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Hello, and welcome to PROG Holdings Second Quarter 2026 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 one-one on your telephone. You would then hear an automated message advising that your hand is raised. To withdraw your question, please press one-one again. I would now like to hand the conference over to John Allen Baugh. Sir, you may begin.
Thank you, and good morning, everyone. Welcome to the PROG Holdings Second Quarter 2026 Earnings Call. Joining me this morning are Steven A. Michaels, PROG Holdings' Chairman, President, and Chief Executive Officer and Brian J. 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 2026 full-year outlook and our outlook for the third quarter of 2026. Listeners are cautioned not to place undue reliance on forward-looking statements, 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 Steven A. Michaels, PROG Holdings' President and Chief Executive Officer. Steven?
Thanks, John, and good morning, everyone. I appreciate you all joining us today. Let me begin with the headline. This is a strong quarter for PROG Holdings. Revenue came in toward the higher end of our outlook, while adjusted EBITDA and non-GAAP EPS exceeded the top of our range. Importantly, every product in our ecosystem contributed. At Progressive Leasing, GMV growth combined with fewer customers choosing to exercise their 90-day purchase option drove higher gross margin and a 12.7% adjusted EBITDA margin. At Four, robust customer demand once again translated into profitable triple-digit growth. And at Purchasing Power, we delivered double-digit GMV growth with revenue and margin both ahead of plan. Producing results like these while the consumer is under pressure is a testament to how we have built this business over the years and the discipline with which we run it today. Before I walk through our strategic priorities, let me add some context on the quarter. Consolidated GMV grew 60% in the second quarter compared to the same period last year. This is an improvement from the 54% growth we posted in Q1. Because our platform generates volume simultaneously across leasing, Four, and Purchasing Power, this consolidated figure is the clearest way to see the true scale of what we are building. Starting with Progressive Leasing, GMV grew 3.4% year-over-year, a meaningful improvement from the 2.2% decline we saw in Q1 and right in line with our expectations. Recall that for much of last year, leasing's GMV was held back by two things. The tightening actions we deliberately took and the Big Lots bankruptcy. Once we had cycled past both items, largely by the end of February, leasing's GMV turned positive in March, and that momentum carried through the second quarter. The improvement reflects both the lapping of those prior headwinds and the payoff from several growth initiatives we put in place over the past year. Applications grew double digits year-over-year, fueled by stronger top-of-funnel marketing and an improved user experience, though we remain disciplined about how many of those applicants ultimately convert into funded leases. We believe we are firmly back on a growth footing at leasing and notably, we produced that growth in Q2 even as our customers contended with inflation and higher costs. Four's GMV more than doubled year-over-year, extending its remarkable run of triple-digit growth to 11 quarters. Growth continued to be powered by healthy underlying consumer demand for BNPL. Four's position as an easy-to-use and highly rated app shoppers genuinely like, coupled with solid marketing performance, drove both GMV and subscriber growth. Appetite for our BNPL offering stays strong, and that appetite keeps converting into attractive economics and profitability. A topic I will return to shortly. Purchasing Power posted another quarter of double-digit GMV growth, powered mainly by strength throughout its established employer relationships. I want to be clear about the quality of the growth across the businesses. Because it is an important point. This growth is coming from expanded distribution share gains with our retail partners, and genuine customer demand, not from loosening our decisioning posture. In fact, our leasing approval rates are down year-over-year, which is the clearest evidence that we remain disciplined regarding our portfolio performance. Consolidated revenue came in at $720 million, up 22% year-over-year and toward the higher end of our outlook. This growth was driven primarily by the addition of Purchasing Power, together with excellent momentum at Four, partially offset by a revenue decline at Progressive Leasing where a smaller average portfolio through the quarter created a headwind. With GMV growth continuing and portfolio growth resuming, we expect leasing to return to positive year-over-year revenue comps in the second half of the year. Consolidated adjusted EBITDA from continuing operations of $88.4 million and non-GAAP EPS of $1.19 both came in above the high end of our outlook range. Brian will take you through the details but the headline is that we delivered profitable growth while investing in the business. Now to portfolio performance at Progressive Leasing, where the takeaway is that disciplined execution