Upbound Group, Inc. (UPBD) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Upbound Group Q1 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over the conference to your speaker today, Brendan Metrano, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you all for joining us to discuss the company's performance for the first quarter of 2023. We issued our earnings release before the market opened today. 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 from our expectations. These factors are described in our earnings release as well as in the company's SEC filings. The 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 and a discussion of comparable year-over-year performance will generally refer to those non-GAAP results. Please refer to our first quarter 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. With that, I will turn the call over to Mitch.

Thank you, Brendan, and good morning, everyone, and thank you for joining the call today. Our first quarter was a promising start to the year with revenue of just over $1 billion, adjusted EBITDA of $112 million and adjusted EPS of $0.83. Top line trends were generally in line with our expectations. Gross margins improved due to fewer early payouts in the quarter. And coupled with lower expenses, we drove a 13% year-over-year growth in adjusted earnings per share. Considering our performance so far this year, the health of our portfolio following a year of tighter underwriting standards, and our assessment of the still uncertain external environment, we've raised our full year 2023 adjusted EPS guidance range to $2.70 to $3.20 compared to our initial guidance of $2.50 to $3. Reflecting on our performance through April and the risks and the opportunities we see for the year, we think the company is well positioned to achieve our goals. First, as discussed on previous calls, we've made substantial adjustments to our underwriting and risk management over the past year. Today, our approach is more agile, targeted and data-centric, which has enabled us to improve loss rates and yields while better managing the impact on volumes. The positive effects of these initiatives were demonstrated in the first quarter with a consolidated loss rate of 7.1%, improving 150 basis points year-over-year and 40 basis points sequentially. In our updated guidance, we've assumed the macro environment remains consistent with today's environment. If we were to worsen, that could result in some headwinds or tailwinds for us depending on factors like higher inflation, which could increase losses or trade down, which could increase volume and improve credit quality of the portfolio. Second, our lease portfolios finished the first quarter higher than expected. The Rent-A-Center portfolio was down 3.2% year-over-year, which was an improvement from a 4.7% year-over-year decline for the fourth quarter of 2022. Acima's portfolio was also above our internal forecast. The primary factor that drove higher portfolio balances was a smaller percentage of customers electing early payout options in the first quarter. Although this led to lower merchandise sales revenue, it was more than offset by better margins. With more customers staying on rent longer, even when accounting for the impact of potential future delinquencies, we think the larger portfolio balances should be a net positive, especially for Acima. Third, we are seeing some positive indications that consumers with stronger credit profiles than typical LTO customers are increasingly turning to our lease-to-own solutions. This potential trend has been developing over the past few months and has become more pronounced recently. Third-party risk scores for applicants have increased both on average and within our top-rated customer bands. Moreover, we are seeing improved aggregate risk profiles for our portfolios with a combination of tightening measures as well as improved risk scores at the top of the funnel, resulting in a mix shift towards less risky customer cohorts. Interestingly, these developments are occurring at the same time, broad consumer credit metrics are declining from the highs experienced during the stimulus era. Based on public comments from companies in the near prime and below prime market, we expect further tightening of consumer credit over the course of the year, which could result in even more customers turning to LTO solutions. Again, even though this is a possibility, we are not counting on tree down accelerating in our updated guidance. This countercyclical benefit could help stabilize or even enhance our top line trends over the course of the year, especially if the economy enters a more typical recession, and our core consumer maintains their recent performance. I think it's important to note that our core subprime consumers already experienced their own recession in 2022. simultaneously dealing with the effects of stimulus winding down in high rates of inflation. As a result, we believe many of them have already adjusted budgets to challenging economic conditions. On that note, macro uncertainty, notably inflation. That's the biggest factor that tempers our optimism for the year. Less affluent households continue to experience pressure on discretionary income with prices for essential items still high and cash balances trending lower. This pressure may partially explain the muted tax season we experienced and it could be an indication that payment behavior