Upbound Group Inc (UPBD) 2024 Q1 法說會逐字稿

Good day and thank you for standing by, and welcome to the Upbound Group 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 Chestnut.

Good morning and thank you all for joining us to discuss the company's performance for the first quarter of 2024.

We issued our earnings release this morning before the market opened, 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 from Upbound Group, we have Mitch Fadel, our CEO; and Fahmi Karam, our CFO.

As a reminder, some of the statements provided on this call are forward looking and 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 Mitch.

Thank you, Jeff, and good morning to everyone on the call today.

I'll begin with a review of the key highlights from the first quarter, then I'll hand it off to Fahmi for a more detailed review of our financial results and our financial outlook.

After that, we'll take some questions.

We are very pleased with the start to the year, which included revenues of nearly $1.1 billion, adjusted EBITDA of $109 million, and non-GAAP earnings per share of $0.79. The trajectory of our business, which started accelerating last year, continued through the first quarter and into April, as both segments grew the top line versus last year.

Similar to the fourth quarter, these results were driven by strong execution across our strategic operating initiatives, namely growth in Acima merchant count and performance of existing merchants, combined with disciplined underwriting decisions, diligent expense management efforts, and our emerging direct to consumer e-commerce channels.

And before we dive into our segment results, let's discuss some of the enterprise-wide themes we've seen since the start of the year.

First, I'd like to start with what we are seeing in the external environment with our consumers.

Broadly speaking, the macroeconomic conditions across the quarter were stable, with continued strength in employment metrics, but also with persistent inflation trends that continue to impact our customers' discretionary spending and evolve to the market's expectations on the timing and size of potential rate cuts in 2024.

This quarter was also affected by tax season, which typically has a positive impact on merchandise sales.

While the external conditions this quarter were characterized with puts and takes, our consumers are accustomed to navigating uncertainty and have remained resilient through a variety of changes in the macro landscape over the past several years.

That resiliency and our focus on execution helped deliver profitable top-line growth at lease charge-off rates that were in line with our plans for the quarter.

And looking ahead, we've discussed our durable business model can succeed in a variety of macroeconomic environments.

When metrics like employment and overall consumer spending are stronger, we expect consumer confidence to drive GMV growth and to support portfolio growth and positive payment behaviors.

Conversely, more difficult conditions introduce new consumers to our space through trade down when traditional lending solutions tighten availability of credit.

While we continue to assume stable conditions across the year with elevated inflation persisting, we believe we are well positioned to adjust our business to the external environment and continue to grow.

Second, we're continuing to enhance our underwriting capabilities with new tools and datasets.

For Rent-A-Center, we're now leveraging a seamless, more advanced proprietary fraud detection algorithm to drive better outcomes on our e-commerce channel, which continues to grow as a portion of the segment's total revenue, representing over 26% of the segment's revenue for the quarter.

As that channel grows, Rent-A-Center will be better positioned to underwrite profitable outcomes and deliver higher customer service levels.

At Acima, we continue to integrate our Acceptance Now merchants into the Acima decision engine.

And we expect to approve more cohorts of stronger-performing leases, thereby increasing GMV and improving losses at the same time.

Overall, the integration of A Now into Acima is nearing completion and should result in improvements in Acima's lease charge-off rate across the balance of the year as the prior higher loss in our originated portfolio winds down.

Importantly, this unlocks a new growth opportunity for Acima, because we can accelerate our efforts in our differentiated staff model with a more robust decisioning platform and can introduce full online checkout capabilities to some of our larger retailers, something the Acceptance Now platform could not do before the transition.

And third, I'd like to reinforce our relentless focus on customer centricity, which for us, means two stakeholders: the consumer and the retailer.

For consumers, it's building relationships that start wherever we meet them, whether in one of our 2,400 Rent-A-Center stores, our more than 600 staffed Acima locations, the 35,000 virtual doors at Acima merchant partner locations, or even our variety of fully virtual channels in both segments.

Once that relationship is established, our goal is to strengthen the connection over time and expand how we serve that customer while lowering our cost of service through our ongoing digital investments.

As their needs change, we can serve those needs through the channels I just mentioned, but also directly through our direct-to-consumer efforts such as Acima marketplace and through our credit card partnership, with consumers graduating to traditional credit.

For our retail partners, it's building relationships and customizing our process to meet their needs and ultimately drive more sales, whether in-store, virtually, in-store staff, through their website, or pure e-com retailers, our goal is to support our partners to drive incremental revenue while expanding access for underserved customers.

So as we work to grow our share of market with new retailer additions and our share of mind with existing merchants with more leases per location, we also equally focus on increasing our new customers by offering more solutions that meet our customers' needs and increasing customer lifetime value.

Let's review the details behind our segment financial results on slide 4.

Starting with Acima, we achieved a strong double-digit increase in GMV for the second consecutive quarter, with an improvement of nearly 20% year over year.

Excluding the stimulus period of 2021, we achieved the single-largest first quarter GMV that Acima has ever recorded.

This was powered by a number of factors.

Our business development sales team delivered all-time highs for active merchant locations and helped drive more productivity per existing location.

That led to significant increases year over year in both applications and funded leases for our Acima business.

