Thank you for standing by. Welcome to the PROG Holdings First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Baugh, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the PROG Holdings first quarter 2025 earnings call. Joining me this morning are Steve Michaels, PROG Holdings' President and Chief Executive Officer, and Brian Garner, our Chief Financial Officer. Many of you have already seen a copy of our earnings release issued this morning, which is available on our investor relations website investor.progholdings.com. During this call, certain statements we make will be forward-looking, including comments regarding our revised 2025 full-year outlook, and our guidance for the second quarter of 2025, the health of our lease portfolio, and our capital allocation priorities. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today, all of which are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. We undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA, and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate the comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance. With that, I would like to turn the call over to Steve Michaels, PROG Holdings' President and Chief Executive Officer. Steve?

Thank you, John, and good morning, everyone. I appreciate you joining us today as we report our first quarter results and offer our perspective on how things are shaping up for Q2 with a few important metrics. I'll also touch on how we are executing against our strategy despite a challenging and uncertain macro environment. In the first quarter, revenue approximated the high end of our outlook while both earnings and non-GAAP diluted EPS exceeded the top end of our outlook. The earnings outperformance was driven by strong growth and improved profitability at Four Technologies, our BNPL platform, along with slightly better than expected results from Progressive Leasing. Progressive Leasing's GMV for the quarter came in 4% below the same period last year, which we believe reflects a few factors: the impact from the loss of a large retail partner due to bankruptcy, our tightening of lease approval rates to manage portfolio performance, and a more challenging retail environment than we anticipated. The quarter started on an encouraging note with low single-digit GMV growth through early February and the tax season still ahead of us. But by mid-quarter, there appeared to be a noticeable observation that was reinforced by multiple third-party data sources pointing to ongoing economic volatility and evolving trade policy. These headlines appeared to take a meaningful toll on consumer confidence, and while tax refunds were comparable to last year, it's evident that the financial stress continues to weigh heavily on many households. As a result, we believe many shoppers are delaying discretionary spending, especially in big-ticket categories. This shift in behavior played out across several verticals and resulted in a continuation of negative comps for some of our retail partners. Now, if you adjust for the impact of the bankruptcy, we actually saw a low to mid-single-digit…

Thanks, Steve, and good morning, everyone. As Steve mentioned, we exceeded our first quarter outlook on earnings and approximated the top end of our revenue expectations, despite the challenging macro environment we are operating in. This performance reflects the positive momentum we're seeing from last year's growth initiatives at Progressive Leasing, the strength of our portfolio management, and impressive growth at Four. The strategic actions we executed throughout 2024 at Progressive Leasing helped drive improvement in our gross leased asset balance year over year. That said, by mid-quarter, we began to see signs that broader macroeconomic uncertainty was starting to weigh on consumer confidence. We believe, particularly for our core customer base, this weakening sentiment contributed to a pullback in discretionary spending for the categories we serve. Shifting to Q1 results, the Progressive Leasing segment's GMV came in at $402 million, which is down 4% from last year. The decline was primarily driven by the Big Lots bankruptcy announced in 2024, lower approval rates year over year due to the appropriate tightening actions taken over the last few quarters, and the broader challenges around the demand environment as consumer sentiment overall has declined significantly. Despite these headwinds, as Steve mentioned, GMV was up low to mid-single digits for the rest of the business as our team continues to drive balance of share improvements within key retail relationships, makes progress on the number of active doors we serve. We also saw meaningful contribution from our direct-to-consumer as well as cross-selling marketing efforts and the growth of the PROG Marketplace. Q1 revenues for the Progressive Leasing segment grew 5% from $620.6 million to $651.6 million, primarily driven by a larger portfolio size year over year throughout the period, and higher levels of ninety-day early purchase activity. Portfolio performance in Q1 at Progressive…

Our first question comes from the line of Bobby Griffin with Raymond James. Your line is now open.

Good morning, Bobby. Thanks for taking my questions. Good morning. Steven, first thing I wanted to touch on maybe was just, you know, kind of the trade-down environment, separate out the retail softness across the durable categories that I think we've talked about. But what are you seeing today versus three months ago versus six months ago on actually trade-down? You know, one would think with the retail environment and maybe some, you know, more expensive stuff coming on tariffs that you could see a little acceleration trade-down. Has that been stable? Just anything there to help kind of unpack the difference between just general retail softness as well as what we're seeing trade-down.

