Q4 2021 PROG Holdings Inc Earnings Call
Good morning, and welcome to Prague, holding Inc. 's fourth quarter and fiscal year 2021 financial results Conference call. All participants will be in a listen only not should you need assistance. Please signal conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask the question you May Press Star then one on you touched on some of them.
It was drawn from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John Goll, Vice President of Investor Relations. Mr. Sha. Please go ahead.
Thank you and good morning, everyone welcome to the Prague Holdings fourth quarter and year end 2021 earnings call.
Joining me. This morning are Steve Michaels part Holdings', President and 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, which is available on our Investor Relations website, Investor Dot Prague Holdings Dot com.
During this call certain statements, we make will be forward looking including comments regarding our expectations related to progressive.
Progressive Leasing's G M b 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 five segments for 2022 and.
Including with respect to revenues adjusted EBITDA and for the company, it's GAAP and non-GAAP earnings per share.
I wanted to call your attention to our safe Harbor provision for forward looking statements that can be found at the end of our earnings press release that we issued earlier this morning.
That's 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're 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 not non-GAAP earnings per share would have been adjusted for certain items, which may affect the comparability of our performance with other companies.
These non-GAAP measures are detailed in the reconciliation tables included with our earnings release.
The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods.
And to assist them in understanding the company's ongoing operational performance.
With that I will now turn the call over to Steve Michaels Steve.
Yes.
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 <unk> holdings.
For those of you on this morning's call who have been following us for a while you know that 2021 marked our first full year as a standalone asset light Fintech holding company.
You'll also recall at the beginning of 2021, we stated that we believed our new operating profile and the substantial capital we expect it 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 GMB growth of 15, 8% for our progressive leasing segment.
More than doubling progressive Leasing's E Commerce <unk> production.
And scaling our vive financial operations to profitability.
We also entered the buy now pay later pay enforce space with our acquisition of <unk> 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 teams' efforts this past year and driving exceptional results, while helping to position us for success in both the near and long term.
We delivered 18, 3% growth in Q4, <unk> and a progressive leasing business as compare compared to Q4 2020.
And <unk> 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, <unk> grew 45% in Q4 and 151% for the year, representing 15, 2% of its <unk> in 2021.
We expect strong growth in progressive Leasing's E comm business to continue as we integrate with existing large point of sale partners online cards and add new partners through our plug and play solutions.
Our GMB growth in 2021 was driven primarily by our large national partners and we expect that growth to continue in 2022.
We believe we are well positioned to drive their sales and <unk> and 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 in us capture additional GMB.
Our consolidated Q4 revenues grew six 8% year over year and seven 8% in 2021 do.
Due primarily to a larger lease portfolio fueled by strong <unk> growth.
As the annual outlook, we provided in November indicated for Q4.
Consolidated adjusted EBITDA margins declined to 11, 2% compared to the stimulus aided margins of 15, 6% in a year ago period.
We continued 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 six 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 expect it to continue given our business is 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.
Yeah.
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 comm 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, Prague, Central which gives our small and medium sized pass partners are 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 and capturing a large share of the 30 to 40 billion dollar addressable <unk> 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 bring significant digital expertise, including experiencing 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.
And the continuing effects of Covid.
Additionally, an uncertain tax refund season due to potential IRS delays and the unknown impact of the recent exploration 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 <unk> 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.
And 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 <unk> in 2022.
The decline in adjusted EBITDA outlook is largely explained by write offs, increasing from four 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 exploration of stimulus and the increase in inflationary pressures more than prime consumers.
Notwithstanding those challenges from a preferred 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 <unk> 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 <unk> 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.
Vives expected revenue growth for 2022 is driven by the higher loans receivable balance that was built up from 2021 strong GMB.
The forecasted adjusted EBITDA range shows strong profitability, even with a year over year reduction due to the 2021 provision release.
We expect <unk> to remain profitable going forward.
Finally, we are providing 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 Prague 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 for last summer and spent the last few quarters building up the infrastructure and team while working on our portfolio performance and integration into <unk> ecosystem.
