Good day and thank you for standing by. Welcome to the Fourth Quarter 2023 Upbound Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Chesnut, Head of Investor Relations. Please go ahead.

Good morning and thank you all for joining us to discuss the Company's performance for the fourth quarter and full year of 2023 as well as our outlook for 2024. 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 and adversely from our expectations. These factors are described in our earnings release as well as in the Company's SEC filings. Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. This call will also include references to non-GAAP financial measures. Please refer to our fourth quarter and full year earnings release, which can be found on our website for a description of the non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures. Finally, Upbound Group is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Please refer to our website for the only authorized webcasts. With that, I will turn the call over to Mitch.

Thank you, Jeff, and good morning to everyone on the call today. I'll begin with a review of key highlights from 2023, as well as a discussion of our priorities for 2024, and then I'll hand it off to Fahmi for a more detailed review of our financial results and our financial outlook. After that, we'll take some questions. As we reflect on our achievements throughout 2023, we believe our business took meaningful steps forward across both major segments and the new shared services holding company. At Acima, we saw growth in both our customer base and our retailer network. We also continue to develop our direct-to-consumer options with the virtual Acima marketplace where our customers can shop at merchants, including unintegrated merchants to select eligible products and enter leases with Acima. Acima returned to year-over-year revenue growth in the fourth quarter driven by a 19% increase in GMV. The investments we have made in our technology and product offerings are beginning to pay off with GMV momentum throughout the fourth quarter. Importantly, we're driving GMV growth while remaining disciplined on underwriting with Acima losses stable throughout the year. Our disciplined and targeted approach to underwriting combined with normalizing customer behavior drove material year-over-year profitability improvement with full year 2023 gross margins increasing 340 basis points and adjusted EBITDA margins increasing 490 basis points versus 2022. At Rent-A-Center, we remained focused on offering a broader product lineup as well as an enhanced digital experience. We expanded our merchandise lineup with new products in our existing categories while adding new product verticals such as jewelry and tires in the fourth quarter. Whether in the showroom or our extended aisle web channel, our product mix continues to grow and evolve to meet our customers' needs. These efforts are driving improvements in customer growth and retention with recent portfolio growth positioning Rent-A-Center for continued success in 2024. 2023 also included a significant milestone for our parent company, which was the announcement of our corporate name change to Upbound Group. It reflects our combined platform, which enables us to meet our customers wherever they are, whether in our stores, leading retailers across the country, or online. Creating the Upbound Group was part of our initiative to evaluate our current structure and how we manage the business to position us for long-term growth and adjust to the dynamic environment in which we operate. Through this initiative, we've developed an enhanced shared service model where the business units are supported by centralized resources that utilize best practices and include coworkers across the organization to drive productivity, creativity, and efficiency. Our latest efforts in this new operating model include leveraging the capabilities of Acima underwriting and data scientists across the consolidated business, which has produced promising early results that should benefit us in 2024 and beyond. 2023 marked a rebound year as both segments improved their loss rates relative to the challenging environment experienced in 2022. We're pleased with our risk and account management efforts and have proven our ability to grow our customer base while identifying targeted areas of risk and opportunities to maintain losses within an acceptable range. We remain committed to pursuing a balanced approach to our capital allocation as evidenced by the growth strategy we highlighted at our Investor Day last May. Our focus on deleveraging the balance sheet and our ongoing returns of capital to our shareholders. Collectively, these initiatives have produced a strong year, built a foundation for our future, and positioned Upbound for additional profitable growth as we move into 2024. Let's now discuss our financial results on Slide 4. Our full year results included revenue of $4 billion, adjusted EBITDA of $456 million, and non-GAAP diluted earnings per share of $3.55, each of which finished at or towards the high end of our increased guidance from the third quarter. Our full year free cash flow of approximately $147 million finished below our guidance, almost entirely driven by stronger than expected GMV growth at Acima and/or replenishment of inventory at Rent-A-Center during the holiday season. Acima finished 2023 with the largest portfolio values we have seen in the last two years, and Rent-A-Center had its largest ending portfolio balance since mid-2022. We're very pleased that both segments showed sequential and year-over-year portfolio growth through year-end. The growth experienced in the fourth quarter was driven by a number of factors, including the strategic initiatives from 2023 that I mentioned earlier. Both segments expanded and diversified their product offerings. At Acima, we continue to broaden our merchant partners while also working to generate more activity within our existing merchant network. Demand was above our expectations across most categories and produced 19% year-over-year GMV growth despite overall lower approval rates in the quarter than in 2022. We also continue to test, learn, and iterate as we work to expand our LTO solutions and incorporate credit offerings to further benefit our large customer base and leverage our new Upbound operating model. Optimizations are ongoing to find the best outcomes for our customers, partners, and business. We spent the second half of 2023 integrating systems with Concora Credit, formerly known as Genesis Financial, enhancing the risk models by leveraging our proprietary data and piloting both the general purpose credit card and the private label card. That work has positioned us to ramp up the business throughout 2024, after which we'll be able to further evaluate the timing and the size of the opportunity. We noted on our last call that we believe the non-prime consumer has been and we expect we'll continue to be resilient in this macro environment. From an underwriting standpoint, the continued performance of the broader economy helped guide our decisions on risk and led to full year loss rates improving 40 basis points at Rent-A-Center and 130 basis points at Acima. While certain aspects of the economy seem to stabilize, the consumer does remain under pressure and we'll maintain our vigilant approach as we seek to balance top line growth objectives with prudent risk management utilizing our proprietary data analytics resources. In the second half of the year, we opportunistically repurchased 1.7 million shares representing approximately 3% of shares outstanding. In 2024, we expect to continue to prioritize investments in our business, debt reduction, and supporting our dividend. We may also capitalize on future windows with opportunistic share repurchases, if we believe the near-term share price diverges from the long-term value we expect to create. On slide five, we can see the details behind our segment level performance. At Acima year-over-year, revenue trends improved throughout 2023, culminating in a return to top line growth in the fourth quarter. Acima's revenues in 2023 were supported by year-over-year improvements in the number of total merchant locations, active locations which are defined as