Aldo Pagliari: Overrides are not as dynamic as what they’ve been in the past. Again, that decision is made with the franchisee. They’ve been a little bit more conservative compared to the 2016 to 2019 window. We still think personally that it’s a good bet because we have a lot of metrics behind in process that kind of gives a higher sense of collectibility on things like that as compared to other companies that might be more upstart, so to speak, when it comes to lending to the credit profile of mechanics. But to directly answer your question, our returns are not as high as what they’ve been in the pre-pandemic world. And the charge-offs, I think I made a remark in my prepared remarks. The charge-offs, if you look at the provisions, they’re actually narrower.
I think we’re about 4-point, what was it, $4.4 million difference in the rate of provision. The differential between charge-offs is actually less than that. What drove the provision up a little higher is actually with the significant increase in originations. We, from experience, have to book extra reserve provisions because of that because while everything starts out well, you know there’s going to be a need for some reserves. So the fact that you high originations in the quarter actually drives a higher provision as well. So probably the increase year-over-year is about $1.1 million or so of higher provisions just associated with higher originations. .
David MacGregor: Right. You provisioned pretty aggressively back in 2020, which was to your credit, but you’ve been working that down with charge-offs exceeding provisions for 8 of the 9 last quarters. So kind of getting back now to prepandemic level.
Aldo Pagliari: No, no, that’s what makes the comparison tougher now, David. Exactly right. Probably by the end of Q1 of 2022, the reserve was probably reduced because of the — we finally realized we didn’t need as much as what we had provided for in 2020, 2021. And that’s why I like to use the expression, we’re returning to a more normalized rate of provision, and that’s what you kind of see now.
Operator: Our next question will come from Bret Jordan with Jefferies. .
Unidentified Analyst: This is Patrick Buckley on for Bret Jordan. In the C&I business, are there any other areas internationally to highlight? You’ve spoken about a bit here with the European hand tools. But is the weaker economic environment, the main drag there? Or is something else driving that?
Nicholas Pinchuk: It’s the weaker economics. The U.K. has got a whole bunch of problems, the revolving door prime ministers and so on and that kind of thing. And it tends to be more organized around the Northern parts of that business. I think driven in the fourth quarter pretty much by a lot of banks that was in Europe in the fourth quarter over the fuel situation, and that weighed heavily on the people. And I think the whole idea that the recession is coming, the recession is coming there has kind of hit them. You got China who is like — it’s chaos in China. I mean, those guys went from being 6 weeks in their apartments to all of a sudden, let everything go, come to work with COVID. And 3/4 Quite population, some people say, got COVID.
So I think things kind of went stand still because of the lockdowns in various cities and standstill because everybody is getting it. So that thing has been afflicted. So I’m not sure how quickly it comes back. So you have that. The other international markets like other parts of Asia, like Southeast Asia seen pretty good in that situation. So I think it’s just COVID in Asia, particularly China, and the general sort of combination of recession is coming, fuel angst in England, reemergence of now we’re out of COVID, the Brexit problems reemerge and the whole idea of the war is there kind of cast a pall over Europe. Although lately, I just heard some data that said that GDP is going to grow in Europe higher than other places, I don’t know. I’m from Missouri on that one.
I think Europe is a little weaker than maybe has been reflected in that. . That’s what — and then one other thing you do see is that we have — I think I said this before, we have a strong demand in the critical industries. If we could source a little better, if we didn’t have the varying disruptions of what’s in supply, we could — we would have been much stronger in this quarter and in past quarters. So one of the things that drives both the maybe some of the — cast an overhang on the sales and put some — hang on the margins because of you have to pay for the spot buys and it will always come in. And that’s really in the critical industries where if you don’t realize, there is our custom kits with maybe 200 or 300 items in them, and they must be shipped complete.
So if you don’t have 1 or 2 of them, we can’t ship.
Unidentified Analyst: Got it. That’s helpful. And then maybe could you talk a bit more on the subscription side of the RSI business? How sizable is that today? And how does the growth outlook there compared to ?
Nicholas Pinchuk: The growth outlook is pretty good. the subscriptions are going up. I mean, they’re going up through the roof. But the thing is, remember that you probably — you may or may not realize this, but that the other — the former version, and still we do some of this is, we would sell what we call not subscriptions, but titles. So every 6 months, we come out with a new software addition, and technicians could buy it for their diagnostic unit or not. And we’re transitioning from that sort of every 6 months or every year pop to, okay, pay me every month. And so there’s some balance in that. But software is growing in the situation, and we can see we can see some positivity in that regard. And so that’s one of the things that is starting to help out software in the — help out the RS&I margins.
In fact, I think we want to make sure we focus more on that going forward. So I think that’s one of our great opportunities. We see a lot of opportunity in things like dealership software and independent repair shop software. And the Mitchell 1 business, which we didn’t mention in this, is still growing like clockwork. It’s growing nicely and its profitability is strong. It’s just not up in the double-digit range, but the subscription business is growing nicely.
Operator: And our next question will come from Ivan Feinseth with Tigress Financial Partners.
Ivan Feinseth: Congratulations again on another great year and a great quarter.
Nicholas Pinchuk: Thank you.
