aan-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-39628

________________________________

PROG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________________________

Georgia

85-2484385

(State or other jurisdiction of
incorporation or organization)

(I. R. S. Employer
Identification No.)

256 W. Data Drive

Draper,

Utah

84020-2315

(Address of principal executive offices)

(Zip Code)

(385) 351-1369

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.50 Par Value	PRG	New York Stock Exchange

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

___________________________________

Indicate by check mark whether registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

(Do not check if a smaller reporting company)

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of Each Class						Shares Outstanding as of April 22, 2022
Common Stock, $0.50 Par Value						54,043,215

PROG HOLDINGS, INC.

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets – March 31, 2022 (Unaudited) and December 31, 2021			3

Condensed Consolidated Statements of Earnings (Unaudited) – Three Months Ended March 31, 2022 and 2021			4



Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31 , 202 2 and 202 1			5

Notes to Condensed Consolidated Financial Statements (Unaudited)			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21

Item 3. Quantitative and Qualitative Disclosures About Market Risk			31

Item 4. Controls and Procedures			32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			33

Item 1A. Risk Factors			33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33

Item 3. Defaults Upon Senior Securities			33

Item 4. Mine Safety Disclosures			33

Item 5. Other Information			33

Item 6. Exhibits			34

Signatures			35

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROG HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31, 2022		December 31, 2021
	(In Thousands, Except Share Data)
ASSETS:
Cash and Cash Equivalents	$	184,010	$	170,159
Accounts Receivable (net of allowances of $76,507 in 2022 and $71,233 in 2021)	72,463		66,270
Lease Merchandise (net of accumulated depreciation and allowances of $473,557 in 2022 and $463,929 in 2021)	645,225		714,055
Loans Receivable (net of allowances and unamortized fees of $52,286 in 2022 and $53,300 in 2021)	116,859		119,315
Property, Plant and Equipment, Net	24,492		25,648
Operating Lease Right-of-Use Assets	16,534		17,488
Goodwill	306,212		306,212
Other Intangibles, Net	131,581		137,305
Income Tax Receivable	14,337		14,352
Deferred Income Tax Assets	2,760		2,760
Prepaid Expenses and Other Assets	58,248		48,197
Total Assets	$	1,572,721	$	1,621,761
LIABILITIES & SHAREHOLDERS’ EQUITY:
Accounts Payable and Accrued Expenses	$	134,162	$	135,954
Deferred Income Tax Liability	152,365		146,265
Customer Deposits and Advance Payments	39,492		45,070
Operating Lease Liabilities	24,175		25,410
Debt	589,993		589,654
Total Liabilities	$	940,187	$	942,353
Commitments and Contingencies (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at March 31, 2022 and December 31, 2021; Shares Issued: 82,078,654 at March 31, 2022 and December 31, 2021	41,039		41,039
Additional Paid-in Capital	331,055		332,244
Retained Earnings	1,082,661		1,055,526
	1,454,755		1,428,809
Less: Treasury Shares at Cost
Common Stock: 27,660,899 Shares at March 31, 2022 and 25,638,057 at December 31, 2021	(822,221)		(749,401)
Total Shareholders’ Equity	632,534		679,408
Total Liabilities & Shareholders’ Equity	$	1,572,721	$	1,621,761

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

PROG HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended March 31,
	2022		2021
	(In Thousands, Except Per Share Data)
REVENUES:
Lease Revenues and Fees	$	692,914	$	707,982
Interest and Fees on Loans Receivable	17,550		13,019
	710,464		721,001
COSTS AND EXPENSES:
Depreciation of Lease Merchandise	497,011		505,057
Provision for Lease Merchandise Write-offs	50,330		18,640
Operating Expenses	113,658		91,196
	660,999		614,893
OPERATING PROFIT	49,465		106,108
Interest Expense	(9,629)		(512)
EARNINGS BEFORE INCOME TAX EXPENSE	39,836		105,596
INCOME TAX EXPENSE	12,701		26,108


NET EARNINGS	$	27,135	$	79,488
EARNINGS PER SHARE
Basic	$	0.49	$	1.17
Assuming Dilution	$	0.49	$	1.16

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	55,402		67,730
Assuming Dilution	55,706		68,260

