PROG Holdings, Inc.

Thank you, and good morning, everyone. Welcome to the PROG Holdings fourth quarter 2024 earnings call.

Joining me this morning are Steve Michaels, PROG 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 investors.progholdings.com.

During this call, certain statements we make will be forward-looking, including comments regarding our 2025 full-year outlook, and our outlook for the first quarter of 2025, the health of our portfolio, and our expectations for write-offs for our progressive leasing segment for 2025, our expectations regarding GMV for 2025, and our capital allocation priorities including our ability to continue returning capital to shareholders. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today, all of which are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements.

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 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 company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provide these measures to investors to help facilitate comparisons of our operating results with prior periods and to assist them in understanding the company's ongoing operational performance. With that, I'd like to turn the call over to Steve Michaels, PROG Holdings' President and Chief Executive Officer.

Steve?

Good morning, and thank you for joining us as we review our fourth quarter and full-year 2024 results, which approximated the high end of the outlook we provided in late October. We will also share our insights into 2025 and discuss the strategic initiatives we are executing to drive sustainable growth in the years ahead.

2024 was a year of outperformance as we delivered better than expected GMV growth while effectively managing the lease portfolio and optimizing costs. Progressive Leasing's GMV grew 7.3% to $1.93 billion driven by initiatives across sales, marketing, and technology, and further supported by tighter approval rates from lenders higher up in the credit stack.

Despite challenges in the broader retail environment, including the bankruptcy of a major retail partner in September, we again gained balance of share with key partners, onboarded new retail relationships, and expanded our customer base through direct-to-consumer marketing. Looking ahead, we remain focused on expanding customer acquisition, increasing lifetime value, and driving sustainable long-term growth.

Progressive Leasing's gross margin was lower in 2024 compared to 2023 driven by higher delinquencies, particularly within our new customer cohort, and a higher percentage of customers opting for 90-day purchase options. This comparison was made more difficult due to historically low levels of 90-day early purchase options and above-average payment performance in 2023.

That said, optimized decisioning and disciplined spending contributed to strong financial performance. Adjusted EBITDA for Progressive Leasing reached 11.8% for the full year 2024, within our targeted annual range of 11% to 13%.

Pivoting to Q4, we are pleased with our performance as Progressive Leasing delivered a 9.1% year-over-year GMV growth reflecting consumer demand for our lease-to-own offering. We achieved these results despite ongoing demand challenges in the big-ticket consumer durable space, where we believe our larger retail partners continue to have negative comps.

Q4 Progressive Leasing revenue grew 6.3% driven by a larger lease portfolio balance entering the quarter, up 3.8% as of September 30, 2024, compared to being down 9.6% at the same time last year. Our portfolio performed in line with expected yields, and we successfully managed write-offs within our targeted 6% to 8% annual range.

However, Q4 2024 write-offs came in at 7.9%, slightly above expectations, due largely to higher delinquencies, including from new customer acquisitions. While new customer growth, which accelerated since Q2 2024, is a positive trend for long-term expansion, a portion of these customers exhibited higher delinquency rates impacting portfolio performance in the quarter.

As we gain deeper insights into this new customer cohort, our decisioning team continues to refine and optimize approval strategies in ways expected to ensure sustainable profitable growth. As a result of the higher delinquencies, we implemented targeted tightening measures in Q4 2024 and again since the beginning of this year, which will create some headwinds for GMV in 2025.

At a consolidated level, Q4 adjusted EBITDA increased 7.7% to $65.7 million, and non-GAAP diluted EPS grew 11.1% to $0.80 per share, both of which were at the high end of the outlook we gave in October. These results demonstrate the effectiveness of our growth initiatives, portfolio management, and operational efficiencies gained through cost reduction measures executed in Q1 2024.

I am proud of our team's execution and confident in our ability to build on this momentum in 2025 and beyond. I'd like to highlight that our 2024 efforts resulted in a 6.1% increase in our gross leased asset balance, a significant improvement from the 5.2% decline at the start of 2024.

While we remain mindful of the headwinds ahead, we are optimistic about again achieving GMV growth in 2025 through effective execution and growth-focused initiatives across sales, marketing, and technology. We will advance our three-pillar strategy to grow, enhance, and expand, positioning us for sustained success in the years ahead.

Now I'd like to provide insight into a headwind considered in our 2025 outlook. One of our large retail partners, Big Lots, filed for bankruptcy protection in the second half of the year and commenced liquidation efforts in December.

We have accounted for this impact in our GMV projections, reflecting approximately flat GMV for the first quarter. Additionally, I would like to point out the significant role our long-standing partnership with Big Lots has played in driving profitability.

Their high rate of repeat customers, strong presence in the furniture category, which typically carries higher margins, and a customer base that's skewed more heavily toward baby boomers and Gen X, all contributed to above-average financial performance for the portion of Progressive Leasing's portfolio originated through Big Lots. These factors will present margin headwinds in the near term as we adjust to shifts in our portfolio mix.