Yeah. I mean, trade-down, Bobby, still exists. I think we're starting to, as we exited the quarter, we're starting to lap, you know, comp against last year when we really started to see the trade-down. So from a, I can't speak for the prime providers, but what we're observing and what our experience shows from a, you know, credit stack standpoint is we're not seeing, let's say, additional tightening, but we're not seeing any evidence that there's been additional, you know, approvals up the stack from us in the retail point of sale waterfalls. I think that the trade-down is still there. It's probably a little more muted than it was in the back half of 2024. I think the retail softness that you referred to in the, you know, hesitation, if you will, is certainly the larger macro force, but the top of the funnel is still, I would say, more open today than it was last year at the same time.

Okay. And then on the retail side of things, the softness, I mean, we've kind of, you know, all of us here on the call kind of saw some of it in February. Seems like March and April got a little bit better. I wouldn't call it great, but maybe bounce a little off the February lows. Just anything there on just progression of how you saw things? I mean, you guys with tax refund season, it becomes a little bit more different than just the general retail trends. But is there any hope that things have firmed up a little here of late in the last couple weeks, or is still pretty weak across all the categories?

Yeah. I mean, there's a lot of data out there. And you write on it about traffic trends and, you know, year over year, I guess, just trends, you have to kind of really dig into that data and parse it on what does it look like for the prime customer versus, you know, the lower-income consumer. Even just general consumer spending trends where you hear some of the banks say that the consumer's still spending and card data show plus 5% year over year or whatever, that is less so in big ticket and even I think less so when you drill down into lower income. So we're, as we said in the remarks, the quarter started off pretty encouraging. And then when there's a downshift in sentiment, it was reflected in activity. We haven't really seen any kind of inflection point or not a continued deterioration, I would say, but not a rebound or anything.

Okay. That's helpful. And then one quick modeling one, Brian. Is the $30 million headwind of GMV that you guys called out for the lost customer, is that relatively consistent across the four quarters of this year?

Yeah. I think that's a fair way to think about it. You know, obviously, Steve gave, I think, on the Q4 call, some rough annual range. It was $130 to $150 million for that customer. And so, you know, there's obviously some level of seasonality inherent in the business overall, but I think you can look at our overall GMV and kind of model that out. But I think you're roughly in the ballpark. I would just add on that. We did, Bobby, I would just add on that. We did have some GMV in Q1 from the execution of the liquidation sales that is all over now. And so there'll be a slight step up in Q2, but from a headwind standpoint. But then that stays fairly consistent in the back half.

Makes sense. I appreciate the details. Best of luck. You're navigating a challenging environment. Thank you, guys.

Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is now open.

Clearly, an unusual environment that we're in here right now. I guess my first question was maybe more big picture. Around how you all are thinking about the potential impact of inflation and the tariffs as they flow to your retail partners and then ultimately onto your customers. On the one hand, I would think that it could certainly pressure spending power for consumers and be a challenge and headwind. On the other hand, you know, higher prices for durable goods certainly may push for the need for more use of lease to own. And so just curious in the last few weeks, have you, as you've been talking to your retail partners, what are you hearing, and how do you think your partnership with them may play out going forward here?

Yeah. Thanks, Brad. And you're right. I mean, we've kind of got two attack vectors here. We've got the impact and the pricing actions from our retail partners, and then we have behavioral impact on our end consumers. And as you pointed out, and we've talked about in the past, modest increases in ticket or average selling price could actually be a positive for us from a, you know, bigger ticket is actually better from a dollars of marginal cash contribution, but also that incremental buyer might need a payment plan. But price shocks, you know, and demand destruction are certainly not good. And so it really depends on where on that continuum or that spectrum we end up. And I think that's gonna vary, well, it varies by the day or even the hour, if you just get caught up reading the headlines, but it will also vary by the vertical and the category. So we have great relationships with our top partners and we talk to them a lot and we are, you know, be break news here. But we're staying in contact, but certainly, the large magnitude of potential tariffs are causing uncertainty and I think the currently, the behavioral impact on our consumer and the somewhat kind of frozen consumer is more of an impact than actually what the prices are gonna be. So we'll see how that plays out and if there's any kind of relief or pause or rollback or negotiation, which I expect there'll be all of those things. But it has caused a volatile and uncertain situation now that, you know, we're all just trying to navigate through.

