Q3 2023 PROG Holdings Inc Earnings Call

[music].

Okay.

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 Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your phone.

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Please be advised that today's conference is being recorded and would now like to handle conference over to your speaker today Ms.

Mr. John Baugh.

<unk> 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 Public Holdings, President and Chief Executive Officer, and Bryan Garner, our Chief Financial Officer.

Many of you have already seen a copy of our earnings release issued this morning, which.

Which is available on our Investor Relations website, Investor Dot Prague Holdings Dot com.

During this call certain statements, we make will be forward looking including comments regarding <unk> performance.

And lease merchandise write offs in future periods.

<unk> demand.

In the retail environment going forward.

Level of 90 day buyouts in future periods.

<unk> 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 to 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 32023.

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.

And 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.

To assist them in understanding the company's ongoing operational performance.

With that I would like to turn the call over to Steve Michaels product 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 trading 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 as evidenced by our year over year 200 basis point gross margin expansion improve.

Improve write offs of six 6%.

As compared to seven 2% in Q3 last year.

Operator: Good day and thank you for standing by.

And adjusted EBITDA growth of $6 8 million or 10, 4%, resulting in a 12, 3% margin.

Operator: Welcome to the PROG 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.

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 and our updated outlook for 2023.

John Baugh: Please be a survivor today's conference is being recorded and we will 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.

Progressive Leasing's GMB decline of six 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.

Steve Michaels: Welcome to the PROG Holdings Q3rd quarter 2023 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 GMB performance and lease merchandise write-offs, future periods, consumer demand, and the retail environment going forward, the level of 90 day buyouts and future periods, growth and EBITDA margins, our capital allocation priorities, our updated 2023 full year outlook, and our outlook for the fourth quarter of 2023.

We are seeing the rate of inflation is healthy.

Healthy labor markets and GDP forecasts 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.

In recessionary concerns going into 2024.

We believe our business model has a degree of insulation from a typical recession during which can 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 <unk>.

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.

Steve Michaels: 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 statement. There are additional risks that can be found in our annual report on Form 10K for the year ended December 31st, 2022, as well as our quarterly report on Form 10Q for the quarter-ended September 30th, 2023, which we encourage you to read.

Our strategic move to tightened 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 leasehold products offered by our retail partners.

We are skillfully navigated these demand headwinds through strong operational execution balancing <unk> 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.

Steve Michaels: 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-gap measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-gap 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.

We anticipate our Q4 <unk> year over year comparisons to be roughly similar to Q3.

Although the all important holiday season, and its material impact on our quarterly <unk> 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 and our thoughts on the macro environment.

<unk> for leasable categories is down year over year and it is 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 our anticipated tighter conditions in the credit stack above us.

And expanding our retailer base.

Steve Michaels: With that, I would like to turn the call over to Steve Michaels, PROG 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 in 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 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 grille pillar emphasizes our dedication to business development efforts across new and existing retail partnerships.

Steve Michaels: As you might recall, in the first half of the year, our earnings were lifted by the trend of fewer customers choosing 90-day buy-out options along with robust portfolio performance. Strong customer payment behavior trends continued in Q3 slightly offset by 90-day buy-outs trending higher and back-to-prepandemic 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.

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 multiyear 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 industries, 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.

Alex boosting our direct to consumer business and strategic partnerships.

Steve Michaels: The strong customer payment behavior is evidenced by our year-to-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-gap diluted EPS grew 32.4% year-to-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.

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 GMB.

Under the enhanced pillar of our strategy our initiatives are focused on improving customer experience and optimizing our sales funnel from awareness to purchase.

We made progress on our 2023 2020 for Tech roadmap, which as a reminder is centered on three core areas.

Improving our customer centric flexible lease platform.

Steve Michaels: 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-to-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.

Providing self service tools to enable a superior retailer experience, while helping the customer to 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 for.

And credit builder loan filled.

Steve Michaels: We believe our business model has a degree of installation 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 vibe. I'd like to highlight the resilience of our customers through uncertain macro conditions. Evidence by lower than anticipated and lower than historical trends of delinquent accounts moving to charge us.

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 improvements to our customer experience through the application of generative AI led by our <unk> 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.

Steve Michaels: Our strategic move to tighten decision in mid 2022 and our active management of our portfolio since then have significantly benefited performance. Separately, strain on discretionary income says dampened demand for many of the leaseable 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 retail or traffic conversion as we are expecting traffic to be down year over year.

Bringing our year to date purchases to seven 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.

Steve Michaels: We anticipate our Q4 GMV year-to-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 biodeactivity. 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 as our view, that trend will likely continue into 2024.

With that I'll turn the call over to our CFO Bryan Garner.

Brian.

Thanks, Steve let.

Let me start with a quick summary of our Q3 financial highlights.

For the third quarter in a row, we exceeded earnings expectations, Despite a lackluster demand environment.

Our active management of our lease portfolio continues to deliver strong returns and customer payment performance came in meaningfully better than we projected in the Q3 outlook we provided in July.

Our management of portfolio performance and SG&A were the key drivers of our strong results for the period.

With progressive we see adjusted EBITDA margins coming in slightly above the high end of our targeted annual range.

Steve Michaels: We intend to partially offset these headwinds through achieving deeper integrations with existing retail partners, capitalizing on anticipated tighter conditions and the credits back above us. And expanding our retailer base. As we conclude 2023, a high single digit negative year-to-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 flows.

Of 11% to 13%.

During the quarter, we saw resiliency within our delinquent accounts, that's a smaller percentage are moving to charge offs compared to historical trends.

Revenue from customers choosing to exercise their 90 day purchase option in the quarter trended back towards normalized levels, which we anticipated in our July outlook.

Q3, consolidated revenues declined six 9% year over year as our gross leased asset balance was down 10, 7% to start the quarter.

We finished Q3 down nine 6% as the retail environment for durable consumer goods remains challenging.

Steve Michaels: Sustainable growth remains a key focus within our three pillars 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 dollar addressable mark.

Nonetheless, our revenue performance exceeded the top end of our outlook.

As the customer payment stream exceeded our expectations.

Consolidated adjusted EBITDA increased by 10, 4% to $71 7 million from $65 million in the year ago period.

We delivered margin expansion through portfolio management.

non-GAAP diluted EPS increased to <unk> 90 per share growing 32, 4% from 68 per share in Q3 of 2022.

For a progressive leasing segment <unk>.

<unk> declined six 5% from the prior year period, an improvement from the 14, 7% year over year decline, we posted last quarter.

Steve Michaels: 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 percent of total GNV. Under the enhanced bill of our strategy, our initiatives are focused on improving customer experience and optimizing the sales funnel from awareness to purchase.

As we fully lap the tightening decisioning in late Q2 2022.

While we saw <unk> softness across most categories as broader retail trends showed double digit declines in appliances furniture and electronics during the period.

We are confident that our performance represents an increase on average in our balance of share of our top five retailers results and our leasable categories.

Revenue within the segment declined 7%, which was primarily influenced by the lower gross leased asset balance throughout the third quarter, partially offset by strong customer payment behavior.

Steve Michaels: 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.

Progressive weakness gross margin was better than expected coming in at 32, 3% versus 33% last year, primarily driven by strong portfolio performance.

Our write offs were six 6%.

It was down from seven 2% last year.

Based upon current trends, we expect our write offs for the year and well within our targeted 6% to 8% annual range.

Progressive weakness SG&A expenses were 13, 7% of revenue versus 12, 4% in the prior year.

Steve Michaels: 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 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.

We continue to invest in areas of facilitate our ability to scale and drive future growth.

However, we reduced our spend compared to the level, we can incorporate into our Q3 outlook.

As we aligned our spend levels with the current demand environment.

Adjusted EBITDA from the Progressive leasing segment was $74 8 million compared to $68 4 million in the same period of last year and margins of 13, 3% improved 200 basis points at the high end of our targeted annual range of 11% and 13%.

Pivoting to consolidated results.

Q3 revenues for Prague Holdings were $582 9 million compared to $625 8 million in the year ago period.

Steve Michaels: 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 core with a cash balance of 295 million. Our capital allocation priorities remain unchanged, and we expect the fund growth, look for strategic M&A opportunities, and return access cash to shareholders.

A six 9% decrease.

Adjusted EBITDA was $71 7 million or 12, 3% of revenues compared to $65 million or 10, 4% last year.

Year to date, we have generated $292 $5 million of cash from operations.

Which is net of a working capital needed to fund GMB.

We still anticipate a use of cash in Q4 as is typical.

With the seasonal holiday boost the GMB.

Our Q3 GAAP diluted EPS was <unk> 76.

EPS came in at 90.

Steve Michaels: Our strong result 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.

We had $600 million of gross debt.

And $294 8 million of cash at the end of the third quarter with a net leverage ratio of <unk> 98 times trailing 12 months adjusted EBITDA.

Brian Garner: With that, I'll turn the call over to our CFO, Brian Garner. Brian, thanks, Steve. Let me start with a quick summary of our Q3 financial highlights. For the third quarter in the row, we exceeded Ernie's expectations to spy a lackluster-demanded[inaudible] Our active management of our lease portfolio continues to deliver strong returns, and customer payment performance came in meaningfully better than we projected in the Q3 outlook we provided in July. Our management of portfolio performance in SGA, where the key drivers are our strong results for the period.

We remain undrawn on our $350 million revolver at quarter end.

During the quarter, we repurchased 1 million shares of common stock at an average price of $34 85 per share.

At the end of Q3, we had $229 million of remaining authorization under our previously approved $1 billion share repurchase program.

Finally, with respect to our Q4 outlook.

We are encouraged by our strong portfolio results and taking a disciplined approach to spending in light of our current challenging demand environment.

