PROG Holdings, Inc. Q4 FY2021 Earnings Call

Good morning and welcome to PROG Holdings Inc.'s Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to John Baugh, Vice President of Investor Relations. Mr. Baugh, please go ahead.

Thank you and good morning everyone. Welcome to the PROG Holdings fourth quarter and year-end 2021 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 investor.progholdings.com. During this call, certain statements we make will be forward-looking, including comments regarding our expectations related to Progressive Leasing's GMV and customer payment trends for 2022, including levels of payment delinquencies and write-offs, our capital allocation priorities including potential share repurchases, and our financial performance outlook for the company, and its Progressive Leasing and Vive segments for 2022, including with respect to revenues, adjusted EBITDA and for the company its GAAP and non-GAAP earnings per share. I want to call your attention to our safe harbor provisions for forward-looking statements that can be found at the end of our earnings press release that we issued earlier this morning. That safe harbor provision identifies risks that may cause actual results to differ materially from the expectations discussed in our forward-looking statements. There are additional risks that can be found in our 10-K that we are filing today, which we encourage you to read. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today and we undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP earnings per share, which have been adjusted for certain items that 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. With that, I will now turn the call over to Steve Michaels. Steve?

Thank you, John, and good morning, everyone. I appreciate you joining us today as we discuss our Q4 and year-end results for 2021, and provide you with some thoughts around our expectations for 2022. 2021 was an important year for PROG Holdings. For those of you on this morning's call who have been following us for a while, you know that 2021 marks our first full year as a stand-alone asset-light fintech holding company. You will also recall, at the beginning of 2021, we stated that we believe our new operating profile and the substantial capital we expected to generate would allow us to reinvest in our business, add innovative products and technologies, and return capital to shareholders, all of which I'm proud to report we accomplished during the year. Highlights from 2021 include achieving GMV growth of 15.8% for our Progressive Leasing segment, more than doubling Progressive Leasing's e-commerce GMV production, and scaling our Vive financial operations to profitability. We also entered the Buy Now, Pay Later pay in Four space, with our acquisition of Four Technologies, and created an R&D group to develop and test new fintech products. Perhaps just as importantly, our Board authorized a $1 billion share repurchase program and we returned significant capital to our shareholders through the repurchase of approximately 17% of our outstanding common stock. I'm extremely proud of our team's efforts this past year in driving exceptional results while helping to position us for success in both the near and long term. We delivered 18.3% growth in Q4 GMV in our Progressive Leasing business as compared to Q4 2020. And GMV performance improved for the full year, resulting in a 15.5% year-over-year increase in our gross leased assets portfolio. This larger portfolio should result in continued revenue growth in 2022. Progressive Leasing's e-commerce GMV grew 45% in Q4 and 151% for the year, representing 15.2% of its GMV in 2021. We expect strong growth in Progressive Leasing's e-commerce business to continue, as we integrate with existing large point-of-sale partners, online carts, and add new partners through our plug-and-play solutions. Our GMV growth in 2021 was driven primarily by our large national POS partners and we expect that growth to continue in 2022. We believe we are well positioned to drive their sales and our GMV in what will likely be a more challenging year for comp sales. We are encouraged as more of our POS partners recognize and embrace the additional business that we can bring them through joint marketing initiatives. In Q4 alone, we deployed tens of millions of co-branded promotional emails, generating traffic to our POS partner stores and websites, which helped them drive sales and us capture additional GMV. Our consolidated Q4 revenues grew 6.8% year-over-year and 7.8% in 2021, due primarily to a larger lease portfolio fueled by strong GMV growth. As the annual outlook we provided in November indicated for Q4, consolidated adjusted EBITDA margin declined to 11.2% compared to the stimulated margins of 15.6% in the year-ago period. We continue to see a return to pre-pandemic delinquency and write-off trends in the fourth quarter, similar to what we experienced in the third quarter, with Progressive Leasing write-offs coming in slightly higher than expected at 6.8%, but still in line with pre-pandemic 2019 Q4 levels. We ended the year with adjusted EBITDA of $388.7 million, an increase of 13.9% over 2020, and an adjusted EBITDA margin of 14.5%. Turning to our balance sheet and capital allocation priorities. We had a very busy Q4. At the end of November, we issued $600 million of senior unsecured notes, which were primarily used to fund our successful $425 million Dutch tender. As we discussed then, there were a number of reasons to take these actions. First, we had a net cash position, which we expected to continue, given our business's strong free cash flow generation; second, it was a good time to take advantage of the low interest rate environment; and finally, we believed our shares represented an attractive value. We also made significant organic investments in Progressive Leasing's technological capabilities, resulting in the launch of plug-ins for many of the largest e-commerce platforms and enhanced online checkout integrations for a number of our key retailers, which we believe makes for a more valuable and lasting partnership. Progressive Leasing also launched a new retailer management platform, PROG Central, which gives our small and medium-sized POS partners a best-in-class tool to manage individual lease details, while helping reduce the time between application and sale. We believe these initiatives will deliver benefits for years to come, and we expect to continue developing complementary fintech products designed to assist our leasing business in capturing a large share of the $30 