Good day, and thank you for standing by. Welcome to the Upbound Group Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today.

Good morning, and thank you all for joining us to discuss Upbound Group's performance for the second quarter of 2025. We issued our earnings release this morning before the market opened, and the release and all related materials, including a link to the live webcast, are available on our website at investor.upbound.com. On the call today, we have Fahmi Karam, our CEO. As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release as well as in the company's SEC filings. Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. This call will also include references to non-GAAP financial measures. Please refer to today's earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures. Finally, Upbound Group is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcast. With that, I'll turn the call over to Fahmi.

Thank you, Jeff, and good morning, everyone. Before we review the results of another strong quarter, I'd like to lead off by emphasizing our excitement as we continue to implement our growth strategies and the digital transformation of our company, which will fulfill our mission to elevate financial opportunity for all. As we always have, we will relentlessly work each day to turn our mission into a reality by capitalizing on our unique strengths, including our differentiated insights into a large and growing consumer segment, our industry-leading capabilities and our team of dedicated, passionate coworkers across the enterprise. We're focused on helping financially underserved consumers with the financial solutions they rely on, building off our lease-to-own foundation while adding new products and services like earned wage access and credit building that strengthen our relationship with our customers and enhance the value we deliver to them. Let's move to Slide 4 and talk about how those goals translate to our business. Today, we serve our customers by leveraging a platform that generated approximately $4.5 billion in revenue and roughly $500 million in adjusted EBITDA over the last 12 months. Upbound size and scale provide a stable base for growth and a durable competitive position supported by a vast number of consumer data points that we accumulate each day when serving our millions of customers. That's the common thread that connects each of our segments, and we're leveraging that data to deepen our understanding of our customers' needs and guide the evolution of our business. As we capture, catalog and unify the data across the organization, we will draw out new insights that inform our strategy, shape our product road map, sharpen our marketing efforts, refine our underwriting decisioning and ultimately best position the business for sustained growth and success across economic…

[Operator Instructions] Our first question comes from Vincent Caintic at BTIG.

So great results and nice to see the improvements continuing in Acima and Brigit. I wanted to talk about Rent-A-Center, and you described that there were adjustments made last year and those are still flowing through. So I was wondering if you could maybe first in the near term, talk about if it's possible to describe the drag to results from those adjustments and maybe also from the product categories you have. So I know like there's still a lot of exposure to furniture and appliances. And then if you could talk about the long term of Rent-A- Center, what's your view of the long-term growth potential? Could it be? What level of growth should we be expecting once all of this normalizes?

Vincent, thanks for the question. Yes, look, I think as we discussed last quarter on the Rent-A-Center side, we did do a purposeful pullback on the credit side and tightening around underwriting. And that's going to have an overall impact on revenue and EBITDA as we saw in the quarter, consistent with how we guided at the beginning of the year and how we've guided last quarter. So a couple of factors, right? You have a reduction of 110 stores or so this year versus last year, underwriting tightening around especially new customers coming through the web. And then the product categories that we talked about around mobile phones mostly, which is another form of underwriting, all of that has impacted the Rent-A-Center results. And in this environment, we feel like taking a more conservative approach in underwriting is prudent. As we've talked about, our consumer generally is resilient, but it's still under pressure just from the accumulation of higher prices over the last couple of years. Your question around how big of a drag is it on the results. Without these moves, I would say, without the tightening on underwriting in the product categories, we would have been flat to maybe slightly up on a same-store sales basis. We are going to lap some of these changes starting in the third quarter. From a general underwriting standpoint, we started to tighten midway through the third quarter. The product categories really were eliminated in the middle of Q4. So we'll start seeing some lapping of that underwriting in the second half of the year. But we're not waiting for that. As I mentioned on the call, we have done some initiatives to try to help drive more deliveries without loosening up on the underwriting. And one way we're doing that…

Okay. Great. That's super helpful detail. And then switching over to Brigit, very nice results this quarter and your discussion about marketing investments and new products in the second half of the year. If you can maybe if you could describe those marketing investments in more detail and how much you intend to invest? And are there other products that might be interesting here because as part of the Upbound umbrella, you kind of wanting to serve the consumer more fulsomely. So you talked about the line of credit product. I was just wondering if you think long-term other products might make sense as well.

