PROG Holdings, Inc.

Thank you for standing by and welcome to the Prong Holdings second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. To remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Vaughan, Vice President, Investor Relations. Please go ahead, Sarah.

Thank you, and good morning, everyone. Welcome to the Prague Holdings second quarter 2023 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 GMB performance and lease merchandise write-offs in future periods, shareholder return over time, our updated 2023 full-year outlook, and our outlook for the third quarter of 2023. I want to call your attention to our safe harbor provision for forward-looking statements that could 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 that 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 31st, 2022, 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 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 provide 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, share our thoughts on a few important Q3 metrics, and provide an update on our full year 2023 financial outlook. We had another excellent quarter with Q2 GMV slightly beating our expectations, net revenues above the high end of our expectations, and adjusted EBITDA well above the range we provided at the end of April. I am proud of our team's performance as they executed a high level in what remains a challenging retail environment. The trend of fewer customers choosing to utilize 90-day buyout options and the strong portfolio performance that we discussed in Q1 continued into the second quarter. As you may have seen in this morning's earnings release, we are incorporating our year-to-date outperformance and reflecting these favorable trends in our increased outlook for 2023. The strong customer payment behavior we experienced in Q2 is evidenced by our year-over-year 260 basis point gross margin expansion, improved write-offs of 7.1%, and adjusted EBITDA growth of 22.8 million, or 43.7%, resulting in a 12.7% margin. Our write-offs for the first half of 2023 were 6.5%, keeping us on track to deliver another year within our targeted annual range of 6 to 8 percent. The decline in GMV was largely due to our implementation of tighter decisioning in Q2 last year, which we believe accounted for approximately two-thirds of our GMV decline. As we look to July trends and our Q3 expectations, we anticipate the difficult year-over-year GMV comparisons to ease as we fully lap the introduction of last year's tighter decisioning. We have yet to see any indicators leading us to assume that retail sales will materially rebound through the balance of 2023. Though we have not assumed any benefit in the revised outlook we provided this morning, we believe that the current macro environment will result in tightening of lending practices from credit providers above us in the stack. Additionally, past experience demonstrates that consumers benefit from our flexible payment options during periods of sustained liquidity pressures. Our teams are working well with their counterparts at our retail partners to find GMV growth opportunities, including promotions, point of sale materials, and tech integrations that improve application flows and conversion rates. We're on track to grow our balance of share with several large retail partners in the second half of this year through new e-commerce integrations. Our three-pillared strategy to grow, enhance, and expand remains focused on sustainable growth rather than short-term gains. Grow emphasizes dedication to our business development efforts. In a sluggish retail climate, our goal is to broaden new and existing retail partnerships, positioning ourselves for significant growth once conditions improve. We remain focused on regaining growth through sustainable strategies, including e-commerce, marketing, and technology innovations, along with new retailer pipeline conversions. Our efforts to increase our e-commerce business are showing solid progress. We added nearly four times the number of new partners in the first half of 2023 than we did in the same period last year, and the channel consistently contributes more than 15% of our total GMV. These new partners, along with upcoming e-commerce integrations with several existing retailers, should contribute to our long-term GMV growth. We are also planning second half promotions and cross-marketing with many of our key retailers in support of GMV. One specific example of this is last week's Prague Perks Week, where we provide daily offers from select retail partners to our large database of current and previous customers. We have run this promotion several times over the last two years with much success, and retail partners have enjoyed the incremental business the program drives. This is just one example of the benefit of being part of the Prague Preferred Partner Network. Our high customer retention, illustrated by consistent repeat rates of over 50%, is a testament to our customers' affinity for our leasing products and contributes to our higher-than-average lifetime value to customer acquisition cost ratio. Lastly, our pursuit of new retail opportunities remains a key component of our strategy for long-term growth. especially in the current challenging retail environment that may motivate more retailers to seek avenues for revenue enhancement. We have added a number of regional accounts in the quarter and remain in ongoing discussions with many recognizable regional and national brands about the value progressive leasing can bring to their business and customers. We're confident in our proven ability to increase share balance with existing retailers while converting retailers without a virtual lease to own payment option and will continue to build the relationships and technologies that will enable us to capture more of our industry's $30 to $40 billion addressable market. Under Enhance, our technology initiatives aimed at improving the retailer experience and offering customers a more frictionless omni-channel journey are progressing nicely. And we believe those initiatives will bolster our GMV performance in future periods. Our tech roadmap is focused on three core areas. improving our customer-centric flexible lease platform, providing self-service tools to enable a superior retailer experience while helping the customer make the best and most informed choices, and offering greater personalization for a streamlined shopping and decisioning experience. We are also developing products that we believe will boost our direct consumer business and give retail partners easier paths to identify and convert potential LTO customers. We aim to enhance operating efficiency while addressing technical debt, an issue common in today's rapidly evolving technology landscape. Lastly, our Prague Labs R&D group is innovating ways to enhance customer service, personalization, and decisioning through generative AI. As for Xpand, in Q2, we announced a new product called Build, a credit management tool designed to aid consumers in enhancing their credit scores. Our leasing customers frequently express a desire to improve their credit profile. BILD, which is a blend of an installment loan and a secured savings account, both issued by WebBank, can help to address this need while aiding in credit history and savings accumulation. BILD is a natural addition to our product suite, joining Progressive Leasing 5 and 4 as inclusive and transparent financial products for consumers. In addition to empowering our customers through their financial journey, we anticipate Build will boost progressive leasing and Vibe volumes, catering to potential customers currently not qualifying for leases or loans. These pillars are underpinned by our robust financial health, marked by strong profitability, substantial free cash flow, and a healthy net leverage position, all of which we expect to continue going forward. This financial strength enables us to invest in areas promoting future growth. Turning to capital allocation, we have acquired over 2.5 million shares of our outstanding common stock in the first six months of the year at an average price of $28.26 per share. These purchases account for approximately 5% of our outstanding shares. Since the company's spin transaction 2.5 years ago, we have reduced our share count by roughly one-third. Year to date, we have generated 205 million of cash flow from operations, closing the quarter with a cash balance of 253 million. As a reminder, we typically generate the majority, if not all of our operating cash flow in the first half of the calendar year, a seasonal pattern we expect again in 2023. Our capital allocation priorities remain unchanged, and we expect to fund growth, look for strategic M&A opportunities, and return excess cash to shareholders primarily through share purchases. While Brian will provide more detail on the upward revision to our outlook for the year, I'd like to provide some high-level thoughts. Our first half earnings outperformed expectations due to tailwinds that may not carry forward into the remainder of the year with the same magnitude. Our updated outlook reflects ongoing challenges to consumer demand resulting from the macro environment. We expect that revenues in the second half of 2023 will show a mid to high single-digit percentage decline as compared to the same period last year, primarily due to GMV performance in the first half of the year, resulting in a smaller lease portfolio balance. However, there is an easing in the difficult year-over-year GMV comparison as we lap last year's decisioning changes. My summary is consistent with last quarter's. Our strong first half far exceeded earnings expectations and is a result of the hard work of our teams and strong customer payment behavior. We have a proven track record of navigating through dynamic and challenging environments, and we will adjust as macro conditions evolve. We believe our strong financial health and ongoing investments will drive compelling shareholder return over time. I'll now turn the call over to our CFO, Brian Garner, for more details on our second quarter results and 2023 outlook. Brian.