On top of those efforts, we realized a full quarter of elevated activity from two of our enterprise partners, namely Wayfair and actually.com channel, after the realignment last year of their LTO partner relationships.

As a result, we continue to find success in the furniture vertical for Acima despite the broader challenges in that category from the pandemic-related pull forward.

Finally, our direct-to-consumer offerings continue to expand, with applications on the Acima marketplace growing 68% year over year in the first quarter, and GMV growing 51%, albeit working from a relatively small base as we further develop the channel.

Collectively, these efforts resulted in Q1 revenues up 16% year over year.

Average ticket size was down slightly in the quarter, so the top line lift was driven by expanded penetration as we continue to add merchants and grow our staffed and e-commerce businesses.

We also have a robust pipeline of integrations planned for the remainder of the year, which we believe will be a tailwind for growth in 2024 and beyond.

We are pleased to recently announce another exclusive relationship with a top 50 furniture retailer in the quarter, which came online in late April.

Overall, Acima exits the first quarter with an open lease count that was more than 24% higher versus last year, as well as sequentially higher than our seasonally high fourth quarter.

From an underwriting standpoint, we continue to take an active and vigilant approach to risk management.

Our Acima segment loss rate was 9.6%, up 70 basis points from the year-ago period, but down 30 basis points sequentially.

Despite the volume of applications increasing 32% year over year and all the strong growth numbers I've just been discussing, Acima accomplished all of that with an approval rate of 130 basis points below last year.

As for delinquencies, Acima's rate in the first quarter was down 80 basis points from a year ago, and flat sequentially to the fourth quarter of last year.

These results were all in line with our expectations for the first quarter.

And with the Acceptance Now integration into Acima's decision engine, we remain confident in our risk management outlook for the year.

Rent-A-Center finished the first quarter with a same store leased portfolio value that was slightly positive year over year.

We were particularly pleased to see positive same-store sales growth of 80 basis points for Rent-A-Center, which represented the first increase in same-store sales in eight quarters, going back to the stimulus period of 2021.

In addition, we saw slight year-over-year increases in our customer count and our open lease count, as our ongoing omnichannel marketing efforts and digital investments drove higher consumer engagement and outcomes.

As I mentioned earlier, Rent-A-Center's web channel volume continues to grow, and represented more than 26% of revenue in the first quarter, which was an increase from both the year ago and sequential periods.

These elements helped deliver revenue growth of 20 basis points, which represent the highest segment revenues since mid 2022 for Rent-A-Center.

And while Rent-A-Center's top line was up slightly, we realized a nearly 9% lift in segment adjusted EBITDA due to strength on the gross profit line.

This also helped us expand our adjusted EBITDA margins by 140 basis points.

Our continued emphasis on underwriting and account management at Rent-A-Center resulted in a lease charge-off rate of 4.7% for the quarter, down 10 basis points from the first quarter of last year.

Our past due rate, which is an early indicator of potential future lease charge-offs, was 3.1%, which was up 10 basis points from our year-ago period, but flat sequentially.

As the tax season runs off, we expect an improvement in the second quarter similar to trends in 2023 and consistent with our guide last quarter.

As the Rent-A-Center core consumer continues to deal with higher inflation and pressure on payment behavior, our account management efforts will be an increasingly important element of customer connectivity in the near to medium term to help us maintain our delinquency and charge-off rates in our target ranges.

Overall, we're very pleased with our operating and financial results in the first quarter.

Both segments successfully anticipated and met our customers' and merchants' expectations, enabling us to achieve that 20% GMV growth at Acima, along with positive same-store sales growth at Rent-A-Center.

These results, along with the momentum we've already seen in the early April results, give us confidence that we're tracking well towards achieving our full-year targets.

On slide 5, let's discuss the progress we've made on strategic priorities we outlined when we last spoke at Acima.

We're committed to strong top-line growth through our business development efforts with small or medium-sized businesses, our enterprise sales initiative for super-regional national accounts, and our direct-to-consumer channel.

While our enterprise client team continues to build presence and relationships with the largest retailers, our SMB team continues to add local and regional merchants as partners on our virtual leasing platform.

This quarter, we realized a 9% lift in active locations year over year, while adding merchants and capabilities to our online direct-to-consumer marketplace as well.

We're also refining and enhancing the ways in which we work with our existing merchants and consumers, with the goal of driving customer retention and more active leases per merchant location per month.

This will be driven by a combination of our service first mindset, as well as our investments in the digital tools to help us outperform expectations.

And by way of example, we replaced an LTO competitor and added a large regional furniture retailer last year that was realizing around $100,000 in lease activity per month.

With stronger collaboration and leveraging our integration tools, e-commerce capabilities, and best practices, we drove a meaningful difference to their sales.

In fact, in the first quarter, we've partnered with them to achieve a significant increase to nearly $1 million of lease activity per month, showcasing that we can elevate results and exceed expectations for our partners and our customers.

In Rent-A-Center, we continue to invest in our online e-com experience, both web and mobile, to help meet our customers when and where they want to interact with us.

We also executed a variety of marketing campaigns and promotions across the quarter to engage our customers and boost our value proposition, which helped deliver the top-line and same-store sales growth that we booked this quarter relative to the year-ago period.