We believe that paying for BNP product as complementary to our core leasing business as we look to grow with existing and prospective Baas partners.
Okay.
As we announced last March we hired a leader to build an R&D teams 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 at our other operations are part of our commitment to that objective.
From an overall Prague holding standpoint, we have been clear the 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 <unk> 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 ecommerce and brick and mortar partnerships, which we believe will lead to <unk> 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 gives 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 Prague 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 , Bryan Garner who will discuss our financial results in greater detail.
Brian .
Thanks, Steve.
<unk> Holdings' fourth quarter financial results reflect three primary trends in the business.
First strong <unk> in the period for both progressive leasing and by financial increased our overall portfolio size, which should benefit future periods 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 write offs 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 better optimize our balance sheet, including the repurchase of $425 million of outstanding shares of our common stock and 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.
<unk> grew 18, 3% in the fourth quarter and 15, 8% for the year.
The continued growth in <unk> contributed to our gross leased assets, increasing 15, 5% year over year.
This is the third consecutive quarter to the portfolio has grown which set 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 declined year over year and customers delinquencies and lease merchandise write offs reached pre pandemic levels.
Progressive Leasing's Q4, gross margins was $30 two versus 32 five in Q4 of 2021.
This 225 basis point decline was driven by higher delinquencies with mineral 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 driven by continued investments in technology to enhance our customers and retailers leased one experienced an increase in sales and marketing spending and higher corporate and public company expenses.
Progressive Leasing's provision for write offs was six 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 six 6%.
We closely monitor customer payment trends to inform our decisioning posture and expect to deliver portfolio performance within that annual range of 16% 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 <unk> Holdings was $646 5 million compared to $605 7 million in the year ago period, a six 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 <unk> 59.
And our non-GAAP EPS came in at 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 year end 2021, or approximately one one times, 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 the outlook for 2022, we expect revenues to grow to between $2 79 to $2 9 billion adjusted EBITDA to be in the range of $320 million to $350 million and non-GAAP EPS in a range of $3 25 to <unk>.
$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 to $2 83 billion and adjusted EBITDA in the range of $330 million to $350 million.
As we expect continued growth in our leased asset portfolio, a normalization customer payment activity that should result.
And a decrease in adjusted EBITDA margins to pre pandemic ranges.
For our revised 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.
Approximately 26% tax rate and know where share repurchases beyond the approximately one 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 begin 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 <unk> growth rate over the course of the year, leading to stronger EBITDA and EBITDA margins in the back half of the year.
I will now turn the call back over to the operator for the Q&A portion of the call operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before.
And Keith.
Withdraw from the question queue. Please press Star then two.
Our first question comes from Kyle Joseph with Jefferies. Please go ahead.
Hey, good morning, guys.
Thanks for taking my questions Steve.
Steve I think at this point last year, you were talking about.
The stimulus sugar high spending that we're seeing so is this kind of a hangover from that and then I guess, how long would you expect that hangover to last I guess my question is do you think this shifted recently as Marcel from.
Inflationary impacts or is it.
At the consumer bought a lot of what they needed in the last call. It 18 months.
Yes, Kyle Thank you and good morning.
There's a lot there's a lot that goes in that mixing bowl.
I think we came off of a.
<unk> strong Q4 from a <unk> perspective, with an 18, 3% growth.
And if you and I will be talking about what our outlook for 'twenty. Two if we had been talking about it on Jan one we would have a different.
Probably a different view than than what we've experienced over the last 45 days or so.
I think that it all goes into the mixing bowl as you said stimulus sugar high inflationary pressures, but it's.
It is definitely correlated with just omicron and the Covid impact of people.
Stay at home during January as.
As we said were slightly negative year to date, but we have improved February month to date versus the January trends.
We had reports from retailers, where they couldn't even staff their stores and they reduced operating hours in the week because of <unk>.
People that were sick and quarantining and so.
As you would expect we had actually increases in <unk> on our E com channels, but since E. Com is kind of mid teens of our overall business.
The in store.
As the overall to be to be negative so.
We expect and we hope that.
That is the case counts, which are coming have come down very aggressively.
