Good, Dan. Thank you for standing by. Welcome to the Prague Holdings Business Update Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today. John Ball, Vice President of Investor Relations, please go ahead. Thank you, and good morning, everyone.
And welcome to our conference call to provide additional color on yesterday's announcement that the company has entered into a definitive agreement to acquire purchasing power. Statements in this presentation regarding products holding zinc, the company, and its expected acquisition or purchasing power that are not historical facts are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statement. We encourage you to carefully review the forward-looking statements disclaimer on slide two of the investor deck that we have posted to our investor website for more information. The slide deck, which we will be speaking to this morning, can be found under our events and presentation tab on our investor website, which can be found on investor.progsholdings. dot com with that i'll now turn the call over to steve michaels prog holdings president
and ceo to provide more details on the acquisition steve thanks john and good morning everyone
i'm excited to discuss our agreement to acquire purchasing power the latest addition to the prog ecosystem a business that is highly aligned with prog's mission and the customers we serve We believe this acquisition adds new capabilities, established partners, and millions of eligible customers to the Prague ecosystem, while also creating meaningful opportunities for revenue and cost synergies across our platforms. Purchasing power fits squarely within our mission of providing transparent, flexible, and inclusive payment options to underserved consumers. We look forward to combining the strengths of both organizations to unlock long-term value. As John said, we will be walking through the deck that was posted to our investor site earlier this morning, and you are encouraged to download it and follow along. Beginning on slide four, we highlight that our three-pillared strategy of grow, enhance, and expand continues to guide how we operate and allocate resources. We seek to grow our GMV with existing merchant partners, new partners, and direct consumer initiatives. the consumer experience with industry-leading service and technology, and expand our ecosystem to deliver greater financial access and value to our customers. Purchasing Power contributes meaningfully to our three-pillared strategy. It expands our partner base into more than 25 industries nationwide, including 48 Fortune 500 companies and seven of the top 30 U.S. employers, and introduces a differentiated payment capability that reduces payment default risk. Importantly, while Purchasing Power uses a differentiated customer acquisition strategy, its B2B2C operating model closely mirrors Progressive Leasing's partner-led approach, enabling us to leverage our strengths, run familiar processes, and minimize acquisition costs. While we will provide more color in February about our 2026 outlook, based upon the current trajectory of the purchasing power business, we expect 2026 revenue in the range of 680 to 730 million and adjusted little i EBITDA to be in the range of 50 to 60 million. Note the little i reference in this metric reflects the burden of interest expense from purchasing power's non-recourse funding debt. Turning to slide five, we provide an overview of purchasing power as an e-commerce based platform that enables customers to purchase goods and services and pay over time through direct payroll deduction or payroll allotment. With relationships across over 360 established employers, Purchasing Power provides access to over 7 million employees nationwide. The business benefits from exceptionally high client revenue retention of approximately 98% and strong customer repeat rates, demonstrating the value and stickiness of the offering. I'll now turn the call over to Brian Garner, our CFO, to walk us through the next several slides.
Steve, moving to slide number six, this slide outlines the purchasing power operating model. Process begins when an employer adopts purchasing power as a voluntary benefit. Employees then register on the platform, shop from a large catalog of over 70,000 SKUs, make purchases directly through the website or mobile app. Once the transaction occurs, Purchasing Power places the order with a vendor and the vendor ships directly to the customer. Payments are then deducted automatically from the customer's paycheck and the employer or third-party administrator remits those payments to Purchasing Power. This payroll deduct structure is a unique strength. It reduces payment risk and creates more predictable portfolio performance. Moving to slide seven, we highlight Purchase Power's scalable go-to-market model. With a relatively small direct sales force, Purchase Power leverages a network of more than 100 brokers, partners, and distribution channels to efficiently access established employers across the U.S. What's especially compelling is the quality of this access. Purchase Power already successfully partners with some of the largest employers in the country, including 48 Fortune 500 companies and seven of the top 30 U.S. employers. That level of penetration is extremely difficult to build organically and represents a powerful accelerant for Prague. Through these relationships, personal power can reach millions of eligible employees efficiently and cost effectively. As we move forward, we believe this creates a meaningful opportunity for cross-selling and introducing the broader Prague ecosystem to a new, highly complementary customer base. Turning to slide eight, this slide demonstrates a compelling value proposition for both Purchasing Power's clients and customers. For clients or employers, Purchasing Power helps improve employee morale, productivity, and retention at no cost to the employer. These benefits help explain the business's 98% client revenue retention. For customers, the platform provides transparent, affordable payments, upfront spending power, access to brand-new products, and a convenient payroll-deductive payment method that helps reduce financial stress. The demographic profile is highly aligned with the consumer segments Prague already serves, with approximately 80% of customers having credit scores below 650 and household incomes around $78,000 per year. Yet there is a minimal overlap in actual customers, creating meaningful opportunity for cross-selling and revenue synergies across our product suite. Slide 9 illustrates the breadth and depth of Purchasing Power's product catalog. The platform provides access to leading brands across categories like electronics, furniture, travel, appliance, fitness, and fashion, supported by a robust supplier network. This broad assortment attracts repeat usage and strengthens Purchasing Power's value as an employer-sponsored benefit.