billion to $40 billion addressable LTO market. By adding new products, we can broaden our customer base, reach a larger number of consumers on a more frequent basis, and increase the overall TAM for our business. Last, but certainly not least, during 2021 we added several seasoned technology, operational, compliance and financial executives to round out our management team and deepen our bench. In addition, we are proud that three new independent directors joined our Board, each of whom brings significant digital expertise, including experience leveraging technology and data to drive meaningful consumer engagement and growth. Before turning to our 2022 outlook, I would be remiss if I did not say that in the short term, the macroeconomic environment remains challenging due to a whole host of issues, including ongoing supply chain disruptions, the national labor shortage, and a steep increase in inflation to levels not seen in decades, not to mention the continuing effects of COVID. Additionally, an uncertain tax refund season due to potential IRS delays and the unknown impact of the recent expiration of monthly refundable child tax credit payments, alongside a lack of two meaningful government stimulus payments made in early 2021 will likely create headwinds for the business in the near term. In fact, as of today, our first quarter GMV is slightly negative year-to-date compared to the same period last year. Turning to our 2022 outlook, which, as you may have seen from our earnings release, we are now dividing into three segments. In the Progressive Leasing segment, we are forecasting revenue growth in the mid-to-high single digits, driven by the larger portfolio that we had at year-end 2021, along with our belief that despite these early macroeconomic headwinds, we will continue to grow GMV in 2022. The decline in adjusted EBITDA outlook is largely explained by write-offs, increasing from 4.8% in 2021 back to our targeted annual range of 6% to 8%. We have been consistent in communicating our expectation that write-offs would trend towards normal levels, as we move further away from stimulus payments, which is what we are seeing in our payment rates and delinquencies. Our near-prime and below-prime customers are currently feeling the impacts of the expiration of stimulus and the increase in inflationary pressures more than prime consumers. Notwithstanding those challenges, from a performance standpoint, we continue to remain confident in our ability to manage our write-offs in the annual range of 6% to 8%, and we are tracking within that range year-to-date. We also expect SG&A to return to slightly higher than pre-pandemic levels in the high 12s as a percentage of revenue, as we continue to invest in technology and product, as well as experience higher compensation costs resulting from the tight labor market across the nation. Our Vive Financial segment had record GMV revenue and adjusted EBITDA in 2021 and I'd like to congratulate the entire Vive team on their great performance. The adjusted EBITDA for 2021 was primarily driven by a release in the provision for credit losses, as the reserve rate dropped to pre-pandemic levels. However, in 2022 we don't anticipate having the same tailwind. Vive's expected revenue growth for 2022 is driven by the higher loans receivable balance that was built up from 2021's strong GMV. The forecasted adjusted EBITDA range shows strong profitability even with the year-over-year reduction due to the 2021 provision release. We expect Vive to remain profitable going forward. Finally, we are providing an outlook for our other operations for the first time. This represents our Four Technologies business, as well as the development of new fintech products. The impact of PROG Holdings adjusted EBITDA from a loss of $15 million to $20 million is almost evenly split between these two areas. As you know, we purchased Four last summer and spent the last few quarters building up the infrastructure and team, while working on portfolio performance and integration into PROG's ecosystem. We believe the Pay in Four BNPL product is complementary to our core leasing business, as we look to grow with existing and prospective POS partners. As we announced last March, we hired a leader to build an R&D team to develop innovative products and technologies that we believe will enhance our offerings. One of the pillars of our growth strategy is to broaden our fintech ecosystem by exploring additional products and technologies that drive frequent customer engagement and loyalty. As I have said before, from a capital allocation standpoint, investing in this type of organic growth through consistent innovation is critical to our long-term success, and our other operations are part of our commitment to that objective. From an overall PROG Holding standpoint, we have been clear that government stimulus helped us record above-average earnings in the last two years. 2022 is the year we expect to return to our historical pre-pandemic 11% to 13% adjusted EBITDA annual range, which means a pause in the earnings growth we have delivered for many years. Our forecast for the performance of our portfolio across our businesses is an expected and natural result of a return to a more normal operating environment. However, we continue to be excited and optimistic about the opportunity in front of us for 2022 and beyond. Our existing POS partners are committed to our product more than ever before and our new partner pipeline is robust. We expect strong growth in the number of new e-commerce and brick-and-mortar partnerships, which we believe will lead to GMV growth in the years to come. We're particularly excited about the initiatives our R&D team is working on and we believe they have the ability to assist us in capturing more of the large total addressable market. Our people, products and scale give us an advantage in the marketplace, which is evidenced by the strength of our retail partner network and our best-in-class customer satisfaction and NPS scores. Finally, I want to take a moment to recognize the great work from our entire PROG team over the busy Q4 and for all of 2021. We believe in people above all else and I'm happy to share Progressive Leasing was named one of the best places to work in both Utah and Arizona, our two largest states from an employee standpoint. I know and appreciate what the entire team accomplished this year, and I'd like to thank you all for your hard work and dedication. I will now turn the call over to our CFO, Brian Garner, who will discuss our financial results in greater detail. Brian?

