Upbound Group, Inc. (UPBD) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a generally positive outlook with strong GMV growth, optimistic guidance, and strategic investments in digital and marketing initiatives. Acima's expansion and Brigit's growth are promising, despite minor concerns like increased loss ratios and legal accruals. The market cap suggests moderate volatility, leading to a prediction of a positive stock price movement (2% to 8%) over the next two weeks.
Key Financial Performance
Revenue Second quarter revenue of $1.16 billion, a 7.5% increase from the year ago period, mainly driven by strength at Acima plus the addition of Brigit.
Adjusted EBITDA Upbound delivered $133 million of adjusted EBITDA, a lift of 7% against Q2 2024, with an adjusted EBITDA margin of 11.5%, roughly flat to the prior year quarter but up 80 basis points sequentially.
Non-GAAP Diluted EPS Non-GAAP diluted EPS was $1.12, which is 7.7% higher than the year ago quarter.
Free Cash Flow Year-to-date free cash flow was $117 million, representing an improvement of more than 3x the prior year.
Acima GMV Acima's GMV was up 16% year-over-year, marking its seventh consecutive quarter of GMV growth. Applications were up nearly 20%, and the approval rate was down more than 300 basis points. Segment revenue grew 12%, and adjusted EBITDA grew 15%, partly due to operational leverage and a 30 basis point improvement in lease charge-off rate.
Brigit Revenue Brigit recorded $52 million of revenue, a nearly 40% increase against the corresponding period a year ago. Subscriber growth was over 20% year-over-year, and adjusted EBITDA margin was nearly 28%, above expectations due to cost efficiencies.
Rent-A-Center Same-Store Sales Same-store sales declined by 4% in the quarter, consistent with expectations due to tactical decisions made in the fourth quarter of 2024 and underwriting tightening efforts. Adjusted EBITDA margin declined by 1.7 percentage points compared to last year.
Lease Charge-Off Rate Acima's lease charge-off rate improved 30 basis points from the year-ago quarter, while Rent-A-Center's lease charge-off rate was 4.7%, 10 basis points higher sequentially and 50 basis points higher year-over-year.
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Operating Highlights
Earned wage access and credit building: Upbound Group is adding new products and services like earned wage access and credit building to strengthen customer relationships and enhance value.
Brigit's line of credit offering: Brigit is piloting a line of credit offering with loan sizes up to $500, providing an alternative for consumers carrying various debts.
Acima's virtual lease card: Acima piloted an in-store virtual lease card, enabling consumers to lease items in real-time with enhanced convenience and privacy.
Acima's GMV growth: Acima achieved 16% year-over-year GMV growth, marking its seventh consecutive quarter of growth and expanding its market share.
Brigit's subscriber growth: Brigit experienced nearly 40% revenue growth and a 24% increase in paid subscribers year-over-year, driven by new marketing channels and product innovations.
Merchant growth at Acima: Acima extended a major account to a new 5-year agreement, securing lease-to-own exclusivity in all states that allow it.
Digital transformation: Upbound Group is leveraging data to refine strategies, improve underwriting, and enhance marketing efforts.
Operational leverage at Acima: Acima's operational leverage contributed to a 15% adjusted EBITDA growth and a 40 basis point lift in EBITDA margin.
Brigit's cost efficiencies: Brigit achieved a 28% adjusted EBITDA margin due to cost efficiencies and timing of marketing spend.
Focus on digital and online capabilities: Upbound is investing in digital platforms, with over 50% of revenue now coming from virtual channels.
Cross-selling initiatives: Brigit's solutions are being cross-sold to Acima and Rent-A-Center customers, enhancing integration and growth.
AI-driven sales coaching at Rent-A-Center: Rent-A-Center is piloting Agentic AI for real-time sales coaching to improve conversion rates and store productivity.
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Risk or Challenges
Rent-A-Center Segment Performance: Same-store sales declined by 4% in Q2 2025 due to underwriting tightening and adjustments to the product lineup. Lease charge-off rate increased to 4.7%, reflecting higher risk. These factors reduced adjusted EBITDA margin by 1.7 percentage points year-over-year.
Economic Pressures on Core Consumers: Core consumers face financial pressures from higher prices, changes in governmental assistance programs, and the resumption of student loan payments. These factors may impact spending behavior and demand for the company's products.
Legal and Regulatory Risks: The company recorded an additional $31.7 million accrual for pending legal and regulatory matters, including a $14 million settlement agreement in principle for the McBurnie class action. These legal issues could impact financial performance.
Brigit Segment Risks: Brigit's net advance loss rate increased to 2.6% year-over-year, and marketing investments are expected to reduce EBITDA margins to the low teens in the second half of 2025. These factors could affect profitability.
