Rent-A-Center Inc Stock

Thank you. Good day and thank you for standing by. Welcome to the Q2 2026 Upbound Group in Kerning's conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Abraham Albert, Senior Vice President of Finance.

Please go ahead. Thank you.

Good morning. Thank you all for joining us to discuss the company's performance for the second quarter of 2026. We issued our earnings release this morning before the market opened, and the release and all related materials, including a link to the live webcast, are available on our website. On the call today from UpBound Group, we have Femi Khurram, our Chief Executive Officer, and Hal Khoury, our Chief Financial Officer. As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release, as well as in the company's upcoming form, 10Q, and other SEC filings. Group undertakes no obligation to publicly update or advise any forward-looking statements except as required by law. This call will also include references to non-GAAP financial measures. 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 Sammy.

Thank you, Abraham, and good morning, everyone. I'm pleased to share our second quarter results and provide an update on our strategic progress. I'll start with a high-level review of the quarter and our priorities, then hand it over to Hal for the detailed financial results and updated outlook. After that, we'll open up the line for questions. Our second quarter results reflect a continuation of many positive trends we identified last quarter, and we delivered results within all of our guided metrics. Risk management and underwriting has supported healthy cash flow generation, ongoing balance sheet deleveraging, and solid progress on our key strategic initiatives, despite the challenging economic backdrop. Our core consumer remains resilient but continues to manage a tighter budget and We remain focused on giving them flexible, affordable ways to get the products and financial liquidity they need.

We operate three complementary brands, offering a breadth of solutions that help us manage category-specific demand, create multiple avenues for growth, and position us to deepen customer relationships over time. Before discussing the results, I want to revisit our 2026 priorities. We're continuing to strengthen the connections across our brands by investing in shared capabilities and creating a more connected experience for the customers we serve. Our strategy is straightforward. Meet customers where they are today while expanding the ways we can serve them as their financial needs evolve. As we strengthen the connections across our brands, we're creating more opportunities to serve a customer across multiple products and brands over time, increasing the value of every customer relationship. At the same time, the shared capabilities we're building across the enterprise allow us to make better decisions, scale investments more effectively, and strengthen each brand. Over time, we believe these efforts can support stronger customer outcomes, greater operating leverage, improved capital efficiency, and long-term value creation for our shareholders.

In parallel, we're applying AI and analytics across the enterprise, starting with underwriting, customer communications, account management, and collections, which are targeted initiatives where we can measure impact and scale what works. We are actively integrating AI across discovery, search, and marketing content, while finding new ways to engage customers through generative and agentic AI. Our teams are leveraging AI to better understand customer needs and deliver personalized experiences, whether through automation, intelligent prompts in our stores, or advanced data-driven insights. We are investing in conversational commerce and in-contact servicing, ensuring that every customer interaction is smarter and more seamless. Our growth organization is designed to place customers at the heart of every journey, enabling rapid experimentation and scalable breakthroughs that unlock new revenue streams and reinforce our brand's competitive edge. By harnessing advanced personalization across acquisition, conversion, and retention, we are redefining customer lifetime value through a unified, data-driven approach. Our commitment to enterprise-wide personalization and seamless cross-brand engagement will foster deeper cross-sell, upsell, and loyalty, resulting in sustainable, profitable growth.

Before discussing our business bisegment, I would like to briefly address the cybersecurity incidents cited in our recent 8 . During the second quarter, we experienced incidents in which certain non-sensitive customer information and other documents were obtained without authorization. of which we believe was subsequently used to facilitate fraudulent lease-to-own agreements, leading to elevated fraudulent contract losses of approximately $13 million in the ASEMA segment during the second quarter. In connection with these incidents and in coordination with external cybersecurity experts, we have already begun implementing remediation measures including enhanced authentication controls, additional fraud detection and monitoring capabilities, and other security enhancements. The company has also notified federal law enforcement of the incidents. While our investigation is still ongoing, we do not expect a material impact from these incidents. Cumulatively, the aforementioned incidents, a continued tightening in our underwriting posture, and macro headwinds which impacted consumer demand in our key categories pressured our overall GMV and our SEMA segment by 11% in the second quarter. Looking ahead, our expectations for a SEMA GMV are flat to negative low single digits on the year. turning to growth in the fourth quarter.

We remain disciplined in our approach, focusing on maintaining losses in an acceptable range, increasing risk-adjusted margins, and protecting our balance sheet with quality GMB. Now let's turn to our results by segment for the second quarter, starting with Bridget, which saw continued momentum underpinned by another quarter of double-digit year-over-year growth in subscriptions, with revenue growth of 37% year-over-year and maintaining its trajectory towards its financial targets for 2026. At the brand scales, more and more users are finding value in Bridget's flexible and transparent financial wellness and liquidity solutions, and we're excited about the opportunities ahead for Bridget as we continue expanding how and where consumers can use the platform. On the product side, the line of credit pilot continues to progress, and we're working toward a broader rollout with unit economics, customer outcomes, and long-term value front of mind. Additionally, following a successful pilot earlier this year, we are very pleased to announce that in May, Bridget entered into a multi-year partnership with Experian to offer Bridget's Earned Wage Access product to Experian members with Experian Money Plus membership. This partnership represents an expansion of the Vergeit platform beyond its direct-to-consumer roots and into embedded financial infrastructure, opening a new revenue channel for the business. The collaboration brings Bridget's cash flow underwriting technology into the Experian platform, adding a new way for members to access funds directly within the app.

We're very excited to partner with Experian to scale the program, allowing us to serve more and more consumers along their financial journey. We believe this milestone demonstrates Bridges' ability to expand distribution through trusted partners and create an additional customer growth channel for the business. At Asema, from a top-line perspective, credit tightening and the cyber incident did weigh on GMV, which finished the quarter lower year-over-year and below our expectations as we continue to take a conservative underwriting approach in this volatile macro environment. LOST PERFORMANCE CONTINUED TO BENEFIT FROM UNDERWRITING ACTIONS TAKEN OVER THE PAST YEAR, Lease charge-offs improving to 8.8% and approximately 50 basis point improvement compared to the prior year period. EBITDA margin increased 117 basis points to over 16% in the quarter. This improvement validates the data-driven approach our team has adopted to protect portfolio quality and improve long-term economics, and it supports the foundation for continued investment in the business as we move through 2026. We continue to invest in improving customer experience, expanding digital capabilities, and supporting sustainable GMV growth while maintaining underwriting disciplines.

From a partner perspective, we are encouraged by new merchant agreements in the pipeline and further integration with current partners, including the checkout button at Wayfair, which is now live. We remain focused on delivering a diverse merchant base and are happy with the pipeline of new merchant wins we expect in the third quarter that should drive year-over-year growth in GMV by the fourth quarter. Moving on to Rent-A-Center. Overall performance in the second quarter was favorable and stable amidst an inflationary expense environment for the company and our consumers. We achieved year-over-year same-store sales growth for the third consecutive quarter, growing 1.6% versus last year. The team continues to prioritize portfolio quality while advancing initiatives aimed at improving customer experience and store-level profitability. Against this backdrop, we have begun a rent-a-center-wide optimization effort to ensure the brand remains competitive in today's environment. with the objective to drive efficient operational performance and enhance long-term returns. These initial optimization efforts led to 69 underperforming store closures in the second quarter, with customer accounts being merged into nearby locations.

Following this first phase of optimization, we will continue to evaluate our store count as part of a broader roadmap to leverage our digital capabilities to right-size the footprint, seeking to boost profit contribution. We look to customize our approach by market, including consumer preferences in product and personalized marketing, as well as testing different operating models, including shared logistics, store size, and varying labor models. Our goal is to serve more customers more efficiently by leveraging our digital capabilities and analytics to produce enhanced margins. We're also excited about the progress we've made with the Amazon partnership we announced last quarter, enabling convenient Amazon order pickup and returns at Rent-A-Center corporate-owned stores, which is now fully deployed at approximately 1,500 locations nationwide. While so early, the partnership is driving improved foot traffic and expanding brand awareness. the types of initiatives that leverage our existing footprint, enhance the customer experience, and help us introduce our portfolio of flexible financial solutions to an even greater number of consumers. Before summarizing our consolidated financial highlights, I want to zoom out and offer a broad view of UpBound's overall portfolio health. We believe our portfolio is strong with delinquencies and losses relatively stable in a tough environment. we focus on building shared capabilities and delivering intelligence through data to our teams to make better operating and risk decisions and driving customer engagement.

These initiatives should result in customer growth, retention, and lifetime value, which will position us for long-term sustainable growth. It's also important to acknowledge the challenges in the current operating environment we're navigating. The non-prime consumer remains resilient but continues to face pressure from elevated costs in essential categories such as groceries, rent, utilities, and energy, which influences purchasing behavior and delays discretionary spending, particularly for for larger ticket items such as furniture and appliances. Despite this challenging backdrop in the second quarter, our consolidated results were in line with our expectations. Revenue was 1.2 billion, up modestly year over year. Adjusted EBITDA declined year-over-year to $127 million due in part to timing of marketing expenses at Bridget and higher fixed costs at Rent-A-Center. Non-GAAP diluted EPS was $1.07, down approximately 4% from the prior year.

Cash flow and deleveraging were strong in the quarter. Net cash provided by operating activities was $123 million, up $97 million year-over-year. The free cash flow was $84 million, up from negative $10 million in the prior year quarter. Strong cash generation supports reinvestment in the business, discipline deleveraging, and our broader capital allocation priorities. We're pleased with our second quarter results and team execution across the company. We're investing where it matters most, staying disciplined on investments, costs, and underwriting, and scaling capabilities that support operating leverage over time. As we look ahead, our priorities are clear and we'll stay focused on execution through the rest of 2026.

With that, I'll turn the call over to Hal to walk through the financials in more detail.

Thank you, Fannie, and good morning, everyone. I'll begin with a review of our segment results for the second quarter, then spend time on capital allocation and liquidity before closing with our outlook and guidance. Starting with Bridget, the second quarter demonstrated strong performance across the business. Revenue was $71 million, representing a growth rate of 37% year-over-year. Revenue growth in the quarter reflected continued expansion in paying users and improved monthly ARPU, which increased 6.3% year-over-year to $14.30. reported by increased shift toward Bridget's premium tier, deeper engagement with marketplace offers, and higher optional expedited transfer revenue. Paying users were approximately 1.7 million at quarter end, approximately 30% year over year, and net advance loss rate was approximately 3.6%, consistent with recent quarters and within expectations. Bridges' adjusted EBITDA contribution in the second quarter was approximately $11.8 million, and we note an increase in advertising and marketing spend relative to the prior year quarter.

Going forward, our focus remains on growing responsibly and rolling out new products carefully with subscriber economics guiding the pace of our expansion. Turning to ASEMA, second quarter revenue was $604 million, a decline of approximately 2.5% year-over-year. GMB was approximately $466 million, a decrease of approximately 11% year over year. This outcome reflects multiple factors, including additional flow-through from the deliberate underwriting tightening actions that we started in 2025 as we remain prudent in customer acquisition, impact from cyber incidents and tighter consumer conditions that limit discretionary spending, particularly for durable goods. These selective tightening actions were focused on improving long-term portfolio economics rather than maximizing near-term volume, particularly given the broader non-prime consumer landscape. Despite the top line and GMV pressure, loss performance improved again in the second quarter. Family lease charge-offs were approximately 8.8%, representing an improvement of 50 basis points year over year.

The key indicators we monitor, including payment behavior and delinquency trends, support our confidence that the portfolio is benefiting from the underwriting actions implemented. Adjusted EBITDA for Acemo was 98 million, up approximately 5% year over year, while adjusted EBITDA margin was 16.2%, an increase of 117 basis points year over year. Despite the revenue pressure, improvements in loss performance and gross margin were key offsets contributing to increasing returns. Looking ahead, we remain focused on maintaining a balance of sustainable growth paired with solid portfolio performance and profitability. Our Rent-A-Center business showed resilience amidst an inflationary expense environment, and our disciplined approach led to same-store sales increase of 1.6% in the second quarter, the third consecutive quarter of same-store sales growth. Second quarter revenue was $466 million, with average portfolio value per store increasing approximately 3.5% year-over-year. Our underwriting approach at Rent-A-Center remains prudent, with lease charge-offs approximately 5% in the second quarter, representing a 30 basis point increase year-over-year, however reflecting stable performance within our expected target range for the course.

Adjusted EBITDA for Rent-A-Center was $63 million, down approximately 8% year-over-year. Our store optimization plans emphasize minimizing revenue impact through consolidation while maximizing cost-benefit to drive EBITDA contribution. Our initial tranche identified and optimized 69 underperforming stores and will continue to evaluate the footprint with the potential for additional optimization downstream. We remain encouraged by steps the team is executing to boost profit contribution, initiatives to accelerate progress on the digital customer experience, the expansion of product offerings to rent-a-center's strongest customers, and our efforts to increase store traffic and brand awareness, such as the Amazon partnership that Fanny mentioned earlier. Turning to cash flow, liquidity, and capital allocation, one of the enduring strengths of our model continues to be the ability to convert earnings into cash. And the second quarter is another example of that. Net cash provided by operating activities was approximately 123 million, up 97 million in the prior year quarter, and free cash flow was approximately 84 million, up from negative 10 million a year ago.

These results reflect the underlying strength of the business, translating directly into stronger cash generation. Given this trajectory and a trailing 12-month operating cash flows of $425 million, our expectation for full-year cash flow is approximately $250 million. We will continue to invest capital on key initiatives which are aligned with the strategy FAMI outlined and are focused on technology modernization, data platform initiatives, and digital capabilities that support underwriting, personalization, and operating efficiency. We remain selective and returns-oriented in how we deploy capital. Over the full year, we expect capital expenditures to be similar to 2025, and we will continue to evaluate pacing and ROI as we move through 2026. We also drove shareholder return by funding a quarterly dividend of 39 cents per share, which amounted to approximately 23 million during the quarter and represents an approximately 7.5% dividend yield. dividend of our capital allocation framework, strong free cash flow allows us to support the dividend while also pursuing our other priorities, including reinvestment and deleveraging. Turning to liquidity and debt, quarter end liquidity was approximately $487 million, reflecting cash on hand and available revolver capacity.

Net debt was approximately $1.3 billion, and leverage was 2.6 times trailing 12-month adjusted EBITDA, a meaningful reduction from 2.9 times at year-end 2025. While the leverage ratio may fluctuate slightly due to timing of cash inflow and outflow over the course of the year, we are pleased with the debt reduction achieved through the second quarter. We continue to prioritize discipline deleveraging as a primary use of incremental cash, targeting leverage in the 2x range over the long term. Taken together are capital allocation actions during the quarter, reflected disciplined consistent framework focused on strengthening the balance sheet, supporting returns to shareholders, and reinvesting selectively to drive long-term value. That discipline gives us flexibility and positions the company well as we move into the remainder of the year. With that context, let me turn to our outlook and guidance. As we look ahead, our expectations reflect continued prudence in underwriting, disciplined operating execution, and steady progress against our strategic priorities.

Our outlook assumes a continuation of the current challenging external operating environment, uneven macro factors that pressure our core consumers' discretionary income and demand levels, but also tend to make our complementary range of flexible financial solutions even more relevant to these consumers. Factoring in Q2 results, lower demand for durable goods, and our underwriting posture, we are narrowing our full-year revenue range to $4.7 to $4.85 billion, while reaffirming the adjusted EBITDA range of $500 to $535 million and non-GAAP diluted EPS range of $4 to $4.35. We share on our previous earnings call. We are raising our pre-cash flow expectations for the year from $200 million to $250 million, inclusive of estimated legal payments. These factors position up-down favorably to advance its capital allocation priorities as we focus on delivering compelling and sustainable returns for shareholders. I'll now move on to share updated segment level commentary. At ASEMA, we've revised our outlook to account for second quarter results, the deliberate underwriting tightening, recent cyber incidents, and our expectation of continued macro headwinds.

We expect 2026 GMV and revenue to be flat to low negative signal digits year over year. Losses for the year are trending lower than our original expectations, stabilizing under 9% for the year. Importantly, ASEMA's adjusted EBITDA margin has now moved above 16%, improving 117 basis points year-over-year. Our outlook for ASEMA margins has improved relative to our previous guidance, and we now expect ASEMA adjusted EBITDA margin to finish the year up relative to 2025, offsetting revenue pressures. Turning to Bridget, our outlook remains unchanged, with annualized revenue growth of over 30% in the 265 to 285 million range, and an adjusted EBITDA in the 50 to 60 million range. These expectations assume continued growth in paying users while maintaining net advance loss rate around current levels for the year. We remain focused on disciplined growth and measured rollout of new capabilities as the year unfolds.

At Rent-A-Center, while trends in the company-owned segment have stabilized, store optimizations, lower demand, and contribution from our franchise business are expected to have a modest impact on full-year performance. As a result, we expect Rent-A-Center segment revenue to be flat to down most single digits for the year. change to adjusted EBITDA margin, which should remain relatively flat to 2025. Looking to the third quarter of 2026, we expect consolidated revenue of $1.05 billion to $1.15 billion, adjusted EBITDA of $105 to $115 million, and non-GAAP diluted earnings per share of $0.85 to $0.95. These expectations reflect typical seasonal dynamics and continued underwriting discipline. With respect to third quarter loss rates, we expect improvement of the SEMA with an increase at Rent-A-Center to the mid-5% range, a level we are comfortable operating within the current environment as we balance risk, deliveries, and EBITDA dollars to cover fixed costs. Third quarter GMV growth should improve sequentially and be down low to mid-single digits year over year with continued improvement over the balance of the year and returning to year over year growth in the fourth quarter of the year. Bridges net advance loss rate in the third quarter should be in the mid 3% range in line with historical quarter over quarter trends.

Now, as we wrap up, I'd like to reinforce a couple of points Femi mentioned earlier. During the second quarter, the company continued to execute against its strategic priorities, delivering solid operating and financial performance while maintaining discipline in how we balance growth, risk, and returns. The actions taken over the past year to strengthen portfolio performance are showing up in the results, particularly in loss trends and cash generation. Looking ahead, we remain confident in our ability to navigate the current environment and continue building long-term value for shareholders. Our diversified and complementary portfolio, strong cash flow generation, and disciplined approach to capital allocation position us as we move through the second half of 2026. Thank you for your time this morning. Operator, you may now open the line for questions.

Thank you. At this time we will conduct the question and answer session. 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 1 1 again. Please stand by, we will compile the Q&A roster. Our first question comes from the line of Bobby Griffin of Raymond James. Your line is now open.

Hey, good morning guys. Thanks for taking the questions. I guess first for me, I want to ask about the investments or the marketing investments in Bridget. Clearly you guys saw a pickup in subscribers there, but just how do you think about the ROI on those that weighed on EBITDA this quarter as you televised to us? But, you know, where does the ROI kind of play in and what's the payback period that you're targeting with those types of.

of investments going forward. Morning, Bobby. Thanks for the question. I'll start. Look, we're very pleased with Q2 is a continuation of what we've seen since the acquisition with revenue up over 35% and 37% subscriber growth. Up 30% up to 1,000,007 paying subscribers. So very pleased with the performance overall and the EBITDA contribution to your question. is actually to the high end of our expectations. We guided last quarter that EBITDA margins in Q2 would be in the low to mid teens. So coming in over 16% was right in line to the upper end of our expectations on the range.

And if you recall last year, that was the same guide we had in Q2 in 2025, we just didn't see the same traction we're seeing in the marketing expenses this year. And so we pulled back last year. So I think Q2 last year, a little bit of an anomaly from a margin standpoint, we wanna lean in to growing our subscriber count and leaning into lifetime value of these consumers. So very much in line with what we had expected coming into the quarter. And I think the overall environment is very conducive to our marketing campaigns because of the liquidity needs out there for the non-prime consumer. So it is a very positive LTV spend.

and we continue to lean in as the year progresses. Hey, Bobby, it's Hal here. Yes. Mike piped in and add in. You know, to Sammy's point, we're seeing extremely strong demand. for the product, which has been terrific, exceeding expectations as FAMI had indicated. We may contemplate, particularly in the back end of the year, additional investment if we continue to see, you know, the performance and the demand on the product as well. So we We may look to ramp up some of our marketing activity in the tail end of the year as well.

Thank you. That was actually my follow-up, so I'll switch to something else. You hit on it before I even got a chance to ask, but that's helpful. I appreciate the details. I guess, secondly, for me, understanding the dynamics of the environment right now, there's a lot of moving parts. When you back into the implied remaining guidance, it does imply 4Q has an inflection back in EBITDA, so EBITDA starts to grow again in 4Q to kind of get to the midpoint of the full-year guidance. And I think you talked about a SEMA actually returning to growth, GMV growth in EBITDA as well. So can you maybe just unpack, you know, what is the driver of that inflection point in the model as we get to 4Q? Is it just a function of lapping? the tightening comparisons or some of the other things we've talked about start to flow through again. Just wanting to understand that better and the confidence level of it flipping back positive from a consolidated EBITDA standpoint.

