Q3 2024 Upbound Group Inc Earnings Call

The End

Speaker Change: Good day and thank you for standing by. Welcome to the Q3 2020-24 Upbound Group earnings call. At this time, all participants are in the list and only modes. After the speaker presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your questions, please press star one one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand the conference over to your first speaker today. Jeff Chesnut, head of IR. Please go ahead.

Jeff Chesnut: Good morning and thank you all for joining us to discuss the company's performance for the third quarter of 2024. We issued our earnings release this morning before the market opened and the release and all related materials including the link to the live webcast or available on our website at investor.bam.com.

Jeff Chesnut: On the call today from upbound group, we have Mitch Fadel, our CEO and Fahmi Karam, our CFO.

Jeff Chesnut: 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 different materially and adversely from our expectations.

Jeff Chesnut: These factors are described in our earnings release as well as in the company's SEC Pylinks. Upbound group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

Jeff Chesnut: This call will also include references to non-gap financial measures. Please refer to today's earnings release, which can be found on our website for a description of the non-gap financial measures and the reconciliation to the most comparable gap financial measures.

Jeff Chesnut: Finally, a found 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.

Speaker Change: With that, I'll turn the call over to Mitch.

Mitch Fadel: Thank you Jeff and good morning everyone.

Mitch Fadel: I'll begin with a review of the key highlights from the third quarter, Fahmi Alshir, or more details review of our financial results in our financial outlook and afterwards we'll take some questions.

Mitch Fadel: To begin, I'm very pleased to share that I had third quarter revenue with nearly 1.1 billion.

Mitch Fadel: adjusted the speed of the day with the 17 million and non-gap earnings per share was 95 cents, which was right at the midpoint of the guidance we provided on our last call in a couple of cents above the average of our street consensus estimates.

Mitch Fadel: A seam allowed the way with revenue up 19% year over year was...

Mitch Fadel: Renesner delivering 110 bases point improvement in revenue against the prior year.

Mitch Fadel: Despite the impact of about 50 store closures we mentioned last quarter, in addition to a recent sale of 55 stores in the New York metro area to an existing franchiseeed, and I'll discuss the successful execution of that franchiseeed sale more detail shortly.

Mitch Fadel: A FEMA delivered another strong quarter GMV growth with a 13% increase year over year, which wasn't lying with our state-of-gagging sub-low double-digit growth as we start to camp against the accelerated performance from the latter part of 2023.

Mitch Fadel: Last quarter we also shared our outlook for the third quarter least charge operates and also consistent with those projections. The seam is least charge operate improves the quenchily and year over year to 9.2%.

Mitch Fadel: On the Renaissance side, we expected, as expected, we did experience a seasonal sequential increase to 4.9% which was slightly above our earlier expectations as the environment for our consumers remains challenging.

Mitch Fadel: Now despite the tick-up and losses at Renaissance, they remain in an acceptable level of optimized risk adjusted returns, especially when you think about the environment we're in.

Mitch Fadel: will also learn even out margins in line with our targets. Brendan Sanders suggested even out margin of 16.3% increase the 130 basis points year over year.

Mitch Fadel: Well, Seema Ziba Dalmargin came in at 13.3%. And that's like the client is a Seema. Isn't lying without target of low to mid-teens adjusted to Diba Dalmargin's and reflects some tree-down dynamics as I'll speak to in the segment results.

Mitch Fadel: Importantly, based on our current visibility, our forecast for the holiday season and our ability to exercise operating levels to each of our larger segments.

Mitch Fadel: We expected to achieve the full year guidance we provided last quarter.

Mitch Fadel: Now, before we review our segment results, let's discuss one of the key themes we've seen across this past quarter.

Mitch Fadel: At the FEMA, we've continued to see credit tightening above us, driving trade-down with better quality credit quality consumers coming to us.

Mitch Fadel: The Lunders of Bubbles and Retailer Checkout Flows have implemented mitigating actions and response to higher delinquencies, impending regulatory changes for credit card late fees, which allow us to selectively tighten our underwriting in certain higher risk areas as we work to optimize our risk adjusted returns.

Mitch Fadel: But even as we adjusted the bottom, our business still enjoy strong prospects for growth across our portfolio. That's the benefit of trade-down activity.

Mitch Fadel: Our seam of business experience of our 25% increase in applications compared to a year ago quarter. And our overall applicant pool at higher third-party scores.

Mitch Fadel: and with a scene of continuing to grow its overall number of retail relationships, we're able to reach more new customers even as we're more selective in our decision.

Mitch Fadel: So with that context, I'm very pleased that our team delivered results in met expectations on revenue and adjusted EBITDA and non-GFEPS.

Mitch Fadel: I'm confident their performance will help us achieve our full guidance across the balance of the year while managing through these uncertain times.

Mitch Fadel: So let's move on to the slide for in our presentation and we'll talk through more specifics about our segment results.

Mitch Fadel: At the Seema, we continue to be a growth leader in our industries. We achieved our fourth consecutive quarter GMV growth with a 13% lift in Q3 compared to a year ago period.

Mitch Fadel: As we mentioned last quarter we expected the rate of year of year growth to moderate in the second half of the year as we start copying against the acceleration of our growth and the elevated performance it really began in September of last year.

Mitch Fadel: Now powering that growth is the seamless proven algorithm, which is supported really by three pillars.

Mitch Fadel: Adding new merchants to the Assim and Network.

Mitch Fadel: expanding our productivity with existing retailers.

Mitch Fadel: and inviting consumers to start their shopping journey through a seamless direct to consumer marketplace.

Mitch Fadel: Our field organization grew our active location count again this quarter, increasing 10% year over year, 10% growth in locations.

Mitch Fadel: We're working with our retailers to boost our lease productivity metrics.

Mitch Fadel: We also had several joint marketing campaigns with a retail partner promoting their sale events in the quarter, things like way days of wafer in Amazon Prime Days.

Mitch Fadel: More continuously promoting our retailers whether it's in store, on the recombsites, or through our own marketplace. And our direct to consumer marketplace continues to grow. Contributing toy the GMV growth in the period in that effort will remain a focus for us going forward.

Mitch Fadel: The visitors we welcome to our marketplace are generally returning customers, which means lower underwriting costs.

Mitch Fadel: Stronger Laws Performance in Higher Lifetime Value than the broader set of our customer universe.

Mitch Fadel: These girls fell as translated into a 19% revenue list for a senior year over year and are proactive risk management strategies help you that at least charge off rate of 9.2% which was down 40 bips sequentially and down 20 bips year over year.

Mitch Fadel: Second-level growth profit and even on margins were down against both year over your answer, a bunch of pounds, driven in part by the residual impact of the A-NL transition and an increase in 90-day purchase option activity which was heightened due to trade-down dynamics.

Mitch Fadel: We're excited about the opportunity to trade down represents, but the performance profile of these generally higher scoring customers is a bit different than what we've experienced recently from our core consumers.

Mitch Fadel: These customers tend to like more often the earliest purchase option on the least transaction, which is the lowest margin outcome for Assima other than a charge of the account.

Mitch Fadel: The F-shot and the bright spot of all the things that were meeting new customers and helping them at the point of check out when their traditional batches are closed available.

Mitch Fadel: The sense of customers that exercise the purchase option typically execute repeat transactions.

Mitch Fadel: We'll encourage them to visit our third party retail store on Marketplace, which we believe will enhance our lifetime value with that consumer, and drive more sales store partners.

Mitch Fadel: All day I'm being straight.

Mitch Fadel: Even with Evidad, the other takes a while to catch up with all the strong GMV growth in our business.

Mitch Fadel: The remaining headlinses we worked through the Legacy A-NOW back book.

Mitch Fadel: and an increase in law and margin early purchase activity.

Mitch Fadel: As Siemens still came in within our long term load of mid-teens, even at a margin range at 13.3% a really strong quarter for Siemens across the board.

Mitch Fadel: Let's shift over to Ryan and Center where the competitive landscape has changed notably since our last update.

Mitch Fadel: Rex saw some of the song-time competitors go private, some reorganizations and even liquidations.

Speaker Change: Our recent results highlight the strength of the Renaissance brand in our co-workers who bring that brand to life through connections with our customers and their communities.

Speaker Change: Between Redifense Leadership and our Thousands of Source Associates

Speaker Change: We're ready to support those customers that may be seeking a new store in their neighborhood or even online options sell back to us the everyday products they need to improve their quality of life.

Speaker Change: The long-mostakes were actively marketing to those potential customers to guide them in the moment they may be looking for alternatives. We're using things like geographic overlays and geofencing, behavioral data, and even contextual AI to sharpen our targeting efforts and increase the efficiency and effectiveness of that campaign.

Speaker Change: and that's on top of our strong foundational marketing efforts that we do every day.

Speaker Change: In those marketing levers, along with our continued focus on operational improvements, help forensic interference that their court will have same source sales growth at 2.6% against last year's co-curve.

Speaker Change: Others are struggling, even shutting down.

Speaker Change: Yet the strength of runners and sprain and value proposition in people has now driven three consecutive quarters of St. for sales growth at a just-to-date of margins above 16%.

Speaker Change: Really pleased with the performance of the Rensham Business as well.

Speaker Change: From a channel perspective, Brendan Cenk's e-commerce activity represented over 26% of revenue in the third quarter, and increased from approximately 25% at third quarter of 2023, due to our team's efforts to optimize our digital customer experience.

Speaker Change: We've also launched a partnership with Google to leverage a generative AI to enhance the personalized experience on arunsart.com website that should drive even better performance in the future.

Speaker Change: and

Speaker Change: Even though the adjustment serencentage store count, the segment he's revenue growth of 1.1% year over year with a gross profit margin in line with prior quarters.

Speaker Change: As expected, the least charge-off rate at Renaissance was elevated in Q3, landing at 4.9% compared to 4.3% the prior year, partially due to seasonality, but also due to stress on Renaissance traditional customer.

Speaker Change: As I've mentioned, we're monitoring for Format's closely in making adjustments in real time to protect that margin profile.

Speaker Change: So wrapping up the slide, I'd emphasize this quarter was a busy one.

Speaker Change: With a number of strategic initiatives in flight, the We believe will position a staff of a successful finish to the year and a strong start to 2025.

Speaker Change: The C-Matted numerous new clients to help sustain their GMV growth and start building the next generation of the staff model stronger performing Go Forward portfolio.

Speaker Change: The Redness and Team Ex-Cutant and Ibadine Hansen transaction with a key franchise partner while reacting in the moment to capitalize on a market opportunity related to competitive development.

Speaker Change: Collectively, these achievements have a soundtrack to meet the 2024 guidance we provided across the course of the year.

Speaker Change: I'm Flight 5, let's review the status of the strategic priorities we outlined for the year.

Speaker Change: For a seamour, we highlighted customer attention as a focus area in 2024 and we've been reimagining the way our seamour customers apply shop and check out with us.

Speaker Change: We know there are additional opportunities to streamline and modernize our processes and we're currently working to expedite the leasing process for returning customers while removing friction points in the application flow for new customers.

Speaker Change: These changes will be ongoing in targeted residents and discrete in wholesale and we believe they'll benefit our business, our merchants.

Speaker Change: and most importantly our customers.

Speaker Change: From a market's cheer for a spectative, I've seen a continuous dad retail name plates and build all the capabilities of the Assima Marketplace.

Speaker Change: Now we don't often mention all of our wins but given the attention recently around one regional account

Speaker Change: We fellow is important to level set, and the growth we've achieved in the prospect of future growth opportunities.

Speaker Change: what

Speaker Change: Assume us up over 10% in locations year over year, and we consistently outgrow all of our competitors when it comes to new doors. And of course our GMB numbers speak for themselves.

Speaker Change: Our current and growing lineup of diverse partners will help amplify our growth, this is a furniture industry, our largest segment, in flex back to positive trends after years of demand being pulled forward.

Speaker Change: Until then, we'll continue working at new retailers across all of our key variables, we'll continue to provide superior service to our existing versions so that we maintain a well-diversified mix of larger, medium and smaller size clients.

Speaker Change: In the third quarter, our largest retail representative approximately 6% of total GMB and a top 5 were collectively approximately 22%.

Speaker Change: Despite the transition of that one account, we're raising our view of the fourth quarter GMV to low double digits.

