PROG Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. PROG Holdings operates Progressive Leasing, a lease-to-own business, and Vive Financial, a second-look revolving-credit business. It acquired buy-now-pay-later provider Four Technologies on June 25, 2021. The Aaron’s Business was spun off in November 2020, so 2020 comparisons include discontinued operations in certain reported totals.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $660.0 | $599.2 | $1,381.0 | $1,267.6 |
| Operating profit | $92.3 | $59.8 | $198.4 | $109.6 |
| Pre-tax earnings from continuing operations | $91.9 | $59.8 | $197.5 | $109.6 |
| Net earnings from continuing operations | $68.8 | $59.0 | $148.3 | $116.7 |
| Diluted EPS from continuing operations | $1.02 | $0.87 | $2.19 | $1.72 |
| Operating margin | 14.0% | 10.0% | 14.4% | 8.6% |
- Q2 revenue increased 10.1%; pre-tax earnings rose 53.7% and continuing-operations net earnings rose 16.7%. Lease revenue grew 9.5%, while Vive interest and fee revenue grew 47.9%.
- First-half revenue increased 8.9%; operating profit rose 81.1% and continuing-operations net earnings rose 27.1%. First-half 2020 total net loss of $211.6 million included a $328.3 million after-tax loss from discontinued operations, including a large Aaron’s Business goodwill impairment.
- Q2 diluted EPS was $1.02 versus $0.87; first-half diluted EPS was $2.19 versus $1.72, both for continuing operations.
Cash flow, balance sheet, and capital
- Six-month operating cash flow was $238.8 million versus $360.8 million in 2020. The comparison is affected by the Aaron’s Business, which contributed $222.6 million of 2020 operating cash flow, and by a $175 million FTC settlement payment in 2020. Management said continuing-operations operating cash flow increased $100.7 million year over year.
- Cash rose $100.9 million from year-end to $137.5 million. Investing activities used $58.7 million, including $22.7 million net cash paid for Four and increased lending investment; financing activities used $79.3 million, largely reflecting $77.2 million of share repurchases.
- At June 30, 2021, debt was $50.0 million under a $350 million unsecured revolver, with $300 million available. The company reported covenant compliance. Cash plus undrawn revolver availability totaled $437.5 million.
- Total assets were $1.426 billion and shareholders’ equity was $1.063 billion. Net loans receivable were $103.1 million after allowances and unamortized fees; the allowance for loan losses was $45.2 million.
- The board’s $300 million repurchase authorization had $222.8 million remaining at June 30. The company repurchased 1.5 million shares for $77.2 million during the first half.
Material changes and management commentary
- Q2 gross merchandise volume (GMV) increased to $557.7 million from $425.6 million. Progressive Leasing GMV was $506.0 million; Vive GMV was $51.7 million. E-commerce generated 13.0% of Progressive Leasing GMV versus 4.3% a year earlier.
- Active customers totaled 986,000, up from 951,000, driven principally by Vive growth. Progressive Leasing had 905,000 active customers and Vive had 81,000.
- Management attributed growth to national retail partners, e-commerce penetration, higher originations, and strong customer payment activity. Supply-chain disruptions and product shortages continued to constrain some retail partners.
- Lower lease merchandise write-off provisions and releases of previously established COVID-19 allowances supported earnings. In Q2, the company released $5.3 million of incremental lease merchandise and accounts-receivable allowances and $2.9 million of loan-loss allowances. Remaining incremental COVID-19 allowances at June 30 included $4.4 million for lease merchandise and $2.0 million for accounts receivable.
- Operating expenses increased 17.2% in Q2, including higher personnel, advertising, and professional-services costs. First-half provision for lease merchandise write-offs fell 45.7% year over year.
- Four was acquired for an estimated $23.5 million, including cash acquired. Its preliminary purchase accounting included $17.8 million of goodwill and $5.2 million of identifiable intangible assets. Four’s post-acquisition results were immaterial for the quarter; purchase accounting remained subject to finalization.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantitative earnings or revenue guidance. Management identifies merchandise investment, potential acquisitions, and share repurchases as expected capital uses.
- Management cautioned that future customer payment behavior may weaken as government stimulus and supplemental unemployment benefits end. Continued inflation could also pressure customers’ ability to pay; stimulus may alter spending, originations, or early lease buyouts.
- COVID-19 effects remain uncertain, including possible outbreaks, supply disruptions, changing customer behavior, and impacts on partners and employees. Allowance estimates depend on assumptions about payment trends, economic conditions, and future stimulus; actual losses could differ materially.
- The California Department of Financial Protection and Innovation subpoenaed the company in January 2021 regarding compliance with state consumer-protection laws. The inquiry could lead to enforcement action, fines, penalties, remediation costs, or legal expense. The company also disclosed a pending securities class action; its motion to dismiss had not been decided.
- Recorded legal and regulatory accruals were $0.1 million; the estimated reasonably possible loss above accruals for probable matters ranged from zero to $0.2 million. The filing warns that outcomes remain uncertain.
- Vive had $393.4 million of unconditionally cancellable unfunded lending commitments. The company does not expect all available credit lines to be drawn, and the amount is not necessarily a future cash requirement.
- After quarter-end, effective July 29, 2021, the company amended its executive severance plan and entered change-in-control agreements with four executives, providing specified salary, bonus, benefit, and equity-vesting terms.
Important facts for investors to verify
- Whether customer payment strength and low write-offs persist after stimulus support, and whether any COVID-related allowance releases recur.
- How supply constraints, inflation, and changing customer behavior affect GMV, lease buyouts, revenue, and margins.
- The quality and growth of Vive’s loan portfolio, loss allowance, delinquency trends, and potential utilization of unfunded credit commitments.
- Four’s finalized purchase accounting, integration progress, and contribution to revenue, earnings, and cash flow.
- The status and potential consequences of the California regulatory inquiry and pending securities litigation.
- Cash-flow comparability: reported first-half 2020 cash flow includes the spun-off Aaron’s Business, while 2020 earnings also include discontinued-operation and impairment effects.