Q4 2023 Upbound Group Inc Earnings Call

Participants

Jeff Chesnut; SVP, Strategy & Corporate Development; Upbound Group, Inc.

Mitch Fadel; CEO; Upbound Group, Inc.

Fahmi Karam; EVP & CFO; Upbound Group, Inc.

Kyle Joseph; Analyst; Jefferies Financial Group Inc.

Bobby Griffin; Analyst; Raymond James Financial Inc.

Brad Thomas; Analyst; KeyBanc Capital Markets Inc.

Anthony Chukumba; Analyst; Loop Capital Markets LLC

Alex Fuhrman; Analyst; Craig-Hallum Capital Group LLC

Hale Holden; Analyst; Barclays Capital Inc.

Presentation

Operator

Good day and thank you for standing by, and welcome to the Fourth Quarter 2023 up Bank Group earnings conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During the session, you need to press star one on your telephone. You will then hear or read a message advising your hand is raised to withdraw your question, please press star one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Jeff Chesnut, Head of Investor Relations. Go ahead.

Jeff Chesnut

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 this morning before the market opened and the release and all related materials, including a link to the live webcast, are available on our website at investor.upgroup.com.
On the call today from a bank group we have Mitch Fadel, our CEO. and family custom, 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.
Outbound 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 the reconciliations to the most comparable GAAP financial measures.
Finally, a bound 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 webcast with that, I'll turn the call over to Mitch.

Mitch Fadel

Thank you, Jeff, and good morning to everyone on the call today. I'll begin with a review of 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 will take some questions as we reflect on our achievements throughout 2023. We believe our business took meaningful steps forward across both major segments and a new shared services holding company had a CMO. We saw growth in both customer base and our retailer network. We also continued to develop our direct to consumer options with the virtual CMO marketplace, where our customers can shop at various merchants across the country, including unintegrated merchants to select eligible products. And then our lease with Acima returned to year-over-year revenue growth in the fourth quarter, driven by a 19% increase in GMV. The investments we've 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 will remain disciplined on underwriting with the CMO losses stable throughout the year. Our disciplined and targeted approach to underwriting, combined with normalizing customer behavior drove material year over year. Profitability improved with full year 2023, gross margins increasing 340 basis points and adjusted EBITDA margins increasing 490 basis points versus 2022 at Rent-A-Center remain 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 our 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 upfront group reflects our combined platform, which enables us to meet our customers wherever they are, whether in our stores at leading retailers across the country or online, creating the fund 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 leveraging the capabilities of the CMO underwriting and data scientists across the consolidated business, which has produced promising early results that should benefit us in 2024 and beyond 2023 market 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 well as evidenced by the growth strategy we highlighted at our Investor Day last May our focus on deleveraging the balance sheet and our ongoing return of capital to our shareholders. Collectively, these initiatives produced a strong year, built the foundation for our future and positioned us 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 as a CMO and a replenishment of inventory at Renaissance during the holiday season that seem have finished 2023 with the largest portfolio values we have seen in the last two years in Rent-A-Center hit 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, the product offerings. And as Seema, we continued 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 2022. We also continue to test, learn and iterate as we work to expand our LTL solutions and incorporate credit offerings to further benefit our large customer base and leverage our new outbound 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 Concur 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, we believe the non-prime consumer enhancement and we expect will continue to be resilient in this macro environment.
From an underwriting standpoint, the continued performance of the broader economy, help guide our decisions on risk and that the full year loss rates and improved 40 basis points at RentACenter and 130 basis points to the Sema will certain aspects of the economy seem to have stabilized for the consumer. It does remain under pressure and will 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 5, we can see the details behind our segment level performance at a CMO year over year. Revenue trends improved throughout 2023, culminating in a return to top-line growth in the fourth quarter. The same as 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 for the average ticket size was also up slightly as Siemens 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 for 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 to simmer for strong growth in 2020.
For Siemens loss rate declined 130 basis points from 10.6% in 2022 to 9.3% in 2023. We have carefully adjusted our decisioning algorithms across the year in response to economic developments, 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, assuming realized 35% year over year growth in adjusted EBITDA, the $294 million in debt represents the largest full year adjusted EBITDA amount for Acima in its history, and we look forward to building off such strong results.
Brennan 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 in a similar 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 due largely to improved customer retention and an uptick in the number of open leases.
An important factor in rent Ascentage performance was the strength of the web channel, which hosted 31% more visits and 16% 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 wherever and whenever they prefer Renner centers 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 nearly 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 RentACenter portfolio is well positioned for solid performance in 2024. Our priorities for 2020 for build up the strategy we outlined at our Investor Day and the achievements we delivered in 2023 for a CMO. We plan to continue to grow our top line with small and medium sized businesses as well as expand our push into larger regional and national enterprise-level accounts. As we continue to widen our merchant network, we are equally committed to deepening penetration with our existing retail partners in January and more leases per merchant per month. 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 are focused on providing proven and flexible solutions for their business and their customers while continuing to simplify the integration process. It seems like the 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 theme of platform, the migration of a now. And if you see, my 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 e-mail business will benefit from the enhanced virtual underwriting capabilities and customer experience is seamless, 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 will supplement in 2024 with the dedication and optimizing efficiencies across our organization for LSS plan for 2020 for builds off the momentum we've built in the back half of 2023 in 2020 for Rent-A-Center will focus on continuing to service customers with desirable name-brand products and hard goods, consumer electronics, jewelry and automotive verticals.
Additionally, as we add digital touch points with our customers, whether via text e-mail in app or on the website we can offer them relevant and time-limited promotions for exclusive deals and products at 12 drops of Christmas promotion created awareness, drove interest and helped compound the seasonal lift we saw in December. We also deployed optimizations to our online product recommendation engine that lead to more relevant product suggestions, higher engagement and better user experiences throughout 2020 through marketing and personalization efforts created the largest year in our history for rentacenter.com with web visits, as I mentioned, up 31% in web orders, up 16% year over year, and 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, we are preparing for more growth in the online channel. And an important element of this initiative is the 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 reliable and seamless experience to our customers, whether in-store our 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 up bound 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 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 for 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 deleveraging plans.
Before I hand it off to Sam, I'd like to emphasize how proud I am of our whole team for their focus and determination in delivering such strong results for 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.

