PROG Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. PROG Holdings provides point-of-sale lease-to-own financing through Progressive Leasing, second-look revolving credit through Vive Financial, and buy-now-pay-later services through Four, acquired in June 2021. Four was not a reportable segment.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $710.5 million | $721.0 million | Down 1.5% |
| Operating profit | $49.5 million | $106.1 million | Down 53.4% |
| Operating margin | 7.0% | 14.7% | Down 7.7 percentage points |
| Earnings before tax | $39.8 million | $105.6 million | Down 62.3% |
| Net earnings | $27.1 million | $79.5 million | Down 65.9% |
| Diluted EPS | $0.49 | $1.16 | Down 57.8% |
| Operating cash flow | $98.3 million | $167.1 million | Down $68.8 million |
Net margin was 3.8%, compared with 11.0% a year earlier. Lease revenue and fees fell 2.1% to $692.9 million; interest and fees on loans rose 34.8% to $17.6 million. The provision for uncollectible renewal payments, recorded as a reduction of lease revenue, was $88.5 million versus $36.5 million.
At March 31, cash was $184.0 million; debt was $590.0 million on the balance sheet, against $600 million principal of 6.00% senior notes due 2029. The company had no revolving-facility borrowings and $350 million available under its revolver, which matures in 2025. Total assets were $1.57 billion and shareholders’ equity was $632.5 million. The company reported compliance with debt covenants.
Material changes and operating trends
- Total gross merchandise volume (GMV) declined 2.1% to $554.2 million. Progressive Leasing GMV fell 1.1% to $504.5 million; Vive GMV fell 23.8% to $42.6 million. E-commerce represented 15.9% of Progressive Leasing GMV, up from 14.3%.
- Lease merchandise write-off provision increased $31.7 million to $50.3 million; it equaled 7.3% of lease revenue, versus 2.6%. Operating expenses rose 24.6% to $113.7 million, including higher personnel, stock compensation, advertising, and software costs.
- Interest expense rose to $9.6 million from $0.5 million, primarily reflecting the senior notes issued in November 2021.
- Progressive Leasing segment pretax earnings fell to $42.1 million from $104.2 million. Vive pretax earnings increased to $4.4 million from $1.4 million; “Other,” primarily Four, recorded a $6.7 million pretax loss.
- Cash used in financing was $78.9 million, primarily reflecting $78.1 million of share repurchases (2.20 million shares). The company reported $482.8 million remaining under its $1 billion repurchase authorization at quarter-end. It repurchased a further 524,540 shares for $14.7 million through April 26, 2022.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said Omicron-related partner closures or reduced hours, employee absences, lower customer traffic, and supply-chain shortages—especially in appliances, electronics, and furniture—hurt first-quarter GMV and could continue to constrain originations. Management also cited the expiration of government stimulus and enhanced unemployment benefits, rising inflation, and higher delinquencies and write-offs as risks to customer payments, results, liquidity, and cash flow. Vive delinquencies were worse than Q1 2021 but remained more favorable than typical pre-pandemic levels.
Management said estimates for receivable and merchandise allowances involved significant uncertainty; actual losses could differ materially. The company expected to make $31.8 million of federal and state estimated tax payments over the next nine months. Vive had $499.0 million of unconditionally cancellable unused credit commitments; the filing notes these are not expected to be drawn in full and do not necessarily represent future cash requirements.
Legal matters include a California Department of Financial Protection and Innovation inquiry that could lead to enforcement, costs, fines, penalties, or remediation, and a securities lawsuit related to historical public statements; a motion to dismiss remained undecided. The company reported immaterial accruals and estimated reasonably possible losses for disclosed proceedings, while noting outcomes remain uncertain. Uncertain tax positions were $50.0 million, primarily related to the company’s tax treatment of a $175 million FTC settlement payment made in 2020.
Investor verification priorities
- Track delinquency trends, uncollectible renewal payments, merchandise write-offs, and the adequacy of related allowances as inflation and post-stimulus payment patterns evolve.
- Assess whether partner supply, store traffic, and GMV recover, and whether e-commerce growth offsets declines in in-store activity.
- Monitor operating cash flow, lease-merchandise investment needs, share repurchases, and the company’s cash and revolver availability.
- Review debt covenant headroom, the $600 million senior notes, and the potential resolution and financial impact of the DFPI inquiry, securities litigation, and uncertain tax positions.