Good day. Thank you for standing by. Welcome to the Upbound Group Q1 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. To ask a question during the session, you'll need to press star one one on your telephone. You'll hear an automated message advising that your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand it over the conference to your speaker today, Brendan Mettler, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you all for joining us to discuss the company's performance for the first quarter of 2023. We issued our earnings release before the market opened today, and the release and all related materials, including a link to the live webcast, are available on our website at investor.upbound.com. On the call today from Upbound Group, we have Mitch Fadel our CEO, and Fahmy Karam, our CFO. As a reminder, some of the statements provided on this call are forward looking and are subject to factors that could cause actual results to differ materially from our expectations. These factors are described in our earnings release as well as in the company's SEC filings. Upbound Group undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.
This call will also include references to non-GAAP financial measures, and our discussion of comparable year-over-year performance will generally refer to those non-GAAP results. Please refer to our first quarter earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures. With that, I will turn the call over to Mitch.
Thank you, Brendan. Good morning, everyone, and thank you for joining the call today. Our first quarter was a promising start to the year with revenue of just over $1 billion, Adjusted EBITDA of $112 million and adjusted EPS of $0.83. Top line trends were generally in line with our expectations. Gross margins improved due to fewer early payouts in the quarter and coupled with lower expenses, which drove a 13% year-over-year growth in adjusted earnings per share. Considering our performance so far this year, the health of our portfolio following a year of tighter underwriting standards and our assessment of the still uncertain external environment, we've raised our full year 2023 adjusted EPS guidance range to $2.70-$3.20, compared to our initial guidance of $2.50-$3.00.
Reflecting on our performance through April and the risks and the opportunities we see for the year, we think the company is well-positioned to achieve our goals. First, as discussed on previous calls, we've made substantial adjustments to our underwriting and risk management over the past year. Today, our approach is more agile, targeted, and data centric, which has enabled us to improve loss rates and yields while better managing the impact on volumes. The positive effects of these initiatives were demonstrated in the first quarter with a consolidated loss rate of 7.1%, improving 150 basis points year-over-year and 40 basis points sequentially. In our updated guidance, we've assumed the macro environment remains consistent with today's environment.
If it were to worsen, that could result in some headwinds or tailwinds for us, depending on factors like higher inflation, which could increase losses, or trade down, which could increase volume and improve credit quality of the portfolio. Second, our lease portfolios finished the first quarter higher than expected. The Rent-A-Center portfolio was down 3.2% year-over-year, which was an improvement from a 4.7% year-over-year decline for the fourth quarter of 2022. Acima's portfolio was also above our internal forecast. The primary factor that drove higher portfolio balances was the smaller percentage of customers electing early payout options in the first quarter. This led to lower merchandise sales revenue, it was more than offset by better margins.
With more customers staying on rent longer, even when accounting for the impact of potential future delinquencies, we think the larger portfolio balances should be a net positive, especially for Acima. Third, we're seeing some positive indications that consumers with stronger credit profiles than typical LTO customers are increasingly turning to our lease-own solutions. This potential trend has been developing over the past few months and has become more pronounced recently. Third-party risk scores for applicants have increased both on average and within our top-rated customer bands. Moreover, we are seeing improved aggregate risk profiles for our portfolios with a combination of tightening measures as well as improved risk scores at the top of the funnel, resulting in a mix shift toward less risky customer cohorts. Interestingly, these developments are occurring at the same time broad consumer credit metrics are declining from the highs experienced during the stimulus era.
Based on public comments from companies in the near-prime and below-prime market, we expect further tightening of consumer credit over the course of the year, which could result in even more customers turning to LTO solutions. Even though this is a possibility, we are not counting on trade down accelerating in our updated guidance. This countercyclical benefit could help stabilize or even enhance our top line trends over the course of the year, especially if the economy enters a more typical recession and our core consumer maintains their recent performance. I think it's important to note that our core subprime consumers already experienced their own recession in 2022, simultaneously dealing with the effects of stimulus winding down and high rates of inflation. As a result, we believe many of them have already adjusted budgets to challenging economic conditions.
On that note, macro uncertainty, notably inflation, that's the biggest factor that tempers our optimism for the year. Less affluent households continue to experience pressure on discretionary income with prices for essential items still high and cash balances trending lower. This pressure may partially explain the muted tax season we experienced, and it could be an indication that payment behavior may weaken in the future. If inflation increases from here, that could lead to higher delinquencies and losses, reduced demand, or both. Also, demand for large-ticket consumer durable goods remains soft, which has affected the Acima's merchant partners. It's still unclear how long the pull-forward from the 2020 to 2021 stimulus will impact demand in key categories like furniture and appliances. Now, with all that being said, it's important to keep in mind that our business has outperformed in previous economic downturns.
