PROG (PRG) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements This section presents PROG Holdings, Inc.'s unaudited condensed consolidated financial statements, detailing balance sheets, earnings, and cash flows, highlighting a notable decline in net earnings and a goodwill impairment Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and equity as of September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | $221,886 | $170,159 | | Lease Merchandise, Net | $566,148 | $714,055 | | Goodwill | $296,061 | $306,212 | | Total Assets | $1,491,491 | $1,621,761 | | Liabilities & Equity | | | | Debt | $590,642 | $589,654 | | Total Liabilities | $925,027 | $942,353 | | Total Shareholders' Equity | $566,464 | $679,408 | | Total Liabilities & Shareholders' Equity | $1,491,491 | $1,621,761 | Condensed Consolidated Statements of Earnings This section presents the company's condensed consolidated statements of earnings, comparing financial performance for the three and nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Earnings Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $625,821 | $650,405 | $1,985,729 | $2,031,377 | | Operating Profit | $36,811 | $78,321 | $123,213 | $276,739 | | Net Earnings | $16,005 | $57,413 | $62,624 | $205,738 | | Diluted EPS | $0.32 | $0.86 | $1.18 | $3.06 | - The company recorded a goodwill impairment charge of $10,151 thousand in the third quarter and nine months ended September 30, 2022, with no similar charge in the prior year periods[12] Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $283,150 | $294,890 | | Cash Used in Investing Activities | ($39,949) | ($72,524) | | Cash Used in Financing Activities | ($191,474) | ($130,223) | | Increase in Cash and Cash Equivalents | $51,727 | $92,143 | - The company spent $187.4 million on treasury stock acquisitions in the first nine months of 2022, a significant increase from $128.2 million in the same period of 2021[15] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, explaining significant accounting policies, segment information, and material events - The company operates through two reportable segments: Progressive Leasing (lease-to-own solutions) and Vive Financial (second-look revolving credit products). It also owns Four Technologies, a Buy Now, Pay Later company, which is not a reportable segment[17][20] - A goodwill impairment test was triggered for the Four reporting unit as of September 30, 2022, due to declining valuations in the Buy Now, Pay Later industry, increased forecasted losses, and projected negative cash flows. This resulted in a $10.2 million impairment charge[59][60] - In Q2 and Q3 2022, the company initiated restructuring activities to reduce expenses, resulting in charges of $4.7 million for Q3 and $9.0 million for the nine months ended September 30, 2022. These costs were primarily for employee severance and impairment of right-of-use assets[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of high inflation on customer performance and GMV, leading to tightened lease decisioning, revenue decline, and reduced earnings, despite a solid liquidity position - The company is operating in a challenging macro environment where high inflation is pressuring customers, leading to higher payment delinquencies and write-offs. In response, the company has tightened its lease decisioning criteria, which has adversely impacted Gross Merchandise Volume (GMV) production[111] Gross Merchandise Volume (GMV) (in thousands) | Segment | Q3 2022 | Q3 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Progressive Leasing | $437,417 | $493,277 | ($55,860) | (11.3)% | | Vive | $47,967 | $49,085 | ($1,118) | (2.3)% | | Other | $15,786 | $2,655 | $13,131 | nmf | | Total GMV | $501,170 | $545,017 | ($43,847) | (8.0)% | Active Customer Count (as of September 30) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Progressive Leasing | 915,000 | 936,000 | | Vive | 92,000 | 87,000 | | Other | 27,000 | 8,000 | | Total Active Customer Count | 1,034,000 | 1,031,000 | Results of Operations – Three months ended September 30, 2022 and 2021 This section analyzes the company's financial performance for the third quarter, highlighting revenue, expense, and earnings trends compared to the prior year - Total revenues for Q3 2022 decreased by 3.8% to $625.8 million. The decline was driven by a 4.5% drop in Lease Revenues and Fees, primarily due to a higher provision for uncollectible renewal payments ($104.3 million in Q3 22 vs. $61.5 million in Q3 21). This was partially offset by a 25.1% increase in Interest and Fees on Loans Receivable[126][127] - Operating expenses increased by 10.5% to $112.7 million in Q3 2022. This was mainly due to a 211% increase in the provision for loan losses to $12.0 million, a new $4.7 million restructuring expense, and a $10.2 million goodwill impairment charge[126][129][130] - The provision for lease merchandise write-offs increased by 27.4% to $43.5 million in Q3 2022, reflecting higher customer payment delinquencies compared to the stronger payment activity in Q3 2021[126][132] - Earnings before income tax expense fell 64.9% to $27.3 million. The decline was most pronounced in the Progressive Leasing segment, which saw its pre-tax earnings fall by 43.1%. The 'Other' category reported a loss of $17.5 million, which includes the $10.2 million goodwill impairment for Four[135] Results of Operations – Nine Months Ended September 30, 2022 and 2021 This section analyzes the company's financial performance for the nine-month period, detailing revenue, expense, and earnings trends compared to the prior year - For the nine months ended Sep 30, 2022, total revenues decreased 2.2% to $1.99 billion. The provision for uncollectible renewal payments, which reduces revenue, more than doubled to $289.8 million from $137.8 million in the prior year period[138][139] - Operating expenses for the nine-month period rose 16.6% to $338.0 million, driven by higher personnel costs, a 93.5% increase in the provision for loan losses, a new $9.0 million restructuring expense, and the $10.2 million goodwill impairment[138][141] - The provision for lease merchandise write-offs increased by 85.1% to $155.7 million for the nine-month period, reflecting higher customer delinquencies and write-offs compared to the prior year[138][148] Liquidity and Capital Resources This section discusses the company's cash position, debt, and available credit facilities, along with cash flow activities and share repurchase programs - As of September 30, 2022, the company had $221.9 million in cash, $350.0 million available under its Revolving Facility, and $600.0 million of indebtedness from its Senior Notes[156] - Cash from operating activities decreased slightly to $283.2 million for the nine months ended Sep 30, 2022, from $294.9 million in the prior year period. The decrease was driven by reduced customer payment activity and higher interest payments on Senior Notes, partially offset by lower purchases of lease merchandise[157] - The company repurchased 6,687,618 shares for $187.4 million during the first nine months of 2022. As of September 30, 2022, $373.5 million remained authorized for future share repurchases[160] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its variable-rate Revolving Facility, though no outstanding borrowings mitigate immediate impact - The company is exposed to interest rate risk through its variable-rate Revolving Facility, which is indexed to LIBOR or the prime rate. As of September 30, 2022, there were no outstanding borrowings under this facility[174] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[178] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[179] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits, providing additional context beyond financial statements Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but does not anticipate a material adverse impact on its financial position - The company is involved in various legal proceedings, but does not currently believe any will have a material adverse impact on its business or financial position. For further details, the report refers to Note 4 of the financial statements[180] Item 1A. Risk Factors There are no updates to the company's risk factors from those previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - The company reported no updates to its risk factors from the 2021 Annual Report[181] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for the third quarter of 2022 under its existing authorization Share Repurchase Activity for Q3 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 97,203 | $16.51 | | August 2022 | 290,549 | $18.97 | | September 2022 | 200,000 | $18.85 | | Total | 587,752 | | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Lists the exhibits filed with the report, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[187]