Upbound (UPBD) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q2 2023 revenue of $979 million, exceeding internal expectations, with adjusted EBITDA of$ 130.6 million and non-GAAP EPS of $1.11, both above expectations [4][22] - Consolidated revenue decreased by 8.6% year-over-year, with Acima down 12.4% and Rent-A-Center down 4.9% [22] - Consolidated gross margin increased by 200 basis points year-over-year to 51.7%, driven by improvements in the Acima segment [23] - Adjusted EBITDA margin improved to 13.3%, up approximately 130 basis points year-over-year [24] Business Line Data and Key Metrics Changes - Rent-A-Center's same-store sales decreased by 4.9% year-over-year, an improvement from a 6.6% decline in Q1 [12] - Acima's GMV decreased by 5.8% year-over-year, but showed a significant improvement from a 12.6% decline in Q1 [13] - Acima's adjusted EBITDA increased by 46.8% year-over-year, with a margin of 16.8%, the highest since acquiring Acima [30] Market Data and Key Metrics Changes - Web traffic for Rent-A-Center grew by 32% year-over-year, with e-commerce accounting for approximately 26% of Q2 revenues [12] - The company noted a tightening of credit conditions, which is expected to increase trade-down behavior among consumers [17] Company Strategy and Development Direction - The company aims to enhance its digital business and has added more merchants to the Acima marketplace [7] - A strategic partnership with Genesis Financial Solutions was announced to provide credit solutions for underserved consumers, expected to ramp up by the end of 2024 [8][9] - The company provided a three-year financial outlook projecting annualized revenue growth of 6% to 8% and adjusted EBITDA growth of 8% to 10% [11] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the company's prospects for the second half of the year, while acknowledging ongoing financial headwinds affecting less affluent households [5][16] - The company is focused on managing risks due to uncertainty in the market and the pressure on consumer spending [17][38] Other Important Information - The company raised its full-year 2023 guidance for non-GAAP EPS to a range of$ 3.25 to $3.55, up from a previous range of$ 2.70 to $3.20 [5] - Free cash flow for Q2 was$ 25 million, down from $67 million in the prior year [25] Q&A Session Summary Question: Can you unpack the trade-down behavior observed? - Management noted that trade-down behavior is evident through rising credit scores, indicating higher quality customers, and expects this trend to potentially accelerate during the holiday season [40][41] Question: What are the implications of the current unique customer behavior on future performance? - Management clarified that the current lower percentage of customers exercising early payouts is returning to pre-pandemic levels, and they do not expect a significant reversal in this trend [42][43] Question: How is the health of the underlying consumer across segments? - Management indicated that consumers have adjusted to inflationary pressures, with improvements in delinquency and loss rates observed [46][47] Question: What is the status of the retail partner pipeline for Acima? - Management reported ongoing growth in regional partnerships and optimistic discussions with larger national retailers, although no major national wins have been finalized yet [51][53] Question: What are the capital allocation priorities moving forward? - The company prioritizes debt reduction and reinvestment in the business, with opportunistic share repurchases considered as conditions allow [54][55]