may weaken in the future. If inflation increases from here, that could lead to higher delinquencies and losses, reduced demand or both. Also, demand for large ticket consumer durable goods remains soft, which has affected the seamless merchant partners. It's still unclear how long the pull forward from the 2020 to 2021 stimulus will impact demand in key categories like furniture and appliances. Now with all that being said, it's important to keep in mind that our business has outperformed in previous economic downturns. So moving this to segment highlights, Rent-A-Center's demand continued to hold up relatively well with year-over-year portfolio trends improving sequentially from the fourth quarter of 2022. Although lower payoffs from a somewhat muted tax season pressured new deliveries due to fewer re-leasing opportunities. Overall, the portfolio outperformed our expectations. Growth initiatives continue to show good momentum with strong web traffic leading to high teens growth in web agreements. We've continued to improve the customer experience, which has helped us maintain conversion rates despite tighter underwriting. E-commerce accounted for approximately 25% of first quarter revenues in the Rent-A-Center segment, up from 23% in the first quarter of last year. Same-store sales were down 6.6% year-over-year in the first quarter, which improved from an 8.1% decline in the fourth quarter of last year, even with less payout revenue than last year. The team continued to execute well on in-store operations, managing product inventory, logistics and, of course, customer accounts. Underwriting has remained a key focus and continues to drive improved risk metrics with past due rates and loss rates down sequentially in the quarter. Skip/stolen loss rate improved 100 basis points from the fourth quarter of last year to 4.8%, which was -- which we believe puts us on track to reach the mid- to low 4% range by the end of the year. Now shifting to Acima, the market remains challenging with merchants in our key categories, still experiencing weak traffic and transaction volume for larger ticket durable goods, especially furniture. However, based on our analysis and talking with our key merchant partners, we believe we're at least holding share if not potentially gaining share. GMV was down 12.6% year-over-year, outperforming the mid-teens. Decline we projected on our last earnings call in February and a good sequential improvement from a 23.4% decrease in the fourth quarter of last year. The digital marketplace is contributing meaningfully to GMV, and we continue to add new merchants. Lease application volume was essentially in line with our assumptions and the upside came from better conversion rates, which we think was driven in part by our commercial initiatives to simplify the consumer and the merchant experience. Similar to Rent-A-Center, Acima also experienced a lower percentage of early payouts, which drove improved yields on the portfolio and increased gross profit margin in the quarter by 514 basis points. I'm also really pleased with the progress the enterprise sales team has made, and we're currently in discussions with several large potential retail partners. Importantly, there's been a notable increase in our pipeline over the past few quarters. As we've talked about before, large enterprise accounts have long sales cycles, but we believe we're making solid progress. Now moving to the outlook for 2023, we remain focused on driving profitable growth and controlling costs to support margins and cash flow. Additionally, we're also making progress on opportunities to offer our customer additional financial solutions. We'll have more to say on these and other strategic initiatives at our upcoming investor event on May 24 in New York City. I sure hope you'll be able to join us on the 24th. Top priorities for the year have not changed. For the Rent-A-Center business, it is to grow and retain the customer base. We'll do this by expanding access to products and brands through our extended aisle offerings and by improving customer experience and engagement along numerous fronts. We plan to continue to invest in technology to enhance the digital and omnichannel journey for customers. And on top of these priorities, reducing loss rates back towards 4%, of course, remains a key focus. Top priorities for Acima include optimizing performance with existing merchants, growing the merchant base, including small to medium-sized business and enterprise accounts continuing to optimize underwriting and continuing to enhance our technology capabilities. This includes recovery and account management improvements by leveraging the expertise and footprint of our Rent-A-Center business. We'll also continue to assess ramping up our direct-to-consumer solutions as market conditions become more supportive. We also recently published our second annual sustainability report, which highlights the solid steps we've taken in the past year and the robust plans for the coming year. So a lot going on, really pleased that we got the our second annual sustainability report out recently. And in closing -- in my closing, I just want to thank the entire team for their continued effort and dedication really was I've been impressed with the progress we made over the last year, and our opportunity going forward is tremendous. And I just see more great things coming. So with that, I'll turn the call over to Fahmi.

