PROG Holdings, Inc. (PRG) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of PROG Holdings, Inc. and should be read in conjunction with the consolidated financial statements and the accompanying notes. Throughout the MD&A we refer to various notes to our Consolidated Financial Statements which appear in Item 8 of this Form 10-K. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in these forward-looking statements. Factors that may cause or contribute to these differences include those discussed in Item 1A. Risk Factors and "Forward-Looking Statements" of this Form 10-K.

Business Overview

PROG Holdings, Inc. ("we", "our", "us", the "Company", or "PROG Holdings") is a financial technology holding company that provides transparent and competitive payment options to consumers. PROG Holdings has two reportable segments: (i) Progressive Leasing, an in-store, app-based, and e-commerce 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 (collectively, "POS partners"). It does so by purchasing the 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. The Progressive Leasing segment comprised approximately 97% of our consolidated revenues for the year ended December 31, 2022.

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. The Vive segment comprised approximately 3% of our consolidated revenues for the year ended December 31, 2022.

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 financial technology 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 year ended December 31, 2022 as its financial results are not material to the Company's consolidated financial results. Four's financial results are reported within "Other" for segment reporting purposes.

Separation and Distribution of the Aaron's Business Segment

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. ("The Aaron's Company") to the 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".

Prior to the separation and distribution transaction, the Company's operating segments were Progressive Leasing, the Aaron's Business, and Vive. All direct revenues and expenses of the Aaron's Business operations have been classified within discontinued operations, net of income tax, within our consolidated statements of earnings (loss) through the separation and distribution date of November 30, 2020. Certain corporate expenses that have previously been reported as expenses of the Aaron's Business segment in 2020 did not qualify for classification within discontinued operations and are reported as unallocated corporate expenses for segment purposes within continuing operations. These unallocated corporate expenses are in addition to corporate overhead costs allocated to the Progressive Leasing and Vive segments through the separation and distribution date of November 30, 2020.

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Macroeconomic and Business Environment

The Company continues to operate in a challenging macroeconomic environment. The rapid increase in the rate of inflation during 2022, particularly in gas, food, and housing costs, which we believe disproportionately negatively affects the customers we serve and therefore our customers' ability to make the payments they owe to the Company, has resulted in an unfavorable impact on our lease portfolio performance and Gross Merchandise Volume ("GMV") during 2022. Customer payment delinquencies and uncollectible renewal payments experienced within our Progressive Leasing segment during much of 2022 significantly exceeded levels experienced during pre-pandemic periods. In response to increasing customer delinquencies and higher write-offs, Progressive Leasing tightened its lease decisioning several times during 2022, resulting in fewer lease approvals and an adverse impact on GMV. Levels of customer payment delinquencies and uncollectible renewal payments for leases originated after Progressive Leasing further tightened its lease decisioning in mid-2022 improved to levels consistent with pre-pandemic lease portfolio performance. The relatively high levels of customer payment delinquencies and related write-offs experienced during the year ended December 31, 2022 related to leases originated prior to the Company's further tightening of its lease decisioning in mid-2022 may continue for an extended period of time, and/or may increase to even higher levels, which would have an unfavorable impact on our performance. Furthermore, increasing unemployment rates and/or a U.S. recession may result in increasing levels of customer payment delinquencies and related write-offs, which would result in an unfavorable impact on our performance.

The significant increase in inflation and interest rates, and fears of a possible recession have also unfavorably impacted consumer confidence within our customer base, resulting in a decrease in demand for the types of merchandise offered by many of our key national and regional POS partners. In light of these macroeconomic challenges and to align the cost structure of our business with our near-term revenue outlook, the Company executed on a number of cost reduction initiatives during the second and third quarters of 2022 to drive efficiencies and right-size variable costs, while attempting to minimize the negative impact on growth-related initiatives.

COVID-19 Pandemic. The COVID-19 pandemic has negatively impacted the global economy in recent years, including the businesses and operations of our POS partners and our own businesses. For example, the significant increase in COVID-19 cases from the Omicron variant during the first quarter of 2022 resulted in many of our POS partners temporarily closing showrooms and/or reducing the hours and scope of operations of their showrooms, and also resulted in increases in employee absenteeism and declines in customer traffic for many of our POS partners, all of which unfavorably impacted Progressive Leasing's GMV. In addition, other pandemic-related factors unfavorably impacted many of our POS partners during the first half of 2022, including supply chain disruptions resulting in shortages of available products at certain POS partners, primarily in appliances, electronics and furniture categories. Those and other pandemic-related developments, may adversely impact Progressive Leasing's generation of new lease agreements, Vive's generation of new loans, and our results of operations, financial condition, cash flow and/or liquidity in future periods.

The extent of any such adverse, pandemic-related impacts will depend on future developments, which are highly uncertain and cannot be predicted, including, for example, the emergence of more contagious and harmful variants of COVID-19, and localized outbreaks or additional waves of COVID-19 cases and the impact of any such outbreaks on our customers, POS partners, and employees.

We believe pandemic-related government stimulus payments and enhanced unemployment benefits and child tax credits provided in 2020 and 2021 provided economic support to many of our customers, resulting in an increase in payment activity and early lease buyouts despite the economically challenging environment, as well as lease merchandise, accounts receivable, and loan receivable write-offs trending lower during 2020 and 2021. In turn, we further believe that the expiration of the government stimulus payments, enhanced unemployment benefits and child tax credits that were implemented in response to the COVID-19 pandemic also contributed to unfavorable results of operations in 2022 as compared to 2021.

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Highlights

The following summarizes significant highlights from the year ended December 31, 2022:

•We reported revenues of $2.6 billion in 2022, a decrease of 3.0% compared to 2021. The decrease in revenues was primarily due to lower GMV as described below, an increase in customer payment delinquencies and uncollectible renewal payments, tightening of lease decisioning beginning in mid-2022 resulting in fewer lease originations, and a decrease in customers exercising early lease buyout options, as compared to the strong customer payment activity and low delinquencies we experienced in 2021.

