Upbound Group, Inc. (NASDAQ:UPBD) Q1 2024 Earnings Call Transcript

Upbound Group, Inc. (NASDAQ:UPBD) Q1 2024 Earnings Call Transcript May 2, 2024

Upbound Group, Inc. misses on earnings expectations. Reported EPS is $0.496 EPS, expectations were $0.77. UPBD isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the Upbound Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [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.

Jeff Chesnut: Good morning, and thank you all for joining us to discuss the company’s performance for the first quarter of 2024. 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 Mitch Fadel, our CEO; and Fahmi Karam, our CFO. 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 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 webcasts. With that, I will turn the call over to Mitch.

Mitch Fadel: Thank you Jeff, and good morning to everyone on the call today. I’ll begin with a review of the key highlights from the first quarter then I’ll hand it off to Fahmi for a more detailed review of our financial results and our financial outlook. After that, we’ll take some questions. We are very pleased with the start to the year, which included revenues of nearly $1.1 billion, adjusted EBITDA of $109 million and non-GAAP earnings per share of $0.79. The trajectory of our business, which started accelerating last year continued through the first quarter and into April as both segments grew the top line versus last year. Similar to the fourth quarter, these results were driven by strong execution across our strategic operating initiatives namely growth in this theme of merchant count and performance of existing merchants combined with disciplined underwriting decisions, diligent expense management efforts and our emerging direct-to-consumer e-commerce channels.

And before we dive into our route our segment results, let’s discuss some of the enterprise-wide themes we’ve seen since the start of the year. First I’d like to start with what we are seeing in the external environment with our consumers. Broadly speaking, the macroeconomic conditions across the quarter were stable with continued strength in employment metrics, but also with persistent inflation trends that continue to impact our customers’ discretionary spending and have altered the market’s expectations on the timing and size of potential rate cuts in 2024. This quarter was also affected by tax season, which typically has a positive impact on merchandise sales. And while the external conditions this quarter were characterized with puts and takes, our consumers our accustomed to navigating uncertainty and have remained resilient through a variety of changes in the macro landscape over the past several years.

That resiliency and our focus on execution help deliver profitable top line growth at least charge-off rates that were in line with our plans for the quarter. And looking ahead we’ve discussed our durable business model can succeed in a variety of macroeconomic environments when metrics like employment and overall consumer spending are stronger, we expect consumer confidence to drive GMV growth and to support portfolio growth and positive payment behaviors. Conversely, more difficult conditions introduce new consumers to our space through trade down, when traditional lending solutions tightened availability of credit. While we continue to assume stable conditions across the year with elevated inflation persisting, we believe we are well positioned to adjust our business to the external environment and continue to grow.

Second, we’re continuing to enhance our underwriting capabilities with new tools and datasets. From Rent-A-Center, we’re now leveraging a seamless more advanced proprietary fraud detection algorithm to better to drive better outcomes on our e-commerce channel which continues to grow as a portion of the segment’s total revenue, representing over 26% of the segment’s revenue for the quarter. As that channel grows, Rent-A-Center will be better positioned to underwrite profitable outcomes and deliver higher customer service levels. At Acima, we continue to integrate our Acceptance Now merchants into the CMS decision engine, and we expect to approve more cohort to have stronger performing leases thereby increasing GMV and improving losses at the same time.

Overall, the integration of A Now into Acima is nearing completion and should results in improvements in a seamless lease charge-off rate across the balance of the year as the prior higher loss in our originated portfolio winds down. Importantly, this unlocks new growth opportunity for Acima, because we can accelerate our efforts in our differentiated staff model with a more robust decisioning platform and can introduce full online checkout capabilities of some of our larger retailers something the Acceptance Now platform could not do before the transition. And third, I’d like to reinforce our relentless focus on customer centricity, which for us means to stakeholders, the consumer and the retailer. For consumers, it’s building relationships that start wherever we meet them, whether in one of our 2,400 Rent-A-Center stores, our more than 600 staff to Acima locations, the 35,000 virtual doors at Acima merchant partner locations or even our variety of fully virtual channels in both segments.