Additionally, we continue to roll out our new Rent-A-Center point-of-sale system known internally as RACPAD, which will enhance the productivity of our store base coworkers and provide more centralized visibility and reporting for our regional and district leaders.

It has been architected for flexibility and additional scalability, enabling it to accommodate the evolving needs of our store-based footprint.

Our Upbound team is committed to creating a shared services environment that unifies and amplifies our capabilities across the organization, things like underwriting, information technology, collections, and operations.

To that end, this quarter rolled out an additional network of collection points for Acima merchandise that leverages Rent-A-Center locations for returns and customer service.

We believe this will drive improvements in Acima's lease charge-off rate and make it easier for customers to interact with us while simultaneously providing select Rent-A-Center locations with additional merchandise to offer for rent.

Additionally, we continue to build out our partnership with Concora as we explore the non-prime consumer credit adjacency to our current LTO space.

We're now beginning the ramp-up phase for the Acima private-label credit card, which can be used at any Acima partner location; and the Acima general-purpose credit card, which can be used anywhere MasterCard is accepted.

As we expressed previously, we believe we can leverage our substantial in-house knowledge of non-prime consumers, extensive customer base, and our brand awareness to offer white-label credit products that can help our customers build their credit history while shopping for the products and services that they need for themselves and their families.

Over time, we believe the non-prime consumer credit adjacency will represent an important and growing contributor to our bottom line.

Finally, I'd like to share my perspective on our capital allocation philosophy.

After investing in the business, we'll support our dividend first, with a focus on deleveraging after that as we work to reduce our leverage ratio to less than 2 turns.

Our share repurchase strategy will be a tertiary goal, one that's opportunistic rather than programmatic.

So before I hand it off to Fahmi, I'd like to acknowledge the collective work of our whole team, because they're the reason we're able to deliver these strong results.

And their commitment and passion has helped deliver these terrific results and a terrific start to the year.

And with that, I'll turn it over to Fahmi.

Thank you, Mitch, and good morning, everyone.

I'll start today with a review of the first quarter results and then discuss our outlook for the rest of the year, after which we will take questions.

Beginning on page 6 of the presentation.

Consolidated revenue for the first quarter was up 7.9% year over year, with Acima up 16% and Rent-A-Center up 20 basis points.

Rentals and fees revenue were up 8.2%.

Merchandise sales revenues increased 10.3%, reflecting higher GMV at Acima and a larger portfolio at Rent-A-Center coming into the year.

Consolidated gross margin was 48.3% and decreased 150 basis points year over year, with a 190-basis-point decrease in the Acima segment partially offset by a 110-basis-point increase in the Rent-A-Center segment.

Consolidated non-GAAP operating expenses, excluding lease charge-offs and depreciation and amortization were up mid-single digits, led by a mid-10s increase in general and administrative costs, which was a result of corporate investments in technology and people, in addition to an increase in non-labor operating expenses, led by investments to support Acima application growth.

The consolidated lease charge-off rate was 7.4%, a 30-basis-point increase from the prior-year period, and in line with our expectations.

On a sequential basis, the consolidated lease charge-off rate decreased 10 basis points due to a 30-basis-point sequential improvement at Acima.

Putting the pieces together, consolidated adjusted EBITDA of $109.1 million decreased 2.2% year over year, as higher Rent-A-Center segment EBITDA was offset by lower Acima segment EBITDA and higher corporate costs.

Adjusted EBITDA margin of 10% was down approximately 100 basis points compared to the prior-year period, with approximately 140 basis points of expansion for Rent-A-Center, offset by approximately 260 basis points of margin contraction for Acima, and a 20-basis-point increase in corporate costs as a percentage of revenue.

I will provide more detail on segment results in a moment.

Looking below the line, first quarter net interest expense was approximately $29 million compared to $28 million in the prior year due to approximately 80 basis points of year-over-year increase in variable benchmark rates that affected our variable rate debt, which is approximately $862 million at quarter end.

The effective tax rate on a non-GAAP basis was 26% compared to 27.4% for the prior-year period.

The diluted average share count was 55.8 million shares in the quarter.

GAAP earnings per share was $0.50 in the first quarter compared to earnings per share of $0.84 in the prior-year period.

After adjusting for special items that we believe do not reflect the underlying performance of our business, non-GAAP diluted EPS was $0.79 in the first quarter of 2024 compared to $0.83 in the prior-year period.

During the first quarter, we generated $33.6 million of free cash flow, which decreased from $95.9 million in the prior-year period, primarily due to Acima GMV growth.

We distributed a quarterly dividend of $0.37 per share, an increase from $0.34 per share in the prior year.

We finished the first quarter with a net leverage ratio of approximately 2.7 times, unchanged from the fourth quarter.

Drilling down to the segment results, starting on page 7.

For Acima, double-digit year-over-year GMV growth continued in the first quarter.

After returning to growth with a 19% year-over-year increase in the fourth quarter of 2023, GMV increased nearly 20% year over year in the first quarter of 2024.

GMV growth was above our expectations and was driven by year-over-year growth in key underlying drivers, with active merchant locations up over 9% year over year, more productivity per merchant, and a full quarter of the enterprise e-com partners Mitch mentioned earlier, which resulted in overall applications increasing over 30%.