Thanks, Vincent. Yes. So very pleased with Brigit overall, very much in line to exceeding our expectations. Their performance speaks for itself. I'd say we're also very pleased with just how it fits in with the Upbound Group, even from a team dynamic standpoint and the collaboration overall has been great. It's been a really good solid first 6 months of ownership of the business. And what the platform has demonstrated is its ability to grow subscribers and really pick where its OpEx spend is, whether it's through marketing or R&D. This quarter, the EBITDA margin almost hitting 28% was probably slightly above where we wanted to be in the quarter from a marketing standpoint because we spent a little bit more time doing R&D type work for new products. And we're really excited about that line of credit product that I mentioned going up a little bit higher than our 250 Instant Cash product up to $500 and extending the term. One of the reasons we were really attracted to Brigit was their R&D capabilities and their ability to listen to the consumer and what the consumer actually wants and needs. And that line of credit product is a direct result in us listening to the consumer and the traction that we've gotten as we've piloted that program has been really, really tremendous. So the concept, again, is a little bit higher liquidity at $500 with a little bit longer extension of credit over the 6- to 9-month period. And we'll test and learn on kind of what gets the best traction and what performs best from a loss standpoint. But we're very excited about what Brigit can bring in some of its R&D and innovation into new products going forward. As far as the marketing goes, yes, we have been very heavily -- historically heavily on social media. We are trying some new channels even across social media like Reddit and other type platforms to see if we can get a better lift there. We are doing things in-store and on-site and then are starting to pilot even advertising at the point of sale, whether it's at Rent-A-Center stores or some of the staffed Acima locations, we are going to start putting up some signage there. And we will test and learn and figure out what gives us the best response rate from the consumers. But overall, very excited about what Brigit is doing.

Our next question comes from Bobby Griffin at Raymond James.

Congrats on a good second quarter. I guess first to start, a lot of detail on the different customer segments of your business. So maybe just a high level, would you call your core customer across the platform stable versus maybe 1Q or 6 months ago? Just trying to connect kind of where the customer is first here.

Bobby, you're breaking up just a little bit, but I think I got the gist of your question being around the consumer and how it's trended. I would say stable over the last few months, few quarters, still under pressure, as I mentioned in our prepared remarks, the core Rent- A-Center and maybe the bottom end of the Acima business, that consumer has to deal with high prices and inflation is still high. But there are some puts and takes. On the good side, unemployment is still low. Gas prices are still relatively low. There is some wage growth, and some of those new tax policies that I mentioned around not tipping or not taxing on tips and over time, should be net positive to the consumer. But overall, there's still a lot of uncertainty. So I would say stable as far as just general consumer behavior and strength of the consumer, but we are being very mindful of it and still taking a pretty conservative approach from an underwriting standpoint. And as we look at just the overall portfolio strength at both Rent-A-Center and Acima, as we've been able to tighten our underwriting and look at where our portfolio sits today compared to where it was a year ago or 2 years ago, the mix has definitely shifted to the upper end of our risk profile. So we feel really good about where the portfolio sits. And that's just something that we manage day-to-day. But generally saying, the consumer is pretty stable. As we've mentioned, they're pretty resilient, but still face some pressure and there's some uncertainty in the macro environment.

Hopefully, you can hear me a little better. I actually used [indiscernible] of my questions, so that's perfect appreciate it. I guess secondly for me was just on the Acima growth, continue to see really strong growth there in GMV. I understand you guys have been doing some more with the product offering. What are you seeing there from a trade-down perspective? Is what -- is it just new door growth driving that? What's driving the kind of core merchants leveraging the platform more, more aggressive sales tactics? Is anything there to better understand really the strength we're seeing across the apps as well as the GMV side of things?