Jane will get back to a more normalized environment, but then we'll get we're coming back to an environment that is.
A little uncertain as you said because we've because we're not comping anything or we are comping against a pretty heavy stimulus from last year as well as we're entering into a.
Uncertain tax season, which is.
Certainly delayed at the.
The most positive way to spin it it's going to be delayed.
I'm not sure about the demand pull forward and people bought what they want I still think there is good demand out there and we expect that as we move through this next several months.
We're going to have.
Improvement and increases in our in our <unk>.
Once we get pass the stimulus and some of these.
This chap will have increases and improvement in our GMB growth.
Got it.
Very helpful. Just one follow up for me.
On the pipeline, it's been a couple of years since we've seen kind of a big AD and to your point it seems like the environment is getting.
To be one in which our retail partner may desire a financing partner like yourselves more satellite at this point with more challenging comps and whatnot.
Can you just give us any any update you can on the pipeline and and kind of demand and conversations youre, having with retailers understanding that retailers have been distracted in 2020 with the pandemic and to my understanding distracted a little bit with Onboarding BNP Alan in 2021.
Yeah, Yeah, you're right there and as far as the setup goes we're very optimistic about about the year in about the next several years because the opportunity has is as large as it ever has been we're well positioned to take advantage of it.
And when there is some.
Some some chop in the waters, that's when our when our business shines it shines for our customers because.
Coming off a high liquidity period of the stimulus environment of Covid. There are more in need of flexible point of sale payment options and we will be there for them and it can shine for perspective current and prospective retail partners as well. So current partners, we can be more important to them and drive.
Higher balance of sale and as you said in your question.
Retail partners that we've been having dialogue with that May have just not prioritize that because a lot of a whole host of factors.
Yeah.
We have seen in previous cycles have have used these times to kind of lean into a new solution and a new tool to help them.
Drive their businesses as well so we're encouraged by that and we would we would think this environment would be more conducive to pipeline conversion in the last couple of years.
Great. Thanks, very much for answering my questions. Thank you.
The next question comes from Jason Haas with Bank of America. Please go ahead.
Hey, good morning, and thanks for taking my questions.
My first one is on just the overall credit environment I think on the last few calls we talked about an expectation that we may start to see some credit tightening above what your funnel some more customers down so I'm curious if you're starting to see that yet and if not.
What sort of timeline do you think this year, you'll start to see some of that happen.
Yes, Thank you, Jason and that's what we do expect from a macro environment. We've talked about kind of this normalization are returned to normal and having it has kind of two phases are two prongs. One is we expect higher write offs, which we are experiencing and expect within our normal ranges, but then too it should be it should lead to.
Two a removal of a headwind.
From <unk> and that can come in a couple of forms one would be just customers needing more point of sale payment options are normal kind of core customers and then to.
Tightening of the supply above us.
In the stack and Thats, what youre, referring to.
I will tell you right now I believe that the early innings of this kind of returned to normal is impacting our customer more than the prime customer from a from a credit performance standpoint.
And that is pretty common sense, just because our customer would probably burn through any kind of savings or cash reserves more quickly.
And they were a bigger beneficiary of the stimulus.
So.
We have not seen to date.
A material change in the in the.
Application funnel above us.
But as.
Is this kind of continues and inflation continues to be pressure in gas prices is part of inflation, we do expect that those.
Next marginal group of customers above us on the on the FICO stack will.
Less of them will get picked off by credit supply above us and it will it will flow into our market, but there will be a lag there as we've been talking about for several quarters and we're not seeing it right now, but we would expect kind of as the year goes on that phenomenon what happened.
Thanks, I guess, a follow up question to that where do you see the financial health of your customer right now as compared to pre pandemic levels. Do you think we're sort of back to where we were.
Prior to the pandemic or do you think that that customers still had some extra money and then I guess going forward are we sort of rooting for that customer to get into worse financial position. So.
And maybe drives more usage of lease to own.
Or do you.
Thank you Sir.
Stay stable I guess another way to ask the question is sort of like what sort of economic environment do you think you need.
