Q4 2020 PROG Holdings Inc Earnings Call
Good morning, My name is Andrea and I will be your conference coordinator.
At this time I would like to welcome everyone to the Prog Holdings, Inc. Fourth quarter, 2000, and 'twenty earnings Conference call.
All lines have been placed on mute to prevent any background noise at.
After the Speakers' remarks, there will be a question and answer session.
I would now like to turn the call over to Mr. John Baugh, Vice President of Investor Relations for Prog Holdings, you May begin your conference.
Thank you and good morning, everyone and welcome to the product Holdings fourth quarter 2020 earnings calls are for.
First as a Standalone company John.
Joining me this morning are Steve Michaels.
<unk>, Chief Executive Officer, and Bryan Garner, our Chief Financial Officer.
Many of you have already seen a copy of our earnings release issued this morning for those of you that have not at is available on the Investor Relations website at <unk>.
Investor Dot from leasing Dot com.
During this call certain statements, we make will be forward looking.
I wanted to call your attention to our safe Harbor provision for forward looking statements.
Can be found at the end of our earnings release.
The safe Harbor provision identifies risks that may cause actual results to differ materially from the content of our forward looking statements.
There are additional risks that can be found in our 10-K filing.
And will be filed later today.
Listeners are cautioned not to place undue emphasis on forward looking statements and we undertake no obligation to update any such statements.
On today's call, we will be referring certain non-GAAP financial measures and.
<unk> <unk>.
EBITDA and adjusted EBITDA, non-GAAP net earnings and non-GAAP, EPS, which have been adjusted for certain items, which may affect the comparability of our performance with other companies.
These non-GAAP measures of our detail and the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight and to the Companys operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating <unk>.
Salt with prior year periods and to assist them and understanding the company's ongoing operational performance.
With that I will now turn the call over to Steve Michaels.
Thanks, John and good morning, everyone.
We're excited to report our results for the first time as a Standalone Fintech company.
I want to start by thanking our employees for their hard work and dedication and support of our customers and point of sales retailers. During this pandemic, while simultaneously executing the spinoff of our Aaron's business unit.
With the spin and the rearview mirror and as we approach one year because of this pandemic, we feel we're in a stronger position to execute on our plans and to return closer to our historical growth rates.
And the fourth quarter, we grew revenues by six 5% and.
Adjusted EBITDA by 35, 9% and non-GAAP EPS by 47, 4%.
Our fourth quarter performance was in line with the outlook, we provided during the spin roadshow presentation.
Yeah.
For the year 2020, we reported revenue growth of 14, 9% to two for 85 billion and adjusted EBITDA of $320 9 million on increase of 34, 5%.
This adjusted EBITDA is burdened by $22 million of spin related on unallocated corporate overhead expense.
Our adjusted EBITDA would have been 343 billion adjusting for this unallocated expense as seen in the non-GAAP reconciliation of the earnings release.
Our original 2020 adjusted EBITDA outlook provided in February of last year was $305 million to $323 million.
Even at the face of pandemic related pressures, we were able to exceed this outlook driven primarily by strong portfolio performance throughout the year as well as discipline around discretionary spend.
Our gross merchandise volume for the progressive segment for <unk>, which we will be using going forward to define what we used to call invoice was down slightly in Q4 year over year.
There were a number of headwinds and <unk> in the quarter.
First we saw at lower demand for consumer finance payment options, including lease up as more consumers used cash for purchases leading to a disappointing holiday shopping season for us.
Next we saw on even greater shift away from in store sales to online where we are currently underpenetrated.
Finally, we saw continuing supply chain challenges the impact of inventory availability and promotional activities at certain Pos partners.
Well on <unk> results were below our expectations. We are confident of the numerous initiatives. We have in place will result in stronger <unk> as we move through this year.
And in fact, we're up mid single digits year to date, even though of January and February of 2020 were our two best months of GMB growth last year.
We know that 2021 is an important year for our company and we are highly focused and energized and that will be at the spin behind us.
And our opinions the total addressable market remains multiples of the current market and we plan to maintain our leadership position.
We have tremendous resources at our disposal, let's start with a great team and the largest network of retailers many of whom are and the early innings of growth with us.
We also have one of the largest customer databases and the industry at what we believe for the best technology product decision science teams and the business.
Combining these strengths with an unlevered balance sheet of profitable business and of cash generating model positions, our company for solid growth well into the future.
Strategically our priorities remain largely unchanged.
First we aim to grow our business with our existing and new partners.
Second we will continue to simplify and improve the customer experience through technology enhancements that allow our customers to shop, how and when and where they want.
Third we will drive repeat business by leveraging our database of millions of customers.
Fourth we will expand our product and solutions ecosystem via research and development efforts and strategic acquisitions.
