Upbound Group, Inc. (NASDAQ:UPBD) Q4 2023 Earnings Call Transcript
Upbound Group, Inc. (NASDAQ:UPBD) Q4 2023 Earnings Call Transcript February 22, 2024
Upbound Group, Inc. beats earnings expectations. Reported EPS is $0.81, expectations were $0.77. Upbound Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Fourth Quarter 2023 Upbound Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Chesnut, Head of Investor Relations. Please go ahead.
Jeff Chesnut: Good morning and thank you all for joining us to discuss the Company's performance for the fourth quarter and full year of 2023 as well as our outlook for 2024. We issued our earnings release before the market opened today and the release and all related materials, including a link to the live webcast are available on our website at investor.upbound.com. On the call today from Upbound Group, we have Mitch Fadel, our CEO; and Fahmi Karam, our CFO. As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release as well as in the Company's SEC filings.
Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. This call will also include references to non-GAAP financial measures. Please refer to our fourth quarter and full year earnings release, which can be found on our website for a description of the non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures. Finally, Upbound Group is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcasts. With that, I will turn the call over to Mitch.
Mitch Fadel: Thank you, Jeff, and good morning to everyone on the call today. I'll begin with a review of key highlights from 2023, as well as a discussion of our priorities for 2024, and then I'll hand it off to Fahmi for a more detailed review of our financial results and our financial outlook. After that, we'll take some questions. As we reflect on our achievements throughout 2023, we believe our business took meaningful steps forward across both major segments and the new shared services holding company. At Acima, we saw growth in both customer base and our retailer network. We also continue to develop our direct-to-consumer options with the virtual Acima marketplace where our customers can shop at merchants, including unintegrated merchants to select eligible products and enter lease with Acima.
Acima return to year over year revenue growth in the fourth quarter driven by a 19% increase in GMV. The investments we have made in our technology and product offerings are beginning to pay off with GMV momentum throughout the fourth quarter. Importantly, we're driving GMV growth while remain disciplined on underwriting with Acima loss of stable throughout the year. Our disciplined and targeted approach to underwriting combined with normalizing customer behavior drove material year over year profitability improvement with full year 2023 gross margins increasing 340 basis points and adjusted EBITDA margins increasing 490 basis points versus 2022. At Rent-A-Center, we remained focused on offering a broader product lineup as well as an enhanced digital experience.
We expanded our merchandise lineup with new products in our existing categories while adding new product verticals such as jewelry and tires in the fourth quarter. Whether in the showroom or our extended aisle web channel, our product mix continues to grow and evolve to meet our customer's needs. These efforts are driving improvements in customer growth and retention with recent portfolio growth positioning Rent-A-Center for continued success in 2024. 2023 also included a significant milestone for our parent company, which was the announcement of our corporate name change to Upbound group. It reflects our combined platform, which enables us to meet our customers wherever they are, whether in our stores, it leading retailers across the country or online.
Creating the Upbound Group was part of our initiative to evaluate our current structure and how we manage the business to position us for long-term growth and adjust to the dynamic environment in which we operate. Through this initiative, we've developed an enhanced shared service model where the business units are supported by centralized resources that utilize best practices and include coworkers across the organization to drive productivity, creativity, and efficiency. Our latest efforts in this new operating model include leveraging the capabilities of Acima underwriting and data scientists across the consolidated business, which is produced promising early results that should benefit us in 2024 and beyond. 2023 marked a rebound year as both segments improved their loss rates relative to the challenging environment experience in 2022.
We're pleased with our risk and account management efforts and have proven our ability to grow our customer base while identifying targeted areas of risk and opportunities to maintain losses within an acceptable range. We remain committed to pursuing a balanced approach to our capital allocation as well as evidenced by the growth strategy we highlighted at our Investor Day last May. Our focus on deleveraging the balance sheet and our ongoing returns of capital to our shareholders. Collectively, these initiatives produce a strong year, built a foundation for our future, and positioned Upbound for additional profitable growth as we move into 2024. Let's now discuss our financial results on Slide 4. Our full year results included revenue of $4 billion adjusted EBITDA of $456 million and non-GAAP diluted earnings per share of $3.55, each of which finished at or towards the high end of our increased guidance from the third quarter.