Once their relationship is established, our goals to strengthen the connection over time and expand how we serve that customer while lowering our cost of service through our ongoing digital investments. As their needs change, we can serve those needs through the channels, I just mentioned, but also directly through our direct to consumer efforts such as Acima marketplace and through our credit card partnership for consumers graduating to traditional credit. For our retail partners is building relationships and customizing our process to meet their needs and ultimately drive more sales, whether in-store virtually, in-store staff through their website or pure e-com retailers, our goals to support our partners to drive incremental revenue while expanding access for underserved customers.

So as we work to grow our share of market, with new retailer additions and our share of mind with existing merchants, with more leases per location. We also equally focused on increasing and new customers by offering more solutions that meet our customers’ needs and increasing customer lifetime value. Let’s review the details behind our segment financial results on slide 4. Starting with Acima, we achieved a strong double-digit increase in GMV for the second consecutive quarter with an improvement of nearly 20% year-over-year. Excluding the stimulus period of 2021, we achieved the single largest first quarter GMV that Acima has ever recorded. This was powered by a number of factors. Our business development and sales team delivered all-time highs for active merchant locations and helped drive more productivity per existing location that led to significant increases year-over-year in both applications and funded leases for Acima business.

On top of those efforts, we realized a full quarter of elevated activity from two our enterprise partners, namely, Wayfair and actually dotcom channel after the realignment last year of their LTO partner relationships. As a result, we continue to find success in the furniture vertical for Acima despite the broader challenges in that category from the pandemic related pull-forward. Finally, our direct-to-consumer offerings continue to expand with applications on the Acima marketplace growing 68% year-over-year in the first quarter and GMV growing 51% albeit working from a relatively small base as we further develop the channel. Collectively, these efforts resulted in Q1 revenues up 16% year-over-year. Average ticket size was down slightly in the quarter.

So the top line lift was driven by expanded penetration as we continue to add merchants and grow our staffed and e-commerce businesses. We also have a robust pipeline of integrations planned for the remainder of the year, which we believe will be a tailwind for growth in 2024 and beyond. We are pleased to recently announce another exclusive relationship with a top 50 furniture retailer in the quarter which came online in late April. Overall, Acima exited the first quarter with an open lease count that was more than 24% higher versus last year as well as sequentially higher than our seasonally high fourth quarter. From an underwriting standpoint, we continue to take an active and vigilant approach to risk management. Our Acima segment loss rate was 9.6%, up 70 basis points from the year ago period but down 30 basis points sequentially, despite the volume of applications increasing 32% year-over-year.

And all the strong growth numbers I’ve just been discussing, seem accomplished all of that with an approval rate of 130 basis points below last year. Extra delinquencies that seamless rate in the first quarter was down 80 basis points from a year ago and flat sequentially to the fourth quarter of last year. These results were all in line with our expectations for the first quarter and with the Acceptance Now integration into a seamless decision engine. We remain confident in our risk management outlook for the year. Rent-A-Center finished the first quarter with a same-store leased portfolio value that was slightly positive year over year, we were particularly pleased to see positive same-store sales growth of 80 basis points for Rent-A-Center, which represented the first increase in same-store sales in eight quarters going back to the stimulus period to 2021.

In addition, we saw slight year-over-year increases in our customer count in our open lease count is our ongoing omnichannel marketing efforts in digital investments drove higher consumer engagement outcomes. As I mentioned earlier, Rent-A-Center’s web channel volume continues to grow and represented more than 26% of revenue in the first quarter, which was an increase from both the year-ago and sequential periods. These elements help deliver revenue growth of 20 basis points, which represent the highest segment revenues since mid 2022 for Rent-A-Center. And while Rent-A-Center top line was up slightly we realized a nearly 9% lift in segment adjusted EBITDA due to strength on the gross profit line. This also helped us expand our adjusted EBITDA margins by 140 basis points.