Finally, we will expand our direct to consumer marketing efforts to attract new customers and drive more <unk> to our.
Pos partners.
First and for US we plan to continue to expand our existing U S retail business and add new Pos partners using our digital platforms to drive performance.
And 2021, we will grow material and ecommerce primarily through the significant progress we have made and will continue to make to be fully transactional with our larger retail partners e-commerce platforms.
We will also have plug ins for those retailers that worked with Pos providers like shopify, the genco our demand ware.
We will work diligently to onboard e-commerce players as we believe that modifications to our product and processes, who will make the shopping experience simpler and faster for both our retail partners and consumers.
And while I'm on the subject of E Commerce, and 2020, approximately half of our applications came from retailers and e-commerce sites or progressive digital platforms.
Our decision science team has proven their ability to apply fraud detection filters and make profitable approval and approval of our decisions and a customer not present scenario.
We narrowly define e-commerce, GMB and completion of the lease and the retailers cart checkout.
In 2020 of mid single digit percentage of our <unk> was generated from E com cart checkout process.
And 2021, we expect of more than double of our ecommerce business and believe it will represent a low to mid teens percentage of our total GMB.
We are in the early innings of leveraging our consumer database, which we believe can result in incremental <unk> as well as of the possibility of offering other products through our research and development efforts for strategic acquisitions.
Finally, while not of strategy. Our decisioning team's goal is to maximize approval rates, while maintaining stable and consistent portfolio of performance measured and write offs to a tight range of 6% to 8% of revenues annually.
Coming in at five 4% and 2020, while helpful to our margin performance reported write offs were lower than historical levels.
The last nine months write offs were only four 2% well below our targeted range.
Given the additional stimulus money that was recently dispersed and of <unk>.
Likelihood of even more government payments and the coming weeks, we think we can improve more people this year and still maintain our risk exposure within if not perhaps even below our historical range.
As we discussed during 2020, we took action to more conservatively decision when the pandemic first at and the potential impact on our customer were largely unknown.
During the second half of the year as at performance data came in and we use that feedback to make a series of adjustments to our decision.
As we sit here today, our approval rates are in line with where they were a year ago and that.
That is even considering the impact of the continued shift to digital application channels, which inherently have lower approval rates.
We closely monitor the performance of our leases and we will adjust accordingly should conditions change.
Shifting to capital and capital allocation, our balance sheet remains in great shape. We ended the year with minimal net debt and have ample liquidity to fund any growth initiatives, we may pursue.
As you will have seen from our earnings release, our capital priorities remain unchanged.
We will first and foremost investing the business as we pursue multiple growth initiatives and addition to our normal funding of GMB at our modest capital expenditure needs.
Secondly, we will consider M&A opportunities that can broaden our product offerings for enhance our technical capabilities and.
And finally, we expect to return excess cash to shareholders, which at this point, we plan to execute through share buybacks over dividends of course.
Currently our board of directors has authorized a new share repurchase program of $300 million and we do not expect to pay a dividend for the foreseeable future.
And you will see disclosed and the 10-K and we expect to file later today Blake Wakefield progresses, President has resigned and will be leaving progressive and effective March 31 2021.
Blake has been with progressive for over eight years and has been instrumental and building the sales organization during his tenure.
Blake is leaving to pursue other interest and on behalf of all of Prague Nation, we want to thank him for his contributions and wish him much success and as future Adventures.
I'm thrilled to announce that Mike <unk> has recently joined progressive as our chief commercial losses.
Mike comes to us with that deep experience building and leading teams and driving outstanding results you beat of beef sales organizations and was most recently with Samsung for the last 14 years.
Mike will be leading our all star sales team and we will be reporting directly to me.
Well, the new round of stimulus payments and pandemic related strains on our economy create and uncertain and forecasting backdrop, we are confident that our <unk> will grow meaningfully in 2021.
We are of a market leading position and at the capital of the technology and the team to continue progress is impressive history of.
<unk> and innovation.
With those comments I will turn it over to Brian <unk>, our Chief Financial Officer.
Brian.
Thanks, Steve and let me add my welcome to all of those on the call and our heartfelt thanks to our dedicated progressive and five employees for making 2020 success and have faced unprecedented challenges and I'm honored to be part of the team and look forward to helping drive and the rest of the store and forward.
Starting with our progressive leasing segment net revenues for the progressive leasing segment and the fourth quarter and reached a new record for the period of $594 million and increase of $34 million or six 2% compare for the fourth quarter of 2019.
At this revenue increase reflects the net of a series of headwinds and tailwind as experienced during the period I'll begin with the tail end.
Throughout the quarter and as of the continuation of recent trends and our customers demonstrated strong financial resilience and the face of economic challenges as evidenced by improved levels of payment performance and associate at lower levels of delinquencies and both early and late stages year on year.
