PROG Holdings, Inc.

Good day, and thank you for standing by. Welcome to Brock Holding's third quarter earnings conference call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, John Buck, please go ahead.

Thank you, and good morning everyone. welcome to the prog holdings third quarter 2024 earnings call joining me this morning are steve michaels prog 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 revised 2024 full-year outlook and our outlook for the fourth quarter of 2024, the health of our portfolio and our expectations for write-offs for our progressive leasing segment for the full year 2024, our expectations regarding GMV for the fourth quarter and full year 2024, and our capital allocation priorities, including our ability to continue returning capital to shareholders. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today, all of which are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. 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'd like to turn the call over to Steve Michaels, Prague Holdings President and Chief Executive Officer.

Steve? Thanks, John. Good morning, everyone, and thank you for joining us as we discuss our third quarter results, provide insights into Q4, and share updates to our full-year 2024 financial outlook. As announced earlier today, we delivered another great quarter, surpassing expectations for GMV growth and approximating the high end of our revenue, earnings, and non-GAAP diluted EPS outlook. Our Q3 results highlight the effectiveness of our strategy and the strong execution by our team. With a relentless focus on enhancing both customer and retailer experiences, we've successfully maintained top-line momentum and gained balance of share. Our direct consumer efforts continue to deepen customer engagement, fueling growth. Additionally, external factors, such as tighter approval rates from lenders higher up in the credit stack, also contributed to the Q3 GMV growth for the progressive leasing segment. I'm incredibly proud of our team for delivering consecutive quarters of accelerating GMV with progressive leasing's Q3 GMV growth coming in at 11.6%. Our strategic focus on the grow, enhance, and expand pillars is driving meaningful improvements across key performance metrics. This year-over-year growth has been fueled by higher application volume, improved customer conversion, and an increase in active doors and better productivity per door across both national and regional accounts. We are excited about what this return to growth means for our team, our retail partners, and our shareholders. In Q3, we achieved consolidated revenue of $606.1 million representing 4% growth compared to Q3 2023. Our consolidated adjusted EBITDA reached 63.5 million, resulting in a 10.5% margin driven by GMV growth and supported by stable portfolio performance and disciplined spending. Looking ahead, we expect this momentum to carry through the remainder of 2024. Our GMV outperformance throughout the year has led to a 3.8% increase in our gross leased asset or GLA balance as of the end of Q3 2024 compared to the same period last year, which is the key indicator of future revenues. For context, we started the year with a 5.2% year-over-year decline in GLA and we entered Q3 close to flat. This positive trend in our GLA balance positions us well for a successful 2025. In July, we shared that we expected our Q2 write-off rate of 7.7% to mark the peak of quarterly write-offs. And in Q3, write-offs remained at 7.7%, consistent with pre-pandemic Q3 2019 levels. Our dynamic decisioning posture, supported by a short four- to six-week feedback cycle, allows us to swiftly adjust to customer and portfolio health trends. Our proprietary machine learning decision models rapidly incorporate real-time information, enabling us to fine-tune our approval rates and amounts. While Brian will provide further details, I'm confident we are on track to maintain 2024 write-offs within our targeted annual range of 6 to 8 percent. As part of our focus on the grow, enhance, and expand strategy, we've made significant progress on our 2024 priorities. These efforts have driven our year-to-date GMV growth and will fuel our success moving forward. Execution in these areas is essential to achieving our financial targets for 2025 and beyond. Sustainable and profitable growth remains at the core of our three-pillared strategy. Under our grow pillar, I'm pleased to share that we signed a long-term exclusive partnership with American Signature Inc., a top 15 retailer in Furniture Today's top 100 list. further strengthening our regional market positioning alongside our national accounts. Our regional business delivered another impressive quarter of GMV growth in the low double digits. We're driving growth across several dimensions to include investing in existing partnerships, expanding through new partnerships, increasing brand awareness to acquire new customers, engaging customers through targeted marketing efforts, and strengthening our direct-to-consumer business and e-commerce penetration. Our investments in sales, marketing, and technology have delivered significant value to our retail partners and firmly position Progressive Leasing as a market leader. Key evidence of the value our retailers find in partnering with Progressive Leasing is their willingness to enter and renew long-term exclusive contracts with