Upbound : Q3 2025 Upbound Group Inc Earnings Conference Call Transcript vF

About this update from Upbound Group, Inc.

Upbound Group, Inc.(Q3 2025 Earnings) October 30, 2025 Corporate Speakers: Jeff Chesnut; Upbound Group, Inc.; Head of Investor Relations Fahmi Karam; Upbound Group, Inc.; Chief Executive Officer Participants: Kyle Joseph; Stephens; Analyst John Hecht; Jefferies; Analyst Vincent Caintic; BTIG; Analyst Hoang Nguyen; TD Cowen; Analyst Robert Griffin; Raymond James; Analyst William Reuter; BofA; Analyst PRESENTATION Operator^ Good day. And thank you for standing by. Welcome to the Q3 2025 Upbound Group, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Chesnut, Head of IR. Jeff Chesnut^ Good morning, and thank you all for joining us to discuss Upbound Group's performance for the third quarter of 2025. We issued our earnings release this morning before the market open, and the release and all related materials, including a link to the live webcast, are available on our website at investor.upbound.com. On the call today, we have Fahmi Karam, our CEO. As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release as well as in the company's SEC filings. Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. This call will also include references to non-GAAP financial measures. Please refer to today's earnings release, which can be found on our website, for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures. Finally, Upbound Group is not responsible for, and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcasts. With that, I'll turn the call over to Fahmi. Fahmi Karam^ Thank you, Jeff. And good morning, everyone. Our business is organized around a simple but powerful statement, which is to elevate financial opportunity for all. As the consumer environment changes, our customers' needs evolve as well, and our business is constantly adapting in response. As we accelerate the pace of innovation and capitalize on our differentiated strengths, it's critical that we have the right people to help us deliver on our mission. That's why I am excited to share that we've strengthened our executive team by adding two proven leaders with a deep knowledge of our consumers and a track record of building new capabilities, transforming businesses and ultimately creating value. I am pleased to welcome our new Chief Financial Officer, Hal Khouri who we announced today and our new Chief Growth Officer, Rebecca Wooters who we announced a few weeks ago. Hal was most recently the CFO at goeasy, a leading non-prime focused lender in Canada with relevant experience in point of sale financing as well as a lease-to-own retail platform. Prior to joining goeasy, Hal was the CFO for Walmart Canada Bank and JPMorgan Chase Canada Bank. And Rebecca, our new Chief Growth Officer, was previously the Chief Digital Officer for Signet Jewelers where she transformed the business into a digital, omni-channel retailer across several brands. Before her role at Signet, Rebecca held growth leadership positions at Citibank, including Chief Customer Experience Officer for the North America Consumer Group. Together with our experienced existing team, these new business leaders will help us elevate the customer experience, bringing data-driven, targeted offerings to market for our customers and retailers while accelerating our growth. I'm thrilled to welcome them both to Upbound and our whole team looks forward to working with them to drive our business forward. Moving on to the quarter, Upbound delivered another quarter of strong results, with revenue up 9% year over year to $1.16 billion, and adjusted EBITDA up 5.7% year over year to $123.6 million. At Rent-A-Center, we're seeing encouraging sequential improvement in same-store sales while maintaining robust 16.2% adjusted EBITDA margins through operational efficiencies and digital enhancements. We're now expecting same store sales to approach flat-to-positive comps in the fourth quarter based on these promising trends. At Brigit, we maintained impressive momentum with revenue growth of 40% and subscriber growth of 27% year-over-year, while successfully expanding the product suite. And at Acima, despite recent further tightening of our underwriting in targeted areas, we delivered the eighth consecutive quarter of GMV growth, which was 11% in the third quarter, while surpassing a milestone achievement of working with more than 100,000 merchant locations across its history. Let's move to slide 4 to discuss our market and our consumers. As we noted in the past, our customers are accustomed to economic uncertainty, and they are attuned to key signals in the macro backdrop that will eventually translate into their spending priorities. Those signals are generally tied to demand in the labor market, where recent reports suggest job growth is slowing, and price levels, where the cumulative effect of inflation -and the potential for tariff-related price adjustments - is pressuring our consumers' collective confidence. These dynamics impact demand from our core customers, putting top line pressure on our lease businesses as well as affecting payment behavior - both of which influenced the quarterly results. Although there are near-term effects, these conditions should add more and more consumers looking for low weekly payments for quality durable goods at Rent A Center and Acima, as well as Brigit's liquidity solutions and financial wellness tools. Before getting into the details of the quarter, I want to address the lower margin and higher loss performance at Acima. While we have maintained a conservative risk posture company-wide in response to a choppy macro back drop, recent monthly vintage yields at Acima have been under pressure resulting in slightly higher losses and lower overall margins. As a result, Acima moved to an incrementally more conservative risk stance across the third quarter. While these vintages will impact losses in the fourth quarter and the underwriting changes will impact the fourth quarter's GMV growth, it is important to note that we believe our tailored responses are already proving to be effective and positively impacting outcomes in the August and September vintages based on early performance indicators. Unless the macro environment sees meaningful changes, we do not expect further mitigation will be warranted to achieve Acima's targeted growth and margin profile in 2026. Moving to slide 5 - let's review the key themes from each segment for the third quarter. As mentioned, Acima delivered its eighth consecutive quarter of GMV growth, up 11% year-over-year, and is on track to deliver high single digits to low-double digit GMV growth for the year. Revenue growth was 10.4% and the EBITDA margin was 12%, a decline from the year-ago period related to the 50 basis point uptick in this quarter's lease charge-off rate and lower gross margins. Gross margins and losses were impacted by softness in recent vintages as I already mentioned. Despite continuously lowering approval rates throughout the year, Acima booked a cohort of leases in the second quarter with elevated early defaults, mainly to new customers in our e-commerce channels at select retailers. In response, Acima implemented a targeted tightening strategy through the second and third quarters and added additional identity validation tools starting in July to drive performance improvements. Those efforts have been effective, with the August vintage now performing within our acceptable yield and loss-ratio ranges. We are confident Acima has successfully optimized its decisioning for the evolving macro backdrop, and observed trends through October have reinforced that view. In addition, gross margins were affected by the jewelry category's growth as a portion of total GMV, especially at the expense of the furniture category which hasn't fully rebounded from the pandemic-related pullforward. Acima's focus on the jewelry vertical has been intentional, as it has enabled both GMV growth and diversification from the furniture category. But relative to furniture, jewelry sees a higher proportion of customers electing the first early purchase option, which is a lower margin outcome for Acima. Even so, the category is profitable and Acima values the acquisition of new customers through this channel, as Acima can subsequently introduce those customers to the direct to consumer Marketplace for future leases in jewelry or other product categories. Importantly, neither the shift in Acima's portfolio performance in the second quarter vintages nor the gross margin impact from jewelry's expansion was related to loosening underwriting standards. In fact, Acima has received 14% more lease applications year-to-date relative to the prior year period, while reducing the corresponding approval rate by approximately 200 basis points. As Acima recognized the early performance behavior, we repositioned our underwriting strategy and lowered approval rates each month to maintain the long-term lease charge-off rate inside the upper boundary of our target range. Acima's loss rate for this quarter and the fourth quarter will be impacted by these vintages, as the tightening will limit GMV and revenue growth, creating a denominator effect that will result in higher lease charge-off rates, as the final leases from these vintages run through the portfolio. Our underwriting and risk management teams are laser-focused on monitoring the health of our customers and the health of our portfolio, and we're confident that the actions already taken will help preserve a balanced and sustainable growth algorithm in the years to come.

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