delivered strong profitability this quarter. Lease merchandise write-offs came in at 8.4% of total Progressive Leasing revenue, which was largely within our expectations as of the April earnings call. The second and third quarters are seasonally our two highest write-off periods, and with this quarter's GMV growth, some elevation is expected. The sequential increase from the first quarter was modestly above our normal seasonal step-up, and we believe that was caused by cost pressures, including gas prices, which weigh on the budgets of our core customer. The key point is that this reflects a choice we made from a position of strength. With leasing gross margins healthy, we made a deliberate decision to focus on driving higher portfolio yield and maximizing adjusted EBITDA dollars. Our decisioning posture remains dynamic, and we make appropriate adjustments that keep us well positioned to finish the year inside our 6% to 8% targeted annual range, as we have successfully done in prior years when unfavorable macro factors have had an impact on leasing write-offs. The payoff of our approach is evident in the results. Progressive Leasing segment delivered an adjusted EBITDA margin of 12.7%, our highest second quarter margin since exiting COVID. Achieving that level of profitability in a seasonally high write-off quarter underscores the underlying earnings power of the segment. Let me also offer a brief perspective on the broader environment and our consumer. Despite a favorable tax refund season, our customer is feeling the effects of prolonged inflation and the recent increases in gas prices, which remains a headwind for discretionary budgets. Even so, they remain resilient and overall demand has held up well. Though it is expressing itself differently from one business to the next. At Four, our smaller ticket pay-in-four offering, demand is still showing strength and contributing to a significant growth rate. At Progressive Leasing, the pressure has been most pronounced in bigger ticket need-based categories, such as furniture and appliances. We have partially offset that softness with continued strength in electronics, and on our direct-to-consumer product marketplace platform. And at Purchasing Power, we are seeing year-over-year GMV growth in nearly every category, with furniture and jewelry the two exceptions. This is the benefit of a diversified ecosystem. One customer, multiple needs and products, with the flexibility to lean in where demand is robust and tighten where prudence calls for it. With that, let me move to the three pillars of our strategy: grow, enhance and expand. Under grow, Progressive Leasing returned to year-over-year GMV growth of 3.4% with applications up double-digits and monthly trends continuing the positive GMV trajectory we established in March. Our direct-to-consumer efforts in marketing and digital channels were again meaningful contributors. PROG Marketplace was a particular standout with its exceptional trajectory since inception. On an annual basis, the marketplace has achieved a GMV CAGR of nearly 200% from 2022 to 2025. And on a Q2 basis, it has expanded GMV roughly 13-fold over the past three years. Our e-commerce channel also advanced, helped by an improved digital checkout experience, reaching 25.6% of total Progressive Leasing GMV in the quarter, up from 20.9% a year ago and our highest second quarter mix to date. At Four, we delivered 111% GMV growth, compared to the same period last year, powered by strong customer engagement and repeat purchasing. The team rolled out AI-driven product enhancements that simplify the shopping experience, and average order values increased year-over-year. On the marketing side, we deployed spend efficiently, maintaining a healthy balance between paid and organic customer acquisition. We are also pleased with the subscription-oriented promotion launched around Amazon Prime Day and plan to use similar approaches elsewhere to drive subscribers and GMV. And at Purchasing Power, we signed several new employer clients during the quarter, and just after the quarter ended, added a large new client with more than 80,000 eligible employees, bringing a meaningful number of new potential customers onto the platform to support future growth. We are integrating the business more deeply into our platform while testing new growth levers. In the second quarter, that included a series of improvements to the customer experience: a faster, more intuitive mobile interface, the launch of Vita, Purchasing Power's AI shopping assistant, which makes it easier for customers to find what they are looking for and surfaces personalized product recommendations, and a new bundling feature that curates attractive assortments for one click. We also broadened our merchandise categories including new automotive services such as wheel alignment, opening additional avenues for expansion. Under enhance, our investments in customer and retailer experiences delivered measurable results. Rather than cataloging every individual initiative, I want to frame this the way we think about it internally, which is in terms of outcomes. Our work this quarter focused on driving better search results, higher checkout conversion, faster decisioning, and a lower cost to serve. We launched