Good day, and thank you for standing by. Welcome to the PROG Holdings Business Update conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one 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 Baugh, 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 PROG Holdings, the company, and its expected acquisition of 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 statements. 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.progholdings.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 PROG 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 early 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-to-consumer initiatives, enhance 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 7 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 million-$730 million and adjusted little i EBITDA to be in the range of $50 million-$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.
Thanks, Steve. Moving to slide number six. This slide outlines the Purchasing Power operating model. The 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, and make purchases directly through the website or mobile app. Once a 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 deduction structure is a unique strength. It reduces payment risk and creates more predictable portfolio performance. Moving to slide seven, we highlight Purchasing Power's scalable go-to-market model.
With a relatively small direct sales force, Purchasing 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. Purchasing Power already successfully partners with some of the largest employers in the country, including 48 Fortune 500 companies and 7 of the top 30 U.S. employers. That level of penetration is extremely difficult to build organically and represents a powerful accelerant for PROG. Through these relationships, Purchasing 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 PROG 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-name products, and a convenient payroll-deducted payment method that helps reduce financial stress. The demographic profile is highly aligned with the consumer segments PROG 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 nine 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.
We'll get up here as we move on to slide 10, which shows how Purchasing Power strengthens PROG's ecosystem. With the addition of a payroll-deducted payment model and a large employer-based customer population, PROG 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 summarize the key benefits we anticipate from the acquisition: expanded reach into a large, underserved employee ecosystem, a differentiated payroll-deducted 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 dividend and having optionality around share repurchases.
Finally, on slide 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 EBS funding debt will remain in place after the close of the transaction. We will fund the purchase and related transaction costs from 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. Operator?
Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star one one 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? I guess what I'm trying to kind of understand is just the embedded growth to get to the estimates for 2026.
Yeah, sure. The company's 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 2021 to 2024. Implied in our 2025 is not over yet, right? 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. 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 2026 is back in that low double-digit growth rate range.
Okay. That's helpful. Maybe secondly for me, I'll turn it over to some others, but I think in your prepared remarks, you referenced some meaningful, or I forget the words you used, but meaningful revenue and cost synergies across the organization. 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. The list of things that we will be pursuing includes offering the Purchasing Power offer to some of the larger employers that Progressive Leasing already partners with. Purchasing Power partners with some very high-quality retailers, and they have great relationships with those employer retailers. We would look to see if that's an end 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.
There are lots of opportunities bidirectionally or omnidirectionally across the products in the ecosystem, which is why we believe 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. Our next question comes from Brad Thomas with KeyBank Capital Markets. Your line is open.
Good morning. Thanks for taking the question. Congratulations on the transaction. I just wanted to follow up maybe on the revenue side of things and Bobby's question. I'm curious if you have any more details on how their growth has been in terms of business partners, in terms of companies that they partner with, and then what you see, if anything, over time as the awareness maybe grows within those partners.
Yeah, Brad, I mean, we'll provide more color on that once we get past closing and are in there on a day-to-day basis. I can tell you it's similar 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 employers that they already partner with. There is obviously a biz dev and pipeline component to the growth. 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. If I could just ask a clarifying question around the funding debt. 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, what is it, about half of revenue for the business going forward? Just how to think about that. 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 EBITDA, basically the cost of operations, as we get to that kind of $50 million-$60 million number? I just want to make sure we're thinking about all this right.
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-forward basis. Obviously, as new originations occur, we're going to be leaning on an ABS facility to provide that working capital. It's not necessarily a steady state $330 million. 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 effectively at the cost of doing business, and that's why we're adjusting the EBITDA for little i EBITDA to burden it for that. 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, to blend it all in, I think it's right around 6.5%.
Great. 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. Currently, the margin profile on that little i adjusted EBITDA is kind of 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. We believe that 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%-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. Our next question comes from Anthony Chukumba with Loop Capital Markets. Your line is open.
Good morning. Thanks for taking my question. I guess my first question, I just want to make sure I understand the Purchasing Power business model. 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. In terms of the MSRP on the loan, is it just what you would pay if you just went to an Ashley store, or do they kind of mark that up over what the regular MSRP would be? Thanks.
