Business Overview and History
Upbound Group, Inc. (NASDAQ: UPBD) is a technology and data-driven leader in accessible and inclusive financial solutions, addressing the evolving needs and aspirations of underserved consumers. The company's strategic shift in recent years has positioned it as a differentiated player in the market, offering a diverse array of financial products and services tailored to its target customer base.
Upbound Group, Inc. was incorporated in the State of Delaware in 1986, initially operating as a traditional brick-and-mortar lease-to-own retailer under the Rent-A-Center brand. The company experienced rapid expansion in the late 1990s and early 2000s, growing its network of Rent-A-Center stores across the United States. During this period, Upbound Group faced increased competition from other lease-to-own providers and traditional retailers offering financing options, prompting the company to invest in technology and e-commerce capabilities to adapt to the changing market.
In 2005, Upbound Group established its Acceptance Now brand, offering lease-to-own solutions through third-party retailers. This strategic move allowed the company to expand its reach and provide services to a wider customer base. The success of the Acceptance Now business model paved the way for the acquisition of Acima Holdings, LLC in 2021, further strengthening Upbound Group's position in the virtual lease-to-own market.
The company's international presence began in the early 2000s with the establishment of its Mexico segment, consisting of company-owned lease-to-own stores in Mexico. Despite facing challenges related to economic and political instability in the region, Upbound Group has maintained its commitment to the Mexican market.
Throughout its history, Upbound Group has navigated regulatory challenges related to its lease-to-own business model. The company has worked closely with state and federal authorities to ensure compliance with applicable laws and regulations while advocating for legislation that recognizes and regulates lease-to-own transactions as distinct from credit sales.
In 2021, the company made a strategic move by acquiring Acima Holdings, a leading provider of virtual lease-to-own solutions. This acquisition marked a significant milestone, as it allowed Upbound Group to enhance its technological capabilities and deepen its presence in the growing e-commerce and digital lease-to-own market. The integration of Acima's innovative platform and robust decisioning tools has enabled Upbound Group to reach a wider customer base and provide a more seamless and personalized experience.
More recently, in January 2025, Upbound Group completed the acquisition of Brigit, a leading financial health technology company. This transformative move further solidified the company's position as a comprehensive provider of financial solutions for underserved consumers. Brigit's suite of products, including earned wage access, credit-building programs, and financial literacy tools, complement Upbound Group's existing offerings and empower its customers to achieve greater financial well-being.
Financial Performance and Ratios
Upbound Group's financial performance has been relatively strong, despite the challenges posed by the macroeconomic environment. In the fiscal year 2024, the company reported total revenue of $4.32 billion, reflecting an 8.2% increase compared to the previous year. This growth was in line with the framework introduced at the company's Investor Day in 2023. Net income for the same period stood at $123.48 million, with a net profit margin of 2.86%.
The company's adjusted EBITDA for 2024 was over $473 million, up 3.8% from the prior year, aligning with previous guidance. Non-GAAP diluted earnings per share (EPS) for 2024 was $3.83, an 8% improvement from 2023.
For the fourth quarter of 2024, Upbound Group reported revenue of $1.08 billion, representing a 6% year-over-year growth. Net income for the quarter was $30.98 million.
Liquidity
The company's liquidity position remains healthy, with a current ratio of 0.56 and a quick ratio of 0.56 as of December 31, 2024. Upbound Group's debt-to-equity ratio of 0.43 indicates a moderate level of leverage, providing the company with the financial flexibility to pursue strategic initiatives and growth opportunities.
As of December 31, 2024, Upbound Group had cash and cash equivalents of $60.86 million. The company also had $428.31 million available under its ABL Credit Facility, net of $46.70 million in outstanding letters of credit.
In terms of profitability, Upbound Group's return on assets (ROA) and return on equity (ROE) for the fiscal year 2024 were 4.66% and 20.45%, respectively. These metrics demonstrate the company's ability to generate returns on its asset base and effectively deploy its capital.
For the fiscal year 2024, Upbound Group reported annual operating cash flow of $104.72 million and annual free cash flow of $48.45 million.
Segmental Performance and Diversification
Upbound Group operates through four main segments: Acima, Rent-A-Center, Mexico, and Franchising.
The Acima segment, which includes the company's virtual lease-to-own solutions, has been a key driver of growth, with revenue increasing by 17.1% in fiscal year 2024 to reach $2.26 billion. This performance was fueled by expanding the segment's merchant network and enhancing its digital capabilities, which allowed Acima to acquire nearly 1 million new customers during the year. Gross profit for the Acima segment was $702.62 million, an increase of 9.0% year-over-year, with a gross profit margin of 31.1%. Operating profit for the segment was $255.55 million, up 8.5% from the previous year, representing an operating margin of 11.3%.