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

PROG HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2022		2021
	(In Thousands)
OPERATING ACTIVITIES:
Net Earnings	$	27,135	$	79,488
Adjustments to Reconcile Net Earnings to Cash Provided by Operating Activities:
Depreciation of Lease Merchandise	497,011		505,057
Other Depreciation and Amortization	8,482		7,114
Provisions for Accounts Receivable and Loan Losses	96,230		42,964
Stock-Based Compensation	6,623		4,163
Deferred Income Taxes	6,100		5,529
Non-Cash Lease Expense	274		229
Other Changes, Net	(1,709)		(179)
Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions:
Additions to Lease Merchandise	(480,113)		(490,710)
Book Value of Lease Merchandise Sold or Disposed	51,933		21,335
Accounts Receivable	(94,743)		(29,238)
Prepaid Expenses and Other Assets	(9,395)		(4,422)
Income Tax Receivable and Payable	841		20,459
Operating Lease Right-of-Use Assets and Liabilities	(556)		(400)
Accounts Payable and Accrued Expenses	(4,237)		6,438
Customer Deposits and Advance Payments	(5,577)		(759)
Cash Provided by Operating Activities	98,299		167,068
INVESTING ACTIVITIES:
Investments in Loans Receivable	(42,323)		(48,720)
Proceeds from Loans Receivable	39,052		30,821
Outflows on Purchases of Property, Plant and Equipment	(2,328)		(1,844)
Proceeds from Property, Plant and Equipment	6		12
Proceeds from Acquisitions of Businesses	7		—

Cash Used in Investing Activities	(5,586)		(19,731)
FINANCING ACTIVITIES:




Acquisition of Treasury Stock	(78,080)		(28,102)
Tender Offer Shares Repurchased and Retired	199		—
Issuance of Stock Under Stock Option Plans	—		282
Shares Withheld for Tax Payments	(2,516)		(5,011)
Debt Issuance Costs	1,535		—
Cash Used in Financing Activities	(78,862)		(32,831)
Increase in Cash and Cash Equivalents	13,851		114,506
Cash and Cash Equivalents at Beginning of Period	170,159		36,645
Cash and Cash Equivalents at End of Period	$	184,010	$	151,151
Net Cash Paid During the Period:
Interest	$	185	$	223
Income Taxes	$	4,157	$	101

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As described elsewhere in this Quarterly Report on Form 10-Q, the Coronavirus Disease ("COVID-19") pandemic has led to significant market disruption and has impacted many aspects of our operations, directly and indirectly. Throughout these notes to the condensed consolidated financial statements, the impacts of the COVID-19 pandemic on the financial results for the three months ended March 31, 2022 and 2021 have been identified under the respective sections. For a discussion of customer payment trends and significant estimates made by management regarding allowances for lease merchandise, accounts receivable, and loans receivable, as well as the unfavorable impacts the COVID-19 Omicron variant and supply chain disruptions had on generating new lease and loan originations during the three months ended March 31, 2022, see Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations", including the "COVID-19 Pandemic," "Results of Operations", and "Liquidity and Capital Resources" below.

Description of Business

PROG Holdings, Inc. ("we," "our," "us," the "Company," or "PROG Holdings") is a financial technology holding company that provides leading financial solutions to empower consumers and retailers. PROG Holdings has two reportable segments: (i) Progressive Leasing, an e-commerce, app-based, and in-store point-of-sale lease-to-own solutions provider; and (ii) Vive Financial ("Vive"), an omnichannel provider of second-look revolving credit products.

Our Progressive Leasing segment provides consumers with lease-purchase solutions through its point-of-sale partner locations and e-commerce website partners in the United States (collectively, "POS partners"). It does so by purchasing merchandise from the POS partners desired by customers and, in turn, leasing that merchandise to the customers through a cancellable lease-to-own transaction. Progressive Leasing has no stores of its own, but rather offers lease-purchase solutions to the customers of traditional and e-commerce retailers.

Our Vive segment primarily serves customers that may not qualify for traditional prime lending offers who desire to purchase goods and services from participating merchants. Vive offers customized programs, with services that include revolving loans through private label and Vive-branded credit cards. Vive's current network of POS partner locations and e-commerce websites includes furniture, mattresses, home exercise equipment, and home improvement retailers, as well as medical and dental service providers.