Brian Garner: With progressive lease use of just EBITL margins coming to slightly above the high end of our targeted annual range of 11 to 13%. During the quarter, we saw resiliency within our delinquent accounts as a smaller percentage are moving to charge off compared to historical trends. Revenue from customers choosing to exercise their 90-day purchase option in the quarter trended back towards normalized levels, which we anticipated in our July outlook. Q3 can solidate a revenues decline 6.9% year-over-year as our gross lease asset balance was down 10.7% to start the quarter and finish Q3 down 9.6% as the retail environment for durable consumer goods remains challenging.

While we expect strong gross margins and EBITDA margins to continue into Q4.

A smaller portfolio size and challenging <unk> environment will put pressure on revenues as we exit the year.

We anticipate ending the year with a gross leased asset bounced down high single digits.

While we are not yet providing detailed commentary on 2024.

The year on decline in lease portfolio size will be the starting point for 2020 for revenues.

Putting pressure predominantly on the first half of 2024.

We will actively manage the factors within our control to optimize our internal operations, where possible and maximize portfolio returns while pursuing opportunities for growth.

Brian Garner: Nonetheless, our revenue performance exceeded the top end of our outlook as the customer payment strength exceeded our expectations. Consolidated adjust EBITL increased by 10.4% to 71.7 million from 65 million in the year-go period as we delivered margin expansion through portfolio management. Non-gap diluted EPS increased to 90 cents per share, growing 32.4% from 68 cents per share in Q3 of 2022. For our progressive lease use segment, GNV declined 6.5% from the prior year period and improvement from the 14.7% year-over-year decline with posted last quarter as we fully laughed at Titan decisioning in late Q2 2022.

For Q4, we expect consolidated revenue in the range of 549 million to $569 million consolidated adjusted EBITDA in the range of 58 million to $63 million.

And non-GAAP diluted EPS in the range of 61 to 71.

In closing I want to thank the team for its hard work this past quarter, which yielded very strong results in the face of a difficult environment.

I will now turn the call back over to the operator for questions operator.

Thank you.

As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.

Brian Garner: While we saw GNV softness across most categories, as broader retail trends showed double-digit declines and appliances, furniture and electronics during the period, we are confident that our performance represents an increase on average in our balance of share of our top five retailers' results in our leaseable categories. Revenue within the segment acquires 7%, which was primarily influenced by the lower-greed gross lease asset balance throughout the third quarter, partially offset by strong customer payment behavior.

Standby as we compile the Q&A roster.

Okay.

One moment please for our first question.

Okay.

Our first question will come from Kyle Joseph of Jefferies. Your line is open.

Hey, good morning, guys, congrats on navigating a difficult environment.

In terms of <unk> in the quarter can you give us a sense for sort of the cadence it really snapped back towards kind of that down mid single digits in July or did it gradually kind of build back towards that level.

Brian Garner: For rest of lease use gross margins better than expected, coming into 32.3% versus 30.3% last year, primarily driven by strong portfolio performance. Our ride-offs were 6.6%, which was down from 7.2% last year. Based upon current trends, we expect our ride-offs for the year to end well within our target of 68% annual range. For rest of lease use SGNA expenses were 13.7% of revenue versus 12.4% in the prior year. We continued to invest in areas that facilitate our ability to scale and drive future growth.

Yeah. Thanks, Scott good morning.

As we talked about from a lapping the decisioning that we.

<unk> tightened in.

In June of 'twenty two.

It was a little bit more of a progression.

Because the way we look at Decisioning, a few different ways and approval rates I should be more specific a few different ways and kind of a trailing four week average is probably the best way to look at it because of some of the lags in <unk>.

Conversion and funding from an approved application.

So it took a little while in July.

And but we did see those those approval rates kind of get on par and flip back over kind of in early August.

Brian Garner: However, we reduced our spend compared to the level we had incorporated in our Q3 outlook as we aligned our spend levels with the current demand environment. Amendment. Adjusted EBIDA from the progressive leasing segment was $74.8 million compared to $68.4 million in the same period of last year, the margins of 13.3% improved 200 basis points at the high end of our targeted range of 11.13%. Pivoting to consolidate results, Q3 revenues for PROG Holdings were $582.9 million compared to $625.8 million in the year ago period at $6.9% decrease.

But.

So we got into that mid single digit range for most of the quarter, Although I will say that.

Based on all the retail reports on the traffic reports.

We haven't seen a lot of the retailers reporting their results yet the publicly available ones anyways, but.

The quarter seemed to soften a little bit as the quarter went on so.

Our mid single digit.

Negative <unk> was was consistent with what we were expecting but we didn't see any material improvement like.

From month to month to month.

Within the within our retail partners.

Brian Garner: Adjusted EBIDA was $71.7 million or $12.3% of revenues compared to $65 million or $10.4% last year. Year-to-date, we have generated $292.5 million of cash from operations which is net of the working capital needed to fund GMV. We still anticipate a use of cash and Q4 as is typical with the seasonal holiday boost of GMV. Our Q3 gap deleted EPS was $76.7 EPS came in at $90. We had $600 million of growth debt and $294.8 million of cash at the end of quarter with a net leverage ratio of .98 times trelline 12 months adjusted EBIDA.

Got it and then just wanted one follow up for me just wanted to touch on the health of the underlying consumer.

Frankly, it sounds like the consumer is getting a little bit better off in terms of the team and normalization of 90 day buyouts ongoing.

Strengthen.

And payment activity and frankly, I think typically losses go up between the second and the third quarter unless I mean over the last four years, it really screwed up seasonality.

But just kind of your thoughts on on the underlying consumer.

If that's something you bake into the potential resumption of demand.

Yes, it's been an interesting year in that regard I mean, after a pretty stressful 2022, which is well documented the consumer has been really resilient this year.

Brian Garner: We remain under on our $350 million revolver at quarter end. During the quarter, we were purchased 1 million shares of common stock at an average price of $34.85 per share. At the end of Q3, we had $229 million of remaining authorization under a previously approved $1 billion share reports program. Finally, with respect to our Q4 outlook, we incurred by our strong portfolio results and taken a discipline approach to spending in light of our current challenging demand environment.

Portfolio performance has been strong.

And we obviously improved the quality of the portfolio through our decisioning posture, but but the customer has performed well.

And you mentioned 90 day buyouts. They were historically low they are starting to trend back up a little bit which could be.

Portend, the fact that they've got a little bit more.

A little bit more cash or liquidity interesting dynamic I think we mentioned in the prepared remarks is that we are seeing customers.

Customers go delinquent.

But the behavior within those delinquent buckets has changed a little bit to where theyre not just.

Brian Garner: While we expect strong growth margins and EBIDA margins to continue into Q4, a smaller portfolio size and challenging GMV environment will put pressure on revenues as we edge of the year. We anticipate ending the year with a gross least asset bounce down high single digits. While we are not yet providing detailed commentary on 2024, the year on decline in least portfolio size will be the starting point for 2024 revenues putting pressure predominantly on the first half of 2024.

Based on historical patterns rolling through the buckets to charge offs. They may camp out in the delinquent bucket for a little while and that's fine for us because as long as we're communicating with them. We're happy to work out a plan or a work out something for them to have a positive outcome. So that's been that's been a positive result.

Ryan I have sat here on these calls and talked about we're not counting on goldilocks lasting forever.

And it's certainly persisted longer than we thought but.

The low charge offs are positive.

Brian Garner: We will actively manage the factors within our control to optimize our internal operations where possible and maximize portfolio returns while pursuing opportunities for growth. For Q4, we expect consolidated revenue in the range of $549 million to $569 million. If consolidated, adjust EBIDA in the range of $58 million to $63 million and non-gap diluted EPS in the range of $61 to $71.

But the really Goldilocks was described as the low 90 day buyout activity and low charge offs and the 90 day by activity is trending back up so I would just say I'm not sure if theyre getting stronger, but theres certainly been resilient all year.

There is a lot of.

Headwinds out there and muddled macro data.

We're certainly watching the student loan stuff I think it's too early to tell.

What the impact of that will be and how it will impact performance.

No.

Brian Garner: In closing, I want to thank the team for its hard work this past quarter, which yielded very strong results in the face of a difficult environment.

As always we have our.

Our hands firmly on the wheel as it relates to the portfolio and.

And our decisioning posture, but but right now.

Operator: I will now turn the call back over to the operator for questions. Operator? Thank you. As a reminder to ask a question, please press star 111 on your phone and wait for your name to be announced. To control your question, please press star 111 again. Stand by as the compile of the Q&A roster. One moment please for our first question.

Certainly pleased with the performance of the portfolio and the resilience of the consumer.

Got it very helpful. Thanks for answering my questions.

You got it thank you.

Thank you.

One moment please for <unk>.

Question.

And our next question will come from Brad Thomas of Keybanc capital market. Your line is open.

Kyle Joseph: Our first question will come from Kyle Joseph of Jeffries. Your line is open. Hey, good morning, guys. Congrats on navigating a difficult environment. In terms of GMB and the quarter, can you give a sense for the cadence to really snap back towards kind of that down mid-single digits in July or did it gradually kind of build back towards that level? Yeah, thanks, Kyle. Good morning. As we talked about from a lapping the decisioning that we tightened in June of 22, it was a little bit more of a progression because the way we look at decisioning a few different ways and approval rates, I should be more specific a few different ways and kind of a trailing four week average is probably the best way to look at it because of some of the lags and conversion and funding from an approved application.

Good morning, Steve Brown.

Brian and John.

My first question was just can you talk a little bit of that.

