PROG Holdings, Inc. Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the PROG Holdings Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, John Baugh, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the PROG Holdings First Quarter 2026 Earnings Call. Joining me this morning are Steve Michaels, PROG Holdings' 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 second 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?

Thanks, John. Good morning, everyone, and thank you for joining us. I'll start by saying we delivered a strong first quarter. We are very happy with the start to the year and the momentum we're seeing in the business. Our results came in at the high end of our revenue outlook and exceeded the top end of our outlook for earnings and non-GAAP EPS. This outperformance reflects the discipline of our operating model and strong execution across the organization, supported by higher-than-expected GMV with improved economics at Four, as well as better portfolio yield at Progressive Leasing primarily due to lower-than-expected utilization of 90-day purchase options. In an environment where the geopolitical and macroeconomic situation presents challenges, including from rising gas prices, our model performed as designed. This consistency is a direct result of how we built and manage this business over time. Let me provide some additional color on the quarter before walking through our strategic priorities. As I mentioned in February, we have begun framing growth through the lens of consolidated GMV which grew 54% in Q1 compared to the same period last year. These results reflect the addition of Purchasing Power and the triple-digit growth of Four. As our portfolio of solutions expands, GMV is generated through multiple products across leasing, Four and purchasing power, and this consolidated view better reflects the full scale of our platform. It's a great example of how we are deploying an integrated ecosystem of solutions to better reach underserved individuals and families. Starting with Progressive Leasing. GMV for the first quarter came in at 2.2% below the same period last year. However, trends improved meaningfully as the quarter progressed, with January down high single digits, February down low single digits and March up low single digits. As a reminder, throughout last year, our leasing business faced GMV headwinds from deliberate tightening actions and the bankruptcy of Big Lots. As we lap both of those headwinds, particularly through February, leasing's GMV trends inflected positively in March. From a GMV standpoint, the quarter played out largely as expected, and we are excited to exit the quarter on a growth trajectory. Four's GMV for the quarter was 134% higher year-over-year. Customer demand for our BNPL product remains robust, and importantly, we are seeing that growth translate into attractive economics and profitability, which I'll discuss in more detail shortly. Purchasing Power's Q1 GMV grew double digits at 10.3% year-over-year. This growth was due to favorable performance within existing employer accounts. We also added several new employer clients during the quarter, bringing tens of thousands of new eligible employees onto the platform and supporting future growth. Consolidated revenue came in at $743 million, representing 11% year-over-year growth. This performance was primarily as a result of the addition of Purchasing Power, along with growth at Four and partially offset by a revenue decline at Progressive Leasing due to a lower portfolio size throughout the quarter. Consolidated adjusted EBITDA was $90.3 million and non-GAAP EPS was $1.24, both exceeding the high end of our outlook. This outperformance was fueled by better-than-expected portfolio yield and customer payment performance at Progressive Leasing as well as increased customer demand and profitability at Four. To summarize the quarter, we delivered results above expectations, saw improving GMV trends while maintaining portfolio health at leasing, drove profitable triple-digit growth with improving economics at Four, achieved double-digit GMV growth at Purchasing Power and continue to execute against our ecosystem strategy. Before we shift into our strategic priorities, I want to briefly address the broader environment and how it informs our updated outlook. The consumer we serve remains resilient, but they are facing real challenges. Gas prices are elevated, and there is increased uncertainty in the macro backdrop. We remain committed to continue to deliver consistent portfolio performance across all our businesses and managing costs prudently to achieve our earnings outlook. Our track record demonstrates our ability to adapt quickly, and we will do so as conditions evolve. Let me now turn to our 3 strategic pillars, grow, enhance and expand to share some highlights from the quarter. Starting with the grow pillar. We saw encouraging traction at Progressive Leasing and Purchasing Power with remarkable growth at Four, which collectively resulted in consolidated GMV being up 54% year-over-year. For leasing, Q1 applications grew double digits year-over-year and GMV trends improved sequentially month-over-month, with March up low single digits compared to the prior year. In addition to lapping the tightening actions from early 2025, these results reflect our investments in technology to enhance customer experience and in marketing to promote engagement across both new and existing customers. You heard about many of these initiatives at our recent Investor Day; we're pleased to say that they are continuing to have a positive impact on our business. Our long-term distribution base of exclusive retail partners with approximately 70% of Progressive Leasing GMV secured into the 2030s provides a durable foundation for growth as we also gained balance of share within existing key retail partners. Additionally, our direct-to-consumer efforts spanning both marketing and digital channels have been meaningful drivers of growth. Within Marketing and Progressive Leasing, we leaned into customer acquisition, partner marketing and cross-product campaigns, which drove increased engagement and incremental GMV. We focused further up the funnel while maintaining flat acquisition costs year-over-year. At the same time, our outreach channels, including e-mail, SMS and push notifications, generated incremental GMV, reinforcing healthy consumer demand and improving return on ad spend. On the digital front, PROG Marketplace delivered another notable quarter, growing at 169% year-over-year. We are scaling this channel through ongoing product enhancements, increased traffic and improved conversion. Our e-commerce channel also grew