Next revenues reflects the continued strong ramp of two large Pos partners launched in 2019, as well as increases and ecommerce volume year on year as we mentioned on previous calls the optimization of new national retailers has historically been a multiyear process as message.
And in training and marketing our Taylor for point of sales partners.
We are very encouraged by trends, we are seeing there, particularly given the disruption of COVID-19.
And finally on revenue tailwind lease buyout activity continues to be elevated including significant increases and 90 day buyout activity and a quarter compared to the same period last year.
And these buyout trends along with lower delinquencies continue to demonstrate.
Changes in customer behavior, and increase liquidity of our customers. During this time.
Shifting to revenue headwinds.
Revenue in the period was pressured by recent softness and <unk> driven by pandemic related challenges.
This recent <unk> pressure and high rates of buyout and recent periods as a result, and smaller overall portfolio size as of Q4.
As seen in the earnings release gross assets on lease as of December 31, 2020 declined five 6% from the year ago period, reflecting a smaller base from which revenue is being generated.
Given the short duration of the portfolio at six to seven months on average.
We expect the size of progressive leases portfolio to rebound fairly quickly as GMB returns to a growth trajectory.
We're actually as we've stated previously the.
Current period revenue is largely a function of the trailing two to three quarters of <unk> and a corresponding impact on portfolio size.
Gross margins for the Progressive leasing segment increased in the period to 32, 5% compared to 32, 3% in the fourth quarter of 2019.
Driven primarily by strong payment performance in the period offset by higher rates of 90 day buyouts. We are seeing these higher 90 day buyouts across most verticals and partner sizes.
SG&A expenses for Progressive leasing segment were 11, 8% of revenues and the quarter and compared to 12, 7% and the prior year period and improvement of 90 basis points.
And as we indicated on prior calls of the company has limited discretionary spend during this uncertain time, while continuing to invest and critical initiatives, particularly our technology platform.
Based upon our gross initiatives that are in motion and we will continue into 'twenty and 'twenty. One we expect SG&A will increase from 2020 levels as a percentage of revenue closer to the normalized levels. We saw in 2019, which was 12 3% of revenue.
Write offs as historically range between 6% to 8% on annual base basis.
And four 5% and the quarter due to lower delinquencies and strong portfolio performance.
Time, we expect macroeconomic conditions normalized and write offs returned to historical ranges, although we entered 2021 with continuing strong portfolio performance.
The progressive leasing segment.
Adjusted EBITDA for the quarter was of fourth quarter record of $96 7 million at 25, 4% increase year over year and of 16, 3% margin.
The margin performance was primarily driven by improved portfolio performance and SG&A leverage of 90 basis points.
I will now pivot to consolidated results.
Consolidated adjusted EBITDA, including our buy segment and unallocated corporate expenses was $90 million for the fourth quarter of 2020 compared to $66 2 million for the same period last year and increase of $23 8 million.
We're at 35, 9% and.
Adjusted EBITDA was 14, 9% of revenue on the fourth quarter of 2020 322 basis points higher from the 11, 6% in the fourth quarter of the prior year.
Diluted EPS on a non-GAAP basis for the quarter decreased 47, 4% to <unk> 95 per.
Versus 65.
And of prior year quarter.
Now turning to our balance sheet and liquidity profile during Q4, and the company entered into a credit agreement with our bank group that provides a $350 million unsecured revolving credit facility.
We believe this facility along with the cash efficient nature of our business model provides ample liquidity as we pursue our growth initiatives.
On December 31, 2020, we had $36 6 million and cash and at $50 million balance on our revolver.
Shifting gears and consolidated outlook.
And as we stated in our earnings release because of the significant uncertainty and that continues to exist remained and the pandemic stimulus and customer behavior and overall economic climate, we are not providing a full year outlook for 'twenty and 'twenty one at this time.
However, as we are here at the end of February we do want to share of our current view with respect to our outlook for Q1 of 2021.
As we stated the pandemic related Gms pressures experienced during 2020 resulted in a smaller year end portfolio size versus the previous year.
The portfolio drive the majority of the revenue reported in the subsequent quarter.
As such for Q1, we're expecting revenue in a range of $650 million to $670 million are slightly down to flat on a year over year basis.
Consolidated adjusted EBITDA is expected to be and a range of $85 million to $90 million for the first quarter.
Of note beginning in Q1 of 'twenty, one we will be adding back stock based compensation to adjusted EBITDA included and this Q1 outlook is $3 million to $5 million of expected stock based compensation for reference and stock based comp was $2 8 million and $14 4 million for the Q1 'twenty and.
Full year 2020 periods, respectively, excluding stock comp expense.
So it wasn't included in unallocated corporate expenses during the year.
Non-GAAP diluted earnings per share are expected to be between 89 and 95.