Yeah, thanks, Anthony. Yeah, it's correct. Using the Ashley example, Purchasing Power would buy it on a wholesale basis. 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. It is a zero interest. It's a retail installment contract, so it's not a loan. It's just that stated retail price spread over normally 26 biweekly pay periods, depending on when that employer's payroll cycle.
Got it. Okay. And that's coming directly out of their paycheck, right? It's almost like you're garnishing their wages, right? The only 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 garnish, right? I mean, in that scenario, is there a way that you can continue to try to collect those payments?
Yeah. 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. The lion's share is payroll deduct. Like you said, the Purchasing Power has integrations with their clients so that the Purchasing Power is paid kind of first out of that paycheck along with other payroll deduct slots. You're right. The portfolio risk or the credit risk really is levered to turnover of the employee base. They do, the customers do have to put a backup payment plan, a debit card or a credit card on file. To the extent that there are losses, it usually derives from a separation of employment.
When they're on the payroll deduction, it's very consistent and very good collection records.
Got it. Steve, I guess just two more real quick ones. I do not mean to completely bogart the call. I just want to make sure I completely understand. You said you normally repay over 26 paychecks. That is assuming they get their paycheck every couple of weeks. Generally, the loan life is about 12 months. The second thing is, what is the historical, I guess, write-off rate?
Yeah. No, I think you had the keys right in terms of the payments. The write-off rate is just to differentiate a little bit of the way we talk about leasing, we talk about that 60% write-off rate. That's a lease construct versus here a retail installment construct. They are not directly comparable. What I would guide you towards is what you will see on our financials post-acquisition is that there is going to be a provision for credit loss. It is adherent to CECL. That rate typically is in the mid-nines is what you would expect to see as a percentage of revenue. A little over 9%, mid-nines. Historically, it has ebbed and flowed, obviously, throughout the COVID and stimulus periods. I think that is pretty representative of where they have been historically.
Embedded within the outlook that we provided there for 2026, it was just a little over 9% 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 Caintic with BTIG. Your line is open.
Hey, good morning. Thanks for taking my questions. I appreciate all the detail here. I had 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. Maybe interest rates or how to think about a revenue yield on that's driving the revenue guide. 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? Thank you.
Yeah, Vincent. In this business, because it's a retail business, revenue is basically GMV. That's how we're thinking about that moving forward. The revenue is recognized. The retail value of the sale is recognized in the period that it's transacted. Those things moving forward are basically the same thing. 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 2026, and we won't get the full year impact. In the $50 million-$60 million, include some cost synergy assumptions and little to no revenue assumptions.
Okay. Great. Perfect. 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? There is maybe about $330 million or a little bit more than $330 million of outstanding receivables?
Yeah, Vincent, I think that's roughly the range. Like we said before, we're going to, on a go-forward basis, continue to leverage this ABS facility. Yeah, you're in the ballpark there in terms of where the receivables are at.
Okay. Great. Perfect. Last one for me, actually just following up, Steve, on that expense commentary. If you could maybe talk about the synergies. I think to an earlier question about the scale opportunities and that expanding EBITDA margin, maybe if you could talk about other ways. It does seem like maybe the underwriting of this business is similar. Maybe if you can compare the existing operations of Purchasing Power versus other businesses and where you can consolidate or enhance some of your other businesses using the technologies of Purchasing Power, that would be great. Thank you.
Yeah. I mean, we'll be providing more color on areas of opportunity as we talk more about the business post-closing. Certainly, the businesses are similar in the B2B2C model, as I mentioned. Both businesses have very good track records of attracting and supporting enterprise-size partners/clients. We look forward to taking best practices from both teams to accelerate our success in that regard. The data is very rich as it relates to this customer base. Progressive has a long history. Four has a very growing database and lots of data. Purchasing Power has access to a lot of data as well. There are certainly opportunities there that we're very much looking forward to acting on and improving the operations across the ecosystem. Cost synergies will be there.
The thing that's most exciting is the ability to grow the mutual businesses and have the ecosystem strategy continue to play out and provide multiple products into this customer base such that we have more share of wallet and higher lifetime values.
Great. Very helpful. Thank you.
Ladies and gentlemen, to 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, to conclude today's presentation, you may now disconnect and have a wonderful day.