Yes, hey Bobby, it's Hal here. Yes, definitely some seasonality at play there in terms of the ramp back up in Q4, particularly on GMB and the ASEMA segment and movement and SMUR on the RAC side as well. You would have seen some of that in last year's kind of trending and performance. performance in terms of uptick in the tail end of the year. We see that as a bit more pronounced going into the back end of the year, particularly with some of the tightening that we did. on the ASEMA side in this quarter, in this past quarter as well. And we see that as an inflection point. I'd also say, you know, we're looking at some margin expansion there. So, so GP coming in strong and, and our, our lease charge offs and that performance and expectations around that in the, in the tail end of the year, as well as manufacturing. managing our OpEx and timing of some of our expenses.

And the marketing piece on the Bridget side might be one that we consider some additional incremental investments. So that could be implied there, but again, feel pretty good about the outlook, but there is a little bit of oscillation going from Q2 to Q4.

Thank you. I appreciate the details. Best of luck here in the back half of 26.

Thanks, Bobby. Thank you. Thank you. Our next question comes from the line of Brad Thomas of KeyBank Capital Markets. Your line is now open.

Good morning. Thanks for taking the question and nice execution here. You know, I want to ask kind of a macro question. I think you're doing a really nice job of being disciplined in the underwriting. That really stands out in the ASEMA segment with the improved profitability and EBITDA. But as we consider, you know, elevated gas prices and other inflationary pressures on the consumer here, How do you think about the potential risks to the business in the second half? Should some of these headwinds for the consumer continue? particularly from the perspective of the potential need to do some more tightening on the underwriting front. Thanks.

Good morning. Thanks for the question. So definitely very mindful as we stated in our prepared remarks around the general macro environment and how, you know, it's very uncertain right now. Pretty tough on our consumers, as you said, a little bit of a mixed bag. of data and information, but as we know, inflation has been pretty sticky and it puts a lot of pressure on our core consumer. is cash strapped and lives paycheck to paycheck. As far as the underwriting and kind of risk to some of the guides around GMV, our guide and our outlook contemplates a pretty conservative underwriting posture already. in a pretty tough environment for the remainder of the year, very consistent with what we've seen this quarter. So, you know, when I think about where we are from an underwriting standpoint today, you know, And we started last year of being relatively conservative. So going into the second half of the year, we feel very strong about how well the portfolio health is going into the second half of the year. You can see that really across all of our businesses, highlighted by a theme of being 50 basis points better from a loss. standpoint this quarter and delinquencies are pretty stable across the board losses in line with our expectations at Rent-A-Center and Bridget as well.

So we feel good about the where the balance sheet is today, the portfolio health. We're very dialed in from an underwriting standpoint, monitoring customer behavior and we'll adjust as needed. You've seen that in our performance this quarter even. We're trading off margin for volume, and we'll continue to do that until things improve. And maybe just to bolt on, we are seeing cash payments flow through as well. So to that end,.

terms of the health of the consumer operating cash flow coming in very strong this quarter 123 million free cash flow very strong so you know notwithstanding you know a little bit of the pressure on the top line you know being very prudent particularly with macroeconomic backdrop in terms of credit underwriting but our customers are very very very very very are continuing to make their payments and we are seeing those cash flows come through.

That's very helpful. And if I could just ask a follow-up on the GMV outlook. I know that the GMV comparisons do get easier, so that should help you. But can you give us a sense of maybe how much of the GMV decline is a function of some of the tighter underwriting and just the degree of improvement that's reasonable to think about in the second half here.

Sure, Brad, happy to answer that question. And look, obviously, in the second quarter, we had some pressure on GMV, whether it's the credit or the underwriting tightening that we did. And then obviously the cyber incidents that we mentioned were pretty unique in the quarter. And then we just talked about where the consumer is from a demand standpoint. So I think all of those have been weighing on GMV. But as I've said before, when you look at a SEMA quarter-to-quarter GMV, you also need to take a step back and look at what we've done over the last two or three years. And so this quarter we're comping off 16% growth.

Last year, which was comping off 21% growth the year before that. So when you look at a SEMA over a two or three year stacked basis, it's been a really good story for us. So I think obviously given the cyber incidents this quarter, I think it's pretty unique. I do think, as I said before, we're going to remain relatively disciplined in our approach from an underwriting standpoint, and that comes at the cost of some GMV going forward. But the good news is we do have, as I said, some really nice winds in the pipeline that not going to announce anything today, but gives us a lot of confidence in our guide to be growing in the fourth quarter. Again at the at the SEMA level. So so again, very cautious in our underwriting.

We have some some positive. wins in the pipeline that we'll talk about hopefully next quarter. That gives us confidence that we're going to grow again in the fourth quarter and into 2027, get back to the trajectory that ASEMA has demonstrated over the last couple of years. Very helpful. Thanks so much. Thank you.

Our next question comes from the line of John Hecht of Jeff Freeze. Your line is now open.

Morning guys, thanks very much. A lot of momentum in the Bridget customer acquisition. Maybe talk about the channels of where you're finding new customers and the competitive environment there.

Sure. Good morning, John. Thanks for the question. So, yes, very competitive environment when it comes to cash advance. I think everyone has their version of liquidity solutions for consumers, and I think it just goes back to how much demand there is. there is, especially on the non-prime side, for these types of products. definitely substantiates our thesis. We're very pleased with the growth that we've seen, both our direct to consumer channels from a marketing standpoint, but also with this new experience partnership that we announced today that opens up a whole another channel for us to continue to grow the business. So, we're very positive and bullish on the opportunities ahead for Bridget, whether it's a continuation of direct-to-consumer marketing, partners like the like Experian and then of course the cross-sell initiatives that we've been talking about you know that's gaining more and more and we're making really good progress around cross selling the businesses across Rent-A-Center, as SEMA consumers and pointing them to Bridget as well.

well. I'd also just kind of bolt on there. Our recent line of credit product that we recently introduced, we've seen a ton of demand on that front. We're very optimistic about that particular product, not only as an additional product within the suite, but also for a retention tool because our customers have asked for perhaps a little bit more liquidity and a little bit more flexibility in terms of payment options. So we're going to evaluate that product, continue to evaluate that in terms of performance. But that's another bright. spot in the Bridget business for sure.

Okay, and then turn it to the, you know, more of the retail business. Are you seeing any changes in customer behavior with discretionary spend? Are there any kind of green shoots or product types that you're looking at that suggest there's a transition in the market? Yes.

John, I would say, you know, at ASEMA, I think all of our categories were pressured, whether it's furniture especially. I would call that more macro pressure on furniture. Look at jewelry was also down for us as a segment. That one was more on our underwriting stance than it was macro. I do think in this environment, discretionary spending, especially for larger ticket durable goods, is under pressure. Rent-a-Center being a little bit more need-based allows it to benefit. You saw that in our same store sales being up 160 basis points this quarter.

So I do think there's a lot of pressure around discretionary spend. Consumers are being very cautious and looking for value. They do spend when they find value in.

in the offerings, but they are being very cautious, especially with the uncertainty in the market. Yes, and we've seen a little bit of a shift prominently in terms of customer demand. As Fahmy said, discretionary spend around the large-ticket durable goods categories, particularly in furniture, I would say, being impacted there more broadly within the market. But we are seeing shifts. and particularly on the rack side towards computers and electronics and tablets. So that's picked up nicely for us as well. So we're seeing a little bit of a shift in demand and focus from a customer perspective there. Perfect. Thanks very much. Thanks, John.

Thank you.

Our next question comes from the line of Huang Wen of TD Cowen. Your line is now open.

Thank you and thanks for taking my questions. A lot of my questions have been answered, but maybe I want to touch on the Renaissance very exciting now that you have rolled and rolled that out can you provide maybe some of you know your initial take and you know maybe any potential for upside there.

Morning, Hong. Thanks for the question. Yes, very excited about the, you know, rolling out the Amazon partnership now to 15% of the 1500 corporate owned stores, as we mentioned last quarter. We think this is a great way for us to leverage the footprint and bring new and new customers and brand awareness to our business. So, yes, the pilot or the launch has gone off very, very well. I think the last time we mentioned that in our pilot program that we saw an increase in visits, about 50 additional visits per week per store. And we've exceeded that so far. We've seen a significant increase in foot traffic. at the stores.

And so very excited about continuing that partnership and really getting it up and running for and further as we progress. As you all know, when customers come in store, that's our best performing customer. That's our best performing experience from a customer standpoint. The conversion rates are much better. The loss performance is much better and overall customer satisfaction is much better. So we may not get a lot of conversions on their first visit, but they come back two or three times we expect the conversion rates to increase. So so over time adding store traffic to our stores is going to be a really nice tailwind for us.

Got it and maybe on a SEMA's GMV I guess there are multiple headwinds this quarter if you have the micro weakness.

tightening that you guys did last year and I guess additional security measures because of the incident. I guess, can you pass out maybe how each of them contributed to the, I guess, 11% of the than negative calm on GMV and maybe when each of them may lap, particularly the muscle.

weakness in your tightening last year? Yes, so as I said earlier, Hong, the combination of the things that we've mentioned between our underwriting tightening, the cyber incidents, obviously unique to Q2, and then just overall the macro environment and being a distinction between a SEMA and RENASU. center, SEMA being much more on the discretionary side than the need-based side that that rent-a-center leans to. So hard to really identify, you know, from a percentage standpoint. I think without the cyber incident, we would have been down closer to where we were in Q1, maybe mid-single digits compared to the 11% that we We saw this quarter. But I also think it depends on the category. I mentioned it briefly earlier that if you look at our jewelry category, that's going to be more geared towards our underwriting tightening that we've done. If you look at furniture, which is a great segment for us and obviously a safer segment from an underwriting standpoint, it's more geared towards. towards the macro environment, putting a lot of pressure on GMB. But again, we're trading risk adjusted margin for volume.

And for us to have losses now below 9% at a SEMA is real positive for us. You know, going into the year, we guided for 2026 that it would be around 9.5% area. Now we're changing that to around 9%, if not below 9% for the year. And based on consumer behavior and the lack of the early buyout feature, you've seen that in our margins. And so hitting 16.2% EBITDA margins. in the second quarter. That's the second highest EBITDA margin for ASEMA in the last five years. which is great. So for now, we'll take the margin over chasing volume, but we're obviously monitoring it very, very closely, and we'll adjust either way depending on the consumer behavior.

Thank you very much. Thanks, An. Thank you.

Our next question comes from the line of Kyle Joseph of Stevens. Your line is now open.

Hey, good morning, guys. Thanks for taking my questions. And sorry, I had to hop on late. So if this has been covered, I apologize. But yes, I was just kind of hoping to get a little bit of a competitive update kind of across the three segments, if you don't mind. Thanks.

Morning, Kyle. Yes, look, I was very competitive across all of our business. You know, when credit gets a little bit tighter and underwriting becomes a little bit more restrictive, you are conveniently. for the good quality applications. So I think you've seen that across the board and we're pleased with the market share that we have across all of the businesses. And you've seen that with Bridget's growth growth rates that we that we just mentioned. Rent a center being up again 160 basis points from the same store sales basis. everybody's competing for the non-prime consumer. And we're very happy with our market share across the board, the competitive environment. hasn't really changed, I would say, over the last 12 to 18 months. If anything, it's gotten more heightened as liquidity and credit becomes tighter.

Great. Thanks very much for taking my question.

Thanks, Rob. Thank you. Our next question comes from the line of Casey Coates of Loop Capital Markets. Your line is now open.

Good morning, and thank you for taking my question. I just want to touch on, can you speak on what you've seen in cross-brand and what you guys are doing to drive consumers across the businesses?.

Yes, we're very pleased with the progress we've made around the integration of Bridget as well as the cross-sell opportunities we have in the business. So right now, as we mentioned, our preparer remarks really connecting customer data and some of the shared platforms across all three businesses, you know, really focusing around a seamless customer experience and driving deeper engagement with our with our consumers really really centered around Bridget's cash flow insights. We always talked about them becoming our customer hub, information center, and that's what we're working towards, creating a platform where we're able to take a holistic view of the unified view of the customer to improve personalization, being smarter around our underwriting and eventually increasing our lifetime value per customer. So really happy with the progress we've made. thus far and we still have a lot of upside going forward. Thanks. Thank you.

Thanks, Casey. Casey Weade Thank you. As a reminder, to ask a question, you'll need to press star 1 to 1. Our next question comes from the line of William Reuter of Bank of America. Your line is now open.

Good morning. The Renner Center stores that closed, the 69, what was the EBITDA drag of those stores, and what was the process like of figuring out the right number of store closures? You seemingly may have hinted towards future store closures. I guess, how many stores are EBITDA negative? Yes.

Morning Bill, thanks for the thanks for the question. You know, we didn't we didn't announce the, the contribution, but what I will say is that we'll be positive on a proforma basis after this first phase of of the optimization. But we're really excited using. our new tools, our digital capabilities, a lot of AI data to embark on an optimization effort at Rent-A-Center. This first phase of the 69 stores that were impacted, I would call those more good hygiene. We do this from time to time, is looking at, you know, store by store and taking a very thoughtful approach around the market dynamics and our capabilities of retaining the revenue when we merge stores together and merge portfolios together. But broader than this just first phase. You know, what we're trying to do with Rent-A-Center Business is keep it competitive. today's dynamic environment.

We think a fresh look and looking at our digital capabilities on how we optimize our footprint is appropriate to get our EBITDA margins back into the mid to high T's area. Didn't say anything specific around these stores, but we are working very diligently on improving the margin profile of the Rent-A-Center business.

Got it. And then secondly for me, EBITDA guidance was maintained, but free cash flow guidance increased by $50 million. What were the pieces that get us to $50 million of additional free cash flow?.

Yes, hey, it's Hal here. Really, part of that is working capital with some of the compression in top line and GMB really being a contributor to that, as well as credit performance has been very strong. But generally speaking, working capital and the need around working capital would have been the main driver of that. We had been experiencing very strong operating cash flow through the course of the year. We were cautiously optimistic around what that might entail, But as we look at the balance of the year now, really that incremental 50 million, we feel pretty confident around.

Great to hear. All right, that's all from me. Thank you. Thank you. Thanks.

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

Thank you, operator, and thank you to everyone who joined us today for an update on our Q2 performance. I'm very thankful for the collective efforts of our exceptionally talented and dedicated coworkers and merchants. We're very grateful for your interest and support, and we look forward to updating you again next quarter. Have a great day, everyone. Thank you.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and thank you for standing by. Welcome to the Upbound Group Q1 2026 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, Steven Kos of Upbound Investor Relations. Please go ahead.

Good morning, and thank you all for joining to discuss the company's performance for the first quarter of 2026. We issued our earnings release this morning before the market opened and the release and all related materials, including a link to the live webcast are available on our website at investor.upbound.com.

On the call today from Upbound Group, we have Fahmi Karam, our Chief Executive Officer; and Hal Khouri, our Chief Financial Officer.

As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release as well as in the company's most recent Form 10-K, upcoming Form 10-Q and other SEC filings. Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

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

Finally, Upbound Group is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcast.

With that, I'll turn the call over to Fahmi.

Thank you, Steven, and good morning, everyone. I'll start with a review of our first quarter performance and the progress we're making on our 2026 priorities. I'll then hand it over to Hal for a more detailed discussion of our financial results and outlook. After that, we'll take some of your questions.

Our first quarter represented a solid start to 2026 for Upbound. We executed well in a difficult operating environment, delivered results in line with our financial targets, generated robust cash flow and deleveraged our balance sheet while continuing to advance key initiatives that support long-term value creation.

We believe Upbound's expanded and increasingly digital portfolio is well suited to meet consumers' needs in this environment as consumers seek flexible, convenient and affordable financial solutions.

With our Brigit acquisition last year, we have 3 complementary brands that deliver a wide range of financial solutions to a similar and sizable target consumer base. And that diversification helps us manage through category swings, creates multiple paths to growth and gives us more opportunities to deepen relationships with customers over time.

Our work is guided by a set of clear priorities for 2026. We're building Upbound into a more connected, tech-enabled financial platform while fostering sustainable, profitable growth. Across the company, our focus is on using data, advanced analytics and AI to improve personalization, strengthen underwriting and enhance operating efficiency across our organization.

When we talk about becoming more connected, this refers to creating a better, deeper experience for customers and a more efficient operating model for the company. That means meeting customers where they are, providing a broader set of solutions across their financial journeys and using data collected at any and every interaction across our brands and channels to make smarter decisions from product development, value proposition, customer acquisition, conversion and underwriting to account management and retention.

Over time, this stronger connection should translate into enhanced customer engagement, better outcomes and higher returns on capital. We're also advancing a more unified operating structure for the company. In practical terms, that means a common delivery model, shared resources and shared data foundations that allow each brand to move faster without recreating the same work in multiple places.

Ultimately, this operating model helps ensure teams have the clarity, focus and tools necessary to execute effectively across key enterprise initiatives. Alongside that, we're applying analytics and AI in practical ways across the enterprise.

Our initial focus is on use cases that improve outcomes in underwriting, customer communications, operating efficiency and enhanced servicing and collections. These are targeted initiatives aimed at enabling better decisions, higher productivity and a better customer experience and we're prioritizing areas where we can measure impact and scale what works.

We expect to improve merchant experience and onboarding and to remove friction points, which will enhance both merchant and consumer conversion. These efforts should translate into more loyal customers, repeat interactions, higher LTV per customer and overall lower customer acquisition costs. A big part of delivering on those priorities is leadership and organizational clarity.

We've continued investing in key senior leadership roles and talent and we're thrilled to welcome our new Chief Technology Officer, Balaji Kumar. Balaji brings more than 25 years of technology leadership experience across financial services and retail. Bringing Balaji on board strengthens our ability to modernize systems, accelerate execution and build scalable technology capabilities that support the road map we've laid out.

With the recent leadership additions of Hal, our CFO; Rebecca Wooters, our Chief Growth Officer; and now Balaji in place, along with the balance of our seasoned executive team, we believe we are well positioned for 2026 and for the long-term future growth.

Now let's turn to our segments and how our first quarter performance exemplifies this approach. Beginning with Brigit, we're pleased with the segment's growth and momentum to start the year.

In the first quarter, paying subscribers and monthly average revenue per user both increased double digits year-over-year, driving a revenue increase of over 40% year-over-year. This performance reflects strong demand and solid execution. And as a result, the segment remains on track to hit its financial targets for 2026.

Brigit continues to invest prudently in the products and marketing that will enable additional growth and profitability in future years as the business continues to enhance its value proposition, driving increased engagement and monetization across the platform.

As the brand scales, more and more users are finding value in Brigit's flexible and transparent financial wellness and liquidity solutions and we're excited about the opportunities ahead for Brigit as we continue expanding how and where customers can use the platform.

In particular, product development remains an important focus at Brigit with the line of credit pilot continuing to advance. We're preparing for a broader rollout later this year, taking a measured approach that prioritizes unit economics, customer outcomes and long-term value creation.

Turning to Acima. The positive results of our targeted efforts to strengthen portfolio health given the challenging operating environment became even clearer in the first quarter as the prudent underwriting actions taken over the past year have proven effective.

Lease charge-offs were approximately 8.8% in the first quarter, representing a meaningful improvement from the elevated levels in the second half of last year, including a 130 basis point improvement compared to the fourth quarter.

This improvement validates the data-driven approach our team has adopted to protect portfolio quality and improve long-term economics and it supports the foundation for continued investment in the business as we move through 2026.

Tightening underwriting, coupled with macro headwinds, which impacted demand, pressured our GMV in the first quarter. GMV finished the quarter below our expectations coming in lower than last year's first quarter performance, which was prior to us making meaningful underwriting changes. In a moment, Hal will go over our guidance and how GMV and the stronger Q1 loss performance are expected to impact our results for the balance of 2026.

Acima will continue to be disciplined in its approach and we will continue building toward meaningful growth opportunities. We're sharpening the value proposition of our flexible leasing solutions and expanding our digital capabilities.

At the same time, we're investing in merchant relationships and strengthening the customer experience at tens of thousands of retailers across the country as well as online through our direct-to-consumer marketplace, which grew approximately 9% year-over-year in the first quarter.

We also remain encouraged by the merchant pipeline across small, medium and large retailers and by the diversity of the merchant base, which helps support resilience when demand varies across categories.

During the quarter, we signed a new agreement with an existing merchant partner that furthers our partnership and is expected to drive meaningful GMV in the second half of the year. The revised agreement enhances our integration and provides Acima exclusive rights as a checkout option at the largest e-commerce furniture retailer in the country.

At Rent-A-Center, our focus remains on continued cost optimization while strengthening the foundation for more consistent performance. That progress was evident in the first quarter with the segment achieving year-over-year same-store sales growth for the second consecutive quarter following our strategic tightening over the past several months.

The team continues to prioritize portfolio quality while advancing initiatives aimed at improving the customer experience and store level execution. This is not a single initiative. It's a consistent integrated operating approach that combines investment in expanding digital capabilities with targeted work to strengthen engagement and execution in the field.

In particular, we are focused on measurable initiatives expected to improve performance over time, from reinforcing coworker training and execution in the field to expanding relevant product offering for Rent-A-Center's strongest and most loyal customers.