Fahmi Karam

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 the CMA up 6.6% and rental center down 1.7%. Rental 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 CMS 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 low 10s 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 expectation on a sequential basis, the consolidated loss rate increased 50 basis points due to a modest uptick in the CMS segment, driven primarily by the legacy Acceptance Now business, putting the pieces together consolidated adjusted EBITDA of $107.6 million decreased 2.2% year over year as higher SMS segment EBITDA was offset by lower RentACenter 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 a CMO, approximately 10 basis points of contraction for RentACenter and a 40 basis points increase in corporate costs as a percent of sales. I will 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 a on 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 to $0.37 per share with our January 2024 payment drilling down to the segment results.
Starting on page 8 for Astemo GMV. Year-over-year trends continued 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. Value of assets under lease was up mid 10s, 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 rental and fees. Revenue. Merchandise sales or revenues decreased 3.9% year over year due to fewer customers electing the earliest purchase option with them with a mix of those transactions for the fourth quarter returning to pre-pandemic levels Skip stolen losses for this theme of 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 the CMO consolidated results. In line with our expectations. We have continued tightening underwriting and a now to optimize performance. And more importantly, we are in the process of completing the migration of some of our larger merchant partners from the A. Now under underwriting decision engine over to the CMO platform. We expect to finish this transition in the first quarter of 2024. This will strengthen our underwriting capabilities and should reduce loss rates at least cohorts from the legacy system wind down throughout the year on a combined basis, including assume a virtual and a 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 and improved 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 continued 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 deleveraging effect of lower revenues on less variable costs. This is reflected by 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 for adjusted EBITDA of $456 million with 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 four to $4.2 billion and adjusted EBITDA of 455 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 are 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 macro economic 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 cash flows dedicated to investing in profitable leases reduces our overall free cash flow in the short term, but should support stronger results later as we benefit from a larger portfolio for the SMEs 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 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 assumed 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, a now portfolio, which will wind down as the year progresses. Adjusted EBITDA margin is expected to be in the mid 10s 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 10s range consistent with 2023. We expect the Mexico and franchising businesses will generate similar results to 2023, and we expect corporate cost 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 contribution from those initiatives in 2024. As we proceed through the year, we will 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 and retailer waterfalls and specifically the proposed rule changes around credit card late fees. If the CFPB's new rule is finalized as proposed, that 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 LTL offering. This potential trade down could cause more consumers with a stronger and more resilient credit profile relative to the traditional LTL 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. Assuming 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 $0.7 to $0.8. We expect consolidated adjusted EBITDA margins to expand falling in 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 a seam as the back book from the legacy now business winds down and assume a 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 deployed it in support of our strategic priorities. Our top priority remains investing in the business to position us for ongoing success. We will 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 are committed to our strong regular dividend and strengthening our balance sheet by reducing debt over time. In addition, we will evaluate other strategic deployment 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 deleveraging as we advance towards our long-term target net leverage ratio of 1.5 times. The net leverage ratio of 2.7 times as of year-end reflected the impact of $69 million of debt paydown 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 about 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 on 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 here.