The Rent-A-Center segment, which focuses on the company's traditional lease-to-own store-based operations, has also demonstrated resilience, with revenue remaining relatively flat year-over-year at $1.86 billion. Gross profit was $1.29 billion, a slight decrease of 0.4% year-over-year, with a gross profit margin of 69.4%. Operating profit for the Rent-A-Center segment was $280.42 million, an increase of 2.5% from the previous year, representing an operating margin of 15.0%.
Upbound Group's diversification strategy has been a key strength, as evidenced by the performance of its Mexico and Franchising segments. The Mexico segment generated revenue of $78.73 million in fiscal year 2024, up 5.5% from the previous year. Gross profit was $56.43 million, up 6.7% year-over-year, with a gross profit margin of 71.7%. Operating profit for the Mexico segment was $4.81 million, a slight decrease of 0.8% from the prior year, resulting in an operating margin of 6.1%.
The Franchising segment contributed $116.97 million in revenue, despite a 4.4% year-over-year decline. Gross profit was $28.75 million, an increase of 5.6% year-over-year, with a gross profit margin of 24.6%. Operating profit for the Franchising segment was $16.74 million, a slight decrease of 2.0% from 2023, resulting in an operating margin of 14.3%.
Risks and Challenges
Upbound Group faces several risks and challenges that could impact its future performance. The company operates in a highly competitive industry, competing with traditional retailers, online competitors, and other financial technology providers. Maintaining its competitive edge and adapting to changing consumer preferences and shopping behaviors will be crucial.
Additionally, the company's operations are subject to various regulatory frameworks, both at the federal and state levels. Changes in laws and regulations governing the lease-to-own and financial services industries could pose compliance risks and necessitate adjustments to the company's business practices.
Macroeconomic factors, such as inflation, interest rate fluctuations, and changes in consumer spending patterns, can also significantly impact Upbound Group's financial performance. The company's ability to effectively manage its risk profile and adapt to these market conditions will be essential for its continued success.
Outlook and Strategic Initiatives
Upbound Group has outlined a comprehensive strategic plan to drive future growth and solidify its position as a leader in accessible and inclusive financial solutions. The company's key initiatives include:
1. Expanding the Acima segment's merchant network and enhancing its virtual lease-to-own offerings to capture a larger share of the growing e-commerce market. 2. Leveraging Brigit's financial health solutions to deepen customer engagement and cross-sell opportunities across Upbound Group's brand portfolio. 3. Investing in technology and data analytics to improve customer experiences, underwriting capabilities, and operational efficiency. 4. Pursuing strategic acquisitions and partnerships that align with the company's mission and expand its product and service offerings.
For fiscal year 2025, Upbound Group has provided guidance projecting revenue in the range of $4.5 billion to $4.75 billion, adjusted EBITDA between $500 million and $540 million, and non-GAAP diluted EPS of $3.90 to $4.40. The company also expects free cash flow to range from $150 million to $200 million.
Segment-specific guidance for 2025 includes:
- Acima: GMV and revenue are expected to grow in the high single digits to low double digits, with adjusted EBITDA margins improving towards the mid-teens area. - Rent-A-Center: Revenue is expected to decline in the low single-digit range, with adjusted EBITDA margins in the mid-teens area, decreasing year-over-year. - Bridgion: Revenue is projected to be in the $200 million to $230 million range, with adjusted EBITDA expected between $25 million and $30 million.
These strategic initiatives, coupled with the company's diversified business model and focus on underserved consumer segments, position Upbound Group for continued growth and success in the years ahead.
Industry Trends
The lease-to-own industry has historically demonstrated resilience throughout various economic cycles. However, the full extent to which macroeconomic trends, including consumer spending and payment behavior, may impact Upbound Group's business in future periods remains uncertain. The company's ability to navigate these trends and capitalize on opportunities in the evolving financial services landscape will be crucial for its long-term success.
Conclusion
Upbound Group's transformation from a traditional lease-to-own retailer to a technology-driven provider of inclusive financial solutions has been nothing short of remarkable. The company's strategic acquisitions, such as Acima and Brigit, have bolstered its capabilities and allowed it to better serve its target customer base. With a focus on innovation, diversification, and a commitment to elevating financial opportunity for all, Upbound Group is well-positioned to capitalize on the evolving needs of the underserved consumer market.
The company's strong financial performance in 2024, coupled with its positive outlook for 2025, demonstrates its ability to execute on its strategic initiatives and adapt to changing market conditions. As Upbound Group continues to leverage its technological capabilities and expand its product offerings, it remains poised for sustainable growth and value creation in the years to come.