We're also excited about the Amazon partnership we announced last week. While still early, this collaboration enables convenient Amazon order pickup and returns at more than 1,700 Rent-A-Center corporate-owned stores, increasing store relevance, driving brand awareness and in-store traffic and supporting new customer acquisition.

These are the type of initiatives that leverage our existing footprint, enhance the customer experience and help us introduce our portfolio of flexible financial solutions to an even greater number of consumers.

Before turning to consolidated financial highlights, I want to briefly step back and tie together what we're seeing across the business. Across the enterprise, we continue to strengthen the platform by connecting data, capabilities and teams in more deliberate ways. We are improving personalization, making more targeted data-driven risk decisions and identifying opportunities to engage customers more effectively across brands.

This work is focused on execution fundamentals, targeting the right customers across channels while delivering value and service that drives repeat business and then scaling those improvements consistently over time. It's also important to acknowledge the operating environment we're navigating.

The non-prime consumer continues to face pressure from elevated costs in essential categories such as groceries, rent, utilities and energy, which influences purchasing behavior and weighs on discretionary spending, particularly for larger ticket items.

At the same time, the first quarter featured a stronger-than-normal tax refund season. While that supported liquidity for many consumers, it was partially offset by higher energy prices following recent geopolitical developments. Despite this challenging backdrop in the first quarter, our consolidated results were solid and in line with our expectations.

Revenue was $1.2 billion, up 3.7% year-over-year. Adjusted EBITDA increased nearly 8% to $136 million and non-GAAP diluted EPS was $1.08, up 8% from the prior year. These results reflect disciplined execution and improving outcomes across the platform.

Cash flow and deleveraging were also strong in the quarter. Net cash provided by operating activities was $171 million, up $23 million year-over-year and free cash flow was $136 million, up from $127 million in the prior year quarter.

Strong cash generation supports reinvestment in the business, disciplined deleveraging and our broader capital allocation priorities.

We're encouraged by our first quarter results and by the progress the teams are making across the company. We're investing where it matters most, staying disciplined on investments, cost and underwriting and scaling capabilities to support operating leverage over time.

As we look ahead, our priorities are clear. Our leadership team is in place and we'll stay focused on execution throughout the rest of 2026.

With that, I'll turn the call over to Hal to walk through the financials in more detail.

Thank you, Fahmi, and good morning, everyone. I'll begin with a review of our segment results for the first quarter, then spend time on capital allocation and liquidity before closing with our outlook and guidance.

As you heard from Fahmi, we are executing well in a challenging operating environment, demonstrated through improving portfolio performance and strong cash generation. Those 2 factors are central to how we think about sustainable long-term value creation.

Starting with Brigit. The first quarter demonstrated strong performance across the business. Revenue was $68 million, more than double Brigit's revenue contribution to our consolidated results in the first quarter of 2025.

As a reminder, Upbound acquired Brigit at the end of January 2025 and did not include Brigit revenue for the first month of last year in its reporting. Excluding timing impact of the acquisition last year, Brigit comparative revenue grew more than 40%, in line with recent performance trends.

Revenue growth in the quarter reflected continued expansion in paying users and improved monthly ARPU, which increased nearly 12% year-over-year to $14.41, supported by increased shift towards Brigit's premium tier, deeper engagement with marketplace offers and higher optional expedited transfer revenue.

Paying users were approximately 1.6 million at quarter end, up approximately 27% year-over-year. Net advance loss rate was approximately 3.5%, consistent with recent quarters and within expectations.

Brigit's adjusted EBITDA contribution in the first quarter, approximately $22.9 million, more than doubled year-over-year as scale benefits continue to build. In the year ahead, we remain focused on disciplined growth and measured product rollout with a clear emphasis on unit economics as we expand capabilities over time.

Turning to Acima. First quarter revenue was $649 million, up approximately 2% year-over-year, driven primarily by a nearly 3% increase in rental and fee revenue, partially offset by a 1% decrease in merchandise sales revenue.

GMV was approximately $427 million, down approximately 6% year-over-year. This outcome reflects a couple of factors, including tighter consumer conditions that limit discretionary spending, particularly for durable goods and the deliberate underwriting tightening actions taken in 2025 as we remain prudent in customer acquisition.

These tightening actions were intentional and focused on improving long-term portfolio economics rather than maximizing near-term volume, particularly given the broader nonprime consumer landscape.

That brings us to the other side of that trade-off, loss performance, which was a clear success story in the first quarter. Acima lease charge-offs were approximately 8.8%, representing roughly 130 basis points of sequential improvement and 10 basis points lower year-over-year.

The early indicators we monitor, including payment behavior and delinquency trends support our confidence that the portfolio is benefiting from the underwriting actions implemented last year. In the year ahead, we will continue to track macroeconomic trends and focus on optimizing our models accordingly.

Adjusted EBITDA for Acima was $89 million, up approximately 4% year-over-year, while adjusted EBITDA margin was 13.7%, an increase of 40 basis points year-over-year. Revenue growth, coupled with a 60 basis point increase in gross margin and improved cost performance outcomes were each contributors to the increase in Acima profitability.

As we move through the year, we remain focused on maintaining a balance of sustainable growth paired with solid portfolio performance and profitability.

At Rent-A-Center, our disciplined approach led to same-store sales increasing approximately 40 basis points in the first quarter, following its return to same-store sales growth last quarter. First quarter revenue was $482 million, down approximately 2% year-over-year, driven by a decrease in merchandise sales, partially offset by an improvement in rentals and fees revenues and lower revenue contribution from our franchisees.

We remain prudent in our approach to underwriting at Rent-A-Center. And as a result, lease charge-offs were approximately 4.7% in the first quarter, representing a 20 basis point sequential decrease and a 10 basis point increase year-over-year, reflecting stable performance within our target range and slightly better than expectations.

Adjusted EBITDA for Rent-A-Center was $67 million, down approximately 6% year-over-year. The decline was driven by lower revenue and profit contribution from our franchise business and inflationary pressure on margins.

We remain encouraged by initiatives the team is executing, including continued progress on the digital customer experience, the expansion of product offerings to Rent-A-Center's strongest customers and efforts to increase store traffic, such as the Amazon partnership that Fahmi mentioned earlier.

Stepping back across the organization, we are pleased with overall performance in the quarter given the broader operating environment. At Brigit, we continue to see strong growth and engagement, while our lease-to-own business continued to adjust dynamically to shifts in consumer demand and payment behaviors.

The actions we've taken over the past year are translating into loss performance that is running better than our expectations within Acima and Rent-A-Center. And while some volume-related metrics reflect those actions, taken together, our performance reinforces our confidence in the resilience of our model and our ability to serve our core consumer in an uncertain environment.

Turning to cash flow, liquidity and capital allocation. One of the enduring strengths of our model continues to be the ability to convert earnings into cash and the first quarter is another example of that. Net cash provided by operating activities was approximately $171 million, up from $148 million in the prior year quarter and free cash flow was approximately $136 million, up from $127 million a year ago.

While the first quarter trends to be a seasonally stronger period for cash flow due in part to the timing of tax refunds and following the holiday shopping season, these figures reflect solid underlying performance and do not yet include all of the anticipated cash tax benefits we discussed on our fourth quarter call. As those benefits materialize later in the year, we expect cash generation to be further supported.

We continue to invest capital on key initiatives, which are aligned with the strategy Fahmi outlined and are focused on technology modernization data platform initiatives and digital capabilities that support underwriting, personalization and operating efficiency.

We remain selective and returns-oriented in how we deploy capital. Over the full year, we expect capital expenditures to be similar to 2025 and we continue to evaluate pacing and return on investment as we continue to move through 2026.

We also drove shareholder return by funding a quarterly dividend of $0.39 per share, which amounted to approximately $23 million during the quarter and represents an approximately 8% dividend yield. The dividend remains an important component of our capital allocation framework. Strong free cash flow allows to support the dividend while also pursuing our other priorities, including reinvesting and deleveraging.

Turning to liquidity and debt. Quarter end liquidity was approximately $465 million, reflecting cash on hand and available revolver capacity. Net debt was approximately $1.4 billion and leverage was 2.6x trailing 12-month adjusted EBITDA, a meaningful sequential reduction from 2.9x at year-end 2025.

While the leverage ratio may fluctuate slightly due to timing of cash inflow and outflow over the course of the year, we are pleased with the debt reduction achieved in the first quarter.

We continue to prioritize disciplined deleveraging as a primary use of incremental cash, targeting leverage in the 2x range over the long term. Taken together, our capital allocation actions during the quarter reflect a disciplined, consistent framework focused on strengthening the balance sheet, supporting returns to shareholders and reinvesting selectively to drive long-term value. That discipline gives us flexibility and positions the company well as we move into the remainder of the year.

With that context, let me turn to our outlook and guidance. As we look ahead, our expectations reflect continued prudence in underwriting, disciplined operating execution and steady progress against our strategic priorities.

Our outlook assumes a continuation of the current challenging external operating environment, uneven macro factors that pressure our core consumers' discretionary income and demand levels, but also tend to make our complementary range of flexible financial solutions even more relevant to these customers.

Considering the trajectory of our business, including first quarter financial results that were generally in line with or above our expectations, we believe that we are well positioned to achieve the target ranges we shared for 2026 revenue, adjusted EBITDA and non-GAAP diluted EPS on our previous earnings call.

As a reminder, those targets are consolidated revenue of approximately $4.7 billion to $4.95 billion, adjusted EBITDA of $500 million to $535 million and non-GAAP diluted earnings per share of $4 to $4.35.

We also expect free cash flow of approximately $200 million in 2026. As mentioned on our prior earnings call, this guidance is inclusive in an estimated 2026 payment outflow of approximately $70 million in non-ordinary course legal and regulatory settlements and assumes relatively flat CapEx spend to support business growth initiatives.

These factors position Upbound favorably to advance its capital allocation priorities as we focus on delivering compelling and sustainable returns for shareholders.

I'll now move on to share updated segment level commentary. At Acima, we revised our outlook to account for first quarter results, the deliberate underwriting tightening we've completed and our expectation of continued macro headwinds.

We expect 2026 GMV and revenue to be flat to up to low single digits year-over-year. Losses for the year should be slightly better than our original expectations, stabilizing in the low 9% area for the year. Our outlook for Acima margins has improved relative to our previous guidance and we now expect Acima adjusted EBITDA margin to finish the year up slightly relative to 2025, offsetting revenue pressures.

Turning to Brigit. Our outlook remains unchanged with annualized revenue growth of over 30% in the $265 million to $285 million range and an adjusted EBITDA in the $50 million to $60 million range.

These expectations assume continued growth in paying users while maintaining net advance loss rate around current levels for the year. We remain focused on disciplined growth and measured rollout of new products and capabilities as the year unfolds.

At Rent-A-Center, while trends with the company-owned segment have stabilized, lower revenue and profit contribution from our franchise business are expected to have a modest impact on full year performance. As a result, we expect Rent-A-Center segment revenue to be flat to down low single digits for the year. No change to adjusted EBITDA margin, which should remain relatively flat to 2025.

Looking to the second quarter of 2026, we expect consolidated revenue of $1.1 billion to $1.2 billion, adjusted EBITDA of $120 million to $130 million and non-GAAP diluted earnings per share of $1 to $1.10. These expectations reflect typical seasonal dynamics and continued underwriting discipline. With respect to loss rates, we expect both Rent-A-Center's and Acima's lease charge-off rate to remain flat to slightly higher sequentially.

Second quarter GMV should improve sequentially and be down low to mid-single digits year-over-year with continued improvement over the balance of the year and returning to year-over-year growth in the second half of the year. Brigit's net advance loss rate in the second quarter should be in the mid-3% range, in line with historical quarter-over-quarter trends.

Now as we wrap up, I'd like to reinforce a couple of points Fahmi mentioned earlier. During the first quarter, the company continued to execute against its strategic priorities, delivering solid operating and financial performance while maintaining discipline in how we balance growth, risk and returns.

The actions taken over the past year to strengthen portfolio performance are showing up in the results, particularly in loss trends and cash generation.

Looking ahead, we remain confident in our ability to navigate the current environment and continue building long-term value for shareholders. Our diversified and complementary portfolio, strong cash flow generation and disciplined approach to capital allocation position us well as we move through the remainder of 2026.

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

[Operator Instructions] Your first question comes from the line of Kyle Joseph with Stephens.

A lot of moving parts there in the first quarter, obviously, going into it, everyone was focused on elevated tax refunds. And then in March, we got the spike in gas prices. But just kind of hoping if you guys can walk through each segment and kind of walk us through performance and give us a cadence and how the customer was impacted throughout the quarter by those kind of 2 big macro factors.

It's Fahmi. I'll start and Hal can chime in. I'll try to cover most of the segments, but just kind of give you just a high-level overview of maybe the consumer because they're directionally the same between the businesses, even though they're impact slightly differently and same with seasonality in our business as well. But maybe I'll start with just the high-level macro and then go into the impacts on the businesses.

But we're -- as we said in the prepared remarks, the operating environment is pretty tough for our core consumer. The labor market seems to be cooling a bit. Wage growth slowed a bit throughout the quarter and inflation seems to be pretty sticky.

And one of the measures that we follow very closely is fuel prices and that's been obviously very volatile over the last couple of months. So think about a cash-strapped consumer that's going paycheck to paycheck already and that puts a lot of pressure on their discretionary spending.

And so people were very cautious with their dollars looking for value, looking to stretch its ability to -- especially on bigger ticket items, which should lend well for our consumer base and as well as -- sorry, as far as our products go.

So the non-prime consumer has been resilient and has done that over several cycles. And why it's important for us to get our underwriting right, which we've done over the last several months, especially on Acima, which improved 130 basis points.

As far as tax season goes, a little bit of a mixed bag, came in about 10% on average a little higher than year past, which is on the low end of what people were talking about coming into tax season. Start off a little bit slower in February and then caught up in March. And by the time some of the money started to hit, you started having some of the fuel price implications.

And so what we saw was people started to still clean up delinquencies and losses, but definitely didn't exercise the payout options as much as they had in years past. And what that does is it has an impact on revenue, but also an impact on our gross profit margin, lesser so on Rent-A-Center, but much more so on Acima and you saw that in our gross profit increasing by about 60 basis points year-over-year.

So tax season, in line with what we expected, a little bit of betterment from a gross profit standpoint at Acima. And then with Brigit, tax season seasonality for Brigit, it's our most profitable quarter given that consumers are usually flushed with cash in the first quarter given tax season, we take a light on the marketing spend, and you saw that we generated almost 35% EBITDA margins in the quarter. So a really strong start to the year on Brigit.

So try to cover as much as I could, Kyle, in kind of the first question, but I'll leave it for you on a follow-up.

Yes. No, that's great. Appreciate it. And then just digging into Acima a little bit, kind of remind us exactly the timing on the underwriting changes. Obviously, they're having their desired effects. But just as we think about kind of the growth trajectory, recognizing GMV is the leading indicator for ultimately revenue over time.

Sure. Yes, we really started tightening, I would say, in the second quarter of last year and into the summer months into the third quarter. So we'll start lapping some of the changes, I would say, by Q3 in earnest once we've kind of gotten through most of the changes.

But look, we're very pleased with where the portfolio health is at Acima. We were able to recognize some of the softness pretty quickly and within few quarters, get it back in line with our expectations.

As we said, it was going to peak around 10% in the fourth quarter. It did that and it dropped 130 basis points into Q1. So the first quarter GMV was a little bit below what we had thought. We were hoping to be flat year-over-year. But given some of the underwriting changes, given some of that macro pressure I just mentioned on the consumer, you couple those together, we were down about 6%.

If you take a big step back and look at what Acima has done over the last few years, that GMV growth has been a great story at Acima. If you just take it over the last 2 years, the first quarter is still positive almost mid-single digits for the first quarter in GMV growth.

So a little bit soft on GMV, but very, very happy with where the portfolio is and the health of the portfolio. And as you saw on the revised guide, we think the margin will be better than we thought coming into the year.

And so again, good news, delinquencies are down, losses are in line. The health of the portfolio is good. And if things get better from here, we know exactly where to go get some GMV and we're exactly to go get some of that growth.

But if things get worse from here, we also have a recession playbook that we can activate and be even tighter. Good news is I think we're pretty conservative as it is right now. So if something were to deteriorate and we had to get a little bit tighter, you would expect to see some trade down come our way, which obviously would help with GMV. So I would say, Kyle, by the second half of this year, we should return to growth at GMV.

Your next call comes from the line of Bobby Griffin with Raymond James.

I guess, Fahmi, I wanted to stay on Acima. Is there any way you can help put some context around like how much of the GMV decline is from the tightening actions versus anything else in the industry? And I'm kind of asking, I guess, in context of the other peers that we look at and fully understanding everyone goes through different customer transitions and stuff at different times and as well as tightening actions.

But is there metrics like app growth or active doors or anything like that just to help us understand Acima's positioning remaining kind of strong and nothing else bleeding off to cause the GMV decline?

Yes. Look, I think it's a combination of the things I mentioned already, Bobby, between underwriting and just general softness with the consumer. I would say the majority of what we saw in the first quarter is around the underwriting tightness.

I think we -- again, we identified where the softness was pretty quickly. We took swift action and you saw that reflected in our GMV, both in the fourth quarter and the first quarter.

And just given the uncertainty in the environment, we think that's the right position to take, not knowing exactly how long or the impacts of the volatility in the market and the rising cost, how that's going to impact the consumer. So most of it is on the underwriting side. We feel like that's the right approach given the uncertainty in the market.

As far as the categories and maybe where the GMV is coming from, I would say most categories were down year-over-year in the kind of low single digit area. But for us, when you look at when we tightened, we really tightened around the jewelry category, and that was down probably low to mid-teens. But generally, I would say it's an underwriting story around first quarter GMV performance.

That's helpful. And then maybe just pivoting over to Brigit. We don't have the full context of last year's 1Q, but it looks like it's off to a great start here with $23 million of adjusted EBITDA.

Can you just remind us like what's built in, in terms of new products? I know there was a little bit of delay with getting some of the new products out we talked about last quarter, but like what's in the guide again for '26 from a new product introduction? Anything update there as we think about the strong start to 1Q?

Sure. Yes, very pleased with Brigit's performance in the quarter. As Hal mentioned, revenue up on a comparative period over 40%, subscriber growth at 27% for the quarter and then ARPU up 12% which is a great sign.

EBITDA contribution of $23 million at almost 35% margin. With a loss rate in line with what we thought, a little bit elevated year-over-year as we test out some of those new products and ramping up on the subscribers and just testing out. We have multiple tests in the market with pricing.

We've recently increased from the max from 250 to 500 on the EWA. We had that new line of credit product that we've talked about in quarters past that's still scaling, performing in line with our expectations.

We're poised to launch that later in the year more broadly than we have today. I've mentioned it a couple of times on past calls for folks that we approve in the pilot, over 90% of them are actually opening an account, which just tells you the level of demand and the level of conversion that product is going to do.

We're taking a cautious approach, as we said last quarter, given the uncertainty in the market, any time you roll out a new product, you're focused on customer experience, making sure the underwriting is right, performance is right and the economics, the unit economics are right.

So we're making progress there. The guide for the year has us continuing to do those pricing tests and have the line of credit kind of come online later in the year. It's going to be more of a 2027 story than a 2026 story. Just again, being cautious around making sure that we get the early reads on performance before we launch it more broadly.

Your next call comes from the line of Vincent Caintic with BTIG.

First, wanted to talk about your human talent. So first, welcome to your new Chief Technology Officer. I was just wondering, you've added a couple of new talents so far, if there's any more talent that you'd like to add to the Upbound team. And then I also saw that there was a turnover at Brigit. So I'm just wondering if there's any change to expectations on the earnouts.

Yes, happy to touch on both. I'll start with our new CTO, Balaji, and mention building the team out over the last 6 or 7 months since I've taken over from Mitch. We've got a new CFO and Hal. We have our new Chief Growth Officer, Rebecca. And now we have our new Chief Technology Officer as we continue to try to find -- accelerate our transformation, accelerate our growth and our digital transformation in a pretty competitive and dynamic landscape. And that's what this team is being built to do.

And it was important for us to make sure that we have somebody who can tag along with the growth organization and really, again, advance our abilities, both on the AI front as well as the data analytics front and then overall automation and digital platform front across the board. And then Balaji, we're excited to have him in the building and look for big things from him going forward.

On the Brigit side, yes, we -- both of the founders are still in the business, but are going to transition into more of an advisory and consulting role in 2026. The CTO Hamel transitioned into advisory role this month in April and Zuben, the CEO, will transition in the second half of the year.

And this is a natural evolution that you would expect coming out of the transaction that the founders would eventually move on. They've been fantastic partners throughout the process and feel lucky to have them as long as we had them.

Most founders don't stick around this long and want to move on to their next big and exciting thing. And they've been great partners with us so far. And the good news is they built a great business that we have. A lot of different things that we can do with from a synergy standpoint, a cross-sell standpoint and we're just on the forefront of all those things. So we're extremely bullish on our ability to take that business and grow even further from here.