Question and Answer Session

Operator

And as a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again, please standby, we compile the Q&A roster. One moment for a first question. Our first question comes from line of Kyle Joseph from Jefferies. Your line is open.

Kyle Joseph

Hey, good morning and thanks for taking my questions. Just on the free cash flows in 23, looks like it came in a little bit below your guidance. Is that really just a function of the better growth at Siemens or the better GMV growth that I see?

Fahmi Karam

Hey, Kyle, good morning. Yes, that's what it was causing a lower free cash flow for the year. As we stated, the GMV came in above our expectations and so we'll have an impact on the short term on free cash flow, but will benefit from the longer in the long run from a higher portfolio?

Kyle Joseph

Yes, I think that's a good segue on. Obviously, yes, GMV was really strong in the fourth quarter. Is that kind of the new run rate or was there any sort of one-time things related to holiday sales of just trying to connect GMV in the fourth quarter versus your revenue outlook at the segment?

Mitch Fadel

Hey, good morning. Kind of a smidge of. Yes, I wouldn't I wouldn't call it 19%. The new the new run rate, although I will tell you, it's held up really well going into this year of our guidance for and I'll come back to that in the second guidance for 24 is mid to high single digits on GMV for Siemens. So we certainly expect to continue. In fact, it will be higher than that at the beginning of the year. If we get a little lower as we comp over the plus 19% in the fourth quarter. And in fact, January was in the 15% range in February is looking to repeat that so far with obviously, February is not done yet, but we're talking about 15% January and looking about the same so far, at least in February. So really strong momentum. We're seeing mid to high single digit GMV growth for the year because it will get a little tougher as we get later in the year. But we'll need capital over 19 in the fourth quarter, but really strong, but obviously at the 19% really strong so far this year. And we're really happy with the demand and the overall performance of the Sema, keeping delinquencies flat with all that growth and good underwriting and everything we just talked about in the prepared comments, but a lot of momentum, a lot of new merchants a lot of in fact, we I think it was on one of the slides or it is on one of the slides. We added 6% merchant growth.
Our productivity per merchant went way up in the quarter, about 25% increase in productivity per merchant. Our direct to consumer almost doubled the business from last year in the fourth quarter our e-com did double in the quarter, smaller numbers, but those numbers doubled. So every every aspect of their business is going really well.

Kyle Joseph

Got it. Yes, that's great. And then last one for me and I can hop back in the queue, but just just talk about what what merchandise you're seeing really strong growth in at SEMA? And then some are you know others where you're not seeing the growth, is it really kind of consumer electronics as a tire and then how furniture and mattress been trending as well? And that's the last one for me. Thanks, guys.

Mitch Fadel

Sure, Kyle. Yes, 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 a lot of headwinds. We grew in all of them. All the ones you mentioned, everything were, and it was pretty consistent across the board. Of course, you know, the again, it's not just a matter of our current merchants, just yes, more productivity within the current merchants, we're adding a lot of merchants like it's at 6% growth in more coming in the first quarter. So adding merchants and getting more productivity in each category is the is driving those numbers.

