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

Good day, and thank you for standing by. Welcome to the Upbound update conference call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the call over to Steven Kos with Upbound Investor Relations. Please go ahead.

Hello, everyone, and thank you for joining us to discuss Upbound's agreement to acquire Brigit. With me today are Mitch Fadel, Upbound's Chief Executive Officer; and Fahmi Karam, Chief Financial Officer. We issued a press release and presentation that outlines the proposed transaction. All related materials, including a link to this webcast, are available at our website at investor.upbound.com. 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 release announcing this transaction 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 the announcement release, which can be found on our website, for a description of the non-GAAP financial measures. Finally, Upbound Group is not responsible for and does not edit or guarantee the accuracy of our teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcast. Now I'll turn the call over to Mitch to kick things off. Mitch?

Thank you, Steven, and hello, everyone. We're really excited to talk to you today about Upbound's pending acquisition of Brigit. I'll start with some opening remarks, give an overview of Brigit, discuss the strategic rationale for the deal, and then Fahmi will talk about the financial metrics of the transaction and our approach to capital allocation. And then I'll come back and make some final comments, and we'll open it up to questions. So let me start on Slide 3 of our presentation, where Upbound has agreed to acquire Brigit, a leading financial health technology company, for up to $460 million, of which $325 million is payable at closing. In addition to an expected contribution between $70 million to $80 million of annual adjusted EBITDA in 2026, this transaction creates a sophisticated data and technology-driven fintech ecosystem that we believe is ideally suited to support consumers underserved by the traditional financial system. When we talk about an ecosystem, we envision the combined platform reaching customers in a lot of different ways, serving a variety of their needs and really just meeting them wherever they are in their financial journey. We're combining 2 mission-driven companies that are building innovative solutions for a sizable, important and overlooked segment of the population. And this like-mindedness is really a driving force of the deal. Now we expect this transaction to accelerate the expansion of our tech-centered platform with new products and services. Not only will we be adding what Brigit offers today, but with their tech and the talent they have, combined with ours, we can create more innovative products and services in the future. This transaction is building off the foundation we've been creating and kicks off a very exciting chapter for us. We've identified many ways to enhance the experience of both Upbound and Brigit customers and to strengthen our relationships with them with more timely personalized and targeted cross-selling opportunities. We have a deep understanding of our customers, their needs and their behavior, and we'll make sure they experience the best of what Upbound and Brigit can do individually and together. So moving to Slide 4. Before we dive into the details of the transaction, I'd like to take a minute and touch on how we got here as a company. And most of you know, our business started over 50 years ago as a pioneer in the rent-to-own industry, with brick-and-mortar stores as our foundation. And this business has remained strong over the years -- for many years, thanks to our deep knowledge of the consumer, our ability to embrace innovation and our strong commitment to our mission. Then in 2021, we nearly doubled the size of our business with the acquisition of Acima, which firmly established us as a leader in the virtual lease-to-own market. This created a differentiated omnichannel lease-to-own platform with virtual lease-to-own capabilities, 35,000 merchant locations and national e-commerce partners. With Acima, we're providing customers technology-driven experiences across digital and store channels where they prefer to shop. Then in 2023, we adopted our Upbound enterprise brand, which encapsulates our status as a growing platform of financial solutions and technologies, with the flexibility, the resources and the capabilities to innovate with new products and services for our customers. And that leads us to today as we take another exciting step by announcing our agreement to acquire Brigit, which will further expand our offerings, add critical technology to our stack and we believe will help drive sustainable long-term shareholder value. So let's go to Slide 5, and I'll give you an overview of Brigit's business. Brigit was founded in 2017 and launched nationally in 2019, with the goal of helping everyone build a brighter financial future. Again, the shared purpose and target customer base are an important factor in our acquisition. The key driver of Brigit's success and what attracted us is the talented team, the very talented team and the technology it developed to empower individuals and promote better financial outcomes through its proprietary AI and machine learning-powered cash flow risk management and recommendation engine. In fact, since inception, Brigit estimates that it has saved its users approximately $1 billion collectively by helping them avoid overdraft fees that are so common among our customers. The result of this is more money in the bank for these customers and better financial health, and that's just one wonderful example of Brigit's mission in action and a really impressive achievement. Customers love the Brigit app and overall experience. The company has been repeatedly awarded for building a powerful service with an intuitive interface that makes financial health accessible instead of intimidating. The app has been ranked as one of the most downloaded financial health apps. The company was listed on Forbes Fintech 50, and Brigit was included in a list of Apple's must-have apps. And its users say, it increases their confidence in themselves, in their finances and their ability to manage those finances. Pretty impressive stuff. So when you move into Slide 6, with Brigit's cutting-edge technology, including that AI underwriting engine as being a critical driver of its success. Brigit's data insights underpin a bundle of financial wellness products and services offered through multiple subscription tiers. Within that bundle, there are 2 core products. First is Brigit's direct-to-consumer Instant Cash advance product, an area of personal finance called earned wage access or acronym EWA. And these EWA products, including Instant Cash, help people access pay they've already earned rather than waiting for the end of their typical pace cycle. EWA products are becoming an increasingly helpful option for Americans who face liquidity challenge, including the 62% of Americans who live paycheck to paycheck. And these folks, these Americans are paying billions of dollars in overdraft fees each year for access to liquidity. Unlike many other players in the space, which charge fees for each transaction, Brigit generates approximately 80% of its revenue from its subscription model. Brigit customers can proactively leverage the Instant Cash product when they need liquidity or a personalized notification sent suggesting a cash advance to avoid those overdraft fees. In addition, customers can utilize an opt-in feature in which Brigit, using its AI model, predicts when customers need cash based on a variety of factors and prefunds their account to avoid those overdraft fees. Pretty clever stuff. Brigit's platform also includes a credit builder product. The second core product is a credit builder product, which helps its subscribers build their credit history over time by making small, manageable payments to promote and increase their savings. So they build their credit by increasing their savings. And we evaluated several credit building platforms, and we felt Brigit's model was extremely consumer-friendly with no extra fees beyond the subscription fee or any interest, and it encourages customers to save. So they've got 2 subscription levels: Plus, which is $8.99 per month and includes Instant Cash, identity protection, credit reports and smart alerts as well as budgeting and financial literacy tools. The Premium subscription, which is $14.99 a month, includes everything in the Plus plan and includes credit building and free express delivery of that Instant Cash. The subscription offerings also include a free tier, with personalized alerts and recommendations in addition to budgeting tools and financial literacy content. The app can track subscriber cash flows over time, including regular spending and income, identifying seasonal trends in each, comparing 1 month to the next or anticipating bills or subscription fees. The app then uses all the data to deliver AI-informed personalized and timely recommendations. In addition to these existing products, we also see Brigit's is accelerating our ability to add more value-added products in the future, and we will be able to do it faster in the future, serving our target customers even better. So let's move to Slide 7, where we'll get into the numbers. Brigit currently serves nearly 2 million monthly active customers. This is an increase of 320% since January 2021 and includes over 1 million active paying subscribers and almost 1 million free subscribers. Their customers are highly engaged, with paid users logging in 6 times per month on average, and the percentage of the monthly actives who use the app daily is approximately 25%, which is extremely impressive and puts them in the top 90% of consumer platforms in finance and other sectors based on a recent independent research report. Nearly 40% of the new subscribers stay on past 1 year, which is estimated to be approximately 3x better than the average monthly subscription app. And 94% of users reported that Brigit help them achieve their financial goals. As far as its financial performance, Brigit is profitable, and we currently expect them to generate revenues of $215 million to $230 million in 2025 and $350 million to $400 million in 2026. Right now, 80% of that revenue is subscription-based and, therefore, recurring and more predictable. Lastly, the strong unit economics drive competitive customer acquisition costs that have improved over time as the company has scaled, growing its customer base and effectively increased its targeted marketing efforts, and we expect those customer acquisition costs to come down even further when Brigit is part of Upbound. Behind this very impressive company is an equally impressive pair of founders and a tremendously talented team throughout the organization. Co-Founders Zuben