Door counts and we are seeing in terms of the cadence of doors and how things are going as you work with some of your current retail partners on some of the e-commerce rollout for them.

Kyle Joseph: So it took a little while in July, and but we did see those approval rates kind of get on par and flip back over kind of in early August. But so we got into that mid-single digit range for most of the quarter, although I will say that based on all the retail reports and the traffic reports and we haven't seen a lot of the retailers reporting their results yet, the publicly available ones anyways, but the quarter seemed to soften a little bit as the quarter went on. So our mid-single digit negative GMV was consistently what we were expecting but we didn't see any material improvement like from month to month to month within our retail partners. Got it.

I'll start and then Brian can give the door count numbers I mean, we.

We continue to make a lot of progress on E com.

Talked about our.

Plug ins and our integration lists.

Our Rollouts, if you will and we're having a lot of luck there.

We're actually seeing some nice momentum.

And even prioritization I would say from some of our larger retailer partners that we've had for a while that we don't have transactional E com with yet and so some of our product innovations have move the needle very more quickly on that and then really partnering well with the with the larger enterprise customers too.

Partners too.

To get lit up in E. Com has been nice now as we sit here today.

Depending on the specific retailer, we're right up against the code freeze for holiday season. So.

Not a lot is going to happen between now and the holidays in that regard, but it will those deeper integrations will certainly serve us well in the future and we look forward to.

Having.

The ability to be transactional wherever the customer wants to meet us.

In our view requires a really nice omnichannel experience, which is we're making a lot of progress on.

I'll turn it over Brian on the door stuff, yes, Brad.

The doors, we're right around 19500, so that's <unk>.

Kyle Joseph: And then just one follow-up for me, so I want to touch on the health of the underlying consumer. Frankly, it sounds like the consumer is getting a little bit better off in terms of between a normalization of 90GBI out ongoing strength and in payment activity and frankly, I think typically losses go up between a second and a third quarter unless the last four years have really skewed up seasonality. But just kind of yeah, your thoughts on the underlying consumer and if that's something you bake into the potential resumption of demand.

Approximately 2% decline from a year over year perspective, I think the only color that.

As we've stated before is because we have a meaningful level of <unk> coming through e-commerce stores and that tends to skew that number a bit so trading.

Trading down slightly.

I think thats consistent with Steve's remarks around the foot traffic in retail more broadly being pretty challenged during the period.

Okay. That's helpful. And then obviously we know this is a tough environment for the end market for many of our retail partners.

Can you talk a little bit about if you end up with a retailer that closes the door.

Kyle Joseph: Yeah, it's been an interesting year in that regard. I mean, after a pretty stressful 2022, which is well documented, the consumer has been really resilient this year. Our portfolio performance has been strong and we obviously improved the quality of the portfolio through our decisioning posture, but the customer has performed well, and you mentioned that they buy out. They were historically low. They starting to trend back up a little bit, which could be a, you know, port 10, the fact that they've got a little bit more, a little bit more cash or liquidity.

It goes out of business, what levers you were able to pull to try to keep that customer within the progressive system.

Yes, I mean, it's something certainly that has evolved over over time and our marketing chops. If you will have really gotten a lot better. So we've got a high.

Incidence of repeat business.

And so and we communicate with our with our customers fairly frequently through nurture campaigns and other.

Other marketing campaigns so.

We know what they leased last time, and we hope we hope to provide some insights as to what they might like the next time and so to the extent that.

Kyle Joseph: Interesting dynamic that I think we mentioned in the prepared remarks is that we are seeing customers go delinquent. But the behavior within those delinquent buckets has changed a little bit to where they're not just. Based on historical patterns, rolling through the buckets to charge off, they may camp out in the delinquent bucket for a little while. And that's fine for us, because as long as we're communicating with them, we're happy to work out a plan or work out something for them to have a positive outcome.

A door ceases to exist, we have certainly the ability to.

Drive that customer back to a different door within the same environment or.

At the extreme if a if a.

Retailers ceases to exist that we could.

Ryan fulfill that need in a retailer that has similar products. So.

<unk>.

It certainly is.

Kyle Joseph: So that's been, that's been a positive result. Brian and I have sat here on these calls and talked about we're not counting on Goldilocks lasting forever. And it's certainly persisted longer than we thought, but the low charge offs are positive. But the really Goldilocks was described as the low 90 day by out activity and low charge offs and a 90 by activity is trending back up. So I would just say I'm not sure if they're getting stronger, but there's certainly been resilient all year.

We are we have the ability to to manage and direct to that customer not perfectly it's not a one for one of course, but we feel good about our ability to keep.

Keep them in the Prague ecosystem.

Great. Thank you so much.

Thank you.

One moment please for our next question.

Okay.

The next question will come from Jason Haas of Bank of America. Your line is okay.

Kyle Joseph: There's a lot of headwinds out there and muddled macro data. We're certainly watching the student loan stuff. I think it's too early to tell what the impact of that will be and how it will impact performance. So as always, we have our hands firmly on the wheel as it relates to the portfolio and in our decision posture, but right now, you know, certainly please with the performance of the portfolio and the resilience of the consumer. God, very helpful. Thanks for answering my questions. Thank you.

Hey, good morning, and thanks for taking my questions. It's good to see that the progressive EBITDA margin. It looks like it's going to be above 13% for the year and I know the long term targeted an 11% to 13%. So im curious if thats.

You could be above that 13% above that high end of the range going forward or do you alluded to there could be revenue pressure on revenue next year, just given the way the groceries to asset balance is going to end. This year. So just curious how you're thinking about I know, it's early but how do you think that.

That margin target for next year and beyond.

Yes.

Yes, Jason I think I think more broadly we are holding to this this 11% to 13% range I think thats I think.

Brad Thomas: One moment, please for our next question. And our next question will come from Brad Thomas of Keybank Capital Markets. Your line is open.

That's a good range for the progressive leasing segment, the tailwind that we've seen this year to Steve's point about the goldilocks scenario.

I have certainly played their way out in an EBITA margins. The FERC <unk> three that we saw this quarter and the and the trend that we're on for the for the year.

Steve Michaels: Good morning, Steve, Brian and John. My first question was just if you talk a little bit about door counts and we're seeing in terms of the cadence of doors and how things are going as you work with some of your current retail partners on some of the e-commerce rollouts for them. I'll start and then Brian can give the door count numbers. I mean, we continue to make a lot of progress on e-commerce.

Certainly.

Over earning what we typically would expect now I think the I think the state of the consumer is anyone's guess about the in terms of the long term, but I think we're cautiously optimistic about what we're seeing in terms of payment behavior and the resiliency that we're seeing with even our delinquent accounts like Steve said, we're seeing a higher yield.

<unk>.

In the portfolio, that's delinquent than we typically had seen so.

Steve Michaels: We talked about our plugins and our integration list rollouts, if you will, and we're having a lot of luck there. We're actually seeing some nice momentum and even prioritization, I would say, from some of our larger retailer partners that we've had for a while that we don't have transactional e-com with yet. And so some of our product innovations have moved the needle very more quickly on that and then really partnering well with the larger enterprise customers to our partners to get lit up in e-com has been nice.

Going into 2024.

My without getting too specific I would expect it maybe to.

It's a pullback more comfortably within that 11% to 13% range versus being over the high end of it. So I do expect some some some correction there, but then again.

Surprised at how long.

<unk>.

This goldilocks scenario has persisted to date. So that's the commentary I would give as we as we enter 2024.

Got it that's helpful and then as a follow up have you seen any impact from the cyber security incident that you had or is it sort of in the case that there hasn't been any any any impact on the business from that.

Steve Michaels: Now, as we sit here today, we're, you know, depending on the specific retailer, we're right up against the code freeze for holiday season. So not a lot is going to happen between now and in the holidays in that regard, but it will those deeper integrations will certainly serve us well in the future. And we look forward to having. The ability to be transactional wherever the customer wants to meet us and that in our view requires a really nice omnichannel experience, which is we're making a lot of progress on.

Yeah, Jason obviously, we can't give too much more to more more color there and when we file the Q youll see not a whole lot of different.

Disclosures, but.

Internal teams responded quickly.

Engage leading third party experts and the loss of investigation I notified law enforcement and there were no major operational impacts to progressive leasing and the other subsidiaries werent impacted.

Steve Michaels: So I'll turn it right on the door stuff. Yeah, Brad, the doors were right around 90,500 so that's approximately 2% decline from a year of a year perspective. I think the only color that I'd give as we've stated before is, you know, actually have a meaningful level of GMV coming through e-commerce doors and that tends to dispute that number a bit. So I'm trying to bounce slightly. And I think that's consistent with what's these remarks around the foot traffic and retail more broadly, being pretty challenged during the period. Like, that's helpful and and then obviously we know this is a tough environment for the end market for many years retail partners.

The investigation remains ongoing.

But as you can see from the tables that we provided in the release.

The incident does not have a material impact on the third quarter results and so but we'll continue to update you as we learn new information.

Got it that's helpful. Thank you.

Thank you.

Yes.

Again, one moment for our next question.

And our next question will come from Anthony <unk> of loop capital markets. Your line is open.

Good morning, and thank you so much for taking my question.

You had a really nice sequential improvement in <unk> between the second and third quarter. I guess my first question is what are your sort.

Steve Michaels: Can you talk a little bit about if you end up with a retailer that closes the door or goes out of business, what levers you're able to pull to try to keep that customer within the progressive system. Yeah, I mean, there's something certainly that has evolved over over time and our marketing chops, if you will, have really gotten a lot better. So we've got a high instance of repeat business. And so and we communicate with our with our customers fairly frequently through nurture campaigns and other, you know, other marketing campaigns.

Mike high level <unk> expectations.