•GMV decreased by $167.2 million for Progressive Leasing and $21.1 million for Vive in 2022, compared to 2021. These decreases were due to tighter lease and loan decisioning, resulting in fewer lease and loan originations, the rapid increase in the rate of inflation eroding customers' disposable incomes and reducing their demand for many of the goods sold by our POS partners, and the absence of government stimulus payments and enhanced unemployment benefits and child tax credits, which we believe benefited many of our customers in 2021. These negative impacts were partially offset by a $13.0 million increase in Progressive Leasing GMV generated through e-commerce platforms. In 2022, e-commerce GMV represented 17.2% of Progressive Leasing's total GMV, compared to 15.2% in 2021. GMV from our other operations increased by $51.8 million resulting from the growth in loan originations by our Four business during 2022.

•Earnings before income tax expense decreased to $148.2 million compared to $328.2 million in 2021. The decrease was primarily driven by an overall decline in revenues as discussed above. The decrease was also driven by an increase of $66.9 million in the provision for lease merchandise write-offs, as a result of higher customer payment delinquencies and write-offs in 2022, as compared to the strong customer payment activity and historically low lease merchandise write-offs we experienced during 2021. The decrease was further driven by an increase of $23.6 million in the provision for loan losses due to higher loan write-offs during 2022 and the recognition of estimated credit losses as of December 31, 2022, resulting from unfavorable forecasted macroeconomic conditions. Other factors contributing to the decrease were a $32.1 million increase in interest expense related to the Senior Notes issued in November 2021, a $19.8 million increase in sales, general, and administrative expenses, and a $10.2 million goodwill impairment loss related to Four.

Key Operating Metrics

Gross Merchandise Volume. We believe GMV is a key performance indicator of our Progressive Leasing and Vive segments, as it provides the total value of new leases and loans written into our portfolio over a specified time period. GMV does not represent revenues earned by the Company, but rather is a leading indicator we use in forecasting revenues the Company may earn in the short-term. Progressive Leasing's GMV is defined as the retail price of merchandise acquired by Progressive Leasing, which it then expects to lease to its customers. GMV for Vive and Other are defined as gross loan originations.

The following table presents our GMV for the Company for the years presented:

The decrease in Progressive Leasing's and Vive's GMV was primarily due to our tighter lease and loan decisioning to address the unfavorable economic conditions that were present in 2022, resulting in fewer lease and loan approvals; the rapid increase in the rate of inflation, which eroded customers' disposable incomes and their demand for many of the goods sold by our POS partners; and the absence of government stimulus payments and enhanced unemployment benefits and child tax credits, which we believe benefited many of our customers in 2021. We believe all of these factors have unfavorably impacted the generation of new leases and loans. The decrease in Progressive Leasing's GMV from those factors was partially offset by a $13.0 million increase in GMV generated through e-commerce platforms. E-commerce channels generated 17.2% of Progressive Leasing's GMV in 2022 compared to 15.2% in 2021. The decrease in total GMV was also partially offset by an increase in GMV from our other operations, primarily due to an increase in loan originations by our Four business.

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Active Customer Count. Our active customer count represents the total number of customers that have an active lease agreement with Progressive Leasing, or an active loan with Vive or Four. The following table presents our consolidated active customer count, which includes an immaterial number of customers that have both an active lease agreement and loan agreement, for the Company for the years presented:

The decrease in the number of Progressive Leasing customers in 2022 compared to 2021 was primarily due to a decrease in customer demand for the types of merchandise typically purchased through our lease-to-own solutions and the tightening of our lease decisioning to address the unfavorable economic conditions that were present during 2022. The increase in the number of Vive customers was primarily driven by the growth in loan originations we experienced in 2021. The increase in customers from our other operations is driven primarily by the continued growth in loan originations from our Four business.

Key Components of Earnings from Continuing Operations Before Income Tax Expense

In this MD&A section, we review our consolidated results. For the year ended December 31, 2022 and the comparable prior year periods, some of the key revenue, cost and expense items that affected earnings before income taxes were as follows:

Revenues. We separate our total revenues into two components: (i) lease revenues and fees and (ii) interest and fees on loans receivable. Lease revenues and fees include all revenues derived from lease agreements from our Progressive Leasing segment. Lease revenues are recorded net of a provision for uncollectible renewal payments. Interest and fees on loans receivable represents merchant fees, finance charges and annual and other fees earned on outstanding loans in our Vive segment and, to a lesser extent, from Four.

Depreciation of Lease Merchandise. Depreciation of lease merchandise primarily reflects the expense associated with depreciating merchandise leased to customers by Progressive Leasing.

Provision for Lease Merchandise Write-offs. The provision for lease merchandise write-offs represents the estimated merchandise losses incurred but not yet identified by management and adjustments for changes in estimates for the allowance for lease merchandise write-offs.

Operating Expenses. Operating expenses include personnel costs, stock-based compensation expense, occupancy costs, advertising, professional services expense, sales acquisition expense, computer software expense, bank service charges, the provision for loan losses, fixed asset depreciation expense, intangible asset amortization, and restructuring, among other expenses.

Impairment of Goodwill. Impairment of goodwill is the partial write-off of the goodwill balance at the Four reporting unit. Refer to Note 1 of the accompanying consolidated financial statements for further discussion of the goodwill impairment assessment and resulting impairment charge.

Separation Related Charges. Separation related charges include stock-based compensation expense and retirement charges associated with the separation of the Aaron's Business segment. Refer to Note 2 of the accompanying consolidated financial statements for further discussion of the separation and distribution of the Aaron's Business segment.

Interest Expense, Net. Interest expense, net consists of interest expense incurred on the Company's Senior Notes and senior secured revolving credit facility (the "Revolving Facility"). Interest expense is presented net of interest income earned on the Company's deposits in cash and cash equivalents.