Moving to some segment highlights, Rent-A-Center's demand continued to hold up relatively well with year-over-year portfolio trends improving sequentially from the fourth quarter of 2022. Although lower payouts from a somewhat muted tax season pressured new deliveries due to fewer re-leasing opportunities, overall, the portfolio outperformed our expectations. Growth initiatives continue to show good momentum with strong web traffic leading to high teens growth in web agreements. We've continued to improve the customer experience, which has helped us maintain conversion rates despite tighter underwriting. E-commerce accounted for approximately 25% of first-quarter revenues in the Rent-A-Center segment, up from 23% in the first quarter of last year.
Same-Store Sales were down 6.6% year-over-year in the first quarter, which improved from an 8.1% decline in the fourth quarter of last year, even with less payout revenue than last year. The team continued to execute well on in-store operations, managing product inventory, logistics, and of course, customer accounts. Underwriting has remained a key focus and continues to drive improved risk metrics, with past due rates and loss rates down sequentially in the quarter. Skip/stolen loss rate improved 100 basis points from the fourth quarter of last year to 4.8%, which we believe puts us on track to reach the mid-to-low 4% range by the end of the year.
Shifting to Acima, the market remains challenging, with merchants in our key categories still experiencing weak traffic and transaction volume for larger ticket durable goods, especially furniture. You know, based on our analysis in talking with our key merchant partners, we believe we're at least holding share, if not potentially gaining share. GMV was down 12.6% year-over-year, outperforming the mid-teens decline we projected on our last earnings call in February. A good sequential improvement from a 23.4% decrease in the fourth quarter of last year. The digital marketplace is contributing meaningfully to GMV, and we continue to add new merchants.
Lease application volume was essentially in line with our assumptions. The upside came from better conversion rates, which we think was driven in part by our commercial initiatives to simplify the consumer and the merchant experience. Similar to Rent-A-Center, Acima also experienced a lower percentage of early payouts, which drove improved yield on the portfolio and increased gross profit margin in the quarter by 514 basis points. I'm also really pleased with the progress the enterprise sales team has made. We're currently in discussions with several large potential retail partners. Importantly, there's been a notable increase in our pipeline over the past few quarters. As we've talked about before, large enterprise accounts have long sales cycles, but we believe we're making solid progress.
Now moving to the outlook for 2023, we remain focused on driving profitable growth and controlling costs to support margins and cash flow. We're also making progress on opportunities to offer our customer additional financial solutions. We'll have more to say on these and other strategic initiatives at our upcoming investor event on May 24th in New York City. I sure hope you'll be able to join us on the 24th. Top priorities for the year have not changed. For the Rent-A-Center business, it is to grow and retain the customer base. We'll do this by expanding access to products and brands through our extended aisle offerings and by improving customer experience and engagement along numerous fronts. We plan to continue to invest in technology to enhance the digital and omnichannel journey for customers.
On top of these priorities, reducing loss rates back towards 4%, of course, remains a key focus. Top priorities for Acima include optimizing performance with existing merchants, growing the merchant base, including small to medium-sized business and enterprise accounts, continuing to optimize underwriting and continuing to enhance our technology capabilities. This includes recovery and account management improvements by leveraging the expertise and footprint of our Rent-A-Center business. We'll also continue to assess ramping up our direct-to-consumer solutions as market conditions become more supportive. We also recently published our second annual sustainability report, which highlights the solid steps we've taken in the past year and the robust plans for the coming year. A lot going on. Really pleased that we got our second annual sustainability report out recently.
In my closing, I just wanna thank the entire team for their continued effort and dedication. It really was, I've been impressed with the progress we made over the last year, and our opportunity going forward is tremendous, and I just see more great things coming. With that, I'll turn the call over to Fahmy.
Thank you, Mitch, and good morning, everyone. I'll start today with a review of the first quarter results and then discuss our fiscal year 2023 guidance, after which we will take questions. Beginning on page six of the presentation. As Mitch noted, we're off to a good start relative to our initial outlook for the year. The first quarter results were highlighted by continued improvement in loss rates, expansion of our margins at Acima, and strong overall execution despite a challenging macro backdrop. Consolidated revenue for the first quarter was down 12.4% year-over-year, driven by a 19.3% decrease for Acima and a 6.5% decrease for the Rent-A-Center business. Looking at revenue categories, the dollar value decrease was almost evenly split between rentals and fees revenue and merchandise sales revenue.
Rentals and fee revenues were down 8.6%, reflecting lower portfolio values for both businesses during the first quarter of this year. Merchandise sales revenues decreased 30% due to fewer customers electing early purchase options and a smaller Acima portfolio that resulted from a 23% year-over-year decline in GMV for the second half of 2022. Consolidated gross margin was 49.8% and increased 298 basis points year-over-year. The margin expansion was driven by a few factors, including a higher mix of Rent-A-Center segment revenue, a higher mix of rentals and fee revenue in the current year period for both businesses, and a higher portfolio yield for the Acima business in the current year.