The guidance this year or is it sort of independent of what the macro does.
Yeah, so the customer as it relates to pre pandemic.
Think if you just assume that the stimulus has kind of been spent or burned off then you get more apples to apples and I would say that employment is better right employment was gray coming into the pandemic employments very good now there has been some wage inflation, but we're experiencing.
Food energy and housing inflation like we haven't seen in decades, and so the customer.
It's probably under a little bit of stress, but our customer I've been dealing with this customer for nearly 30 years and they are very resilient.
They are not going to they're not going to adjust overnight, but over over a period of time, they will make adjustments and get back to.
Their normal environment, So I'd say, they're kind of at par to slightly more stress than they were pre pandemic just because of the inflationary pressures.
Even though employment is good and there has been some wage inflation as far as the macro environment clearly based on the last 45 days, we are not immune to the macro environment.
Does applications just haven't come through but.
We like we want employment right with.
That raises all boats are all ships.
And that's the outlook for that for this year is good.
The goldilocks macro environment for us would be great employment, and a little less money flow in the market from a credit supply standpoint.
Those things don't normally happen together.
But.
<unk>.
We've put the put our outlook out there based on what we know now, but we do anticipate as the year sequentially progresses, we will have improvement and we're excited about.
Not only are.
The lease business, but some of these other things we're working on in conversations, we're having with retailers and we think that.
Even though this the <unk>.
Margins in the outlook is a little bit of a pause in our historical history of growing earnings we're set up well for the next several years.
Great. Thank you.
Thank you Jason.
The next question comes from Bobby Griffin with Raymond James. Please go ahead.
Good morning, everybody. Thanks for taking my questions I guess.
I just wanted to first touch on cash flow generation of the business and we had multiple companies report. This morning. So my apologies if some of this was addressed in the prepared remarks, but if you look at this year and the free cash flow at kind of a conversion of EBITDA roughly 60% is there something this year that abnormal or that could.
Conversion of decent rate to assume going forward and then I guess the second part of that is if you take next year's guide.
And use that same conversion implies another great year.
Really strong free cash flow leverage is really low in this business.
You don't want to build cash like Shouldnt couldnt business hold more debt and buyback a lot more stock than it already has.
Yes, Thanks, Ravi I mean that is one of the great parts about this business is the cash flow generation, we've talked a lot about even at very high growth rates. It can still.
At least self fund if not generate free cash flow and I assume when you met this year as far as kind of as is normal youre talking about 'twenty, one and I would say with the caveat of timing matters like <unk> growth and timing matters I would say that there was nothing abnormal in 'twenty on as it related to the businesses ability to convert.
Hurt EBITDA into free cash flow generation, and we would expect we don't guide to free cash flow, but I would expect we would expect 22 to be another strong free cash flow generative year and when we thought in the fall about the tender are.
The desire to bring bring shares in and shrink the cap.
It wasn't the end of our capital.
Capital return.
Campaigner strategy. It was it was it was one way to execute and so we would.
Our capital allocation priorities haven't changed you've got organic growth, which we can kind of check that box. We're fortunate in that in that regard continue to look for some M&A and then return excess cash to shareholders. So.
I would expect that we'll continue to return cash to shareholders this year and into the future.
Absent some.
Potential M&A opportunity.
We have said that we like to stay in that one to one five turns of leverage and that's for a lot of strategic reasons related to using the balance sheet is to position us for strength for potential retail partners and to be able to.
Not have anybody concern that we can't fund that growth.
But we've got room, there as well as cash generation.
Okay, and I guess the second question for me you called a little bit out in the prepared remarks, but the S.
G&A level of the business going back above pre pandemic levels in some ways using some things like that but it is it structurally just more expensive. Besides the wages to operate this type of business today, I mean, and maybe include the drag from before and other acquisitions that you've called out but is that just a new normal.
Where is the bigger SG&A level that has to be in this business or are these investments going to start to see ROI, where we can have.
Some return in the future either through growth or better.
SG&A back in line with pre pandemic levels.
Yeah, Thanks for that I'll start and Brian can jump in but.
