Q4 2024 PROG Holdings Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Prague Holdings Fourth Quarter 2024 Earnings Conference Calls.
Speaker Change: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
Speaker Change: I would now like to turn the conference over to your speaker today, John Baugh, Vice President Investor Relations. Please go ahead.
John Baugh: Thank you and good morning everyone. Welcome to the Prague Holdings fourth quarter 2024 earnings call.
Speaker Change: Joining me this morning are Steve Michaels, Prague Holdings President and Chief Executive Officer, and Brian Garner, our Chief Financial Officer.
Speaker Change: Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website, investor.krogholdings.com.
Speaker Change: During this call, certain statements we make will be forward-looking, including comments regarding our 2025 full-year outlook and our outlook for the first quarter of 2025, the health of our portfolio and our expectations for write-offs for our progressive leasing segment for 2025,
Speaker Change: our expectations regarding GMV for 2025, and our capital allocation priorities, including our ability to continue returning capital to shareholders.
Speaker Change: Listeners are cautioned not to place undue emphasis on forward-looking statements we make today.
Speaker Change: all of which are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements.
We undertake no obligation to update any such statements.
Speaker Change: On today's call, we will be referring to certain non-GAAP financial measures.
Speaker Change: including adjusted EBITDA and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies.
Speaker Change: These non-GAAP measures are detailed in the reconciliation tables included with our earnings release.
Speaker Change: The company believes that these non-GAAP financial measures provide meaningful insight
Speaker Change: into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of our operating results with prior periods and to assist them in understanding the company's ongoing operational performance.
Speaker Change: With that, I'd like to turn the call over to Steve Michaels, Product Holdings President and Chief Executive Officer. Steve?
Steve Michaels: Good morning and thank you for joining us as we review our fourth quarter and full year 2024 results, which approximated the high end of the outlook we provided in late October.
Steve Michaels: We will also share our insights into 2025 and discuss the strategic initiatives we are executing to drive sustainable growth in the years ahead.
Steve Michaels: 2024 was a year of outstanding execution and resilience, as we delivered better than expected GMV growth, while effectively managing the lease portfolio and optimizing costs.
Steve Michaels: Progressive Leasing's GMV grew 7.3 percent to 1.93 billion, driven by initiatives across sales, marketing, and technology.
Steve Michaels: and further supported by tighter approval rates from lenders higher up in the credit stack.
Steve Michaels: Despite challenges in the broader retail environment, including the bankruptcy of a major retail partner in September, we again gained balance of share with key partners.
Onboarded new retail relationships.
and expanded our customer base through direct to consumer marketing.
Steve Michaels: Looking ahead, we remain focused on expanding customer acquisition, increasing lifetime value, and driving sustainable long-term growth.
Steve Michaels: Progressive leasing's gross margin was lower in 2024 compared to 2023, driven by higher delinquencies, particularly within our new customer cohort, and a higher percentage of customers opting for 90-day purchase options.
Steve Michaels: This comparison was made more difficult due to historically low levels of 90-day early purchase options and above-average payment performance in 2023.
Steve Michaels: That said, optimized decisioning and disciplined spending contributed to strong financial performance, with adjusted EBITDA for progressive leasing reaching 11.8% for full year 2024, well within our targeted annual range of 11 to 13%.
Steve Michaels: Pivoting to Q4, we are pleased with our performance as progressive leasing delivered a 9.1% year-over-year GMV growth, reflecting consumer demand for our lease-to-own offering.
Steve Michaels: We achieved these results despite ongoing demand challenges in the big ticket consumer durable space, where we believe our larger retail partners continue to have negative comps.
Steve Michaels: Q4 Progressive Leasing Revenue grew 6.3%, driven by a larger lease portfolio balance entering the quarter, up 3.8% as of September 30, 2024, compared to being down 9.6% at the same time last year.
Steve Michaels: Our portfolio performed in line with expected yields, and we successfully managed write-offs within our targeted six to 8% annual range.
Steve Michaels: However, Q4 2024 write-off came in at 7.9%, slightly above expectations.
do largely to hire delinquencies, including from new customer acquisitions.
Steve Michaels: While new customer growth, which accelerated since Q2 2024, is a positive trend for long-term expansion, a portion of these customers exhibited higher delinquency rates, impacting portfolio performance in the quarter.
Steve Michaels: As we gain deeper insights into this new customer cohort, our decisioning team continues to refine and optimize approval strategies in ways expected to ensure sustainable, profitable growth.
Steve Michaels: As a result of the hydroequencies, we implemented targeted tightening measures in Q4 2024, and again, since the beginning of this year, which will create some headwinds to GMV in 2025.
Steve Michaels: to $65.7 million, and non-GAAP diluted EPS grew 11.1% to $0.80 per share, both of which were at the high end of the outlook we gave in October.
Steve Michaels: These results demonstrate the effectiveness of our growth initiatives, portfolio management, and operational efficiencies gained through cost reduction measures executed in Q1 2024.
Steve Michaels: I am proud of our team's execution and confident in our ability to build on this momentum in 2025 and beyond.
Steve Michaels: I'd like to highlight that our 2024 efforts resulted in a 6.1% increase in our gross leased asset balance, a significant improvement from the 5.2% decline at the start of 2024.
Steve Michaels: While we remain mindful of the headwinds ahead, we are optimistic about again achieving GMV growth in 2025 through effective execution and growth-focused initiatives across sales, marketing, and technology.
Steve Michaels: We will advance our three-pillared strategy to grow, enhance, and expand, positioning us for sustained success in the years ahead.
Steve Michaels: Now, I'd like to provide insight into a headwind considered in our 2025 outlook.