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Results of Operations

Results of Operations – Years Ended December 31, 2022 and 2021

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Revenues

Information about our revenues by source and reportable segment is as follows:

The decrease in Progressive Leasing revenues was primarily due to an increase in customer payment delinquencies and uncollectible renewal payments, as compared to the strong customer payment activity and low delinquencies it experienced in 2021. The provision for uncollectible renewal payments, which is recorded as a reduction to lease revenues and fees, was $376.3 million for the year ended December 31, 2022 compared to $224.7 million in 2021. The decrease in Progressive Leasing revenues was also due to a 7.8% decline in its GMV during the year ended December 31, 2022, as compared to 2021, and fewer customers electing to exercise early lease buyouts during 2022, as compared to 2021. The increase in Vive revenues was primarily driven by a larger loan portfolio throughout 2022 as compared to 2021.

Operating Expenses

Information about certain significant components of operating expenses is as follows:

1 Personnel costs excludes stock-based compensation expense, which is reported separately in the operating expense table.

2 Sales acquisition expense includes vendor incentives and rebates to POS partners, external sales commissions, amortization of initial direct costs and amounts paid to various POS partners to be their exclusive provider of lease-to-own solutions.

3 Computer software expense consists primarily of software subscription fees, licensing fees and non-capitalizable software implementation costs.

4 Progressive Leasing's sales, general and administrative expense was $321.3 million and $316.3 million during the years ended December 31, 2022 and 2021, respectively.

The increase in personnel costs of $4.6 million was driven primarily by an increase of $2.9 million in personnel costs attributable to an increase in the number of employees resulting from the Four acquisition and other strategic initiatives started by the Company in 2021 that continued incurring costs during 2022. Personnel costs also increased by $2.2 million at Vive, primarily due to wage inflation. These increases were partially offset by a decrease of $0.8 million at Progressive Leasing, primarily due to its reduction in the number of employees during the second half of 2022 as part of its restructuring and cost cutting initiatives.

Sales acquisition expense increased $6.5 million primarily due to increased incentives, sales commissions, and other expenses at Progressive Leasing to promote lease originations with its POS partners.

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Computer software expense increased $7.0 million primarily due to an increase in non-capitalizable costs for software implementation projects by Progressive Leasing during 2022, other strategic initiatives started by the Company in 2021 that continued incurring costs in 2022, and increased software licensing costs.

Other sales, general and administrative expense increased $7.9 million primarily due to additional administrative costs within Progressive Leasing during 2022, in addition to an increase of $2.4 million due to the acquisition and growth of our Four business, and other strategic initiatives started by the Company in 2021 that incurred greater costs in 2022 than in 2021.

Provision for loan losses increased $23.6 million due to unfavorable economic conditions present during 2022 and projected macroeconomic conditions, including a rapid increase in the rate of inflation, high unemployment rates, and the absence of government stimulus payments and enhanced unemployment benefits and child tax credits, as compared to 2021, at Vive. The provision for loan losses also increased due to growth in GMV at Four since it was acquired in June 2021. The provision for loan losses as a percentage of interest and fees revenue increased to 55.7% for the year ended December 31, 2022 compared to 30.0% in 2021, due to customer payment delinquencies at Vive returning to pre-pandemic levels, higher expected credit losses due to projected unfavorable macroeconomic conditions, and higher write-offs within our Four operations.

Restructuring expense of $9.0 million is the result of a number of restructuring activities initiated by the Company during 2022 intended to reduce expenses, consolidate certain segment corporate headquarters and other office locations, and align the cost structure of the business with the Company's strategy and near-term revenue outlook. The restructuring expense was primarily comprised of severance costs associated with a reduction in Progressive Leasing's workforce and operating lease right-of-use asset impairment charges related to a reduction in call center and office space and the relocation of the Vive corporate headquarters to the Company's corporate office building.

Other Costs and Expenses

Depreciation of lease merchandise. Depreciation of lease merchandise decreased by 3.4% due to fewer customers exercising early lease buyout elections during the year ended December 31, 2022 compared to 2021. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased slightly compared to 2021, resulting from the decline in early buyout elections.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs increased by $66.9 million due to higher customer payment delinquencies and write-offs during the year ended December 31, 2022, compared to the strong customer payment activity and historically low lease merchandise write-offs we experienced in 2021. Given the significant economic uncertainty resulting from challenges in the macroeconomic environment, including high inflation, forecasted unemployment rates, and/or a recession and the potential effects of such developments on our POS partners, customers, and business going forward, a high level of estimation was involved in determining the allowance as of December 31, 2022. Actual lease merchandise write-offs could differ materially from the allowance.

The provision for lease merchandise write-offs as a percentage of lease revenues was 7.7% for the year ended December 31, 2022, compared to 4.8% for the year ended December 31, 2021. The increase in the provision as a percentage of lease revenues was primarily due to higher customer payment delinquencies and write-offs on leases originated in 2022, most notably in the first half of 2022 prior to the Company further tightening its lease decisioning to address the unfavorable economic conditions. The provision also increased as a result of changes in estimates for the allowance as discussed above.

Impairment of Goodwill. The Company recorded a loss of $10.2 million to partially write off the goodwill balance of the Four reporting unit during the third quarter of 2022. Refer to Note 1 for additional information regarding the details of the goodwill impairment loss.

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Earnings from Continuing Operations Before Income Tax Expense

Information about our earnings from continuing operations before income tax expense by reportable segment is as follows:

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The $35.1 million loss before income taxes within "Other" primarily relates to our Four operations and includes a $10.2 million impairment loss related to the partial impairment of Four's goodwill. Other factors impacting the change in earnings before income tax expense are discussed above.

