10-Q: Upbound Group Q3 Earnings Decline Amid Brigit Integration

Upbound Group, Inc. reported a significant decline in net earnings and operating profit for the third quarter and first nine months of 2025, despite revenue growth driven by the Brigit acquisition and strong performance in its Acima segment.

Summary

• Total revenues increased by 9.0% to $1.16 billion for the three months ended September 30, 2025, and by 7.9% to $3.50 billion for the nine months ended September 30, 2025, primarily due to the acquisition of Brigit and growth in the Acima segment.
• Net earnings decreased by 57.2% to $13.2 million for the three months and by 42.2% to $53.5 million for the nine months ended September 30, 2025.
• Operating profit declined by 24.7% to $52.8 million for the three months and by 21.8% to $166.1 million for the nine months ended September 30, 2025.
• Basic earnings per common share fell to $0.23 for the three months and $0.95 for the nine months ended September 30, 2025, from $0.56 and $1.69, respectively, in the prior year.
• The Acima segment's revenues grew by 12.0% to $1.88 billion and operating profit increased by 18.0% to $219.4 million for the nine months, driven by higher Gross Merchandise Volume (GMV) of $1.46 billion.
• The Rent-A-Center segment experienced a 5.6% decrease in revenues to $1.42 billion and a 16.7% decrease in operating profit to $185.8 million for the nine months, with same-store sales declining by 3.2%.
• The newly acquired Brigit segment contributed $141.4 million in revenues and $23.9 million in operating profit for the nine months ended September 30, 2025, with 1,443,832 paying users.
• Cash flow from operations increased to $264.0 million for the nine months ended September 30, 2025, from $166.7 million in the prior year.
• Total assets increased to $3.21 billion as of September 30, 2025, from $2.65 billion at December 31, 2024, largely due to the Brigit acquisition.
• The allowance for doubtful accounts significantly increased to $30.1 million at September 30, 2025, from $13.3 million at December 31, 2024, with bad debt expense rising to $55.8 million for the nine months.

Sentiment

Score: 4

Explanation: The company shows strategic growth through acquisition and strong performance in one segment, but overall profitability metrics (net earnings, operating profit, EPS) have significantly declined. Substantial legal risks and increased debt also weigh on the outlook, indicating a mixed but leaning negative sentiment.

Positives

• Acima segment revenues increased by 12.0% and operating profit by 18.0% for the nine months ended September 30, 2025, driven by higher GMV and expanded direct-to-consumer offerings.
• The Brigit acquisition introduced a new operating segment, contributing $141.4 million in revenues and $23.9 million in operating profit since January 31, 2025, and added 1,443,832 paying users.
• Cash flow from operating activities significantly increased by $97.3 million to $264.0 million for the nine months ended September 30, 2025.
• The Term Loan Facility maturity date was extended to August 19, 2032, and provided $77 million of incremental commitments, improving debt structure.
• The Mexico segment's operating profit increased by 8.1% for the nine months, and on a constant currency basis, revenues increased by $4.1 million and gross profit by $2.7 million.
• The One Big Beautiful Bill Act (OBBB) signed on July 4, 2025, is expected to have a favorable impact on cash taxes in 2025.

Negatives

• Net earnings decreased by 57.2% for the three months and 42.2% for the nine months ended September 30, 2025, compared to the prior year.
• Operating profit decreased by 24.7% for the three months and 21.8% for the nine months ended September 30, 2025.
• Basic and diluted EPS saw substantial declines for both the three and nine-month periods.
• The Rent-A-Center segment experienced a 5.6% decrease in revenues and a 16.7% decrease in operating profit for the nine months, partly due to lower corporate-owned store count and underwriting adjustments.
• Non-labor operating expenses increased by 23.5% for the three months and 12.6% for the nine months, partly due to the Brigit segment and higher lease charge-off expense in Acima.
• Other gains and charges increased significantly by $25.3 million for the three months and $82.2 million for the nine months, driven by Brigit acquisition costs, legal accruals, and asset impairments from store closures.
• The effective tax rate increased to 31.6% for the nine months ended September 30, 2025, from 24.9% in the prior year, primarily due to non-deductible expenses related to the Brigit acquisition.
• Cash used in investing activities increased substantially to $374.9 million for the nine months, primarily due to the Brigit acquisition cash consideration of $275.9 million and customer cash advance originations.