Mathews and Hamel Kothari have deep backgrounds in fintech, banking and technology. They're strong leaders and strategic thinkers with proven track records of building businesses through creative and quality execution. And importantly, they do their homework. Through experience and research, they know their target customer and macroeconomic dynamics that impact customers' lives extremely well. And their vision and their tactics are truly informed by data. It's been a pleasure to get to know them, and we're really excited about their whole team. It's a top-notch team. The folks at Brigit bring critical experience from tech, from banking, fintech, personal finance, consumer services, management, consulting and other relevant disciplines. And like I said, we're very excited to join forces with this team with the Brigit team and really looking forward to working together. So let's move to the next slide, Slide 9, strategic rationale. As you know, Upbound has spent years building a platform of technology solution for customers underserved by traditional financial institutions. We've begun our journey to implement AI and other cutting technology into the way we do business and to benefit customers. And this acquisition of Brigit is a logical next step down this path, and it's a very important step as we look to grow and diversify our revenue streams. I want to walk through 5 key themes that make up the strategic rationale for adding Brigit to Upbound. First, Upbound and Brigit have similar missions and target customers. Both are seeking to increase access and enhance financial wellness for underserved and lower-income customers. Second, adding capabilities and offerings will broaden our relevance to an expanding addressable market. Third, this accelerates our strategy to expand Upbound's offerings of innovative and flexible financial solutions. Together with Brigit, we believe we are well positioned to create an industry-leading platform dedicated to the financially underserved consumer to meet them wherever and whenever they need assistance. Fourth, we plan to leverage Brigit's proprietary data and sophisticated tech stack to enhance our existing flexible leasing solutions via Acima and Rent-A-Center. And lastly, the acquisition further positions Upbound as a growth technology-driven company with the addition of a significant fintech talent, a strengthened R&D capability to accelerate innovation and new product development outside of our normal -- our core business of durable goods. Now going to a little more detail in each one of these, starting on Slide 10. I started this presentation by saying that we're combining 2 mission-driven companies building innovative solutions for consumers who are underserved by the traditional financial system. 75% of Brigit's users earn $75,000 or less in annual income, with $50,000 in annual income being the average. Over 70% of Brigit's customers are estimated to have a FICO score under 600, and the company has a strong presence with millennials and Gen X. And as you all know, that's a very similar profile to the customers we serve at Upbound. These consumers have little access to liquidity or opportunities to build credit or savings. So at Upbound, our mission is elevating financial opportunity for all, and we take that purpose very seriously, as you know, and we embraced the responsibility that comes with it, and we feel very fortunate to have found this talented group of people at Brigit who share that purpose. In fact, they think of their mission as helping everyday Americans build a brighter financial future. Talk about alignment with our mission. We certainly come at this shared purpose from different angles. While Brigit unlocks sources of funds to improve financial health, cash, credit building, savings, Upbound empowers customers through transactions to access critical durable goods that improve their lives without any long-term obligation. Together, we believe we can combine these 2 paths of the financial journey and serve these customers in a more seamless way and really increase customer lifetime value. By connecting these 2 under 1 roof, we'll accelerate our missions and the reach of our impact. And the next slide goes into more detail about how we plan to deepen these customer relationships by expanding our offerings. We believe that Brigit's tech DNA will enable revenue synergies and innovation across new categories over time and expose the combined company to new markets beyond durable goods. One of the best ways we will expand this reach is by capitalizing on the cross-selling opportunities I mentioned earlier. With Brigit as our newest tech-enabled hub, we can offer Upbound products to Brigit customers and offer Brigit products to Upbound customers. One of the things that really amazed us as we looked at this deal is that even though there's so much overlap in the type of customer we and Brigit are aiming to serve, there's very little overlap in our actual customer bases. In fact, we estimate that there is only 10% overlap between the 2. So that means that approximately 90% of Upbound customers, Rent-A-Center and Acima, are not using Brigit, and 90% of Brigit customers are not engaging with any of our Upbound brands. And yet we know that a person that fits the profile of a typical Upbound customer also largely fits the profile of an average Brigit customer. So we believe this provides our combined company with just some tremendous growth opportunities to educate customers on our respective solutions to meet their needs. You'll see here on this slide a few of the many data points we've seen that show how critical our suite of offerings are and will continue to be as we integrate these 2 companies and combine our products and services. As I mentioned earlier, almost 2/3 of Americans live paycheck to paycheck, making liquidity solutions such as cash advance absolutely necessary. 63% of gig workers, an expanding segment of the workforce, as you know, say that cash flow is one of their top concerns, and nearly 40% of Americans do not have $400 to cover an emergency, and 180 million Americans struggle and are financially vulnerable. We are expanding our offerings to a significant number of Americans who increasingly value the products and services that Upbound and Brigit each provide now as well as the additional offerings we'll develop together. On the next slide, I'll discuss our opportunity to better engage with these customers. Adding Brigit's products and technology is expected to make a smarter financial services ecosystem to support a broader range of underserved consumers. A more comprehensive offering with a wider variety of touch points and solutions will provide consumers greater economic access in the path towards financial flexibility, deepening our engagement with each customer. We anticipate that Acima and Rent-A-Center will benefit from reverse synergies, including enhanced consumer insights, new cash flow underwriting capabilities and improved account management, which will create a foundation for additional sustained growth. Brigit's data analytics capabilities will provide a more holistic view of our customers as a group and individually, which would allow us to make their experience even more personalized, helpful, more relevant, and they are expected to drive engagement and yield stronger conversion rates. So our ability to make targeted and personalized real-time preapprovals or highlight promotions at our merchant partners with smart alerts could be a game changer for the way we interact with our customers. Integrating our proven and dedicated technology talent with their team and sharing each other's best practices will help us build an R&D innovation hub to continue evolving our platform and serving our customers in new and better ways for years to come. And all of this adds up to a leading financial solutions platform to better serve a wider range of needs for our target customers. So moving to Slide 13 and getting more specific on the benefit of Brigit's technology and use of data. We've identified some powerful ways that Brigit's impressive cash flow underwriting platform will benefit Acima and Rent-A-Center in the near future. We can apply this technology directly to our existing brands to improve risk management and fraud prevention, which we believe will allow us to approve more customers, mitigate net losses and enhance account management. Brigit's proprietary engine will supplement our current processes because they're built in a different way. They do not rely on credit bureau data. Brigit is a bank-agnostic system and utilizes real-time, holistic and verified financial transaction data, and the data set is built by analyzing billions of individual cash flow data points and has shown improvement in its predictive power as the company has grown over the past several years. So that's why it'd be supplemental to our current underwriting. And we believe Brigit's cash flow underwriting is more inclusive than traditional credit scores and traditional underwriting and results in more approvals and lower dollar loss rates, especially when you can combine it with our existing model. So we see tremendous value for Upbound and our existing customers and retailers in plugging Brigit's technology in the operations of our current brands in addition to all of the benefits of cross-selling opportunities, which also helps reduce customer acquisition costs going forward. And what we'll talk about on Slide 14 is this transaction is all about growth, increased scale and diversification and providing financial solutions to consumers. I've talked a lot about the growth in our offerings and how we engage with customers. But we also see an opportunity to evolve our financial performance and how we create value for shareholders. You can see from the stats at the bottom of the slide that Brigit is a high-growth business, with a vast majority of its revenue coming from recurring subscriptions. Adding a growth-oriented tech-enabled company to Upbound is expected to allow us to accelerate our growth and plant Upbound more firmly into the financial and operational profile of a growth-minded company. Accordingly, we expect the transaction to be accretive to adjusted EBITDA by approximately $25 million to $30 million in 2025 and approximately $70 million to $80 million in 2026. Importantly, we expect that within 4 years from now, approximately 2/3 of the company's revenue and adjusted EBITDA will be generated by virtual or digital platforms. Our traditional rent-to-own business, Rent-A-Center, will still be a priority and is a critical complement to the Brigit offerings, and we anticipate it will make up about 1/3 of our revenue and adjusted EBITDA. So we see this as a significant step towards continuing to drive value for shareholders. So speaking of value and some financial stuff, let me turn it over to Fahmi, and he'll review the next couple of slides.