Income Tax Expense

Income tax expense decreased to $49.5 million for the year ended December 31, 2022 compared to $84.6 million in 2021 primarily due to lower earnings before income tax expense. The effective tax rate was 33.4% for the year ended December 31, 2022 compared to 25.8% in 2021. The increase in the effective tax rate was primarily driven by the non-deductible goodwill impairment loss for Four of $10.2 million, interest on the Company's uncertain tax position liabilities, an unfavorable adjustment for employee stock-based compensation vesting, and an increase in the valuation allowance related to certain deferred tax assets.

Results of Operations – Years Ended December 31, 2021 and 2020

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Revenues

Information about our revenues by source and reportable segment is as follows:

The increase in Progressive Leasing revenues was due to a 15.8% increase in GMV driven by growth from large national POS partners and e-commerce platforms. GMV generated through e-commerce platforms represented 15.2% of total Progressive Leasing GMV in 2021, compared to 7.0% in 2020. Although Progressive Leasing's customer payment delinquencies and uncollectible renewal payments began trending back to normalized pre-pandemic levels in the second half of 2021, and reached those pre-pandemic levels in the fourth quarter, the unfavorable impact of that factor on revenues was more than offset by Progressive Leasing's lease portfolio growth in 2021. The increase in Vive revenues was due to continued strong customer payment performance and a 52.3% increase in GMV in the year ended December 31, 2021, compared to 2020, resulting in growth in our loans receivable portfolio and additional interest and fee revenues. We believe a significant portion of our Progressive Leasing and Vive customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity we experienced in 2020 and the first half of 2021.

Operating Expenses

Information about certain significant components of operating expenses is as follows:

1 Personnel costs excludes stock-based compensation expense, which is reported separately in the operating expense table.

2 Sales acquisition expense includes vendor incentives and rebates to POS partners, external sales commissions, amortization of initial direct costs and amounts paid to various POS partners to be their exclusive provider of lease-to-own solutions.

3 Computer software expense consists primarily of software subscription fees, licensing fees and non-capitalizable software implementation costs.

4 Progressive Leasing's sales, general and administrative expense was $316.3 million and $268.9 million during the years ended December 31, 2021 and 2020, respectively.

The increase in personnel costs of $19.3 million was driven by increases of $21.5 million and $0.9 million at Progressive Leasing and Vive, respectively, for additional hiring and promotions resulting from continued growth in the business and new personnel costs for functions associated with becoming a standalone public company effective November 30, 2020. Personnel costs increased an additional $1.8 million as a result of strategic initiatives started by the Company in 2021. These increases were partially offset by executive personnel costs incurred by the Aaron's Business segment in the year ended December 31, 2020, which did not qualify for classification within discontinued operations, and are classified within unallocated corporate costs for segment purposes.

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Advertising expense increased $10.9 million primarily due to Progressive Leasing's effort to continue growing GMV from existing POS partners and to further expand into e-commerce, combined with reduced marketing efforts in the same period of 2020 associated with cost cutting measures implemented in response to the COVID-19 pandemic.

Computer software expense increased $7.4 million primarily due to non-capitalizable software implementation projects by Progressive Leasing during 2021 and increased software and licensing costs related to the overall growth and strategic initiatives of the Company.

Provision for loan losses decreased $16.4 million due to continued strong customer payment activity and changes to estimates in Vive's allowance for loan losses during the year ended December 31, 2021 as compared to 2020. The Company recognized an incremental $12.3 million allowance for loan losses during the year ended December 31, 2020 due to the unfavorable forecasted macroeconomic conditions resulting from the COVID-19 pandemic. In the year ended December 31, 2021, strong customer payment activity and improved forecasted macroeconomic conditions resulted in a downward change in estimate to the allowance for loan losses of $14.7 million. These changes in forecasted macroeconomic conditions and strong customer payment activity resulted in a decrease in Vive's allowance for loan losses as a percentage of gross loans receivable from 32.1% as of December 31, 2020 to 23.4% as of December 31, 2021. We believe a significant portion of our Vive customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity in 2020 and 2021. These decreases were partially offset by the establishment of new allowances due to Vive's GMV growth of 52.3% in the year ended December 31, 2021 compared to the prior year.

Other Costs and Expenses

Depreciation of lease merchandise. Depreciation of lease merchandise increased due to growth in Progressive Leasing's portfolio of leased assets for the year ended December 31, 2021 compared to 2020. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased to 69.5% from 69.2% in 2020, primarily due to elevated early lease buyouts in 2021 as compared to 2020, partially offset by a decrease in the provision for uncollectible renewal payments.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs decreased $4.3 million primarily due to a $14.8 million decline in write-offs, compared to the year ended December 31, 2020, as a result of continued strong payment activity from customers, and changes to estimates in our allowance for lease merchandise write-offs. At December 31, 2020, we established incremental lease merchandise allowances of $10.3 million, in response to the COVID-19 pandemic, based on management's best estimate of the potential unfavorable impacts the COVID-19 pandemic may have on our customers' ability to continue making payments on their leases. In the year ended December 31, 2021, we continued to experience strong customer payment activity and relatively low write-offs, resulting in the reversal of the full amount of the incremental COVID-19 specific allowance for write-offs. We believe a significant portion of our Progressive Leasing customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity we experienced in 2020 and 2021.

The provision for lease merchandise write-offs as a percentage of lease revenues decreased to 4.8% for the year ended December 31, 2021 from 5.4% in 2020 due to improved customer payment activity, relatively low write-offs, and changes in estimates on the allowance as discussed above.

Separation related charges. The Company incurred $18.0 million of stock-based compensation and retirement costs in the year ended December 31, 2020 related to the Company's separation of the Aaron's Business segment.

Earnings from Continuing Operations Before Income Tax Expense

Information about our earnings from continuing operations before income tax expense by reportable segment is as follows:

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The $11.1 million loss before income taxes within "Other" primarily relates to our Four operations. Unallocated corporate expenses represent certain expenses that had previously been reported within the Aaron's Business segment in 2020 that did not qualify for classification within discontinued operations. Factors impacting the change in earnings from continuing operations before income tax expense are discussed above.