Let's get up here as we move on to slide 10, which shows how purchasing power strengthens Prague's ecosystem. With the addition of a payroll-deductive payment model and a large employer-based customer population, Prague becomes one of the most diversified payment solutions providers to the near and subprime market. We believe this solidifies a foundation for sustained multi-year growth. Importantly, as I mentioned earlier, Purchasing Power introduces a customer base with a minimal overlap with our existing products, positioning us to expand both current offerings and future innovations across a much larger audience. On slide seven, we summarized the key benefits we anticipate from the acquisition. Expanded reach into a large, underserved employee ecosystem, a differentiated payroll-deductive payment model, broader B2B distribution, strong financial contribution with meaningful EPS accretion and rapid deleveraging, enhanced competitive positioning with complementary products, and stable portfolio performance supported by an employment-based data and payroll integration. On slide 12, I want to reiterate that our capital allocation priorities remain unchanged following this acquisition. Our first priority is continuing to invest in and scale our product offerings to drive organic growth. Significant growth opportunities remain within our existing products and services, and we are confident we have the right team to execute against these initiatives. Second, we will continue to evaluate M&A opportunities that meet our strategic and financial criteria, as Purchasing Power does. I have said in prior calls that we would consider levering up temporarily for the right acquisition and believe purchasing power meets that description. We remain committed to returning excess capital to shareholders while managing towards our long-term net leverage targets of one and a half to two times, excluding non-recourse funding debt, and intend to move quickly in that direction post-acquisition. Our combined businesses, led by progressive leasing, drive significant cash flow, and thus we expect to have the ability to delever relatively quickly while remaining committed to our dividends and having optionality around share repurchases.
By 13, we provide details on the transaction terms. As mentioned in yesterday's press release, the purchase price is $420 million in cash and approximately $330 million of Purchasing Power's non-recourse ABS funding debt will remain in place after the close of the transaction. We will fund the purchase and relate the transaction costs for approximately $175 million of cash on hand and roughly $260 million in incremental borrowing on new or existing debt facilities. The transaction is expected to close in early 2026.
We are very excited to bring Purchasing Power into our existing suite of products and services. This acquisition strengthens our mission to provide transparent, flexible, and inclusive payment options to underserved customers. I want to extend a warm welcome to the Purchasing Power team, its clients, partners, and brokers, and we look forward to the opportunities ahead as we unite our organizations. With that, I'll turn the call over to the operator for Q&A.
Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Bobby Griffin with Raymond James. Your line is open. Good morning, guys. Thanks for taking my questions.
I guess first, Steve, can you talk a little bit about just the growth trajectory of the business and how it's grown over the last couple of years? And I guess what I'm trying to kind of understand is just the embedded growth to get to the estimates for 2026.
Yeah, sure. So the company has been around since 2001, Atlanta-based, and obviously it's had quite a long history. It had a low double-digit CAGR growth rate from basically 2011 to up until the pandemic, and then understandably had some pause and shrank a little bit during some COVID years, and then rebounded to that same low double-digit growth rate from 21 to 24. Implied in our – 2025 is not over yet, right? And we're only a day removed from the all-important Black Friday to Cyber Monday timeframe, as well as a very impactful full month of December to execute through. So we don't know exactly where they're going to end up for 2025. But based on the team's estimates, the implied growth rate from the revenue range we gave for 26 is back in that low double-digit growth rate range.
Okay, that's helpful. And then maybe secondly for me, and I'll turn it over to some others, but I think in your prepared remarks you referenced some meaningful, or I forget how the words you used, but meaningful revenue and cost synergies across the organization. So can you maybe unpack that a little bit? Does that involve the integrated payroll deduction model or anything there for us?