Thanks, Mitch. I'll walk through the financial details of the transaction. Upbound is acquiring Brigit for up to $460 million, comprised of $325 million payable at closing, 75% cash and 25% Upbound shares; $75 million in cash deferred over 2 years; and a potential earnout of up to $60 million in cash based on the achievement of certain financial performance metrics for the Brigit business in 2026. We intentionally built a consideration structure that has multiple components. Incorporating payment in Upbound shares, deferred consideration in the earnout, which is tied to performance, aligns the interest of Brigit's leadership with Upbound shareholders, incentivizes sustainable long-term growth and preserves financial flexibility. Upbound will fund the transaction through a combination of cash on hand, borrowing capacity from our $550 million revolving credit facility and issuance of new Upbound common shares to Brigit's shareholders. Following the transaction, Upbound expects net leverage ratio of approximately 3x and will target leverage of approximately 2x over the long term. Brigit Co-Founders, Zuben Mathews and Hamel Kothari, will continue to lead the Brigit team as a business segment of Upbound. Brigit will continue to operate under its existing branding and will retain its headquarters in New York City, which is expected to serve as one of Upbound innovation hubs. The Brigit brand is strong, as evidenced by all the impressive customer engagement and loyalty metrics Mitch spoke about earlier. And we are equally impressed by the company's leadership and its entire talented, purpose-driven team. As Mitch mentioned earlier in the call, the transaction is expected to be accretive to adjusted EBITDA by approximately $25 million to $30 million in 2025 and approximately $70 million to $80 million in 2026. We also expect it to be neutral to non-GAAP EPS in year 1 and meaningfully accretive to non-GAAP EPS in year 2 and beyond. We expect the transaction to close in early Q1 of 2025, subject to receipt of requisite regulatory approvals and satisfaction of other customary closing conditions. Additionally, as you'll see on the next slide, this transaction is very much in line with our established capital allocation priorities. We have reiterated many times over the years, our 3 primary capital allocation priorities: investing in the business, returning capital to shareholders and maintaining a strong balance sheet through EBITDA growth and delevering. We evaluated this deal through the lens of those priorities and are confident it aligns with our strategy. With respect to investing in the business, acquiring Brigit furthers our growth opportunities and our technology capabilities while helping to create a powerful R&D engine that we believe will drive new product growth and innovation. We also see enhancements to data analytics and personalization as an investment in our marketing and our direct-to-consumer programs. Additionally, as I mentioned earlier, we have carefully structured the transaction as a mix of cash and stock, with a deferred consideration component to preserve financial flexibility. In terms of leverage, we remain committed to maintaining our BB- credit rating, and we plan to continue to delever after the transaction as we progress toward our long-term target of a net leverage ratio of approximately 2x. In addition to our 3 highest priorities of free cash flow, we've also stated that opportunistic M&A is part of our capital allocation strategy, which is why we're here today. For all of the reasons we described, we believe the Brigit acquisition accelerates our strategic vision, and we are confident that our combined teams can execute on the plan to deliver on our commitment to increase shareholder value. Now I'll turn it back over to Mitch to close this out before we turn to Q&A.

