PROG Holdings, Inc. (PRG) is a leading fintech holding company that provides transparent and competitive payment options to consumers. The company's portfolio includes Progressive Leasing, an in-store, app-based, and e-commerce point-of-sale lease-to-own solutions provider, Vive Financial, an omnichannel provider of second-look revolving credit products, and Four Technologies, a Buy Now, Pay Later (BNPL) platform. PROG Holdings' diverse financial technology offerings aim to empower customers and increase their access to financial services.

Company Background

Founded in 1955, PROG Holdings' roots trace back to the Aarons Company, a leading rent-to-own retailer. In 2020, the company underwent a strategic separation, spinning off The Aarons Company and transitioning its focus to fintech solutions through the PROG Holdings brand. Since then, the company has executed a robust growth strategy, expanding its product ecosystem and strengthening its position as a leading provider of alternative financial services.

Business Segments

Progressive Leasing, the company's largest segment, has been at the forefront of the lease-to-own industry for over two decades. By partnering with traditional and e-commerce retailers, Progressive Leasing offers consumers with limited access to traditional credit an innovative way to acquire durable goods. The segment's proprietary decisioning platform and technology-driven solutions have enabled it to deliver consistent financial performance, with Progressive Leasing contributing approximately 96% of PROG Holdings' consolidated revenues in 2024. Progressive Leasing has expanded its operations to cover 45 states, the District of Columbia, and Puerto Rico.

Progressive Leasing's merchandise consists primarily of furniture, appliances, electronics, mobile phones and accessories, jewelry, mattresses, automobile electronics and accessories, and a variety of other products. The company depreciates this lease merchandise to a 0% salvage value generally over 12 months. In 2024, Progressive Leasing recorded a provision for lease merchandise write-offs of $178.34 million, representing 7.5% of its lease revenues and fees.

Vive Financial, the company's second reportable segment, provides a variety of second-look financing programs to customers of participating merchants. Vive's customized credit solutions cater to near-prime and subprime consumers, complementing Progressive Leasing's offerings and allowing PROG Holdings to serve a broader base of customers. Vive has built an extensive network of over 6,200 point-of-sale partner locations and e-commerce websites across various retail verticals, offering private label and Vive-branded credit cards. The Vive segment comprised approximately 3% of the company's consolidated revenues for the year ended December 31, 2024.

Vive acquires loans receivable from third-party bank partners at a discount, which includes a merchant fee discount and potentially a promotional fee discount. The merchant fee discount represents a pre-negotiated, nonrefundable discount that generally ranges from 3% to 30% of the loan face value, designed to cover the risk of loss and Vive's direct origination costs. These discounts are amortized on a straight-line basis over the initial 24-month period the card is active and recorded as interest and fee revenue. Vive recorded a provision for loan losses of $55.95 million in 2024.

Strategic Expansion

In 2023, PROG Holdings further expanded its financial technology ecosystem with the acquisition of Four Technologies, a buy now, pay later platform that enables shoppers to pay for merchandise through four interest-free installments. The integration of Four's capabilities has strengthened PROG Holdings' position as a diversified fintech provider, offering customers a suite of innovative payment solutions. Additionally, the company has developed new products such as the Build credit building tool and the Money App cash advance program under its PRG Ventures division, further diversifying its consumer financial technology offerings.

Financials

PROG Holdings' financial performance has been marked by consistent growth and profitability. In the fiscal year 2024, the company reported consolidated revenues of $2.46 billion, a 2.3% increase from the prior year. Net earnings for the period totaled $197.25 million, with non-GAAP diluted earnings per share of $4.53. The company's annual operating cash flow was $138.53 million, and annual free cash flow was $130.21 million.

For the fourth quarter of 2024, PROG Holdings reported revenue of $623.32 million, representing an 8% year-over-year growth, driven by a 9.1% increase in Progressive Leasing's GMV. Net income for the quarter was $57.55 million. Progressive Leasing's revenue grew 6.3% in Q4, driven by a larger lease portfolio. The company's consolidated Q4 2024 adjusted EBITDA increased 7.7% to $65.7 million, and non-GAAP diluted EPS grew 11.1% to $0.80 per share, both at the high end of their October outlook.

