PROG Holdings, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Performance Overview: Consolidated revenue was $604.7 million with low single-digit year-over-year growth, led by Four Technologies' over 200% revenue growth. Non-GAAP EPS was $1.02, exceeding the outlook range.
• Progressive Leasing: Impacted by Big Lots bankruptcy and decisioning tightening, but portfolio performance was strong with 7.5% write-offs within the 6%-8% target. E-commerce as a percentage of Progressive Leasing GMV was at an all-time high (21%).
• Four Technologies: Continued profitable triple-digit growth, with 85% of GMV from active subscribers. Strong engagement trends include over 130% growth in active shoppers year-over-year.
• Technology and Customer Experience: AI initiatives improved customer engagement, with consumer chat features expanded across Leasing, Four, and Money App. Efforts to remove friction from customer touch points and expand online platforms were highlighted.
• Capital Allocation: Reinvesting in high-impact growth initiatives, exploring strategic M&A, and returning excess capital to shareholders through dividends and share repurchases, with $309.6 million remaining authorized under the $500 million share repurchase program.

Segment Performance

• Progressive Leasing: GMV was $413.9 million, down 8.9% year-over-year primarily due to Big Lots bankruptcy (~$40M GMV headwind) and intentional tightening of approval rates. Adjusting for Big Lots, GMV was up ~1%. Revenue was ~flat at $569.7 million. Write-offs in Q2 were 7.5%, within the targeted annual range of 6% to 8%. SG&A expenses were $78.9 million, or 13.8% of revenue. Adjusted EBITDA for Progressive Leasing was $69.7 million, or 12.2% of revenue.
• Four Technologies: Delivered over 200% revenue growth. GMV grew 167% year-over-year. 85% of GMV was driven by active subscribers to the Four+ subscription service. Revenue grew over 200% with a trailing 12-month take rate of approximately 10%.
• Consolidated: Revenue was $604.7 million, a low single-digit growth year-over-year. Consolidated adjusted EBITDA was $73.5 million, and non-GAAP EPS was $1.02, both exceeding the high end of the outlook.

Guidance

• Consolidated revenues are expected to range from $2.45 billion to $2.5 billion.
• Adjusted EBITDA is expected to range from $255 million to $265 million.
• Non-GAAP EPS is expected to range from $3.20 to $3.35.
• Guidance assumes ongoing softness in demand across key leasable categories, no changes to current decisioning posture, and an effective tax rate of approximately 27% for non-GAAP EPS.

Risks

• Macro environment headwinds, including consumer caution around large discretionary purchases, which impact demand for leasing categories.
• Impact of Big Lots bankruptcy and intentional tightening of approval rates on GMV performance.
• CECL accounting impact on Four Technologies' margins, particularly in the fourth quarter, due to the need for upfront loan reserves.

Question and Answer

Q: Just kind of want to get to the kind of underlying growth, recognizing there's a lot of moving parts right now, and I appreciate the color you provided on Big Lots in the appendix of your slides. But I calculate kind of ex Big Lots GMV being flattish. And then I think you talked about kind of some incremental headwinds from underwriting. So kind of ex those two headwinds, do you think about the business as kind of like mid high single-digit growth right now? And then kind of remind us exactly when we lap both the underwriting and the Big Lots comps?

A: Yes. As discussed, ex Big Lots, GMV would have been plus 1% for the quarter. The decisioning tightening represented a drag on GMV of 800 to 900 basis points. Big Lots from a GMV standpoint is largely lapped in Q4 of this year. The decisioning tightening will completely lap in Q1 of 2026.

Q: I guess, first for me, I wanted to maybe go back on just the core underlying progressive GMV and ask it a little bit different way. But if I give you credit for the Big Lots add-backs, which their bankruptcy was out of your control, it still looks like you factor in the prior year comparisons in 1Q versus 2Q. The core business, even with the decision tightening is accelerating. I guess the math I'm looking at is like 1Q ex Big Lots is up 3 or 4 in GMV, 2Q is up 1, but the prior year comparison was roughly 800 basis points harder. So, one, do you disagree with that type of analysis on it? And two, if that's the case, what's driving that? Is that better trade down, market share gains, kind of anything there to unpack that?

A: It's interesting. Last year, in '24, we did start to see acceleration in Q2 and Q3 driven by trade down. This year, trade down does not appear to be a major factor. We continue to have discrete wins with existing retail partners, and e-commerce as a percentage of Progressive Leasing GMV was at an all-time high (21%).

Q: My first one is, you guys are looking for pocket of opportunities to kind of reverse some of the tightening that you guys did throughout last year. If you have to think about it, I mean, what would it take for you guys to kind of fully unwind these measures? I mean -- I think credit is getting better for you guys. But I mean, what would it take, I guess, I mean, from a macro perspective for you to confidently, I guess, come -- go back to the level that the kind of underwriting that you guys had maybe in the first half of '24?

A: We are always evaluating data. We would need to see consumer health and application profile changes to give confidence in unwinding measures. We won't preemptively change before data proves it's the right choice.

Q: I just have a follow-up. So maybe, I mean, your Four business is growing very strongly. I think你 cited that 85% of the GMV is by active subscribers. So it looks like it's predominantly subscriber-only business. Can you talk a little bit about maybe the competitive landscape in that kind of subscription product for buy now, pay later. I mean, is a competitive space. But I mean when we think about subscription, I mean, how do you think about the competitions?

A: There are strong competitors, but we're pleased with the robust adoption of our Four+ subscription. The Four business is almost exclusively direct-to-consumer, and we believe our offering has value compared to others in the space.

Q: Congratulations on a good quarter. My question maybe is a little bit of an extension of the question about when you would loosen. And it's more like we've been waiting for this replenishment cycle. It feels like we're deeper into a more stable, although the -- forget the news headlines and more stable economic climate. Are you seeing any green shoots in terms of whether it's frequency of interaction with customers, or just general spend trends? Is there anything that you would lean on that would say that you're getting more optimistic that maybe the discretionary spend cycle or replenishment cycle is on the horizon?

A: The replacement cycle is elusive. We're not calling for a robust recovery in furniture and mattress yet, but we're braced for it and executing well while waiting.