Income Tax Expense

Income tax expense increased to $84.6 million for the year ended December 31, 2021 compared to $37.9 million in 2020. The effective tax rate of 14.0% during the year ended December 31, 2020 was primarily due to a $34.2 million discrete income tax benefit generated by the provisions of the CARES Act in 2020, which resulted from the rate differential on the carryback of the Company's 2018 net operating loss previously recorded at 21% to the 2013 tax year, where the benefit was recognized at 35%. There are no material adjustments between the Company's effective tax rate of 25.8% and the Company's statutory income tax rate for the year ended December 31, 2021.

Overview of Financial Position

The major changes in the consolidated balance sheet from December 31, 2021 to December 31, 2022, include:

•Cash and cash equivalents decreased $38.3 million to $131.9 million for the year ended December 31, 2022. For additional information, refer to the "Liquidity and Capital Resources" section below.

•Lease merchandise, net, decreased $66.0 million due primarily to a 7.8% decrease in Progressive Leasing's GMV in 2022 as compared to 2021.

•Loans receivable, net of allowances and unamortized fees, increased $11.7 million due to growth in the loan portfolios of Vive and Four compared to December 31, 2021.

•Goodwill decreased $10.2 million as a result of the impairment loss to partially write off the goodwill balance of the Four reporting unit during the third quarter of 2022. Refer to Note 1 for additional information regarding the details of the impairment loss.

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Liquidity and Capital Resources

General

We expect that our primary capital requirements will consist of:

•Reinvesting in our business, including buying merchandise for the operations of Progressive Leasing. Because we believe Progressive Leasing will continue to grow over the long-term, we expect that the need for additional lease merchandise will remain a major capital requirement;

•Making merger and acquisition investment(s) to further broaden our product offerings; and

•Returning excess cash to shareholders through periodically repurchasing stock.

Other capital requirements include (i) expenditures related to software development; (ii) expenditures related to our corporate operating activities; (iii) personnel expenditures; (iv) income tax payments; (v) funding of loans receivable for Vive; and (vi) servicing our outstanding debt obligation.

Our capital requirements have been financed through:

•cash flows from operations;

•private debt offerings;

•bank debt; and

•stock offerings.

As of December 31, 2022, the Company had $131.9 million of cash, $350.0 million of availability under the Revolving Facility, and $600.0 million of indebtedness.

The Company's statement of cash flows for the year ended 2020 was not required to be adjusted for discontinued operations. Accordingly, the cash flow activities for the Aaron's Business discontinued operations are included in the discussion and analysis set forth below for the comparative periods through the separation and distribution date of November 30, 2020.

Cash Provided by Operating Activities

Cash provided by operating activities was $242.5 million and $246.0 million during the years ended December 31, 2022 and 2021, respectively. Cash provided by operating activities decreased by $3.5 million despite the $144.8 million decrease in net earnings from continuing operations as compared to 2021. Other significant changes in operating cash outflows compared to the prior year include $35.6 million of interest paid on the Company's Senior Notes compared to $1.5 million in 2021, and an $8.6 million increase in net income tax payments for the year ended December 31, 2022. These decreases in operating cash flows were partially offset by a $165.3 million decrease in purchases of lease merchandise by Progressive Leasing during the year ended December 31, 2022 compared to 2021. Other changes in cash provided by operating activities are discussed above in our discussion of results for the year ended December 31, 2022.

Cash provided by operating activities was $246.0 million and $456.0 million during the years ended December 31, 2021 and 2020, respectively. The $210.0 million decrease in operating cash flows was primarily due to the separation of the Aaron's Business, which accounted for $193.3 million of the cash provided by operating activities during the year ended December 31, 2020. The $16.7 million decrease in cash provided by operating activities from continuing operations in 2021 when compared to 2020 was driven by an increase of lease merchandise purchases of $265.5 million during 2021. The Company also made net income tax payments of $53.6 million during 2021, compared to $29.0 million in 2020. These higher cash outflows in 2021 were partially offset by stronger customer payment activity during the first half of 2021 and the payment of Progressive Leasing's $175.0 million settlement with the FTC in the second quarter of 2020. Changes in certain working capital accounts also contributed to operating cash inflows. Other changes in cash provided by operating activities are discussed above in our discussion of results for the year ended December 31, 2021.

Cash Used in Investing Activities

Cash used in investing activities was $53.5 million and $82.2 million during the year ended December 31, 2022 and 2021, respectively. The $28.7 million decrease in investing cash outflows in the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to the $22.8 million of cash paid for the acquisition of Four in June 2021. Additionally, proceeds from loans receivable increased $27.4 million in 2022 compared to 2021. These changes were partially offset by a $21.4 million increase in cash outflows for investments in loans receivables in 2022 as compared to 2021.

Cash used in investing activities was $82.2 million and $114.5 million during the years ended December 31, 2021 and 2020, respectively. The cash used in investing activities during the year ended December 31, 2020 included $64.5 million in cash outflows attributable to the Aaron's Business discontinued operations. The $32.2 million increase in cash used in investing

activities from continuing operations when compared to the same period in 2020 was primarily due to: (i) a $69.6 million increase in cash outflows for investments in Vive loans receivable in 2021 due to growth in loan origination activity; and (ii) the $22.8 million cash paid, net of cash acquired, for the acquisition of Four in June 2021. The increases were partially offset by a $62.9 million increase in proceeds on loans receivable driven by strong customer payment activity and growth in the portfolio in the year ended December 31, 2021 compared to the same period of 2020.