We continued to manage costs well in the first quarter with consolidated operating expenses, excluding skip-stolen losses, down 6.1% year-over-year on a 6.1% decrease in labor costs, 15.4% decrease in general and administrative costs, and other operating costs down low single digits. Our disciplined approach to underwriting is working as a consolidated skip/stolen loss rate decreased year-over-year, led by a 370 basis point improvement for Acima. Loss rates also improved 40 basis points sequentially, led by a 100 basis point improvement for the Rent-A-Center business. First quarter consolidated Adjusted EBITDA of $111.5 million increased 12.1% year-over-year, with 136% growth for Acima and 16% lower corporate costs, partially offset by a 31% decline for Rent-A-Center.
Adjusted EBITDA margin of 11% was up approximately 240 basis points compared to the prior year period, with approximately 930 basis points of margin expansion for Acima, partially offset by approximately 550 basis points of contraction for the Rent-A-Center. I will provide more detail on the segment results on the next few slides. Looking below the line, first quarter net interest expense was $27.7 million, compared to $18.9 million in the prior year, due to an approximately 400 basis point year-over-year increase in variable benchmark rates that affected our variable rate debt, which was approximately $900 million at quarter end. The effective tax rate on a non-GAAP basis was 27.4% compared to 25.2% in the prior year.
The non-GAAP diluted average share count was $56.4 million in the quarter, compared to $60.1 million in the prior year period. GAAP earnings per share was $0.84 in the first quarter compared to an $0.08 loss in the prior year period. After adjusting for special items that we believe do not reflect the underlying performance of our business, non-GAAP diluted EPS was $0.83 in the first quarter of 2023, compared to $0.74 in the prior year period. During the first quarter, we generated $95.9 million of Free Cash Flow, compared to $188.9 million in the prior year period. We distributed a quarterly dividend of $0.34 per share.
Additionally, we paid down $42.6 million of our term loan and finished with a Net Leverage Ratio of 2.6x, down from 2.8x at the end of the fourth quarter. Drilling down to segment results starting on page seven. The Rent-A-Center business lease portfolio was down 3.2% year-over-year, which drove a 3.8% decrease in the first quarter rental and fees revenue and contributed to a 26.6% decrease in merchandise sales revenue. Merchandise sales were also impacted by fewer customers electing early payout options compared to the prior year. Total segment revenues decreased 6.5% year-over-year, with Same-Store Sales down 6.6%.
Skip-stolen losses increased 90 basis points year-over-year to 4.8%. Decreased 100 basis points on a sequential basis, consistent with our forecast assumptions. Past due rates continued to move lower in the first quarter, validating the underwriting changes initiated over the past few quarters and supporting our outlook for additional loss rate improvement over the course of the year. Adjusted EBITDA margin for the first quarter decreased 550 basis points year-over-year to 15.2%, primarily due to the deleveraging effect of lower revenues on fixed costs, as well as higher loss rates compared to the prior year period. This was reflected by a 280 basis point year-over-year increase in the ratio of operating expenses, excluding losses as a percent of revenue, despite the expense dollars remaining flat. Moving on to Acima.
Active merchant count was up modestly year-over-year for the first quarter, and average ticket size was up low single digits. Open lease count was down low teens year-over-year as a result of a mid-to-high teens decrease in cumulative GMV for the trailing three quarters. This drove a 19.3% year-over-year decrease in revenues, with rentals and fee revenue down 14.4% and merchandise sales revenue down 31.3%. As Mitch noted earlier, there was a meaningful shift away from customers using Early Buyout option in the first quarter this year, which drove 514 basis points of gross margin expansion for Acima compared to the prior year period. As a reminder, the yield on Early Buyout transactions is relatively modest due to higher cost of goods in the Acima segment.
Consequently, this does not require a large change in customer behavior to impact profitability. Importantly to note, it is too early to know if this shift is temporary or sustainable, or how this translates into future performance in this environment. Considering the proximity to tax season and the fact that tax refunds were reported to be down by an average of approximately 10% this year, some customers may have lacked the funds to exercise early options this tax season, which kept our portfolio values above our expectations. If this trend continues and consumers remain on rent longer, then this could support continued upside to our margins. However, if this trend is either temporary or a sign of future higher charge-offs, then that could put pressure on margins and losses and lead to further underwriting actions.
Skip stolen losses decreased 370 basis points year-over-year to 8.9%. Underwriting changes made in the first half of last year and our continuous monitoring of higher risk segments has continued to benefit losses since the high seen earlier in 2022. Looking at just the virtual channel, which is the majority of the Acima segment, loss rates were 7.7% and within the 6%-8% range that we had originally expected for the business. Adjusted EBITDA of $68.6 million was up 136% year-over-year, with lower losses, higher portfolio yield and lower operating costs more than offsetting lower revenue. Adjusted EBITDA margin of 14.2% increased 932 basis points year-over-year.