locations with at least one lease transaction in the quarter and total funded leases, while the average ticket size was also up slightly. Acima's commitment to providing first-class service and support to our retail partners has expanded our merchant network, while also securing with select retailers elevated prominence or exclusivity for our offerings. GMV improved sequentially throughout the year, finishing 2023 with 19% year-over-year growth in the fourth quarter. The acceleration started in earnest late in the third quarter and was sustained throughout the holiday shopping season, and we believe this momentum is positioned Acima for strong growth in 2024. Acima's loss rate declined 130 basis points from 10.6% in 2022 to 9.3% in 2023. We carefully adjusted our decisioning algorithms across the year in response to economic development, and we'll continue to optimize our underwriting decisions to help produce an appropriate risk-adjusted return for the business. With the improvement in the loss rate relative to the prior year, Acima realized 35% year-over-year growth in adjusted EBITDA to $294 million, representing the largest full-year adjusted EBITDA amount for Acima in its history and will afford us the opportunity to build out such strong results. Rent-A-Center ended the year with its highest portfolio balance since the first half of 2022 and its highest customer count across the year. Our tactical marketing approach benefited our portfolio balance throughout the year with our 50 drops in 50 days program over the summer to celebrate our 50th anniversary and a similar but more compressed campaign in the first part of the holiday season. Revenue and adjusted EBITDA were both down against difficult comps from 2022, but in line with our expectations for the year. The early part of the year was softer in terms of revenues and deliveries, but we saw favorable portfolio growth in the back half of the year, largely due to improved customer retention and an uptick in the number of open leases. An important factor in Rent-A-Center's performance was the strength of the web channel, which hosted 31% more visits and 60% more orders than the prior year, with a share of revenue from that channel reaching 26%, up 100 basis points versus 2022. We continue to invest in our strong physical retail presence across local communities alongside our innovative digital footprint so that our customers may interact with us whenever they prefer. Rent-A-Center losses improved 40 basis points in 2023 to 4.5% with steady sequential improvement from 4.8% in the first quarter to 4.2% in the fourth quarter. This favorability resulted from underwriting adjustments earlier in the year combined with declining fuel prices for consumers and a reduction in inflationary pressures. Past due rates, which are an early indicator of potential loss rates finished 2023 flat to the prior year. Gross margins were generally consistent with our historical average with adjusted EBITDA and operating margins returning to pre-COVID levels last seen in 2019. Overall, we believe Rent-A-Center's portfolio is well positioned for solid performance in 2024. Our priorities for 2024 build off the strategy we outlined at our Investor Day and the achievements we delivered in 2023. For Acima, we plan to continue to grow our top line with small- and medium-sized businesses as well as expand our push into large, regional, and national enterprise-level accounts. As we continue to widen our merchant network, we're equally committed to deepening penetration with our existing retail partners and generating more leases per merchant per month. The key to achieving that goal will be to offer superior differentiated service to our customers and our merchants which we expect to drive higher rates of engagement and retention. For our customers, we are focused on having the right products available on the right terms that meet their needs. For our retailers, we're focused on providing proven and flexible solutions for their business and their customers while continuing to simplify the integration process. Acima’s overall value proposition combines the best of in-store and online shopping at leading retailers with point of sale solutions, plus a staff model for higher traffic locations through the integration of our Acceptance Now business into the Acima platform. The migration of Acceptance Now into the Acima infrastructure is expected to be complete by the end of the first quarter with the transition of the final two major retailers currently in process. As we discussed last quarter, the legacy Acceptance Now business will benefit from the enhanced virtual underwriting capabilities and customer experience at Acima, and we've seen that benefit from retailers that have already been converted. Our underwriting approach is built on an individualized assessment of each customer and each transaction within the context of the broader economic environment. Our robust decisioning is a key contributor to our profitability and margin profile, which we will supplement in 2024 with a dedication to optimizing efficiencies across our organization. Rent-A-Center's plan for 2024 builds off the momentum built in the back half of 2023. In 2024, Rent-A-Center will focus on continuing to serve its customers with desirable name brand products, hard goods, consumer electronics, jewelry, and automotive verticals. Additionally, as we add digital touchpoints with our customers whether it be text, email, in-app, or on the website, we can offer them relevant and time-limited promotions for exclusive deals and products. Our 12 drops of Christmas promotion created awareness, drove interest, and helped compound the seasonal lift we saw in December. We also deployed optimization to our online product recommendation engine that led to more relevant product suggestions, higher engagement, and better user experiences. Throughout 2023, marketing and personalization efforts created the largest year in our history for rentacenter.com with web visits, as I mentioned, up 31% and web orders of 16% year-over-year. We know that the combination of the right products and the right offers available across our physical and digital channels will enhance our value proposition to consumers. We expect our stores to remain at the center of our customer relationships where we are preparing for more growth in the online channel. An important element of this initiative is a rollout of a new point of sale system, which leverages updated technology to enhance scalability, resiliency, reporting, and automation. As our online activity continues to grow and as we see surges in demand during promotional campaigns or holiday seasons, this infrastructure will help us deliver a reliable and seamless experience to our customers, whether in-store or online. The new platform will also allow us to receive more timely and granular data to make more informed and quicker decisions. The nationwide rollout of the new POS system is underway and we're excited about laying the groundwork to improve our productivity and support our future growth with enhanced flexibility and capabilities. Turning Upbound at the holding company level, our priorities for 2024 will be driven as always by our focus on creating sustainable long-term value. For our business segments, we will continue to prioritize making our processes more efficient, ensuring our people and platforms collaborate to share best practices across our organization. In addition, we're committed to actively managing our expenses to protect and improve our margin profile. Our customers will continue to evaluate new solutions beyond LTO that elevate their financial opportunities and enable us to support them more often and with more insights. And for our shareholders, we'll continue to focus on thoughtfully allocating capital to fund investments in our business while supporting our dividend and de-leveraging plans. Now, before I hand it off to Fahmi, I'd like to emphasize how proud I am with our whole team for their focus, and their determination in delivering such strong results. Your unwavering commitment to supporting our customers and our merchants is what makes our company special, and I really, really appreciate it and thank you. And with that, let me turn the call over to Fahmi.

