately in this quarter as we didn't collect the money and therefore we cannot book the lease revenue in full, which caused a decline in comp store revenues of 2.9%. I probably believe that when we get our comps back in line and we begin to build on the portfolio and really leverage everything we've learned from our sales initiatives. That has really good outlook for the future as we go forward. We did however lower our comp guidance for this year and that is reflective of the 2.9% decrease we are seeing and the fact that we probably will not get back totally in line with inflation at the end of the fourth quarter.

Okay. And then is there a way to parse out the waiting of the write-offs being higher between the new store program, the store closures and the e-commerce?

Yes, I think as I've mentioned on our last call, we are expecting the new normal to be higher than it's been historically. That's due to a number of things. E-comp just become a bigger part of the business and there's more new customers in the e-com. The promotional strategy and deals that we're originating on Sunday businesses is driving more new customers. So it's natural of a higher charge-off rate. And I think I said in my prepared remarks early in Q&A last quarter that would be the case. On top of that we've also experiencing temporary increase from the close of our of this 155 stores we did in the last nine months. That's just our start to settle out by the end of the year. On top of that, we've also hit the new phase of this quarter we have also introduce this new marketing and sales training, which has caused us to slip back a bit in collections, but we also believe that will normalize by the end of the year. So what I would think in terms of outlook and write-offs is closed merge stores normalizing by the end of the year the sales and marketing initiative normalizing by the end of the year and then you're left with just a higher instance of new customers that makes the e-commerce move forward.

So with that the latter two, if we settle back to a more normalized loss that's going to any range you want to give or because I guess would still be higher given new customer percentage in e-commerce percentage?

Yes. I think we're going to put that in our guidance for next year, but if you look back the comments we have made previously on our calls I think we've kind of got into higher new normalized levels and charge-offs.

Okay. And last one real quickly. I guess for Ryan, I think you gave lot of charge-off number, but did I not see or hear about debt expense and was that in line?

Bad debt was 12 -- I didn't give it in the prepared remarks. Bad debt was 12.9 as a percent of gross revenue versus 12.7 last year, so again very consistent with year-over-year levels and these are similar ranges that we provided previously for lease pool performance. So pleased with what we said there.

And then finally, will we get some, kind of, 2020 color on the progressive in terms of how the new accounts, any preliminary thoughts around how we see a high and lows to be specific impacting next year? Thank you.

We expect that will be in our 2020 outlook but nothing more on that now, John.

Okay, thank you. Good luck.

Thank you.

Our next question comes from Jason Haas of Bank of America Merrill Lynch. Please go ahead.

Great. Thanks for taking the question. I wanted to ask about, how you're thinking about Progressive EBITDA margins as the business mix shift to some of these larger retail partners? I know you won't speak to any specific retail partner, but just generally if you could talk about the puts and takes of these larger partners that would be great? Thanks.

Sure. So happy to. So, we previously provided a goalposts, some expected profitability for the business in the context of an EBITDA range that we said should be between 11% and 13% on a year it's an annual guide that we are provided goalposts in the past and we're obviously well within that that this year trending towards the higher end of that range and expect to be able to continue to live our performance within that range going forward. That's true for the business overall as we think about both the existing, the profitability profile and the existing book as well as how that grows overtime.

Great, thanks. And then as a follow-up, jumping over to the Aaron's business. Could you talk about what's needed to get write-offs back in line with a level that you're more comfortable with? Is there a need for any investment or whether it's OpEx or anything like that additional labor hours trying to get that number back in line? Or is it more just changing I guess, how you're managing the stores and operations? Thanks.

Yeah. Thank you for asking the question. So we’re again really proud of the team for driving such a growth and it was a huge effort. We trained thousands of people and it was a big effort on our part to do that. The big opportunity we saw there was in conversion. We have the customer traffic coming into our store. We just need to be more proficient and disciplined about our sales process to convert that traffic, and I think we proved ourselves, not only we could drive more traffic, but we can convert that traffic. And unfortunately put some strain on the system. We're now in correction mode and what I would expect this collections comes back to a normalize levels, but there will be an offset on deliveries and we just need to balance that. It's really an iterative process to figure out what the right mix is of collection and demand generation in our stores when you have a finite labor source in the stores. We had really good pilots when we first rolled this thing out and we were able to balance and we just need to go back to the disciplines that we put in place in order to do that. Long-term, I see a stabilized collections returning and sustained delivery growth in the business, which is really exciting. What we're doing today is we're actually just trying to get more proficient in training and performance management with the staff we have. We have a number of stores out there that are about driving high deliveries and collecting at the same level that collected in the past and we're learning from them. And we’re really working with our stores that are only doing one of the two things well to try to get them back in balance. We will selectively add labor if necessary, but that’s not our first choice, we think there's a lot of opportunity just in our practices and management oversight and accountability. And ultimately long-term, a lot of what we've been talking about to you guys over the last few years flows into this, which is our business transformation. What we're trying to do with that and number of things we’re beginning to roll out is take labor and task out of the stores, so our stores can focus on selling culture and that's everything from how do we sign up the customer, how do we decision the customer, how do we speak to the customer going forward and ultimately serve as the customers account. If we can make that more efficient for the customer, we can free up time to get to do these conversion opportunities and do both collect and deliver very well.