Speaker Change: Our confidence in continuing to grow G&B speaks to the diversity we built in our business, diversity in merchants and in product categories.

Speaker Change: We're particularly excited about elevating the digital capabilities of the Seam of Marketplace, which continues its strong road trajectory with over a 30% increase in the third quarter of 2024 compared to the prior year period.

Speaker Change: Our team surmaned focus on enhancing the marketplace infrastructure, including the implementation of our new and proprietary AI powered, Lisa Villity Search Engine, which is helped simplify the process for onboarding new, unintegrated merchants.

Speaker Change: This particular upgrade enabled the recent editions of National Branch that have just been added to our marketplace such as Amazon.

Speaker Change: Walmart.

Speaker Change: Target and eBay have been recently headed to the marketplace, known in the hands of experience of our existing merchant's also with that technology.

Speaker Change: This AI power-release ability engine also allows a six-band previously unavailable, durable good categories for a least-owned.

Speaker Change: If you think about it without this remarkable proprietary tool which our team built with Google

Speaker Change: He simply cannot sift through all the leaseable products on the website like Amazon.

Speaker Change: and now we can.

Speaker Change: And we just started doing this earlier in October and it's capability to help us grow this channel even further are incredibly exciting.

Speaker Change: We're also building toward rolling out our updated virtual lease car program.

Speaker Change: which will facilitate a simple and safe shopping experience for users with advanced fraud protocols designed to minimize losses and maximize profit releases.

Speaker Change: This updated virtual lease card will allow returning customers to shop, in store at any retailer that is in the find eligible goods to lease from a cinema.

Speaker Change: Our goal of these investments is to reinforce as seemed as reputation as a premier LTO shopping destination for our customers.

and had meaningful growth engines for the business for many years to come.

Speaker Change: Hey, Renes Center, we continue to make progress to living more value and better experiences for our customers.

Along those lines, and as I mentioned earlier, in Q3 we completed an opportunity to excel of 55 source in the New York City metro area.

Speaker Change: To occur at Renaissance French I.C. that has a very successful track record with us.

This feels a win for our customers because this new owner can optimize the business processes to serve those stores. You know, near the city, of course, is a pretty unique operating environment.

Speaker Change: In one we believe will benefit from a locally run business that can more readily implement tailored processes to address some of the local conditions that are so much different there than the rest of the country.

From a financial standpoint, we'll be replacing sales revenue with royalty revenue, so a run-of-sense top line will be mounted to the impact of the loss of those stores. But we expect the opportunity results will be even though enhancing.

to us. In other words...

Because our normal operating model wasn't the best fit for New York City, and it wasn't that profitable of a market force. This franchiseing effort is actually, even a creative based on royalties from the franchise stores.

I can also tell you we've been looking for a franchise that has operated Denmark for many years.

All the way back to when we did the same thing with a California market in 2020.

Speaker Change: So I'm really thrilled we're able to partner with this existing franchise, either make this happen and I'm very excited about the future of Renaissance in that market for our customers.

Beth French, IZ and our company.

Speaker Change: Earlier this year, you over call, we were consolidated similar numbers source and we had upcoming leachrend holes in nearby source because of the customer base.

Speaker Change: We expect to retain a healthy proportion of that customer activity in our early indications point to our efforts working well.

Well, the past two quarters we've seen change is top themize our store count. That's a natural and responsible reaction to managing nearly 2,000 source across the country.

Even as Wayne Hansard Digital footprint, our source remained the center of gravity in our relationships with our customers while adding on the ground synergies to a seamless virtual platform.

Speaker Change: We'll continue to optimize our 1700-plus corporate-owned store for Brennan's customers' needs and neighborhood dynamics change, but in general, our philosophy going forward will be the remaining net neutral.

Speaker Change: with our current store count. Now we've done the New York deal and I mentioned we've been trying to find somebody for about four years for that market.

In other words, we believe we're now done.

As far as any reduced store count and we feel really good about our well balanced sort of footprint going forward.

Speaker Change: The Racer and Team also leverages technologies a drive-writer outcomes for the business and its customers. This past quarter we deepen the Rennis Center.com website integration with a key supplier to provide stronger visibility in the product models and availability, which helps improve the customer experience and lifts conversion rates.

We also strengthened the seamless underwriting fraud tools of Renaissance underutilizes this SESA timeline chopper that creates more opportunities to improve the right customer's release, which I better outcomes for customers while minimizing potential losses.

Additionally, we continue to work towards positionary our business to be successful today and in the economy of the future.

As I mentioned earlier, we've got a couple of different partnerships. Things going on with Google, of course, a global leader in Gen A I, and we developed a roadmap to deliver specific and measurable outcomes across customer experience.

Personalization and customer conversion. In particular, the SEMA has deployed solutions to streamline the onboarding and leasing processes for key retailers, like I mentioned.

Speaker Change: Renstern.com is launching a more powerful search and recommendation engine and these initiatives when up and running a full capacity should provide significant customer benefits, drive transactions and enhance margins for our business and our third party retailers.

At the up on level, we continue to make incremental progress with a credit offering throughout partner issued cards. The Assimad General Purpose Card can be used anywhere mastercard is accepted.

and the Assim of Private Credit Card can be used across our current merchant roster.

From an account acquisition standpoint, we've seen promising growth and sign-ups from our digital properties. Our consumers are spot on offers and invitations featured.

and the theme is out.

Speaker Change: as well as a desktop and mobile website. Our next stage of testing and learning will include holiday campaigns across direct mail and social media and rent a center-stage at all properties.

Speaker Change: This initiative is contributing modestly to our bottom line, but more importantly, it's contributing to our understanding of our customer's interest in desires and the broader damning, dynamics of the Consumer Credit Landscape.

Speaker Change: Well, this partnership enables us to learn in the low risk balance sheet light environment today. It also helps prepare us for future opportunities to scale and grow.

Speaker Change: Now before I ended off the family, I think I'm sure a couple final thoughts, the first being that at the veteran of four decades in this industry and seeing the industry evolve and so forth, I know how durable our model lives in.

and because the delivers inclusive shopping solutions to underserved consumers.

Speaker Change: Whether Redis Center or Seema are telling an experienced team is committed to helping our customers find practical solutions in our merchants finding for mental sales and even the things change.

Speaker Change: We're committed to being ready to deliver the next generation of solutions and value to each of our stakeholders. Lastly, I want to thank our team for their dedication and tireless efforts to support our customers and retailers.

As always, we're grateful for their ongoing dedication or core mission of elevating financial opportunity for all. Their commitment to our customers is evident every day and we sincerely appreciate it, so with that, I'll turn it over to Fahmi.

Thank you, Mitch, and good morning everyone. I'll start today with a review that third quarter results, then discuss our outlook for the rest of the year, after which we will take questions.

Speaker Change: Let's begin our page six of the presentation.

We are very pleased for another strong quarter with revenue growth over 9%, even though growth of 10% and the FPS growth of 20% compared to last year.

Speaker Change: Consolidated revenue for the third quarter was up 9.2% year over year, with a seam up 19.1% and rent a center up 1.1%.

Rental's in fees revenues were up 8.8% while merchandise sales revenues increased 18.2%. Reflecting a larger portfolio balance at a seam of coming into the quarter.

and more customers exercising the 90-day purchase option and promotional initiatives at Renaissance.

Consolidated gross margin was 47.8% and decreased 300 basis points year over year. With a 280 basis point decrease in the ACM a segment and a 90 basis point decrease in the Rennis Center segment.

Consolidated non-gap operating expenses, excluding lease charge-offs and depreciation and immunization were down low single digits.

Do in part to non-labor operational efficiencies at Renaissance Center, combined with overhead labor savings.

The consolidated lease charge operate with 7.4% a 40 basis point increase from the prior year period and broadly in line with our expectations.

On a sequential basis, the consolidated lease chart offer increased 20 basis points.

Speaker Change: and the other two of us, to do to a 70-based, point sequential increase at Renaissance.

Consolidated adjusted EBITDA of 116.9 million increased 10.3% year over year due to higher acema and reticenter segment adjusted EBITDA in addition to lower corporate costs.

I just had even done margin of 10.9% with other approximately 10 basis points compared to the prior year period.

during the Bioproxyly 130 basis points of expansion at Renaissance, in addition to a decrease of approximately 70 basis points in corporate costs as a percent of sales, which was partially offset by approximately 200 basis points of margin contraction at a seamup. I'll provide more detailed and segment results in a moment.

Looking below the line, third quarter net interest expense was approximately 26 million, which is a slight decrease from the prior year period.

The effective tax rate on a non-gat basis was 26.2%, compared to 25.5% for the prior year period.

The Deluded Average Share Count was 56 million shares in the quarter.

Gap earnings per share was 55 cents in the third quarter compared to earnings per share of eight cents in the prior year period, which is driven by the prior year tax impact associated with the best thing of restricted stock awards, issued in connection with the Assima acquisition.

After adjusting for special items that we believe do not reflect the underlying performance of our business.

Speaker Change: Non-Gat alluded to EPS with 95 cents in the third quarter of 2024 compared to 79 cents in the prior year period, representing 20% growth year over year.

We distributed a quarterly dividend of 37 cents per share and we finished a third quarter with a net leverage ratio of approximately 2.6 times after paying down a revolver in the quarter.

Let's move to the second result starting on page 7.

For a seamup, double digit year over year GMD growth continued for the fourth consecutive quarter. Along with approximately 20% year of year growth in the prior three quarters, GMD growth is 13% in the third quarter.

The GMV list was driven by year over year growth and key underlying drivers, with active merchant locations up approximately 10% year over year, more productivity per merchant and an increase in applications of over 25%.

Those tailwinds are partially offset by lower approval rates as we remain disciplined in our underwriting approach, as inflation continues to impact our core consumer base.

The net asset value of inventory under lease was up approximately 16% year over a year.

Revenue increased 19.1% year over year.

including a 17.9% year over your increase in rentals and fees revenue. And a 23.5% increase in a version by sales revenue, due to a larger portfolio at the beginning of the third quarter compared to last year, and the impact was straight down.

Leach charge also the estimated segment were 9.2%, 20 basis points lower year over year and 40 basis points lower sequentially.

The year over your decrease in a seam at least charge-offs was driven by our continued underwriting discipline.

The recent uptick and early purchase option elections and the wind down of the A now back book.

Non-gap operating costs, excluding least charge costs, were up on a dollar basis, approximately 4.3 million in a third quarter, which was 70 basis points lower as the percentage of revenue.

I just had EBITDA 75.3 million was up 3.4% year over year. Parmelli due to the 19.1% increase in revenue that was partially offset by 24.2% increase in cost of good sold.

I just did give a down margin of 13.3% decrease approximately 140 basis points to quenchily and decrease approximately 200 basis points year over year. Primarily due to a 280 basis point contraction of gross margin compared to the third quarter of 2023.

The decrease in gross margin compared to the prior year was a result of a few factors.

including an increase in merchant lifestyles, which represented a larger percentage of revenue compared to the prior year period due to more consumers electing the 90-day purchase option.

and the conversion of acceptance now locations to the Assima Plasma.

For the Renaissance segment, at quarter end the same store lease portfolio value is roughly flat year over year, while same store sales increase 2.6% year over year, maintaining the momentum from the 2.6% year over year increase in the second quarter of 2024.

Total segment revenue grew year over year for the third consecutive quarter, increasing 1.1% compared to the third quarter of 2023.

The increase in revenues was driven primarily by 1% year over your increase in rentals and fee revenue, offset partially by a 40 basis point decrease in merchant-by-sales revenue compared to the prior year quarter.

Leaves charge off for 4.9% of revenue in the third quarter, 60 basis points higher year over year, and 70 basis points higher sequentially. A reflection of expected seedinal trends, as well as conditions that remain challenging for our consumers.

Speaker Change: 30 day past few rates average 3.4% for the third quarter of 30 basis points from the prior year period.

Although there was a flight uptickin' losses and the link was used, they both remained in an acceptable range for us to produce strong Yvonne Dalmargin's.

During the quarter we made tactical adjustment toward decisioning to help achieve our full year target LCO rate in the 4.5% area and position us very well for 2025.

I just had even done a margin for the third quarter increase 130 basis points year over year to 16.3%. Primarily due to lower non-labor operating expenses.

This is reflected by 260 basis point year over your decrease in the ratio of non-gap operating expenses, excluding these tar jobs to segment revenue.