Cash Used in Financing Activities

Cash used in financing activities was $227.2 million during the year ended December 31, 2022 compared to $30.3 million during the year ended December 31, 2021, an increase of $196.9 million. Cash used in financing activities in 2022 was primarily due to the $223.6 million outflows for the acquisition of treasury stock. Cash used in financing activities in 2021 was primarily comprised of: (i) a $425 million outflow for the "Dutch auction" tender offer, plus $3.6 million in related transaction fees, for the repurchase and retirement of our common stock; (ii) a $142.4 million outflow for the acquisition of treasury stock; (iii) the repayment of $50.0 million on our Revolving Facility; and (iv) $600 million gross proceeds from the issuance of Senior Notes, net of $8.3 million of bank fees.

Cash used in financing activities was $30.3 million during the year ended December 31, 2021 compared to $362.6 million during the year ended December 31, 2020, a decrease of $332.3 million. Cash used in financing activities in 2021 was primarily comprised of: (i) a $425 million outflow for the "Dutch auction" tender offer, plus $3.6 million in related transaction fees, for the repurchase and retirement of our common stock; (ii) a $142.4 million outflow for the acquisition of treasury stock; (iii) the repayment of $50.0 million on our Revolving Facility; and (iv) $600 million gross proceeds from the issuance of Senior Notes, net of $8.3 million of bank fees. Cash used in financing activities in 2020 was primarily comprised of: (i) $342.0 million of net repayments made to fully extinguish the Company's historical debt facilities in advance of the separation and distribution transaction; (ii) $50.0 million of borrowings on the Company's Revolving Facility; (iii) $54.2 million of cash transferred to The Aaron's Company in the separation and distribution; (iv) $13.8 million of dividends paid; and (v) $12.4 million of proceeds from stock option exercises.

Share Repurchases

We purchase our stock in the market from time to time as authorized by our Board of Directors. On February 22, 2021, the Company's Board of Directors terminated the share repurchase program that was in effect as of December 31, 2020 and replaced it with a repurchase program that permitted the Company to repurchase up to $300 million of the Company's outstanding common stock. On November 3, 2021, the Company announced that its Board of Directors had authorized a new $1 billion share repurchase program that replaced the previous $300 million repurchase program. As of December 31, 2022, we had the authority to purchase additional shares up to our remaining authorization limit of $337.3 million.

The Company purchased 8,720,223 shares of its common stock for $223.6 million during the year ended December 31, 2022 and 11,611,178 shares for $567.4 million during the year ended December 31, 2021.

Dividends

We paid no dividends during 2022 and 2021 and do not currently anticipate paying any dividends. Prior to the separation and distribution transaction, we declared an annual common stock dividend of $0.165 per share in 2020, which resulted in an aggregate dividend payment of $13.8 million.

Debt Financing

On November 26, 2021, the Company entered into an indenture in connection with its offering of $600 million aggregate principal amount of its senior unsecured notes due 2029 (the "Senior Notes"). The Senior Notes were issued at 100.0% of their par value with a stated fixed annual interest rate of 6.00%. Interest will accrue on the outstanding balance and will be payable semi-annually. The Senior Notes are general unsecured obligations of the Company and will be guaranteed by certain of the Company's existing and future domestic subsidiaries.

The indenture discussed above contains various other covenants and obligations to which the Company and its subsidiaries are subject while the Senior Notes are outstanding. The covenants in the indenture may limit the extent to which, or the ability of the Company and its subsidiaries to, among other things: (i) incur additional debt and guarantee debt; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) issue certain preferred stock or similar equity securities; (v) make loans and investments; (vi) sell assets; (vii) incur liens; (viii) enter into transactions with affiliates; (ix) enter into agreements restricting the ability of the Company’s subsidiaries to pay dividends; and (x) consolidate, merge or sell all or substantially all of the Company’s assets. The indenture also contains customary events of default for transactions of this type and amount. We were in compliance with these covenants at December 31, 2022 and believe that we will continue to be in compliance in the future.

On November 24, 2020, the Company entered into a credit agreement with a consortium of lenders providing for our $350 million senior unsecured Revolving Facility, under which revolving borrowings became available at the completion of the separation and distribution date and under which all borrowings and commitments will mature or terminate on November 24, 2025.

As of December 31, 2022, the Company had no outstanding balance and $350 million remaining available for borrowings on the Revolving Facility. The Revolving Facility includes an uncommitted incremental facility increase option which, subject to certain terms and conditions, permits the Company at any time prior to the maturity date to request an increase in extensions of credit available thereunder by an aggregate additional principal amount of up to $300 million.

Our Revolving Facility contains certain financial covenants, which include requirements that the Company maintain ratios of (i) total net debt to EBITDA of no more than 2.50:1.00 and (ii) consolidated interest coverage of no less than 3.00:1.00. The Company will be in default under the Revolving Facility if it fails to comply with these covenants, and all borrowings outstanding may become due immediately. Additionally, under the Revolving Facility, if the total net debt to EBITDA, as defined by the Revolving Facility, exceeds 1.25, the revolver becomes fully secured for the remaining duration of the Revolving Facility term. As of June 30, 2022, the Company exceeded the 1.25 total net debt to EBITDA ratio and the Revolving Facility became fully secured. At December 31, 2022, we were in compliance with the financial covenants set forth in the Revolving Facility and believe that we will continue to be in compliance in the future.

Commitments

Income Taxes. During the year ended December 31, 2022, we made net income tax payments of $62.2 million. During the year ended December 31, 2023 we anticipate making estimated cash payments of $71.4 million for United States federal and state income taxes.

Leases. We lease management and information technology space for corporate functions as well as call center space and storage space for our hub facilities under operating leases expiring at various times through 2027. Our corporate and call center leases contain renewal options for additional periods ranging from three to five years. We also lease transportation vehicles under operating leases which generally expire during the next three years. We expect that most leases will be renewed or replaced by other leases in the normal course of business.