On June 25, 2021, the Company completed the acquisition of Four Technologies, Inc. ("Four"), an innovative Buy Now, Pay Later company that allows shoppers to pay for merchandise through four interest-free installments. Four’s proprietary platform capabilities and its base of customers and retailers expand PROG Holdings’ ecosystem of financial technology offerings by introducing a payment solution that further diversifies the Company's consumer fintech offerings. Shoppers use Four to purchase furniture, clothing, electronics, health and beauty products, footwear, jewelry, and other consumer goods from retailers across the United States. Four is not a reportable segment for the three months ended March 31, 2022 as its revenues, loss before income taxes, and assets are not material to the Company's condensed consolidated financial results.

Basis of Presentation

The preparation of the Company's condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Management does not believe these estimates or assumptions will change significantly in the future absent unidentified and unforeseen events, such as unforeseen direct or indirect impacts associated with the COVID-19 pandemic and/or increasing inflation.

The accompanying unaudited condensed consolidated financial statements do not include all information required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report") filed with the United States Securities and Exchange Commission on February 23, 2022. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of operating results for the full year.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Principles of Consolidation

The condensed consolidated financial statements include the accounts of PROG Holdings, Inc. and its subsidiaries, each of which is wholly-owned. Intercompany balances and transactions between consolidated entities have been eliminated.

Accounting Policies and Estimates

See Note 1 to the consolidated financial statements in the 2021 Annual Report for an expanded discussion of accounting policies and estimates.

Earnings Per Share

Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. The computation of earnings per share assuming dilution includes the dilutive effect of stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance share units ("PSUs") and awards issuable under the Company's employee stock purchase plan ("ESPP") (collectively, "share-based awards") as determined under the treasury stock method. The following table shows the calculation of dilutive share-based awards:


	Three Months Ended March 31,
(Shares In Thousands)	2022	2021
Weighted Average Shares Outstanding	55,402	67,730
Dilutive Effect of Share-Based Awards	304	530
Weighted Average Shares Outstanding Assuming Dilution	55,706	68,260

Approximately 1,087,000 and 289,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three months ended March 31, 2022 and 2021, respectively, as the awards would have been anti-dilutive for the periods presented.

Revenue Recognition

Lease Revenues and Fees

Progressive Leasing provides merchandise, consisting primarily of furniture, appliances, electronics, jewelry, mobile phones and accessories, mattresses, automobile electronics and accessories, and a variety of other products, to its customers for lease under terms agreed to by the customer. Progressive Leasing offers customers of traditional and e-commerce retailers a lease-purchase solution through leases with payment terms that can generally be renewed up to 12 months. Progressive Leasing does not require deposits upon inception of customer agreements. The customer has the right to acquire ownership either through early buyout options or through payment of all required lease payments. The agreements are cancellable at any time by either party without penalty.

All of Progressive Leasing's customer agreements are considered operating leases. The Company maintains ownership of the lease merchandise until all payment obligations are satisfied under the lease ownership agreements. Initial lease payments made by the customer upon lease execution are recognized as deferred revenue and are amortized as lease revenue over the estimated lease term on a straight-line basis. All other customer lease billings are earned prior to the lease payment due date and are recorded net of related sales taxes as earned. Payment due date terms include weekly, bi-weekly, semi-monthly and monthly frequencies. Initial lease payments and other cash collected in advance of being due or earned are recognized as deferred revenue within customer deposits and advance payments in the accompanying condensed consolidated balance sheets. Revenue recorded prior to the payment due date results in unbilled receivables recognized in accounts receivable, net of allowances in the accompanying condensed consolidated balance sheets. Lease revenues are recorded net of a provision for uncollectible renewal payments.

Initial direct costs related to lease purchase agreements are capitalized as incurred and amortized as operating expense over the estimated lease term. The capitalized costs have been classified within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Interest and Fees on Loans Receivable

Interest and fees on loans receivable is primarily generated from our Vive segment. Vive extends or declines credit to an applicant through its bank partners based upon the applicant's credit rating and other factors. Qualifying applicants receive a credit card to finance their initial purchase and to use in subsequent purchases at the merchant or other participating merchants for an initial 24-month period, which Vive may renew if the cardholder remains in good standing.