Lastly, while our cost structure remains highly variable, the decrease in revenue due to Big Lots' bankruptcy combined with our investments in marketing and technology to drive growth will result in slight SG&A deleverage for Progressive Leasing as a percentage of revenue in 2025. Despite these pressures, we remain committed to executing our initiatives, focusing on what we can control, including implementing marketing efforts to retain former customers of Big Lots within our broader network of retail partners.

We believe these actions will enable us to effectively address challenges and drive growth in 2025. Excluding the impact of Big Lots, we anticipate GMV growth in the high single digits across the rest of the Progressive Leasing business.

Moving to strategy, under our grow pillar, we remain focused on expanding our retail partnerships across regional and national markets, strengthening our direct-to-consumer efforts, and increasing e-commerce penetration. In 2024, we signed a long-term exclusive partnership with a large regional retail partner, and over the last two years, we successfully renewed almost 70% of our Progressive Leasing GMV to multiyear exclusive contracts, with approximately half of all GMV under contract into the 2030s.

With these key renewals in place, we can continue to focus on deepening integrations and accelerating our initiative roadmap with these partners to drive future growth. For 2025, we also plan to make incremental investments in our marketing strategy, which has a proven track record of driving customer acquisition and profitable GMV growth.

The initiatives include enhancing brand awareness, expanding SEO to boost website effectiveness, advancing personalized lifecycle marketing, launching PROG-branded campaigns within our partner ecosystem, and strengthening direct-to-consumer efforts through PROG Marketplace. Our retail partners recognize the value of these marketing efforts, which not only help acquire new customers but also reengage and retain existing ones.

One of the standout achievements in 2024 was the exceptional growth of our PROG Marketplace platform, which empowers customers to shop anytime, anywhere, through our mobile app. The platform nearly tripled in GMV, far exceeding our 2024 goal of doubling year-over-year.

As a complementary channel to our retail partners, PROG Marketplace drives incremental traffic and sales while also fueling Progressive Leasing GMV direct-to-consumer initiatives. Looking ahead, we remain committed to further expanding the channel in 2025, with a goal of surpassing $75 million in GMV, reinforcing our multichannel growth strategy and enhancing customer engagement.

Under the enhanced pillar, our product and tech investments are focused on elevating the customer and retailer experiences. For customers, we are enhancing personalized web content, streamlining the application process, improving how customers browse and shop for products, and optimizing the lease lifecycle experience.

Our goal is to drive customer engagement, increase retention, and strengthen long-term relationships. Our ongoing efforts to enhance the customer experience combined with our marketing strategies resulted in approximately a 13% increase in new customers and a 9% increase in reactivated customers for Progressive Leasing in 2024, while we maintained repeat customer contributions to GMV.

As a reminder, we segment customer activity into three groups: new, repeat, and reactivated. We define reactivated customers as previous customers that last funded a lease more than 24 months ago.

This segmentation allows us to tailor our marketing strategies to each group's unique needs and behaviors. For retail partners, we are investing in faster onboarding, expanded ways to acquire new customers, and self-service tools that provide deeper insights into the retail partners' lease-to-own customers and help them better manage their LTO business.

We believe these enhancements will drive business growth for our partners and strengthen long-term customer loyalty. Also, under our enhanced pillar, PROG Labs, our R&D group, is driving innovation through generative AI to boost employee productivity and elevate both retailer and customer experiences.

In 2024, we rolled out OpenAI's enterprise ChatGPT, developed AI-powered applications to streamline operations, increase efficiency, and free up internal resources to focus on higher-value initiatives. This included an AI-powered assistant for employee self-service on policies and benefits, as well as an AI-driven training platform that equips our sales team with retailer-specific materials, enhancing compliance and improving customer conversion rates.

To improve customer engagement, we introduced a generative AI-powered chat pilot in Progressive Leasing and launched the chatbot-driven self-service experience for our PRG Ventures Money App cash advance product. These AI assistants help customers better understand our offerings, reduce friction in the user journey, and minimize reliance on the contact center for routine tasks.

Encouraged by early results, we aim to expand these capabilities in 2025. Looking ahead, we are committed to leveraging AI across multiple areas of our business to enhance the customer experience, personalize recommendations, and drive higher engagement, ultimately fueling GMV growth.

Additionally, by improving employee productivity and reducing fraud, AI-driven efficiencies are expected to help us optimize servicing costs and strengthen operational performance. Under the expand pillar, our multiproduct ecosystem empowers more customers on their financial journey.

Our goal is to create meaningful value for customers by anticipating their needs and offering solutions that reduce friction in their financial experiences. This ecosystem is designed to increase customer lifetime value while also driving incremental GMV for Progressive Leasing through cross-selling opportunities.