Our continued emphasis on underwriting and account management at Rent-A-Center resulted in a lease charge-off rate of 4.7% for the quarter, down 10 basis points from the first quarter of last year. Our past due rate, which is an early indicator of potential future lease charge-offs was 3.1%, which was up 10 basis points from a year ago period but flat sequentially. As the tax season runs off, we expect our improvement in the second quarter similar to trends in 2023, consistent with our guide last quarter. As Rent-A-Center core consumer continues to deal with higher inflation and pressure on payment behavior, our account management efforts will be an increasingly important element of customer connectivity in the near to medium-term to help us maintain our delinquency and charge-off rates in our target ranges.

Overall, we’re very pleased with our operating and financial results in the first quarter. Both segments successfully anticipated and met our customers and merchants expectations enabling us to achieve that 20% GMV growth at Acima along with positive same-store sales growth at Rent-A-Center. These results along with the momentum, we’ve already seen in the early April results, give us confidence that we’re tracking well towards achieving our full year targets. On Slide 5, let’s discuss the progress we’ve made on strategic priorities we outlined when we last spoke at Acima. We’re committed to strong top line growth through our business development efforts with small or medium-sized businesses. Our enterprise sales initiative for super-regional national accounts and our direct to consumer channel.

While our enterprise client team continues to build presence and relationships with the largest retailers, our SMB team continues their local and regional merchants as partners on our virtual leasing platform. This quarter we realized a 9% lift in active locations year-over-year, while adding merchants and capabilities to our online direct-to-consumer marketplace as well. We’re also refining and enhancing the ways in which we work with our existing merchants and consumers with the goal of driving customer retention in more active leases per merchant location per month. This will be driven by a combination of our service first mindset as well as our investments in the digital tools to help us outperform expectations. And by way of an example, we replaced an LTO competitor and added a large regional furniture retailer last year that was realizing around $100,000 in lease activity per month, with stronger collaboration and leveraging our integration tools, e-commerce capabilities and best practices, we drove a meaningful difference to their sales.

In fact, in the first quarter we’ve partnered with them to achieve a significant increase to nearly $1 million of lease activity per month, showcasing that we can elevate results and exceed expectations for our partners and our customers. At Rent-A-Center, we continue to invest in our online e-com experience both web and mobile to help meet our customers when and where they want to interact with us. We also executed a variety of marketing campaigns and promotions across the quarter to engage our customers and boost our value proposition, which helped deliver the top line and same-store sales growth that we booked this quarter relative to the year-ago period. Additionally, we continue to rollout our new Rent-A-Center point of sale system known internally as RAC PAD, which will enhance the productivity of our store base coworkers and provide more centralized visibility and reporting for our regional and district leaders.

It has been architected for flexibility and additional scalability enabling it to accommodate the evolving needs of our shore-based footprint. Our outbound team is committed to creating a shared services environment unifies and amplifies our capabilities across the organization things like underwriting information, technology, collections and operations. To that end this quarter rolled out an additional network of collection points for Acima merchandise that leverages Rent-A-Center locations for returns and customer service. We believe this will drive improvements in a seamless lease charge operate and make it easier for customers to interact with us while simultaneously providing select Rent-A-Center locations with additional merchandise to offer for rent.

Additionally, we continue to build out our partnership with Concora as we explore the non-prime consumer credit adjacency to our current LTL space. We’re now beginning the ramp-up phase for the Acima private label credit card which can be used at any Acima a partner location. And Acima general-purpose credit card which can be used anywhere MasterCard is accepted. As we expressed previously, we believe we can leverage our substantial in-house knowledge of non-prime consumers, extensive customer base and our brand awareness offer white label credit products that can help our customers build their credit history or shopping for the products and services they need for themselves and their families. Over time we believe the non-prime consumer credit adjacency will represent an important and growing contributor to our bottom line.

