10-Q: Upbound Group Reports Q2 Profit Decline Amid Brigit Acquisition Costs and Rising Legal Accruals

Upbound Group's second quarter results show a significant drop in net earnings and operating profit, primarily driven by increased legal accruals and acquisition-related expenses from the Brigit integration, despite strong revenue growth.

Summary

• Total revenues increased by $161.4 million, or 7.4%, to $2,333.9 million for the six months ended June 30, 2025, compared to $2,172.5 million in the prior year period.
• Net earnings decreased by $21.3 million, or 34.7%, to $40.3 million for the six months ended June 30, 2025, down from $61.6 million in the same period last year.
• Operating profit declined by $29.1 million, or 20.4%, to $113.3 million for the six months ended June 30, 2025, compared to $142.4 million in the prior year.
• The Brigit segment, acquired on January 31, 2025, contributed $83.8 million in revenues and $19.3 million in operating profit for the six months ended June 30, 2025.
• Acima segment revenues increased by $142.1 million, or 12.8%, to $1,256.3 million, with operating profit up 27.7% to $155.7 million, driven by higher Gross Merchandise Volume (GMV) of $976.2 million, a 12.5% increase.
• Rent-A-Center segment revenues decreased by $60.8 million, or 6.0%, to $956.1 million, with same-store sales down 3.0% and operating profit declining 13.5% to $129.4 million.
• Legal accruals increased significantly to $52.4 million at June 30, 2025, from $20.7 million at December 31, 2024, with $41.7 million recorded in the six months ended June 30, 2025.
• Cash provided by operating activities increased by $85.1 million to $145.6 million for the six months ended June 30, 2025.
• Total indebtedness stood at $1.6 billion as of June 30, 2025, with $106.8 million in cash and cash equivalents.
• A quarterly cash dividend of $0.39 per share was approved for the second quarter of 2025, paid on July 8, 2025.

Sentiment

Score: 4

Explanation: The significant decline in profitability (net earnings, operating profit, EPS) despite revenue growth, driven by substantial legal accruals and acquisition-related expenses, indicates a challenging financial period. While the Acima segment shows strength, the Rent-A-Center segment's decline and ongoing legal uncertainties weigh heavily on the overall sentiment.

Positives

• Total revenues increased by 7.4% for the six months ended June 30, 2025, driven by the Brigit acquisition and strong performance in the Acima segment.
• Acima segment revenues grew by 12.8% and operating profit increased by 27.7%, with Gross Merchandise Volume (GMV) up 12.5%, indicating strong underlying business performance.
• Acima's Lease Charge-Offs (LCOs) as a percentage of revenues improved to 9.1% for the six months ended June 30, 2025, from 9.6% in the prior year, suggesting better risk management.
• Operating labor expenses decreased by 5.1% for the six months ended June 30, 2025, reflecting efficiency gains.
• Net cash provided by operating activities significantly increased by $85.1 million to $145.6 million for the six months ended June 30, 2025.
• The company maintained its quarterly cash dividend at $0.39 per share.
• An agreement in principle was reached to settle the McBurnie class action litigation for $14.0 million, which was substantially reserved for, reducing a significant legal overhang.

Negatives

• Net earnings decreased by 34.7% and operating profit decreased by 20.4% for the six months ended June 30, 2025, primarily due to increased legal accruals and acquisition-related expenses.
• Other gains and charges increased by $57.1 million, or 110.3%, largely due to a $42.5 million increase in legal matters and $33.0 million related to the Brigit acquisition.
• General and administrative expenses increased by 17.0%, partly due to higher allowance for doubtful accounts related to franchising trade receivables and the Brigit segment.
• Rent-A-Center segment revenues declined by 6.0% and operating profit decreased by 13.5%, with same-store sales down 3.0%.
• Rent-A-Center's Lease Charge-Offs (LCOs) as a percentage of revenues worsened to 4.7% for the six months ended June 30, 2025, from 4.5% in the prior year.
• Total liabilities increased significantly to $2,409.9 million at June 30, 2025, from $2,020.7 million at December 31, 2024, primarily due to increased senior debt for the Brigit acquisition.
• Allowance for doubtful accounts increased to $29.6 million at June 30, 2025, from $13.3 million at December 31, 2024.

