Good day, and thank you for standing by. Welcome to the Brock Holdings Third Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, John Bob, Vice President of Invest Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Prague Holdings Third Quarter 2025 earnings call. Joining me this morning are Steve Michaels, Prague Holdings President and Chief Executive Officer, and Brian Garner, our Chief Financial Officer. Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website, investor.progholdings.com. During this call, certain statements we make will be forward-looking, including comments regarding our revised 2025 full-year outlook and our guidance for the fourth quarter of 2025, the health of our lease portfolio and our capital allocation priorities, and the benefits we expect from our sale of the VIVE financial portfolio to Atlantica's Holdings Corporation, such as improving our capital efficiency and improving our profitability profile. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today, all of which are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. We undertake no obligation to update any such statement. 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 The company believes that these non-GAAP financial measures provide meaningful insights into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance with that i'd like to turn the call over to steve michael prog holdings president and chief executive officer steve thanks john and good morning everyone thank you for joining us today as we report our third quarter results

and share our perspective on how we're positioned heading into the final stretch of 2025. I'll also provide context around the recently announced sale of our VIVE portfolio and how that decision aligns with our long-term strategic priorities. In the third quarter, we surpassed the high end of our outlook for revenue and earnings. These results were driven by continued strength in portfolio performance and strong momentum within our BNPL business for technologies. Non-GAAP diluted EPS of $0.90 exceeded our outlook range of $0.70 to $0.75 per share, marking our third consecutive earnings beat this year. This quarter's outperformance reflects the discipline of our team, the strength of our business model, and our ability to execute through macroeconomic volatility. Throughout the quarter, we navigated persistent consumer challenges marked by ongoing inflationary pressures, growing financial stress among lower-income households and early signs of labor market softening, all of which impact discretionary spend in our leasable verticals. While the overall unemployment rate is still low, the heightened financial stress and greater caution among lower-income consumers across our leasable categories is a headwind to GMV. As I shared in July, two primary factors weigh on progressive leasing GMV this year, including in the third quarter. The first is the previously disclosed big lots bankruptcy which created a significant gmv headwind the second is our intentional tightening actions of lease approvals a necessary step to preserve portfolio health in an unpredictable environment adjusting for these two discrete items underlying gmv and q3 grew in the mid single digits reflecting strong operational execution and healthy demand across other areas of the business. We are growing balance of share with key retail partners, strengthening existing relationships, and scaling our omni-channel ecosystem. As Brian noted in July, we expected approval rate comparisons to ease slightly in Q3, and they did. Our progressive leasing two-year GMV stack improved from negative mid to low single digits in the first half of the year to flat in Q3, which had the toughest year-over-year compare given the strong growth in Q3 2024. These trends give us confidence in the durability of our go-to-market strategy and the long-term scalability of our platform. Progressive leasing's portfolio performance remains strong and within our targeted 6% to 8% annual write-off range. Q3 write-offs at 7.4% improved both sequentially and year-over-year. These results reflect the success of our ongoing refinements to our decisioning posture and risk analytics. We are encouraged by the early stage performance indicators and believe we can deliver consistent portfolio outcomes while driving profitable GMV. Consolidated revenue came in at $595.1 million, which reflects a slight decline compared to the same period last year. This result was driven by the impact of the Big Lots GMV loss and a smaller portfolio entering the quarter for our leasing business, offset by another standout quarter from four technologies, which again delivered triple-digit revenue growth. Consolidated adjusted EBITDA was $67 million, and non-GAAP EPS was $0.90, both exceeding the high end of our outlook. Before diving deeper into the Q3 business results, I want to take a moment to address today's announcement regarding the sale of our VIVE financial credit card receivables portfolio to Atlanticus Holdings Corporation. This transaction represents a meaningful step in our long-term strategy to improve our capital efficiency as we focus on opportunities with the greatest economic returns. While Vive has been part of our ecosystem since 2016, we believe this decision enhances our overall profitability profile and positions us to deploy capital more effectively. We're pleased to be partnering with Fortiva, the second look credit offering of Atlanticus, to ensure continuity for our retail partners and consumers, allowing us to maintain access to a comprehensive set of flexible payment options to underserved consumers while aligning our resources with the future of the Prague platform. The sale of the VIVE receivables portfolio strengthens our balance sheet, giving us additional flexibility to invest in strategic priorities. Brian will speak to the capital implications shortly, but I want to underscore that we are committed to deploying capital in ways we believe will drive sustainable shareholder value through investments in growth, strategic M&A, and disciplined return of capital through share repurchases and dividends. I want to take a moment to thank the entire VIVE team for their contributions. Their hard work and commitment played a critical role in helping us serve customers who may not have otherwise had access to credit, and we're proud of the positive impact they've made. We've made every effort to support VIVE team members through this transition, including identifying some opportunities within the broader Prague Holdings organization. We wish them all the best as they move into this next chapter. Pivoting back to the business, we made significant progress in our strategic pillars of Grow, Enhance, and Expand in Q3. Under Grow, we continued to ramp direct consumer performance, saw strong returns from our omni-channel partner marketing initiatives, and increasing e-commerce penetration. Our marketplace team also onboarded additional affiliate and e-commerce partners. E-commerce GMV is at 23% of total progressive leasing GMV in Q3 2025, up from 20.9% in Q2 and 16.6% in Q3 2024. Additionally, we launched or signed three recognizable new retail partners since our last earnings call, each representing GMV expansion opportunities. These exclusive partnership wins were all earned through a competitive selection process. Progressive leasing prevailing in each of these competitive processes underscores our leadership position, the strength of our value proposition, and our ability to drive incremental sales. Our pipeline is healthy with a focus on converting near-term opportunities and deepening engagement with existing accounts as we expand our footprint across both national and regional segments. We strengthened our position within existing retail relationships by extending long-term exclusive agreements with several of our major national partners, reinforcing our role as their exclusive lease-to-own provider. We have successfully renewed nearly 70 percent of our progressive leasing GMV to exclusive contracts reaching to 2030 and beyond. With these additional renewals in place, we can focus on integrations and accelerating our initiative roadmap with these partners to drive future growth. As I've mentioned previously, Millennials and Gen Z make up a growing share of our customer base, and we're evolving our marketing, product design, and engagement strategies to meet the expectations of these digitally savvy consumers. Their strong preference for mobile and self-service is driving increased adoption of our digital application flows and mobile platform, emphasizing our omni-channel strategy and validating the investments we made in personalization and seamless user experiences prog marketplace our direct consumer platform remains a meaningful growth engine delivering another quarter of strong double-digit gmv expansion this channel not only broadens our reach beyond traditional retail partnerships but also plays an increasingly important role in building relationships with consumers and enabling us to direct consumers to our pos partners through a new new channel we're investing in brand building personalization and life cycle marketing to increase customer engagement and we're seeing encouraging trends in repeat usage and retention as a result frog marketplace is helping us create a more durable and self-sustaining customer ecosystem one that supports growth across our leasing bnpl and cash advance offerings alike under our enhanced pillar we made strategic investments in technology that improve both customer and employee experiences across the progressive ecosystem.

