PROG Holdings, Inc.

Good day and welcome to the Prague Holdings Inc. Q3 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John Braugh, Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to the Prague Holdings Third Quarter 2021 Earnings Call. Joining me this morning are Steve Michaels, Prague 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 expectations related to the execution, amount, and timing of and benefits expected from the modified Dutch auction tender offer to purchase up to $425 million of our shares of common stock. our new $1 billion repurchase program, and any further or future share repurchases under that program, the levels of GMV delinquencies, write-offs, and other performance metrics we expect in future periods, and our updated 2021 financial performance outlook. I want to call your attention to our safe harbor provision for forward-looking statements. that can be found at the end of our earnings press release that we issued earlier this morning. That safe harbor provision identifies risks that may cause actual results to differ materially in the content of our forward-looking statements. There are additional risks that can be found in our latest 10-K filing and in our subsequent SEC filings. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today and we undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, 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 will turn the call over to Steve Michaels. Steve?

Thank you, John, and good morning, everyone. I appreciate you all joining us this morning. I couldn't be more proud of our team as we look to close out a strong year. We have made great progress in our first year as a standalone public company, positioning Prague Holdings for significant long-term value creation as a profitable, high-growth, asset-light fintech company. In Q3, we continued to navigate the pandemic's impact on our customers and partners, and saw our portfolio trend towards normalized performance, although somewhat earlier than anticipated. The quarter benefited from accelerating growth in our lease portfolio, strong margin performance, exceptional e-commerce growth, continued technological innovation with the release of updated e-commerce plugins and merchant platforms, and the addition of buy now, pay later capabilities through our acquisition of four technologies. This morning, we announced that the Prague Holdings Board has authorized a new $1 billion share repurchase program, replacing the $300 million authorization we announced in February. Tomorrow, we intend to commence a modified Dutch auction tender offer to purchase up to $425 million in value of our common stock under this new authorization, which we expect to be funded through a combination of new debt and current cash. We believe the tender offer, which represents approximately 15% of our market cap, and the significant new share repurchase authorization are clear demonstrations of our ongoing commitment to value creation through returning excess capital to shareholders. This transaction will also have the benefit of lowering our cost of capital. The tender offer will be priced in an anticipated range between $44 and $50 per share and we expect the offer to commence on November 4th, 2021 and expire at the end of the day on December 3rd, 2021. We believe the tender offer represents an opportunity to acquire our shares at an attractive price while preserving our ability to invest in both organic growth and M&A, which remain our top priorities. We also believe the increase in leverage resulting from the additional debt we expect to incur to fund the tender offer will be supported by the strong EBITDA and cash flow profile of our business. Since last November's SPIN transaction, capital allocation has been a top priority for management and the board, and for many of our shareholders too, based on my conversations with them. Our Progressive Leasing and VIVE financial segments are both well-established businesses with strong, proven models, and Prague Holdings, the holding company that remained following last year's SPIN, started with and has maintained a very strong unlevered balance sheet. As you will remember, on our first earnings call as Prague Holdings in February, we laid out our capital allocation priorities and announced a $300 million share repurchase program funded with excess cash flow. Over the past nine months, we have repurchased $128 million in shares under that program, including $51 million in the third quarter. Our decision to significantly expand and accelerate our share repurchases is driven by the alignment of three key factors. First, our confidence in our long-term growth. Second, the opportunity for value creation by more aggressively investing in our own shares. And third, an attractive interest rate environment that affords low-cost debt. As I have previously shared, we are comfortable with a net leverage range of approximately one to one and a half times adjusted EBITDA. Given our robust free cash flow in excess of organic growth needs, this leverage range maintains the flexibility to pursue attractive M&A opportunities and allows for continued ongoing share purchases beyond this tender offer. Of course, the future price of our stock, the size of any M&A opportunities, general economic conditions, and other factors will influence our decisions on future share purchases. I want to reiterate a key point here. We have diligently forecast our future capital needs and believe strongly