an AI-powered search capability at Purchasing Power, and for the logged-in customers who chose to use it, site conversion roughly doubled. An early but powerful proof point on how AI is improving the shopping experience and driving real commercial outcomes throughout the ecosystem. AI underpins much of this. It is embedded in dozens of smaller improvements in customer experience and operational efficiency that individually may not warrant a headline, but that collectively move conversion, retention, and unit economics in the right direction. Under expand, Four scaled profitably, and Purchasing Power integration is progressing well. Four's Q2 revenue was $35.1 million, up 118% year-over-year, and it generated adjusted EBITDA of $8.7 million. As signaled on the Q1 call, adjusted EBITDA margin of 24.8%, down from Q1's seasonally elevated 37%, but consistent with the full-year trajectory we have guided to. Four's take rate, defined as revenue generated as a percentage of GMV over the trailing 12-month period, held steady at approximately 10%. Performance was powered by customer engagement and repeat purchasing. Average purchase frequency held at roughly five transactions per quarter, active shoppers grew nearly 80% year-over-year, and quarterly average monthly active users nearly doubled compared to a year ago reflecting sustained consumer interest. Four's subscription model remains a key driver, with Four Plus subscribers contributing approximately 80% of total GMV. On Purchasing Power, integration is advancing well, and revenue and margin contribution are tracking in line with our expectations. Adjusted EBITDA rose sequentially from $800,000 in the first quarter to $10.6 million, with margin improving to 8.1% of revenue. As Brian will discuss, several factors drove the step-up and they were all largely anticipated. Beyond the segment results, the cross-sell opportunity at Purchasing Power and across our businesses is significant and increasingly tangible. Our ecosystem-first approach is gaining traction as a growing number of customers transact with multiple PROG Holdings products. Customer overlap deepened in the second quarter, driven by cross-product marketing and activations that build momentum. Among the promising signals we see is Four's growth rate, which serves as a primary driver of shared customers across our businesses increasingly functioning as an important entry point to our broader ecosystem. Notably, the relationship between Progressive Leasing and Four customers represents our strongest and fastest growing overlap. We are also encouraged by the early momentum we are seeing with Purchasing Power as we deepen its connectivity with other offerings in our portfolio. Looking ahead, we expect our activation infrastructure will scale with automated programs spanning digital outreach channels, in-product placement, and increasingly within the product flows themselves. We believe the trajectory we saw in Q2 is a good signal that these initiatives are beginning to compound. Before I turn it over to Brian, let me touch on our capital allocation priorities, which remain unchanged. Reinvest in the business, pursue strategic M&A and return excess capital to shareholders through share repurchases and dividends. A combination of debt paydown, which strengthened the balance sheet and an improving adjusted EBITDA trajectory resulted in a net leverage ratio of 1.7x as of June 30. That progress together with our disciplined cash management allowed us to resume share repurchases during the quarter, buying back 280,000 shares. Resuming repurchases reflects both our improved leverage profile and our confidence in the future of the business. To summarize the quarter, we delivered earnings results ahead of the high end of our outlook, powered by growth in every one of our businesses. Progressive Leasing extended the GMV growth trajectory it established in March and delivered a post-COVID-high adjusted EBITDA margin. Four delivered another quarter of profitable triple-digit growth and Purchasing Power contributed double-digit profitable GMV growth. We accomplished all of this while managing portfolio risk, with our usual discipline in a stressed but resilient consumer environment. With that, I will turn it over to Brian.
Thanks, Steven, and good morning, everyone. Q2 was a successful quarter, and every segment contributed to the earnings beat. At Leasing, we generated healthy margins, through a higher portfolio yield driven in part by more customers choosing to keep their leases active longer and we delivered that against a consumer that is challenged but resilient. Four continued its impressive growth driving triple-digit GMV and revenue growth. And Purchasing Power exceeded expectations delivering double-digit GMV growth and strong margins. Taken together, it was a quarter defined by disciplined execution, and momentum building across the businesses. I will now walk through the operating segments in more detail before turning to consolidated results and our revised full-year 2026 outlook. Starting with Progressive Leasing, second quarter GMV was $428.1 million, up 3.4% year-over-year and an improvement from the 2.2% decline in Q1. As Steve mentioned, these results reflect the lapping of last year's tightening