Those tailwinds were partially offset by lower approval rates across all major categories as we remain disciplined in our underwriting approach as inflation continues to impact our core consumer base.

The asset value of inventory under lease was up mid-10s year over year.

Revenue increased 16% year over year, including a 16.3% year-over-year increase in rental and fees revenue, and a 15.2% increase in merchandise sales revenue due to a larger beginning portfolio in 2024 compared to last year.

Lease charge-offs for the Acima segment were 9.6%, 70 basis points higher year over year and 30 basis points lower sequentially.

The year-over-year increase in Acima lease charge-offs was slightly better than our expectation, as the A Now leases originated on the legacy decision engine will now begin to wind down.

The conversion will strengthen our underwriting capabilities and should reduce lease charge-off rates as lease cohorts from the legacy system wind down throughout the year.

Operating costs, excluding lease charge offs, were up approximately $7 million in the first quarter, which was flat as a percentage of revenue.

Adjusted EBITDA of $64.9 million was down 5.4% year over year, primarily due to a 19.3% increase in cost of goods sold that was partially offset by a 16% increase in revenue.

Adjusted EBITDA margin of 11.6% decreased approximately 260 basis points year over year, while gross margins contracted approximately 190 basis points.

The decrease in margins were due to a few factors, including a growing portfolio where revenue lacked higher-incentive labor and underwriting costs, an increase in merchandise sales in the quarter from a dollar perspective due to a larger portfolio entering tax season than last year, and the performance of the legacy A Now portfolio, all of which is in line with our expectations.

For the Rent-A-Center segment, at quarter end, the same-store lease portfolio value was slightly up year over year, while same-store sales increased 80 basis points year over year, improving from a 1.6% decrease in the fourth quarter of 2023.

Total segment revenues returned to growth in the first quarter, increasing 20 basis points year over year, improving from a 1.7% decrease in the fourth quarter.

The increase in revenues was driven by an 80-basis-point increase in rental and fees revenue.

First quarter merchandise sales revenue decreased 3.6%, due primarily to fewer customers electing early purchase options compared to the prior-year period and represented an improvement of 12.2% decline in the fourth quarter.

Lease charge-offs improved year over year, driven by ongoing underwriting and account management efforts, decreasing 10 basis points to 4.7%. 30-day past due rates averaged 3.1% for the first quarter, up 10 basis points from the prior-year period, and flat sequentially.

Adjusted EBITDA margin for the first quarter increased 140 basis points year over year to 16.6%, primarily due to higher gross margins, in addition to a 10-basis-point year-over-year decrease in the ratio of non-GAAP operating expenses, excluding lease charge-offs as a percent of revenue.

Adjusted EBITDA margin increased 210 basis points from the fourth quarter, reflecting the effect of higher revenues on less variable costs.

For the Mexico segment, adjusted EBITDA was higher year over year.

And the franchise segment's adjusted EBITDA was lower due to timing of operating expenses compared to last year.

Non-GAAP corporate expenses were approximately 12% higher compared to the prior year, primarily due to additional investments in technology and people.

Shifting to the financial outlook, considering the trajectory of our business and the latest projections for the macroeconomic environment, we believe that we are well positioned to achieve the targets we shared for 2024 in our previous earnings call.

As a reminder, the forecast assumes a stable macro environment with durable goods demand remaining under pressure, continued disciplined underwriting, and no additional material benefit from trade down.

With that backdrop, we'd like to share a bit more of on a quarterly cadence of our performance.

Note that references to growth or decreases generally refer to year-over-year changes unless otherwise stated.

At Acima, we expect to see a similar increase in GMV in the second quarter, continuing the trend we have experienced the last two quarters, including a strong April.

For the year, we are updating GMV guidance from up mid- to high-single digits to double-digit growth.

Rent-A-Center's portfolio should be up slightly in the second quarter from the first quarter based on what we saw in April from a consumer demand perspective.

For both Acima and Rent-A-Center, we expect the second quarter revenue to follow the same sequential pattern as in 2023, with a slight step back, in line with typical seasonal patterns coming off tax season and lower merchandise sales.

We expect losses to remain within our previous guidance commentary, with Rent-A-Center improving in the second quarter from the first quarter, and to be in the 4.5% range for the year, flat to last year.

Acima losses are expected to improve in the second half of the year as the legacy A Now portfolio winds down, to finish the year also relatively flat to 2023.

In terms of adjusted EBITDA margins for the second quarter, the Rent-A-Center and corporate segments should track the first quarter, with Acima realizing improvement driven by a pickup at the gross margin line coming off tax season.

We are assuming a fully diluted average share count of 55.9 million shares for the quarter, with no share repurchases assumed in our guidance.

Interest expense and our tax rate are expected to be similar to the first quarter, resulting in a non-GAAP EPS range for the second quarter of $0.95 to $1.5.

Although part of the GMV growth is most likely benefiting from some of the trade down, we are not including any material benefit in our forecast, though we continue to monitor the consumer credit profiles we receive via retailer waterfalls.

Additionally, the CFPB recently enacted new rules reducing credit card late fees but are currently facing legal challenges from industry participants seeking an injunction.