And as part of building that great business, as most companies do, they also built a great bench. And so we're excited that we're going to be able to promote from within and have leaders who have been in the business now for several years take on more and more responsibilities and keep the momentum that we have with Brigit going.

So again, to me, this is a natural evolution with the founders. They've been fantastic to-date and we look forward to kind of continuing the integration plan with Brigit moving forward.

It's Hal here. Maybe just to bolt on to Fahmi's point around a strong bench. Obviously, bringing in fantastic leadership at the top of the house across the enterprise. But I'd also say it goes beyond that as we look to bring on additional talent in support of the business across our leadership organization as well, particularly in the areas of digital technology and advancement that we've been talking about, specialized expertise in AI, underwriting and across the platform overall.

So very excited by -- to echo Fahmi's point around the broader talent that we have in the organization to kind of continue the momentum that we have going.

Okay. Great. Very helpful. Secondly, I actually wanted to switch over to Rent-A-Center. So just kind of seeing the revenues and the EBITDA versus the GMV growth. I'm just wondering when kind of what gets that business growing again in terms of the revenues and EBITDA?

And then I also did want to talk about the Amazon partnership. I thought that was really interesting. If you can maybe talk about what we should be expecting in terms of, I don't know, foot traffic or if there's any economics that you can talk about there, that would be great.

Yes, happy to switch over to Rent-A-Center a bit. Another strong quarter for the Rent-A-Center business, second consecutive quarter of same-store sales growth coming off 80 basis points in Q4, growing at 40 basis points in Q1. And then again, a tough operating environment.

I mean you look at our loss performance improved 20 basis points sequentially, relatively flat year-over-year. And if you compare that for the other businesses, the Rent-A-Center consumer probably has the lowest amount of income and is the most cash strapped.

So we have to be very mindful of where the consumer is on the Rent-A-Center business. So in a difficult operating environment to grow 40 basis points, we're very pleased with that and the segment continues to produce significant free cash flow.

As far as the Amazon partnership goes, yes, we're super excited about announcing that last week. We've been piloting this concept with them now for several months and tested different ways to go to market.

We started out with some lockers, then shifted over to just having it at the counter on both sides, agreeing that, that was the better move. So we'll be up and running in over 1,700 of our corporate-owned stores in June.

And as I mentioned in our prepared remarks, this is a way for us to really leverage our footprint, create some new brand awareness, especially with the younger generation, add traffic to the stores and add a bunch of new customers or potential customers.

And we know when people walk into our stores, our coworkers are fantastic salespeople along with underwriters and account managers and everything else that we ask them to do. But first and foremost, they are a sales organization and getting folks to walk in the door is going to be great for them.

In the pilot, we had about a little over 20 stores, almost 25 stores that were scattered across the country. And what we saw from a traffic standpoint is that we saw about a little over 50 customers come in or consumers come in per store per week.

And so heavy traffic and most of them were actually new to the Rent-A-Center business. So you can do the math on that 50 per week per store at 1,700 stores, that's millions of customers coming into the Rent-A-Center business over the year and it's on us to convert those folks into leases.

And something that we didn't have the pilot that we have up and running now and will be part of our launch in June. When someone selects Rent-A-Center as their pick-up or drop-off option, we're going to be able to actually, in real time, give them a promotional item right there on the Amazon app.

So very real-time marketing. So we're super excited about it. It's a little early to kind of quantify the impacts for us, but it's a great place to start with a partner like Amazon and hopefully also introduce them to some of the other Upbound brands as we move forward.

Your next question comes from the line of Anthony Chukumba with Loop Capital Markets.

So I just wanted to see if I could get a little more color on that partnership that you mentioned with a large online furniture retailer. I'm assuming that's Wayfair. Specifically, if you can just give a little bit more color in terms of the semi-exclusive checkout partner, what exactly does that mean?

Yes, another one that's an existing partner of ours that we're going to trying to further expand our relationship with. And what this exclusivity gives us is a checkout option at the face of their website and it gives our ability for consumers to select Acima directly and have our own checkout button versus going through a waterfall where we would obviously have to compete for those applications, but also what this gives us is first look.

So it should give us hopefully not just more apps and more leases, but also better quality looks as well so we get rid of some of the competition and some of the adverse selection. So that will be up and running later this quarter and should hopefully produce some nice tailwind for GMV into the second half of the year.

That's helpful. And then just one real quick one on Brigit. So you talked about on a pro forma basis, revenues were up, I think that was pro forma 40%. I thought that the EBITDA margin was down a little -- a couple of hundred basis points on a GAAP basis. I was just wondering what that would be on a kind of a pro forma basis for the adjusted EBITDA margin?

It's pretty close, Anthony, as far as we're moving just 1 month that's month of January, it's actually fairly close. Look, the -- between a 33% and a 35%, some of that is just timing of marketing spend and marketing dollars.

But very happy with being able to generate that kind of EBITDA and that kind of cash flow, if you will, for Brigit in the first quarter. As I said, seasonally, that's going to be our big quarter.

Going into the next quarter, given some of the traction that we're seeing on the marketing side, both from the fourth quarter spend and what we spent in the first quarter, we're going to lean into that into the second quarter. And so we'll get back into the low teens to mid-teens EBITDA margin on Brigit in the second quarter, where if you recall last year, when we got to the second quarter, we didn't see that same level of conversion and traction on the marketing spend.

And so we didn't actually spend much last year. Given where we are, we're trying to grow that business and some of the conversion rates that we're seeing and the customer acquisition costs that we're seeing in today's environment, we're going to lean into that in the second quarter.

And as you go -- as you look at the guide for the year for Brigit, we're right in line with our targets in the second quarter. It's going to come off that mid-30s and be more in the mid-teens from an EBITDA margin standpoint.

Your next question comes from the line of John Hecht with Jefferies.

Most of them have been actually asked and answered. But Acima, focusing on there, the DTC marketplace is showing good momentum. I think it's like 10% GMV growth.

How does that cohort compare to the merchant-generated cohort? And how do we think about the focus there?

Yes. It's a big focus for us and it's been a nice growth story for us over the last several quarters, John. I think we're starting to lap some of the onboarding of some of the bigger retailers, Amazon, Walmarts that we put on the marketplace a year ago, but still a very nice channel for us that's mostly 99% returning customers.

And so it performs relatively well compared to the general population because we're able to market to returning customers. It's a little bit buffered from the overall macro environment. So that's the distinction between maybe just the regular population of retailers and the direct-to-consumers.

They're returning customers, so we can market to them better. They're engaged with us already. We still are dabbling in the personalization offers, both Rent-A-Center and Acima. Once we get that dialed in, that channel for both businesses is going to be really strong for us and a theme that you'll hear us talk about going forward.

Okay. That's very helpful. And then a follow-up is you expressed your longer-term goals for leverage on the balance sheet. How fast -- like how big of that is a priority for you? Is that something that you think is going to happen in the near term? Or is that just a gradual deployment? And how do we think about just, call it, the capital allocation plans in the meantime?

Yes. It's Hal here. Maybe I'll take that one. Obviously, our goal and desire is to continue to bring down debt and our overall leverage position. But first and foremost, it's continuing to lean into fueling the overall business.

And I think that subject to where we land through the back end of this year around GMV growth, the total overall demand is going to play into the equation as we look at overall free cash flow. But certainly, we do have some distinct headwinds and tailwinds coming in.

Certainly, from a tax standpoint, we're seeing some refunds come in as well as the benefits of accelerated tax depreciation from the One Big Beautiful Bill. That's going to be a tailwind.

And we're going to leverage and use our cash flow to pay off some of the outstanding litigation that's out there, regulatory liabilities that are there. So we're contemplating paying that off and then aggressively paying down the debt.

And so our goal would still be to be in the 2x overall leverage range over time. But there's no real clock on that, I would say, but just ensuring that the sources and uses of cash are being used appropriately.

One of the benefits, Hal, if I can just add on to that of being a little bit tighter from an underwriting standpoint is the higher cash flow generation and it gives us the ability to pay down debt if we're not getting the right risk-adjusted margin. And that's the trade-off that we're going to make from an underwriting standpoint is we're focused on maximizing risk-adjusted margin. And if it's there, we'll lean into GMV. And if it's not there, then we'll benefit from the cash flows.

And maybe just lastly, we've given a view and an outlook of roughly $200 million of free cash flow this year, again, subject to the performance on the overall business and the volumes, there may be some upside to that number as well as we look at the contribution to the balance sheet through the balance of the year.

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Fahmi, I wanted to just ask again about the underwriting trends. And if you could just help us get a better understanding of maybe what level of conservatism is in sort of the underwriting trends today.

I think we're all fearful of an environment where gasoline prices remain higher for longer and that, that just grinds away a bit at consumer spending. And so can you help us think about what kind of buffer you may have in the current underwriting and how that's tied to your guidance?

And then maybe just as a quick follow-up to that. Obviously, we have a long history with Rent-A-Center and a medium history with Acima, but just any thoughts on the kind of sensitivity of the Brigit customer to a world where higher gas prices may go on for longer?

Sure, Brad. Look, on the underwriting side, we remain highly disciplined, highly, I would say, conservative in our posture. And I just kind of mentioned it on the risk-adjusted margin piece.

We are focused on making sure that from a capital allocation standpoint that we actually get the right risk-adjusted margin part of it. So I would say we're fairly conservative right now and the guide has us remaining fairly conservative.

I would say from a portfolio yield standpoint on the Acima side, when you have lower 90-day buyouts, you typically have higher yields on those vintages. We're not really forecasting that into the guide. We're taking even a conservative approach there as well. But we think that's the right thing right now in this environment.

And as I mentioned earlier, if things get better, we know exactly where to go to get the growth. And if things get worse, we also have a playbook there that we can activate. But going into -- whatever we're going into for the second half of the year, we feel like the portfolio is in a really good spot and we have the right tools and folks around the table to make sure that we stay very disciplined in our approach.

As far as the sentiment with the Brigit side, I think very similar to our other businesses around being paycheck to paycheck and cash strapped and that's one of the main benefits of us acquiring Brigit was for us to be more relevant to our consumers and have these liquidity solutions.

And I've mentioned a little bit around some of the traction we're getting with our marketing spend. I think it's because people are feeling that pressure and need that extra cash and that extra liquidity. So that bodes well for subscriber growth, that bodes well for our margin profile.

And as we test more and more expansion in -- from $250 to $500, the line of credit being $500 over a longer period of time, all those things point to more subscriber growth and hopefully better retention going forward. And the macro backdrop, I think, also supports that thesis as far as those consumers go on the Brigit level.

And -- it's Hal here. Maybe if I could just tack on there. There is quite a bit of sophistication that goes into our credit and underwriting modeling. Looking at that by business segment, obviously, the customer profiles will look a little bit different in terms of how they perform, looking at that across risk tiers, looking at that across categories as well, looking at that in terms of the origination source that's coming through.

But to say we've been prudent around our overall credit management in this operating environment, I think, is the right call.

Certainly, there's areas of opportunity for us, particularly as I think about the Brigit business that you referenced in there as well. We could be a little bit more aggressive given the margins there, but we'll monitor that as the next few months unfold and get a better read on the broader environment and that will allow us to get a sense of the ability to kind of loosen up a little bit.

That's helpful. And as a clarification question on the new furniture partner agreement that you talked about, I just want to try and be clear. Fahmi, I think you referenced the phrase being exclusive. I'm just trying to understand, is that the exclusivity with the new checkout features? Or do you become the sole rent-to-own provider for this retailer with no other competitors in that tier for them?

It's the former, Brad. It's just on having the checkout button. Not exclusively, so just on the button.

Your next question comes from the line of Hoang Nguyen with TD Cowen.

Most of it have been asked, but maybe I want to dig a little bit deeper on Brigit. Obviously, very, very strong growth there. But you continue to reiterate your expectation that some of that growth will get pushed out from '26 to '27.

I guess, in the context of more volatile macro environment, I mean, how do you think about that with respect to your product launches at this point, the cadence of growth this year and next year? And what could make you feel more confident to launch these new products earlier or maybe have to push them back?

I wouldn't say we're going to push it back. I think we're being pretty cautious right now. The easy thing for us to do is to turn it on broadly right now and add a bunch of subscribers and -- but we're not there yet. We think it's more prudent to take a cautious approach and roll it out over time.

The market environment, as I said, it lends itself to more and more subscribers taking us up on our offer. So in one sense, the environment is great for our existing products and we should see some hopefully upside from what we're guiding to now.

But the environment doesn't lend us to be really aggressive on the new products. So I think it just -- it's too uncertain for us to go out with new products to new customers, especially when you're going again, we talked about this, the earned wage access product is a -- typically get paid back in 10 to 12 days and it's on average of $75 to $100 exposure per subscriber.

The line of credit, it's -- you're up to $500 over a much longer period of time. And so we just want to be very cautious and careful before we roll it out. So like I said, the demand is there. Now we've just got to make sure the performance follows suit and then we'll roll it out.

So the environment doesn't lend itself to being more aggressive on new products. But I think what we've guided to between the end of this year and going into 2027 is appropriate.

Got it. And maybe another one. On the legal accrual, I saw that you guys added a couple of million dollars. I think the bulk of it was last quarter when you expected most of these to be resolved pretty soon. So I mean, can you give an update on that?

Sure. Yes. It's -- I would say the accrual this quarter was more in the normal course where in quarters past, you saw a much bigger increase because the cases between the multistate and the one that -- the McBurnie one that we've already settled just hadn't paid off yet.

We actually paid off post quarter end. But the $2 million that we added this quarter, I think, was just normal course, not related to some of the bigger cases that we've talked about in quarters past.

Maybe just to bolt on though, that we do feel that the provision and reserve that we do have on the balance sheet for legal settlements is appropriate. And again, cautiously optimistic that we'll look to actually resolve those in the coming months.

Your next question comes from the line of William Reuter. Are you there, William with Bank of America?

Sorry, I was on mute. Given it's late in the call, I'll just ask one. When you did see the spike in fuel prices, have you seen an immediate reaction from your customers in terms of reduced activity? I'm wondering how quickly you actually see changes in their behavior. That's it.

I would say it was an immediate response to it, probably more gradual. But we definitely saw the impacts of it. We talked about the lower payouts and the people exercising the 90-day buyouts.

We definitely -- it was noticeable. But I wouldn't say it was an immediate shock just because people have to also get their arms around where it's going, the impact, how long it's going to be, those kind of things. So it wasn't an immediate spike, but definitely a noticeable change in how they spent their tax refunds this year.

Your next question comes from the line of Casey Coates with Loop Capital Markets.

I just wanted to ask on updates on the product mix. I know furniture continues to be pressured and I believe you mentioned fashion jewelry, but are you seeing any strength in other categories?

Yes, I think across the board, I would say, given that most of the reduction in GMV came from us underwriting tightening -- from tightening underwriting that it was pretty broad-based. And as I said earlier in the call, most categories were down low single digits to mid-single digits, but jewelry, given it's the highest loss content and the riskiest segment, that's the one that probably dropped the most when you look at it year-over-year.

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

Thank you, operator, and thank you to everyone who joined us today for an update on our Q1 performance. I'm very thankful for the collective efforts of our exceptionally talented and dedicated coworkers and our merchants who helped deliver strong first quarter results while laying the foundation for the transformational year ahead.

We're grateful for your interest and support, and we look forward to updating you all again next quarter. Have a great day, everyone.

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

Good day, and thank you for standing by. Welcome to the Upbound Group, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that this conference is being recorded.

I would now like to hand the conference over to your speaker today, Steven Kos of Upbound Investor Relations. Please go ahead.

Good morning, and thank you all for joining us to discuss the company's performance for the fourth quarter and full year of 2025 and our outlook for 2026. We issued our earnings release this morning before the market opened, and the release and all related materials, including a link to the live webcast are available on our website at investor.upbound.com.

On the call today from Upbound Group, we have Fahmi Karam, our Chief Executive Officer; and Hal Khouri, our Chief Financial Officer. As a reminder, some of the statements provided on this call are forward-looking and are subject to factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release, as well as in the company's Form 10-K and other SEC filings.

Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. This call will also include references to non-GAAP financial measures. Please refer to today's earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures.

Finally, Upbound is not responsible for and does not edit or guarantee the accuracy of our earnings release 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, Steven, and good morning, everyone. I'll begin with a review of key highlights from 2025 and then I'll hand it off to Hal for a more detailed review of our financial results and our financial outlook. After that, we'll take some questions.

As we reflect on the past year, it is clear that 2025 marked a period of significant progress for Upbound as we execute against our strategic priorities. Since taking on the CEO role in June, following my tenure as CFO, I have been eager to build upon our recent momentum and to steer Upbound through our ongoing transformation into a leading digital and data-driven platform of financial solutions for underserved consumers.

In 2025, across all of our brands, we served over 3.5 million customers. Over the past 8 months, my optimism about what's possible and the opportunity in front of us has only grown. Our team's dedication and shared vision have driven key achievements that we believe strongly position Upbound for continued success and long-term growth. During 2025, we expanded our business by adding a new segment, Brigit. A leading subscription-based financial health technology company, further diversifying our complementary offerings and strengthening our ability to serve our core customers.

In addition, we welcomed two accomplished executives to our leadership team. I'll start with Hal, our new CFO, who is on his first Upbound earnings call with us this morning. Hal brings extensive experience to the CFO role and as a member of our executive team, including over 30 years in consumer based banking, financial services, leasing, retail, consulting and government service. I'll let Hal introduce himself shortly, but I'll add that his insights and strategic vision have already proven valuable to our organization.

We also welcomed Rebecca Wooters as our Chief Growth Officer, a newly created role for Upbound. As mentioned during our last earnings call, Rebecca's role integrates under one team key strategic functions for our organization. Rebecca will lead digital transformation and initiatives and implement data-driven solutions across all three major segments of the company, promoting growth, innovation and synergy within our omnichannel model. We are confident in Rebecca and her team to deliver both short-term and long-term value as we continue to invest in digital products, personalized marketing, customer experience and leveraging data as intelligence throughout our organization.

Adding these experienced leaders to our already strong management team with years of operating experience inside of our brands, I believe it is a powerful combination that positions Upbound for long-term value creation. While these key additions help to build the foundation for growth in the years ahead, we also delivered strong operational and financial performance last year, achieving results within our expectations that we shared at the beginning of 2025.

Now let's start deeper into some of the achievements across the enterprise that made 2025 successful. We are proud of the progress we have made executing on our focus areas during the year, as we continue to invest in serving our customers with innovative solutions. In January of 2025, we welcomed a new high-growth business into our ecosystem through the successful closing of the Brigit acquisition. This milestone marked the beginning of an exciting combination whose value became increasingly evident throughout the year.

From our very first conversations with Brigit, we were impressed by the team's vision, culture and technical expertise for developing relevant digital financial products to help users build a brighter financial future. A mission that closely aligns with Upbound. With a relatively small team, Brigit has already achieved remarkable growth and delivered significant value to its users. As we evaluated the acquisition, confidence grew in the potential to unlock even greater value by combining Brigit's technology and rapidly expanding user base with Upbound scale and civil target consumer to meet a wider range of financial needs for underserved consumers and evolve our business in a changing competitive landscape.

I'm pleased that 2025 Brigit's performance validated our enthusiasm for the growth opportunities from the transaction. When introducing Brigit in the first quarter of 2025, we outlined three strategic priorities for the year. Maintaining growth momentum, launching new products and cross-marketing collaboration with our Upbound brands that already serve millions of customers each year. Brigit demonstrated momentum throughout the year with sequential improvements in year-over-year revenue growth each quarter.

Top line performance was fueled by an increase in new users and higher average revenue per user, stemming from greater expedited transfer revenue for our earned wage access product, deeper engagement with Brigit marketplace offers and continued upsell from Brigit's Plus membership to its premium tier membership, demonstrating the value provided to customers by Brigit's range of products and price points. Brigit also made strides in developing new products, notably policing a line of credit offering in late 2025.

This product leverages Brigit's powerful cash flow underwriting capabilities to provide qualified customers up -- with up to $500 of liquidity for recent or upcoming purchases, bridging the gap between smaller-ticket BNPL offerings and larger ticket lease-to-own solutions. The pilot has yielded promising preliminary results, and we are planning a broader rollout in 2026.

Finally, Brigit launched a number of cross-selling initiatives, marketing its product to Acima and Rent-A-Center customers. These efforts included targeted e-mail campaigns and in-store promotional material at Rent-A-Center and Acima staff locations expanded throughout the year and have shown promising early results.

Now let's turn to Acima, where our strategic priorities for 2025 included driving repeat business through an even greater focus on the customer and leveraging digital advancements to grow merchant relationships. In 2025, the team successfully delivered on these priorities, which resulted in revenue and adjusted EBITDA growing low double digits and adjusted EBITDA margins improving 10 basis points year-over-year despite a tougher macro environment that saw demand pressure and elevated losses in the second half of the year.

