PROG Holdings, Inc.

Good day and thank you for standing by. Welcome to the Prague Holdings Third Quarter 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 this 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 of Investor Relations. Sir, please go ahead.

Thank you and good morning, everyone. Welcome to the Prague Holdings Third Quarter 2026 Earnings Call. Joining me this morning are Steve Michaels, Prague Holdings Chairman, 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 2026 full-year outlook and our outlook for the fourth quarter of 2026. 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 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 everyone taking the time to be with us today. I want to start with the quarter highlight. Frog Holdings delivered strong top-line growth, with every business in our ecosystem contributing. At the consolidated level, GMV grew 59% year-over-year, matching the pace we set in the second quarter. Revenue grew roughly 26%, with non-GAAP EPS of $1.06, up 21.8% year-over-year. all of those growth metrics include the contribution of our purchasing power business, which we acquired in January 2026. At Progressive Leasing, we grew GMV in the low single digits, even after tightening our decisioning posture, a sign of real underlying demand. Additionally, our gross lease asset balance, the leading indicator of future revenue, was higher year over year at quarter end. At four, GMV grew triple digits for its 12th consecutive quarter, and it did so profitably, with a quarter-over-quarter step-up in adjusted EBITDA margin. And at Purchasing Power, we delivered double-digit GMV growth. Producing this kind of top-line growth while deliberately tightening our decisioning is exactly what a diversified, disciplined platform is built to do. Taken together, that performance put our consolidated results within the outlook ranges we provided for the third quarter, with revenue and non-GAAP EPS landing near the midpoint. Adjusted EBITDA came in toward the lower end of its range. Drivers landing us at the lower end of that range were concentrated in leasing and largely reflect headwinds we expect to be temporary, as our portfolio quickly turns over following our recent tightening actions. As a reminder, we tightened our decisioning for the leasing business late in the second quarter and we implemented some additional tightening actions since our last earnings call as the pressures on our customer persisted and in pockets even intensified. The impact on adjusted EBITDA traces to two factors in our leasing portfolio. The first is a reflection of an improving customer profile. On our newer, post-tightening lease pools, Improved payment behavior resulted in more customers exercising their 90-day purchase option than we had expected, which compresses near-term yield. The second factor is on our older pre-tightening pools. Those customers have proven remarkably resilient, but a prolonged stretch of elevated inflation exacerbated by higher gas prices since March has worn on their day-to-day liquidity, which creates a headwind to portfolio yield. One framing point before I turn to the businesses. The customer pressure we are seeing is showing up differently across our three segments, and that dispersion is one of the benefits of the ecosystem we are building. It shows up in different ways and to different degrees across leasing, for, and purchasing power, each serving a distinct customer need at a distinct price point. Having a range of products that have the ability to respond differently to the same macro pressures is why the consolidated result held steady, even as one of the businesses, in this case leasing, worked through a headwind. Our ecosystem of offerings does two things for us. The first is resilience, which I just described. A range of products that respond differently to the same macro environment. The second and increasingly the more powerful one is growth. And it's where we believe our durable, long-term advantage lies. The same customer engaging with more than one of our products. The number of customers actively engaged with more than one of our products has grown since January. And these multi-product customers now represent a more meaningful percent of our total active base. We expect to compound this share over time and it matters more than the number suggests. Customers who use more than one Prague product tend to transact with us more frequently and stay with us longer. Every shopper we add to four, every client account we bring on through purchasing power, and every lease we originate widens the top of that funnel and creates another opportunity to serve the same customer across more of their financial life. That's the flywheel we've been building, and we are optimistic about the early momentum. The strength of that flywheel comes from each business that feeds it. So let me take you through them, starting with progressive leasing. Progressive leasing GMV grew low single digits year over year, with September being the strongest month of the quarter, a trajectory we like heading into the fourth quarter. As I mentioned, an important number is the gross lease asset balance, which turned positive year over year at