Thanks, Steve. PROG Holdings' fourth quarter financial results reflect three primary trends in the business. First, strong GMV in the period for both Progressive Leasing and Vive Financial increased our overall portfolio size, which should benefit future period revenues. Second, we increased our rate of investment in technology, sales and marketing from the reduced levels during the first year of the pandemic. And finally, we continue to experience the normalization of key portfolio metrics, including customer payments, as we have now reached pre-pandemic levels. As we expected, the impact of increased investment and higher runoffs drove margin contraction from the elevated levels we saw in the year-ago period when our customers benefited from higher levels of liquidity, driven by government stimulus. As Steve mentioned, we took meaningful steps during the fourth quarter to optimize our balance sheet, including the repurchase of $425 million of outstanding shares of our common stock in a tender offer, which we funded through the issuance of $600 million of senior unsecured notes. After the expiration of the tender offer, we repurchased approximately $66 million of outstanding shares of our common stock during the fourth quarter and the first two months of 2022. We currently have $509 million remaining under our $1 billion share repurchase program. We will continue to look for opportunities to utilize our strong balance sheet and cash generation to execute against our capital allocation priorities. Now to provide some color on the Progressive Leasing segment. GMV grew 18.3% in the fourth quarter and 15.8% for the year. The continued growth in GMV contributed to our gross leased assets, increasing 15.5% year-over-year. This is the third consecutive quarter that the portfolio has grown, which sets the stage for continued revenue growth in 2022. Progressive Leasing's revenue grew 6% to $630 million in Q4 compared to the year-ago period, driven by the previously mentioned growth in the portfolio, partially offset by the trends in customer payment performance. We saw 90-day buyout levels decline year-over-year and customers' delinquencies and lease merchandise write-offs reached pre-pandemic levels. Progressive Leasing's Q4 gross margins was 30.2% versus 32.5% in Q4 of 2021. This 225 basis point decline was driven by higher delinquencies within our lease portfolio, driving reserve levels higher, partially offset by less 90-day buyout activity. SG&A for the Progressive Leasing segment was $84.6 million or 13.4% of revenues in the fourth quarter compared to $70 million or 11.8% of revenues in the year-ago period. This was driven by continued investments in technology to enhance our customers and retailers lease-to-own experience, an increase in sales and marketing spending, and higher corporate and public company expenses. Progressive Leasing provision for write-offs was 6.8% in Q4. It is important to note that the provision for write-offs is in line with our historical pre-pandemic norms for Q4, and well within our 6% to 8% annual target. For comparison purposes, our provision for write-offs for the fourth quarter of 2019 was 6.6%. We closely monitor customer payment trends to inform our decisioning posture, and expect to deliver portfolio performance within that annual range of 6% to 8% for 2022. Adjusted EBITDA for the Progressive Leasing segment in the fourth quarter was $66.4 million compared to $100.2 million in the same period in 2020, a reflection of normalized customer payment trends and SG&A investments. As we enter 2022, we expect adjusted EBITDA margins for the Progressive Leasing segment to fall within our historic 11% to 13% annual target. Pivoting to consolidated results. Q4 revenue for PROG Holdings was $646.5 million compared to $605.7 million in the year ago period, a 6.8% increase. Adjusted EBITDA for Q4 was $72.1 million or 11.2% of revenues compared to $94.6 million or 15.6% of revenues for last year. We generated $246 million of cash from operations for the full year of 2021, which is net of the working capital required to grow our lease portfolio. Our Q4 GAAP diluted EPS was $0.59, and our non-GAAP EPS came in at $0.67. For the full year 2021, our GAAP diluted EPS was $3.67, and our non-GAAP EPS came in at $3.94. We had $600 million of gross debt and $170 million of cash as of the year-end 2021, or approximately 1.1x our trailing 12 months adjusted EBITDA. We also have $350 million of availability under our undrawn revolving credit facility after the fourth quarter repayment of the $50 million balance that was outstanding at the beginning of the quarter. Turning to consolidated outlook for 2022. We expect revenues to grow to between $2.79 billion to $2.9 billion, adjusted EBITDA to be in the range of $320 million to $350 million, and non-GAAP EPS in the range of $3.25 to $3.70. As Steve mentioned, we have divided our 2022 outlook into three segments. For the Progressive Leasing segment, we expect revenues in the range of $2.73 billion to $2.83 billion, and adjusted EBITDA in the range of $330 million to $350 million, as we expect continued growth in leased asset portfolio and normalization of customer payment activity that should result in a decrease in adjusted EBITDA margins to pre-pandemic ranges. For our Vive Financial segment, we expect revenues of $60 million to $70 million, and adjusted EBITDA of $10 million to $15 million. Finally, for our other operations, we expect our investments to result in adjusted EBITDA losses of $15 million to $20 million. This outlook assumes normalized customer payment activity and approximately 26% tax rate, and no share repurchases beyond the approximately 1.3 million shares repurchased to date. It also does not incorporate potential negative impacts to our financial performance related to the further deterioration of macroeconomic factors. Before we turn the call over to the operator, I want to take a minute to talk about the spread of our 2022 outlook and the resulting year-over-year comparisons. The portfolio normalization that began in the back half of 2021 and continues into 2022 will result in tougher comps in the first half of the year. We anticipate improvement in our GMV growth rate over the course of the year, leading to stronger EBITDA and EBITDA margins in the back half of the year.