I appreciate that. Thank you. And if I can ask a follow-up just on how things are playing out with Big Lots' demise here. Curious what you're seeing from some of the legacy Big Lots customers. You know, you cited GMV growth excluding Big Lots. You know, are you still growing new customers? Is this because you're doing being very transferring old Big Lots customers to other retailers? Just any more color on how this is kind of flowing through the system since this was such a big partner for you would be greatly appreciated. Thanks.

Yeah. I mean, we obviously have a very strategic marketing plan to keep the previous Big Lots customers in the family, if you will, and have our other partners benefit from our activity to those customers, and that is playing out. We are seeing, well, we're not only seeing, but we're actively directing our database of Big Lots customers into other partners, whether that be in a similar vertical, another furniture, or mattress retailer, or it could be in a different vertical with an electronics or an appliance purchase or lease. So we're seeing that. We're tracking it. We have an internal goal. Obviously, not every lease customer repeats every year. We do have high repeat, but it's generally around eighteen months. But we do have customers from last year and the year before that we're reaching out to and trying to reactivate. So we're having some success there. And the folks that are in the system are benefiting from that. And we'll continue to do that.

Great. Thank you, Steve.

Thanks, Brad.

Our next question comes from the line of Kyle Joseph with Stephens. Your line is now open.

Hey, good morning, guys. Thanks for taking my questions. Just wanna talk about kind of the shifts in macro and, you know, obviously, you guys have covered it, but to get into it, just wanna kinda get the sense primarily more on the demand side. Like, have you seen any kind of changes in terms of credit? You know, it's probably too early for that, but just based on your commentary, it sounds like TriNet actually outperformed in the quarter, so no impact there. Is that, am I reading that the right way?

On the write-offs, you mean?

Yeah. Just in terms of kind of really, you know, how credit performance has changed versus mid-February. It sounds like the big change to guidance is really stemming from...

Yeah. I think that's right. Certainly, the impact of the lower GMV and early GMV has a bigger impact on the current year than late GMV, obviously. But from a portfolio standpoint, you know, we made some adjustments, iterative adjustments in the back half of 2024 and again early in Q1 of this year. And as we said, write-offs came in slightly better than expected for Q1. There is a little bit of a, you know, as we've said before, pick through the Python dynamic that we're gonna deal with in Q2, but the portfolio is healthy. And what we're seeing from an early indicator of FPBs or, you know, first pay balances or early four-week delinquencies, the pools are performing as we would expect and kudos to our decision science team for pulling the appropriate levers and really demonstrating once again that this short-duration portfolio we have our hands firmly on the wheel and in control of it. So the story is not really a portfolio performance story. It is a demand story and that could be in the form of this application volume, or even conversion after the approval. Approval rates are down year over year but that was expected and we knew that and it was baked into our outlook. So the other areas of the funnel conversion is where the GMV, you know, say, mishapened.

Yeah. Thank you.

Our next question comes from the line of Hoang Nguyen with TD Cowen. Your line is now open.

Hoang Nguyen, your line is open. Please check your mute button. Thank you. Our next question comes from the line of John Hecht with Jefferies. Your line is now open.

Actually, most of my questions have been asked and answered, but I guess one question I have is maybe discuss the American Signature ramp and, you know, I know it is a topsy-turvy environment, but maybe talk about the pipeline of new retailers and kind of what the environment is around that.

Yeah. I mean, without getting into too much specifics, the ASI or American Signature is going very well. They're a great partner. They are bought into the program. And we have great connectivity from the top to the bottom and are training in stores and, as we talked about in previous calls, they, you know, they had LTO in the past, so it wasn't a starting from a standing start. Education process. A little bit of a different motion, but we're really pleased with where we are and what we think we can accomplish this year with them even in a, you know, soft traffic and demand environment. As it relates to just pipeline, you know, as we've talked about before, the challenging environment is a conducive environment for having pipeline. You know, clearly, we don't call out any specific logo publicly until it's actually across the goal line. But we're encouraged by some of the conversations we're having and we think that we are in a great position to help more and more retailers, you know, just save sales and we can drive incremental traffic to them during this interesting and challenging time.

Okay. Appreciate the call. Thanks very much.

Thank you. Our next question comes from the line of Anthony Chukumba with Loop Capital Markets. Your line is now open.

Good morning. Thanks for taking my question. So you talked about, you know, credit tightening and a lower lease approval rate. Can you just give us kind of order of magnitude in terms of the reduction in the lease approval rate and also maybe contrast that with lease application volume?