Great. That makes sense. Thank you.

Our next question comes from Anthony Chukumba of Loop Capital. Please go ahead.

Thanks for taking my question. So my first question just kind of a follow-up to the questions you just answered. So it sounds like I just want to make sure to understand this. I mean, you put in this new sales and marketing training. It sounds like your store employees, you are focusing probably a little bit too much on or had to clearly conversion got better, they suddenly made a lot of deliveries to make. They have to make -- there's a finite number of hours. So it shifted some uptime if they want to spend collections. So first of all, I just want to make sure I understand that right. And then second of, wouldn't that seem to imply that you should be more aggressive on centralized collections, which I know is something that you have tested with some of our concept stores?

Yeah, Anthony. First of all, the way you articulated it is exactly right. We just put a lot of pressure on the finite resources we had in our stores, some we were able to do it, because we have some superstar managers and store employees and others weren’t. You're absolutely right. Centralized collections is one opportunity. Other opportunities are just making it easier for our people and our customers to transact with us and whether it would be autopay or which is recurring payments. We are just making having a better contact strategy with the customer, taking labor out of the model we do that. In terms of centralized collections, we continue to test that. We have it in 20 stores and are continuing down the road. We believe that's a huge opportunity. And one thing we've learned through the processes of centralizing collections is we can build platforms that even before centralizing the labor we can leverage in our stores to be more efficient in what we do. So that's absolutely on our road map and that's what we're working on.

Okay. That's helpful. And then just in terms of follow-up, once again it's a follow-up from other question. So in terms of Progressive going forward, I know that the long -- the EBITDA margin guidance is always been sort of in that 11% to 13%range, but given the volume that you will be adding from these sort of large partners and understanding probably the gross margin will be lower, because these are generally higher credit customers they’re going to de more need the seamless cash. But I would just think with the volume that you're going to be picking up you would sort of leverage some Progressive SG&A and thus the EBITDA margin would improve over time, so I guess I was just a little surprised by 11% to 13% kind of long-term capital to make sure I understood that and if it is really kind of the 11% to 13% why wouldn't it be higher given the leverage of adding despite these large partners?

Thanks for the question Anthony. We continue to believe that this is very large underserved market and as long as that holds true, our bias will be toward optimizing for growth, while maintaining profitability rather than profit harvesting. And I think there are a lot of opportunities yet to be tackled in the market that we can invest in pursuing. And I think our team has done an excellent job of doing that. If you look at our offering to consumers and look at the pace at which it’s evolved over the periods, we've invested a lot in our systems and our scalability, and our field teams sourcing our partner relationships and our product and technology teams. We've just done a tremendous amount to help prepare this business to scale. And I'm pleased that growth is what we're seeing and scaling is a result of all that investment as long as that continues to be true. I think our bias will be toward sustaining profitability as we grow rather than trying to maximize profitability in the current period. That's how we think about it.

Got it. Sorry – and just one last clarification on that. So, is it safe to say, look incremental margins on these new large partners are going to be above the 11% to 13%, but you're going to take that and reinvest that in terms of trying to like you said optimize for growth and try to pick up more white whales, is that a fair way to think about it?

No. I wouldn't say that. I would just say across the portfolio, we've targeted 11% to 13% EBITDA margins and our bias will be to continue to invest in the business as we pursue this very large underserved market, but we don't think about that specific to any one opportunity, just globally we think about attempting to maintain profitability, while pursuing a very large opportunity that remains.

Got it. That's very helpful. Thank you.

Thank you.

Our next question comes from Kyle Joseph of Jefferies. Please go ahead.

Afternoon guys. Thanks very much for taking my questions. I wanted -- it look like you had some pipeline conversion costs at the Progressive segment in the third quarter. Can you give us any sense of the size of those? And then the second part of the question would be what's the lag between revenues from new partnerships versus the upfront expenses in terms of timing?