Thanks, Fahmi. To recap, by combining Upbound with Brigit, we're adding more ways for Upbound to meet underserved consumers where they are in their journey. With data-driven insights gained through Brigit's capabilities, we'll develop a comprehensive view of our customers that will enhance the backbone of our innovation-driven growth strategy. At the same time, we'll be able to create more leading products and services entering new and growing digital markets to provide consumers with relevant solutions that make a real difference in their financial wellness journey. All this creates compelling opportunities to accelerate growth for Brigit and all of our existing Upbound brands. We look forward to working with the talented team at Brigit and welcome them to the Upbound family. And with that, we'll open the floor to questions.

[Operator Instructions] One moment for our first question, which will be coming from Brad Thomas of KeyBanc Capital Markets.

It's Taylor Zick on for Brad Thomas this morning. Maybe just to start on the revenue, expected to go pretty quickly this year, 40% to 50%, presumably will grow pretty quickly in '25 and '26 given the revenue dollar forecast. So can you kind of help us think about how much of that revenue is core Brigit business versus how much is revenue synergies? And I guess, secondly, related to that, same thing for the adjusted EBITDA. The forecast calls for pretty significant margin expansion in '25 to '26. Again, how much is it related to the core business versus assumed synergies?

Thanks for the question. Yes. So none of the forecasted numbers that we've given incorporates any synergies for '25 or '26. That's going to be part of the -- that's just the stand-alone Brigit numbers. And very confident in their ability to continue the growth aspects of their business that they've demonstrated over the last few years. And really, when you talk about the margin profile between '25 and '26, the way we think about '25 with the team there is, '25 is another investment year in the business to really try to supercharge growth into 2026 and beyond. So between the marketing spend and the R&D spend on new product development, continuing to enhance the current platform, '25 is going to be a little heavier on the expenses to really set us up for growth in '26, '27 and going forward.

Yes. This is Mitch. Let me just add to Fahmi's comment, Taylor. The -- yes, I think that's a really important point Fahmi just made that these -- our guide has no cross-selling synergies, no synergies at all in it. So I think that's important. And then when you think about the margin enhancement besides what Fahmi was just mentioning on the '25, they're still growing fast and a lot of investment. And then when you see '26, the margins go -- part of that is just the scale of the company, too. These things happen kind of naturally too as companies grow like this, a fintech company, an asset-light business model like that. So part of that is just natural, and it's not like there's a big heavy lift to make sure that, that happens.

Understood. That's super helpful. And then maybe just to zoom out, if I can. Mitch, you noted that there was pretty little overlap between Upbound and Brigit's customers, but the demographics are still relatively close. I guess my question is just, what historically had led the Brigit customer not to go to Upbound services and I guess vice versa?

Yes, it's a good question. And that's -- the opportunity is all the cross-selling opportunities. I think penetration of these kind of products remains very low. And even when you think about Brigit on its own, between paid subscribers and free subscribers, 2 million people, it's still only about 1% of all the people struggling in America when we talk about the 180 million people that are struggling -- that are financially vulnerable. So why is there only 1% penetration -- or the Upbound Group with Acima and Rent-A-Center, penetration is not -- of our TAM, that's nothing like 30% or 40% or anything like that. It's in the real low single digits. So I think the answer to the question though is access, costs a lot of money to acquire customers. And obviously, you can grow faster if you put a lot more money in advertising and those kind of things, so you're -- but you're always managing your cost of customer acquisition and so forth. And that's really the opportunity here from a cross-selling standpoint is to lower each other's cost of customer acquisitions, both Brigit's and our core business at the Upbound Group like Acima or Rent-A-Center. So the -- that's really what attracts us. One of the things that attracts us -- there's a lot of things, like I've mentioned in my prepared comments. But one of the things that attracts us is the tremendous cross-selling opportunities to have more penetration on both of them. I don't think there's any one answer to your question on why is the Brigit customer not -- why are not more than 10% of them are already doing business in the lease-to-own space? Probably awareness is part of it, and this gives us the opportunity to make them more aware of the products.

Yes. I would say education on the benefits of the lease-to-own transaction. And one of the first things we'll do on the road path -- road map of integration is listing Acima on Brigit's marketplace and educating their consumers on the benefits, the no-obligation benefits of lease-to-own and the flexibility that our core product can bring them.

And their app already -- if you go download their app, their app already does such a great job, education-wise, on different tools, on financial literacy tools and stuff like that. I mean it's such a -- as we've talked about quite a bit in the prepared comments, it's such a great app that adding that on and getting an awareness and the education of the benefits of a lease-to-own program is really an exciting opportunity.

Our next question will be coming from Vincent Caintic of BTIG.

Congratulations on this acquisition. So first question, so very impressive revenue acceleration anticipation for 2026 at 70%. I was wondering how -- if you can give us kind of a sense of your comfort level of getting to that and perhaps even achieving that, what makes you comfortable in that growth? And then maybe kind of a broader aspect of that is going back to your 2023 Investor Day where you gave guidance for 2026, when we think about Brigit and then the Rent-A-Center and Acima, should we be thinking about your guidance for 2025 and 2026 of Brigit as being on top of the guidance that you provided for the other 2 businesses for legacy Upbound from the 2023 Investor Day? Or are there moving parts to that?