meaningfully due to deeper integrations with retail partners and improved digital checkout experiences. Q1 e-commerce GMV was 25.7% of total Progressive Leasing GMV, up from 16.8% in the same period last year and the highest first quarter mix to date. Shifting to Four. We delivered another triple-digit growth quarter, our tenth in a row, with performance powered by both customer acquisition and engagement. The team rolled out AI-driven product enhancements that simplify the shopping experience and average order values increased year-over-year. Monthly active users more than doubled compared to a year ago, reflecting growing consumer interest. On the marketing side, spend was deployed efficiently to support growth maintaining a healthy balance between paid and organic customer acquisition. Finally, Purchasing Power delivered double-digit GMV growth, reinforcing the strength of its model and its strategic role within our ecosystem. Its payroll deduction model represents a differentiated distribution mode, serving employees who value predictable, convenient purchasing options through their paycheck. We remain in the early stages of deeper integration including introducing Purchasing Power to our retail partner employee bases and leveraging addressable employer relationships to expand leasing distribution. Over time, we believe this opportunity represents a meaningful incremental growth lever. From a marketing perspective, early media testing at Purchasing Power is showing encouraging results, demonstrating our ability to improve penetration within the eligible population. Under the enhanced pillar, our investments in improving both customer and retailer experiences are progressing with several initiatives beginning to deliver positive results. Our AI-driven lease eligibility engine is scaling meaningfully. We've expanded our leasing product catalog and improved response times from 3 seconds down to one-tenth of a second. At the same time, we are advancing customer experience enhancements that are driving higher conversion. We deployed multiple AI-driven improvements across our marketplace, including an AI chatbot assistant, enhanced payments navigation and a new AI-powered checkout flow that simplifies and streamlines the transaction process. These marketplace enhancements have delivered an approximately 20 percentage point improvement in checkout conversion versus the prior experience while also lowering cost to serve and improving operational efficiency. The focus remains clear: enhance the customer experience to support higher customer lifetime value while improving the economics of the business. Under the expand pillar, Four is scaling and Purchasing Power is growing double digits, in line with expectations as integration efforts advance. We remain intensely focused on strengthening our ecosystem. Four executed at a high level delivering 142% revenue growth in Q1 2026, the tenth consecutive quarter of triple-digit GMV and revenue growth. Q1 GMV reached $280 million, more than doubling Q1 2025 and March 2026 GMV of $108 million was the second highest month in company history. Customer engagement trends remained favorable with average purchase frequency of approximately 5 transactions per quarter and more than 130% growth in active shoppers year-over-year. New shoppers grew approximately 80% year-over-year, representing expansion of the platform's customer base. Four's subscription model remains a key driver with Four Plus subscribers continuing to contribute approximately 80% of total GMV. Four's take rate, defined as revenue generated as a percentage of GMV over the trailing 12-month period, remained consistent at approximately 10%, indicating positive monetization efficiency as the business scales. From a profitability standpoint, Four generated adjusted EBITDA of $12.9 million in Q1 2026, already exceeding full year 2025 adjusted EBITDA of $9.9 million. Q1 adjusted EBITDA margin was 37%, reflecting the benefits of scale. While Q1 is seasonally the highest margin quarter, following elevated GMV from the holiday period, the business continues to demonstrate meaningful operating leverage. MoneyApp, our cash advanced product, grew revenue over 50% in the first quarter and continues to play an important role as both an engagement and cross-sell driver within our ecosystem. Growth was a result of higher average advance sizes as well as early traction from a new product we introduced in December called Pop-Ups, which allows qualifying customers to responsibly access additional funds on top of an existing advance. While still early, Pop-Ups are beginning to generate incremental revenue and represent another avenue for us to deepen customer engagement and expand the platform over time. Our ecosystem strategy is gaining traction. At our Investor Day in March, I highlighted that cross product engagement is a strategic priority because we believe it is a key component of long-term growth and value creation. We are seeing progress from our ecosystem-first approach with customers increasingly engaging across multiple products, driving higher lifetime value and improved acquisition efficiency. Four is currently our most connected product often serving as an entry point and engagement driver across our platform. Progressive Leasing showed the most meaningful improvement in cross product engagement during the quarter with more of its customers interacting with other offerings. Notably, we also drove the largest overlap and fastest growth in overlap between Progressive Leasing and Four customers. Before turning it over to Brian, let me touch on capital allocation. Our priorities remain unchanged: invest in the business, pursue strategic M&A and return excess capital to shareholders through share repurchases and dividends. In February, I told you that in the near term, we will focus on prioritizing debt reduction as we work toward our long-term net leverage target of 1.5 to 2x, and we did. During the quarter, we paid down $210 million in recourse debt ending Q1 with a net leverage ratio of 2x. To summarize the quarter, we delivered results above expectations led by consistent execution and improving demand trends across the business. Importantly, these results were achieved while continuing to invest in our strategic priorities, advancing our direct-to-consumer capabilities, scaling our digital channels and deepening integration across our platform. Overall, our distribution moat, diversified ecosystem and data-driven decisioning capabilities position us well to perform across a range of environments. I firmly believe the best chapters of PROG's story are still ahead of us. With that, I'll turn the call over to Brian.