And before I open up the call for questions I'd like to cover one last point regarding and additional disclosure do we see and our 10-K and will be filed later today.
Late last month, we received a subpoena from the California Department of financial protection and innovation requesting the production of documents regarding the company's business practices and California.
We believe the <unk> review as part of a larger examination of our industry operates and the state.
And we're proud of the way, we do business and the positive impact we have on the lives of our customers.
And there is really not much more we can comment on concerning the <unk> review and it's still early in the process.
So with that operator, we can now open the call for questions.
We will now begin the question answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from Ken Hill of Loop capital. Please go ahead.
Hey, good morning, everyone.
Thanks for thanks for all of the comments related to the E. Commerce outlet. There. Those are really helpful. I was curious, though from a strategy perspective, and how you talked a little bit about M&A.
Being a part of the strategy going forward, but also I was wondering if youre considering things like partnerships on that from particularly issue growth. The E Commerce space and there's some of your peers have partnered up with buy now pay later firms.
To really increase their retail exposure there. So I'm curious from your perspective debt partnerships might seem more interesting going forward.
Yes, Ken. Thank you this is Steve.
Certainly I mean everything is open on the table for US we've got a great network of retail partners already.
We look to deliver.
<unk> for those of retail partners, but also additional products, but the BNP aerospace as you stated has been white hot and.
Tracking a lot of attention. So there are opportunities for us from a.
From a partnership standpoint, as well as <unk>.
Other waterfall type of opportunities from a partnership standpoint, so as we think about our R&D function that we recently stood up as.
And as well as the.
And I think about strategy and M&A at certainly involves potential partnerships not just on.
Outright acquisitions.
Got it and in fact at on the follow up I think you mentioned kind of re engaging and customers.
Customers you've had in the past I think on your platform somewhere in the neighborhood of I won't say 12 million customers and the database. There I was wondering if you could talk a little more specifically at how youre re engaging those customers.
And maybe haven't used of product more recently and then maybe what some of the initial returns look like there.
Yes, we do have a very strong database and in our active customer base. We also have a very engaged customer that engages with our digital platforms very frequently. So we think that we've got and opportunity to speak to that customer through.
Through multiple platforms frequently but specific to your question about the.
The large database of maybe inactive customers that we haven't seen in a while.
And we've got.
Marketing campaigns that are not only prospecting for new customers, but also.
Reaching out to our previous or inactive customers at a dumb business both on the past.
And and.
Representing or offering of for servicing offers to them to come back and that's one thing the power of our retail partnership network and the the power of the brands that we partner with are very compelling to our customers and they want to shop.
At those at those retailer environment. So we're seeing some success and getting and shortening the time to repeat for our customers to repeat we are of high repeat business and our.
And our history, and it's actually increasing each year, but a lot of our marketing efforts are actually compressing the time from the time that they finished up a lease to the time. They start the second lease and we believe it is helpful and a couple of ways. It helps our customers get the acquired products that they want but it also helps us.
True to our retail partners that were driving.
Incremental business into their environment, which for which continues to underscore and prove our value is.
Provider for them.
Got it that's great detail thanks for taking the questions. Thank you.
The next question comes from Kyle Joseph of Jefferies. Please go ahead.
Hey, good morning, guys. Thanks for having me on.
Good morning, guys good morning.
Good morning on.
And alright, not invoice on DMD biology, thank you.
And as we go through 'twenty line, you're talking about some of that some of the headwinds there in terms of supply chain challenges and that again more brick and mortar exposure, but with that I guess, you can break it apart and it into.
And the two components, you know with vaccines and whatnot at what point do you expect the brick and mortar headwinds and panicky.
And then give us a sense for <unk>.
Fly chain of heating and when do you think.
And those trends normalize.
Yeah, Thanks, Ken I'll start with the supply chain.
Obviously, the supply chain is already starting to heal.
And it was most acute last summer and especially in the.
And the furniture and appliance verticals it still existed at at various levels, depending on the size of the retailer through the holiday shopping season, and we've heard for.
From some of our partners and other sources that Theres record backlogs.
And and furniture retail and we've actually experienced that and our.
Our proved what we recall of approved not converted because of the customer would be approved with enter into a deal.
But.
Because the lead time was eight or 12 weeks because ROE at end of.
Canceling the deal and so our queue of that has really risen to an all time high but we don't expect that to be a meaningful headwind as we move through the through 'twenty, one through the top half and back half of 'twenty one.
Those things are going to going to start to heal.
Little bit more.
And then as you as you talked about as well.
Related to the pandemic.
We don't have a crystal ball right, we've got potential stimulus coming but but we all think that.
And whether it be availability of vaccinations of what some throughout 2021.
And the economy and our movement around will reopen and.
People will return back to stores and in a bigger way and we think that will be of tailwind for us but also.