actions and the residual Big Lots volume combined with the growth initiatives we have employed over the past year. Revenue for the Leasing segment was $550.3 million, down 3.4% year-over-year and a sequential improvement compared to Q1, which was down 8.4%. The gross leased asset balance, a headwind that pressured revenue earlier in the year, eased as the portfolio rebuilds behind improving GMV. As a reminder, we began the year with the leasing portfolio down 9.4% compared to last year, and as of Q2, the gross leased asset balance is roughly flat year-over-year, marking the progress we have made in improving the underlying revenue driver and we expect the revenue comp to inflect positive in the back half. Similar to Q1, we saw a continuing trend of a smaller proportion of our customers choosing to exercise their 90-day early purchase options compared to last year. In the quarter, this dynamic of fewer customers exercising that option is a modest drag on revenue, but it builds a higher margin portfolio. And over time, we expect it to work in our favor on both total revenue and gross margin. Progressive Leasing's gross margin was 33.8%, up 143 basis points year-over-year, reflecting that improved portfolio yield. Write-offs in the period were 8.4% of total Progressive Leasing revenue as we consider slightly higher delinquencies in the context of strong portfolio yield driven in part by customers staying in their leases longer. I will mention that in a normalized environment, we would expect Q2 write-offs to increase sequentially from the Q1 period which is a large part of the Q1 to Q2 increase we observed. With leasing's gross margins healthy, 143 basis points to 33.8%, we are managing this portfolio to an annual result and allowing the quarters to fluctuate within reason. The modestly higher lease merchandise write-off rate in a seasonally high period with improved margins is entirely consistent with that approach. It does not change how we are running the portfolio or our expectation of achieving our annual write-off target. We aim to optimize for absolute earnings rather than any single quarter's write-off rate. Monitoring payment behavior, delinquencies and vintage-level performance continuously and we expect full-year 2026 leasing write-offs to land within our long-held targeted annual range of 6% to 8%. Progressive Leasing's SG&A for the quarter was $82.8 million, or 15% of revenue. We are keeping a tight grip on costs while still funding select investments such as technology modernization, customer experience, and AI initiatives that underpin long-term growth. Progressive Leasing generated adjusted EBITDA of $69.9 million, or 12.7% of revenue, an improvement of more than 50 basis points year-over-year. Delivering that level of profitability, even with modestly higher write-offs speaks to the earnings power of the segment. I am proud of the team's operational execution, including managing portfolio performance, in line with our expectations. Turning to Four Technologies. Q2 GMV grew 111% year-over-year to $315 million and revenue grew 118% to $35.1 million. Adjusted EBITDA was $8.7 million, or 24.8% of revenue. As a reminder, the first quarter is seasonally Four's best margin period, as holiday GMV converts into revenue with a lower credit loss provision. As expected, Q2 margins moderated from that peak, while remaining consistent with the range implied in our outlook. We are highly encouraged by Four's performance on both growth and profitability. MoneyApp, our cash advance product, revenue was up 34% year-over-year driven by new revenue streams. MoneyApp remains an important engagement and cross-sell driver within our ecosystem with a meaningful contribution to leasing GMV. Finally, Purchasing Power delivered GMV of $158.8 million, representing double-digit year-over-year growth against its pre-acquisition base. Revenue was $130.4 million, and adjusted EBITDA reached $10.6 million, or 8.1% of revenue up from $800,000 in the first quarter. The drivers of the sequential improvement were operating leverage on seasonally higher volume, favorable product mix and improved pricing, which lifted margin and lower interest expense on securitized debt after we paid down the warehouse facilities with excess cash in Q1. As a reminder, we treat that ABS interest expense as a form of cost of operations so Purchasing Power segment adjusted EBITDA is burdened by that cost. Purchasing Power was acquired at the start of the year, so it did not contribute to the prior year consolidated base. In our financial reporting, integration is on track. And we remain encouraged by the progress on both front- and back-end synergies. Moving to consolidated results. GMV grew 60% year-over-year to $902 million, and revenue from continuing operations grew 22.3% year-over-year to $719.7 million. This revenue performance was driven by the addition of Purchasing Power and triple-digit growth at Four, partially offset by Progressive Leasing. Consolidated adjusted EBITDA was $88.4 million, representing a 12.3% margin. Non-GAAP diluted EPS was $1.19, both exceeding the high end of our April outlook. Turning to the balance sheet, we ended the quarter with approximately $85.2 million of unrestricted cash, and total available liquidity of $435.2 million, including our revolving credit facility. Recourse debt was $600 million, down $50 million from the end of Q1. Since closing the Purchasing Power acquisition, we paid down $260 million of recourse debt, including $50 million in Q2. Bringing our net leverage ratio to 1.7x trailing 12-month adjusted EBITDA. That is down from roughly 2.5x right after the acquisition and 2x at the end of Q1. The combination of our resilient business model and disciplined cash management fueled that deleveraging, moving us comfortably within our long-term target range of 1.5 to 2 turns. As a reminder, this ratio excludes nonrecourse ABS debt used to fund Purchasing Power operations, does not add back the associated interest expense to adjusted EBITDA and only includes the Purchasing Power adjusted EBITDA since the acquisition. We return capital to shareholders through a quarterly dividend of $0.14 per share. Importantly, with net leverage comfortably within our targeted range, we also resumed share repurchases, buying back 280,000 shares at an average price of $36.34. We will keep evaluating opportunities to return additional capital while funding GMV growth throughout the business. I will now touch on some key aspects of our revised full-year outlook provided in this morning's release. Despite the macroeconomic pressures, we believe consolidated GMV momentum will carry through the remainder of the year. A rebuilding leasing GMV feeds the gross leased asset balance which is a forward indicator of future revenue. Four continues its meaningful growth and Purchasing Power is building towards its seasonally best fourth quarter. On the leasing portfolio performance, we expect full-year 2026 leasing write-offs to remain within our targeted annual range of 6% to 8% albeit near the high end of that range. Reflecting the dynamic way we are managing the portfolio to full-year economics and normal seasonality. Our revised outlook balances the second quarter outperformance against caution on the impact of inflation and higher costs on our customer. While staying optimistic about Progressive Leasing's return to growth, the ongoing momentum at Four and Purchasing Power and our ability to execute on the opportunities within our control. Accordingly, we have increased the outlook of our financial targets. Our revised consolidated outlook for continuing operations in 2026 calls for revenues in the range of $3.025 billion to $3.1 billion, adjusted EBITDA in the range of $355 million to $375 million and adjusted non-GAAP EPS in the range of $4.75 to $5.00. This outlook assumes an operating environment with no change in the current financial pressures and uncertainties for our customers, no material changes in the company's decisioning posture, no meaningful increase in the unemployment rate for our consumer base, an effective tax rate for non-GAAP EPS of approximately 26% and no impact from additional share repurchases. In summary, this was a strong quarter across every one of our segments. Progressive Leasing returned to GMV growth, Four sustained its rapid and profitable expansion and Purchasing Power kept building momentum, all while we ran the business in a disciplined manner and kept the balance sheet healthy with the net leverage ratio comfortably inside our targeted range. Looking ahead, we will stay focused on profitable growth and portfolio performance as we execute against our strategic priorities against a challenging macro backdrop, and we believe that focus will allow us to deliver on our increased full-year outlook. I will turn the call back over to Steven to address the 8-Ks that went out this morning.
Thanks, Brian. On July 25, the company was informed of the passing of Doug Kurland, a member of the company's Board of Directors. Mr. Kurland, who was 72 years old, had served on the board since February 2016 and most recently served as chair of the Compensation and Human Capital Committee and as a member of the Audit Committee. Doug made extraordinary contributions to the company over his years of service. His financial expertise, sound judgment, and unwavering commitment to shareholders helped guide the company through significant periods of growth and transformation. He will be deeply missed by his colleagues on the board, the management team, and all who had the privilege of working with him. On behalf of the board, management, and our employees, I want to extend our heartfelt condolences to Mr. Kurland's family. I will now turn the call back over to the operator for questions. Operator?
分析師問答
Then wait for your name to be announced. To withdraw your question, please press one-one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kyle Joseph with Stephens. Your line is open.
Congrats on a good quarter, and thanks for taking my questions. Steven, I just kind of want to get a sense for—I know you guys discussed it a lot—but kind of the health of the consumer. Obviously, there are a lot of moving parts, but just kind of weighing lower early buyout activity, but also kind of the strong demand you are seeing or at least recovery in demand. So just kind of balancing those two and seeing what is kind of driving that. Are we kind of at the point where demand has recovered post-COVID? From the post-COVID pull forward.