Thank you, Mitch, and good morning, everyone. I'll start today with a review of the first quarter results and then discuss our fiscal year 2023 guidance, after which we will take questions. Beginning on Page 6 of the presentation. As Mitch noted, we are off to a good start relative to our initial outlook for the year. The first quarter results were highlighted by continued improvement in loss rates expansion of our margins at Acima and strong overall execution despite a challenging macro backdrop. Consolidated revenue for the first quarter was down 12.4% year-over-year. Driven by a 19.3% decrease for Acima and a 6.5% decrease for the Rent-A-Center business. Looking at revenue categories, the dollar value decrease was almost evenly split between rentals and fees revenue and merchandise sales revenue. Rentals and fee revenues were down 8.6%, reflecting lower portfolio values for both businesses during the first quarter of this year. Merchandise sales revenues decreased 30% due to fewer customers electing early purchase options and a smaller Acima portfolio that resulted from a 23% year-over-year decline in GMV for the second half of 2022. Consolidated gross margin was 49.8% and increased 298 basis points year-over-year. The margin expansion was driven by a few factors, including a higher mix of Rent-A-Center segment revenue, a higher mix of rental and fee revenue in the current year period for both businesses and a higher portfolio yield for the Acima business in the current year. We continue to manage costs well in the first quarter with consolidated operating expenses, excluding skip/stolen losses down 6.1% year-over-year. On a 6.1% decrease in labor costs, 15.4% decrease in general and administrative costs and other operating costs down low single digits. Our disciplined approach to underwriting is working. As a consolidated skip/stolen loss rate decreased year-over-year, led by a 370 basis point improvement for Acima. Loss rates also improved 40 basis points sequentially and led by a 100 basis point improvement for the Rent-A-Center business. First quarter consolidated adjusted EBITDA of $111.5 million increased 12.1% year-over-year with 136% growth for Acima and 16% lower corporate costs, partially offset by a 31% decline for Rent-A-Center. Adjusted EBITDA margin of 11% was up approximately 240 basis points compared to the prior year period with approximately 930 basis points of margin expansion for Acima partially offset by approximately 550 basis points of contraction for the Rent-A-Center. I will provide more detail on the segment results on the next few slides. Looking below the line, first quarter net interest expense was $27.7 million compared to $18.9 million in the prior year due to an approximately 400 basis point year-over-year increase in variable benchmark rates that affected our variable rate debt, which was approximately $900 million at quarter end. The effective tax rate on a non-GAAP basis was 27.4% compared to 25.2% in the prior year. The non-GAAP diluted average share count was 56.4 million in the quarter compared to 60.1 million in the prior year period. GAAP earnings per share was $0.84 in the first quarter compared to an $0.08 loss 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 $0.83 in the first quarter of 2023 compared to $0.74 in the prior year period. During the first quarter, we generated $95.9 million of free cash flow compared to $188.9 million in the prior year period. We distributed a quarterly dividend of $0.34 per share. Additionally, we paid down $42.6 million of our term loan and finished with a net leverage ratio of 2.6x, down from 2.8x at the end of the fourth quarter. Drilling down to segment results starting on Page 7. The Rent-A-Center business lease portfolio was down 3.2% year-over-year, which drove a 3.8% decrease in the first quarter, rental and fees revenue and contributed to a 26.6% decrease in merchandise sales revenue. Merchandise sales were also impacted by fewer customers electing early payout options compared to the prior year. Total segment revenues decreased 6.5% year-over-year with same-store sales down 6.6%. Skip/stolen losses increased 90 basis points year-over-year to 4.8% but decreased 100 basis points on a sequential basis consistent with our forecast assumptions. Past due rates continued to move lower in the first quarter, validating the underwriting changes initiated over the past few quarters and supporting our outlook for additional loss rate