Yes, I would start by saying, there's not there's nothing structurally that has changed during.
During the pandemic that it's just more expensive.
With the exception of the fact that.
Compensation costs in the war for talent has really impacted us across all levels from <unk>.
Premier developer and engineers to even.
Thing of really professional and customer centric contact center. So theres. There has we have seen some upward pressure there.
If you go back to 2000 from 2019 to the end.
End of 2021, we grew revenue, 25% and we grew SG&A at like 23, 8%.
Now.
If you look at the what we expect for 2022. It reflects continued investment in SG&A.
And a little bit more muted.
Revenue growth than we expected because of the <unk> headwinds that we've experienced here in the first few months and as you guys know from our revenue recognition.
Early GMB has a bigger impact on the calendar year than later GMB.
Just kind of where we are as we came out of the gates. We continue to have a what we referred to as an investment layer and you acknowledged that we're not we're not optimized for profit we're geared for growth and we do believe we wouldn't be making these investments. If we didn't think they had a positive ROI we expect that.
Some of the E com.
Plug ins as well as new products and other things that we're developing and launching to help our retailers and even our direct to consumer motion.
Will.
Provide growth and have a positive ROI.
Even in later in 'twenty, two and into 'twenty, three 'twenty four or so.
Short answer is there's nothing structurally that has made it more expensive we we're continuing to invest in not running it for the next quarter or two we're running it for the long term.
Those are the prudent investments.
I appreciate the detail and best of luck this year, okay. Thanks, Bobby.
The next question is from Anthony Tanaka with loop capital. Please go ahead.
Well, that's a new pronunciation.
So.
Hey, good morning, Thanks for taking my question I.
I guess my first question over the last call. It 12 to 18 months, we have seen some consolidation in the industry right rent a center buying a FEMA and then first cast buying American first I guess what are you seeing.
A competitive perspective for large.
Sort of National partners, and even more of a kind of a small 10 20 door changed any anything that you've seen that's changed with with the consolidation that we've seen.
Yes, Thank you Anthony.
I mean, we've talked about this before but we havent seen.
The as you mentioned the small 2010 to 20 door changed it's always very competitive it remains competitive.
And.
And we expect that to continue.
The enterprise accounts for the National accounts the conversations we're having we would expect that.
The folks that don't have a solution that would be talking to.
Multiple parties and we feel like we've got.
We're well positioned to win more than our fair share of those.
Those processes.
But generally as I've said before I think this.
It's less about consolidation.
As you mentioned, the Sema and HFF and then in catapult I think it's a positive thing for the industry and I believe that it actually helps us just because the.
Multiple competitors being being public and reporting and having the <unk>.
A similar kind of investments in compliance and infrastructure.
The level, the playing field, a little bit and is healthy for the industry from an optics and a regulatory standpoint from a competitive standpoint.
Theyre not new competitors, they may be more well funded from a balance sheet standpoint.
But we continue to believe that our our track record and our our partner network speaks volumes about our ability to to drive business for perspective for that pipeline conversion.
Got it that's helpful. Thank you so much for taking my question. Thank you Anthony.
Next question comes from Brad Thomas with Keybanc. Please go ahead.
Hey, good morning, everybody. Thanks for taking my question.
I wanted to circle back on on just gmg and its relationship with.
With sales obviously, a metric you all had been disclosing some too.
<unk> Standalone company, but we're still kind of getting used to it and connecting the dots between.
The income statement here.
So it seems to me that what <unk>.
The biggest headwind in between the GMB growth on a reported revenue growth.
Is the write offs going higher and so as the write off start to get more normalized and you're watching on an increase in those year over years it.
It would seem that perhaps the reported revenue growth.
Start to track more in line with Dnb.
The question would be is that the right way to think of it and down anymore.
Thoughts on how we should think about.
Connecting the dots between those two items.
Yes, I'll, probably let Bryan.
Simon here, but I would say that there is not.
So just there's a lot of correlation but as far as revenue growth our reported revenue growth write offs would not be.
<unk> have an impact on that.