Our full year free cash flow of approximately $147 million finished below our guidance, almost entirely driven by stronger than expected GMV growth at Acima and/or replenishment of inventory at Rent-A-Center during the holiday season. Acima finished 2023 with the largest portfolio values we have seen in the last two years, and Rent-A-Center had its largest ending portfolio balance since mid 2022. We're very pleased that both segments showed sequential and year-over-year portfolio growth through year end. The growth experience in the fourth quarter was driven by a number of factors, including the strategic initiatives from 2023 that I mentioned earlier. Both segments expanded and diversify their product offerings. At Acima, we continue to broaden our merchant partners while also working to generate more activity within our existing merchant network.
Demand was above our expectations across most categories and produced 19% year-over-year GMV growth despite overall lower approval rates in the quarter than 2022. We also continue to test, learn, and iterate as we work to expand our LTO solutions and incorporate credit offerings to further benefit our large customer base and leverage our new Upbound operating model. Optimizations are ongoing to find the best outcomes for our customers, partners, and business. We spent the second half of 2023 integrating systems with Concora Credit, formerly known as Genesis Financial, enhancing the risk models by leveraging our proprietary data and piloting both the general purpose credit card and the private label card. That work has positioned us to ramp up the business throughout 2024, after which we'll be able to further evaluate the timing and the size of the opportunity.
We noted on our last call that we believe the non-prime consumer has been and we expect we'll continue to be resilient in this macro environment. From an underwriting standpoint, the continued performance of the broader economy helped guide our decisions on risk and led to full year loss rates and improved 40 basis points at Rent-A-Center and 130 basis points of the Acima. While certain aspects of the economy seem to stabilize, the consumer does remain under pressure and we'll maintain our vigilant approach as we seek to balance top line growth objectives with prudent risk management utilizing our proprietary data analytics resources. And the second half of the year, we opportunistically repurchased 1.7 million shares representing approximately 3% of shares outstanding.
In 2024, we expect to continue to prioritize investments in our business, debt reduction, and supporting our dividend. We may also capitalize on future windows with opportunistic share repurchases, if we believe the near term share price diverges from the long term value we expect to create. On slide five, we can see the details behind our segment level performance. At Acima year-over-year, revenue trends improved throughout 2023, culminating in a return to top line growth in the fourth quarter. Acima's revenues in 2023 were supported by year-over-year improvements in the number of total merchant locations, active locations which are defined as locations with at least one lease transaction in the quarter and total funded leases, while the average ticket size was also up slightly.
Acima's commitment to providing first class service and support to our retail partners has expanded our merchant network, while also securing with select retailers elevated prominence or exclusivity for our offerings. GMV improved sequentially throughout the year, finishing 2023 with 19% year-over-year growth in the fourth quarter. The acceleration started in earnest late in the third quarter and with sustained throughout the holiday shopping season, and we believe this momentum is positioned Acima for strong growth in 2024. Acima's loss rate declined 130 basis points from 10.6% in 2022 to 9.3% in 2023. We carefully adjusted our decisioning algorithms across the year in response to economic development, and we'll continue to optimize our underwriting decisions to help produce an appropriate risk adjusted return for the business.
With the improvement in the loss rate relative to the prior year, Acima realized 35% year-over-year growth in adjusted EBITDA that $294 million and that represents the largest full year adjusted EBITDA amount for Acima in its history and will afford to building out such strong results. Rent-A-Center ended the year with its highest portfolio balance since the first half of 2022 and its highest customer count across the year. Our tactical marketing approach benefited our portfolio balance throughout the year with our 50 drops in 50 days program over the summer to celebrate our 50th anniversary and a similar but more compressed campaign in the first part of the holiday season. Revenue and adjusted EBITDA were both down against difficult comps from 2022, but in line with our expectations for the year.
The early part of the year with softer in terms of revenues and deliveries, but we saw favorable portfolio growth in the back half of the year due largely to improve customer retention and an uptick in the number of open leases. An important factor in Rent-A-Center performance was the strength of the web channel, which hosted 31% more visits and 60% more orders than the prior year with a share of revenue from that channel reaching 26% up a hundred basis points versus 2022. We continue to invest in our strong physical retail presence across local communities alongside our innovative digital footprint so that our customers may interact with us wherever and whenever they prefer. Rent-A-Center losses improved 40 basis points in 2023 to 4.5% with steady sequential improvement from 4.8% in the first quarter to 4.2% in the fourth quarter.