Yes. SG&A grew by about 40 bps year-over-year which you can think about as being reflective of the investment we've made and the pipeline, growing our existing relationships, as well as those new relationships. And then as we've discussed in the past just by definition all of that investment in product and technology and getting our teams to support those retailers in their retail associates proceeds invoice volume. So, it’s necessarily front-loaded as we think about rolling out those opportunities and then growing them over time and so invoice in revenue will consequently always follow initial investment in those launches.

Got it. And then just talking about Progressive credit, Ryan, I know you said you guys are well within sort of your field goal or goalpost I apologize. But given the pipeline and new conversions, can you give us a sense for your long-term outlook for credit with these new partnerships. Is there any sort of potential for refining -- I know you guys are refining underwriting every day, but kind of refining other areas in terms of underwriting?

We have no current plans to revise the goalpost as we sit here today. Again, we are pleased with how the pools are performing and feel good about delivering performance well within those goalposts as we look to the full year 2019 results. And again our team have got a large number of folks working very hard constantly evolving in decisioning algorithms. I think they're doing a phenomenal job and they're doing it in our very complex environment with ongoing mix across the portfolio and I think their efforts -- the success in their efforts are evidenced in the consistency of those lease performance metrics write-offs and bad debt expense.

Sure. Thanks. And one last from me if you don't might. Given the Progressive growth and the new partnerships you guys have landed and this is kind of a longer term question. I'm just wondering how you guys are thinking about merchandise returns over time and ultimately, what you're going to do with all that merchandise just given the growth and the size that Progressive has become?

Over the years it's been well-defined reverse logistics process credits the operations team that manages that so well. These particles that we have recently had launches in our verticals that we've done business in for many years, we've got quite a bit of experience in doing business in all the verticals. We're currently growing our business and at that sort of incorporated of the processes we've established in the field for reverse logistics. But we don't expect due to material departure from the trends we're seeing there as we look to the growth of the opportunities that we've reached launched kind of business as usual as far as that goes and again testament to the team for managing that well.

Got it. Thanks very much for answering my question.

Our next question comes from Bill Chappell of SunTrust. Please go ahead.

Thanks. Good afternoon.

Hello.

Douglas, on the store issues, just trying to understand maybe when you recognized it inter-quarter, when you started to put out I guess correction plan in place and what sign you've had that things are starting to turn and give you confidence that there will be kind of more normalized by -- I guess 60 days from now by calendar year-end?

Sure. Just give a little bit of timeline. So, we began to train our stores call it early May and finished up at the end of June across thousand some-odd stores and thousands of employees. We began seeing the lift in revenue in July and August. Towards the end of July, we started seeing some softening in collections. We had seen some of this in our pilot early on, but it normalized over time. So, we thought it was just a normal pattern that we're seeing in our pilot batch normalizing over time. In August, when we realize, it was not normalizing as the pilot had, we began applying more resources to it in the form of regional account people who were drilling down dealing with underperforming stores. We had already put a framework in place to start dealing with stores that had fallen out of lines from the beginning of the project forward but we just needed to require more resources, we also acquired more overtime and some more labor into the stores. We'll let fall out with the sort of rebalancing initiative towards the end of the quarter. And I would say – I'm sorry – towards the beginning of October end of quarter, beginning of October. In October we began to see some improvement in collections which is carried over into the first week of November, and that's what gives us confidence to say that, we are moving in the right direction.

Got it. And then Ryan on the Progressive side now that you've have expanded I guess two sizable customers this year. I mean, does that change the velocity of the pipeline, I mean in terms of does that – others that are testing others that are looking to the now have kind of two proof of concept for just closest competitor is doing maybe we should do it or is it really still a case-by-case basis?

Good question. We've had what we consider to be a strong marquee roster of partner for quite some time now. We are very proud of the relationships that we developed over the years, and it's nice to add these to that distinguished list of retailers, and I think it's an evolution we've seen a bit of a virtuous cycle as we've continued to onboard very large partners and they have spoken about the results together. We've driven in their business. I think it's definitely helped, so as you say increase the velocity of the pipeline, increase the scale of your first for sort of feature future conversations and pipeline conversion. Obviously, those are the ones that we recently talked about, have been very significant additions to our platform, and we're very optimistic about the multiyear growth profile those represents for the business. We're also excited about the other opportunities that are in the pipeline. You heard – I mentioned it previously, but it is a very large underserved market and it is a very competitive market that we continue for that opportunity. That said, we have opportunities that are still in the pipeline and are progressing through it, and the team is working hard to convert them. And I'm pleased with the progress they are making.

Got it. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Robinson for any closing remarks.

Thank you. I hope that you have come away from today's call with the same optimism we have about the future prospects for our business. And I'd like to thank our associates, retail partners and franchisees for their dedication to our mission and providing high-quality products to our customers. Thank you very much for joining us today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.