Thanks, Steve, and good morning, everyone. Our strong performance in the first quarter was broad-based and reflects disciplined execution across each of our businesses as well as some margin favorability from consumer behavior in the leasing segment. In a short period of time, we made significant progress against our goal of deleveraging following the Purchasing Power acquisition. And as we exit the quarter, we are within our target net leverage range of 1.5 to 2x. I'll begin with our Q1 results of Progressive Leasing, followed by Four Technologies, Purchasing Power and then move to consolidated results. I'll close with an update on our balance sheet, capital allocation and our revised full year 2026 outlook. More broadly, consumer demand across several discretionary categories remains pressured, but our teams executed well on the areas within our control, including targeted growth initiatives, decisioning, expense discipline and capital deployment, enabling us to deliver results ahead of expectations and reinforcing the underlying opportunities within the business. Starting with Progressive Leasing. First quarter GMV came in at $393 million, representing a 2.2% decline year-over-year, which was in line with our expectations. As Steve outlined, this performance reflects two primary factors in the first half of the quarter: the tightening actions we implemented last year to preserve portfolio performance and the lapping of remaining GMV from Big Lots following their bankruptcy. As we progress through the quarter and move past these headwinds, GMV trends improved sequentially, returning to low single-digit growth in March. Revenue for the Progressive Leasing segment was $597 million in the first quarter, down 8.4% year-over-year, primarily a result of a smaller average lease portfolio throughout the quarter. The lower gross leased asset balance, which is down 9.4% entering the quarter compared to a year ago, created a headwind to Q1 revenue. We ended the first quarter with a portfolio size down 5.4% year-over-year. As we execute against our growth initiatives at Progressive Leasing, we expect this portfolio headwind to subside and the revenue compare will become less difficult as the year progresses. Additionally, utilization of the 90-day early purchase option, which is seasonally high in Q1 due to tax refund season, came in lower than expected for the quarter and below 2025. While an environment where fewer customers are electing to exercise their 90-day purchase option represents a revenue headwind in the period, over time, we expect total revenue, gross profit and margins to trend favorably. Gross margin for Progressive Leasing was 31.5% in the quarter, up 210 basis points year-over-year. Margin expansion stemmed from improved portfolio yield and a higher proportion of customers choosing to remain in their lease agreements longer, which, in part, ties to lower 90-day purchase option activity. Lease merchandise write-offs came in at 7.3% of lease revenue within our targeted annual range of 6% to 8% and a 10 basis point improvement from the Q1 2025 rate of 7.4%. This result reflects the benefits of the tightening actions taken a year ago, and we have been largely comfortable with the trends we have seen since those changes. As we've consistently emphasized, protecting portfolio health remains our top priority, and we are closely monitoring payment behavior, delinquencies and vintage-level performance, and we are pleased with what we have seen year-to-date. Progressive Leasing's SG&A for the quarter was $81.3 million or 13.6% of revenue compared to 12.6% in Q1 of 2025 and was flat in total SG&A dollars spent even as we invest selectively in areas to support long-term growth, including technology modernization, customer experience and AI initiatives. As we've demonstrated over time, we remain focused on balancing near-term expense discipline with investments that enhance the durability and scalability of the business. Adjusted EBITDA for Progressive Leasing was $77 million or 12.9% of revenue at the high end of our long-term target range of 11% to 13% representing a 260 basis point improvement year-over-year. This performance was primarily the result of operational execution, including managing portfolio performance and yield, partially offset by the revenue headwind of a smaller lease portfolio throughout the quarter. Turning to Four Technologies. Q1 GMV reached $280 million, representing growth of 134% year-over-year and marking the tenth consecutive quarter of triple-digit GMV growth. March alone generated $108 million in GMV, the second highest month in company history. Revenue of $35 million exceeded expectations, growing 142% year-over-year. Adjusted EBITDA was $12.9 million, representing a margin of 37%. I would note that Q1 is the strongest margin period for Four and throughout the remainder of the year, I expect margins to moderate to the range implied in the revised outlook for the segment. Underlying economics are improving, and we remain highly