Finally, I’d like to share my perspective on our capital allocation philosophy. After investing in the business will support our dividend first with a focus on deleveraging after that as we work to reduce our leverage ratio to less than two turns. Our share repurchase strategy will be a tertiary goal one that’s opportunistic rather than programmatic. So before I hand it off to Fahmi, I’d like to acknowledge the collective work of our whole team because they’re the reason we’re able to deliver these strong results and their commitment and passion has helped deliver these terrific results in a terrific start to the year. And with that I’ll turn it over to Fahmi.

Fahmi Karam: Thank you, Mitch and good morning, everyone. I’ll start today with a review of the first quarter results and then discuss our outlook for the rest of the year, after which we will take questions. Beginning on page 6 of the presentation. Consolidated revenue for the first quarter was up 7.9% year-over-year with Acima up 16% and Rent-A-Center up 20 basis points. Rentals and fees revenue were up 8.2%. Merchandise sales revenues increased 10.3% reflecting higher GMV at Acima and a larger portfolio at Rent-A-Center coming into the year. Consolidated gross margin was 48.3% and decreased 150 basis points year-over-year with the 190 basis point decrease in the Acima segment partially offset by 110 basis point increase in the Rent-A-Center segment.

Consolidated non-GAAP operating expenses excluding lease charge-offs and depreciation and amortization were up mid single-digits led by mid-teens increase in general and administrative costs, which was a result of corporate investments in technology and people, in addition to an increase in non-labor operating expenses led by investments to support Acima application growth. The consolidated lease charge-off rate was 7.4% a 30 basis point increase from the prior year period and in line with our expectations. On a sequential basis, the consolidated lease charge-off rate decreased 10 basis points due to a 30 basis point sequential improvement at Acima. Putting the pieces together, consolidated adjusted EBITDA of $109.1 million decreased 2.2% year-over-year as higher Rent-A-Center segment EBITDA was offset by lower Acima segment EBITDA and higher corporate costs.

Adjusted EBITDA margin of 10% was down approximately 100 basis points compared to the prior year period with approximately 140 basis points of expansion for Rent-A-Center offset by approximately 260 basis points of margin contraction for a Acima and a 20 basis point increase in corporate costs as a percentage of revenue. I will provide more detail on segment results in a moment. Looking below the line, first quarter net interest expense was approximately $29 million compared to $28 million in the prior year due to approximately 80 basis points of year-over-year increase in variable benchmark rates that affected our variable rate debt, which is approximately $862 million at quarter end. The effective tax rate on a non-GAAP basis was 26% compared to 27.4% for the prior year period.

The diluted average share count was 55.8 million shares in the quarter. GAAP earnings per share was $0.50 in the first quarter compared to earnings per share of $0.84 in the prior year period after adjusting for special items that we believe do not reflect the underlying performance of our business, non-GAAP diluted EPS was $0.79 in the first quarter of 2024 compared to $0.83 in the prior year period. During the first quarter, we generated $33.6 million of free cash flow, which decreased from $95.9 million in the prior year period, primarily due to a CMO GMV growth. We distributed a quarterly dividend of $0.37 per share an increase from $0.34 per share in the prior year. We finished the first quarter with a net leverage ratio of approximately 2.7 times unchanged from the fourth quarter.

Drilling down to the segment results starting on page seven. For Acima, double digit year over year GMV growth continued in the first quarter. After returning to growth with a 19% year-over-year increase in the fourth quarter of 2023, GMV increased nearly 20% year over year in the first quarter of 2024. GMV growth was above our expectations and was driven by year-over-year growth in key underlying drivers with active merchant locations up over 9% year over year, more productivity per merchant and a full quarter of the enterprise e-com partners Mitch mentioned earlier which resulted in overall applications increasing over 30%. Those tailwinds were partially offset by lower approval rates across all major categories. As we remain disciplined in our underwriting approach as inflation continues to impact our core consumer base.