Vive acquires the loan receivable from its third-party bank partners at a discount from the face value of the loan. The discount is comprised of a merchant fee discount and a promotional fee discount, if applicable.

The merchant fee discount represents a pre-negotiated, nonrefundable discount that generally ranges from 3% to 25% of the loan face value. The discount is designed to cover the risk of loss related to the portfolio of cardholder charges and Vive's direct origination costs. The merchant fee discount and origination costs are presented net on the condensed consolidated balance sheets in loans receivable. Cardholders generally have an initial 24-month period that the card is active. The merchant fee discount, net of the origination costs, is amortized on a net basis and is recorded as interest and fee revenue on loans receivable in the condensed consolidated statements of earnings on a straight-line basis over the initial 24-month period.

The discount from the face value of the loan on the acquisition of the loan receivable from the merchant through the third-party bank partners may also include a promotional fee discount, which generally ranges from 1% to 8%. The promotional fee discount is intended to compensate the holder of the loan receivable (i.e., Vive) for deferred or reduced interest rates that are offered to the cardholder for a specified period on the outstanding loan balance (generally for six, 12 or 18 months). The promotional fee discount is amortized as interest and fee revenue on loans receivable in the condensed consolidated statements of earnings on a straight-line basis over the promotional interest period (i.e., over six, 12 or 18 months, depending on the promotion). The unamortized promotional fee discount is presented net on the condensed consolidated balance sheets in loans receivable.

The customer is typically required to make monthly minimum payments of at least 3.5% of the outstanding loan balance, which includes outstanding interest. Fixed and variable interest rates, typically 27% to 35.99%, are compounded daily for cards that do not qualify for deferred or reduced interest promotional periods. Interest income, which is recognized based upon the amount of the loans outstanding, is recognized as interest and fees on loans receivable when earned if collectibility is reasonably assured. For credit cards that provide deferred interest, if the balance is not paid off during the promotional period or if the cardholder defaults, interest is billed to the customers at standard rates and the cumulative amount owed is charged to the cardholder account in the month that the promotional period expires. For credit cards that provide reduced interest, if the balance is not paid off during the promotional period, interest is billed to the cardholder at standard rates in the month that the promotional period expires or when the cardholder defaults. The Company recognizes interest revenue during the promotional period based on its historical experience related to cardholders that fail to pay off balances during the promotional period if collectibility is reasonably assured.

Annual fees are charged to cardholders at the commencement of the loan and on each subsequent anniversary date. Annual fees are deferred and recognized into revenue on a straight-line basis over a one-year period. Under the provisions of the credit card agreements, Vive also may assess fees for missed or late payments, which are recognized as interest and fee revenue in the billing period in which they are assessed if collectibility is reasonably assured. Annual fees and other fees are recognized as interest and fee revenue on loans receivable in the condensed consolidated statements of earnings.

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers of Progressive Leasing and amounted to $72.5 million and $66.3 million, net of allowances, as of March 31, 2022 and December 31, 2021, respectively.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company maintains an accounts receivable allowance, which primarily relates to its Progressive Leasing operations and, to a lesser extent, receivables from Vive's POS partners. The Company’s policy is to record an allowance for uncollectible renewal payments based on historical collection experience. Other qualitative factors are considered in estimating the allowance, such as current and forecasted business trends including, but not limited to, the potential unfavorable impacts of the COVID-19 pandemic on our businesses. We believe government stimulus measures in the first half of 2021 contributed to the favorable payment trends we experienced following those measures. Given the significant uncertainty regarding the impacts of increasing inflation and the COVID-19 pandemic on our business, a high level of estimation was involved in determining the allowance as of March 31, 2022. Therefore, actual future accounts receivable write-offs may differ materially from the allowance. If the recent increase in inflation, which has risen at a greater pace than seen in decades, continues in future periods, such a development may adversely impact our customers' ability to continue to make payments to the Company. The provision for uncollectible renewal payments is recorded as a reduction of lease revenues and fees within the condensed consolidated statements of earnings. For customer lease agreements that are past due, the Company's policy is to write-off lease receivables after 120 days.

Vive's allowance for uncollectible merchant accounts receivable, which primarily relates to cardholder returns and refunds, is recorded as bad debt expense within operating expenses in the condensed consolidated statements of earnings. See below for discussion of Vive's loans receivable and related allowance for loan losses.