Vincent, thanks for the questions. Yes, I think I'll start with your second part of your question, your second question. Obviously, back last year in May 2023, we didn't envision having this acquisition at this time. So I think the easy answer to that one is it is on top of the 3-year forecast and the guide that we gave last year. Obviously, when we come back in February and talk about the fourth quarter and the full year 2024 results, we'll give better guidance into 2025 and will include Brigit in those numbers to the best we can, depending on the timing of closing and things like that. As far as our comfort level with the growth, I think it's a couple of things. I think, obviously, the history of them continuing to grow, add subscribers to their platform, and they've done a great job of scaling that through traditional marketing efforts. But I'll also point to their ability to grow their retention rates. We look at each of the last 4 or 5 years, the cohorts of their customers, and each year, year-over-year, the retention rate has increased. They've done a really good job of solving an initial problem that the consumers had, and their wedge to kind of get into those consumers was the Instant Cash product. That was kind of their first product that they offer to consumers. And what they've done over the last few years is continuously add all the different tools that we've gone through, whether it's the budgeting tools, the smart alert notifications that make it a personalized experience, adding the marketplace and having different partners for them to save money, obviously, the credit builder, which was rolled out earlier this year with the Premium package that gives consumers another way to kind of graduate for them. So as they've added to the bundle through their subscription, they've been able to really retain a lot more customers. So continuously to add subscribers as well as retain subscribers is really going to help us achieve some of these numbers in 2026 and going forward.

Yes. A couple of other add-ons to that, Vincent, at the -- hopefully, it's not too redundant. But yes, definitely on top of 20 -- what we rolled out at the Investor Day, but I have to add at the risk of being overly redundant that on top of our guide would be any synergies that aren't even in our guide. So pretty exciting to be adding it. And it's not like it's a full amount because of the synergies as well as there's retention in the -- as far as confidence level, a lot of the purchase price revolves around hitting -- actually hitting numbers a little higher than we're guiding to. As you might imagine, in a deal with this, the actual numbers that the company has to hit, the shareholders and the founders have to hit to get the full earnout are actually higher than our guide. You -- obviously, you generally are going to guide a little more conservative than even what they have committed to. So they actually have to do better than this on their -- on some of those retention numbers. So we're really confident. I guess it's another way of saying it. The other thing about -- when you think about 70%, you calculate 70% revenue growth year-over-year, it's not like this hasn't been growing fast. Like if you were looking -- if you had their numbers in front of you from '21, '22, '23 and so forth, it's a start-up. I mean they only been -- they only launched 5 years ago, nationally in 2019. And so it's not like it's flat-footed, and we're sitting here saying, "Oh, we're going to have 70% growth, one of those hockey-stick forecasts." This thing has already -- has taken off since they started. And one of the only differences here in most of these start-ups that are 5 years old with great revenue growth, a lot of start-ups have great revenue growth, but this one is also profitable at a very fast pace. Brigit, which is really a complement to their team to have gotten profitable as fast as they did because most of them don't get profitable as fast as you know.

Okay. Great. Very helpful detail. And maybe a last follow-up question for Mitch. If you could talk about strategic vision. So when we thought about Upbound in the past, it's been the lease-to-own segments. This certainly adds a lot of new capabilities. And I'm wondering what other new or interesting directions. When you think about Upbound, where would you like to be in terms of your different product sets? If we're now expanding beyond lease-to-own, where would you like to be? Where could you go from here beyond Brigit?

I think, certainly, we're heading more virtual. I don't want anybody to get the impression that Rent-A-Center is not still an important part of the business. As I mentioned, our -- the way we forecast it -- because you know the cash flow of Rent-A-Center as well, Vincent, and the foundation it provides. So it's a tremendously important part. It's a great segment of our company, obviously. And it will continue to be important, but it will be less of the revenue as we add on more virtual product, more asset-light products, which is our strategy. As far as where do we go beyond Brigit, I think about it as what do we do together with Brigit because Brigit is such a great foundation. There's things we can add to Brigit that we've already brainstormed with the Brigit team and things they had on the road map to continue to add on for this customer that needs even more tools in their financial journey. And we're not going to talk about a lot of those, but there's a lot of different, I'd call, asset-light products that we can continue to add together with Brigit. So I think the -- that's why I think about the strategy of continuing to go asset-light virtual, staying with the customer we know the best, the customer at the income levels that we've always been in and where Brigit is and just adding products. And I'm sure other opportunities will be popping up. But we've been looking also, Vincent, for some of these products for a couple of years now after we got Acima purchased and integrated, especially credit builder products. Now the earned wage access part of the core product is just a tremendous benefit to the consumers, saving all those overdraft fees. Like I mentioned, they estimated over -- that they've saved $1 billion just in their short history already in overdraft fees by having these earned wage access, Instant Cash advances before payday and even helping tell the customer when they need it before the customer may even know they're about to have overdraft charge. So that was a great find for us when we came across Brigit, but we're really looking for the credit wellness, the credit builder product to help our customers graduate to the next level and so forth. And of course, that's one of their other core products. And the unique part here was -- and there's a lot of credit builder products out here, but what we love about the Brigit one is through the subscription model, there's no other cost to it. There's no interest cost to building a credit. You really do it through savings. By saving money, that translates to payments on time and builds your credit in a really unique way, in a great way. And the customer can take their money back out of the savings anytime they want. So it's really a no-cost -- as long as you're paying your subscription, a no-cost way of building your credit. It's just a tremendous product. And we look forward to presenting -- giving the opportunity to all our customers to have that. But our journey, we've been looking for that kind of credit builder, credit wellness product because it's really critical for our customer. That's something they need to build their credit to be able to graduate, and that's part of our mission to elevate their financial opportunity just like it is Brigit's. So we're looking for it. We found more than we thought we'd find. When we're looking for a credit builder, we found a company that's got a lot of other great tools like the Instant Cash and so forth. And I think there'll be more products we can add to that as far as -- from a strategy standpoint. And then the cross-selling of the great companies like Acima and Rent-A-Center using those products and cross-selling and then vice versa.