Risks

• Costs, difficulties, or disruptions related to the integration of Brigit operations may be greater than expected.
• Anticipated benefits from the Brigit acquisition may not be fully realized or may take longer to realize than expected.
• Ability to effectively adjust to changes in the composition of offerings and product mix, and successfully introduce new products or services on a timely and cost-effective basis.
• Changes in future cash requirements due to unanticipated increases in capital expenditures, working capital needs, or liabilities from the Brigit acquisition.
• Ability to retain key employees of Brigit.
• Impact of ongoing challenging macroeconomic conditions, including continued or renewed inflation, central bank monetary policy, and a possible recession or slowdown in economic growth.
• Factors affecting the disposable income and credit availability for target consumers.
• Changes in capital market conditions, interest rates, and funding sources.
• Difficulties in managing the financial and operational performance of multiple business segments.
• Risks associated with pricing, value proposition, and other changes to consumer offerings and strategies.
• Failure to effectively manage operating labor and non-labor operating expenses, including merchandise losses.
• Disruptions caused by the operation of information management systems or systems of host retailers/third parties.
• Risks related to the virtual lease-to-own business, including technology implementation.
• Exposure to potential operating margin degradation due to higher cost of merchandise and higher merchandise losses in the Acima segment.
• Additional risks with the Brigit business, including managing losses and payment defaults, regulatory, licensing, and other compliance risks, and reliance on regulated banks and third-party data/technology providers.
• Litigation or administrative proceedings, including the multi-state attorneys general investigation, New York Attorney General litigation, and FlexShopper patent infringement lawsuit.
• Compliance with applicable statutes and regulations, and impacts from enforcement of existing laws or enactment of new laws, especially those seeking to re-characterize lease-to-own transactions as credit sales.
• Ability to protect proprietary intellectual property and defend against infringement allegations.
• Ability to protect the integrity and security of customer, employee, supplier, and host retailer information from cybersecurity attacks.
• Impairment of goodwill or other intangible assets.
• Disruptions in the supply chain or distribution network.
• Rapid inflation or deflation in product prices.
• Allegations of product safety and quality control issues.
• Ability to retain revenue from customer accounts merged due to store consolidations.
• Ability to generate sufficient cash flow to continue paying dividends.
• Increased competition from traditional, virtual lease-to-own, online retailers, Buy-Now-Pay-Later, earned wage access, and other fintech companies.
• Ability to identify and successfully market products and services to targeted customer segments and accurately estimate total addressable market.
• Consumer preferences and perceptions of brands.
• Ability to effectively provide additional products and services beyond current offerings.
• Ongoing changes in tariff policies.
• Adverse changes in economic conditions of served industries, countries, or markets.
• Information technology and data security costs.
• Changes in estimates relating to self-insurance liabilities and income tax reserves.
• Fluctuations in foreign currency exchange rates.

Future Outlook

The company is currently evaluating the effects of the One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, which reinstates 100% bonus depreciation and immediate expensing of domestic R&D, with no impact reflected in the financial statements as of June 30, 2025. The full extent to which macroeconomic trends may impact the business in future periods is uncertain. The company expects to continue discussions regarding potential resolution of the multi-state attorneys general investigation and the District of Columbia matter, but cannot provide assurance on settlement terms or outcomes. The agreement in principle for the McBurnie class action settlement is subject to negotiation of a definitive agreement and court approval.

Management Comments

• Our strategy is focused on achieving our mission to elevate financial opportunity for all and growing our business through emphasis on leveraging data analytics, upgrading and integrating technology platforms, executing on market opportunities, developing centers of excellence, growing penetration with current Acima third-party retailers, and accelerating the shift to e-commerce at Rent-A-Center.
• We may in the future take advantage of joint venture, partnership, or merger and acquisition opportunities that advance our key initiatives and elevate the financial mobility of underserved consumers.
• We are currently evaluating the effects OBBB will have on our financial statements.
• We believe cash flow generated from operations and availability under our ABL Credit Facility will be sufficient to fund our operations during the next twelve months.
• We disagree with the allegations in the McBurnie case and did not admit to any violations of law or any wrongdoing, but agreed in principle to settle to avoid additional expense, risk, and distractions associated with further protracted litigation.