improvement over the course of the year. Adjusted EBITDA margin for the first quarter decreased 550 basis points year-over-year to 15.2%, primarily due to the deleveraging effect of lower revenues on fixed costs. As well as higher loss rates compared to the prior year period. This was reflected by a 280 basis point year-over-year increase in the ratio of operating expenses, excluding losses as a percent of revenue despite the expense dollars remaining flat. Moving on to Acima. Active merchant count was up modestly year-over-year for the first quarter and average ticket size was up low single digits. Open lease count was down low teens year-over-year as a result of a mid- to high-teens decrease in cumulative GMV for the trailing 3 quarters. This drove a 19.3% year-over-year decrease in revenues with rentals and fee revenue down 14.4% and merchandise sales revenue down 31.3%. As Mitch noted earlier, there was a meaningful shift away from customers using early buyout option in the first quarter this year, which drove 514 basis points of gross margin expansion for Acima compared to the prior year period. As a reminder, the yield on early buyout transactions is relatively modest due to higher cost of goods in the Acima segment. Consequently, this does not require a large change in customer behavior to impact profitability. Importantly to note, it is too early to note this shift is temporary or sustainable or how this translates into future performance in this environment. Considering the proximity of the tax season and the fact that tax refunds were reported to be down by an average of approximately 10% this year, some customers may have lacked the funds to exercise early options this tax season which kept our portfolio values above our expectations. If this trend continues, the consumers remain on rent longer, then this could support continued upside to our margins. However, if this trend is either temporary or a sign of future higher charge-offs that could put pressure on margins and losses and lead to further underwriting actions. Skip/stolen losses decreased 370 basis points year-over-year to 8.9%. Underwriting changes made in the first half of last year and our continuous monitoring of higher risk segments has continued to benefit losses since the highs seen earlier in 2022. Looking at just the virtual channel, which is the majority of the Acima segment, loss rates were 7.7% and within the 6% to 8% range that we had originally expected for the business. Adjusted EBITDA of $68.6 million was up 136% year-over-year. With lower losses, higher portfolio yield and lower operating costs more than offsetting lower revenue. Adjusted EBITDA margin of 14.2% increased 932 basis points year-over-year. The results of our franchise segment were relatively unchanged compared to the prior year, and our Mexico segment adjusted EBITDA was down approximately $1 million due to higher loss rates. Corporate costs were 16% lower compared to the prior year, reflecting lower general and administrative costs. Shifting to the 2023 financial outlook. Note that references to growth or decreases generally refer to year-over-year changes unless otherwise stated. Most of my commentary will be focused on non-GAAP results. Our revised forecast incorporates the strong start to the year and our cautious approach in this uncertain environment. For the full year, we expect to generate revenue of $3.8 billion to $4 billion, unchanged from our previous guidance. Adjusted EBITDA is now expected to be $395 million to $435 million, excluding stock-based compensation of approximately $23 million. We are projecting similar to slightly lower margins compared to the prior year and to the first quarter as we expect gross margins to compress from high seen this quarter. We are increasing our target range for fully diluted adjusted earnings per share to $2.70 to $3.20, which assumes a fully diluted average share count of 56.7 million with no share repurchases built into the forecast throughout the year. For the year, we expect $200 million to $235 million of free cash flow, net interest expense of $105 million to $110 million and an effective tax rate of approximately 26.5%. Our forecast assumes a macroeconomic backdrop consistent with existing conditions, continued discipline and targeted underwriting, persistent inflation and a slight increase in unemployment. Our outlook does not assume that the shift away from early purchase options that we experienced in the