PROG Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. PROG Holdings operates Progressive Leasing, a lease-to-own provider, and Vive Financial, a second-look revolving-credit business. The Aaron’s Business was spun off on November 30, 2020 and is presented as discontinued operations for the prior-year income statement.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $721.0 million | $668.4 million | Up 7.9% |
| Operating profit | $106.1 million | $49.8 million | Up 113.0%; operating margin was 14.7% versus 7.5% |
| Continuing-operations pretax earnings | $105.6 million | $49.8 million | Up 111.9% |
| Continuing-operations net earnings | $79.5 million | $57.7 million | Up 37.8%; diluted EPS was $1.16 versus $0.85 |
| Net earnings (loss) | $79.5 million | $(280.0) million | Prior-year result included a $337.7 million after-tax loss from discontinued operations, primarily reflecting Aaron’s goodwill impairment |
| Cash provided by operating activities | $167.1 million | $227.8 million | Down $60.7 million reported; 2020 included $80.0 million from discontinued operations. Continuing-operations cash flow increased $19.3 million, per management |
| Cash and cash equivalents | $151.2 million | $36.6 million at Dec. 31, 2020 | Up $114.5 million during the quarter |
| Debt and revolving availability | $50.0 million debt; $300.0 million available | $350.0 million facility | $350.0 million senior unsecured revolver matures in November 2025; company reported covenant compliance |
At March 31, 2021, total assets were $1.399 billion and shareholders’ equity was $1.037 billion. Vive loans receivable, net of allowances and unamortized fees, were $91.4 million. The allowance for loan losses was $44.7 million. Lease merchandise, net, was $574.6 million.
Material changes and operating trends
- Lease revenues and fees rose 7.5% to $708.0 million; Vive interest and fees increased 31.4% to $13.0 million.
- Total gross merchandise volume (GMV) increased 16.1% to $565.9 million: Progressive Leasing GMV was $510.0 million and Vive GMV was $55.9 million. Progressive Leasing e-commerce accounted for 14.3% of its GMV, versus 1.9% a year earlier.
- Progressive Leasing active customers declined to 878,000 from 998,000; Vive active customers increased to 74,000 from 50,000. Management attributed the Progressive Leasing decline partly to early buyouts and prior partner disruptions.
- Depreciation of lease merchandise rose 8.9% to $505.1 million, and increased to 71.3% of lease revenue from 70.4%, partly due to more early buyouts. The lease merchandise write-off provision fell to $18.6 million from $55.7 million.
- Operating expenses declined 7.9% to $91.2 million. Vive’s loan-loss provision was $6.5 million versus $12.7 million; management cited improved payment activity and a $2.4 million allowance release in 2021, compared with a $7.0 million COVID-related allowance increase in 2020.
- Income tax expense was $26.1 million versus a $7.9 million benefit in Q1 2020. The prior-year benefit included a $34.2 million discrete CARES Act tax benefit.
- Cash used in investing was $19.7 million. Cash used in financing was $32.8 million, including $28.1 million of share repurchases; the company repurchased 588,726 shares at an average $47.73 per share.
Outlook, risks, and contingencies
- The filing provides no quantified earnings or revenue guidance. Management identified merchandise investment for Progressive Leasing, Vive loan funding, software and corporate spending, taxes, potential acquisitions, and share repurchases as capital needs.
- Management said stimulus payments and supplemental unemployment benefits supported customer payments, early lease buyouts, and lower write-offs. It cautioned that payment trends may weaken if support ends; stimulus could also shift consumer behavior toward fewer new agreements or more lower-margin early buyouts.
- COVID-19-related supply-chain constraints and reduced in-store traffic continued to affect some retail partners, particularly in appliances, electronics, and furniture, and adversely affected Progressive Leasing originations and revenue. The duration and effects of the pandemic remain uncertain.
- Management reported $8.5 million of incremental COVID-19 lease merchandise allowances and $3.2 million of incremental accounts-receivable allowances at March 31. It noted that estimates are uncertain and some allowances could be reversed if strong payment trends continue.
- Vive’s $349.7 million in unfunded, unconditionally cancellable credit-line commitments is not expected to represent equivalent future cash requirements because not all available lines are expected to be drawn.
- The company expected to make $75.7 million of federal and state estimated tax payments during the following nine months. Its variable-rate debt was $50.0 million; a 1 percentage-point rate move would change annualized interest expense by approximately $0.5 million.
- Legal and regulatory matters include a January 2021 subpoena from California’s DFPI concerning consumer-protection compliance, which could lead to enforcement action and costs, and a shareholder lawsuit concerning historical public statements. The company intends to defend these matters. It had accrued $0.1 million for probable losses and estimated reasonably possible losses above accruals of up to $0.2 million.
Important facts for investors to verify
- Whether customer payment strength and low write-offs persist after government stimulus support changes, and whether related allowance estimates require revisions.
- Whether partner inventory constraints and in-store traffic affect new originations, GMV, revenue, and the elevated early-buyout mix.
- The quality and performance of Vive’s growing loan portfolio, including allowance adequacy, delinquencies, and utilization of its unused credit lines.
- Progress and potential outcomes of the DFPI inquiry and shareholder litigation, as well as any resulting financial or operational effects.
- Future cash needs for taxes, merchandise purchases, lending, and repurchases, and continued compliance with revolving-facility covenants.
- Comparability of prior-year results: the 2020 quarter included Aaron’s discontinued operations, including its impairment loss and cash flows, while the 2021 quarter reflects PROG Holdings’ continuing businesses.