encouraged by the performance of the business across both growth and profitability metrics. Finally, switching to Purchasing Power. Q1 GMV was $132.7 million, representing 10.3% growth. Revenue for Purchasing Power was $107.1 million in first quarter with adjusted EBITDA of $0.8 million, consistent with the near breakeven results we expected. As a reminder, Purchasing Power seasonally generates a greater proportion of its revenue and earnings in the back half of the year, particularly in the fourth quarter. Integration efforts are on track and we remain encouraged by the progress we are making across both front-end and back-end synergies as well as its strategic fit within our broader ecosystem. Transitioning to consolidated results. We delivered strong GMV growth with continuing operations increasing 54% year-over-year to $806 million, driven by the addition of Purchasing Power and growth at Four. Revenue from continuing operations grew 11.1% year-over-year to $742.7 million, reflecting the addition of Purchasing Power and triple-digit growth at Four Technologies partially offset by the revenue decline in Progressive Leasing. From an earnings perspective for continuing operations, consolidated adjusted EBITDA was $90.3 million or 12.2% of revenue and non-GAAP diluted EPS was $1.24, both exceeding the high end of our February outlook and delivering 29% and 38% year-over-year growth, respectively. Turning to the balance sheet. We ended the first quarter with $69.4 million of unrestricted cash and total available liquidity of $419.4 million, including our revolving credit facility. We ended the quarter with $650 million of recourse debt. Since closing the acquisition, we paid down recourse debt by $210 million, resulting in a net leverage ratio of 2x trailing 12-month adjusted EBITDA. As a reminder, this ratio excludes the 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. Importantly, net leverage was approximately 2.5x immediately following the acquisition on January 2, 2026. Since then, our focus has been on integrating Purchasing Power and driving meaningful deleveraging and we have made material progress in the quarter, bringing net leverage back within our long-term target range of 1.5 to 2x. As we move through the balance of the year, we expect to remain below 2 turns. We returned capital to shareholders in the first quarter through our quarterly dividend, paying $0.14 per share, a 7.7% increase from the prior year quarter. I would now like to touch on a few key aspects of our second quarter and revised full year outlook, which was provided in this morning's earnings release. Despite macroeconomic challenges, we believe our GMV momentum at a consolidated level will carry into the remainder of the year. Improving leasing GMV trends positively impact the gross lease asset balance which is a leading indicator of future period revenue. Four is delivering strong growth with improving economics and Purchasing Power is just beginning to realize its GMV and margin potential. Portfolio performance at leasing is expected to remain healthy as we actively manage yields while balancing GMV growth. We expect full year 2026 lease merchandise write-offs to remain within our targeted annual range of 6% to 8%. Our revised consolidated outlook for 2026 raises expectations on both revenue and earnings from continuing operations, reflecting the Q1 outperformance and our confidence in executing at a high level through the rest of the year. We are already making progress against the 3-year 2028 compound annual growth rate framework we outlined in the Investor Day. Q1 was a strong and encouraging start to this journey. Our revised consolidated outlook for continuing operations for 2026 calls for revenues in the range of $3 billion to $3.1 billion, adjusted EBITDA in the range of $343 million to $370 million, non-GAAP EPS in the range of $4.40 to $4.80. This outlook assumes an operating environment with no change in the current financial pressures and uncertainties for our customer, no material changes in the company's decisioning posture, no meaningful increase in the unemployment rates for our customer base, an effective tax rate for non-GAAP EPS of approximately 26% and no impact from additional share repurchases. To summarize, Q1 was a great start to the year with broad-based outperformance across our businesses and disciplined execution in the areas within our control. We delivered improving trends at Progressive Leasing, sustained high growth and expanding profitability at Four and early progress with Purchasing Power as integration continues. At the same time, we strengthened the balance sheet, bringing net leverage back within our target range while maintaining a prudent approach to capital allocation. As we look ahead, we remain focused on driving profitable growth, managing portfolio performance while executing against our strategic priorities and navigating a still uncertain macro environment. I'll turn the call back over to the operator for questions.

