PROG Holdings, Inc.

Standing by, welcome to the Prague Holdings Q2 2025 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 the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Baugh, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Prague Holdings second quarter 2025 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 revised 2025 full year outlook and our guidance for the third quarter of 2025, the health of our lease portfolio, and our capital allocation priorities. 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 that 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 would 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. Today, we will discuss our second quarter performance, update you on our business, and provide insights on our outlook for the remainder of 2025. We delivered revenue and earnings above the high end of our guidance, driven by effective portfolio management, continued strength in our pay-in-for, buy-now, pay-later platform for technologies, and disciplined cost control. Non-GAAP EPS of $1.02 significantly exceeded our outlook range of $0.75 to $0.85 per share. We are focused on improving results across the business as we lean into pipeline opportunities, expansion of our online platforms, and removing friction from customer touchpoints. Progressive leasing's year-over-year GMV performance was impacted in the period by two primary factors. the Big Lots bankruptcy from late 2024, which is approximately a $40 million GMV headwind this quarter, and our deliberate tightening actions in the second half of 2024 and early 2025, which impacted GMV to a similar degree year over year. Adjusting for these relatively discrete events, we are executing nicely with expansion of our balance of share within key retail partners and ramping new partners year over year. While the tightening actions have weighed on GMV, we've once again demonstrated our commitment and ability to deliver consistent portfolio performance within our targeted annual write-off range of 6% to 8%, a key guardrail for sustainable and profitable growth. These results demonstrate the strength of our retail partnerships, the effectiveness of our commercial execution, and the durability of our go-to-market model, despite the ongoing soft demand for leasing categories we serve. Consolidated revenue came in at $604.7 million, which was low single-digit growth year over year. This performance was led by another standout quarter from four technologies, which delivered over 200% revenue growth. Consolidated adjusted EBITDA was $73.5 million, and non-GAAP EPS was $1.02, both exceeding the high end of our outlook. Our lease portfolio once again exceeded expectations with strong performance. In Q2, write-offs came in at 7.5%, which is 20 basis points better than last year, reinforcing our ability to actively manage portfolio risk and deliver consistent performance even amid a dynamic consumer environment. This strength is the result of proactive decisioning adjustments made in late 24 and early 2025, which continue to drive favorable early-stage indicators. These actions reflect our disciplined, data-driven approach to portfolio optimization. With the portfolio performing well and early-stage indicators trending favorably, our decision science teams are identifying pockets of opportunity to deliver incremental GMV. We are committed to maintaining disciplined decisioning standards and expect write-offs to remain within our targeted annual range of 6% to 8%. We generated meaningful momentum in progressive leasing during the quarter, supported by strong execution across our direct-to-consumer initiatives. These efforts, such as personalized lifecycle campaigns and targeted digital outreach, are driving engagement across new, repeat, and reactivated customer segments. Additionally, we are scaling our Prague Marketplace platform, delivering double-digit GMV growth and staying on track to surpass $75 million in GMV for 2025, reinforcing its role as a complementary channel that enhances our retail ecosystem and expands customer engagement opportunities. Efforts to increase our e-commerce business show progress. In Q2, e-commerce as a percentage of progressive leasing GMV was at an all-time high, representing approximately 21% of total leasing GMV. These results demonstrate our momentum under the GROW strategic pillar. We are growing market share with existing retail partners by executing jointly on key initiatives. Our marketing investments ranging from enhanced SEO to personalized data-driven campaigns are driving measurable gains in both customer acquisition and retention. Under our enhanced pillar, we're advancing technology initiatives that elevate the customer and retailer experience. We are improving top of the funnel web and mobile functionality for customers, streamlining the application process, and introducing AI-driven tools to improve customer engagement and reduce friction. These investments will help us personalize, segment, and nurture with more precision. Our Prague Labs team is leveraging generative AI to boost employee productivity and enhance customer tools, including AI chatbots that provide real-time support, personalized recommendations, and faster resolution of common service inquiries, ultimately