The results of our franchise segment were relatively unchanged compared to the prior year. Our Mexico segment Adjusted EBITDA was down approximately $1 million due to higher loss rates. Corporate costs were 16% lower compared to the prior year, reflecting lower general and administrative costs. Shifting to the 2023 financial outlook. Note that references to growth or decreases generally refer to year-over-year changes unless otherwise stated. Most of my commentary will be focused on non-GAAP results. Our revised forecast incorporates a strong start to the year and our cautious approach in this uncertain environment. For the full year, we expect to generate revenue of $3.8 billion-$4 billion, unchanged from our previous guidance. Adjusted EBITDA is now expected to be $395 million-$435 million, excluding stock-based compensation of approximately $23 million.
We are projecting similar to slightly lower margins compared to the prior year and to the first quarter as we expect gross margins to compress from highs seen this quarter. We are increasing our target range for fully diluted adjusted EPS to $2.70-$3.20, which assumes a fully diluted average share count of 56.7 million with no share repurchases built into the forecast throughout the year. For the year, we expect $200 million-$235 million of Free Cash Flow, net interest expense of $105 million-$110 million, and an effective tax rate of approximately 26.5%. Our forecast assumes a macroeconomic backdrop consistent with existing conditions, continued discipline and targeted underwriting, persistent inflation and a slight increase in unemployment.
Our outlook does not assume that the shift away from early purchase options that we experienced in the first quarter will continue throughout the rest of the year. We are also not including a meaningful shift or increase in applicants from trade down. For Acima, no change to our full year 2023 GMV expectations of down mid-single digits year-over-year. We expect merchant partner volumes will remain under pressure from the prevailing macroeconomic conditions and the continued impact of the significant demand pull forward. We expect GMV to be down mid to high single digits in the second quarter. For the second half of the year, we expect GMV will be flat to up low single digits. Although we are not changing our GMV outlook, as we've previously commented, application volumes are down across our retail partners, especially in furniture, which is our biggest segment.
Despite this headwind, we have demonstrated our ability to shift our mix to other product categories and believe we will be able to substantially offset the softening in furniture demand with merchant growth, digital volume and other sales initiatives. Similar to GMV, we are not changing our Acima revenue outlook for the year and continue to expect revenues will be down low double digits to low teens. Based on the first quarter gross margin expansion, we are increasing our full year Acima Adjusted EBITDA margin to be in the low double digits to low teens range and be towards the bottom end of the range in the second half of the year. We expect loss rates for the full year in the 8.5%-9.5% range.
The biggest variable we see is whether the shift from early payoffs was a one-time event related to lower tax refunds or a sustainable change in consumer behavior, and whether this dynamic in the first quarter will have an impact on delinquencies and losses going forward. Based on the unit economics of a lease transaction, this shift has a disproportionate impact on margin and profits. For the Rent-A-Center segment, no major changes to our outlook, except we do expect slightly better losses, especially in the second quarter as our underwriting changes continue to work through the portfolio. We now expect losses to be in the 4.5% area for the full year versus ending the year at 4.5%.
To reiterate our previous guidance, we expect 2023 revenues and Same-Store Sales to be down in the low-to-mid-single-digit range and Adjusted EBITDA margin to be in the mid-teens throughout the year. We expect the Mexico and franchising businesses will generate similar results to 2022. Corporate costs are still expected to increase mid-single digits. For the second quarter, we expect some of the momentum from the first quarter to carry over and for the total consolidated revenue to be down in the high-single-to-low-double-digits year-over-year, with Adjusted EBITDA margin in the 10%-11% range. Interest expense and share count should be similar to the first quarter of 2023, and the tax rate should be approximately 26%. Regarding capital allocation, the top priorities continue to be reinvestment in the business, dividend payments and debt reduction.
We are committed to paying down debt as demonstrated in the first quarter as we reduced gross debt by over $40 million and reduced leverage to 2.6x . Over the long term, we continue to target a 1.5x Debt-to-EBITDA Ratio, we will also appropriately weigh near-term opportunities to allocate capital that generate favorable risk-adjusted returns and create shareholder value, especially if consumer payment behavior remains strong, benefiting our margins and increasing our Free Cash Flow. In summary, we are encouraged by the progress the company has made over the past year, successfully executing a range of initiatives that have contributed to a solid start. There are several tailwinds that position us to continue to outperform our initial outlook, including disciplined underwriting standards based on our data analytics and a resilient portfolio.
