PROG Holdings, Inc.

Good morning and welcome to the Prague Holdings, Inc. Second Quarter 2022 Earnings 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. To ask questions, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Baugh, Vice President of Investor Relations for Prague Holdings. Please go ahead.

Thank you and good morning, everyone. Welcome to the Prague Holdings second quarter 2022 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 impact of our lease decisioning adjustments on write-off levels, progressive leasing write-off levels for full year 2022, and the benefits we expect from the adjustments we have made to our SG&A spend. I want to call your attention to our safe harbor provision for forward-looking statements that can be found at the end of the earnings press release that we issued earlier this morning. That safe harbor provision identifies risks that may cause actual results to differ materially from the expectations discussed in our forward-looking statements. There are additional risks that can be found in our annual report on Form 10-K for the year ended December 31, 2021, which we encourage you to read. 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 adjusted EBITDA and non-GAAP earnings per share, 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, Prague Holdings President and Chief Executive Officer. Steve?

Thank you, John, and good morning, everyone. I appreciate you being with us today as we discuss our second quarter results and update you on our business as we navigate this dynamic macro backdrop while continuing to support key growth initiatives. I'm proud of the team's ability to quickly adapt to conditions that have been especially challenging for our customers and POS partners. We expect these actions will provide future benefits as we aim to increase our share of the largely unserved addressable market. As you may have seen in our press release this morning, we launched a new exclusive partnership with Samsung.com. We are excited to have emerged from this competitive process as the exclusive provider of Samsung.com's lease-to-own payment options and are pleased to have onboarded yet another national e-commerce partner. While the full benefits of this relationship will not be realized in 2022, we believe we will see meaningful benefits in 2023 and beyond as the partnership continues to ramp. During our Q4 earnings call in February and most recent mid-June update, We said we expected headwinds to our 2022 results as we lapped stimulus and other government support. Still, we believe our ability to manage the company's portfolio performance and expense structure while growing our customer count and generating significant free cash flow will help us remain in a strong position, even with the slowdown. We further tightened lease decisioning during Q2 to address the increase in delinquencies and write-offs we are seeing due to the inflationary pressures our customer is feeling. As we move forward through this difficult environment, we will continue to make the necessary adjustments that we believe will move us back towards our targeted annual write-off levels of six to 8%. Also in June, we announced adjustments to our SG&A spend levels in response to the headwinds we are experiencing and to align with our revenue outlook. While cost-cutting measures are never easy, These actions demonstrate our ability to quickly adapt our cost structure to changing economic conditions while maintaining investments in revenue-generating initiatives that we anticipate will support our future growth prospects. For our progressive leasing segment, second quarter GMV and revenues were in line with our revised expectations. Q2 GMV was down 2.4% year-over-year, while e-commerce GMV increased almost 18%. representing 15.6% of Progressive Leasing's total GMV for the quarter. We have now added 32 e-commerce partners to our platform in 2022, with more consumer brands in the pipeline for the remainder of this year. Widespread weakness in retail traffic, along with our tighter decisioning, drove the decline in GMV. However, that weakness was largely offset by share growth within many of our POS partners. Retailers and consumers need us more than ever as inflation remains at unusually high levels. As I've mentioned before, for retailers, we drive fast integration with prospective partners and incremental sales with existing partners. And for consumers, we offer purchasing power through flexible payment options. While we have not yet seen an impact from credit providers tightening above us, there is increasing evidence that those pressures are beginning to build. Consumer cash reserves, which were inflated by government stimulus programs and reduced spending during COVID, are depleting rapidly as incomes struggle to keep pace with inflation, leading to increased credit utilization. We cannot predict the timing of when we may see a tailwind from tight credit above us, but we expect ultimately that the current economic trends are more conducive to POS partners and consumers benefiting from our offerings. In short, we'll continue to control what we can control, partner with new retailers, complete e-commerce integrations, improve the customer experience, and manage our decisioning in a way that we believe will return us to our targeted financial performance. Our Q2 adjusted EBITDA of $52.2 million was slightly better than our revised outlook as a result of lower-than-expected SG&A expense. The provision for lease merchandise write-offs for the second quarter was 9.8%. As the quarter progressed, we made additional decisioning changes that have resulted in improvement in our early-stage metrics, and we believe that the adjustments we have made here today are working to drive our write-offs lower from Q2 levels. The average six- to seven-month duration of our lease portfolio means that our portfolio quickly shifts to the new lease pools originated with tighter decisions. As I mentioned earlier, the team executed well in the evolving environment. Portfolio performance remains a key focus, and we will continue to manage it through the remainder of the year in a manner that we believe will drive sustainable and profitable GMV with healthy unit economics. Our capital priorities remain unchanged. During the second quarter, we repurchased 3.9 million shares and have reduced our outstanding share count by 26% since the beginning of 2021. We ended the quarter with a leverage ratio of 1.67 times, which is still, in our opinion, within a comfortable range. We ended June with a cash position of $127.3 million, even after $98.4 million in share repurchases during the quarter. The capital we generate for the full year will continue to allow us to reinvest in the business and maintain a strong balance sheet, even with dynamic economic backdrop. I will close with emphasizing the strength of our business model. Even in a challenging environment with negative GMV growth, we have demonstrated our ability to control unit economics, quickly reduce costs to align with revenue, and generate significant cash flow. Finally, I want to reiterate my appreciation for the resilience and teamwork of all Prague employees as we continue to execute on our strategy. I will now turn the call over to Brian for a more detailed look at the Corvus Financials. Brian?