Our other operations for reporting purposes, which includes two key entities within our ecosystem, made significant strides in 2024 towards achieving profitability, delivering an over 40% or $7 million improvement compared to 2023. This progress reflects our disciplined execution and the strong momentum within these businesses as we drive sustainable growth.

For Technologies, our buy now pay later solution tripled its GMV in 2024, reaching just over $300 million. Forre's proprietary platform empowers shoppers with flexible payment options, allowing them to purchase merchandise through four interest-free installments.

Shoppers use Forre to purchase furniture, clothing, electronics, health and beauty products, footwear, jewelry, and other consumer goods from retailers nationwide. Entering 2025, we expect to scale Forre by more than doubling its GMV once again, further integrating it within our ecosystem and maximizing its contribution to our overall enterprise value.

We continue to drive innovation through PRG Ventures, our division dedicated to developing and scaling new financial products to enhance our core lease-to-own business. Our ventures team introduced Build, a personal credit-building product, and the Money App, which provides short-term cash advances in 2023.

In 2024, Money App made significant strides. We successfully launched a mobile app, expanded our unique customer base year-over-year, piloted an AI-powered chatbot for automated customer support, and achieved unit-level profitability in Q4.

Looking ahead to 2025, we are focused on growing and improving the Credit Builder product on a new proprietary tech stack and driving further expansion of our cash advance program. Our goal remains the same: to provide innovative financial solutions that empower our customers and increase customer lifetime value.

While Brian will provide more detail on our 2025 outlook, I'd like to share our perspective on the macroeconomic backdrop as we enter the year. Similar to the past two years, financial pressures remain a challenge for our consumers.

While the rate of inflation eased some in 2024, household budgets are strained by higher costs of living for necessities such as housing, utilities, and food. As always, we maintain a dynamic decisioning posture supported by a short four to six-week feedback cycle, allowing us to swiftly adjust to customer and portfolio health trends.

Our proprietary machine learning decisioning models continue ensuring we remain agile and responsive to market conditions. While the bankruptcy of a large retail partner, broader retail challenges, particularly in jewelry, furniture, appliance, electronics categories, and financial pressures on our customers impact near-term results, we believe these are manageable headwinds.

We will navigate these challenges through expansion with existing retail partners and new business development. Our pipeline remains strong, and we are actively executing strategies to drive growth and strengthen our market position.

Our capital allocation priorities remain unchanged. We expect to reinvest in the business, pursue targeted M&A opportunities, and return excess capital to shareholders through dividends and share repurchases.

We believe our business will generate meaningful free cash flow in 2025, providing us with the flexibility to invest in growth initiatives as well as return excess cash to shareholders. As mentioned earlier, our reinvestment strategy focuses on initiatives of Progressive Leasing, as well as expanding our buy now pay later business, Forre.

In summary, 2024 was a successful year as we delivered growth across both our national and regional businesses. We gained balance of share with key retail partners and onboarded new retailer relationships.

We invested in sales, marketing, and technology that drove growth in 2024 and positioned us for success in 2025 and beyond. We made excellent progress on our multiproduct ecosystem strategy and demonstrated the value of our cross-selling opportunities.

I'm extremely proud of the team for their dedication and execution, and I look forward to building on this momentum in 2025. I'll now turn the call over to our CFO, Brian Garner, for more details on Q4 results and the 2025 outlook.

Brian?

Thanks, Steve, and good morning, everyone. I will begin with a summary of our Q4 highlights.

We are pleased to report that we delivered impressive GMV growth as revenues, adjusted net earnings, and non-GAAP EPS approximated the high end of our outlook. As Steve mentioned, 2024 was a successful year marked by better than expected GMV growth, a portfolio managed within our annual 6% to 8% write-off target, and a disciplined approach to cost management.

The effective execution by our teams implementing multiple strategic initiatives, as well as favorable macroeconomic conditions including the tightening of the credit supply above us, allowed us to deliver strong results for the business. Moving to Q4 results.

Beginning with the Progressive Leasing segment, Q4 GMV grew 9.1% year-over-year as we improved our balance of share within key retail partners, driven in part by tighter integrations with their retailers and reduced friction in the application process. The GMV in the period contributed to an increase in portfolio size, which ended the year up 6.1%.

Revenues for Progressive Leasing grew 6.3%, primarily due to a larger portfolio size throughout the quarter, aided by 9.1% growth in the fourth quarter GMV. As Steve mentioned, customer payment performance was slightly more challenged than we expected, and 90-day early purchases remained elevated in Q4 compared to historical lows in 2023.

We saw an increase in the percentage of new customers who, as we expected, have lower financial performance compared to our repeat customer base and are more likely to opt for a 90-day purchase option. As a result, Q4 2024 gross margin for Progressive Leasing was 31.9%, 100 basis points lower than the same period last year.