quarter end for the first time since April 2025. for a business where revenue is a function of the size of the police book, that is the inflection we've been working toward, and it tells us the revenue comp is set to turn. Let me put that growth in context. We tightened our decisioning late in the second quarter and during the third quarter, and even so, leasing grew despite that pullback. Growing through tightening is exactly the kind of signal we want because it tells us the expansion is coming from wider distribution Deeper share with our retail partners and a real customer demand, not a relaxation of our standards. The proof is in our approval rates, which are down nearly 300 basis points year over year, both in the quarter and year to date. We are increasing share and growing the book while holding the line on who we approve. On portfolio performance, lease merchandise write-offs came in at 8.3% of progressive leasing revenue, a slight improvement versus last quarter. As we discussed in July, the second and third quarters are seasonally our two highest write-off periods, and with the GMV growth from the last two quarters, some elevation is expected. And that is how it played out. We will adjust as needed, and we believe we will land near the high end of our 6% to 8% targeted annual range. I also want to place today's leasing portfolio in the context of where it was a few years ago. Measured against the last time an inflation spike hit our customer, our leasing gross margin is up, on average, over 200 basis points. The model we are running today is structurally stronger than the one that navigated the last inflation shock. A durable, well-managed business inflecting back to growth, not a declining one. And we continue to invest in the customer experience to keep it that way. Those investments are already showing up in the numbers. In the quarter, we shortened the application process for returning customers by an average of three to four minutes while continuing to provide applicants with fulsome and transparent disclosures. And on the marketing front, by personalizing the language and messaging customers see, we lifted application submissions by double digits. Our direct-to-consumer and digital efforts across Progressive Leasing's Marketplace app and e-commerce were meaningful contributors supported by our personalized marketing. Year-over-year, Frog Marketplace GMV grew 85% in the third quarter and approximately 128% year-to-date, continuing to reinforce its role as a complementary channel that strengthens our retail ecosystem and expands customer engagement opportunities. Our e-commerce channel also gained ground, supported by an improved digital experience, reaching 26.4% of progressive leasing GMV in the quarter, up from 23% a year ago. Before I move on from progressive leasing, a brief word on business development. We feel good about our retail partner pipeline and the progress the team has made this year. We see near-term opportunity even with the window shortening in which decisions get made ahead of holiday readiness. I like how we are positioned and encouraged by where things stand. We will have more to share when it is appropriate. At four, we delivered the 12th consecutive quarter of triple-digit GMV growth at 103% and did so profitably. Revenue grew 113.8% year-over-year to $37 million. and it generated 11.4 million of adjusted EBITDA, a 30.6% margin that stepped up from the second quarter. The scale here is compounding fast. From under 15 million of total GMV in 2021, Ford is on track to grow roughly 100 fold in just five years. That growth is increasingly powered by returning customers who make up the large majority of Ford's orders while average order value rose over 10% year-over-year as shoppers bought across newly added categories. And we're pairing that loyalty with efficient, organic, and paid acquisition, reinforced by this year's investments and engagement, a catalog past 37 million items, and more flexible ways to pay. Importantly, F.O.R. is achieving this growth while responsibly underwriting applicants separately on each transaction. Four's customer engagement is showing up across the metrics that matter. Average purchase frequency held at roughly five transactions per quarter, and active shoppers grew roughly 68% year over year. Four plus subscribers are contributing approximately 80% of total GMV, a clear signal that customers are finding value in the offering. Four's take rate, which we define as revenue as a percentage of GMV over the trailing 12-month period, was 10.8% up from 10.7% in the third quarter of last year. 4 continues to sharpen its underwriting as well. Its Q3 provision as a percentage of GMV decreased approximately 100 basis points compared to the same period last year. This quarter, we put an enhanced underwriting model into production built on a deeper set of applicant attributes which in testing caught more potential credit loss without declining additional business. AI is also improving how FOR serves customers. FORBOT, FOR's AI support agent, now handles FOR plus cancellations and refunds end to end, which is our first support flow that issues refunds automatically within defined eligibility rules. In early