For the fourth quarter.

Particularly yes, just what are your expectations for the fourth quarter.

Yes Anthony.

We mentioned that we expect Q4 to be roughly in the similar range to Q3 so.

Down that that mid single digits.

I would tell you that as we sat here in July.

I think our expectation was that we would be seeing an improvement.

Steve Michaels: So we know what they least last time. And we hope we hope to provide some insights as to what they might like the next time. And so to the extent that a door ceases to exist, you know, we have certainly the ability to drive that customer back to a different door within the same environment or I guess at the extreme if a if a retailer ceases to exist that we could try and fulfill that need in a retailer that has similar products.

In Q4 over over Q3.

And that May still happen because the all important holiday season is ahead of us but.

And it's the <unk> impacts from holiday or assume certainly material on Q4, but.

Just the what we've seen and what we heard in the.

And the precedent in the headlines is the traffic seems to have softened our expectations for traffic seems to have softened softened since even the summer so.

Steve Michaels: So it certainly is we are we have the ability to to manage and direct that customer, not perfectly. It's not a one for one, of course, but we feel good about our ability to keep them in the Prague ecosystem.

We're in that kind of negative mid single digit range, which is not inconsistent with what we said earlier, even when we were down mid teens, we are saying that about two thirds of that was due to the year over year Decisioning posture and now that we've lapped that.

Brad Thomas: Great. Thank you so much. Thank you.

It kind of leaves the remainder which is that.

Jason Haas: One moment please for our next question. The next question will come from Jason Hath of Bank of America. Your line is open. Hey, good morning and thanks for taking my questions. It's good to see that the progressive even a margin looks like it's going to be above 13%. And for the year, and I know the long term target has been 11 to 13% so I'm curious if that's, you know, you could be above that 13% above that high end of the range, you know, going forward or you alluded to, you know, there could be revenue pressure on revenue next year, just giving away the gross list as it's going to end this year.

Mid single digits down.

I would be remiss, if I didn't say that.

We are outperforming the headline.

The headline comp and that is a testament to our our businesses ability to partner well into and to gain balance of share in these challenging times. So in the leasable categories that we serve the comps are down worse than mid single digits, but that is the.

That's what we're achieving and we certainly have operator optimism and we hope to see.

Outperform that but our base case is down a similar amount to Q3.

Got it and I apologize for having missed that in your prepared remarks, I haven't had my morning coffee I guess somewhat related question.

Jason Haas: So just curious how you think about I know it's early, but how do you think about that margin target for next year and beyond. Yeah, you know, Jason, I think I think more broadly, we were holding to this, this 11 to 13% range. I think that's a, I think that's a good range for the progressive leasing segment. The tailwinds that we've seen this year, just East Point about the goalie lock scenario, have certainly played their way out in even our margins, the 13th three that we saw this quarter and the trend that we're on for the year.

As you think about 2024 and I know you gave some high level thoughts on that but I guess I was just sort of obligatory question.

What's going on right now in terms of your new partner pipeline pipeline. Because you mentioned that was something that could potentially help you in 2024, given the fact that youre proceeds assets are going to be down.

Heading into 2024.

Yes, I mean, youre right and it's a constant focus of ours.

Jason Haas: It certainly, uh, over earning what we typically would expect. Now, I think the state of the consumer is is anyone's guess about the in terms of long term, but I think we're cautiously optimistic about what we're seeing in terms of payment behavior and resiliency that we're seeing with even our delinquent account like Steve said, we're seeing a higher yield in the portfolio that's delinquent than we typically have seen. So going into 2024.

And.

It's funny the obligatory pipeline question Thats, what we call it around here too but.

It is it is a constant focus we're having some nice wins.

Some smaller accounts that wouldn't wouldn't be named R. E. Com products are certainly helping in that regard as well.

And it's.

It's are we always assume that we're going to have.

Jason Haas: Or my without getting too specific, I'd expect maybe to pull back more comfortably within that 11 to 13% range versus being over the the high end of it. So I do expect some some some correction there. But then again, I've been surprised at how long the this Goldilocks scenario has persisted to date. So I guess the commentary I give as we as we enter 2024. Got it. That's helpful. And then as a follow up, have you seen any impact from the cybersecurity incident that you had or is it still in the case that there hasn't been any any any impact on the business from that.

Have a nice enterprise account win.

What time that happens in.

In a given year certainly impacts the trajectory of <unk>.

And.

So that remains to be seen and we're not obviously naming any particular names.

But we will.

We always go into our operating plan for the next year, assuming some some pipeline in <unk> to keep the pressure on us in 2024 will not be.

Different in that regard.

Got it thanks, and good luck with the remainder of the year.

Jason Haas: Yeah, Jason, you know, obviously, we can't give too much more too much more color there and only file the queue. You'll see not a whole lot of different. Disclosures, but I mean, the internal teams responded quickly. We engage leading third party experts and did lots of investigation and notified law enforcement. And there were no major operational impacts to progressive leasing and the other subsidiaries weren't impacted. So I mean, the investigation remains ongoing.

Thanks Anthony.

Thank you.

And again to ask a question. Please press star one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.

A moment please for our next question.

Okay.

Our next question will come from Bobby Griffin of Raymond James Your line is open.

Good morning body, thanks for taking my questions.

I guess the first question is you guys have done a great job this year on <unk>.

Jason Haas: But as you can see from the tables that we provide in the release. You know, the incident did not have a material impact on the third quarter results. But we'll continue to update you as we learn new information. Got it. That's helpful.

Operating expense control, but at the same time, you've called out some investments in working on the integration of E Commerce and stuff. So.

Operator: Thank you.

As we think about where we are from from a spending perspective is there a catch up period to have to come with SG&A next year into 2024 or do you feel good that even with some of the more kind of cost cost conscious approach you've taken this year. The pace of investments has remained pretty stable. So there isn't like a catch up period into next year.

Anthony Chukumba: Again, one moment for our next question. And our next question will come from Anthony Trucompa of loop capital markets. Your line is open.

Yes, I'll start and I'll, let Brian chime in but I mean, obviously.

Anthony Chukumba: Good morning. Thank you so much for taking my question. You know, you got a really nice sequential improvement and GMV between the second and third quarter. I guess my first question is what are your, you know, sort of like high level of GMV expectations for the fourth quarter, you know, particularly. Yeah, we just what are your expectations for the fourth quarter? Yeah, Anthony. You know, we mentioned that we expect you forward to be roughly in this similar range to Q3.

As you think about the theme of 'twenty three.

Controlling the controllable SG&A as is.

Portfolio yesterday are the two things that that we have.

And.

We will continue to do that right. So we're committed to that 11%, 13% margin, we talked about 2020 for especially the first half having some some revenue pressures due to the portfolio size that we're anticipating at the end of this year.

And we will we will.

Move levers and pull levers to make sure that we deliver that that.

Anthony Chukumba: So down that that mid single digits. I would tell you that as we sat here in July, I think our expectation was that we would we would be seeing an improvement in Q4 over over Q3. And that may still happen because the all important holiday season is ahead of us, but. And it's, you know, the GMV impacts from holiday are certainly material on Q4. But it just the what we've seen and what we heard in the in the press and in the headlines is the traffic seems to have soften or expectations for traffic seems to have soft and soften since even the summer.

We deliver that.

As far as catch up goes we certainly have some technical debt that we're that we're retiring that we've talked about.

Some of those things are back office things like ERP and HCM, we've got some more exciting kind of revenue generating and customer facing things that that we're not going to.

Put on the backburner, just because it's a.

Slow demand environment, because as we've talked about a lot. During this challenging <unk> period, it's our goal to broaden the foundation and broadened the base of retailers and customers such that when demand does rebound we have a.

Anthony Chukumba: So we're in that kind of negative mid single digit range, which is not inconsistent with what we said earlier when even when we were down mid teens, we were saying that about, you know, two thirds of that was due to the year, year decision posture and now that we've lapped that it kind of leaves the remainder, which is that. You know that mid single digits down, I would be remiss if I didn't say that, you know, we are outperforming the headline, the headline comp.

The big springboard bigger springboard from which to grow.

So I wouldn't call it a catch up period.

We're managing it strongly we've seen some wage inflation this year.

But certainly look for other opportunities for efficiencies.

<unk>.

This is this is the time when we have to.

Actively manage the business in order to deliver the results in SG&A as a massive focus for us.

Okay. That's helpful. And then I appreciate the comments on 2024 was the first part.

Anthony Chukumba: And that is a testament to our our businesses ability to partner well into and to gain balance of share in these challenging times. So in in the leasable categories that we serve the cops are down worse than the mid single digits, but that is the that's what we're achieving and we certainly have operator optimism and we hope to outperform that, but but our base cases is down a similar amount to Q3.

Makes sense from the revenue perspective, given what's going on with both sides of the portfolio.

Profits are flowing through the P&L is there anything that we should keep in mind that took place. This year as we calibrate kind of our models for next year, just large items that either were a good guy this year or could.

End up being a headwind next year I know, we talked about less early buyouts, but it still appears early buyouts.

Our above pre COVID-19 levels right.

Anthony Chukumba: I got it. And apologies for having missed that in your very remarks. I haven't had my morning coffee. I guess I'm a related question. As you think about, you know, 2024, and I know you gave some high level thoughts on that. But, you know, I guess it's just a sort of obligatory question. You know, what's going on right now in terms of your new partner pipeline, because you mentioned that was, you know, something that could potentially help you in 2024, given the fact that your proceeds assets are going to be down, you know, heading into 2024.

Yes, they are starting to normalize with with with pre.

Pre COVID-19 levels and I think Bobby.

You're hitting on it I think I'd draw your attention to just particularly the first half.