Our first question today comes from Kyle Joseph with Jefferies.

Steve, I think at this point last year, you were talking about kind of a stimulus sugar high spending that we're seeing. So is this kind of the hangover from that? And I guess, how long would you expect that hangover to last? I guess my question is, do you think this shift recently is more so from inflationary impacts? Or is it the consumer bought a lot of what they needed in the last, call it, 18 months?

Yes, thank you, Kyle. There are many factors at play. We came out of a strong Q4 with an 18.3% growth in GMV. If we had discussed our expectations for 2022 on January 1, our perspective would likely have been different from what we've experienced in the past 45 days. The situation involves multiple elements: stimulus, a temporary boost in spending, and inflationary pressures. It is certainly associated with the rise in Omicron cases and the COVID impact, which kept people at home in January. We are slightly negative year-to-date, but we have seen improvements in February compared to January's trends. Reports from retailers indicated they struggled to staff their stores and had to reduce operating hours due to staff illnesses and quarantines. Consequently, we observed increases in GMV through our e-commerce channels. However, since e-commerce represents a modest portion of our overall business, the decline in in-store sales led to an overall negative outcome. We anticipate and hope that as case counts decrease significantly, we will return to a more normalized environment. However, we face uncertainty as we are comparing against substantial stimulus from last year, along with an unpredictable tax season that is delayed and not encouraging. I'm uncertain about the demand shift and whether consumers have already purchased what they wanted. I believe there is still strong demand, and as we progress through the coming months and overcome the effects of stimulus and recent fluctuations, we expect to see improvements and increases in our GMV growth.

Got it. Very helpful. Just one follow-up for me just on the pipeline. It's been a couple of years since we've seen kind of a big add. And to your point, it seems like the environment is getting to be one in which a retail partner may desire a financing partner like yourselves more so at this point, with more challenging comps and what not. Can you just give us any update on the pipeline and kind of the demand and conversations you're having with the retailers, understanding that retailers have been distracted in 2020 with the pandemic? And to my understanding, you distracted a little bit with onboarding BNPL in 2021?