Acima demonstrated the power of its customer focus through the expansion of its direct-to-consumer marketplace. Over the years, Acima has built connections with millions of customers by facilitating transactions at more than 35,000 merchant locations nationwide. Increasingly and especially over the past year, Acima's innovative team is leveraging these relationships and data to empower its customers with additional choice and flexibility. Through its direct-to-consumer channels, Acima enables customers to start new leasing experiences with top national retailers or at virtually any durable goods retailer across the country using the Acima virtual lease card.

At the beginning of 2025, Acima's direct-to-consumer marketplace represented a small but promising addition to Acima's established channels. By the end of 2025, the marketplace had experienced substantial growth with GMV growing more than 100% year-over-year in 2025. The marketplace now accounts for nearly 10% of a Acima's GMV and continues to be a strategic focus as we enter 2026. Its ability to strengthen relationships with existing customers and to provide the ability to shop at a broader range of top retailers, including those without integrated lease-to-own solutions, make the marketplace a valuable asset for driving repeat business increasing the lifetime value of Acima customers and driving incremental revenue opportunities for our retailers.

Moving on to Rent-A-Center. Throughout 2025, the segment concentrated on digital evolution and disciplined underwriting. The segment made significant progress in elevating the customer experience and strengthening its digital presence. Including upgrading the infrastructure of the rentacenter.com website to improve its scalability and reliability as the segment continues to focus on growing its e-commerce channel.

In addition, the Rent-A-Center developed new tools to improve the approval process for certain applicants who might not meet our more stringent online underwriting criteria. The website now invites the select online applicants who may previously have been declined to visit their nearest stores to complete the process in person. This approach exemplifies Rent-A-Center's ability to harness both expanding digital channels and its robust retail footprint to drive customer acquisition.

By balancing digital innovation with the strength of its physical locations, Rent-A-Center is well positioned to identify and capitalize on further synergies between channels which will be critical to the segment's growth moving forward. Enhancements to Rent-A-Center Refer-A-Friend campaign, the revitalization of its loyalty reward program and successful marketing efforts that drove strong customer demand in the second half of the year, all provided additional support to top line performance, reinforcing Rent-A-Center's commitment to new customer acquisition, customer engagement and retention.

As a result of these efforts, Rent-A-Center's trends improved through the second half of the year and the segment finished 2025 with year-over-year same-store sales growth in the fourth quarter of 80 basis points improving 440 basis points sequentially, paving the way for a sustainable path as we enter the new year.

Now let's go to Slide 5 and 6 and recap how these achievements across our enterprise drove strong consolidated financial results. I am pleased to share that our full year financial results exceeded the midpoint for each of the figures we provided on our third quarter call. Our revenue grew 8.7% to approximately $4.7 billion, representing the highest full year revenue on record for Upbound, surpassing the previous record in fiscal year 2021, which, of course, benefited from stimulus and the pandemic-related pull-forward in the furniture sector. Adjusted EBITDA for the year was nearly $510 million, which was up 7.5% from the prior year. Our non-GAAP diluted EPS was $4.13 compared to $3.83 in 2024, a 7.8% improvement and near the high end of our guidance last quarter.

Finally, our cash flow generation was particularly strong in 2025, with free cash flow of $180 million, increasing over $130 million year-over-year and net cash provided by operating activities increasing over $200 million to approximately $306 million, the highest full year figure since 2022. Year-over-year improvement was due in part to the benefits associated with tax legislation allowing for accelerated recognition of tax depreciation.

Turning to the fourth quarter on Slide 7. Consolidated revenue was $1.2 billion, a 10.9% increase from a year ago period driven primarily by the addition of the Brigit segment in addition to 8.6% year-over-year revenue growth at Acima. Upbound delivered $126 million of adjusted EBITDA, which was a list of 2.6% year-over-year and adjusted EBITDA margin of 10.5%, down 90 basis points from last year. Non-GAAP diluted EPS was $1.01, down 4% from the year ago quarter.

Overall, I'm pleased with the financial and operational performance that our team delivered in 2025. Throughout the year, in addition to completing a transformational acquisition, the company executed on key priorities, while also proactively implementing targeted risk management adjustments for the increasing pressures that our consumers face. Our core consumer continues to navigate a challenging environment. Including the cumulative effect of inflation and elevated prices for essentials like groceries, rent and utilities, which weigh on their purchasing power and wages that have not kept up pace with their cost of living.

Both of our lease-to-own segments took actions to reflect the evolving macroeconomic landscape, and we are pleased with the outcome of these efforts and the health of our portfolio enter in 2026. At Brigit, as I mentioned, the segment's growth in 2025 has further demonstrated the growth potential we anticipated when we acquired the business a little over a year ago and as opportunities for additional expansion make us excited for the future.

On that note, as we look ahead to 2026, our priorities remain focused on positioning Upbound for sustainable, profitable growth as we continue to execute our strategic transformation. We will continue investing in our people, data and technology, including advanced analytics and AI capabilities to better serve our customers and merchants while strengthening our competitive advantages.

By leveraging our proprietary data more effectively, we aim to deepen customer personalization, improve satisfaction and retention, drive repeat business and realize the full benefits of our scale while pursuing increased cross-sell opportunities across our platform of brands. These efforts will also support continued enhancements to underwriting, allowing us to optimize risk-adjusted returns against our targets. We also remain focused on operational excellence by leveraging technology and the core competencies of each of our brands, taking proven best practices and scaling them across the organization.

In parallel, we are driving targeted efficiency and cost initiatives, including enhancing coworker efficiency across store operations and customer service while simplifying processes to favorably impact the overall cost of doing business. We believe these efforts will improve execution, scalability and discipline across the enterprise while supporting margins and long-term value creation.

Over the last few months, as I've transitioned into my new role, I've had the opportunity to assess our business across various key aspects focused on serving our customers, growth opportunities, risk management and synergies between the brands. While our overall strategic vision and focus areas will remain fairly consistent, we are in the early stages of our transformation and must continue to evolve to the ever-changing business environment. I'm excited about the opportunities in front of us and together with our new and existing leaders, I'm even more confident in our ability to execute on our strategic goals.

Our goals for the long term are clear. Deliver responsible and profitable growth through disciplined risk management while pursuing operational excellence through data and technology and effectively manage capital to ensure appropriate returns.

With that, I'll hand it over to Hal to cover the financials in more detail.

Thank you, Fahmi, and good morning, everyone. Before reviewing segment results, I'd like to start by expressing how excited I am to be joining Upbound organization as the company's CFO and the opportunity to be part of its future success. I joined Upbound in November, drawn by the company's durable foundation and scale paired with its compelling growth profile. I'm confident that together, we are poised for exceptional times ahead.

Let's now turn to a review of the segment results and then discuss our outlook for fiscal year 2026, after which we will take questions. Starting on Slide 9, Acima recorded another quarter of GMV growth in the fourth quarter, an increase of approximately 40 basis points year-over-year. At nearly $550 million, fourth quarter GMV was the highest it's been since we added Acima 5 years ago. Acima's continued growth is due to a few factors, including the performance that's marketplace, as Fahmi mentioned earlier. In addition to an exceptional sales force continuously onboarding new retailers and servicing existing retailers.

Furthermore, we continue to diversify our product lineup. With furniture, our largest product category, representing approximately 40% of rental revenue in the fourth quarter compared to 43% in the prior year period. Acima revenue grew 8.6% year-over-year, which was its ninth consecutive quarter of revenue growth and adjusted EBITDA of $87 million was up 7.3% from a year ago. EBITDA margins were down 10 basis points from Q4 of 2024, however, they were up 180 basis points compared to the prior quarter.

Acima's loss rate of 10.1% for the fourth quarter was up 110 basis points year-over-year and up 40 basis points sequentially. While Acima's losses finished the year elevated relative to recent levels and our targeted longer-term range, our fourth quarter loss rate was consistent with the guidance we had shared during our third quarter call where we discussed how certain challenging vintages underwritten earlier in 2025 would temporarily impact Acima losses as they flow through the portfolio. Key performance indicators, including early payment and delinquency trends give us confidence that the adjustments we have made will drive loss rate improvements from here. I'll cover our expectations for 2026 in more detail shortly.

Let's move to Slide 10 and review Brigit's results for the fourth quarter. Brigit finished the quarter with approximately 1.6 million paid subscribers, which was a nearly 30% increase from the year ago period and a 7.4% increase sequentially. ARPU or average revenue per user was $14.15 on a monthly basis. A nearly 10% increase from the fourth quarter in 2024 and a 3% lift sequentially. Brigit originated approximately $405 million in cash advances in the fourth quarter. That's up 19% year-over-year and nearly 4% sequentially, reflecting the value that consumers are discovering with not only a product offerings, but also the transparent subscription-based pricing model.

For the fourth quarter, Brigit's instant cash loss rate was 3.5%, which was up 70 basis points from the year ago period, primarily due to expansion into new profitable user segments and the impact of a consumer that remains under pressure. Brigit recorded $64.6 million of revenue for the fourth quarter, which represents an increase of 41.5% from the year ago quarter. Subscriptions were 68% of Brigit's fourth quarter revenue with expedited transfer fees and marketplace income representing the balance. Brigit adjusted EBITDA was $11.1 million for the fourth quarter, representing an adjusted EBITDA margin of 17.2%, an increase of 110 basis points sequentially.

Let's move to the Rent-A-Center results, starting on Page 11. As you'll recall, in late 2024, Rent-A-Center tightened underwriting standards while strategically limiting certain product categories that typically experience higher risk metrics in challenging environments. While these changes weighed on top line performance in 2025, especially in the first half of the year, the segment proved its resiliency and the success of these adjustments in the second half of the year.

In the third quarter, we guided that same-store sales would return to flat to positive in the fourth quarter, and we're pleased that the team achieved this goal. Same-store sales increased 80 basis points in the fourth quarter, which was the first positive quarter of same-store sales since 2024. Rent-A-Center recorded nearly $480 million of revenue in the fourth quarter, which was flat compared to the year ago quarter, an improvement of 4.7% year-over-year decrease in the third quarter.

Ultimately, those adjustments from late 2024 help manage Rent-A-Center's loss rate, which improved year-over-year in both the third and the fourth quarters as the portfolio flowed through. The loss rate for the fourth quarter finished at 4.9%, down 10 basis points from the year ago period, in line with the guidance given on our prior call. Rent-A-Center's adjusted EBITDA was $69.2 million down approximately 13% from the fourth quarter of 2024, while Rent-A-Center's adjusted EBITDA margin was 14.4%, down 230 basis points year-over-year due primarily to the impact of certain expense benefits that positively impacted operating expenses in the prior year period. For Rent-A-Center, 2025 represented a year of stabilization that sets segment on a promising path moving forward.

Next, let's cover our liquidity and capital allocation priorities on Slide 12. Our business has a proven and long track record of delivering strong adjusted EBITDA and cash flow conversion. In recent years, accelerating growth at Acima produced a ramp-up in net working capital requirements, which temporarily put a strain on free cash flow. The accelerated growth trajectory led to 2024 free cash flow landing well below historic levels.

We are pleased that in 2025, our cash flow generation trended closer to historic norms finishing the year with approximately $180 million of free cash flow, above the midpoint of our guidance. This represents an increase of $132 million year-over-year and exceeds even 2023 levels by over $30 million. Net cash provided by operating activities was approximately $306 million, an increase of over $200 million year-over-year and due in part to benefits associated with the bonus depreciation provision of the tax legislation last year.

I'll say more about our expectations for 2026 in a moment, but we anticipate cash flow to continue to improve in the year ahead. Regarding liquidity, as you'll recall, the company leveraged its balance sheet to address the upfront cash portion of the consideration for the Brigit acquisition in January of 2025. This decreased the company's ABL availability and resulted in approximately $312 million of liquidity at the end of the first quarter. We are pleased that liquidity improved by year-end, reflecting in part the company's refinancing of this term loan B in the third quarter. As of December 31, between our cash on hand and revolver availability, liquidity was $358 million.

Next, let's take a moment to reiterate our capital allocation priorities, which include reinvesting in the business and funding organic growth, delevering debt on the balance sheet, and supporting our shareholder dividend distributions. The company will also consider executing opportunistic share buybacks based on market conditions and funding constraints. And while we continue to remain open to strategic corporate development opportunities as they arise, our current expectation is to focus on organic growth in the near term through our expense portfolio of products and services across the enterprise. These remain our main priorities entering the new year, and I'll now expand on our approach to each.

First, in 2025, we made investments that should bolster our availability to serve our millions of customers efficiently and at an increasing scale, representing a meaningful growth engine for our business. This included approximately $67 million of CapEx, reflecting investment in our technological infrastructure, data modernization initiatives and improvements to our omnichannel customer experience. As we look ahead towards 2026, we expect to continue deploying capital towards investments in our enterprise technology and digital capabilities across segments. Additionally, Upbound's robust free cash flow allows us to sustain a strong dividend alongside other business priorities. Our dividend remains integral to our strategy for returning capital to shareholders.

Turning to leverage. At year-end, our net leverage ratio was approximately 2.9x above our leverage ratio of 2.7x at the end of the prior year due to the acquisition of Brigit in January of 2025, but slightly below our recent peak of 3x at the end of the second quarter. With higher free cash flow and adjusted EBITDA growth expected in 2026, as well as consistent focus on deleveraging, we are targeting a leverage ratio in the 2x range over the long term with additional progress expected throughout 2026.

We're also frequently asked about share repurchases. Especially given our strong cash position, free cash flow generation and recent trading levels. Our team has evaluated share repurchases over the past few months and while compelling, we have to date opted to prioritize our commitment to leverage reduction. That said, we'll continue to evaluate opportunistic share repurchases in the year ahead, and it's worth noting that our expectations for leverage ratio improvement over the coming quarters should enhance the company's ability to return additional capital to shareholders depending on other opportunities to deploy capital.

And finally, following the Brigit acquisition and our focus on integration, we do not currently have any near-term plans for M&A. Our capital structure is flexible and will be ready at the right combination of value and strategic fit arises.

Before turning to 2026 guidance, I would like to provide an update on the progress we have made regarding a number of our legal and regulatory matters. At year-end 2025, our estimated legal accrual on the balance sheet was $72 million. This accrual is primarily tied to previously disclosed matters where we are now expecting a near-term resolution and reflects what we believe are the ultimate cash amounts that we expect to pay as part of the settlement of those matters.

The McBurney class action is awaiting a final court approval on the settlement, and for the multistate attorney general matter that has been ongoing since 2021, we believe we are nearing a nonbinding agreement in principle with the Executive Committee regarding the primary monetary and adjunctive terms potentials. We are actively engaged in discussions with the objective of finalizing the multistate settlement agreement in the near term, although any final binding settlement cannot be assured, our 10-K filing will provide more details on both matters.

Let's shift to our financial outlook. In this external operating environment, we expect the near to midterm horizon will continue to be challenging and characterized by continued evolving domestic economic and monetary policies, uneven macro factors that pressure our core consumer discretionary income and demand levels, but also tend to make our range of flexible financial solutions even more relevant to these consumers. This outlook also assumes a normalized tax season, and maintaining our conservative underwriting posture throughout the year.

At Acima, we expect continued growth and opportunity. Our team is committed to profitably expanding GMV through several avenues including by acquiring new retail accounts through a robust business development pipeline, as well as enhancing productivity amongst our existing merchant base. Acima will also focus on leveraging its customer relationships and data to deepen connections while boosting engagement and lifetime value. We'll do this by expanding our direct-to-consumer marketplace and our virtual lease card, as Fahmi described earlier.

Finally, Acima's loss rate is expected to benefit from continued disciplined and targeted underwriting and the flow-through of those challenging 2025 customer vintages I mentioned earlier. Taken together, we expect 2026 GMV and revenue to increase mid-single digits year-over-year, while adjusted EBITDA margins should remain in line with 2025 and losses stabilizing in the 9.5% area for the year.

Turning to Brigit. We expect the segment to maintain a strong growth trajectory in the new year. Brigit's value proposition especially relevant in today's economy with more consumers appreciating the flexibility and value of Brigit's instant cash products and its other financial wellness tools. That's why the segment remains focused on refining its marketing efforts and rolling out new products and features that further meet the evolving needs of its users. Through continued innovation and financial health and liquidity tools, Brigit aims to serve its customers more frequently and with even more relevance strengthening the business' long-term competitive positioning, while reinforcing the segment's role as a high-growth engine with an Upbound portfolio.

As a result of these efforts, we expect Brigit to deliver annualized revenue growth of over 30% and the $265 million to $285 million range and an adjusted EBITDA in the $50 million to $60 million range. Although the figures are trailing our initial estimates from the 2024 acquisition announcement, this variance is impacted by the extended time line required for launching new products and obtaining necessary underwriting and product insights for iteration and proving in a challenging macroeconomic environment.

Despite these factors, we remain optimistic about Brigit's future financial performance. We continue to support product design, marketing and infrastructure development to drive growth. Brigit is committed to ongoing product innovation and will prudently manage the scale and timing of new rollouts to navigate the current economic uncertainties, while testing additional marketing initiatives to showcase the anticipated levels of economic performance of the portfolio.

At Rent-A-Center, 2026 priorities will include a focus on customer-driven growth as well as improvements that modernize and unify the digital customer experience. The business will leverage the force of its expanded digital presence and its national store footprint to focus on driving productivity, all while continuing to focus on capital efficiency and disciplined cost management.

As a result of the Rent-A-Center team's efforts over the past year, we believe that trends have stabilized and the business is poised for modest top line growth in the coming year, the full year 2026 revenue expected to be flat to positive relative to 2025 and with adjusted EBITDA margins in line with 2025. At the Upbound level, our corporate costs are expected to be roughly flat to 2025 as a percentage of revenue at approximately 4%. We expect the tax rate to be slightly higher in 2025 in the 26% range with an average diluted share count for the year of approximately 59.4 million shares.

Taken together, our consolidated outlook for 2026 includes a revenue range of $4.95 billion, an adjusted EBITDA range of $500 million to $535 million and fully diluted non-GAAP earnings per share of $4 to $4.35. The company expects to increase free cash flow to approximately $200 million in 2026. This growth is expected to be primarily driven by enhanced profitability and the accelerated tax depreciation benefits from the One Big Beautiful Bill Act projected to augment the company's cash flow by around $100 million.

This guidance is inclusive of the payment outflow of $72 million of non-ordinary course legal and regulatory settlements, as previously discussed, including the largest portion of that amount for the multistate matter and it assumes relatively flat CapEx spend to support business growth initiatives. These factors position Upbound favorably to advance its capital allocation priorities as we focus on delivering compelling and sustainable returns for shareholders.

In regards to the first quarter, each of our segments will navigate seasonal and macro factors, including the start of the tax season. Based on what we've seen to this point, we expect consolidated revenue to be $1.16 billion to $1.26 billion and adjusted EBITDA to be $120 million to $130 million. We expect non-GAAP EPS range from $1.05 to $1.15 compared to $1 a year ago.

With respect to loss rates, we expect Rent-A-Center's lease charge-off rate to remain flat to slightly higher sequentially. Acima's lease charge-offs should improve sequentially, finishing the first quarter in the mid-9% area and remaining in that range over the course of the year, while first quarter GMV should be relatively flat to the prior year, reflecting the tightening we've undertaken to keep lease charge-offs in our target range. Brigit's net advance loss rate remain in the 3% to 3.5% range in the first quarter.

Now as we wrap up, I'd like to emphasize a couple of points that Fahmi mentioned earlier. In 2025, we made substantial progress on our key strategic priorities for over 5 decades, we've provided accessible and flexible lease-to-own solutions to millions of underserved consumers. In 2021, we added further scale by significantly expanding into higher-growth digital technology-driven least-owned channels through our Acima acquisition. Now with Brigit, we've added in demand scalable digital financial health and liquidity tools that expand our growth opportunities even further and our ability to support our core customer when and where they need us most.

These expanding complementary products and capabilities make our platform even more relevant, especially in today's economy, when consumers are looking for innovative solutions that improve their financial lives. Our consumers' needs and expectations are always evolving. And in 2025, we enhanced our ability to meet those needs today and in the future.

In 2026, we will continue to prudently introduce relevant solutions scalable growth opportunities, both online through expanded digital capabilities and in-store at or over 2,200 retail locations across the United States and Mexico. For our stakeholders, we remain committed to creating long-term sustainable value by building off our strong financial foundation allocating capital thoughtfully and responsibly growing our business through our platform of connected financial products and services.

We look forward to delivering on our goals again in 2026 and continuing the momentum we've built across our brands. Thank you for your time this morning.

Operator, you may now open the line for questions.

[Operator Instructions] Our first question comes from Bobby Griffin with Raymond James.

I guess, first, first part of the question is just trying to unpack maybe the guidance a little bit from here. Look at it a little bit, I mean, I understand it. If you take the 1Q guidance midpoint, you're up in, call it, 10% in EPS, but then the year is only up 1% at the midpoint. So what's happening from like the seasonality of the year or something that's driving that? There's some cost pressures developing? Or I'm just trying to figure out kind of how the year is playing out. Does that make sense?

Bob, yes, thanks for the question. It makes sense. First thing I would say is you have a full benefit of a full quarter of Brigit being in the numbers. So that's last year in 2025. Recall, we closed the acquisition at the end of January. And so you only had 2/3 of the quarter with Brigit in our book. So that's first and foremost.