Gross margins that we recorded here in 2023, and then I think what represents a bit of a difficult comp.

As we as we look at 2024 and so.

Hi.

We have been we have been cautious all throughout this year and it's part of what has resulted in our outperformance versus our outlook about how this consumer is going to behave in there and they are the resilience and wherewithal in this challenging environment and that's what's really boosted booths.

Anthony Chukumba: Yeah, I mean, you're right. And it's a constant focus of ours. And it's funny, the obligatory pipeline question. That's what we call it around here, too. But, you know, it is, it is a constant focus. We're having some nice wins in some smaller accounts that wouldn't, you know, wouldn't be named our ECOM products are certainly helping in that regard as well. And we, it's our, you know, we always assume that we're going to have, you know, have a nice enterprise account when what time that happens in a given year certainly impacts the trajectory of GMV.

Boosted gross margins above our expectations and so.

Whether that persist next year I think is a key input to the model and.

Certainly the first half this goldilocks scenario, we're referring to was very strong.

In terms of the <unk> or sorry, the gross margin performance. So I think I would just be cautious about assuming we're going to be able to replicate that.

That degree.

Is the base case so that's.

The other area I would draw you to youre hitting on SG&A.

Anthony Chukumba: And so that remains to be seen and we're not obviously naming any particular names, but we will, we always go into our operating plan for the next year, assuming some, some pipeline in GMV to keep the pressure on us and 2024 will not be, you know, different in that regard. Got it. Thanks.

There is there is there.

There's always going to be an element.

Our fixed cost within our business, even though we're highly variable so deleveraging is a.

As a potential when you're starting from a down.

Yes.

Lower GLA balance gross lease asset balance entering next year. So that's something to watch but to Steves point. This is a this is an area of this actively managed and it's always going to be informed by our topline performance. So as we as we face these headwinds were going to be looking at inefficiencies and discretionary spend too.

Operator: And good luck with the remainder of the year. Thanks, anything. Thank you. And again, to ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment, please for our next question.

<unk>.

Higher degree of scrutiny to it.

Sure that we're able to land within this 11%, 13% Progressive leasing segment long term EBITDA margin target. So we.

Bobby Griffin: Next question will come from Bobby Griffin of Raymond James. Your line is open. Morning, buddy. Thanks for taking my questions. I guess the first question is you guys have done a great job this year on, you know, operating expense control, but at the same time, you've called out some investments and working on the integration of e-commerce and stuff. So as we think about where we are from, from a spending perspective, is there a ketchup period that have to come with SGNA next year in 2024, or do you feel good that even with some of the more kind of cost conscious approach you've taken this year. The end pace of investments has remained pretty stable, so there isn't like a ketchup period in the next year.

We're having a great year from a from a margin perspective.

I would expect.

Maybe a bit of softening in terms of the bottom line margin.

Gross margin, perhaps as we as we look at 'twenty four.

Thank you Brian Thats helpful. I guess last one for me.

Predicting how the student loan impact flows through as highly on.

So I get that we've had a couple of months of student loans. Returning so have you seen anything interesting in your data set to kind of help us think about the behavior and what that could do or is it still too early in terms of the payments returning.

Yes, I think I think it's too early I mean, we obviously are watching folks in our portfolio that have.

Steve Michaels: Yeah, I'll start and I'll let Brian chime in, but I mean, obviously, as you think about the theme of 23 and controlling the controllables SGNA is, is the portfolio yesterday are the two things that that we have. And we'll continue to do that, right? So we're committed to that 11 to 13% margin. We talked about 2024, especially the first half having some revenue pressures due to the portfolio size that we're anticipating at the end of this year.

Student loan trade lines also in our applicant pool as well.

<unk>.

The data are muddled, a little bit because there are various programs available for relief or deferments and I would I would.

Guests that our consumer is probably the largest beneficiaries of those.

The payments I believe restarted in October so it's too too too early to tell how that's going to affect performance.

But we are watching it and to the extent that other providers above us in the stack are also watching it and making adjustments.

Steve Michaels: And we will move levers and pull levers to make sure that we deliver that that we deliver that the, as far as ketchup goes, we certainly have some technical debt that we're that we're retiring that we've thought about and some of those things are back office things like ERPs and HCMs. We've got some more exciting kind of revenue generating and customer facing things that that we are not going to. You know, put on the back burner just because it's a slow demand environment because as we've talked about a lot during this challenging GNV period, it's our goal to broaden the foundation and broaden the base of retailers and customers such that when demand does rebound, we have a big springboard, a bigger springboard from which to grow.

It could also further the opening of the top of the funnel that we've been anticipating and talking about for several quarters now.

Okay. Thank you for the details and congrats on the upside this quarter.

Operational quarter.

Thanks, Bob.

Thank you.

Okay.

Seeing no further questions in the queue I would now like to turn the conference back to Steve Michaels for closing remarks.

Thank you again for joining us this morning and for your continued interest in Prague holdings or.

Our teams did a great job and delivered another strong quarter, we feel good about the positioning of our portfolio.

Steve Michaels: So, I wouldn't call it a catch-up period, we're managing it strongly, we've seen some wage inflation this year, but certainly look for other opportunities for efficiencies and this is the time when we have to actively manage the business in order to deliver the results and SGNA is a massive focus for us. Okay, that's helpful and then I appreciate the comments on, you know, 2024, at least the first part, that makes sense from the revenue perspective and what's going on with the size of the portfolio.

We're making the right investments in people and technology to further our three pillared strategy of grow enhance expand we look forward to updating you on the full year as well as a more detailed view on our 2024 thoughts when we have our next call in February.

Have a great day.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Okay.

[music].

Steve Michaels: As profits have flown through the PNL, is there anything that we should keep in mind that took place this year as we calibrate kind of our models for next year, just large items that either were a good guy this year or, you know, could end up being a headwind next year. I know we talked about less early buyouts, but it still appears early buyouts are above, you know, pre-COVID levels, right? Yeah, they're starting to normalize with pre-COVID levels and I think, Bobby, that you're hitting on it, I think I draw your attention to just particularly the first half, gross margins that we recorded here in 2023.

Okay.

Okay.

Yes.

[music].

Okay.

[music].

Yes.

[music].

Okay.

Steve Michaels: And then I think what represents a bit of a difficult comp as we, as we look at 2024 and so, you know, we have been, we have been cautious all throughout this year and it's part of what is resulted in our outperformance versus outlook about how this consumer is going to behave and there, and they're resilient somewhere with all in this challenging environment. And that's what's really boosted, boosted the gross margins above our expectations.

Yeah.

[music].

So.

Dan.

[music].

Steve Michaels: And so, you know, whether that persists next year, I think is a key input to the model. And certainly the first half, this Goldilocks scenario we're referring to was very strong in terms of the growth margin performance. So, I think I would just be cautious about assuming we're going to be able to replicate that, to that degree, as the base case. So that's the other area I would draw you to you're hitting on SG&A, there's, there's, you know, there's always going to be an element of fixed costs within our business, you know, we're highly variable.

Yes.

[music].

Yes.

Okay.

[music].

Okay.

Steve Michaels: So, so deleverging is a, is a potential when you're starting from a down, you know, a lower GLA balance, grossly fast a balance entering next year. So that's something to watch. But to Steve's point, this is a, this is an area that's actively managed and it's always going to be informed by our top line performance. So as we, as we face these headwinds, we're going to be looking at inefficiencies and discretionary spend to a, to a, you know, high degree of scrutiny to ensure that we're able to land within this 11 to 13% on the progressive issue segment, long term EBITDA margin target.

Okay.

[music].

Okay.

[music].

Steve Michaels: So we're having a great year from a margin perspective, not expect to maybe a bit of softening in terms of the bottom line margin and gross margin, perhaps as we, as we look at 2024. Thank you, Brent. That's helpful. And I guess last one for me, you know, predicting how the student loan impact flows through is highly, you know, uncertain. So I get that we've had a couple months of student loans returning.

Steve Michaels: So if you've seen anything interesting in your data set to kind of help us think about the behavior and what that could do is it's still too early on in terms of, you know, the payments returning. Yeah, I think I think it's too early. I mean, we obviously are watching folks in our portfolio that have student loan trade lines, also in our applicant pool, as well. You know, the data are muddled a little bit because there are various programs available for relief or deferments.

Steve Michaels: And I would, I would guess that our consumer is probably the largest beneficiaries of those, you know, the payments, I believe restarted in October. So it's too, too early to tell how that's going to work. It's going to affect performance. But we are watching it. I mean, and to the extent that other providers above us in the stack are also watching it and making adjustments. It could also further the opening of the top of the funnel that we've been anticipating and talking about for several quarters now.

Bobby Griffin: Okay, thank you for the details and congrats on the upside this quarter. This is strong operation quarter. Thanks, Bob. Thank you.

[music].

[music].

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'll be a question and answer session.

To ask a question during the session you will need to press star one one on your phone.

I didn't hear an automated message advising raised to withdraw your question. Please press star one one again these.

Please be advised that today's conference is being recorded and would now like to handle conference over to your speak today Mrs.

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 Bryan 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 Dot Prague Holdings Dot com.

During this call certain statements, we make will be forward looking including comments regarding <unk> performance.

And lease merchandise write offs in future periods.

Consumer demand.

In 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.

Our outlook for the fourth quarter of 2023.

I wanted 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 to 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 32023, 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.

Okay.

With that I would like to turn the call over to Steve Michaels Public 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.

<unk> 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 as evidenced by our year over year 200 basis point gross margin expansion.

Improve write offs of six 6%.

As compared to seven 2% in Q3 last year.