The following table shows the components of the accounts receivable allowance:


	Three Months Ended March 31,
(In Thousands)	2022		2021
Beginning Balance	$	71,233	$	56,364
Net Book Value of Accounts Written Off	(92,933)		(58,210)
Recoveries	9,659		13,107
Accounts Receivable Provision	88,548		36,496
Ending Balance	$	76,507	$	47,757

Lease Merchandise

Progressive Leasing's merchandise consists primarily of furniture, appliances, electronics, jewelry, mobile phones and accessories, mattresses, automobile electronics and accessories, and a variety of other products, and is recorded at the lower of depreciated cost or net realizable value. Progressive Leasing depreciates lease merchandise to a 0% salvage value generally over 12 months. Depreciation is accelerated upon early buyout. All of Progressive Leasing's merchandise, net of accumulated depreciation and allowances, represents on-lease merchandise.

The Company records a provision for write-offs using the allowance method. The allowance method for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based on historical write-off experience. Other qualitative factors, such as current and forecasted customer payment trends, are considered in estimating the allowance. We believe government stimulus measures in the first half of 2021 contributed to the favorable payment trends we experienced following those measures. Given the significant uncertainty regarding the impacts of inflation, which has increased at a greater pace than seen in decades, and the COVID-19 pandemic on our business, a high level of estimation was involved in determining the allowance as of March 31, 2022. Actual lease merchandise write-offs may differ materially from the allowance as of March 31, 2022. If the recent increase in inflation continues in future periods, such a development may adversely impact our customers' ability to continue to make payments to the Company. For customer lease agreements that are past due, the Company's policy is to write-off lease merchandise after 120 days.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table shows the components of the allowance for lease merchandise write-offs, which is included within lease merchandise, net in the condensed consolidated balance sheets:


	Three Months Ended March 31,
(In Thousands)	2022		2021
Beginning Balance	$	54,367	$	45,992
Net Book Value of Merchandise Written off	(47,134)		(27,954)
Recoveries	2,384		2,408
Provision for Write-offs	50,330		18,640
Ending Balance	$	59,947	$	39,086

Vendor Incentives and Rebates Provided to POS Partners

Progressive Leasing has agreements with some of its POS partners that require additional consideration to be paid to the POS partner, including payments for exclusivity, rebates based on lease volume originations generated through the POS partners, and payments to the POS partners for marketing or other development initiatives to promote additional lease originations through these POS partners. Payments made to POS partners as consideration for them providing exclusivity to Progressive Leasing for lease-to-own transactions with customers of the POS partner are expensed on a straight-line basis over the exclusivity term. Rebates are accrued over the period the POS partner is earning the rebate, which is typically based on quarterly or annual lease origination volumes. Payments made to POS partners for marketing or development initiatives are expensed on a straight-line basis over the period the POS partner is earning the funds or the specified marketing term. Progressive Leasing expensed $6.5 million and $4.1 million for such additional consideration to POS partners, during the three months ended March 31, 2022 and 2021, respectively. Expenses related to additional consideration provided to POS partners are classified within operating expenses in the condensed consolidated statements of earnings.

Loans Receivable, Net

Gross loans receivable primarily represents the principal balances of credit card charges at Vive's participating merchants that remain due from cardholders, plus unpaid interest and fees due from cardholders. The allowance and unamortized fees represent uncollectible amounts; merchant fee discounts, net of capitalized origination costs; promotional fee discounts; and deferred annual card fees. Loans receivable, net as of March 31, 2022 also includes $1.3 million of outstanding receivables from customers of Four.

Economic conditions and loan performance trends are closely monitored to manage and evaluate exposure to credit risk. Trends in delinquency rates are an indicator of credit risk within the loans receivable portfolio, including the migration of loans between delinquency categories over time. Charge-off rates represent another indicator of the potential for future credit losses. The risk in the loans receivable portfolio is correlated with broad economic trends, such as current and projected unemployment rates, stock market volatility, and changes in medium and long-term risk-free rates, which are considered in determining the allowance for loan losses and can have a material effect on credit performance.