At the same time, we understand that there is still a high level of external uncertainties today and demand may continue to be under pressure for durable goods. As we look out over the rest of the year, we are cautiously optimistic, which is why we raised our full year 2023 Adjusted EBITDA and adjusted EPS guidance. Longer term, we believe we have a compelling opportunity to create value for shareholders with a resilient cash flow generating business that also has significant opportunities for long-term growth. Thank you for your time this morning. We will now turn the call over for your questions.
Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bobby Griffin from Raymond James. Go ahead, Bobby.
Good morning, everybody. Thanks for taking my questions and congrats on some delivering some upside this quarter. I guess first, it's more of a high level question. I was just curious, what does the guidance assume the change in tax refund means? Because on one side you have people on lease longer, the portfolio can be larger and that could generate better earnings. On the other side, this could mean that these consumers now are facing more additional hardship because they didn't get the same level of refunds they typically depend on. Just curious kind of how you guys are attacking that and what you've assumed that means within the guidance.
Hey, Bobby. Good morning. Thanks for the question. I think you nailed it as far as kind of the balance that we tried to strike between, kind of the uncertainty that we're seeing, from this tax season. As far as our guidance and the outlook, what we're assuming is that our payment behavior from our consumers, kind of reverts back. We don't expect this type of performance or behavior from an early payoff standpoint to continue. We're assuming that our gross margins compress from the first quarter throughout the remainder of the year. We did note that the second quarter will have some of this momentum carry into it. We've seen that in April so far.
Throughout the rest of the year, the gross margin should come back down to what we initially thought coming into the year. As far as losses go, you know, on the Acima side, we mentioned we reiterated 8.5%-9.5%. So we did lower it a little bit from our initial guidance, but we kept the top end of the range just given that level of uncertainty. For Rent-A-Center, we mentioned that we've seen a continued benefit from both delinquencies and losses. So we continue to expect that to play itself through the portfolio and really perform well for the rest of the year. While we lowered the loss forecast to 4.5% for the full year.
The guidance really is around things kind of normalizing and not continuing the way we saw in the first quarter.
Yeah, I think I'd add to that, Bobby. Oh, sorry, Bobby. This is Mitch. I just was gonna add to that. You know, certainly when Fahmy's talking about, you know, normalizing from a payoff standpoint, certainly if they stay lower, you know, that's upside. When it comes to payments, we certainly aren't forecasting everyone, you know, being able to pay us perfectly even though they weren't able to pay out. Obviously, a muted tax season is gonna put some pressure on payments going forward. We tried to walk that line in our guidance with a lot of uncertainty.
Whereas if you assumed everybody was just gonna pay us fine now that they didn't pay out, especially on the Acima side, you'd be quite a bit higher than what we guided to. You can't assume that. I think it'd be wrong to assume that. Some are gonna default on this and it doesn't mean we'll necessarily lose money. If people, you know, the margins are so low on the payouts, if somebody gets a couple of months farther into it and then defaults, you know, we probably still made more than if they would've, if they did the 90-day payout, especially on the Acima side, where you don't get that difference between wholesale and retail. You know, it's a fine line.
It's certainly gonna put some pressure on payments going forward, and we factored that in and, you know, with all the uncertainty, we think we factored in appropriately.
Okay. Thank you. I appreciate that. That's helpful. I guess secondly, for me, just on the GMV upside, I guess, versus our original expectations here in the Acima. I was curious then, what do you think is driving that? Is that the potential trade-down that you're starting to see? Because I think for most of our checks, you'd say retail likely weakened during the quarter, and it looks like your GMV, based on when we talked last, actually got a little bit better as we moved through 1Q. Just curious on what do you think drove kind of that directional change versus the corresponding, you know, just retail trends that we saw from a top-line standpoint.
Yeah, good question. I think, you know, it was primarily in conversion rate because the retail traffic wasn't great, to your point. A lot of it was conversion rate. There's probably some trade down in there. We're certainly seeing trade down in it, as we mentioned in the prepared comments, and that's even more so more recently than. If you go back to the beginning of the first quarter, there wasn't a whole lot you could see. Certainly as the quarter went on and you get into April, you see it more pronounced, like I said, as we mentioned. Conversion rate was higher. I think we've done a good job on the flow and making the flow better from a technology standpoint, from a conversion rate standpoint.
I think we got some help from the. You know, we did have merchant growth in our Acima segment, so we put on more. We're still adding merchants. You know, we haven't signed any real big ones yet, but we're still adding merchants, you know, hundreds of merchants in the first quarter. I think it was around 400 merchants added in the first quarter, net add in the first quarter. We're adding merchants. Certainly the conversion rate as we continue to improve the technology in the marketplace. Our online marketplace had good growth in it. I think when you put all that together, the merchant productivity was higher with the conversion rate.