Our innovation team at Prague Labs is at the forefront of these efforts.

Our AI-powered transactional consumer chat platform has now handled over 100,000 customer interactions, supporting customers from the approval stage through conversion and into the servicing of their lease agreements. We're proud of how this tool is already enhancing our ability to deliver timely, personalized support, and it's reducing friction in our service model. With new capabilities introduced in Q3, customers can now make payments, request approval amount increases, and inquire about the account status directly within this chat platform. These initiatives are already proving valuable, but we believe we're still in the early innings of what's possible. We expect these AI-driven capabilities to be a key differentiator as we scale customer personalization, drive efficiencies, and set the bar for digital innovation in lease-to-own. Under our expand pillar, our multi-product ecosystem is maturing with growing connectivity between offerings. Our cross-marketing campaigns between four and progressive leasing have proven effective in increasing repeat usage and driving incremental GMV. Turning to our BNPL platform, four technologies has exceeded expectations once again, delivering its eighth consecutive quarter of triple-digit GMV and revenue growth. As we first shared last quarter, engagement trends are strong, with average purchase frequency of approximately five transactions per quarter for the last year and more than 160% growth in active shoppers year-over-year. We are seeing strong momentum in unique shoppers and merchant relationships driving high engagement across the platform, contributing to overall GMV. Additionally, our 4-plus subscription model continues to be a key driver, with over 80% of GMV coming from active subscribers. Importantly, 4's take rate of approximately 10%, defined as revenue generated as a percentage of GMV over the trailing 12-month period, is a strong indicator of monetization efficiency. 4 has operated profitably year-to-date, and its role in our broader ecosystem is expanding meaningfully, not just as a standalone business, but as a cross-sell driver for progressive leasing and as a catalyst for customer acquisition. From a profitability standpoint, Ford generated year-to-date adjusted EBITDA of $11.1 million through Q3 2025, representing a 23% margin on revenue. As we look ahead to Q4, we are forecasting an adjusted EBITDA loss driven by seasonal dynamics that require an upfront provision for credit losses for new originations. Despite this anticipated Q4 loss, we believe 4 will have positive adjusted EBITDA for the year. Given that the peak holiday season will account for more than 20% of 4's full-year GMV, this provision creates a timing impact on profitability. This pattern is well understood and consistent with our operating model. As these holiday originations generate the majority of their revenue in Q1, we expect to see a meaningful rebound, positioning 4 to deliver its highest quarterly adjusted EBITDA margin of the year in Q1 of 2026. Looking ahead, we're closely monitoring the macro environment, especially as consumers face ongoing liquidity constraints and shifting spending behavior. The demand environment remains soft across many durable goods categories, which will likely continue in Q4. That said, we're not waiting for the environment to improve. We're leaning into the areas we can control, portfolio health, disciplined spending, deepening partner engagement, and driving sustainable, profitable revenue through our multi-product ecosystem. Our capital allocation priorities are unchanged. We're investing to drive long-term growth through sales initiatives, marketing investments, AI and other innovation, digital infrastructure, exploring strategic M&A opportunities that strengthen our ecosystem, and returning excess cash to shareholders through share repurchases and dividends. We did not repurchase shares during the quarter due to ongoing discussions with Atlanticus regarding the sale of the Vibe portfolio. Those discussions, which began in January, progressed to a stage in Q3 that restricted our ability to be in the market until the transaction was publicly announced. As Brian will outline, we ended Q3 with a strong cash position and generated meaningful free cash flow, reinforcing our capability to fund growth while maintaining financial flexibility. To close, we are confident about how we're executing across the business. We delivered strong earnings, improved portfolio performance, and successfully executed the strategic divestiture of a portfolio business, allowing us to reallocate capital towards our highest conviction opportunities. At the same time, we are building momentum in our fastest growing segment for technologies. I'm proud of what we've accomplished this quarter and confident in our ability to sustain this momentum into the future, which we expect will create long-term value for our customers partners and shareholders with that i'll turn the call over to brian for more details on q3 results and our 2025 outlook brian thanks steve and good morning everyone our third quarter results highlight execution and innovation across our product offerings once again we exceed the high end of our guidance on revenue and earnings despite pressures on consumer demand across our key categories.