Yeah. So the approval rate and I would start by saying that approval rate's a dynamic metric because we have taken some tightening actions and the result is that the approval rate throughout the quarter was kind of 300 to 400 basis points lower than the same period a year ago. But it's not accurate to just assume that all of that is due to the tightening actions that we took. Some of it is due to channel shift because we have, you know, just lower approval rates online than we do in-store. Some of that is due to just the quality of the application coming in is a little bit worse this year than last year. And so even in the same algorithm or same model, the approval rate would be impacted lower. So there's a lot of variables that go into the resulting approval rate, but the headline number is it's about 300 to 400 basis points lower than the previous year. And that's roughly in the ballpark of what we expected when we were kind of creating the plan for 2025. So the move there is not a surprise. On the application volume side, I mean, we did have application growth excluding Big Lots. If you take out the impact year over year impact of Big Lots application growth, but we did see some conversion degradation. And that we believe, through, you know, talking to customers and talking to our sales folks and that are out there in the stores and the retail sales associates, is maybe a little less purchase intent from an applicant. Now that doesn't mean that that conversion won't come with a lag because our approvals are open for ninety days, but we did see a decline in conversion post-approval even the ones that we did approve in the quarter.

Got it. And then just one quick follow-up, just a clarification. You say the gross leased assets were up 6.6% year over year heading into the second quarter. I just wanted to clarify that.

They're up 6.1% entering the quarter. So that was at Jan 1? Yeah. Jan 1. And then they finished just a couple percent. And that's gonna be, you know, a dynamic of, you know, obviously demand headwinds that we're talking about, and also ninety-day buyouts were slightly higher year over year.

Okay. So at the end of the quarter, they're up a couple, you know, call it 2% year over year. Is that...

Just a hair over 2%.

Got it. Okay. Thank you.

Thank you. Our next question comes from the line of Kyle Joseph with Stephens. Your line is now open.

Good morning, again guys. Sorry about that. Anyway, just one follow-up from me, and apologies if covered it. But just wanna talk about the kind of different dynamics between Four and the Progressive business. You know, it looks like guidance that other at least in primarily Four was maintained. You know, is that a function of kind of a different customer, kind of a different merchandise vertical? You know, what are different dynamics there, and how are they being impacted by macro differently?

Yeah. Thanks, Kyle. Yeah. We're excited about the Four business. It's, as we said, grown GMV triple digits for six consecutive quarters and then importantly achieved the first quarter of, you know, basically positive adjusted EBITDA and positive earnings here in Q1. So really happy with the trajectory. It's gonna more than double its GMV for the full year 2025. And to your point, it's not, I mean, it does serve a different customer, but it also serves an overlapped customer with the leasing segment. The average order value is $120 and there's apparel and cosmetics and other consumables, and so it is a different purchase motion. And so I think that it has not been impacted as much by, you know, as the big ticket items that the durable goods from a, certainly, break fix on durable goods and replacement are happening. It's the kind of aspirational purchases that might be more impacted by being on hold. But Four has really good demand signals, exceedingly doing great in the App Store, lots of organic momentum, and we're growing the base in a very healthy way with, you know, new customers and a lot of repeat customers continuing to transact multiple times a year. So, you know, we're very pleased with the trajectory of Four. Look forward to, you know, continuing to report to you guys how it's going over there.

Got it. Thanks for taking my question.

Thank you. Our next question comes from the line of Hoang Nguyen with TD Cowen. Your line is now open.

Hi, guys. Sorry for the hiccup earlier. Thanks for taking my questions. Maybe I want to touch on the guidance a little bit. I mean, it looks like your GMV in Q1 came in maybe about four points below what you previously guided. So, I mean, I just want to kind of, you know, dive into the guidance. I mean, how much of the guide down, I guess, is because of that lower GMV in Q1 and, I guess, lower exiting gross lease assets versus, you know, how much of that is further incremental weakening for the rest of the year versus the baseline? And maybe can you talk about the GMV outlook for the rest of the year and maybe for Q2? And have a follow-up.