Thank you, Mitch, and good morning everyone. I'll start today with a review of the fourth quarter and 2023 results and to discuss our fiscal year 2024 guidance, after which we will take questions. Beginning on Page 7 of the presentation. Consolidated revenue for the fourth quarter was up 2.8% year-over-year with Acima up 6.6% and Rent-A-Center down 1.7%. Rentals and fees revenues were up 4.3% reflecting higher portfolio values for both businesses during the fourth quarter. Merchandise sales revenues decreased 5.6% due to fewer customers electing earlier purchase options. Consolidated gross margin was 50.3% and increased 30 basis points year-over-year with improvements in both the Acima segment and the Rent-A-Center segment. Consolidated non-GAAP operating expenses excluding skip/stolen losses and depreciation and amortization were up mid-single digits. Led by a low teens increase in general and administrative costs as a result of certain corporate investments in technology and people and higher incentive-based compensation tied to company performance in addition to mid-single-digit increases in both store labor and other store expenses. The consolidated skip/stolen loss rate was 7.5%, unchanged from the prior year period and in line with our expectations. On a sequential basis, the consolidated loss rate increased 50 basis points due to a modest uptick in the Acima segment derived primarily by the legacy Acceptance Now business. Putting the pieces together, consolidated adjusted EBITDA was $107.6 million, decreasing 2.2% year-over-year as higher Acima segment EBITDA was offset by lower Rent-A-Center segment EBITDA and higher corporate costs. Adjusted EBITDA margin of 10.6% was down approximately 50 basis points compared to the prior year period, with approximately 20 basis points of margin contraction for Acima, approximately 10 basis points of contraction for Rent-A-Center, and a 40 basis points increase in corporate costs as a percentage of sales. I'll provide more detail on the segment results in a moment. Looking below the line, fourth quarter net interest expense was $28 million compared to $26 million in the prior year. Due to approximately 200 basis points year-over-year increase in variable benchmark rates that affected our variable rate debt, which was approximately $881 million at quarter end. The effective tax rate on a non-GAAP basis was 24.6% compared to 25.8% for the prior year period. The diluted average share count was 55.5 million shares in the quarter. GAAP loss per share was $0.21 in the fourth quarter compared to earnings per share of $0.05 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 $0.81 in the fourth quarter of 2023 compared to $0.86 in the prior year period. Due to stronger than expected GMV growth at Acima in the fourth quarter, we deployed our fourth-quarter free cash flow and an additional $37 million toward inventory investments compared to $44 million of free cash flow generated in the prior year period. In the fourth quarter, we distributed a quarterly dividend of $0.34 per share and we repurchased approximately 800,000 shares in the quarter. We finished the fourth quarter with a net leverage ratio of approximately 2.7 times, up from 2.5 times in the third quarter. As previously reported, we increased the dividend of $0.37 per share with our January 2024 payment. Drilling down to the segment results starting on Page 8. For Acima, GMV year-over-year trends continue to improve sequentially in the fourth quarter, and we returned to positive year-over-year GMV growth. GMV increased 19% year-over-year in the fourth quarter, an improvement from a 1.4% decrease in the third quarter. GMV growth was above our expectations and was driven by year-over-year growth in some key underlying drivers, with active merchant locations up mid-single digits, applications up over 20% due to strong demand and average ticket size up high single digits. Those tailwinds were partially offset by lower approval rates across all major categories. The value of assets under lease was up mid-teens both year-over-year and sequentially, and was the highest level since the fourth quarter of 2021. Revenues increased 6.6% year-over-year, including a 9.6% increase in rentals and fees revenue, merchandise sales revenue decreased 3.9% year-over-year due to fewer customers electing the earliest purchase option with a mix of those transactions for the fourth quarter returning to pre-pandemic levels. Skip/stolen losses for the Acima virtual platform were 7.9%, 10 basis points higher sequentially, and 10 basis points lower year-over-year. Losses for the legacy Acceptance Now staff business were in the double digits and drove the sequential increase in Acima consolidated results in line with our expectations. We have continued tightening underwriting at Acceptance Now to optimize performance, and more importantly, we're in the process of completing the migration of some of our larger merchant partners from the Acceptance Now underwriting decision engine over to the Acima platform. We expect to finish this transition in the first quarter of 2024. This will strengthen our underwriting