Thanks, Bobby. Yes, Acima continues to really outperform coming in again this quarter at double-digit growth this quarter at 16% growth. And really impressive when you think about the comp coming into the quarter last year was at 21%, so 37% on a 2-year basis is really impressive growth, especially when you consider some of our bigger categories are still under pressure, furniture and appliances to be able to hit those growth targets is great execution by the team and also expanding margins, expanding the EBITDA margin this quarter by 40 basis points, last quarter by 170 basis points year-over-year. So being able to grow while not taking on additional losses and grow the EBITDA margin is really impressive from the Acima team. As far as the growth and where it's coming from, it is a mix, as we've said in the past, around both new merchants and productivity per merchant. If I had to bucket it this quarter, I would say the majority actually comes from new merchants we've onboarded over the last 12 months. About 80% of the growth comes from new merchants and about 20% comes from productivity gains. And one specific that I would highlight is our direct-to-consumer channel, and we consider that new as we add more of those national retailers to our website and to the app. That direct-to-consumer channel has been our fastest-growing part of Acima. It grew 130% year-over-year and now is over 5% of our overall GMV. So we'll continue to invest in that. It's a returning customer channel today. We haven't opened it up to really new customers yet, but there's a lot of opportunity for us to grow that. And as we mentioned, returning customers now is representing over 40% of our GMV. And it's -- a lot of that is driven by direct-to-consumer in our marketplace. So it's across the board. As we've highlighted in the past, Acima is very diversified from a merchant standpoint, very diversified from a product standpoint. So really, the growth is across the board. And as I mentioned, when furniture does come back, furniture and mattresses, the demand comes back, Acima will be very well positioned to continue the double-digit growth.

And I guess one last quick one, if I can. On the loss ratios in Acima, down year-over-year, but they did tick up sequentially. And I think you guys were looking for flat when we spoke last quarter. So just anything there? Or is it just timing or anything we should think about there?

Most of that, Bobby, I would say it's more mix. One of our fastest-growing segments outside of the direct-to-consumer has been in the jewelry category. That's been growing now a couple of quarters in a row much faster than some of our other categories and becoming a bigger and bigger part of the overall portfolio. And that tends to have a little bit higher loss ratio, tends to have a little bit higher 90-day buyout activity, which puts pressure on our gross profit margins, but also probably ended up being 10, 20 basis points higher from a loss ratio standpoint, but still well within our range of losses. And as I mentioned, it trickled down into a positive EBITDA margin year-over-year. So nothing really there, still very much under control.

Our next question comes from Brad Thomas at KeyBanc Capital Markets.

And we too think these were very good results in a tough environment out there. I wanted to start with a follow-up on Brigit. You all said that you thought revenue would improve slightly on a sequential basis. And obviously, you gave a very positive framework for how you're thinking about sales and EBITDA over the next couple of years at the time of acquisition. And so I was wondering, having owned the business for 6 months, if you could share a bit more about how you're feeling about that outlook potential because obviously, it's positioned to be a very significant contributor to sales and EBITDA over time.

Brad, thanks for the question. Yes, as I mentioned, very, very pleased with the performance overall, still very much on track, hitting our 2025 guide as well as positioning the company to hit the big ramp-up in growth in 2026. And as you recall, the 2026 number really didn't have any benefit of some of the cross-collaboration and cross-selling that we have been working on. So I feel like we're well positioned there. We are being pretty methodical in how we tap the Rent-A-Center and Acima customers and really testing and learning there, but feel really good about Brigit on a stand-alone basis, being able to hit the numbers that we expected at the time of the acquisition. The first half of the year has been above our expectations, as you mentioned, both on the top line and on the EBITDA side. So nothing that we've seen in the first 6 months has really slowed us down. If anything, we're more and more positive about the acquisition and the future cross-collaboration between all the segments.

That's very helpful. And if I could add a follow-up on the Rent-A-Center side. You've already given a fair amount of detail here. But just as we think about the quarters ahead, and I know this is kind of a macro call that I'm asking you to make here. But is there a good way to think about when some of the EBITDA dollar pressures could potentially subside and when you could at least flatten out, if not start to get back to growth for that segment?

Yes. I think I mentioned, Brad, we're going to start lapping some of these changes that we made on the underwriting side in the second half of the year. We'll get a little bit of back in the third quarter, and then we'll get a little bit more of it back in the fourth quarter. And then we're still going to lap some of the store closures and consolidations that we did also last year. So I would say early 2026, you should start seeing us really start to have a clean comp and hopefully then returning into growth as we do some of these initiatives that we mentioned that hopefully help from a delivery standpoint. And then look, if the macro gets a little bit better, then we'll be able to pick our spots on where we open up some of the underwriting. When we tighten underwriting between the 2 segments, it definitely has a different impact on Acima and Rent-A-Center -- with Rent-A-Center, given its fixed cost basis and having the stores, there's definitely something that we have to balance there between growth and taking on prudent risk, where Acima benefits from trade down and being able to grow store count. So look, I think we'll start comping -- the comps start to get a little bit easier in the second half. And then by the time we get into 2026, we should return to growth.