Yeah. Thanks, Kyle. There is a lot there. Certainly a focus across our portfolio of products as it relates to the consumer. So I will start with the health. As we talked about in April, the consumer is stressed but resilient. And that is the operating environment we are operating in across the products. We have seen the lower buyout activity, which I think is a signal on how the consumer is feeling about their liquidity position and whether they want to use some of that liquidity to pay off early. Unlike 2023, where we saw lower 90-day buyouts but then the folks who did not do a 90-day ended up paying off later in the lease, we have seen a little less of that this year. Some of the 90-days that did not happen did result in delinquencies and ultimately some charge-offs. But you put all that in the mixing bowl for the leasing segment, and it results in higher gross margins and higher underlying EBITDA margins, which is a positive thing for us. We are monitoring it closely. The write-offs in the leasing segment are something we take very seriously. We did expect a seasonal step-up from Q1 to Q2 that you see pretty much every year. You cannot really look at last year as a comp because we did a material tightening in Q1, and so it kind of obfuscated the normal seasonal step-up. But I would reiterate that 6% to 8% targeted range that we have held to for over a decade is an annual range. It is not a quarterly range. So we are confident in our ability to manage the portfolio to that range for this year and do that in the context of higher margins. So being near the higher end of the range is not a negative outcome necessarily. I have utmost confidence in our data science teams. We are seeing some areas where we have trimmed. We have taken a few actions on our decisioning posture, but nothing aggressive or material. So it is something we are watching. I would not say necessarily that demand has rebounded from the post-COVID lows of the demand pull forward. I think we are still facing a soft demand environment for the large-ticket consumer durables. What we have seen is strength in our product marketplace and our direct-to-consumer and e-commerce platforms, coupled with some initiatives we have done with retailers to grow our leasing GMV. And then, obviously, the lapping of the two discrete headwinds that we had for basically all of 2025. Those things help to get us back to a growth posture. We expect that will continue. I would click up a level and talk about the portfolio as a whole because we have an ecosystem that serves a very similar customer across the products. We are seeing in Purchasing Power the provision was largely as expected in the quarter. In our Four business, which is experiencing tremendous growth, we are seeing pretty flat year-over-year performance from a provision standpoint. So we are pleased with where we are. We are confident in our ability to manage the portfolio because we understand that is job number one. And we are also pleased that while we are managing that portfolio, we are growing all of our products.
Really helpful. Thanks. And then just one follow-up for me. On Four, obviously seeing really good growth there. Can you just give us a little bit more of a sense for that consumer? I know you said there is overlap, obviously, with the leasing book. But where are those consumers coming from? Were they previously debit or credit card users, or where are those consumers coming from and what do they look like?
Yeah. You are right. We do not capture FICO in the business, so we do not look at it. But there is a pretty material overlap with the rest of our products. I would say the heart of the market is near-prime and below, but we certainly have prime customers using the Four product who are repeat users. I believe the industry is taking share from credit card users and some community banks and other sources of payment plans. We believe that is where the Four customers are coming from as well.
Great. That is it for me. Thanks for taking my questions.
Thank you. Our next question comes from the line of Hal Goetsch with B. Riley Securities. Check to see if you are on mute, Hal.
Hey, thank you. My question is on Four Technologies as well. Could you share with us maybe the investments you are making in terms of personnel, technology, and your path to higher margins? And then the next one is, how many active users you have right now and how many active subscribers you have right now if you did not do that before? Thanks.
Yeah. Four is a very efficient operation with a very lean team comprised of employees as well as contractors placed globally. We are growing that, but at a much lower rate than the growth of the business. The team is AI-native and AI-forward, capturing great efficiencies from their adoption of AI. They are able to release new product innovations, release new versions of the app, and improve customer service while reducing headcount in certain areas. It is a small shop and the revenue per employee is quite robust. They are confident they can continue to grow at these levels without adding many resources because of their use of AI. We look at them as a model for what we can do in the rest of the organization with AI. We have not given the updated numbers on monthly active users. At our Investor Day, we said that in December we had hit 3 million monthly active users, but we have not updated that every quarter. We may consider doing that in the future, but I do not have those numbers right in front of me, Hal.
Right. Thanks a lot. Good job.
Thank you. Thank you. Please stand by for our next question. The next question comes from the line of Bobby Griffin with Raymond James. Your line is open.
Good morning, guys. Thanks for taking the questions, and congrats on good upside here this quarter. Steven, you touched on the Progressive write-offs a little bit. I am hoping we can double-click further into it. It was the one area of slight weakness this quarter, being above 8. Could you unpack how it played out during the quarter and what gives you the confidence to be back in the 6% to 8% range on an annual basis, which may imply a step down from where we are today? People focus on these write-offs given the economic environment.