capabilities and should reduce loss rates as lease cohorts from the legacy system wind down throughout the year. On a combined basis, including Acima virtual and Acceptance Now, the loss rate was 9.9% of sales, a 100 basis points increase from the prior year period and 50 basis points higher than the third quarter. Operating costs excluding skip/stolen losses were up approximately $8.4 million in the fourth quarter or 120 basis points as a percent of sales due to higher labor costs as well as increased marketing investments. Adjusted EBITDA of $75 million was up 4.7% year-over-year, primarily due to a 6.6% increase in revenue that was partially offset by a 3.6% increase in cost of goods sold. Adjusted EBITDA margin of 14.8% decreased 20 basis points year-over-year, while gross margins expanded approximately 190 basis points. For the Rent-A-Center segment, at year-end, the lease portfolio value was up 1.5% year-over-year, an improvement of 420 basis points from the end of the third quarter. Total segment revenues decreased 1.7% year-over-year, an improvement from a 4.2% decrease in the third quarter. The decrease in revenues was driven by a 12.2% decrease in merchandise sales due primarily to fewer customers electing early purchase options compared to the prior year period. Fourth quarter rental and fees revenue declined 80 basis points, an improvement from a 3.2% decline in the third quarter. Same store sales decreased 1.6% year-over-year in the fourth quarter compared to a 4% decrease in the third quarter. Skip/stolen losses continue to improve driven by ongoing underwriting and account management efforts, decreasing 160 basis points year-over-year and 10 basis points sequentially to 4.2%. Past due rates also decreased year-over-year with 30-day past due rates averaging 3.1% for the fourth quarter compared to 3.5% for the prior year period. Adjusted EBITDA margin for the fourth quarter decreased 10 basis points year-over-year to 14.5%, primarily due to the de-leveraging effect of lower revenues on less variable costs. This is reflected by a 190 basis point year-over-year increase in the ratio of non-GAAP operating expenses, excluding skip/stolen losses as a percent of revenue, even though expense dollars decreased year-over-year. Adjusted EBITDA margin decreased 50 basis points from the third quarter, primarily reflecting normal seasonality in addition to higher marketing and labor expenses. For the Mexico segment, adjusted EBITDA was higher year-over-year, and franchise segment adjusted EBITDA was lower. Non-GAAP corporate expenses were approximately 12% higher compared to the prior year, primarily due to higher projected performance based compensation than in 2022. On a consolidated basis, the Company finished 2023 on a strong note meeting or exceeding the high end of the initial full year guidance that we provided in February 2023 for revenue, adjusted EBITDA, and non-GAAP diluted EPS. Full year consolidated revenues of $4 billion were at the high end of our initial guidance. While adjusted EBITDA of $456 million was approximately 15% higher than the original midpoint. The non-GAAP diluted EPS of $3.55 was 29% higher than the midpoint of initial guidance, significantly exceeding our expectations. Let's shift to the 2024 financial outlook. Note that references to growth or decreases generally refer to year-over-year changes unless otherwise stated. For the full year, we expect to generate revenue of $4 billion to $4.2 billion and adjusted EBITDA of $455 million to $485 million, which excludes stock-based compensation of approximately $25 million. We are projecting consistent adjusted EBITDA margins with 2023. Fully diluted non-GAAP earnings per share is expected to be $3.55 to $4, which assumes a fully diluted average share count of 55.7 million shares with no share repurchases throughout the year. We're also projecting $100 million to $130 million of free cash flow. Net interest expense of $105 million to $110 million and an effective tax rate on a non-GAAP basis of 25.5% to 26.5%. We do not have share repurchases or M&A activity included in our guidance for 2024. Our forecast assumes a macroeconomic backdrop consistent with current conditions along with three rate cuts by the Fed across the year. As we experienced in the fourth quarter of 2023, the free cash flow range will ultimately be determined by the level of consumer demand and resulting growth in GMV and the portfolio. The cash flows dedicated to investing in profitable leases reduce our overall free cash flow in the short term but should support stronger results later as we benefit from a larger portfolio. For the Acima segment, we expect GMV to increase mid to high single digits with a high single digit increase in revenue. We expect gross margins to contract from the prior year, especially in the first half of the year due to a more normalized tax season and the impact of promotions offered in the fourth quarter. Consolidated Acima losses for the year are expected to be relatively flat to the prior year with higher losses in the first half of the year than the second half due to the elevated legacy Acceptance Now portfolio, which