Our next question comes from Hoang Nguyen at TD Cowen.

I want to start with Brigit. Obviously, very strong results. And if you look at the cash advance volume over the past couple of quarters, it's been decelerating. I think you mentioned that you guys are going to increase marketing in the back half of the year. So can you talk about maybe your expectations for Brigit going forward and how you are looking to reaccelerate growth?

Yes. Look, Hoang, thanks for the question. The Brigit growth, I think, it speaks for itself. As I mentioned, 40% revenue, almost 25% subscription -- subscriber growth year-over-year. The advances doesn't have necessarily a financial impact onto the business given the subscription-based model. But the other thing that we mentioned in the prepared remarks was the average revenue per user per month growing mid-single digits sequentially and up over 12% year-over-year. That is one thing that I would also call out as something that we are actively pursuing and seeing that grow sequentially, again, low single digits into the second half of the year. The traction that we get, as I mentioned, both on the Instant Cash product, the credit building product and now the line of credit really justifies the market need and the market demand for this product and being able to offer our customers across all the brands, these liquidity solutions is really powerful for us. It expands our market outside of just durable goods. It gives us another solution to offer our customers and keep them in the network. So again, not to repeat too much, we're very pleased with what Brigit is doing, including its growth profile.

Got it. And maybe on the leverage, given that, I guess, you continue to see some revenue headwind on -- sorry, on Rent-A-Center, which is about to lap, but you're also seeing very fast growth on Acima. So does that affect your ability to, I guess, quickly take down leverage? And when should we expect you to hit your target leverage ratio?

Yes. Free cash flow, you compare this year to last year, this year, year-to-date, we're at $117 million. Last year it was about $34 million. So free cash flow is a real positive story for us, and that's including the growth at both Acima and Brigit. Some of that betterment year-over-year is the pullback at Rent-A-Center. Obviously, the EBITDA declines in there, but also fewer and fewer purchases is also in that free cash flow number. So free cash flow has actually been a really positive story for us in the first 6 months. The big beautiful bill that was passed also gives us some cash tax benefit that we'll incorporate into the guide going forward. But needless to say, it will be a significant plus to free cash flow for at least the next couple of years. So we will get down to our 2x leverage target. I would say, over the next couple of years, Hoang, it depends on how fast we can grow Acima, how fast we can grow Brigit. But if you just look at the guide for 2025, what we said was we could get leverage down to pre-acquisition levels by the end of the year. So let's hit that first, and then we'll try to get down to 2x as we progress.

Our next question comes from John Rowan at Janney Montgomery Scott.

Do you know what percentage of your customers are affected by the change in tax policy on tips and overtime?

It's really hard for us to kind of pinpoint the exact percentage. But if you think about Rent-A-Center customer making $25,000, $30,000 a year annual income, Acima's $55,000 to $60,000 and Brigit somewhere in between the 2, it's going to be a lot of service type folks. And those folks are the ones that have a lot of tips and a lot of overtime. So we think it's going to be a net positive, but I don't have an exact percentage, but it's a meaningful percentage of our consumers.

Okay. Has there been any change in the -- I know not for you because you run a subscription-based model in Brigit, but have there been any changes in the market since the CFPB rescinded some -- all the guidance documents?

No. Obviously, there's been a lot of news around that, the open banking rules even this week, the CFPB sounds like they may come back to the rule as the courts to hit pause on the ongoing case. So nothing to date, John, has changed officially, but it's something that we're actively monitoring through the Brigit team. But nothing to date has necessarily changed as far as the new ruling.

Okay. And then lastly, I just want to make sure I understood. So a $32 million accrual for legal matters, was that -- I was -- just want to make sure I understand, is that for future litigation? Or is that to settle one of the matters? Or is it both? And if you could break out if it's both.

Yes. It covers a lot of the different cases that we disclose, John, and we'll have the 10-Q out this week, and we'll have more of the disclosure and detail amongst all the cases. The majority of it, as we said in the prepared remarks, does relate to the Multi-State AG matter that we've been working on now for several years. I take this as good news that we're making progress. A lot of these things have been -- a lot of these matters have been very long- standing matters and mostly relate to legacy practices, including the McBurnie case that we did settle post the quarter. That was something that brought up 5 years ago and relates to our legacy Acceptance Now business. And so being able to settle that case, it was almost fully reserved for at the end of Q2 to now be able to move on. I think, is a positive. And so we'll continue to update the accrual based on ongoing progress in the negotiations and hope to have these behind us soon.