For the Mexico segment on a constant currency basis, revenue increased year over year, while I'll just to do with our main relatively flat.

The French High segment revenue decrease year over year while segment adjusted even though increase compared to the prior year period.

Non-gap corporate expenses were approximately 4.3% lower compared to the prior year.

Speaker Change: Let's shift to our financial outlook.

Speaker Change: Our outlook assumed the stable macro backdrop consistent with current conditions.

Durable Goods Demand still recovering in a holiday season that's not disrupted by external factors.

As Mitch noted earlier, for the full year we expected to achieve the midpoint of the guidance that we raised on the second quarter call. We are tightening the ranges around the midpoint for the full year.

Revenue should be in the range of 4.2 billion to 4.3 billion, adjusted to Eva-Done to 470 to 480 million range, and non-Gat GPS in the range of $3.75 to $3.90.

For the fourth quarter, please with a start through October, and expect it will translate to Low Double Jit's digit year-over-year GMB throughout that Assimba.

which is higher than we expect it's coming into the quarter and a strong outcome given the 19% GMB growth that a seam of posted in the fourth quarter of 2023.

That higher than expected GMV growth also means this year's free cash flow, which funds that growth is now expected to finish towards the lower end of our guidance.

We expect to see Ms. Rednew to grow a mid-teens year over year with gross margin cylinders in the third quarter of 2024 due to the mixed shifts towards the earliest purchase option.

These charge off in the fourth quarter should be relatively flat sequentially and lower than a year ago quarter. In part due to the proactive measures we've taken to fine tune our underwriting in certain risk segments.

Expenses, excluding losses, should be lower, resulting in slightly higher acema adjusted EBITDA margins compared to the third quarter.

Renesenter's fourth quarter outlook should see revenues down those single digits to the franchise sale in the third quarter, with least charge off in adjusted eave the gum margins similar to the third quarter.

Speaker Change: Corporate costs are expected to be up low single digits year over year.

Our lead charge officer Slyley elevated compared to our long-term normalized target ranges for each segment, but remain at acceptable levels for us to continue to grow in achieve our target even though margins.

We are consistently reviewing our portfolio performance and our decision engines are continuously adjusting approvals and approval amounts to remain competitive and disciplined in loss mitigation.

We've critically managed our decisioning based on real-time data to guide the business towards our targets, despite the difficult operating environment we've seen in the past few years.

We're confident in our tools and our data-driven approach to main losses at an acceptable range until the macro improves.

In addition, if trade-down continues, charge off shoot and prove as that GMD becomes a larger mix of the portfolio.

While trade-down has contributed to the seamless revenue growth, in the near-term real continued impact of seamless growth margins and adjusted EBITDA given the higher proportion of lower margin early purchase outcomes, but it will eventually benefit losses and loss rates that volume flows through the P&L.

Speaker Change: In terms of the fourth quarter, we expected just an e-bodder range from 120 million to 130 million with non-bath EPS in the range of 97 cents to $1.12 per share.

Interest expenses expected to be modestly lower compared to the third quarter, while a non-gap tax rate should be consistent at around 26%.

In terms of cash flow, we expect that GMB growth has seemed more than offset the cash generated at Renes Center, but as noted, we still expect to be within the full year range for our free cash flow guidance.

We are assuming it fully diluted average share count of 56 million shares for the quarter, with no share repurchased as soon as in our guidance.

We started this year with a very strong guide for our performance across 2024, given the momentum we started building in the back half of 2023.

Despite an uneven macro backdrop, ongoing softness in the man for consular durable and the continued stress on our consumers. I'm very pleased to see the progress we made towards achieving our goals.

Our team will continue to focus on meeting and exceeding expectations of the Spanish 2024 and move into the new year.

Let's move to slide 10 and discuss how our capital allocation process supports our strategic imperatives.

Our fundamental priority continues to be supporting growth initiatives across the company.

They're both diversified that our consumers are seeking.

Speaker Change: and the new capabilities that make our process more seamless and accessible.

Beyond that, we're committed to supporting our dividend program, which has now been running for 20 consecutive quarters going back to pre-pandemic periods.

We expect the balance of our free cash flow this year will go towards the leveraging as we progress towards a net leverage ratio of under two times. And towards our long-term target of one and a half times.

We ended the third quarter at 2.6 times, down from 2.8 times at the end of the second quarter, and the seamless working capital needs moderated with GMV gross shifting to low double digits from the 20% area.

We were able to fully pay down our robolver and end of the third quarter with liquidity approaching 600 million.

Thanks to the strength of our balance, we should be well positioned to seize opportunity to outside of those core recurring priorities, whether assessing potential share repurchases or targeted M&A, we can deploy our available liquidity to advance those goals.

As we wrap up on Fadel 11, I'd like to emphasize a couple of the points that Mitch mentioned earlier.

Speaker Change: Our mission is to elevate financial opportunity for all consumers who are underserved by traditional options.

Cross our business. We offer accessible and inclusive solutions to help our customers find the right fit when they're shopping for durable goods.

Whether in store or online, we're committed to creating a seamless experience for the end that also delivers incremental sales and top tier service to our third party merchants.

and that's what we've done of the past several quarters.

Both of our larger segments are growing their top lines, managing risk thoughtfully and driving Yvida and EPS Group.

As we continue to do that well, it enables us to create meaningful value for our shaped stakeholders, and we're confident that our mission and our model continue to drive sustainable, profitable growth across the near and long-term horizons.

Thank you for your time this morning. Operators may now open the line for questions.

Speaker Change: Thank you very much.

You've never reminded to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star one once again.

Speaker Change: Please be considerate to the time restraints of the call.

Please stand by while we compile the Q&A roster.

Speaker Change: Our first question today comes from Vincent's Cain Tick with BTIG. Here, line is open.

I'm sorry thanks for taking my questions.

Speaker Change: So first question on the assume the trade-down activity. So it was nice to see the Virgin Nysales being up and seem like that's all incremental. And so if you could talk about that, the economics of the trade-down will...

and this is a small and more detail that you could talk about where you expect the gross margins will pull out. And I guess with the lower losses that you're expecting does that mean that the economics of that training of business is kind of similar to the rest of the least business once you account for the lower losses.

Hey, James, good morning. So generally speaking, you know, the 90 day purchase activity is usually associated with trade-down comes to us at a lower margin.

but would trade down really allows us to do especially in this backdrop of.

You know the macro being so uncertain and...

Speaker Change: and um...

It allows us to keep you in the up. It also allows us to be a little bit more selective.

I'm kind of on the bottom end of our core consumer.

Speaker Change: As we mentioned, applications were up 25% approval rate.

was down about 60 basis points, but if you exclude some of the staff to business that moves most of that moves from the A now to the Assima platform, or approval rates were actually down closer to 300 basis points. So it really allows us.

to be more selective in who we allow onto the balance sheet we give Lisa's to. But it does come as I mentioned at a lower margin and you saw that reflected in our gross margin this quarter and we expect that to continue into the fourth quarter.

But as we said in our prepare-in-a-more, it does give us the ability to get to new customers into the Assima platform, those customers that come to us through trade down typically due exercise in 98 by out option.

Speaker Change: but they also have repeat business in that second and third lease that they do with us typically has better margins than the first lease. So it's a good business for us. We're excited about having that opportunity as it continues to trend up.

Through the year, and as you mentioned, you start seeing some of the loss improvement as it rolls through the link we're seeing into the P&L. You haven't really seen that just yet. Just because it takes a while to go through the P&L, but you are seeing some of the headwind associated with the gross profit margin.

Speaker Change: Okay, great, that's super helpful. Thank you. And then last question, just switching over to the Renaissance business.

Speaker Change: Understanding that the charge elsewhere up part of that was new to seasonality, part of that, due to the consumer. But it was interesting to also see that Rack margins were actually up 130 basis points a year, beer.

So I'm wondering how you're thinking about managing that business if perhaps maybe the higher loss content is there but there's higher profitability in on business. Can talk about how you manage that. Thank you.

Yeah, good morning Vincent, this match. Excuse me.

Now, thanks for the question, good question, Dia, because he's in our margin too.

Speaker Change: are pretty strong at Brendan Center. So you're always balancing the losses with the total bottom line, balancing how much you let through.

to get to the enough volume to cover all the costs of running brick and mortar business on a like a seam and so forth. But we're happy with the margins we are tightening. You know, we, the losses.

Speaker Change: didn't surprise us, we expected that uptick. When you look at the year, we still expect to be in the range we've been talking about all year and have 4.5% range for the year. But at the same time...

Speaker Change: We do have to tighten a little bit and we're doing that. We're being prudent. When you look at the delinquency rates,

which is more the forward-looking way of looking and loss is going forward. I don't know if you have an in front of a page 8 on the presentation, but they went up just like they did last year in the third quarter. The lines almost identical.

The numbers went up basically the exact same last year in the third quarter. And as we've seen October's leveling off in the fourth quarter, exactly what we saw last year. So that's our peak.

4.9, expected in so-forth we are tightening, but you're right. We need a certain amount of volume to keep those EBIT about margins in that 16% range. So it's a balance. Always this. We're really comfortable with it. Really happy with the overall margin.

We usually peek in the summer when it comes to the losses or the delinquency rate, especially like I just mentioned, in those of level off just like they did last year. So we're comfortable where we are and still.

Speaker Change: So we'll still be in that range for the year and very happy with the overall, we've got a margin, and that's a mention of the volume, you know.

and the other one.

The E-E-Deneths, but I'll come in and help it. The three quarters in a row of things to ourselves that run the center, you know, we got competitors.

Yeah, Quad-Fi competitors at least, the subprime competitors, not necessarily the least on competitors, but subprime competitors, going out of business clothes and stores and you're running, running centers doing doing really well.

Speaker Change: I'm probably getting a little bit of business too. I mentioned my prepared comment that how we're going after that business. Certainly some of that's more geographic.

with where those stores are, you know, the names that are shutting down. So, you know, it's a really, really a tailwind for Reneth Center picking up those customers.

Fortunately, on the Asimicide, we weren't in any of those competitors that are closing down.

Speaker Change: Um, yeah, that...

Speaker Change: We've got competitors that have to worry about that, but we were fortunate enough to not be in any of the ones that are close and stores.

Close and the hope business are even just closing a big portion of the store. So no downside yet it's a tailwind primarily in the rest of the store. So maybe a little tailwind for a seam of two. As other retailers pick up that business as a seam is in.

but especially for Rennes and I'm picking up those subprime customers so things are going well there and

Thank you, Rich, no question on the losses. We're pretty comfortable. We are in know that

Speaker Change: It's level off here in the fourth quarter and feel good about, you know, of course we can tighten as much as we need to. We can do it on a hourly basis, you know, so it's in our control and it's a balancing act but we're pretty comfortable where we are.

Speaker Change: Great, it's very helpful, thanks for much.

Speaker Change: Thanks Vincent.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Bobby Griffin with Raymond James. Your line is open.

Good morning, bye, thank you for taking my questions.

and I'm going to be a good GMV quarter. I want to just touch on this e-misegment and the E-pid off flow through. Is it just a matter of timing? You see the gross margin pressure, but then you get the relief later on with the skips and stolen. Or if this customer in that dynamic phase, maybe it's a faster growing or stronger dollar growth business with a little bit less margin upside.

and I guess I'm just asking in context, could we see margins in EBITDA growth accelerated in 25 if it really is just a timing dynamic that we're seeing that's pressure in the flow through.

Speaker Change: Hey Bob, good morning, thanks for the question. So yeah, I would agree with your comment and your question regarding some of this is timing, specifically when you think about...

The trade-down activity and seeing higher 90 day buy-out activity. You'll start seeing the merchant's ideals go up which we saw this quarter. We expect that to continue into the fourth quarter and that puts pressure on your gross profit margin.