will wind down as the year progresses. Adjusted EBITDA margin is expected to be in the mid-teens range consistent with 2023. For the Rent-A-Center segment, we expect the portfolio revenues and same-store sales to be flat to up low single digits. Loss rates are projected to be stable to 2023 levels. Adjusted EBITDA margin is expected to be in the mid-teens range consistent with 2023. We expect the Mexico and franchising businesses will generate similar results to 2023, and we expect corporate costs to hold steady as a percentage of consolidated revenue year-over-year. As we are still testing and learning with the new general purpose and private label credit cards, this forecast does not include any meaningful contributions from those initiatives in 2024. As we proceed through the year, we'll continue to evaluate our progress and the results stemming from our new partnership. The 2024 plan does not incorporate the benefit of any material trade down. However, we are closely monitoring lenders that sit above us in the retailer waterfall and specifically the proposed rule changes around credit card late fees. If the CFPB’s new rule is finalized as proposed then credit card late fees could decline meaningfully. One possible reaction from card issuers would be to manage credit more tightly, which may cause effective consumers and retailers to explore alternatives, including the LTO offering. This potential trade down could cause more consumers with a stronger and more resilient credit profile relative to the traditional LTO customer base to apply for a lease. Although our guidance for 2024 does not include any meaningful impact from trade down, whether from a typical recession or regulatory actions, such developments could represent a potential tailwind to our business. In terms of the first quarter, total consolidated revenue is expected to be up low to mid single digits year-over-year. We expect losses at the Rent-A-Center segment to be in line with the first quarter of 2023. Acima consolidated losses are expected to be consistent with the fourth quarter. Adjusted EBITDA margins are expected to be in the high single digits range. Interest expense, tax rate, and share count are expected to be similar to the fourth quarter of 2023, resulting in a non-GAAP EPS range of $0.70 to $0.80. We expect consolidated adjusted EBITDA margins to expand following the first quarter due to normal seasonality coming off tax season and higher earlier purchase options and improvement in losses at both segments, especially at Acima as the back book from the legacy Acceptance Now business winds down and Acima GMV growth throughout 2024. Moving to capital allocation, our overall strategy remains the same. Our proven business model generates strong operating cash flows over time, and our disciplined capital allocation framework deploys it in support of our strategic priorities. Our top priority remains investing in the business to position us for ongoing success. We'll continue to invest in delivering a lease portfolio that meets our return objectives, while investing in new channels like the credit card partnership and in our digital capabilities that improve the customer and retailer experience and further enhance our competitive position. We're committed to our strong regular dividend and strengthening our balance sheet by reducing debt over time. In addition, we will evaluate other strategic deployments of capital, including opportunistic share repurchases and inorganic growth opportunities as they arise. Based on the strength of our results and our outlook for 2024, we recently raised our dividend by $0.03 per quarter. We expect the balance of our free cash flow this year will go towards de-leveraging as we advance towards our long-term target net leverage ratio of 1.5x. The net leverage ratio of 2.7x as of year-end reflected the impact of $69 million of debt pay down across the year and an increase in working capital needs at year-end to support GMV growth. Concluding on Slide 12, on February 27th, we will celebrate the one-year anniversary of our new Upbound ticker on the NASDAQ Exchange. As Mitch stated last year, our rebranding represents a transition to an enterprise operating structure that will enhance and coordinate our collective efforts on strategic planning, operations, risk management innovations, and digital investments. We have made headway across each of those areas, and those gains have set the business on a positive trajectory going into this year. We feel confident in our current competitive position and underwriting capabilities that can balance the uncertainty in the market while producing strong margins at both of our major business segments. In 2024, we expect our continued customer service focus, disciplined approach to risk management, and hyper-focus on cost controls will help us deliver sustainable growth and strong risk-adjusted returns. Our leadership team is optimistic about the opportunities ahead of us and is confident in our ability to execute on our objectives for the year ahead. Thank you for your time this morning. Operator, you may now open the line for questions.