Yeah, we do think there's very exciting revenue synergy opportunities across the businesses. We do address a similar customer, but there is fairly limited overlap currently. There's the list of things that we will be pursuing include offering the purchasing power offer to some of the larger employees. that Progressive Leasing already partners with. Purchasing Power partners with some very high-quality retailers, and they have great relationships with those employer retailers. So we'd look to see if that's an in to help the biz dev efforts on the leasing business. Complimentary products like Four or Money App being offered as part of the voluntary benefit package are things that we've discussed. purchasing power is very keen on financial wellness and education our build product fits into that and helping consumers improve their credit scores so there's lots of opportunities uh bi-directionally or omni-directionally across the products uh in the in the ecosystem which is why we believe this uh this is such a good fit to add to the prog ecosystem thank you i appreciate
the details and best of luck here closing out the holiday season thanks bobby one moment for
our next question it comes from brad thomas with key bank capital markets your line is open
good morning thanks for taking the question um congratulations on the transaction um i just want to follow up maybe on the revenue side of things and bobby's question and curious if you have any more details on how their growth has been in terms of uh business partners in terms of companies that they partner with and then what you see uh if anything over time as the awareness
maybe grows within those partners yeah brad i mean we'll we'll provide more color on that you know as we you know once we get past closing and and and are in there on a day-to-day basis but i can tell you it's similar to to the leasing business they have a growth algorithm from getting more penetration and more adoption within their installed base with the number of what they call eligibles which are basically employees of the part of the employers that they already partner with and then there's obviously a biz dev and pipeline component to to the growth and so Both of those we believe have lots of opportunity, and we'll be working with the team to try and
accelerate that. That's helpful. And then if I could just ask a clarifying question around the funding debt. So is it right to think of the business keeping it at this 330 million level, or is it better to think of it perhaps staying in the, you know, what is it, about half of revenue for the business going forward, just how to think about that. And then as we tie it to EBITDA with the little i, is it right that we are including the cost of the interest expense associated with that funding debt in the cost of, in the EBITDA basically as a cost of operations as we get to that kind of 50 to 60 million number? I just want to make sure we're thinking about all
on this rate. Yeah, Brad, just with respect to the ABS debt, I think it's a fair way to think about that debt level really aligning with growth and revenue on a go-for-it basis. Obviously, as new originations occur, we're going to be leaning on an ABS facility to provide that working capital. And so, you know, it's not necessarily a steady state, 330. It's more aligned to the volume driven by the business on the demand side. Yeah, we're thinking about the interest expense generated by that non-recourse debt is really, you know, effectively, it's a cost of, you know, it's cost of doing business. And that's why we're adjusting the EBITDA for a little I EBITDA and to burden it for that. And that's how we expect to view the business on a go-forward basis. We think that it's more appropriate to burden it, and that's why we're introducing
this little I EBITDA metric. That's great. Do you have a sense of what the interest rate is
on that warehouse facility? Yeah, blend it all in. I think it's right around six and a half percent.
And then maybe just the last one from me, any sense of where margins overall are tracking for them from sort of a historic perspective and where you think maybe they could go over time? It would seem to me that revenue growth would be the top priority for you all, but just curious about the margin side of things.
Yeah, Brad. I mean, certainly revenue growth is, I think, something we're going to be pushing. And currently, the margin profile on that little I adjusted EBITDA is kind of, you know, mid to high single digits. We think there's opportunities to increase that even in a growth scenario. In fact, growth helps because of scale. And so we believe that, you know, we're going to be able to get that into the low double digits kind of in the same ballpark as the leasing business in that 11% to 13% range. Not overnight, of course, but we'll be working towards improving that margin profile over the next 24 months or so.
Great. Thank you very much.
Thanks, Brad. One moment for our next question. Next question comes from Anthony Chikumba with Loop Capital Markets. Your line is open.
Good morning. Thanks for taking my question. So I guess my first question, I just want to make sure I understand the purchasing power business model. So, you know, the employee selects, let's just say, some Ashley furniture. Purchasing power is purchasing that from Ashley. I'm assuming they're paying a wholesale price for that. And then just in terms of the MSRP on the loan, is it just, you know, what you would pay if you just went to an Ashley store? Or do they kind of mark that up, you know, over what the regular MSRP would be?
Yeah, thanks, Anthony. Yeah, it's correct. Using the Ashley example, Purchasing Power would buy it on a wholesale basis, and then the retail price would be actually higher than the market retail price, and that's fully disclosed to the employee or to the potential customer. And then it is a zero interest. It's a retail installment contract, so it's not a loan, And so it's just that that stated retail price spread over, you know, normally 26 biweekly pay periods, depending on, you know, when that that employer's payroll cycle.
Got it. OK. And and and the and that's coming directly out of their out of their paycheck. Right. So it's almost like you're garnishing your wage, their wages. Right. So the only, you know, sort of, I guess, the only potential that you don't get paid back is if, let's say, they lose their job or something, right? I mean, I'm assuming in that case, obviously, there's no paycheck with that employer to garner us, right? But, I mean, in that scenario, is there a way that you can continue to try to collect those payments?