Steve Michaels: One of our large retail partners, Big Lots, filed for bankruptcy protection in the second half of the year and commenced liquidation efforts in December.
Steve Michaels: We have accounted for this impact in our GMV projections, which reflect approximately flat GMV for the first quarter.
Steve Michaels: Additionally, I would like to point out the significant role our long-standing partnership with Big Lots has played in driving profitability.
their high rate of repeat customers.
Steve Michaels: Strong presence in the furniture category, which typically carries higher margins.
Steve Michaels: and a customer base that skewed more heavily toward Baby Boomers and Gen X all contributed to above-average financial performance for the portion of Progressive Leasing's portfolio originated through Big Lots.
Steve Michaels: These factors will present margin headwinds in the near term as we adjust to shifts in our portfolio mix.
Steve Michaels: Lastly, while our cost structure remains highly variable, the decrease in revenue due to the big lots bankruptcy combined with our investments in marketing and technology to drive growth will result in slight SG&A deleverage for progressive leasing as a percentage of revenue in 2025.
Steve Michaels: Despite these pressures, we remain committed to executing our initiatives and focusing on what we can control, including implementing marketing efforts to retain former customers of Big Lots within our broader network of retail partners.
Steve Michaels: We believe these actions will enable us to effectively address challenges and drive growth in 2025.
Steve Michaels: Excluding the impact of big lots, we anticipate GMB growth in the high single digits across the rest of the progressive leasing business.
Steve Michaels: Moving to strategy, under our grow pillar we remain focused on expanding our retail partnerships across regional and national markets.
strengthening our direct-to-consumer efforts and increasing e-commerce penetration.
Steve Michaels: In 2024, we signed a long-term exclusive partnership with a large regional retail partner. And over the last two years, we successfully renewed almost 70% of our progressive leasing GMV to multi-year exclusive contracts, with approximately half of all GMV under contract into the 2030s.
Steve Michaels: With these key renewals in place, we can continue to focus on deepening integrations and accelerating our initiative roadmap with these partners to drive future growth.
Steve Michaels: For 2025, we also plan to make incremental investments in our marketing strategy, which has a proven track record of driving customer acquisition and profitable GMV growth.
The initiatives include enhancing brand awareness.
Expanding SEO to Boost Website Effectiveness
Advancing Personalized Life-Cycle Marketing
Steve Michaels: launching Prague branded campaigns within our partner ecosystem and strengthening direct consumer efforts through Prague marketplace.
Steve Michaels: Our retail partners recognize the value of these marketing efforts which not only help acquire new customers but also re-engage and retain existing ones.
Steve Michaels: One of the standout achievements in 2024 was the exceptional growth of our Prague Marketplace platform, which empowers customers to shop anytime, anywhere, through our mobile app.
Steve Michaels: The platform nearly tripled in GMV, far exceeding our 2024 goal of doubling year-over-year.
Steve Michaels: As a complimentary channel to our retail partners, Prague Marketplace drives incremental traffic and sales while also fueling progressive leasing GMV through direct-to-consumer initiatives.
Steve Michaels: Looking ahead, we remain committed to further expanding this channel in 2025 with a goal of surpassing 75 million in GMV, reinforcing our multi-channel growth strategy and enhancing customer engagement.
Steve Michaels: Under the enhanced pillar, our product and tech investments are focused on elevating the customer and retailer experiences.
Steve Michaels: For customers, we are enhancing personalized web content, streamlining the application process,
Improving How Customers Browse and Shop for Products
and optimizing the lease lifecycle experience.
Steve Michaels: Our goal is to drive customer engagement, increase retention, and strengthen long-term relationships.
Steve Michaels: Our ongoing efforts to enhance the customer experience, combined with our marketing strategies, resulted in an approximately 13% increase in new customers and 9% increase in reactivated customers for progressive leasing in 2024, while we maintained repeat customer contributions to GMV.
Steve Michaels: As a reminder, we segment customer activity into three groups, new, repeat, and reactivated.
Steve Michaels: We define reactivated customers as previous customers that last funded the lease more than 24 months ago.
Steve Michaels: This segmentation allows us to tailor our marketing strategies to each group's unique needs and behaviors.
Steve Michaels: For Retail Partners, we are investing in faster onboarding, expanded ways to acquire new customers, and self-service tools that provide deeper insights into the retail partners' lease-to-own customers and help them better manage their LTO business.
Steve Michaels: We believe these enhancements will drive business growth for our partners and strengthen long-term customer loyalty.
Steve Michaels: Also under our enhanced pillar, ProgLabs, our R&D group, is driving innovation through generative AI to boost employee productivity and elevate both retailer and customer experiences.
Steve Michaels: In 2024, we rolled out OpenAI's Enterprise Chat GPT and developed AI-powered applications to streamline operations, increase efficiency, and free up internal resources to focus on higher-value initiatives.
Steve Michaels: This included an AI-powered assistant for employee self-service on policies and benefits, as well as an AI-driven training platform that equips our sales team with retailer-specific materials, enhancing compliance, and improving customer conversion rates.
Steve Michaels: To improve customer engagement, we introduced a generative AI-powered chat pilot in Progressive Leasing and launched a chatbot-driven self-service experience for our PRG Ventures Money App Cash Advanced product.
Steve Michaels: These AI assistants help customers better understand our offerings, reduce friction in the user journey, and minimize reliance on the contact center for routine tasks.
Steve Michaels: Encouraged by early results, we aim to expand these capabilities in 2025.
Steve Michaels: Looking ahead, we are committed to leveraging AI across multiple areas of our business to enhance the customer experience, personalize recommendations, and drive higher engagement, ultimately fueling GMV growth.