Our first question will come from Kyle Joseph from Jefferies. Your line is open.

Just on the pre-cash flows in ‘23, it looks like it came in a little bit below your guidance. Is that really just a function of the better growth at Acima or the better GMV growth out of Acima?

That's what caused a lower free cash flow for the year. As we stated, the GMV came in above our expectations, and so you'll have an impact on the short term on free cash flow, but we'll benefit in the long run from a higher portfolio.

Obviously, GMV was really strong in the fourth quarter. Is that kind of the new run rate? Was there any sort of one-time things related to holiday sales, just trying to connect GMV in the fourth quarter versus your revenue outlook at the segment?

This is Mitch. I wouldn't categorize 19% as the new run rate. However, I can say it has performed remarkably well as we enter this year. Our guidance for 2024 is mid to high single digits on GMV for Acima. We certainly expect to see continued growth, potentially even higher at the beginning of the year. It may decrease a bit as we compare to the 19% growth in the fourth quarter. In January, we were within the 15% range, and February is on track to mirror that so far. Of course, February isn't over yet, but we're looking at 15% for January and similar results in February, which shows strong momentum. We project mid to high single-digit GMV growth for the year due to anticipated challenges later on, especially with the high comparison from last quarter. However, we are pleased with the demand and overall performance of Acima, managing to keep delinquencies flat despite this growth, and maintaining sound underwriting practices. There's significant momentum and an increase in new merchants, specifically a 6% growth in merchants. Our productivity per merchant rose by about 25% during the quarter. Our direct-to-consumer business nearly doubled from last year in the fourth quarter, and our e-commerce numbers also doubled, albeit from smaller figures. Overall, every aspect of the business is performing exceptionally well.

And then last one for me, and I can hop back in the queue, but just talk about what merchandise you're seeing really strong growth in at Acima and then some others where you're not seeing the growth. Is it really kind of consumer electronics? Is it tires? And then, how has furniture and mattresses been trending as well? And that's the last one for me. Thanks guys.

Sure, Kyle. In the fourth quarter, we had great growth in every segment, every category that we're in, even furniture that's obviously had a lot of headwinds. But we grew in all of them. All the ones you mentioned, everything we're in, it was pretty consistent across the board. Of course, again, it's not just a matter of our current merchants, just more productivity within the current merchants. We're adding a lot of merchants, like I said, 6% growth, and more coming in the first quarter. Adding merchants and getting more productivity in each category is driving those numbers.

Maybe just to add to that, Kyle, we saw it across the board as Mitch said. Of course in the fourth quarter you'll have a run-up in jewelry and consumer electronics being one of the more riskier segments for us, we're able to make sure that we're monitoring that from an underwriting standpoint. But even in furniture, we talked about apps being up overall by 20% in the furniture category, it was up over 30% in the fourth quarter, and that's a reflection of adding merchants and going exclusive on Ashley.com, which is one of our biggest accounts. And doing that it gives us more apps to look at. We actually had lower approval rates in the quarter, so we were able to be a little bit more selective and still grow GMV year-over-year.

Yes, I think that's a great add-on. That's growth with lower approval rates than 19% growth.

Mitch, I want to maybe just unpack the GMV growth in a little bit more if possible, and spend a few moments there. Look, the 19%, a pretty notable flip from trends, and I would say, our checks at least from investor side, is that retail was just okay, probably during Q4 and maybe even in the categories you guys do was a little less than okay. So, can maybe unpack what you saw there and what do you think is driving the success to flip this pretty meaningfully here in the fourth quarter?

Sure, Bobby, that's a good question. Ultimately, we're gaining market share. There are various ways to achieve this. We can take an account from a competitor, improve our service and flow, or secure exclusivity with retailers that offer multiple options. It's a mix of these factors. Overall, we're definitely taking share. One of Acima's major successes is their outstanding sales team. When we acquired Acima three years ago, we were impressed by their field sales team, which has been a key aspect of the company's structure. They effectively target regional and small to medium-sized business accounts, alongside our enterprise team. This gives us a comprehensive and diverse sales strategy, and with about 125 team members, they are continuously adding and supporting accounts. We’re not just adding merchants; we’re also improving our standing with them so that they prioritize us. We’ve seen success with some regional and national accounts, even larger ones like Ashley, and our enterprise team is also pursuing big accounts, but those have long sales cycles. We don’t solely depend on landing those large accounts. We are actively growing our merchant base regardless. We engage with all large accounts, but due to the lengthy sales cycles, we maintain a diverse growth approach. Our strong sales team is a key differentiator. Additionally, we offer flexible options for retail partners, whether they want to go virtual or in-store. Our e-commerce platform also provides full online checkout capabilities, which many retailers utilize. Moreover, the Acima marketplace has seen year-over-year growth. All in all, we have multiple avenues for growth, and we're successfully capturing market share.

And I guess secondly for me tough, I don't want to call it one quarter a huge flip in trend, but just hypothetically speaking, if this does kind of build from here. Can you talk a little bit about the scale of the organization and kind of will you need to scale up for this type of growth from an OpEx standpoint? Or is the organization at a good scale really on both sides of the business, the core Rent-A-Center stores as well as the Acima that if we start to see kind of more sticky, meaningful GMV growth, you guys can handle it and, and what would it kind of flow through at?

I believe we are at a good scale. When discussing the outlook for 2024, we noted that by building scale and making various technology investments, we maintained our corporate overhead percentage at the same level as last year. Looking ahead to 2025 and beyond, we aim to leverage revenue growth while keeping that percentage flat, with expectations for leverage to improve as revenue increases. This year, we have already made necessary investments to keep the percentages stable, and given the anticipated revenue growth, those percentages should ideally decrease slightly. However, due to the investments we've had to make, we are currently maintaining those levels. For the longer term, particularly in 2025 and 2026, we expect to see leverage against those figures.