Expected lifetime losses on loans receivable are recognized upon loan acquisition, which requires the Company to make its best estimate of probable lifetime losses at the time of acquisition. Our credit card loans do not have contractually stated maturity dates, which requires the Company to estimate an average life of loan by analyzing historical payment trends to determine an expected remaining life of the loan balance. The Company segments its loans receivable portfolio into homogenous pools by Fair Isaac and Company ("FICO") score and by delinquency status and evaluates loans receivable collectively for impairment when similar risk characteristics exist.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company calculates Vive's allowance for loan losses based on internal historical loss information and incorporates observable and forecasted macroeconomic data over a twelve-month reasonable and supportable forecast period. Incorporating macroeconomic data could have a material impact on the measurement of the allowance to the extent that forecasted data changes significantly, such as higher forecasted inflation and unemployment rates, and the observed significant market volatility associated with the COVID-19 pandemic. For any periods beyond the twelve-month reasonable and supportable forecast period described above, the Company reverts to using historical loss information on a straight-line basis over a period of six months and utilizes historical loss information for the remaining life of the portfolio. The Company may also consider other qualitative factors in estimating the allowance, as necessary. For the purposes of determining the allowance as of March 31, 2022, management considered other qualitative factors such as the beneficial impact of government stimulus measures to our customer base that were not fully factored into the macroeconomic forecasted data and also resulted in internal historical loss rates incorporated in Vive's baseline allowance estimate being lower than current forecasted loss rates. We believe those stimulus measures may have contributed to the favorable cardholder payment trends experienced at Vive in 2020 and 2021. The allowance for loan losses is maintained at a level considered appropriate to cover expected future losses of principal, interest and fees on active loans in the loans receivable portfolio. The appropriateness of the allowance is evaluated at each period end. If the recent increase in inflation continues in future periods, such a development may adversely impact our customers' ability to continue to make payments to the Company. To the extent that actual results differ from estimates of uncollectible loans receivable, including the significant uncertainties caused by rapidly increasing inflation and the COVID-19 pandemic, the Company's results of operations and liquidity may be materially affected.

Vive's delinquent loans receivable includes those that are 30 days or more past due based on their contractual billing dates. Vive's loans receivable are placed on nonaccrual status when they are greater than 90 days past due or upon notification of cardholder bankruptcy, death or fraud. The Company discontinues accruing interest and fees and amortizing merchant fee discounts and promotional fee discounts for Vive's loans receivable in nonaccrual status. Loans receivable are removed from nonaccrual status when cardholder payments resume, the loan becomes 90 days or less past due and collection of the remaining amounts outstanding is deemed probable. Payments received on nonaccrual loans are allocated according to the same payment hierarchy methodology applied to loans that are accruing interest. Loans receivable are charged off no later than the end of the following month after the billing cycle in which the loans receivable become 120 days past due.

Vive extends or declines credit to an applicant through its bank partners based upon the applicant's credit rating and other factors. Below is a summary of the credit quality of the Company's loan portfolio as of March 31, 2022 and December 31, 2021 by FICO score as determined at the time of loan origination:


FICO Score Category	March 31, 2022		December 31, 2021
600 or Less	8.1	%	7.7	%
Between 600 and 700	78.1	%	78.0	%
700 or Greater	12.2	%	12.7	%
No Score Identified	1.6	%	1.6	%

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:


(In Thousands)	March 31, 2022		December 31, 2021
Prepaid Expenses	$	30,571	$	28,283
Prepaid Software Expenses	9,929		7,102
Unamortized Initial Direct Costs on Lease Agreement Originations	6,716		5,326
Prepaid Insurance	4,172		40
Other Assets	6,860		7,446
Prepaid Expenses and Other Assets	$	58,248	$	48,197

The Company incurs costs to implement cloud computing arrangements ("CCA") that are hosted by third-party vendors. Implementation costs associated with CCA are capitalized when incurred during the application development phase and are recorded within prepaid software expenses above. Amortization is calculated on a straight-line basis over the contractual term of the arrangement and is included within computer software expense as a component of operating expenses in the condensed consolidated statements of earnings.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:


(In Thousands)	March 31, 2022		December 31, 2021
Accounts Payable	$	14,466	$	13,741
Accrued Salaries and Benefits	19,504		25,861
Accrued Sales and Personal Property Taxes	13,513		14,851
Income Taxes Payable	3,608		2,782
Uncertain Tax Positions1	50,019		48,451
Other Accrued Expenses and Liabilities	33,052		30,268
Accounts Payable and Accrued Expenses	$	134,162	$	135,954

1 The uncertain tax positions as of March 31, 2022, and December 31, 2021 are primarily related to the Company’s tax treatment of the $175.0 million settlement payment made in 2020 to the FTC as discussed in Note 10 and Note 11 to the consolidated financial statements in the 2021 Annual Report.

