PROG Holdings, Inc. 2026 Q3 Earnings Call

Sir, please go ahead. Thank you, and good morning, everyone.

Welcome to the PROG Holdings third quarter 2026 earnings call. Joining me this morning are Steve Michaels, PROG Holdings Chairman, 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 2026 full-year outlook and our outlook for the fourth quarter of 2026. 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 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 everyone taking the time to be with us today. I want to start with the quarter highlight. PROG Holdings delivered strong top-line growth with every business in our ecosystem contributing. At the consolidated level, GMV grew 59% year-over-year, matching the pace we set in the second quarter. Revenue grew roughly 26%, with non-GAAP EPS of $1.06, up 21.8% year-over-year. All of those growth metrics include the contribution of our Purchasing Power business, which we acquired in January 2026. At Progressive Leasing, we grew GMV in the low single digits, even after tightening our decisioning posture, a sign of real underlying demand. Additionally, our gross lease asset balance, the leading indicator of future revenue, was higher year-over-year at quarter end.

At Four, GMV grew triple digits for its 12th consecutive quarter, and it did so profitably with a quarter-over-quarter step-up in adjusted EBITDA margin. At Purchasing Power, we delivered double-digit GMV growth. Producing this kind of top-line growth while deliberately tightening our decisioning is exactly what a diversified, disciplined platform is built to do. Taken together, that performance put our consolidated results within the outlook ranges we provided for the third quarter, with revenue and non-GAAP EPS landing near the midpoint. Adjusted EBITDA came in towards the lower end of its range. The drivers landing us at the lower end of that range were concentrated in leasing and largely reflect headwinds we expect to be temporary as our portfolio quickly turns over following our recent tightening actions.

As a reminder, we tightened our decisioning for the leasing business late in the second quarter, and we implemented some additional tightening actions since our last earnings call as the pressures on our customer persisted and in pockets even intensified. The impact on adjusted EBITDA traces to two factors in our leasing portfolio. The first is a reflection of an improving customer profile. On our newer post-tightening lease pools, improved payment behavior resulted in more customers exercising their 90-day purchase option than we had expected, which compresses near-term yield. The second factor is on our older pre-tightening pools. Those customers have proven remarkably resilient, but a prolonged stretch of elevated inflation, exacerbated by higher gas prices since March, has worn on their day-to-day liquidity, which creates a headwind to portfolio yield. One framing point before I turn to the businesses.

The customer pressure we are seeing is showing up differently across our three segments, and that dispersion is one of the benefits of the ecosystem we are building. It shows up in different ways and to different degrees across Leasing, Four, and Purchasing Power, each serving a distinct customer need at a distinct price point. Having a range of products that have the ability to respond differently to the same macro pressures is why the consolidated result had held steady even as one of the businesses, in this case leasing, worked through a headwind. Our ecosystem of offerings does two things for us. The first is resilience, which I just described. A range of products that respond differently to the same macro environment. The second, and increasingly the more powerful one, is growth. It is where we believe our durable long-term advantage lies.

The same customer engaging with more than one of our products. The number of customers actively engaged with more than one of our products has grown since January. These multi-product customers now represent a more meaningful percent of our total active base. We expect to compound this share over time, and it matters more than the number suggests. Customers who use more than one PROG product tend to transact with us more frequently and stay with us longer. Every shopper we add to Four, every client account we bring on through Purchasing Power, and every lease we originate widens the top of that funnel and creates another opportunity to serve the same customer across more of their financial life. That is the flywheel we have been building, and we are optimistic about the early momentum. The strength of that flywheel comes from each business that feeds it.

So let me take you through them, starting with Progressive Leasing. Progressive Leasing GMV grew low single digits year-over-year, with September being the strongest month of the quarter, a trajectory we like heading into the fourth quarter. As I mentioned, an important number is the gross lease asset balance, which turned positive year-over-year at quarter end for the first time since April 2025. For a business where revenue is a function of the size of its lease book, that is the inflection we have been working toward, and it tells us the revenue comp is set to turn. Let me put that growth in context. We tightened our decisioning late in the second quarter and during the third quarter, and even so, leasing grew despite that pullback.

Growing through tightening is exactly the kind of signal we want because it tells us the expansion is coming from wider distribution, deeper share with our retail partners, and a real customer demand, not a relaxation of our standards. The proof is in our approval rates, which are down nearly 300 basis points year-over-year, both in the quarter and year to date. We are increasing share and growing the book while holding the line on who we approve. On portfolio performance, lease merchandise write-offs came in at 8.3% of Progressive Leasing revenue, a slight improvement versus last quarter. As we discussed in July, the second and third quarters are seasonally our two highest write-off periods. And with the GMV growth from the last two quarters, some elevation is expected. And that is how it played out.

We will adjust as needed, and we believe we will land near the high end of our 6%-8% targeted annual range. I also want to place today's leasing portfolio in the context of where it was a few years ago. Measured against the last time an inflation spike hit our customer, our leasing gross margin is up on average over 200 basis points. The model we are running today is structurally stronger than the one that navigated the last inflation shock. A durable, well-managed business inflecting back to growth, not a declining one. And we continue to invest in the customer experience to keep it that way. Those investments are already showing up in the numbers. In the quarter, we shortened the application process for returning customers by an average of 3-4 minutes while continuing to provide applicants with fulsome and transparent disclosures.

And on the marketing front, by personalizing the language and messaging customers see, we lifted application submissions by double digits. Our direct-to-consumer and digital efforts across Progressive Leasing's marketplace app and e-commerce were meaningful contributors, supported by our personalized marketing. Year-over-year, PROG Marketplace GMV grew 85% in the third quarter and approximately 128% year to date, continuing to reinforce its role as a complementary channel that strengthens our retail ecosystem and expands customer engagement opportunities. Our e-commerce channel also gained ground supported by an improved digital experience, reaching 26.4% of Progressive Leasing GMV in the quarter, up from 23% a year ago. Before I move on from Progressive Leasing, a brief word on business development. We feel good about our retail partner pipeline and the progress the team has made this year.