And then yes, the benefit of coming into the year with a stronger portfolio, both on the Rent-A-Center side and still growing on the Acima side should flow into our EBITDA numbers for the first quarter. So nothing that I really want to point to in second, third, fourth quarter that we would say is surprising from or unusual, I guess, for the rest of the year. But the big thing is for the first quarter, I think, is the Brigit acquisition being for the full 3 months.

It's Hal here. Just to also tack on there a little bit as well. So we've got some seasonality happening through the course of the full year. So Q1 typically a bit stronger and then Q2, Q3, we've got some seasonality that brings that down a little bit. So just a little bit of movement there at play.

Okay. And then Fahmi, just diving the second part, it's a good call out on the 1 month of the Brigit, but like the strong portfolio momentum coming into the year, I mean, do you see anything today from the customer base or something that would imply that, that wouldn't continue to build? Or do you want to continue to be successful?

And I understand the idea of keeping some conservatism baked in the guide, and I truly appreciate that. But just I'm trying to gauge between the strong momentum entering the year and then as something slowed, it doesn't seem like something has slowed for that part of the equation to actually not be as powerful in the remaining 9 months.

Bobby, maybe I'll play in and tile here. So we did, as you might recall, tighten up credit prudently towards the back half of the year. One, just kind of given experience that we're undertaking there. Predominantly in our Acima business, I would say, as well as what we're seeing in terms of broader macroeconomic environment. So that credit tightening likely will continue to manifest itself through the first quarter or 2 of this year.

And then subject to environmental conditions at that time, loosen up the portfolio towards the back end of the year as some of that credit tightening would have allowed itself to kind of flow through the business in the earlier part of the year, notwithstanding the jump-off point that you're referencing.

Okay. That makes sense. I appreciate it. Sorry to be so granular, but it was just the shape was kind of giving me some questions. I guess, I guess, secondly for me, it's just on Brigit. You kind of -- you trimmed a little bit of the outlook from original expectations talked about the delay in new products.

Can you maybe just expand on that and kind of what's driving that? If stuff change regulatory-wise? Is it just something that maybe we didn't quite fully understand or get fully kind of taking into account originally. And then the second part of it, on Brigit is just the positive side has been kind of the underwriting and what -- how that's different from your core business. And I've asked this before, but just curious on that integration and where that can go and when you can start seeing that kind of benefits across the enterprise more?

I'll touch on Brigit generally and try to touch on both of your questions. First and foremost, obviously, very pleased with the performance throughout the year. As we've highlighted really every quarter this year and including in the fourth quarter, where we expanded revenue by 41% year-over-year, subscriber growth of 29% and then ARPU up almost 10% in the quarter.

And for the year, coming in above our expectations really from an EBITDA contribution standpoint. So really, really strong performance. And as I said in our prepared remarks, we're still very excited about the future with Brigit. And as far as the guide for 2026, revenue of $2.65 to $2.85 million, so there's a couple of things that are driving that.

First, I would highlight just lower year-end subscribers kind of coming into the year as we saw that little softness in the fourth quarter. So we kind of flooded that through the forecast. We talked about a little bit of a delay in some of our new products that we rolled out started late in 2025. We were hoping to get that out sooner in the year and by now have that kind of fully launched into 2026, so a little bit delayed on the new product front, as well as our marketing dollars have been stretched as far as we had hoped to stretch in the fourth quarter. And then as we also said, the macro, let me touch on the macro piece of it. That uncertain market landscape or the macro landscape give us some pause -- give us some pause to really aggressively roll out some of these new products or our existing products to new audiences. We want to be very cautious just like we are in Rent-A-Center and Acima around our loss profile and kind of judging where the consumer is.

And so really focused around being very disciplined and profitable in our growth objectives for 2026 across the board. We'd love to maximize EBITDA dollars. We're focused on maximizing EBITDA dollars on all of our segments. But at the same time, we're really focused around profitable and responsible growth. So the new product side, as I mentioned, line of credit we were hoping to have it rolled out a little bit faster.

We had some back and forth around getting our bank partners to approve the product. I think -- it's been well documented last year around some of the very public bankruptcy around bank partners and our bank partners know that was who we were dealing with. It's not our bank partner, but there was a domino effect across the industry and really around fintech generally around slowdown of new products rollouts just given some of that uncertainty with the bank partners. So the good news is we rolled it out.

We've been able to put in some new features in December and in January, and now that product, a long credit product because it's a little bit longer tenure product in our instant cash products to 9 months. Now it's a matter of just seeing how performance comes in so we can get and then make sure that we're ready for the rollout. So a combination of things doesn't cause us to slow down, but it is a shift, I would say, from '26 to '27.

The opportunity is still very much in front of us. We still see a lot of opportunity with the cash flow underwriting and maybe that's a good segue into your other question around where we are from an integration standpoint. I'd point you back to at the beginning of when we announced the acquisition, we said that we were going to have a pretty light touch around integration, and that has been the case. We bought Brigit for their innovation, for their product road map and their pipeline of new product rollouts and the last thing we wanted to do was slow them down through the acquisition. And so that's still the case.

We've done some things around, cross-selling around some of the marketing and some of the e-mail campaigns and some of the text campaigns, but I would say it's been fairly light touch. We haven't done any of the data integration that we plan to do. We haven't really done any system integrations outside of some accounting things. And so all that is on the come.

None of that is in our forecast for 2026. We'll start making real plans for that by the end of the year. So hopefully kind of build that foundation for growth in 2027. It's obviously, in very early stages, but an intentional integration plan.

Our next question comes from Vincent Caintic with BTIG.

A lot of great detail already. First, I wanted to focus on Acima. So I appreciate the guidance for, I think, full year GMV mid-single-digit year-over-year growth. And I think the first quarter is flat. So I'm sort of wondering if you could maybe help us with the cadence of that growth. It sounds like maybe the second half of the year, we should be expecting even greater acceleration.

And then if you can talk about -- if I remember correctly, it was a particular cohort of GMV that you had to tighten up on. Is there any sense that you could give us if you were to exclude that cohort where you -- where underlying GAV has been growing so far.

Thanks for the questions. I'll start and Hal is welcome to chime in. As far as the GMV trends, let me -- let me answer your question directly, then I want to take a step back and highlight a couple of things that we saw really throughout the year and then in the quarter.

But I think as far as the cadence goes for DMD, I think the first half of the year will be relatively flat, consistent with what we guided for the first quarter. And then we kind of get back to Acima's norm as we lap some of the changes that we made in the second half of the year, and that kind of evens out into the mid-single digits for the year. So from a cadence standpoint, I think we'll lap the changes we made sometime in the third quarter and then obviously, in the fourth quarter, so you'll see an uptick and hopefully return back to the low double-digit growth in the second half of the year, but that's how you get to kind of the mid-single digits for the year.

As far as just maybe some highlights go for Acima, I want to point out two things around GMV that were really fantastic developments. One, we talked about, which was the direct-to-consumer channel for us. When we talked about some of the strategic objectives coming into 2025, we talked about shifting and adding focus into the customer, not just merchants, merchants are always going to be part of our bread and butter strategy with Acima, but we also wanted to take a look at the consumer and make sure that we viewed it kind of from both lenses. And growing the direct-to-consumer channel by this year was fantastic, leveraging our AI leasability engine and getting it to be 10% of our GMV in the fourth quarter with still plenty of room for upside there.

We're just now getting started with our virtual lease card program. We're in pilot phases there, and that should continue to benefit us going forward. And then returning customers. As we talked about focusing on the customer and the direct-to-consumer channel is a returning customer channel for us, our returning customers up to 45% of our GMV in the fourth quarter, which is up from kind of the mid-30s last year.

So we're able to generate more GMV from a customer that we know well. GMV per customer in the calendar year 2025 was up 5.5% and the number of transactions that are returning customers interacted with us was up 15%. So the direct-to-consumer channel really gives us a lot of LTV, lifetime value for our consumers and should really help us continue to grow as we add more and more merchants to the lineup.

As far as normalizing for underwriting changes, that's a tough one to answer, Vincent. We're constantly making changes to underwriting day in, day out. Obviously, what we did through the second and third quarter last year was a little bit more broad-based than we typically would do, but it is hard to quantify how much of the guide is because of the changes that we made, just given mix shifts, consumer mix shifts and uncertainty in the market.

But as you can tell, I mean, we've been on a really good run with Acima, growing GMV and being growing the fourth quarter, but at a different clip is a big function of the underwriting changes, as well as just consumer consideration and continued consumer stress. So hard to really normalize for the changes that we made.

And maybe I'll just put on here, Vincent. So we continue to invest overall in the overall business. But as it relates to Acima in particular, as Fahmi had referenced, continue to put dollars into digital technology and transformation and enhancing that customer and merchant experience. So certainly, those are going to be key initiatives for us in '26 as well.

Okay. That's very helpful detail. Switching to Brigit. So your 1-year anniversary of acquisition you talked about product rollout and so forth, what you're expecting 2026. I'm sort of wondering from that initial 2025 when you put the deck out on your expectations, kind of where are we in terms of the road map of what you're expecting from Brigit? How much more can you do? You say you have a light touch in terms of the integration, perhaps where could you see that over time, maybe not putting it necessarily just on 2026, but your kind of -- the evolution of your view for the long term.

Sure, Vincent. Yes. So look, as I said, everything that we talked about when we made the acquisition in December of 2024 and everything that we highlighted since then is still very much part of the plan and us integrating their data insights, their technology, even just their processes. Some of the things that we're doing now with our growth organization really mimics a lot of the Brigit model and how we go around thinking about innovation.

But the cash flow underwriting attributes that they generate when they look at are going to be game changing for Rent-A-Center and Acima the appropriate time. We are doing things, again, like touch, but we are doing things to try to learn as best we can on how do we approve more customers, how do we -- how do we market to our customers more effectively given some of the insights that we have. And we think about what we're trying to do really across all of our segments around personalization.

I mean, that's going to be the future for us is to really be smart around personalizing our offers, personalizing our inventory purchases on RAC and putting those promos in front of the right customers at the right time. And I think a lot of the data insights that we give from the Brigit model are going to allow us to do that. So even though the product rollout and the pipeline is a little bit delayed given the things that I mentioned earlier, they're still on the come. The line of credit product, as we said, is in pilot phase. There's a lot of demand for that product.

We just want to make sure that -- we don't overextend on losses, and we understand kind of the performance of that product before we really launch it. So a little bit delayed but still very much excited about the opportunity. If you think about the midpoint of the revenue guidance that we just gave, you're up 25% on a full year basis, up 30% from a contribution standpoint. So -- and generating high teens to low 20% EBITDA margin. So the business is definitely performing some of the higher growth items are shifted between '26 and '27, but we're building a foundation for long-term growth and we're still very excited about the acquisition.

Our next question comes from Kyle Joseph with Stephens.

Just want to kind of walk through tax refund expectations. I know it's early in the season. We've seen a lot of headlines about refunds being elevated this year. But kind of walk us through the assumptions you have for first quarter really on the Acima and Brigit side of things. Obviously, we know well how that -- how tax refunds and potentially an outsized refund season impacts RAC and Acima, but kind of walk us through your assumptions on Brigit for the first quarter in particular.

Sure. Happy to, Kyle. Thanks for the question. So as you said, still very early on, on tax season, they're a little bit delayed. I would say, typical years, but right around the corner. So the guide assumes more of a normalized tax season, as you referenced, the range of people have said that they're going to be out to 30% range. And I think if they're in the lower end of that 5%, 10% increase, it will have some impact, but not a lot, but if it's up 30% or so, then I do think it will have a meaningful impact to us and really across the board between all three segments.

Generally speaking, when you put more cash in our consumers' pockets, it's going to be a good thing for all of us. But in the short term, what I would say, is if we do see that big tax refund, you will see higher revenue in the first quarter for both Rent-A-Center and Acima, but it will come at a lower gross profit margin. So even though the -- definitely will clean up credit and will be positive. You will have to replenish that portfolio, and so it puts a little bit more pressure on us to make sure that we convert some of those payouts into new leases. But generally speaking, you'll see higher revenue and lower gross profit impact.

And with Brigit, typically in the first quarter because seasonally speaking, you'll have lower subscriber growth given people are flushed with cash, you'll see higher profitability levels in the first quarter and lower losses. So very similar from that standpoint and then kind of post-tax season, you'll start seeing a ramp-up both in subscriber growth, as well as our marketing expense that kind of match the seasonality there.

So early on, but look, if it ends up being a lot higher than what we guided to, then it's great for our consumers, and we'll be ready to market to them on getting their second, third and fourth leases.

Great. Really helpful. And then just a follow-up for me. In terms of the outlook for RAC, we understand that the second half benefited obviously lapped some underwriting changes and it sounds like some successful marketing efforts. But talk about some of the macro puts and takes on the RAC business and how that's influencing your outlook into '26 and beyond.

Thanks, Kyle. Yes, look, Rent-a-Center had a really strong end to the year from a pretty volatile first half of the year. If you think about the sequence in same-store sales being down 4% in the second quarter, down 3.6% in the third quarter and then really challenging the team to make it flat and then ends up grew the portfolio and grew the same-store sales by 80 basis points. So quite a turnaround from the first half of the year. And we feel like on a same-store sales basis, we're poised to be flat to slightly positive in 2026. And we were able to do that with losses coming in slightly better year-over-year, down 10 basis points.

Delinquencies are stable in 3.5%. EBITDA margins normalized in the fourth quarter this year compared to where they were last year, but still hit our 15% or mid-teens number for the year, and we expect that to continue into 2026. So very pleased with the team's execution in a very difficult environment. We talked about the consumer kind of where that is. But we feel really good about where we are from an inventory standpoint, from a supply chain standpoint, from e-commerce standpoint, we've done a lot of things in the works with the growth organization around being smarter about how we interact with our customers.

They're all in the future. So we feel really good about that segment. It really turned the business around throughout 2025. And if you look at the portfolio value ending the year, it was up almost 11% year-over-year. So again, a really strong fourth quarter and really strong execution on the Rent-A-Center side.

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

I wanted to follow up on the Acima parts of the business and the GMV outlook and Fahmi, just wondering if you could talk a little bit more about category performance, how much that's played a role? And how do you think about the opportunity ahead to continue to add new merchants going forward?

So yes, I kind of take a step back and look at Acima's performance. I think it's important to kind of maybe look back to 2024, we grew that business 17% that year. And on top of that, now we're growing at low double digits this year. So really strong performance across the board over the last 2 years. And in 2025, applications were up 9%. Our approval rate was down 120 basis points. Average ticket was relatively flat. Our customers were up.

As I mentioned before, we interacted with 1.3 million customers throughout the year. So very, very pleased in a pretty challenging environment with Acima's performance as well. As far as the categories go, I would say, furniture, which is still our largest category is still very much under pressure. Looking at it really all year has been flat to slightly year-over-year. And so offsetting that, we've done a really great job of diversifying where the GMV comes from.

We talked a little bit earlier around the direct-to-consumer channel. But as I look at just the broader categories, jewelry was up over 20%. The auto business and wheel and tire was up mid-single digits. Now jewelry, we talked about last quarter around some of these cohorts that were underperforming. So fourth quarter was actually flat in jewelry, but still a strong year in 2025 that positions us for growth next year.

And as far as the pipeline goes, look very bullish around our ability to continuously add merchants and locations into our network. We've done really, really well in the small, medium-sized businesses throughout the year. We do have some RFPs in the works that we hoped that we win our fair share, as we always do from a regional side throughout the year. So, yes, very confident in our sales team's execution and our business development team's execution around continuously adding to our network and they're continuously diversifying where the GMV comes from.

That's really helpful. And if I could just squeeze in a follow-up regarding AI. You did touch on it in your prepared remarks, and I know there are going to be a number of opportunities. But at this stage, if you tried to maybe rank where you think it can first be most impactful for you? Is it what you're seeing on the revenue or new customer side of things or the efficiency side or the underwriting discipline. Where do you see the biggest bright spots for the impact of AI for you all?

Brad, it's all of the above. I think you touched on it almost in the right order. I think we are -- the biggest thing that I could point to is the leasability engine on Acima. I mean, we talked about the direct-to-consumer channel that when unlocked that GMV for us would be being able to basically in real time, determine if the product in the cart is least eligible or not.

And AI is the one -- is the feature to do that. So very much integrated in our innovation strategy is the core of our innovation strategy. We're trying to do it around the consumer, and we're already doing that, both through the Rent-A-Center business and the Acima and Brigit for that matter, just through generative and agentic AI. We are establishing different tests and pilots and use cases around how do we interact with customers? How do we understand where the customers are shopping and what they're interested in.

And so -- as we think about kind of rank ordering where it is, it's around growth, revenue growth and customer interactions. Then underwriting, I think we're already doing a lot in the machine learning space and talk a little bit about integrating what Brigit's doing into our other businesses. So that will also be driven by AI functionality and automation. And then probably last in that order is probably around efficiency. We are rolling that out to all of our coworkers and dabbling with that. But probably starts with revenue growth and then end with the efficiency piece.

Our next question comes from Hoang Nguyen with TD Cowen.

Just have a question on Brigit. So I think at the beginning, when you guys announced the deal, you guys were calling for an acceleration in revenue growth this year versus '25, given some of the delays that you mentioned as well as, I guess, maybe subscribers coming in available to what you previously expected.

Could we sort of expect Brigit to accelerate this year, and if so, what would be the cadence throughout the year as you guys continue with your cross-sell efforts? And then one of our competitors also recently launched a, I guess, cash advanced feature as well and have seen some success that the competitive landscape for Brigit's offering at this moment.

You broke up a little bit. Who did you say launch a product?

Yes, they also have new cash advance app. So.

Yes. I'll just touch on -- I'll touch a little bit around just the competitive landscape, I guess, first, and then I'll move on to the revenue and subscriber growth for 2026.

Yes. Look, I think there are people who are announcing different versions of EWA products, I mean, it's in cash-like products. And honestly, I'm not surprised by that. There's a lot of demand for the product. People are seeing the same thing that we're seeing that consumers, especially in this environment need liquidity solutions and so it's not surprising that others are jumping along and developing.

We're acquiring similar products like Brigit, like we saw all the same rationale and merits that we saw others are seeing the same thing. So what we need to do is make sure that we continue to differentiate our products and continue to add value to our bundle to make sure that we retain the customers that we give from Brigit. And I think we've done that, and we'll continue to do that with the product road map the line of credit, some of the other things that we've talked about, really giving consumers more choice around the different pricing and different tiers that we have. That's the way that we'll be able to differentiate Brigit and hopefully maintain the growth that we expect.

As far as the cadence goes for 2026, as I mentioned, still very healthy top line growth year-over-year. We are delayed on some of the new products and again, being very cautious from a from a new audience and new product rollout given the uncertainty in the market. I think the acceleration seasonally generally subscriber growth is going to be back-end loaded. I think the faster we are able to roll out the new line of credit. We'll also have a big impact on subscriber growth and all those things are kind of pointed to the second half of the year as we get performance data around that product.

Our next question comes from [ June Song ] with Jefferies.

And congratulations, Hal, on joining the team. My question was around the margin across the segment. You mentioned there was some comp effect in the fourth quarter '24. But looking at the gross margin per segment, it is still trending downward compared to past quarters and fourth quarter '24 in RC segment? And could you give a little color around if that's driven by any changes in product mix shift, consumer behavior? Or is it more so on the inventory side? Any color will be good.

Yes. Sure. It's Hal here. Maybe I can touch on that. In terms of the first piece of that, we did actually in Q4 of last year experienced some in-period benefits on the labor cost lines associated with our workers' compensation numbers. So that was an in-period benefit last year. And as we look at the comp year-over-year, obviously, this year, we wouldn't have realized some of those in-period benefits.

In terms of the margins overall, certainly, the competitive landscape, I think, is putting pressure across the board on margins on the top line perspective. But also, as you think about our gross profit margins, certainly, the cost of goods as well. We are experiencing some cost shifts there with tariffs certainly playing into the equation as well. Our furniture category has been impacted by that as well. And so those in concert collectively, top line pressure competitively us trying to garner additional volume and being competitive with our pricing, tightening up on the credit side as well, I would say.

So on the margin, perhaps reducing some of the customers that would have been a bit higher in terms of the overall margin contribution as well on a top line perspective. that and the overall cost of goods actually increasing period-over-period. So all that being said, as we think about the outlook going into 2026, as Fahmi had mentioned, generally positive outlook in that respect, being more efficient, I would say, in terms of how we operate, looking at areas as some of those historical vintages flow through. We would expect some improvement through the back end of the year and expansion in overall margin and contribution there as well.

Great. That's really helpful. And in regards to some of the tightening actions throughout 2025, how should we think about the cadence of that unfolding in terms of credit or growth throughout 2026?

So yes, I think we answered some of this as far as the cadence goes from a GMV standpoint, but look, on the underwriting side and losses, and you touched on it a little bit earlier, delinquencies on both Rent-A-Center and Acima are in line with years past and a very acceptable level.