Eventually, those, that GMV, that did come from a better credit quality consumer, will be a bigger portion of the portfolio. And you'll see the loss improvement probably a couple quarters from now. So, as we think about 2025, not that we're going to get into specifics around guidance for 2025, but our expectation is that you'll start to see some normalization of gross profit margin from where we are today. And then you'll start to hopefully see a little bit better loss, loss number, loss rate.

into 2025, and that kind of puts a seamer right from an Eva Dalmargin standpoint, right where we want it to be, right in that load of midteens number. So as a reminder, we just...

got a cue for to be relatively flat from a charge-off basis, but also have a slight uptick in the Iba-Dom origin at the seam of business. But that's the trade-off. You'll allow us to grow GMV. You'll definitely have a little bit of headwinds in the near term from a gross profit, but you should see some benefit in losses in a couple quarters. And as you mentioned, family, even in the fourth quarter, we'll see, we expect the four versus just...

and just waiting till 25 which was your question about the other thing I'd add to what Fami said is the, you know, the repeat business side of these customers as he mentioned that

Speaker Change: A lot of the repeat business, once people are aware of the seamah you get, you know, we talk about lifetime value, but once they're aware of the seamah, they've got the seamah app on their phone, and they're making their payments through the app and so forth, a lot of the repeat business ends up going to our own marketplace.

Speaker Change: where the margins are higher on our marketplace than the hour when we're directed with the retailer. Even if that business goes through to that same retailer or a lot of times it's a different retailer because people don't need more furniture than they might go on our marketplace and get something from.

Amazon or Target or Best Buy or something like that.

In those were the little higher margin, the underwriting costs are a little lower. The X-AM repeat business, some of the same customers, they actually pay out early at a lower rate on their second account they need to underfirst account things like that.

You know, through the marketplace, you don't pay some of the same kind of costs that we have to pay the retail at for the product and so forth. So, repeat business is more profitable than the first time through two sets. The other reason you need that margins go up when you get a like, when you get more customers in the lifetime value of it.

Speaker Change: Thank you, appreciate that that's helpful. And then I guess, Lossie for me, I mean you guys clear looking at different areas of the business franchise and more stores, so just kind of...

In the context of that, from a capital investment standpoint and how you view things, maybe talk a little bit about what you think the opportunity is in Mexico. Business has kind of been around the same size, profitable but not really, you know, hasn't really been at focus point. So, just anything there and kind of what you see the long term opportunity to be.

Yeah, good question, as I mentioned.

and my prepared comments about what we see in the store count being pretty well done as far as reducing the corporate store count. We're really excited about the franchise sale we did and also excited about those.

Speaker Change: So as we closed earlier this year and from the standpoint of how much of their revenue we've been able to keep in the, uh, as we, as we put those accounts into the, into nearby stores. So that's all been, been positive for run the center. I think what you think about Mexico.

Speaker Change: Yeah, worth, worth, worth.

Speaker Change: We're pretty excited, they're having a good year down there, you know, we talk about the EBITDA being relatively flat, that's your top a little bit for the year, it was relatively the same for the quarter, they're up for the year.

The currency has gone against this a little bit down there with the pay-sell valuation being against the dollar not being this good as a West last year

but overall the business is strong and we're looking at expanding a theme-adown there as well.

Next year, so, you know, it was a great opportunity down there and from a run to center standpoint, it's been an old family, it's $7,000,000 a USC but at least in a year, something like that, which isn't huge and it's not...

Yeah, I mean, a good year is adding a million dollars, obviously, if you had a million dollars on top of seven, that's really a good year, but doesn't move our needle. But a seam of very well could move the needle when we take that too.

You know, a country is large as Mexico and so forth. So we're pretty excited about Mexico more from that standpoint of...

expanding a virtual platform down there, you know, then, you know, rent a center stores that are doing well, you know, if they had a million dollars a year to eat, but out or something that's like a set.

Not going to make much of a difference, even though we appreciate everything they do for us down there. But, as Sima could be really exciting down the road there. And what we've done, obviously, is here in Mexico and on the Redis Center side.

is really, really why we're up on a year-to-date basis is because we've gotten our losses under control. We've started to build a centralized decision engine down there that team has done a great job in rolling that out. It is now fully functional down there and really pave the way for us to be more aggressive next year with a new and the esteem-a-plath. That was the precursors that I'm doing, getting the decisioning right for the resident business to allow a seamer to then use it and tweak it. So for us, like I said, we're pretty excited about that.

Very good. Appreciate the details. That's the luckier during the holiday quarter.

Speaker Change: Thanks, Bavit.

Speaker Change: Thank you.

Our next question comes from Hall Moons, yes, TD Cowan, that you like to open.

Thanks for taking my questions, guys.

So granted you said that there's going to be a lack on the benefits of the trade down on credit.

Yes, on the frequency and losses down the road, what's the segment of your customers is contributing to this and the direction you're taking to manage this group of now higher risk customers.

Speaker Change: Yes, sure, honk, good question, that.

Remember though, on the trade down we're talking about primarily a seema, and the seema loss is our down so quench your lane near over year. Renisoner doesn't see the seema level of trade down, not being in waterfalls within retail partners and so forth, and we're Renisoner.

went up into Lincoln's very similar to last year. There's not, there's a positive impact to trade down there, or if there is a positive impact from some of the other subprime retailers closing.

Speaker Change: and then it is for the scene, but for the trade down we're talking about it's really as a scene, and their losses are trending down. And it's pretty significant way when most of our lenders, if you will, are going up.

and from a lost standpoint, a seamless trending balance of quenchylandia over a year. So we certainly feel good about the answer to the last part of your question. Our capabilities from an underwriting standpoint to be able to control that we certainly.

Look at that. There's people who look at it daily. Fahmi, I look at it more weekly with Tyler Montro and the person that runs the scene in force and certainly make any tweaks we need to and so forth. But we're really comfortable with the trend there because there are lots of things on the way down.

Speaker Change: and this one is for Fahmi. So I saw that you guys incurred a estimated settlement expenses, 7.5 million for all.

3 outstanding legal matters with the CFPB, New York AG and multi-state AG. Can you give a little bit more colour around that estimate? I mean, this is your estimate currently for all three issues. Thank you.

Hey, Harny, thanks for the question. Yeah, look right, you know.

Speaker Change: Can't comment too much on the open litigation and open settlement talks.

You know, from an accounting standpoint, once something becomes probable and reasonable, estimable, we didn't put an accrual on the books. Doesn't mean that's where we're going to necessarily shake out, but that was our best estimate given the number that we are the fact that we have in front of us at this time. And as far as some of those.

Speaker Change: Investigations and litigation go. I would just point you to the 10Q that we're going to file. We'll have updated disclosures across the board, but that's how we came up with the accrual of this quarter.

Godhead, thank you.

Speaker Change: Thanks, Hong!

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brad Thomas with Cainting Capital Market. Your line is open.

Brad Thomas: Hi, good morning and let me have my congratulations as well on a nice quarter here. Mitchell was hoping to follow up just on how it looks for a FEMA and its GMV group. A year ago, you laid out a multi-year plan through 2026.

to be growing revenue in the segment by 10 to 12 percent. Clear the GMV in recent quarters is even stronger than that. Can you just talk a little bit about your confidence that you can be in that range as you look out to 2025?

Speaker Change: Sure, Brad, I'd love to talk about the seamous growth because it's been really strong to your point.

Brad Thomas: You know, we think there's many years of double digital growth in the CEMA coming forward. We see it, it's still seeing an awful lot of white space out there.

Brad Thomas: We're going to, we raised our fourth quarter camp guidance to low double digit and that's coming up a 19%

Brad Thomas: Last year in the fourth quarter, so when you come on the night, you can throw that little little dig in. It gives us a lot of confidence that little double dig is the number going forward for many years. We've had an awful lot of wins.

and the retail side and also a lot of positive things going on there. We talked about trade down, but some of the wins that the retail side, you know it's...

It's interesting and I get a little frustrated because there's been a lot to talk about. One retailer, we lost one regional retailer, furniture retailer, we lost a competitive ours, like talking about that a whole lot even did a press release on it. Yeah, we've taken over the last couple of years.

numerous accounts from our competition that's in fact from that same competitor.

and once the talk a lot in quite honestly branch from the analyst right about it a lot about one regional win they had.

Brad Thomas: When over the last two years we've taken Wafaire and Ashley and what I'll sleep out for there is Slumberland City furniture.

Brad Thomas: and Levine Furniture. That's at least six that we've taken from that competitor in the last two years. And those are all top 100 Furniture, Retail or Silk.

We've had an awful lot more wins than losses. We've led the industry and growth for a couple of years now, as you know from the GMV side. And we're very confident that's going to continue. Our sales seems not going to end out of the park.

Our integration for retailers is the simplest in the industry.

Our marketplace that's buying for retailers like nobody else is, we've got more options than anybody else, whether they want to have a staff model or quasi staff model, a little bit of support from our sales teams, the largest falter and...

and I dare say the best.

You know, just based on the results, so when we look at the growth we're pretty excited about all the wins we've had

Brad Thomas: and just what our GMV is been and...

I could say I get a little frustrated about one loss we had where obviously it wasn't that big a loss or we wouldn't be, we wouldn't have up our GMB for the fourth quarter, but some of these other wins are more than making up for it and there's a lot more coming from.

from there, so we're pretty excited about the feature of Girl Through A Seema.

That's helpful, Mitch. I absolutely like to be excited about from you all and I have a question that results have been really good. I want to ask the follow up just on Marketplace and wondering if you could share any more color on how big that's been and as we look to the next year, how much you think that could be contributing to the GMV growth.

Mitch Fadel: Boy, I'm glad you asked about the marketplace because we did touch on it and I touched on the prepared comments, but it really is exciting when you think about it.

Our new product, the SAI, Lee's ability, a general of AI Lee's ability engine, which allows us to...

To not only onboard retailers so much faster on the marketplace, like they take 10 days now instead of a month and a half, things like that. So in the reason the onboarding use to be full is that he had to sift through their products and figure out what's leasable.

Mitch Fadel: and it's hard to add an Amazon on to the marketplace and make sure people aren't leasing food or something like that, that they can get from Amazon, right? So with a new leaseability engine.

and this work and just tremendously our team did a great job putting it together with a tremendous partner, as I mentioned.

and now we've added people like Walmart and Anandama on a target in eBay and that really just went live, you know, the least billion to one live, the first week I bought to over, so that's not even in the, like 30% growth we had in a market place in the third quarter, roughly 30% growth.

Mitch Fadel: really excited about this, how much it adds next year. I think it's certainly, you know, without getting into too many details about next year, certainly it adds, it helps us get that double digital growth, but it fits.

Mitch Fadel: and the other hand, if it works as well as we think it could, you know, we'll be helping those numbers too, because you just think about it.

We're doing low double digital growth right now, counten over 19 percent and we're not even... That was before we had an Amazon and Walmart in Target to our marketplace.

I guess you'd have to say, when you say low double digits, it's just a low end of the spectrum, when you think about adding those kind of names in.

When we're already doing the low double digit numbers, so really excited about the marketplace in the future over this, as well.

Very helpful Mitch. Thanks for the luck.

Mitch Fadel: Thank you.

Speaker Change: One moment.

Our next question comes from John Hect with Jeffries, who I'm so open.

Thanks guys, morning and congratulations on all the given on that, Tim. Actually one of my questions was just asked, so I'll just have one question in that.

and give them the consumer prey down effect happening in real time as we are in the holiday season. Are there any differences that you guys expect in terms of the mix or type of transaction and how that flows through?

Morning John, I don't know if I would expect any real changes over the holidays, see you then obviously.

You know, those five weeks are very important to us. I'm generating a lot of G&V.

and then you can think about kind of the flow into the first quarter with tax season that's typically our highest 90-day purchase option activity anyway, so we trade down.

We'd probably expect to see some of that activity continue, but as far as kind of where the GMVs coming from, by Channel of New and Returning customers, I'm not expecting a big shift, you're over year.

Speaker Change: Okay, thanks very much.

Thanks for watching.

Speaker Change: Thank you.

Speaker Change: Alright, next question comes from John Rowan with Jamie Markovnery Scott. Do you mind us open?

Speaker Change: Good morning, guys. Just a quick question for you. The CFOB, the seven, however, was $7.5 million. That covers specifically the issue that they raised with a CEMA regarding the difficulty of returning leases and whether or not it was actually not in recourse. I just want to make sure that dad settlement covers.

and Expects to cover that specific issue.

Speaker Change: John, we don't disclose kind of specifics, so but I will say it's not just that one issue, so

It's not something we're going to disclose on which one of the issues is also something we typically do. It's not, it's not settlement, it's an estimate that's putting money on the books too.

presumably settled at some point, right? So it's not like it's settled, it's an estimate now and would, and settlement of those three issues put together.