Non-GAAP diluted EPS at $0.90 per share beat the high end of our outlook by $0.15 and was up approximately 17% compared to the same period last year. This outperformance reflects a combination of three key factors. Strengthen our portfolio performance, closely monitoring levels of spend, and momentum from our buy now pay later and direct consumer initiatives. We are focused on profitable growth and actively managing the business to optimize returns while staying agile in a dynamic operating environment let me start with progressive leasing segment gmv came in at 410.9 million which represents a year-over-year decline of 10 however as steve noted the underlying performance tells a more compelling story adjusting for the loss of gmv related to the big lots bankruptcy and the impact of our deliberate tightening of approval rates the business would have delivered mid single digit growth driven by solid balance of share gains within key retail relationships and growing traction among e-commerce and direct consumer channels prog marketplace our direct consumer channel channel delivered 59 year-over-year gmv growth for the quarter q3 revenue for progressive leasing was down approximately 4.5 percent at 556.6 million compared to 582.6 million in the prior year revenue benefited from slightly better better customer payment performance This tailwind, however, was offset by GMV headwinds, primarily driven by the big loss bankruptcy and tightening actions we took in the second half of 2024 and early 2025. Portfolio performance remains strong, with write-offs coming in at 7.4%, representing an improvement sequentially and year-over-year. This result reflects the impact of our deliberate tightening actions. As always, we are actively monitoring early performance indicators to ensure our decision posture is consistent with delivering write-offs within our targeted annual range of 6% to 8%. Progressive leasing's gross margin in Q3 came in at 32%, representing an approximately 80 basis point improvement year-over-year. This margin expansion was driven in part by a higher proportion of customers staying in their lease agreements longer, as well as higher year-over-year yield from our lease portfolio. Progressive Leasing's SG&A for the quarter was $79.3 million, or 14.2% of revenue, compared to 13.1% in Q3 of 2024. As we've discussed in prior quarters, we've made targeted investments to support long-term growth, focused on customer-facing capabilities, technology modernization, and partner enablement, while maintaining cost discipline across the organization. Adjusted EBITDA for progressive leasing came in at $64.5 million, or 11.6% of revenue, landing within our 11% to 13% annual margin target and improving by 20 basis points year-over-year. This performance underscores our ability to deliver consistent profitability through disciplined execution, even in the face of challenging year-over-year GMV comps and a softer demand environment. Turning to consolidated results, Q3 revenue was $595.1 million, which reflects a slight decline compared to the same period last year at $606.1 million that came in at the high end of our guidance range. The year-over-year decline is driven by the impact of the big lots, GMV loss, and smaller lease portfolio entering the quarter, largely offset by another triple-digit revenue growth quarter at four technologies consolidated adjusted EBITDA was 67 million or 11.3 percent of revenue compared to 63.5 million or 10.5 percent of revenue in q3 of 2024. this year-over-year improvement reflects strong adjusted EBITDA performance of four and year-over-year margin improvement at progressive leasing non-gap diluted EPS came in at 90 cents exceeding the top end of our outlook driven primarily by strong underlying earnings performance as steve noted we did not repurchase shares during the quarter due to the ongoing discussions with atlanticus related to the vive portfolio sale which restricted our ability to be in the market until the transaction was finalized let me now turn to the divestiture of the vive portfolio which was announced earlier this morning the transaction will be reflected in our q4 financial results and classified as discontinued operations.

As I'll discuss later, our updated outlook reflects the impact of the divestiture.

The proceeds of approximately $150 million provide incremental liquidity and strengthens our balance sheet, creating greater flexibility as we assess opportunities through our capital allocation framework. In the near term, we will continue our investments across our ecosystem of products. As always, we remain disciplined in our capital allocation approach. Our priorities are unchanged. We're focused on funding impactable growth initiatives, pursuing selective high return M&A opportunities that complement our ecosystem strategy and returning excess capital to shareholders through our ongoing share repurchases and quarterly dividends. These actions reflect our commitment to driving long-term profitability and delivering sustained shareholder value. Moving to the balance sheet, we ended Q3 with $292.6 million in cash and $600 million of gross debt, resulting in a net leverage ratio of 1.1 times, which is comfortably within our target range. We maintained ample liquidity during the quarter and had no borrowings outstanding on our $350 million revolver. In Q3, we paid a quarterly cash dividend of $0.13 per share. As of quarter end, we had $309.6 million of unused authorization under our $500 million repurchase program. For our 2025 consolidated outlook, in light of this morning's announcement regarding the VIVE divestiture, we have removed VIVE from our outlook for both the fourth quarter and full year 2025. Our revised outlook has consolidated revenues in the range of $2.41 to $2.435 billion, adjusted EBITDA in the range of $258 to $265 million, and non-GAAP EPS in the range of $3.35 to $3.45. This outlook assumes a difficult operating environment with soft demand for consumer durable goods, no material changes in the company's current assisting posture, an effective tax rate for non-GAAP EPS of approximately 27 percent, and no impact from additional share repurchases. To summarize, Q3 was a strong quarter across the board we delivered earnings above expectations maintained healthy portfolio performance advanced key initiatives aimed at supporting long-term growth and subsequent to the quarter and executed a strategic divestiture with a solid balance sheet scalable cost structure profitable growth in our buy now pay later business and a proven multi-product ecosystem we are well positioned to deliver sustained value for our customers retail partners and shareholders With that, I'll turn the call back over to the operator for questions. Operator?

Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by when we compile the KNA roster. Our first question coming from the line of Kyle Joseph with Stevens. Yolan is now open.

Hey, good morning, guys. Thanks for taking my questions. Given all the headlines we've seen around the consumer, I was just looking to get an update, and I recognize there's some moving parts, but we're looking at write-offs coming down for you guys, even though you guys have headwinds from big lots on that front. And then it sounds like GMB ex-big lots are underwriting. is there's some positive trends there, and then just weighing that with some of your commentary in terms of macro data and some of the headlines we've seen in the consumer finance arena, just kind of looking for an update on the pulse of the consumer, in your opinion.

Yeah, thanks, Kyle. Yeah, it's certainly been in the headlines, and it's something that we are constantly battling and analyzing. But to your point, we're pleased with where the portfolio is. And I'm really proud of our data science teams, and they do a great job delivering that consistent portfolio in a very dynamic environment. The write-offs did improve both sequentially and year-over-year due to our deliberate actions that we took earlier this year, for the most part, some late last year. But we're watching it very closely. I mean, we feel pretty good about where we are right now, but we are seeing some stress in the consumer. And as you said, there's lots of headlines around liquidity pressures and just macro pressures on the consumer, especially in the cohort that we serve. Our DQs are elevated at this time compared to previous years, including last year. And we're watching it very closely. uh we haven't found the need or seen the need to tighten additionally yet um i'm not saying that uh that that won't happen based on how the data comes in the door and and that's that's one of the great uh aspects of our short duration uh portfolios across our products and and the fact that we get quick uh quick feedback loop that we can we can adjust very quickly to uh to trends we're seeing in the data. So, I mean, we're defensively postured and kind of braced for potentially having to tweak additional dials, but we have not done that in any material way since earlier in this year. We always are looking for, you know, we're always adjusting dials, some positive and some negative, but in what I would call a tightening action, we haven't had to do that since earlier this year, but we're not ruling it out based on what we see for the rest of the year.

Yeah, really helpful. And then in terms of the GMV outlook for the rest of the year, I think, Steve, you highlighted that 3Q was a tough comp in terms of 3Q 24 growth. But, you know, just factoring in the timing of big lots and the timing of underwriting changes, you know, should we think about 3Q as kind of the bottom point or similar headwinds into 4Q before things really ease up into 2026?

Yeah, I think the comps really don't clear up until Q1. We put out that supplemental slide page with big lots, and Q4 is a similar headwind to previous quarters this year. And the tightening, while we did do some of it in late last year, most of what we're referring to was in Q1 of this year. So from a comp standpoint, I think the pressures are still roughly the same. I will say that, you know, our Q3 GMV did come in slightly below where we expected it to when we were updating you in July. I think a lot to do with some of those pressures that you were referring to on the consumer. And so we've adjusted some of our view on Q4 as well. We're continuing to fight every day, and we have big plans for the holiday season, but there's mixed reports out there about what to expect from a consumer discretionary spend during holiday as well. So we've got some internal initiatives, some things we're trying to get across the goal line with existing retail partners before we go into code freeze for the holidays. And, you know, we're pleased with where we are, but the macro is a challenge. and has been impacting GMV in addition to the two discrete headwinds that we've called out. Got it.

One last one from me. Just in terms of the guidance on other, it looks like better revenue guidance and then marginally lower profitability. Is that just a function of timing and growth mass, really?

Yeah, and we tried to address that in the prepared remarks. Our four business, we're very pleased with what it's doing, how it's growing, and its profitability year to date. And then there's just a very understandable seasonal dynamic in Q4, and more specifically in kind of late November, December, with the surge of GMV that we have observed in last year as well as are predicting for this year, and how that upfront provisioning with very little revenue recognition will cause four to swing to a loss for Q4. Nothing to be concerned about. It's just the dynamic of the model, and it'll swing back in Q1 of next year. But the strength of the BNPL business year to date is undeniable, and it's going to continue, but there will be some P&L dynamics which have been reflected in the other segment and are impacting our Prog Holdings-level guidance for the full year or implied for the fourth quarter because of that swing to an adjusted EBITDA loss.

Yeah, that all makes sense. Thanks a lot for taking my questions. Thanks, Kyle.

Thank you. Our next question coming from the line of Bobby Griffin with Raymond James, your line is now open.

Morning, guys. Thanks for taking the questions. Steve, I guess I wanted to just maybe talk more on the current environment. Your comments on the low end and some of the pressure make a lot of sense. I didn't hear much on trade down. So can you maybe just touch on that? It's part of what's going on here. You guys are having to be a little bit tighter or incrementally tighter as we did this year. You're not seeing that happen in the tiers above you. Just trying to get a sense on on how this environment might be evolving versus some of the earlier trade down we saw when everybody started tightening together.