The changes that we made as Acima seem to be working as intended. The early performance indicators on the more recent vintages are much more in line with historical years. And so -- that's why we felt confident in guiding the first quarter and really the year for Acima to be in that 9.5% range. And so we feel good about peaking like we said we would in the fourth quarter at 10% coming back into a more normalized range really throughout the year.

Now it does come at a cost of GMV growth, and that will be impacting GMV for the first half of the year and then hopefully we rebound into more normalized levels in the second half of the year. And with Rent-A-Center, I think the same thing, a pretty stable environment from our consumer standpoint, no major changes that we see on the horizon from an underwriting standpoint other than our normal push, pull some of the levers that we would do. And it's been stable.

We're very comfortable operating in that 4.5% to 5% ZIP code from a loss perspective and generating mid-teens margin on that business. And with Acima kind of the low to mid-teens EBITDA margin. So losses seem to be stable, obviously, a very uncertain macro that we're dealing with. But for now, we feel really good about our portfolio and the health of the portfolio coming into the year.

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

I'll keep this short. So you guys can get back to mention your business. You touched on this a few times, but I just wanted to clarify, the slowdown in Acima GMV, was that solely due to the credit tightening or are there any other factors like, any kind of type of slowdown underlying demand for furniture and appliances?

Yes, I would say the majority of it was probably just intentional from our underwriting standards. There was some softness in demand going into the year -- or into the fourth quarter, I should say, in the holiday season. So there's -- a part of it is the macro. There's no doubt that furnitures continues to be under pressure.

I don't think that's unique to us at all, either Rent-A-Center or Acima, and I think that did have some headwinds in the fourth quarter. But as I said, we're very optimistic about our ability to continue to add merchants and add locations on the semi side. And when furniture does come back, we'll still have all of those furniture retailers on our network. We'll have all the diversification that we've talked about, and we can then use that to feed the marketplace direct-to-consumer channel.

So right now, we're managing losses the best we can, managing the underwriting in a pretty difficult environment also through demand pressures, especially in our largest category, but when all that kind of clears, we'll be in a really good position to have a lot of tailwinds, especially when you think about our ability to generate repeat business on the Acima side that I went through earlier on the call, that gives us a lot of confidence to continue to grow GMV.

And I'm not showing any further questions. I'd like to turn the call back over to Fahmi for any further remarks.

Thanks, Kevin. Thank you, everyone, who joined us today for an update on our Q4 performance and our outlook for 2026. Thankful for the collective efforts of our exceptionally talented and dedicated coworkers and our merchants who helped us deliver 2025 strong results, while setting us up for another transformational year ahead. We're grateful for your interest and support. We look forward to updating you all again next quarter on our continued progress. Have a great day, everyone.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Q3 2025 Upbound Group, Inc. 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, Jeff Chesnut, Head of IR. Please go ahead.

Good morning, and thank you all for joining us to discuss Upbound Group's performance for the third 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. Our business is organized around a simple but powerful statement, which is to elevate financial opportunity for all. As the consumer environment changes, our customers' needs evolve as well, and our business is constantly adapting in response. As we accelerate the pace of innovation and capitalize on our differentiated strengths, it's critical that we have the right people to help us deliver on our mission. That's why I'm excited to share that we strengthened our executive team by adding 2 proven leaders with a deep knowledge of our consumers and a track record of building new capabilities, transforming businesses and ultimately creating value.

I am pleased to welcome our new Chief Financial Officer, Hal Khouri, who we announced today; and our new Chief Growth Officer, Rebecca Wooters, who we announced a few weeks ago. Hal was most recently the CFO at goeasy, a leading nonprime focused lender in Canada with relevant experience in point-of-sale financing as well as a lease-to-own retail platform. Prior to joining goeasy, Hal was the CFO for Walmart Canada Bank and JPMorgan Chase Canada Bank. And Rebecca, our new Chief Growth Officer, was previously the Chief Digital Officer for Signet Jewelers, where she transformed the business into a digital omnichannel retailer across several brands.

Before her role at Signet, Rebecca held several growth leadership positions at Citibank, including Chief Customer Experience Officer for the North America Consumer Group. Together with our experienced existing team, these new business leaders will help us elevate the customer experience, bringing data-driven targeted offerings to market for our customers and retailers while accelerating our growth. I'm thrilled to welcome them both to Upbound, and our whole team looks forward to working with them to drive our business forward.

Moving on to the quarter. Upbound delivered another quarter of strong results with revenue up 9% year-over-year to $1.16 billion and adjusted EBITDA up 5.7% year-over-year to $123.6 million. At Rent-A-Center, we're seeing encouraging sequential improvement in same-store sales while maintaining robust 16.2% adjusted EBITDA margins through operational efficiencies and digital enhancements.

We're now expecting same-store sales to approach flat to positive comps in the fourth quarter based on these promising trends. At Brigit, we maintained impressive momentum with revenue growth of 40% and subscriber growth of 27% year-over-year, while successfully expanding the product suite. And at Acima, despite recent further tightening of our underwriting in targeted areas, we delivered the eighth consecutive quarter of GMV growth, which was 11% in the third quarter, while surpassing a milestone achievement of working with more than 100,000 merchant locations across its history.

Let's move to Slide 4 to discuss our market and our consumers. As we noted in the past, our customers are accustomed to economic uncertainty, and they are attuned to key signals in the macro backdrop that will eventually translate into their spending priorities. Those signals are generally tied to demand in the labor market, where recent reports suggest job growth is slowing and price levels where the cumulative effect of inflation and the potential for tariff-related price adjustments is pressuring our consumers' collective confidence. These dynamics impact demand from our core customers, putting top line pressure on our lease businesses as well as affecting payment behavior, both of which influence the quarterly results. Although there are near-term effects, these conditions should add more and more consumers looking for low weekly payments for quality durable goods at Rent-A-Center and Acima as well as Brigit's liquidity solutions and financial wellness tools.

Before getting into the details of the quarter, I want to address the lower margin and higher loss performance at Acima. While we have maintained a conservative risk posture company-wide in response to a choppy macro backdrop, recent monthly vintage yields at Acima have been under pressure, resulting in slightly higher losses and lower overall margins. As a result, Acima moved to an incrementally more conservative risk stance across the third quarter. While these vintages will impact losses in the fourth quarter and the underwriting changes will impact the fourth quarter GMV growth, it is important to note that we believe our tailored responses are already proving to be effective and positively impacting outcomes in the August and September vintages based on early performance indicators. Unless the macro environment sees meaningful changes, we do not expect further mitigation will be warranted to achieve Acima's targeted growth and margin profile in 2026.

Moving to Slide 5. Let's review the key themes for each segment for the third quarter. As mentioned, Acima delivered its eighth consecutive quarter of GMV growth, up 11% year-over-year and is on track to deliver high single digits to low double-digit GMV growth for the year. Revenue growth was 10.4% and the EBITDA margin was 12%, a decline from the year ago period related to the 50 basis point uptick in this quarter's lease charge-off rate and lower gross margins. Gross margins and losses were impacted by softness in recent vintages that I already mentioned. Despite continuously lowering approval rates throughout the year, Acima booked a cohort of leases in the second quarter with elevated early defaults, mainly to new customers in our e-commerce channels at select retailers.

In response, Acima implemented a targeted tightening strategy through the second and third quarters and added additional identity validation tools starting in July to drive performance improvements. Those efforts have been effective with the August vintage now performing within our acceptable yield and loss ratio ranges. We are confident Acima has successfully optimized its decisioning for the evolving macro backdrop and observed trends through October have reinforced that view. In addition, gross margins were affected by the jewelry category growth as a portion of total GMV, especially at the expense of the furniture category, which hasn't fully rebounded from the pandemic-related pull forward.

Acima's focus on the jewelry vertical has been intentional as it has enabled both GMV growth and diversification from the furniture category. But relative to furniture, jewelry sees a higher proportion of customers electing the first early purchase option, which is a lower margin outcome for Acima. Even so, the category is profitable and Acima values the acquisition of new customers through this channel as Acima can subsequently introduce those customers to the direct-to-consumer marketplace for future leases in jewelry or other product categories. Importantly, neither the shift in Acima's portfolio performance in the second quarter vintages nor the gross margin impact from jewelry's expansion was related to loosening underwriting standards. In fact, Acima has received 14% more lease applications year-to-date relative to the prior year period, while reducing corresponding approval rate by approximately 200 basis points.

As Acima recognized the early performance behavior, we repositioned our underwriting strategy and lowered approval rates each month to maintain the long-term lease charge-off rate inside the upper boundary of our target range. Acima's loss rate for this quarter and the fourth quarter will be impacted by these vintages as the tightening will limit GMV and revenue growth, creating a denominator effect that will result in higher lease charge-off rates as the final leases from these vintages run through the portfolio. Our underwriting and risk management teams are laser-focused on monitoring the health of our customers and the health of our portfolio, and we're confident that the actions already taken will help preserve a balanced and sustainable growth algorithm in the years to come.

Moving on to Brigit. Brigit continues to move fast while building for scale. This quarter's results featured year-over-year revenue growth of 40% and active subscriber growth of nearly 27%. Brigit also tested new products to further meet the needs of our customers, such as line of credit. In parallel, Brigit has experimented with new marketing strategies to drive even more efficiency in marketing spend, all while maintaining a net advance loss rate in the 3% range. Just as important, Brigit contributed to Upbound's bottom line by generating $9.3 million of adjusted EBITDA at a margin of more than 16% while achieving impressive top line growth.

At Rent-A-Center, the takeaway is the steady progress the team has made towards recapturing the volume that was impacted in the fourth quarter last year when we strategically exited a product category and leveraged a broad tightening strategy to maintain our optimal risk profile. Same-store sales for the quarter improved 40 basis points sequentially from a negative 4% to 3.6% below last year, while delivering an EBITDA margin over 16% and a lease charge-off rate that was 20 basis points improved from the third quarter of 2024. Between the current trend line and the upcoming holiday season, we believe same-store sales growth should approach flat to positive in the fourth quarter. As we've said before, Rent-A-Center will continue to focus on improving efficiencies and generating strong free cash flow until broader macro conditions either improve for our core customers or create more trade-down opportunities to spur top line growth.

Let's cover the consolidated financial results for Q3 on Slide 6. Third quarter revenue of $1.16 billion was a 9% increase from the year ago period, mainly powered by growth at Acima plus the addition of Brigit. The business generated $123.6 million of adjusted EBITDA, which was up 5.7% against Q3 2024, and adjusted EBITDA margin of 10.6%, which was down 30 basis points year-over-year, driven by lower margins at the Acima segment. Non-GAAP diluted EPS was $1, which is 5.3% higher than the year ago quarter. The top line adjusted EBITDA and non-GAAP diluted EPS results were each within or above the target ranges provided on last quarter's earnings call.

Upbound generated more than $50 million of free cash flow in the third quarter, resulting in a year-to-date free cash flow total of $167 million. Upbound's non-GAAP tax rate this quarter was 24.5%. That was lower than our recent run rate in the 26% area due to a discrete onetime item related to provision to return adjustments. Essentially, an estimate from January was refined in September and flowed through the tax rate in the third quarter.

On Slide 7, let's discuss our progress on the strategic priorities for 2025 that we outlined earlier this year. Acima's initiatives this quarter focused on its merchant portfolio and the customer experience. One of Acima's growth drivers has been its consistent ability to add new merchants, whether on the SMB side or even a top 25 furniture retailer like Living Spaces, which went live earlier this month. In Q3, we recognized a major milestone on that front as Acima activated its 100,000 merchant location. While continuing to enroll new retailers through both integrated and light touch options, Acima is also working to energize existing accounts that we believe have the potential to generate a higher volume of profitable leases.

By reinforcing our relationships and optimizing our value proposition, Acima has reengaged hundreds of merchants so far with more to come. For our customers, Acima rolled out upgrades to the account management tools to enable more self-service options while also adding a Refer-a-Friend program. On prior calls this year, I've described how our AI-powered leasability engine unlocks the ability for consumers to shop for durable goods in-store and online. And now Acima has added the in-store tap to lease capability for our virtual lease cards. This means a customer can use the Acima app to shop in any store for any approved durable good within their approved limit and check out by tapping the virtual lease card. There's no retailer setup or involvement and the consumer can shop with confidence.

While traditional retailer integrations will remain an important acquisition channel for Acima, we're excited about serving our returning customers in a way that maximizes their privacy, convenience and confidence. Across the third quarter, Brigit's momentum grew as the team accelerated testing of innovative new financial solutions and trialed new customer acquisition channels. For example, Brigit's new line of credit product, which is in beta testing, offering consumers access to credit of up to $500 to provide liquidity for recent or upcoming purchases.

The amount bridges the gap between smaller ticket BNPL offerings and the larger ticket lease-to-own solutions like those offered by Acima and Rent-A-Center. In light of these new products, Brigit is evolving its marketing strategy toward a more holistic mix, diversifying both the channels we invest in and the creative content we produce. Our always-on creative pipeline has become a key differentiator that enables faster iteration, richer insights and more scalable growth. Brigit is expanding marketing channels beyond digital and social media platforms, including highlighting its capability in real-world locations where the use case is immediate and relevant. This is incremental to the in-store marketing collaboration between Brigit and Rent-A-Center, which when scaled can reach its nearly 1,700 stores plus Acima's hundreds of staff locations and turn thousands of Upbound's customer-facing coworkers into Brigit brand ambassadors.

At Rent-A-Center, the third quarter yielded a number of operational improvements as the business focuses on streamlining the customer experience, improving account management and reducing the expense base by implementing efficiencies. During the quarter, we upgraded the supporting infrastructure of the rentacenter.com website to elevate its scalability and reliability for high-volume events like Black Friday and Cyber Monday, while enhancing the mobile-friendly interface. We put it to an early test with a major promotion in September, which had more volume than last year's Black Friday, and it performed flawlessly. And for the customers where an online transaction isn't approved, the site now invites them to their nearest store to complete the application process, which boosted Rent-A-Center's top line in the period.

We also launched a Refer-a-Friend campaign and revamped our loyalty reward program, which should drive deliveries entering the holiday season. The Rent-A-Center team has executed extremely well in a tough environment. Same-store sales have improved sequentially, and our guide is to work towards being flat to positive in the fourth quarter. Coworkers are fully engaged and excited for the holiday push as the stores are primed with great products.

Relative to historical levels, our stores have a higher percentage of new inventory, which has been proven to increase conversion rates and deliveries. In addition to our great value proposition, having the right inventory at the right store offered to the right customer positions us well for the fourth quarter and heading into 2026. All of these are separate initiatives across each of our largest segments, but they share a common set of guiding principles, which is to introduce our brands to new consumers, optimize our product suite, elevate the shopping experience and deliver value to our customers and retailers in each interaction they have with us.

Let's now turn into the segment results and then discuss our outlook for the balance of 2025, after which I'll take some questions. Acima's GMV grew by $48 million in the third quarter compared to the year ago period, which is 11% GMV growth for the third quarter of 2024 (sic) [ 2025 ]. To deliver that growth, Acima continues to add new merchants of all sizes and across product categories. And this quarter received nearly 13% more lease applications in the year ago period. Acima's approval rate on those applications declined 280 basis points from last year's third quarter, evidence of Acima's focus on delivering top line growth balanced with prudent underwriting that evolves with the macro backdrop.

From an operational standpoint, furniture continues to represent our largest product category at approximately 40% of GMV in the quarter. That category is still working through the demand pull forward from the pandemic era and more recently with new tariffs. So the industry expectations for a more normalized level of demand are looking into the back half of 2026 at the earliest. Even so, we can grow GMV in that category by adding new merchants and by becoming a bigger share of our existing merchants business. As Acima grows its network of retailer relationships, it continues to maintain a broad and diverse lineup of merchants with the top 10 representing less than 1/3 of the quarter's GMV.

Several of those top retailers appear only on the Acima marketplace, where our returning customers can start their next leasing journey. GMV from the marketplace was up 150% year-over-year in the third quarter and over 10% sequentially. Acima revenues grew more than 10% year-over-year, which was the seventh consecutive quarter of double-digit growth. Adjusted EBITDA was down 40 basis points against the third quarter of 2024 and adjusted EBITDA margins were 12%, a decline from 13.3% in the year ago period, driven by the gross margin impact from the expansion of the jewelry segment, combined with the increase in lease charge-off rate.

The LCO rate of 9.7% compared to 9.2% in the third quarter of 2024 and finished 20 basis points above our high end of our target range of 9.5%. As I noted earlier, we believe our swift and tactical actions across the quarter will maintain the loss rate within our targeted range in the medium term.

Let's move to Slide 9 and review Brigit's results for the third quarter. Brigit finished Q3 with more than 1.4 million paid subscribers, which was a 27% increase from the year ago period and a 9.4% increase sequentially. ARPU or average revenue per user was $13.74 on a monthly basis, an 11.4% increase from the third quarter of 2024 and a 2.2% lift sequentially. ARPU's continued expansion represents the strength of marketplace performance, higher expedited transfer revenue and a mix shift to the premium subscription tier. Brigit originated approximately $390 million in cash advances this quarter. That's up 19% year-over-year and nearly 10% sequentially, reflecting the value that our customers are discovering with not only the product offerings, but also the transparent subscription-based pricing model.

For the third quarter, Brigit's cash advance loss rate was 3.3%, which was up 30 basis points from the year ago period due primarily to Brigit testing into new marketing channels and new custom segments who are overall profitable. The sequential increase was in line with the seasonal trends and reflected a similar increase in 2024 from the second quarter to the third quarter. As we test out new products and gain traction with more consumers, the loss rate will fluctuate seasonally and should remain in the low single-digit range. Brigit recorded $57.7 million of revenue for the third quarter, which represents an increase of 40% from the year ago quarter. Subscriptions were nearly 70% of Brigit's third quarter revenue with expedited transfer fees and marketplace income representing the balance.

Brigit realized adjusted EBITDA of $9.3 million for the third quarter, representing an adjusted EBITDA margin of 16.1%, which was an expected decrease from last quarter's results as Brigit's marketing and customer acquisition spend ramped up across the quarter. When we announced the Brigit acquisition in last December, we guided to a full year 2025 results of $215 million to $230 million of revenue and $25 million to $30 million of adjusted EBITDA before reclassification of administrative costs to Upbound's Corporate segment. I'm pleased to share that after adjusting for the January 31 closing date, Brigit is tracking to achieve or exceed the midpoint of the ranges we provided.

On Slide 10, we'll review Rent-A-Center's performance. In the third quarter, the Rent-A-Center segment reported $461 million of revenue, down 4.7% from a year ago quarter due in part to a higher store count in the third quarter of 2024 as we sold 55 stores to a franchisee last September. This outcome was consistent with expectations we highlighted on our last call. Same-store sales were down 3.6% year-over-year, mostly stemming from certain underwriting adjustments we implemented in the fourth quarter of last year. Rent-A-Center third quarter same-store sales improved sequentially from the second quarter as the team's revenue enablement initiatives are showing promising early returns.

For example, on deliveries, which are a leading indicator of near-term future revenues, they were up 3.8% in the third quarter compared to a year ago period. Rent-A-Center's adjusted EBITDA was $74.7 million, down 5.5% from the third quarter of 2024, due primarily to less rental income off a smaller lease portfolio value. The loss rate for the third quarter finished at 4.7%, which improved 20 basis points from the year ago period, while holding flat sequentially, in line with the guidance given on our prior call. Rent-A-Center's adjusted EBITDA margin was 16.2%, which was down 10 basis points from the year ago period, but up 160 basis points sequentially, thanks to the team's effort to realize operational efficiencies, focused on account management while also beginning to comp over last year's changes.

Let's review our liquidity and capital allocation priorities on Slide 11. We finished the third quarter with over $350 million in liquidity between cash on hand and our revolver availability. Our net leverage ratio was approximately 2.9x on September 30, generally consistent with Q1 and Q2. During August, we capitalized on favorable market conditions to refinance our Term Loan B, which now matures in 2032. In the same transaction, we also upsized the facility to $875 million and used the incremental $75 million to reduce our revolver balance and enhance liquidity. Our business has generated approximately $167 million of free cash flow year-to-date, up notably from approximately $122 million in the prior year. Due to recent changes in tax policy, Upbound's near-term liquidity should be supplemented by about $150 million in savings from cash tax payments.

The bonus depreciation provisions in the new tax legislation will help drive a tax benefit of $50 million in 2025 and approximately $100 million in 2026 compared to the company's previous forecast. That cash flow supports our capital allocation priorities, which are designed to position the company for sustainable growth by investing in our business, strengthening our balance sheet through deleveraging and supporting our shareholder return program, which currently focuses on our regular dividend of $1.56 per share as well as opportunistic buybacks. We are confident that our disciplined capital allocation strategy will fund responsible and profitable growth while creating long-term shareholder value.

Let's move to Slide 12 and review our financial outlook, starting with a quick update on the economic backdrop and consumer behavior. As we signaled on our last call, we expected certain suppliers to our Rent-A-Center segment would respond to broader macroeconomic factors with price changes, which we recently received. Although Rent-A-Center's inventory costs will be modestly increasing, we are modeling corresponding refinements to the weekly payment rate and the lease terms to deliver affordability to our customers and stability to our margins. Acima will use similar levers as appropriate based on observed price changes at its merchants.