So the three issues outstand, so the three outstanding issues are all included in that estimate.

Correct, all right, thank you. Yep.

Mitch Fadel: Spectrum.

Thank you.

Our next question comes from the Thanksgiving Anthony Kambha with Luke Capital Market. Your line is open.

Good morning, thanks for taking my question. So, I mean, you've laid out your fourth quarter of guidance. I'm sure that's factored into the guidance. But how do you think about, I guess, two things. The fact that we do have this presidential lesson next Tuesday, and then the fact that it's going to be five fewer shopping days between Thanksgiving and Christmas, thanks.

Yeah, good question. We do have that factor in although the Vember leading up to Black Friday is very strong for us as well.

So, you know, the shopping days certainly make it a little less than last year when you hit...

Mitch Fadel: is a certain year again, if the opposite effect, you know, depending where that fourth there's they falls and all that stuff for Thanksgiving soap.

But really leading up to Thanksgiving so strong Anthony doesn't have that big of an impact, so I'm in fact

but probably a lot less impact than maybe just traditional traditional even with a, where they do their business off of traditional retailer, at least most of business off traditional retail. You know, they, be...

Speaker Change: We're probably being a little conservative because of the way the count are false, but the applications are so, are up so much, like we said, 25% in the third quarter, we just have a lot of momentum. But we do have that factor in, you're exactly right about that.

That's helpful, thank you.

Speaker Change: Thanks for your time.

That does conclude our Q&A for today. I would now like to turn it back to Mitch Fadel for closing remarks.

Thank you, operator and thank you everyone. I know join us today for the update on the third quarter and our outlook for the fourth quarter and for the rest of the year. I'm really thankful for the efforts of our co-workers and our merchant partners.

who will help deliver an impressive quarter in a few different ways, especially on GMV and of course, our NSNC and our sales results were also very impressive, so we're grateful to all of our co-workers for all the hard work.

We've got a bunch of people working really hard for our shareholders and it shows and we're also grateful for our shareholders and for the interest and support of them and look forward to updating you next quarter. Our continued progress towards our goals and 20-25 will be talking about soon enough. Thanks everybody.

This does conclude today's program you may now disconnect.

Mitch Fadel: The

Mitch Fadel: The

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spaced out Ebenezer Schamel, Rob Jackson, Michael Bazzacora, Mark Dean, Fireman Mike Beaumont, Wilhelm Kelz, Zeige Winters, Eva Kiefer, Matt Zakowsky See you on Tuesday!

Good day and thank you for standing by.

Speaker Change: Welcome to the Q3 2024 Upbound Group Earnings Call. At this time, all participants are in a listen-only mode.

After the speaker presentation, there will be a question and answer session.

To ask a question during the session, you will need to press star 11 on your telephone.

You will then hear an automated message advising your hand is raised.

Mitch Fadel: To withdraw your questions, please press star 11 again.

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 Chesnut, Head of IR. Please go ahead.

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 are subject to factors that could cause actual results to differ materially and adversely from our expectations.

Mitch Fadel: 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, everyone.

I'll begin with a review of the key highlights from the third quarter. Fahmi will share a more detailed review of our financial results and our financial outlook and afterwards we'll take some questions.

To begin, I'm very pleased to share that our third quarter revenue was nearly $1.1 billion, adjusted EBITDA was approximately $117 million, and non-GAAP earnings per share was $0.95, which was right at the midpoint of the guidance we provided on our last call, and a couple of cents above the average of our street consensus estimates.

Acima led the way with revenue of 19% year-over-year with

Mitch Fadel: Renaissance are delivering 110 basis point improvement in revenue against the prior year Despite the impact of about 50 store closures We mentioned last quarter in addition to a recent sale of 55 stores in the New York metro area to an existing franchisee I'll and I'll discuss the successful execution of that franchisee sale more detail shortly

ASEMA delivered another strong quarter of GMV growth with a 13% increase year-over-year, which was in line with our stated guidance of low double-digit growth as we start to comp against the accelerated performance from the latter part of 2023.

Last quarter we also shared our outlook for the third quarter lease charge-off rates and also consistent with those projections, the SEMA's lease charge-off rate improved sequentially and year-over-year to 9.2 percent.

On the Rent-A-Center side, as expected, we did experience a seasonal sequential increase to 4.9 percent, which was slightly above our earlier expectations, as the environment for our consumers remains challenging.

Mitch Fadel: Now, despite the tick-up in losses at Rent-A-Center, and they remain at an acceptable level of optimized risk-adjusted returns, especially when you think about the environment we're in.

while also delivering EBITDA margins in line with our targets. Rent-a-Center's adjusted EBITDA margin of 16.3% increased 130 basis points year-over-year.

Mitch Fadel: Well, Acima's EBITDA margin came in at 13.3%, and that slight decline in Acima is in line with our target of low to mid-teens adjusted EBITDA margins and reflects some trade-down dynamics that I'll speak to in the segment results.

Importantly, based on our current visibility, our forecast for the holiday season, and our ability to exercise operating levels at each of our larger segments, we expect to achieve the full year guidance we provided last quarter.

Now before we review our segment results, let's discuss one of the key themes we've seen across this past quarter.

At Acima, we've continued to see credit tightening above us, driving trade down with better quality, better credit quality consumers coming to us.

The lenders above us and retailer checkout flows have implemented mitigating actions in response to higher delinquencies and pending regulatory changes for credit card late fees, which allows us to

to selectively tighten our underwriting in certain higher risk areas as we work to optimize our risk-adjusted returns.

Mitch Fadel: But even as we adjust at the bottom, our business still enjoys strong prospects for growth across our portfolio. And that's the benefit of trade-down activity.

Our SEMA business experienced over a 25% increase in applications compared to a year ago quarter, and our overall applicant pool had higher third-party scores.

So, in that context, I'm very pleased that our team delivered results that met expectations on revenue and adjusted EBITDA and non-GAAP EPS. I'm confident their performance will help us achieve our full guidance across the balance of the year while managing through these uncertain times.

Mitch Fadel: So let's move on to slide four in our presentation, and we'll talk through more specifics about our segment results.

At Acima we continue to be a growth leader in our industry as we achieved our fourth consecutive quarter GMV growth with a 13% lift in Q3 compared to a year ago period.

As we mentioned last quarter, we expected the rate of year-over-year growth to moderate in the second half of the year as we start comping against the acceleration of our growth and the elevated performance that really began in September of last year.

Now powering that growth is the CIMA's proven algorithm, which is supported really by three pillars.

Adding new merchants via SIEMEN Network.

Mitch Fadel: Expanding our productivity with existing retailers.

and inviting consumers to start their shopping journey through a SEMUS direct-to-consumer marketplace.

Our field organization grew our active location count again this quarter, increasing 10% year-over-year, 10% growth in locations. We're working with our retailers to boost our lease productivity metrics.

We also had several joint marketing campaigns with our retail partners promoting their sale events in the quarter, things like Weigh Days at Wayfair and Amazon Prime Days.

Mitch Fadel: We're continuously promoting our retailers, whether it's in store, on the recom sites, or through our own marketplace. And our direct-to-consumer marketplace continues to grow, contributing toward the GMV growth in the period, and that effort will remain a focus for us going forward.

The visitors we welcome to our marketplace are generally returning customers, which means lower underwriting costs.

Stronger loss performance and higher lifetime value than the broader set of our customer universe.

Mitch Fadel: These growth pillars translated into a 19% revenue lift for SEMA year-over-year and our proactive risk management strategies helped yield that that lease charge-off rate of 9.2% which was down 40 BPS sequentially and down 20 BPS year-over-year.

Mitch Fadel: segment-level gross profit and EBITDA margins were down against both year-over-year and sequential comps, driven in part by the residual impact of the ANOW transition and an increase in 90-day purchase option activity, which was heightened due to trade down dynamics.

Mitch Fadel: We're excited about the opportunity that TradeDown represents, but the performance profile of these generally higher scoring customers is a bit different than what we've experienced recently from our core consumers.

These customers tend to elect more often the earliest purchase option on the lease transaction, which is the lowest margin outcome for a SEMA other than a charged-off account.

The upshot and the bright spot of all this is that we're meeting new customers and helping them at the point of checkout when their traditional options are less available.

But since customers that exercise the purchase option typically execute repeat transactions,

Mitch Fadel: We'll encourage them to visit our third-party retailers through our marketplace, which we believe will enhance our lifetime value with that consumer and drive more sales to our partners.

Mitch Fadel: All that being said...

Even with the EBITDA, you know, it takes a while to catch up with all the strong GMV growth in our business.

Mitch Fadel: The remaining headwinds as we work through the Legacy A-NOW Back Book.

and an increase in lower margin early purchase activity.

ACIMA still came in within our long-term low to mid-teens even on margin range at 13.3%, a really strong quarter for ACIMA across the board.

Let's shift over to RhinoCenter, where the competitive landscape has changed notably since our last update.

Wrexhaw, some of its longtime competitors, go private, some reorganizations, and even liquidations.

Speaker Change: Our recent results highlight the strength of the Renisona brand and our co-workers who bring that brand to life through connections with our customers and their communities.

Mitch Fadel: Between Renaissance leadership and our thousands of SOAR associates

Mitch Fadel: We're ready to support those customers that may be seeking a new store in their neighborhood or even online options to help access the everyday products they need to improve their quality of life.

Mitch Fadel: Along those lines, we're actively marketing to those potential customers to guide them in the moment they may be looking for alternatives. We're using things like geographic overlays and geofencing, behavioral data, and even contextual AI to sharpen our targeting efforts and increase the efficiency and effectiveness of that campaign.

And that's on top of our strong foundational marketing efforts that we do every day.

And those marketing levers, along with our continued focus on operational improvements, helped Verena Center finish the third quarter with same-store sales growth at 2.6% against last year's Q3.

Others are struggling, even shutting down.

Yet the strength of Renaissance brand and value proposition in people has now driven three consecutive quarters of same-store sales growth at adjusted EBITDA margins above 16%.

Really pleased with the performance of the Ren Center business as well.

From a channel perspective, Renison's e-commerce activity represented over 26% of revenue in the third quarter, an increase from approximately 25% in the third quarter of 2023 due to our team's efforts to optimize our digital customer experience.

We've also launched a partnership with Google to leverage generative AI to enhance the personalized experience on our RenaissanceLearn.com website that should drive even better performance in the future.

Even with the adjustments to Rent-A-Center's store count, the segment achieved revenue growth of 1.1% year-over-year with a gross profit margin in line with prior quarters.

Mitch Fadel: As expected, the lease charge-off rate at Rent-A-Center was elevated in Q3, landing at 4.9% compared to 4.3% in the prior year, partially due to seasonality, but also due to stress on Rent-A-Center's traditional customer.

As I've mentioned, we're monitoring performance closely and making adjustments in real time to protect that margin profile.

So wrapping up this slide, I'd emphasize this quarter was a busy one.

With a number of strategic initiatives in flight that we believe will position us to have a successful finish to the year and a strong start to 2025.

Mitch Fadel: The team added numerous new clients to help sustain our GMV growth and started building the next generation of the staff model stronger performing go forward portfolio.

The Rent-A-Center team executed an EBITDA-enhancing transaction with a key franchise partner while reacting in the moment to capitalize on a market opportunity related to competitive developments.

Collectively, these achievements have us on track to meet the 2024 guidance we've provided across the course of the year.

Mitch Fadel: On slide five, let's review the status of the strategic priorities we outlined for the year.

For ACIMA, we highlighted customer attention as a focus area in 2024, and we've been reimagining the way our ACIMA customers apply, shop, and check out with us.

We know there are additional opportunities to streamline and modernize our processes, and we're currently working to expedite the leasing process for returning customers while removing friction points in the application flow for new customers.

Mitch Fadel: These changes will be ongoing and targeted rather than discrete and wholesale, and we believe they'll benefit our business, our merchants.

and most importantly, our customers.

From a market share perspective, Acima continues to add retail nameplates and build out the capabilities of the Acima marketplace.

Now we don't often mention all of our wins but given the attention recently around one regional account

ASEMA's up over 10% in locations year over year, and we consistently outgrow all of our competitors when it comes to new doors. And of course, our GMV numbers speak for themselves.