The other side of the allowance, which is the allowance of the accounts receivable allowance.
Could have an impact on on revenue because it's a contra revenue account, but I should probably I'll, let Brian Yes, I think.
The metrics that I would watch as youre kind of analyzing the revenue trends.
The portfolio the leased asset portfolio that we have on our balance sheet watching the growth rates. There is going to have more of a correlation between.
That in revenue GMB feeds into that lease asset balance in that revenue over the course of time, we will follow suit with that leased asset.
A little bit of noise as you look over the last couple of years in particular because.
90 day buyouts have been elevated to levels, we've really never seen.
In the history of the business given the liquidity of the consumer and so what's happening is we're getting a lot of those buyouts happening.
That of.
There have been recorded as revenue.
Revenue in the period of buyout and so Thats lifted 2021 revenue listed lifted 2020 revenue and so that's part of that normalization dynamics that Youre seeing 90 days are starting to trail off.
As expected so that's going to that's going to have a bit of a downward impact on your revenue relative to the last couple of comps. So I would just keep that in mind, but in a normalized state as things return to normal youre going to youre going to see revenue trend over the course of an annual period in line with the port wholly.
So all else being equal.
Yes, so Brian its more of a function of the 90 day buyouts normalizing.
Right.
Yes, you've got the write offs or are down in operating expenses.
As Steve mentioned the.
The AAR reserve with the change in the ore reserve.
Certainly as an offset to revenue, but I think.
In order of magnitude, what's going to matter over the course of time as the 90 days getting back to a normalized level.
And then you'll start to see revenue kind of fall in line with the portfolio.
Okay.
Gotcha.
And as we think about the <unk>.
Revenue guidance for about 4% to 8% growth.
The GMB.
Cash for the year.
Yes, Brad we didn't we didn't guide specifically the <unk>, but as you can as obviously there is a relationship there and if we're starting this.
For the year, a little soft in that where we're slightly negative year to date and then we are going to be comping against another sizable stimulus here in the back half of March and in April .
The math would imply that you have to be kind of.
Double digit.
<unk> growth in the last seven or eight months of the year in order to in order to comfortably be within those revenue ranges. So and that's our expectation is that we get through this this next several months.
And get back to those levels.
We were as I mentioned to Kyle if we're having this chat before omicron impacted applications in retail.
Just robustness, we would've expected <unk>.
Roughly where we were in 2021, which is a really strong level.
Yes.
Yes.
Really helpful. A couple of other quick housekeeping items, if I could.
I know that part of the narrative in the third quarter earnings was we were getting a return to kind of normal.
Conditions in margins and write offs faster.
Probably than anybody expected.
Just as we think about the last few quarters I mean would you think of <unk> as having been pretty normal as we look at.
11% EBITDA margin write ups in the middle of that 6% to 8% range.
Is this the first kind of normal quarter to be comping off of and that we've got three quarters, where we still have to kind of get to normalization or would you think of.
They are still being issues that we need to normalize on or even at three key it might've been more of a normal quarter I just I'm curious how you think of.
If we're getting back to more of a normal trend here.
Yes, I think it was certainly a step in that direction and I think when we talk about our annual targets. It's important to remember. These are these are annual targets and certainly we see some variability throughout throughout the year in any given the seasonality dynamics 90 day et cetera, but you are right.
We as I mentioned my prepared remarks, we're seeing some of the delinquency trends basically reach pre pandemic levels and I think that flows through and I think it's important to note with respect to the portfolio overall and we've.
We've hit on this before.
But we feel like we have a high degree of control over over the portfolio yield and the lease outcomes and that's a function of a couple of things. That's the short duration of the portfolio average life is just over six months and so as we start to see things.
Start to sense the.
The winds are blowing a little bit of a different direction and we're able to to make changes in our decisioning posture don't really make sure we stay in line with those desired economics.
So as we return to normal as we see those delinquency trends start to get back to a place that we saw in 2019.
We will start to two.
Have a have a path towards that 11% to 13% and we'll be watching it.
What early indicators in <unk>.
Are very focused on maintaining those bounds of the portfolio.