Contractual Obligations and Commitments. Future interest payments on the Company's variable-rate debt are based on a rate per annum equal to, at our option, (i) the London Interbank Overnight Rate ("LIBOR") plus a margin within the range of 1.5% to 2.5% for revolving loans, based on total leverage, or (ii) the administrative agent's base rate plus a margin ranging from 0.5% to 1.5%, as specified in the agreement. The agreement governing the Revolving Facility also contains language allowing for the substitution of interest rates based on the Secured Overnight Financing Rate ("SOFR") once LIBOR ceases being published, which is expected to occur in 2023. Future interest payments related to our Revolving Facility are based on the borrowings outstanding at that time. Future interest payments may be different depending on future borrowing activity and interest rates. The Company had no outstanding borrowings under the Revolving Facility as of December 31, 2022.

As discussed above, on November 26, 2021, the Company issued $600 million aggregate principal amount of Senior Notes that bear a fixed annual interest rate of 6.00%. Interest will accrue on the outstanding balance and will be payable semi-annually. The Senior Notes will mature on November 15, 2029.

The Company has no long-term commitments to purchase merchandise nor does it have significant purchase agreements that specify minimum quantities or set prices that exceed our expected requirements for three months.

Deferred income tax liabilities as of December 31, 2022 were approximately $137.3 million. Deferred income tax liabilities are calculated based on temporary differences between the tax basis of assets and liabilities and their respective book basis, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period may be misleading, because this scheduling would not necessarily relate to liquidity needs.

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Unfunded Lending Commitments. The Company, through its Vive business, has unconditionally cancellable unfunded lending commitments totaling approximately $513.7 million and $467.6 million as of December 31, 2022 and 2021, respectively, that do not give rise to revenues and cash flows. These unfunded commitments arise in the ordinary course of business from credit card agreements with individual cardholders that give them the ability to borrow, against unused amounts, up to the maximum credit limit assigned to their account. While these unfunded amounts represented the total available unused lines of credit, the Company does not anticipate that all cardholders will utilize their entire available line at any given point in time. Commitments to extend unsecured credit are agreements to lend to a cardholder so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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Critical Accounting Policies

We discuss the most critical accounting policies below. For a discussion of all of the Company’s significant accounting policies, see Note 1 in the accompanying consolidated financial statements.

Revenue Recognition

All of Progressive Leasing's customer agreements are considered operating leases and are recognized in accordance with ASC 842, Leases. The Company maintains ownership of the lease merchandise until all payment obligations are satisfied under the lease ownership agreements. Progressive Leasing recognizes lease revenue on a straight-line basis over the estimated lease term. Initial lease payments made by the customer upon lease execution are initially recognized as deferred revenue and are recognized as lease revenue over the estimated lease term on a straight-line basis. All other customer billings are in arrears and, therefore, lease revenues are earned prior to the lease payment due date and are recorded in the statements of earnings net of related sales taxes as earned. Cash collected in advance of being due or earned and recognized as deferred revenue is presented within customer deposits and advance payments in the accompanying consolidated balance sheets. Progressive Leasing revenues recorded prior to the payment due date results in unbilled accounts receivable in the accompanying consolidated balance sheets. Our revenue recognition accounting policy matches the lease revenue with the corresponding costs, mainly depreciation expense, associated with lease merchandise.

At December 31, 2022 and 2021, we had deferred revenue representing cash collected in advance of being due or earned totaling $37.1 million and $45.1 million, respectively, and accounts receivable, net of an allowance for doubtful accounts based on historical collection rates, of $64.5 million and $66.3 million, respectively. Our accounts receivable allowance is estimated using historical write-off and collection experience. Other qualitative factors, such as current and forecasted customer payment trends, are considered in estimating the allowance. For customer agreements that are past due, the Company's policy is to write off lease receivables after 120 days. The provision for uncollectible renewal payments is recorded as a reduction of lease revenues and fees in accordance with ASC 842.

Vive recognizes interest income based upon the amount of the loans outstanding, which is recognized as interest and fees on loans receivable in the billing period in which they are assessed if collectability is reasonably assured. Vive acquires loans receivable from its third-party bank partners at a discount from the face value of the loan. The discount is comprised mainly of a merchant fee discount, which represents a pre-negotiated, nonrefundable discount that generally ranges from 3.0% 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, net of the origination costs, is amortized on a net basis and is recorded as interest and fee revenue on loans receivable on a straight-line basis over the initial 24-month period that the card is active.

Lease Merchandise

The Company’s Progressive Leasing segment, at which all merchandise is on lease, depreciates merchandise on a straight-line basis to a 0% salvage value generally over 12 months. We record a provision for lease merchandise write-offs using the allowance method. The allowance for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period. The Company estimates its allowance for lease merchandise write-offs using historical write-off experience. Other qualitative factors, such as current and forecasted customer payment trends, are considered in estimating the allowance. For customer agreements that are past due, the Company's policy is to write off lease merchandise after 120 days. As of December 31, 2022 and 2021, the allowance for lease merchandise write-offs was $47.1 million and $54.4 million, respectively. The provision for lease merchandise write-offs was $193.9 million and $127.0 million for the years ended December 31, 2022 and 2021, respectively.

Goodwill and Other Intangible Assets

Intangible assets are classified into one of three categories: (i) intangible assets with definite lives subject to amortization; (ii) intangible assets with indefinite lives not subject to amortization; and (iii) goodwill. For intangible assets with definite lives, tests for impairment are performed if conditions exist that indicate the carrying amount may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment are performed at least annually, and sooner if events or circumstances indicate that an impairment may have occurred. Factors which may necessitate an interim impairment assessment include a sustained decline in a company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results. For the annual impairment test of intangible assets with indefinite lives and goodwill, a company may perform a qualitative assessment for impairment if it believes it is not more likely than not that the carrying amount of a reporting unit’s net assets exceeds the reporting unit’s fair value.