Acima Segment Risks: Acima's approval rate declined by more than 300 basis points year-over-year, and lease charge-off rates remain a concern despite improvements. Dependence on top merchants (31% of GMV) could pose concentration risks.
Macroeconomic Uncertainty: Potential macroeconomic changes, such as tariffs and trade policy developments, could lead to higher prices and impact consumer liquidity, affecting demand for the company's offerings.
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Guidance & Outlook
Revenue Expectations: The company expects revenues ranging from $1.05 billion to $1.15 billion for Q3 2025. Full-year revenue guidance has been tightened to an adjusted EBITDA range of $515 million to $535 million.
Earnings Per Share (EPS) Guidance: The midpoint of full-year non-GAAP diluted EPS guidance has been raised to a range of $4.05 to $4.40 per share. For Q3 2025, non-GAAP EPS is expected to range from $0.95 to $1.05.
Acima Segment Growth: Acima is expected to deliver low double-digit GMV and revenue growth in Q3 2025, with EBITDA margins slightly better than the year-ago period. Lease charge-offs are expected to remain stable year-over-year.
Brigit Segment Growth: Brigit's Q3 revenue is expected to increase slightly sequentially, with low teens EBITDA margins and a net advanced loss rate in the 3% area as new models are refined, new campaigns are run, and new products are tested.
Rent-A-Center Segment: Rent-A-Center's revenue is expected to follow a seasonal sequential path with a mid-single-digit step back in Q3 compared to Q2. EBITDA margins are expected to decrease slightly sequentially despite an improvement in loss rates.
Consumer Behavior and Market Trends: The company anticipates potential impacts from macroeconomic factors such as higher prices, changes in governmental assistance programs, and the resumption of student loan payments. However, unemployment and gas prices remain low, and new tax policies may benefit consumers. The company is prepared to adapt to these changes and expects its lease-to-own and liquidity solutions to remain relevant.
Digital and Product Innovation: Investments in digital capabilities and new product offerings, such as Acima's virtual lease card and Brigit's line of credit pilot, are expected to drive future growth and margin improvements.
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Shareholder Return Plan
Dividend Commitment: The company remains committed to supporting its regular dividend, which is $1.56 per share annually, yielding about 6% at current prices.
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Key Q&A
Q:Can you describe the drag to results from adjustments made last year in Rent-A-Center and the long-term growth potential?
A:The drag to results stems from a purposeful pullback on credit and tightening underwriting, reduction of 110 stores, and elimination of certain product categories like mobile phones. Without these moves, same-store sales would have been flat to slightly up. Management expects to lap these changes starting in the second half of the year and aims to turn positive same-store sales by the end of 2025, with low single-digit growth thereafter.
Q:What marketing investments and new products are planned for Brigit in the second half of the year?
A:Brigit plans to invest in social media channels like Reddit, in-store advertising, and point-of-sale signage at Rent-A-Center and Acima locations. They are also excited about a new line of credit product offering up to $500 with extended terms of 6-9 months, which has shown strong traction during pilot testing.
Q:How is the core customer across the platform performing compared to six months ago?
A:The core customer is stable but still under pressure due to high prices and inflation. Positives include low unemployment, wage growth, and new tax policies. Management is taking a conservative approach to underwriting, and the portfolio mix has shifted to the upper end of the risk profile.
Q:What is driving the strong growth in Acima's GMV?
A:Acima's GMV growth of 16% is driven by new merchants (80% of growth) and productivity gains (20%). The direct-to-consumer channel grew 130% year-over-year and now represents over 5% of GMV. Returning customers account for over 40% of GMV, and the platform is diversified across merchants and products.
Q:Why did Acima's loss ratios tick up sequentially?
A:The increase in loss ratios is attributed to a mix shift, particularly the growth in the jewelry category, which has higher loss ratios and 90-day buyout activity. However, losses remain well within the acceptable range.
Q:What is the outlook for Brigit's revenue and EBITDA over the next few years?
A:Brigit is on track to meet its 2025 and 2026 revenue and EBITDA targets. The first six months of ownership have exceeded expectations, and management is optimistic about cross-collaboration opportunities with Rent-A-Center and Acima.
Q:When will Rent-A-Center's EBITDA pressures subside and return to growth?
A:Rent-A-Center will start lapping underwriting changes in the second half of 2025, with a clean comp expected by early 2026. Management anticipates returning to growth in 2026.
Q:What are the expectations for Brigit's growth and marketing investments?
A:Brigit's growth is strong, with 40% revenue and 25% subscriber growth year-over-year. Marketing investments will focus on social media, in-store advertising, and point-of-sale signage. The average revenue per user is expected to grow low single digits sequentially in the second half of the year.
Q:What is the timeline for achieving the target leverage ratio?
A:Management expects to reach pre-acquisition leverage levels by the end of 2025 and aims for a 2x leverage ratio over the next couple of years, depending on the growth of Acima and Brigit.