This favorability resulted from underwriting adjustments earlier in the year combined with declining fuel prices for consumers and a reduction in inflationary pressures. Past due rates, which are an early indicator of potential loss rates finished 2023 flat to the prior year. Gross margins were generally consistent with our historical average with adjusted EBITDA and operating margins returning to pre-COVID levels last seen in 2019. Overall, we believe Rent-A-Center portfolio is well positioned for solid performance in 2024. Our priorities for 2024 build off the strategy we outlined at our Investor Day and the achievements we delivered in 2023. For Acima, we plan to continue to grow our top line with small- and medium-sized businesses as well as expand our push into large, regional and national enterprise level accounts.
As we continue to widen our merchant network, we're equally committed to deepening penetration with our existing retail partners and generating more leases per merchant per month. The key to achieving that goal will be to offer superior differentiated service to our customers and our merchants which we expect to drive higher rates of engagement and retention. For our customers, we are focused on having the right products available on the right terms that meet their needs. For our retailers, we're focused on providing proven and flexible solutions for their business and their customers will continue into simplify the integration process. Acima’s overall value proposition combines the best of in-store and online shopping at leading retailers with point of sale solutions, plus a staff model for higher traffic locations through the integration of our Acceptance Now business into the Acima platform.
The migration of A Now into the Acima infrastructure is expected to be complete by the end of the first quarter with the transition of the final two major retailers currently in process. As we discussed last quarter, the legacy A Now business will benefit from the enhanced virtual underwriting capabilities and customer experience at Acima, and we've seen that benefit from retailers that have already been converted. Our underwriting approach is built on an individualized assessment of each customer and each transaction within the context of the broader economic environment. Our robust decisioning is a key contributor to our profitability and margin profile, which we will supplement in 2024 with a dedication to optimizing efficiencies across our organization.
Rent-A-Center plan for 2024 builds off the momentum built in the back half of 2023. In 2024, Rent-A-Center will focus on continuing to serve its customers with desirable name brand products, and hard goods, consumer electronics, jewelry, and automotive verticals. Additionally, as we add digital touch points with our customers whether it be text, email, in app, or on the website, we can offer them relevant and time-limited promotions for exclusive deals and products. Our 12 drops of Christmas promotion created awareness, drove interest, and helped compound the seasonal lift we saw in December. We also deployed optimization to our online product recommendation engine that led to more relevant product suggestions, higher engagement, and better user experiences.
Throughout 2023, marketing and personalization efforts created the largest year in our history for rentacenter.com with web visits as I mentioned up 31% and web orders of 16% year-over-year. We know that the combination of the right products and the right offers available across our physical and digital channels will enhance our value proposition to consumers. We expect our stores to remain at the center of our customer relationships where we are preparing for more growth in the online channel. An important element of this initiative is a rollout of a new point of sale system, which leverages updated technology to enhance scalability, resiliency, reporting, and automation. As our online activity continues to grow and as we see surges in demand during promotional campaigns or holiday seasons, this infrastructure will help us deliver a reliable and seamless experience to our customers, whether in store or online.
The new platform will also allow us to receive more timely and granular data to make more informed and quicker decisions. The nationwide rollout of the new POS system is underway and we're excited about laying the groundwork to improve our productivity and support our future growth with enhanced flexibility and capabilities. Turning Upbound at the holding company level our priorities for 2024 will be driven as always by our focus on creating sustainable long-term value. For our business segments will continue to prioritize making our processes more efficient, ensuring our people and platforms collaborate to share best practices across our organization. In addition, we're committed to actively managing our expenses to protect and improve our margin profile.
Our customers will continue to evaluate new solutions beyond LTO that elevate their financial opportunities and enable us to support them more often and with more insights. And for our shareholders, we'll continue to focus on thoughtfully allocating capital to fund investments in our business while supporting our dividend and de-leveraging plans. Now, before I hand it off to Fahmi, I'd like to emphasize how proud I am with our whole team for their focus, their determination in delivering such strong results. Your unwavering commitment to supporting our customers and our merchants is what makes our company special, and I really, really appreciate it and thank you. And with that, let me turn the call over to Fahmi.