Yes, you're correct. We are very optimistic about this year and the next few years because the opportunity is as significant as it has ever been. We are well situated to take advantage of it. In times of uncertainty, our business excels. It benefits our customers as they now require more flexible point-of-sale payment options following a period of high liquidity during the COVID stimulus. We will be there to support them. Additionally, this creates opportunities for both current and potential retail partners. For our existing partners, we can provide greater importance and drive higher sales. As you mentioned, retail partners that we have been communicating with, who may not have prioritized our services due to various factors, are now taking the time to explore new solutions and tools to help grow their businesses. We are encouraged by this and believe the current environment will be more favorable for converting our pipeline than in recent years.

The next question comes from Jason Haas with Bank of America.

My first one is on just the overall credit environment. I think in the last few calls, we talked about an expectation that we may start to see some credit tightening this year which would funnel some more customers down. So I'm curious if you've started to see that yet? And if not, over what sort of timeline do you think this year you'll start to see some of that happen?

Yes. Thank you, Jason. We expect a return to a more normal macro environment, which has two key aspects. First, we anticipate higher write-offs, which we are currently seeing and expect to remain within our normal ranges. Second, we believe this will help remove the headwind on GMV, which can manifest in a couple of ways. One is customers needing more point-of-sale payment options from core customers, and the other is a tightening of supply higher up in the stack. Currently, I think the early stages of this return to normal are affecting our customer more significantly than prime customers in terms of credit performance. This makes sense, as our customers may deplete their savings or cash reserves more rapidly and have benefited more from stimulus measures. So far, we haven't observed a significant change in the application funnel above us. However, as inflation continues to pressure gas prices, we expect fewer customers from the next tier above on the FICO stack to be picked off by available credit, allowing them to enter our market. This will take time to manifest, as we've mentioned in previous quarters. We're not seeing it yet, but we expect this trend to develop as the year progresses.

Where do you see the financial health of your customers right now compared to pre-pandemic levels? Do you think we're back to where we were before the pandemic, or do you believe customers still have some extra funds? Looking ahead, are we hoping for customers to experience a worse financial situation to increase the usage of lease-to-own? Or would you prefer things to remain stable? Another way to ask this is what kind of economic environment do you think is needed to guide you this year, or is it independent of macroeconomic trends?

The customer, when compared to the period before the pandemic, appears to have spent through the stimulus money. Employment levels have improved since the pandemic began, and while employment is strong now, inflation in food, energy, and housing has put some stress on them. After nearly 30 years of working with this customer, I can say they are quite resilient. Adjustments will take time, but ultimately they will adapt and return to their usual circumstances. Overall, they seem to be experiencing similar to slightly more stress now than before the pandemic due to inflation, even though employment and wages are looking good. Regarding the broader economy, the last 45 days show we're affected by macroeconomic factors, as we've seen a decrease in applications. We want employment levels to remain high, which benefits everyone. Ideally, we'd like to see strong employment alongside a more moderate credit supply in the market, though these conditions rarely occur simultaneously. Our current outlook is based on what we know and we anticipate improvements as the year progresses. We are optimistic about our lease business and other initiatives we're discussing with retailers, even if margins and outlooks have paused compared to our historical growth. We feel well-positioned for earnings in the coming years.

I would like to discuss the cash flow generation of the business, as we had multiple companies report on this topic. I apologize if some of this was already covered in the prepared remarks. Looking at this year, the free cash flow, which can be viewed as a conversion of EBITDA, is roughly 60%. Is there anything unusual about this year's figures, or can we expect this conversion rate to continue moving forward? Additionally, if we consider next year's guidance using the same conversion, it suggests we could have another strong year with impressive free cash flow. Given that leverage is quite low in this business, wouldn't it make sense for the company to hold more debt and repurchase significantly more stock than it has so far?