I'd just add Brad on that.
Q4 kind of.
From a write off standpoint.
Near the middle of that range, and that's kind of what we consider normal there'll be some puts and takes we've talked about SG&A, but theres also due to that 90 day buyout.
Dynamic there is some potential.
Outside in that gross margin level. So that's those are the things you have to take into consideration we're thinking about the annual.
Annual range for even on the guide for the Progressive Leasing's segment still.
Low to low and high to high somewhere around that 12% range from an EBITDA margin standpoint.
Gotcha, that's all really helpful. Thank you Steve Thanks, Brian Thanks.
Thanks, Brad.
The next question comes from Michael Young with <unk>. Please go ahead.
Hey, good morning, Thanks for taking the question.
Got it.
With the share buyback capacity are there any.
That strong cash levels.
The ability under the revolver and kind of leverage ratio are there any other limiters on how aggressive you can be in terms of additional share repurchases, whether it be float considerations or anything like that with the board that would limit your ability to be aggressive here.
Yes, thanks for the question Michael.
I think.
Our stated kind of comfort level on that one to one five turns of leverage is the is the thing that would be the most.
That's the range, obviously and it's not a point in time, but that would be really are are driving.
Lens that would go into the analysis, we did we have some financial covenants, but their way higher than our comfort level. So that would not be something that we would bring into the consideration flowed as always.
Part of the part of the analysis, but we do think that the.
As you as you saw we bought back shares since the expiration of the tender.
And at these levels continue to believe that.
The value of the.
The stocking of the business are not being properly reflected so it's a good investment so.
As far as aggressiveness, we do have cash we do have cash generative.
Abilities, and we do have that.
That revolver, but we're going to keep dry powder on the balance sheet because of the opportunity too.
Continue to grab that Unserved Tam that's out there.
Okay.
And just to be clear you mean, you would still pursue M&A, even with the stock at these levels.
Well that would I mean, the stock in our view on its ROI would be a hurdle that we would put some M&A up again, so it's not it wouldn't be blind it would be.
Everything would be part of the analysis.
I wouldn't foreclose M&A, but with these levels it makes the M&A hurdle higher.
Sure.
Okay Fair enough last one for me just.
If we kind of think about the things that are pushing the growth down you. Obviously there is there is the whole kind of in the first quarter here with the omicron. It seems like things could snap back what are you sort of the positive or upside potential drivers as we move throughout the year that could.
Our result in either the high end of the range or upside to the range since we've talked about a lot of the negative so far yes.
Thanks for that I would like to focus on the positives too because we're really bullish about the business even even notwithstanding this this.
Start.
I think.
The customer as I said is resilient.
We'll figure it out.
Retail.
I hope, we will also be promotional and supply chain will will fix or heal somewhat.
We internally have a lot of great things that we're talking to our partners about as far as enhancements on our E comm flow or ways to use some of our products and technology to make the customer experience better and quicker.
At the at the retailers point of sale.
<unk> on it in our remarks, and my remarks, but the.
Our marketing our co marketing message branding has great legs and is really being embraced by our retailers I think we got big opportunities there and that does as we've talked about a number of things that it not only drives GSV for us, but it really cements the value of our partnership and the value of our date.
Debase, an ecosystem that we bring to bear for our retailers.
We continue to believe these retail partnerships and that customer acquisition channel is very is very powerful but the more we partner with these large enterprise accounts.
The more data that we can provide to them showing how much we're driving incremental into their environment.
It really serves to make that partnership more durable and more valuable. So those are the types of things that we think.
We've got we've got a.
Marketing calendar with our partners we've got a.
For lack of a better term a tech prioritization calendar for certain things being slotted in certain quarters.
We're realists those things slip, sometimes so we're being a little conservative on how much that can drive <unk>, but.
We.
We certainly are subject to macro but were not sitting back.
Waiting for it to happen to us.
We're managing the business and executing and looking for ways to drive business for both our retailers and us.
Feel good about where we'll be in the back half of 'twenty, two and certainly beyond.
Okay. Thank you.
Thanks, Michael.