Our current and growing lineup of diverse partners will help amplify our growth as the furniture industry, our largest segment, inflects back to positive trends after years of demand being pulled forward.

Until then, we'll continue to work and add new retailers across all of our key verticals. We'll continue to provide superior service to our existing merchants so that we maintain a well-diversified mix of larger, medium, and smaller size clients.

In the third quarter, our largest retailer represented approximately 6% of total GMV, and the top five were collectively approximately 22%.

Mitch Fadel: Despite the transition of that one account, we're raising our view of the fourth quarter GMV to low double digits.

Mitch Fadel: Our confidence in continuing to grow GMB speaks to the diversity we've built in our business, diversity in merchants, and in product categories.

We're particularly excited about elevating the digital capabilities of the SEMA marketplace, which continued its strong growth trajectory, with over a 30% increase in the third quarter of 2024 compared to the prior year period.

Our teams remain focused on enhancing the marketplace infrastructure including the implementation of our new and proprietary AI powered leasability search engine which has helped simplify the process for onboarding new unintegrated merchants.

This particular upgrade enabled recent additions of national brands that have just been added to our marketplace such as Amazon.

Mitch Fadel: WAL-MART

Target and eBay have been recently added to the marketplace and will enhance the experience of our existing merchants also with that technology.

If you think about it, without this remarkable proprietary tool, which our team built with Google,

You simply cannot sift through all the leasable products on a website like Amazon.

Mitch Fadel: And now we can.

Mitch Fadel: And we just started doing this earlier in October and its capabilities to help us grow this channel even further are incredibly exciting.

We're also building toward rolling out our updated virtual lease card program.

which will facilitate a simple and safe shopping experience for users with advanced fraud protocols designed to minimize losses and maximize profitable leases.

Mitch Fadel: This updated virtual lease card will allow returning customers to shop in-store at any retailer of their choosing to find eligible goods to lease from Acima.

Mitch Fadel: Our goal of these investments is to reinforce Acima's reputation as a premier LTO shopping destination for our customers.

and add meaningful growth engines for the business for many years to come.

At Rent-A-Center, we continue to make progress delivering more value and better experiences for our customers.

Mitch Fadel: Along those lines, and as I mentioned earlier, in Q3, we completed an opportunistic sale of 55 stores in the New York City metro area.

to a current Rent-A-Center franchisee that has a very successful track record with us.

This deal is a win for our customers because this new owner can optimize the business processes to serve those stores. You know, New York City, of course, is a pretty unique operating environment.

and one we believe will benefit from a locally run business that can more readily implement tailored processes to address some of the local conditions that are so much different there than the rest of the country.

From a financial standpoint, we'll be replacing sales revenue with royalty revenue. So Reno Center's top line will be modestly impacted by the loss of those stores, but we expect the operating results will be even enhancing.

In other words,

Mitch Fadel: Because our normal operating model wasn't the best fit for New York City and it wasn't that profitable of a market for us, this franchising effort is actually EBITDA accretive based on royalties from the franchise stores.

I can also tell you we've been looking for a franchisee to operate that market for many years.

Mitch Fadel: all the way back to when we did the same thing with the California market in 2020. So I'm really thrilled we're able to partner with this existing franchisee to make this happen, and I'm very excited about the future of Rent-A-Center in that market for our customers, that franchisee, and our company.

Earlier this year, you'll recall, we consolidated a similar number of stores when we had upcoming lease renewals and nearby stores that could absorb the customer base.

We expect to retain a healthy proportion of that customer activity and our early indications point to our efforts working well.

We'll continue to optimize our 1,700-plus corporate owned store footprint as customers' needs and neighborhood dynamics change, but in general, our philosophy going forward will be to remain net neutral.

with our current store count. Now that we've done the New York deal and I mentioned we've been trying to find somebody for about four years for that market.

Mitch Fadel: In other words, we believe we're now done.

As far as any reduced store count, and we feel really good about our well-balanced store footprint going forward.

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The Rent-A-Center team also leverages technology to drive better outcomes for the business and its customers. This past quarter, we deepened the Rent-A-Center.com website integration with a key supplier.

Mitch Fadel: to provide stronger visibility in the product models and availability, which helps improve the customer experience and lifts conversion rates.

We also strengthened Acima's underwriting fraud tools that Rent-A-Center utilizes to assess its online shoppers. It creates more opportunities to approve the right customers for a lease, which drives better outcomes for customers while minimizing potential losses.

Additionally, we continue to work towards positioning our business to be successful

personalization, and customer conversion. In particular, Acima has deployed solutions that streamline the onboarding and leasing processes for key retailers like I mentioned.

Renestron.com is launching a more powerful search and recommendation engine and these initiatives, when up and running at full capacity, should provide significant customer benefits, drive transactions, and enhance margins for our business and our third-party retailers.

Mitch Fadel: At the up-bound level, we continue to make incremental progress with the credit offerings through our partner-issued cards. The Acima General Purpose Card can be used anywhere MasterCard is accepted.

Mitch Fadel: And the Acima private credit card can be used across our current merchant roster.

From an account acquisition standpoint, we've seen promising growth and sign-ups from our digital properties as our consumers respond to offers and invitations featured.

on the FEMA's app.

Mitch Fadel: as well as the desktop and mobile websites. Our next stage of testing and learning will include holiday campaigns across direct mail and social media and Renna Center's digital properties.

This initiative is contributing modestly to our bottom line, but more importantly, it's contributing to our understanding of our customers' interests and desires and the broader dynamics of the consumer credit landscape.

Mitch Fadel: While this partnership enables us to learn in a low-risk, balance-sheet light environment today, it also helps prepare us for future opportunities to scale and grow.

Now, before I hand it off to Fahmi, I'd like to share a couple final thoughts. The first being that as a veteran of four decades in this industry and seeing the industry evolve and so forth, I know how durable our model is.

because it delivers inclusive shopping solutions to underserved consumers.

Whether at Rent-A-Center or SEMA, our talent and experience team is committed to helping our customers find practical solutions and our merchants find incremental sales, and even as things change.

Mitch Fadel: We're committed to being ready to deliver the next generation of solutions and value to each of our stakeholders. And lastly, I want to thank our team for their dedication and tireless efforts to support our customers and retailers.

Mitch Fadel: As always, we're grateful for their ongoing dedication to our core mission of elevating financial opportunity for all. Their commitment to our customers is evident every day, and we sincerely appreciate it. So with that, I'll turn it over to Fahmi.

Thank you, Mitch, and good morning, everyone.

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

Let's begin on page 6 of the presentation.

Consolidated revenue for the third quarter was up 9.2% year-over-year with Acima up 19.1% and Renison are up 1.1%.

Mitch Fadel: Rentals and fees revenues were up 8.8%, while merchandise sales revenues increased 18.2%, reflecting a larger portfolio balance at Acima coming into the quarter.

More customers exercising the 90-day purchase option and promotional initiatives at Rent-A-Center.

Consolidated gross margin was 47.8% and decreased 300 basis points year-over-year, with a 280 basis point decrease in the Acima segment and a 90 basis point decrease in the Renner Center segment.

Consolidated non-GAAP operating expenses excluding lease charge-offs and depreciation and amortization were down low single digits due in part to non-labor operational efficiencies at Rent-A-Center combined with overhead labor savings.

Mitch Fadel: The consolidated lease charge-off rate was 7.4 percent, a 40 basis point increase from the prior year period, and broadly in line with our expectations.

On a sequential basis, the consolidated lease charge offering increased 20 basis points due to a 70 basis point sequential increase at Rent-A-Center.

Consolidated adjusted EBITDA of $116.9 million increased 10.3% year-over-year due to higher ASEMA and Rent-A-Center segment adjusted EBITDA in addition to lower corporate costs.

Adjusted EBITDA margin of 10.9% was up approximately 10 basis points compared to the prior year period.

driven by approximately 130 basis points of expansion at Rent-A-Center in addition to a decrease of approximately 70 basis points in corporate costs as a percent of sales which was partially offset by approximately 200 basis points of margin contraction at Acima. I'll provide more detail on segment results in a moment.

Mitch Fadel: Looking below the line, third quarter net interest expense was approximately $26 million, which is a slight decrease from the prior year period.

The effective tax rate on a non-GATT basis was 26.2% compared to 25.5% for the prior year period.

Mitch Fadel: The diluted average share count was 56 million shares in the quarter.

GAAP earnings per share was $0.55 in the third quarter compared to earnings per share of $0.08 in the prior year period, which was driven by the prior year tax impact associated with divesting of restricted stock awards issued in connection with the ACIMA acquisition.

After adjusting for special items that we believe do not reflect the underlying performance of our business,

We distributed a quarterly dividend of 37 cents per share, and we finished the third quarter with a net leverage ratio of approximately 2.6 times after paying down our revolver in the quarter.

Let's move to the segment results starting on page 7.

For Acima, double-digit year-over-year GMV growth continued for the fourth consecutive quarter.

Along with approximately 20% year-over-year growth in the prior three quarters, GMV grew 13% in the third quarter.

The GMV lift was driven by year-over-year growth in key underlying drivers, with active merchant locations up approximately 10% year-over-year, more productivity per merchant, and an increase in applications of over 25%.

Revenue increased 19.1% year-over-year.

Mitch Fadel: And a 23.5% increase in merchandise sales revenue due to a larger portfolio at the beginning of the third quarter compared to last year and the impact of trade downs.

These charge-offs for the ASEMA segment were 9.2%, 20 basis points lower year-over-year, and 40 basis points lower sequentially.

Mitch Fadel: The year-over-year decrease in ASEMA's lease charge-offs was driven by our continued underwriting discipline.

the recent uptick in early purchase option elections and the wind down of the a now back book

Mitch Fadel: Non-GAAP operating costs, excluding leased charge-offs, were up on a dollar basis approximately $4.3 million in the third quarter, which was 70 basis points lower as a percentage of revenue.

Speaker Change: Adjusted EBITDA of $75.3 million was up 3.4% year-over-year, primarily due to the 19.1% increase in revenue that was partially offset by a 24.2% increase in cost of goods sold.

Adjusted EBITDA margin of 13.3%, decreased approximately 140 basis points sequentially, and decreased approximately 200 basis points year-over-year, primarily due to the 280 basis point contraction of gross margin compared to the third quarter of 2023.

The decrease in gross margin compared to the prior year was a result of a few factors.

including an increase in merchandise sales which represented a larger percentage of revenue compared to the prior year period due to more consumers electing the 90-day purchase option.

and the conversion of Acceptance Now locations to the Acima platform.

For the Rent-A-Center segment, at quarter end the same store lease portfolio value was roughly flat year over year, while same store sales increased 2.6% year over year, maintaining the momentum from the 2.6% year over year increase in the second quarter of 2024.

Total segment revenues grew year-over-year for the third consecutive quarter, increasing 1.1% compared to the third quarter of 2023.

The increase in revenues was driven primarily by a 1% year-over-year increase in rentals and fee revenue, offset partially by a 40 basis point decrease in merchandise sales revenue compared to the prior year quarter.

Speaker Change: Lease charge-offs were 4.9% of revenue in the third quarter, 60 basis points higher year-over-year, and 70 basis points higher sequentially, a reflection of expected seasonal trends, as well as conditions that remain challenging for our consumers.

Speaker Change: 30-day past-due rates averaged 3.4% for the third quarter, up 30 basis points from the prior year period.

Although there was a slight uptick in losses and delinquencies, they both remained in an acceptable range for us to produce strong EBITDA margins.

During the quarter, we made tactical adjustments to our decisioning to help achieve our full-year target LCO rate in the 4.5% area and position us very well for 2025.

Adjusted EBITDA margin for the third quarter increased 130 basis points year-over-year to 16.3 percent, primarily due to lower non-labor operating expenses.

This is reflected by a 260 basis point year-over-year decrease in the ratio of non-GAAP operating expenses excluding lease charge-offs to segment revenue.

The franchise segment revenue decreased year-over-year, while segment adjusted EBITDA increased compared to the prior year period.

Non-GAAP corporate expenses were approximately 4.3% lower compared to the prior year.

Let's shift to our financial outlook.

As Mitch noted earlier, for the full year we expect to achieve the midpoint of the guidance that we raised on the second quarter call. We are tightening the ranges around the midpoint for the full year.

Revenue should be in the range of $4.2 billion to $4.3 billion, adjusted EBITDA in the $470 to $480 million range, and non-GAS EPS in the range of $3.75 to $3.90.