We added merchants in the marketplace and then we were, yeah, 2%, 3% better than we thought we'd be from a GMV standpoint. Quite an improvement from last quarter when we were down 23% to be down, you know, just 12%. Which we're not happy being down 12%, don't get me wrong. You know, we think we can get back to flat by the 3rd and 4th quarter, flat to slightly positive. 2nd quarter will be better than the 1st, so it's trending in a real positive direction. Again, our online direct-to-consumer marketplace is a part of that as well.
Thank you. I appreciate the details. Best of luck here in the second quarter.
Thanks, Bobby.
Thank you. Our next question comes from a line of Jason Haas from Bank of America. Go ahead, Jason.
Good morning, and thanks for taking my questions. Maybe to start, I was looking at the charts that show the past due rates in the slide deck, it looks like the Rent-A-Center past due rates have come down nicely over the past few months, whereas like Acima has been flatter even, you know, slightly up. Is there anything to read from those trends? I know it's just a few months here, but I'm curious if there's anything to note between those two businesses.
I would say, Jason, that, you know, Acima started tightening sooner than Rent-A-Center last year. When you look at those past due rates, or especially the losses, the past due rates compared to last year in the first quarter are quite a bit lower, even though they're pretty flat recently. You know, the losses, you look on that same chart right above it, the 8.9% losses for the combined, the virtual and the staffed acceptance now business, the 8.9% combined, and that compares to an 8.6% in the first quarter of 2021, which had to be about as low as you can get the first quarter of 2021 when you're talking about a stimulus standpoint. We're pretty happy with where it is.
We're also, you know, balancing it with GMV. We can always tighten more if we need to, and certainly we'd look for areas where there's potential to drive more GMV. I think the difference, though, the short answer to your question is, Acima tightened sooner and brought their delinquency down sooner than Rent-A-Center. Rent-A-Center, when that popped up, if you look at their chart, when that popped up in the summer and we started tightening pretty hard, you're really seeing the impact here in the first quarter. I think it's really just a matter of timing of when one came down a lot versus the other one more level.
Got it. Thank you. That's helpful. I know you've mentioned on the in the prepared remarks that you're starting to see the benefit of credit tightening and trade-down, which is great because I know we've been looking for that for some time. Are you seeing more of the benefit in the Acima segment or in the Rent-A-Center segment?
I'd say probably slightly more in the Acima segment, but it's in both. It's certainly in both when we look at our third-party scores. you know, it's a little more. I'd say, yeah, I haven't quite analyzed exactly, like, I have a Fahmi. I think it's a little more in Acima, but it's really in both.
Yeah. It's on both sides. When you look at the Rent-A-Center business and you break it down between in-store and on the web.
Yeah.
You see a really big difference in our third-party credit scores on the web, which is could be a sign of trade-down because new customers may not wanna come into the store, would rather kind of test it out online. There's definitely signs over the last two or three months and into April, really on both sides of the business.
Yeah. It's a good point. On the web, we're really happy with that. The e-com business continuing to grow on the rentacenter.com site.
Great. That's helpful. If I could squeeze one more in. I was curious, you talked about an expectation for acceleration in GMV through the year to get to, I think you said flatter, slightly positive. Can you just talk about what the drivers are there? Is that largely a function of you'll be lapping the credit tightening that took place last year? Is there anything else that gives you confidence that you should see an acceleration through the year on GMV?
Yeah, I think that your point, that's the biggest reason, is that the, we count the tightening because it wasn't like we only tightened once last year, and it was one and done, you know, February first or something like that. Or when Aaron Allred came back and grabbed a hold of the underwriting in, you know, early March or something. It wasn't like a one and done. Yeah, I think later in the year, we're fully capping it. You know, we've got merchant growth. We continue to expect merchant growth over the course of the year. Again, the fully capping the tightening is the biggest reason.
When you think about merchant growth, a little better conversion rate based on some of the enhancements we've made to our technological flows, and then the marketplace growing, you know, all add to it, to the number one point that you made.
Yes. Maybe I'll add to that a little bit. Just going back to what Mitch mentioned earlier around our conversion rates and things like that. I really look at it also as part of us optimizing our underwriting. You know.
Yeah.
We've been now tightening for, you know, almost a year or a little over a year, and we continue to find ways to further penetrate our existing merchant network, with just better underwriting and trying to find those pockets where we think we can potentially expand and in pockets where we find some higher risk, and we need to contract. It's also just us optimizing our underwriting practices inside of our existing merchant base, as well. Also the mix. You know, the mix of products and our ability to, you know, shift. If furniture is having a rough couple quarters, you know, you shift into auto, you shift into jewelry, and we've demonstrated our ability to do that.
Those things, coupled with the comps, gives us confidence that by the end of the year, we should start seeing some better year-over-year gains.
It's great to hear. Thank you.
Thanks, Jason.
Thank you. The next question we have comes from the line of Vincent Caintic from Stephens. Vincent, your line is open.