It is our focus and it's our and.
And our energy is around being being there where the customer wants of shops. So that's why you'll hear much focused on.
<unk> e-commerce.
Initiatives, because we think they are important.
However, we think it's important to have a there is an overused term, but an omni channel solution where customers Ken.
Because in many customer shopping journeys they will crossover of channels. They may start online and.
John.
And in store and then finish on their mobile phone and we want to have a seamless integration of across those channels for our retail partners. So.
We think that.
In store traffic will will rebound and that will be of help to us from a <unk> standpoint, and 'twenty one, but we also think that our efforts too.
Grow and our E comm capabilities and our E com presence with our retail partnership network will pay dividends as well so that remains to be seen at 21 of it plays out but that's our current expectation.
Got it very helpful.
And then you know net.
And the fourth quarter was at lids.
Active in terms of headlines and the virtual lease to own state can you use and gave us a refresher on the.
And the competitive environment and any recent changes you've seen and walk us through how that is on and on nationwide retail partner of basis versus a smaller geographical.
Yes, there certainly was a lot of activity on the fourth quarter and starting with our.
With our spin transaction and then December heated up even more so low.
And from a competitive standpoint, it's always been competitive.
And some of the actions that were taken by our competitors will.
Will create.
Even more formidable competitors and then.
But we're up to that challenge.
No.
I would say that from a competitive standpoint, it hasnt changed a ton we still have a very competitive.
<unk> space with multiple players and some sizable ones that are growing fast and then.
Enterprise.
World.
Less competitive but there are there are several players that can that we.
We will see.
As we try to.
Our land and convert the pipeline that we have out there so the moves.
Over the last.
A couple of months and.
And the rent a center one and in particular I would call out by name is at.
It is certainly something to watch, but we feel confident and the.
What we bring to a potential retail is evaluating this solution.
Got the scale and the reference ability and the infrastructure and the <unk>.
How to provide a.
Omni channel solution for them and.
We expect that we will continue to win our fair share.
Got it very helpful. Thanks for answering all my questions. Appreciate it guys. Thanks.
The next question comes from Jason Haas of Bank of America. Please go ahead.
Great. Thanks for taking my question and good morning.
And I'm curious if you could speak a little bit more towards some of the quarters of day trends, you're seeing just because I imagine.
There's been some maybe some volatility due to just the stimulus.
And whether it's maybe had an impact on them and also with tax refunds being delayed and so I'm just curious how each of those if they've had an impact at all on your business. Thanks.
Yeah, Thanks, Jason Youre right I mean, you hit the nail them.
We did see and in fact in GMB from stimulus right at the beginning of the year, although it was for.
I'll be a little bit more muted than what we saw in April ish timeframe of last year.
And then.
And we had we had some good trends as we said we were a year to date, we were up mid single digits and GMT.
And as you think about that.
At the stimulus impact and then exactly what you said that.
The tax refunds are 85% delayed.
For 85% down year over year, so far I think that the anticipation is that they will start hitting this weekend and probably into the next two weeks of March. So we will be watching to see that impact. Although there's also concerns around the fact that overall size of the average refund will be down kind of low.
Double digits, so we're watching that and then.
We were certainly at a higher year to day trajectory from of <unk> until the.
The last kind of 10 days of weather related challenges and.
And certainly Texas is a big state for Us and had some really big disruption so.
We've got all of those things kind of baked into the year to date numbers and then we will be watching.
The release of the tax refunds.
Throughout the balance of the quarter and then obviously as we get into the back half of March we start to.
To get into comparing against the onset of the pandemic last year. So a lot of a lot of moving parts of baked into the cake for Q1 <unk>.
As Brian said in his prepared remarks at as a multiyear process.
We're very pleased with how the.
The ramp and the growth and 2020 and.
And both of those National partners and <unk>.
Expect big things and 2021.
Great to hear thank you. Thank.
Thank you.
The next question comes from Brad Thomas of Keybanc Capital markets. Please go ahead.
Hi, good morning, and.
Congratulations on your first Standalone call here as a company Hi, Brad couple of.
Youre welcome Steve.
A couple of questions if I may at first around.
The changes and the Decisioning and I believe you said your approval rate is running about where it was this time last year.
When we think about at the back half of this year and lapping.
This quarters, where your losses were at two 1% and that and four 5%.
What's the opportunity to add to revenue is in those quarters.
If you underwrite at a higher level of fee decision at a higher level and how much could that potentially of hedge revenues and the back half.
Yes, Brad without.
And kind of quantifying the revenue at all at all.
Let Brian chime in here as well, but from a G of these standpoint I would say.
Decisioning definitely had an impact on our <unk> and 2020, and we think that.
On the decisions we made in March of 2020, where appropriate at the time they've made at proved a little conservative now but.