Our next question comes from Bill Reuter at Bank of America.

I just have 2. The first is the growth of Acima, I find particularly impressive in light of general store closures across retail. I guess, is that something which is negatively impacting all the positive momentum? And are you having some of your partners that are closing their stores?

Bill, thanks for the question. One of the big benefits of Acima's platform is the diversity in -- as I mentioned, diversity both in product and in merchants. And because we are -- a majority of our business comes from small and medium-sized businesses, not one location closing or one merchant closing really has a meaningful impact to the business. So to answer your question directly, no, there hasn't really been anyone who's closed down that's been necessarily material to us. We're constantly adding hundreds of locations to the platform. So it hasn't necessarily been a headwind for us. Furniture, as we talked about, is a big category for Acima. And the team has done a great job of while that category has been under pressure from the pull forward of stimulus, diversify where the GMV comes from into different high-growth categories. And I mentioned jewelry, electronics has been really, really strong for us as we've gone through the marketplace and adding bigger retailers there. So no, to answer your question directly, it hasn't necessarily been an impact for us.

Great to hear. And then secondarily, you talked about getting towards 2x leverage towards the end of next year potentially. I guess I'm wondering whether given all that's going on with the growth in Brigit and Acima, whether you would consider additional acquisitions at this point? Or you have so much going on internally plus the leverage target that kind of those are going to be your focuses?

I think that's fair, Bill. I think you never say never on M&A. You always keep the door open if it's something that expedites our strategic vision, adds another technology or solution for our consumers. But at the same time, as you said, and I think as we've highlighted, we have a lot of opportunity in front of us with what we have between the 3 major brands, Rent-A-Center, Acima and Brigit. And we have a lot of room there to execute and hit our strategic plan with what we have in-house. So the focus right now is let's get Brigit further integrated. Let's get Rent-A-Center growing again, let Acima continue to grow double digits and find different ways to service our customers through that -- through Acima. And at the same time, pay down debt, get to our target leverage ratios and then position the company for really supercharged growth in '26 and beyond.

Our next question comes from Anthony Chukumba at Loop Capital Markets.

Just had a couple of quick ones. First one, you had a 50 basis point year-over-year increase in the lease charge-off rate in the Rent-A- Center business. I was just wondering if there was -- if you could just provide any color in terms of what the drivers were for that.

Anthony, thanks for the question. Yes. Look, I think it's 50 basis points year-over-year. Some of that is why we tightened late last year, why we removed some of those phones. Some of that has to go through the portfolio, and you're seeing that. I'd characterize it as stable. It's only up 10 basis points from the first quarter. And we've always said that 4.5% range in this environment, give or take, 10, 20 basis points is kind of fine for the Rent-A-Center business. So some of it is why we tightened in the fourth quarter and earlier this year. So some of that just has to work through the portfolio. But again, it's within a range that we find acceptable, especially as you have pressure on deliveries and the top line.

Got it. No, that makes sense. And then just you talked -- when you had acquired Brigit, you talked about at some point, I guess, sort of migrating their decisioning engine to Rent-A-Center and Acima. I was just wondering if there's any update there.

No real update. It's definitely still something we're very focused on. Anthony, to be candid, it kind of comes down to prioritization of where we feel like we can get the best bang for our buck, if you will, with our time and resources. Similar answer to what we said on the marketing side on the cross collaboration between R&D, developing new products and growing Brigit versus having some of the data sharing and cash flow underwriting. We are going to do some testing this year around that just through the overlap of customers that we currently have. So we are starting on it. It is something that we think will be a big benefit for the combined company, probably not something you'll see in 2025, probably something that we'll tackle in 2026.

I'm showing no further questions at this time. I would now like to turn it back to Fahmi for closing remarks.

Thank you, operator, and thank you to everyone who joined us today for an update on our Q2 performance and our outlook for the balance of 2025. Before we conclude, I'd like to extend my sincere gratitude to all of my colleagues at Upbound. Thank you for your unwavering contributions and support of our mission, our values and our customers. Have a great day, everyone.

Thank you for participation in today's conference. This does conclude the program. You may now disconnect.