Fahmi Karam: Thank you, Mitch, and good morning everyone. I'll start today with a review of the fourth quarter and 2023 results and to discuss our fiscal year 2024 guidance, after which we will take questions. Beginning on Page 7 of the presentation. Consolidated revenue for the fourth quarter was up 2.8% year-over-year with Acima up 6.6% and Rent-A-Center down 1.7%. Rentals and fees revenues were up 4.3% reflecting higher portfolio values for both businesses during the fourth quarter. Merchandise sales revenues decreased 5.6% due to fewer customers electing earlier purchase options. Consolidated gross margin was 50.3% and increased 30 basis points year-over-year with improvements in both the Acima segment and the Rent-A-Center segment.
Consolidated non-GAAP operating expenses excluding skip/stolen losses and depreciation and amortization were up mid-single digits. Led by a low teens increase in general and administrative costs as a result of certain corporate investments in technology and people and higher incentive based compensation tied to company performance in addition to mid single digit increases in both store labor and other store expenses. The consolidated skip/stolen loss rate was 7.5% unchanged from the prior year period and in line with our expectations. On a sequential basis, the consolidated loss rate increased 50 basis points due to a modest uptick in the Acima segment, driven primarily by the legacy Acceptance Now business. Putting the pieces together consolidated adjusted EBITDA $107.6 million decreased 2.2% year over year as higher Acima segment EBITDA was offset by lower Rent-A-Center segment EBITDA and higher corporate cost.
Adjusted EBITDA margin of 10.6% was down approximately 50 basis points compared to the prior year period with approximately 20 basis points of margin contraction for Acima, approximately 10 basis points of contraction for Rent-A-Center and a 40 basis points increase in corporate costs as a percent of sales. I'll provide more detail on the segment results in a moment. Looking below the line, fourth quarter net interest expense was $28 million compared to $26 million in the prior year. Due to approximately 200 basis points year over year increase in variable benchmark rates that affected our variable rate debt, which was approximately $881 million at quarter end. The effective tax rate on a non-GAAP basis was 24.6% compared to 25.8% for the prior year period.
The diluted average share count was 55.5 million shares in the quarter. GAAP loss per share was $0.21 in the fourth quarter compared to earnings per share of $0.05 in the prior year period. After adjusting for special items that we believe do not reflect the underlying performance of our business, non-GAAP diluted EPS was $0.81 in the fourth quarter of 2023 compared to $0.86 in the prior year period. Due to stronger than expected GMV growth at Acima in the fourth quarter, we deployed our fourth quarter free cash flow and an additional $37 million toward inventory investments compared to $44 million of free cash flow generated in the prior year period. In the fourth quarter, we distributed a quarterly dividend of $0.34 per share and we repurchase approximately 800,000 shares in the quarter.
We finished the fourth quarter with a net leverage ratio of approximately 2.7 times up from 2.5 times in the third quarter. As previously reported, we increased the dividend of $0.37 per share with our January 2024 payment. Drilling down to the segment results starting on Page 8. For Acima, GMV year over year trends continue to improve sequentially in the fourth quarter, and we returned to positive year over year GMV growth. GMV increased 19% year over year in the fourth quarter, an improvement from a 1.4% decrease in the third quarter. GMV growth was above our expectations it was driven by year over year growth and some key underlying drivers with active merchant locations up mid-single digits, applications up over 20% due to strong demand and average ticket size up high single digits.
Those tailwinds were partially offset by lower approval rates across all major categories. The value of assets under lease was up mid-teens both year over year and sequentially, and was the highest level since the fourth quarter of 2021. Revenues increased 6.6% year-over-year, including a 9.6% increase in rentals and fees revenue, merchandise sales revenue decreased 3.9% year-over-year due to fewer customers electing the earliest purchase option with a mix of those transactions for the fourth quarter returning to pre-pandemic levels, skip/stolen losses for the Acima virtual platform were 7.9%, 10 basis points higher sequentially, and 10 basis points lower year-over-year. Losses for the legacy Acceptance Now staff business were in the double digits and drove the sequential increase in Acima consolidated results in line with our expectations.