We are waiting to see what impact, if any, the rule changes may ultimately have on credit card approval rates and approval amounts, which could drive trade down to the LTO industry.

In terms of capital allocation, I will reiterate Mitch's earlier comments.

We have a proven business model that generates strong operating cash flows over time and an experienced management team to allocate those cash flows in support of our strategic priorities.

Our first priority continues to be supporting innovative ideas that will improve our customer interactions and merchant outcomes.

Concurrently, we will focus on enhancing shareholder value by maintaining our commitment to our dividend program and being opportunistic regarding share repurchases.

Based on the strength of our year-end results and our outlook for 2024, we raised our dividend in the fourth quarter by $0.03 per quarter, and we distributed our first dividend at the increased rate in the first quarter.

We expect the balance of our free cash flow this year will go towards deleveraging, as we progress towards a net leverage ratio of under 2 times and our long-term target of 1.5 times.

We ended the first quarter at 2.7 times, which included $19 million of debt paydown in the quarter and an increase in working capital needs to support GMV growth.

The strength of our balance sheet gives us confidence in our ability to execute against multiple priorities.

As of quarter end, we carried over $0.5 billion of available liquidity, which positions us well for both defensive and offensive postures, depending on future macroeconomic circumstances.

Looking ahead, we'll monitor market conditions for opportunities to optimize our debt capital stack to best support our growing business.

Finally, on slide 11, the first quarter was a promising start to the year for the company.

Our team's focus on execution and expense management, as well as our strategic investment in key growth drivers, resulted in operational and financial performance that was at the high end of our expectations.

Our first quarter results and our strong competitive position give us confidence that we have the tools and team in place to continue producing strong risk-adjusted returns at each of our business segments.

Going forward, we will continue to execute against our day-to-day priorities to serve our customers and boost our retail partners' businesses, while pushing forward with the innovations that help us achieve our long-term growth plans.

Thank you for your time this morning.

Operator, you may now open the line for questions.

(Operator Instructions) Bobby Griffin, Raymond James.

Thank you for taking my questions and congrats on a good quarter.

I guess the first thing I want to talk about Acima, a little bit more of a high-level question.

The GMV pickup there has been very impressive and seems like it's balanced between new merchants, as well as some organic growth.

And I understand there's a timing lag between the revenue and some of the cost, but can you talk about what you see, now that you've got a good handle on that business as the incremental flow through there?

And I'm just really talking in context of EBITDA was slightly down despite all the growth and there's that timing factor, but what should the flow through be over a more consistent period of time, think about on an annual basis or something like that?

Yeah, as we commented on the prepared remarks, we expected the first quarter this year to have a pretty tough comp from both a gross profit margin standpoint, as well as an EBITDA margin standpoint.

So the results for Acima are very much in line with our expectations.

And as you know, the revenue does lag the GMV probably by a couple of months, maybe even a full quarter.

But looking out for the full year, we still expect the margins to pick back up in the second quarter seasonally and where we've targeted the margins to be for the Acima segment in the low-10s to mid-10s range, so we haven't changed our guidance there at all for the Acima segment.

So we expect the flow through to be very similar to what we saw in 2023, just with higher revenues coming off of two quarters in a row of almost 20% growth from a GMV standpoint.

So very consistent with what we saw in 2023 and very consistent with the guide that we had coming into the year.

Yeah, and I'd add to that, Bobby, that that not only does the revenue lag a little bit, but so do -- I mean, some of the expenses are upfront when you think about all that growth and underwriting expenses.

And you pay some rebates on the growth depending on the retail partner and things like that, and those are all paid on the GMV, certainly underwriting on, what was it, 30,000 more applications or something like that.

So with all that growth, you get -- not only does revenue lag a little bit, but the expenses are upfront.

But yeah, as the year goes on,EBITDA margin's coming up.

And of course, the tax season of, how it affects the first quarter.

When you think year over year, there was a little more margin deterioration based on the -- from tax season on the first early payouts, the same as cash or the cash option stuff at Acima.

We're similar to pre-pandemic levels, but it was higher than last year, the impact of that.

So those are all the factors that are going in there.

Yeah, and I guess secondly for Mitch, and this is more industry type question and maybe it's across both businesses, but we haven't -- it doesn't seem like people or the industry wants to call a lot of trade down yet.

It's incremental signs of it, I think, getting referenced, and I don't know the exact wording everybody is using.

So with your GMV growth, is it all just market share shifts going on in between all the players then because we're not really seeing a major impact of trade down?

Where we had actually -- if that does materialize, you could see even further upside.

I'm just trying to unpack the organic growth here, because it does seem notable without any major trade down or significant trade down.

Yeah, I think that's a good point.

I think yeah, trade down is a hard thing to quantify and put your finger on.

It's why nobody wants to talk about how much is trade down.

But I agree with the point I think you're making there.

There's got to be some trade down in there, right?

And how material it is a question you get different answers from different people.

But certainly, half of our GMV growth when you have 9% merchant growth, is coming from there.

We're certainly taking share in the market.

But there's trade down in there.

I think -- I can't tell you how much it's trade down, but there's certainly some.

If you listen to lenders above us in the stack, you hear them talking about tightening, so there's certainly trade down.