Hey, thanks. Good morning. Thanks for taking my questions. First, on the Acima side, wanted to talk a bit more on that merchant engagement. I guess on the existing partner side of when thinking about Same-Store Sales, you know, how are the discussions going with merchants to drive more sales in this environment? Are you getting any more discussions perhaps to do from the merchants to promote more leasing or any other promotional activities? On the pipeline for new merchants, how are those discussions and, you know, what are the potential maybe frictions or concerns that merchants are having before signing? Thank you.
Yeah, sure, Vincent. Good morning. Yeah, it does seem to be picking up as far as the pipeline for new merchants. You know, the SMB side, we continue to add, like I mentioned, like 400 in the quarter, net. That continues on the SMB side, and there is a lot more activity, on the bigger accounts, too. I think there's that's starting to happen as far as the seeing tightening of from prime and near prime lenders. I think people are realizing that.
A lot of our current partners, Vincent, talk to us a lot about how if we can drive more traffic to them through our marketing, which we do, you know, because we got millions of customers in our database that are already approved for dollars. We got millions of customers over the years, even going back before Acima, from a Rent-A-Center standpoint. We've got a lot of customers to market to. As retailers, especially in the furniture space where it's been slower, as they ask for help and how we can drive more business, we certainly, you know, try to spread our marketing around to those merchants.
I think that's one of the reasons that our channel checks, they were gaining a little bit of share and not going backwards at all and actually gaining share compared to some of their other options. It's been especially tough for some of our furniture partners. Again, we're doing all we can to help with the marketing side. Yeah, there is more chatter around that as I think the prime and near-prime lenders tighten.
Oh, okay. That's great. Thank you, Mitch. Finally, switching over to the funding side, just, you know, with some of these broader macro concerns and some of the, some of these banks going under and maybe some pulling back on availability of credit, can you talk about your financing, your discussions with your financing partners and any needs you might have? Thank you.
Yeah, no, we're very happy with where we are from a liquidity position. You know, we have about $560 million of liquidity, about $400 million available under our revolver and a healthy amount of cash. From a liquidity standpoint, we're in really good shape. We were able to pay down some debt this quarter and drop our net leverage down from 2.8x to 2.6x. We're doing very well from a liquidity standpoint. Really have no concerns and can really fund up if some of the enterprise accounts, as Mitch said, mentioned, do pop up. We have plenty of liquidity to service those type of clients.
You know, some of the things from a macro standpoint we view as, you know, could be positive for us. If it causes other lenders above us to tighten up, you can see that accelerate some of the trade downs that we've been talking about.
Okay, great. That's very helpful. Thanks very much.
Thank you. The next question comes to the line of Alex Fuhrman from Craig-Hallum Capital Group. Alex, your line is open.
Hey, guys. Thanks very much for taking my question, and congratulations on a really strong start to the year. Mitch, I wanted to ask just from a high level, I mean, it sounds like obviously a huge opportunity for both of your businesses to take a lot of market share as we're starting to see credit tighten across the board. How do you kind of weigh the opportunity to continue to take market share against, you know, the pressures you might be feeling to further tighten your own credit standards, just given the rise in interest rates and, you know, potential economic slowdown that everyone else is seeing? Just from a high level, would love to hear about kind of your main puts and takes as you balance those two things.
Well, thanks, Alex, and thanks for joining us this morning. Yeah, the good part of that question or the best part is that the When there's tightening above us and those customers come into the top of our funnel, those actually help with the underwriting because they're the top of the funnel, right? It actually would allow us to either carve off a little more on the bottom or take it all, and then it just depends how we're performing at the bottom of the funnel. You don't automatically cut off something at the bottom 'cause the higher score is coming in at the top. If they're performing at the bottom, you just take it all.
It does allow you to even to even be even maybe even more critical of the bottom rung, the bottom 5% if you had 5% more at the top. Really what happens is one really helps the other. I guess that's one of the benefits of being, quote-unquote, "at the bottom of the funnel" versus, you know, in the middle or at the top of the funnel. At the top of the funnel, you know, when you carve off something on the bottom, there's nothing helping at the top, as this slowdown starts to, you know. Of course, our subprime customers had the slowdown last year. They had their recession in 2022, and now there's been a lot of adjustment.
If you're at the top of the funnel and it starts to get into middle income and upper middle income, it's tough to replace it. For us being at the bottom, they actually work very well together and there really can't be much of a better scenario for us.
Great. That's really helpful, Mitch. Appreciate that. You know, just thinking about these customers that you're starting to get at the top of the funnel, are they buying, you know, the same types of items and opting for similar terms as, you know, the customers you've had for years? If you could just kinda share, you know, how these customers are kinda acting compared to the customers you've had for longer.