Indefinite-lived intangible assets represent the value of the trade name acquired as part of the Progressive Leasing acquisition. At the date of acquisition, the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful life of the trade name intangible asset and, therefore, the useful life is considered indefinite. The Company reassesses this conclusion quarterly and continues to believe the useful life of this asset is indefinite. The Company

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performed a quantitative assessment to complete its indefinite-lived intangible asset impairment test as of October 1, 2022 and determined that no impairment had occurred.

In conjunction with the purchase of Four on June 25, 2021, the Company acquired $5.2 million of definite-lived intangible assets comprised of Four's proprietary technology platform, trade name, and existing merchant relationships. The Company also recorded $17.4 million of goodwill related to the excess of the purchase price over the fair value of the net assets acquired, which represents the Company’s ability to provide a BNPL product to the Company’s existing base of retailers, merchants and customers.

The following table presents the carrying amount of goodwill and other intangible assets, net:

1 As of December 31, 2022, goodwill for Progressive Leasing and Four was $288.8 million and $7.3 million, respectively.

2 Other indefinite-lived intangible assets represents the Progressive Leasing trade name.

As of December 31, 2022, the Company had two reporting units with goodwill: Progressive Leasing and Four. We performed our annual goodwill impairment testing for the Progressive Leasing reporting unit as of October 1, 2022 using a quantitative methodology. We engaged the same third-party valuation firm to assist with the annual goodwill impairment test for the Progressive Leasing reporting unit. This entailed an assessment of the reporting unit's fair value relative to the carrying value that was derived using a combination of both income and market approaches and performing a market capitalization reconciliation which included an assessment of the control premium implied from our estimated fair values of our reporting units. The fair value measurement involved significant unobservable inputs (Level 3 inputs, as discussed more fully below). The income approach utilized the discounted future expected cash flows, which required assumptions about short-term and long-term cash flows for the Progressive Leasing reporting unit. Due to the significant uncertainty associated with macroeconomic conditions, the assumptions and estimates used by management were highly subjective. The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the current macroeconomic environment in developing the cash flow projections. The market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of comparable publicly traded companies. We believe the comparable companies we evaluated as marketplace participants served as an appropriate reference when calculating fair value because those companies have similar risks, participate in the lease to own market, provide similar products and services, and compete with Progressive Leasing directly. The Company concluded that the fair value of Progressive Leasing exceeded its carrying value and, therefore, determined that there was no indication of impairment as of October 1, 2022.

As of September 30, 2022, the Company concluded an interim goodwill impairment test was triggered for the Four reporting unit. Factors that led to this conclusion included: (i) a significant decline in valuations and related market multiples for Four's peers in the BNPL industry; (ii) an increase in Four's forecasted losses; and (iii) projected negative cash flows for Four in future periods. The Company determined the Four goodwill was partially impaired and recorded an impairment of goodwill of $10.2 million during the third quarter of 2022. The Company engaged a third-party valuation firm to assist with the interim goodwill impairment test for the Four reporting unit. This included an assessment of the Four reporting unit's fair value relative to the carrying value that was derived using a market approach. The market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of other publicly traded companies that operate in the BNPL industry. We believe the comparable companies we evaluate as marketplace participants serve as an appropriate reference when calculating fair value because those companies have similar risks, participate in similar markets, provide similar products and services for their customers and compete with Four directly.

As a result of the impairment recorded in the third quarter of 2022, the carrying value of our Four reporting unit approximated its fair value as of October 1, 2022. As such, additional goodwill impairment charges may occur in future periods if the Company fails to execute on one or more elements of Four's strategic plan, Four's actual or projected results are unfavorable compared to the current forecasted operating results, and/or there are further declines in the BNPL peer market multiples.

As of December 31, 2022, the Company concluded that there were no events or circumstances that would more likely than not reduce the fair value of the Progressive Leasing or Four reporting unit below its carrying amount.

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Provision for Loan Losses and Loan Loss Allowance

Effective January 1, 2020 with the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("CECL") expected lifetime losses on loans receivable are recognized upon loan acquisition, which results in earlier recognition of credit losses and requires the Company to make its best estimate of probable lifetime losses at the time of acquisition. The Company segments its Vive loans receivable portfolio into homogenous pools by FICO score and by delinquency status and evaluates loans receivable collectively for impairment when similar risk characteristics exist. Our Vive 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. Our current estimate is that the average life of an outstanding credit card loan is approximately one to two years, depending on the respective FICO score segmentation.

The Company calculates the Vive 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. Key macroeconomic factors incorporated into our forecasts include projected changes in unemployment rates, stock market volatility, projected United States treasury rates, and projected prime lending rates. Incorporating macroeconomic data could have a material impact on the measurement of the allowance to the extent that forecasted data changes significantly, such as changes in forecasted unemployment rates and the observed significant market volatility. 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 December 31, 2022, management considered other qualitative factors such as the macroeconomic conditions associated with the impacts from the COVID-19 pandemic, increasing inflation, forecasted higher unemployment rates, and/or a prolonged recession in the United States, which was not fully factored into the macroeconomic forecasted data, and which likely contributed to unfavorable cardholder payment trends we experienced during these periods. The allowance for loan losses is maintained at a level considered appropriate to cover expected lifetime losses of principal, interest and fees on active loans in the loans receivable portfolio, and the appropriateness of the allowance is evaluated at each period end.

Delinquent loans receivable are those that are 30 days or more past due based on their contractual billing dates. The Company places loans receivable 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 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 at the end of the following month after the billing cycle in which the loans receivable become 120 days past due.

The provision for loan losses was $41.2 million and $17.7 million for the years ended December 31, 2022 and 2021, respectively. The allowance for loan losses was $42.4 million and $40.8 million as of December 31, 2022 and 2021, respectively.

Recent Accounting Pronouncements

Refer to Note 1 to the Company’s consolidated financial statements for a discussion of recently issued accounting pronouncements.