Debt

On November 24, 2020, the Company entered into a credit agreement with a consortium of lenders providing for a $350.0 million senior unsecured revolving credit facility (the "Revolving Facility"), under which revolving borrowings became available at the completion of the separation and distribution transaction through which the Company's historical Aaron's Business segment was spun-off into a separate company, and under which all borrowings and commitments will mature or terminate on November 24, 2025. The Company expects that the Revolving Facility will be used to provide for working capital and capital expenditures, to finance future permitted acquisitions, and for other general corporate purposes. The Company had no outstanding borrowings and $350.0 million total available credit under the Revolving Facility as of March 31, 2022 and December 31, 2021.

On November 26, 2021, the Company entered into an indenture in connection with an offering of $600 million aggregate principal amount of its 6.00% senior unsecured notes due 2029 (the "Senior Notes"). The Senior Notes were issued at 100% of their par value. The Senior Notes are general unsecured obligations of the Company and are guaranteed by certain of the Company’s existing and future domestic subsidiaries.

The net proceeds from the Senior Notes were used to fund the purchase price, and related fees and expenses, of the Company’s tender offer to purchase $425 million of the Company’s common stock as discussed in Note 12 to the consolidated financial statements in the 2021 Annual Report. The Company intends to use any remaining proceeds for future share repurchases or, to the extent the Company determines not to repurchase additional shares, for general corporate purposes.

At March 31, 2022, the Company was in compliance with all covenants related to its outstanding debt. See Note 9 to the consolidated financial statements in the 2021 Annual Report for further information regarding the Company's indebtedness.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection with business acquisitions. Progressive Leasing and Four are the only reporting units with goodwill as of March 31, 2022. Impairment occurs when the carrying amount of goodwill is not recoverable from future cash flows. The Company’s goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical results, projected future operating results, or the Company failing to successfully execute on one or more elements of Progressive Leasing and/or Four's strategic plans. The Company completed its annual goodwill impairment test for Progressive Leasing and Four as of October 1, 2021 and concluded that no impairment had occurred. The Company determined that there were no events or circumstances that occurred during the three months ended March 31, 2022 that would more likely than not reduce the fair value of Progressive Leasing or Four below their carrying amounts.

PROG HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Shareholders' Equity

Changes in shareholders' equity for the three months ended March 31, 2022 and 2021 are as follows:


	Treasury Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Total Shareholders’ Equity
(In Thousands)	Shares	Amount		Shares	Amount
Balance, December 31, 2021	(25,638)	$	(749,401)	82,079	$	41,039	$	332,244	$	1,055,526	$	679,408
Stock-Based Compensation	—	—		—	—		6,587		—		6,587
Reissued Shares	177	5,260		—	—		(7,776)		—		(2,516)
Repurchased Shares	(2,200)	(78,080)		—	—		—		—		(78,080)
Net Earnings	—	—		—	—		—		27,135		27,135
Balance, March 31, 2022	(27,661)	$	(822,221)	82,079	$	41,039	$	331,055	$	1,082,661	$	632,534


	Treasury Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Total Shareholders’ Equity
(In Thousands)	Shares	Amount		Shares	Amount
Balance, December 31, 2020	(23,029)	$	(613,881)	90,752	$	45,376	$	318,263	$	1,236,378	$	986,136
Stock-Based Compensation	—	—		—	—		4,163		—		4,163
Reissued Shares	216	3,671		—	—		(8,400)		—		(4,729)
Repurchased Shares	(589)	(28,102)		—	—		—		—		(28,102)
Net Earnings	—	—		—	—		—		79,488		79,488
Balance, March 31, 2021	(23,402)	$	(638,312)	90,752	$	45,376	$	314,026	$	1,315,866	$	1,036,956