The asset value of inventory under lease was up mid teens year over year. Revenue increased 16% year over year, including a 16.3% year-over-year increase in rental and fees revenue and a 15.2% increase in merchandise sales revenue due to a larger beginning portfolio in 2024 compared to last year. These charge offs for the Acima segment were 9.6%, 70 basis points higher year over year and 30 basis points lower sequentially. The year-over-year increase in Acima lease charge offs was slightly better than our expectation as the A Now leases originated on the legacy decision engine will now begin to wind down. The conversion will strengthen our underwriting capabilities and should reduce lease charge-off rates at least cohorts from the legacy system wind down throughout the year.

Operating costs excluding lease charge offs were up approximately $7 million in the first quarter, which was flat as a percentage of revenue. Adjusted EBITDA of 64.9 million was down 5.4% year over year, primarily due to a 19.3% increase in cost of goods sold. That was partially offset by a 16% increase in revenue. Adjusted EBITDA margin of 11.6% decreased approximately 260 basis points year over year, while gross margins contracted approximately 190 basis points. The decrease in margins were due to a few factors, including a growing portfolio where revenue lags higher incentive, labor and underwriting costs, an increase in merchandise sales in the quarter from a dollar perspective due to a larger portfolio entering tax season than last year and the performance of the legacy A Now portfolio, all of which is in line with our expectations.

For the Rent-A-Center segment, at quarter end, the same-store lease portfolio value was slightly up year over year, while same-store sales increased 80 basis points year over year, improving from a 1.6% decrease in the fourth quarter of 2023. Total segment revenues returned to growth in the first quarter, increasing 20 basis points year over year, improving from a 1.7% decrease in the fourth quarter. The increase in revenues was driven by an 80 basis point increase in rental and fees revenue. First quarter merchandise sales revenue decreased 3.6%, due primarily to fewer customers electing early purchase options compared to the prior year period and represented an improvement of 12.2% decline in the fourth quarter. Fleet charge-offs improved year over year, driven by ongoing underwriting and account management efforts decreasing 10 basis points to 4.7%.

30 days past due rates averaged 3.1% for the first quarter, up 10 basis points from the prior year period and flat sequentially. Adjusted EBITDA margin for the first quarter increased 140 basis points year over year 16.6%, primarily due to higher gross margins. In addition to a 10 basis point year-over-year decrease in the ratio of non-GAAP operating expenses, excluding lease charge offs as a percent of revenue. Adjusted EBITDA margin increased 210 basis points from the fourth quarter, reflecting the effect of higher revenues on less variable costs. For the Mexico segment, adjusted EBITDA was higher year-over-year and the franchise segment’s adjusted EBITDA was lower due to timing of operating expenses compared to last year. Non-GAAP corporate expenses were approximately 12% higher compared to the prior year, primarily due to additional investments in technology and people.

Shifting to the financial outlook, considering the trajectory of our business and the latest projections for the macroeconomic environment, we believe that we are well-positioned to achieve the targets we shared for 2024 in our previous earnings call. As a reminder, the forecast assumes a stable macro environment with durable goods demand remaining under pressure, continued disciplined underwriting and no additional material benefit from trade down. With that backdrop, we’d like to share a bit more of on a quarterly cadence of our performance. Note that references to growth or decreases in generally refer to year-over-year changes unless otherwise stated. At Acima, we expect to see a similar increase in GMV in the second quarter continuing the trend we have experienced the last two quarters, including a strong April.

For the year, we are updating GMV guidance from mid to high single digits to double digit growth. Rent-A-Center’s portfolio should be up slightly in the second quarter from the first quarter based on what we saw in April from a consumer demand perspective. For both Acima and Rent-A-Center, we expect the second quarter revenue to fall the same sequential pattern as in 2023 with a slight step back in line with typical seasonal patterns coming off tax season and lower merchandise sales. We expect losses to remain within our previous guidance commentary with Rent-A-Center improving in the second quarter from the first quarter and to be in the 4.5% range for the year, flat to last year. Acima losses are expected to improve in the second half of the year as a legacy A Now portfolio winds down to finish the year also relatively flat to 2023.

