PROG Holdings, Inc. Q3 FY2024 earnings call

• GMV growth: Q3 2024 GMV exceeded expectations, with Progressive Leasing's Q3 GMV growth at 11.6%.
• Strategic partnerships: Signed a long-term exclusive partnership with American Signature, Inc., strengthening regional market positioning. Over 75% of Progressive Leasing GMV is under multi-year exclusive contracts.
• PROG Marketplace: Delivered over 300% year-to-date growth, on track to double GMV year-over-year.
• Product and tech investments: Improved customer experience and conversion rates, with a 3.4% year-over-year increase in the total number of customers with active leases. Implemented AI-driven solutions for employee self-service and a consumer-facing AI assistant pilot program.
• Customer segmentation: Focus on new, repeat, and reactivated customers, tailoring marketing strategies to each group's needs.

Progressive Leasing segment: Q3 2024 GMV grew 11.6% year-over-year. Consolidated revenue for Q3 2024 was $606.1 million, a 4% increase compared to Q3 2023. Progressive Leasing segment revenues in Q3 2024 were $582.6 million, up 3.3% from Q3 2023. Gross leased asset (GLA) balance was 3.8% higher than the same period last year. Consolidated adjusted EBITDA was $63.5 million, 10.5% of revenue. Progressive Leasing segment adjusted EBITDA was $66.5 million, 11.4% of revenue.

• 2024 full-year outlook: Revenues expected in the range of $2.44 to $2.46 billion, adjusted EBITDA in the range of $270 to $275 million, and non-GAAP EPS in the range of $3.30 to $3.40.
• Q4 outlook: Expect GMV growth to be in the range of high single to low double digits, driven by positive momentum observed, with October starting strong and the holiday season historically contributing a significant portion of quarterly GMV.
• GLA balance: Expected to improve through the remainder of 2024, contributing to revenue growth implied in the revised outlook.

• Consumer stress: Liquidity pressures facing a portion of consumers may persist, and trends from these challenges have been incorporated into decisioning models and financial forecasts.
• Seasonality impacts: Q4 write-offs expected to step down from Q3, but there are some dynamics like trade-down and slight stress at the bottom end of the funnel that need to be managed. Delinquencies have been observed across consumer exposed portfolios, which could impact write-offs.

Q: Good morning, and congratulations on the nice momentum in GMV in particular. I wanted to first follow up on that topic. And Steve, I was wondering if you could talk a little bit about some of the puts and takes in GMV, obviously the American Signature and exciting larger customer that you have by the same token, the country kind of digesting a big lot of bankruptcy that's underway right now and some store closures that are happening over there. Can you just talk about what you're seeing from those customers and how you think about that impacting sales or GMV over the next few quarters?

A: Yes, thanks, Brad. We're pleased with the GMV performance in the quarter and our outlook for closing out the year. Clearly, the quarter was a little bit above our expectations, nicely above our expectations actually, and kind of played out a little bit the way we thought it would, but there were some marketing campaigns and promos that performed maybe a little better than we were anticipating, and so we were pleased with that. And as I mentioned in the prepared remarks, October is starting out strong, but it's always difficult to predict Q4 GMV because of that holiday season, and it's such an acute period where, and this year from a calendar standpoint, it's very tight between Black Friday and Christmas Eve. But you mentioned American Signature. We're very proud of that partnership. As we said in the press release, it's not really going to impact 2024 all that much because of the launch being late in the year, but we're excited about that for 2025. As it relates to big lots, certainly partnering well with them, and it's well known, as you said, the bankruptcy and the plan that they're executing, they've closed a number of waves of stores, and that's starting to accelerate and will impact Q4, certainly. We believe, for us, it's probably a 100 to 150 basis point headwind for the quarter. We're not commenting on 2025, obviously, but there's a lot to be excited about as it relates to GMV. We've got really good partnerships, really good integrations and marketing partnerships with our retailers. The top of the funnel dynamics as it relates to the credit supply above us is certainly helping as well. There's always puts and takes. Some customers stress out there, as we referred to, but net-net, we're pleased with the various tailwinds that we've helped to create, as well as a little bit of help from the macro on the credit supply side.

Q: Hi, guys, and congrats on the quarter. Sorry for keep beating on the credit side, but you talk about delinquency being a little bit pressure. We know that wage growth has outpaced inflation for a while, which theoretically should help the lower income consumers that you serve. I guess, I mean, what would it take for, I guess, charge-off to trend back to maybe the middle of the range? And I have a follow up.

A: I'll start, and Brian can add. But I would just say that when we give the range of 6-8%, we're not trying to stick the landing at 7%. I mean, the middle of the range is in the range just like where we are now. So we're very comfortable. We feel like we've proven over time that we can manage this portfolio to the range that we provided, and we're constantly adjusting things. So I don't want to give the impression that 7% is our North Star. The range is fluid and has a lot of impacts, whether it be mixed shift or from a retailer standpoint, from a vertical standpoint, also consumer shift. So I would just guard against expecting a 7%. So we're comfortable where we are. As far as the consumer. I mean, there's been a lot of evidence across consumer exposed portfolios of stress and delinquencies. And so it's not -- we're certainly not alone in that battle. D-Link DQs or NCOs might be in line, but early stage DQs seem to be rising, which could cause some different results in kind of in the first quarter for some of the card providers. And we're seeing some of that as well. And so we're doing some trimming, appropriate trimming, but the message should be that we're confident in continuing to control the portfolio.