Risks

• Ongoing challenging macroeconomic conditions, including inflation, interest rates, and consumer spending/payment behaviors, may materially adversely impact financial statements.
• Integration costs, difficulties, or disruptions related to the Brigit acquisition may be greater or take longer to realize than expected, potentially hindering anticipated benefits.
• Exposure to potential operating margin degradation due to higher cost of merchandise and higher merchandise losses in the Acima segment compared to the Rent-A-Center segment.
• Risks associated with the Brigit business and its consumer products and services, including managing losses and payment defaults, regulatory, licensing, and other compliance risks, and reliance on regulated banks and third-party data providers.
• Litigation or administrative proceedings, including the Multistate Attorneys General Investigation, New York Attorney General Litigation, and FlexShopper patent infringement lawsuit, pose significant financial and operational risks.
• The inability to reach acceptable settlement terms in legal matters could result in substantial monetary payments and/or adverse changes to business practices.
• The class action settlement for $14.0 million in the McBurnie litigation is subject to court approval and may not be finalized.
• Merchandise losses in the Acima segment (LCOs) were approximately 9.7% for the three months and 9.3% for the nine months ended September 30, 2025.
• Merchandise losses in the Rent-A-Center segment (LCOs) were approximately 4.7% for both the three and nine months ended September 30, 2025.
• Net advance losses in the Brigit segment were approximately 3.3% for the three months and 2.8% for the nine months ended September 30, 2025, as a percentage of total cash advances originated.

Future Outlook

The company believes cash flow generated from operations and availability under its ABL Credit Facility will be sufficient to fund operations for the next twelve months. Macroeconomic conditions, including inflation and interest rates, continue to pose uncertainty regarding future financial performance. The company expects favorable impacts on cash taxes in 2025 from the One Big Beautiful Bill Act.

Management Comments

• Our strategy is focused on achieving our mission to elevate financial opportunity for all and growing our business through emphasis on key initiatives.
• We leverage data analytics capabilities to attract new customers, approve more customers, and mitigate risk across business segments.
• We are upgrading and integrating technology platforms for a more simplified and seamless consumer experience, third-party retailer and waterfall integration, and coworker efficiency.
• We aim to execute on market opportunities and enhance our competitive position across both traditional and virtual lease-to-own solutions, and implement complementary products and services.
• At Rent-A-Center, we are accelerating the shift to e-commerce, improving the fully integrated omni-channel customer experience, and expanding product categories to increase brand awareness and customer loyalty.
• The full extent to which our risk management strategy and macroeconomic trends may impact the Company in future periods is uncertain, and continuation of volatile trends may have a material adverse impact on our financial statements.

Industry Context

Upbound Group operates in the accessible and inclusive financial solutions sector, targeting underserved consumers. The acquisition of Brigit positions the company to expand its technology-driven financial health products, aligning with broader fintech trends. The lease-to-own market, represented by Acima and Rent-A-Center, continues to face macroeconomic headwinds and evolving consumer behaviors, including a shift towards e-commerce. The company's strategy to integrate technology and expand digital offerings reflects industry-wide efforts to enhance customer experience and operational efficiency in a competitive landscape that includes traditional and virtual lease-to-own providers, Buy-Now-Pay-Later, earned wage access, and other fintech companies.

Comparison to Industry Standards

• The Acima segment's revenue growth of 12.0% and operating profit increase of 18.0% for the nine months ended September 30, 2025, indicates strong performance in the virtual lease-to-own sector, potentially outpacing some traditional retail segments.
• The Rent-A-Center segment's 3.2% decline in same-store revenue suggests challenges in its brick-and-mortar and traditional lease-to-own model, which may be underperforming compared to more agile digital competitors or broader retail trends.
• The Brigit segment's net advance losses of 2.8% for the nine months provide an initial benchmark for its financial health products, which should be compared against industry averages for earned wage access and small-dollar loan providers to assess risk management effectiveness.
• The significant increase in the allowance for doubtful accounts and bad debt expense across the company, particularly in the Acima segment, could indicate a more aggressive lending/leasing strategy or a deterioration in customer credit quality compared to industry peers, especially in a volatile macroeconomic environment.
• The company's e-commerce revenue representing 27% of Rent-A-Center's total lease-to-own revenues for the nine months of 2025 shows progress in digital transformation, but a detailed comparison to e-commerce penetration rates of direct competitors like Aaron's or other online-focused lease-to-own providers would be needed to assess its competitive standing.