Steve Michaels: Additionally, by improving employee productivity and reducing fraud, AI-driven efficiencies are expected to help us optimize servicing costs and strengthen operational performance.
Steve Michaels: Under the expand pillar, our multi-product ecosystem empowers more customers on their financial journey.
Steve Michaels: Our goal is to create meaningful value for customers by anticipating their needs and offering solutions that reduce friction in their financial experiences.
Steve Michaels: This ecosystem is designed to increase customer lifetime value while also driving incremental GMV for progressive leasing through cross-selling opportunities.
Steve Michaels: Our other operations for reporting purposes, which includes two key entities within our ecosystem, made significant strides in 2024 towards achieving profitability, delivering an over 40% or $7 million improvement compared to 2023.
Steve Michaels: This progress reflects our disciplined execution and the strong momentum within these businesses as we drive sustainable growth.
Steve Michaels: Four technologies, our Buy Now Pay Later solution, tripled its GMV in 2024, reaching just over 300 million.
Steve Michaels: FOUR's proprietary platform empowers shoppers with flexible payment options, allowing them to purchase merchandise through FOUR interest-free installments.
Steve Michaels: Shoppers use Ford to purchase furniture, clothing, electronics, health and beauty products, footwear, jewelry, and other consumer goods from retailers nationwide.
Steve Michaels: Entering 2025, we expect to scale forward by more than doubling its GMV once again.
Steve Michaels: further integrating it within our ecosystem and maximizing its contribution to our overall enterprise value.
Steve Michaels: We continue to drive innovation through PRG Ventures, our division dedicated to developing and scaling new financial products that enhance our core lease-to-own business.
Steve Michaels: Our Ventures team introduced Build, a personal credit building product, and the Money app, which provides short-term cash advances in 2023.
Steve Michaels: In 2024, Money App made significant strides. We successfully launched a mobile app.
Expanded our unique customer base year over year.
Steve Michaels: piloted an AI-powered chatbot for automated customer support and achieved unit-level profitability in Q4.
Steve Michaels: Looking ahead to 2025, we are focused on growing and improving the credit builder product on a new proprietary tech stack and driving further expansion of our cash advance program.
Steve Michaels: Our goal remains the same, to provide innovative financial solutions that empower our customers and increase customer lifetime value.
Speaker Change: While Brian will provide more detail on our 2025 outlook, I'd like to share our perspective on the macroeconomic backdrop as we enter the year.
Steve Michaels: Similar to the past two years, financial pressures remain a challenge for our consumers.
Steve Michaels: While the rate of inflation eased some in 2024, household budgets are strained by higher costs of living for necessities such as housing, utilities, and food.
Steve Michaels: As always, we maintain a dynamic decisioning posture, supported by a short 4-6 week feedback cycle, allowing us to swiftly adjust to customer and portfolio health trends.
Steve Michaels: Our proprietary machine learning decisioning models continuously refine our approval rates and amounts, ensuring we remain agile and responsive to market conditions.
Steve Michaels: While the bankruptcy of a large retail partner, broader retail challenges, particularly in jewelry, furniture, appliance, and electronics categories, and financial pressures on our customers impact near-term results, we believe these are manageable headwinds.
Steve Michaels: We will navigate these challenges through expansion with existing retail partners and new business development.
Steve Michaels: Our pipeline remains strong, and we are actively executing on strategies to drive growth and strengthen our market position.
Our capital allocation priorities remain unchanged.
Steve Michaels: We expect to reinvest in the business, pursue targeted M&A opportunities,
Steve Michaels: and return excess capital to shareholders through dividends and share repurchases.
Steve Michaels: We believe our business will generate meaningful free cashflow in 2025, providing us with the flexibility to invest in growth initiatives, as well as return excess cash to shareholders.
Steve Michaels: As mentioned earlier, our reinvestment strategy focuses on initiatives at progressive leasing as well as expanding our buy now pay later business for.
Steve Michaels: In summary, 2024 was a successful year as we delivered growth across both our national and regional businesses.
Steve Michaels: We gained balance of share with key retail partners and onboarded new retailer relationships.
Steve Michaels: We invested in sales, marketing, and technology that drove growth in 2024 and position us for success in 2025 and beyond.
Steve Michaels: We made excellent progress on our multi-product ecosystem strategy and demonstrated the value of our cross-selling opportunities.
Steve Michaels: I'm extremely proud of the team for their dedication and execution, and I look forward to building on this momentum in 2025.
Steve Michaels: I'll now turn the call over to our CFO, Brian Garner, for more details on Q4 results and 2025 Outlook.
Brian.
Thanks, Steve, and good morning, everyone.
Speaker Change: I will begin with a summary of our Q4 highlights. We are pleased to report that we delivered impressive GMV growth as revenues, adjusted net earnings, and non-GAAP EPS
approximated the high end of our outlook.
Speaker Change: As Steve mentioned, 2024 was a successful year marked by better-than-expected GMV growth, a portfolio managed within our annual 68% write-off target, and a disciplined approach to cost management.
Speaker Change: The effective execution by our teams implementing multiple strategic initiatives, as well as favorable macroeconomic conditions, including the tightening of the credit supply above us, allowed us to deliver strong results for the business.
Moving to Q4 results.
Speaker Change: Beginning with the progressive leasing segment, Q4 GMV grew 9.1% year-over-year as we improved our balance of share within key retail partners, driven in part by tighter integrations with the retailers and reduced friction in the application process.
Speaker Change: The GMV in the period contributed to an increase in portfolio size, which ended the year up 6.1%.