Knowing what we knew then we would probably make the same we would make the same decision so but having said that we did make the moves that I outlined in my prepared remarks, and we expect.
That that will help <unk>.
In 2021, I think we said in previous calls that and the.
Let's call. It Q3 of 2020 of the back half of 2020, we had our approval rates were about five to 700 basis points lower than the previous year. So it wasn't an immaterial number.
And.
So as you think about and if you think about revenue, which was your question. That's at a more difficult for question and answer because that is mostly driven by <unk> that will be delivered in Q1 and Q2.
But as Youre thinking about Comping and <unk> and the back half, we think theres a lot of factors that would create.
And then of good comps and Decisioning is certainly probably at the top three not number one but and the top three yes, I think that's right and so as Steve mentioned and this is gonna be a bit on the lag from the time you made this decision and changes we've seen in <unk>.
Revenue of.
One of the two quarters typically but yeah, I think as we frame of Q1 and and beyond I think the expectation around write offs and general.
Is to see some some movement there.
At up a bit.
Looking for opportunities.
And when there's profitable deals too.
<unk> on.
One of them and the funnel so.
We continue to watch that and look to be opportunistic we've got a best in class Decisioning team at is that is making at their priority. So at this.
This environment changes with stimulus and looking at changes and customer behavior, we're consistently looking at that and looking for opportunity to.
The graph at GMP extended at that is.
Additive at the bottom line.
Okay very helpful and.
And then Steve.
Steve If you could just remind me.
And Aaron's and progressive last year, and the first quarter increased reserves as a result of the environment that we were going into and the risk of losses being higher and I believe.
As of the third quarter, you all had not.
Release, those reserves can you just give us an update on where some of the reserves stand today for current conditions and expectations relative to the strong write off trends.
Sure I can take that.
You're right, we record of about $16 million of incremental Covid of reserves back in Q1, as this pandemic and began and we had uncertainty around how the other customers and perform.
As we closed out the year, we brought that reserve down slightly at $14 million.
And we still there's still meaningful uncertainty out there what the meat of tax season, and ultimately still remains to be seen on on how those customers can handle.
Rent deferrals and things like that so so effectively and feel like we're adequately reserved I won't stay at where reserve for it for catastrophic cases, but I think we're conservative of the base case and.
I think I don't think theres going to be additions to that reserve based on what we can see right now is moving forward.
Got it just to make sure I heard you right.
There have been now at $14 million down from 16 million Yeah. Its brought down a couple of million dollars based upon our most recent analysis.
Perfect and and as of last housekeeping item.
For the share with us the percentage of revenue that you have coming from California right now.
Yes, we can share of that.
For 2020, it was approximately 9%.
Great. Thank you all so much thanks Brad.
The next question comes from Alex Marroquin of Behr and Baird. Please go ahead.
Good morning, guys. Thanks for taking my questions.
First one on your E com strategy and at piggyback off of your previous comments around F N B's versus enterprise focused.
Virtual lease to own company, So where you are particularly focused on landing at a handful of very large retailers similar to your legacy partners from and E. Comm standpoint, or can we expect you to target a large volume of smaller DTC start up similar to your peers have been targeting.
Okay.
I would say, yes to both of those on our strategy. We've got we will have teams focus on.
Both of those different.
And the different markets.
We certainly our biggest near term opportunity is too.
As we've talked about before convert and.
And get fully transactional and the E com checkout part of our existing.
Network of enterprise partners, but at the same time, we know that.
Simple and integration less plug, it's with the popular platforms like shopify and demand wear and majesco for and the SMB space are a big opportunity as well and so we've got teams that are.
Not only focus but instead of us on the.
On both of those are very important areas.
Okay, Great. That's helpful. And then on a related note can you discuss some of the margin impacts of and expanding our E. Comm business, just because I guess, most importantly, I would think E. Comm write offs can be a bit different and and returns are more expensive since there's not a physical store and bumps and so I was just thinking correct.
All things being equal typically how we kind of we call them or you're going to see a lower approval rate on e-commerce and and so our decisioning team will effectively assess that risk being a little tighter in terms of their decisioning profile and what that at all in as we evaluate them at our margins of profitability of E. Commerce deals, we're able to achieve.
Effectively very similar margins to what we would see and and say our brick and mortar transactions. So.
You're right and the rest of the customer.
And generally elevated but we're able to solve for that through our proprietary decision here.
Okay, Thanks, and good luck for the quarter.
Thank you.
The next question comes from Bobby Griffin of Raymond James. Please go ahead.
Good morning, and body. Thank you for taking my questions first Steve I just wanted to quickly go back to you and your prepared remarks, you mentioned I think three headwind at the Dnb cash payments. The E Commerce aspect and then the supply chain, where those given and rank order and your view or if not can you maybe size up for help us think about what you thought was the biggest headwind during the quarter.