Thanks, Bobby. Yes, we expected this to get attention, which is why we discussed it in the prepared remarks. We could have made decisions that would have delivered write-offs for Q2 in the 7% range, but that would not have been the right decision for the business given the underlying margins we are seeing in portfolio yield. Knowing the 6% to 8% range is an annual metric, we allowed this quarter to fluctuate. Q3 might be higher than normal as well because Q2 and Q3 are seasonally high quarters. We look at early indicators—delinquencies, first pay balances, and a suite of KPIs—and we have confidence in the team to deliver for the year. We have made some cuts in pockets where the data suggested, and approval rates are down year-over-year in the quarter even though we have lapped last year's tightening. We have an active dynamic management process for the portfolio with regular meetings to review items that could be tightened or loosened depending on data. We are hands on the wheel as always. Last year was an aberration because we had a material tightening in Q1. There is usually a 60 to 70 basis point increase sequentially from Q1 to Q2. We were in the 7.3%–7.4% range in Q1, and a normal sequential step would have put us at the top of the range. We also acknowledge some gas price pressure. What gives me confidence is the decade of execution by this team and their track record of managing within that range over time.
The only thing I would add is remember the 6% to 8% range is an annual range. Here in the quarter, we were slightly above it, but delivering strong margin performance at the same time. Progressive Leasing has a historical target margin range of 11% to 13%, and we are at 12.7% for the quarter. Two things have happened: near the high end of write-offs and near the high end of margin. That is the interplay of customers staying in their leases longer, which improves yield and more than offsets the delinquencies at the 8.4% level. The decision we made was to optimize for absolute earnings rather than any single quarter's write-off rate. As we move through the year, we will continue to apply that lens, and any change to long-term ranges would be data-driven and based on sustained dynamics rather than a single quarter.
Thank you. Brian, as a follow-up, the interplay of people staying on leases longer is tough to forecast. For the back half, what have you assumed there? It looks like you beat the midpoint and flowed that through the year. Does the back half EBITDA assume a moderation of that tailwind?
Good question. If you do the math imputed in the back half, margins are slightly down with Progressive Leasing from the first half. That is driven largely by the dynamic you referenced. We had exceptional margin performance in Q1 and strong in Q2. But we are not banking on the 90-day dynamic to continue at the same level. We have moderation embedded in the outlook for Q3 and Q4. To the extent it stays at current levels or customers stay in leases even longer, that is upside. It's fluid—headlines around gas prices and other macro factors can change things—but we've been cautious and did not count on the 90-day tailwind to continue at the same strength, though it remains a tailwind year-over-year.
Very good. Makes perfect sense. Appreciate the expanded details, and good luck here in the back half.
Our next question comes from the line of Bradley Thomas with KeyBanc Capital Markets. Your line is open.
Good morning, and congrats on a solid quarter. Steven, I was hoping you could talk a little bit more about the GMV trends. It is encouraging to see GMV inflecting positive this quarter after a number of exogenous headwinds. Could you give any color on how GMV trends get affected by spikes in gas prices we saw earlier and how you think about GMV growth in the back half given easier comps but still some consumer confidence overhangs?
Bradley, we are pleased to have all products growing at the same time; it creates a powerful engine, and leasing is the biggest part of that. I am not sure we see a direct short-term correlation between spikes in gas prices and demand, at least not in a short acute period. This year's gas spike happened at the tail end of tax season, when customers are most equipped to deal with it. The further you get from tax season, the harder it gets. We are pleased to be beyond the two headwinds from last year. Absent those, we said we could be a low single-digit GMV grower. We are seeing strength in certain retailers and work to do with others. E-commerce reached almost 26% of total GMV in Q2, and PROG Marketplace continues to show exceptional growth. We have initiatives for the back half we believe can help. We have business development opportunities in the pipeline, though we do not comment on specific names. We hope to get some things over the finish line before the holiday shutdown window. Four is doing very well, Purchasing Power is tracking on plan and has upside, and with leasing contributing, we feel well positioned even in a tough consumer environment.
That is really helpful. One follow-up: the difference between profitability and the write-off range—are elements more sustainable over time, or are they transitory? Could the delta open the gate to adjust long-term targets?
Bradley, we've talked about the 6% to 8% range for years; it's a staple of the business and reflects our credibility in managing the portfolio. You can't view that number in isolation; you must consider it alongside other data. Moving the range would be a serious, data-driven decision and would require confidence in a sustained dynamic rather than a couple of quarters. The quarter's performance allowed us to update guidance for the year because tailwinds outweighed headwinds. The delinquencies were not outside our internal expectations. We evaluated along the way and made decisions based on early indicators. So any change to long-term ranges would have to be grounded in sustained evidence.