Fahmi Karam

Yes. And maybe just to add to that, how 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 to make sure that we're monitoring that from an underwriting standpoint. But even in furniture, we talked about ASPs 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 doing exclusive on actually.com, which is one of our biggest, the biggest accounts and doing that it gives us more apps to look at. We actually had a lower approval rates in the quarter. So we were able to be a little bit more selective and still grow GMV year-over-year?

Mitch Fadel

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

Kyle Joseph

Okay, very helpful. Thanks a lot for answering my questions.

Mitch Fadel

Thanks.

Operator

Our next question will come from the line of Bobby Griffin from Raymond James. Your line is open.

Bobby Griffin

I guess first, Mitch, I wanted to maybe just unpack the GMV growth and it seemed a little bit more if possible and spend a few moments there on look to 19%, a pretty notable flipped from trends. And I would say, you know, our checks at least from the investor side that retail was just okay, probably during 4Q and maybe even in the categories you guys do is a little less than. Okay, so you can can you 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?

Mitch Fadel

Sure. Sure, Bobby. It's a good question. I think, you know, at the end of the day, we're taking share just to cut to cut to the chase. And when I say we're taking share, there's different ways of taking share you can you win an account taken away from from someone else where you can get in a better position with that account because you're because you're servicing them better or the core of the flow is better. They are the account flow, whatever. So you can get in first position with it where with retailers that have more than one LTO option in the store. We had some where we got exclusivity in the store. We had some we took took the account from a competitor where so it's a combination of those things. I think when you sum it all up, we're taking share. And in one of the big successes of Sema, as you know, Bobby of Sema has a fantastic one of the things we love three years ago, three years ago, last week when we acquired a seamless or sales team, I'm out in the field and with it with a strong sales team and the way the Company built with a diverse sales team and really go after the regional and SMB accounts. And of course, we've got the enterprise team to so we've got a multi-prong, diverse approach where this fantastic sales team between the people on the field and some inside sales support year over 100 people, probably about 125 people in total and they just keep adding accounts and servicing those accounts well. And we just keep keep adding not only getting merchants but getting in better position with merchants being first one, they run. And as long as we improve their customer than they don't run them through anybody else, things like that, taking account taking market share and then we've got we got some good regional wins. We got some national wins. You know, I'm on the Board, some bigger accounts like actually the family mentioned the we got the enterprise team going after the big accounts. But as you know, the biggest accounts are such a long sales cycle. We don't just rely on going after those big accounts where we're growing merchants whether we get a big account or not, we don't rely on that. We're in the in the conversation with every one of the large accounts. But like I said, the sales cycles. So darn long, we don't put all our eggs in that basket where we have much more of a diversified growth strategy. We are in that in the sales team. It's one of our differentiators. There's other differentiators that the sales team uses like the options we have for retail partners to be virtual or second, we can staff stores if they're high volume they can do either or some stores can be staffed. Some can be virtual. We've got a great e-com platform. We've got full online capabilities for any retailer that wants the once you have the full online checkout capabilities, I mean, for any retailer that wants to use that a lot of them do and then the direct to consumer, the consumer marketplace that doubled year over year. So I think when you put it all together, we've got a lot of diverse growth vehicles, not everything all in one basket, and we're taking market share.

Bobby Griffin

Very good. That's helpful. And I guess secondly for me, I don't want to call one quarter a huge flip and trend. But decipher, hypothetically speaking, if this does kind of build from here. Can you talk a little 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 at a good scale, really on both sides of the business, the core Rent-A-Center stores as well as the CMO. And if we start to see kind of more sticky, meaningful GMV growth on you guys can handle it? And what would it kind of flow through at?

Mitch Fadel

I think we're in a good scale. We mentioned Fahmi mentioned, we saw about a 2024 outlook. We would keep it the by building scale and by adding things like technical invest, technology investments and so forth. They were able to keep our percentage our corporate overhead percentage the same as last year, which is which I think going forward when you start talking about 25 and beyond, we talk about leveraging the revenue growth, obviously this year, keeping that percentage flat and then seeing leverage down the road as the revenue grows. But I think this year we've got the investments already in there keeping the percentage the same because with revenue growth, you should actually see it go down a little bit. But because of some of those investments we've had to make there in there. And so I don't think you would have to go over that. And I think actually, if you want to look longer term like '25 and '26, you'd be talking leverage against that number and probably the highest royalty revenue as RBS. The high growth that we're talking about is actually a CMO, obviously being a virtual business you can you can really scale that business up without adding a lot of expenses.