For the fourth quarter, we're pleased with the start through October and expect it will translate to low double-digit year-over-year GMB growth at Acima.

which is higher than we expected coming into the quarter and a strong outcome given the 19% GMB growth that Acima posted in the fourth quarter of 2023.

That higher-than-expected GMV growth also means this year's free cash flow, which funds that growth, is now expected to finish towards the lower end of our guidance.

We expect Acima's revenue to grow mid-teens year-over-year, with gross margins similar to the third quarter of 2024 due to the mixed shift towards the earliest purchase option.

These charge-offs in the fourth quarter should be relatively flat sequentially and lower than a year-ago quarter, in part due to the proactive measures we've taken to fine-tune our underwriting in certain risk segments.

Speaker Change: Expenses excluding losses should be lower, resulting in slightly higher ASEMA adjusted EBITDA margins compared to the third quarter.

Rent-A-Center's fourth quarter outlook should see revenues down low single digits due to the franchise sale in the third quarter with lease charge-offs and adjusted EBITDA margins similar to the third quarter.

Speaker Change: Corporate costs are expected to be up low single digits year over year.

Our release charge-offs are slightly elevated compared to our long-term, normalized target ranges for each segment, but remain at acceptable levels for us to continue to grow and achieve our target event dot margins.

We are consistently reviewing our portfolio performance, and our decision engines are continuously adjusting approvals and approval amounts to remain competitive and disciplined in loss mitigation.

We prudently manage our decisioning based on real-time data to guide the business towards our targets, despite the difficult operating environment we've seen in the past few years.

We're confident in our tools and our data-driven approach to main losses at an acceptable range until the macro improves.

In addition, if trade-down continues, charge-off should improve as that GMV becomes a larger mix of the portfolio.

While trade down has contributed to the seamless revenue growth, in the near term it will continue to impact the seamless gross margins and adjusted EBITDA given the higher proportion of lower margin early purchase outcomes.

Speaker Change: But it will eventually benefit losses and loss rates that volume as that volume flows through the P&L

Speaker Change: Interest expense is expected to be modestly lower compared to the third quarter, while the non-GAAP tax rate should be consistent at around 26%.

In terms of cash flow, we expect the GMB growth at Acima will more than offset the cash generated at Rent-A-Center, but as noted, we still expect to be within the full year range for our free cash flow guidance.

We are assuming a fully diluted average share count of 56 million shares for the quarter with no share repurchases assumed in our guidance.

We started this year with a very strong guide for our performance across 2024, given the momentum we started building in the back half of 2023.

Speaker Change: Our team will continue to focus on meeting and exceeding expectations as we finish 2024 and move into the new year.

Let's move to slide 10 and discuss how our capital allocation process supports our strategic imperatives.

Speaker Change: Through both the merchandise that our consumers are seeking and the new capabilities that make our process more seamless and accessible.

Beyond that, we're committed to supporting our dividend program, which has now been running for 20 consecutive quarters going back to pre-pandemic periods.

Speaker Change: 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 two times and towards our long-term target of one and a half times.

We ended the third quarter at 2.6x, down from 2.8x at the end of the second quarter, as Acima's working capital needs moderated with GMB growth shifting to low double digits from the 20% area.

Speaker Change: We were able to fully pay down our revolver and end of the third quarter with liquidity approaching $600 million.

Thanks to the strength of our balance sheet, we should be well-positioned to seize opportunities outside of those core recurring priorities. Whether assessing potential share repurchases or targeted M&A, we can deploy our available liquidity to advance those goals.

As we wrap up on slide 11, I'd like to emphasize a couple of the points that Mitch mentioned earlier.

Speaker Change: Our mission is to elevate financial opportunity for all consumers who are underserved by traditional options.

Across our business, we offer accessible and inclusive solutions to help our customers find the right fit when they're shopping for durable goods.

Speaker Change: Whether in-store or online, we're committed to creating a seamless experience for them that also delivers incremental sales and top-tier service to our third-party merchants.

Speaker Change: And that's what we've done over the past several quarters.

Speaker Change: Both of our larger segments are growing their top lines, managing risk thoughtfully, and driving EBITDA and EPS growth.

As we continue to do that well, it enables us to create meaningful value for our stakeholders, and we're confident that our mission and our model will continue to drive sustainable, profitable growth across the near and long-term horizons.

Speaker Change: Thank you for your time this morning. Operator, you may now open the line for questions.

Thank you.

Speaker Change: and Brendan Metrano. Thank you.

Thank you very much. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 11 again.

Please be considerate to the time restraints of the call.

Speaker Change: Our first question today comes from Vincent Cain-Tick with BTIG. Your line is open.

Thanks for taking my questions.

So first question on the SEMA, the trade-down activity. So it was nice to see that merchandise sales being up and it seems like that's all incremental. And so if you could talk about that, the economics of the trade-down business model in more detail, if you could talk about where you expect the gross margins will fall out. And I guess with the lower losses that you're expecting, does that mean that the economics

of that trading out business is kind of similar to the rest of the lease business once you account for the lower losses. Thank you.

Hey Jensen, good morning. Generally speaking, you know, the 90-day purchase activity that's usually associated with trade down comes to us at a lower margin.

Speaker Change: and...

It allows us to keep GMV up, and it also allows us to be a little bit more selective, kind of on the bottom end of our core consumer.

As we mentioned, applications were up 25 percent. Approval rate was down about 60 basis points, but if you exclude some of the staffed business that moved, most of that moved from the ANOW to the ACIMA platform, our approval rates were actually down closer to 300 basis points, so it really allows us...

Speaker Change: to be more selective in who we allow onto the balance sheet and who we give leases to. But it does come, as I mentioned, at a lower margin. And you saw that reflected in our gross margin this quarter. And we expect that to continue into the fourth quarter.

Speaker Change: But as we said in our prepared remarks, it does give us the ability to get to new customers.

into the ASIMO platform. Those customers that come to us through TradeDown typically do exercise the 90-day buyout option.

through the year, and as you mentioned, you start seeing some of the loss improvement as it rolls through delinquency and into the P&L. You haven't really seen that just yet, just because it takes a while to go through the P&L, but you are seeing some of the headwinds associated with the gross profit margin.

Okay, great. That's super helpful. Thank you. And then last question, just switching over to the Rent-A-Center business, you know, understanding that the charge-outs were up, part of that was due to seasonality, part of that's due to the consumer, but it was interesting to also see that rack margins were actually up 130 basis points year-over-year, so I'm wondering how you're thinking about sort of managing that business if perhaps maybe the higher loss content is there, but there's higher profitability in that business.

Speaker Change: You can talk about how you manage that. Thank you.

Thank you.

Yeah, good morning Vincent, this is Mitch. Excuse me.

Now, thanks for the question. It's a good question.

Speaker Change: are pretty strong at Rent-A-Center. So you're always balancing the losses with the total bottom line, balancing how much you let through.

to get to enough volume to cover all the costs of running a brick and mortar business unlike a SEMA and so forth. But we're happy with the margins. We are tightening. You know, the losses...

Didn't surprise us. We expected that uptick. When you look at the year, we still expect to be in the range we've been talking about all year, in that four and a half percent range for the year. But at the same time,

We do have to tighten a little bit, and we're doing that. We're being prudent. When you look at the delinquency rates, which is more the forward-looking way of looking at losses going forward.

Speaker Change: The numbers went up basically the exact same as last year in the third quarter and as we've seen in October is the leveling off in the fourth quarter exactly what we saw last year. So that's our peak.

Speaker Change: You know, the 4.9 expected and so forth. We are tightening, but you're right, you know, we need a certain amount of volume to keep those EBITDA margins in that 16% range. So it's a balance, always is. We're really comfortable with it, really happy with the overall margin.

Speaker Change: We usually peak in the summer when it comes to the losses or the delinquency rates, especially like I just mentioned. And those have leveled off just like they did last year. So we're comfortable where we are and still.

We'll still be in that range for the year and very happy with the overall margins and not to mention the volume, you know

Speaker Change: Thank you. Thank you. Thank you.

You didn't ask about this, but I'll comment on it anyhow, but the three quarters in a row of same-store sales that run the center, you know, we got competitors.

Speaker Change: You have quasi-competitors at least, sub-prime competitors, not necessarily lease-owned competitors, but sub-prime competitors, going out of business, closing stores, and your rent-a-center's doing really well.

Probably getting a little of that business too. I mentioned in my prepared comments of how we're going after that business. Certainly some of that's more geographic.

with where those stores are, you know, and you know the names that are that are shutting down. So you know, it's a really a really a tailwind for Rent-A-Center picking up those customers.

Fortunately, on the Acima side, we weren't in any of those competitors that are closing down.

Speaker Change: We've got competitors that have to worry about that, but we were fortunate enough to not be in any of the ones that are clothing stores.

closing the whole business or even just closing a big portion of the stores. So no downside yet. It's a tailwind, primarily on the renters side, maybe a little tailwind for Acima too, as other retailers pick up that business that Acima is in.

Back to your original question on the losses, we're pretty comfortable where we are and know that

Speaker Change: that it's leveled off here in the fourth quarter and feel good about, you know, of course we can tighten as much as we need to. We can do it on an hourly basis, you know, so it's in our control and it's a balancing act, but we're pretty comfortable where we are.

Great, that's very helpful. Thanks very much.

Speaker Change: Thanks, Vincent.

Speaker Change: OK.

Speaker Change: Thank you.

Our next question comes from Bobby Griffin with Raymond James. Your line is open.

Good morning, everybody. Thanks for taking my questions.

Congrats on another good GMV quarter. I guess first, Fahmi, I want to just touch on the SEMA segment and the EBITDA flow-through. Is it just a matter of timing? You know, you see the gross margin pressure, but then you get the relief later on with the skips and stolens. Or if this customer dynamic stays, maybe it's a faster growing or stronger dollar growth business with a little bit less margin upside.

Help us think about the moving parts there, and more importantly, the timing. And I guess I'm just asking in context, could we see margins in EBITDA growth accelerate in 2025 if it really is just a timing dynamic that we're seeing that's pressuring the flow through?

The trade down activity and seeing higher 90 day buyout activity. You'll start seeing the merchandise sales go up.

Speaker Change: We saw this quarter.

Our expectation is that you'll start to see some normalization of gross profit margin from where we are today and then you'll start to hopefully see a little bit better loss, loss number, loss rate.

into 2025, and that kind of puts Acima right, from an EBITDA margin standpoint, right where we want it to be, right in that low to mid-teens number. So as a reminder, we just

Q4 to be relatively flat from a charge off basis. But also have a slight uptick in the EBITDA margin at the seam of business. But that's the trade off. It will allow us to grow GMV.

just waiting until 25, which was your question, Bobby. The other thing I'd add to what Fahmi said is the repeat business side of these customers, as he mentioned, that

Speaker Change: A lot of the repeat business, once people are aware of Acima, you get, you know, we talked about lifetime value, but once they're aware of Acima and they've got the Acima app on their phone and they're making their payments through the app and so forth, a lot of the repeat business ends up going to our own marketplace.

Speaker Change: where the margins are higher on our marketplace than they are when we're directly with the retailer, even if that business goes through to that same retailer or a lot of times it's a different retailer because people don't need more furniture. They might go on our marketplace and get something from.

Amazon or Target or Best Buy or something like that.

Speaker Change: And those are at a little higher margin. The underwriting costs are a little lower. The, actually on repeat business, some of the same customers, they actually pay out early at a lower rate on their second account than they do on their first account, things like that.

You know, through the marketplace you don't pay some of the same kind of costs that we have to pay the retailer for the product and so forth. So repeat business is more profitable than the first time through, too. So that's the other reason, even on margins.

Go up when you get a life when you get more customers than the lifetime value of it

In the context of that, from a capital and investment standpoint and how you view things, maybe talk a little bit about what you think the opportunity is in Mexico. Business has kind of been around the same size, profitable, but hasn't really been a focus point. So just anything there and kind of what you see the long-term opportunity to be.

Speaker Change: and Brendan Metrano.