Yeah. Hoang, this is Brian. And also start and Steve can certainly overlay any commentary. I think Steve alluded to this, but the demand side, particularly the miss here in Q1, and then kind of a consideration of, you know, how prolonged the impact of these macro headwinds will last, I think, is part of the uncertainty. But, you know, GMV headwinds early in the year certainly have a, as a portfolio business, has a more pronounced impact on the P&L than, say, missing it in Q4. And so we've attempted to incorporate that miss in the plan. As we look through the rest of the P&L, and, you know, any other areas of uncertainty, I think we talked a great deal about the credit side and how we're feeling about the portfolio performance. And that's an area that, understand there's a lot of uncertainty around there, but I think our track record and team that we have and the visibility we feel like we have into keeping that credit side within that 6% to 8% range, I think we're comfortable there. And then on the SG&A side, I think we're, you know, we feel like that's a controllable element that we have visibility into. So really to answer your question, it was a GMV, particularly front half of the year GMV picture that drove the revision in guidance as we kind of work through the motions. Steve, if you have anything to add more broadly about the...

No. You covered it. It's a, you know, we certainly have a known known, which is the GMV that came in during Q1. And it's more difficult than normal in this environment to predict GMV for the rest of the year. We can hope that things get more stable and recover, but, you know, hope is not a strategy and hope doesn't fill a cell in a spreadsheet to create a forecast. So we took a shot at what we thought the GMV would be for the rest of the year. It's important to note that we did grow GMV ex-Big Lots. Our major partners were up year over year, which is good because my guess is that their headline business was not up. We continue to gain balance of share. But, admittedly, we weren't up as much as we expected we would be up in Q1. And so all those factors baked into the revised view of the year, which admittedly has more uncertainty, you know, I'd say today than it might have had in previous years. The only one thing that I'd add and just make sure that it's understood, we mentioned this in prepared remarks, is we think about the trajectory of credit throughout the rest of the year on the write-off side. We do expect and we have modeled it and we can see it. The maybe slight step up from Q1 to Q2 on write-offs overall and that's really a function, not so much as a degradation in any of the trends we're seeing, but it's just a function of the buyout revenue that we have here in Q1 and the seasonally high Q1 revenue that will step down in Q2. And so it's a denominator dynamic more than anything. The line item for write-offs on the P&L will actually should be flat to maybe slightly down as we go into Q2. And then the back and the Q2 should be the high watermark for write-offs. And we should see some relief as that pig moves through the python on the old portfolio or the portfolio that still exists prior to the decisioning actions. So that's how we're shaping up. So it won't be a, you know, we won't be surprised when we see just a slight uptick in write-offs in Q2 and then looking out for that to be the high watermark.

Got it. And maybe, I mean, the GMV outlook for Q2 and for the rest of the year. Sorry if I missed that earlier.

No. You didn't miss it. We did not provide it. I mean, it's a function of our lack of clarity. So we're not providing a GMV guide for the rest of the year.

Got it. And maybe the last one for me, I mean, in a time like this, can you discuss about, you know, what kind of conversations you're having with your partners? I mean, I guess, I mean, you can take the view that the view lease to own now is something that would tremendously help with affordability. But, you know, at the same time, you know, this tariff thing makes this conversation of, like, less of a priority for them. So can you talk about the discussion that you're having with, I guess, your pipeline?

Yeah. I mean, well, with our current partners, I can tell you the discussions are very positive and partnership-oriented. We alluded to without naming the retailer in the prepared remarks, but we did get across the goal line an e-commerce integration with a long-time national partner and it's actually outperforming our expectations. So we look forward to continued enhancements to that and helping them continue to, you know, I guess, move up the productivity curve and do more with us. And we become a bigger and deeper partner for them. So the, and we, and those, you know, that's one instance of these initiatives that we've been talking about for the last two years. That have been getting across the goal line and getting prioritized by our partners. So really, really pleased with the team's efforts and results, actually, not just efforts. In that regard. I talked about the pipeline earlier. Those conversations are positive, and I would say that, yes, tariffs are a, I don't know if it's a distraction, but it's certainly taking up a lot of mind share. And strategic planning about how they're gonna react and how they're gonna adjust and consume and see who along the value chain shares the pain. But we can be viewed as a potential solution for some of the pain that's being felt. And so we're certainly leaning into that and, you know, and trying to offer our assistance, certainly.

Got it. Thank you, and best of luck.

Thank you. Thank you.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Steve Michaels for closing remarks.

Thank you, and thank you all for joining us this morning and your continued interest in PROG Holdings. We delivered another good quarter and start to the year, but obviously, we're currently dealing with an uncertain macro backdrop. It's important to remember that the business has proven to be very resilient in previous challenging times, and we expect with continued great execution we'll successfully navigate this one as well. So again, and we look forward to updating you on our progress in July.

This concludes today's conference call. Thank you for your participation. You may now disconnect.