Speaker Change: Revenues for progressive leasing grew 6.3% primarily due to larger portfolio size throughout the quarter, aided by 9.1% growth in the fourth quarter GMV.
Steve Michaels: As Steve mentioned, customer payment performance was slightly more challenged than we expected.
Speaker Change: And 90-day early purchases remained elevated in Q4 compared to historic lows in 2023.
Speaker Change: We saw an increase in the percentage of new customers who, as we expected, have lower financial performance compared to our repeat customer base and are more likely to opt for a 90-day purchase option.
Speaker Change: As a result, Q4 2024 gross margin for progressive leasing of 31.9% was 100 basis points lower than the same period last year.
Speaker Change: Our provision for leased merchandise write-offs for Q4 were 7.9%, bringing full-year write-offs to 7.5%.
both of which were within our stated 68% annual target.
Speaker Change: Q4 2024 write-offs at 7.9% were higher than our expectations as delinquencies increased modestly in Q4, which combined with our accelerating portfolio growth led to an increase in write-offs.
Speaker Change: Our team is proactively making adjustments to our dynamic decisioning models, which have included targeted tightening measures in Q4 2024. And again, since the beginning of the year, as we aim to deliver right off for 2025 within our targeted annual range of 68%.
Speaker Change: Progressive Leasing's SC&A expense was $82.4 million, a decrease of approximately $1.3 million, or 1.5% compared to $83.7 million in the same quarter last year.
Speaker Change: As a percentage of revenue, SG&A decreased by 111 basis points year-over-year from 15% of revenues in Q4 of 2023 to 13.9% of revenues in Q4 of 2024.
Speaker Change: This SG&A improvement largely benefited from restructuring actions taken in Q1 of 2024 combined with revenue growth.
Speaker Change: We are always seeking to drive operational efficiencies while maintaining critical investments and growth initiatives.
Speaker Change: Adjusted EBITDA for Buref leasing in Q4 was $65.8 million and 11.1% of revenue.
Speaker Change: This adjusted EBITDA margin reflects a 70 basis point decline compared to 11.8% in Q4 of 2023, primarily due to higher 90-day purchase options and lower customer payment performance, partially offset by SG&A restructuring and discipline throughout the year.
Speaker Change: Pivoting to consolidated results, Q4 non-GAAP EPS came in at 80 cents at the top end of our outlook.
Speaker Change: Solid Aid revenues rose 8% to $623.3 million, primarily fueled by the growth within the progressive leasing segment, followed by the great momentum in our Ford business that Steve mentioned.
Speaker Change: Consolidated Adjusted EBITDA increased 7.7% from $61 million to $65.7 million driven by the improvement of profitability of for and PRG ventures.
Speaker Change: Moving to the balance sheet, we enter the fourth quarter of 2024 with $95.7 million of cash and gross debt of $650 million, resulting in a net leverage ratio of 2 times trillion 12 months adjusted EBITDA.
Speaker Change: At the end of 2024, we have $50 million of outstanding borrowings on our $350 million revolver, which we fully repaid by the end of January 2025.
Our business continues to demonstrate strong profitability and cashflow generation.
In 2024, we generated $138.5 million in cash from operations.
Speaker Change: As part of our ongoing commitment to return excess capital to shareholders, we paid a quarterly cash dividend of 12 cents per share in November and actively repurchased shares.
Speaker Change: During the quarter, we repurchased approximately 860,000 shares at a weighted average price of $47 per share, bringing our total repurchases in 2024 to 3.5 million shares at an average price of $39.80 per share.
Speaker Change: We currently have $361.4 million remaining under our $500 million share repurchase program.
Speaker Change: We remain committed to capital allocation strategy that balances strategic investments with meaningful shareholder returns.
Speaker Change: I'll now touch on some key aspects for our 2025 outlook as outlined in this morning's earnings press release.
Speaker Change: We're entering 2025 with Progressive Leasing's gross lease asset balance up 6.1% year-over-year.
Speaker Change: This portfolio growth, combined with our expectations of four or more than double its GMV, should support consolidated revenue expansion in the low to mid-single digits.
Speaker Change: However, we anticipate some GME headwinds for progressive leasing, reflecting the impact of the Big Lots bankruptcy, expected macroeconomic challenges, and lower approval rates year-over-year.
Speaker Change: Specifically, first quarter progressive leasing GMV is expected to be roughly flat year-over-year. However, excluding big lots GMV results from both periods, GMV growth for the rest of the business is expected to be in the high single digits.
Speaker Change: Our portfolio performance is expected to remain within targeted yields as we actively manage decisioning dynamics.
Speaker Change: However, Progressive Wheat's gross margin will face a difficult comparison during the year.
Speaker Change: As we work through higher delinquency rates exiting 2024 and the diminishing impact of the big loss portfolio, which had an above average profitability profile.
Speaker Change: We anticipate Progressive Leasing's provision for leased merchandise write-offs to deliver another year of consistent performance within our targeted annual range of 68%.
Speaker Change: Progressive Leasing's SG&A expense is expected to be leveraged slightly year-over-year as we continue investing in the business.
Speaker Change: We remain committed to driving efficiency by eliminating unnecessary costs and taking a portfolio approach to cost management, ensuring that we prioritize initiatives to optimize return on investment.
Speaker Change: Turning to the consolidated outlook for 2025, we expect revenues to be in the range of $2.52 billion to $2.59 billion, adjusted EBITDA in the range of $260 million to $280 million, and non-GAAP EPS in the range of $3.10, $3.50.
Speaker Change: This outlook assumes a difficult operating environment with soft demand for consumer durable goods.