Okay. Great, very helpful. And congratulations again.

Our next question will be coming from Kyle Joseph of Stephens.

Congrats on the acquisition. I guess just starting off, I want to understand the revenue model a little bit better. For Brigit, obviously, subscription based, but is there also kind of an incremental, I don't know, call it, fee or whatever for each transaction or each of the Instant Cash transactions? And then from a higher level, if you guys could compare it to some of the other kind of, call it, fintechs out there, the Daves of the world, just to give us a sense for how it compares.

Kyle, it's Fahmi. Thanks for the question. Yes. So one of the things that we really liked about Brigit was kind of the simplicity and the transparency in the revenue model to consumers. So it's pretty simple. You get $8.99 for the Plus plan and $14.99 for the Premium plan. And as Mitch mentioned, kind of what goes into each of those plans in our prepared remarks, 80% of their revenue comes from their subscription fees, and about 15% of it comes from an instant transfer fee, which is included in the Plus plan. And the difference there, it's $1.99 charge that if you want the cash faster, then you can pay an extra fee to do that. The typical transfer time is 3 to 5 business days. If you need the cash faster, you have the option in the Plus plan to do an additional fee of $1.99. If you do the Premium plan at $14.99, that Instant Cash offer is actually included in the monthly subscription. So as you mentioned, everyone does it slightly differently. But we felt like with the subscription model gives us a lot of predictability in revenue and is also very transparent, aligns with the customer as well and thought it was a very transparent type of revenue stream.

Yes, when you think about all that savings of the overdraft fees, it's not like every time they do this, they can do it multiple times in a month. It sounds like there's a different fee. It's just a monthly subscription. So it's a savings with a set number against it, like the $8.99, yet you're saving all the overdraft fees and keeping the stress level down of not having enough money 'till payday and those kind of things. So we think it's a good model for a company like ours. We like the subscription model. I think most companies do because it's more predictable revenue and all those kind of things. But maybe more important than that, it's really a great plan for the consumer.

Got it. Very helpful. And then just one follow-up for me. Just talk about the cash flow profile of Brigit and kind of expectations for getting back towards that target leverage you guys talked about.

Yes. From a cash flow standpoint, you expect them to be, on a stand-alone basis, flat to maybe slightly positive from a cash flow standpoint in 2025. So obviously, you guys know that we generate -- the guide for 2024 is $100 million to $130 million of free cash flow. Kind of pro forma for the acquisition will be just around 3x, depending on when it closes hopefully in the first quarter at some point. And depending on how fast Acima grows in 2025, we may be able to get back to kind of preacquisition leverage by the end of the year. But again, it will depend on how fast Acima grows in 2025. Obviously, if they grow faster than what we predict, that's a good thing. We think that's a good trade from a capital standpoint. But generally speaking, that doesn't include any of the synergies. And so the faster we can lower their cost of customer acquisition, they'll be even more cash flow positive.

Our next question will be coming from Hoang Nguyen of TD Cowen.

Congratulations on the deals. Maybe, I mean, from a strategic standpoint, I think you guys have been expanding to more products to reach the consumers, I mean, with the [ Concura ] partnerships. I mean, can you talk about what are the criteria for maybe partnership versus buy versus build? And I had a follow-up.

Yes, good question. Every one of these situations is different. We're looking for a different product here versus like the partnership with [ Concura ] with a credit card product and needing the bank and all those kind of things to do that product. So they're all a little bit different when you think about whether a partnership or an acquisition is the way to go. In this case, the fact that they've grown to profitability so fast we didn't think too long about partnering versus just teaming up in a deeper way. Because when you think about the R&D, the development going forward, New York becoming an innovation hub like Salt Lake is for us after we bought Acima and things like that and the products we can develop together, we just felt like being together, even though they'll be a separate company but working together and learning best practices and those kind of things and using their cash flow underwriting as a supplement to Acima and Rent-A-Center versus trying to partner, maybe we could partner and offer their products to our customers. But we wouldn't have gotten Hoang, we wouldn't get all the synergies of basically using all their learnings, their AI-driven cash flow underwriting as a supplement to help us underwrite even better than we currently do at Rent-A-Center or Acima, so those kind of things. So that's what made this one. Sometimes the partnership makes sense. And in this one, we just saw a lot more we could do together in using the products and a lot more synergies together than just the partnership.

And maybe I think earlier this year, the CFPB put out a proposed rule making on earned wage access. So maybe can you talk about how Brigit subscription model positions the company in a better light to the regulators versus maybe the other earned wage access model that relies more on maybe tips?

Thanks for the question. Yes, the proposed rule, and we'll see it actually gets passed officially, but subscription models were pretty explicitly excluded from that. And also on their fees being $1.99 on that instant transfer fee that I mentioned kind of falls below the threshold. So I think it's fair to say we think it's a minimal impact to the business, any impact to the business, but we'll see next year if it does actually get passed or not.

Our next question will be coming from John Rowan of Janney Montgomery Scott.

Just to stay with the regulatory stuff for a second. Aside from the earned wage access rule, I feel like there's a lot of cross sections here regarding various proposals. Can you maybe discuss good, bad and different, how recent proposals for cutting overdraft fees or the personal financial rights data rule could affect Brigit and obviously Upbound down the line?