Yes, thank you, Bobby. One of the great aspects of this business is its ability to generate cash flow. We've discussed how, even with very high growth rates, the business can at least self-fund, if not produce free cash flow. I assume when you referred to this year as normal, you were speaking about 2021. I want to emphasize that timing is important when it comes to GMV growth. In 2021, there was nothing unusual regarding the business's capability to convert EBITDA into free cash flow generation. We don't provide specific guidance on free cash flow, but I anticipate that 2022 will also be a strong year for generating free cash flow. When we considered the tender in the fall and our goal to reduce shares and shrink the cap, it was just one method of executing our capital return strategy, not the conclusion of it. Our capital allocation priorities remain unchanged. We are focusing on organic growth, which we have successfully managed, looking for some M&A opportunities, and returning excess cash to shareholders. Therefore, I expect that we will continue to return cash to shareholders this year and in the future, unless a significant M&A opportunity arises. We aim to maintain leverage between 1 to 1.5 times for several strategic reasons, ensuring our balance sheet positions us well for partnerships and alleviates concerns about financing our growth. Additionally, we have room for more growth and cash generation.

I have a second question. You mentioned in your prepared remarks that the SG&A level of the business has gone back above pre-pandemic levels, along with some wage increases. Is it inherently more expensive to operate this type of business today beyond just the wages? Could you also address the impact of the Four and other acquisitions you mentioned? Is this a new normal with a higher SG&A level for the business, or are these investments expected to yield returns in the future through growth or by aligning SG&A with pre-pandemic levels?

Yes, I'll begin and Brian can add to this. To clarify, there hasn't been any structural change during the pandemic that has made operations more costly, aside from the increased compensation costs and the competition for talent that has affected us at all levels, from top developers and engineers to those in professional and customer-focused roles. We've observed some upward pressure in those areas. From 2019 to the end of 2021, we increased our revenue by 25% while our SG&A grew by approximately 23.8%. Looking ahead to 2022, we anticipate continued investment in SG&A and slightly lower revenue growth than expected due to the GMV challenges we've encountered in the early months. As you know, our revenue recognition means that early GMV significantly influences the calendar year, and that's where we stand coming out of the gate. We maintain what we call an investment layer, and we acknowledge that we are not solely focused on profit but are prioritizing growth. We genuinely believe that the investments we're making will yield a positive return on investment. We expect that e-commerce plug-ins and new products, along with other initiatives we are developing and launching for our retailers and direct-to-consumer efforts, will generate growth and positive ROI in late 2022 and into 2023 and 2024. In summary, there have been no structural changes that have increased costs. We are committed to investing for the long term rather than focusing on immediate quarterly results, as we believe these investments are prudent.

The next question is from Anthony Chukumba with Loop Capital.

I have a question regarding the consolidation in the industry over the last 12 to 18 months, such as Rent-A-Center acquiring CIMA and FirstCash purchasing American First. What changes have you observed from a competitive standpoint concerning large national partners and smaller chains with 10 to 20 locations?

Thank you, Anthony. We've discussed this previously, but we haven't noticed significant changes with the smaller 10 to 20 door chains. The competition remains fierce and we anticipate this will continue. In terms of enterprise or national accounts, we believe that those without a solution currently are likely exploring options with several parties, and we feel confident about our position to capture a significant share of those opportunities. Overall, I think the focus should be less on consolidation. The transactions involving CIMA, AFF, and Catapult are beneficial for the industry, and I believe they assist us since having multiple public competitors enhances transparency and ensures comparable investments in compliance and infrastructure, which levels the playing field and is advantageous for the industry from both an optics and regulatory perspective. Regarding competition, these companies aren't new entrants; they may be better capitalized, but we are confident that our strong history and partner network highlight our capability to generate business and convert potential leads.

Next question comes from Brad Thomas with KeyBanc.

I wanted to circle back on just GMV and its relationship with sales. Obviously, a metric you all have been disclosing since you became a stand-alone company, but we're still kind of getting used to it and connecting the dots between it and the income statement here. So it seems to me that what's probably the biggest headwind between the GMV growth and the reported revenue growth is the write-offs going higher. And so, as the write-offs start to get more normalized and you're not seeing an increase in those year-over-year, it would seem that perhaps the reported revenue growth starts to track more in line with GMV. I guess the question would be, is that the right way to think of it? And any more thoughts on how we should think about connecting the dots between those two items?

Yes, I'll let Brian add to this. I believe there's a connection, but when it comes to revenue growth or reported revenue growth, write-offs do not affect that. However, the accounts receivable allowance, which is a contra revenue account, would influence revenue. I'll let Brian provide more insights.