Speaker Change: no material changes in the company's decisioning posture, an effective tax rate for non-GAAP EPS of approximately 28 percent, no material increase in the unemployment rate for our consumer, and no impact from additional share repurchases.
Speaker Change: In closing, I want to thank our employees for delivering outstanding results despite a challenging and evolving consumer environment.
Speaker Change: Their dedication and execution will drive our success, and I look forward to a great 2025.
Speaker Change: I will now turn the call back over to the operator for the Q&A portion of the call. Operator?
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Kyle Joseph with Stevens. Your line is now open.
Hey, good morning guys. Thanks for taking my questions
Speaker Change: Just want to pick your brain, you know, obviously we've seen a number of bankruptcies in the furniture space and some shakeout for that industry and obviously it's been a challenging time. Just want to get your sense for, you know, how you see the industry evolving over time and implications for the VLTO sector. Does it become kind of more of an online industry or, you know, what's the shakeout from all this?
Speaker Change: Kyle, good morning. Yeah, I mean, that's a different difficult crystal ball. There's certainly been some challenges as as as well documented coming out of the out of the pandemic and soft demand in that in that space and clearly
Speaker Change: depending on the capital and the balance sheet of the provider, the fixed costs of having a lot of stores can be difficult. But there's been some...
Speaker Change: some supply, you know, or some stores leaving the system. So, you know, I would expect that the demand that is out there will be spread across the remaining players.
Speaker Change: I mean, overall, all categories are shifting more online, but I don't think, I would not say that our call is that stores are going away. Stores are still gonna be an important part of the...
the omni-channel experience for our customers and shopping generally.
Speaker Change: As it relates to VLTO specifically, we're going to try and be where the customer is. And if the customer navigates online, we'll be there for them. But it's our expectation, or mine personally, that it will continue to be a...
Speaker Change: a multi-channel journey for the customers, and so we need to have a good solution across those channels in-store and online.
Speaker Change: Got it. And then, yeah, in terms of the guidance factors, I think you guys talked about expectations for demand to remain weak. I mean, if you, you know, peel back the onion a little bit, you know, obviously furniture is facing some headwinds, but are you seeing any sort, any verticals where you're seeing kind of kind of signs of life?
Speaker Change: Yeah, signs of life is an interesting phrase because I think I said last quarter that
Less bad as the new up.
Speaker Change: you know, we're continuing to kind of track that. We talked to our retailers. We're fortunate to partner with some, you know, world-class retailers and some of the largest in the country and we talked to them and they certainly have operator optimism, but no one's really calling for you know, for
Speaker Change: gangbuster results this year, so we continue to wait for that replacement cycle to kick in on certain categories. You might see some signs of life in consumer electronics.
Speaker Change: And we've had a pretty good run in mobile phones, smartphones, which didn't really wane that much even post-pandemic. So the categories are...
Speaker Change: are still tough but we're really proud of the fact that we've grown through that and gained balance of share and become more important and better partners for our retailers even in the face of those tough comps.
Speaker Change: Great, thanks. And then just one last one from me as we work through tax refund season.
Speaker Change: years ago, if I'm not mistaken, where you guys saw less early buyout activity, but good credit performance through tax refund season. Just give us a sense of how things are trending in terms of early buyout versus credit performance as we work through.
Speaker Change: Tax refund season this year and what I've heard so far is that it's a relatively normal tax refund season whatever that means these days
Speaker Change: We've read you know a lot of the reports on tax on the tax season and how it might you know the average refund might Be up, but it's
the big drop, there'll be a decent drop today.
Speaker Change: No, actually, tomorrow, because of the President's Day holiday, it'll be a big drop tomorrow. But we're anticipating the big one to be a week from today. And so we really want to have a lot of visibility into how the tax season is going to play out for another several weeks. But I think what you said is right. We're anticipating a big drop.
Air quotes, normal tax season.
Great, thanks very much for answering my questions.
Speaker Change: Our next question comes from the line of Bobby Griffin with Raymond James. Your line is now open.
Speaker Change: Good morning, this is Alejandra Jimenez on for Bobby Griffin. Thank you for taking our questions.
Speaker Change: First, I just wanted to hit on the 2025 revenue guidance a little bit more and some of the puts and takes there versus the strong GMB reported in 2024. Can you give a little bit more color on the applied big lots dragged to 2025 top line for the full year? And then are there any other headwinds you're in, including in the outlook?
Speaker Change: Yeah, let me start with the big lots And we talked about it in the prepared remarks. Obviously, I think the the the takeaway from a GMV standpoint
is that we said that...
Speaker Change: In Q1, we don't guide the full-year GMV. Obviously, there's a GMV expectation embedded in our revenue guide, but we don't guide the full-year GMV. But we did say in Q1...
Speaker Change: We expected to have flattest GMV, but X big lots from both periods.
Speaker Change: Big Lots did not have a tremendous amount of seasonality due to it wasn't really a holiday type of furniture retailer, so for us at least, not in the furniture category. So it's pretty safe to annualize that number so you can kind of get into the 135 to 150 million dollar GMV range.
You know that's that's obviously a big number to
Thank you.
You know to replace so
Speaker Change: And I'll remind everybody that, you know, when we talked in October, that was not the expected disposition of big lots.
Speaker Change: At that time, we expected that there was a sale process that would go through and they were going to successfully exit bankruptcy, having been purchased and having about 900 profitable stores.
Speaker Change: And so, you know, expectations were set based on that. And all of that changed the week before Christmas when that sale fell through and they went to a liquidation proceeding. So there's a decent amount of updating that needs to happen as it relates to the plan. So
Speaker Change: You know, the pre-Christmas change put a hole in our 2025 plan that we had to adjust to, but we're super proud that we're still planning on growing GMV.