Well, I can give you my view on the conversations that are around the -- reducing the overdraft fees if that comes to fruition. Overall, that's a good thing for the consumer. So that would be a good thing. The consumer is not necessarily not going to need that cash to pay date. Maybe when -- over the 5 years, Brigit saved roughly $1 billion in overdraft fees. Maybe that number the next -- if that -- if the rule you're talking about comes to fruition, maybe that in the next 5 years, it's not $1 billion, it's $0.5 billion or some other number. But that's good for the consumer, number one. That's the most important thing. And number two, it still -- it doesn't mean they wouldn't need this instant cash to pay date just because the overdraft fees are lower. So we're not too worried about that. I actually see it as a positive because it helps the consumer. And anything that helps this consumer just means is a good thing. That's our mission, number one. And number two, it just gives more value to the product itself, the subscription and so forth. And we'll be adding products to it at the same time as well. So I see that only as a positive, but it's not -- like I said, it's not like people all of a sudden won't need money just because the overdraft fees or that their credit is any better. Nobody's credit score goes up just because overdraft fees go down, things like that. So this customer, as you know, John, I mean, the consumer is struggling financially in living paycheck to paycheck does nothing but grow. It has every year except for stimulus years in the government. And it's growing faster now than probably ever before post stimulus and with the higher inflation. So the regulatory environment, like I said, we would welcome that. Obviously, through this whole process, we had actually 2 different law firms helping us look at the regulatory process. I guess one wasn't enough, we ended up with 2 law firms. But we had to have 2 law firms helping us through this, and I chuckled just because obviously, a lot of attorneys involved in deals like these. But we've gone through all that and got very, very comfortable as well as our Board got very, very comfortable with the regulatory environment.

But what about the personal financial data rights rule that was proposed? Obviously, you're not using bureau data. So I assume you might actually be able to improve the data you collect if that rule were to be finalized. Am I incorrect in that?

I think that's fair, John. I think the open banking rules, I mean, they tend to have more transparency in allowing customers to get more transparent information on their bank information. So that will just add to the -- already the information that Brigit uses today. And I think we didn't talk about it too much as far as their ability to continuously update their models and some of the cash flow models that they use. They've already developed 50 models over the last 5 years and continuously test, learn and react in real time. So if those regulations all seem to be pointing to more information that will just supplement the models. Yes.

Okay. And then just lastly, you gave a number regarding the amount of consumers that are a sub-600 bureau score. And I guess I'm just trying to conceptually understand, do Brigit customers graduate to a lease-to-own product or do lease-to-own product customers graduate to a Brigit type product? I'm just trying to figure out where they fit in a typical cohort of consumers.

Yes. That's going to be very customer-specific, John. I think the way we think about it, and I'm glad you asked the question, is we want to and what Brigit can allow us to do even better than what we do it today is to take a holistic view of the consumer and make sure that we offer them the right product at the right time, whether it's the Brigit product set or the Upbound product set. And we talked a little bit about this when we announced the credit card partnership that we want to be there along the way in our consumers' financial journey and hopefully, better their lives through that journey. And we talked about Rent-A-Center customers maybe graduating to Acima, and Acima customers maybe graduating into the credit card partnership. And what Brigit allows us to do is maybe on the front end of that, customers that need liquidity can access the instant wage product. And then for those that need to help with their credit scores, they can do the credit building products, which will help them across all of those different products, either Acima or through the credit card partnership. So it's going to be a flow both ways, I think, as far as depending on the specific consumer. And as we think about going back to the strategic vision comment, we want to kind of be a dedicated non-prime or underserved consumer platform. So wherever they are in their journey, we want to have a product that helps.

Yes, that's right. John, one of our Board members -- one of my Board members asked me a very similar question a couple of days ago with whether the -- would Acima Rent-A-Center customer be graduating to Brigit or vice versa? And my answer was yes. Not to be a smart, but it's yes, it's both. I mean they're going to go back and forth, and that's really the opportunity here. One of the opportunities, there's plenty of them, but that's one of the opportunities.

Our next question will be coming from Anthony Chukumba of Loop Capital Markets.

I guess my first question is on the timing in terms of integrating some of, I guess, Brigit's tools into Acima credit underwriting, assuming that the deal closes in the first quarter of next year as you're hoping? What would the timing be on that?

Anthony, good question. From Mitch and I's standpoint as fast as possible. But at the same time, you buy a company like this, and you want to make sure that their secret sauce and the way they do things continues and then they can hit their numbers. But at the same time, we want to go after some of those revenue synergies that we talked about and then obviously leverage and supplement what we do today from an underwriting standpoint with that cash flow data. So we're going to try to do it as soon as we possibly can. Obviously, once we get closed with the acquisition, we'll start making real plans and putting road maps together to leverage that. So very soon post closing, but we'll have to keep you updated as far as the actual timing goes.

Got it. And then just a quick follow-up. So you bought Acima a few years ago, and there was kind of a rocky period there, right, just in terms of integrating that and some issues that you had there. Maybe it wasn't integration, maybe it was just a performance. But I guess what sort of lessons can you take from the Acima experience to make sure you don't have any similar kind of speed bumps with Brigit?

Yes. It's a good question, Anthony. This is Mitch. And a fair question because we did have a bump in the road when losses got a little high at Acima that at the end of the first year. But the big difference here is that we combined management with Acima in a lot of ways initially because we're in the same business. We had a retail partner business. So we're combining management. Some of it didn't work out, and we had to get the right people in the right spots, and that took a little while and now they're off and running, or they have been in the last couple of years, as you've seen. So -- but this is -- they're really going to be standalone. We're going to be working together, learning from each other best practices, take their cash flow and try to supplement what Acima and Rent-A-Center doing and so forth, but it's not like we're going to be running Brigit. Zuben Mathews and Hamel Kothari and the other 100 great people that are there, a lot of whom we've met, not all of them, but many who we've met, just some fantastic people, and they're still going to be running the company. So it's a little bit -- it's a fair question, but it's a little bit of apples and oranges in that they're going to be a stand-alone company. And because we're not in the same business, even though we share same customer, and there's a lot of synergies here from a cross-selling standpoint, not like we're in the same business where we're going to kind of "take it over" the way we did Acima first. And then I guess maybe the shorter answer is we lived and learned on a couple of mistakes. I'd say we -- a couple of mistakes I made with -- on the Acima integration early on, we live and learned. And we won't do them again. And even -- we wouldn't do them a second time anyhow, but this one is different for the reasons I already said. But still tremendous opportunities, but not necessarily taking it over, just tremendous opportunities to work together and supplement each other.

And one moment for our last question. And our next question will be coming from Carla Casella of JPMorgan.