And adjusted EBITDA growth of $6 8 million or 10, 4%.

Operator: I'm seeing no further questions in the queue.

<unk> and 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 and our updated outlook for 2023.

Progressive Leasing's GMB decline of six 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 forecasts stronger than initially projected.

However, average Q3 retail traffic was down double digits year over year across large ticket consumer durables and.

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 can 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 <unk>.

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 tightened 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 leasable products offered by our retail partners.

We are skillfully navigated these demand headwinds through strong operational execution balancing GMB 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 <unk> year over year comparison to be roughly similar to Q3.

Although the all important holiday season, and its material impact on our quarterly <unk> 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 and our thoughts on the macro environment.

Demand for leasable categories is down year over year and it is 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 our anticipated tighter conditions in the credit stack above us.

And expanding our retailer base.

Steve Michaels: I would now like to turn the conference back to Steve Michaels for closing remarks. Thank you again for joining us this morning and for your continued interest in frog holdings. Our teams did a great job and delivered another strong quarter. We feel good about the positioning of our portfolio. We're making the right investments in people and technology to further our three pillar strategy of grow enhanced expand.

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.

Steve Michaels: We look forward to updating you on the full year, as well as a more detailed view on our 2024 thoughts when we have our next call in February.

Operator: Have a great day.

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.

Operator: This concludes today's conference call. Thank you all for participating. You may not disconnect and have a pleasant day. Thank you very much. Thank you.

Sustainable growth remains a key focus within our three pillared strategy to grow enhance and expand.

Operator: Thank you for your time, and I'll see you in the next video. Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, Vincent Caintic, Bobby Griffin, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, John Baugh, Anthony Chukumba, John Baugh,[inaudible] John Baugh, Anthony Chukumba, Good day, and thank you for standing by.

As a reminder, the grow pillar emphasizes our dedication to business development efforts across new and existing retail partnerships.

John Baugh: Welcome to the PROG Holdings Q3 Earnings Conference call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your phone. 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, and we're now at the hand of conference over to your speaker today, Mr. John Baugh, Vice President of Investor Relations.

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 multiyear exclusive contracts.

John Baugh: Sir, please go ahead. Thank you, and good morning, everyone. Welcome to the PROG Holdings Q3 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 GMB performance and least merchandise write-offs in future periods, consumer demand, and the retail environment going forward, the level of 90-day buyouts in future periods, growth and EBITDA margins, our capital allocation priorities, our updated 2023 full-year outlook, and our outlook for the fourth quarter of 2023.

Also our pursuit of new retail opportunities across regional and National brands is an important component of our strategy to capture more of our industries $30 billion to $40 billion addressable market.

John Baugh: 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 10K for the year ended December 31st, 2022, as well as our quarterly report on Form 10K for the quarter ended September 30th, 2023, which we encourage you to read.

We are focused on growth efforts across several other dimensions, including brand awareness and new customer acquisition through marketing <unk>.

John Baugh: 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-gap financial measures, including adjusted EBITDA and non-gap EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-gap measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-gap 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.

Products boosting our direct to consumer business and strategic partnerships.

Steve Michaels: With that, I would like to turn the call over to Steve Michaels, PROG 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 in this quarter, recording revenues for Q3 that were higher than expectations, and adjusted EBITDA that was well above the range we provided in July.

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 GMB.

Under the enhanced pillar of our strategy our initiatives are focused on improving customer experience and optimizing the sales funnel from awareness to purchase.

Steve Michaels: 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 discipline 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.

We made progress on our 2023 2020 for 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 to make the best and most informed choices.

And offering greater personalization for a streamline 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 for <unk>.

And credit builder loan filled.

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 improvements to our customer experience through the application of generative AI led by our <unk> Labs group.

Steve Michaels: The strong customer payment behavior is evidenced by our year-to-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-gap 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.

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.

Steve Michaels: Progressive leasing's GNV 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-to-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.

Bringing our year to date purchases to seven 5% of our outstanding shares.

Steve Michaels: We believe our business model has a degree of installation from a typical recession during which can 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 vibe. I'd like to highlight the resilience of our customers through uncertain macro conditions Evidence by lower than anticipated and lower than historical trends of delinquent accounts moving to charge us.

Year to date, we have generated $292 million of cash flow from operations.

In the quarter with a cash balance of $295 million.

Steve Michaels: Our strategic move to tighten decision in mid 2022 and our active management of our portfolio since then have significantly benefited performance. Separately strain on discretionary income says dampened demand for many of the least full 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 retail or traffic conversion as we are expecting traffic to be down year over year.

Our capital allocation priorities remain unchanged and.

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.

Steve Michaels: We anticipate our Q4 GMV year-to-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 biode activity.

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 Bryan Garner.

Brian.

Thanks, Steve let.

Let me start with a quick summary of our Q3 financial highlights.

For the third quarter in a row, we exceeded earnings expectations, Despite a lackluster demand environment.

Our active management of our lease portfolio continues to deliver strong returns and customer payment performance came in meaningfully better than we projected in the Q3 outlook we provided in July.

Steve Michaels: 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 as 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-to-year comparison in our gross lease assets will bring revenue pressures predominantly in the first half of 2024.

Our management of portfolio performance and SG&A were the key drivers of our strong results for the period.

With progressive we see adjusted EBITDA margins coming in slightly above the high end of our targeted annual range.

Of 11% to 13%.

During the quarter, we saw resiliency within our delinquent accounts, that's a smaller percentage of our moving to charge off compared to historical trends.

Revenue from customers choosing to exercise their 90 day purchase option in the quarter trended back towards normalized levels, which we anticipated in our July outlook.

Steve Michaels: 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 flows. Sustainable growth remains a key focus within our three-pillar strategy to grow, enhance, and expand. As a reminder, the growth 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.

Q3, consolidated revenues declined six 9% year over year as our gross leased asset balance was down 10, 7% to start the quarter and finished Q3 down nine 6% as the retail environment for durable consumer goods remains challenging.

Nonetheless, our revenue performance exceeded the top end of our outlook.

As the customer payment stream exceeded our expectations.

Consolidated adjusted EBITDA increased by 10, 4% to $71 7 million from $65 million in the year ago period, as we delivered margin expansion through portfolio management.

non-GAAP diluted EPS increased to <unk> 90 per share growing 32, 4% from <unk> 68 per share in Q3 of 2022.

Steve Michaels: 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 30-40 billion dollar 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.

For a progressive leasing segment.

<unk> declined six 5% in the prior year period, an improvement from the 14, 7% year over year decline, we posted last quarter.

As we fully lap the tightening decisioning in late Q2 2022.

While we saw <unk> softness across most categories as broader retail trends showed double digit declines in appliances furniture and electronics during the period.

We are confident that our performance represents an increase on average in our balance of share of our top five retailers results and our leasable categories.

Steve Michaels: Under the enhanced bill 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.

Revenue within the segment declined 7%, which was primarily influenced by the lower gross leased asset balance throughout the third quarter, partially offset by strong customer payment behavior.

For Russell weakness gross margins better than expected.

Coming in at 32, 3% versus 33% last year, primarily driven by strong portfolio performance.

Our write offs were six 6%, which was down from seven 2% last year.

Based upon current trends, we expect our write offs for the year and well within our targeted 6% to 8% annual range.

Steve Michaels: 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 5, final pay later option 4, and credit builder loan build.

Progressive weakens SG&A expenses were 13, 7% of revenue versus 12, 4% in the prior year.

We continue to invest in areas of facilitate our ability to scale and drive future growth.

However, we reduced our spend compared to the level, we can incorporate into our Q3 outlook as we aligned our spend levels with the current demand environment.

Adjusted EBITDA from the Progressive leasing segment were $74 8 million compared to $68 4 million in the same period of last year.

Steve Michaels: 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.

Margins of 13, 3% improved 200 basis points at the high end of our targeted annual range of 11% 13%.

Pivoting to consolidated results.

Q3 revenues for Prague Holdings were $582 9 million compared to $625 8 million in the year ago period.

Six 9% decrease.

Adjusted EBITDA was $71 7 million or 12, 3% of revenues compared to $65 million or 10, 4% last year.

Year to date, we have generated $292 $5 million of cash from operations, which is net of the working capital needed to fund GMB.

Steve Michaels: Year-to-date, we have generated 292 million of cash flow from operations closing the core with a cash balance of 295 million. Our capital allocation priorities remain unchanged and we expect a fun growth, look for strategic M&A opportunities, and return to 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.

We still anticipate a use of cash in Q4 as is typical.

The seasonal holiday boost the GMB.

Our Q3 GAAP diluted EPS was <unk> 76.

EPS came in at 90.

We had $600 million of gross debt and.

And $294 8 million of cash at the end of the third quarter with a net leverage ratio of <unk> 98 times trailing 12 months adjusted EBITDA.

Brian Garner: With that, I'll turn the call over to our CFO, Brian Garner. Thanks, Steve. Let me start with a quick summary of our Q3 financial highlights. For the third quarter in the row, we exceeded Ernie's expectations to file lackluster demand environment. Our active management of our lease portfolio continues to deliver strong returns, and customer payment performance came in meaningfully better than we projected in the Q3 outlook we provided in July. Our management of portfolio performance in SG&A were the key drivers of our strong results for the period.

We remain undrawn on our $350 million revolver at quarter end.

During the quarter, we repurchased 1 million shares of common stock at an average price of $34 85 per share.

At the end of Q3, we had $229 million of remaining authorization under our previously approved $1 billion share repurchase program.

Finally, with respect to our Q4 outlook.

We are encouraged by our strong portfolio results and taken a disciplined approach to spending in light of our current challenging demand environment.