Bobby Griffin

Craig, it is great to hear. I appreciate the details on best of luck here. Finishing off the first quarter.

Mitch Fadel

Thanks, Bobby.

Operator

One moment for our next question. And our next question will come from the line of Brad Thomas from KeyBanc Capital Markets.

Brad Thomas

Your line is Good morning. Thanks for taking my questions. I wanted to kick off with maybe one more follow up on the GMD. dynamic. That seems so far it seems that such great momentum here right now. Wondering if you cut the data and you 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, Danny, you have if that math is much overlap between the assume a customer in the restaurant or customer, as you might guess?

Mitch Fadel

It is certainly a question. As we look at the demographics, there's a bit of a spread between them, the customer going and shopping for retail and getting denied or maybe not having traditional financing options. There's a pretty big difference between them and we don't see a whole lot of overlap. We see, you know, as you probably know, Brett, the the repeat businesses, extremely strong and run the center. Of course, you get every product under one under one roof at Rent-A-Center and it's a little more the demographics a little different than you've seen with customer. See, depending on the year, we will see as much as 70% repeat business and RentACenter seamless about half of that from a repeat business standpoint, something we're always trying to grow because you know the again, it's more diversified. If they got tires somewhere, they got furniture somewhere that it may be a few years before they come back and use the same month, we only count repeat business if it's of within a period of time. I think it's I think it's 12 months when we counted as repeat business. So we do get a lot of repeat business. I guess the short answer is we get a lot of it more reticent and we do it I seem to participate the virtue of the way the business models work, but I think where the expansion of the consumer base, well, let me put it this way. If 35% percent roughly of the seamless customers that are repeat business, obviously 65% of new. So a lot of new customers coming through the pipeline more so in December than RentACenter because we're getting into all those retail partnerships. You're talking about 30 over 35,000 retail partner stores. So you could do a lease and deceive and not to mention the direct to consumer stuff and yell at 30, I think 35,000 and then a website like Wayfair is one customer, right? So there's an awful lot of places that LTL is becoming much more popular and much more mainstream through these really retail partnerships and a lot of new people are being exposed to it.
And I think CNO especially if the economy gets any worse going forward or even more people get exposed to it, more people need it. Family mentioned the deal, the credit card fee, late fee kind of thing could affect some accrual rates above us and we will make it more trade down going forward. We didn't build that in, but it certainly could be a tailwind for so a lot of people need LTO and a lot of people getting exposed to it every day.

Brad Thomas

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

Mitch Fadel

Yes, Brad, you know, it is underwriting and 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 we reduced the approval rate in the fourth quarter and still have have that growth from an opt-in from an underwriting standpoint, we tried to optimize our decisioning for EBITDA dollars and the yield that we've seen specifically at a CMO 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 that high of the higher yields allow us the ability to absorb potentially higher losses down the road if the macro worsens and still generate those mid 10s. So we feel good about our capabilities to manage it and produce the returns that we're looking for.
And the other exciting thing about the underwriting is not this is Acima. We mentioned that we're taking our legacy business, we only have two more large retailers to convert, and that will be done by the end of the first quarter that gets sold that we're excited about the early results of of accounts, we've already switched over there, again, getting in line compared to the underwriting that Acceptance Now was using. And we're excited about that because after we get through. As Bami mentioned, if we get the first half of the year, the losses come down from where they are now based on the consolidated losses come down after those accounts run through, and then we'd have all of a now on it, looking at some of those best practices, some of the great tools that Acima uses and using them on the Rent-A-Center side as we get into 2024 is exciting. So there's some there's some potential tailwinds and underwriting. We talked a lot about it now. But even on RentACenter using some of that same team to to influence and put some of the same tools on rent, a center that can not only not only most of us, most people only think of underwriting.
Well, if it's better underwriting, you reduce your losses. But but one of the things you learn when you really when you really dig in and better underwriting also find few green shoots of things. You can approve that maybe maybe you weren't improving before, so can also drive volume big because it is so much more sophisticated and targeted. You don't have to cut off whole swaths of a particular group or if a customer looks like this, you cut out the whole the whole group, but particular score or whatever where is it, it was better sophisticated and targeted. You certainly can maybe you can approve half of what you would have turned down in that group. That's got a particular Vantage Score whenever so you can you can find your volume too. So we're excited about some of those things that once we get the acceptance now done of how can how can some of those same tools help run the center drive more volume and with lower losses as well. So the underwriting is a real kind of two things that what we really loved about it seem it three years ago when we bought it about their organization that Aaron already built was the the underwriting capabilities. And we're seeing that.
And then the sales team I was talking about earlier the way it was such a diverse growth vehicle versus will come up, but you're only going after certain type of account. You've got competitors that only that we that we initially good competitors that go after just the SMB accounts. And then there's other competitors that only we only compete with when we're going after the big accounts and but we're in all weathers one teams on the small accounts and other teams on the regional accounts.
Another team on the big accounts, the enterprise accounts you'd call and even though we see different competitors in each one of those buckets that we're the only one in every one of those games, and that feels really good and definitely a seamless built on the small SMB business, we've added the enterprise team and it's up. Those were the two things we loved about. It was the way they approach the sales in that in that the great sales team, some of the great people they have on their team and have had since the beginning as well as the underwriting. And we're seeing the we're seeing the fruits of all those things now it's very, very helpful.