In terms of adjusted EBITDA margins for the second quarter, the Rent-A-Center and corporate segments should track the first quarter with Acima realizing an improvement driven by a pickup at the gross margin line coming off tax season. We are assuming a fully diluted average share count of 55.9 million shares for the quarter with no share repurchases assumed in our guidance. Interest expense and our tax rate are expected to be similar to the first quarter, resulting in a non-GAAP EPS range for the second quarter of $0.95 to $1.5. Although part of the GMV growth is most likely benefiting from some of the trade down, we are not including any material benefit in our forecast. So we continue to monitor the consumer credit profiles we receive via retailer waterfalls.

Additionally the CFPB recently enacted new rules reducing credit card late fees, which are currently facing legal challenges from industry participants seeking an injunction. We are waiting to see what impact if any the rule changes may ultimately have on credit card approval rates and approval amounts, which could drive trade down to the LTO industry. In terms of capital allocation, I will reiterate Mitch’s earlier comments, we have a proven business model that generates strong operating cash flows over time and an experienced management team to allocate those cash flows in support of our strategic priorities. Our first priority continues to be supporting innovative ideas that will improve our customer interactions and merchant outcomes. Concurrently we will focus on enhancing shareholder value by maintaining our commitment to our dividend program and being opportunistic regarding share repurchases.

Based on the strength of our year-end results and our outlook for 2024, we raised our dividend in the fourth quarter by $0.03 per quarter and we distributed our first dividend at the increased rate in the first quarter. We expect the balance of our free cash flow this year will go towards deleveraging as we progress towards a net leverage ratio of under two times and our long-term target of 1.5 times. We ended the first quarter at 2.7 times, which included $19 million of debt paydown in the quarter and an increase in working capital needs to support GMV growth. The strength of our balance sheet gives us confidence in our ability to execute against multiple priorities. As of quarter end, we carried over $0.5 billion of available liquidity, which positions us well for both defensive and offensive posture depending on future macroeconomic circumstances.

Looking ahead, we’ll monitor market conditions for opportunities to optimize our debt capital stack to best support our growing business. Finally on slide 11, the first quarter was a promising start to the year for the Company. Our team’s focus on execution and expense management as well as our strategic investments in key growth drivers, resulted in operational and financial performance that was at the high end of our expectations. Our first quarter results and our strong competitive position give us confidence that we have the tools and team in place to continue producing strong risk-adjusted returns at each of our business segments. Going forward, we will continue to execute against our day-to-day priorities to serve our customers and boost our retail partners’ businesses, while pushing forward with the innovations that help us achieve our long-term growth plans.

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

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Q&A Session

Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Bobby Griffin at Raymond James.

Bobby Griffins: Good morning everybody. Thanks for taking my questions and congrats on a good quarter.

Mitch Fadel: Thanks, Bobby. Good morning.

Bobby Griffins: Good morning. Yeah. I guess the first thing I want to talk about it seemed a little bit more of a high-level question. The GMV pickup there has been very impressive and seems like it’s balanced between new merchants as well as some organic growth and understand there’s a timing lag between the revenue in some of the cost. But can you talk about what the what you see kind of now that you’ve got a good handle on that business as the incremental flow through there and I’m kind of just really talking in context of EBITDA was slightly down despite all the growth. And there’s that timing factor, but what should the flow-through be over a more consistent period of time think about on an annual basis or something like that?

Fahmi Karam: Good morning, Bobby. Thanks for the question. Yeah. As we commented on the prepared remarks, we expected the first quarter this year to have a pretty tough comp from both a margin standpoint — gross profit margin standpoint as well as an EBITDA margin standpoint. So the results for Acima are very much in line with our expectations. And as you know, the revenue does lag the GMV probably by a couple of months maybe even a full quarter. But looking out for the full year, we still expect the margins to pick back up in the second quarter seasonally and then and where we’ve targeted the margins to be for the Acima’s segment in the low-teends to mid-teens range. So we haven’t changed our guidance there at all for the Acima’s segment.