Yes. I believe the key metrics to monitor are the revenue trends. Observing the growth rates of our leased asset portfolio on the balance sheet will show a strong correlation with revenue. The gross merchandise value contributes to that leased asset balance, and revenue will eventually align with that leased asset over time. However, there has been some fluctuation over the past few years, primarily due to an increase in 90-day buyouts that we've not previously experienced in the business due to consumer liquidity. As a result, many of those buyouts have been recognized as revenue during the buyout period, which has inflated the revenues for 2021 and 2020. This is part of the normalization trend you’re observing. The 90-day buyouts are beginning to decrease as anticipated, which will slightly reduce revenue compared to the previous periods. It's important to keep this in mind. However, in a normalized scenario, as conditions stabilize, you can expect revenue to align with the portfolio over the course of the year.

Got you. So Brian, it's more a function of the 90-day buyouts normalizing rather than the write-offs?

Yes. The write-offs are down in operating expenses. As Steve mentioned, the accounts receivable reserve and its change are certainly an offset to revenue. However, what will be important over time is the 90-day period returning to a normalized level, after which you will start to see revenue align more closely with the portfolio.

Got you. And as we think about the revenue guidance for about 4% to 8% growth, what's the GMV forecast for the year?

Yes, Brad. While we did not provide specific guidance on GMV, there is certainly a connection there. Starting the year a bit weak and being slightly down year-to-date, along with facing another significant stimulus in late March and April, suggests that to remain within our revenue expectations, we would need to see double-digit GMV growth in the last seven or eight months of the year. Our expectation is that we will navigate through the upcoming months and return to those levels. If this conversation had taken place before the impact of Omicron on applications and retail performance, we would have anticipated GMV to be similar to the strong levels of 2021.

Yes, that's very helpful. I have a few quick housekeeping items to mention. During the third quarter earnings discussion, we noted a return to more normal conditions, with margins and write-offs improving faster than anticipated. As we reflect on the past few quarters, do you consider the fourth quarter to be quite normal, given the 11% EBITDA margin and write-offs falling within the 6% to 8% range? Is this the first quarter that we can use as a benchmark for normalcy, while we still aim for three more quarters of approaching normalization? Or do you believe there are still issues to address, suggesting that the third quarter might have been more representative of normal conditions? I'm interested to hear your thoughts on whether we're heading back to a more typical trend. Yes. I believe it was definitely a step in that direction. When discussing our annual targets, it's crucial to remember these are yearly goals. You will notice some fluctuations throughout the year due to seasonality and other factors. However, as I mentioned earlier, we are observing delinquency trends approaching pre-pandemic levels, which is significant. It's important to highlight that regarding the overall portfolio, we have a strong level of control over the portfolio yield and lease outcomes. This control stems from a couple of aspects, including the short duration of the portfolio, with an average life just over six months. This allows us to detect shifts and adjust our decision-making accordingly. We must ensure that we align with our desired economic outcomes. As we return to normal and observe delinquency trends stabilizing to levels seen in 2019, we can work towards achieving our target of 11% to 13%, while closely monitoring real indicators and maintaining the integrity of the portfolio.

I would just add that in Q4, the write-offs are right in the middle of what we consider normal. There will be some factors to consider. We discussed SG&A, but also due to the 90-day buyout dynamic, there may be some potential upside in gross margins. These are the elements to keep in mind. We're looking at the annual range for the Progressive Leasing segment, which is expected to remain between low and high, around that 12% range from an EBITDA margin perspective.

The next question comes from Michael Young with Truist.

I wanted to start by discussing the share buyback capacity. Are there any other limitations on how aggressive you can be with additional share repurchases, considering factors like cash levels, the availability under the revolver, the leverage ratio, or any considerations from the Board?

Thank you for the question, Michael. Our comfort level with leverage is between 1 and 1.5 turns, which serves as a key factor in our analysis. While we have some financial covenants, they are significantly higher than our comfort level, so they won't affect our considerations. Float is always part of our analysis. As you may have noticed, we have repurchased shares since the tender offer, and we believe the current stock price does not accurately reflect the value of the business, making it a worthwhile investment. Regarding our aggressiveness, we have cash and generate cash flow, plus we have access to our revolving credit line. However, we plan to maintain liquidity on our balance sheet to pursue opportunities in the untapped total addressable market available to us.

Okay. And just to be clear, you mean, you would still pursue M&A even with the stock at these levels?