I'd say same product categories. Of course, if you're at the top of the funnel, you tend to get approved for higher dollar amounts than if you're at the bottom. You know, it kinda automatically ends up where maybe their ticket is higher. The higher you are up in the funnel, the ticket's gonna be higher just 'cause you get approved for more when you're at the top of the funnel versus the bottom. It's another case of one feed to the other. When you're at the top of the funnel, it kinda becomes automatic that you have more to spend. You know, not surprisingly, though, the better customers don't use all of the approval as compared to customers in any underwriting scenario.
When you're more towards the bottom, they tend to use everything you approve them for, whereas, you know, people that are much more, just have a higher propensity to worry about being able to make every payment on time and those kinds of things will be more cautious with their approval amounts. It kinda works its way out, that way out because the way the top of the funnel performs. That's why it's such a good scenario for us. To see this trade down at least starting and hopefully continues and even accentuates.
It's another reason why we're adding so much emphasis to our digital capabilities and to that marketplace on the Acima side. You know, the more we can offer them, different retailers and different products, once we get them in the door, the more they're likely to do another lease with us. As we think through that, having better customers and then giving them a variety of products, especially on the digital front, we think that's upside, especially later in the year.
Okay, that's really helpful. Appreciate that very much.
Great. Thanks, Alex.
Thank you. Our next question comes to the line of Brad Thomas from KeyBanc Capital Markets. One second, Brad.
I just wanna follow up with another question on sort of underwriting from a big picture context, and was hoping you could zoom out a little bit and maybe give us some more perspective about where you are from kind of a tight versus loose standpoint versus maybe some of the pre-pandemic levels. You know, just how that's set up in the two different segments. Thanks.
Well, from a pre-pandemic standpoint, there's no question we're a lot tighter than we were pre-pandemic. Even though you think obviously we're a lot tighter than during stimulus, even when you go to pre-pandemic, I would say we're a lot tighter than that, certainly on the Rent-A-Center side. We didn't own Acima pre-pandemic, in talking to the folks that have been there in the underwriting team, I think they would still say it's even tighter than pre-pandemic. Fahmi's sitting here shaking his head. I think to the best of our knowledge of the way they underwrote, you know, before we acquired them, that it's even tighter than pre-pandemic.
Certainly Rent-A-Center isAlso say the way we look at it now is a lot different than it was even in the middle of the pandemic, and then definitely pre-pandemic on how we take more of a data-centric view of our portfolio and the customer. We look at things at the merchant level, the category level, the customer type, you know, whether they're.
Yeah.
returning, whether on the Rent-A-Center side, whether it's, you know, online versus in the store. It's just overall tighter. Also, the way we look at it is much different. It's actually hard to compare actually. That's probably what the guys in Salt Lake on the underwriting team say, "I don't know how to compare it to 2019." With the, you know, with the different tools we have now and the data-driven aspect of it. You're, you're right, Fahmi, I mean, even on the Rent-A-Center side, it's just that it's really a whole different process of how much better we've gotten at it. Overall, I think you'd still say if you had to pick one, you'd say it's tighter than even pre-pandemic, Brad.
That's really helpful context. Thank you for that. Then a follow-on, up on the Acima side. You know, just as you assess the health of your network, you mentioned your growth in accounts. I guess we, you know, we're in a landscape where we're seeing retailers have to close stores and go out of business, the Bed Bath & Beyond, the Tuesday Morning of the world that of course merchant partners. As you look at your retail partner network, how do you feel about the health of them and can you talk about drivers that you might have to redirect business if you end up, you know, with some stores that have to close?
Yeah, I think that's, you know, for us, a big advantage we have is how diversified our portfolio of partners is. You know, we wanna be getting in a whole lot more enterprise accounts, but right now, there's no one or two merchants that are even gonna move our needle. That's the we don't worry about that a lot, Brad, 'cause it's so diversified.
Certainly on the furniture side, you know, there's some, you know, very small retailers, you know, that, with a couple of stores that maybe, you know, not making it through the Pandemic now that the cost of money is so much higher and business has slowed down a little bit, and maybe they didn't stash enough of the money, you know, during the stimulus era and all those kinds of things. There's certainly a little of that going on, but hardly noticeable to us just based on how diverse we are in our partner base.
Really helpful. Thanks so much.
Great. Thanks, Brad.
Thank you for your questions. I would now like to turn it back to Mitchell Fadel for closing remarks.
Well, thank you, Haley, and thank you everyone for joining us this morning. We appreciate your time. congratulate the entire Upbound team on a great start to the year, whether it's Acima, Rent-A-Center, Mexico franchising, you name it. Congratulations, everybody, for a great start. We hope to see all of you on the 24th at our Investor Day up in New York, where we'll talk more longer-term strategic initiatives and longer term, I should say, financial metrics and things like that. look forward to seeing you on the 24th, and thank you again for this morning.