Business Overview and History
PROG Holdings, Inc. (PRG) is a leading fintech holding company that provides transparent and competitive payment options and inclusive consumer financial products. The company's diverse ecosystem of financial technology offerings includes Progressive Leasing, Vive Financial, Four Technologies, and Build. Through these subsidiaries, PROG Holdings has established a strong presence in the lease-to-own, second-look revolving credit, and buy now, pay later (BNPL) industries, positioning the company as a key player in the evolving consumer finance landscape.
PROG Holdings was founded in 1995 as a financial technology holding company, with a focus on providing transparent and competitive payment options to consumers. The company's flagship segment, Progressive Leasing, was established in 1999 and has since become a leading provider of lease-purchase solutions through point-of-sale partner locations and e-commerce website partners. Unlike traditional retailers, Progressive Leasing operates without physical stores, instead offering its services through partnerships with traditional and e-commerce retailers.
In 2016, PROG Holdings expanded its portfolio with the creation of Vive Financial, a subsidiary that caters to customers who may not qualify for traditional prime lending offers. Vive Financial provides customized programs, including revolving loans through private label and Vive-branded credit cards, serving various industries such as furniture, mattresses, home exercise equipment, home improvement, and medical and dental services.
The company faced a significant challenge in 2020 when Progressive Leasing entered into a $175 million settlement with the Federal Trade Commission to resolve allegations related to certain advertising and marketing practices. This event prompted PROG Holdings to enhance its compliance-related activities and navigate the associated challenges.
In 2021, PROG Holdings further diversified its fintech offerings by acquiring Four Technologies, Inc., a Buy Now, Pay Later company. This acquisition allowed the company to offer customers the option to pay for merchandise through four interest-free installments, expanding its range of financial solutions.
Throughout its history, PROG Holdings has had to adapt to various macroeconomic challenges, including the impacts of the COVID-19 pandemic. The company has implemented strategic initiatives to drive growth and maintain a healthy portfolio despite these external factors. Additionally, PROG Holdings has been proactive in managing its capital, engaging in regular share repurchases and issuing senior unsecured notes in 2021 to strengthen its financial position.
Today, PROG Holdings' ecosystem of financial technology offerings is further enhanced by its subsidiary, Build, a credit-building financial management tool, which contributes to the company's diversified fintech portfolio.
In the third quarter of 2023, Progressive Leasing experienced a cybersecurity incident affecting certain data and IT systems. The company promptly responded, engaged third-party experts, and notified law enforcement. The incident resulted in the exposure of personally identifiable information of Progressive Leasing's customers and other individuals. Progressive Leasing has become subject to multiple lawsuits related to the incident, which have been consolidated into a single action in the U.S. District Court for the District of Utah. Progressive Leasing intends to vigorously defend itself, but is unable to determine the outcome or provide an estimate of potential losses at this time. The company maintains cybersecurity insurance coverage, subject to a $1 million retention, to limit its exposure to losses and related costs.
Financial Performance and Ratios
As of the latest reported quarter ending September 30, 2024, PROG Holdings generated consolidated revenues of $606.1 million, representing a 4% increase compared to the same period in the prior year. The company's Progressive Leasing segment was the primary driver of this growth, reporting a 3.3% year-over-year increase in revenues to $582.6 million.
Financials
For the most recent fiscal year (2023), PROG Holdings reported revenue of $2.41 billion, net income of $138.84 million, operating cash flow of $204.24 million, and free cash flow of $194.62 million.
In the most recent quarter (Q3 2024), the company reported revenue of $606.14 million, net income of $83.96 million, operating cash flow of $31.89 million, and free cash flow of $29.85 million. This represents a 4.0% increase in revenue compared to Q3 2023. The increase in revenue was primarily driven by an 11.6% increase in gross merchandise volume (GMV) for the Progressive Leasing segment, which was partially offset by a decline in the Vive segment due to lower demand from certain POS partners.
PROG Holdings' financial position remains solid, with a current ratio of 10.85 and a quick ratio of 5.02 as of September 30, 2024, indicative of the company's strong liquidity. The company's debt ratios are also favorable, with a debt-to-equity ratio of 0.94 and an interest coverage ratio of 7.44, showcasing its ability to service its debt obligations.
In terms of profitability, PROG Holdings reported a net profit margin of 6.55% and a return on equity of 26.50% for the latest reported quarter. The company's free cash flow generation has also been robust, with a free cash flow per share of $2.98 as of September 30, 2024.
Liquidity
PROG Holdings maintains a strong liquidity position, as evidenced by its healthy current and quick ratios. This liquidity enables the company to meet its short-term obligations and invest in growth opportunities.