Most of my questions have been answered. But just on the LTM leverage, you said it will be 3x using Bright's fiscal '20. Is that using Brigit, sorry, Brigit's '25 EBITDA and $243 million of the cash payment at close?

So we said 3x -- around 3x depending on when it actually closes. But that number is looking at their LTM EBITDA with our LTM EBITDA.

Okay. Did you disclose their LTM EBITDA?

No, we have not.

Okay. And -- but it's using just that cash portion of the purchase, the $243 million upfront. Okay. Great. And then when you talk about the $70 million to $80 million for 2026 and the earn-out at that level of EBITDA, will they trigger some of the earn-out? Or I guess, how does that earn-out work or the time frame of the earn-out?

So the earn-out is based on their 2026 EBITDA numbers. And as Mitch mentioned earlier, the threshold to hit the earn-out is actually below -- the threshold is above the guide that we gave for 2026. So as we said, we -- from a guiding standpoint, we took a more conservative approach, but we have high hopes that we can hit the earn-out and pay them the full purchase price.

Okay. Great. And then you mentioned they have the 2 million monthly active users. Have you been able to go into the base and see is there any overlap there with your existing customer base?

Yes, we have, and it's very small, as we've mentioned, around 10%. So that's some of the tremendous cross-selling opportunities. It's interesting that you think about only about 10% of those people doing business with either Acima or Rent-A-Center and then vice versa, 90% of the people at Rent-A-Center and Acima don't know who Brigit is. So tremendous cross-selling both ways because they're very similar profiles from a consumer standpoint. It's just the education -- educating them about the other products, the cross-selling, educating that consumer about what lease-to-own is or educating the lease-to-own consumer about the fact you can have an instant cash product for only $9 a month, you can get yourself to payday and those kind of things and then build your credit at the same time. So it's all about education because the consumer overlaps on paper, but we don't have much overlap in reality. So that's a big opportunity for us, Carla.

Yes, that's great. And thanks for clarifying that. I wasn't sure that's what you're referring to, the 10% earlier. Just 2 quick other questions. Have you talked to the rating agencies and have any thoughts about whether there's a ratings risk here given the slight uptick in leverage temporarily?

Not yet, Carla, but it is imminent, discussions with the rating agencies. We do not expect this to have any impact on our current ratings.

Okay. And Brigit, the customer numbers you gave and the growth are impressive. Is there any -- do they have enough track record to say what's the average annual churn of a customer? Or those...

Yes. And all of those are -- yes, all those are included in our estimates as far as kind of what they're going to produce. And I think as we talked about on the retention side, they have a really strong retention when it comes to subscription-type models, almost 40% stick to year 1. And then those 40% to stick around for year 1, about 70% stick around for year 2. So all of that is kind of baked into the guide.

Much higher than average for subscription models.

And our next question will be coming from Bobby Griffin of Raymond James.

I just one follow-up question for me. I just wanted to talk a little bit about the cash analytics kind of data analytics side of their business. How unique is that technology to Brigit? Is there anything else out there in the market on the lease-to-own side that's using that today? So I'm just trying to dive into kind of what maybe advantage of adding that into your approval process could get you on more of a reverse synergy type aspect?

Yes. Good question, Bobby. I'm not aware of anybody in the lease-to-own space using the cash flow underwriting. It's possible, but I've never heard of anyone doing it in our space. So I think it will be an advantage. It's not like somebody else can't develop it down the road and so forth. On the other hand, when these guys Hamel and Zuben and the rest of the team when they got 5 or 6 years worth of learning in a couple of million customers, somebody else can develop it, but you'll never catch up, right, to that knowledge when somebody's got a 5-year head start on building the algorithms and the predictability and all that kind of stuff. So it could get copied someday, but in our industry, and it probably will, but we'll always be a number of years ahead from a data standpoint.

Okay. That's helpful. And then maybe just a quick follow-up. I mean, I know you guys do business with, call it, the unbanked consumer too. It's one of the advantages of the model. But just collectively overall, what portion of the current business has the bank accounts where you would actually be able to integrate that cash analytics kind of underwriting aspect into your GMV and your decisioning?

Yes, it's a good question. It's -- as far as the people without bank account on the Acima side, it's very small. I don't know the exact number off the top of my head, but I mean, it's like -- I see the other day, family, like $1 million last month in GMV was an unbanked customer, something like that. $1 million out of whatever their -- almost $200 million a month or whatever the numbers are for their GMV in a month. So I mean it was less than 1%, right, because their GMV is over $100 a month, and I think I saw it was $1 million last month. So very small Acima. Rent-A-Center is bigger. I don't know that number off the top of my head either, but it's not higher than like 20%. 80% even of Rent-A-Center customers have a bank account. So very small at Acima, a little bigger at Rent-A-Center. They'd be, I don't know, somewhere between 10% and 20% of customers on the Rent-A-Center side probably where you wouldn't be able to do much because they don't have a bank account. But even that's obviously a pretty small number.

And I think, Bobby, the big key and the difference between what we do today at Acima and what Brigit does is we do ask for bank account information, as Mitch said, for most of the Acima customers, but we use it as an ID check, try to prevent fraud, and it's a onetime kind of check. And what Brigit does is continuously monitor folks' account as part of the credit building product as part of the predictive cash advance product as customers opt into that. And so that continuous usage of that data is the big difference between what we do today and what we're going to do going forward. So it's a very powerful tool, as Mitch mentioned, that's been tested over the last few years, including during pre-stimulus, during COVID on the onset of that and then through stimulus and has just gotten better and better as each vintage has rolled in.

Absolutely. That's very helpful. I appreciate the details and best of luck on getting this closed.

Thanks Bobby.

I would now like to turn the conference back to Mitch for closing remarks.

Thank you, operator, and thank you, everyone, who joined us today to discuss the fact we've signed a definitive agreement to acquire Brigit, and we're obviously excited. This is a new and exciting chapter for us. Looking forward to getting it closed in the first quarter. Looking forward to welcoming the Brigit team into Upbound. I guess I'm doing that right now, but obviously, officially after we close. But we're really excited about working with Hamel, Zuben and the rest of the team, and -- but we couldn't be more excited. So we appreciate everybody's time this morning. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.