Our first question comes from Kyle Joseph of Stephens.

Congrats on a really strong start to the year. Steve, would love to kind of pick your brain on macro. Obviously, a lot of moving parts throughout the quarter. Initially, we're expecting higher tax refunds and then you get into March and higher gas prices. But just kind of walk us through the moving parts of macro and maybe how those impact your businesses differently. We're no longer just focused on leasing. Obviously, Four had a really good quarter and we're obviously new on the Purchasing Power side of things. So just a little bit of macro kind of evolution through the quarter and different impacts across the businesses.

Thanks, Kyle. I would start by saying that we do have this multiple-product ecosystem, but they do have connections in that they serve a very similar customer across the products. To the extent that the macro overlay has an impact, it's not identical, but it's directionally similar across the products. We have the benefit of being able to see customer behavior and the influence on the customers across those products and can use that to help provide insights into all the products. As the quarter played out, and you called out a few of those things: we're always used to preparing for tax season. We thought the tax season was going to be higher. Tax season actually played out about as we expected. It was higher, but not as high as some people were reporting earlier for our customer. Refunds were up across the board. For our customers, they were up somewhere in the high singles to low doubles range, and that was about what we were planning for. As Brian said in his remarks, we did see in the leasing business fewer customers choosing to exercise their 90-day purchase option, and we've seen that over time in different cycles when customers might make different decisions about the liquidity the tax season brings. They're making payments to stay current, but not necessarily accelerating a payoff of an obligation. That played out. Some of the other products don't exactly have that kind of accelerated repayment during tax season, so there was less of an impact outside of leasing. Gas prices during March became a bigger story. The consumer is stressed but resilient. We're watching all of our early indicators intensely. We're seeing evidence of stress in some data points, and we feel good about where we're positioned. The tightening in leasing that we implemented in the first quarter of 2025 has served us well and positioned the portfolio to withstand some stress, so we saw a strong first quarter. We're watching the numbers closely and watching the early indicators, but are poised for momentum to continue.