Our provision for lease merchandise write-offs for Q4 was 7.9%, bringing full-year write-offs to 7.5%, both of which were within our stated 6% to 8% annual target. Q4 2024 write-offs at 7.9% were higher than our expectations as delinquencies increased modestly in Q4, which combined with our accelerating portfolio growth, led to an increase in write-offs.

Our team is proactively making adjustments to our dynamic decisioning models, which have included targeted tightening measures in Q4 2024 and again since the beginning of the year, as we aim to deliver write-offs for 2025 within our target annual range of 6% to 8%. Progressive Leasing's SG&A expense was $82.4 million, a decrease of approximately $1.3 million or 1.5% compared to $83.7 million in the same quarter last year.

As a percentage of revenue, SG&A decreased by 111 basis points year-over-year from 15% of revenues in Q4 of 2023 to 13.9% of revenues in Q4 of 2024. This SG&A improvement largely benefited from restructuring actions taken in Q1 of 2024, combined with revenue growth.

We are always seeking to drive operational efficiencies while maintaining critical investments and growth initiatives. Adjusted EBITDA for Progressive Leasing in Q4 was $65.8 million and 11.1% of revenue.

This adjusted EBITDA margin reflects a 70 basis point decline compared to 11.8% in Q4 of 2023, primarily due to higher 90-day purchase options and lower customer payment performance, partially offset by SG&A restructuring and discipline throughout the year. Pivoting to consolidated results, Q4 non-GAAP EPS came in at $0.80 at the top end of our outlook.

Consolidated revenues rose 8% to $623.3 million, primarily fueled by the growth within the Progressive Leasing segment, followed by the great momentum in our core business that Steve mentioned. Consolidated adjusted EBITDA increased 7.7% from $61 million to $65.7 million, driven by the improvement of profitability of Forre and PRG Ventures.

Moving to the balance sheet, we ended the fourth quarter of 2024 with $95.7 million of cash and gross debt of $650 million, resulting in a net leverage ratio of 2 times trailing twelve months adjusted EBITDA. At the end of 2024, we had $50 million of outstanding borrowings on our $350 million revolver, which we fully repaid by the end of January 2025.

Our business continues to demonstrate strong cash flow generation. In 2024, we generated $138.5 million in cash from operations.

As part of our ongoing commitment to return excess capital to shareholders, we paid a quarterly cash dividend of $0.12 per share in November and actively repurchased shares. During the quarter, we repurchased approximately 860,000 shares at a weighted average price of $47 per share, bringing our total repurchases in 2024 to 3.5 million shares at an average price of $39.80 per share.

We currently have $361.4 million remaining under our $500 million share repurchase program. We remain committed to a capital allocation strategy that balances strategic investments with meaningful shareholder returns.

I'll now touch on some key aspects of our 2025 outlook. As outlined in this morning's earnings press release, we're entering 2025 with Progressive Leasing's gross lease asset balance up 6.1% year-over-year.

This portfolio growth combined with our expectations that Forre will more than double its GMV should support consolidated revenue expansion in the low to mid-single digits. However, we anticipate some GMV headwinds for Progressive Leasing, reflecting the impact of the Big Lots bankruptcy, expected macroeconomic challenges, and lower approval rates year-over-year.

Specifically, first-quarter Progressive Leasing GMV is expected to be roughly flat year-over-year. However, excluding Big Lots GMV results from both periods, GMV growth for the rest of the business is expected to be in the high single digits.

Our portfolio performance is expected to remain within target yields as we actively manage decisioning dynamics. However, Progressive Leasing's gross margin will face a difficult comparison during the year as we work through higher delinquency rates exiting 2024 and the diminishing impact of the Big Lots portfolio, which had an above-average profitability profile.

We anticipate Progressive Leasing's provision for leased merchandise write-offs to deliver another year of consistent performance within our target annual range of 6% to 8%. Progressive Leasing's SG&A expense is expected to deleverage slightly year-over-year as we continue investing in the business.

We remain committed to driving efficiencies by eliminating unnecessary costs and taking a portfolio approach to cost management, ensuring that we prioritize initiatives to optimize return on investment. Turning to the consolidated outlook for 2025, we expect revenues to be in the range of $2.52 billion to $2.59 billion, adjusted EBITDA in the range of $260 million to $280 million, and non-GAAP EPS in the range of $3.10 to $3.50.

This outlook assumes a difficult operating environment with soft demand for consumer durable goods, no material changes in the company's decisioning posture, an effective tax rate for non-GAAP EPS of approximately 28%, no material increase in the unemployment rate for our consumer, and no impact from additional share repurchases. In closing, I want to thank our employees for delivering outstanding results despite a challenging and evolving consumer environment.

Their dedication and execution will drive our success, and I look forward to a great 2025. I will now turn the call back over to the operator for the Q&A portion of the call.

Operator?

Hey. Good morning, guys.

Thanks for taking my question. Just want to pick your brain.

You know, obviously, we've seen a number of bankruptcies in the furniture space and some shakeout for that industry. And, obviously, it's been a challenging time.