Yeah, that's a good call out, Bobby. And we certainly saw the impacts of the supply above us tighten in 2024 and then kind of stayed static while they saw what their portfolios were doing. Earlier this year, I think there were calls that folks may be loosening here in the back half of 2025. I think providers are re-evaluating that potential strategy, but based on the, you know, the headlines that we've seen over the last, I don't know, six to 12 weeks, which would indicate some stress out there in auto portfolios and elsewhere, we have not yet seen or observed in the credit stacks where we participate and have good visibility any trade down or any tightening in the supply above us. So we did have to tighten earlier this year. We have not seen any additional benefit from supply above us tightening so far. I think it's just my opinion is it's unlikely that they will loosen here in the holiday season, but we haven't seen any evidence of them tightening and creating more of that trade down for us.

Okay, that's helpful. And then maybe on just the GMV cadence through the quarter, I mean, anything interesting or notable, kind of how the months played out and anything in October to help us think about, you know, kind of the early. I know we're still a little early for holiday, but just anything in October as well.

Yeah, nothing on holiday yet. obviously it's difficult right now, but this is the case every year that so much of the quarter is made in the five weeks between Black Friday or the seven days of Black Friday, whatever you want to call it, to Christmas Eve for the leasing business. The quarter for Q3, it was fairly similar, but September was lower than August and July from a negative standpoint. Um, but, uh, you know, I don't know if the headlines and the psychology from the pending government shutdown and all those things kind of played into people's, uh, confidence and sentiment, but, uh, um, uh, you know, we did, we did see some, some softness.

Okay. And then lastly for me, Brian, I hate to be the guy that asks about 26, but I'm, I'm, I'm going to do that here just cause there's a lot of moving parts. But like, when you think about 26 and just want to maybe level set the model, not asking for guidance of course but like you got vibes flowing out you got a smaller portfolio because of this gmv but then you have the big lots headwind coming off so just help us frame up you know kind of all those moving parts and you know to keep kind of expectations in line with the smaller portfolio but potentially gmv actually starting to show growth again yeah i think the i think starting with the with the tailwinds you look at 26 and again um not providing guidance but just, you know, as things are shaping up, I think you're right.

So from a decisioning standpoint, as Steve alluded to, the biggest relief from a year-over-year comp comes in Q1. That was the most meaningful tightening that we did here in Q1 of 2025. So as that rolls off, you should start to see some relief there. Along with that, obviously getting past the big lots comp, which we've provided information about in our supplemental deck. And I think the other positives are portfolio is being managed effectively. So, you know, we've, as we talked about, we're down year over year and sequentially with the 7.4% that we posted this year. So I think a similar, you know, a similar kind of write-off posture is probably appropriate. You've also got this growth in four that's really exciting and buoying the results here in the quarter. And I think we've got a trajectory there that's encouraging. And, you know, I think the offset or, you know, what we're paying attention to a little bit is this macro and the impact on leasing just more broadly that'll, I think, continue to serve a challenge here in Q4. and we'll see what 2026 holds but i think that's how it's is shaping up from uh you know we talked about this 11 13 percent uh ebitda margin target for the leasing segment there's there's no not been an intent to to uh to revisit that at least at this point in time um so that's our mandate is to actively manage the cost structure in light of what our top line allows and um that's you know those are really the inputs as i shape up uh 2026. the the vibe portfolio as you said is really not consequential to to earnings it's about a 65 million dollar haircut off of revenue is uh from a run rate perspective and so that's that's how i'd size that up perfect that's very helpful um appreciate the details here and congrats on uh the transaction and the portfolio management Best of luck, guys.

Thanks, Bobby. Appreciate it.

Thank you. Our next question, coming from the line of Anthony Chukumbo with Loop Capital Market. See you on this now open.

Good morning. Thank you for taking my question. I guess my first question, you mentioned the three new retail partners. Can you tell us who those retail partners are?

Hi, Anthony. and I had money that you would be the one that noticed that and talked about that, so I'm glad. I appreciate that. Yeah, we're not going to name them. We just wanted to highlight, because our biz dev teams are out there working their tails off all the time, and they can't control the timing of when we get things across the goal line, but it's not for a lack of effort or success, quite frankly. So we were pleased with the results in the quarter. and actually one of them is subsequent to the quarter end, but we use the term recognizable retail logos on purpose because while they may not have been, you know, standalone press releases, they are logos that you would recognize. And so we're pleased with those wins, those competitive processes and prevailing in those processes. And while they'll have very minimal impact in 2025, they will be part of the building blocks of how we're building the GMV picture and profile for 2026. And the teams also have, you know, a number of other opportunities in the pipeline that we're excited about. And unfortunately, as you've observed with us for many years, the timing is very choppy on when those things come across.

Got it. Okay. So I guess that's a new project for my research associate to figure out who those retails are. Second question. Okay. So you got $150 million for the Vibe portfolio. That's more than 10% of your market cap. And then you've got this nine-figure windfall coming from the one big, beautiful bill, which makes me feel dumber every time I have to say that. But I guess my question then becomes, you know, how do you think about capital allocation, right? You mentioned you're at 1.1 times leverage. You're very comfortable with that. I would think, particularly given where your stock is, that you would, you know, back up the truck in terms of buying back stock. But how do you sort of think about that?

