Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Upbound Group Inc (UPBD, Financial) reported strong revenue growth of nearly 10% year-over-year, with Acima up 19% and Rent-A-Center up 1.9%.
- The company achieved a notable 35% increase in applications compared to the previous year, indicating strong demand and effective marketing strategies.
- Acima's adjusted EBITDA margin improved significantly by 310 basis points to 14.7% in the second quarter, showcasing operational efficiency.
- The company raised the midpoint of its guidance for revenue, adjusted EBITDA, and non-GAAP diluted EPS, reflecting confidence in future performance.
- Upbound Group Inc (UPBD) successfully onboarded new merchant partners, including two of the top 50 furniture retailers in the US, enhancing its market presence.
Negative Points
- Consolidated gross margin decreased by 230 basis points year-over-year, indicating pressure on profitability.
- The consolidated lease charge-off rate increased by 30 basis points from the prior year period, reflecting potential risk management challenges.
- Adjusted EBITDA decreased by 4.6% year-over-year, impacted by higher corporate costs and lower margins in the Rent-A-Center segment.
- The company is involved in a legal dispute with the CFPB, which could pose regulatory and financial risks.
- Free cash flow generation was significantly lower compared to the prior year, primarily due to increased GMV at Acima and higher working capital needs.
Q & A Highlights
Q: Can you discuss the impact of the trade-down opportunity and how it is affecting your business?
A: Mitchell Fadel, CEO, explained that the trade-down opportunity is significant, contributing to a 35% increase in applications. This growth is driven by a combination of new merchant partnerships, direct-to-consumer channels, and increased productivity at existing merchants. The trade-down effect is estimated to account for 25-40% of the growth in GMV (Gross Merchandise Volume).
Q: How are merchant engagements evolving, especially with the trade-down trend?
A: Fadel noted that there is robust merchant engagement, with a 10% net increase in merchant partners year-over-year. The company is actively signing new partners, including top furniture retailers, which is indicative of the growing demand for their lease-to-own solutions amid tightening credit conditions.
Q: Why did you raise the revenue guidance but not the high end for EBITDA and EPS?
A: Fahmi Karam, CFO, explained that the revenue guidance reflects strong GMV growth, while the margin profile is impacted by tough comps and the timing of GMV flow-through. The company expects margins to improve in the second half of the year as the benefits of GMV growth materialize.
Q: Can you provide more details on the CFPB lawsuit and its implications?
A: Fadel stated that the lawsuit challenges the CFPB's attempt to expand its authority over the lease-to-own industry, which is traditionally regulated at the state level. The company is contesting the CFPB's claims and will defend its position, but further details on the legal process were not disclosed.
Q: What is the typical GMV ramp time when onboarding a new retail partner?
A: Fadel mentioned that the ramp time varies depending on the size and industry of the partner. Generally, it takes a couple of months to reach a steady run rate, with larger partners potentially taking longer due to phased rollouts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