Just want to get your sense for, you know, how you see the industry evolving over time and implications for the VLTO sector? Does it become kind of more of an online industry or, you know, what's the shakeout from all this?

Yeah, Kyle. Good morning.

Yeah. That, I mean, that's a difficult crystal ball.

There's certainly been some challenges as is well documented coming out of the pandemic and soft demand in that space. And clearly, depending on the capital and the balance sheet of the provider, the fixed cost of having a lot of stores can be difficult.

But there's been some supply, you know, or some stores leaving the system. So my, you know, I would expect that the demand that is out there will be spread across the remaining players.

I mean, overall, all categories are shifting more online. But I don't think I would not say that our call is that stores are going away.

Stores are still going to be an important part of the omnichannel experience for our customers and shopping generally. As it relates to VLTO specifically, we're going to try and be where the customer is.

And if the customer navigates online, we'll be there for them. But it's our expectation or mine personally that it'll continue to be a multichannel journey for the customers, and so we need to have a good solution across those channels in-store and online.

Got it. And then, in terms of, like, the guidance factors, I think you guys talked about expectations for demand to remain weak.

I mean, if you peel back the onion a little bit, you know, obviously, furniture is facing some headwinds, but are you seeing any sort of any verticals where you're seeing kind of signs of life?

Yeah. Signs of life is an interesting phrase because I think I said last quarter that less bad is the new up, and you know, we're continuing to kind of track that.

We talked to our retailers. We're fortunate to partner with some, you know, world-class retailers and some of the largest in the country, and we talked to them, and they certainly have operator optimism, but no one's really calling for, you know, for gangbuster results this year.

So we continue to wait for that replacement cycle to kick in on certain categories. You might see some signs of life in consumer electronics.

And we've had a pretty good run in mobile phones, smartphones, which didn't really wane that much even post-pandemic. So the categories are still tough, but we're really proud of the fact that we've grown through that and gained balance of share and become more important and better partners for our retailers even in the face of those tough comps.

Great. Thanks.

And then, just one last one from me as we work through tax refund season. I think it was two years ago, if I'm not mistaken, where you guys saw less early buyout activity, but good credit performance through tax refund season.

Just give us a sense of, you know, how things are trending in terms of, like, early buyouts, versus, you know, credit performance as we work through tax refund season this year. And what I've heard so far is that it's a relatively normal tax refund season, whatever that means these days.

Yeah. Whatever that means.

That's the way to wrap it up. Yeah.

We're not really commenting on Q1 so far. And we've read, you know, a lot of the reports on tax on the tax season.

And how it might, you know, the average refund might be up, but it's the big drop there'll be a decent drop today. No.

Actually, tomorrow because of the President's Day holiday. There'll be a big drop tomorrow.

But we're anticipating the big one to be a week from today. And so we really won't have a lot of visibility into how the tax season's going to play out for another several weeks.

But I think what you said is right. We're anticipating a, air quotes, normal tax season.

Great. Thanks very much for answering my questions.

Thanks, Kyle.

Good morning. This is Alessandra Jimenez on for Bobby Griffin.

Thank you for taking our questions. First, I just wanted to hit on the 2025 revenue guidance a little bit more and some of the puts and takes there versus the strong GMV reported in 2024.

Can you give a little bit more color on the implied Big Lots drag to the 2025 top line for the full year? And then are there any other headwinds you're including in the outlook?

Yeah. Let me start with Big Lots.

And we talked about it in the prepared remarks, obviously. I think that the takeaway from a GMV standpoint is that we said that in Q1, we don't guide the full-year GMV.

Obviously, there's a GMV expectation embedded in our revenue guide, but we don't guide to full-year GMV. But we did say in Q1 we expected to have flattish GMV, but excluding Big Lots from both periods, it would be up high single digits.

So just to do a little math for you to make it easier, if you were to do the math on depending on your definition of high singles, you do the math, it's kind of like a mid-thirties GMV number for the quarter. And Big Lots did not have a tremendous amount of seasonality due to it wasn't really a holiday-type furniture retailer.

So for us, at least, not in their furniture category. So it's pretty safe to annualize that number so you can kind of get into the $135 million to $150 million GMV range.

And you know, that's obviously a big number to replace. And I'll remind everybody that, you know, when we talked in October, that was not the expected disposition of Big Lots.

At that time, we expected that there was a sale process that would go through and they were going to successfully exit bankruptcy, having been purchased and having about 900 profitable stores. And so, you know, expectations were set based on that, and all of that changed the week before Christmas when that sale fell through and they went to a liquidation proceeding.

So there's a decent amount of updating that needs to happen as it relates to the plan. So, you know, the pre-Christmas change put a hole in our 2025 plan that we had to adjust to.

But we're super proud that we're still planning on growing GMV in 2025 and view that as a one-time event that doesn't really change anything about the potential or trajectory of the business or our excitement about the business. So as far as revenue goes, we're not really guiding that, you have your models on how GMV translates, and I think that should be helpful color.