Yeah, you're right. And that 1.1 times leverage was previous to the sale of the VIVE portfolio. So, but point taken. Yeah, I mean, you kind of, you set me up, you set it up there. We look at it through the lens of net leverage ratio, right, which we think is kind of a one and a half to two turns is kind of a comfort level. But then we look at, you know, our capital allocation priorities and growing the business is priority one. And obviously, we're in a negative GMV situation currently with leasing, but we don't expect that to be the case for, you know, forever. So hopefully we'll have some working capital requirements to grow GMV within the leasing business. Four is obviously, you know, a juggernaut. And while very short duration transactions will need some capital here, especially in the fourth quarter. And so, but we're fortunate in that our business models do allow us to kind of check that box when it comes to organic growth and reinvesting in the business. Second, we have said that strategic or opportunistic M&A is something that's on our radar, and we would look for something synergistic to our ecosystem and that fits into our strengths of serving this below-prime and underserved customer and assessing risk. And then absent those two first things, then we would define excess capital and look to return it to shareholders. And our history has been through repurchases. And, you know, obviously we initiated a dividend about two years ago. So the capital lens and capital allocation priorities haven't changed. We just have a high-level problem of having more of it on the balance sheet right now, and so we'll look to check those three boxes and, you know, be good stewards of the capital.

Got it. That's helpful. Thanks, and good luck with the remainder of the year.

Thanks, Anthony.

Thank you. Our next question coming from the line of Hong Lian with T.D. Cowan.

Good morning, team, and thanks for taking my questions. I guess you are now seeing some softness from maybe the consumers, the lower end consumers, but then you haven't tightened yet. So can you talk about the difference between now and maybe this time a year ago when you guys started to tighten? What's the difference that haven't made you guys, I guess, that haven't made you guys do additional tightening at this point, given the pressures that you are starting the surface?

Yeah, I mean, I think the difference is that the portfolio is in a different place than it was last year because of the tightening. So as you know, it turns over fairly quickly. And so the actions that we took in the back half of 24, but more specifically in Q1 of 25, have helped to make the portfolio more healthy. We are seeing some elevated DQs, the delinquencies, but one of the good achievements of our data science teams are there, some of the changes they made to the approvals and approval amounts is that we have been able to choke off, if you will, kind of some of the straight rollers or the no pays that roll right to charge off or write off. So the idea that you can have some elevated delinquencies, but not negative dispositions or negative outcomes, those things can be true at the same time. And so we are, again, we're white knuckled like we always are because portfolio is job one. We're watching the portfolio and and poised if we have to do something, but the early indicators are showing us things that we should be paying attention to, but have not told us that we need to do additional tightening at this point.

Yeah, and I would just add to that, what dynamic Steve just illustrated is coming through in that 80 basis points of gross margin expansion. And so you asked what, from a year year-over-year perspective, what's the dynamic? We're certainly seeing a more favorable mix in the way that this played out, and those changes we've made from a decisioning science standpoint are playing through. And so I think that's an important element in comparing and contrasting last year to this.

Got it. And my follow-up is on the VIPE sales. Given that you guys are getting $150 million and you guys didn't do buyback in 3Q, I mean, I mean, should we expect catch-up buyback in fall queue and what do you plan to do with this proceed going forward?

Yeah, I mean, I guess I would just kind of refer to the answer previously about what we're going to do with the capital and just kind of go back to our capital allocation priorities. And then we don't really guide or speak to what we're going to do in the future about repurchases in any given quarter. and we would just look to the three-pillared strategy on capital allocation. Got it. Thank you. Thank you.

Thank you. Our next question coming from the lineup, Brad Thomas with KeyBank Capital Markets. The line is now open.

Hi, good morning. Thanks for the question. I wanted to follow up on four. And first of all, congratulations on the nice momentum in that business, a really exciting outlook. that I think is still underappreciated by many investors. I was curious, Steve, as you continue to grow that business, there's this sort of ongoing question of, does BNPL compete with lease-to-own? And so I was curious, as you have success, frost marketing, what your new learnings are as you have more overlap and who those customers are.

Yeah, thanks, Brad. And, you know, we're very excited about 4 and its current state, but also its potential and where we think we can take it. Yeah, I mean, it's been interesting to have that product in our ecosystem and be able to watch it because, you know, before – well, we've had it for four years, but, you know, it was very small in 21, 22, and 23. And the view has always been that BNPL, and more specifically the pay-in-for providers, not some of the longer installment sales that people call BNPL, are not really a competitor to leasing, very simply because of the average order value. And the average order value is still in the $125 to $140 range, which is materially different than an $1,100 average ticket for our leasing business. Also, the categories that are predominant in our four business are different, right? You have consumables and cosmetics and apparel and sneakers, and it's provided us a nice insight into those shopping patterns. And I think that is also a reason why they have diverging growth rates currently, because people are still consuming those things that I mentioned at a $140 purchase, but they're maybe more reluctant or deferring purchases of the larger ticket durable goods that are traditionally in the leasing business. We are excited and encouraged by our cross-sell motions and developing those further because there is overlap in the consumer. Four will serve a low-prime consumer all the way up to a super-prime consumer, but there is considerable overlap with the leasing customer. And to the extent that they can come to us if they need a new refrigerator from Samsung versus a shoe drop on a Saturday afternoon for some new Jordan and use our different products for that is, we think, a big opportunity for us. And we're doing that currently, and we have plans to do it more and better in the future. But we don't really see the pay-in-for as a competitor to leasing, and we believe that it can be complementary.

