CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions, such as those relating to management strategies, future business, future results of operations or financial condition, mergers or acquisitions, and capital allocation. Additionally, our forward-looking statements include expectations related to the spin-off of our former Aaron’s Business segment (which was completed on November 30, 2020) as well as anticipated impacts of the COVID-19 pandemic. These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Item 1A. Risk Factors” of this Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing in this Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”). We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this Form 10-K to reflect actual results or future events or circumstances. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. You should read the information in this Form 10-K in conjunction with the audited consolidated financial statements and the related notes that are included in this Form 10-K.
Unless otherwise indicated or unless the context otherwise requires, all references in this Annual Report on Form 10-K to the "Company," "we," "us," "our" and similar expressions are references to PROG Holdings, Inc. ("PROG Holdings") and its consolidated subsidiaries.
Overview
PROG Holdings is a financial technology holding company based in Salt Lake City, Utah. We have two operating segments: (i) Progressive Leasing, which offers lease-to-own transactions primarily to credit-challenged consumers, through point-of-sale and e-commerce retail partners, via in-store, mobile and online solutions; and (ii) Vive Financial ("Vive"), which provides customers who may not qualify for traditional prime lending with a variety of second-look, revolving credit products, through private label and Vive-branded credit cards. Our Progressive Leasing segment provides consumers with lease-purchase solutions for merchandise, including furniture, appliances, electronics, jewelry, mobile phones and accessories, mattresses, and automobile electronics and accessories from leading traditional and e-commerce retailers (whom we refer to as our point-of-sale partners or "POS partners"). Progressive Leasing purchases from its POS partners the merchandise desired by customers and, in turn, leases the merchandise to the customers through a lease-to-own transaction. Progressive Leasing's technology-based, proprietary decisioning platform offers prompt lease decisioning at the point-of-sale and is integrated with both traditional and e-commerce POS partners. Progressive Leasing provides customers with transparent and competitive lease payment options along with flexible terms, intended to help customers achieve merchandise ownership, including through low initial payments and early buyout options. Approximately 46% of the leases executed during the year ended December 31, 2020 were with repeat customers, which we believe demonstrates a high level of satisfaction. The lease-to-own transactions also benefit Progressive Leasing's POS partners by generating incremental sales with credit-challenged consumers, who typically would not have qualified for financing offers traditionally provided by these retailers. Progressive Leasing has funded over 10 million leases since its inception in 1999.
On November 30, 2020, PROG Holdings (previously Aaron's Holdings Company, Inc.) completed the separation of its Aaron's Business segment from its Progressive Leasing and Vive segments. The separation was effected through a tax-free distribution of all outstanding shares of common stock of The Aaron's Company, Inc. (referred to herein as "The Aaron's Company") to PROG Holdings shareholders of record as of the close of business on November 27, 2020 (referred to as the "separation and distribution transaction"). Through that distribution, shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings common stock. Upon completion of the separation and distribution transaction on November 30, 2020, The Aaron's Company became an independent, publicly traded company under the symbol "AAN" on the New York Stock Exchange, while PROG Holdings continued to be listed on the New York Stock Exchange under the new symbol "PRG".
Strategy
Our strategy to drive growth in our business, which we believe positions us for success over the long-term, includes the following:
•Grow gross merchandise volume ("GMV") with existing and new POS partners - We plan to grow GMV through strategic collaboration and marketing efforts with our POS partners. We remain focused on converting our existing pipeline of retailers into new POS partners. Our ability to maintain and strengthen new and existing relationships, including addressing the changing needs of our POS partners, is critical to the long-term growth of our business.
•Invest in technology that simplifies and improves the customer experience - We are investing in technology platforms that promote customer engagement and simplify the lease application, origination and servicing experience. We are committed to providing our customers with greater choice and flexibility in how and where they choose to shop. We are expanding and innovating our e-commerce capabilities to benefit existing and new POS partners and customers.
•Leverage our large database to drive repeat business - We are leveraging our database of over 10 million leases to offer current and previous customers with products and solutions that meet their needs.
•Broaden our product ecosystem through research and development ("R&D") efforts and strategic acquisitions - We plan to expand our products through internal R&D efforts and potential strategic acquisitions.