As of September 30, 2024, the company had $221.73 million in cash and cash equivalents, and $350 million of available borrowing capacity under its revolving credit facility. The revolving credit facility has a total commitment of $350 million and matures in November 2025. The facility includes an uncommitted incremental facility increase option of up to an additional $300 million.
Segment Performance and Outlook
PROG Holdings has two reportable segments: Progressive Leasing and Vive.
Progressive Leasing, the company's largest and most significant segment, has demonstrated impressive growth momentum. During the third quarter of 2024, Progressive Leasing's gross merchandise volume (GMV) increased by 11.6% year-over-year, driven by positive customer responses to the segment's strategic initiatives, such as e-commerce integrations with its retail partners and direct-to-consumer marketing efforts. This growth in GMV has translated into a 3.8% year-over-year increase in the segment's gross leased asset balance, a key indicator of future revenues.
Progressive Leasing provides consumers with lease-purchase solutions through its point-of-sale partner locations and e-commerce website partners. The segment purchases merchandise from its POS partners, such as furniture, appliances, electronics, jewelry, mobile phones and accessories, mattresses, and automobile electronics and accessories, and then leases that merchandise to customers through a cancellable lease-to-own transaction.
The Vive Financial segment, while smaller in scale compared to Progressive Leasing, has also contributed to the company's overall performance. Vive's GMV increased by 10% year-over-year in the third quarter of 2024, primarily due to an expansion of its product offerings to a wider consumer base, resulting in more loan originations. However, Vive's revenues declined in the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in customer demand for products offered by certain Vive POS partners during 2023 and the first part of 2024.
Vive primarily serves customers that may not qualify for traditional prime lending offers, providing them with customized programs and 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 company's other operations include Four Technologies, Inc. (Four), a Buy Now, Pay Later (BNPL) company that allows shoppers to pay for merchandise through four interest-free installments. Four is not a reportable segment for the three and nine month periods ended September 30, 2024, as its financial results are not significant to PROG Holdings' consolidated financial results. Four's financial results are reported within the "Other" category for segment reporting purposes.
Looking ahead, PROG Holdings has provided a revised full-year 2024 outlook, which calls for consolidated revenues in the range of $2.44 billion to $2.46 billion, adjusted EBITDA between $270 million and $275 million, and non-GAAP earnings per share of $3.30 to $3.40. This updated guidance reflects the company's confidence in maintaining its positive momentum and profitably growing its fintech ecosystem.
For Q4 2024, PROG Holdings expects GMV growth to be in the range of high single to low double digits, driven by the positive momentum they've observed. The updated 2024 outlook assumes a continuation of the benefits from tightened credit above them, a difficult operating environment, no material changes in their decisioning posture, no material changes in the unemployment rate for their consumer base, an effective tax rate for non-GAAP EPS of approximately 28%, and no impact from additional share repurchases.
Risks and Challenges
While PROG Holdings has demonstrated resilience and adaptability in navigating the evolving consumer finance landscape, the company faces several risks and challenges that investors should be aware of.
One such risk is the potential impact of macroeconomic conditions, such as elevated inflation and rising interest rates, on the company's target consumer base. Prolonged economic pressures could lead to increased delinquencies and write-offs, potentially affecting the company's financial performance.
Additionally, PROG Holdings operates in a highly competitive industry, with both traditional financial institutions and emerging fintech players vying for market share. The company's ability to maintain its competitive edge and continue to innovate its product offerings will be crucial to its long-term success.
Another risk factor is the company's reliance on its key retail partnerships. While PROG Holdings has demonstrated its ability to renew and extend exclusive agreements with its partners, any disruption to these relationships could have a significant impact on the company's operations and financial results.
Industry Trends
The consumer leasing and financial technology industries have seen moderate growth in recent years, with a compound annual growth rate (CAGR) of approximately 5-7% over the past 3 years. However, the industry has faced headwinds from macroeconomic factors such as elevated inflation and rising interest rates, which have impacted consumer demand. Despite these challenges, PROG Holdings has maintained its market leadership position through strategic initiatives and a focus on financial inclusion.
Conclusion
PROG Holdings, Inc. has established itself as a leading fintech holding company, providing innovative financial solutions that cater to the evolving needs of the modern consumer. Through its diverse ecosystem of subsidiaries, the company has a strong presence in the lease-to-own, second-look revolving credit, and BNPL industries, positioning it for continued growth and success.
Despite the challenges posed by macroeconomic conditions and a competitive landscape, PROG Holdings has demonstrated its ability to adapt and drive profitability. With a solid financial position, robust liquidity, and a promising outlook for its key business segments, the company appears well-positioned to navigate the evolving consumer finance landscape and deliver long-term value for its shareholders.