Okay. That's really helpful.

And then just for simplicity purposes, was there minimal impact from Big Lots to Q4? So we should expect kind of an annualized basis for the next four quarters.

Yeah. We didn't have a full quarter in the fourth quarter, I would say, because they had closed some stores.

But, yeah, I think annualizing those numbers I gave are pretty safe.

Okay. That's helpful.

And then second for me, I wanted to follow-up on current customer behavior trends. Have you seen any incremental material change in existing customer behavior, or is it primarily on those new customers, and is it from, you know, the bottom of the funnel customers?

Any kind of clarity there?

Yeah. I would say that there's certainly some stress out there.

Right? I mean, clearly, credit providers generally saw things in their own data during 2024 that gave them reason to tighten.

And we're not immune from those trends. In some ways, we see them earlier than those that serve people higher up in the stack.

And we are seeing and observing pockets of stress out there. And as you said, it's kind of on the bottom end of our portfolio.

They have liquidity pressures, and those things have ended up having our delinquencies a little bit higher. Now there's also a dynamic related to the new customer cohort and their performance.

As you know, it's more difficult to decision a new customer. We have tons of data elements that we can pull, and we do.

But there's no more predictive data element than having past performance and payment behavior from that customer with a repeat customer. And so we're seeing some stress at the bottom end.

We're pleased and happy with the expansion of our new customer base, but there's kind of a near-term impact on that as we figure out the new customers that will turn into profitable repeat customers. And our delinquencies are a little higher than they had been in the previous year.

And we're taking, you know, the appropriate decisioning actions to address those things.

Okay. Thank you.

Turn it over back to you guys.

Thanks for taking my question. I want to dig a little bit deeper into the Big Lots assumptions.

I know I think they're so guess, 200 to 400 stores to another partner. I mean, is there any assumptions around those stores that they are keeping?

I mean, are they outperforming stores versus, you know, the stores that are closing? And, you know, are you assuming maybe any, you know, one-time boost in volume from closeout sales and have a follow-up?

Yeah. I'll start with the end.

I mean, the closeout sale started in December, and are, I guess, wrapping up as we speak depending on the store. We didn't really see a boost in volume related to those going out of business sales.

There was, I would say, spotty inventory positions across the stores. And they were very clear that they were final sales and no returns and exchanges and things of that nature.

So we didn't see much there. On the disposition of the potential of 200 to 400 stores, we're in contact with our counterparts over there at Big Lots.

It's unclear to us right, as we sit here today, what stores will survive and what their approach to actually carrying furniture will be. So I will tell you that in our assumptions, we're not planning on having volume from Big Lots after early this month.

If it turns out that they have 200 plus stores, you know, in a region of the country that are serving furniture, we will certainly partner with them. And that might be a little bit of upside, but that's not in our base case.

I want to stress because I've talked to investors about this over the last year or so. The great one of the good things about our kind of sophistication and evolution over the last several years is our ability to communicate and target our repeat customers.

And I mentioned in the prepared remarks that Big Lots, since it had been a partner of ours for a long time, over a dozen years, we had a lot of repeat customers. And so there's a big opportunity for us to target those and redirect those consumers into other retail partners that we partner with.

And we've already started doing that. We've had some early success.

We intend to do that throughout the year. But we will not replace the GMV dollar for dollar this year because the repeat cadence of a repeat customer for us is, you know, it can be within a year, but a lot of times it's on average about 18 months.

So over time, we intend to keep those customers in the PROG ecosystem and have that in order to the benefit of our other retail partners. But it's not something that's going to happen, like, you know, this quarter or next quarter to replace that GMV.

Thank you for the details. And maybe on the margin, you mentioned that there's going to be some margin headwinds in the short term.

I mean, we saw 2024 margin contracting versus 2023, which was a very good year. I mean, how should we think about the degree of continued margin erosion in 2025 given the Big Lots impact?

Thank you.

Yeah. Hey, Hoang.

It's Brian. I think what we've put out there in terms of on the Progressive Leasing side, of implied margin of the 10.9% to 11.2% is kind of where our guidance falls.

And that's incorporating this Big Lots dynamic. And so, obviously, that's a decline from 2024.

But, you know, Big Lots was, as we indicated, higher than typical margin profile, and we're laying on to that fact. That there are some key internal initiatives around technology and, you know, the growth opportunities that we see that in our estimation, does not make sense to pull the plug on those initiatives.

So we're going to go full steam ahead and drive these initiatives forward here in 2025. And that's going to put, you know, some dollars of SG&A to work that are contributing to some of that margin decline.

But, you know, we're still within the range of our 11% to 13% that we have specified for Progressive Leasing, inclusive of those two dynamics. And so we're obviously, we never want to see margin decline, but I think given the circumstances and what we're doing to compensate for the Big Lots loss, and focus on the long-term growth picture, I think it's, I think all things considered, it's a relatively favorable outcome for 2025.