•Employ direct-to-consumer marketing to drive shoppers in-store and online - We plan to continue expanding our direct-to-consumer marketing efforts to attract new customers and drive more GMV through our POS partners.
Operating Segments
As of December 31, 2020, the Company has two operating and reportable segments: Progressive Leasing and Vive, which is consistent with the current organizational structure and how the chief operating decision maker regularly reviews results to analyze performance and allocate resources.
The operating results of our two reportable segments may be found in (i) . Management's Discussion and Analysis of Financial Condition and Results of Operations and (ii) . Financial Statements and Supplementary Data.
Progressive Leasing partners with traditional and e-commerce retailers, primarily in the furniture, appliances, electronics, jewelry, mobile phones and accessories, mattresses, and automobile electronics and accessories markets to offer a lease-purchase solution for customers who may not have access to traditional credit-based financing options. It does so by offering leases with monthly, semi-monthly, bi-weekly, and weekly payment terms.
Established in 1999, Progressive Leasing is a leader in the expanding lease-to-own market. Progressive Leasing offers a proprietary, technology-based application and approval process that does not require its employees to be staffed in its POS partners' stores. Once a customer has selected their merchandise and is approved, Progressive Leasing purchases the merchandise from the POS partner and enters into a lease-to-own transaction with the customer. The lease agreement provides the customer flexibility through multiple ownership alternatives, including the ability to exercise early purchase options. Progressive Leasing provides lease-purchase solutions through approximately 25,000 POS partner locations and e-commerce websites in 45 states and the District of Columbia, and operates under federal regulatory agency oversight, including the Federal Trade Commission ("FTC"), as well as state-and-District of Columbia-specific regulations.
Vive 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 over 3,000 point-of-sale partner locations and e-commerce websites includes furniture, mattresses, fitness equipment, and home improvement retailers, as well as medical and dental service providers. The Company believes the Vive product offerings are complementary to those of Progressive Leasing and allow Progressive Leasing to expand into the markets and POS partners that Vive serves.
Vive extends or declines credit to an applicant through third-party bank partners based upon the applicant's credit profile. Vive's bank partners originate the loan by providing financing to our POS partner at the point-of-sale and acquire the receivables at a discount from the loan face value. Vive then acquires the receivable from the bank and services the account.
Qualifying customers receive a credit card to finance their initial purchase and to use in subsequent purchases at the POS partner or other participating partners and Vive will renew the account if the customer remains active and in good standing. The customer is required to make minimum monthly payments and may pay certain annual and other periodic fees.
Operating Strategy
The Company's operating strategy is based on distinguishing our Progressive Leasing and Vive brands from those of our competitors, along with maximizing our operational efficiencies. Our Progressive Leasing and Vive operating strategies are based on providing excellent service to their POS partners and customers, along with continued development and enhancement of technology-based solutions. We believe this strategy will allow us to grow and generate incremental sales for our POS partners, while realizing operating efficiencies with scale. Progressive Leasing's ability to service its POS partners with limited labor costs allows us to offer lease-purchase solutions that are lower than other options available to our customers.
Lease Agreement Customer Experience
The following summarizes the Progressive Leasing customer experience:
Lease Agreement Decisioning Process
Progressive Leasing uses proprietary decisioning algorithms to determine which applicants meet our leasing qualifications and the lease amount for which customers are approved. The decisioning data set contains over 10 million leases with mature lease performance data and other information provided from third party sources. Progressive Leasing's proprietary algorithms utilize the application, customer history, known fraud attributes, retailer/vertical performance and other information in the decision process. In 2020, 97% of lease decisions were completely automated, with a median decision time of 5.7 seconds.
Lease Agreement Renewal and Collection
The customer has the option to acquire ownership of merchandise over a fixed term, usually 12 months, by making weekly, bi-weekly, semi-monthly, or monthly lease payments. The customer may cancel the agreement at any time without penalty by returning the merchandise to Progressive Leasing. If the customer leases the item through the completion of the full term, he or she then obtains ownership of the item. The customer may also purchase the item at any time by tendering the contractually specified payment.