• Revenue: Nearly $1.1 billion for Q3 2024, up 9.2% year-over-year.
• Adjusted EBITDA: Approximately $117 million, a 10.3% increase year-over-year.
• Non-GAAP EPS: $0.95, representing a 20% growth year-over-year.
• Acima Revenue Growth: Up 19% year-over-year.
• Rent-A-Center Revenue Growth: 1.1% year-over-year increase.
• Same-Store Sales Growth: Rent-A-Center reported a 2.6% increase year-over-year.
• Lease Charge-Off Rates: Acima at 9.2%, Rent-A-Center at 4.9%.
• Adjusted EBITDA Margin: Rent-A-Center at 16.3%, Acima at 13.3%.
• Net Leverage Ratio: Approximately 2.6x after paying down the revolver.
• Dividend: Quarterly dividend of $0.37 per share.

• Warning! GuruFocus has detected 5 Warning Signs with UPBD.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Upbound Group Inc (NASDAQ:UPBD) reported a strong third quarter with revenue nearly reaching $1.1 billion, adjusted EBITDA of approximately $117 million, and non-GAAP earnings per share of $0.95.
• Acima, a segment of Upbound Group Inc (NASDAQ:UPBD), led with a 19% year-over-year revenue increase and a 13% growth in GMV, marking its fourth consecutive quarter of GMV growth.
• Rent-A-Center achieved a 110 basis point improvement in revenue despite closing about 50 stores, and reported a 2.6% same-store sales growth for the third consecutive quarter.
• The company successfully executed a sale of 55 stores in the New York Metro area to an existing franchisee, which is expected to be EBITDA enhancing.
• Upbound Group Inc (NASDAQ:UPBD) is on track to meet its full-year guidance, with expectations of achieving low double-digit GMV growth at Acima in the fourth quarter.

Negative Points

• Rent-A-Center experienced a seasonal sequential increase in lease charge-off rates to 4.9%, slightly above earlier expectations due to challenging consumer environments.
• Acima's EBITDA margin decreased to 13.3%, reflecting trade-down dynamics and an increase in lower-margin early purchase activity.
• Consolidated gross margin decreased by 300 basis points year-over-year, with Acima experiencing a 280 basis point decrease.
• The company incurred an estimated $7.5 million in settlement expenses related to outstanding legal matters with the CFPB, New York AG, and Multistate AG.
• The consolidated lease charge-off rate increased by 40 basis points from the prior year period, indicating ongoing challenges in managing credit risk.

Q & A Highlights

Q: Can you discuss the economics of the trade-down business model at Acima and its impact on gross margins and losses? A: Fahmi Karam, CFO, explained that the 90-day purchase activity associated with trade-down comes at a lower margin. However, it allows Upbound to keep GMV up and be more selective with approvals. While it impacts gross margins, it introduces new customers to Acima, who often return for repeat business with better margins. Loss improvements from trade-down are expected to be seen in future quarters.

Q: How is Rent-A-Center managing higher charge-offs while maintaining strong EBITDA margins? A: Mitch Fadel, CEO, noted that Rent-A-Center balances losses with overall profitability. Despite expected seasonal upticks in charge-offs, the company maintains strong EBITDA margins by adjusting decisioning and leveraging marketing efforts to capture business from competitors exiting the market.

Q: What is the outlook for Acima's GMV growth, and how does it align with the multi-year plan? A: Mitch Fadel, CEO, expressed confidence in sustaining low double-digit GMV growth for Acima, citing numerous retail wins and the potential of the Acima marketplace. The company has added significant retail partners and expects continued growth, even as it faces competition.

Q: Can you provide more details on the estimated settlement expenses related to legal matters with the CFPB and others? A: Fahmi Karam, CFO, stated that the $7.5 million estimate covers all three outstanding legal matters. The accrual reflects the company's best estimate based on current facts, but specifics of the issues covered are not disclosed.

Q: How will the marketplace contribute to Acima's growth, and what impact will new partnerships have? A: Mitch Fadel, CEO, highlighted the potential of the Acima marketplace, especially with the addition of major partners like Amazon, Walmart, and Target. The new AI-powered leasability engine enhances onboarding and product selection, expected to drive significant growth and support the company's low double-digit GMV growth targets.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.