That's very helpful. Thank you, Steve. And maybe a follow-up for Brian. I know you're not giving 2026 guidance, and Bobby already took a stab at this. But as we think about the margin side of things, I guess, is there anything you would call out? But again, as you talked about with Bobby, it does feel like the revenue outlook at the beginning of next year would be challenging if the GMB is down at the end of this year. Outside of the leverage side of things, are there any broad steps that we should keep in mind as we think about margins?

Yeah, no, it's a good question. It's something that we're very focused on and trying to make decisions internally to balance the investments that need to get made in this business that that have high roi potential and also adhering to to this 11 to 13 percent uh for the least certainly for the leasing segment that we have we have set as a standard for the for prior years and you know as implied in our guidance i think we're right around the bottom end of that 11 to 13 percent and as we look into in the 2026 the you know the factor that really um breathes some oxygen into the into the room is is uh getting gmv moving in the in the right direction you've got this the you know right now and in part of the head we're facing is a bit of the deleveraging just from from a revenue perspective and so that's that's task number one is to is to re-inject um you know a positive of a more favorable trend in in gmv and working towards that end and that's not stating you know anything for for 26 that's just obviously the mission as we as we try and improve that result um i think the the other factor that i would point to and steed also offered some color in the prepared remarks which was you know four is you know uh north of 20 here in the quarter in in terms of yield on margin. And so the ability to grow that business profitably and the contributions that we believe it can offer, particularly as it gets scale, I think is really encouraging. You know, as you go kind of down to P&L, gross margin, we obviously had a really strong gross margin print here for the quarter. And I think there's some things that we have done internally around decisioning and trying to optimize that. and so i think that you know may very well be um something that we can maintain into into next year which is which is encouraging so all that being said i i think there are certainly the building blocks for us to to to maintain uh uh you know that that 11 to 13 is the is the uh uh you know the North Star and, you know, try to work against this de-leveraging component, build for, and keep our costs in line while addressing the investments that need to get made. I think that's the task at hand, but we understand the mandate of not growing costs substantially faster than revenue, but we think we've got some good things in the hopper that'll help GMV going forward.

Great. Thank you so much.

Thank you. Our next question coming from the lineup, John Hecht with Jeffrey, and Snellfin.

Morning, guys. Thanks very much for taking my question. I guess just a little bit more into four just because I know Steve, you gave us some of the seasonality factors and so forth, but, you know, it's had very, you know, eight quarters of really good kind of growth patterns. And maybe can you give us some, you know, some insight as to a customer acquisition? And Steve even mentioned, like, the opportunity to cross-sell, maybe just a little bit more into that opportunity.

Sure, yeah. And one of the really nice things about 4 so far, and we think it can continue, is just the organic growth that it's seeing. in its MAUs, it's installed the app downloads, and ultimately the GMV has really been driven primarily by referrals and word of mouth and user-generated content that wasn't paid for. We have a lot of good ambassadors out there that are really happy with 4 and getting their friends and family to use it. And that's evidenced by, you know, sometimes the 4 app in the app store for iOS will be a top 10 shopping app for a period of time because of some TikTok video or something that we didn't pay for. um we are leaning into some marketing um as much to prove that we have the sophistication of that muscle in case we need it um not really to sustain or or to juice the growth rates um and so far we're um very pleased with the cost per download and the uh of the cost of customer acquisition in the in the small dollars that we're spending but we we believe that that's a lever that we can that we can pull in the future if necessary. So the referral rate, the word of mouth, has been really strong. 4 Plus has been a very pleasant adoption rate. We introduced it in early 2024, and we have a very growing subscriber base. And as we said, about 80% of our GMV coming from four-plus subscribers, which certainly helps that take rate metric that's prevalent in the industry. The cross-sell is an exciting area as well. It's an internal initiative for all of our teams, and we're doing some marketing primarily from the four acquired customers to the leasing business. But there's certainly opportunities to go bidirectional, and those are things that we'll be looking at for 2026 as well to go in both directions across the ecosystem of products. But four is really becoming a standout in the ecosystem and getting more integrated, and we think that there's a lot of opportunities across the products. But one of the really nice things has been this organic word of mouth and referral marketing, or sorry, customer acquisition without paid marketing that we've been able to achieve. And it's kudos to the brand that the team have built and the user acceptance and the frictionless experience.

Okay, that's super helpful. And then I guess a follow-up, maybe Brian, I think you mentioned, if you correct for big lots and some of the tightening, that your GMV growth is mid-single digits, I think I heard. In a normal environment, and I know that's a tough question to define what's a normal environment, but maybe if you think about the period of 2015 to 2020 or something, And what do you perceive as kind of normal secular growth trends for GMB growth relative to that mid-single-digit number?