Industry Context

Upbound Group operates in the lease-to-own and financial health technology sectors, serving underserved consumers. The acquisition of Brigit signifies a strategic expansion into broader fintech solutions like earned wage access and credit building, aligning with a trend of traditional financial service providers diversifying into digital-first offerings. The company acknowledges ongoing challenging macroeconomic conditions, including inflation and rising interest rates, which directly impact consumer spending and payment behaviors, a common challenge across consumer-facing industries. The decline in the Rent-A-Center segment's same-store sales suggests a shift in consumer preference towards virtual or online channels, where Acima is performing strongly, or increased competition from Buy-Now-Pay-Later (BNPL) and other fintech alternatives.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Multi-State Attorneys General Investigation: Acima is under investigation by a coalition of 40 state Attorneys General and the District of Columbia regarding business practices related to lease-to-own transactions. Settlement discussions are ongoing, but the company finds current monetary demands unsupportable, with potential for litigation if no agreement is reached.
• New York Attorney General Litigation: A lawsuit was filed against Acima on August 14, 2024, alleging violations of consumer financial protection laws and seeking injunctive relief, unspecified monetary relief, and civil penalties. Acima has filed a motion to dismiss and intends to vigorously defend itself.
• McBurnie Litigation: A certified class action against the company's former Acceptance Now business in California, alleging unreasonable processing and expedited fees. The parties reached an agreement in principle to settle the case for a cash payment of $14.0 million, which was substantially reserved as of June 30, 2025. The settlement is subject to definitive agreement and court approval.
• FlexShopper Litigation: A patent infringement lawsuit filed on September 30, 2024, against Upbound Group and Acima entities, alleging infringement of five patents related to Acima's e-commerce third-party retailer lease-to-own business. The lawsuit seeks damages and an injunction. Acima has filed motions to dismiss and transfer venue and intends to vigorously defend the lawsuit.
• Unclaimed Property Audits: The company is subject to routine unclaimed property audits by states, which review unclaimed wages, vendor payments, and customer refunds. Failure to comply can result in assessments including interest and penalties.

Stakeholder Impact

• Shareholders: Impacted by the significant decline in net earnings and EPS, increased debt, and ongoing legal uncertainties, which could affect share price. However, the maintained dividend and strategic acquisition of Brigit could be seen as long-term growth drivers.
• Customers: Benefit from expanded financial solutions through the Brigit acquisition, offering tools for financial health, earned wage access, and credit building. Acima's growth also provides more lease-to-own options. However, macroeconomic conditions may affect their ability to pay.
• Employees: Brigit acquisition involves retention of key employees and stock-based compensation. Store consolidations in Rent-A-Center may impact some employees.
• Creditors: Affected by the increased senior debt and ABL Credit Facility borrowings, though the company states it believes cash flow and facility availability are sufficient for the next 12 months. Debt refinancing efforts aim to optimize terms.

Next Steps

• Continue to evaluate the effects of the One Big Beautiful Bill Act (OBBB) on financial statements.
• Continue discussions regarding potential resolution of the multi-state attorneys general investigation and the District of Columbia matter.
• Negotiate and execute a definitive settlement agreement for the McBurnie class action, subject to District Court approval.
• Vigorously defend against the New York Attorney General lawsuit and FlexShopper patent infringement lawsuit.
• Continue integrating Brigit into the assessment of internal control over financial reporting.
• Monitor macroeconomic trends and their impact on business.

Key Dates

Recommendation

The company's strategic acquisition of Brigit has boosted top-line revenue, but this has come at a significant cost, leading to a substantial decline in operating profit and net earnings for the six months ended June 30, 2025. Increased legal accruals related to ongoing multi-state and New York Attorney General investigations, alongside acquisition-related expenses, have weighed heavily on profitability. While the Acima segment continues to show strong growth and improved lease charge-offs, the Rent-A-Center segment is experiencing revenue and operating profit declines. The settlement in principle of the McBurnie litigation is a positive, but other significant legal challenges remain unresolved, creating considerable uncertainty. The increased debt load from the acquisition also warrants caution. Investors should observe how the Brigit integration progresses and how the remaining legal proceedings are resolved before considering a more aggressive stance.

Keywords

Lease-to-own, Fintech, Financial health, Acquisition, Brigit, Acima, Rent-A-Center, SEC filing, Quarterly report, Earnings, Revenue, Profit, Debt, Legal proceedings, Consumer finance, Risk management, E-commerce, Cash flow, Dividend