Brad Thomas

If I could squeeze in one more here, just on how to think about gross margin and modeling it for the year family, it strikes me that probably mix towards the same, but away from rack 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 on the gross margin for the year?

Fahmi Karam

Yes, I think that's that's right between the mix of Rent-A-Center and Acima for looking into 2024 for RentACenter, expect to have more 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. We had 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 more normalized than if you look at Q1 of last year, the gross margin expanded almost 500 basis points or over 500 basis points. And so we don't expect to do that again in the first quarter of 2024, but it will be close to that. So we expect it to be slightly down from that. So it's more of a cadence of first half being a little bit lower than 2023 and then catching up in the second half of the year.

Brad Thomas

Perfect. Thanks so much.

Mitch Fadel

Thanks, Brad.

Operator

One moment for our next question. And our next question comes from the line of Anthony Chukumba from Loop Capital Markets. Your line is open.

Anthony Chukumba

Good morning and thanks for taking my question. I wanted to focus just a little bit on the Rent-A-Center business. You had a nice sequential improvement in terms of AmCOMP and you mentioned in your prepared remarks, some new product categories jewelry and tires. And I guess my question is, how much do you think that Jordan and tires contributed to that sequential improvement in your fourth quarter rentacenter.com? And also related to that, do you think that credit tightening above you and contribute to either the RONA center and comp improvement or the the really strong GMV growth in the scheme of things current and being Good morning.

Mitch Fadel

I read listen to those new products. We feel that we put in in the fourth quarter pretty really small contribution. I would I'd give you a little bit of credit, but not much, quite honestly, but a little bit. And obviously, we expect them to grow in 2024. But it was pretty it was pretty late in the year. So and the thing about the thing probably to help run the center more than that is overall, the extended aisle that we added to all year, adding products in not necessarily new categories, but new a lot more product offerings on the Web site where instead of.
Yes, going through that, let me give you an example. The 20 living rooms, maybe that we had on a fast ship to our stores that our stores can get on a weekly basis from, say, an Ashley Furniture from their manufacturing side of Ashley Furniture. Now a customer can shop, though all of Ashley's products on the website and in special order, anything on there through a Rent-A-Center store. So I think the extended aisle and there there's so many more private pay, 6,000 more products or something. I mean, it's a huge number, more products on there. And that's really where the growth of Renesas is coming from and with, as I mentioned in my prepared comments, over 30% more web business, 16% more orders coming through there. So and that's with tighter underwriting as well. So when I say orders coming through those orders, those are approved orders coming through and we get 16% more. So I think the extended aisle is more of the story and run the center. I think certainly the demand is there. The consumer still under pressure in the good part about that business, the reason to turn 50 years old last year is when the consumer is under pressure, we get more trade down. And when things are better, we get better performance from our base. And that's the resiliency of the of the business of why it's why it goes very well through any cycle. But I think the the second part of your question, yes, I think I think tightening above US has to be helping when we look at Vantage scores and people ask us all the time about trade down, we saw early last year in the scores coming through, then it kind of leveled off. We've actually seen a lot. We've seen them go back up just a couple of points, though, in the last to see WiFi six, eight weeks. So they went up early last year, leveled off now that we're seeing have ticked up again a little bit here recently. So yes, and then it's not all just about that score either.
Right some of it mindset if the customer goes into RentACenter because they're not they don't want to commit maybe to a contract and that they just run it and see what happens in their to their finances over the next few months. So it's a much more flexible, a way to acquire things, obviously, because your return at a time, it's much more flexible way to acquire things for your home than than than a revolving account or finance contract where you can't just give it back to the to the retailer. So and I think I think trade-down part of the story, not just when you look at Vantage score here or credit scores or something like that. I think mentality as part of that is always part of the trade down when when the economy worsens. So yes, I think that's that that's certainly part of it in both the CMO side and the Rent-A-Center side.

