PROG Holdings, Inc. Q3 FY2025 earnings call

• Surpassed revenue and earnings outlook in Q3, with non-GAAP diluted EPS of $0.90 exceeding the outlook range. - Impact of Big Lots bankruptcy and smaller leasing portfolio offset by strong growth in Four Technologies. - Announcement of sale of Vive Financial credit card receivables portfolio to enhance capital efficiency and profitability. - Progress in strategic pillars: under 'grow', ramped direct-to-consumer performance, saw strong returns from omnichannel partner marketing, and onboarded new retail partners; under 'enhance', made strategic investments in technology to improve customer and employee experiences; under 'expand', multiproduct ecosystem maturing with cross-marketing campaigns effective.

Progressive Leasing segment: GMV was $410.9 million, a year-over-year decline of 10%, but adjusting for Big Lots GMV loss and approval rate tightening, it would have had mid-single-digit growth. PROG Marketplace, the direct-to-consumer channel, delivered 59% year-over-year GMV growth for the quarter. Four Technologies delivered triple-digit revenue growth. Consolidated revenue was $590.1 million, adjusted EBITDA was $67 million, and non-GAAP EPS was $0.90, with Progressive Leasing's portfolio performance showing write-offs at 7.4% within the targeted 6%-8% range, and gross margin improving to 32% with 80 basis points year-over-year improvement.

Revised 2025 consolidated outlook: revenues in the range of $2.41 billion to $2.435 billion, adjusted EBITDA in the range of $258 million to $265 million, and non-GAAP EPS in the range of $3.35 to $3.45. This outlook accounts for the Vive divestiture, a difficult operating environment, soft demand for consumer durable goods, and no material changes in decisioning posture. Four Technologies has seasonal dynamics with Q4 expected to be a loss due to upfront provisioning, but positive adjusted EBITDA expected for the year, with rebound anticipated in 2026.

• Consumer liquidity constraints and shifting spending behavior impacting GMV. - Macroeconomic volatility affecting discretionary spend in leasable verticals. - Risks associated with forward-looking statements, including actual results differing from expectations due to various uncertainties.

Q: Given consumer headlines and moving parts, update on the pulse of the consumer and write-offs.

A: Steve Michaels notes portfolio is pleased with, write-offs improved sequentially and year-over-year due to deliberate actions, but seeing stress in consumer with elevated DQs, watching closely but no additional tightening yet.

Q: GMV outlook, including 3Q comp and 4Q expectations.

A: Steve Michaels says comps don't clear until Q1, Q4 has similar headwinds, macro challenging and impacting GMV besides discrete headwinds.

Q: Guidance on revenue and profitability, timing and growth math.

A: Steve Michaels explains Four Technologies' strong growth and seasonal dynamic in Q4 causing loss, but strength of BNPL business year-to-date undeniable.

Q: Talk on current environment, trade down, and tightening.

A: Steve Michaels says no trade down seen from supply above, had to tighten earlier this year but not seeing additional tightening yet; Brian Garner adds on gross margin expansion reflecting favorable mix.

Q: GMV cadence, October and holiday impact.

A: Steve Michaels says nothing on holiday yet, Q3 had softness possibly due to psychology of pending government shutdown, September lower than August and July.

Q: 2026 model, tailwinds and moving parts.

A: Brian Garner says relief from year-over-year comp comes in Q1, getting past Big Lots comp, portfolio managed effectively, Four's growth encouraging, macro a challenge in Q4.

Q: Three new retail partners, who they are.

A: Steve Michaels says not naming them, but they are recognizable retail logos, minimal impact in 2025 but building blocks for 2026.

Q: Vive sales, capital allocation, buyback in 4Q.

A: Steve Michaels says capital allocation priorities are grow, strategic M&A, return of capital; Brian Garner says net leverage ratio considered, strategic M&A on radar, excess capital to return to shareholders.

Q: Difference between now and a year ago in tightening, portfolio health.

A: Steve Michaels says portfolio in different place due to earlier tightening, elevated DQs but not impacting overall portfolio yield, data science teams' work helps; Brian Garner adds on gross margin expansion reflecting favorable mix.

Q: Vive sales proceed, buyback in 4Q.

A: Steve Michaels says capital allocation priorities remain, no specific guidance on buyback in given quarter.

Q: Four business, competition with lease-to-own, cross-sell.

A: Steve Michaels says Pay in four not competitor to leasing due to average order value and category differences, but cross-sell opportunity exists.

Q: 2026 margin side, revenue outlook, investments.

A: Brian Garner says 80 basis points gross margin expansion, GMV moving in right direction, Four's growth encouraging, need to work against deleveraging component and keep costs in line.

Q: Four business, customer acquisition, cross-sell.

A: Steve Michaels says four's growth driven by word-of-mouth, referral, and four plus subscription, cross-sell an exciting area with internal initiatives.

Q: GMV, underwriting posture, potential GMV of new retailers.

A: Steve Michaels says decisioning looks at multiple indicators, DQs elevated but not impacting portfolio yield, three new retailers are recognizable logos with ramping up process.