Speaker Change: in 2025 and view that as a one-time event that doesn't really change anything about the potential or trajectory or our excitement about the business. So, as far as revenue goes, we're not really guiding that, but you have your models on how GMV translates, and I think that should be helpful, Kohler.
Speaker Change: Okay, that's really helpful. And then just for simplicity purposes, was there a minimal impact from Big Lots to 4Q, so we should expect kind of an analyzed basis for the next four quarters?
Speaker Change: Yeah we had I mean we didn't have a full quarter in fourth quarter I would say because they had closed some stores but yeah I think I think annualizing those numbers I gave are that's pretty safe.
Speaker Change: Okay, that's helpful. And then second for me, I wanted to follow up on current customer behavior trends. Have you seen any incremental material change in existing customer behavior? Or is it primarily on those new customers? And is it from, you know, the bottom of the funnel customers, any kind of clarity there?
Yeah, I would
Speaker Change: I would say that there's certainly some stress out there, right? I mean, clearly...
Speaker Change: credit providers generally saw things in their own data during 2024 that gave them reason to tighten and we're not immune from those trends and
Speaker Change: In some ways, we see them earlier than those that serve people higher up in the stack. And we are seeing and observing pockets of stress out there.
Speaker Change: And as you said, it's kind of on the bottom end of our portfolio that they have liquidity pressures and those things.
ended up having our delinquencies a little bit higher.
Speaker Change: Now, there's also a dynamic related to the new customer cohort and their performance. As you know, it's more difficult to decision a new customer.
Speaker Change: We have tons of data elements that we can pull, and we do, but there's no more predictive
Speaker Change: data element than having past performance and payment behavior from that customer with a repeat customer and so
Speaker Change: We're seeing some stress at the bottom end, we're pleased and happy with the expansion of our new customer base, but there's kind of a near-term impact on that as we figure out the new customers that will turn into profitable repeat customers.
Speaker Change: Our delinquencies are a little higher than than they had been in the previous you know in the past year and we're taking you know the appropriate decisioning actions to address those things.
Speaker Change: Okay, thank you. I'll turn it over back to you guys.
Speaker Change: Thank you. Our next question comes from the line of Hong Nguyen with TD Cowen. Your line is now open.
Hong Nguyen: Thanks for taking my question. I want to dig a little bit deeper into the big lot assumptions. I know, I think they sold, I guess, 200 to 400 stores to another...
Hong Nguyen: partner, I mean, is there any assumptions around those stores that they are keeping? I mean, are they outperforming stores versus, you know, the stores that they are closing? And, you know, are you assuming maybe any, you know, one-time boosting volume from closeout sales? And I have a follow-up.
Hong Nguyen: Yeah, I'll start with the end. I mean the closeout sales started in in December and are I guess wrapping up as we speak depending on the store.
We didn't really see a boost in volume.
Hong Nguyen: related to those going out of business sales. There was, I would call, I would say spotty inventory positions across the stores and they were very clear that they were final sales and no returns and exchanges and things of that nature, so we didn't see much there.
Hong Nguyen: On the disposition of the potential of 200 to 400 stores, we're in contact with our counterparts over there, big lots. It's unclear to us.
Hong Nguyen: Right as we sit here today what what stores are will survive and in and what they're
Hong Nguyen: approach to actually carrying furniture will be. So I will tell you that in our assumptions, we're not planning on having volume from big lots after, you know, really this month.
Hong Nguyen: If it turns out that they have 200 plus stores, you know, in a region of the country that are serving furniture, we will certainly partner with them. And that might be a little bit of upside, but that's not in our base case.
Hong Nguyen: I want to stress, because I've talked to investors about this over the last year or so, that
Hong Nguyen: One of the great, one of the good things about our, you know, kind of sophistication and evolution over the last several years is our ability to communicate and target our repeat customers. And I mentioned in the prepared remarks that Big Lots, since it had been a partner of ours for a long time, over a dozen years,
We had a lot of repeat customers and so there's
Hong Nguyen: There's a big opportunity for us to target those and redirect those consumers into other retail partners that we partner with.
Hong Nguyen: And we do, we've already started doing that, we've had some early success, we intend to do that.
Hong Nguyen: The cadence of a repeat customer for us is, you know, it can be it can be within a year, but a lot of times it's it's on average about 18 months. So over time, we intend to keep those customers in the Prague ecosystem and have that in order to the benefit of our other retail partners.
Hong Nguyen: But it's not something that's going to happen this quarter or next quarter to replace that GMV.
Speaker Change: Thank you for the details and maybe on the margin, you mentioned that there's going to be some margin headwinds in the short term. I mean, we saw 2024 margin contracting versus 2023, which was a very good year. I mean, how should we think about the degree of, you know, continuing margin erosion in 2025, given the big lot impact?
Thank you.
Speaker Change: Yeah, it's Brian. I think what, you know, what we've put out there in terms of on the progressive leasing side
Speaker Change: of an implied margin of the 10.9 to 12.2 is kind of where our guidance falls and that's incorporating this big loss dynamic and so obviously that's a decline from 2024.
Speaker Change: But, you know, Big Watch was, as we indicated, higher than typical margin profile, and we're laying onto that fact.
that there are some key internal initiatives around technology and
Speaker Change: you know the the the growth opportunities that we see that in our estimation does not make sense to to pull the plug on those on those initiatives so we're gonna we're gonna go full steam ahead and drive these initiatives forward here in 2025.