Yeah, so the lion's share of the business is through payroll deduct. There is a portion of the business which is through payroll allotment, which is similar but different. It's more like a split direct deposit, if you will, as opposed to a payroll deduct. But the lion's share is payroll deduct. And like you said, we have the purchasing power integrations with their clients so that the purchasing power is paid, you know, kind of first out of that paycheck along with other payroll deduct slots. And you're right. The portfolio risk or the credit risk really is levered to turnover of the employee base. And they do – the customers do have to put a backup payment plan, a debit card, or a credit card on file. But to the extent that there is, you know, losses, it usually derives from a separation of employment. When they're on the payroll deduct, it's very, very consistent and very, very good collection records.
Got it. And Steve, just I guess just two more real quick ones. I don't mean to completely bogart the call. I just want to make sure I completely understand. So you said 20 normally repay over 26 paychecks. So that's assuming they get a paycheck every every couple of years. So generally the loan life is about 12 months. And then the second thing is, what is the historical, I guess, write-off rate?
Yeah, no, I think you have the cadence right in terms of the payments. The write-off rate is, just to differentiate a little bit, the way we talk about leasing, we talk about that 68% write-off rate. That's a lease construct versus here a retail installment construct. They're not directly comparable, but what I would guide you towards is what you will see on our financials post-acquisition is that there's going to be a provision for credit loss. It's adherent to CECL, and that rate typically is in the mid-nines is what you would expect to see as a percentage of revenue, so a little over 9% mid-nines. Historically, that's, you know, it's up and flow, and obviously throughout the COVID and stimulus periods, but I think that's pretty representative of where they've been historically. So embedded within the outlook that we provided there for 26, it was just a little over nine is what's included there.
That's helpful. I'll get back in the queue. Thank you. One moment for our next question. Our next question comes from Vincent Cantik with BTIG. Your line is open.
Hey, good morning. Thanks for taking my questions. I appreciate all the detail here. Go ahead, follow up on the 2026 guidance. If you could help us additionally by providing what your expectations are for GMV and where the portfolio balances are, that would be helpful. or maybe interest rates or how to think about, like, a revenue yield that's driving the revenue guide. And does the guidance that you did provide in terms of revenue and EBITDA, does that include synergies with PRG's other businesses, or is that just purchasing power?
Yeah, Vincent. So in this business, because it's a retail business, revenue is basically GMV. So that's how we're thinking about that moving forward. It's the revenue is recognized, the retail value of the sale is recognized in the period that it's transacted. So those things are moving forward are basically the same thing. And there really are no revenue synergies baked into that revenue range. We certainly anticipate that we will execute on some of those, but it's difficult to know the exact timing of that. We did include some cost synergies from some consolidation, but it certainly is not a full run rate amount because those will also happen throughout 26 and we won't get the full year impact. So in the 50 to 60 includes some cost energy assumptions and little to no revenue assumptions.
And should, I guess, to that, the amount of outstanding receivables that you might still have, should we think about it as basically being, say, funded by the ABS? So there's maybe about $330 million or a little bit more than $330 million of outstanding receivables?
Yeah, I think that's roughly the range. and and like we said before uh we're gonna we're gonna you know on a go for it basis continue to leverage this abs facility um and so yeah you're in you're in the ballpark there in terms of where
the receivables are at okay great perfect and uh last one for me to actually just following up steve on that expense commentary um if you can maybe talk about the synergies you talked i think to an earlier question about the scale opportunities and that expanding ebitda margin maybe if you could talk about um other ways like it does seem like maybe the the underwriting of this business is similar is it it maybe if you can compare the existing operations of purchasing power versus other businesses and where you can consolidate or or enhance some of your other businesses use using the technologies of purchasing power uh that would be great thank you yeah i mean
we um we'll be providing more color on on areas of opportunity you know as we talk more about the the business post-closing, but certainly, you know, the businesses are similar in the B2B2C model, as I mentioned, and both businesses have very big, good track records of attracting and supporting enterprise-size partners slash clients, and so we look forward to taking best practices from both teams to accelerate our our success in that regard the the data is very rich as it relates to this this customer base progressive has a long history four has a a very growing database and lots of data and and purchasing power has access to a lot of data as well so there's certainly opportunities there that we're very much looking forward to uh to acting on and and improving the operations across the across the ecosystem um and uh so cost synergies you know will will be there but the thing that's most exciting is the ability to grow the mutual businesses and um and and have the the ecosystem strategy continue to play out um and and provide multiple products into this customer base such that we have more share of wallet and higher lifetime values. Great. Very helpful.
Ladies and gentlemen, that's conclude the Q&A portion of today's conference. I'd like to turn the call back over to Steve for any further remarks.
Thank you very much. I just want to, again, warmly welcome the team from Purchasing Power. We look forward to getting past closing and working alongside you to achieve great things together for the benefit of all of our stakeholders. Thank you.
ladies and gentlemen that concludes today's presentation you may now disconnect and have a wonderful day