improving the overall customer experience. In Q2, we expanded our rollout of our new consumer chat feature to more progressive leasing customers after the success of our pilot from Q1. And now have consumer chat capabilities across leasing, for, and money app, our cash advance solution. This digital servicing initiative is already showing promising results, helping us better engage with customers. We've seen a lift in application starts and completions through AI assisted interactions. along with a reduction in call center volumes, indicators that these new AI tools have the potential to create value for both our customers and our business. Looking ahead, we're preparing to expand the chat platform to include several self-service capabilities. These enhancements are designed to further improve the experience, reduce friction in our servicing model, and ultimately shift more volume into lower cost digital channels. Our expand pillar is building real momentum, and I'm particularly excited about the progress we're seeing from four technologies. Four delivered its seventh consecutive quarter of triple digit GMV and revenue growth, continuing a positive trajectory that reflects the strength of our strategy and execution. We acquired four technologies in 2021 during a period of rapid expansion in the BNPL sector, though much of that industry growth lacked a clear path to profitability. From the outset, our vision was to scale the business differently by integrating it into our broader ecosystem and aligning it with our mission to deliver flexible, empowering financial solutions for consumers in a profitable manner. Over the past several years, we've remained focused on building forward deliberately, prioritizing sustainable unit economics and responsible growth. I'm proud to share that in Q1 of 2025, we achieved profitability in the four business. And with another profitable performance in Q2, we're now accelerating our momentum. In the second quarter, four delivered 167% GMV growth year over year, reflecting demand for our pay and for BNPL product and increasing relevance with both consumers and merchants. Revenue grew over 200%, supported by a trailing 12-month take rate of approximately 10%, defined as revenue generated as a percentage of GMV over the 12-month period, which is a strong indicator of monetization efficiency as we scale the platform. From a customer lens, Fours engagement trends are strong. Average purchase frequency is steady year-over-year, and for the last four quarters, it was approximately five times per quarter, coupled with over 130% growth in active shoppers year over year. We're seeing growth in active shoppers and unique retailers, which is expanding the addressable opportunity and contributing to GMV. Our 4 Plus subscription service, launched in early 2024, has seen robust adoption, with more than 85% of GMV now driven by active subscribers. These results reinforce Ford's growing role in our ecosystem, not just as a standalone growth engine, but as a compelling customer acquisition channel and catalyst for cross-sell into progressive leasing, driving deeper engagement and increasing customer lifetime value across the Prague platform. I want to thank our team for their focused execution and disciplined approach, which advances our growth strategy while supporting margin expansion. As we look ahead, we are committed to enhancing user experience on the floor platform and sustaining momentum through both direct initiatives and its strategic role within the broader Prague ecosystem. Also within our expand pillar, I'm pleased to share that MoneyApp, our cash advanced solution, is gaining traction. The product is now delivering consistent unit level profitability, an important milestone as we scale this offering thoughtfully. We are focused on executing our strategy with discipline and intention. While the macro environment presents headwinds, particularly as consumers remain cautious around large discretionary purchases, we factored these dynamics into our outlook for the balance of the year, which Brian will speak to in more detail. Our guidance assumes ongoing softness and demand across key leaseable categories, along with no changes to our current decisioning posture that has shaped much of the first half. We've also accounted for higher 90-day purchase activity compared to 2024 and stable portfolio performance within our 6% to 8% write-off range. Despite the unpredictable environment, we are confident in our ability to continue gaining share and driving sustainable profitable growth powered by our multi-product ecosystem, disciplined portfolio performance, and scaled omnichannel leasing platform. Our ability to consistently execute through volatility is a competitive strength and a driver of long-term shareholder value. Our capital allocation priorities are unchanged. We are reinvesting in high-impact growth initiatives, exploring strategic M&A opportunities, and returning excess capital to shareholders through a balanced approach of dividends and share repurchases. Our businesses generate meaningful free cash flow providing us with the flexibility to meet our priorities. With that, I'll turn it over to Brian for a deeper look at our Q2 results and updated 2025 outlook.