Bobby, the high growth that we're talking about, especially at Acima obviously being a virtual business, you can really scale that business up without adding a lot of expenses.

Wanted to kick off with maybe one more follow up on the GMV dynamic that seems to have such great momentum here right now. Wondering if you cut the data and you'll look at how many are new customers to Acima versus repeat perhaps who's new to rent to own, or if you have any data, if they've been a rack customer previously? Just curious about that dynamic.

There's not as much overlap between Acima customers and Rent-A-Center customers as one might expect. The demographics show a distinct spread between these groups. Customers shopping for retail who get denied or lack traditional financing options are quite different, and we don't see much overlap between them. Repeat business is incredibly strong at Rent-A-Center. You can obtain every product under one roof there, and the demographics differ somewhat from Acima customers. Depending on the year, we observe repeat business rates as high as 70% at Rent-A-Center, whereas Acima sees about half that rate. We're always working to grow this aspect, since if customers buy tires or furniture, it may be a while before they return to Acima. We count repeat business within a 12-month period. Overall, we do see a lot of repeat business, but more so at Rent-A-Center than at Acima due to the differing business models. However, it's worth noting that around 35% of Acima customers are repeat business, which means 65% are new. Acima attracts many new customers, especially through retail partnerships. We have over 35,000 retail partner stores that offer leasing through Acima, along with direct-to-consumer opportunities. A platform like Wayfair is just one of those customers. LTO is becoming increasingly popular and mainstream through these partnerships, exposing more people to it. If the economy worsens, even more individuals may need this service. Changes in credit card fees and late fees could impact approval rates. We didn't plan for this, but it could serve as a tailwind for us. Many people need LTO, and more are becoming aware of it every day.

Absolutely. That's helpful, Mitch. Just to ask the question about underwriting. As you think about the segments, could you just talk a little bit more about how you feel about the underwriting and potential needs to tighten on the horizon versus opportunities to maybe loosen?

Yes. Brad. The underwriting, we've talked about it a few times, it's a continuous process of us to evaluate where we are, where the market is, and where we are compared to our competitors. And it really was a good sign for us to be able to really reduce the approval rates in the fourth quarter and still have that growth. From an underwriting standpoint, we try to optimize our decisioning for EBITDA dollars, and the yield that we've seen specifically at Acima over the last 12 months has given us the opportunity to be very opportunistic on where we want to lean in. And also we're very confident we can identify pockets of risk going forward, but the higher yields allow us the ability to absorb potentially higher losses down the road if the macro worsens and still generate those mid-teens. So, we feel good about our capabilities to manage it and produce the returns that we're looking for.

The underwriting process is generating excitement, not only for Acima but also as we transition our legacy business. We have just two major retailers left to convert, and that should be completed by the end of the first quarter. We're thrilled about the promising results from the accounts already switched over, especially as we align them with the underwriting standards previously used by Acceptance Now. We're optimistic that, as Fahmi mentioned, once we get through the first half of the year, we expect to see a reduction in losses based on consolidated results, after the transitioned accounts are processed. With all of Acceptance Now adopted into this new system, we'll be able to implement some of the best practices and effective tools from Acima on the Rent-A-Center side as we approach 2024. This could provide some positive momentum for underwriting. While we often discuss Acceptance Now, we also see opportunities at Rent-A-Center by leveraging the same team to apply effective strategies that go beyond just underwriting. Improved underwriting leads to lower losses but also allows us to identify new opportunities we may not have previously considered. Enhanced methods enable us to target specific segments of customers instead of arbitrarily excluding whole groups. This targeted approach can also enhance our volume. We are eager about how these strategies can assist Rent-A-Center in generating more business while minimizing losses. Underwriting capabilities were two primary reasons we were enthusiastic about Acima three years ago, and we are witnessing their benefits now. Additionally, our sales team’s diverse approach enables us to compete effectively across all market segments, from small to enterprise accounts. While we face different competitors in these segments, we uniquely position ourselves in all categories, which is a comforting advantage. Our strategy's seamless integration into the small business sector, along with the inclusion of an enterprise team, reflects what drew us to Acima – an effective sales approach and strong underwriting. We are beginning to see the benefits of these elements now.

That's very, very helpful. If I could squeeze in one more here, just on how to think about gross margin and modeling it for the year. Fahmi, it strikes me that probably mix towards Acima away from Rent-A-Center would be one of the more powerful drivers just in terms of how the margin rate on a consolidated basis plays out. But anything else we should think about, as we think about baking the cake on the gross margin for the year?

Yes, I think that's right between the mix of Rent-A-Center and Acima for looking into 2024 for Rent-A-Center, expect to have gross margins to be relatively flat year-over-year. For Acima, the guide has us coming down a little bit year-over-year especially in the first half of the year due to some tough comps in Q1 and Q2 compared to 2023. And we talked about the early payout options and fewer customers electing that. We expect that to continue this year, but maybe not to the same degree, more normalized. If you look at Q1 of last year, the gross margin expanded almost 500 basis points or over 500 basis points. We don't expect it to do that again in the first quarter of 2024. But it'll be close to that. We expect it to be slightly down from that. So it's more of a cadence of the first half being a little bit lower than 2023 and then catching up in the second half of the year.