Brian Garner: With progressive lease use of just EBITL margins coming to slightly above the high end of our targeted annual range, of 11 to 13%. During the quarter, we saw resiliency within our delinquent accounts as a smaller percentage are moving to charge off compared to historical trends. Revenue from customers choosing to exercise their 90-day purchase option in the quarter trended back towards normalized levels, which we anticipated in our July outlook. Q3 consolidates a revenues decline 6.9% year-of-year as our gross least asset balance was down 10.7% to start at the quarter and finished Q3 down 9.6% as a retail environment for durable consumer goods remains challenging.

While we expect strong gross margins and EBITDA margins to continue into Q4.

A smaller portfolio size and challenging <unk> environment will put pressure on revenues as we exit the year.

We anticipate ending the year with a gross leased asset bounced down high single digits.

While we are not yet providing detailed commentary on 2024.

Year end decline in lease portfolio size will be the starting point for 2020 for revenues.

Putting pressure predominantly on the first half of 2024.

We will actively manage the factors within our control to optimize our internal operations, where possible and maximize portfolio returns while pursuing opportunities for growth.

Brian Garner: Nonetheless, our revenue performance exceeded the top end of our outlook as the customer payment strength exceeded our expectations. Consolidated adjust EBIDA increased by 10.4% to 71.7 million from 65 million in the year-go period as we delivered margin expansion through portfolio management. Non-gap diluted EPS increased to 90 cents per share growing 32.4% from 68 cents per share in Q3 of 2022. For our progressive leasing segment, GMV declined 6.5% in the prior year period and improvement from the 14.7% year-rear decline with posted last quarter as we fully left the tightening decision in late Q2 2022.

For Q4, we expect consolidated revenue in the range of 549 million to $569 million consolidated adjusted EBITDA in the range of 58 million to $63 million.

non-GAAP diluted EPS in the range of 61 to 71.

In closing I want to thank the team for its hard work this past quarter, which yielded very strong results in the face of a difficult environment.

I will now turn the call back over to the operator for questions operator.

Thank you.

As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.

Brian Garner: While we saw GMV softness across most categories as broader retail trends showed double-digit declines in appliances, furniture, and electronics during the period. We are confident that our performance represents an increase on average in our balance of share of our top five retailers' results in our leaseable categories. Revenue within the segment declined 7%, which was primarily influenced by the lower gross lease asset balance throughout the third quarter, partially offset by strong customer payment behavior.

Standby as we compile the Q&A roster.

Okay.

One moment please for our first question.

Okay.

Our first question will come from Kyle Joseph of Jefferies. Your line is open.

Hey, good morning, guys, congrats on navigating a difficult environment.

In terms of DMD in the quarter can you give a sense for the cadence that you're really not back towards kind of that down mid single digits in July or did it gradually kind of build back towards that level.

Brian Garner: The rest of leasing gross margins better than expected coming into 32.3% versus 30.3% last year primarily driven by strong portfolio performance. Our ride-offs were 6.6% which was down from 7.2% last year. Based upon current trends, we expect our ride-offs for the year to end well within our target of 68% annual range. The rest of leasing's SGNA expenses were 13.7% of revenue versus 12.4% in the prior year. We continue to invest in areas of facilitator ability to scale and drive future growth.

Yeah. Thanks, Scott good morning.

As we talked about from a lapping the decisioning that we tightened in.

In June of 'twenty two.

It was a little bit more of a progression.

Because the way we look at the Decisioning, a few different ways and approval rates I should be more specific a few different ways and kind of a trailing four week average is probably the best way to look at it because of some of the lags in conversion and funding from an approved application.

So it took a little while in July.

And but we did see those those approval rates kind of get on par and flip back over kind of in early August.

Brian Garner: However, we reduced our spend compared to the level we had incorporated in our Q3 outlook as we aligned our spend levels with the current demand environment. Adjusted EBIDA from the progressive leasing segment was 74.8 million compared to 68.4 million in the same period of last year and margins of 13.3% improved 200 basis points at the high end of our target of annual range of 11.30% Pivoting to consolidate results, Q3 revenues for PROG Holdings were 582.9 million compared to 625.8 million in the year ago period, a 6.9% decrease.

But.

So we got into that mid single digit range for most of the quarter, Although I will say that.

Based on all the retail reports on the traffic reports and.

We haven't seen a lot of the retailers reporting their results yet the publicly available ones anyways, but.

The quarter seemed to soften a little bit as the quarter went on so.

Our mid single digit negative.

Negative <unk> was was consistent with what we were expecting but we didn't see any material improvement.

From month to month to month.

Within the within our retail partners.

Brian Garner: Adjusted EBITDA with 71.7 million or 12.3% of revenues compared to 65 million or 10.4% last year. Year-to-date, we have generated 292.5 million of cash from operations, which is net of the working capital needed to fund GMV. We still anticipate a use of cash and Q4 as is typical with the seasonal holiday boost of GMV. Our Q3 gap deleted EPS was 76 sets. EPS came in at 90 cents. We had 600 million of gross debt and 294.8 million of cash at the end of the third quarter with a net leverage ratio of 0.98 times trelline 12 months adjusted EBITDA.

Got it and then just one follow up remains strong to touch on the health of the underlying consumer.

Frankly, it sounds like the consumer is getting a little bit better off in terms of the team and normalization of 90 day buyouts ongoing.

Great.

In payment activity and frankly, I think typically losses go up between the second and the third quarter unless at the last four years, it really screwed up seasonality.

But just kind of your thoughts on on the underlying consumer.

If that's something you bake into the potential resumption of demand.

Yes, it's been an interesting year in that regard I mean, after a pretty stressful 2022, which is well documented the consumer has been really resilient this year.

Brian Garner: We remain under on our $350 million revolver at quarter end. During the quarter, we were purchased one million shares of common stock at an average price of $34.85 per share. At the end of Q3, we had 229 million of remaining operations under a previously approved $1 billion share reports program.

Our portfolio performance has been strong.

And we obviously improve the quality of the portfolio through our decisioning posture, but but the customer has performed well.

And you mentioned 90 day buyouts. They were historically low they are starting to trend back up a little bit which could be.

Portend, the fact that they've got a little bit more.

Brian Garner: Finally, with respect to our Q4 outlook, we are encouraged by our strong portfolio results and taking a discipline approach to spending in light of our current challenging demand environment. While we expect strong gross margins and EBITDA margins to continue into Q4, a smaller portfolio size and challenging GMV environment will put pressure on revenues as we edge of the year. We anticipate ending the year with a gross lease asset bounce down high single digits.

Little bit more cash or liquidity interesting dynamic I think we mentioned in the prepared remarks is that we are seeing.

Customers go delinquent.

But the behavior within those delinquent buckets has changed a little bit to where theyre not just.

Based on historical patterns rolling through the buckets to charge offs. They may camp out in the delinquent bucket for a little while and that's fine for us because as long as we're communicating with them. We're happy to work out a plan or a work out something for them to have a positive outcome. So that's been that's been a positive result.

Brian Garner: While we are not yet providing detailed commentary on 2024, the year undecline and lease portfolio size will be the starting point for 2024 revenues, putting pressure predominantly on the first half of 2024. We will actively manage the factors within our control to optimize our internal operations where possible and maximize portfolio returns while pursuing opportunities for growth. For Q4, we expect consolidated revenue in the range of $549 million to $569 million. It's solidated at just EBITDA in the range of $58 million to $63 million and non-gap diluted EPS in the range of 61 cents to 71 cents.

Ian I have sat here on these calls and talked about we're not counting on goldilocks lasting forever.

And it's certainly persisted longer than we thought but.

The low charge offs are positive.

But they're really Goldilocks was described as the low 90 day buyout activity and low charge offs and the 90 day by activity is trending back up so I would just say I am not sure if theyre getting stronger, but theres certainly been resilient all year.

There is a lot of.

Headwinds out there and muddled macro data.

We're certainly watching the student loan stuff I think it's too early to tell.

What the impact of that will be and how it will impact performance.

No.

Operator: In closing, I want to thank the team for its hard work, this past quarter, which yielded very strong results in the face of a difficult environment. I will now turn the call back over to the operator for questions. Operator? Thank you. As a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. Stan Baugh as the compile of the Q&A roster. One moment please for our first question.

As always we have.

Our hands firmly on the wheel as it relates to the portfolio and.

And our decisioning posture, but but right now.

Certainly pleased with the performance of the portfolio and the resilience of the consumer.

Got it very helpful. Thanks for answering my questions.

Got it thank you.

Thank you.

One moment please for <unk>.

Next question.

And our next question will come from Brad Thomas of Keybanc capital markets. Your line is open.

Kyle Joseph: Our first question will come from Kyle Joseph of Jeffries. Your line is open. Hey, good morning guys. Congrats on navigating a difficult environment. In terms of GMB in the quarter, can you give a sense for the cadence? It really snapped back towards kind of that down mid-single digits in July or did it gradually kind of build back towards that level? Yeah, thanks, Kyle. Good morning. As we talked about from a lapping the decision that we tightened in June of 22, it was a little bit more of a progression because the way we look at decisioning of a few different ways and approval rates I should be more specific, a few different ways, and kind of a trailing four week average is probably the best way to look at it because of some of the lags in conversion and funding from an approved application.

Good morning, Steve Brown.

Brian and John.

My first question was just if you can talk a little bit of that.

Door counts and we are seeing in terms of the cadence of doors and how things are going as you work with some of your current retail partners on some of the e-commerce Rollouts for them.

I'll start and then Brian can give the door count numbers I mean, we.

We continue to make a lot of progress on E com.

Talked about our.

Plug ins and our integration lists.

Rollouts, if you will and we're having a lot of luck there.