Anthony Chukumba

Got it. Now that's a helpful perspective. And then just real quickly, you mentioned going exclusive with Ashley Furniture. Can you just remind us, I guess, how many LTL providers they have previously when did you go? When do you think that was a meaningful contributor to Acima GMV growth and the and the occurs actually also has a lot of licensees?

Mitch Fadel

So when we say exclusive with them. We're talking about a corporate stores, which I think there's over 100, 100 corporate stores. We were splitting them those two LTOs in there before now that's just us in the website was split between two LTOs and now it's just us. So we've been with them a long time, but we're splitting the account and now it's 100% ours today, you know, I don't know that number. I mean, I imagine it was probably worth a couple of points of the 19% of, you know, two or three, I'm looking at Fahmi two or 3% probably on the 19. It wasn't it's not insignificant. So but it's not the whole thing either. There's a lot there's a lot of growth out there.

Anthony Chukumba

Got it. Very helpful. Thank you so much.

Mitch Fadel

Thanks, Anthony.

Operator

And our next question will come from the line of Alex Fuhrman from Craig-Hallum.

Alex Fuhrman

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

Mitch Fadel

Yes, when I mentioned the unaffiliated merchants, I'm talking about the U.S. marketplace where you can go on there and you'll see a partner we were just talking about actually you'll see a partner like actually where we're certainly integrated with them and so forth. And you'll see another partner on there like Best Buy, where we're not fully integrated with them. We don't we're not on their website, but yet our customers can shop Best Buy and put it on the same release if they go at it through a CMO through the marketplace. So we can take unaffiliated partners like that and put them on there.
So when you say what's the growth potential of that, I mean that's almost any retailer out there. You know that the largest retailers in the world you can put on there and then our customers can shop there. So we've got some already that are unaffiliated. I mentioned I mentioned the Best Buy. And there's a few others on there that are unaffiliated, but and more will be added really every quarter sequentially, we're partial to the ones we're affiliated with has been to put on there as well. Not every single one of our partners wants to be on there that just rather us be their partner in their stores. But most do in. So we put them on there. But but and you can find any of our partners on their even local partners to do some, we call find a store.
So if you're shopping in one particular area, you can find one of our partners there. But as far as nationwide ones, to answer your question, really the sky's the limit as far as how much we can add there? Like I said, it doubled in in the fourth quarter, the GMV from.

Fahmi Karam

Yes. Now as we think about it is just giving customers more choices and more options. And we really want to be fulsome in our 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 at to round out the unintegrated with the integrated it's made, making sure that we have all the product categories kind of filled out.

Alex Fuhrman

Terrific, guys. That's really helpful. Thank you, both.

Mitch Fadel

Thank you.

Operator

One moment for our next question. And our next question will come from line of Hale Holden from Barclays. Your line is open.

Hale Holden

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

Fahmi Karam

Hi, 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 from just based on the feedback we're getting from some of our retailers and specifically the more 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.

Hale Holden

Great. Thank you so much.

Mitch Fadel

Thanks, Hale.

Operator

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.

Mitch Fadel

Yes. 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 have 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 outbound, whether you're talking to see more of the Rent-A-Center side in and create value for our investors. So we appreciate you.
We appreciate all of our hard-working 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.

Operator

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