Liquidity

The company's strong cash flow generation has enabled it to execute a balanced capital allocation strategy, investing in organic growth initiatives while also returning excess capital to shareholders. In 2024, PROG Holdings generated $138.5 million in cash from operations and paid $20.4 million in dividends to its shareholders.

As of December 31, 2024, PROG Holdings had a debt-to-equity ratio of 1.01. The company maintained a strong liquidity position with $95.66 million in cash and $300 million available under its $350 million revolving credit facility. The current ratio and quick ratio both stood at 0.97 as of the same date.

Future Outlook

Looking ahead, PROG Holdings remains focused on executing its three-pillar strategy of growing its customer base, enhancing the customer and retailer experience, and expanding its financial technology ecosystem. The company's pipeline of strategic partnerships, investments in technology, and innovative product development are expected to drive sustainable growth in the years to come.

For 2025, PROG Holdings expects consolidated revenues to be in the range of $2.52 billion to $2.59 billion, with consolidated adjusted EBITDA between $260 million and $280 million. The company projects consolidated non-GAAP EPS in the range of $3.10 to $3.50. This outlook assumes a difficult operating environment, no material changes in the company's decisioning posture, an effective tax rate of approximately 28%, no material increase in the unemployment rate, and no impact from additional share repurchases.

For Progressive Leasing in 2025, the company expects GMV growth in the high single digits, excluding the impact of the Big Lots bankruptcy. The provision for leased merchandise write-offs is expected to deliver another year of consistent performance within the target annual range of 6% to 8%. Progressive Leasing's SG&A expense is anticipated to deleverage slightly year-over-year as the company continues investing in the business.

Challenges and Risk Mitigation

PROG Holdings faces several challenges in its operating environment. The company's lease-to-own and second-look financing businesses serve subprime and near-prime consumers, exposing it to macroeconomic risks such as elevated inflation, rising interest rates, and potential increases in unemployment. Furthermore, the company's reliance on a limited number of key retail partners, as evidenced by the recent bankruptcy of Big Lots, presents operational and financial risks.

The lease-to-own industry has been experiencing increased regulatory focus on alternative consumer financial services products, particularly in the subprime financial marketplace where Progressive Leasing operates. In April 2020, Progressive Leasing entered into a $175 million settlement with the Federal Trade Commission (FTC) to resolve allegations that certain of its advertising and marketing practices violated the FTC Act, though the company did not admit any violations.

Additionally, the virtual lease-to-own market is highly competitive, with an increase in new products and services designed to compete for the traditional lease-to-own consumer. This competitive landscape requires PROG Holdings to continuously innovate and adapt its offerings to maintain its market position.

In September 2023, Progressive Leasing experienced a cybersecurity incident affecting certain data and IT systems. The company took steps to respond, remediate, and investigate the incident, and notified impacted customers. This event highlights the ongoing need for robust cybersecurity measures in the fintech industry.

To mitigate these challenges, PROG Holdings has invested in enhanced decisioning algorithms, strengthened its customer segmentation, and implemented targeted tightening measures to manage credit risk. The company's diversification strategy, which includes the expansion of its BNPL and credit-building offerings, is also aimed at reducing its dependence on lease-to-own transactions and broadening its customer base.

Conclusion

Overall, PROG Holdings' strong market position, innovative product suite, and balanced capital allocation approach have positioned the company as a leading provider of alternative financial services. The company's ability to deliver consistent financial performance, as evidenced by Progressive Leasing's adjusted EBITDA of 11.8% for the full year 2024 (within their targeted annual range of 11% to 13%), demonstrates its resilience in a challenging market environment.

As the fintech landscape continues to evolve, PROG Holdings' ability to adapt and execute its strategic initiatives will be critical to its long-term success and the creation of shareholder value. The company's focus on growing its GMV, managing its lease portfolio effectively, and optimizing costs, combined with its forward-looking guidance and strategic investments, suggest a cautiously optimistic outlook for PROG Holdings in the coming years.