that the modest amount of leverage we expect to add to execute the tender offer will not impact our ability to invest in the business or our ability to capitalize on the large, unserved virtual lease-to-own addressable market. As we have said consistently, we consider a strong balance sheet and access to liquidity to be sources of strength and optionality that we rely on when looking to convert large pipeline opportunities. We expect to continue to maintain those sources of strength going forward and to further leverage the competitive advantage they provide us. Now I'd like to turn to our third quarter results, which reflect the growth in our portfolio and our strong profitability against a backdrop of continued and modestly accelerating normalization of portfolio performance. GMV for our progressive leasing segment increased 10% in the third quarter and is up 15% year-to-date, both in line with expectations. As I stated on last quarter's call, we expect Q4 GMV growth to exceed Q3's growth rate. Factors that should drive the GMV acceleration in Q4 include a more robust promotional schedule planned by many of our POS partners, an easier comparison to last year, when store traffic was unfavorably impacted by COVID and a seasonal shift to e-commerce where we have an even stronger presence than we did in the prior year. We are well positioned to deliver on our previously provided outlook of GMV growth in the mid to high teens for 2021. As always, a significant change in the macro environment, including the global supply chain, could impact results. E-commerce GMV grew 192% year over year in Q3, and represented 14.5% of our total GMV in the quarter. We remain on track to deliver a mid-teens contribution from e-commerce GMV for the full year 2021, up from 7% in 2020, and expect this channel to be a key driver of future GMV growth. We continue to invest in innovative technology that is designed to make our products easier to use and increase transaction speed and conversion rates. We launched progressive leasing plugins for some of the largest e-commerce platforms, including Salesforce Commerce Cloud, Magento 2, and WooCommerce. And we expect customized integrations with key retailers and these more user-friendly plugins to help drive future growth in e-commerce GMV. We have increased our investment in the small and medium-sized business market, and we remain focused on growing with new and existing SMB retailers. During Q3, we rolled out Prague Central, a retailer management platform that greatly enhances our SMB partners' ability to access and manage individual lease details, lowering our cost to serve over time while simultaneously creating a better experience for retailers and customers. We expect to begin realizing the benefits of these products and initiatives in the quarters to come. As we have noted in recent quarters, Significant federal stimulus payments and enhanced unemployment benefits in 2020 and 2021 were unprecedented and had a significant short-term impact on our business. We experienced record low levels of delinquencies and write-offs during much of the pandemic. Conversely, the stimulus has been a headwind to GMV and lease portfolio growth as more customers elected to pay cash for purchases or opt in to our 90-day early purchase option. As we commented last quarter, we are beginning to see our customers trend back towards more typical behaviors across the board. In fact, as the impact of federal stimulus and other temporary economic support subsides, last quarter and during October, we saw key portfolio metrics returning closer to pre-pandemic levels. Opt-ins for our 90-day early purchase option have trended down through Q3. Write-offs for the period increased sequentially and year-over-year but remain below pre-COVID levels. As we have noted in recent quarters, we expect the write-offs to continue to normalize to our pre-pandemic annual range of 6% to 8%. As seen in this morning's earnings release, we lowered our fiscal 2021 outlook for revenue and lowered the top end of the adjusted EBITDA range. This updated outlook is primarily driven by higher reserve provisions related to the sooner than expected normalization of portfolio performance, as Brian will discuss in a moment. Having said that, our early pool performance indicators and metrics are in line with our pre-pandemic levels. We have proven over the past several years that we can manage the performance of our portfolio within our stated annual range of 6% to 8% write-offs, and we intend to continue to do so in the future. Our consolidated revenues in the quarter We're 650 million compared to 611 million last year, an increase of 6.4%. Our portfolio has now grown in our progressive leasing segment for two consecutive quarters after hitting a low in March of 2021. Our adjusted EBITDA margins remain elevated when compared to historical norms. While SG&A expenses did rise from the prior year, the strong portfolio performance drove our 14.4% adjusted EBITDA margins above our annual target of 11% to 13%. We expect Q4 adjusted EBITDA margins to decline from Q3 and the prior year Q4 as portfolio trends continue to normalize. Finally, I want to thank all of our employees for their commitment to our customers and partners as we strive to innovate and tailor solutions that will enable consumers to shop however, wherever, and whenever they want. I'll now turn the call over to our CFO, Brian Garner. who will discuss our financial results in greater detail. Brian?