Upbound Group, Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead. Thank you, operator.

Good morning, and thank you all for joining us to discuss the company's performance for the third quarter of 2026. 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 Fahmi Karam, our Chief Executive Officer, and Hal Khouri, our Chief Financial Officer. 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 most recent Form 10-K, upcoming Form 10-Q, and other 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 webcast. With that, I'll turn the call over to Fahmi.

Thank you, Abraham, and good morning, everyone. We're pleased to report another strong quarter for Upbound, highlighted by efficient execution, responsible growth through disciplined underwriting while generating significant free cash flow. I'll start this morning with the headline metrics, then cover the themes behind them and our priorities before handing it off to Hal for the financials and updated outlook. After that, we'll open the line for questions. Before I get into the results, I want to formally welcome Scott Young as Chief Operating Officer and Dev Chakraborty as head of Brigit. Together, they strengthen an already strong leadership team focused on execution and delivering long-term growth and value for our customers, merchant partners, coworkers, and shareholders. I'll share more on their priorities as we go through the segment highlights. Turning to the results and consolidated metrics. Third quarter revenue was $1.15 billion at the high end of our guidance.

Adjusted EBITDA of $123 million and non-GAAP EPS of $1.01 both exceeded the top end of our guidance. The quality of those results matters, with every brand contributing. At Acima, adjusted EBITDA grew 15% year-over-year, and margin expanded approximately 270 basis points as lease charge-offs improved more than 100 basis points year-over-year. Brigit grew revenue 37% and paying users 27% year-over-year, driving an adjusted EBITDA increase of nearly 60%. Rent-A-Center delivered sequential EBITDA growth and same-store sales growth in the quarter of 1.8% compared to last year. Its fourth consecutive quarter of growth despite a difficult operating environment. Our disciplined approach contributed to stronger profitability and healthier loss ratios at Acima. Upbound generated $121 million of free cash flow, more than double the prior year, allowing us to reduce net leverage to 2.4 times.

The trade-off to more prudent and disciplined underwriting is reflected in lower GMV. Acima GMV was $431 million in the third quarter, down 11% year-over-year. The decrease is a combination of our disciplined underwriting posture as well as lower traffic in our partner retail stores and e-commerce sites. Our underwriting capabilities are our core strength across Upbound. We actively manage underwriting at a strategic level, balancing growth, portfolio performance, and risk-adjusted returns based on the data we see in each business. At Acima, our disciplined approach this quarter contributed to healthier loss rates, stronger margins, and cash generation. As consumer conditions and portfolio performance support it, we have the flexibility to adjust that lever to pursue profitable and responsible growth going forward. Moving on to the economic backdrop and its impact on our consumers.

Our core consumer remains resilient but continues to manage elevated costs across essential categories like groceries, rent, utilities, and energy. Gas prices, in particular, have stayed elevated, which has pressured customer wallet share for larger ticket discretionary purchases like furniture and appliances. Our customers have adapted to persistent inflation in their lives, but the uncertainty has put pressure on demand, with consumers selectively choosing how to spend their discretionary income, seeking value for each transaction. Notwithstanding the broader macroeconomic backdrop, our three complementary brands offer a range of solutions that help us manage category-specific demand and create multiple avenues for growth as we remain focused on giving customers flexible, affordable ways to access the products and financial liquidity they need. We continue to strengthen the connections across our brands by investing in shared capabilities and creating a more connected experience for the customers we serve.

As we've said before, our strategy is straightforward: meet customers where they are today while expanding the ways we can serve them through new products as their financial needs evolve. Since last quarter, we've made progress on our strategy by putting new capabilities into market, accelerating how quickly our teams learn, and translating that progress into measurable customer and business outcomes. Over time, we believe these efforts can increase customer lifetime value, create greater operational leverage, improve capital efficiency, and long-term value creation for our shareholders. AI and advanced analytics are becoming increasingly important capabilities across Upbound, helping us make better decisions, operate more efficiently, and improve how customers experience our brands. We are already putting that capability to work across underwriting, customer communications, account management, and collections. As an example, approximately half of the code changes our engineers put into production now involve AI assistance.