first quarter will continue throughout the rest of the year. We are also not including a meaningful shift or increase in applicants from trade down. For Acima, no change to our full year 2023 GMV expectations of down mid-single digits year-over-year. We expect merchant partner volumes will remain under pressure from the prevailing macroeconomic conditions and the continued impact of the significant demand pull forward. We expect GMV to be down mid- to high single digits in the second quarter. For the second half of the year, we expect GMV will be flat to up low single digits. Although we are not changing our GMV outlook, as we've previously commented, application volumes are down across our retail partners, especially in furniture, which is our biggest segment. Despite this headwind, we have demonstrated our ability to shift our mix to other product categories and believe we will be able to substantially offset the softening in furniture demand with merchant growth, digital volume and other sales initiatives. Similar to GMV, we are not changing our Acima revenue outlook for the year and continue to expect revenues will be down low double digits to low teens. Based on the first quarter gross margin expansion, we are increasing our full year Acima adjusted EBITDA margin to be in the low double digits to low teens range and be towards the bottom end of the range in the second half of the year. We expect loss rates for the full year in the 8.5% to 9.5% range. The biggest variable we see is whether the shift from early payoffs was a onetime event related to lower tax refunds or a sustainable change in consumer behavior and whether this dynamic in the first quarter will have an impact on delinquencies and losses going forward. Based on the unit economics of a lease transaction, this shift has a disproportionate impact on margin and profits. For the Rent-A-Center segment, no major changes to our outlook, except we do expect slightly better losses, especially in the second quarter as our underwriting changes continue to work through the portfolio. We now expect losses to be in the 4.5% area for the full year versus ending the year at 4.5%. To reiterate our previous guidance, we expect 2023 revenues and same-store sales to be down in the low to mid-single-digit range and adjusted EBITDA margin to be in the mid-teens throughout the year. We expect the Mexico and franchising businesses will generate similar results to 2022. Corporate costs are still expected to increase mid-single digits. For the second quarter, we expect some of the momentum from the first quarter to carry over and for the total consolidated revenue to be down in the high single to low double digits year-over-year with adjusted EBITDA margin in the 10% to 11% range. Interest expense and share count should be similar to the first quarter of 2023, and the tax rate should be approximately 26%. Regarding capital allocation, the top priorities continue to be reinvestment in the business dividend payments and debt reduction. We are committed to paying down debt as demonstrated in the first quarter as we reduced gross debt by over $40 million and reduced leverage to 2.6x. Over the long term, we continue to target a 1.5x debt-to-EBITDA ratio, but we will also appropriately weigh near-term opportunities to allocate capital that generate favorable risk-adjusted returns and create shareholder value especially if consumer payment behavior remains strong, benefiting our margins and increasing our free cash flow. In summary, we are encouraged by the progress the company has made over the past year successfully executing a range of initiatives that have contributed to a solid start. There are several tailwinds that position us to continue to outperform our initial outlook, including disciplined underwriting standards based on our data analytics and a resilient portfolio, at the same time, we understand that there is still a high level of external uncertainties today and demand may continue to be under pressure for durable goods. So as we look out over the rest of the year, we are cautiously optimistic, which is why we raised our full year 2023 adjusted EBITDA and adjusted EPS guidance. Longer term, we believe we have a compelling opportunity to create value for shareholders. With a resilient cash flow generating business that also has significant opportunities for long-term growth. Thank you for your time this morning. We will now turn the call over for your questions.