The next question comes from Vincent <unk> with Stephens. Please go ahead.
Hey, Thanks, good morning.
Just some.
Kind of quick follow ups so.
For the <unk> I appreciate the color you've given.
So far in just because I know people.
People are sort of sensitive to it but the.
So the first quarter of 2022.
Seems like that's sort of training tougher, perhaps the first half of the year, we should sort of expecting it to be down on a year to year basis I think grow in.
The second half of the year just wanted to confirm that and then sort of you talked in your prepared remarks about.
Some things initiatives you are taking for example.
Kind of integrating with partners online platforms.
Developing complementary fintech products.
If you could discuss that and sort of the impact do you expect the GMB as well. Thank you.
Yes, thanks, guys.
At the risk of guiding quarterly <unk>, which is which is which is tough definitely Q1 as we're sitting here slightly negative we have seen some improvement, but we're also going to be.
Dealing with an uncertain tax season, and comping against that stimulus from last years.
I would not expect.
Negative for the first half of the year, but.
We expect sequential improvement in <unk> as the quarters move on.
And so and then back to my comments to I think Brad about where where that math kind of shakes out.
As it relates to our.
Our other other investments may four as we bought last year as well as these these other fintech products. We were excited about them. They are in various stages of development slash testing and we look forward to talking to you more specifically about them over the next.
Several months.
We believe they are complementary and can help drive the lease business and drive <unk>.
As far as meaningful impact in 2022, that's probably not in the cards, but over the next several years, we do believe there.
They will have a strong participation in our in the GMB growth for for the leasing segment.
Okay. Thank you.
And then maybe if you could talk about some of the investments you're making as well.
Two to drive <unk>.
And then sort of how you putting guardrails around the investments you sort of think about 11% to 13% EBITDA.
Margins are sort of the bogey maybe.
But.
Sure.
To the extent you can hit above that spend.
Investments grew to grow.
The <unk> is there any particular investments that youre looking at now thank you.
I mean, the investments are embedded in the outlook there embedded in not only the Prague leasing outlook from an SG&A standpoint, but the <unk> holding's outlook.
And both of those happen to be within the 11% to 13% range.
We're in.
We're certainly not running the business on a quarter to quarter basis, we're running it for the long term.
We believe these investments are prudent but we're also we also understand we have to manage the business and we do have some control where we have control over the SG&A and that's something that will.
We will look at to run within those within those guidepost, but as far as the investments. They really go back to the things that we're just talking about kind of.
Leaning into our our innovation of the of the MTO product, whether it would be the direct consumer motion.
<unk>.
The marketing.
E Comm plug ins the better integrations on customized platforms and then some of these other.
These other complementary fintech products that are captured in that other bucket in our in our outlook.
Okay, Great. That's very helpful. Thanks, so much.
Thanks Vincent.
The next question is a follow up from Anthony with Loop capital. Please go ahead.
Thanks, just a real quick one on <unk>.
Kind of touched on this a little bit some of your answers to the previous questions, but just any update in terms of your E Commerce integrations with your big with your Big retail partners. Thanks.
Yes Anthony.
We made good progress in 2021, we've got as I mentioned earlier about this kind of tech priority.
And being slotted in the quarter as we've got we've got plans with.
Basically the our key retailers that are already transactional in 2022.
But we don't stop there either ones that launched in 2020, when they were enhanced in 2021, and we will continue to try and make the process better E. Com is a bright spot as we as we mentioned it was.
It grew 151% in 2021.
It was it was 18% of <unk> in the quarter in Q4.
We expect that will continue to grow faster than the overall <unk>, we don't have a target as I've said in the past because we want the customer to choose what channel they interact with us on but.
It's my expectation that that 15, 2%.
Of <unk> for 'twenty, one that came from E com it will be higher.
In 2022, because that's basically what customers and retailers are asking for.
That's helpful. Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Michael for any closing remarks.
Yes. Thank you we thank you guys for joining us today.
We.
We look forward to continuing to communicate with you about our 2022 plans and having.
Having 2022.
Ramp as the year goes on.
Thanks to all the Prague 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.