And quite honestly, I think there's more to come later.

And it's not in our forecast, but I think there's going to be more to come.

Obviously, the credit card fee issue could cause even more tightening above us and so forth.

So I think there's some in there, and I think there's more to come.

Thank you, Mitch.

That answered my follow-up as well, so I appreciate it.

I'll jump back in the queue.

Best of luck going forth.

Thanks, Bobby.

Brad Thomas, Key.

Wanted to follow up first on Acima and ask a little bit about what has been working for you in terms of these wins.

Can you share a little bit more about the dynamics behind perhaps where your approval rates may be different?

Any sort of kickbacks to retailers that you're using?

What is it that you think has changed here that's helping to drive all the success right now?

Yeah, I think it's a good question.

I think there's quite a few things.

Our sales team is hitting on all cylinders, even without any of the biggest name brands coming in from a national account standpoint.

Regional account wins, the SMB account wins, the sales team has done a great job both in the field and our inside sales teams and so forth.

Our direct-to-consumer team, the people that do the programming for that are doing a great job adding merchants to that and always looking at different friction points.

In any kind of marketplace, you're always looking at that.

Obviously, we do have some nice national accounts that -- we've got 100% of national accounts now, like Actually corporate come and Wayfair last year did a repositioning of LTL providers and so forth.

Companies like Rooms To Go and Bob's Discount Furniture, so national accounts are performing very strong for us as well.

But the combination of the sales team -- and that is the differentiation, I think.

And some of the things that differentiate us from our competition, Brad, where we -- from an integration standpoint, we believe we're the easiest to integrate with different partners.

Our e-com process that we compare to everybody else is not only easier to integrate, but works very, very well.

And we have ability others don't have to leverage our Rent-A-Center when it comes to large partners and how we work together.

We have the staffed option that really drives revenue.

And when you take a 30- or 40-store regional player and you -- probably don't have enough volume in every store to justify a subject matter expert, and Acima's subject matter expert in the store supplement their sales team.

But if you -- let's say you do it in 10 out of the 40, and of course, you're going to get exclusivity for spending the money on the staff, not only in those 10 stores, but all of 40 in that example.

So I think our staffed option is a differentiator.

And when I talk about that sales team, out there doing such a great job, they also -- it's not just signing people up, it's also the ongoing training, and that's where you get some of those organic increases, by going back in and constantly doing that training.

You can sign people up, we can sign people up with a smaller team, but you won't get the organic growth if you're not going back in those stores and depending on the partner, monthly or quarterly, and making sure new salespeople know how to how to sell the transaction within their retailer and stuff like that.

So I think it's a combination of all those things, sales, underwriting.

I mean our approval rates are lower than they were last year.

I don't hear differences in approval rates between us and competition, I think those are those are pretty consistent.

You think about losses within the industry, it's pretty consistent throughout the partners.

Obviously, ours will get better as the year goes on as the legacy A Now accounts wind down.

But I don't think it's approval rates or buying the business, I think the other part of your question, you asked about rebates.

We all offer some rebates depending on the size of the account.

Those haven't really changed over the years.

They're not any higher now than they were before, so I think it's really the other stuff I just mentioned.

That's really helpful, Mitch, thanks.

If I could ask a follow-up on the Rent-A-Center side of the business, just congratulations on getting same-store sales back to positive territory and after the two years of declines.

I guess if you could just talk to your confidence that we're past the more difficult period here for the segment on a revenue side of things.

And I know that in the first quarter, there can be some times some abnormalities with early buyouts and tax refund season.

How are you feeling about that customer and the outlook to keep same-store sales positive here for the year?

Yeah, certainly, certainly optimistic -- first of all, when you think about Acima and when you think about trade down, the same thing happens at Rent-A-Center.

It does come a little slower though, because they're not in a waterfall stack within a retailer.

So when consumer credit tightens, it eventually helps Rent-A-Center, but not as quickly as it can help with Acima, probably with reasons.

But Rent-A-Center, yeah, I think we mentioned in the prepared comments that even as we looked at April, the portfolio's looking good.

So we would expect at least slightly positive same-store sales for the whole rest of the year.

We're not going to start turning 5% and 8% and 10% same-store sales numbers, but certainly slightly positive numbers, which is great for that mature business.

The website continues to grow.

The resiliency of the customer to -- back to maybe the meat or the core of your question, it's that certainly proven over the years, you go back to the Great Recession and so forth, that the customer's very resilient.

When you have really strong consumer confidence, that business grows even better.

And when you have -- when things get tight out there, you do see trade down.

So it's been very resilient over the years.

It's going to continue.

It's nice to be in the positive territory.

We'd like it to be even a little higher as we go through the year, and that team is certainly working hard to do that.

We're very encouraged by the growth in the e-com channel.

A lot of new customers come in that way, their delinquencies in line.

As far as the pressures on the customer, their losses came down a little bit year over year.

And their delinquencies, as you saw in the presentation, as we mentioned, are flat.

So the customer is performing, the other team's performing there, and we'd expect to continue at least low single-digit comps, positive comps for the rest of the year.

Great.

Thank you, Mitch.

Thanks, Brad.

Hoang Nguyen, TD Cowen.

Congratulations on the quarter.