Speaker Change: that was, you know, inclusive of those two dynamics and so we're
Speaker Change: Obviously, we never want to see a margin climb, but I think given the circumstances and what we're doing to compensate for the Big Lots loss and focus on the long-term growth picture, I think all things considered, it's a relatively favorable outcome for 25.
Got it, and thank you.
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Speaker Change: Thank you. Our next question comes from the line of Anthony Chukombo with Loop Capital Markets. Your line is now open.
Anthony Chukombo: Good morning. Thanks for taking my my questions. So I guess my first question is on American Signature
Anthony Chukombo: My recollection is that, you know, that you didn't start, you know, generating any GMB until kind of late in 2024. And I was just wondering, you know, if you can just kind of direct me what your expectation is for the GMB contribution from American Signature in 2025. Thanks.
Thank you.
Speaker Change: Yeah, Anthony, yeah, we're really pleased with the partnership with the ASI team. You're right, we didn't really start to generate much GMV in 2024. There was some in the kind of back half of the fourth quarter.
Speaker Change: You know, we're partnering well, we've got great connectivity across the top of the management team, and we're in the stores.
Speaker Change: a lot talking to sales associates, things are going very well and they're adopting the program, you know, above our expectations and we we expect to basically
Speaker Change: achieve the you know replace the volume that they were doing in the past with their previous rider and then and then take that a leg up it'll
Speaker Change: You know, it may take a little bit of time to ramp the growth and exceed what they were doing previously. But our 2025 expectations are to replace what they were doing before, at least.
Speaker Change: Got it. That's helpful. And then you talked about the fact that you had this increase in new customers and that led to a bit of a ramp up in the leased merchandise. Right off rating, you're, you know, taking credit. Can you just kind of dimensionalize that just in terms of like, I don't know,
Speaker Change: lease approval, like the percentage of lease applications that are being approved or maybe the average lease amount, like how should we kind of think about that?
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Speaker Change: Yeah, sure. And there are both of those elements, as we've talked about before, approval rates and approval amounts.
Speaker Change: There's a couple of dynamics that will generally cause us to change our decisioning posture. And as we've always said, the data inform us on what the appropriate decisions are. We took a few tightening actions in the back half of 2024. We've seen a few in...
Speaker Change: We've not seen a few, but we've done another couple here in subsequent to year-end. And our approval rates in the fourth quarter and kind of similarly year-to-date are about 350 to 400 basis points lower than they were at the same time last year.
Speaker Change: There's a couple things that can impact or affect approval rates.
Speaker Change: One of which, obviously, is any action we take to our thresholds and our decisioning algorithms.
Speaker Change: But the other two have to do a channel shift, so...
It could be that
you're getting more online apps or...
you know, versus in-store, that's going to...
bring down approval rates somewhat.
Speaker Change: This new customer dynamic, we do have a lower approval rate for new customers because of what I said, it's just it's more difficult to...
decision them.
Speaker Change: But also, one of the things we're seeing is just a, and this goes back to maybe the health of the consumer comment.
is
Speaker Change: The quality of the app that comes in, you might have...
Speaker Change: You might have the same number of apps as last year, but the quality of the apps might be
Speaker Change: slightly lower, which could cause us to have lower approval rates without us actually taking any any decisioning or tightening actions. And so all those three kind of bucketed together have resulted in our current posture being about 350 to 400 basis points lower than the same time last year.
That's helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Brett Thomas with KeyBank Capital Markets. Your line is now open.
Good morning. Thanks for taking my question.
Speaker Change: You know, Steve, you know, I do think that the underlying GMV trends here are still, you know, really encouraging to see and obviously the loss of big lots is
It seems more of a one-time event to us.
Speaker Change: I guess I was hoping you could talk a little bit more about, you know, sort of doors and pipeline more broadly, you know, outside of big lots. I know there's a number of furniture stores that have gone under, but do you have any other material, you know, customers that are going away or what are you seeing on the losses side of the partners and the doors?
Yeah, thanks, Brad.
Yeah, I mean, it's like this...
Speaker Change: Big loss is unfortunate, but it's out of our control. And as you said, and as I said, one time event, as we look across our large retail partners, and you all are aware of who they are.
You know, we feel like we're in good...
Speaker Change: Good spot. We can't predict the future, but we don't see any financial distress in those.
Speaker Change: and those partners and the fact that we've got them locked up under multi-year exclusivities.
some into the 2030s.
Speaker Change: gives us a lot of confidence that this, you know, the lion's share of our GMV is protected. I mean there's always going to be churn in the regions and it might be a little bit, you know, more pronounced now than it has been historically, but those
Speaker Change: Regionals and certainly in the long tail, the mom and pops, they can kind of come and go. But we're not seeing anything in our top 10.
Speaker Change: after the Big Lots bankruptcy, which gives us confidence in the GMV trajectory and kind of looking past this one-time event and feeling good about what we're delivering in 2025.
Speaker Change: That's great. And then, you know, we always like to ask you about the pipeline. Obviously, AMSIG, a big partner ramping up here right now. But how are your conversations going? And is the backdrop changing at all? Do you feel like 2025 could be a better year for net additions?
Speaker Change: Yeah, it's tough to make predictions about that, as you guys have seen from my history there. But I'm bullish and I'm optimistic about where we are in the pipeline cycle and the conversations we're having. I'm not, you know...
Speaker Change: I'm not predicting that we'll get some whale this year, but certainly that's our goal.
Speaker Change: You know, the conditions are still conducive to other retailers adopting this payment type and we feel like we're best positioned to deliver that. So we're working really hard on it and we feel pretty good about our prospects there.