Got it. That was broad-based, but I appreciate you covering it all. Just one follow-up for me. Obviously, a tough retail environment even going into the year and then layering in gas prices. Just kind of want to get an update on your discussions with retail partners kind of given now you have a bigger suite of products and given, call it, some more incremental headwinds for retailers?

That's more of the same with retail, especially in consumer durables that the leasing business addresses. Our business development teams are doing a good job. They had some wins in the back half of 2025 and have a very good pipeline of retailers of all sizes that we think we're making progress with from a sales progression standpoint. We continue to believe that our suite of products, with leasing at the retail level being the largest one, are things that can help retailers. We are having increased conversations about a multiple-product solution with various retailers, bringing Purchasing Power into the mix to offer additional value to employees on the voluntary benefit platform. We look forward to continuing to dive into that ecosystem strategy and business development in our B2B2C businesses, specifically leasing and Purchasing Power.

Our next question comes from the line of Bobby Griffin of Raymond James.

Congrats on a good start to the year. I guess, Steve, I wanted to first ask when you've seen that customer behavior before with a lower expected 90-day buyouts. Has that historically given you any insights into what the customer does for the back half of the year? Is there anything to learn about how that plays out and what the health of that customer is when you see that?

I'll start and Brian can fill in the gaps. There's no perfect corollary, but we have seen in the past, specifically in 2023, coming off a tough 2022 from an inflation standpoint and a material tightening in the leasing business, we saw a very low 90-day buyout take rate. What we observed was those customers tended to stay in their leases longer, which is a theme we've discussed for a couple of quarters in the leasing business. Not doing a 90-day buyout in that period did not indicate the customer would necessarily experience elevated charge-offs; many customers stayed deeper in the lease, sometimes doing an early buyout later in the lease or going to full term. Certainly, some end up in charge-offs, but from a margin standpoint that was a margin-positive trade-off because a 90-day buyout is a very low margin outcome for us and customers going deeper in the lease is better. We're watching that closely to see the next actions. If the 90-day window expires, which a lot of it did in March because of the holiday uptick in leasing activity, we'll see how those customers continue to pay. So far, we're pleased with roll rates and other portfolio health indicators. We're not expecting a mirror of 2023, but we are using that period to help with forecasting.

That's the right question as you evaluate consumer health overall. We talked about a 210 basis point improvement in gross margin at leasing in the quarter, primarily driven by this dynamic. What's reflected in our outlook is a view that this is a net positive for us, the tailwinds from lower 90-day activity. You might see some pressure in delinquency trends to watch, but I'm not anticipating anything significant. We saw write-offs come down 10 basis points year-over-year. As we increase our outlook, we expect this disposition dynamic and a shift towards lower 90-day activity to be a net positive for the P&L over the course of the year.

Okay. That's helpful. And then maybe lastly for me, just on the actual GMV trends within Progressive Leasing side, flipping back positive in the quarter. Can you unpack a little — is that just a function of the comparisons? Or is that actually a sign of inflections in consumer trends? I believe you did call out double-digit growth in apps, which would probably reflect some of the comparisons dynamic too with the Big Lots. So just trying to understand what is more comparison driven or if it's an inflection on consumer engagement with the product and maybe seeing trend improvement.

We're pleased with the trends as we exited the quarter. Specifically, as the quarter progressed, it was down high singles in January when we had both discrete headwinds still in force, then improved to down low singles in February as we lapped those things, and then up low singles in March. Through most of 2025, we noted what GMV trends would have been absent those headwinds and were in low to mid-singles for the rest of the business. Much of it is how the business has been performing absent those headwinds over the last several quarters, but we're also seeing strength in our digital channels. Marketplace was up 169% again, e-commerce as a percentage of total leasing GMV rose to 25.7%, the highest first quarter mix to date, and various projects improved retailer integration and balance of sale. So there's a mix of lapping comparisons and positive execution. Applications are strong, but apps must convert to approvals and approvals to conversions which vary by channel. We're pleased with how we exited the quarter and how it sets us up for the rest of the year.