September, 4BOT resolved approximately 90% of refund claims without human intervention. And our analysis shows that customers who contact, support, or file a claim keep ordering at the same or higher rates as those who never reach out, a sign that these interactions are building loyalty, not eroding it. Unit economics are healthy. The business is scaling rapidly and profitably, and 4 is increasingly a front door into the broader Prague ecosystem. who could not be more pleased with its growth or the quality of what's driving it. Purchasing power had a strong quarter, generating $161.2 million of GMV, which is a 12.3% growth compared to the same period last year. Adjusted EBITDA rose sequentially to $12.9 million, or 9.8% of revenue, which is a step up from the 8.1% achieved in the second quarter as it moves into its seasonally strongest period. Subsequent to quarter end, purchasing power signed a large new client with over 50,000 eligibles, which we expect to launch in Q1. And as a reminder, purchasing power signed a large 80,000 eligibles employer in July that we expect to launch in Q4. Purchasing power is performing as expected when we brought it into the portfolio, adding a resilient, recurring payment business that broadens our reach and deepens the ecosystem. Lastly, we are ahead of schedule in capturing the operational efficiencies we identified during the acquisition and on track with integration of systems and streamlining processes. Now I want to touch on capital allocation. During the quarter, we repurchased 885,000 shares for $36.7 million. We brought debt down again, sequentially, and we ended the quarter with a net leverage ratio of 1.5 times. Returning capital at this pace while continuing to fund growth and improve net leverage reflects both the strength of our balance sheet and our conviction in where this business is headed. Our capital allocation priorities remain unchanged. Reinvest in the business, pursue strategic M&A and return excess capital to shareholders through share repurchases and dividends. Brian will take you through our updated full year outlook in a moment. We have reduced our revenue and earnings outlook ranges to reflect the challenged consumer we saw this quarter, which we expect will continue through the balance of the year. But I want to put that in perspective because I think it is a very important point. The midpoint of our revised adjusted EBITDA outlook is now at the high end of the initial range we gave in February. When we set that original outlook, we did not anticipate the conflict in the Middle East or its effect on gas and other input prices for our consumers. Even so, after a year of real pressure on our consumer, we still expect to deliver the best case we laid out at the start of the year. That reflects this team's execution and the resilience of the platform we built. That's why I'm confident in where we're headed. and we are putting capital behind that confidence. This morning, we announced our intent to enter into a $100 million accelerated share repurchase program under which we expect to receive an initial delivery of approximately 2.7 million shares, which will be an immediate benefit to WASO and EPS. The final number of shares repurchased will be determined based on our volume weighted average share price over the course of the program. In connection with this expected ASR program, our board replenished our share repurchase program, bringing the total amount available for future repurchases to 500 million, giving us substantial capacity to keep returning capital to shareholders in the years ahead. Let me speak to why and why now, because the timing is deliberate. Two things give us both the room and the conviction to act. First, the balance sheet. having repaid $216 million of recourse debt since the purchasing power acquisition in January and having returned to within our targeted net leverage range, we have the flexibility to return meaningful capital without pulling back on our growth investments. Second, our conviction in this business. Progressive Leasing's portfolio is short in duration, which means it turns over quickly and gives us clear current visibility into how it is performing and the ability to adjust in real time. Nothing we have experienced in this environment dampens our optimism for the long-term prospects of that business. If anything, it reinforces that the model is working as intended. The fundamentals are strong, the model is proven and our ecosystem is contributing. Even as we take a more cautious near-term view on the macro and bring down our adjusted EBITDA range, Our belief in the long-term earnings power and cash flow generation of this business is unwavering. Committing to returning capital to shareholders at this scale is a clear indication of that confidence. We believe we remain on track to achieve the three-year compound annual growth targets we laid out at our investor day in March across all metrics. This accelerated share repurchase program is expected to be accretive to our 2027 earnings per share and we would not be acting at this scale if we were not confident in the earnings power of this business in 2027 and beyond. With that, I'll turn it over to Brian. Brian?