Got it. And thank you.

Good morning. Thanks for taking my question.

So I guess my first question is on American Signature. My recollection is that, you know, that you didn't start generating any GMV till kind of late in 2024.

And I was just wondering, you know, even just kind of directionally, what your expectation is for the GMV contribution from American Signature in 2025. Thanks.

Yeah. Anthony, yeah, we're really pleased with the partnership with the ASI team.

You're right. We didn't really start to generate much GMV in 2024.

There was some in the kind of back half of the fourth quarter. But, you know, we're partnering well.

We've got great connectivity across the top of the management team, and we're in the stores a lot talking to sales associates. Things are going very well.

And they're adopting the program, you know, above our expectations. And we expect to basically achieve the, you know, replace the volume that they were doing in the past with their previous provider and then take that a leg up.

It'll, you know, it may take a little bit of time to ramp the growth and exceed what they were doing previously, but our 2025 expectations are to replace what they were doing before, at least.

Got it. That's helpful.

And then you talked about the fact that you had this increase in new customers and that led to a bit of a ramp-up in the lease merchandise write-off rate, and you tightened credit. Can you just sort of kind of dimensionalize that just in terms of, like, I don't know, lease approval?

Like, the percentage of lease applications that are being approved or maybe the average lease amount? Like, how should we kind of think about that?

Yeah. Sure.

And there are both of those elements as we talked about before, approval rates and approval amounts. But there's a couple of dynamics that will generally cause us to change our decisioning posture.

And as we've always said, the data informs us on what the appropriate decisions are. We took a few tightening actions in the back half of 2024.

We've done another couple here subsequent to year-end. And our approval rates in the fourth quarter and kind of similarly year-to-date are about 350 to 400 basis points lower than they were at the same time last year.

And there's a couple of things that can impact or affect approval rates. One of which obviously is any action we take to our thresholds and our decisioning algorithms.

But the other two have to do with channel shift. So it could be that you're getting more online apps or, you know, versus in-store, that's going to bring down approval rates somewhat.

This new customer dynamic, we do have a lower approval rate for new customers because of what I said. It's just more difficult to decision them.

But also, one of the things we're seeing is just a, this goes back to maybe the health of the consumer comment, is the quality of the app that comes in. You might have the same number of apps as last year, but the quality of the app might be slightly lower, which could cause us to have lower approval rates without us actually taking any decisioning or tightening actions.

And so all those three kind of bucketed together have resulted in our current posture being about 350 to 400 basis points lower than the same time last year.

That's helpful. Thank you.

Hi. Good morning.

Thanks for taking my question. You know, Steve, you know, I do think that the underlying GMV trends here are still, you know, really encouraging to see.

And, obviously, the loss of Big Lots seems more of a one-time event to us. I guess, I was hoping you could talk a little bit more about, you know, sort of doors and pipeline more broadly.

You know, outside of Big Lots. I know there's a number of furniture stores that have gone under, but do you have any other material, you know, customers that are going away, or what are you seeing on the losses side of the partners and the doors?

Yeah. Thanks, Brad.

Yeah. I mean, it's not this Big Lots is unfortunate, but, you know, it's out of our control.

And as you said and as I said, one-time event. As we look across our large retail partners and you all are aware of who they are, you know, we feel like we're in a good spot.

We can't predict the future, but we don't see any financial distress in those partners. And the fact that we've got them locked up into multi-year exclusivities, some into the 2030s, gives us a lot of confidence that this, you know, the lion's share of our GMV is protected.

I mean, there's always going to be churn in the regions, and it might be a little bit, you know, more pronounced now than it has been historically, but those regionals and certainly in the long tail, the mom and pops, they can kind of come and go. But we're not seeing anything in, you know, in our top ten absent the, you know, after the Big Lots bankruptcy, which gives us confidence in the GMV trajectory and kind of looking past this one-time event and feeling good about what we're delivering in 2025.

Yeah. Yeah.

That's great. And then, you know, we always like to ask you about the pipeline.

Obviously, AMSIG, a big partner ramping up here right now. But how are your conversations going?

And is the backdrop changing at all? Do you feel like 2025 could be a better year for net additions?

Yeah. It's tough to make predictions about that as you guys have seen from my history there.

But I'm bullish and I'm optimistic about where we are and the pipeline cycle and the conversations we're having. I'm not, you know, I'm not predicting that we'll get, you know, some whale this year.

But certainly, that's our goal. And but the conditions are still conducive to other retailers adopting this payment type, and we feel like we're best positioned to deliver that.

So we're working really hard on it, and we feel pretty good about our prospects there.

Great. And then maybe a quick one for Brian.

I understand that questions on free cash flow generation. I understand that, you know, where GMV shakes out will impact free cash flow.