Yeah, good question. As I mentioned in my prepared comments, Babu, we see the store count being pretty well done as far as reducing the corporate store count. We're really excited about the franchise sale we did, and also excited about those

Speaker Change: stores we closed earlier this year and from the standpoint of how much of their revenue we've been able to keep in the As we as we put those accounts into the into nearby stores So that's all been been positive for Rent-A-Center. I think when you think about Mexico

Yeah, we're we're

We're pretty excited. They're having a good year down there. You know, we talk about the EBITDA being relatively flat this year. It's up a little bit for the year. It was relatively flat for the quarter. They're up for the year.

Yeah, the currency's gone against us a little bit down there with the peso valuation being against the dollar not being as good as it was last year.

But overall, the business is strong and we're looking at expanding Acima down there as well.

Speaker Change: next year so

Speaker Change: It's a great opportunity down there, and from a Rent-A-Center standpoint, it's, I don't know Fahmi, it's seven or eight million dollars of U.S. EBITDA at least in a year or something like that, which isn't huge, and it's not...

Yeah, I mean a good year is adding a million dollars obviously if you had a million dollars on top of seven That's really a good year, but it doesn't move our needle, but a FEMA very well could move the needle when we take that to

you know, a country as large as Mexico and so forth. So we're pretty excited about Mexico, more from that standpoint of expanding a virtual platform down there, you know, than than, you know, Renaissance stores that are doing well. You know, if they had a million dollars a year to EBITDA or something, that's like I said.

Not going to make much of a difference, even though we appreciate everything they do for us down there. But ESIMA could be really exciting down the road there. And what we've done, Bobby, just here in Mexico, on the Rent-A-Center side.

We started to build a centralized decision engine down there. The team has done a great job in rolling that out. It is now fully functional down there and really paves the way for us to be more aggressive next year with the Asima platform. That was the precursor is them getting the decisioning right for the restaurant business to allow Asima to then use it and tweak it and so forth. So like I said, we're pretty excited about that.

Very good. Appreciate the details. Best of luck here during the holiday quarter.

Speaker Change: Thanks, Bobby.

Speaker Change: Thank you.

Speaker Change: Thank you.

Our next question comes from Hong Lin with T.D. Cowan. Your line is open.

Hong Lin: Thanks for taking my questions guys. So granted you said that there's going to be a lack on the benefits of the trade down on credit, I guess on delinquency and losses down the road, but I mean you're still seeing a tick up in loss and delinquency this quarter so maybe can you talk about what segment of your customers is contributing to this and maybe what action that you're taking to manage this group of now higher risk customers and I have a follow-up.

Speaker Change: Yeah, sure, Hunk. Good question. Remember, though, the trade down we're talking about is primarily a SEMA, and the SEMA losses are down sequentially in year over year. Rent-a-Center doesn't see the same level of trade down, not being in waterfalls within retail partners and so forth. And where Rent-a-Center

went up in delinquency very similar to last year. There's no positive impact of trade down there or if there is a positive impact from you know some of the other subprime retailers closing

than it is the Decima. So the trade down we're talking about is really a Decima and their losses are trending down in a pretty significant way when most of our, most lenders, if you will, are going up.

And from a law standpoint, ACIMA is trending down sequentially and year over year. So, we certainly feel good about, to answer the last part of your question, our capabilities from an underwriting standpoint to be able to control that. We certainly.

Thank you. Bye. Bye.

You know, look at that. I mean, there's people who look at it daily. You know, Fahmi and I look at it more weekly with Tyler Montrone, the person that runs the SEMA force, and certainly make any tweaks we need to and so forth. But we're real comfortable with the trends there because their losses are actually on the way down.

Got it. Thank you. And maybe this one is for Fahmi. So I saw that you guys incurred an estimated settlement expenses, $7.5 million for all.

Speaker Change: three outstanding legal matters with CFPB, New York AG, and Multistate AG. Can you give a little bit more color around that estimate? I mean, is this your estimate currently for all three issues? Thank you.

Hong Lin: Thank you.

Hey Hong, thanks for the question.

Speaker Change: I can't comment too much on the open litigation and open settlement talks.

From an accounting standpoint, once something becomes probable and reasonable, estimable, we tend to put an accrual on the books. It doesn't mean that's where we're going to necessarily shake out, but that was our best estimate given the number or the facts that we have in front of us at this time. And as far as some of those...

Speaker Change: investigations and litigations go, I would just point you to the 10-Q that we're going to file. We'll have updated disclosures across the board, but that's how we came up with the accrual this quarter.

Got it. Thank you.

Speaker Change: Thanks, Tom.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brad Thomas with Caybank Capital Markets. Your line is open.

Hi, good morning, and let me add my congratulations as well on a nice quarter here. Mitch, I was hoping to follow up just on the outlook for ACIMA and its GMV growth. A year ago, you laid out a multi-year plan through 2026.

to be growing revenue in the segment by 10 to 12 percent. Clearly the GMV in recent quarters has been even stronger than that. Can you just talk a little bit about your confidence that you can be in that range as you look out to 2025?

Mitch Fadel: Sure, Brad, love to talk about CIMU's growth because it's been really strong, to your point.

Speaker Change: You know, we think there's many years of low double-digit growth in the SEMA coming forward. We still see an awful lot of white space out there.

We're, as we just pointed out, we're going to, we raised our fourth quarter comp guidance to low double digit and that's coming off a 19%.

last year in the fourth quarter. So when you come up with 19% double digit, it gives us a lot of confidence that low double digits is a number going forward for many years. We've had an awful lot of wins.

Speaker Change: On the retail side an awful lot of positive things going on there, you know, we talked about trade down But some of the wins at the retail side, you know, it's

It's interesting, and I get a little frustrated because there's been a lot of talk about one retailer we lost, one regional retailer, furniture retailer we lost, and a competitor of ours likes talking about that a whole lot, even did a press release on it, yet we've taken over the last couple of years...

numerous accounts from our competition that, in fact, from that same competitor...

wants to talk a lot and quite honestly Brad some of the analysts write about it a lot about one regional win they had

Speaker Change: When, over the last two years, we've taken Wayfair and Ashley and Sleep Outfitters, Slumberland, City Furniture.

Levin Furniture. That's at least six that we've taken from that competitor in the last two years and those are all top 100 furniture retailers so

We've had an awful lot more wins than losses. We've led the industry in growth for a couple of years now, as you know, from the GMV side. And we're very confident that's going to continue. Our sales team's knocking it out of the park.

Our integration for retailers is the simplest in the industry.

Our marketplace adds volume for our retailers like nobody else's. We've got more options than anybody else, whether they want to have a staff model or a quasi-staff model, a little bit of support. Our sales team is the largest out there.

and I dare say the best.

You know just based on the results. So when we look at the growth, we're pretty excited about all the wins we've had

and just what our GMV has been. And like I said, I get a little frustrated reading about one loss we had, where obviously it wasn't that big a loss, or we wouldn't have upped our GMV for the fourth quarter. But some of these other wins are more than making up for it, and there's a lot more coming from there. So we're pretty excited about the future of growth for Acima.

Speaker Change: Thank you.

That's helpful, Mitch. Absolutely a lot to be excited about from you all and no question the results have been really good. I want to ask a follow-up just on marketplace and wondering if you could share any more color on how big that's been and as we look to next year, how much you think that could be contributing to the GMB

Well, I'm glad you asked about the marketplace because we did touch on it and I touched on the prepared comments but it really is exciting when you think about our

Speaker Change: Our new product is AI Leasability, Generative AI Leasability Engine, which allows us to

Speaker Change: to not only onboard retailers so much faster on the marketplace, it's like it takes 10 days now instead of a month and a half, things like that. So, and the reason the onboarding used to be slow is you had to sift through their products and figure out what's leasable.

And it's hard to add an Amazon onto the marketplace and make sure people aren't leasing, you know, food or something like that that you can get from Amazon, right? So, with this new leasability engine...

And it's working just tremendously. Our team did a great job putting it together with a tremendous partner, as I mentioned.

And, you know, now we've added people like Walmart and Amazon and Target and eBay and

And that really just went live.

Speaker Change: You know, at least Billy Angel went live the first week of October, so that's not even in the...

Speaker Change: like 30% growth we had in the marketplace in the third quarter, roughly 30%. So, really excited about it. As far as how much it adds next year, I think it's certainly, you know, without getting into too many details about next year, certainly it helps us get that double-digit, low double-digit growth, but if it...

And on the other hand, if it works as well as we think it could, you know, we'll be upping those numbers too, because you just think about...

We're doing low double-digit growth right now, comping over 19%, and we're not even, that was before we added Amazon and Walmart and Target to our marketplace, so.

Speaker Change: You know, I guess you'd have to say, when you say low double digits, it's the low end of the spectrum when you think about adding those kind of names when we're already doing the low double digit numbers, so real excited about the marketplace and the future of it as well.

Very helpful, Mitch. Thanks and good luck.

Thanks, Brett.

Speaker Change: Thank you.

Speaker Change: One moment.

Speaker Change: Our next question comes from John Hecht with Jefferies. Your line is open.

Thanks, guys. Morning and congratulations on all the good momentum. Actually, one of my questions was just that, so I'll just have one question. And that's, given the consumer trade down effect happening in real time as we enter the holiday season, are there any differences that you guys expect in terms of the mix or type of transaction and how that flows through?

Speaker Change: Yeah.

Morning, John. I don't know if I would expect any real changes, you know, over the holiday season, obviously.

You know, those five weeks are very important.

Speaker Change: And then if you think about kind of the flow into the first quarter with tax season, that's typically our highest 90-day purchase option activity anyway, so with trade down.

We probably expect to see some of that activity continue.

But as far as kind of where the GMB is coming from, by channel new and returning customers, I'm not expecting a big shift year over year.

Speaker Change: Okay, thanks very much.

Speaker Change: Thanks, Jeff.

Thank you.

Our next question comes from John Rowan with Jamie Montgomery Scott. Your line is open.

John Rowan: Good morning, guys. Just a quick question for me. So the settlement with the CFPB, that the $7.5 million, that covers specifically the issue that they raised with Acima regarding, you know, the difficulty of returning leases and, you know, whether or not it was actually non-recourse. I just want to make sure that that settlement covers

John Rowan: or expects to cover that specific issue.

Speaker Change: So, John, we don't disclose kind of the specifics, but I will say it's not just that one issue. So it's not something we're going to disclose on which one of the issues, it's not something we typically do. And it's not settlement, it's an estimate, it's putting money on the books too.

presumably settle at some point, right? So it's not like it's settled. It's an estimate on, our best estimate right now on what, on settlement of those three those three issues put together.

So the three outstanding issues are all included in that estimate.

John Rowan: Correct. Okay. All right.

John Rowan: Thanks, John.

John Rowan: Thank you.

Our next question comes from Anthony Tacomba with Loop Capital Markets. Your line is open.

Good morning, thanks for taking my question. So, I mean, you've laid out your fourth quarter guidance, I'm sure that's factored into the guidance, but how do you think about, I guess, two things, the fact we do have this presidential election next Tuesday, and then the fact that it's going to be five fewer shopping days between Thanksgiving and Christmas. Thanks.

yeah good question I mean we we do have that factored in although the I mean November leading up to Black Friday is is very strong for us as well

So, you know, the shopping days certainly make it a little less than last year when you had...

And certain years you can have the opposite effect, depending on where that fourth Thursday falls and all that stuff for Thanksgiving.

John Rowan: You know, the...

John Rowan: We're probably being a little conservative because of the way the calendar falls, but the applications are up so much, like we said, 25% in the third quarter. We just gave a lot of momentum, but we do have that factored in. You're exactly right about that.

Speaker Change: That's helpful, thank you.

John Rowan: Thanks, everyone.

Thank you very much.

Speaker Change: That does conclude our Q&A for today. I would now like to turn it back to Mitch Fadel for closing remarks.

Mitch Fadel: Thank you, Operator, and thank you to everyone who joined us today for the update on the third quarter and our outlook for the fourth quarter and for the rest of the year. I'm really thankful for the efforts of our co-workers and our merchant partners who helped us deliver an impressive quarter in a few different ways, especially on GMV and, of course, Renison, our same-store sales results were also very impressive. So we're grateful to all of our co-workers for all their hard work.

We got a bunch of people working really hard for our shareholders and it shows and we're also grateful for our shareholders and for the interest and support of them and look forward to updating you next quarter on our continued progress towards our goals and 2025 we'll be talking about soon enough. Thanks everybody.

Mitch Fadel: Thank you very much.