At Rent-A-Center, customers are already using our AI shopping assistant to find products through natural language conversations. Our digital transformation goes beyond putting existing processes online. We are combining stronger data foundations with AI-powered capabilities to give us a clearer, more consistent view of performance. As we scale these capabilities across the enterprise, we see additional opportunities to increase operating efficiency, personalize customer experiences, and support growth. Now let's turn to our segment highlights for the third quarter, starting with Brigit, where we saw a continued expansion in paying users and improved monthly ARPU, driven by a move to the premium tier and deeper engagement. As a result, Brigit delivered another quarter of double-digit year-over-year growth in subscriptions and revenue. Paying users grew 27% to 1.84 million, and revenue grew 37% to $79 million. Adjusted EBITDA grew 59% to $15 million.

On the partnership side, the multi-year agreement we announced with Experian last quarter to offer Brigit's earned wage access product to Experian Money Plus members is progressing well, with thousands of users already signed up. We expect the broader rollout of this partnership to contribute meaningfully to Brigit's momentum in 2027. The line of credit pilot is also expanding, and we remain focused on a measured rollout that keeps unit economics, customer outcomes, and long-term value front of mind. At Acima, pressure on GMV was balanced by meaningful improvement in profitability and credit performance, a direct result of our approach to macro headwinds. Adjusted EBITDA grew 15% to $86 million, and margin expanded approximately 270 basis points to 14.7%. Lease charge-offs improved 8.7%, more than 100 basis points better than last year, the lowest level since stimulus in 2021.

These results validate the data-driven approach our team has adopted to protect portfolio quality and improve long-term economics. I would also like to highlight our new integration agreement with Boost Mobile, which positions Acima as a preferred lease-to-own solution across approximately 5,000 Boost Mobile stores nationwide. Acima will embed directly into Boost Elevate, the point-of-sale platform in those stores, so shoppers can scan a QR code at the counter, apply on their own phone, and review lease options in a few simple steps, meaningfully expanding our reach in the wireless category. Taken together, Acima enters the fourth quarter with a healthier portfolio, an expanding merchant network, and a margin profile that gives us flexibility to consider underwriting adjustments as the macro backdrop evolves.

As the consumer environment allows, we are well-positioned to translate that foundation into profitable growth, starting in the fourth quarter, where we expect the sequential trend to improve significantly and GMV to be relatively flat compared to last year, assuming a normal holiday shopping season. Moving to Rent-A-Center, overall performance in the third quarter was stable amid a continued inflationary expense environment. We achieved year-over-year same-store sales growth of 1.8% in the third quarter, our fourth consecutive quarter of positive same-store sales growth. The segment delivered its first sequential EBITDA improvement in a year, with adjusted EBITDA up 4.9% from the second quarter. The team continues to prioritize portfolio quality while advancing initiatives aimed at improving customer experience and store-level profitability. As we mentioned last quarter, we continue to evaluate our footprint as part of a broader effort to improve market-level performance.

Where consolidation improves the economics of a market, we will continue to pursue those opportunities. At the same time, our work is increasingly focused on defining the right go-forward strategy by market, including how we use our store footprint, digital capabilities, and local operating model to serve customers more effectively, improve margins, and position the business for growth over time. We also continue to evaluate the benefits from the Amazon in-store pickup and drop-off partnership, which is deployed across approximately 1,500 corporate-owned Rent-A-Center stores and continues to drive improved foot traffic and brand awareness. Before passing the call to Hal, I want to step back and talk about where we're taking Upbound as we head into 2027. Having the right leadership in place is central to this vision. Scott Young brings more than three decades of experience leading large, complex financial services businesses.