Yeah, I appreciate you directed that at me versus Steve, but that is a tough question. And, you know, and look, the period that you're referring to for 50 to 20, that was a, that was a environment where I think it was a, certainly there was a lot of momentum on the enterprise level, retailers and, you know, in 2019 launching Lowe's and Best Buy was certainly a, certainly a high growth period. So it's tough to normalize for. I guess what I would say is we're looking at the GMV opportunity. We see a pipeline that's strong. We see conversations with meaningful retailers that while the sale cycle is long, we are engaging them. And we think there's a lot of opportunities still within our current installed base. As we look at the metrics across the board, whether it's levels of conversion or leases per door, productivity-type metrics, there's a lot of opportunity there. And I'm not giving a satisfying answer about a specific range that you can take, say, into 26 and beyond. I would just say that, you know, if we're growing mid-single digits with the headwinds that are existing today, when you adjust for decisioning and the Baylotz bankruptcy, it's encouraging to me to think about what still, what leverage still exists for us to penetrate the existing book and beyond. And it makes you feel comfortable that we should be able to drive that north. and our best days are not behind us and I think we've got a lot of opportunity ahead. So that's probably a color I would offer and welcome any thoughts you might have on that.

No, I mean, you nailed it. We've got good growth available to us with our install base and we'd love to rerun the 15 to 20 timeframe because it was a growth period of, you know, Our retailers had positive comps, and we were adding new retailers to the platform all the time. So that's certainly what we're rooting for now. Thank you guys very much for the contact.

Thank you. Our next question coming from the lineup, Vincent Kintick with BTIG. Yelan is now open.

Hey, good morning. Thanks for taking my questions. Kind of first one on GMV, and I guess a two-part question. And, you know, we talked earlier about the underwriting posture and that, you know, feel the need to tighten yet. I'm just kind of wondering if you can give us some sort of framework for what your underwriting posture, I guess, currently can absorb. And maybe in terms of how we think about the macro or consumer deterioration and maybe what would cause it to have to tighten further. And then second part. So you mentioned those retailers that you signed up. And if you could maybe disclose, like, what the potential opportunity is in terms of the GMV size, that would be very helpful.

Yeah, I mean, Vincent, on the decisioning side, I mean, we've got all kinds of indicators that we look at from first pay bounces to four-week delinquencies to roll rates from bucket to bucket, all the things that you would imagine we're looking at. And, you know, we don't just look at one, we look at all of them because, as I mentioned, DQs are elevated, but it's not something that is impacting overall portfolio yield or, you know, negative disposition outcomes currently. So it's a mosaic, if you will, of all those things, and we know what we need to see in order to tighten. And I want to be clear, though, when we say, like, we may see something to tighten, but it won't be like a broad brushstroke changing internal risk scores across every retailer. It could be pockets. It could be in a particular vertical. It could be in a particular retailer. It could be in a particular geography. It's very dialed in. Credit to the team for that. So those are the things we're looking at, and we look at them very, very frequently with a lot of folks around the room and on the team's meeting weighing in. So the three retailers, you know, I would say that we would look at those. They're recognizable logos, so they're not, you know, some two-store mattress chain in Denver. And two of the three, it's new to them. So as you probably, you know, remember from previous, when someone adopts a new payment type, it doesn't go from zero to 60 overnight. it kind of ramps up through training and productivity gains. And so we will be, you know, be working with the counterparts at those retailers to make sure that we move up that productivity curve as fast as possible. I guess you kind of look at them as like a, you know, a super regional, if you will, from a sizing standpoint.

Okay, perfect. That's super helpful. Thank you. And then last question, I wanted to go back to four. So great GMV results over the past eight quarters, and then it was nice to see that strong EBITDA margin this quarter. I know there's variability as you're growing that business significantly, but I'm just wondering if you can maybe talk about how you think of that business at some point in the future when it reaches maturity. What's the economics? What's maybe the EBITDA margins of that business? because I guess when I look at it, I'm making comparisons to some of the other public might not pay later companies like, you know, Sezzle and Affirm and seeing their high EBITDA margin. So I'm just kind of wondering how you're thinking about that framework, if you can help us out. Thank you.

Yeah, Vincent, I mean, I think that, you know, the public comps are certainly a place to look. And we, FOR has pivoted over the last several years to a direct consumer model. So probably, you know, similar, but several years behind a CESL. And so if you think about where we were year to date with four from an EBITDA margin standpoint, and even though it's going to, it'll swing to a loss here in Q4, which, like I said, is not a surprise to us and is nothing to be worried about, but it'll bring probably that full year EBITDA margin down into the mid to, you know, mid-ish single digits. But we do expect with two dynamics scale, as you mentioned, And then with that scale comes more GMV coming from repeat shoppers. So scale and improving loss rates over time, we believe, will result in margin improvement over the next several years. And the unknown is just the rate of growth, right? So we've been growing, you know, north of 150% GMV each quarter this, I guess it was like 147 in Q1, but it's been over 160 in Q2 and Q3. You know, just from the law of numbers, you would expect that to decelerate in 2026. But, you know, whether there's an opportunity for us to, if it decelerates a lot, then you'd have more margin expansion. But if we keep the growth there in an effort to get to that scale faster, then we'll have margin expansion, but not as much as you would if you really throttled the growth. So we're not in the business of throttle and growth as long as we feel good about the unit economics of each deal we're putting out. And so, but over the next several years, we see no reason why we can't look more like those public comps that you're citing there. and that's an exciting opportunity okay great very helpful thank you thank you I'm showing over the questions in the queue at this time I'll now turn the call back over to mr. Steve Michaels for any closing remarks accessibility shortcuts yeah thank you very much appreciate everybody joining us today and your interest in in Prague we we delivered another strong quarter and excited about the our opportunity to to finish the year strong and then uh and and and a setup for 2026 which we'll talk more about here in february so uh thanks so much and have a great day this concludes this conference call thank you for your participation and you may now disconnect