But can you give us a rough sense of perhaps, you know, what you think you could generate this year given the EBITDA guidance you've laid out?

Yeah. We didn't guide the cash generation, but I would say exactly where you were hitting on is the timing of the GMV when it gets generated is going to be a big driver in that cash flow generation.

Especially if it's weighted towards the back end of the year and you're looking for that portfolio to turn over. But I would say there aren't any unique dynamics this year from an operational standpoint that would skew or change our cash flow generation as it relates to our EBITDA generation from historical periods.

So there's not going to be, you know, large items hanging up on the balance sheet or any anomalies on that front that would cause this year to be much different from prior years as a function of EBITDA. I would just add on to that.

I mean, we're really excited about our Forre Technologies business. You know, as we said in the prepared remarks, we tripled the GMV in 2024, and we're planning to more than double it again in 2025.

It's a very short-term loan that turns over very quickly, so it's pretty capital efficient. But they have a very highly seasonal business.

So as Brian said about the timing of the GMV production, there'll be some more capital requirements for the Forre business, but nothing that would change, as Brian said, the overall profile of the company materially.

Very helpful. Thanks so much.

Hey, good morning. Thanks for taking my questions.

Just a follow-up on some prior questions. I guess the first one to talk about some of the trade-down activity and maybe coming from lenders that are above their credit stack.

If you could talk about the opportunities there. And, you know, with GMV having a lot of moving parts this year with Big Lots and also the tighter decisioning, kind of particularly wondering about the application volume that you might be getting in from some of these lenders tightening up if that's growing.

Yeah. I mean, Vincent, we certainly saw the credit slab above us, you know, have a few different cycles in 2024.

We started to see it kind of in Q2 of 2024, and think our position was that kind of as we got into the fall and holiday period that they were about as tight. They weren't going to loosen, but they probably wouldn't tighten again.

We certainly saw application volume from the top of the funnel, and as we said, we were appreciative of that volume. It's helped to drive our new customer dynamic, which we think is healthy for the overall portfolio, even if it does have some near-term impacts on delinquencies because they're new customers to us.

It'll be, you know, we're going to be watching the numbers and, just like you are, on what's going to happen with that credit supply above us in 2025. There are those that are predicting that they may loosen a little bit in the back half.

If that's the case, I hope it's because there's other macro things that are tailwinds, and I think that it will be good for all of us. But the application volume is, we have good trends in application volume.

But outside of the apps that are flowing from the trade-down, as I said earlier, the average quality of the app that we're seeing is a little bit lower than what we saw last year. So not all apps are created equal.

And we watch various points within our application flow and funnel optimization. And trace things from an app start to an app submit to an approval to funded and have different metrics as it relates to what app turns into funded GMV, and we'll continue to refine that and get more sophisticated in where we can have impact at all those different points in the funnel.

So apps are up and strong, but not all apps are created equal.

Okay. That's helpful.

Thank you. And then second follow-up just on that EBITDA margin.

And again, understanding that there's the moving pieces from Big Lots and the delinquencies. Maybe if you can talk about what you think the right long-term EBITDA margin for the business should be.

I mean, it sounds like there's a lot of maybe interesting investments that you could be making in marketing and so forth. And so wondering if maybe you can carry that forward, and if you can talk about the different investments that you do want to be making to drive more GMV.

Thank you.

Yeah. Hi, Vincent.

This is Brian. I think I just start by saying Big Lots winding down from the portfolio does not change our conviction about an 11% to 13% long-term target for EBITDA margin.

And there are levers that we're able to pull internally to compensate. I think, in the immediate aftermath of their bankruptcy, we're going to see some pressures and we'll need to adjust as we go into 2026 and beyond.

So I think, you know, our view of the long-term margin is unchanged given this dynamic. It was certainly a tailwind for us as they had a higher than average profitability profile.

I mean, with respect to the investments, and Steve can jump in here as well, but we have built a long-term roadmap around where our technology aims to be as we look to serve our customer tight integrations and be able to pull friction out of the process and maximize GMV. And those initiatives that we've had our eyes on tackling here in 2025 well before the Big Lots news broke.

I think there is, you know, our estimation is they're as valuable as before. And so we're going to chase these things like ERP is an initiative that we're going through and working through lease management type of enhancements on the back end.

And then tighter integrations with our retail partners. We've seen benefits in 2024 with some large partners where we have pulled friction out of the process and seen conversion improve meaningfully.

And so there's a direct correlation between these investments and the GMV that they drive. And I think it would be a lost opportunity to pull back or unplug from those initiatives in the face of Big Lots going away.

I don't know if you have anything to add there, Steve.

No. I think you nailed it.

Thank you.

Thank you guys for joining us this morning and for your continued interest in PROG Holdings. I want to again thank our entire team for delivering a very successful 2024.

We're very excited about delivering another great year in 2025, and we look forward to updating you in our Q1 call in April.