I wanted to focus just a little bit on the Rent-A-Center business. You had a nice sequential improvement in terms of comps. You mentioned in your prepared remarks some new product categories, jewelry and tires. I guess my question is, how much do you think that jewelry and tires contributed to that sequential improvement in your fourth quarter Rent-A-Center comp? And also related to that, do you think that credit tightening above you contributed to either the Rent-A-Center comp improvement or the really strong GMV growth in Acima? Thanks.

Sure, Anthony, good morning. The new products we introduced in the fourth quarter had a minimal impact. I’d give them a bit of credit, but not much. We do expect them to grow in 2024, although it was introduced late in the year. What likely benefited Rent-A-Center even more than those products was the extended aisle we implemented throughout the year. This involved adding more product options on our website, allowing customers to shop the entire range of Ashley Furniture's offerings, rather than just a limited selection available for fast shipping. The extended aisle is where much of Rent-A-Center's growth is stemming from. As I noted in my prepared comments, we saw over a 30% increase in web visits and a 16% increase in approved orders. The demand is clearly present, even though consumers are under financial pressure. A factor that has contributed to the longevity of our business, which just celebrated 50 years, is that when consumers are under strain, they tend to opt for more affordable options, and when the situation improves, we see stronger performance from our existing customer base. This resilience helps us navigate various economic cycles effectively. Regarding your second question, credit tightening above us seems to be beneficial, as we've observed trends in Vantage scores. Early last year, these scores showed a decline but have recently increased slightly. It's not solely about the credit scores; customer mindset plays a significant role as well. Customers may prefer Rent-A-Center because they want to avoid long-term contracts and prefer a flexible approach to acquiring items, as they can return products at any time. This flexible acquisition is more appealing than traditional financing arrangements. Therefore, trade-down behaviors are part of our narrative, influenced not only by credit scores but also by shifting consumer attitudes during tougher economic times, and this applies to both the Acima and Rent-A-Center businesses. Ashley has numerous licensees, so when we mention exclusivity, we refer to corporate stores, which exceed 100 in number. Previously, our account was shared with two limited-time offers, but now it’s solely ours. The website used to be divided between those two offers, but now we have full control. We have had this partnership for a long time, and now we’ve taken over the account completely. I estimate that this change was significant, probably contributing a couple of points to our overall 19% growth, around 2% to 3%. While this isn’t a vast amount, it does represent notable progress, and there is considerable potential for further growth.

Mitch, you mentioned that you've been having some success adding merchants to Acima that aren't fully integrated with the platform. Can you talk a little bit about how that works and what categories that you've been able to do that in? And just over time, I mean, how much growth could that potentially unlock for you?

You're asking for technical details, but I'll do my best. When I refer to unaffiliated merchants, I'm talking about the Acima marketplace where customers can shop at places like Ashley or Best Buy. Although we're not fully integrated with these retailers or on their websites, customers can still use Acima to lease products from them. This means we can feature various unaffiliated partners in our marketplace, which provides a significant growth opportunity. We can potentially add any retailer, especially the largest ones, allowing our customers to shop there. We already have a few unaffiliated partners, and we plan to add more each quarter. While not every partner wants to be included on the platform, most do, and we showcase them along with local partners through a feature called find a store. So, for national retailers, our growth potential is immense, and we saw the gross merchandise volume from this segment double in the fourth quarter.

Now, the way we think about it is just giving customers more choices and more options. We really want to be fulsome in our product category lineups. We want to make sure they have access to all the major categories, whether it's furniture, electronics, appliances, and all of the above. So, when we look out to round out the unintegrated with the integrated, it's making sure that we have all the product categories kind of filled out.

On the growth potential to change credit card late fees, does that change your outlook for the private label credit cards that you're looking at this spring or the economics around that potential launch?

Good morning. No, it doesn't. I think all of the credit card providers are finding ways to maybe offset some of those rule changes, and our partnership is no exception to that. We're even more bullish about the opportunity just based on the feedback we're getting from some of our retailers and specifically the larger retailers around the benefit of having two products under one umbrella and one integration. So, if anything, we're more bullish about the opportunity.

Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Mitch Fadel for any closing remarks.

Thank you, Victor. And thank you everyone for your continued interest in our business. As we discussed today, we're awfully proud of what we achieved last year. We look forward to updating you across the year on our progress in 2024. We certainly believe our team's focus on the customer and on our retail partners and new partners and existing partners and so forth will continue to create opportunities for growth that at Upbound, whether you're talking to Seymour, the Rent-A-Center side and create value for our investors. So we appreciate you, and we appreciate all of our hardworking teammates out there in the field. And with that, I'll just wish everyone a great day, and operator, you can now disconnect. Thank you, everyone.

Thank you for participating in today's conference. This does include the program. You may now disconnect. Everyone have a great day.