Upbound Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Executive Team: Strengthened executive team with addition of Chief Financial Officer Hal Khouri and Chief Growth Officer Rebecca Wooters, both with relevant experience in consumer and business transformation.
• Segment Updates:
  • Acima: Implemented underwriting tightening due to softness in recent vintages, with August vintage performing within acceptable yield and loss ratio ranges. Activated 100,000 merchant locations.
  • Brigit: Accelerated testing of new financial solutions, diversified marketing channels, with new line of credit in beta testing.
  • Rent-A-Center: Saw sequential improvement in same-store sales, positive outlook for Q4 with focus on inventory and customer experience optimization.
• Strategic Priorities:
  • Acima: Rolled out account management tool upgrades and in-store tap to lease capability for virtual lease cards.
  • Brigit: Evolved marketing strategy, expanding channels beyond digital/social media.
  • Rent-A-Center: Optimized inventory, launched Refer-a-Friend campaign, revamped loyalty program.
• Liquidity and Capital Allocation: Over $350 million in liquidity, net leverage ratio ~2.9x. Refinanced Term Loan B, upsized facility. Tax savings from bonus depreciation to support growth and deleveraging.

Segment Performance

• Acima: Delivered 8th consecutive quarter of GMV growth, up 11% year-over-year to an unspecified absolute amount, with revenue growth at 10.4% and EBITDA margin at 12% (down from prior year due to lease charge-off rate and gross margin impacts). GMV from the marketplace was up 150% year-over-year in Q3. Represented ~40% of GMV from furniture category, with jewelry category growth affecting margins. Reached 100,000 merchant location milestone.
• Brigit: Revenue grew 40% year-over-year to $57.7 million, with over 1.4 million paid subscribers, a 27% increase year-over-year. ARPU was $13.74, up 11.4% year-over-year. Originated approximately $390 million in cash advances, up 19% year-over-year. Adjusted EBITDA was $9.3 million, margin 16.1%. Tracking to meet full-year revenue and adjusted EBITDA targets.
• Rent-A-Center: Revenue was $461 million, down 4.7% year-over-year. Same-store sales were down 3.6% year-over-year but improved sequentially. Adjusted EBITDA was $74.7 million, down 5.5% year-over-year. Loss rate was 4.7%, improved 20 basis points year-over-year. Adjusted EBITDA margin was 16.2%, up 160 basis points sequentially.

Guidance

• Revised full-year revenue guidance to $4.6 billion to $4.75 billion, adjusted EBITDA to $500 million to $510 million, and non-GAAP EPS to $4.05 to $4.15.
• Acima: GMV growth mid-single digits in Q4, full-year high single digits to low double digits. EBITDA margins slightly lower due to underperforming vintages.
• Rent-A-Center: Top line low to mid-single-digit decline year-over-year, lease charge-off rate better than last year.
• Brigit: Revenue high single-digit sequential growth, low double-digit adjusted EBITDA margins driven by marketing ramp-up.

Risks

• Macroeconomic Uncertainty: Impact on consumer confidence, job market, wage growth, and tariff-related price adjustments affecting all segments.
• Acima's Underwriting: Tightening and softness in recent vintages affecting GMV growth and margins.
• Consumer Stress: Inflation and cash constraints impacting demand and payment behavior across segments.

Question and Answer

• Q: Underwriting changes at Acima and GMV growth outlook A: Fahmi Karam stated GMV growth in Q4 is mid-single digits, with long-term confidence in high single-digit to low double-digit growth as new merchants are added.
• Q: Consumer trends and differences between Rent-A-Center and Acima A: Fahmi Karam discussed stressed consumers, differences in consumer profiles, and how underwriting adjustments vary between segments, with Rent-A-Center benefiting from prior underwriting changes and Acima facing recent performance softness.
• Q: Rent-A-Center's outlook for improvement A: Fahmi Karam cited execution, Refer-a-Friend program, loyalty revamp, and inventory position as drivers for Q4 improvement, with confidence in inflection towards positive in Q4.
• Q: Brigit's customer acquisition and cross-sell opportunities A: Fahmi Karam highlighted cash flow underwriting, marketing channel diversification, and subscriber growth as key areas, with potential for cross-selling into other segments.
• Q: Acima's underwriting tightening and GMV growth sources A: Fahmi Karam explained underwriting changes due to performance softness, with 90% GMV growth from new merchants and 10% from existing merchant productivity, including direct-to-consumer growth.
• Q: Pathway to growth algo in 2026 A: Fahmi Karam noted reliance on new merchant growth and conservative credit posture, expecting improvement as macro conditions stabilize, with focus on adding new merchants and optimizing existing relationships.
• Q: M&A and tax benefits A: Fahmi Karam mentioned ongoing interest in M&A but focus on deleveraging and reinvestment, with tax savings from bonus depreciation providing flexibility for growth and acquisition opportunities.
• Q: New merchant growth pipeline for Acima A: Fahmi Karam stated strong pipeline, focusing on direct-to-consumer and returning customers, with long lead times for larger retailer integrations but active efforts to grow merchant count.