The stock value and our perspective on its return on investment would create a standard against which we would evaluate mergers and acquisitions. It wouldn't be done without consideration; it would all be part of the comprehensive analysis. While I wouldn't rule out M&A, the current stock levels make the criteria for such deals more challenging.

Okay. Fair enough. And last one for me, just if we kind of think about the things that are pushing the growth down, obviously, there's the whole kind of in the first quarter here with Omicron. It seems like things could snap back. What are sort of the positive or upside potential drivers as we move throughout the year, that could result in either the high end of the range or upside to the range, since we've talked about a lot of the negatives so far?

Yes, thank you for that. I want to highlight the positives because we are optimistic about the business, despite the current situation. The customer is resilient and will adapt. I hope retail will be promotional, and the supply chain will improve. Internally, we have many exciting initiatives to discuss with our partners, including enhancing our e-commerce flow and using our products and technology to improve the customer experience at the retailer's point of sale, as I mentioned earlier. Our marketing and co-marketing efforts are being well received by our retailers, presenting significant opportunities. This not only drives Gross Merchandise Value for us but also strengthens the value of our partnerships and the database and ecosystem we provide to our retailers. We firmly believe that these retail partnerships and our customer acquisition channel hold great power. The more we collaborate with large enterprise accounts, the more data we can share to demonstrate our impact in their businesses, which makes those partnerships more resilient and valuable. We have a marketing calendar with our partners and a tech prioritization schedule for certain projects. We are realistic that sometimes things can slip, so we are being cautious about the extent to which these initiatives can drive GMV. However, we are proactive in managing and executing the business, seeking ways to drive growth for both our retailers and ourselves, and we feel optimistic about our performance in the latter half of '22 and beyond.

The next question comes from Vincent Caintic with Stephens.

I have a few quick follow-up questions. Regarding the GMV, I appreciate the insights you've provided so far. Given the sensitivity around it, it seems that the first quarter of 2022 is expected to be challenging, and perhaps the first half of the year will show a year-over-year decline, with growth anticipated in the second half of the year. I just wanted to confirm that. Additionally, you mentioned in your prepared remarks some initiatives you are pursuing, such as integrating with partners and developing complementary fintech products. Could you discuss that further and the expected impact on GMV?

Thank you, Vincent. At the risk of providing guidance on quarterly GMV, which can be challenging, we are currently experiencing a slight decline in Q1. While we have seen some improvement, we are also facing an uncertain tax season and will be comparing against last year's stimulus. I do not anticipate negatives for the first half of the year, but we expect to see sequential improvement in GMV as the quarters progress. Additionally, regarding my earlier comments to Brad about our math related to last year's in-store investments and the fintech products, we are excited about these initiatives. They are in various stages of development and testing, and we look forward to providing more specific updates over the coming months. We believe these efforts are complementary and can contribute to the growth of our leasing business and GMV. While we may not see a significant impact in 2022, we are confident that in the coming years, they will play a substantial role in the GMV growth within the leasing segment. The investments are included in our outlook, reflected in both the PROG leasing forecast from an SG&A perspective and the PROG Holdings outlook, both of which are within the 11% to 13% range. Our approach is not focused on short-term results; we are committed to long-term growth. We believe these investments are wise, but we also recognize the need to manage the business effectively. We have control over SG&A, and we will focus on staying within those parameters. Regarding investments, they are related to our innovations in the LTO product, including our direct consumer efforts, marketing, e-commerce integrations, and improved customization on platforms, as well as other complementary fintech products that will contribute to our outlook.

The next question is a follow-up from Anthony with Loop Capital.

Just a real quick one, and you've kind of addressed this a little bit in some of your answers to the previous questions. But just any update in terms of your e-commerce integrations with your big retail partners?

Yes, Anthony. We made good progress in 2021. We have plans for our key retailers that aren’t already transactional in 2022. The ones that launched in 2020 were improved in 2021, and we will continue to enhance the process. E-commerce is a bright spot, having grown 151% in 2021 and making up 18% of GMV in Q4. We expect it to continue growing faster than the overall GMV. While we don't set a target since we want customers to choose their interaction channel, I expect that the 15.2% of GMV from e-commerce in 2021 will increase in 2022, reflecting what customers and retailers are requesting.

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

We thank you guys for joining us today. We look forward to continuing to communicate with you about our 2022 plans and having 2022 ramp as the year goes on. Thanks to all the PROG family out there for taking care of our customers, and we'll talk to you again in a couple of months.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.