I just wanted to touch base on maybe the guidance.

Looks like business trends are pretty strong and have improved since the last quarter.

I mean the guidance is maintained, right?

So I guess my question is what would it take for you guys to get more constructive on the guidance going forward?

And maybe if you could give us some color on some of the strong and weak categories within Acima during the quarter, that would be helpful.

And I have a follow-up.

Thank you.

Yeah, look, I think as far as the guidance for the rest of the year, we're very pleased with the first quarter results.

Obviously at the high end of our range, so we're very pleased with the performance.

We're pleased with the momentum we built into both businesses, but Acima specifically, with another strong quarter from a GMV standpoint, which we look to continue for the rest of the year.

As far as the guidance goes, as I said, the quarter came in line with exactly where our expectations were, maybe slightly towards the higher end.

So it's still early in the year, no point to change it at this point for the rest of the year, but as we progress, if we get the margin pickup we expect, we continue to do the GMV growth that we expect, we'll revisit the outlook at the appropriate time.

But we feel really good with our results that we've been able to do, and April has been a continuation of the first quarter.

As far as what we saw from a strength or weakness standpoint on Acima, I'm guessing your question is really around GMV performance or loss performance, really strong across the board.

If I look at all the different categories, we talked a little bit about furniture.

Even though furniture has been under pressure, furniture and mattresses have been under pressure as well as a category, our ability to add some of those merchants that Mitch has mentioned has made that category for us as a growth category, even in this environment.

So between furniture, auto, jewelry, some of those bigger categories for us, we're really up across the board on all of those categories.

Performance has been in line with our expectations.

The A Now conversion is still putting a little bit of headwinds on our loss rate, but early indications of the merchants who've converted over to the Acima platform have been really, really strong, both from a GMV standpoint and from a early read on performance.

So across the board, all categories being able to grow GMV at the level that we've been growing it with tighter underwriting and lower approval rates is a great story for us and should be a tailwind for us for the rest of the year.

At the end of that, Fahmi and Hoang, the -- what may be lost here a little bit is, yeah, think about the commentary Fahmi gave in the second quarter of -- when he went through all the different components of it, it came out on a range between $0.95 and $1.5, so if you just use the midpoint of that range, it's $1.

When the first quarter's $0.79, $1, I mean that's not nothing, that increase from $0.79 to $1.

And when you think about how that sequences and you compare those -- that sequence, that -- and people say, when's it going to flow through?

I mean, $0.79 going up to $1, that doesn't always happen in this industry, whether you look at our numbers or anybody else's.

So there's a strong trajectory there, so don't lose sight of that, I guess is my point.

Got you.

And I saw that you guys commented on the early buyout trends for Rent-A-Center, but I mean, can you give the same -- I mean, can you give comment on the Acima early about trend as well?

I mean, I think merchandise sales in Acima was a little bit elevated this quarter.

So just want to get some color on that.

Thank you.

Sure.

Yeah, we mentioned, Hoang, the early purchase option, we think, is pretty much normalized to pre-pandemic levels.

What we saw this year, if you look at each of the vintage and monthly vintages for the last six, seven months, they've come in flat to last year, if not slightly lower from a percentage of an outcome standpoint of the 90-day buyouts.

So we continue to normalize there.

For the quarter, coming into the year with the kind of mid-10s higher portfolio, you're going to have higher merchandise sales from a dollar perspective, and we saw that play out in the first quarter.

So merchandise sales were up year over year, and that obviously has an impact to our gross profit margin.

But when we look at it on a vintage-by-vintage basis, it's very normal to pre-pandemic levels, and actually slightly better than it was this time last year.

So that trend has continued.

Got you.

Thank you.

Thanks, Hoang.

Derek Somers, Jefferies.

Kind of touched on this a little bit in your commentary on Acima growth, but just wondering if you could touch on product category mix at RAC as well, and then trends in average ticket price across both RAC and Acima.

Yeah.

On the ticket prices, it was actually down a little bit at Acima.

Not surprising that in this economy.

And of course, there's a little bit of deflation out there too, more on the electronics side, but even in furniture, there's some.

So down a little, which is just -- probably makes the growth that much more impressive because it's not ticket.

But it didn't drop a lot, but it is down a little.

The mix is, as was mentioned earlier, is all across the board at Acima, with between furniture and jewelry, electronics, appliances, and wheel and tire.

And same with Rent-A-Center, Rent-A-Center's ticket is probably a little higher in the first quarter year over year.

That's a lot of the mix we carry and so forth and what we put in the stores.

But it is only slight, so we're not getting a lot out of ticket.

It's getting a lot of new customers, and it's pretty much across the board.

We do see some -- we get asked a lot about the furniture category and of course, that had the biggest pull-forward of demand during the pandemic.

But we've seen in the first quarter, some of our larger partners, a couple of them have turned positive comps year over year.

Of course, that was after two years of negative comps, but at least they've turned positive.

So we're starting to see -- well, we we're talking about that yesterday, we call it some green shoots in there, about starting to see some positive.

You may have seen Wayfair's report this morning.

It was pretty positive on the furniture side of things.

So I think we're seeing some similar results in furniture, where that seems to be coming back.