Q:What percentage of customers are affected by the change in tax policy on tips and overtime?
A:Management does not have an exact percentage but estimates a meaningful portion of their customers, particularly those in service industries, will benefit from the change.
Q:Has there been any impact on Brigit from the CFPB's rescinded guidance documents?
A:No official changes have occurred yet, but management is actively monitoring the situation.
Q:What is the $32 million legal accrual for?
A:The $32 million accrual covers various legal matters, primarily related to the Multi-State AG matter and legacy practices. It includes the McBurnie case, which was settled post-quarter and was almost fully reserved for at the end of Q2.
Q:Are retail store closures affecting Acima's growth?
A:No, Acima's growth is not significantly impacted by retail store closures due to its diversified merchant base and product offerings. The platform continues to add hundreds of locations.
Q:Will the company consider additional acquisitions?
A:While management is open to acquisitions that align with their strategic vision, the current focus is on integrating Brigit, growing Rent-A-Center and Acima, and reducing leverage.
Q:What caused the 50 basis point increase in Rent-A-Center's lease charge-off rate?
A:The increase is due to the impact of tightened underwriting and the removal of certain products, which are still working through the portfolio. The rate remains within an acceptable range.
Q:What is the update on migrating Brigit's decisioning engine to Rent-A-Center and Acima?
A:The migration is still a focus but is prioritized behind other initiatives. Testing will begin this year, with full implementation likely in 2026.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the exact percentage of customers affected by the change in tax policy on tips and overtime, stating only that it is a meaningful portion. Additionally, they did not provide specific details on the timeline or progress for migrating Brigit's decisioning engine to Rent-A-Center and Acima, citing prioritization of other initiatives.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Albert Caintic
Associates Inc
BTIG LLC
BofA Securities
CEO reminder
CFO Director
Caintic BTIG
Conference Instructions
Cowen Research
Development Chukumba
Director Jeffrey
Division Conference
Division Hoang
Division Kenneth
Division KeyBanc
Division Reuter
Division Rowan
Division Vincent
ET day
Executive VP
Fahmi Karam
Fahmi focus
Griffin Raymond
Group release
Hoang Manh
Inc Research
Janney Montgomery
Jeffrey Chesnut
Karam CEO
Kenneth Griffin
LLC Research
Research Division
Upbound Group
tariff
UPBD Transcript
Upbound Group, Inc. (UPBD) Q1 2026 Earnings Call Transcript
Positive4-30
The earnings call summary highlights strong financial performance, with a 5% revenue increase, improved operating margins, and a 10% rise in net income. Free cash flow also saw a significant 20% increase, indicating robust financial health. The lack of discussion on operational updates, strategic initiatives, and risks in the call suggests no immediate concerns. Given the company's market cap, these positive financial metrics are likely to result in a moderate positive stock price movement, despite the absence of new strategic announcements.
Upbound Group, Inc. (UPBD) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call highlights strong financial performance, with significant growth in free cash flow, operating activities, and revenue across segments. Despite some challenges, such as delayed product rollouts and competitive pressures, the company shows optimistic guidance with growth in key areas like Acima GMV and Brigit revenue. The Q&A section reveals positive sentiment towards EPS growth, AI integration, and margin improvements. Given the company's market cap, these factors suggest a positive stock price movement in the short term, likely in the range of 2% to 8%.
Upbound Group, Inc. (UPBD) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call reveals strong financial metrics, such as increased free cash flow and EPS guidance. Positive developments in product innovation and strategic initiatives across segments are highlighted. Despite macroeconomic concerns, the company demonstrates resilience and adaptability. The Q&A section confirms cautious optimism, with growth potential in Acima and Brigit segments. The company's proactive approach to capital management and AI initiatives further supports a positive outlook. Considering a market cap of $1.6 billion, the stock is likely to experience a positive movement in the 2% to 8% range over the next two weeks.
Upbound Group, Inc. (UPBD) Q2 2025 Earnings Call Transcript
Positive8-5
The earnings call presents a generally positive outlook with strong GMV growth, optimistic guidance, and strategic investments in digital and marketing initiatives. Acima's expansion and Brigit's growth are promising, despite minor concerns like increased loss ratios and legal accruals. The market cap suggests moderate volatility, leading to a prediction of a positive stock price movement (2% to 8%) over the next two weeks.
UPBD Slides
Upbound Q1 2026 slides: EPS beats on efficiency gains, guidance maintained2026-04-30
Upbound Group Q4 2025 slides: Revenue grows 10.9%, digital strategy advances2026-02-19
Upbound Q3 2025 presentation slides: 9% revenue growth amid segment divergence2025-10-30
Upbound Q2 2025 slides: Revenue up 7.5%, maintains full-year guidance2025-07-31
UPBD Report
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