Our next question comes from the line of Hoang Nguyen of TD Cowen.

Congrats on the quarter. You mentioned cross-selling synergies between leasing and Purchasing Power. You're still in the early days, but can you give us some flavor of the conversations you're having? Are you seeing a lot of inbound engagement from both sides of the enterprise?

That's definitely part of our plan. It was identified during diligence and we plan to execute on it. We talked about it during Investor Day. The deep and long relationships we have with retailers on the leasing side are fertile ground for Purchasing Power on the business development side and those efforts are underway. Purchasing Power has several employer clients that happen to be retailers that we believe could benefit from offering leasing to their customers, and those discussions are happening. We also are augmenting the Purchasing Power offering with additional products our intelligence shows their employees are already consuming in the broader market. Delivering that as a voluntary benefit is a differentiator for Purchasing Power and helps the sales motion with employer clients. We're pleased and excited about the opportunity, but we're early in the integration since we're just a few months post-closing.

Got it. Maybe one for Brian. You guys have returned to your targeted leverage range, although at the high end. Historically you have done opportunistic buybacks. When can we expect you to get back to the market to buy back shares at these prices?

We haven't given a specific plan for buyback cadence. You saw in Q1 with a highly cash-generative period our ability to deploy capital toward deleveraging. As we look into Q2 and Q3, we expect continued cash generation which provides optionality around further deleveraging or other uses. Q4 is seasonally heavy for these businesses and likely a period of net cash need, so our calculus is to prioritize investing in the business and deleveraging first and then evaluate share repurchases. To the extent we have excess capital, we'll go through that decision-making process. We're bullish on the business and will continue to evaluate share repurchases as part of capital allocation.

Got it. And congrats on the quarter.

Our next question comes from the line of Anthony Chukumba of Loop Capital Markets.

Congrats on a strong start to the year as well. A question on Four: as I look at the revised guidance, taking the midpoint of adjusted EBITDA and revenue implies the EBITDA margin in the previous outlook was about 15.1%, and that goes up now to about 18.2%. Given the consistent take rate, is that primarily greater scale driving higher EBITDA margin or is there something else?

We're very pleased with Four. We increased our view of margin expansion this year versus last year as we execute toward a more mature state. It's largely due to scale, but the Four team is also driving efficiencies. They've leaned into AI aggressively to achieve customer-facing improvements and back office savings. It is a scale play and an efficiency play. Subscription strength and low churn are bright spots, and that revenue is high-quality and flows through to earnings in a meaningful way.

Got it. Okay. And then what's the update on the retail partner pipeline and Progressive Leasing?

The biz dev team is doing a great job. They had wins in the back half of 2025 that will pay dividends in 2026 and the pipeline is full with retailers of all sizes. We're adding new doors in SMB while also pursuing super regionals and enterprise accounts. Our ecosystem strategy reinforces the leasing story even when the conversation begins as leasing, since we have more products and more authority around the customer. We expect more wins this year.

Our next question comes from the line of Hal Goetsch of B. Riley Securities.

With the acquisition of Purchasing Power and hitting the asset-backed market for some of their receivables, you've got new items on the income statement like gain on sale of receivables and changes in value of receivables. Can you give color on how we should think about modeling those line items going forward since this is a new flow for us?

You're right to point that out. I'll call out the difference in the two things you mentioned. The gain on sale of aged lease receivables is not Purchasing Power related; that's on the leasing side. We did that in Q4 last year and again in Q1 this year. We had not done that historically, but that is a recurring motion that we're in. It probably won't be to the same quantum as Q4 and Q1 moving forward, but we do have an inventory of aged lease receivables that we will sell into the open market. That is a recurring item. I'll let Brian talk about the Purchasing Power side, where there are purchase price accounting and fair value dynamics that are excluded from adjusted EBITDA because they're not ongoing.