It certainly has at least stabilized and isn't dropping anymore, I would say.

And if anything, it's actually coming back a little bit.

Great.

Helpful color there.

And then just one more quick one for me.

On the Acceptance Now charge-off headwind, based on your integration commentary there onto Acima, is it fair to assume that charge-off headwind is going to abate over the next quarter, two quarters from now, and that headwind will be gone?

Yeah, I think it's going to be more the second half of the year than it is next quarter.

If we guided to a better second half than the first half, and so second quarter, the loss rate will be similar to the first quarter and then you'll start to see a trend down.

We still think for the year, we'll end up pretty flat to where we ended in 2023, somewhere in between the 9% and 9.5% range for the year.

So look forward to start winding down, now that it's pretty much fully converted, probably closer to the second half of the year.

Perfect.

Thank you.

That's all for me.

Thanks, Derek.

Alex Fuhrman, Craig-Hallum Capital Group.

Really nice to see the very strong GMV growth at Acima, especially in spite of lower approval rate here.

Can you give us a little bit more color on what's been driving the lower approval rate?

And if you were to see more meaningful trade down later this year or even next year, especially on perhaps as a knock-on effect, if the credit card fee should go through, would you start to see approval rate, perhaps then, start to rise?

Yeah, good question, Alex.

It certainly could, depending how much the trade down happens, because you're certainly going to be approving those that come in at the top of the funnel, so to speak, so it certainly could.

And of course, all of that, when you think about underwriting, all varies depending on the category, depending on the retail partner.

We're very targeted when we look at underwriting in our underwriting committee, which includes all the way up to Fahmi and myself.

Like I said, yeah, there may be one retailer foreseeing more trade down.

They might have had a higher approval rate in the first quarter than last year.

That's accumulation of everybody that go, as we say, down 130 basis points the approval rate.

So it's never all across the board.

It's a very targeted process.

And certainly, we have the ability to target down every single store.

And our underwriting team is so good it's that targeted, it's not a blanket.

Certainly, on the Acima side, that's part of all that benefit we're going to get from Acima and those Acceptance Now conversions.

But certainly, more trade down, I hope that number performance of the customer.

As payments come in, that affects it too, the customer performance, not just trade down, how well we're collecting on our current portfolio impacts and so forth.

So I think all of that will matter.

And we'll just -- we'll be diligent.

It's always a balance.

We've got plenty of demand, but we need to keep our -- and certainly, we could add higher GMV if we were running wide open, so to speak, but we wouldn't do that.

So it's a balance.

Okay.

Thank you very much.

Appreciate that.

Thanks, Alex.

Anthony Chukumba, Loop Capital Markets.

So I was just looking back at your original guidance for 2024, which you've reiterated, and certainly seems like you're off to a pretty good start.

You were anticipating three Fed rate cuts.

Now, it looks like that's certainly probably not going to happen, maybe we don't even get any.

Does that give you any sort of pause, given that it really looks like inflation is higher for longer or we may not get the Fed rate cuts?

How do you think about that?

The new version of our forecast doesn't include three rate cuts any longer.

I think it's pretty consistent with how the market is feeling after the last few data points.

But given that we've given a $0.50 range to our EPS guide, we didn't feel that we needed to adjust for it.

It's up $0.08 from an EPS standpoint of having three rate cuts at 25 basis points apiece.

So nothing really there from an EPS standpoint, as far as interest expense goes.

We can definitely absorb it inside our range.

As far as any impact to interest rates being higher for longer, I think the consumer, as we stated, has been very resilient to the environment today.

So we expect them to continue to be resilient going forward.

Going back to maybe the last question from Alex, on why approval rates are a little bit on the lower end, we're very mindful of the environment we're in and the uncertainty in the environment.

And we're being very cautious in our approach.

And the great part about it is we're able to grow GMV by 20% and still have that cautious approach.

So the consumer is very resilient, and we expect them to continue to be resilient.

Only thing I think I'd add to that, Anthony, is that, yeah, the range is wide enough to absorb that $0.08 without any rate cuts, as well as the start we got off to in the first quarter as well, obviously helps offset that.

Got it.

Okay.

And so -- can you just remind us, like, what percentage of your debt is floating rate debt?

Because I'm just looking to adjust your -- you guide to $105 million to $150 million, that was a net adjustment, but that remains the same.

So yeah, what percentage is floating rate?

Thanks.

It's about $850 million of the variable, to add a little bit higher than that, of the $1.3 billion.

Got it.

That's helpful.

Thanks.

Congrats on the strong start to the year and good luck with the remainder of the year.

Thanks, Anthony.

Thanks, Anthony.

Thank you.

This concludes the question-and-answer session.

I would now like to turn it back to Mitch for closing remarks.

Thank you very much.

Thank you, operator, and thank you to everyone who joined us today for an update on our first quarter performance and our outlook for the remainder of the year.

Certainly, I'm grateful for the collective efforts of our team and our merchants who helped deliver such strong GMV and the positive same-store sales results for the quarter.

So very grateful to everyone, the hard work, all our coworkers, and certainly thankful for your interest and support as well.

And we look forward to updating you towards the middle of the year and our continued progress towards our near mid- and long-term goals.

So have a great day, everyone.

Thank you.