Management Changes

Corporate Governance

Legal Proceedings

• Multistate Attorneys General Investigation: An ongoing investigation into Acima's business practices by 40 state Attorneys General. An agreement in principle was reached with the District of Columbia AG in September 2025, but the company believes the Multistate's most recent monetary demands are unsupportable.
• New York Attorney General Litigation: A lawsuit filed on August 14, 2024, against Acima alleging violations of consumer financial protection laws, seeking injunctive relief and unspecified monetary relief and civil penalties. Acima's motion to dismiss is pending.
• McBurnie Litigation Pending Settlement: A certified class action against the company's former Acceptance Now business in California, alleging unreasonable processing and expedited fees. An agreement in principle to settle for a cash payment of $14.0 million was reached in July 2025 and fully reserved, subject to court approval.
• FlexShopper Litigation: A patent infringement lawsuit filed on September 30, 2024, against Upbound Group and its Acima subsidiaries, alleging infringement of five patents related to Acima's e-commerce third-party retailer lease-to-own business. Acima's motion to dismiss was denied in August 2025, and a motion to transfer venue is pending.

Stakeholder Impact

• Shareholders: Experienced a significant decline in EPS and net earnings, potentially impacting investor confidence. The quarterly dividend of $0.39 per share for Q4 2025 provides some return, but the stock repurchase program remains unused.
• Customers: The Brigit acquisition aims to provide enhanced financial health products and tools. However, increased lease charge-offs and net advance losses could indicate challenges for some customer segments.
• Employees: Management changes, including new CFO and Chief Growth Officer, signal strategic shifts. Store closures and refranchising activities may impact employee roles in the Rent-A-Center segment.
• Creditors: Debt maturity extension for the Term Loan Facility is favorable, but overall senior debt increased. Legal proceedings represent potential liabilities that could affect the company's financial health.

Next Steps

• Continue to discuss potential resolution with the Multistate Attorneys General regarding the ongoing investigation.
• Continue negotiations with the District of Columbia to finalize a settlement agreement based on agreed-in-principle terms.
• Vigorously defend against the New York Attorney General's lawsuit and await ruling on the motion to dismiss.
• Vigorously defend against the FlexShopper patent infringement lawsuit and await ruling on the motion to transfer venue.
• Monitor the court approval process for the $14.0 million class action settlement in the McBurnie litigation.
• Integrate Brigit into the assessment of internal control over financial reporting.
• Hal Khouri will join as Executive Vice President, Chief Financial Officer effective November 10, 2025.
• Rebecca Wooters will consolidate Upbound's marketing, data, analytics, customer experience, and product development teams into a single integrated group.

Key Dates

Recommendation

The company is in a transitional phase with the recent Brigit acquisition and ongoing strategic shifts in its core lease-to-own segments. While the Acima segment shows strong growth, the overall profitability has declined significantly, and the Rent-A-Center segment faces headwinds. The company is also dealing with substantial legal challenges that carry significant financial risk. The extension of debt maturity is positive, but the increased debt load and macroeconomic uncertainties warrant a cautious approach. A 'Hold' recommendation allows investors to observe how the Brigit integration progresses, how legal matters are resolved, and whether the strategic initiatives can reverse the negative profitability trends.

Keywords

Lease-to-own, Financial solutions, SEC filing, Quarterly report, Acima, Rent-A-Center, Brigit, Fintech, Consumer finance, Earnings, Revenue, Operating profit, Debt, Acquisition, Legal proceedings, Risk management, Corporate governance, E-commerce, Shareholder dividend