PROG Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Prague Holdings Q3 Earnings 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 that session, you will need to press star 11 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. John Baugh, Vice President of Investor Relations. Sir, please go ahead.

Thank you, and good morning, everyone. Welcome to the Prague Holdings third 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 GMV performance and lease merchandise write-offs in future periods, consumer demand, and the retail environment going forward, the level of 90-day buyouts in future periods, gross and EBITDA margins, our capital allocation priorities, our updated 2023 full-year outlook, and our outlook for the fourth quarter of 2023. 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 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 31, 2022, as well as our quarterly report on Form 10-Q for the quarter ended September 30, 2023, 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 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. Good morning, everyone, and thank you for joining us. Today, we are reporting better than expected Q3 financial results. We will also share our thoughts on a few important Q4 metrics and provide an update on our full year 2023 financial outlook along with a brief glimpse into 2024. Despite a difficult operating environment, we've exceeded our financial outlook again this quarter, recording revenues for Q3 that were higher than expectations and adjusted EBITDA that was well above the range we provided in July. As you might recall, In the first half of the year, our earnings were lifted by the trend of fewer customers choosing 90-day buyout options along with robust portfolio performance. Strong customer payment behavior trends continued in Q3, slightly offset by 90-day buyouts trending higher and back to pre-pandemic levels. Higher-than-expected gross margin and lower write-offs combined with our disciplined approach to spending supported our material Q3 earnings beat. I am once again extremely proud of the team's ability to execute at a high level. The strong customer payment behavior is evidenced by our year-over-year 200 basis point gross margin expansion, improved write-offs of 6.6% as compared to 7.2% in Q3 last year, and adjusted EBITDA growth of 6.8 million or 10.4%, resulting in a 12.3% margin. Non-GAAP diluted EPS grew 32.4% year-over-year, as we also benefited from a lower share count. As you may have seen in this morning's earnings release, we are incorporating our year-to-date outperformance and these favorable trends in our updated outlook for 2023. Progressive leasing's GMV decline of 6.5% was within our mid-single-digit decline expectations, despite challenging retail conditions. Our view is that the macro backdrop presents a blend of optimism and caution. We are seeing the rate of inflation ease, healthy labor markets, and GDP forecast stronger than initially projected. However, average Q3 retail traffic was down double digits year over year across large ticket consumer durables, and we anticipate this is likely to persist. We're also monitoring the potential impact of student loan payment resumption and recessionary concerns going into 2024. We believe our business model has a degree of insulation from a typical recession during which an increase in unemployment and credit tightening above us could result in higher applicant volume and higher quality applicants at the top of our funnel for both Progressive Leasing and VIVE. I'd like to highlight the resilience of our customers through uncertain macro conditions. evidenced by lower than anticipated and lower than historical trends of delinquent accounts moving to charge-offs. Our strategic move to tighten decisioning in mid-2022 and our active management of our portfolio since then have significantly benefited performance. Separately, strain on discretionary incomes has dampened demand for many of the leaseful products offered by our retail partners. We have skillfully navigated these demand headwinds through strong operational execution, balancing GMV pressures with portfolio management, cost control, and strategic investments to enable future growth. For the holiday season, we have planned initiatives aimed at maximizing retailer traffic conversion, as we are expecting traffic to be down year over year. We anticipate our Q4 GMV year over year comparison to be roughly similar to Q3, although the all-important holiday season and its material impact on our quarterly GMV results are still in front of us. On the portfolio performance side, we expect Q4 to align more closely to pre-pandemic levels with normalized 90-day customer buyout activity. Next, I'd like to provide some initial thoughts on 2024. As I mentioned earlier in our thoughts on the macro environment, Demand for leaseable categories is down year over year, and in our view, that trend will likely continue into 2024. We intend to partially offset these headwinds through achieving deeper integrations with existing retail partners, capitalizing on anticipated tighter conditions in the credit stack above us, and expanding our retailer base. As we conclude 2023, a high single-digit negative year-over-year comparison in our gross leased assets will bring revenue pressures, predominantly in the first half of 2024. We have proven our ability to navigate through dynamic and challenging environments, managing these headwinds through prudent cost management and strategic investments while generating robust profits and cash flow. Sustainable growth remains a key focus, within our three-pillared strategy to grow, enhance, and expand. As a reminder, the grow pillar emphasizes our dedication to business development efforts across new and existing retail partnerships. In 2023, within a retail challenge environment, we grew our balance of share within our top retail partners and continued our track record of renewing key retailers with multi-year exclusive contracts. Also, our pursuit of new retail opportunities across regional and national brands is an important component of our strategy to capture more of our industry's $30 to $40 billion addressable market. We are focused on growth efforts across several other dimensions, including brand awareness and new customer acquisition through marketing, products boosting our direct consumer business, and strategic partnerships. E-commerce penetration remains a strength, with nearly three times the number of new partners added via our customizable integration process through Q3 this year compared to last. And the channel consistently contributes around 15% of total GMV. Under the enhanced pillar of our strategy, our initiatives are focused on improving customer experience and optimizing the sales funnel from awareness to purchase. We made progress on our 2023-2024 tech roadmap, which, as a reminder, is centered 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. As for the expand pillar, we are evolving and integrating the other products in our ecosystem to help empower our customers through their financial journey. During this challenging macro environment, we want to bring awareness to a larger breadth of potential customers that could benefit from the virtual lease to own payment option supplemented by the other products in our ecosystem, such as our second look product five, buy now, pay later option four, and credit builder loan, BUILD. The core of how we operate and grow remains in the execution of our mission to create a better today and unlock the possibilities of tomorrow through financial empowerment. Lastly, we look forward to further productivity gains and improvement to our customer experience through the application of generative AI led by our Prague Labs group. Turning to capital allocation, we acquired an additional 1 million shares of our common stock in Q3 at an average price of $34.85 per share, bringing our year-to-date purchases to 7.5% of our outstanding shares. Year-to-date, we have generated $292 million of cash flow from operations, closing the quarter with a cash balance of $295 million. Our capital allocation priorities remain unchanged, and we expect to fund growth, look for strategic M&A opportunities, and return excess cash to shareholders. Our strong results year-to-date are driven by the hard work and strategic initiatives put forth by our teams, and I would like to extend my thanks to our employees and partners for their efforts. With that, I'll turn the call over to our CFO, Brian Garner. Brian?