The line item you're referencing related to Purchasing Power is the continued evaluation of the fair value of receivables acquired and recorded as part of purchase accounting. You might see a few million dollars in any given period, but this is a technical accounting dynamic arising from fair value at acquisition. We've made the decision to adjust it out of adjusted EBITDA for a more consistent presentation. It's hard to give precise guidance on how it will move — it depends on collections relative to acquisition-date expectations — but I don't expect it to be material in any given period. You should see small adjustments each quarter.

Okay. Terrific. The first point Steve mentioned is selling past-due accounts and receiving cash upfront, right? That's what you meant?

Yes, particularly aged lease receivables — receivables we charged off in some cases years ago that we sell to a third party. It's not pennies on the dollar but a sale where we receive cash up front and then the buyer attempts collection. It's not consignment; it's an actual sale where we don't share future collections.

Understood. If I could ask about Four: Q1 is large because of payments coming in from holiday-season activity. Margins were quite high in Q1. Is that partially because Four is not fully burdened with corporate overhead, and should we expect margins to moderate as you allocate corporate costs?

Q1 is seasonally the strongest margin quarter for Four; 37% is impressive. Our guide implies moderation across the full year toward the implied corporate-level range. The progression from loss-making in 2024 to low teens in 2025 with margin expansion in 2026 paints a path toward higher maturity margins, but some corporate allocation and seasonality will moderate full-year margins versus Q1.

Our next question comes from the line of Brad Thomas of KeyBanc Capital Markets.

Congrats on the quarter. I wanted to follow up on the GMV growth you're seeing at the end of the quarter within Progressive Leasing. How confident are you that this is an inflection point and that GMV growth will continue into Q2 and through the balance of the year? Also, when should we expect the portfolio to flip back to growth and Progressive Leasing revenue to follow?

We don't guide to GMV quarter-by-quarter specifically, but to achieve the revenue guide we provided for leasing would imply similar trends coming out of Q1 into the balance of the year. A key driver is gross lease assets. We've made good progress in the quarter; I'll let Brian add detail on portfolio trends.

Starting the quarter our portfolio size was down 9.4% year-over-year and we ended the quarter down 5.4% year-over-year. There's a strong correlation between average portfolio size year-over-year and revenue trends. Extending the improvement in GMV into Q2 and Q3 as reflected in our revenue guidance implies continued progress in the gross lease asset balance. I like the trend and think as we pass difficult comps related to tightening and Big Lots, year-over-year comparisons should trend favorably. It shouldn't be too far down the road before we see portfolio size larger year-over-year.

Very helpful. If I could ask a follow-up on cash flow generation: what does the guidance imply for free cash flow this year? Any one-time items we should exclude when modeling next year's cash flow? And are you considering paying off any funding debt to boost margins?

We haven't provided free cash flow guidance, but Q1 was highly cash-generative — after the acquisition on January 2 we paid down total debt of $254 million. Q2 and Q3 should be slightly cash-generative which gives us optionality. Q4 is expected to be a net cash need due to seasonality in these businesses. Regarding onetime items, a near-term benefit is the BBA tax treatment which produced a roughly $20 million tax refund in Q1 and reduced our overall tax liability; we sized that benefit at about $100 million for 2026. On the ABS funding tied to Purchasing Power: we view that as an important, efficient tool for Purchasing Power to borrow against receivables. As long as the ABS market remains favorable and rates are reasonable by tranche, we plan to continue that path and have no near-term plans to pull that back meaningfully.

This concludes the question-and-answer session. I will now turn it back to Steve Michaels, President and CEO, for closing remarks.

Thank you very much for joining us today. We delivered a strong first quarter with improving trends across the businesses, and we're entering the balance of the year with real momentum. I want to thank all of the team members across PROG Nation for the execution we've seen as well as our retail partners and employer clients and our customers for trusting us. I firmly believe the best chapters of PROG's story are still ahead of us.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.