We have continued tightening underwriting at A Now to optimize performance, and more importantly, we're in the process of completing the migration of some of our larger merchant partners from the A Now underwriting decision engine over to the Acima platform. We expect to finish this transition in the first quarter of 2024. This will strengthen our underwriting capabilities and should reduce loss rates as lease cohorts from the legacy system wind down throughout the year. On a combined basis, including Acima virtual and A Now, the loss rate was 9.9% of sales. A 100 basis points increase from the prior year period and 50 basis points higher than the third quarter. Operating costs excluding skip/stolen losses were up approximately $8.4 million in the fourth quarter or 120 basis points as a percent of sales.
Due to higher labor costs as well as increased marketing investments. Adjusted EBITDA of $75 million was up 4.7% year-over-year, primarily due to a 6.6% increase in revenue. That was partially offset by 3.6% increase in cost of goods sold. Adjusted EBITDA margin up 14.8% decreased 20 basis points year-over-year, while gross margins expanded approximately 190 basis points. For the Rent-A-Center segment, at year end, the lease portfolio value was up 1.5% year-over-year, an improvement of 420 basis points from the end of the third quarter. Total segment revenues decreased 1.7% year-over-year, an improved from a 4.2% decrease in the third quarter. The decrease in revenues was driven by a 12.2% decrease in merchandise sales due primarily to fewer customers electing early purchase options compared to the prior year period.
Fourth quarter rental and fees revenue declined 80 basis points and improvement from a 3.2% decline in the third quarter. Same store sales decreased 1.6% year-over-year in the fourth quarter compared to a 4% decrease in the third quarter. Skip/stolen losses continue to improve driven by ongoing underwriting and account management efforts, decreasing 160 basis points year-over-year and 10 basis points sequentially to 4.2%. Past due rates also decreased year-over-year with 30 day past due rates averaging 3.1% for the fourth quarter compared to 3.5% for the prior year period. Adjusted EBITDA margin for the fourth quarter decreased 10 basis points year-over-year to 14.5%, primarily due to the de-leveraging effect of lower revenues on less variable costs.
This is reflected by 190 basis point year-over-year increase in the ratio of non-GAAP operating expenses, excluding skip/stolen losses as a percent of revenue, even though expense dollars decreased year-over-year. Adjusted EBITDA margin decreased 50 basis points from the third quarter, primarily reflecting normal seasonality in addition to higher marketing and labor expenses. For the Mexico segment, adjusted EBITDA was higher year-over-year, and franchise segment adjusted EBITDA was lower. Non-GAAP corporate expenses were approximately 12% higher compared to the prior year, primarily due to higher projected performance based compensation than in 2022. On a consolidated basis, the Company finished 2023 on a strong note meeting or exceeding the high end of the initial full year guidance that we provided in February, 2023 for revenue, adjusted EBITDA and non-GAAP diluted EPS.
Full year consolidated revenues of $4 billion were at the high end of our initial guidance. While adjusted EBITDA of $456 million was approximately 15% higher than the original midpoint. The non-GAAP diluted EPS of $3.55 was 29% higher than the midpoint of initial guidance, significantly exceeding our expectations. Let's shift to the 2024 financial outlook. Note that references to growth or decreases generally refer to year over year changes unless otherwise stated. For the full year, we expect to generate revenue of $4 billion to $4.2 billion and adjusted EBITDA $455 million to $485 million, which excludes stock-based compensation of approximately $25 million. We are projecting consistent adjusted EBITDA margins with 2023. Fully diluted non-GAAP earnings per shares expected to be $3.55 to $4, which assumes a fully diluted average share count of 55.7 million shares with no share repurchases throughout the year.
We're also projecting $100 million to $130 million of free cash flow. Net interest expense of $105 million to $110 million and an effective tax rate on a non-GAAP basis of 25.5% to 26.5%. We do not have share repurchases or M&A activity included in our guidance for 2024. Our forecast assumes a macro economic backdrop consistent with current conditions along with three rate cuts by the Fed across the year. As we experienced in the fourth quarter of 2023, the free cash flow range will ultimately be determined by the level of consumer demand and resulting growth in GMV and the portfolio. The cash flows dedicated to investing in profitable leases reduces our overall free cash flow in the short term, but should support stronger results later as we benefit from a larger portfolio.