So we expect the flow through to be very similar to what we saw in 2023, just with higher revenues coming off the two quarters in a row of 20 for — almost 20% growth from a GMV standpoint. So very consistent with what we saw in 2023 and very consistent with the guide that we had coming into the year.

Mitch Fadel: Yeah. And I’d add to that and add to that Bobby that that not only does the revenue lag a little bit. But so too I mean some of the expenses are upfront. When you think about all that growth and underwriting expenses and you pay — you pay some rebates on that and the growth, depending on the retail partner and things like that and those are all — those are all paid on the GMV, that instantly underwriting on and what was it 30,000 more applications or something like that. So with all that growth you get not only is revenue lag a little bit but the expenses are upfront. But yeah, as the year goes on the EBITDA margins coming up and of course the tax season of how it affects the first quarter. When you think year-over-year there was a little more — there was a little more margin deterioration based on the from tax season than the first early payouts on the same as cash or — the cash option stuff but at Acima similar — we’re similar to pre-pandemic levels, but it was higher than last year, the impact of that.

So those are all the factors that are going into that.

Bobby Griffins: Yeah. And I guess secondly permitting and this is more industry type question and maybe it’s across both businesses. But you know we haven’t it doesn’t seem like people are that the industry wants to call it a lot of trade down yet. Its incremental signs of it, I think. It is getting referenced, and I don’t know the exact wording everybody’s using. But so with your GMB growth, is it all just market share shifts going on then between all the players then since we’re not really seeing a major impact of trade down, where we’d actually, if that does materialize, you could see even further upside? I’m just trying to unpack kind of the organic growth here because it does seem notable without any major trade down or significant trade down.

Mitch Fadel: Yeah, I think that’s a good point. I think — trade down is a hard thing to quantify and put your finger on. That’s why nobody wants to talk about how much is trade down. But I agree with the point I think you’re making. There’s got to be some trade down in there, right? Now, how material it is the question. You get different answers from different people. But, certainly half of our GMB growth when you have 9% merchant growth is coming from there. We’re certainly taking share in the market. But there is trade down in there. I think — I can’t tell you how much of it is trade down, but there’s certainly some. If you listen to lenders above us in the stack, you hear them talking about tightening. So there’s certainly trade down in there.

And quite honestly, I think there’s more to come later in the year. It’s not in our forecast, but I think there’s going to be more to come. Obviously, the credit card fee issue could cause even more tightening above us and so forth. So I think there’s some in there, and I think there’s more to come.

Bobby Griffin: Thank you. Mitch, that answered my follow-up as well, so I appreciate it. I’ll jump back in the queue. Best of luck going forward.

Mitch Fadel: Thanks, Bobby.

Operator: Thank you. One moment for our next question. Our next question comes from Brad Thomas at Key.

Brad Thomas: Hi, thank you. Good morning, Mitch and Fahmi. Wanted to follow up first on ASEMA and ask a little bit about, what has been working for you in terms of these wins? Can you share a little bit more about the dynamics behind perhaps where your approval rates may be different, any sort of kickbacks to retailers that you’re using. What is it that you think has changed here that’s helping to drive all this success right now?

Mitch Fadel: Yeah, I think that’s a good question. I think there’s quite a few things. Our sales team is hitting on all cylinders, even without any, the biggest name brands coming in from a national account standpoint. Regional account wins. The SMB account wins. The sales team is doing a great job, both in the field and our inside sales teams and so forth. Our direct-to-consumer team, the people that do the programming for that are doing a great job adding merchants to that and always looking at different friction points on any kind of marketplace. You’re always looking at that. We obviously do have some nice national accounts that we’ve got 100% of national accounts now, like Ashley Corporate and Wayfair last year did a repositioning of LTO providers and so forth, and companies like Rooms to Go and Bob’s Discount Furniture.