[Operator Instructions] Our first question comes from the line of Bobby Griffin from Raymond James.

Congrats on delivering some upside this quarter. I guess first, and it's more of a high-level question. I was just curious, what does the guidance assume the change in tax refund means? Because on one side, you have people on lease longer, so the portfolio can be larger and that could generate better earnings. But on the other side, this can mean that these consumers now are facing more additional hard shift because they didn't get the same level of refunds they typically depend on. So just curious kind of how you guys are backing that and what you assumed that means within the guidance.

Bobby, thanks for the question. So I think you nailed it as far as kind of the balance that we try to between kind of the uncertainty that we're seeing from this tax season. So as far as our guidance and the outlook, what we're assuming is that our payment behavior from our consumers kind of reverts back. We don't expect this type of performance or behavior from an early payout standpoint to continue. So we're assuming that our gross margins compress from the first quarter throughout the remainder of the year. We did note that the second quarter, we'll have some of this momentum carry into it. We've seen that in April so far. But throughout the rest of the year, the gross margin should come back down to we initially thought coming into the year. As far as losses go we mentioned, we reiterated 8.5% to 9.5%. So we did lower it a little bit from our initial guidance, but we kept the top end of the range, just given that level of uncertainty. And for Rent-A-Center, we mentioned that we've seen a continued benefit from both delinquencies and losses. And so we continue to expect that to play itself through the portfolio and really perform well for the rest of the year and why we lowered the loss forecast to 4.5% for the full year. So the guidance really is around things kind of normalizing and not continuing the way we saw in the first quarter.

Yes, I think I'd add to that, Bobby -- sorry, Bobby, this is Mitch. I just was going to add to that. Certainly, when Fahmi was talking about normalizing from a payout standpoint, certainly, if they stay lower, that's upside. When it comes to payments, we certainly are forecasting everyone being able to pay us perfectly, even though they weren't able to pay out. Obviously, muted tax season is going to put some pressure on payments going forward. So we tried to walk that line in our guidance with a lot of uncertainty, whereas if you assumed everybody was just going to pay us fine now that they didn't pay out, especially on the Acima side, you'd be quite a bit higher than what we guided to. But you can't assume that. I think it'd be wrong to assume that. Some are going to default on us in -- it doesn't mean we'll necessarily lose money. People -- the margins are so low on the payouts and somebody gets a couple of months further into it and then defaults we probably still made more than if they would have -- if they did the 90-day payout, especially on the Acima side, where you don't get that difference between wholesale and retail. So it's a fine line, it's certainly going to -- it's going to put some pressure on payments going forward, and we factored that in. And with all the uncertainty, we think we factored it in appropriately.

Okay. I appreciate that. That's helpful. And then I guess secondly for me, just on the GMV upside, I guess, versus our original expectations here in Acima. I was curious on that, what do you think is driving that? Is that the potential trade down that you're starting to see? Because I think for most of our checks, you'd say retail likely weakened during the quarter. And it looks like your GMV based on when we talked last, actually got a little bit better as we move through 1Q. So just curious on what you think drove kind of that directional change versus the corresponding just retail trends that we saw from a top line standpoint?

Yes. Good question. I think it was primarily in conversion rate because the retail traffic wasn't great to your point. So a lot of it was conversion rate. There's probably some trade down and there we're certainly seeing trade down. And as we mentioned in the prepared comments and that even more so more recently than if you go back to the beginning of the first quarter, there wasn't a whole lot you could see. But certainly, as the quarter went on and you get into April, you see it more pronounced like I said, as we mentioned, but conversion rate was higher. I think we've done a good job on the flow and getting -- making the flow better from a technology standpoint, from a conversion rate standpoint. I think we got some help from the -- we did have merchant growth in our -- in the Acima segment. So we put on more, we're still adding merchants. We haven't signed any real big ones yet, but we're still adding merchants, hundreds of merchants in the first quarter. I think it was around 400 merchants added in the first quarter net add in the first quarter. So we're adding merchants. Certainly, the conversion rate as we continue to improve the technology in the marketplace. Our online marketplace had good growth in it. So I think when you put all that together, the merchant productivity was higher with the conversion rate. We added merchants in the marketplace and we were, yes, 2%, 3% better than we thought we'd be from a GMV standpoint, and quite an improvement from last quarter when we were down 23% to be down just 12%, which we're not happy to being down 12%, don't get me wrong. And then we think we can get back to flat by the third quarter and fourth quarter flat to slightly positive. Second quarter will be better than the first quarter. So it's trending in a real positive direction. And again, our online direct-to-consumer marketplace as a part of that as well.

I appreciate the detail, best luck here in the second quarter.