Oh I think yes. Those were those were in rank order I mean, what we did see and we've had anecdote of anecdotal evidence from our from our partners is that even though they may have had a pause.
And of course in the quarter, because ultimately the holiday shopping season was up year over year they saw a.
A shift of composition of cash sales or personal credit card usage versus people, reaching for offered point of sale of finance options within their within their environment. So that was certainly a.
A headwind for us.
We also saw and I think I mentioned this on last call. We also saw some supply chain issues manifest themselves through.
Visibility into a truck of furniture coming into the store, but by the time the truck out there. It was all pre sold.
And so there was less even though they had good comps and in that category.
There was less availability for of.
Inventory availability for people, who are use of financing because it was sold with people who put deposits down and cash so I would say.
In fact back to your original question. There was it was in rank order of.
Of how we thought what changed and what we thought the impact was since we since we basically gave our outlook on October 29.
Okay, and then on the e-commerce aspect.
And for any drive better penetration there with your with your customers or your partners, obviously getting the service offered online at the first step, but can you maybe talk about some of the marketing angles of the initiatives because I'm just thinking about at from a high level. If I walk in a store. There's the store associate that can tell me about rent to own educate me about rents at home, but it could be a little bit more difficult for a customer.
And to realize at Xyz retail offers debt online and when they're shopping on line. So is there any new programs there that you're putting in place or how you're working with your partners on that aspect.
And that's expensive.
Real challenge basically of getting the debt awareness and visibility on line, especially because everything is mobile first and real estate on a mobile phone as the most of <unk>.
You will of commodity of as it relates to the landing pages and checkout cart. So, but we've got we work very well with our partners, we've got great marketing collaboration.
And we can.
Reach for.
Particular promotions that can drive people to knowing that the.
At the offering exists online and then that raises awareness, but it is a.
It is.
We have a of button basically says you don't pay with progressive or something but it's.
And until now.
And that's after they've put something in the cards. So we've got we've got work to do and it's in collaboration with our retail partners on.
How do we raised at awareness and it's and both of our best interest as well as the customers to to make sure. They know it's available and the.
Those plans are happening and also being enhanced and all the time.
Okay, and then I guess lastly for me on the on the tax refund season, I mean, clearly a lot of moving parts here, but historically if I remember correctly you know when you are trying to just get refunds at drives buyouts and the buy out of the contract or at least and there's good cash flow into your business.
And if refunds are down dollar wise or just the amount of something how do you foresee that playing out I mean, you can see customers I guess hold onto the product of a little longer but then at the same time you don't have your customer base with new cash for for new purchases or something but so just any any high level thoughts about how you guys view this potential.
Playing out would be helpful for us to think about.
Yes, I think what I'd say to that I mean, and the ordinary course of what we see during tax season, and there's typically a spike in 90 days when the buyouts.
And collections tend to be higher.
And that's an improvement and your delinquency metrics and <unk> also benefits so and isolation.
And tax seasonality and a more muted taxis and it does impact these metrics.
However, you think about stimulus and what's on the horizon, there and that obviously throws a big wrench into.
Try and hold that and isolation, there's obviously moving parts there so.
I think there's I think generally the macro trends point towards a continued strong portfolio and and maybe a slight delay and G of any volume as we think about it and the way tax season, but from a from a cash flow perspective.
One of the and one of the strengths of this model is.
All of you to turn to portfolio quickly, so even and even with that considered and having that.
Taxis and pushed out a little bit the company is able to self fund.
Pretty easily during us during this point and time in terms of cash flow from operations.
Being positive.
So I don't think there is at but I don't think there's any concern there I think there's probably a little bit of a temporary dynamic of <unk>.
And back of Metrostars specified.
And and ultimately I think we'll be in good shape at there's there's certainly a lot of a lot of liquidity out there right now and of stimulus is going to get at that.
Okay I appreciate that and I guess, one quick modeling question can you give us the active doors and <unk>, where we can clean up our model yes.
Yes, I can and I can give you the back of doors.
So at the doors.
For $20 700 and just.
And down from 2200 <unk>.
And very last year.
Yes, sorry for 2000.
21000 from last year, So 20700 and down from 22000 and same period last year or so.
And really that's being driven by you know we've talked about some store closures during the pandemic and all of our large national retail partners at some types of permanent closures that are playing through to that number and.
And I'd be remiss, if I didn't say that particularly as we shift more towards e-commerce and with these big box retailers ramping and became a higher concentration of that metric becomes less and less important.
And she she more productivity and these big box retailers and it's going to skew. These numbers say from a from a regional mom and pop so and just keep that in mind as you're assessing that but those are those of the figures for the for the quarter.