Our next question comes from the line of Hoang Nguyen with TD Cowen. Your line is open.
A couple of quarters ago you mentioned that when people get into delinquencies, they may not be able to get out but they continue to make payments, and those customers can be very profitable even though they remain delinquent. In light of the higher write-off rate this quarter, are you seeing a change in the roll-rate dynamic from delinquency to charge-off?
I think you are referring to roll rates. We have seen slightly higher roll rates in certain buckets, which aligns with the slightly higher delinquencies, but not outside parameters we are comfortable with. Importantly, the average life of a lease—the length of time a lease remains active—has increased, which provides economics even in the face of a slight uptick in delinquencies and roll rates.
Got it. And maybe on the Four business—very strong results and a strong guidance increase. In terms of the guidance, it seemed like a large portion of the raise passes through to the bottom line for Four. Can you talk about the operating leverage given Four is your highest margin business?
We are extremely pleased with Four's position. We have material growth along with margin expansion, which is difficult to achieve. We raised expectations for the full year and that sets us up for future years. At Investor Day we discussed three-year targets for Four implying adjusted EBITDA margins north of 30%, which is where we are heading. There is a lot of flow-through from operating leverage due to a lean team and AI-driven efficiencies. As we grow, we expect continued improvements in provisions and loss rates from better decisioning, collections operations, and increasing GMV from Four Plus subscribers who are repeat customers. There are many positive tailwinds, and the team is executing well.
To add briefly, implied in our guidance is just shy of 22% adjusted EBITDA at the midpoint for Four, representing that expansion, and that is happening even with increased investment in marketing and other revenue-generating activities.
Our next question comes from the line of Anthony Chukumba with Loop Capital Markets. Your line is open.
Congrats on a good quarter. You resumed share repurchases—do you have any idea how aggressive you plan to be?
We have been an active repurchaser historically. We paused because of the Purchasing Power acquisition and resumed once we delevered. We look at capital return through the lens of our leverage ratio. With net leverage at 1.7x at the end of June, we reentered the market in Q2. We do not guide to the exact amount of repurchases, but we will return excess capital to shareholders, generally through buybacks, while funding GMV growth. We also consider working capital needs, particularly with the seasonally high Q4, in our calculus.
Thank you. Quick follow-up: any updates on your retail partner pipeline for Progressive?
We do not comment on individual names. We are optimistic on business development but have work to do. For large retailers, the window closes in the next 60 to 75 days for holiday preparedness, so timing is important.
Our next question comes from the line of Vincent Caintic with BTIG. Your line is open.
Hi, good morning. Thanks for taking my questions. Going back to credit, can you speak to write-off rates for Four and Purchasing Power? I know we usually wait for the 10-Q, but I assume those are more stable. Any macro factors driving their write-off rates?
For Four, the provision as a percentage of GMV was effectively flat year-over-year, which you will see in the 10-Q later today. Factors to consider include smaller ticket size—around $150—which affects dynamics relative to leasing and Purchasing Power. Four has been improving decisioning models and collections operations. They delivered growth with effectively flat provision as a percentage of GMV despite a stressed consumer. On Purchasing Power, we do not present Q2 of last year for comparison since we acquired the business this year. Their provision was within our expectations and margins came in slightly better than we expected. We are comfortable with where Purchasing Power came in and see upside as we deploy operational improvements and our expertise there.
That is helpful. On the employer client you signed with over 80,000 eligible employees, how quickly can you onboard and how should we expect those 80,000 to translate into GMV—quick impact or a two- to three-year ramp?
It depends on the employer's approach to communicating the benefit to employees and whether it aligns with open enrollment and benefits events. We stand ready to support fast penetration, and timing matters for the holiday season. Generally, from our experience, it is a two- to three-year ramp to build awareness, registrations, first-time buyers, and then repeat buyers.
Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Steven A. Michaels for closing remarks.
Thank you all for joining us this morning. I am really proud of this team. We delivered strong results across the board with revenue, EBITDA, and EPS. Leasing returned to growth and we ran the portfolio with discipline in a tough environment. When I look at what we built and what we are building—an ecosystem that gives customers more ways to transact with us, a distribution model that is hard to replicate, healthy margins, and decisioning that gets smarter with every data point—I feel very good about where we are headed. I firmly believe the best chapters of PROG's story are still ahead of us. And as our friend Doug Kurland would end all of his emails and texts, go Braves.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.