Our next question comes from the line of Jason Haas from Bank of America.

So maybe to start, I was looking at the chart that showed the past due rates in the slide deck. And it looks like the Rent-A-Center past periods have come down nicely over the past few months, whereas like Acima has been flat or even slightly up. Is there anything to read from those trends? I know it's just a few months here, but I'm curious if there's anything to note between those 2 businesses.

No, I think -- I would say, Jason, that Acima started tightening sooner than Rent-a-Center last year. And when you look at those past due rates or especially the losses, the past due rates compared to last year in the first quarter are quite a bit lower, even though they're pretty flat recently. But the losses you look on that same chart right above it, the 8.9% losses for the combined, the virtual and the acceptance now business, 8.9% combined, and that compares to 8.6% in the first quarter of 2021, which had to be about as low as you can get the first quarter of 2021 when you're talking about a stimulus standpoint. So we're pretty happy with where it is. We're also balancing it with GMV. We can always tighten more if we need to. And certainly, we'd look for areas where there's potential to drive more GMV. So I think the difference -- so the short answer to your question is the Acima tightened sooner and brought their delinquency down sooner than Rent-A-Center. And Rent-A-Center when they popped up, if you look at their chart when they popped up in the summer, and we started tightening pretty hard. You're really seeing the impact here in the first quarter. So I think it's really just a matter of timing of when one came down a lot versus the other one more level.

Got it. That's helpful. I know you've mentioned in the prepared remarks that you're starting to see the benefit of credit tightening and trade down, which is great because I know you've been looking for that for some time. Are you seeing more of the benefit in the Acima segment or in the Rent-A-Center segment?

I think probably slightly more in the Acima segment, but it's in both. It's certainly in both when we look at our third-party scores. It's a little more, I'd say, even quite analyzed exactly like that but Fahmi. I think it's a little more in Acima, but it's really in both.

It's on both sides. And then when you look at the Rent-A-Center business and you break it down between in-store and on the web, you see a really big difference in our third-party credit scores on the web, which could be a sign of trade down because new customers may not want to come into the store, we'd rather kind of test it out online. And so definitely signs over the last 2 or 3 months and into April, really on both sides of the business.

Yes, it's a good point on the web. We're really happy with that. The e-com business continuing to grow on the rentacenter.com site.

Great. That's helpful. And if I could squeeze 1 more in. I was curious you talked about an expectation for acceleration in GMV through the year to get to, I think you said flat or slightly positive. Can you just talk about what the drivers are there? Is that largely a function of you'll be lapping the credit tightening that took place last year. Is there anything else that gives you confidence that you should see an acceleration through the year on GMV?

Yes. I think that -- to your point, that's the biggest reason is that we comped the tightening because it wasn't like we only take once last year, and it was one and done, February 1 or something like that or when Aaron Allred, came back and in grab a hold of the underwriting in early March or something. It wasn't like a one and done. So yes, I think later in the year, we're fully capping it. We've got merchant growth, we continue to expect merchant growth over the course of the year that -- but again, the fully capping, the tightening is the biggest reason. But when you think about merchant growth a little better conversion rate based on some of the enhancements we've made to our technological flows and then the marketplace growing. I'll add to it -- to the #1 point that you made. Jason, maybe I'll add to that a little bit. Just going back to what Mitch mentioned earlier around our conversion rates and things like that. I really look at it also as part of us optimizing our underwriting we've been now tightening for almost a year or a little over a year and we continue to find ways to further penetrate our existing merchant network with just better underwriting and trying to find those pockets where we think we can potentially expand and in pockets where we find some higher risk and we need to contract. So it's also just us optimizing our underwriting practices inside of our existing merchant base as well. And then also the mix, the mix of products and our ability to shift if furniture is having a rough couple of quarters, you shift into auto, you shipped jewelry, and we've demonstrated our ability to do that. And so those things, coupled with the comps gives us confidence that by the end of the year, we should start seeing some better year-over-year gains.