We're actually seeing some nice momentum.

And even prioritization I would say from some of our larger retailer partners that we've had for a while that we don't have transactional E com with yet and so some of our product innovations have moved the needle very more quickly on that and then really partnering well with the with the larger enterprise customers too.

Kyle Joseph: So it took a little while in July and but we did see those approval rates kind of get on par and flip back over kind of in early August. But so we got into that mid-single digit range for most of the quarter, although I will say that based on all the retail reports and the traffic reports and we haven't seen a lot of the retailers reporting their results yet, the publicly available ones anyways, but the quarter seemed to soften a little bit as the quarter went on.

Partners too.

To get lit up in E. Com has been nice now as we sit here today.

Depending on the specific retailer, we're right up against the code freeze for holiday season. So.

Not a lot is going to happen between now and.

And the holidays in that regard, but it will those deeper integrations will certainly.

Serve us well in the future and we look forward to.

Having.

The ability to be transactional wherever the customer wants to meet us.

Kyle Joseph: So our mid-single digit negative GMV was consistent with what we were expecting, but we didn't see any material improvement like from month to month, within our retail partners. Got it. And then just one follow-up for me, so I want to touch on the health of the underlying consumer. You know, frankly, it sounds like the consumer is getting a little bit better off in terms of between a normalization of 90 gay buyouts, ongoing strength and in payment activity and frankly, I think typically losses go up between a second and a third quarter unless the last four years have really skewed up seasonality.

And that in our view requires a really nice omnichannel experience, which is we're making a lot of progress on so I'll turn it over Brian on the door stuff, Yes, Brian.

The doors, we're right around 19500, so thats.

Approximately 2% decline from a year over year perspective, I think the only color that.

Give as we've stated before is because we have a meaningful level of <unk> coming through e-commerce stores and that tends to skew that number a bit so.

Trading down slightly.

I think thats consistent with Steve's remarks around the foot traffic in retail more broadly being pretty challenged during the during the period.

Kyle Joseph: But just kind of, yeah, your thoughts on the underlying consumer and if that's something you bake into the potential resumption of demand. Yeah, it's been an interesting year in that regard. I mean, after a pretty stressful 2022, which is well documented, the consumer has been really resilient this year. Our portfolio performance has been strong. And we obviously improved the quality of the portfolio through our decisioning posture, but the customer has performed well.

Okay. That's helpful. And then obviously we know this is a tough environment for the end market for many of our retail partners.

Can you talk a little bit about if you end up with a retailer that closes the door.

It goes out of business, what levers you were able to pull to try to keep that customer within the progressive system.

Yes, I mean, it's something certainly that has evolved over overtime in our marketing chops. If you will have really gotten a lot better. So we've got a high.

Incidence of repeat business.

Kyle Joseph: And you mentioned 90 day buyouts. They were historically low. They starting to trend back up a little bit, which could be a, you know, port 10, the fact that they've got a little bit more a little bit more cash or liquidity. Interesting dynamic that I think we mentioned in the prepared remarks is that we are seeing customers go delinquents. But the behavior within those delinquent buckets has changed a little bit to where they're not just based on historical patterns rolling through the buckets to charge off.

And so and we communicate with our with our customers fairly frequently through nurture campaigns and other.

Other marketing campaigns so.

We know what they leased last time, and we hope we hope to provide some insights as to what they might like the next time and so to the extent that.

Kyle Joseph: They may camp out in the delinquent bucket for a little while, and that's fine for us because as long as we're communicating with them, we're happy to work out a plan or work out something for them to have a positive outcome. So that's been a positive result. Brian and I have sat here on these calls and talked about we're not counting on Goldilocks lasting forever, and it's certainly persisted longer than we thought, but the low charge offs are positive.

A door ceases to exist, we have certainly the ability to.

Drive that customer back to a different door within the same environment or.

At the extreme if a if a.

Retailer ceases to exist that we could.

Ryan fulfill that need in a retailer that has similar products. So.

It certainly is.

We are we have the ability to to manage and direct to that customer not perfectly it's not a one for one of course, but we feel good about our ability to.

To keep them in the Prague ecosystem.

Great. Thank you so much.

Kyle Joseph: But the really Goldilocks was described as the low 90 day biodectivity and low charge offs and the 90 day biodectivity is trending back up. So I would just say, I'm not sure if they're getting stronger, but there's certainly been resilient all year. There's a lot of headwinds out there and muddled macro data. We're certainly watching the student loan stuff. I think it's too early to tell what the impact of that will be and how it will impact performance.

Thank you.

One moment. Please next question.

The next question will come from Jason Haas of Bank of America. Your line is okay.

Hey, good morning, and thanks for taking my questions.

See that the progressive EBITDA margin it looks like it's going to be above 13% for the year and I know the long term targeted and 11% to 13%. So im curious if thats.

Kyle Joseph: So as always, we have our hands firmly on the wheel as it relates to the portfolio and in our decision posture, but right now, you know, certainly please with the performance of the portfolio and the resilience of the consumer. God, very helpful. Thanks for answering my questions. Thank you. One moment, please for our next question.

You could be above that 13% above that high end of the range going forward or you alluded to there could be revenue pressure on revenue next year, just given where the gross leased asset balance is going to end. This year. So just curious how you're thinking about I know, it's early but how do you think that that margin target for next year and beyond.

Yes.

Yes, Jason I think I think more broadly we are holding to this this 11% to 13% range I think thats I.

I think that's a good range for the progressive leasing segment the tailwind that we've seen this year to Steve's point about the goldilocks scenario.

Brad Thomas: And our next question will come from Brad Thomas of Keybank Capital Markets. Your line is open. Good morning, Steve, Brian and John. My first question was just if you talk a little bit about door counts and what we're seeing in terms of the cadence of doors and how things are going as you work with some of your current retail partners on some of the e-commerce roll outs for them. I'll start and then Brian can give the door count numbers.

Certainly play their way out in an EBITA margins the FERC <unk> three that we saw this quarter.

And the trend that we're on for the for the year is certainly.

Over earning what we typically would expect now I think the I think the state of the consumer.

Is anyone's guess about in terms of the long term, but I think we're cautiously optimistic about what we're seeing in terms of payment behavior.

And the resiliency that we're seeing with even our delinquent accounts.

Brad Thomas: I mean, we continue to make a lot of progress on e-commerce. We talked about our plugins and our integration lists roll outs, if you will, and we're having a lot of luck there. We're actually seeing some nice momentum and even prioritization, I would say, from some of our larger retailer partners that we've had for a while that we don't have transactional e-commerce with yet. And so some of our product innovations have moved the needle very more quickly on that and then really partnering well with the larger enterprise customers to our partners to get lit up in e-commerce has been nice.

Brad Thomas: Now, as we sit here today, we're, you know, depending on the specific retailer, we're right up against a code freeze for holiday season. So not a lot is going to happen between now and in the holidays in that regard, but it will those deeper integrations will certainly serve us well in the future. And we look forward to having. The ability to be transactional wherever the customer wants to meet us and that, in our view, requires a really nice omnichannel experience which is we're making a lot of progress on.

Brad Thomas: So I'll turn it right on the door stuff. Yeah, Brad, the doors were right around 90,500 so that's approximately 2% decline from a year of a year perspective. I think the only color that I'd give as we stated before is. Well, actually, we have a meaningful level of GMV coming through e-commerce doors and that tends to skew that number a bit so try to bounce slightly. I think that's consistent with what's these remarks around the foot traffic and retail more broadly being pretty challenged during the period.

Brad Thomas: That's helpful and and then obviously we know this is a tough environment for the end market for many year retail partners. Can you talk a little bit about if you end up with a retailer that closes the door or goes out of business, what levers you're able to pull to try to keep that customer within the progressive system. Yeah, I mean, it's something certainly that has evolved over over time in our marketing chops, if you will, have really gotten a lot better.

Brad Thomas: So we've got a high instance of repeat business. And so and we communicate with our with our customers fairly frequently through nurture campaigns and other, you know, other marketing campaigns. So we know what they least last time. We hope we hope to provide some insights as to what they might like the next time. And so to the extent that a door ceases to exist, you know, we have certainly the ability to drive that customer back to a different door within the same environment, or I guess at the extreme, if a retailer ceases to exist that we could try and fulfill that need in a retailer that has similar products.

Brad Thomas: So it certainly is, we are, we have the ability to manage and direct that customer, not perfectly. It's not a one for one, of course, but we feel good about our ability to keep them in the Prague ecosystem. Great. Thank you so much. Thank you. One moment please for our next question.

Jason Haas: The next question will come from Jason Haas of Bank of America. Your line is open. Hey, good morning and thanks for taking my questions. It's good to see that the progressive even a margin looks like it's going to be above 13% for the year. And I know the long term target has been 11 to 13% so I'm curious if that's, you know, you could be above that 13% above that high end of the range, you know, going forward or you alluded to, you know, there could be revenue.

Jason Haas: Pressure on revenue next year, just giving away the gross least asset balance is going to end this year. So just curious how are you thinking about, I know it's early, but how do you think about that margin target for next year and beyond? Yeah. Jason, I think more broadly, we were holding to this, this 11 to 13% range. I think that's a, I think that's a good range for the progressive leasing segment.

Jason Haas: The the tailwinds that we've seen this year just east one about the goalie lock scenario have certainly played their way out in even on margins. The 13th three that we saw this quarter and the trend that we're on for the for the year is certainly. Overerning what we typically would expect. Now, I think the state of the consumer is is anyone's guess about the in terms of the long term, but I think we're cautiously optimistic about what we're seeing in terms of payment behavior and the resiliency that we're seeing with even our doing when it counts.