For the Acima segment, we expect GMV to increase mid to high single digits with a high single digit increase in revenue. We expect gross margins to contract from the prior year, especially in the first half of the year due to a more normalized tax season and the impact of promotions offered in the fourth quarter. Consolidated Acima losses for the year are expected to be relatively flat to the prior year with higher losses in the first half of the year than the second half due to the elevated legacy A Now portfolio, which will wind down as the year progresses. Adjusted EBITDA margin expected to be in the mid-teens range consistent with 2023. For the Rent-A-Center segment, we expect the portfolio revenues and same store sales to be flat to up low single digits.
Loss rates are projected to be stable to 2023 levels. Adjusted EBITDA margin is expected to be in the mid teens range consistent with 2023. We expect the Mexico and franchising businesses will generate similar results to 2023, and we expect corporate costs to hold steady as a percentage of consolidated revenue year over year. As we are still testing and learning with the new general purpose and private label credit cards, this forecast does not include any meaningful contribution from those initiatives in 2024. As we proceed through the year, we'll continue to evaluate our progress and the results stemming from our new partnership. The 2024 plan does not incorporate the benefit of any material trade down. However, we are closely monitoring lenders that sit above us in retailer waterfall and specifically the proposed rule changes around credit card late fees.
If the CFPB’s new rule is finalized as proposed then credit card late fees could decline meaningfully. One possible reaction from card issuers would be to manage credit more tightly, which may cause effective consumers and retailers to explore alternatives, including the LTO offering. This potential trade down could cause more consumers with a stronger and more resilient credit profile relative to the traditional LTO customer base to apply for a lease. Although our guidance for 2024 does not include any meaningful impact from trade down, whether from a typical recession or regulatory actions, such developments could represent a potential tailwind to our business. In terms of the first quarter, total consolidated revenue is expected to be up low to mid single digits year-over-year.
We expect losses at the Rent-A-Center segment to be in line with the first quarter of 2023. Acima consolidated losses are expected to be consistent with the fourth quarter. Adjusted EBITDA margins are expected to be in the high single digits range. Interest expense, tax rate and share count are expected to be similar to the fourth quarter of 2023, resulting in a non-GAAP EPS range of $0.70 to $0.80. We expect consolidated adjusted EBITDA margins to expand following the first quarter due to normal seasonality coming off tax season and higher earlier purchase options and improvement in loss is at both segments, especially at Acima as the back book from the legacy A Now business winds down and Acima GMV growth throughout 2024. Moving the capital allocation, our overall strategy remains the same.
Our proven business model generates strong operating cash flows over time, and our disciplined capital allocation framework deploys it in support of our strategic priorities. Our top priority remains investing in the business to position us for ongoing success. We'll continue to invest in delivering a lease portfolio that meets our return objectives, while investing in new channels like the credit card partnership and in our digital capabilities that improve the customer and retailer experience and further enhance our competitive position. We're committed to our strong regular dividend and strengthening our balance sheet by reducing debt over time. In addition, we will evaluate other strategic deployments of capital, including opportunistic share, repurchases and inorganic growth opportunities as they arise.
Based on the strength of our results and our outlook for 2024, we recently raised our dividend by $0.03 per quarter. We expect the balance of our free cash flow this year will go towards de-leveraging as we advance towards our long-term target net leverage ratio of 1.5x. The net leverage ratio of 2.7x as of year-end reflected the impact of $69 million of debt pay down across the year, and an increase in working capital needs at year end to support GMV growth. Concluding on Slide 12, on February 27th, we will celebrate the one year anniversary of our new Upbound ticker on the NASDAQ Exchange. As Mitch stated last year, our rebranding represents a transition to an enterprise operating structure that will enhance and coordinate our collective efforts on strategic planning, operations, risk management innovations, and digital investments.
We have made headway across each of those areas, and those gains have set the business on a positive trajectory going into this year. We feel confident in our current competitive position and underwriting capabilities that can balance the uncertainty in the market, while producing strong margins at both of our major business segments. In 2024, we expect our continued customer service focus, disciplined approach to risk management and hyper-focus on cost controls will help us deliver sustainable growth and strong risk adjusted returns. Our leadership team is optimistic on the opportunities ahead of us and is confident in our ability to execute on our objectives for the year ahead. Thank you for your time this morning. Operator, you may now open the line for questions
Operator: [Operator Instructions] Our first question will come from the line of Kyle Joseph from Jefferies. Your line is open.
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