Yes, we should see that moves up we should see higher invoice I mean higher excuse me of G. M. D. At anything they wanted to get used at new the new Mayor DMG.
Yes.
Yeah.
Alright, guys. Thank you and I appreciate the time thank you.
The next question comes from Vincent <unk> of Stephens. Please go ahead.
Hey, good morning, Thank you for taking my questions and.
And kind of a clarifying question about some of the online and details you gave so the debt.
Online <unk> mid single digits and use.
Expect it to more than double to the low and mid teens percentage of GMP is at the.
Percentage of.
And advocate for I should say closed applications on line sort of application gets funded on line and then if so.
And just kind of wondering when you think about the opportunity what what could that percentage would be that you and you do online you close on line.
Yes, Thank you Vincent.
So I guess.
And I think I've mentioned this but we narrowly define e-commerce right. So we end up.
Multiples of that from a percentage of standpoint debt.
And e-commerce component to them when it comes to the <unk> like if we think about app starts and things of that nature, but we narrowly defined.
E Com as it has to finish in the retailer's card and that means lease signing first payment.
A range of delivery of that type of stuff. So that's what we're referring to when we talk about mid single.
<unk> and then.
With that definition.
We're talking about being in the.
Low to mid teens in 2021 of.
But overall <unk> and <unk>.
<unk> is quite large so that's a really big business.
And what it could be as I would say, we're somewhat agnostic too because it's ultimately driven by the customer the customer will decide where they want to engage with our retail partners. We do think there's opportunities too.
And through our marketing efforts and per <unk>.
Repeat business.
And to keep them.
To have more and more customers do business on online and drive customers through into the economy.
And he kind of environments, but ultimately.
And we expect that would be channel shift there'll be some people that go and store that used to go and store and now they'll be online but.
We expect it will continue to grow and it will grow faster than the rest of the channel, but we're not targeting a number because it's really all about where the customer wants to.
And also participate with us.
Okay. That's very helpful. Thank you.
And I wanted to ask.
Last question I wanted to follow up on the question about competition and.
And virtual lease to own and over the you know the fourth quarter. We had a couple of these guys go public or announce that theyre going public whether it was by end of the rent a center of acquisition of a CMO or at catapult going public.
<unk>.
At Investor questions I've been getting is now they are familiar with with other.
Other competitors out there and so I just wanted to kind of for a broad question to you.
And maybe why why does the retail or pik progressive over the other guys and essentially give us a sales pitch because sales pitch on progressive since some of them.
And how it differentiates versus some of the other players out there. Thank you.
Yes. Thank you.
Listen.
And that's going to change based on.
Based on what retail Youre speaking to but.
From a from an enterprise accounts, thereby progressive is still the largest is the most referenced of both where the only on currently servicing the largest national retailers that offer this solution and the country and that comes with the ability and the history of <unk>.
<unk> their customers and their retail sales associates through customer support merchant support.
Very well then it also comes with the infrastructure of.
And the the tech jobs and everything that allows them to feel confident that we're going to take care of their customers and.
And all the way to their data.
So that history is very important we believe that.
Our reference ability and our and our track record.
Meaning that we will be in the conversation for all of these.
All of these retailers that are looking for a solution and our our roadmap and our technology roadmap will help to paint the picture as to why progresses, who to choose and the and the SMB space.
It's very.
It's very competitive and we're not going to go out and just compete on price of rebate, but where we have a great track record there of delivering value and taking care of their customers our customers Love US. We've got great reviews of the voice of the customer speaks very loudly for us and we use that and.
And as you say our sales pitch. So we've got a net promoter score of 62, which is outstanding.
And it's basically our customers speaking that day.
And that we treat them well and.
And they like us so and.
And then the.
The last thing and it's very important and I alluded to at earlier is.
We are not just to save the sale solution for a retailer. We are a value added partner that may have started a few years ago as a.
Ride their marketing rails and save the sale now we are.
Incremental driver of business of customers that.
We're not.
And historically doing transacting and these retail environments and so our network effect and are.
On the digital ecosystem that we can bring to bear and provide for these retailers and prove to them that either of our marketing effects for our relationship with other customers have driven them into.
That retailer is very powerful and and not only helps us maintain retail and relationships by the attract new ones.
Okay. That's very very helpful. Thank you very much.
Thank you Vincent.
This concludes our question and answer session I would like to turn the conference back over to Steve Michaels for any closing remarks.
Well. Thank you everyone and thank you for joining us today and thank you for your interest and our company.
We are at certainly uncertain out there and it's certainly uncertain, but even in this and certain uncertain environment. Our team is very excited about our launch of a standalone company and our opportunity to continue progressive and history of growth and innovation.
I want to thank all of our employees for their Tyler and tireless work to help provide simple and affordable purchase options for the credit challenged consumer and.
And we look forward to updating you again next quarter.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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