us that give us both the ability to focus on deepening our partnership and integrations and prioritizing our initiative roadmaps. At the end of Q3, over 75% of our progressive leasing GMV is under multi-year exclusive contracts, with approximately half of all GMV under contract into the 2030s. We take great pride in our track record of renewing and extending exclusive agreements with key retail partners, further solidifying our leadership in the industry. As part of our direct-to-consumer initiatives, the Prague Marketplace platform, which allows customers to shop anytime, anywhere through our mobile app, continued to gain significant traction in Q3. Year-to-date, the platform has delivered over 300% growth and is on track to exceed our 2024 GMV target to roughly double GMV year-over-year. I'm excited about this growth as the Prague Marketplace channel complements our retail partners by driving incremental traffic and sales for them, as well as GMV for progressive leasing. Simultaneously, direct consumer marketing efforts drove Prague-branded campaigns, taking advantage of seasonal opportunities like Amazon Prime Day, as well as launching multi-channel promotions coordinated with partner offers to drive additional traffic. Overall, as we execute on our sales, marketing, and product initiatives, our marketable database of highly engaged customers is growing. E-commerce remains a focus as we strive to meet customers wherever and however they choose to shop. The two custom e-commerce integrations completed in Q2 drove material growth, bringing e-commerce GMV to 16.6% of total progressive leasing GMV in Q3 2024, up from 14.4% in Q2 2024 and 14.8% in Q3 2023. Under the enhanced pillar, product and tech investments have improved customer experience and conversion rates. These advancements contributed to a 3.4% year-over-year increase in the total number of customers with active leases for our progressive leasing segment as of the end of Q3. We segment customer activity into three groups, new, repeat, and reactivated. For clarification, we define reactivated customers as those that last funded a lease more than 24 months ago. This segmentation allows us to tailor our marketing strategies to each group's unique needs and behaviors. For instance, new customers require more introductory information and incentives to try our product, while repeat customers benefit from personalized marketing as we gather deeper insights into their purchasing patterns. New and reactivated customers increased approximately 20% and 12% year-over-year respectively in Q3, while we maintained repeat customer contributions to GMV. Our ability to expand our customer base while retaining loyal repeat customers who deliver a higher lifetime value is a critical driver of our business. By focusing on growth across all three customer segments of new, repeat, and reactivated, we are working to capture a larger share of our underserved addressable market in a cost-effective manner. We are innovating with AI-driven solutions, rolling out enterprise-wide and consumer-facing AI tools that enhance both operational efficiency and customer satisfaction. We implemented an AI Assistant to enable employee self-service for all inquiries related to policies and benefits information. Additionally, we launched our first consumer-facing AI assistant pilot program designed to enhance customer satisfaction by providing immediate assistance, marking a key step in transforming our customer support experience. I want to take a moment to thank our entire team for their tremendous efforts in not only driving short-term results, but also embracing change to set the stage for our future through growth, maintaining a healthy portfolio, and remaining disciplined with spending. Our performance is a direct result of their hard work and dedication to our mission, creating a better today and unlocking the possibilities of tomorrow through financial empowerment. Given the performance and momentum we've seen this year, we're pleased to update our full-year 2024 outlook with both revenue and earnings now expected to exceed our prior expectations. This outperformance is being driven by increased GMV for our progressive leasing segment, reflecting our efforts to deepen existing retail partnerships, onboard new partners, enhance technology, attract new customers through targeted marketing, and expand product marketplace. For the fourth quarter, we expect GMV growth to be in the range of high single to low double digits. driven by the positive momentum we've observed while we monitor a dynamic consumer environment. So far in October, we're off to a strong start, though as with every year at this time, we still have in front of us the all-important holiday season where we have historically generated approximately 50% of the quarter's GMV in the five-week period spanning Black Friday to Christmas Eve. We remain focused on executing our strategy to carry this momentum into the end of the year and position ourselves for success in 2025. Finally, on the topic of capital allocation, our priorities remain unchanged, and we expect to continue to fund growth, look for strategic M&A opportunities, and return excess cash to shareholders through dividends and share repurchases. I'll now turn the call over to our CFO, Brian Garner, for more details on Q3 results and remainder of the year outlook. Brian?