Speaker Change: And then maybe a quick one for Brian. I understand that questions on free cash flow generation. I understand that where GMB shakes out will impact free cash flow. But can you give us a rough sense of perhaps what you think you can generate this year, given the EBITDA guidance you've laid out?
Speaker Change: Yeah, we didn't get to the cash flow generation, but I would say exactly where you were heading on is the timing of the GMV and when it gets generated is going to be a big driver in that cash flow generation, especially if it's weighted towards the back end of the year and you're looking for that portfolio to turn over. But I would say there aren't any...
there aren't any unique dynamics.
Speaker Change: skew or change our cash flow generation as it relates to our EBITDA generation.
Speaker Change: from historical periods so there's not going to be you know large items hung up on the balance sheet or or any anomalies on that front that that would would cause this year to be much different from from prior years as a as a function of Yves Valle.
Speaker Change: I would just add on to that. I mean, we're really excited about our forward technologies business, you know, as we said in the prepared remarks.
Speaker Change: We tripled the GMV in 24 and we're planning to more than double it again in 25
Speaker Change: It's a very short-term loan that turns over very quickly, so it's pretty capital-efficient, but they're a very highly seasonal business, so as Brian said about the timing of the GMV production, there'll be some more capital requirements for the for business.
Speaker Change: You know, nothing that would change, as Brian said, the overall profile of the company materially.
Very helpful. Thanks so much.
Speaker Change: Thank you. Our next question comes from the line of Vincent Kantic with BTIG. Your line is now open.
Vincent Kantic: Hey, good morning. Thanks for taking my questions. Just to follow up some prior questions.
Vincent Kantic: I guess the first one to talk about some of the trade-down activity and maybe coming from lenders that are above the credit stack, if you could talk about the opportunities there. You know, with GMV having a lot of moving parts this year with big lots and also the tired decisioning, I'm kind of particularly wondering about the application volume.
Vincent Kantic: that you might be getting in from some of these lenders, tightening up if that's growing.
Vincent Kantic: I think our position was that kind of as we got into the fall
Vincent Kantic: and holiday period that they were as bad as tight. They were pretty tight. They weren't gonna loosen, but they probably wouldn't tighten again. We certainly saw application volume from the top of the funnel. And as we said, we're appreciative of that volume. It's helped to drive our new customer dynamic, which we think is healthy for the overall portfolio, even if it does have some near-term impacts on delinquencies because they're new customers to us.
It'll be
Vincent Kantic: There's there are those that are predicting that they may loosen a little bit in the back half
If that's the case...
Vincent Kantic: I hope it's because there's other macro things that are tailwinds and I think that will be good for all of us.
Vincent Kantic: But the application volume is, we have, yeah, we have good transit application volume, but outside of the
Vincent Kantic: of the apps that are flowing from the trade down. As I said earlier, the average quality of the app that we're seeing is a little bit lower than what we saw last year. So not all apps are created equal and we watch.
various points within our application flow and funnel optimization.
Vincent Kantic: and trace things from an app start, to an app submit, to an approval, to a funded, and have different metrics as it relates to what app turns into funded GMV.
Vincent Kantic: And we'll continue to refine that and get more sophisticated in where we can have impact at all those different points in the funnel. So apps are up and strong, but not all apps are created equal.
Speaker Change: Okay, that's helpful. Thank you. And then second follow-up just on that EBITDA margin and again understanding that there's the...
Vincent Kantic: the moving pieces from Big Lots and the delinquencies. But maybe if you can talk about what you think the right long-term even a margin for the business should be. I mean it sounds like there's a lot of maybe interesting investments that you can be making in marketing and so forth and so just wondering if maybe you can carry that forward and if you can talk about the different investments that you that you do want to be making to drive more GMV. Thank you.
Speaker Change: Yeah, I've been since Brian, I think I just start by saying.
Speaker Change: Big Lots winding down from the portfolio does not change our conviction about an 11, 13% long-term target for EBITDA margin. And there are levers that we're able to pull internally to compensate, I think in the immediate, in the immediate aftermath of their bankruptcy, we're gonna see some pressures and we'll need to adjust as we go into 26 and beyond.
Speaker Change: So I think, you know, our view of the long-term margin is unchanged given this dynamic. It was certainly a tailwind for us as they had higher than average profitability profile.
Speaker Change: I mean, with respect to the investments, and Steve can jump in here as well, but we have
Speaker Change: build a long-term roadmap around where our technology aims to be as we look to serve our customer, tighten integrations, and be able to pull friction out of the process and maximize GMV. And those initiatives...
Speaker Change: that we've had our eyes on tackling here in 2025, well before the Big Lots news broke, I think our estimation is they're as valuable as before. And so we're gonna chase these things like.
Speaker Change: ERP is an initiative that we're going through and working through. Lease management type of enhancements on the back end.
Speaker Change: And then tighter integrations with our retail partners. We've seen benefits in 2024 with some large partners where we have pulled friction out of the process and seen conversion improve meaningfully. And so there's a direct correlation between these investments and the GMV that they drive.
Speaker Change: and I think it would be a lost opportunity to pull back or unplug from those initiatives in the face of big lots going away. I don't know if you have anything to add there, Steve. No, I think you nailed it. Thank you.
Great, thank you.
Speaker Change: Thank you, and I'm currently showing no further questions at this time. I'd like to hand the call back over to Steve Michaels for closing remarks.
Steve Michaels: Thank you guys for joining us this morning and for your continued interest in Prague Holdings. I want to again thank our entire team for delivering a very successful 24. We're very excited about delivering another great year in 25 and we look forward to updating you in our Q1 call in April.
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