Across the year, our customers have shown both resilience and prudence in their decision-making. As we look ahead to the holiday season with optimism, we remain aware that market dynamics and consumer sentiment can shift rapidly. Accordingly, we will remain nimble and flexible as we navigate the balance of the year. With that background and in light of Acima's underwriting tightening mentioned earlier, we are adjusting the updated full year guidance we provided last quarter. Revenue should be in the range of $4.6 billion to $4.75 billion, adjusted EBITDA in the $500 million to $510 million range and non-GAAP EPS in the range of $4.05 to $4.15.

At the segment level, for the fourth quarter, we expect our recent tightening actions at Acima to yield GMV growth in the mid-single-digit area while still delivering full year GMV growth in the high single digits to the low double-digit area that we guided to earlier this year. Acima's top line should be up low double digits with EBITDA margins slightly lower than a year ago period as the underperforming vintages flow through the P&L. Loss rates should be slightly worse sequentially and peak in the fourth quarter in the 10% area before improving in the first quarter of 2026 as the softer second quarter and early third quarter 2025 vintages work their way through the portfolio. Rent-A-Center should see a low to mid-single-digit decline year-over-year on the top line, while the lease charge-off rate will be better than last year and relatively flat sequentially.

At Brigit, we expect revenue to be up high single digits sequentially with low double-digit adjusted EBITDA margins driven by the ramp-up in marketing and customer acquisition spend that I mentioned earlier. For corporate costs, we expect the impact to adjusted EBITDA in Q4 to be consistent with the year ago period. Also at the corporate level, our net interest expense in Q4 should be in line with Q3. We expect the tax rate to be approximately 26% with an average diluted share count for the year of approximately 58.8 million shares. We'll provide a more in-depth update on our 2026 outlook on our next call, but I'd like to share our early look for Acima. Absolute dollar growth will depend on how strong the holiday shopping season is in the fourth quarter and obviously, the macro backdrop entering the year.

So assuming a stable macro environment, we're projecting to achieve the growth and margin profile for Acima that we've targeted in the past, including annual GMV and revenue up in the high single-digit to low double-digit territory, losses in the 9% to 9.5% area for the year with adjusted EBITDA margins in the low to mid-teens range.

Let's wrap up with a few key takeaways. Upbound's progress this quarter underscores that our digital transformation is moving at pace with new technologies and AI-powered solutions already enhancing customer experiences and operational efficiency. Innovation remains at the heart of our strategy as we continue to launch new products, refine our platforms and explore fresh approaches to serve our customers better. Importantly, our rich consumer data set built from millions of interactions provides unique insights that drive smarter decision-making and unlock new opportunities for growth. The management team is coming together with the addition of Hal and Rebecca, 2 seasoned leaders who will help us capitalize on new opportunities for growth. These strengths, combined with our talented team's commitment and dedication, position Upbound to deliver value to our customers, merchants and shareholders across all market cycles.

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

[Operator Instructions] Our first question comes from Kyle Joseph from Stephens.

Fahmi, I just want to get a sense for the underwriting changes at Acima. Obviously, you guys talked about GMV in, I think, the mid-single digits in the fourth quarter. But how do we think about growth in that segment given the underwriting changes? Should we think about that being a little bit suppressed, call it, for the next 12 months until we lap those underwriting changes?

Kyle, thanks for the question. Yes, look, I think for Acima's GMV, very pleased with the quarter, up 11%, especially when you think about it comping over last year's percentage. The underwriting changes will impact GMV in the fourth quarter. Our guide for the fourth quarter is mid -- up mid-single digits. Keep in mind also that we also had a 15% growth in the fourth quarter last year, so you are comping off a decent number.

Long term, I think we will get back into the high single digits, low double digits throughout 2026, as we stated in our prepared remarks, the environment -- we are very aware of the environment. It's very uncertain out there with a lot of different moving parts in the macro backdrop, especially when you think about our core consumer. So we are very mindful of the environment we're in. Despite that, our ability to continue to add new merchants into the mix and continue to add both small and medium-sized businesses as well as the regional win that we announced today and onboarded earlier this month, that's what gives us confidence that we can continue to grow in that high single-digit, low double-digit area really throughout 2026.

And yes, kind of on the macro uncertainty, kind of seeing different loss trends across your segments. So I mean, just -- yes, I would love to get kind of how you're thinking about the consumer? And is it so specific that the Acima consumer is seeing different trends than the RAC consumer? Or just -- I want to get your sense for how the consumer is doing given all the uncertainty.

Sure. Yes. The consumer -- we've characterized it in the past, Kyle, as still stressed, and I think that continues to be the case. You have the impact of inflation now for a few years, and that takes a toll on a consumer that is generally cash strapped. And if you think about our core consumer, especially on the Rent-A-Center side, making somewhere between $25,000 and $30,000 of annual income, Acima maybe a little bit higher than that in the $50,000 to $60,000 range and Brigit is somewhere in between. That cumulative effect of inflation definitely hurts disposable income, and it has an impact on both demand and payment behavior.

Of course, it also helps us from a standpoint of trade down, which we saw ending last year and into the beginning of this year. But generally speaking, consumer confidence is pretty low. You got wage growth slowing. You got the job market seeming to slow down a bit, round of layoffs being announced this week and last week. You have the tariff inflation potential and you have the government shutdown. So you got a lot of things that are kind of point to a lot of uncertainty in the market, which is really why we decided to go ahead and take an even more conservative stance from an underwriting standpoint.

And you mentioned the difference between Rent-A-Center and Acima. I think there is a difference between the consumers, as I just mentioned, there's obviously some overlap, but there is a difference between the consumers. And from an underwriting standpoint, with Rent-A-Center, you're thinking about consumer, whether it's new or returning, whether it comes through our store or online, where Acima, you also have the retailer component in there, and you have a more diversified product category mix. And you throw in kind of what we're seeing this year, Rent-A-Center, we had a broad-based cuts last year. And so it's benefiting from that this year, and our loss rates have been relatively stable sequentially and down year-over-year. And with Acima, we started seeing it in the second quarter, and we had to adjust kind of slightly after Rent-A-Center.

So there is some overlap, but there are some differences. And obviously, depending on what -- when we actually tightened, you'll start seeing that through the P&L and some of the ratios.

One last one for me. On the RAC segment, it seems like some positive developments there guiding towards comps trending towards flat or positive. What's driving that? Is it a function of lapping underwriting? Is it e-com growth? Just what's the reason for the outlook for improvement there?

Yes, Rent-A-Center had a really nice quarter in a pretty tough environment, especially when you think about kind of being our seasonally low quarter in the summer months and sort of see the improvement in same-store sales, still negative, but an improvement of 40 basis points from the last quarter. And as you said, our guide is now to be approaching flat to hopefully slightly positive in the fourth quarter. And I think what we can point to is a lot of great execution by the team. We've also done some strategic initiatives around Refer-a-Friend. We've also revamped our loyalty program, and we're trying to push folks from online into the store, and that's had a positive impact on our results.

It's had a positive impact on conversion rates as well as our loss performance. And so -- and I mentioned in our prepared remarks that we feel really good about our inventory position going into the holiday season. So all that plus comping some of the changes that we made last year, really, we'll start comping those in the fourth quarter. That's what gives us the confidence that we're going to continue to improve. Rent-A-Center has definitely stabilized and hopefully inflecting towards positive in the fourth quarter.

Our next question comes from John Hecht of Jefferies.

Really focusing on Brigit, good ARPU growth year-over-year and quarter-to-quarter. I mean, I guess, what are you learning about that customer, the customer acquisition opportunities, the cross-sell opportunities? Maybe you did provide some detail on this in the prepared remarks, but I'm wondering if you can give us a little bit more about what you're learning and the opportunity that presents.

John, thanks for the question. Yes, Brigit continues to outperform our expectations really across the board. We mentioned it on the last couple of calls around their ability to really adapt and listen to their customer base and develop products that really address people's concerns and address people's worries. And that's what we're seeing. You asked what are we seeing that's working? And I think the answer to that is the cash flow underwriting piece. I think that level of transparency, that insight into the customer and getting to know them, that's something that we think we can leverage across our platform, whether it's through their new product offerings or eventually into the Acima and Rent-A-Center business.

And as far as other things that we're picking up on, as we said, we are testing out new marketing channels, just trying to broaden our base and really drive subscriber growth. We've had 2 consecutive quarters now of over 25% subscriber growth. We look to continue to push more and more subscribers. And then once we come in, have them stick around and the retention rates have definitely improved as we've gotten more and more content into the bundle as well as developing that line of credit product that we've talked about now that goes up to $500 of advance at a time. So very happy with where Brigit is, both from a top line growth and the subscriber growth. We've leaned into some of the marketing channels and marketing expense, but pleased that they're still able to generate mid-teens EBITDA margins and really ready for a big holiday push where we hope to have even more subscribers join the platform.

Okay. And then the appointment of the Chief Revenue Officer with a focus on AI endeavors, maybe can you give us an update of what you're learning in terms of the application of AI and how that can benefit the business in the intermediate term?

Sure. As a Chief Growth Officer, we're not going to give her a new title, John, with the Chief Revenue Officer. But having Rebecca join has been fantastic. She's been in the building now for a month. And what she brings is a whole new perspective on data analytics, driving a lot of the decisions we're going to make and hopefully pushing the ball forward on the AI front and pushing our road map on the AI front even further and faster. So we've developed a set of hopefully high-impact use cases that we want to roll out from an AI standpoint, while also being very mindful of cost, but know that's going to really push our growth forward and really enhance our capabilities.

So we're focused on enhancing the customer experience across all of our major brands and then also giving our coworkers the tools to better serve our customers and our partners and hopefully, along the way, getting some efficiencies across the organization. So she's done it before. She has very relevant experience in this area, a proven track record of transformation and especially digital transformation. So we're excited to have her as part of the team.

Our next question comes from Vincent Caintic from BTIG.

Thanks for all the detail this morning, particularly in that bonus depreciation, that's very interesting. If I could switch back to Acima and then another credit question. So first off, maybe a bit of a broader one. Looking back through that June and July impact or when there was perhaps a negative inflection, if you could talk in more detail about maybe what you were seeing at that time? Was it particular customers or particular categories that you had to tighten during that time? And then in terms of the GMV growth, so it's nice to see that you still had 11% GMV growth and still having mid-single digits for fourth quarter. Maybe if you could break out how much of that growth is coming from new merchants versus maybe some pressure in some of the existing customers and existing merchants, if you could break out where the continued growth is coming from?

Sure. Vincent, thanks for the question. I'll start with your first one around the Acima and credit through the -- really throughout the second quarter and into the third quarter. And as we said in our prepared remarks, we've been lowering our approval rates pretty consistently this year. We've been down 200 or 300 basis points year-over-year pretty much all year long. But what we saw is a combination of things. I think the biggest driver is overall softness in performance and overall softness in yields. And so as I said, when we saw that through our early performance indicators, we reacted relatively quickly and tried to tackle those in certain pockets, including the e-com business that we called out during the prepared remarks.

But picking off those pieces wasn't enough. We started seeing worse and worse performance into June and into July. And so we had to take, I would say, more drastic underwriting tightening in the month -- in the summer months. And we really saw the impact of that in August, which, again, this is a pretty short-lived asset. You can start seeing the results pretty quickly when you make some of these changes, and we saw that. So again, it's a combination of just overall macro tightening as well as certain pockets in our portfolio. And the good news is we reacted very quickly. We've already had a conservative kind of posture in underwriting.

So again, we're only about 20 basis points above our high end of our target range. We think we'll peak in the fourth quarter in the 10% area, and then it will start coming down into the first part of 2026 and then improve from there. As far as the GMV goes, yes, I think, as you said, very nice to see despite all the tightening that we've done this year to still grow 11% in the quarter coming off of, again, a strong comp last year as well. As far as where the growth is coming from, to bucket it, I think about 90% is coming from new merchants and about 10% is coming from productivity of existing merchants. And really, that 10% of productivity is coming from our staffed locations as we continue there that transition from the legacy A Now to the Acima platform and ramping up the larger accounts from a staff perspective.

And then direct-to-consumer, you've heard us talk a little bit about direct-to-consumer over the last few quarters. That grew over 150%. This quarter is getting close to about 7% of our overall GMV. So that's becoming a bigger and bigger part of our story and the GMV story and going forward as we continue to innovate on new tools to give more power to the consumer using our app. So we definitely had to take a little bit of a step back, and it's going to hurt a little bit of growth, but we think that's the right thing to do given all the uncertainty that I mentioned and focus on making sure that our losses stick within our target range and that we're able to generate the right profitability for the leases that we book.

That's super helpful detail. Switching to Brigit by kind of a similar question, since it's a new business for us, so trying to -- if you could help us on how to think about this environment and how the business operates in this environment of maybe some macro uncertainty. Would Acima headwinds be similar for Brigit? Or conversely, is this actually a time for Brigit to be leaning in and be growing when perhaps the consumer is stressed?

I think more of the latter, Vincent. I think it's a time for us to lean in and help our consumers. Obviously, we have a lot of tools and financial literacy tools, budgeting tools, but also the liquidity tools become more and more in demand. And we've talked a little bit about that new product that we're very proud of, and it's still early days and still in testing mode, but the adoption of that product has been -- has surpassed our expectations.

So no, I think this environment lends itself really across all of our brands. I mentioned during our prepared remarks that some of these things will have some short-term and near-term impacts to our P&L, but the environment is very conducive for consumers looking for low weekly payments, looking for deals, looking for access to either durable goods on the Rent-A-Center and Acima side or just general liquidity for everyday needs on the Brigit side. So no, I think this is a time for us to make sure we're there for our consumers, especially as things potentially could get worse from here. I do think it lends itself very well for all of our brands, including Brigit.

Our next question comes from Hoang Nguyen of TD Cowen.

I want to touch a little bit on Rent-A-Center. It looks like it's a very opposite performance versus Acima this quarter, impacting to the positive side. I guess my question is, I mean, is this it? Is there any other headwinds in the coming quarters for Rent-A-Center that we may want to take note? And what gives you the confidence from here that maybe Rent-A-Center is now past the hump and should return to somewhat the growth level that you indicated back in your Investor Day?

Yes, no, outside of just the general macro that we've mentioned and we've touched on the call, as I said, Rent-A-Center really performed well this quarter coming off a tough second quarter and a tough first quarter after the underwriting changes we made last year and trying to recapture some of that volume. But as I said in our prepared remarks, the team is very energized here around some of the promotions and some of the inventory we have on hand for the fourth quarter. So nothing major from a headwind standpoint. Great to see the trends improve in Q3 and really now we're gearing up for a big holiday season with a lot of great products in there. Losses are stable to down year-over-year.

When you look at our delinquencies, they're also down year-over-year. So I feel like from an underwriting standpoint, we got that kind of locked in. And now we just need to go push on deliveries, and I know the team is ready to do that. So I wouldn't point to anything from a headwind standpoint. I think the takeaway from the Rent-A-Center business is very positive coming out of a rough first half of the year and starting to comp over some of the changes we made in 2024.

And maybe another question on the Acima side. I think in the second half of last year, you also mentioned some sort of softening in, I guess, the lower end of your consumers there. I guess -- and then you tightened a little bit. I guess, versus last year, I mean, how should we think about the degree of tightening that you guys are doing this time or have done this time versus last time? And how serious a problem it is this time versus last year?

Yes. I think there is -- I think the deterioration that we saw in the second and third quarter definitely was worse than last year, Hoang. But I think, as I said, our risk posture has been relatively conservative now for quite some time, even last year and into this year. And we've had to adjust even further. I think the cuts that we've made over the summer are a little bit more broad-based than what we did last year. And maybe to a certain degree, we will be overtightened at this point, but I'd rather take that position with all the uncertainty in the market, get our metrics back down into the -- our losses back down into kind of the high end of that range and see how this plays out over the next few months.

Maybe some of the things that I mentioned as far as the macro solve themselves and then maybe we'll feel like we can then get back to where we were pre Q2 of this year. But generally speaking, the team is very focused on our portfolio, the health of the consumer and feel like we've corrected what we've seen in earlier this year and positioned now to grow from this point going forward.

Our next question comes from Bobby Griffin of Raymond James.

[ Okay, mate ], I guess, first, can you maybe talk about the pathway for seeing a return back to kind of that growth algo in '26 with the current credit environment? And I guess what I'm asking is, is the GMV growth picking up next year that you guys are kind of flagging that you think is a possibility, is that predicated on credit conditions changing? And it's more just on the function that we are going to -- you are tightening, so you're seeing that come down here in 4Q. So I would think that GMV growth would carry forward unless you see some opportunities for like new customer wins or further trade down or something. So maybe just help us connect those dots.

Yes, Bobby, thanks for the question. I definitely think it will be harder for us to achieve those. And I think if you think about the cadence for 2026, we may start off a little bit slow, but then ramp up in the second half of the year as we start comping some of these changes that we've been talking about this morning. But you said it, I mean, what gives us confidence in hitting the high single digits and low double digits is our ability to grow our merchant count, continue to focus on our existing merchants and increasing productivity there, whether it's through smarter and more personalized marketing efforts across the board. And then our direct-to-consumer channel, all those things, but really adding the merchants piece of it is going to be the key for us to continue the growth at Acima, including some of the more pronounced wins that we mentioned on the call earlier this morning.

So yes, there are going to be some headwinds from a credit standpoint, but I think just our ability again to add merchants into our network and some of the tools that we're building for our returning customers, I think that's what gives us the confidence to get back into that high single-digit, low double-digit range for GMV into 2026.

Okay. And then maybe on just the tax benefits and the tax changes. I mean, I know you guys talked about your standard capital allocation policy, but leverage is still close to a turn above the target. You mentioned some more uncertainty out there today. So is the right way to think of that is first call really is plow back in deleverage? Or is there capital calls on the business outside of growth that you need from an investment in systems or something as we go into '26? Just trying to understand near-term capital needs and uses of cash a little bit better.

Yes. I don't think our priorities change, Bobby. I think we're always looking for ways to reinvest in the business to spur growth and sustainable growth. So I don't think that changes. The $150 million or so that we mentioned on the call based on the new tax policy definitely gives us a little bit more flexibility around that growth, but also gives us a little bit more flexibility to pay down debt a little bit faster while also leaving us some dry powder for optionality, whether it's tack-on M&A or opportunistic share buybacks. But our mode right now, just given everything that we've talked about this morning is probably going to be on the conservative side and using that excess cash to either invest in the business or pay down some debt. But a really nice tailwind for us from a free cash flow standpoint, being able to improve free cash flow this year and then obviously, over $100 million next year from a cash tax standpoint. It's a big benefit.

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

I just have 2. You previously just mentioned opportunistic M&A. I would think, given all the uncertainty, the profitability of potential businesses may be difficult to get a good handle on and it might lead to a little more caution. However, you do have the $150 million coming in, as you just mentioned, or lower tax payments. Can you talk a little bit about how you're viewing M&A at this point?

Yes, I think just building off what I just mentioned on Bobby's question, I think, look, we're always looking to expedite our strategic plan, whether it's through technology or some of the AI fronts or just doing a little tack-on acquisitions that improve our product offering to our core customer. But as I mentioned, I think on our last call, we also have a lot of opportunity with the 3 big brands that we have now to reinvest in those, and we have plenty of growth opportunities with what we have. And we're still in the early days of integrating the Brigit offerings.

So we like being in the mix. We like taking looks. Nothing imminent at this point. As I mentioned, our stance is going to be more conservative and probably paying down debt, but we also like to be actively looking on ways to add on to our product mix and our product offering, looking to serve our customers in different ways. So I never rule it out. But at this point in time, we are focused on delevering.

And then just secondarily, you mentioned new merchant growth being probably a core part of trying to get to that low double-digit growth of Acima in the next year. Have there been -- I guess, how does the pipeline look for new potential customers versus maybe where that pipeline was a year ago? And that's all for me.

Sure. Yes. Look, I think the pipeline is strong, and we've talked about before the lead time to winning some at least on the bigger names, there's a long lead time, and it takes effort both on the -- from an RFP standpoint as well as integrating from a point-of-sale standpoint. So our focus right now is trying to be less reliant on integration with retailers and developing tools where we can operate, grow volumes either through returning customers or through technology. So the pipeline is good. We're not waiting around for integrations. We are doing things either direct-to-consumer, as I mentioned, or through our returning customer base to help grow GMV.

But our bread and butter is growing merchants, and that's going to be and continue to be an important acquisition channel for us. And so our sales team is hyper focused on growing merchant count and the pipeline remains strong.

This does conclude the Q&A portion of this session. I would now like to turn it over to Fahmi Karam, CEO, for closing remarks.

Thank you, operator, and thank you to everyone who joined us today for an update on our Q3 performance and our outlook for the balance of 2025. Before we conclude, I'd like to again welcome our 2 new senior leaders to the organization and 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. Thanks, everyone. Have a great day.

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